<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended
DECEMBER 31, 1995
Commission File Number 1-8889
[Logo] MORRISON KNUDSEN CORPORATION
A Delaware Corporation
IRS Employer Identification No. 82-0393735
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208/386-5000
- --------------------------------------------------------------------------------
SECURITIES REGISTERED AND NUMBER OF REGISTRANT'S
COMMON SHARES OUTSTANDING
At March 31, 1996, 33,231,191 shares of registrant's $1.67 par value common
stock (registered pursuant to Securities Exchange Act Section 12(b) on the New
York Stock Exchange and the Pacific Stock Exchange, Inc.) were outstanding,
excluding 461,666 shares held in treasury. The registrant has no securities
registered under Securities Exchange Act Section 12(g).
COMPLIANCE WITH REPORTING REQUIREMENTS
The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
/X/ Yes / / No
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K required
under Item 10, is included in Part III of this Form 10-K.
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES
At March 31, 1996, the aggregate market value of the registrant's voting common
stock held by nonaffiliates of the registrant, based on the New York Stock
Exchange closing price on March 29, 1996 for shares traded on the exchange, was
approximately $41,155,100, excluding $383,900 market value of 307,131 shares,
which are assumed to be held by affiliates of the registrant for the purposes of
this calculation.
<PAGE>
MORRISON KNUDSEN CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
DECEMBER 31, 1995
PAGE
PART I
Item 1. Business I-1
Item 2. Properties I-11
Item 3. Legal Proceedings I-12
Item 4. Submission of Matters to a Vote of Security Holders I-16
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters II-1
Item 6. Selected Financial Data II-2
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations II-3
Item 8. Financial Statements and Supplementary Data II-18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure II-45
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-3
Item 12. Security Ownership of Certain Beneficial Owners and Management III-13
Item 13. Certain Relationships and Related Transactions III-14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K IV-1
Signatures IV-2
i
<PAGE>
PART I
ITEM 1. BUSINESS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
RECENT DEVELOPMENTS
Morrison Knudsen Corporation's (the "Corporation") results of operations
and liquidity have been adversely affected by various factors discussed herein.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Item 8. "Financial Statements and Supplementary Data"
in Part II of this Annual Report on Form 10-K. The Corporation's future
viability will be dependent upon its ability to obtain new business and resolve
the liquidity problems faced by the Corporation in the near term.
The Corporation's accompanying consolidated financial statements have been
prepared on the basis that it will continue as a going concern, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. There are certain conditions
that raise substantial doubt about the Corporation's ability to continue as a
going concern:
- - The Corporation incurred losses from continuing operations of $79,636 and
$155,698 for the years ended December 31, 1995 and December 31, 1994,
respectively. The Corporation reported a net loss of $261,938 for the year
ended December 31, 1995 and a net loss of $349,635 for the year ended
December 31, 1994, including losses from discontinued MK Rail Corporation
("MK Rail") and Transit segment ("Transit") operations of $182,302 and
$193,937, in 1995 and 1994, respectively.
- - Net cash used by the Corporation's continuing operating activities was
$24,959 for the year ended December 31, 1995. Net cash used by the
discontinued MK Rail and Transit operating activities was $76,998 and
$200,883 for the years ended December 31, 1995 and December 31, 1994,
respectively.
- - At December 31, 1995 the Corporation had a stockholders' deficiency of
$193,682 which included an accumulated deficit of $510,147.
- - At December 31, 1995 the Corporation had a working capital deficiency of
$232,207.
- - The Corporation expects negative cash flows from operations in 1996.
- - The Corporation does not expect to make its required debt repayments in
1996.
The Corporation's ability to continue as a going concern is dependent upon
the Corporation successfully obtaining relief from the burden of its existing
indebtedness, including its antecedent debt and Transit reimbursement
obligations and returning the Corporation to profitable operations. In this
connection the Corporation is pursuing a number of remedies available including,
among other things, a recapitalization through a partial prepackaged plan of
reorganization under Chapter 11 of the United States Bankruptcy Code.
RECAPITALIZATION PLAN
The Corporation, which has been experiencing significant operating losses and is
facing severe liquidity problems, has been discussing with certain of its
secured and unsecured creditors, including holders of the Corporation's existing
secured indebtedness, its bonding company, lessors in connection with certain
long-term, noncancelable leases, and representatives of potential investors,
alternatives to reduce or liquidate the Corporation's current and future
financial obligations to permit the continuation of the Corporation as a going
concern. These alternatives included, among other things, a number of remedies
available to the Corporation, the goal of which is to alleviate the problems
caused by the Corporation's excessive debt levels, debt service and certain
long-term lease payment obligations, to enable the Corporation to continue to
implement its revised business strategy and to help assure the Corporation's
long-term viability. For that purpose, the Corporation initially presented a
proposed recapitalization plan (the "Recapitalization") to certain of its
secured creditors at a meeting held in February 1996, and has continued to
discuss the terms of the Recapitalization with those creditors. Pursuant to the
Recapitalization, the Corporation would exchange its existing secured
indebtedness, consisting of the antecedent debt and Transit reimbursement
obligations and certain long-term lease obligations for a new issue of the
Corporation's common stock, (which initially will represent all of the
outstanding common stock of the Corporation) and common stock of MK Rail
representing the Corporation's 65% ownership interest in MK Rail, the
Corporation's $52,200 principal amount of its note receivable from MK Rail with
interest at the prime rate (8.25% at March 31, 1996) and certain other assets.
Existing stockholders and the securities class actions claimants would receive
new common stock purchase warrants in exchange for all of the current
outstanding shares of common stock and all the shares of common stock to be
issued by the Corporation in settlement of the MK Securities Class Actions and
MK Rail Securities Class Actions. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook" in Part II
of this Annual Report on Form 10-K.
I-1
<PAGE>
On or about April 15, 1996, the Corporation will solicit acceptances of its
Recapitalization from its impaired creditors (holders of the Corporation's
existing secured indebtedness). The Recapitalization would be effected through a
partial prepackaged plan of reorganization pursuant to Chapter 11 of the United
States Bankruptcy Code ("prepackaged plan"). The objective of a prepackaged plan
under Chapter 11 would be to allow the Corporation to achieve its objectives in
the shortest time possible, and continue operations in its recapitalized form
without the full burden of debt that existed prior to the bankruptcy
proceedings.
The prepackaged plan contemplates a settlement of the Corporation's
obligations to its impaired secured creditors, while the Corporation's unsecured
creditors, its vendors, subcontractors and material suppliers will not be
impaired. The Corporation intends to conduct its business as usual, and the
prepackaged plan will permit the Corporation to carry on its business, to bid,
propose and negotiate for new contract awards and to continue to perform its
existing contracts, including its contracts with various agencies of the U.S.
Government. The prepackaged plan would provide that valid claims of trade
creditors, including subcontractors and material suppliers, are to be paid in
full and on time and that the holders of such claims shall not be required to
file a proof of claim or take other formal action to obtain such payment.
To ensure the continuity of its work force and to further accommodate the
unimpaired treatment of employee benefits, the Corporation intends that
salaries, wages, expense reimbursements, vacations, health related benefits,
severance benefits and similar benefits of employees, as well as the health
benefits of its covered retirees, their spouses and dependents, will be
unaffected in the reorganization contemplated by the prepackaged plan.
The Recapitalization, through the prepackaged plan, is designed to
substantially reduce the Corporation's secured debt obligations, lessen the risk
of a protracted Chapter 11 proceeding, which would have a significant adverse
impact on the Corporation's business and create a capital structure that allows
the Corporation to continue in operation and maintain and enhance its
competitive position. In addition, management anticipates that the prepackaged
plan would also allow management to concentrate more of its time on improving
the Corporation's business opportunities, rather than on managing its debt
obligations.
As of the date of this Annual Report on Form 10-K, the Corporation has not
reached final agreement with its secured creditors. The final form or results of
a restructuring cannot be predicted, and there can be no assurance that a
restructuring can be accomplished through a prepackaged plan. Any such
restructuring, if successful, would substantially dilute or eliminate the value
of existing stockholders' interests. The Corporation continues to explore
opportunities with potential investors.
The Corporation's management believes that further refinancings of its
existing secured indebtedness would not be sufficient to enable the Corporation
to continue as a going concern, because of the overwhelming burden of existing
debt and the Corporation's inability to make its required debt repayments in
1996. If the Corporation does not effect a financial restructuring and
reorganization as contemplated under the prepackaged plan or is unable to
arrange a transaction with a strategic investor, the Corporation will be forced
to consider other available options, which may include the commencement or
continuation of a Chapter 11 case without a preapproved plan. A nonprepackaged
Chapter 11 case would likely be lengthier, involve more contested issues with
creditors and other parties in interest, and result in significantly increased
Chapter 11 expenses for professional consultants, a negative impact on cash flow
due to lack of customer confidence resulting in a reduction in new contract
awards, and a corresponding reduction in the consideration received by the
Corporation's creditors and existing stockholders than would be the case with a
prepackaged plan. Any such recapitalization, if successful, would substantially
dilute or eliminate the value of existing stockholders' interests. Under the
terms of the Corporation's proposed Restructuring the sole recovery for existing
stockholders would be represented by the proposed stock purchase warrants.
SeeItem 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Outlook" in Part II of this Annual Report on Form 10-K.
DEBT RESTRUCTURING
On August 10, 1995, the Corporation, its lender banks and sureties agreed
as of July 31, 1995 to a restructuring of the Corporation's existing
indebtedness from lender banks and the establishment of two new interim credit
facilities, to advance funds to Transit prior to its planned divestiture. The
restructuring provided for an increase in the amount available under the
Corporation's existing secured bridge loan from $122,100 to $129,000.
Outstanding borrowings under the bridge loan were due and payable on March 31,
1996. On March 29, 1996 the Corporation paid the outstanding balance owing under
the bridge loan. The restructuring agreements require the Corporation to repay
its existing indebtedness (the "antecedent debt") as follows; $100,000 on
September 30, 1996 and $113,344 on December 31, 1996 and required escrow
payments under its Transit reimbursement obligations upon such repayments. In
addition to these required payments, the restructuring agreements also provide
for the Corporation to repay any outstanding borrowings under the antecedent
debt and bridge loans in the amount of, and upon receipt of, any prepayments or
repayments received by the Corporation on the $52,200 principal amount of its
note receivable from MK Rail, net cash proceeds from the sales of certain
businesses and assets currently held for sale, and any tax refunds received. The
restructuring agreements provide that the Corporation's ongoing indebtedness to
the lender banks and its sureties be secured by security interests in and
mortgages
I-2
<PAGE>
on substantially all of the assets of the Corporation. In connection with the
restructuring agreements the Corporation granted stock purchase warrants to the
lender banks and sureties for unissued common stock up to 14,859,430 shares at
an exercise price of $6.75 per share.
On October 17, 1995, the Corporation reached an agreement to dispose of
Transit. Under this agreement, the Corporation transferred substantially all of
the assets, certain liabilities, all contract operations and management of
Transit to American Passenger Rail Car Company, L.L.C. ("Amerail") a
newly-formed company wholly-owned by persons not affiliated with the
Corporation. In connection with the disposition of Transit (i) outstanding
borrowings under the two interim credit facilities to fund Transit's operations
were paid off on October 17, 1995 and (ii) the borrowing amount under the bridge
loan was reduced from $129,000 to $100,000. In connection with the disposition
of Transit, the two interim credit facilities provided to Amerail were replaced
by two new credit facilities, (i) a $65,000 facility provided by certain lender
banks in support of the contract with the Illinois Commuter Rail Division of the
Regional Transit Authority d/b/a Metra/Metropolitan Rail transferred by the
Corporation (the "Metra Contract") and (ii) an $80,000 facility provided by the
Corporation's bonding company in support of the existing manufacturing and
refurbishing contracts, other than the Metra Contract, with various transit
agencies (the "Non-Metra Contracts"). The Corporation has agreed to reimburse
the lender banks and its bonding company for certain amounts borrowed by Amerail
under these facilities. The Corporation's reimbursement obligation to certain
banks which are providing a standby letter of credit and a new credit facility
to support the performance of the Metra Contract is governed by the Metra
Guaranty.The Corporation's reimbursement obligation to its bonding company for
the surety's future losses (maximum of $31,249) on the Metra and Non-Metra
Contracts is governed by a reimbursement agreement (the "Transit Reimbursement
Agreement"). The Corporation's reimbursement obligation, estimated at $80,195 at
December 31, 1995, to certain banks under the Metra Guaranty are similarly
secured by security interests in and mortgages on substantially all of the
assets of the Corporation on an equal priority basis with the Corporation's
antecedent debt and the Transit reimbursement obligation to its bonding company
under the Transit Reimbursement Agreement.
Prior to the disposition of Transit, the Corporation had been unable to
cause any surety to issue bonds to guarantee the future performance of the
Corporation's construction and environmental projects. In connection with the
Corporation transferring substantially all the assets, certain liabilities,
operations and management of Transit to Amerail, the Corporation's surety agreed
to issue new bonds assuring the payment or the performance of the Corporation on
contracts of a maximum aggregate amount which may from time to time be reduced
in accordance with the terms of the New Bonds Agreement dated October 10, 1995.
The New Bonds Agreement contains certain financial covenants which, among other
things, require the Corporation to maintain, beginning September 30, 1995 and
for each calendar quarter end thereafter, (i) minimum earnings (loss) before
taxes, (ii) minimum net income (loss), and (iii) minimum net worth (deficit).
Since September 30, 1995, the Corporation has not been in compliance with the
minimum net income (loss) and minimum net worth (deficit) provisions of the New
Bonds Agreement. Nevertheless, the Corporation, from September 30, 1995, through
the date of this Annual Report on Form 10-K, has presented many of its bonding
needs to its surety on a request-by-request basis. The surety, when considering
the merits of the Corporation's requests for bonding, has applied many of the
conditions contained in the New Bonds Agreement. Some bond requests have been
considered favorably by the surety, and some have not. Due to the Corporation's
limited bonding capacity, the Corporation will continue to pursue environmental
and construction projects in partnership arrangements with other contractors to
support the Corporation's performance of contracts. Such partnership
arrangements mean that the Corporation is forced to surrender some benefits from
new bidding opportunities to its competitors, at a cost to the Corporation's
operating performance.
During 1995 and through March 31, 1996, the Corporation completed a number
of divestiture transactions with respect to its numerous businesses and received
federal and state tax refunds, which provided aggregate cash proceeds of
approximately $117,000 to fund operations and to repay obligations under the
bridge loan facility. Despite these developments in the financial and
operational restructuring of the Corporation, it became apparent to management
in the first quarter of 1996 that the proceeds from divestitures and tax refunds
would at most provide sufficient funds to meet the Corporation's repayment
obligation on March 31, 1996 with respect to the bridge loan. Moreover, the
Corporation had hoped that the divestiture of the Transit business and the
restructuring of its bank facilities and the Transit bonding exposure
accomplished during 1995 would allow the Corporation to attract new business and
achieve positive operating results that would allow the Corporation to access
the public debt or equity markets or to arrange an equity infusion from a
strategic investor in 1996.
On March 31, 1996, the Corporation and certain of its secured creditors
agreed to amend certain terms and conditions of the bridge loan facility, which
expired on March 31, 1996. The amendments to the bridge loan facility included,
among other things, establishment of a new borrowing capacity of $47,500, and
extension of its termination date to September 30, 1996. Outstanding borrowing
under the amended bridge loan facility will be subject to interest at the prime
rate plus one and one-half percent per annum (9.75% at March 31, 1996) due and
payable on the last day of each month and on September 30, 1996. On April 2,
1996, as partial consideration for the extension of the bridge loan facility,
the Corporation paid $14,427 interest on the antecedent debt that had been
accrued and deferred from July 1, 1995 through March 31, 1996. See the
"Short-Term
I-3
<PAGE>
Debt - New and Amended Credit Facilities "Note to Consolidated Financial
Statements in Part II of this Annual Report on Form 10-K.
GENERAL
Morrison-Knudsen Company, Inc., the predecessor to the Corporation, was
incorporated in Delaware in 1932 to carry on a business founded eighty-four
years ago at Boise, Idaho. The Corporation's principal executive offices are
located at Morrison Knudsen Plaza, Boise, Idaho 83729. The Corporation, after
giving effect to the disposition of its Transit segment in July, 1995 and its
decision to dispose of its 65% ownership interest in MK Rail in March 1995,
operates in one industry segment, engineering and construction. See the
accompanying consolidated financial statements and related financial statement
footnotes for a description of the Corporation's revenues, operating income
(loss) and assets in Part II of this Annual Report on Form 10-K.
The Corporation engages in all types of general construction work including
industrial, heavy civil and marine, mechanical, pipeline, building, and
underground, for a wide range of public and private customers throughout the
world. In addition, the Corporation renders design services in practically all
engineering disciplines. Other markets for its services include nuclear and
fossil-fueled power plants, environmental and hazardous waste abatement and
operations and maintenance for military and commercial facilities. As a general
contractor, the Corporation provides construction services in accordance with
the terms and specifications of each contract, including planning and
scheduling, marshalling of manpower, procurement of equipment and materials,
awarding of subcontracts and direction and overall management of the project.
The Corporation is also responsible for any failure to perform on the part of a
subcontractor. In order to minimize the potential for losses caused by such
defaults, the Corporation normally requires performance and payment bonds or
other adequate assurances of operational and financial capacity from
subcontractors. The Corporation also operates, through a number of domestic and
foreign subsidiaries, coal and lignite mines in the U.S. and Germany under
long-term mining services contracts.
The Corporation's ability to obtain new contracts, change orders to
existing contracts and bonding for such contracts is severely impacted by its
limited sources of additional liquidity. Partnering arrangements and strategic
alliances are being pursued to help provide bonding capacity and additional
financial support. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II of this Annual Report
on Form 10-K.
UNCONSOLIDATED AFFILIATES: In addition, the Corporation and its majority-owned
subsidiaries had investments in a number of unconsolidated affiliated companies
at December 31, 1995 accounted for by the equity method including the following
principal unconsolidated affiliates, (the Corporation's ownership interests
therein are shown parenthetically): AmerBank (29.5%); Westmoreland Resources,
Inc. (24%); and Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG mbH") (33%).
AmerBank is a licensed bank operating in Poland. Westmoreland Resources, Inc. is
a mining company that operates a surface coal mine in Montana. MIBRAG mbH was
formed by the German Government to own and operate lignite coal mines, power and
process plants in Germany. Also at December 31, 1995, the Corporation had a
62.8% ownership interest in McConnell Dowell Corporation, Limited ("MDC") an
engineering and construction contractor based in Australia. Subsequent to
December 31, 1995, the Corporation sold its 62.8% ownership interest in MDC. The
Corporation is pursuing the possible sale of its ownership interest in AmerBank.
See the "Investments in and Advances to Unconsolidated Affiliates" and
"Subsequent Events - McConnell Dowell Corporation, Limited" Notes to
Consolidated Financial Statements in Part II of this Annual Report on Form 10-K
for additional information related to unconsolidated affiliates.
SIGNIFICANT RISKS AND UNCERTAINTIES: In connection with its engineering and
construction business, the Corporation, in order to balance risk with reward,
enters into three basic types of contracts: fixed-price or lump-sum contracts
providing for a single price for the total amount of work to be performed;
unit-price contracts providing for a specified price for each unit of work
performed, under which both risk and anticipated income are the highest; and
cost-type contracts (including cost-plus) providing for reimbursement of
allowable or otherwise defined costs incurred plus a fee, under which risk is
minimal and anticipated income is earned solely from the fee received for
services provided. In connection with its engineering contracts, including
design and program management, the Corporation's compensation is typically on a
cost-plus-fee basis.
Regardless of the type of contract, the construction business always has
been subject to unusual risks, including unforeseen conditions encountered
during construction, the impact of inflation upon costs and financing
requirements of clients, and changes in political and legal circumstances,
particularly since contracts for major projects are performed over extended
periods of time. Other risks include the failure of third party project
participants, including joint venture partners and subcontractors, to obtain
required permits or to perform essential functions on a timely basis, the
failure of local governing authorities to take certain required actions,
opposition by community groups in the locality of a project or by other
interested third parties to the project's development, and the failure to obtain
adequate financing for the project. The Corporation may be exposed to
significant risks and uncertainties in the performance of contracts,
particularly fixed-price
I-4
<PAGE>
contracts. Although the Corporation constantly seeks to minimize and spread the
risks over a large number of contracts, a combination of unusual circumstances
could result in losses on a particular contract or contracts, and the
Corporation may experience significant changes in operating results on a
quarterly or annual basis.
Because of the size of major infrastructure projects, a relatively small
number of projects has provided a significant percentage of the Corporation's
revenues in a given year. The Corporation expects that this dependence on major
projects will continue. The loss of one or more major contracts or a financial
loss incurred by the Corporation with respect to its performance under one or
more major contracts could have a material adverse effect on the Corporation or
its financial results. Demand for the services offered by the Corporation has
been, and is expected to continue to be, subject to significant fluctuations due
to a variety of factors beyond the control of the Corporation, including
economic conditions. During economic downturns, the ability of private entities
or U.S. Government agencies in the targeted markets to make capital expenditures
on infrastructure improvement may decline significantly. There can be no
assurance there will not be significant fluctuations adversely affecting the
industry as a whole or key markets targeted by the Corporation and, as a result,
the Corporation's financial results of operations.
In addition, the Corporation's operations are in part dependent upon
funding of infrastructure and environmental projects by agencies of the U.S.
Government. Significant changes in the level of government funding of these
projects could have a favorable or unfavorable impact on the operating results
of the Corporation. Contract mining services operations may also be adversely
affected by weather conditions, the potential for changes in technology, product
demand, product substitution and economic factors which effect alternative fuel
decisions.
The Corporation periodically assesses its reimbursement obligations in
connection with the disposition of its Transit operations. The Corporation makes
significant assumptions concerning cost estimates, projected to the estimated
completion dates of new transit car contracts which are in their early stages of
production, for labor productivity rates, material price and usage, for interest
expense on the estimated borrowings under the credit facilities extended to
Amerail, additional general and administrative expenses and unabsorbed
manufacturing overhead due to the anticipated absence of new work during the
period of Amerail's performance of the contracts transferred to Amerail. The
Corporation has no management control over Amerail and therefore must rely on
financial and operating information provided by Amerail to estimate its
reimbursement obligations. Due to uncertainties inherent in this estimation
process, it is reasonably possible that estimated costs to complete these
long-term new transit car contracts will be further revised in the near term.
JOINT VENTURES: The Corporation frequently participates (often as sponsor and
manager of the projects) in entities commonly referred to as joint ventures. In
the engineering and construction industry, joint ventures often include
arrangements for pooling equipment, bonding, financing and for sharing skills
such as engineering, design, and construction. Construction joint ventures vary
in their legal forms. They include corporations, and general and limited
partnerships. These entities are often viewed as joint ventures - even though
one of the investors may have a majority voting interest or may otherwise have
effective control of the entity. The results of operations are shared in a
variety of ways and may not be related to the method of sharing management or
other project responsibilities.
Construction joint ventures frequently have a short life span, since they
are designed and created for the sole purpose of bidding on, negotiating for,
and completing one specific project. These single-purpose joint ventures last
only as long as the construction project undertaken, which can be less than one
year, but are frequently longer on major construction projects. See the
"Construction Joint Ventures" Note to Consolidated Financial Statements in
Part II of this Annual Report on Form 10-K for additional summary joint venture
financial information.
CHANGES IN BUSINESS
There were significant changes in the business of the Corporation and in the
services and products offered during 1995 including the dispositions of Transit
and certain investments and businesses, the planned dispositions of its 65%
ownership interest in MK Rail Corporation and its 62.8% ownership interest in
McConnell Dowell Corporation, Limited, the termination of Navasota Mining
Company, Inc. mining services contract and the withdrawal from its participation
in Strait Crossing Development, Inc. described below. See the "Subsequent
Events" Note to Consolidated Financial Statements in Part II of this Annual
Report on Form 10-K.
DISCONTINUED TRANSIT OPERATIONS: In July 1995, the Corporation committed to
dispose of Transit and on October 17, 1995, the Corporation reached an agreement
to transfer substantially all of the assets, certain liabilities, all contract
operations and management of Transit to Amerail. The Corporation cannot exercise
any control over the management of Amerail and the execution of the Transit
contracts. The Corporation has accounted for the disposition of Transit as a
discontinued operation. In connection with the disposition of Transit, the
Corporation agreed to guarantee Amerail's reimbursement obligation, estimated at
$80,195 at December 31, 1995, to certain banks which are providing a standby
letter of credit and a new revolving credit facility up to an aggregate amount
of $141,700 to support Amerail's performance of the Metra Contract. Also in
connection with the disposition of Transit, the Corporation agreed to reimburse
its bonding company for the surety's
I-5
<PAGE>
future losses up to a maximum of $31,249 on (i) its payment and performance
bonds supporting the Metra and Non-Metra Contracts transferred by the
Corporation to Amerail and (ii) its guaranty of Amerail's secured financing for
performance of certain Transit contracts or its direct financing of Amerail for
the performance of the Transit contracts. The Corporation's estimated liability
at December 31, 1995 for its Transit reimbursement obligations under the Metra
Guaranty and the Transit Reimbursement Agreement was $111,444 and is reflected
as a current liability in the accompanying consolidated balance sheet at
December 31, 1995. The Corporation has recognized its reimbursement obligations
through the estimated final completion of these contracts based upon the best
information available in the circumstances. However, there can be no assurance
the net cash losses ultimately realized at completion of these contracts will
not exceed the Corporation's estimated reimbursement obligations at December 31,
1995.
DISCONTINUED MK RAIL CORPORATION OPERATIONS: In March 1995, the Corporation
adopted a plan to dispose of its 65% ownership interest in MK Rail. Accordingly,
the Corporation has accounted for the planned divestiture of MK Rail as a
discontinued operation. At December 31, 1995, the Corporation has written-down
the carrying amount of its investment in and note receivable from MK Rail to
their estimated recovery values. The Corporation has been unable to negotiate an
acceptable transaction for the sale of its ownership interest in MK Rail, and
there can be no assurance that the Corporation will be able to consummate a sale
of its ownership interest in and/or its note receivable from MK Rail or, if the
Corporation does consummate such sales that the net proceeds realized will not
be less than the estimated recovery values. The Corporation currently
contemplates that its ownership interest in MK Rail and its note receivable from
MK Rail will be exchanged for the Corporation's secured indebtedness in
connection with the proposed Recapitalization. See "Recent Developments -
Recapitalization Plan."
In January 1996, MK Rail's Board of Directors adopted a Stockholders'
Rights Plan (the "Rail Rights Plan"). Under the terms of the Rail Rights
Plan, preferred stock purchase rights ("Rail Rights") were distributed as a
dividend at the rate of one Rail Right for each share of MK Rail's common
stock held as of the close of business on January 30, 1996. The number of
Rail Rights outstanding is subject to adjustment under certain circumstances,
and all Rail Rights expire
on January 30, 2006.
Each Rail Right will entitle the holder to buy 1/100th of a share of the MK
Rail's Series C Junior Participating Preferred Stock at an exercise price of $16
for each 1/100th of a share. Each preferred share is designed to be equivalent
in voting and dividend rights to 100 shares of common stock. The Rail Rights
will be exercisable and will trade separately from the common stock only if a
person or group of persons (such as a potential acquisition of the Corporation's
65% ownership interest in MK Rail) becomes the beneficial owner of 10 percent or
more of MK Rail's common stock, if a person commences a tender or exchange offer
the consummation of which would result in such person becoming the beneficial
owner of 10 percent or more of MK Rail's common stock, if a current holder (such
as the Corporation) of 10 percent or more of the common stock acquires
additional shares of the MK Rail's common stock, or if a "change of control
event" occurs with respect to a current holder (such as the Corporation) of 20
percent or more of the MK Rail's common stock.
In addition, under certain circumstances, each Rail Right would permit its
holder to purchase, for the exercise price of the Rail Right, shares of
MK Rail's common stock or shares of the voting stock of the acquiring company
having a market value of two times the exercise price of the Rail Right.
MK Rail will be entitled to redeem the Rail Rights at a price of $.001 per
Rail Right at any time prior to the time any person acquires 10 percent or more
of MK Rail's common stock or a current holder of 10 percent or more of the
common stock acquires additional shares of the common stock, or, with respect to
a current holder that owns more than 20 percent of the common stock, a "change
of control event" occurs.
In April 1996, the MK Rail Board of Directors amended the Rail Rights Plan
to provide that the Corporation's secured creditors would not be deemed to
beneficially own shares of MK Rail by reason of negotiations among the
Corporation and those secured creditors with respect to the Recapitalization or
other restructuring alternatives. The Corporation has requested that MK Rail's
Board of Directors further amend the Rail Rights Plan to exclude agreements with
respect to, or implementation of, the Corporation's Recapitalization from the
triggering events under the Rail Rights Plan. The MK Rail Board has not yet
agreed to adopt such amendments.
DISCONTINUED REAL ESTATE DEVELOPMENT OPERATIONS: Since it withdrew from the
development and sale of real property in 1987, Emkay Development Company, Inc.
("Emkay"), a wholly-owned subsidiary of the Corporation, has been selling its
remaining real estate and paying down the outstanding balance of its secured
bank loans. During 1995, and particularly during the fourth quarter, Emkay sold
a substantial number of real estate assets and paid down its secured bank loans
with $15,559 of net cash proceeds from such sales. In addition, the Corporation
has further liquidated $3,591 of its bank loans subsequent to December 31, 1995
and as of the date of this Annual Report on Form 10-K, Emkay has outstanding
bank debt of $11,928. The Corporation has provided for its estimated losses on
disposition of the real estate assets held for sale at December 31, 1995.
I-6
<PAGE>
MCCONNELL DOWELL CORPORATION, LIMITED ("MDC"): Subsequent to December 31, 1995,
the Corporation sold its 62.8% ownership interest in MDC for $28,000 net cash
proceeds.
SALE OF MK INVESTMENTS, INC. (NORTH PACIFIC CONSTRUCTION OPERATIONS)("MKI"): On
September 22, 1995, the Corporation completed the sale of certain MKI assets and
business for $17,100 cash. In the first six months of 1995, the Corporation
recognized a provision of $8,836 to write-down the carrying amount of its
investment in MKI to its estimated recovery value based on preliminary
negotiations with the buyer. Pre-closing negotiations between the Corporation
and the buyer resulted in the retention by the Corporation of certain MKI net
assets and operations, resulting in a $716 reduction of the previously accrued
$8,836 write-down or a net realized loss on disposal of $8,120.
SALE OF WESTERN AIRCRAFT, INC. ("WESTERN"): On July 21, 1995, the Corporation
sold its 100% ownership interest in Western for $4,900 cash which approximated
the Corporation's carrying amount of its investment in Western.
SALE OF INVESTMENT IN MK GOLD COMPANY ("MK GOLD"): On June 6, 1995 the
Corporation sold its 46.4% ownership interest in MK Gold for $22,500 cash. As a
condition to the purchase of the shares, the buyer acquired MK Gold's $20,000
bank credit facility and released the Corporation from its guarantee obligations
under the facility. The Corporation recognized a loss on disposal of $9,256.
WRITE-OFF OF INVESTMENT IN MORRISON KNUDSEN OF AUSTRALIA ("MKA"): The
Corporation, having been unsuccessful in its search for potential buyers for the
assets and/or business of MKA, decided to discontinue its financial support for
MKA and, effective December 31, 1995, wrote-off its $2,362 investment in MKA.
NAVASOTA MINING SERVICES CONTRACT: The Corporation, through its wholly-owned
subsidiary Navasota Mining Company, Inc. ("Navasota") had a mining services
contract with Texas Municipal Power Agency, a separate municipal corporation
("TMPA") to operate a lignite mine in Texas. In early 1995, TMPA announced its
intentionto switch from lignite mined by Navasota to Wyoming steam coal, and in
late 1995, TMP Anotified Navasota to cease mining lignite on or about February
29, 1996. Other than the loss of future revenue and earnings, the Corporation
does not expect the termination of its mining services contract with TMPA will
have a material adverse effect on its results of operations and financial
condition. See the "Subsequent Events - Navasota Mining Services Contract" Note
to Consolidated Financial Statements in Part II of this Annual Report on Form
10-K.
STRAIT CROSSING DEVELOPMENT, INC. ("SCDI"): In October 1993, SCDI, then a 45%
owned unconsolidated subsidiary of the Corporation, entered into a development
agreement with the government of Canada to design, construct and operate for 35
years an 8.4-mile-long toll bridge linking the Atlantic Provinces of New
Brunswick and Prince Edward Island. Concurrently, SCDI members formed Strait
Crossing Joint Venture (the "joint venture") to complete the bridge construction
(the "project") and each SCDI member's ownership interest in SCDI was replicated
in the joint venture.
In 1994, the Corporation sold for cash and a note receivable, 9% of its
ownership interest in SCDI to a third party thereby reducing its ownership
interest to 36%. In the fourth quarter of 1995 the Corporation ceased its
proportionate-share funding for the joint venture and advised the other members
of SCDI that it proposed to withdraw from the joint venture.
On March 29, 1996, the Corporation and the SCDI members reached an
agreement in connection with the Corporation's withdrawal from the joint venture
(the "withdrawal agreement"). The withdrawal agreement provides, among other
things, for SCDI members' indemnification of the Corporation against liabilities
relating to the project in exchange for the transfer of the Corporation's
$24,841 investment in the joint venture and its 36% ownership interest in SCDI
to the SCDI members, as well as assign to an SCDI member, as maker, the
promissory note received as partial consideration for the sale of its 9%
ownership interest in SCDI. The Corporation has fully provided for the
divestiture of its investment in the joint venture and cancelation of its note
receivable and accrued interest thereon at December 31, 1995. See the
"Subsequent Events - Strait Crossing Development, Inc." Note to Consolidated
Financial Statements in Part II of this Annual Report on Form 10-K.
FOREIGN OPERATIONS
The Corporation operates outside the United States through foreign and domestic
subsidiaries which are qualified to do business in various foreign countries. In
addition, as part of its efforts to expand its presence in international
markets, the Corporation, in the past few years, has entered into several
agreements with foreign joint venture partners for construction abroad. Such
foreign joint-venture operations are subject to uncertain political and economic
environments, incompatibility between the partners, foreign currency controls
and fluctuations, civil disturbances, labor strikes, as well as other
uncertainties associated with operations in foreign countries. Other political
and economic events may limit or disrupt operations, restrict the movement of
funds, result in deprivation of contract rights, increase foreign taxation or
limit or delay repatriation of earnings.
The Corporation recorded revenues from foreign operations of approximately
$410,400 in 1995, $644,800 in 1994, and $569,000 in 1993. In addition, the
Corporation's equity in the net income (loss) of its unconsolidated foreign
affiliates was $22,375 net income in 1995, $15,142 net income in 1994, and an
$832 net loss in 1993. See the "Investments in and Advances
I-7
<PAGE>
to Unconsolidated Affiliates and Geographic Operating Data" Notes to
Consolidated Financial Statements in Part II of this Annual Report on Form 10-K
for additional operating and asset data for each of the three years in the
period ended December 31, 1995.
BACKLOG
Backlog consists of uncompleted portions of engineering and construction
contract revenue including the Corporation's proportionate share of construction
joint venture contract revenue, the next five-year portion of long-term mining
services contract revenue and the funded and unfunded portions of long-term
contract and subcontract revenue with various agencies of the U.S. Government.
The Corporation has a number of contracts and subcontracts with various agencies
of the U.S. Government principally for environmental remediation and restoration
work, which contracts extend beyond one year and for which government funding
has not yet been approved. Backlog of all uncompleted contracts at December 31,
1995 totaled $3,864,400 compared with $4,134,700 at December 31, 1994. The
unfunded portions of such contract revenue included in backlog at December 31,
1995 and 1994 were $1,986,900 and $1,702,600, respectively. Contracts and
subcontracts with agencies of the U.S. Government are subject to unilateral
termination at the option of the U.S. Government. The Corporation does not
expect any material portion of its government contracting business to be
terminated. See Item 1. "U.S. Government Contracts".
The following table reflects the composition of contract revenue backlog at
December 31, 1995 and 1994, distinguished on the basis of their pricing
arrangements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COMPOSITION OF YEAR-END BACKLOG
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Fee-type contracts $3,163,700 $2,982,600
Fixed-price and unit-price contracts 700,700 1,152,100
- --------------------------------------------------------------------------------
Total backlog $3,864,400 $4,134,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Corporation's business is being adversely affected by its poor
financial condition, and by the reluctance of many potential customers to engage
the Corporation on new or additional projects. The Corporation has experienced a
16% decline in new business booked in 1995 compared to 1994. The decline in new
business has had a material adverse effect on the Corporation. If the
Corporation's diminished ability to secure new work continues, it will further
adversely impact the Corporation's ability to continue as a going concern.
See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Part IIof this Annual Report on Form 10-K.
Additional information concerning the Corporation's backlog of uncompleted
contracts is set forth under the caption "New Business and Backlog" in Part II
of this Annual Report on Form 10-K.
U.S. GOVERNMENT CONTRACTS
U.S. Government contracts continue to be an important part of the Corporation's
business. For each of the three years in the period ended December 31, 1995,
revenue of approximately $383,000 (22 percent) in 1995, $544,400 (27 percent) in
1994 and $603,900 (26 percent) in 1993, were derived from various U.S.
Government agencies. At December 31, 1995, the Corporation's $3,864,400 backlog
contained approximately $2,714,400 (70 percent) of both fixed-price and
fee-type, funded and unfunded portions of contracts and subcontracts with
various agencies of the U.S. Government which are subject to unilateral
termination at the option of the U.S. Government. Terminations for convenience
of the Government generally provide for payments to a contractor, for its
unrecovered contract costs and a portion of its contract income. The Corporation
does not expect any material portion of its government contracting business to
be terminated.
The Corporation's poor financial condition may have a disproportionately
adverse impact on the Corporation's ability to obtain new U.S. Government
contracts. This adverse impact may be significantly greater if the Corporation
decides to pursue a prepackaged plan as the Corporation's management believes
that it is unlikely that any U.S. Government procurement officer will award new
contracts to the Corporation during the period during which the Corporation is
pursuing a bankruptcy alternative. In the event that the Corporation is unable
to obtain access to new U.S. Government contracts, there would be material
adverse effect on the Corporation.
The Corporation has a number of cost reimbursable contracts with various
agencies of the U.S. Government, the allowable costs of which are subject to
audit by the U.S. Government. As a result of such audits, the government
auditors assert from time to time that certain costs claimed as reimbursable
under government contracts either were not allowable costs or were not allocable
in accordance with federal government regulations. The resolution of these
audits may result in various sanctions including repayments of amounts
previously paid by the U.S. Government to the Corporation. Some audits have
I-8
<PAGE>
resulted in cost disallowance and claims for reimbursement by the government.
See the "Commitments and Contingencies - Government Audits" Note to
Consolidated Financial Statements in Part IIof this Annual Report on Form 10-K.
COMPETITION
The Corporation's competitive position in the markets it serves has been
adversely impacted by the limited bonding capacity and its limited sources of
additional liquidity which among other things inhibits its ability to secure
project financing. The Corporation is engaged in highly competitive businesses,
particularly those portions which relate to engineering and construction
contracts obtained by competitive bidding. The Corporation competes with other
general and specialty contractors both foreign and domestic, including a number
of regional contractors. Most of the Corporation's competitors have greater
financial resources and thus have a substantially stronger competitive position
than does the Corporation. Competition is based primarily on price, reputation
and reliability. There can be no assurance that competition in one or more of
the engineering and construction markets will not adversely affect the
Corporation and its results of operations. Success or failure in the engineering
and construction industry is, in large measure, based upon the ability to
compete successfully for contracts and to provide the engineering, planning,
procurement, management and project financing skills required to complete them
in a timely and cost-efficient manner. Exact statistical data are not available
for determining the relative size of engineering and construction companies.
ENVIRONMENTAL MATTERS
MORRISON KNUDSEN CORPORATION: The Corporation is subject to a variety of
environmental laws and regulations governing, among other things, discharges to
air and water, the handling, storage and disposal of hazardous or solid waste
materials and the remediation of contamination associated with releases of
hazardous substances. Such laws and regulations and the risk of attendant
litigation can cause significant delays to a project and add significantly to
its cost. Violations of these environmental laws and regulations could subject
the Corporation and its management to civil and criminal penalties and other
liabilities.
The Comprehensive Environmental Response, Compensation and Liability Act
(also known as "CERCLA" or "Superfund") is a federal law regarding abandoned
hazardous waste sites which imposes joint and several liability, without regard
to fault or the legality of the original act, on certain classes of persons,
including those who contribute to the release of a "hazardous substance" into
the environment. The Corporation has been the subject of an investigation by the
U.S. Environmental Protection Agency ("EPA") relating to a Superfund site
located in Fresno County, California. In September 1991, the EPAissued an
administrative order under CERCLA, naming Morrison Knudsen Engineers, Inc.
("MKE"), a wholly-owned subsidiary of the Corporation, and eight other entities
as respondents. The EPAalleged that MKEand the other named respondents, among
others, generated waste oils and solvents that were transported to the Fresno
site for recycling and were released into the environment. Although the
Corporation and MKEhave denied responsibility for any contamination at the site,
the Corporation has cooperated with the other respondents in complying with the
terms of the administrative order. In addition, the Corporation has entered into
an agreement with two former joint venture partners (which are not named as
respondents) under which these partners will share 50% of the cost of complying
with the order. The Corporation and these partners have agreed to pay
approximately 8.39% of the cost of designing a groundwater treatment system,
which has now been constructed at a cost of approximately $2,000. The
respondents have not yet agreed on the sharing of the costs of operating and
maintaining this system, which is expected to cost approximately $11,200. The
Corporation also has been notified by the EPA that the EPA believes MKE may be
one of the parties liable for the cost of implementing certain remedial actions
relating to soil contamination at the Fresno site, which could cost as much as
$36,200. As of the date of this Annual Report on Form 10-K, it is unclear how
much of this total cost, if any, the Corporation and/or MKE will be expected to
bear. The Corporation and other respondents have agreed to design the soil
remediation system, pursuant to an Administrative Consent Order with the EPA,
other respondents, and certain other entities identified as potentially
responsible parties. In the meantime, the Corporation and other respondents are
proceeding with an alternative dispute resolution process, in order to fix the
percentage for which each respondent is liable.
The Corporation has been named one of several hundred defendants, in an
action in Utah brought by approximately 50 to 100 plaintiffs who have been
ordered by the EPA to clean up a waste oil treatment facility known as the
Ekotek Superfund Site. The total current estimate to clean up the entire site is
$30,000 to $60,000. The Corporation has not admitted liability and is unable to
determine, as of the date of this Annual Report on Form 10-K, what the
Corporation's percentage of responsibility, if any, may be. Based on the
Corporation's current available information, the Corporation does not believe
that the plaintiffs will be able to establish that the Corporation was
responsible for any significant amount of the pollution at the Ekotek site, but
there can be assurances in this regard.
The Corporation and one other defendant have been named in a lawsuit
brought by the owner of certain land in Sacramento, California. Plaintiff seeks
a maximum of $604 from the defendants as a result of alleged pollution of
plaintiff's land by the seepage of pollutants from the defendants' land to the
plaintiffs' land. The Corporation has denied liability.
I-9
<PAGE>
On July 26, 1994, the New York State Department of Environmental
Conservation sent the Corporation a letter in which it claimed that the
Corporation, as the owner and operator of transit car manufacturing facilities
in Hornell, New York, was a potentially responsible party for the cleanup of
hazardous substances from the site. The State of New York has not specifically
requested any monies and has not instituted any proceedings since the notice
letter. Further, there is no estimate of the cost of cleanup, except a March
1994 Record of Decision in which it was estimated that the total cost may be as
high as $2,000, with an annual operation and maintenance cost for five years of
$113.
In late 1995, the Corporation received a Notice of Potential Liability and
Request for Participation in Cleanup Activities from the Maine Department of
Environmental Protection with respect to the Portland Bangor Waste Oil Site in
the State of Maine. The Corporation is one of approximately 110 potentially
responsible parties. The Maine DEP has determined that the Corporation has a
1.7116% share of the gallons of waste oil contributed to the site, that such a
percentage makes the Corporation about the fifth or sixth largest contributor,
and that the total site cleanup cost would be approximately $30,000.
On January 23, 1996, the Corporation was notified by a committee of
potentially responsible parties of possible environmental liability on the part
of the Corporation with respect to the Barrels, Inc. site in Michigan. The site
was a drum recycling facility that operated in the 1980s and was cleaned up by
the Michigan Department of Natural Resources in 1986. Approximately 254
customers have been identified who allegedly shipped drums to the site for
recycling. As of December 31, 1995, the state of Michigan spent approximately
$1,300 to clean up the site. The Corporation has denied all responsibility.
With the foregoing exceptions, the Corporation to the best of its knowledge
believes that it is presently in substantial compliance with all applicable
federal and state environmental laws and does not anticipate that such
compliance will have a material impact on its future capital expenditures,
earnings or competitive position. However, the risk of environmental liabilities
and charges associated with maintaining compliance with environmental laws is
inherent in the nature of the Corporation's business and there can be no
assurance that material environmental liabilities and compliance charges will
not arise.
MK RAIL CORPORATION: The Corporation commenced its locomotive operations at its
Boise Locomotive Plant in 1969. At the time, solvents were used in the process
of cleaning equipment at the facility. Wastewaters generated from the equipment
cleaning process containing solvents were discharged from the process to
in-ground wastewater treatment basins that were connected to drainfields. This
wastewater treatment system was in place until 1984. In 1985, the Corporation
received notices from the Idaho Department of Health and Welfare, Division of
Environmental Quality ("IDEQ") and the United States Environmental Protection
Agency ("EPA"), indicating that it was in violation of state and federal
environmental laws with respect to the Boise Locomotive Plant. These notices led
to the issuance in 1991 of a Post Closure Permit, which is the formal permit
pursuant to which a detailed corrective action plan is specified for a cleanup
process following the "closure"or termination of the releases which created the
problem (the "Permit"). In compliance with the Permit, more than 57 wells have
been drilled on the property and on property adjacent to its Boise Locomotive
Plant by the Corporation and MK Rail to retrieve and treat non-potable
contaminated shallow groundwater, to monitor any movement of the contaminated
plume and to monitor the deeper potable groundwaters at the facility. In May
1994, MK Rail Corporation, then a wholly-owned subsidiary of the Corporation,
completed an Initial Public Offering ("IPO") which decreased the Corporation's
investment in MK Rail to 65%. The Boise Locomotive Plant was among the assets
transferred to MK Rail prior to MK Rail's IPO.
MK Rail has estimated that it will cost approximately $125 per year in 1996
dollars over the next 25 years to comply with the remediation and monitoring
requirements of the Permit, and approximately $120 per year in 1996 dollars over
the next 25 years for response to off-site groundwater contamination.
In addition, MK Rail would be liable for any damages resulting from
hazardous substances migrating from the facility to the regional aquifer system
which serves most of the domestic and industrial users of groundwater in the
area (which includes and extends beyond Boise). In the event of contamination of
the regional aquifer, MK Rail would be required, among other things, to provide
potable water to affected users and to install a treatment system to clean up
the polluted water, and could incur other liabilities, the combined cost of
which cannot be estimated, but would be expected to be material in amount. The
regional aquifer system, however, occurs at a depth which is approximately 190
feet below groundwater levels currently identified as contaminated. While MK
Rail's management has stated that it believes there is no evidence that the
regional aquifer system is currently threatened by releases of contaminants from
the Boise Locomotive Plant, no assurance can be given in this regard.
Foster Wheeler Energy Corporation ("FWEC") is named as a potentially
responsible party with respect to the MK Rail's Mountaintop, Pennsylvania plant,
which has been listed by the EPAin its data base of potential hazardous waste
sites, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"). FWEC, the
I-10
<PAGE>
seller of the Mountaintop property to the Corporation in 1989, has agreed to
indemnify the Corporation against any liabilities associated with this Superfund
site. MK Rail's management believes that this indemnification arrangement is
enforceable and, although such obligation is unsecured and therefore
structurally subordinate to secured indebtedness of FWEC, that FWEC has the
financial resources to honor its obligations under this indemnification
arrangement. This indemnification does not alter MK Rail's potential liability
to third parties (other than FWEC) or governmental agencies under CERCLA but
creates contractual obligations on the part of FWEC for such liabilities.
MK Rail is currently voluntarily remediating surficial contamination
resulting from a release of xylene in connection with a storage tank leak at its
St. Louis, Missouri facility. MK Rail notified the relevant state regulatory
agency of its remediation plan and, with the concurrence of the state agency,
initiated site remediation in 1994. Based on monitoring results, MK Rail
anticipates discontinuing site remediation in 1996.
AVAILABILITY OF RAW MATERIALS
Raw materials and components necessary for the rendering of construction and
engineering services for the Corporation are generally available from numerous
sources. The Corporation does not foresee any unavailability of materials and
components which would have a material adverse effect on its overall business in
the near term.
EMPLOYEES
The Corporation's total worldwide employment varies widely since it depends upon
the volume, type and scope of operations under way at any given time, as well as
upon weather conditions and other factors.
At December 31, 1995, the Corporation employed a total of approximately
7,800 employees including project direct-hire craft employees.
The Corporation's primary assets are its highly skilled professionals, who
have the ability to leave the Corporation and so deprive it of the skill and
knowledge essential for performance of new and existing contracts. The
Corporation is a service business; it is highly dependent on its customers'
belief that the Corporation will perform professional tasks of the highest
standards over an extended period of time. Continued deterioration of the
Corporation's business, or loss of a number of key professionals, will have a
material adverse effect on the Corporation and may threaten its ability to
survive as a going concern.
Effective June 30, 1995, the Corporation, adopted key employee retention
and severance plans to retain certain key professionals on which the
Corporation's business is dependent while the Corporation proceeds with
restructuring alternatives. The plans encourage key employees to remain employed
with the Corporation by providing them with additional compensation and by
providing enhanced severance benefits under certain circumstances to any covered
employee that may be involuntarily terminated.
On April 10, 1996, the Corporation's board of directors approved amendments
to the retention and severance plans and adopted a new severance plan. The
retention plan, as amended, provides that covered employees will have the option
of receiving a cash payment on July 1, 1996 equal to twice the cash payment
received on December 15, 1995 ("initial cash payment"), or elect (prior to April
30, 1996) to postpone the July 1, 1996 cash payment until the earlier of the
Corporation's emergence from a Chapter 11 proceeding or September 30, 1996.
Covered employees who elect to postpone payment will receive an additional cash
amount equal to the initial cash payment prorated on the number of days from
July 1, 1996 to September 30, 1996, but no later than September 30, 1996 and no
less than 25% of the initial cash payment.
Under the amended severance plan, covered employees who are involuntarily
terminated (without cause) after the occurrence of (i) a change in control of
the covered employee's division,(ii) a bankruptcy filing, or (iii) a change in
any consecutive two year period of a majority of the directors (unless each new
director was approved by a vote of two-thirds of the remaining directors), will
receive cash awards ranging from four to nine months of annual base salary. The
severance plan terminates on the confirmation of any Chapter 11 plan concerning
the Corporation or July 1, 1996 provided that no triggering event has occurred.
On April 10, 1996, the Corporation's board of directors also adopted a
substantially similar severance plan which provides covered employees with
severance benefits if they are involuntarily terminated (without cause) between
April 10, 1996 and December 31, 1997. Covered employees for the purpose of this
new plan are employees who elect to postpone payment of their cash award under
the retention plan until after July 1, 1996. The Corporation paid $2,167 of the
retention award on December 15, 1995 and has accrued an estimated liability for
retention plan awards of $3,657 at December 31, 1995. See the "Benefit Plans -
Retention and Severance Pay Plans" Note to Consolidated Financial Statements in
Part II of this Annual Report on Form 10-K.
ITEM 2. PROPERTIES
(ALL DOLLAR AMOUNTS IN THOUSANDS)
At December 31, 1995, the Corporation and its consolidated subsidiaries owned
more than 1,650 units of heavy and light major mobile construction and contract
mining equipment.
I-11
<PAGE>
Because of the mobile nature of its construction business, the Corporation
does not own any significant amount of real property. All four of its principal
administrative office facilities in Boise, Idaho; Cleveland, Ohio; Denver,
Colorado and San Antonio, Texas are leased under long-term, noncancelable
leases. The Boise and Cleveland administrative offices and engineering
facilities consisting of approximately 337,300 square feet and 246,700 square
feet, respectively, are rented under long-term, noncancelable leases expiring in
2015 and 2010, respectively. The Corporation's obligations, net of sublease
income for the Boise and Cleveland facilities under these noncancelable leases,
at December 31, 1995 was $154,700.
The Corporation has been holding discussions with the landlord of its Boise
administrative office facility with the intent to amend certain terms and
conditions of its noncancelable lease expiring in 2015, including a reduction in
the annual rental and a reduction in the term of the lease.
Aggregate annual rental payments on real estate and equipment leased by the
Corporation during the year ended December 31, 1995 was approximately $34,550.
For further information on rentals and minimum rental commitments, see the
"Commitments and Contingencies - Long-Term Leases" Note to Consolidated
Financial Statements in Part II of this Annual Report on Form 10-K.
The Corporation considers that its owned construction and mining equipment
and its leased administrative properties are well maintained and suitable for
its current operations. Maintenance and repair expenses, principally for keeping
its construction and mining equipment fleet at a standard of operating
condition, of approximately $32,300 in 1995, $35,800 in 1994 and $39,600 in
1993, have been charged to operations. Maintenance and repair expenses of
approximately $32,500 for the year 1995 included $11,800 of such expenses
incurred in connection with the Navasota mining services contract which was
terminated February 29, 1996. See the "Subsequent Events - Navasota Mining
Services Contract" Note to Consolidated Statements in Part II of the Annual
Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The Corporation has previously reported regarding lawsuits in the following four
general categories that were either settled or are currently pending against the
Corporation and/or MKRail and their respective directors and/or officers: (1)
class actions relating to transactions in the common stock of the Corporation;
(2) class actions relating to the issuance of, and transactions in, the common
stock of MK Rail; (3) derivative actions brought by persons who claim to be
stockholders of the Corporation; and (4) claims brought by the former
stockholders of three corporations, Touchstone, Inc., TMS, Inc. and Clark
Industries, Inc., acquired by the Corporation in exchange for shares of the
Corporation's common stock and the businesses of which are now part of MK Rail.
The plaintiffs in these actions have sought various remedies, including
compensatory and punitive damages and injunctive relief.
1. MK SECURITIES CLASS ACTIONS. Seven separate cases have been consolidated as
In Re Morrison Knudsen Securities Litigation, No. 940334SEJL (U.S. District
Court, District of Idaho) (first filed July 28, 1994). The plaintiffs in this
consolidated action represent the class of stockholders who purchased shares of
the Corporation's common stock during the period of October 15, 1993 to
March 31, 1995. Defendants include the Corporation, certain of the Corporation's
current and former officers, and the Corporation's auditors. The plaintiffs
purport to state claims for violation of certain federal and state securities
laws and certain common law claims, and seek damages in an unspecified amount.
As discussed more fully below, the parties have entered into a court-approved
settlement, the ultimate effectiveness of which is contingent upon settlement of
other actions.
2. MK RAIL SECURITIES CLASS ACTIONS. Two cases relating to the issuance of, and
transactions in, the common stock of MK Rail have been consolidated in the U.S.
District Court for the District of Idaho. These are: Susser, et al. v. Agee, et
al., No. CIV 940477SLMB (U.S.D.C. D. Idaho), and Newman, et al. v. Agee, et al.,
No. CIV 940478SEJL (U.S.D.C. D. Idaho) (both filed October 20, 1994). The
plaintiffs in these consolidated actions represent the class of stockholders who
purchased shares of common stock of MK Rail during the period of April 26, 1994
to April 25, 1995. Defendants include the Corporation, MK Rail, certain current
and former officers and directors of the Corporation and MK Rail, and the
managing underwriters of MK Rail's initial public offering. The plaintiffs
purport to state claims for violation of certain federal securities laws and
certain common law claims and seek damages in an unspecified amount. A
settlement agreement (described below) was approved by the court on March 29,
1996, and is subject to appeal for a period of 30 days following March 29, 1996.
The ultimate effectiveness of the MK Rail Securities Class Actions is contingent
upon other settlements.
3. DERIVATIVE ACTIONS. Thirteen derivative actions have been filed in state
courts in Idaho and Delaware, naming as defendants certain of the Corporation's
present and former directors and officers. The Corporation is a nominal
defendant in each of these actions. Five of the cases are pending in the Idaho
Fourth District Court in Ada County, and eight of the cases are pending in the
Delaware Chancery Court in New Castle County. The plaintiffs alleged, among
other things, that the
I-12
<PAGE>
Corporation's former chairman breached fiduciary duties to the Corporation, and
that the remaining defendants authorized or acquiesced to his allegedly wrongful
conduct and failed to properly supervise his activities; that the defendants
breached fiduciary duties to the Corporation and/or MK Rail by exposing the
Corporation and MK Rail to securities fraud claims and by artificially inflating
the price of the Corporation's and MK Rail's stock; that the defendant directors
breached fiduciary duties by allowing the Corporation's former chairman to
pursue high-risk strategies and manipulate assets without reasonable inquiry,
and by failing to implement effective internal controls relating to
dissemination of certain information relating to the Corporation; and that the
defendant directors breached fiduciary duties by wasting corporate assets
through payment of excessive compensation to the Corporation's former chairman.
The five Idaho derivative cases are as follows: (i) DeKlotz, et al. v. Morrison
Knudsen Co., et al., No. CV009500605D (Idaho Dist. Ct., Ada Cty.) (filed
February 13, 1995); (ii) Wohlgelernter v. Agee, et al., No. CVOC9500656D (Idaho
Dist. Ct., Ada Cty.) (filed March 24, 1995); (iii) Flinn v. Agee, et al., No.
CVOC9500765D (Idaho Dist. Ct., Ada Cty.)(filed February 21, 1995); (iv) Steiner
v. Agee, et al., No. CVOC9500745D (Idaho Dist. Ct., Ada Cty.) (filed
February 17, 1995); and (v) State Board of Administration of Florida v. Morrison
Knudsen Corp., et al. (herein referred to as "Florida"), No. CVOC9502463D (Idaho
Dist. Ct., Ada Cty.) (filed June 2, 1995). Settlement agreements (described
below) are scheduled for court review on May 21, 1996. The eight Delaware
derivative cases are as follows: (i) Stern v. Agee, et al., Civil Action No.
14032 (Del. Ch.) (filed February 13, 1995); (ii) Hager v. Agee, et al., Civil
Action No. 14034 (Del. Ch.) (filed February 14, 1995); (iii) Troy v. Agee, et
al., Civil Action No. 14167 (Del. Ch.) (filed March 31, 1995); (iv) Caffrey v.
Agee, et al., Civil Action No. 14033 (Del. Ch.) (filed February 13, 1995); (v)
Hammerslough v. Agee, et al., Civil Action No. 14042 (Del. Ch.) (filed
February 17, 1995; (vi) Rosenn v. Agee, et al., Civil Action No. 14106 (Del.
Ch.) (filed March 9, 1995); (vii) Citron v. Agee, et al., Civil Action No. 14136
(Del. Ch.) (filed March 22, 1995); and (viii) Antonicello v. Agee, et al., Civil
Action No. 14182 (Del. Ch.) (filed April 4, 1995). Settlement agreements
(described below) are scheduled for court review on April 15, 1996.
4. MK RAIL COMPONENTS ACTIONS.
Theodore E. Nelson v. Morrison Knudsen Corp., No. 951029 (U.S.D.C.
W.D. Tenn.) (filed February 7, 1995; Richard Jacobs, et al. v.
Morrison Knudsen Corp., No. 951024 (U.S.D.C. W.D. Tenn.) (filed
February 7, 1995); and Richard Jacobs, et al. v. Agee, No. 951168
(U.S.D.C. W.D. Tenn.) (filed July 18, 1995).
The plaintiffs in these actions claim to have been all of the stockholders
of Touchstone prior to the Corporation's acquisition of Touchstone through an
exchange offer. The Corporation is the sole defendant. The Plaintiffs allege
that certain financial statements of the Corporation upon which they based their
decision to exchange Touchstone shares were misleading. The plaintiffs purport
to state claims for violation of federal and Tennessee securities laws, and
Tennessee common law. The plaintiffs further allege that the Corporation
violated the exchange agreement under which they exchanged their Touchstone
shares. As described below, the cases have been settled.
Karol Pilarczyk, et al. v. Morrison Knudsen Corp., MK Rail Corp.,
Agee, Hanks, Cleary, Smith, Herbots and O'Donnell, No. 95CV1835
(U.S.D.C. N.D.N.Y.) (filed December 22, 1995; First Amended Complaint
filed December 28, 1995).
Plaintiffs in this action are the former shareholders of TMS, Inc. ("TMS").
On December 30, 1992, the Corporation acquired TMS under an exchange agreement,
pursuant to which plaintiffs exchanged their TMS shares for shares of the
Corporation's common stock then allegedly valued at $14,000, a portion of which
was allegedly placed into escrow for ten years, one-tenth of which is released
annually, in exchange for the agreement of certain plaintiffs not to compete
with the Corporation. Plaintiffs claim that the Corporation warranted in the
exchange agreement that its 1991 Annual Report, report on Form 10-K, Proxy
Statement and its Quarterly Reports to Shareholders and reports on Form 10-Q for
the first three quarters of 1992 were true and accurate but that those reports,
as well as later statements by the Corporation and certain of the individual
defendants, were false and misleading. Plaintiffs claim that they were induced
to enter into the exchange agreement and the noncompete agreements by the
defendants' allegedly false statements. Plaintiffs assert claims under and/or
for: Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b5 thereunder; breach of the Exchange Agreement; breach of an alleged covenant
of good faith and fair dealing with respect to the Exchange Agreement and
noncompete agreements; unjust enrichment; common law fraud; negligent
misrepresentation; and rescission of the exchange agreement. Plaintiffs together
seek compensatory damages of not less than $7,500, treble damages, punitive
damages of not less than $5,000, pre and postjudgment interest and attorneys'
fees. The defendants filed a motion to dismiss the First Amended Complaint on
April 8, 1996.
Richard J. Clark, et al. v. Morrison Knudsen Corp. and Agee, No.
952305 (U.S.D.C. C.D. Ill.) (filed December 29, 1995).
Plaintiffs in this action are the former shareholders of Clark Industries,
Inc. ("Clark Industries"). On December 30, 1993, the Corporation acquired Clark
Industries under an exchange agreement, pursuant to which plaintiffs exchanged
their Clark Industries stock for shares of the Corporation's common stock then
allegedly valued at $2,108, a portion of which
I-13
<PAGE>
was allegedly placed into escrow for ten years, one-tenth of which is released
annually, in exchange for the agreement of the plaintiffs not to compete with
the Corporation. Plaintiffs claim that the Corporation represented to the
plaintiffs that its Annual Report on Form 10-K for the year ended December 31,
1992 and its reports on Form 10-Q for the first three quarters of 1993 were
accurate, but that those reports were inaccurate. Plaintiffs claim that they
were induced by the defendants' false and misleading statements to enter into
the exchange agreement. Plaintiffs assert claims under and/or for: Sections
10(b) and 20(a) of the Security Exchange Act of 1934 and Rule 10b5 thereunder;
the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C.
Sections 1961 et seq.; the Illinois Consumer Fraud Act, Section 815 Ill. Consol.
Stat. Sections 5 et seq.; the Illinois Consumer Fraud Act, Section 815 Ill.
Consol. Stat. Sections 505 et seq., and common law fraud. Plaintiffs seek
compensatory damages of approximately $1,000, treble damages under RICO,
punitive damages of $3,000, attorney's fees and prejudgment interest. The
Corporation filed a motion to dismiss on March 20, 1996.
SETTLEMENTS. Settlement discussions have been held among the Corporation, MK
Rail, certain of their respective present and former officers and directors,
their insurance carriers, the underwriting defendants and plaintiffs with
respect to all of the pending cases except Pilarczyk. These discussions have
resulted in agreements to settle the MK Securities Class Actions, the MK Rail
Securities Class Actions, the Derivative Actions and the Touchstone Actions. No
agreement to settle has been reached in the Clark action.
The settlements, other than that of the Touchstone Actions, must be
submitted to, and approved by, the courts presiding over the various cases.
There can be no assurance that the settlements will be approved by the courts or
consummated in the form described below or in any other form. The process of
court approval of the settlements as of this date, stands as follows:
1. MK SECURITIES CLASS ACTIONS. The settlement of the MK Securities Class
Actions has been approved by the United States District Court for the District
of Idaho in a final judgment entered on December 1, 1995. One objection to the
settlement was filed by the plaintiffs in the Touchstone Actions and then
withdrawn before the entry of judgment. No appeal has been filed. A court
approved settlement fund was established and settlement proceeds (cash of
$35,000, which was provided entirely by insurers, and a share certificate for
2,976,923 shares of the Corporation's common stock) were deposited therein
during 1995. The issuance of the common stock represented by such certificate
and the transfer of the settlement proceeds from the settlement fund to the
control of the plaintiffs and, thus, the effectiveness of the settlement is,
however, subject to certain conditions, including the entry of final,
nonappealable judgments approving the settlements in the MK Rail Securities
Class Actions and the MK Derivative Actions.
2. MK RAIL SECURITIES CLASS ACTIONS. The settlement of the MK Rail Securities
Class Actions was approved on March 29, 1996 by the United States District Court
for the District of Idaho, subject to appeal for a period of 30 days following
March 29, 1996. A court-approved settlement fund was established and the
Corporation deposited a share certificate for 869,231 shares of its common stock
into such fund after the settlement was approved. In addition to a condition
that the settlement be approved by an order of the Court that becomes final and
nonappealable, the issuance of the common stock represented by such certificate
and the transfer of the settlement proceeds to the control of the plaintiffs
and, thus, the effectiveness of the settlement is subject to certain other
conditions, including the entry of a final nonappealable judgment approving the
settlement of the "Double Derivative" Claims in Wohlgelernter. The effectiveness
of the settlement of the MK Rail Securities Class Actions is not, however,
subject to the final judicial approval of the settlements in the MK Securities
Class Actions or the MK Derivative Actions.
3. MK DERIVATIVE ACTIONS. The settlements of the MK Derivative Actions has been
submitted for approval by the Delaware Chancery Court and the Idaho District
Court for Ada County. The settlements do not include the "Double Derivative"
Claim asserted on behalf of MK Rail in Wohlgelernter. In connection with the
settlements of the MK Derivative Actions, the Corporation reached an agreement
with Mr. Agee with respect to his severance benefits, including pension rights,
to which the plaintiffs do not object. Pursuant to Preliminary Orders of the
Courts, notice has been sent to the stockholders and a hearing has been
scheduled for April 15, 1996 before the Delaware Court of Chancery and for May
21, 1996 before the Idaho District Court. If approved by final orders of the
Delaware Chancery Court and the Idaho District Court that become final and
nonappealable, settlement proceeds from the MK Derivative Actions (less
attorneys' fees and expenses) will be transferred to the control of the
settlement fund in the MK Securities Class Actions and, thus, the effectiveness
of the settlement is subject to certain conditions, including the entry of
final, nonappealable judgments approving the settlements in the MK Securities
Class Actions (which condition has been satisfied), the MK Rail Securities Class
Actions and the "Double Derivative" Claims asserted on behalf of MK Rail in
Wohlgelernter. The settlement of Florida has been submitted to the Idaho
District Court for Ada County for approval. Pursuant to the Court's Preliminary
Approval Order, notice has been sent to the stockholders, and a hearing has been
set for May 21, 1996 before the Court. Under the terms of the settlement in
Florida, MK is obligated to pay the plaintiffs' attorneys' fees awarded by the
Court in an amount not to exceed $140. The effectiveness of the settlement is
conditioned only on the entry by the Idaho Court of a judgment approving the
settlement that becomes final and nonappealable.
I-14
<PAGE>
4. "DOUBLE DERIVATIVE" CLAIMS. Settlement of the "Double Derivative" Claims
asserted on behalf of MK Rail in Wohlgelernter was reached on March 4, 1996. The
stipulation of settlement has been submitted to the Idaho District Court for Ada
County for approval and a hearing with respect to such approval has been set for
May 21, 1996. The Corporation has no monetary or other obligations under the
settlement of the actions resulting from the "Double Derivative" claims (the
"Double Derivative Actions"). However, $4,500 in the reduction of intercompany
debt owed by MK Rail to the Corporation is attributable to the settlement of the
Double Derivative Actions, the MK Securities Class Actions and the MK Rail
Securities Class Actions. The effectiveness of the settlement is conditioned
upon the entry by the Idaho Court of a judgment approving the settlement that
becomes final and nonappealable and upon the entry of a final, nonappealable
judgment approving the settlement in the MK Rail Securities Class Actions.
If final, nonappealable judgments approving the settlements are entered and
all other conditions to the effectiveness of the various settlements are
satisfied, the settlement terms will require the Corporation, as its share of
the settlements, to (i) issue 2,976,923 shares of common stock in exchange for
the share certificate held by the settlement fund created in connection with the
settlement of the MK Securities Class Actions; and (ii) issue 869,231 shares of
common stock in exchange for the share certificate held by the settlement fund
created in connection with the settlement of the MK Rail Securities Class
Actions. The settlement fund created in connection with the MK Securities Class
Actions will transfer the net (after plaintiffs' attorneys' fees and related
expenses) insurance proceeds received by the Corporation in connection with the
settlement of the MK Securities Class Actions and the MK Derivative Actions
(excluding Florida) into a settlement account to be distributed to the
plaintiffs in connection with the settlement of the MK Securities Class Actions.
The settlement of the Derivative Actions also requires the implementation of
certain "therapeutic measures" with respect to corporate governance. Those
measures include, among other things, making reasonable efforts to appoint up to
seven additional non-employee directors, a presumption that Board and
Stockholders meetings will be held in Boise or certain other specified
locations, disclosure of certain common memberships of directors or their
immediate families on governing bodies of not-for-profit organizations, and a
requirement that future executive compensation not be based on certain
nonrecurring items without stockholder approval, and (in connection with the
separate settlement of Florida) requirements that the directors be stockholders
and that at least one director be an engineer and the establishment of the
position of stockholder liaison. In addition, the defendant non-employee
directors (other than Mrs. Peden) will relinquish five years of credited service
for purposes of the Corporation's Retirement Plan for non-employee Directors.
The settlement terms also would require MK Rail, as its share of the settlement
of the MK Rail Securities Class Actions, to issue 413,793 shares of common stock
and shares of a new class of preferred stock with a redemption value of $1,000.
The Corporation's insurance carriers have paid $35,000 on behalf of the
individual defendants in the MK Securities Class Actions and the Derivative
Actions, and MK Rail's insurance carrier has paid $6,000 into a settlement fund
created in connection with the settlement of the MK Rail Securities Class
Actions. The funds paid by MK Rail's insurance carrier will include the purchase
from the settlement fund of the MK Rail preferred stock referred to above for
$1,000. In a separate transaction, the Corporation has entered into an agreement
with MK Rail to reduce the principal amount of the intercompany debt owed to the
Corporation by MK Rail on account of the consideration to be paid by MK Rail in
settlement of the MK Rail Securities Class Actions. The agreement between the
Corporation and MK Rail further provides that such reduction will be adjusted in
the event the settlement is not consummated. The Corporation's auditors
separately reached a settlement with the plaintiffs in the MK Securities Class
Actions. The Corporation and the auditors have agreed to release one another
from claims arising from the litigation; such releases are subject to certain
conditions, including effectiveness of the respective settlements by the
Corporation and the auditors of the MK Securities Class Actions. If the
Corporation consummates a financial restructuring in the form of the Plan, the
Corporation expects that plaintiffs who receive shares of the Corporation's
common stock in the foregoing settlements will be treated the same as the other
existing stockholders of the Corporation. See the disclosure under Item 1.
"Business - Recapitalization Plan" for a discussion of the proposed treatment of
existing stockholders of the Corporation under the recapitalization plan in Part
I of this Annual Report on Form 10-K.
5. TOUCHSTONE ACTIONS. The Touchstone Actions have been settled and notices of
voluntary dismissal with prejudice were filed on January 16, 1996. Under the
terms of the settlement, the Corporation (i) paid $425 to the plaintiffs; (ii)
paid to the plaintiffs their additional actual out-of-pocket fees and costs, in
the amount of $156, on or about April 1, 1996; and (iii) agreed to pay the
difference, if any, between $5,250 and the sum of (x) all proceeds received by
the plaintiffs as members of the class from the settlement of the MK Securities
Class Actions and (y) the amount paid to plaintiffs under subparagraph (ii). The
amount payable to the plaintiffs under subparagraph (iii) is due (a) on
January 1, 1997 if plaintiffs receive the proceeds of the MK Securities Class
Actions on or before that date; (b) if plaintiffs receive the proceeds of the
settlement of the MK Securities Class Actions between January 3 and June 30,
1997, within ten days of receipt; or (c) on June 30, 1997 if plaintiffs have not
received the proceeds of the settlement of the MK Securities Class Actions by
that date, in which event plaintiffs have agreed to assign their interests in
the proceeds of the settlement of the MK Securities Class Actions to the
Corporation. The agreement provides that the Corporation may, at its election,
pay up to 50% of the amount
I-15
<PAGE>
due under subparagraph (iii) above in the form of unrestricted, freely tradable
shares of its common stock, valued at the closing price on the fifth trading day
preceding the applicable payment date. The settlement also provides for certain
changes in the escrow agreements securing the noncompete agreements of certain
plaintiffs.
SEC INVESTIGATIONS. The Corporation previously reported that it had been
notified that the staff of the Central Regional Offices of the Securities and
Exchange Commission planned to recommend to the Commission that one of the
Corporation's subsidiaries be named as a respondent in an administrative action
in connection with an ongoing investigation of the issuance by the City and
County of Denver of revenue bonds to finance the construction of the Denver
International Airport. The Corporation has since filed a brief with the
Commission disputing the staff recommendation. The Commission has not announced
a decision. The Corporation also previously reported that MK Rail and the
Corporation are subject to a formal investigation by the Pacific Regional Office
of the Commission. The Corporation continues to provide documents in response to
discovery requests and otherwise cooperate with the Commission's staff in
connection with this investigation.
See the disclosure under the caption Item 1. "Business - Environmental Matters"
for discussion of pending environmental matters in Part I of this Annual Report
on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation did not submit any matters to a vote of security holders during
the fourth quarter of 1995.
I-16
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION: The Corporation's voting common stock is traded on the New
York and Pacific Stock Exchanges under the Symbol MRN. At the close of business
on March 31, 1996 the Corporation had 33,231,191 shares issued and outstanding.
The New York and Pacific Stock Exchanges have certain listing criteria
applicable to companies listed on such exchanges including financial criteria
and minimum requirements as to the number of holders of listed securities. The
Corporation currently does not meet the financial listing criteria for the New
York Stock Exchange or the Pacific Stock Exchange. Continuing losses that may be
sustained by the Corporation or transactions the Corporation may pursue in
connection with a possible reorganization could adversely impact the
Corporation's continuing eligibility for listing on such exchanges. In the event
that the New York Stock Exchange or the Pacific Stock Exchange were to seek to
delist the Corporation's common stock, the Corporation would seek to obtain
relief from the New York Stock Exchange or the Pacific Stock Exchange, as the
case may be. However, there can be no assurance that such efforts would be
successful. In the event that the Corporation was unable to list its common
stock with either exchange, there would be reduced liquidity for the
Corporation's stockholders, which would have a material adverse effect on the
Corporation's stockholders.
HOLDERS: The approximate number of record holders of the Corporation's voting
common stock at March 31, 1996 was approximately 8,350 and does not include
beneficial owners of the Corporation's common stock held in the name of a
broker, dealer, bank, voting trustee or other nominee. The cash dividends
declared and the New York Stock Exchange composite high and low sales prices of
the Corporation's common stock traded on the New York and Pacific Stock
Exchanges for each quarterly period within the two most recent fiscal years are
set forth under the caption "Quarterly Financial Data" in Part II of this Annual
Report on Form 10-K.
DIVIDENDS: The Corporation paid a cash dividend of $.20 a share in each of the
calendar quarters of 1994 and the first calendar quarter of 1995. The
Corporation has not paid any cash dividends after its $.20 quarterly dividend in
1995. Under the terms of its bank credit agreements and the applicable
requirements of Delaware law, the Corporation is currently prohibited from
paying cash dividends.
II-1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OPERATING SUMMARY 1995 1994 (a) 1993 (a) 1992 (a) 1991 (a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,708,666 $2,021,003 $2,329,876 $2,002,960 $1,573,769
Operating income (loss) from
continuing operations 18,822 (100,768) 60,553 43,731 60,727
Income (loss) from continuing operations
before extraordinary charge and
cumulative effect of accounting change (79,636) (155,698) 28,918 10,136 23,535
Income (loss) from discontinued operations,
net of tax (182,302) (193,937) 6,849 3,300 11,921
Extraordinary charge from write-off of
unamortized debt issue cost, net of tax -- -- -- (3,096) --
Cumulative effect of accounting change for
postretirement health care costs, net of tax -- -- -- (17,403) --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (261,938) $ (349,635) $ 35,767 $ (7,063) $ 35,456
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common and common
equivalent share:
Income (loss) from continuing operations
before extraordinary charge and
cumulative effect of accounting change $(2.41) $ (4.79) $ .93 $ .33 $ .82
Income (loss) from discontinued operations (5.52) (5.96) .22 .11 .42
Extraordinary charge -- -- -- (.10) --
Cumulative effect of accounting change -- -- -- (.57) --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(7.93) $(10.75) $1.15 $(.23) $1.24
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends declared per share $-- $.80 $.80 $.80 $.74
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 63,086 $ 66,864 $ 80,000 $ 127,263 $ 136,808
Net assets of discontinued MK Rail operations 72,000 142,424 128,447 85,178 66,076
Other current assets 349,718 428,062 486,778 424,409 469,598
Investments and other assets 87,264 152,368 197,827 220,865 216,434
Property and equipment, net 56,092 113,229 148,494 149,647 138,108
Total assets 628,160 902,947 1,041,546 1,007,362 1,027,024
Short-term and current portion of long-term debt 251,226 192,152 36,292 3,853 1,226
Estimated reimbursement obligations of
discontinued Transit operations 111,444 -- -- -- --
Other current liabilities 354,341 447,570 436,848 335,638 317,964
Debt due after one year -- 7,873 8,368 457 195,152
Obligations and advances in excess of
investment in Transit operations -- 79,438 39,666 180,906 35,258
Other non-current liabilities and minority interests 104,831 118,118 113,405 110,737 81,274
Stockholders' equity (deficiency) (193,682) 57,796 406,967 375,771 396,150
- ------------------------------------------------------------------------------------------------------------------------------
Book value per share $(5.83) $1.76 $12.87 $12.26 $13.17
Shares outstanding at year end 33,237,900 32,864,200 31,618,000 30,640,000 30,086,300
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reclassified to give effect to the discontinuance of MK Rail Corporation
and Transit operations.
II-2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS
The Corporation operates in one industry segment, engineering and construction.
The Corporation provides design, engineering, construction, procurement,
project-management and construction-management services in the infrastructure
market, including transportation, water resources, heavy civil and energy
developments, as well as industrial buildings. The Corporation also provides
services to the nuclear and fossil-fueled power markets and in cogeneration,
waste-to-energy, environmental and hazardous waste, and wastewater treatment
fields; and in addition serves the hydroelectric, oil and gas, and mine
engineering markets. A number of subsidiaries are engaged in long-term contract
mining of coal and lignite at mines in the United States and Germany. Other
markets include operations and maintenance services for military and commercial
facilities.
At December 31, 1995, the Corporation had less-than-majority equity
interests in Westmoreland Resources, Inc., a coal mining company in Montana, and
Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG mbH"), a company that
operates lignite coal mines, power and process plants in Germany. Also at
December 31, 1995, the Corporation had a 62.8% majority interest in McConnell
Dowell Corporation, Limited ("MDC") an engineering and construction contractor
based in Australia. Subsequent to December 31, 1995, the Corporation sold its
62.8% ownership interest in MDC. Because of the Corporation's decision to sell
its ownership interest in MDC, the Corporation has accounted for its investment
in MDCduring the year 1995 by the equity method. See the "Subsequent Events -
McConnell Dowell Corporation, Limited" Note to Consolidated Financial
Statements.
NEW BUSINESS AND BACKLOG
NEW BUSINESS: The Corporation booked new business of $1,438.3 million in 1995
compared to $1,772.3 million in 1994. Of the $1,438.3 million of new work booked
in 1995, $665.0 million (46%) consisted of the Corporation's proportionate share
of a major highway joint-venture project in Colorado and its proportionate share
of a joint-venture project providing environmental restoration and waste
management services at a Superfund site in Colorado. New business consists of
new engineering, construction, environmental and mining services contracts and
changes to existing contracts.
BACKLOG: Backlog of all uncompleted contracts at December 31, 1995 was $3,864.4
million, compared with $4,134.7 million at year-end 1994. Backlog consists of
uncompleted portions of engineering and construction contracts, including the
proportionate share of construction joint -venture contracts, the next five-year
portion of long-term mining services contracts and the funded and unfunded
portions of long-term contracts and subcontracts with various agencies of the
U.S. Government. The Corporation has a number of contracts and subcontracts with
various agencies of the U.S. Government principally for environmental
remediation and restoration work, which contracts extend beyond one year and for
which government funding has not yet been approved. The unfunded portions of
such contracts included in backlog at December 31, 1995 and 1994 were $1,986.9
million and $1,702.6 million, respectively. Contracts and subcontracts with
agencies of the U.S. Government are subject to unilateral termination at the
option of the U.S. Government. The Corporation does not expect any material
portion of its government contracting business to be terminated. See Item 1.
"Backlog" and "U.S. Government Contracts" in Part I of this Annual Report on
Form 10-K.
The following table sets forth the contract revenue backlog at December 31,
1995 and 1994 and the new business booked in each of the two years in the period
ended December 31, 1995.
NEW BUSINESS AND BACKLOG
(THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
1995 1994
NEW BUSINESS BACKLOG NEW BUSINESS BACKLOG
-------------------------- --------------------------
$1,438,300 $3,864,400 $1,772,300 $4,134,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The 1995 year-end backlog of $3,864.4 million was comprised of 18%
fixed-price and 82% fee-type contracts. The 1994 year-end backlog of $4,134.7
million was comprised of 28% fixed-price and 72% fee-type contracts.
The Corporation's business is being adversely affected by its poor
financial condition, and by the reluctance of many potential customers to engage
the Corporation on new or additional projects. The Corporation has experienced a
16% decline in new business booked in 1995 compared to 1994. The decline in new
business has had a material adverse effect on the Corporation. If the
Corporation's diminished ability to secure new work continues, it will further
adversely impact the Corporation's ability to continue as a going concern.
II-3
<PAGE>
Approximately $1,165.0 million or 62% of 1995 year-end backlog of $1,877.5
million (excluding the $1,986.9 million unfunded portion of U.S. Government
contracts) is expected to be recognized as revenue in 1996. Although backlog
reflects only business which is considered to be firm and is an indication of
expected future revenues, there can be no assurance that contract cancelations
or scope adjustments will not occur or when revenue and earnings from such
backlog will be realized.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ------------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Revenue $390.3 $485.1 $1,708.7 $2,021.0
Operating income (loss) from continuing operations 14.3 (108.7) 18.8 (100.8)
General and administrative expenses (14.9) (9.6) (59.2) (33.1)
Interest expense (6.1) (2.4) (28.2) (4.9)
Other income (expense), net (1.8) (18.7) (4.4) (19.7)
Equity in net income of unconsolidated affiliates 4.7 4.1 23.0 11.4
Loss on disposition of investments in affiliates, net (2.3) (6.1) (19.7) (15.1)
Gain on MK Gold Company's sale of stock -- -- -- 1.3
Provision for stockholders' litigation settlements -- (25.0) -- (25.0)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
REVENUE: Revenue from continuing operations for the fourth quarter of 1995 was
$390.3 million, a decrease of $94.8 million compared to $485.1 million for the
comparable period of 1994, and revenue from continuing operations for the year
ended December 31, 1995 was $1,708.7 million, a decrease of $312.3 million
compared to $2,021.0 million for the year ended 1994. The decline was
principally due to the execution and completion of a number of major contracts
for petrochemical and industrial manufacturing customers, as well as execution
and completion of a number of contracts for public work and light trackwork
projects in the corresponding periods of 1994, contrasted with decreases in
similar new construction because of a decline in new contract awards in 1994 and
1995. The Corporation's decline in new contract awards has continued in the
first quarter of 1996. See "New Business and Backlog" above.
OPERATING INCOME (LOSS): The Corporation reported operating income from
continuing operations for the fourth quarter of 1995 of $14.3 million compared
to an operating loss of $108.7 million from continuing operations for the same
period of 1994. Operating income from continuing operations for the year ended
December 31, 1995 was $18.8 million compared to an operating loss of $100.8
million from continuing operations for the year 1994.
Year ended December 31, 1995 operating results were affected by the
recognition of a number of unusual items, the net result of which was to
adversely impact operating income for 1995 by $.9 million. Items having an
adverse impact included provisions of $25.3 million for anticipated losses on a
number of fixed-price construction contracts, including $16.8 million in
connection with the Corporation's participation in a joint-venture contract to
construct a toll bridge in the maritime provinces of Canada, $2.2 million
provision for the anticipated costs of settling a long-term noncancelable lease
obligation and $6.3 million provision to write-off certain assets in the fourth
quarter of 1995, the carrying amount of which had been impaired. Items having a
beneficial impact included $18.9 million proceeds from the settlements of claims
on fixed-price contracts completed in prior periods and $14.0 million of mining
services fees recognized in the fourth quarter of 1995. These mining service
fees represent income earned during the years 1994 and 1995 from providing mine
planning, engineering and related services to MIBRAG mbH, but because of
restrictions on repatriation of funds imposed as a consequence of German
government loan guarantees of MIBRAG mbH's current andfuture indebtedness, the
Corporation, pursuant to the terms of the purchase agreement with the German
government, was precluded from realizing the full amount of the fees during the
periods when they were earned. The German government, in consideration for a
reduction in its loan guarantees has, among other things, agreed to lift the
restrictions on payment of mining service fees by MIBRAG mbH to the Corporation
and in addition, lift limitations on any future payment of dividends by MIBRAG
mbH. See the "Investments in and Advances to Unconsolidated Affiliates" Note to
Consolidated Financial Statements.
Fourth quarter 1994 and year ended December 31, 1994 results of operations
were adversely impacted by the recognition of $103.3 million of charges to
operating results consisting of (i) $12.8 million provision to write-off the
Corporation's remaining investment in the Vertac environmental remediation and
waste disposal project due to the termination for convenience of the contract by
the U.S. Government, (ii) $17.5 million provision for anticipated losses because
of customer-disputed change orders on a number of light trackwork projects,
(iii) $6.3 million provision for anticipated losses for customer-initiated scope
change orders subsequently rejected by the customer in connection with a power
plant project, (iv) $13.0 million provision for anticipated losses on a
fixed-price contract to construct a toll bridge in the maritime provinces
II-4
<PAGE>
of Canada, (v) $9.1 million provision for anticipated engineering and labor cost
overruns on fixed-priced petrochemical and railroad electrification projects,
(vi) $28.0 million provision for anticipated losses because the fixed-priced
Taipei subway project encountered unstable subsoil conditions that affected
tunnel boring progress, (vii) $8.0 million provision to write-down the
Corporation's investment in the net assets of the North Pacific construction
operations to their net recoverable value, based on the Corporation's decision
in late 1994 to sell the assets and business of its North Pacific construction
operations and (viii) $8.6 million provision for miscellaneous other write-downs
of operating assets and investments and provisions for anticipated losses on
uncompleted fixed-price contracts.
The Corporation reported operating income from continuing operations for
the first nine months of 1995 of $4.5 million (after accounting for its
investment in MDC by the equity method for 1995) compared to $7.9 million
operating income for the same period of 1994. The results of continuing
operations for the first nine months of 1995 were affected by the recognition of
a net charge to operations of $8.6 million consisting of (i) $25.3 million
provision for anticipated losses on a number of fixed-price construction
contracts and a $2.2 million provision for anticipated costs of settling a
long-term noncancelable lease obligation partially offset by (ii) a $18.9
million gain from the settlements of a number of claims on fixed-price contracts
completed in prior periods.
The results of continuing operations for the first nine months of 1994 were
affected by the recognition of aggregate charges to operating results of $17.6
million consisting of (i) $4.3 million provision to write-down certain surplus
tunnel-boring equipment to their estimated net recoverable values (ii) $2.3
million provision for anticipated losses due to delays on the Taipei subway
project (iii) $5.0 million provision to write-down its investment in Vertac and
a $6.0 million provision to write-down the capitalized cost of a CFSystems'
processing facility to their then estimated net recoverable values. Vertac was a
remediation and waste disposal project terminated for convenience of the U.S.
Government and CF Systems is a wholly-owned subsidiary currently performing
environmental remediation work. See the "Commitments and Contingencies -
CF Systems" Note to Consolidated Financial Statements.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expense for the
fourth quarter and the year ended 1995 increased $5.3 million and $26.1 million,
respectively, from the same periods of 1994. The increases are due to
substantial non-recurring costs and expenses for legal and other professional
costs and expenses associated with stockholder litigation, restructuring of the
Corporation's secured debt and contingent obligations. In addition, the
Corporation accrued $3.0 million and $6.0 million in the fourth quarter and year
ended December 31, 1995, respectively, for additional compensation in connection
with the adoption in July 1995 of a twelve month retention plan for key
employees. The Corporation paid $2.2 million of the retention award on December
15, 1995 and has accrued an estimated liability for retention plan awards of
$3.7 million at December 31, 1995. See Item 1 "Business - Employees" for a
discussion of the retention and severance pay plans for key employees in Part I
of this Annual Report on Form 10-Kand the "Benefit Plans - Retention and
Severance Pay Plans" Note to Consolidated Financial Statement.
General and administrative expenses for the fourth quarter of 1994 included
estimated non-recurring accruals of $4.9 million for legal and professional
expenses associated with pending stockholder litigation and employee severance
costs.
INTEREST EXPENSE: Interest expense for the fourth quarter and year ended
December 31, 1995 increased $3.7 million and $23.3 million, respectively, from
the same periods of 1994. The significant increase in interest expense in 1995
is attributed to a substantially higher weighted average level of debt
outstanding during 1995 compared to 1994 ($294.4 million compared to $154.5
million) and a weighted average cost of borrowing during the fourth quarter and
the year ended December 31, 1995 of 9.3% and 9.0%, respectively, compared to
6.9% and 5.7%, respectively, during the comparable periods of 1994.
OTHER INCOME (EXPENSE), NET: Other net expense of $4.4 million for the year
ended December 31, 1995 is comprised principally of a $3.6 million provision to
write-down the carrying amount of the Morrison Knudsen Depot sold in January
1996, $5.9 million provision to write-off investments and an uncollectible notes
receivable, and $1.1 million provision to recognize losses on future rent costs
on certain long-term noncancelable real estate leases to the extent they will
not be offset by sub-lease rental income. These expenses were partially offset
by $4.9 million of interest and dividend income and net gains from sales of
marketable securities and $1.9 million underwriting income of the insurance
subsidiary. See the "Other Income (Expense), Net" Note to Consolidated Financial
Statements.
Other net expense of $19.7 million for the year ended December 31, 1994 was
due principally to the recognition of $24.0 million of provisions for
write-downs of investments and assets reflecting the Corporation's decision in
late 1994 to accelerate repatriation of certain off-shore investments and
receivables, reduce the carrying amount of the Corporation's investment in
Western Aircraft, Inc., to estimated net recoverable value and provide an
allowance for the estimated reduction in realizable values of accounts and notes
receivable due to the Corporation's decision to accelerate collection. See the
"Other Income (Expense) Net" Note to Consolidated Financial Statements.
II-5
<PAGE>
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED AFFILIATES: Equity in the net
income of unconsolidated affiliates of $23.0 million for the year ended December
31, 1995 increased $11.6 million compared to $11.4 million for the year 1994.
Equity in the results of operations of the unconsolidated affiliates in 1995
consisted of $13.7 million income from MIBRAG mbH, $10.8 million income from
MDC, $.7 million income from Westmoreland Resources, Inc. and $2.2 million loss
from MKA. The increase is primarily due to the inclusion in 1995 of $10.8
million representing the Corporation's 62.8% share of the net income of MDC.
Subsequent to December 31, 1995, the Corporation sold its 62.8% ownership
interest in MDC. Because of the Corporation's decision to sell its ownership
interest in MDC, the Corporation has accounted for its investment in MDC for the
year ended December 31, 1995 by the equity method. The Corporation reported MDC
as a consolidated subsidiary for the year ended December 31, 1994. See the
"Investments in and Advances to Unconsolidated Affiliates and Subsequent
Events - McConnell Dowell Corporation, Limited" Notes to Consolidated Financial
Statements.
Equity in the results of operations of unconsolidated affiliates of $11.4
million for the year ended December 31, 1994 consisted primarily of the
recognition of $15.5 million income from MIBRAG mbH offset by $4.6 million loss
from the Corporation's equity in the results of operations of two development
stage companies. The Corporation also recognized a $7.2 million loss on
disposition of its investments in the development stage companies stemming from
the Corporation's decision to discontinue its financial support for these
non-core businesses. See Dispositions of Investments in Affiliates following.
DISPOSITIONS OF INVESTMENTS IN AFFILIATES: The $19.7 million net loss on
disposition of investments in affiliates for the year ended December 31, 1995
consisted of a $9.3 million loss on the Corporation's sale in June 1995 of its
remaining ownership interest in MK Gold Company, an $8.1 million loss on the
sale in September 1995 of its investment in MK Investments, Inc. (North Pacific
construction operations) and a $2.3 million loss to write-off the Corporation's
investment in MKA stemming from its decision in December 1995 to no longer
provide MKA with financial support. See the "Disposition of Investments in
Affiliates - Dispositions in 1995" Note to Consolidated Financial Statements.
The $15.1 million net loss on dispositions of investments in affiliates for
the year ended December 31, 1994 consisted of a $4.9 million gain on the
Corporation's sale in 1994 of a portion of its ownership interest in SCDI offset
by a $12.7 million loss from writing-off the Corporation's investment in Texas
TGV in June 1994 after Texas TGV's failure to provide equity financing for a
high speed rail system project as required under the franchise agreement and a
$7.2 million loss on the disposition of two development-stage companies stemming
from the Corporation's decision in December 1994 to discontinue its financial
support for these non-core businesses. See the "Dispositions of Investments in
Affiliates - Dispositions in 1994" Note to Consolidated Financial Statements.
PROVISION FOR LITIGATION SETTLEMENTS: Agreements as to the principal economic
terms of settlements of securities class actions and derivative actions were
reached in June 1995, subject to, among other things, approval by the
appropriate courts. The settlement terms provided, among other things, for the
Corporation's insurance carriers to deposit $35.0 million cash into a
court-approved settlement fund and for the Corporation to deposit into this
settlement fund a certificate for 2,976,923 shares of common stock in connection
with the MK Securities Class Actions and a certificate for 869,231 shares of
common stock in connection with the MK Rail Securities Class Actions. Both the
cash and stock certificates were deposited into the settlement fund during 1995.
Upon the approval of the settlements by the various courts, the Corporation will
issue 3,846,154 shares of new common stock to the plaintiffs. Effective December
1994, the Corporation recognized an aggregate pretax charge of $25.0 million for
the estimated cost of the litigation settlements representing the then fair
value of the common stock expected to be issued. The estimated liability for the
$25.0 million litigation settlements is included in the accompanying balance
sheets at December 31, 1995 and 1994 as a non-current liability. Assuming court
approval and issuance of the stock, the cost of the settlements will be adjusted
to reflect the current fair market value of the Corporation's stock at the time
of court approval. However, there can be no assurance that such final
settlements will be approved by the appropriate courts. These settlements do not
include the two actions brought by the former stockholders of a number of
companies whose stock was acquired by the Corporation through an exchange of the
Corporation's common stock. See Item 3. "Legal Proceedings" in Part I of this
Annual Report on Form 10-K and the "Legal Proceedings" Note to Consolidated
Financial Statements.
INCOME TAX EXPENSES: The Corporation recognized income tax expense for the year
ended December 31, 1995 of $9.9 million on a pretax loss of $69.7 million
whereas in 1994 the Corporation recognized a tax benefit of $30.9 million on a
pretax loss of $185.9 million. The 1995 income tax expense is for foreign and
state income taxes relating to certain jurisdictions in which the Corporation
had net taxable income. The Corporation did not provide any tax benefit in 1995
due to substantial doubt of realization based on circumstances described in the
"Basis of Presentation and Management's Plans" Note to Consolidated Financial
Statements whereas a partial tax benefit was provided on the Corporation's 1994
pretax loss. The net deferred tax assets reflect management's estimate of the
amount which will, more likely than not, be realized. See the "Taxes on Income"
Note to Consolidated Financial Statements.
II-6
<PAGE>
DISCONTINUED OPERATIONS: In connection with the disposition of Transit, the
Corporation recorded a $95.8 million loss for the year ended December 31, 1995,
without providing future tax benefits. The loss includes (i) a $3.6 million loss
from operations for the six month period ended June 30, 1995, the effective date
of disposal, (ii) $85.5 million provision for the Corporation's estimated
reimbursement obligations for the net cash losses resulting from Amerail's
performance of certain transit car contracts transferred to Amerail, and (iii)
$6.7 million accrual for transaction costs and employee severance and benefits
costs associated with the decision to dispose. The Corporation has recognized
its Transit reimbursement obligations through the estimated final completion of
the transit car contracts based upon the best information available which
included financial and operating information provided by Amerail, over which the
Corporation has no control. There can be no assurance that the net cash losses
ultimately realized upon completion of such contracts will not exceed the
Corporation's estimated reimbursement obligations at December 31, 1995. See the
"Changes in Business - Discontinued Transit Operations" Note to Consolidated
Financial Statements.
In connection with its decision to sell MK Rail, the Corporation recorded
an $86.5 million net loss for the year ended December 31, 1995 after providing
net tax benefit of $10.9 million. The loss includes (i) a $3.8 million net loss
from operations for the three month period ended March 31, 1995, the measurement
date, and (ii) $82.7 million loss from disposal including $18.1 million loss
from discontinued operations of MK Rail and $64.6 million loss provision to
write-down the Corporation's carrying amount of its investment in and note
receivable from MK Rail to their estimated net realizable values based upon the
best information available in the circumstances. See the "Changes in Business -
Discontinued MK Rail Operations" Note to Consolidated Financial Statements.
Consistent with the presentation of Transit and MK Rail as discontinued
operations, the Corporation's share of Transit and MK Rail's results of
operations for the periods prior to December 31, 1995 and the Corporation's
after-tax gain of $20.0 million recognized from MK Rail's sale of stock in May
1994 have been segregated and reported as discontinued operations in the
consolidated statements of operations. In addition, the net assets and
liabilities (current and non-current) related to MK Rail are segregated in the
balance sheet at December 31, 1995 and 1994.
II-7
<PAGE>
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
The Corporation's revenue decreased for both the fourth quarter and the year
ended December 1994 compared to the same periods of 1993. This decline was
principally due to the execution and completion of contracts during the previous
year, contrasted with decreases in new contract awards and postponements of the
start-up of major new infrastructure projects in 1994.
The Corporation reported a $97.7 million operating loss in the fourth
quarter of 1994 compared to $10.9 million operating income in the comparable
period of 1993 and a $82.2 million operating loss for the year 1994 compared to
$55.4 million operating income in 1993. The results of operations for both the
quarter and the year ended December 1994 were influenced by the decrease in new
contract awards and postponements of the start-up of previously awarded
contracts and adversely affected by the recognition of write-downs of operating
assets and investments as well as provisions for anticipated losses on
uncompleted fixed-price contracts. The Corporation recognized $103.3 million of
pretax charges to operating results in the fourth quarter of 1994 consisting of:
$ 12.8 million Write-off of the Corporation's remaining investment in Vertac
stemming from the U.S. Environmental Protection Agency's (the
"EPA") notification in December 1994 to terminate on-site
incineration of hazardous waste at the Arkansas Superfund site.
Prior to this notification the Corporation had incinerated
several types of hazardous waste under various contracts with
the EPA and had anticipated additional contracts to dispose of
the waste that remains at the site.
17.5 million Contract scope changes initiated by the customer during the
fourth quarter on a number of light rail transportation
projects have subsequently been disputed by the customers.
These disputed change orders have given rise to claims asserted
against the customers for additional revenue. In accordance
with the Corporation's accounting policy no revenue was
recognized for these items. The cost overruns stemming from the
disputed change orders caused the estimated contract costs to
be in excess of contract revenue. A provision for anticipated
losses was recorded to reflect these excess costs.
6.3 million Change orders for customer-initiated scope changes on a power
plant project were rejected by the customer. These change
orders were then included in a claim asserted against the
customer. In accordance with the Corporation's accounting
policy no revenue was recognized for these items. The cost
overruns stemming from the unapproved change orders caused the
estimated contract costs to be in excess of contract revenue. A
provision for anticipated losses was recorded to reflect these
excess costs.
13.0 million Establishment of a liability for anticipated losses on a
fixed-price contract to construct a toll bridge in the maritime
provinces of Canada. The anticipated losses are based on
additional costs expected to be incurred in the completion of
the project based on actual experience during the 1994
mobilization phase of the project.
9.1 million Provision for anticipated engineering and labor cost overruns
on a fixed-price petrochemical project and a fixed-price
railroad electrification project.
28.0 million Provision for anticipated losses on the Taipei fixed-price
subway project. The project encountered subsoil conditions in
November 1994 that will adversely affect the tunnel boring
progress. It is anticipated that these adverse subsoil
conditions will extend the time required to complete the
project by more than 12 months.
8.0 million Write-down of the Corporation's investment in the net assets of
the North Pacific construction operations. This write-down is
based on the Corporation's decision in late 1994 to attempt to
sell the assets and business of its North Pacific construction
operations.
8.6 million Miscellaneous other write-downs of operating assets and
investments and provisions for anticipated losses on
uncompleted contracts.
- --------------
$103.3 million
- --------------
- --------------
In addition, the Corporation's results of operations for the first nine
months of 1994 also were adversely impacted by write-downs of operating assets
and provisions for anticipated losses on uncompleted contracts. The Corporation
recognized $17.6 million of pretax charges to operating results through
September 30, 1994 consisting of (i) $4.3 million write-down of its surplus
tunnel-boring equipment to their estimated net recoverable values (ii) $2.3
million provision for anticipated losses due to delays on the Taipei subway
project and (iii) $5.0 million provision to write-down its investment in Vertac
and a $6.0 million provision to write-down the capitalized cost of a processing
facility of
II-8
<PAGE>
CF Systems. Vertac was a remediation and waste disposal project terminated for
convenience of the U.S. government and CF Systems is a wholly-owned subsidiary
currently performing environmental remediation work. See the "Commitments and
Contingencies - CF Systems" Note to Consolidated Financial Statements.
Excluding the effects of the aggregate $120.9 million pretax charges for
the year 1994, enumerated above, the Corporation's operating income for the year
1994 was $38.7 million, a decrease of $16.7 million from $55.4 million operating
income in the year 1993.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for the
fourth quarter and year ended December, 1994 decreased $2.2 million and $4.3
million, respectively, from the same periods of 1993. The decreases in 1994 are
due to cost reduction efforts. General and administrative expenses for the
fourth quarter 1994 included estimated non-recurring pretax accruals of $4.9
million for legal and professional fees associated with pending stockholders
litigation and employee severance costs.
INTEREST EXPENSE: Interest expense for the fourth quarter and year ended
December 31, 1994 increased $3.6 million and $8.4 million, respectively, from
the same periods of 1993. The increase reflects the rise in both short- and
long-term debt outstanding from $47.0 million at December 31, 1993, to $242.3
million at December 31, 1994, at a weighted average cost of borrowing for the
quarter and year ended December 31, 1994 of 6.91% and 5.72%, respectively.
OTHER INCOME (EXPENSE) NET: Other net expense of $19.7 million for the year 1994
was due principally to recognition of $24.0 million of provisions for
write-downs of investments and assets reflecting the Corporation's decision in
late 1994 to accelerate repatriation of certain off-shore investments and
receivables, and reduce the carrying amount of the Corporation's investment in
Western Aircraft, Inc., as well as, provide an allowance for estimated reduction
in realizable values of accounts and notes receivable due to the decision to
accelerate collection. See the "Other Income (Expense) Net" Note to Consolidated
Financial Statements.
Other net income of $26.8 million for the year ended December 31, 1993 was
due principally to the recognition of $35.8 million of interest, dividends and
net gains on sales of marketable securities partially offset by an aggregate of
$9.0 million net losses principally from losses on disposals and write-down of
assets. See the "Other Income (Expense) Net" Note to Consolidated Financial
Statements.
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED AFFILIATES: The Corporation's
share of unconsolidated affiliates' income increased from $.5 million in the
fourth quarter ended December 31, 1993 to $4.1 million income in the comparable
period of 1994. The increase is primarily due to the recognition by the
Corporation of its $6.4 million equity in the net income of MIBRAG mbH, acquired
effective January 1994. The Corporation's share of investee earnings increased
from a $5.8 million loss in the year ended December 1993 to $11.4 million income
in the year 1994. The increase is principally due to (i) recognition of $15.5
million equity in the net income of MIBRAG mb Hoffset by losses of $4.6 million,
principally from its equity investments in a number of development stage
companies for which the Corporation decided to discontinue its funding and (ii)
the Corporation's share of the combined $4.6 million operating losses for Joy
MK Projects Company and McConnell Dowell Corporation, Ltd. in 1993 prior to
their consolidation in April and June 1993, respectively. See the "Investments
in and Advances to Unconsolidated Affiliates" Note to Consolidated Financial
Statements.
GAINS ON SUBSIDIARIES SALES OF STOCK: In the fourth quarter of 1993, MK Gold
completed an IPO of 8,000,000 shares of its common stock. The Corporation
recognized a $10.6 million pretax gain because MK Gold's selling price per share
exceeded the Corporation's carrying amount per share. In January 1994, 1,350,000
shares of MK Gold's common stock were sold under an option granted by MK Gold to
its IPO underwriters to cover over-allotments. The Corporation recognized a $1.3
million pretax gain with respect to such shares, because MK Gold's public
offering price per share exceeded the Corporation's carrying amount per share.
DISPOSITION OF INVESTMENTS IN AFFILIATES: The loss of $6.1 million on
disposition of investments in affiliates for the fourth quarter of 1994
consisted of a net pretax charge of $7.2 million by the Corporation in
connection with the disposition of two development-stage companies stemming from
its decision in December 1994 to discontinue its financial support for these
non-core businesses offset by the recovery of $1.1 million of its previous
write-off of its investment in Texas TGV resulting from the sale in December
1994 of substantially all of its ownership interest in Texas TGV.
In addition, the loss of $8.9 million on disposition of investments for the
first nine months of 1994 consists of (i) a $13.8 million pretax charge in the
second quarter of 1994 for the write-off of the Corporation's investment in
Texas TGV, and (ii) a $4.9 million pretax gain in the first quarter of 1994 on
the sale of a portion of its ownership interest in SCDI. See the "Disposition of
Investments in Affiliates" and the "Subsequent Events - Strait Crossing
Development, Inc." Notes to Consolidated Financial Statements.
PROVISION FOR LITIGATION SETTLEMENTS: Preliminary agreements as to the principal
economic terms of settlement of securities class actions and derivative actions
were reached in June 1995, subject to, among other things, approval by the
appro-
II-9
<PAGE>
priate courts. The Corporation's settlement will include payment of cash and the
issuance of stock. The Corporation's insurance carriers will pay $35.0 million
in cash. The Corporation will issue new common stock. Effective December 1994,
the Corporation recognized an aggregate pretax charge of $25.0 million for the
estimated cost of the settlements. The estimated liability for the $25.0 million
settlements is included in the balance sheet at December 31, 1994 as a
non-current liability. Assuming court approval and issuance of the stock, the
current fair market value of the Corporation's stock at the time of court
approval will be reflected in stockholders' equity. However, there can be no
assurance that the final settlements will be approved by the appropriate
courts.These settlements do not include actions brought by the former
stockholders of a number of companies acquired through an exchange of stock. See
Item 3. "Legal Proceedings" in Part I of this Annual Report on Form 10-K and the
"Legal Proceedings" Note to Consolidated Financial Statements.
INCOME TAX (EXPENSE) BENEFIT: The Corporation recognized a tax benefit in 1994
of 16.6% of pretax loss whereas in 1993 the Corporation's tax expense was 41.8%
of pretax income. A full tax benefit was not provided on the Corporation's 1994
loss due to uncertainty of realization causing the disparity in the rate of the
tax benefit recognized in 1994 compared to the rate of tax expense recognized in
1993. After recognizing a tax benefit for that portion of the Corporation's loss
which is available for carryback to prior years, the remaining net deferred tax
assets, consisting of deductible temporary differences, were reduced by a
valuation allowance which was established to reduce the carrying amount of
deferred tax assets to a level which, more likely than not, will be realized.
The net deferred tax assets reflect management's estimate of the amount which
will be realized from future taxable income which can be predicted with
reasonable certainty. See the "Taxes on Income" Note to Consolidated Financial
Statements.
MINORITY INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY: The Corporation's
consolidated balance sheet at December 31, 1994 includes 100% of the assets and
liabilities of MDC and the consolidated statement of operations for the year
ended December 31, 1994 includes 100% of MDC's revenues and expenses. The
minority interest share of MDC's accumulated earnings (losses) at December 31,
1995 and MDC's net loss for the year ended December 31, 1994 are reflected as
"Minority Interest in Subsidiary" and "Minority Interest in Net Loss of
Subsidiary" in the accompanying balance sheet at December 31, 1994 and statement
of operations for the year ended December 31, 1994, respectively.
DISCONTINUED OPERATIONS: Transit reported a loss from operations of $224.4
million for the year 1994 compared to $11.0 million operating income for the
year 1993. The 1994 loss included $199.0 million of charges for anticipated
cost-overruns on uncompleted fixed-price contracts for new transit cars in their
early stages of production, after revision in the second and fourth quarters of
1994, of the estimated costs and earnings (losses) at completion. The cost
overruns were anticipated as a result of Transit's actual experience for
incurred labor and other direct manufacturing costs with new transit cars that
went into production in late 1994 and early 1995 being much worse than
originally estimated. In addition these anticipated cost overruns were also
associated with engineering and design changes on new transit cars for the
California Department of Transportation and National Railroad Passenger
Corporation, which caused significant increases in estimated costs for materials
and labor and were expected to cause delays in deliveries which required the
recognition of contingency losses for liquidating damages.
In addition, Transit recognized (i) a $14.7 million provision in the fourth
quarter of 1994 to write-off the balance of its capitalized initial design and
engineering costs because the estimated operating margins on the then current
uncompleted and future contracts was not expected to be sufficient to allow
recovery of those deferred costs and (ii) a $9.2 million provision in the third
quarter of 1994 for anticipated losses to manufacture 42 of 133 locomotives on
the uncompleted MK Rail fixed-price contract with Southern Pacific Railroad (the
"SP").
Transit reported operating income of $11.0 million for the year 1993,
primarily the result of the increased volume of net transit cars manufactured
and delivered under a successful contract with a midwest transit authority.
MK Rail Corporation reported a loss from operations of $50.0 million for
the year 1994 compared to $10.3 million operating income for the year 1993.
The 1994 loss included $39.2 million of unusual charges consisting of (i) a
$12.4 million provision for aggregate losses on uncompleted locomotive
remanufacturing contracts including $8.2 million in connection with the SP
contract (completed in February 1995) caused by higher than expected labor
and materials costs and a $4.2 million provision for losses in connection
with a maintenance contract in the United States and remanufacturing
contracts in Australia (ii) $7.3 million accrual for estimated legal and
professional fees primarily attributable to stockholders' litigation (iii)
aggregate provisions of $8.4 million, comprised of $3.7 million provision for
noncancelable purchase commitments of research and development services under
contract with outside firms, $2.7 million provision for future lease losses
on the prospective lease of new MK 5000 locomotives and $2.0 million
provision for estimated manufacturing costs in excess of market value, all of
which stem from MK Rail's decision to curtail its ongoing activities in new
locomotive manufacturing and technology and (iv) $11.1 million provision for
the loss on disposition of its Argentine operations. In the fourth quarter of
1994 MK Rail Corporation made a determination to dispose of substantially all
of its Argentine operations.
II-10
<PAGE>
FINANCIAL CONDITION
Liquidity and capital resources (THOUSANDS OF DOLLARS)
DECEMBER 31,
------------------------
1995 1994
CASH AND CASH EQUIVALENTS:
Beginning of period $ 66,864 $ 80,000
End of period 63,086 66,864
TOTAL DEBT, including $9,320 of accrued and
deferred interest on antecedent debt at
December 31, 1995 371,990 200,025
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
NET CASH PROVIDED (USED) BY:
Operating activities $(24,959) $ 22,244
Investing activities 45,715 20,957
Financing activities 52,464 145,422
Total capitalization at December 31, 1995 was $178.3 million, and consisted
of $372.0 million debt net of a $193.7 million stockholders' deficiency compared
to total capitalization at December 31, 1994 of $257.8 million, which consisted
of $200.0 million debt and $57.8 million stockholders' equity.
After funding the discontinued operations of MK Rail and Transit, losses on
a number of major fixed-price construction and environmental projects and the
losses on a number of failed development-stage transportation and other
investments in prior years, the Corporation's financial condition continued to
deteriorate during 1995. During 1995, the Corporation continued to fund
operating losses on a number of long-term fixed-price construction contracts,
pay substantial period costs and expenses including the expenses of
professionals associated with the Corporation's financial restructuring,
proposed recapitalization plan and stockholders' litigation and service its debt
burden by paying $22.6 million interest in 1995.
The Corporation's sources of cash used to fund its operations in 1995 were
principally $42.0 million from sales of investments in affiliates and $26.5
million in federal tax refunds. As a result, cash and cash equivalents decreased
$3.8 million during 1995 to a year-end balance of $63.1 million.
LIQUIDITY
On August 10, 1995, the Corporation and its bank lenders and surety agreed as of
July 31, 1995 to a restructuring of the Corporation's existing indebtedness and
the establishment of two new interim credit facilities, expiring September 1,
1995, to advance up to approximately $50.0 million to Transit prior to its
planned divestiture. The restructuring provided, among other things, for (i) an
increase in the amount of the bridge loan from $122.1 million to $129.0 million,
(ii) extension of the maturity date for the bridge loan to March 31, 1996 and
extension of the maturity date for the antecedent debt to December 31, 1996,
(iii) mandatory repayment of $100.0 million of antecedent debt on September 30,
1996 and $113.3 million on December 31, 1996 and required escrow payments under
the Transit reimbursement obligations upon such repayments, (iv) required
repayments with the net cash proceeds from sales of certain businesses and
assets, and cash collected on certain receivables and (v) the granting of stock
purchase warrants to the lender banks and the bonding company. The restructuring
provides that ongoing indebtedness of the Corporation to the lender banks and
the bonding company be secured. On October 17, 1995, the Corporation reached an
agreement to dispose of Transit by transferring substantially all of the assets,
certain liabilities, all contract operations and management of Transit to
Amerail. In this connection, outstanding borrowings under the two interim credit
facilities extended to Transit were paid off on October 17, 1995 and the maximum
borrowing amount under the bridge loan was reduced from $129.0 million to $100.0
million. Following the disposition of Transit, the Corporation remains liable
for certain net cash losses resulting from Amerail's performance of contracts
transferred to Amerail by virtue of the Transit Reimbursement Agreement with its
bonding company. The amount owing to the bonding company under the Transit
Reimbursement Agreement will not, by agreement, exceed $31.2 million. In
connection with the disposition of Transit, the Corporation agreed to guarantee
Amerail's reimbursement obligation to certain banks which are providing a
standby letter of credit and a new credit facility up to an aggregate amount of
$141.7 million to support Amerail's performance of the Metra Contract (the
"Metra Guaranty"). The amount owing under the Metra Guaranty is estimated to be
$80.2 million at December 31, 1995. The Corporation estimates its reimbursement
obligations for such net cash losses on the Transit contracts transferred to
Amerail to be $111.4 million at December 31, 1995. However, there can be no
assurance that the net cash losses ultimately realized at completion of the
Transit contracts transferred to Amerail will not exceed the Corporation's
estimated reimbursement obligations at December 31, 1995. The
II-11
<PAGE>
Corporation cannot exercise any control over the management of Amerail and the
execution of the Transit contracts. Certain amounts (determined on a formula
basis) are required to be escrowed in respect of these obligations upon any
repayments on the Corporation's antecedent debt.
The Corporation expects negative cash flows from operations for 1996. Cash
flows in 1996 will be negatively impacted by general and administrative costs
and expenses in connection with its proposed recapitalization plan and
stockholders' litigation, the required funding for the remainder of its
fixed-price construction contract losses recognized in 1994 and 1995 and its
continuing debt service including the accrued and deferred interest on its
antecedent debt. On April 2, 1996, as partial consideration for the extension of
the bridge loan facility from March 31, 1996 to September 31, 1996 the
Corporation paid $14.4 million interest on the antecedent debt that had been
accrued and deferred from July 1, 1995 through March 31, 1996. The Corporation's
repayment obligations on existing indebtedness, after having paid the
outstanding balance of the bridge loan on March 29, 1996, include (i) repayment
of $100.0 million of antecedent debt on September 30, 1996, (ii) repayment of
the $113.3 million balance of the antecedent debt on December 31, 1996, and
(iii) the additional amounts required to be escrowed in connection with its
Transit reimbursement obligations for the benefit of the bonding company and
certain lender banks on such dates and to ultimately fund the remaining $31.2
million reimbursement obligation to the bonding company and the estimated amount
owing on the Metra Guaranty, currently $80.2 million at December 31, 1995. Even
if the Corporation has sufficient liquidity to meet its obligations prior to the
maturity of its antecedent debt, the Corporation believes that further
refinancings of its existing indebtedness would not be sufficient to enable the
Corporation to continue as a going concern. The Corporation further believes
that cash generated from operations and the proceeds from the few contemplated
asset and investment sales will not be sufficient to meet its existing
antecedent debt obligations and the required escrow payments under the Transit
reimbursement obligations in 1996.
On March 29, 1996, the Corporation paid the outstanding balance owing under
its bridge loan facility. On March 31, 1996, the Corporation and certain of its
secured creditors agreed to amend certain terms and conditions of the bridge
loan facility, which expired on March 31, 1996. The amendments to the bridge
loan facility included, among other things, establishment of a new borrowing
capacity of $47.5 million, and extension of its termination date to September
30, 1996. Outstanding borrowing under the amended bridge loan facility will be
subject to interest at the prime rate plus one and one-half percent per annum
(9.75% at March 31, 1996) due and payable on the last day of each month and on
September 30, 1996. On April 2, 1996, as partial consideration for the extension
of the bridge loan facility, the Corporation paid $14.4 million interest on the
antecedent debt that had been accrued and deferred from July 1, 1995 through
March 31, 1996. See the "Short-Term Debt - New and Amended Credit
Facilities "Note to Consolidated Financial Statements.
The Corporation, which has been experiencing significant operating losses
and is facing severe liquidity problems, has been discussing with certain of its
secured and unsecured creditors, including holders of the Corporation's existing
secured indebtedness, its bonding company, lessors in connection with certain
long-term, noncancelable leases, and representatives of potential investors,
alternatives to reduce or liquidate the Corporation's current and future
financial debt obligations to permit the continuation of the Corporation as a
going concern. These alternatives included, among other things, a number of
remedies available to the Corporation, the goal of which is to alleviate the
problems caused by the Corporation's excessive debt levels, debt service and
certain long-term lease payment obligations, to enable the Corporation to
continue to implement its revised business strategy and to help assure the
Corporation's long-term viability. For that purpose, the Corporation initially
presented a proposed recapitalization plan (the "Recapitalization") to certain
of its secured creditors at a meeting held in February 1996, and has continued
to discuss the terms of the Recapitalization with those creditors. Pursuant to
the Recapitalization, the Corporation would exchange its existing secured
indebtedness consisting of the antecedent debt and Transit reimbursement
obligations and certain long-term lease obligations for a new issue of the
Corporation's common stock (which initially will represent all of the
outstanding common stock of the Corporation) and common stock of MK Rail
representing the Corporation's 65% ownership interest in MK Rail, the
Corporation's $52.2 million principal amount of its note receivable from MK Rail
with interest at the prime rate (8.25% at March 31, 1996) and certain other
assets. Existing stockholders and the Securities Class Actions claimants would
receive new common stock purchase warrants in exchange for all the current
outstanding shares of common stock and all the shares of common stock to be
issued by the Corporation in settlement of the MK Securities Class Actions and
MK Rail Securities Class Actions. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook" in this
Part II. The Recapitalization contemplated effecting the exchange through a
partial prepackaged plan of reorganization pursuant to Chapter 11 of the United
States Bankruptcy Code (prepackaged plan). The objective of a prepackaged plan
under Chapter 11 would be to allow the Corporation to achieve its objectives
without unanimous approval of its creditors in the shortest time possible and
continue to resume operations in its recapitalized form without the full burden
of debt that existed prior to the bankruptcy proceedings.
On or about April 15, 1996, the Corporation will solicit acceptances of its
Recapitalization from its impaired creditors (holders of the Corporation's
existing secured indebtedness). The Recapitalization, through the prepackaged
plan is designed to
II-12
<PAGE>
substantially reduce the Corporation's secured debt obligations, lessen the risk
of a protracted Chapter 11 proceedings which would significantly impact the
Corporation's business and create a capital structure that allows the
Corporation to continue in operation and maintain and enhance its competitive
position. In addition, management anticipates that the proposed prepackaged plan
would also allow management to concentrate more of its time on improving the
Corporation's business opportunities, rather than on managing its debt
obligations.
As of the date of this Annual Report on Form 10-K, the Corporation has not
reached final agreement with its secured creditors. The final form or results of
a restructuring cannot be predicted, and there can be no assurance that a
restructuring can be accomplished through a prepackaged plan. Any such
restructuring, if successful, would substantially dilute or eliminate the value
of existing stockholders' interests. If the Corporation is unable to effect a
prepackaged plan, the Corporation will be forced to evaluate other available
options, which may include the commencement or continuation of a Chapter 11 case
without a preapproved plan. A nonprepackaged Chapter 11 case would likely be
lengthier, involve more contested issues with creditors and other parties in
interest, and result in significantly increased Chapter 11 expenses for
professional consultants, a negative impact on cash flow due to lack of customer
confidence resulting in reduction in new contract awards, and a corresponding
reduction in the consideration received by the Corporation's secured creditors
and existing stockholders than would be the case with a prepackaged plan.
The Corporation's financial statements have been prepared assuming that the
Corporation will continue as a going concern. As discussed herein, the
Corporation: had substantial losses and negative cash flow from operations in
1994 and 1995, which significantly reduced stockholders' equity and resulted in
a substantial accumulated deficit and working capital deficiency at December 31,
1995; and does not expect to be able to make its required debt repayments in
1996. Thus, unless the Corporation is able to effect the Recapitalization or
arrange a transaction with a strategic investor, these conditions raise
substantial doubt about the Corporation's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
DIVIDENDS
The Corporation has not paid cash dividends since the first quarter of 1995;
however, under the terms of its bank credit agreements and the applicable
requirements of Delaware law, the Corporation is prohibited from paying cash
dividends. The Corporation is permitted to pay cash dividends under Delaware law
only (i) out of its surplus (the excess of the current assets of the Corporation
over its capital) or (ii) out of the net profits of the Corporation for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
CURRENCY RISKS
In the normal course of its business, the Corporation evaluates the use of
forward contracts and options to hedge, reduce or eliminate its exposure to
fluctuations in foreign currencies. The Corporation does not currently have in
place any such direct hedging arrangements.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT ("FASB STATEMENT")
The requirements of FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF ("FAS 121"), which are
effective January 1, 1996, will not have a material effect on the Corporation's
financial condition or results of operations because the Corporation's current
accounting policies are in compliance with the requirements of FAS 121.
The requirements of FASB Statement 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION which are effective January 1, 1996 will not have a material effect
on the Corporation's financial condition or results of operations because the
Corporation has elected to remain with the accounting for stock-based
compensation prescribed by Accounting Principles Board Opinion 25, Accounting
for Stock Issued to Employees.
OUTLOOK
Except for historical information, the material in this Outlook Section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations is forward-looking. For the purposes of the safe harbor provisions
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, actual results may differ materially due to a variety of
factors including that there can be no assurance that the proposed
recapitalization and financial restructuring can be accomplished at all or on
the terms and conditions proposed or in a timely manner and even if a
recapitalization is achieved, there can be no assurance that the existing
stockholders of the Corporation will receive any recovery on their investment.
In order to allow the Corporation to effect a bankruptcy reorganization
under Chapter 11 of the United States Bankruptcy Code in the quickest and least
costly manner, the Corporation will, on or about April 15, 1996, solicit accep-
II-13
<PAGE>
tances of its prepackaged plan from its impaired creditors (holders of the
Corporation's existing secured indebtedness). Under a prepackaged plan, the
acceptance of impaired creditors is solicited prior to filing a Chapter 11
bankruptcy reorganization pursuant to a disclosure statement. The vote of the
Corporation's existing stockholders will be solicited after filing the
prepackaged plan.
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11, a debtor may remain in possession of its
assets and business and attempt to reorganize its business for the benefit of
the debtor, its creditors and other parties in interest. The prepackaged plan,
as proposed by the Corporation, provides for the reorganization of the
Corporation's capital structure, thereby enabling the Corporation to continue
operations as a viable enterprise. A reorganization of the Corporation's capital
structure will be effected through an exchange of certain of the Corporation's
existing secured indebtedness, consisting of the secured antecedent debt and
Transit reimbursement obligations and certain long-term lease obligations, for
the issuance by the Corporation of new common stock, common stock of MK Rail
representing the Corporation's 65% ownership interest in MK Rail, the
Corporation's $52.2 million principal amount of its note receivable from MK Rail
and certain other assets. Existing stockholders and the Securities Class Actions
claimants would receive new common stock purchase warrants in exchange for all
of the current outstanding shares of common stock and the shares of common stock
to be issued by the Corporation in settlements of the MK Securities Class
Actions and MK Rail Securities Class Actions.The common stock purchase warrants
would have a term of five years and would represent the right to purchase
approximately 10% of the Corporation's new common stock at an exercise price
that would reflect more than full recovery by the holders of the Corporation's
existing secured indebtedness. Therefore, the Corporation expects that the
initial market value of the new common stock will be significantly less than the
exercise price of the warrants.
No agreement has yet been reached with the Corporation's secured creditors
and there can be no assurance that the proposed recapitalization and financial
restructuring can be accomplished.
II-14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1995
PRO FORMA ACCOUNTING TREATMENT
The accompanying unaudited pro forma consolidated balance sheet at December 31,
1995 has been prepared giving effect to:
(i) the adjustments to reflect the consummation of the proposed
recapitalization plan which contemplates an exchange of the Corporation's
existing secured indebtedness, consisting of the secured antecedent debt
and Transit reimbursement obligations and certain long-term lease
obligations for a new issue of the Corporation's common stock, (which
initially will represent all of the outstanding common stock of the
Corporation), common stock of MK Rail representing the Corporation's 65%
ownership interest in MK Rail, the Corporation's $52.2 million principal
amount of its note receivable from MK Rail and certain other assets, and;
(ii) the adjustments in connection with the adoption of fresh start
reporting as required by AICPA Statement of Position 90-7, including
recognition of the subsequent gain on debt discharge of prepetition
liabilities, the adjustments to reflect assets and liabilities at their
fair values, including the recognition of the excess of reorganization
value over amounts allocable to identifiable assets, elimination of the
accumulated deficit in retained earnings and other transactions
contemplated in connection with the proposed recapitalization plan.
For purposes of preparing "fresh start" accounting statements as specified
in the American Institute of Certified Public Accountants Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code", the Corporation, with the assistance of its independent advisors, has
estimated the reorganization value of the reorganized Corporation. This value
will be allocated, based on estimated fair market values, to specific tangible
or identifiable assets, and the Corporation will record an intangible asset
equal to the reorganization value in excess of amounts allocable to identifiable
assets. The total reorganization value includes a value attributed to common
stock and the indebtedness contemplated by the reorganization but is not
indicative of the trading values for those securities.
The estimate of reorganization value is based upon, among other things, a
review of the operating performance of publicly traded companies in each of the
Corporation's businesses that offer services that are comparable to or
competitive with the Corporation's services and the market valuation multiples
of these companies. Market valuation multiples were applied to the Corporation's
historical and projected financial information. The Corporation did not
independently verify the information for the comparable companies considered in
its valuation, which information was obtained from publicly available reports.
The reorganization value takes into account, among other matters, (i)
assumptions underlying the Corporation's projected financial information, (ii)
the financial terms, to the extent publicly available, of certain historical
acquisitions of companies whose operating businesses are believed to be
reasonably comparable to certain businesses of the Corporation, (iii) the
results of discounted cash flow analyses for certain of the Corporation's
businesses on a going concern basis, based on projected financial information,
and (iv) other economic and industry information relevant to the operating
businesses of the Corporation.
The projected financial information was based on estimates and assumptions
about circumstances and events that have not yet taken place. Such estimates and
assumptions are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Corporation,
including, but not limited to, those with respect to the future courses of the
Corporation's business activity. Accordingly, there will usually be differences
between projections and actual results because events and circumstances
frequently do not occur as expected, and those differences may be material.
No agreement has yet been reached with the Corporation's secured creditors
and there can be no assurance that the proposed recapitalization and financial
restructuring can be accomplished.
The unaudited pro forma balance sheet at December 31, 1995 is not
necessarily indicative of how the Corporation's balance sheet would have been
presented had the transactions actually been consummated at December 31, 1995,
nor is it necessarily indicative of the presentation of the Corporation's
balance sheet for any future period. The unaudited pro forma balance sheet
should be read in conjunction with the accompanying audited consolidated
financial statements of the Corporation and the related financial statement
footnotes thereto included elsewhere in this Annual Report on Form 10-K.
II-15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995 PRO FORMA DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS) HISTORICAL ADJUSTMENTS (a) PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 63,086 $ -- $ 63,086
Deferred income taxes 10,590 (10,590) --
Net assets of discontinued MK Rail operations 72,000 (72,000) --
Other current assets 339,128 -- 339,128
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 484,804 (82,590) 402,214
- ------------------------------------------------------------------------------------------------------------------------------
Investments and other assets
Other investments and assets 87,264 (8,816) 78,448
Reorganization value in excess of amounts
allocable to identifiable assets -- 98,406 98,406
- ------------------------------------------------------------------------------------------------------------------------------
Total investments and other assets 87,264 89,590 176,854
- ------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 56,092 4,300 60,392
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $628,160 $ 11,300 $639,460
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Short-term debt $ 37,882 $ -- $ 37,882
Liabilities subject to compromise 324,788 (324,788) --
Other current liabilities 354,341 -- 354,341
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 717,011 (324,788) 392,223
- ------------------------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 8,061 (8,061) --
Accrued postretirement benefit obligation 29,193 23,549 52,742
Accrued litigation settlements 25,000 (25,000) --
Other non-current liabilities 42,577 -- 42,577
- ------------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 104,831 (9,512) 95,319
- ------------------------------------------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK -- 18,000 18,000
- ------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Old common stock 319,060 (319,060) --
New common stock -- 133,918 133,918
Accumulated deficit (510,147) 510,147 --
Other accounts (2,595) 2,595 --
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficiency) (193,682) 327,600 133,918
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficiency) $ 628,160 $ 11,300 $639,460
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) To record the settlement of liabilities subject to compromise and recognize
the subsequent gain on debt discharge, cancel all prepetition ownership
interests in the Corporation, record the adjustments to reflect assets and
liabilities at their fair values, eliminate the accumulated deficit in retained
earnings, and record other transactions contemplated in connection with the
proposed recapitalization plan.
The prepackaged plan as currently proposed would have resulted in the
discharge of approximately $349.8 million of prepetition claims against the
Corporation including the accrued litigation settlements through the issuance
of new Common Stock to secured creditors with a book value of $133.9 million,
(which initially will represent all of the outstanding common stock of the
Corporation), distribution of the Corporation's 65% ownership interest in MK
Rail and its note receivable from MK Rail with an aggregate carrying amount
of $72.0 million and $18.0 million of redeemable preferred stock, and would
have resulted in an anticipated gain on debt discharge of $125.9 million. No
agreement has yet been reached with the Corporation's secured creditors and
there can be no assurance that the proposed recapitalization and financial
restructuring can be accomplished.
II-16
<PAGE>
QUARTERLY FINANCIAL DATA
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
Selected quarterly financial data for each of the two years in the period ended
December 31, 1995, are presented below. Computations of income (loss) per common
share for each quarter and the annual period are independent.
<TABLE>
<CAPTION>
Quarter
------------------------------------------------------
1995 1st (a) 2nd (a) 3rd (a) 4th (a) Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 366,486 $ 459,209 $ 492,639 $ 390,332 $ 1,708,666
Operating income (loss) from continuing operations 4,708 10,628 (10,849) 14,335 18,822
Loss from continuing operations $ (19,636) $ (10,436) $ (37,882) $ (11,682) $ (79,636)
Income (loss) from discontinued operations (31,683) (1,952) (66,742) (81,925) (182,302)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $ (51,319) $ (12,388) $(104,624) $ (93,607) $ (261,938)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Loss per common share:
Continuing operations $ (.60) $(.31) $(1.15) $ (.35) $(2.41)
Discontinued operations (.96) (.06) (2.02) (2.47) (5.52)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $(1.56) $(.37) $(3.17) $(2.82) $(7.93)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Market price
High $13.00 $9.50 $9.62 $8.00 $13.00
Low 5.62 4.75 6.00 4.00 4.00
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarter
------------------------------------------------------
1995 1st (a) 2nd (a) 3rd 4th Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 449,397 $ 495,798 $ 590,679 $ 485,129 $ 2,021,003
Operating income (loss) from continuing operations 9,349 (10,634) 9,215 (108,698) (100,768)
Income (loss) from continuing operations $7,043 $ (20,167) $ 3,166 $(145,740) $ (155,698)
Loss from discontinued operations 2,609 (20,299) (6,367) (169,880) (193,937)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $9,652 $ (40,466) $ (3,201) $(315,620) $ (349,635)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share:
Continuing operations $.22 $ (.62) $ .10 $(4.45) $ (4.79)
Discontinued operations .08 (.62) (.20) (5.19) (5.96)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $.30 $(1.24) $(.10) $(9.64) $(10.75)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends declared $.20 $.20 $.20 $.20 $.80
Market price
High $29.12 $29.87 $21.50 $17.87 $29.87
Low 24.37 20.12 15.12 12.25 12.25
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reclassified to give effect to the discontinuance of MK Rail Corporation
and Transit operations.
II-17
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements as of December 31, 1995
and 1994, and for each of the three years in the period ended
December 31, 1995
PAGE(S)
Independent Auditors' Report II-19
Consolidated Statements of Operations II-20
Consolidated Balance Sheets II-21, II-22
Consolidated Statements of Cash Flow II-23
Consolidated Statements of Stockholders'
Equity (Deficiency) II-24
Notes to Consolidated Financial Statements II-25 - II-44
II-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Morrison Knudsen Corporation
We have audited the accompanying consolidated balance sheets of Morrison Knudsen
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for each of the three years in the period ended December 31, 1995.
Our audits also included the financial statement schedule listed in the Table of
Contents at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Morrison Knudsen Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
the Corporation will continue as a going concern. As discussed in "Notes to
Consolidated Financial Statements - Basis of Presentation and Management's
Plans", the Corporation: had substantial losses and negative cash flow from
operations in 1994 and 1995, which significantly reduced stockholders' equity
and resulted in a substantial retained deficit and a working capital deficit at
December 31, 1995; and does not expect to be able to make its required debt
repayments in 1996. These conditions raise substantial doubt about the
Corporation's ability to continue as a going concern. Management's plans in
regard to these matters are also described in "Notes to Consolidated Financial
Statements - Basis of Presentation and Management's Plans." The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche, LLP
DELOITTE & TOUCHE, LLP
Boise, Idaho
April 12, 1996
II-19
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 (a) 1993 (a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 1,708,666 $ 2,021,003 $ 2,329,876
Cost of revenue (1,689,844) (2,121,771) (2,269,323)
- ------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) from continuing operations 18,822 (100,768) 60,553
General and administrative expenses (59,243) (33,087) (37,358)
Interest expense (28,217) (4,934) (3,114)
Other income (expense), net (4,408) (19,665) 26,808
Equity in net income (loss) of unconsolidated affiliates 23,042 11,390 (5,757)
Loss on disposition of investments in affiliates, net (19,738) (15,063) --
Gain on subsidiary sale of stock -- 1,255 10,602
Provision for litigation settlements -- (25,000) --
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income
taxes and minority interest (69,742) (185,872) 51,734
Income tax (expense) benefit (9,894) 30,894 (21,631)
Minority interests in net (income) loss of subsidiaries -- (720) (1,185)
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (79,636) (155,698) 28,918
Discontinued operations:
Income (loss) from discontinued MK Rail and Transit operations,
net of tax expense of $107 for 1995, tax benefit of $49,359 for 1994,
and tax expense of $4,828 for 1993 (7,436) (213,972) 6,849
Losses on disposals of discontinued operations, net of tax benefit
of $10,881 (174,866) -- --
Gain on MK Rail's sale of stock, net of tax expense of $3,994 -- 20,035 --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (261,938) $ (349,635) $ 35,767
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share:
Continuing operations $(2.41) $ (4.79) $ .93
Discontinued operations (5.52) (5.96) .22
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(7.93) $(10.75) $1.15
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Common shares used to compute income (loss) per common share 33,050,900 32,528,000 30,991,200
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends declared per common share $-- $.80 $.80
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
II-20
<PAGE>
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 1994 (a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 63,086 $ 66,864
Accounts receivable including retentions of $16,952 and $32,256 166,104 177,614
Unbilled receivables 87,902 123,189
Refundable income taxes, net 22,803 20,607
Investments in and advances to construction joint ventures 15,186 12,854
Deferred income taxes 10,590 63,885
Investments in unconsolidated affiliates held for sale 32,189 --
Net assets of discontinued MK Rail operations 72,000 142,424
Other 14,944 29,913
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 484,804 637,350
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 24,440 25,101
Investments in and advances to unconsolidated affiliates 51,031 71,382
Goodwill and other intangibles, net 4,006 15,947
Other investments and assets 7,787 39,938
- ------------------------------------------------------------------------------------------------------------------------------
Total investments and other assets 87,264 152,368
- ------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST
Land and mineral rights 10,507 18,402
Leasehold improvements 60,079 84,754
Machinery and equipment 9,140 21,808
Construction equipment 132,776 187,053
- ------------------------------------------------------------------------------------------------------------------------------
Total property and equipment 212,502 312,017
LESS ACCUMULATED DEPRECIATION (156,410) (198,788)
- ------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 56,092 113,229
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 628,160 $ 902,947
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
II-21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
- ------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term and current portion of long-term debt $ 251,226 $ 192,152
Estimated reimbursement obligations of discontinued Transit operations 111,444 --
Accounts payable including retentions of $20,076 and $29,348 130,969 194,867
Accrued salaries, wages and benefits 45,362 40,286
Accruals for estimated losses on uncompleted contracts 21,973 38,110
Accrued and deferred interest on antecedent debt 9,320 --
Other accrued liabilities 64,284 51,112
Billings in excess of costs and earnings on uncompleted contracts 63,252 104,611
Advances from customers 19,181 18,584
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 717,011 639,722
- ------------------------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 8,061 22,651
Deferred compensation 12,999 18,001
Deferred income 10,572 11,082
Accrued workers' compensation insurance and other non-current liabilities 19,006 11,027
Accrued postretirement benefit obligation 29,193 26,710
Debt due after one year -- 7,873
Obligations and advances in excess of investment in Transit operations -- 79,438
Accrued litigation settlements 25,000 25,000
- ------------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 104,831 201,782
- ------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
- ------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARY -- 3,647
- ------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $.10, authorized 10,000,000 shares, none issued
Common stock, par value $1.67, authorized 100,000,000 shares,
issued 33,692,857 and 33,490,664 shares 56,156 55,818
Capital in excess of par value 270,661 272,594
Accumulated deficit (510,147) (248,209)
Treasury stock, 454,914 and 626,434 shares, at cost (7,757) (11,116)
Unearned compensation - restricted stock (1,582) (2,473)
Cumulative translation adjustments (1,578) (8,239)
Net unrealized holding gain (loss) on securities available for sale 565 (579)
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficiency) (193,682) 57,796
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficiency) $ 628,160 $ 902,947
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 (a) 1993 (a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(261,938) $(349,635) $ 35,767
Reconciliation of net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 23,179 34,198 30,196
Equity in net (income) loss of investees less dividends received (22,382) (10,490) 5,973
Results of discontinued operations and loss on disposal 182,302 213,972 (6,849)
Gain on MK Rail's sale of stock -- (20,035) --
Provisions for (reversals of) estimated losses on uncompleted contracts (19,154) 46,083 (6,161)
Provision for (benefit from) deferred income taxes 40,575 (9,979) 2,375
Provisions for non-current liabilities 5,550 24,962 6,895
Provision for litigation settlements -- 25,000 --
Gains on subsidiaries sales of stock -- (1,255) (10,602)
Loss on disposition of investments in affiliates, net 19,738 16,318 --
(Gain) loss on dispositions of property (1,675) 7,000 (14,692)
Write-downs of investments and non-current assets 11,278 28,287 --
Minority interests in net income of subsidiaries -- 720 572
Cash paid to prefund workers' compensation liability -- (44,100) --
Other items, net 13,416 (10,728) 16,786
Change in current assets and liabilities, net of effects of purchases of businesses:
Increase in working capital from cancelation of accounts receivable sales (60,000) -- --
Accounts receivable and unbilled receivables (4,892) 17,257 (68,325)
Investments in and advances to construction joint ventures (6,096) 67,693 (286)
Other current assets 1,410 12,111 (3,998)
Accounts payable, accrued compensation and other liabilities 75,472 (53,578) 8,465
Income taxes payable (refundable) (2,196) 2,128 (3,398)
Billings in excess of costs and earnings on uncompleted contracts (20,239) 8,844 52,430
Customer advances, net 693 17,471 (8,706)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by continuing operating activities (24,959) 22,244 36,442
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Short-term investments, net -- -- 47,859
Property and equipment acquisitions (15,813) (30,138) (19,928)
Property and equipment disposals 8,855 29,583 5,327
Purchase of securities available for sale (14,187) (24,786) --
Proceeds from sales of securities available for sale 16,077 51,821 --
Investments in and receivables from unconsolidated affiliates (537) (10,992) (2,979)
Proceeds from sales of investments in unconsolidated affiliates 42,017 2,640 --
Collection of affiliate receivables 1,195 5,413 4,013
Other investing activities, net 8,108 (2,584) 24,832
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing investing activities 45,715 20,957 59,124
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used by discontinued operations (76,998) (200,883) (164,753)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net borrowings under credit agreements and short-term debt 59,074 135,243 45,858
Borrowings of long-term debt -- 48,027 126
Payments of long-term debt -- (12,744) (399)
Proceeds from stock issued and other equity transactions -- 509 503
Dividends paid (6,610) (25,613) (24,164)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing financing activities 52,464 145,422 21,924
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash -- (876) --
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (3,778) (13,136) (47,263)
Cash and cash equivalents at beginning of period 66,864 80,000 127,263
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 63,086 $ 66,864 $ 80,000
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 22,616 $ 4,991 $ 5,966
Income taxes paid (refunded), net (26,483) (24,095) 23,962
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
II-23
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SHARES OF
COMMON STOCK (a) CAPITAL IN RETAINED
COMMON EXCESS OF EARNINGS TREASURY
ISSUED TREASURY STOCK PAR VALUE (DEFICIT) STOCK OTHER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1992 32,072,353 (1,432,378) $53,453 $236,337 $116,330 $(25,959) $ (4,390)
Net income 35,767
Dividends declared (24,631)
Stock issued in
business combinations 471,996 787 11,653
Stock option and award
plans 153,830 365,567 254 4,260 6,847 (3,087)
Treasury stock acquired (13,373) (323)
Compensation amortization 910
Foreign currency
translation
adjustments (1,241)
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 32,698,179 (1,080,184) 54,494 252,250 127,466 (19,435) (7,808)
Net loss (349,635)
Dividends declared (26,040)
Stock issued in business
combinations 770,000 1,283 19,012
Stock option and award
plans 109,473 380,852 186 2,646 7,161
Reclassifications (86,988) 86,988 (145) (1,314) 1,459
Treasury stock acquired (14,090) (301)
Compensation amortization 3,364
Foreign currency
translation
adjustments (6,268)
Unrealized holding gain
(loss), net (579)
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 33,490,664 (626,434) 55,818 272,594 (248,209) (11,116) (11,291)
Net loss (261,938)
Stock option and award
plans 202,193 198,593 338 (1,933) 3,731
Treasury stock acquired (27,073) (372)
Compensation amortization 891
Foreign currency
translation
adjustments 6,661
Unrealized holding gain
(loss), net 1,144
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 33,692,857 (454,914) $56,156 $270,661 $(510,147) $ (7,757) $ (2,595)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Treasury stock at December 31, 1995 included 375,144 shares held in trust
for distribution under variable-price stock options.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
II-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
The term "Corporation" as used in this Annual Report includes Morrison Knudsen
Corporation and its consolidated subsidiaries unless otherwise indicated.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Corporation and all of its majority-owned subsidiaries except
for the accounts of McConnell Dowell Corporation Limited ("MDC"). See the
"Investments in and Advances to Unconsolidated Affiliates" Note to Consolidated
Financial Statements. Investments in 20 percent to 50 percent owned companies
and joint ventures are accounted for by the equity method. The Corporation's
proportionate share of joint-venture revenue, cost of revenue and operating
income (loss) is included in the consolidated statements of operations.
Intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES: The preparation of the Corporation's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reported amounts of
revenues and costs during the reporting periods for long-term contracts.
The Corporation, in estimating its Transit reimbursement obligations makes
significant assumptions concerning cost estimates, projected to the estimated
completion dates of contracts which are in their early stages of production, for
labor productivity rates, material price and usage, for interest expense on the
estimated borrowings under the credit facilities extended to Amerail, additional
general and administrative expenses and unabsorbed manufacturing overhead due to
the anticipated absence of new work during the period of Amerail's performance
of the contracts transferred to Amerail. The Corporation has no management
control over Amerail and therefore must rely on financial and operating
information provided by Amerail to estimate its reimbursement obligations. Due
to uncertainties in the estimation process, it is at least reasonably possible
that estimated costs to complete the Metra contract will be further revised in
the near-term.
The Corporation has a substantial history of making reasonably dependable
estimates of the extent of progress towards completion, contract revenues, and
contract costs on its long-term construction contracts. However, due to
uncertainties inherent in the estimation process, it is at least reasonably
possible that completion costs will be further revised in the near-term for
certain major construction projects in the early stages of progress.
RECOGNITION OF REVENUE: The Corporation recognizes revenue on construction
contracts, including substantially all of its construction joint-venture
contracts, on the percentage-of-completion method, based on the proportion of
costs incurred on the contract to total estimated contract costs.
Construction-management and engineering contract revenue is recognized on the
accrual method.
Revisions in uncompleted contract revenue and cost estimates are reflected
in the accounting period when known. Any anticipated losses on uncompleted
contracts are charged to operations as soon as they are determinable. Claims for
additional contract revenue in excess of original contract price are recognized
when an offer to settle has been received from the customer.
UNBILLED RECEIVABLES: Unbilled receivables arise when revenues have been
recorded but amounts cannot be billed under the terms of the contracts but are
recoverable from customers upon various measures of performance such as
quantities excavated or delivered, costs incurred, time schedules or completion
of the contracts. Amounts of unbilled receivables in the balance sheets at
December 31, 1995 and 1994 represent (i) unbilled amounts arising from the use
of the percentage-of-completion method of accounting, (ii) incurred costs to be
billed under cost-reimbursement-type contracts, or (iii) amounts arising from
routine lags in billing (for example, for work completed in one month but not
billed until the next month pursuant to contract terms). Substantially all the
unbilled receivables at December 31, 1995, net of progress payments, if any, are
expected to be collected during 1996.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES: The Corporation includes in
current assets and liabilities amounts realizable and payable under engineering
and construction contracts that extend beyond one year. Accounts receivable at
December 31, 1995 include $7,337 of contract retentions, generally payable by
customers on final acceptance, which amounts are expected to be collected after
1996.
Cash advances by customers to provide a revolving fund from which to pay
contract-related costs are reflected as liabilities until the contract is
substantially or fully completed. The Corporation does not pay interest on
customer advances.
CASH EQUIVALENTS: Cash equivalents consist of investments in highly liquid
securities purchased with an original maturity of three months or less.
CREDIT RISKS: Financial instruments which potentially subject the Corporation to
concentrations of credit risks
II-25
<PAGE>
consist of cash equivalents, securities available for sale and accounts
receivable and unbilled receivables.
The Corporation by policy, limits the amount of credit exposure to any one
financial institution and places the investments with financial institutions
evaluated as highly creditworthy. Concentrations of credit with respect to
accounts receivable and unbilled receivables are limited due to the
Corporation's credit evaluation process. Historically, the Corporation has not
incurred any significant credit-related losses.
DEPRECIATION AND AMORTIZATION: The cost of leasehold improvements is depreciated
on the straight-line method over varying periods not in excess of applicable
lease terms. The cost of construction equipment (less salvage values of up to
20%) is depreciated on the straight-line method over periods from five to 10
years. Certain construction specialty equipment is depreciated using the
units-of-production method and may have salvage values which exceed 20% of
original cost. The cost and accumulated depreciation of property and equipment
disposals are removed from the accounts, and gains or losses are reflected in
the results of operations of the period in which the transaction is completed.
GOODWILL AND OTHER INTANGIBLES: Goodwill, cost in excess of the net assets of
businesses acquired, is amortized on the straight-line method over periods not
exceeding three years. Cost of patents is amortized on the straight-line method
over their useful lives or the date of their expiration. In periods subsequent
to purchase acquisitions giving rise to goodwill or other intangible assets, the
Corporation periodically evaluates the existence or extent of an impairment of
the unamortized amounts. Accumulated amortization of intangibles at December 31,
1995 was $4,906.
FOREIGN CURRENCY TRANSLATION: The functional currency for the majority of the
Corporation's foreign operations is the applicable local currency. Translation
from the applicable foreign currencies to U.S. dollars is performed for asset
and liability accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. Gains or losses, net of applicable deferred
income taxes, resulting from such translation are deferred as a separate
component of stockholders' equity (deficiency)until disposition or substantial
disposition of the investment. Gains or losses resulting from foreign currency
transactions are included in the results of operations of the period in which
the transaction is completed.
INCOME TAXES: Deferred income tax assets and liabilities are recognized for the
effects of temporary differences between the financial statement carrying
amounts and the income tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
In addition, future tax benefits, such as net operating loss carryforwards are
recognized currently to the extent such benefits are more likely than not to be
realized as an economic benefit in the form of a reduction of income taxes in
future years.
INVESTMENTS IN DEBT AND EQUITY SECURITIES: The Corporation classifies
investments in equity securities that have readily determinable fair values and
all investments in debt securities into three categories at the time of purchase
and re-evaluates such designation as of each balance sheet date. Equity and debt
securities not classified as trading securities nor as held-to-maturity
securities are classified as available-for-sale securities in the balance
sheets. Unrealized holding gains and losses are reflected as a separate
component of stockholders' equity (deficiency).
DERIVATIVES: Gains and losses on hedges of existing assets or liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in the results of operations as part of those carrying
amounts. Gains and losses related to qualifying hedges of firm commitments or
anticipated transactions also are deferred and recognized in the results of
operations or as adjustments of carrying amounts when the hedged transaction
occurs.
VALUATION OF CARRYING AMOUNTS OF INVESTMENTS: When the Corporation decides to
sell an investment in a consolidated subsidiary or an unconsolidated affiliate,
and the carrying amount of the investment exceeds its estimated recovery value,
the Corporation accrues an expected loss on disposition. The Corporation
determines estimated recovery value based on the best information available in
the circumstances.
ACCOUNTING FOR DIVESTITURES: At the time the Corporation commits to a formal
plan to dispose, whether by sale or abandonment, of a component of the
Corporation whose operations represent an entire line of business or an entire
class of customer, (the "measurement date") it reports the disposal of such a
segment in the discontinued operations format as required under Accounting
Principles Board Opinion No. 30 ("APB 30"). APB 30 provides for separate
disclosure in the statement of operations of the amount, net of any applicable
income taxes, of (i) the results of discontinued operations prior to the
measurement date, (ii) the gain (loss) from disposal of the business segment,
including estimated future income (loss) from discontinued operations during the
period from the measurement date to expected time of disposal (the "phase-out
period") and (iii) expenses directly associated with the decision to dispose.
Any income accrued for the phase-out period is limited to the loss on disposal
of the assets of the segment and accrued costs directly associated with the
decision to dispose, any excess income is recognized when realized at the time
of disposal. If a gain is expected from disposal of a segment, including
estimated future income from discontinued operations during the phase-out
period, the
II-26
<PAGE>
Corporation recognizes such gain when earned. In addition, the Corporation
segregates the net assets and liabilities (current and non-current) related to
the discontinued segment in the balance sheet following the measurement date and
in the balance sheets of periods ended prior to the measurement date.
INCOME (LOSS) PER SHARE: Income (loss) per share are computed based on the
weighted average number of shares outstanding plus the dilutive effect of shares
issuable upon assumed exercise of stock options and stock purchase warrants,
reduced by the shares which could be purchased with the assumed proceeds from
such exercise, if dilutive.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 121 ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
("FAS 121") and Statement No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION ("FAS
123"). The requirements of both FAS 121 and 123 are effective January 1, 1996.
FAS 121 requires that long-lived assets and certain identifiable intangible
assets to be held and used be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable and that long-lived assets and certain identifiable intangibles held
for disposal be reported at the lower of their carrying amount or fair value
less the cost to sell. Adoption of FAS 121 will not have a material effect on
the Corporation's financial position or results of operations because the
Corporation's current accounting policies are in compliance with the
requirements of FAS 121.
FAS 123 defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all their employee stock compensation plans.
However, FAS 123 also allows an entity to continue to measure periodic
compensation cost for its stock compensation plans using the intrinsic value
based method of accounting prescribed by ACCOUNTING PRINCIPLES BOARD OPINION 25
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Corporation has elected to remain
with the accounting in APB Opinion 25, however, it will make pro forma
disclosures of net income and income per share beginning in 1996 as if the fair
value based method of accounting had been applied.
BASIS OF PRESENTATION AND MANAGEMENT'S PLANS
The Corporation's accompanying consolidated financial statements have been
prepared on the basis that it will continue as a going concern, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. There are certain conditions
that raise substantial doubt about the Corporation's ability to continue as a
going concern:
- - The Corporation incurred losses from continuing operations of $79,636 and
$155,698 for the years ended December 31, 1995 and December 31, 1994,
respectively. The Corporation reported a net loss of $261,938 for the year
ended December 31, 1995 and a net loss of $349,635 for the year ended
December 31, 1994, including losses from discontinued MK Rail and Transit
operations of $182,302 and $193,937, in 1995 and 1994, respectively.
- - Net cash used by the Corporation's continuing operating activities was
$24,959 for the year ended December 31, 1995. Net cash used by the
discontinued MK Rail and Transit operating activities was $76,998 and
$200,883 for the years ended December 31, 1995 and December 31, 1994,
respectively.
- - At December 31, 1995, the Corporation had a stockholders' deficiency of
$193,682 which included an accumulated deficit of $510,147.
- - At December 31, 1995 the Corporation had a working capital deficiency of
$232,207.
- - The Corporation expects negative cash flow from operations in 1996.
- - The Corporation does not expect to make the required debt repayments of its
antecedent debt and required escrow payments under its Transit
reimbursement obligations.
The Corporation's ability to continue as a going concern is dependent upon
the Corporation successfully obtaining relief from its antecedent debt and
Transit reimbursement obligations and returning the Corporation to profitable
operations. In this connection, the Corporation intends:
- - Through its proposed Recapitalization plan to effect an exchange of its
antecedent debt, Transit reimbursement obligations and certain long-term
lease obligations for a new issue of the Corporation's common stock and
common stock of MK Rail representing the Corporation's 65% ownership
interest in MK Rail, the Corporation's $52,200 principal amount of its note
receivable from MK Rail with interest at the prime rate (8.25% at March 31,
1996) and certain other assets.
- - Continue to obtain new, profitable contracts and to generate positive cash
flows from continuing operations.
The results of these plans cannot be predicted and no assurance can be
given that the proposed Recapitalization and operating plans will be successful.
The Corporation is also unable to determine if such Recapitalization can be
accomplished through a prepackaged plan pursuant to Chapter 11 of the United
States Bankruptcy Code or whether a protracted Chapter 11 proceeding would be
required. Any such recapitalization, if successful, will substantially dilute or
eliminate existing stockholders' interests.
II-27
<PAGE>
CHANGES IN BUSINESS
DISCONTINUED TRANSIT OPERATIONS AND REIMBURSEMENT OBLIGATIONS: In July 1995, the
Corporation committed to dispose of Transit and on October 17, 1995, the
Corporation reached an agreement to transfer substantially all of the assets,
certain liabilities, all contract operations and management of Transit to
American Passenger Rail Car Company, L.L.C. ("Amerail") a newly-formed company
wholly-owned by persons not affiliated with the Corporation. Amerail has
managerial authority over its operations including the completion of all of the
Transit contracts transferred to Amerail. The Corporation cannot exercise any
control over the management of Amerail and the execution of the contracts
transferred to Amerail. The Corporation has accounted for the disposition of
Transit as a discontinued operation, and the consolidated financial statements
for prior periods have been reclassified to present Transit as a discontinued
operation. In connection with the disposition of Transit, the Corporation
recorded a $95,772 million loss for the year ended December 31, 1995, without
providing future tax benefits. The loss includes (i) a $3,630 million loss from
operations for the six month period ended June 30, 1995, the effective date of
disposal, (ii) $85,462 million provision for the Corporation's estimated
reimbursement obligations for the net cash losses resulting from Amerail's
performance of certain transit car contracts transferred to Amerail, and (iii)
$6,680 million accrual for transaction costs and employee severance and benefits
costs associated with the decision to dispose.
The Corporation remains liable for certain net cash losses resulting from
Amerail's performance of contracts transferred to Amerail. In this connection,
the Corporation agreed to guarantee Amerail's reimbursement obligation to
certain banks which are providing a standby letter of credit and credit facility
up to an aggregate amount of $141,700 to support the performance of the contract
with the Illinois Commuter Rail Division of the Regional Transit Authority d/b/a
Metra/Metropolitan Rail ("Metra Contract") transferred to Amerail. The
Corporation has estimated its reimbursement obligation for such net cash losses
of the Metra Contract to be $80,195 at December 31, 1995. The Corporation's
reimbursement obligation to certain banks which are providing the standby letter
of credit and the new credit facility to support the performance of the Metra
Contract is governed by the Metra Guaranty.
The Corporation also agreed to reimburse its bonding company for the
surety's future losses up to a maximum of $31,249 on the payment and performance
bonds supporting the performance of the existing manufacturing and refurbishing
contracts with various transit agencies, other than the Metra Contract,
("Non-Metra Contracts") transferred to Amerail. The Corporation's reimbursement
obligation to its bonding company for the surety's future losses on the
Non-Metra Contracts is governed by a reimbursement agreement (the "Transit
Reimbursement Agreement"). Accordingly the Corporation has reflected the
reimbursement obligations totaling $111,444 as a current liability on the
accompanying consolidated balance sheet at December 31, 1995.
The Corporation's estimate of the reimbursement obligation for the Metra
Contract includes anticipated costs, projected to the estimated completion date
of the Metra Contract, for interest expense on the estimated outstanding
borrowings under the credit facility extended to Amerail for completion of the
Metra Contract, additional general and administrative expenses and unabsorbed
manufacturing overhead due to the anticipated absence of new work during the
period of Amerail's performance of the Metra Contract. The Corporation has
recognized its reimbursement obligation through the estimated final completion
of the Metra Contract based upon the best information available, which includes
financial and operating information provided by Amerail, over which the
Corporation has no control. However, there can be no assurance that the net cash
losses ultimately realized at completion of the Metra Contract will not exceed
the Corporation's estimated reimbursement obligation at December 31, 1995.
The Corporation's repayment obligation under the Transit Reimbursement
Agreement is governed by a Distribution Agreement among the Corporation, the
bonding company and the agent for the antecedent debt (the "Distribution
Agreement"). Under the Distribution Agreement, the amount owing to the bonding
company under the Transit Reimbursement Agreement becomes subject to a maximum
of $31,249, and becomes payable 90 days after the date the last rail car is
accepted by a transit agency which is estimated to be 1998. Prior to this date,
however, the Distribution Agreement requires certain amounts to be placed in
escrow for the benefit of the bonding company to cover such future payment of
the ultimate amount owing under the Transit Reimbursement Agreement. These
escrow requirements are tied to when (i) dispositions of assets are made
requiring payments to be made on account of antecedent debt and (ii) payments
are made on account of antecedent debt.
The Corporation's repayment obligation under the Metra Guaranty (estimated
at $80,195 at December 31, 1995) is subject to the terms and conditions of the
Amended and Restated Override Agreement dated as of October 10, 1995 ("Override
Agreement") governing the repayment of the remainder of the Corporation's
antecedent debt. Optional and mandatory payments under the Override Agreement,
in addition to repaying funded antecedent debt, are escrowed on account of the
contingent Metra Guaranty repayment obligation and other contingent antecedent
debt obligations until, among other things, such amount becomes fixed and
liquidated.
II-28
<PAGE>
Summary results of operations of Transit for the six months ended June 30,
1995 (the effective date of disposition) and the year ended December 31, 1994
follows:
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
RESULTS OF OPERATIONS JUNE 30, 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------
Revenue $216,539 $ 114,759
Operating loss (3,630) (224,377)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISCONTINUED MKRAIL CORPORATION OPERATIONS: In March 1995, the Corporation
adopted a plan to dispose of its 65% ownership interest in MKRail Corporation
and has accounted for the planned divestiture of MK Rail as a discontinued
operation, and the accompanying consolidated financial statements have been
reclassified to report the net assets and the results of operations of MKRail
separately. Consolidated financial statements for prior periods have been
reclassified to present MK Rail as a discontinued operation. In connection with
its decision to sell MKRail, the Corporation recorded an $86,530 net loss for
the year ended December 31, 1995 after providing a net tax benefit of $10,774.
The loss includes (i) a $3,806 net loss from operations for the three month
period ended March 31, 1995, the measurement date, and (ii) $82,724 loss from
disposal including $18,081 loss from discontinued operations of MK Rail and
$64,643 loss provision to write-down the Corporation's carrying amount of its
investment in and note receivable from MK Rail to their estimated net realizable
values (without providing future tax benefits) based upon the best information
available in the circumstances. However, there can be no assurance that the net
proceeds realized by the Corporation from the sale of its investment in and
accounts receivable from MK Rail will not be less than the estimated recovery
value assumed at December 31, 1995.
Summary results of operations of MK Rail for the two years in the period
ended December 31, 1995, follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 (1) 1994 (2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue $263,718 $368,537
Operating loss (51,113) (49,977)
Net loss (40,414) (42,793)
- --------------------------------------------------------------------------------
Corporation's share of net loss $(21,887) $(27,815)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) MK Rail's results of 1995 operations were adversely impacted by $40,838
of pretax charges consisting of (i) $20,273 to exit the high-horsepower
locomotive business, including the write-down of its completed locomotives
and raw material inventories, and a provision for anticipated losses in
connection with current locomotive lease obligations, (ii) $9,570 to
write-down its manufacturing facility and equipment in Mountaintop,
Pennsylvania, to their estimated net realizable values because the
Mountaintop facility represented excess capacity and was no longer a core
asset, (iii) $7,064 to write-down the carrying amounts of a majority of its
owned locomotives in its lease fleet to their estimated net realizable
values, including a provision for anticipated losses on the leased
locomotives in contemplation of the eventual sale of its lease fleet, (iv)
$2,849 to recognize a write-down on the sale of its Australian operations
prior to transferring its ownership interest to the Corporation and (v)
$1,082 provision for contract losses and stockholder's litigation costs.
(2) MK Rail's results of 1994 operations were adversely impacted by $39,216
of pretax charges consisting of (i) $12,418 for aggregate losses on
uncompleted locomotive remanufacturing contracts, (ii) $11,060 to write-off
investments in affiliates in connection with MK Rail's decision to dispose
of its Argentine affiliates, (iii) $8,398 provision for noncancelable
purchase commitments of research and development services under contract,
and anticipated future losses on prospective leases of new high-horsepower
locomotives, stemming from MK Rail's decision to curtail its ongoing
activities in new locomotive manufacturing and technology and (iv) $7,340
provision primarily for legal expenses in connection with MK Rail
stockholder's litigation.
The assets and liabilities of MK Rail, adjusted to give effect to the
estimated fair value of the Corporation's ownership interest therein, have been
segregated on the accompanying consolidated balance sheets atDecember 31, 1995
and December 31, 1994. Such amounts are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 5,696 $ 12,459
Accounts receivable and unbilled receivables 43,934 46,068
Inventories 99,459 116,526
Other current assets 2,903 8,119
Property and equipment, net 61,587 71,426
Deferred income taxes 28,363 19,171
Goodwill and other intangibles, net 31,575 29,511
Prepaid lease cost 7,182 8,017
Short-term and current portion
of long-term debt (60,825) (2,776)
Accounts payable and accrued liabilities (51,780) (66,693)
Debt due after one year (7,198) (38,091)
Other non-current liabilities (10,901) (19,646)
Minority interests (35,083) (41,667)
Cumulative translation losses 5,223 --
Accrual for estimated loss on disposal (48,135) --
- --------------------------------------------------------------------------------
Net assets of discontinued operations $ 72,000 $142,424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
MK RAIL INTERCOMPANY AGREEMENTS: On June 15, 1995, the Corporation entered into
an agreement with MK Rail regarding the amount of intercompany indebtedness owed
by MK Rail to the Corporation and certain other matters. The agreement resulted
in the Corporation reducing its receivable from MK Rail through a capital
contribution of $29,500. The remaining balance of $52,200 was converted into a
promissory note, with interest at the prime rate, due in 2000 with earlier
repayments under certain default and change-of-interest conditions. The
outstanding balance of the promissory note is due and payable in full upon the
acquisition of all of the common stock or substantially
II-29
<PAGE>
all of the assets of MK Rail by a third party. The estimated loss on disposition
of MK Rail recognized in the consolidated statements of operations includes the
effects of this additional capital contribution to MK Rail and the adjustment to
realized value upon the sale of MK Rail's promissory note subsequent to December
31, 1995. The Corporation, in connection with its proposed reorganization plan,
has proposed to exchange the $52,200 principal amount of its MK Rail promissory
note and accrued interest thereon, together with other consideration for the
Corporation's existing secured indebtedness.
SECURITIES AVAILABLE FOR SALE AND WORKERS' COMPENSATION LIABILITY
The Corporation had a portfolio of securities available for sale at December 31,
1995 which consisted primarily of foreign government bonds held for unspecified
periods of time and sold to meet liquidity needs as part of the Corporation's
self-insured risk management programs, principally workers' compensation
liabilities. Maturities of debt securities in the portfolio at December 31, 1995
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
FAIR
DUE IN VALUE COST
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 8,900 $ 8,900
1997 - 2000 12,166 11,772
2001 - 2005 3,374 3,203
- --------------------------------------------------------------------------------
Totals $24,440 $23,875
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Gross unrealized holding gains and losses at December 31, 1995, were $588
and $23, respectively. The change in net unrealized holding gain from January 1,
1995 to December 31, 1995 was a $1,144 net unrealized holding gain. During 1995,
the Corporation sold $15,978 of debt securities from the portfolio which
resulted in $16,077 of net cash proceeds, $108 of realized gains and $9 of
realized losses based upon specific identification of the debt securities sold.
In March 1994, the Corporation and an insurance company entered into an
agreement under which the Corporation novated its reinsurance agreements and
prefunded its estimated $53,829 self-insurance liability for workers'
compensation claims incurred through March 31, 1994 with cash of $44,100. The
Corporation recorded a deferred gain of $9,729 on the transaction. The
Corporation recognizes the deferred gain over the period of the outstanding
liability beginning January 1994, based on the proportion of cumulative claims
paid, to the total estimated liability for claims. The Corporation continues to
self-insure for additional workers' compensation losses through its captive
insurance subsidiary and reinsurance agreements with outside insurers. The
unamortized deferred gain of $5,646 is included in the accompanying balance
sheet at December 31, 1995 under the caption "Deferred income".
CONSTRUCTION JOINT VENTURES
The Corporation has from time to time entered into a number of partnership
arrangements with other contractors commonly referred to as "joint ventures".
Construction joint ventures frequently have a short life span, since they are
designed and created for the sole purpose of bidding on, negotiating for, and
completing one specific project and are liquidated when the projects are
completed. The number of joint ventures in which the Corporation participates
and the size, scope and duration of the projects vary between periods. Specific
joint ventures change from period to period, and the comparability of the
following summary financial information between periods may not be meaningful.
The following table presents summarized financial information of the
construction joint ventures on a combined 100 percent basis.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL POSITION
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 49,781 $ 124,627
Other current assets 65,781 143,521
Non-current assets 22,112 19,365
Property and equipment, net 67,038 32,299
Advances from customers (16,197) (88,214)
Other current liabilities (161,066) (213,295)
- --------------------------------------------------------------------------------
Net assets $ 27,449 $ 18,303
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporation's investment in and advances
to construction joint ventures $15,186 $12,854
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined joint ventures, net
Revenue $ 748,026 $ 1,026,702 $1,025,376
Cost of revenue (695,985) (1,057,888) (985,314)
Operating income (loss) $ 52,041 $ (31,186) $ 40,062
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporation's share, net
Revenue $ 289,405 $ 331,866 $ 485,393
Cost of revenue (264,764) (359,420) (465,301)
- --------------------------------------------------------------------------------
Operating income (loss) $ 24,641 $ (27,554) $ 20,092
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
The following table presents summarized financial information of the
unconsolidated affiliated companies accounted for by the equity method on a
combined 100 percent basis. Amounts presented include the accounts of the
following individually significant investees (the Corporation's ownership
interests therein are shown parenthetically): AmerBank (29.5%); Westmoreland
Resources, Inc. (24%); MIBRAG mbH (33%); McConnell Dowell Corporation, Limited
("MDC") (62.8%) and Morrison Knudsen of Australia ("MKA") (100%). The summary
financial position presented at December 31, 1994, and the summary results of
operations for each of the three years in the period ended December 31, 1995
include the accounts of MK Gold Company until its disposition in June 1995.
Because of the Corporation's decision to dispose of its investments in AmerBank
and
II-30
<PAGE>
MDC, the carrying amounts of the Corporation's investments therein are included
in the accompanying balance sheet at December 31, 1995 under the caption
"Investments in unconsolidated affiliates held for sale". The Corporation,
unsuccessful in its search for potential buyers for the assets and/or business
of MKA, wrote-off its $2,362 investment in MKA at December 31, 1995. See the
"Dispositions of Investments in Affiliates - Dispositions in 1995" Note to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL POSITION
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 618,701 $ 446,260
Non-current assets 754,462 494,560
Current liabilities (274,537) (241,174)
Long-term debt (211,331) (75,455)
Other non-current liabilities (665,662) (440,987)
- --------------------------------------------------------------------------------
Net assets $ 221,633 $ 183,204
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporation's investment in and advances
to unconsolidated affiliates $51,031 $71,382
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investments in unconsolidated affiliates
held for sale $32,189 $ --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $730,279 $614,131 $199,110
Operating income 83,575 77,769 4,046
Net income (loss) 62,542 79,259 (2,734)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporation's equity in net
income (loss) of
unconsolidated affiliates $23,042 (1) $11,390 $(5,757)(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The increase in the Corporation's equity in the net income of investees
in 1995 is due to the recognition of its $10,820 proportionate share of
MDC's net income for the year 1995. Because of the Corporation's decision
to sell its ownership interest in MDC, the Corporation has accounted for
its investment in MDC during 1995 by the equity method. See the "Subsequent
Events - McConnell Dowell Corporation, Limited" Note to Consolidated
Financial Statements.
(2) The Corporation recognized a net loss from its investee's operations in
1993 primarily because of $4,600 combined net losses of Joy MK Projects
Company, then a 50% owned unconsolidated affiliate, and MDC, then a 48.9%
owned unconsolidated affiliate. Joy MK Projects Company became a
wholly-owned subsidiary in April 1993 and MDC became a majority-owned
consolidated subsidiary in June 1993.
The carrying amount of the Corporation's 29.5% ownership interest in
AmerBank at December 31, 1995 was $5,389. The carrying amount of 796,535 shares
of AmerBank's common stock held for sale by the Corporation was approximately
equal to the fair market value of AmerBank's publicly traded stock, based on
published market prices at December 31, 1995.
The Corporation received dividends from unconsolidated affiliates of $660,
$900 and $216 in 1995, 1994 and 1993, respectively.
The Corporation's consolidated accumulated deficit at December 31, 1995
includes $30,527 of accumulated undistributed earnings of its unconsolidated
affiliates accounted for by the equity method.
Effective January 1, 1994, the Corporation and two nonaffiliated investors
acquired majority ownership of MIBRAG mbH from the German government. The
Corporation, through its wholly-owned German subsidiary Morrison Knudsen
Deutschland ("MKD"), has an agreement to provide mine planning, engineering and
related services to MIBRAG mbH. In the fourth quarter of 1995, the Corporation
recognized $14,000 of mining service fees. Representing income earned during the
year 1994 and 1995 from providing mine planning, engineering and related
services to MIBRAG mbH. But because of restrictions on repatriation of funds
imposed as a consequence of German government loan guarantees of MIBRAG mbH's
current and future indebtedness, the Corporation, pursuant to the terms of the
purchase agreement with the German government, was precluded from realizing the
full amount of the fees during the periods when they were earned. In December
1995, an agreement was reached between MIBRAG mbH, certain outside investors and
the German government under which agreement MIBRAG mbH made a capital
contribution of certain productive power plant assets to a limited partnership
("partnership") and the outside investors contributed cash to the partnership in
exchange for a 99% interest in the partnership and rights to receive certain tax
depreciation benefits accruing to MIBRAG mbH. The addition of cash by the
outside investors effectively reduced MIBRAG mbH's future financing
requirements. The German government, in consideration for a reduction in its
loan guarantees, has, among other things, agreed to lift the restrictions on
payment of mining services fees by MIBRAG mbH to the Corporation and in
addition, lift limitations on any future payment of dividends by MIBRAG mbH. The
Corporation anticipates that it will continue to both recognize and realize the
mining services fees in future periods.
DISPOSITIONS OF INVESTMENTS IN AFFILIATES
DISPOSITIONS IN 1995
WRITE-OFF OF INVESTMENT IN MORRISON KNUDSEN OF AUSTRALIA ("MKA"): The
Corporation, unsuccessful in its search for potential buyers for the assets
and/or business of MKA, decided to discontinue its financial support for MKA
and, effective December 31, 1995, wrote-off its $2,362 investment in MKA.
SALE OF MK INVESTMENTS, INC. (NORTH PACIFIC CONSTRUCTION OPERATIONS)("MKI"): On
September 22, 1995, the Corporation completed the sale of certain MKI net assets
and operations for $17,100 cash. In the first six months of 1995, the
Corporation recognized a provision
II-31
<PAGE>
of $8,836 to write-down the carrying amount of its 100% investment in MKI to its
estimated recovery value based on preliminary negotiations with the buyer.
Pre-closing negotiations between the Corporation and the buyer resulted in the
retention by the Corporation of certain MKI net assets and operations, resulting
in a $716 reduction of the previously accrued $8,836 write-down or a net
realized loss on disposal of $8,120.
SALE OF WESTERN AIRCRAFT, INC. ("WESTERN"): On July 21, 1995, the Corporation
sold its 100% ownership interest in Western for $4,900 cash which approximated
the Corporation's carrying amount of its investment in Western.
Sale of Investment in MK Gold Company ("MK Gold"): On June 6, 1995, the
Corporation sold its 46.4% ownership interest in MK Gold for $22,500 cash. As a
condition to the purchase of the shares, the buyer acquired MK Gold's $20,000
bank credit facility and released the Corporation from its guarantee obligations
under the facility. The Corporation recognized a loss on disposal of $9,256.
DISPOSITIONS IN 1994
WRITE OFF OF INVESTMENT IN TEXAS TGVCORPORATION ("TEXAS TGV"): Texas TGV was
awarded a franchise in May 1991 to finance, construct and operate a high speed
rail system in Texas. Because Texas TGVfailed to provide equity financing by
December 31, 1993 as required under the franchise agreement and since its
efforts to extend the deadline or to negotiate amendments to the franchise
agreement with the Texas High Speed Rail Authority in early 1994 were
unsuccessful, the Corporation abandoned the project and wrote-off its $13,828
investment in Texas TGV in June 1994. In December 1994, the Corporation
recognized a pretax gain of $1,125 from the sale of substantially all of its
ownership interest in Texas TGV.
SALE OF INTEREST IN STRAIT CROSSING DEVELOPMENT, INC. ("SCDI"): In October 1993,
SCDI, a 45% owned unconsolidated subsidiary, entered into a development
agreement with the government of Canada to design, construct and operate for 35
years an 8.4 mile long toll bridge linking the Atlantic Provinces of New
Brunswick and Prince Edward Island. In 1994, the Corporation entered into an
agreement to sell a portion of its ownership interest in SCDI to a third party
for $1,301 cash and a $3,576 note receivable with interest at 7% per annum, due
and payable on the earlier of the date of final completion of the toll bridge or
May 31, 1998. The sale decreased the Corporation's ownership interest in SCDI
from 45% to 36%. The Corporation recorded a pretax gain of $4,877 on the change
of interest. See the "Subsequent Events - Strait Crossing Development, Inc."
Note to Consolidated Financial Statements.
SALE OF INVESTMENTS IN DEVELOPMENT STAGE COMPANIES: In December 1994, the
Corporation recognized a $7,237 pretax charge to operations representing its
$1,600 investment in and $5,637 of expected losses for loan guarantees for two
development-stage, non-core businesses. The Corporation decided to discontinue
its financial support for Beacon Light, a manufacturer of light enhancement
products, and dataCACHE, a computer software company.
In February 1995, dataCACHE was sold and the Corporation received $500 cash
for its ownership interest and the rights to receive future product royalties,
if any, up to $12,000. The $500 cash proceeds were applied towards the
outstanding balance of the guaranteed loan. The $2,832 outstanding balance of
the guaranteed loan was included in the Corporation's antecedent debt at
December 31, 1995.
On June 2, 1995, the Corporation sold its ownership interest in Beacon
Light for $1,000 cash and applied the $1,000 proceeds to pay down the
outstanding balance of the guaranteed loan. The $1,639 outstanding balance of
the guaranteed loan was included in the Corporation's antecedent debt at
December 31, 1995.
SHORT-TERM DEBT
Short-term debt at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Antecedent debt, interest rates of 8.5% at
December 31, 1995, 6.5% at December 31, 1994 $213,344 $139,000
Bridge loan, interest rates of 11.5% at
December 31, 1995, 6.7% at December 31, 1994 37,882 12,100
Unsecured borrowings, principally
of foreign subsidiaries, interest rates
of 6.4% to 10.5% -- 21,287
Commercial paper, interest rate of 6.1% -- 19,765
- --------------------------------------------------------------------------------
Total short-term debt $251,226 $192,152
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The weighted average interest rates on short-term borrowings outstanding at
December 31, 1995 and 1994 were 9.0% and 6.6%, respectively.
CREDIT FACILITY: On April 11, 1995, the Corporation and certain lender banks
entered into a Credit Facility under which the lender banks provided a bridge
loan of $110,000. The Credit Facility included establishment of $50,000 in new
borrowing capacity and absorption of a then existing $60,000 accounts receivable
purchase agreement. The Credit Facility also waived until May 31, 1995,
non-compliance with various financial covenants under the antecedent debt
agreement.
On April 25, 1995 the Credit Facility was amended to include an additional
accounts receivable facility of $12,100. The $122,100 outstanding under the
Credit Facility was due and payable on May 31, 1995.
Effective June 1, 1995, the Credit Facility was amended to (i) extend the
bridge loan termination date and the waivers from May 31, 1995 to July 31, 1995
and (ii) require the Corporation to repay $31,200 of the bridge loan by July 31,
1995. The Corporation repaid $31,200 prior to June 30, 1995.
II-32
<PAGE>
NEW AND AMENDED CREDIT FACILITIES: On August 10, 1995, the Corporation, its bank
lenders and sureties agreed as of July 31, 1995 to a restructuring of the
Corporation's existing indebtedness and provided for an increase in the amount
of the bridge loan from $122,100 to $129,000. In addition, the restructuring in
contemplation of the planned divestiture of Transit, provided for the
establishment of interim credit facilities, expiring September 1, 1995, to
advance funds to Transit of up to approximately $50,000 with interest at the
prime rate to finance its operations in connection with the Transit contracts.
On October 17, 1995, the Corporation reached an agreement to dispose of
Transit. In connection with the disposition of Transit (i) outstanding
borrowings under the two interim credit facilities to fund Transit's operations
were paid off on October 17, 1995 and (ii) the maximum borrowing amount under
the bridge loan was reduced from $129,000 to $100,000. Outstanding borrowings
under the bridge loan were subject to interest at the prime rate plus three
percent per annum (11.25% at March 31, 1996) and were due and payable on March
31, 1996. On March 29, 1996 the Corporation paid the outstanding balance owing
under the bridge loan.
On March 31, 1996, the Corporation and certain of its secured creditors
agreed to amend certain terms and conditions of the bridge loan facility, which
expired on March 31, 1996. The amendments to the bridge loan facility included,
among other things, establishment of a new borrowing capacity of $47,500, and
extension of its termination date to September 30, 1996. Outstanding borrowing
under the amended bridge loan facility will be subject to interest at the prime
rate plus one and one-half percent per annum (9.75% at March 31, 1996) due and
payable on the last day of each month and on September 30, 1996.
Under the restructuring agreements, the antecedent debt was secured by
security interests and mortgages on substantially all of the assets of the
Corporation and certain of its subsidiaries. The restructuring agreements permit
the deferral of principal payments on the antecedent debt from July 1, 1995
until December 31, 1996, except, the Corporation is required to repay $100,000
on September 30, 1996 plus interest and periodic bank fees accrued to that date.
Outstanding borrowings under the antecedent debt bear interest at the prime rate
(8.5% at December 31, 1995). Interest accrued on outstanding borrowings after
July 1, 1995, was allowed to be deferred and paid in six equal monthly
installments, together with accrued interest thereon at the prime rate on the
unpaid interest, commencing April 30, 1996 unless repaid with optional principal
prepayments. The Corporation had deferred $9,320 of accrued interest payable on
antecedent debt in the accompanying consolidated balance sheet at December 31,
1995. On April 2, 1996, as partial consideration for the extension of the bridge
loan facility, the Corporation paid $14,427 interest on the antecedent debt that
had been accrued and deferred from July 1, 1995 through March 31, 1996.
In addition to the required $100,000 repayment under the antecedent debt at
September 30, 1996 and $113,344 on December 31, 1996, the restructuring
agreements also provide for (i) optional prepayments and (ii) mandatory
prepayments. The Corporation may, at its option, prepay at any time all or part
of the amount outstanding under the antecedent debt. The Corporation must prepay
any prepayments or repayments received by the Corporation on the $52,200 note
receivable from MKRail, net cash proceeds from the sales of certain businesses
and assets currently held for sale, and any tax refunds received.
As of July 31, 1995, the Corporation, in connection with the new and
amended credit facility, granted to the bank lenders two stock purchase warrants
to acquire a total of 14,029,391 shares of unissued common stock at an exercise
price of $6.75 per share. The warrants may be exercised for all or any part
thereof at December 31, 1996, or earlier upon a payment default on the
antecedent debt, but not later than July 31, 2000. The Corporation's obligation
for the warrant covering 9,415,696 shares can be (i) eliminated if the
Corporation repays the outstanding balance of the antecedent debt by June 30,
1996 or (ii) reduced by 50% if repaid during the period from July 1, 1996
through September 30, 1996. The Corporation's obligation for the warrant
covering 4,613,695 shares can be (i) eliminated if the Corporation repays the
outstanding balance of its reimbursement obligation in connection with the Metra
contract by June 30, 1996 or (ii) reduced by 50% if repaid during the period
from July 1, 1996 through December 31, 1996 or (iii) reduced by 25% if repaid
during the period from January 1, 1997 through June 30, 1997.
The Corporation's sureties were also granted a stock purchase warrant to
acquire a total of 830,039 shares of unissued common stock at an exercise price
of $6.75 per share. The warrant may be exercised for all or any part thereof at
December 31, 1996, or earlier upon a payment default with respect to the
Corporation's $31,249 maximum reimbursement obligation to its sureties, but not
later than July 31, 2000. The Corporation's obligation for the warrant covering
830,039 shares can be (i) eliminated if the Corporation satisfies its $31,249
maximum reimbursement obligation by June 30, 1996 or (ii) reduced by 50% if
satisfied during the period from July 1, 1996 through September 30, 1996.
II-33
<PAGE>
TAXES ON INCOME
The components of the U.S. federal, state and foreign income tax expense
(benefit) reflected in the accompanying statements of operations for the three
years in the period ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
U.S. federal $(31,776) $(12,762) $11,508
State and foreign 2,965 3,222 5,547
- --------------------------------------------------------------------------------
Current (28,811) (9,540) 17,055
- --------------------------------------------------------------------------------
Deferred
U.S. federal 31,776 (15,493) 513
State and foreign 6,929 (5,861) 4,063
- --------------------------------------------------------------------------------
Deferred 38,705 (21,354) 4,576
- --------------------------------------------------------------------------------
Income tax expense (benefit) from
continuing operations $ 9,894 $(30,894) $21,631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The income tax expense (benefit) applicable to continuing and discontinued
operations for the three years in the period ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations
Current $(28,811) $ (9,540) $17,055
Deferred 38,705 (21,354) 4,576
- --------------------------------------------------------------------------------
9,894 (30,894) 21,631
Discontinued operations (10,774) (45,365) 4,828
- --------------------------------------------------------------------------------
Income tax expense (benefit) $ (880) $(76,259) $26,459
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, U.S. Federal income tax returns for the years 1987
through 1993 were in the process of examination or appeal. All years prior to
1987 are closed to further examination. The Company believes that adequate
provision has been made for possible assessments of additional taxes.
Deferred tax assets and liabilities as of December 31, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 ASSETS LIABILITIES TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee benefit plans $ 22,545 $ -- $ 22,545
Provision for estimated losses 93,424 -- 93,424
Revenue recognition 1,022 -- 1,022
Alternative minimum tax 13,802 -- 13,802
Joint ventures 3,851 -- 3,851
Depreciation -- (7,506) (7,506)
Basis difference in affiliates 17,997 -- 17,997
Self insurance liability 23,908 -- 23,908
Net operating loss 62,613 -- 62,613
Valuation allowance -- (237,002) (237,002)
Other, net 7,875 -- 7,875
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities)
Continuing operations 247,037 (244,508) 2,529
Discontinued operations 30,336 -- 30,336
- --------------------------------------------------------------------------------
Total $277,373 $(244,508) $ 32,865
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1994 ASSETS LIABILITIES TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee benefit plans $ 17,871 $ -- $ 17,871
Provision for estimated losses 77,902 -- 77,902
Revenue recognition 38,745 -- 38,745
Alternative minimum tax 12,689 -- 12,689
Joint ventures 1,244 -- 1,244
Depreciation -- (11,523) (11,523)
Basis difference in affiliates -- (15,605) (15,605)
Self insurance liability 26,352 -- 26,352
Net operating loss 7,871 -- 7,871
Valuation allowance -- (127,594) (127,594)
Other, net 13,282 -- 13,282
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities)
Continuing operations 195,956 (154,722) 41,234
Discontinued operations 19,072 -- 19,072
- --------------------------------------------------------------------------------
Total $215,028 $(154,722) $ 60,306
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Corporation had consolidated regular tax net
operating loss carryforwards for federal, state and foreign tax purposes of
approximately $99,848, $15,235 and $12,431, respectively, which begin to expire
in the year 2000. In addition, the Corporation had alternative minimum tax
credits of $13,802 at December 31, 1995 which carry forward indefinitely. The
Corporation also had general business credit and foreign tax credit
carryforwards of $2,639 and $1,068, respectively, which begin to expire in 1998.
The ability of the Corporation to use the net operating loss carryforwards and
tax credits prior to their expiration could be limited.The valuation allowance
increased by $109,408 in 1995 from $127,594 at December 31, 1994 to $237,002 at
December 31, 1995 to offset these net operating loss carryforwards and other
deferred tax assets due to substantial doubt of their realization based on
circumstances described in the "Basis of Presentation and Management's Plans"
Note to Consolidated Financial Statements.
Income tax expense (benefit) of continuing operations differed from income
taxes at the U.S. federal statutory tax rate of 35% for the three years in the
period ended December 31, 1995 for the following reasons:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate $(24,410) $(65,055) $18,107
Expense (benefit) for:
State taxes (9,221) (9,989) 2,804
Foreign taxes 393 5,443 3,838
Change in valuation allowance 36,123 80,354 --
Nondeductible expenses
(nontaxable income), net 7,009 5,193 (2,350)
Adjustment of prior years'
accruals -- (46,504) --
Other -- (336) (768)
- --------------------------------------------------------------------------------
Income tax expense (benefit)
of continuing operations $ 9,894 $(30,894) $21,631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The increase in valuation allowance in 1995 of $36,123 is net of the
valuation allowance of $73,285 allocated to discontinued operations. The
increase in the valuation allowance in 1994 of $80,354 is net of the valuation
allowance of $47,240 allocated to discontinued operations.
II-34
<PAGE>
The domestic and foreign components of income (loss) before income taxes
for the three years in the period ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $(92,855) $(191,174) $31,362
Foreign 23,113 5,302 20,372
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes $(69,742) $(185,872) $51,734
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
LEGAL PROCEEDINGS
The Corporation is subject to a number of lawsuits in the following four general
categories that were either settled or are currently pending against the
Corporation and/or MK Rail and their respective directors and or officers (the
"defendants") (i) class actions relating to transactions in the common stock of
the Corporation (ii) class actions relating to the issuance of, and transactions
in, the common stock of MK Rail (iii) derivative actions brought by persons who
claim to be stockholders of the Corporation and (iv) claims brought by the
former stockholders of three corporations, Touchstone, Inc., TMS, Inc. and Clark
Industries, Inc., ("Clark") acquired by the Corporation in exchange for shares
of the Corporation's common stock. The plaintiffs in these actions have sought
various remedies, including compensatory and punitive damages and injunctive
relief.
MK SECURITIES CLASS ACTIONS: Seven separate cases first filed on July 28, 1994,
have been consolidated. The plaintiffs in this consolidated action represent the
class of stockholders who purchased shares of the Corporation's common stock
during the period of October 15, 1993 to March 31, 1995. Defendants include the
Corporation, certain of the Corporation's current and former officers, and the
Corporation's auditors. The plaintiffs purport to state claims for violation of
certain federal and state securities laws and certain common law claims, and
seek damages in an unspecified amount. The parties have entered into a court
approved settlement, the ultimate effectiveness of which is contingent upon
settlement of other actions.
MK RAIL SECURITIES CLASS ACTIONS: Two cases both filed on October 20, 1994,
relating to the issuance of, and transaction in, the common stock of MK Rail
have been consolidated. The plaintiffs in these consolidated actions represent
the class of stockholders who purchased shares of common stock of MK Rail during
the period of April 26, 1994 to April 25, 1995. Defendants include the
Corporation, MK Rail, certain current and former officers and directors of the
Corporation and MK Rail, and the managing underwriters of MK Rail's initial
public offering. The plaintiffs purport to state claims for violation of certain
federal securities laws and certain common law claims and seek damages in an
unspecified amount. The parties have entered into a court approved settlement,
the ultimate effectiveness of which is contingent upon settlement of other
actions.
DERIVATIVE ACTIONS: Thirteen derivative actions have been filed in state courts
in Idaho and Delaware, naming as defendants certain of the Corporation's present
and former directors and officers. The Corporation is a nominal defendant in
each of these actions. Settlement agreements are scheduled for court review on
April 15, 1996 and May 21, 1996.
MK RAIL COMPONENTS ACTIONS: The plaintiffs in actions filed February 7, 1995,
allege that certain financial statements of the Corporation upon which they
based their decision to exchange Touchstone, Inc. shares for the Corporation's
common stock were misleading. The plaintiffs purport to state claims for
violation of federal and Tennessee securities laws. The plaintiffs further
allege that the Corporation violated the exchange agreement under which they
exchanged their Touchstone shares. The cases have been settled.
The plaintiffs in an action filed December 22, 1995 ("Pilarczyk") allege
that they were induced to enter into an exchange agreement to exchange TMS, Inc.
shares for the Corporation's common stock and also to enter into noncompete
agreements by the defendants' allegedly false statements. Plaintiffs assert
claims under the Securities Exchange Act of 1934 for breach of the exchange
agreement; breach of an alleged covenant of good faith and fair dealing with
respect to the exchange agreement and noncompete agreements; unjust enrichment;
common law fraud; negligent misrepresentation; and rescission of the exchange
agreement. Plaintiffs together seek compensatory damages of not less than
$7,500, treble damages, punitive damages of not less than $5,000, pre and
postjudgment interest and attorneys' fees. The defendants filed a motion to
dismiss the First Amended Complaint on April 8, 1996.
The plaintiffs in an action filed December 29, 1995 allege that they were
induced by the defendants' false and misleading statements to enter into an
exchange agreement to exchange Clark shares for the Corporation's common stock.
Plaintiffs assert claims under the Security Exchange Act of 1934 and the
Racketeer Influenced and Corrupt Organization Act ("RICO"), and common law
fraud. Plaintiffs seek compensatory damages of approximately $1,000, treble
damages under RICO, punitive damages of $3,000, attorney's fees and prejudgment
interest. The Corporation filed a motion to dismiss on March 20, 1996.
SETTLEMENTS: Settlement discussions have been held among the Corporation, MK
Rail, certain of their respective present and former officers and directors,
their insurance carriers, the underwriting defendants and plaintiffs with
respect to all of the pending cases except Pilarczyk. These discussions have
resulted in agree-
II-35
<PAGE>
ments to settle the MK Securities Class Actions, the MK Rail Securities Class
Actions, the Derivative Actions and the Touchstone Actions. No agreement to
settle has been reached in the Clark action.
The settlements, other than that of the Touchstone, Inc. Actions, must be
submitted to, and approved by, the courts presiding over the various cases. That
process is ongoing and, as of this date, stands as follows:
The settlement of the MK Securities Class Actions has been approved by the
United States District Court for the District of Idaho in a final judgment
entered on December 1, 1995. A court approved settlement fund was established
and settlement proceeds (cash of $35,000, which was provided by insurers, and a
share certificate for 2,976,923 shares of the Corporation's common stock) were
deposited therein during 1995. The issuance of the common stock represented by
such certificate and the transfer of the settlement proceeds from the settlement
fund to the control of the plaintiffs is subject to nonappealable judgments
approving the settlements in the MK Rail Securities Class Actions and the
MKDerivative Actions.
The settlement of the MK Rail Securities Class Actions was approved on
March 29, 1996 by the United States District Court for the District of Idaho,
subject to appeal for a period of 30 days following March 29, 1996. A
court-approved settlement fund was established and the Corporation deposited
a share certificate for 869,231 shares of its common stock into such fund
after the settlement was approved. The issuance of the common stock
represented by such certificate and the transfer of the settlement proceeds
to the control of the plaintiffs is subject to the entry of a final
nonappealable judgment approving the settlement of the "Double Derivative"
Claims. The effectiveness of the settlement of the MK Rail Securities Class
Actions is not, however, subject to the final judicial approval of the
settlements in the MK Securities Class Actions or the MK Derivative Actions.
The settlements of the MK Derivative Actions has been submitted for
approval by the Delaware Chancery Court and the Idaho District Court for Ada
County. In connection with the settlements of the MK Derivative Actions, the
Corporation reached an agreement with the Corporation's former chairman with
respect to his severance benefits, including pension rights, to which the
plaintiffs do not object. A hearing has been scheduled for April 15, 1996 before
the Delaware Court of Chancery and for May 21, 1996 before the Idaho District
Court. If approved by final orders of the Delaware Chancery Court and the Idaho
District Court that become final and nonappealable the settlement proceeds from
the MK Derivative Actions (less attorneys' fees and expenses) will be
transferred to the control of the settlement fund in the MKSecurities Class
Actions and, thus, the effectiveness of the settlement is subject to certain
conditions, including the entry of final, nonappealable judgments approving the
settlements in the MK Securities Class Actions (which condition has been
satisfied), the MK Rail Securities Class Actions and the "Double Derivative"
Claims asserted on behalf of MK Rail.
Settlement of the "Double Derivative" Claims asserted on behalf of MK Rail
was reached on March 4, 1996. A hearing with respect to such approval has been
set for May 21, 1996. The Corporation has no monetary or other obligations under
the settlement of the actions resulting from the "Double Derivative" claims (the
"Double Derivative Actions"). However, $4,500 in the reduction of intercompany
debt owed by MK Rail to the Corporation is attributable to the settlement of the
Double Derivative Actions, the MK Securities Class Actions and the MK Rail
Securities Class Actions. The effectiveness of the settlement is conditioned
upon a judgment by the Idaho Court approving the settlement that becomes final
and nonappealable and approval of the settlement in the MK Rail Securities Class
Actions.
The settlement terms will require the Corporation, as its share of the
settlements, to (i) issue 2,976,923 shares of common stock in settlement of the
MK Securities Class Actions; and (ii) issue 869,231 shares of common stock in
settlement of the MK Rail Securities Class Actions. The settlement of the
Derivative Actions requires the implementation of certain "therapeutic
measures"with respect to corporate governance. The Corporation's insurance
carriers have paid $35,000 on behalf of the individual defendants in the MK
Securities Class Actions and the Derivative Actions, and MK Rail's insurance
carrier has paid $6,000 into a settlement fund created in connection with the
settlement of the MK Rail Securities Class Actions.
The Touchstone, Inc. Actions have been settled and notices of voluntary
dismissal with prejudice were filed on January 16, 1996. Under the terms of the
settlement, the Corporation paid $425 to the plaintiffs, paid the plaintiffs
their actual out-of-pocket fees and costs in the amount of $146 on or about
April 1, 1996, and agreed to pay the difference, if any, between $5,250 and the
sum of all proceeds received by the plaintiffs as members of the class from the
settlement of the MK Securities Class Actions.
If settlement agreements in connection with the class actions relating to
transactions in the Corporation's common stock, class actions relating to the
issuance of, and transactions in, the common stock of MK Rail and claims brought
by the former stockholders of Touchstone, Inc., are approved as contemplated in
their present form, the Corporation expects, that the amounts provided in the
accompanying consolidated financial statements for these actions will likely
exceed the ultimate liability of these actions.
II-36
<PAGE>
Other claims, lawsuits, disputes with third parties, investigations and
administrative proceedings against the Corporation and its subsidiaries relating
to matters that are in the ordinary course of its business activities, including
environmental matters, are not expected to have a material adverse effect on the
Corporation's financial position or results of operations.
OTHER INCOME (EXPENSE) NET
Other income (expense) items for the three years in the period ended
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest, dividends and net gains
and losses on sales of marketable
securities $ 4,874 $ 3,980 $35,829
Net loss on disposals and
write-downs of assets, net (10,472) (20,494) (4,578)
Underwriting income (expense)
of insurance subsidiary, net 1,899 4,117 (1,480)
Amortization of goodwill -- (1,061) (180)
Miscellaneous income
(expense), net (709) (6,207) (2,783)
- --------------------------------------------------------------------------------
Other income (expense), net $ (4,408) $(19,665) $26,808
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
COMMITMENTS AND CONTINGENCIES
The Corporation has commitments and performance guarantees arising from
engineering and construction contracts including those of its construction joint
ventures. The Corporation is self insured for workers' compensation, automobile,
general liability and third party errors and omissions. The Corporation has
insurance agreements with insurers for losses in excess of self-insured limits.
Long-Term Leases: Total rental payments for real estate and equipment under
lease, and charged to operations in 1995, 1994 and 1993 were $34,550, $30,980
and $33,590, respectively. Future minimum rental payments under operating leases
with remaining noncancelable terms in excess of one year at December 31, 1995
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR REAL ESTATE EQUIPMENT TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ 13,167 $3,491 $ 16,658
1997 11,324 2,125 13,449
1998 10,276 1,310 11,586
1999 10,059 917 10,976
2000 11,937 393 12,330
2001 and after 109,700 -- 109,700
- --------------------------------------------------------------------------------
Totals $166,463 $8,236 $174,699
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Boise, Idaho and Cleveland, Ohio administrative offices and engineering
facilities consisting of approximately 337,300 square feet and 246,700 square
feet, respectively, are rented under long-term, noncancelable leases expiring in
2015 and 2010, respectively. The Corporation's aggregate lease obligations, net
of sublease income for the Boise and Cleveland facilities under these
noncancelable leases, at December 31, 1995 was $154,700.
The Corporation, through its wholly-owned subsidiary Navasota Mining
Company, Inc., had leased mining equipment under operating leases through 2012
with a basic annual rent of $6,686, which were reimbursable and funded under a
mining services contract with the mine owner. The mining services contract was
terminated for convenience by the mine owner on February 29, 1996 and pursuant
to the mining services contract, the mine owner assumed the obligations under
the lease agreements. See the "Subsequent Events - Navasota Mining Services
Contract" Note to Consolidated Financial Statements.
CF SYSTEMS: In 1990, the Corporation acquired CFSystems, which had developed a
solvent-extraction technology. The Corporation's investment in CFSystems, was
$4,844 at December 31, 1995 and $4,400 at December 31, 1994.
In March 1995, the Corporation was awarded a $26,700 fixed-price contract
by the Texas Natural Resource Conservation Commission ("TNRCC") for remediation
of contaminated soil at a Superfund Site in Texas. Among other provisions, the
contract will require CF Systems to (i) front-end (design, procure, fabricate,
assemble and start-up) an on-site solvent-extraction facility and (ii) provide a
guarantee in the form of a letter of credit for the estimated front-end costs of
$13,600. TNRCC will make periodic payments to CF Systems for the front-end
costs, until completion of the start-up phase in August 1996, up to a maximum
of $13,600. CF Systems has billed and received $3,523 of front-end costs at
December 31, 1995. If the completed facility is successful in meeting certain
specified performance criteria at the end of the start-up phase, CF Systems
will proceed to the operations phase and complete the contract. If CF Systems
does not meet the performance criteria, such failure will be grounds for
termination and TNRCC will recover the front-end costs from the Corporation.
DISCONTINUED SHIPBUILDING AND REAL ESTATE DEVELOPMENT OPERATIONS: In April 1989,
the Corporation sold its ownership interest in National Steel and Shipbuilding
Company ("NASSCO") and in June 1994, the Corporation renegotiated and amended
the April 1989 sale agreement with NASSCO. Under the terms of the amended
agreement the Corporation agreed to provide NASSCO a $21,000 credit facility.
The Corporation's commitment to provide the $21,000 credit facility will
terminate concurrently with the delivery and acceptance by the U.S. Navy of the
last NASSCO-built ship in a multiple-ship contract. The U.S. Navy and NASSCO
currently are negotiating the acceptance date of such ship, which is expected to
occur on or before May 31, 1996. Prior to the third quarter of 1995, the
Corporation also guaranteed a stand-alone bank credit facility for NASSCO. In
the third quarter of 1995, NASSCO negotiated a stand-alone bank credit facility
without a Corporation guarantee.
The Corporation has also guaranteed $21,000 of NASSCO's port facility bonds
until not later than December 1, 2002, and guaranteed $1,375 of NASSCO's federal
workers' compensation bonds. NASSCO's floating dry dock is pledged as collateral
for the $21,000 port faci-
II-37
<PAGE>
lity bonds. The agreement in connection with the Corporation's guarantee of
NASSCO's $21,000 indebtedness includes certain default provisions including the
occurrence of an event of bankruptcy proceedings under the United States
Bankruptcy Code. Upon the occurrence of an event of default, payment of the
$21,000 indebtedness could be accelerated.
At December 31, 1995, the Corporation was liable for $15,519 of secured
bank loans due June 30, 1996 in connection with commercial real estate
operations of its Emkay Development Company, Inc., subsidiary ("Emkay"),
discontinued in 1987. Net liabilities of the discontinued real estate operations
are included in the accompanying consolidated balance sheet at December 31, 1995
under the caption "Other Accrued Liabilities". Net assets of the discontinued
real estate operations are included in the accompanying consolidated balance
sheet at December 31, 1994 under the caption "Other Investments and Assets".
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes receivable $ -- $ 25,504
Real estate assets held for sale 11,928 5,920
Other assets and liabilities, net 318 2,853
Secured term bank loans, due June 30, 1996,
8.75% at December 31, 1995, 6.4% and
6.9% at December 31, 1994 (15,519) (31,078)
- --------------------------------------------------------------------------------
Net assets (liabilities) $ (3,273) $ (3,199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1995, the maker of a $16,360 secured promissory
note payable to the Corporation defaulted on the note. The note was secured by
deeds of trust on certain real estate assets. In December 1995, the maker
purchased for cash a portion of the real estate assets and transferred title to
the remaining real estate assets to the Corporation. The Corporation has
provided for its estimated losses on disposition of the real estate assets held
for sale at December 31, 1995.
LETTERS OF CREDIT: At December 31, 1995 the Corporation was contingently liable,
in the normal course of business, for $117,300 related to letters of credit
under contract performance obligations to customers not reflected in the balance
sheet at December 31, 1995. Of this aggregate amount, $20,570 in letters of
credit were for contract performance obligations to customers of its
discontinued MK Rail and Transit operations and $28,650 in letters of credit in
support of contract performance obligations to customers of MDC. Subsequent to
December 31, 1995, the Corporation sold its 62.8% ownership interest in MDC. The
Corporation and MDC's lender banks, as of the date of this Annual Report on Form
10-K, are holding discussions concerning the banks release of the Corporation's
financial guarantees.
In addition, the Corporation provides guarantees for $75,245 in letters of
credit issued by third parties, $61,505 of which were in connection with
Amerail's performance of the Metra Contract and $13,740 to meet the reinsurance
requirements of the Corporation's captive insurance subsidiary. The credit risk
is mitigated by the insurance subsidiary's portfolio of high quality investments
($24,440 fair value at December 31, 1995) used to collateralize the letters of
credit.
GOVERNMENT AUDITS: The Corporation has a number of cost reimbursable contracts
with the U.S. Government, the allowable costs of which are subject to
adjustments upon audit by various agencies of the U.S. Government. Audits
currently in progress are in varying stages of completion and relate to years
ended 1987 through 1994. Some audits have resulted in proposed claims and cost
disallowances. The Corporation must complete cost analysis for the years under
audit before it can determine the merit of the issues raised and quantify the
amount of any potential disallowance. The Corporation expects that the
resolution of these matters will not materially effect the Corporation's results
of operations or financial position.
EMPLOYMENT AGREEMENTS: The Corporation has employment agreements with several of
its key employees which generally provide for salary continuation for a number
of years plus continuation of certain benefits in the event of termination of
employment without cause (as defined), including a change of control in the
Corporation (as defined). If all of the key employees under contract at December
31, 1995 were to be terminated without cause, the Corporation's liability would
be approximately $4,600.
GEOGRAPHIC OPERATING DATA
The Corporation engages in all types of general construction work including
industrial, heavy civil and marine, mechanical, pipeline, building, and
underground, for a wide range of public and private customers throughout the
world. In addition, the Corporation renders design services in practically all
engineering disciplines. Other markets for its services include nuclear and
fossil-fueled power plants, environmental and hazardous waste abatement and
operations and maintenance for military and commercial facilities. The
Corporation's operations by geographic area for the three years in the period
ended December 31, 1995 were as follows:
II-38
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GEOGRAPHIC DATA
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
United States $1,298,312 $1,376,197 $1,760,914
Canada 68,867 55,477 43,744
Europe 88,619 90,227 100,012
Asia/Pacific 92,064 411,066 309,706
Middle East 83,816 62,578 76,194
Other international 76,988 25,458 39,306
- --------------------------------------------------------------------------------
Total revenue $1,708,666 $2,021,003 $2,329,876
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operating income (loss)
United States $ 27,909 $ (85,133) $31,951
Canada (21,278) (7,923) 1,710
Europe 13,836 1,593 2,691
Asia/Pacific (6,436) (14,331) 12,188
Middle East 3,604 5,208 7,824
Other international 1,187 (182) 4,189
- --------------------------------------------------------------------------------
Total operating income (loss) $ 18,822 $(100,768) $60,553
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Identifiable operating assets
United States $260,401 $353,711 $ 461,466
Canada 11,689 4,297 22,747
Europe 61,913 42,584 9,505
Asia/Pacific 53,861 209,649 157,285
Middle East 38,185 49,001 32,794
Other international 71,266 17,078 42,964
Corporate assets 130,845 226,627 314,785
- --------------------------------------------------------------------------------
Total assets $628,160 $902,947 $1,041,546
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Operating income (loss) represents total contract revenues less direct
contract costs and expenses and certain indirect overhead and excludes corporate
income and expenses, interest expense and income taxes. Identifiable operating
assets are those assets employed in each geographic location. Corporate assets
consist primarily of cash, tax assets, investments held for sale, securities
available for sale and assets not employed in contract services.
Ten percent or more of the Corporation's revenue was derived from contracts
with various agencies of the U.S. Government of $383,000 in 1995, $544,400 in
1994 and $603,900 in 1993.
STOCK PLANS
STOCK OPTION AND RESTRICTED STOCK AWARDS: The Corporation has three stock award
plans (i) the 1991 Stock Incentive Plan (the "1991 Plan") (ii) the 1994 Stock
Compensation Plan (the "1994 Plan") adopted with stockholder approval in 1994
and (iii) the 1995 Plan (the "1995 Plan") approved by the Board of Directors in
March, 1995. Both the 1991 and 1994 Plans permit the issuance of stock options,
stock appreciation rights (SAR's), limited SAR's, and restricted stock to
selected employees of the Corporation. The 1991 Plan reserved 1,367,324 shares
for options, SAR's, limited SAR's and restricted stock and the 1994 Plan
reserved 1,275,000 shares for options, SAR's or limited SAR's and 225,000 shares
for restricted stock. The 1995 Plan reserved 250,000 shares for options and
20,000 shares for restricted stock awards. During 1995, 305,000 options were
granted under the 1991 and 1994 Plans, in tandem with limited SARs. During 1995,
stock options for 250,000 shares were granted and 20,000 shares of restricted
stock were awarded under the 1995 Plan. Restrictions on the 20,000 shares of
restricted stock lapsed in October 1995. SAR's and limited SAR's granted in
tandem with an option shall be exercisable only to the extent the underlying
option is exercisable and the grant price shall be equal to the exercise price
of the underlying option.
Under the terms of the 1991, 1994 and 1995 Plans, options may be either
nonqualified or incentive stock options and the exercise price may not be less
than the fair market value of a share on the date of grant. However, under the
terms of the 1991 Plan, variable-price nonqualified stock options may be
exercised at(i) the fair market value on the date of exercise if less than the
grant price or (ii) the grant price less any market appreciation from date of
grant to date of exercise, but not less than par value of $1.67 per share.
Restricted stock awards are granted at no cost to selected employees.
During 1995, 192,500 restricted shares were granted under the 1991 and 1994
Plans. Other than the restrictions which limit the sale and transfer of
restricted stock, the employees are entitled to all the rights of a stockholder.
At December 31, 1995, there were 249,167 restricted shares outstanding under the
plans, with restriction periods ranging from one to four years.
Options granted under the 1991, 1994 and 1995 Plans become exercisable
cumulatively over periods of three to six years from the date of grant. At
December 31, 1995, options were exercisable to purchase 772,315 shares.
Unexercised options expire 10 years after the date of grant.
At December 31, 1995, 375,144 shares of treasury stock were held in trust
for distribution under variable-price options.
The following table summarizes the changes in shares under option and the
price range thereof under the 1991, 1994 and 1995 Plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRICE RANGE
SHARES PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares under option, December 31, 1992 991,704 $11.06-27.84
Options granted 448,000 $21.19-26.44
Options exercised (51,250) $ 3.87-24.88
Options canceled/expired (85,186)
Shares under option, December 31, 1993 1,303,268 $14.03-27.84
Options granted 263,500 $16.06-25.31
Options exercised (23,408) $14.03-27.84
Options canceled/expired (189,817)
Shares under option, December 31, 1994 1,353,543 $16.06-27.84
Options granted 555,000 $ 6.00- 8.00
Options exercised --
Options canceled/expired (442,367)
- --------------------------------------------------------------------------------
Shares under option, December 31, 1995 1,466,176 $ 6.00-27.84
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The number of shares of common stock reserved for granting future options
and restricted stock awards under the 1991, 1994 and 1995 Plans were 1,435,974,
1,700,674 and 405,874, at December 31, 1995, 1994, and 1993, respectively.
II-39
<PAGE>
In addition, the Corporation has issued 240,117 shares of restricted stock,
with restriction periods of three, five and ten years, to former stockholders of
acquired businesses as consideration for noncompete agreements and in return for
an agreement to provide services to the Corporation's 65% owned subsidiary
MK Rail during specific future periods. During 1995, the recipients acquired
full rights to 27,754 shares. At December 31, 1995, 171,198 shares remained
outstanding.
DIRECTORS STOCK OPTION PLAN: The Corporation has a directors stock option plan
adopted in 1990, under which 192,000 shares of common stock were reserved for
issuance to non-employee directors. As of December 31, 1995 options to purchase
144,000 shares have been granted under the plan, net of cancelations, of which
99,000 are exercisable. The plan entitles the non-employee directors to purchase
shares of common stock at a 50 percent discount from market value at the date of
grant. The options granted become exercisable in one-third increments over a
three-year period beginning one year after the date of grant.
Compensation expense for the employee and non-employee restricted stock
award plans and the non-employee directors stock option plan was $1,410 in 1995,
$1,361 in 1994 and $852 in 1993.
SAVINGS PLANS: The Corporation has a voluntary 401(k) savings plan ("401(k)
plan") and had, until May 1995, an Employee Stock Ownership Plan ("ESOP")
covering eligible salaried employees. Through March 31, 1995, the Corporation
matched participant's salary deferrals to the 401(k) plan up to 5% of
participant's eligible compensation. The match consisted of an allocation of
shares in the ESOP Trust not to exceed 3% of participant's eligible compensation
and cash paid into the 401(k) plan, not to exceed 2% of eligible compensation.
Beginning April 1995, the Corporation began matching participant's salary
deferrals to the 401(k) plan entirely with cash, not to exceed 5% of
participant's eligible compensation. The unallocated ESOP shares remaining from
the original 2,441,932 prefunded shares, were allocated to participants in May
1995. On May 10, 1995, the ESOP was terminated and allocated common stock was
made available for distribution to participants. Compensation expense charged to
operations for (i) cash contributions to the 401(k) plan and (ii) the fair
market value of the allocated shares in the ESOP Trust and the redistribution of
Corporation dividends on unallocated shares paid in cash to plan participants in
1995, 1994 and 1993 was $11,938, $12,818 and $13,761, respectively.
BENEFIT PLANS
PENSION PLANS: The Corporation sponsors a defined benefit pension plan which was
curtailed so that employees do not earn additional defined benefits for future
service. Future service however is counted toward vesting of benefits
accumulated based on prior service. The plan remains in existence and continues
to pay benefits, to invest assets and to receive employer contributions, if
necessary.
Pension cost for each of the three years in the period ended December 31,
1995 included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PENSION COST
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on accumulated
benefit obligation $ 3,111 $ 3,055 $ 2,869
Actual return on plan assets (9,306) (3,690) (4,240)
Net amortization and deferral 6,195 890 1,602
- --------------------------------------------------------------------------------
Pension cost $ -- $ 0,255 $ 0,231
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The funded status of the plan at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PREPAID PENSION COST
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits
of $(45,714) and $(35,393) $(47,593) $(37,444)
Plan assets at fair value 50,300 42,542
- --------------------------------------------------------------------------------
Plan assets in excess of accumulated
benefit obligation 2,707 5,098
Unrecognized net loss 8,816 6,425
- --------------------------------------------------------------------------------
Prepaid pension cost $ 11,523 $ 11,523
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The prepaid pension cost is included in the accompanying consolidated
balance sheets at December 31, 1995 and 1994 under the caption "Other
investments and assets".
At December 31, 1995, approximately 43% of plan assets were invested in
common stocks, 15% in corporate bonds, 24% in U.S. government securities and 18%
in cash equivalents.
The discount rates used in determining the actuarial present value of the
accumulated benefit obligation were 7% for 1995 and 8.5% for 1994. The expected
long-term rate of return on plan assets was 8% for 1995 and 1994.
The Corporation sponsors several defined contribution pension plans for
certain hourly contract mining services and construction services employees.
Pension cost charged to operations, based on hours worked, amounted to $1,195 in
1995, $2,036 in 1994 and $2,232 in 1993.
The Corporation participates in and makes contributions to numerous
construction-industry multiemployer pension plans. Generally, the plans provide
defined benefits to substantially all direct-hire craft employees covered by
collective bargaining agreements. The Corporation charged to operations pension
cost under the plans amounting to $6,721 in 1995, $6,751 in 1994 and $9,154 in
1993. Under ERISA, as amended by the Multiemployer Pension Plan Amendment Act of
1980, a contributor to a multiemployer plan is liable upon termination of the
plan or its withdrawal from the plan, for its share of the multiemployer plan's
unfunded vested liabilities.
II-40
<PAGE>
The Corporation has long maintained policies and procedures to attempt to
preclude it from being subject to withdrawal liability for any portion of an
unfunded vested liability under a construction industry multiemployer pension
plan. Based on information provided by the multiemployer plan administrators to
the U.S. Department of Labor, the Corporation's share of such plans' unfunded
vested liabilities as of the most recent disclosures available was approximately
$5,900.
Incentive Plans: The Corporation has an executive incentive plan and two
long-term incentive and benefit plans for officers and key employees. The cost
of incentive plans was $1,313 in 1995, nil in 1994 and $5,536 in 1993.
Supplemental Retirement Income Arrangements: The Corporation has unfunded
supplemental retirement income arrangements for officers and key employees and
an unfunded defined benefit pension plan for non-employee directors.
Periodic cost of the supplemental retirement income arrangements and
director's pension plan for each of the three years in the period ended December
31, 1995 included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERIODIC COST
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during year $ 239 $1,464 $ 336
Interest cost on accumulated
benefit obligation 415 837 693
Net amortization and deferral 955 1,805 350
- --------------------------------------------------------------------------------
Periodic cost $1,609 $4,106 $1,379
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The unfunded status of the plans at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ACCRUED BENEFIT OBLIGATION
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits
of $(13,733) and $(10,698) $(13,749) $(11,005)
Projected compensation increases (102) (197)
- --------------------------------------------------------------------------------
Projected benefit obligation (13,851) (11,202)
Prior service cost not yet recognized 39 519
Unrecognized net (gain) loss 1,993 (1,089)
Minimum liability adjustment -- (452)
- --------------------------------------------------------------------------------
Accrued benefit obligation $(11,819) $(12,224)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accrued benefit obligation is included in the accompanying consolidated
balance sheets at December 31, 1995 and 1994 under the caption "Deferred
compensation".
The settlement terms of the derivative actions, provided for (i) the
curtailment of the supplemental retirement income arrangement with the
Corporation's former chairman including a substantial reduction of his
supplemental retirementbenefit and (ii) the curtailment of pension benefits of
certain directors including forfeiture of a portion of their credited service
and loss of their retirement benefits. These curtailments resulted in the
Corporation recognizing a curtailment gain of $1,407 in 1995 partially offset by
unrecognized losses and prior service costs of $1,054.
The discount rate used in determining the actuarial present value of the
accumulated benefit obligation was 7% and 8.5%, respectively, for 1995 and 1994.
The rate of assumed increase in directors' future compensation was 6% for 1995
and 1994.
POSTRETIREMENT HEALTH CARE PLAN: The Corporation provides certain health care
benefits for employees who retired before July 1, 1993 including their surviving
spouses and dependent children. Employees who retire after July 1, 1993 are not
eligible for postretirement health care benefits. In past years the Corporation
amended certain provisions of the plan which amendments have reduced benefits
and increased participant's contributions. The Corporation reserves the right to
amend or terminate the postretirement health care benefits currently provided
under the plan and increase participants' contributions at any time.
The periodic expense for postretirement health care benefits for each of
the three years in the period ended December 31, 1995 included the following
components.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
POSTRETIREMENT HEALTH CARE EXPENSE
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on accumulated
postretirement benefit obligation $4,415 $2,443 $2,494
Amortization of net loss from changes
in assumptions and experience 1,683 527 --
- --------------------------------------------------------------------------------
Postretirement health care expense $6,098 $2,970 $2,494
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plan's activity and unfunded balances at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT OBLIGATION
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (1) $(52,742) $(53,989)
Unrecognized net loss from changes
in assumptions and experience 23,549 27,279
- --------------------------------------------------------------------------------
Accrued postretirement benefit obligation $(29,193) $(26,710)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The net decrease in the accumulated postretirement benefit obligation
("APBO") from December 31, 1994 to December 31, 1995 was $1,247. The reasons for
the net decrease stem from updating the actuarial assumptions used in the
computation of the APBO, plan amendments, and adjustments to reflect current
experience. The individual effects of these changes are (i) a decrease of $4,800
from lower than expected health care costs (ii) a decrease of $2,743 from plan
amendments which curtailed benefits and increased participant's contributions,
partially offset by (iii) an increase of $6,296 from lowering the discount rate
from 8.5% to 7%.
Gains and losses that occur because of changes in assumptions, plan
amendments, and because actual experience differs from that assumed are deferred
and amortized over 12 years - the average future expected
II-41
<PAGE>
lifetime of retirees and their surviving spouses - and recognized as a component
of postretirement health care expense in subsequent years. The postretirement
health care expense for 1996 is estimated to be approximately $5,100 compared to
$6,098 in 1995.
The APBO was determined using the projected unit credit method and an
assumed discount rate of 7% for 1995 and 8.5% for 1994. In addition, an annual
rate increase of 12.0% and 9.4% in the per capita cost of health care benefits
was assumed for 1995 and 1994, respectively, gradually declining to 5.5% in the
year 2008 and thereafter over the projected payout period of the benefits. The
health care cost trend rate assumption has a significant effect on the amounts
reported. For example, a 1% increase in the health care cost trend rate would
increase the APBO at December 31, 1995 by approximately $5,164 and the 1995
postretirement health care expense by approximately $427.
RETENTION AND SEVERANCE PAY PLANS: Effective June 30, 1995, the Corporation
adopted key employee retention and severance plans to retain certain key
executives and key employees (the "1995 plans"). The plans encourage employees
to remain employed with the Corporation by providing additional compensation
from the date of adoption through July 1, 1996, and by providing enhanced
severance benefits under certain circumstances to any covered employee who is
involuntarily terminated prior to July 1, 1996. On April 10, 1996, the
Corporation's board of directors approved amendments to the retention and
severance plans and adopted a new severance plan (the "1996 plan").
Under the 1995 retention plan, covered employees would receive awards in
cash and stock ranging from 18.3% to 70.0% of their annual base salaries,
partially payable in cash on December 15, 1995, and the remainder payable in
stock and/or cash on July 1, 1996. The 1995 retention plan also provided that in
the event of a Chapter 11 Bankruptcy filing, the stock award would be forfeited
and the remaining cash to be paid on July 1, 1996 would be doubled. The
retention plan, as amended, provides that, covered employees will have the
option of receiving a cash payment on July 1, 1996 equal to twice the cash
payment received on December 15, 1995 ("initial cash payment"), or elect (prior
to April 30, 1996) to postpone the July 1, 1996 cash payment until the earlier
of the Corporation's emergence from a Chapter 11 proceeding or September 30,
1996. Covered employees who elect to postpone payment will receive an additional
cash amount equal to the initial cash payment prorated on the number of days
from July 1, 1996 to September 30, 1996, but no later than September 30, 1996
and no less than 25% of the initial cash payment.
Under the 1995 severance plan, covered employees who are involuntarily
terminated (without cause) after the occurrence of (i) a change in control of
the covered employee's division, (ii) a bankruptcy filing, or (iii) a change in
any consecutive two year period of a majority of the directors (unless each new
director was approved by a vote of two-thirds of the remaining directors), will
receive cash awards ranging from four to nine months of annual base salary. The
severance plan terminates on any Chapter 11 plan concerning the Corporation or
July 1, 1996 provided that no triggering event has occurred. The 1996 severance
plan is substantially similar to the 1995 severance plan but, provides covered
employees with severance benefits if they are involuntarily terminated (without
cause) between April 10, 1996 and December 31, 1997. Covered employees for the
purposes of the 1996 severance plan are employees who elect to postpone payment
of their cash award under the retention plan until after July 1, 1996. The
Corporation had an estimated liability for retention plan awards of $3,657 at
December 31, 1995.
FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at December 31, 1995 and 1994
have been determined by the Corporation, using available market information and
appropriate valuation methodologies. However, considerable judgment is necessary
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Corporation could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The contract or notional amounts
reflect the extent of involvement the Corporation has in particular classes of
financial instruments.
The carrying amounts and estimated fair values of financial instruments at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACT OR
CARRYING FAIR NOTIONAL
AMOUNT VALUE AMOUNT
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS
Customer retentions $16,952 $16,250
Other investments and assets:
Discontinued real estate
operations -
Notes and interest receivable 257 257
Notes payable 15,519 15,519
FINANCIAL LIABILITIES
Antecedent debt 213,344 138,674
Retentions 20,076 19,244
Customers advances 19,181 18,386
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Committed revolving credit
agreements 1,080 $94,011
Standby letters of credit 823 131,073
Financial guarantees 83,880
- --------------------------------------------------------------------------------
</TABLE>
II-42
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTRACT OR
CARRYING FAIR NOTIONAL
AMOUNT VALUE AMOUNT
- --------------------------------------------------------------------------------
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS
Customer retentions $32,256 $31,197
Other investments and assets:
Discontinued real estate
operations -
Notes and interest receivable 25,504 25,066
Notes payable 31,078 31,078
Other financial assets 7,116 6,726
FINANCIAL LIABILITIES
Retentions 29,348 28,385
Customers advances 18,584 17,982
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Committed revolving credit
agreements 601 $224,952
Standby letters of credit 3,089 419,037
Financial guarantees 59,964
- --------------------------------------------------------------------------------
</TABLE>
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE (LESS RETENTIONS), UNBILLED
RECEIVABLES, SECURITIES AVAILABLE FOR SALE, ACCOUNTS PAYABLE, BILLINGS IN
EXCESS, SHORT-TERM AND LONG-TERM DEBT: The carrying amounts of these items
approximate their fair values.
CUSTOMER RETENTIONS: Bank prime interest rate for 1995 and interest rates
previously available to the Corporation for the sale of its receivables at a
discount for 1994 were used to estimate fair value.
DISCONTINUED REAL ESTATE OPERATIONS: The carrying amounts of notes and interest
receivable and notes payable approximate their fair values.
OTHER FINANCIAL ASSETS: The projected cash flows of notes receivable at December
31, 1994 were discounted at current market rates to estimate fair value.
ANTECEDENT DEBT: Fair value of the antecedent debt was determined based on
recent sales of portions of the Corporation's debt and public sales of the debt
of similar financially distressed companies.
CUSTOMER ADVANCES: Net present value of future expected cash flows discounted at
bank prime rate for 1995 and rates than currently available for short-term debt
for 1994 were used to estimate fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: The fair value of committed revolving
credit agreements, standby letters of credit, and lending commitments were
estimated using fees currently charged to the Corporation taking into account
remaining terms and the creditworthiness of the counterparty.
FINANCIAL GUARANTEES: The estimated fair value of financial guarantees were
based upon rates charged for similar agreements or estimated cost to terminate
them determined from the amount of exposure under the guarantee and the
likelihood of performance being required.
DERIVATIVE FINANCIAL INSTRUMENTS: Forward exchange contracts and hedges are
valued based on quoted prices for financial instruments with identical or
similar terms. The Corporation operates internationally, giving rise to
occasional exposure to market risks from changes in foreign exchange rates.
Derivative financial instruments are utilized by the Corporation to reduce those
risks. The Corporation has only limited involvement with derivative financial
instruments and does not hold or issue financial instruments for trading
purposes. At December 31, 1995 the Corporation was not party to any derivative
financial instruments.
SUBSEQUENT EVENTS
MCCONNELL DOWELL CORPORATION, LIMITED: Subsequent to December 31, 1995 the
Corporation sold its 62.8% ownership interest in MDCfor $28,000 net cash
proceeds. The Corporation, MDC and MDC's lender banks, as of the date of this
Annual Report on Form 10-K, are holding discussions concerning the banks release
of the Corporation's financial guarantees amounting to $28,650 in support of MDC
contract performance obligations to its customers.
STRAIT CROSSING DEVELOPMENT, INC.: In October 1993, SCDI, then a 45% owned
unconsolidated subsidiary of the Corporation, entered into a development
agreement with the government of Canada to design, construct and operate for 35
years an 8.4-mile-long toll bridge linking the Atlantic Provinces of New
Brunswick and Prince Edward Island (the "development agreement"). Concurrently,
SCDI members formed Strait Crossing Joint Venture (the "joint venture") to
complete the bridge construction (the "project") and each SCDI member's
ownership interest in SCDI was replicated in the joint venture.
In 1994, the Corporation sold for cash and a note receivable, 9% of its
ownership interest in SCDI to a third party who is currently a member of SCDI,
thereby reducing its ownership interest to 36%. In the fourth quarter of 1995
the Corporation ceased its proportionate-share funding for the project and
advised the SCDI members that it proposed to withdraw from the joint venture.
On March 29, 1996, the Corporation and the SCDI members reached an
agreement in connection with the Corporation's withdrawal from the joint venture
(the "withdrawal agreement") under which the Corporation, in exchange for being
indemnified by SCDI members against liabilities relating to the project
including contract performance guarantees and those outstanding liabilities or
potential liabilities to the bonding companies and those under a bank-provided
letter of credit, the Corporation agreed among other things, to transfer its
$24,841 investment in the joint venture and its 36% ownership interest in SCDI,
to the SCDI members, as well as assign to an SCDI member, as maker, the
promissory note received as partial consideration for the sale of its 9%
ownership interest in SCDI. The
II-43
<PAGE>
Corporation, further agreed to sell its title to and interest in certain marine
equipment to the SCDImembers.
The Government of Canada has consented to the terms and conditions of the
withdrawal agreement and has released the Corporation from its contract
performance guarantee under the development agreement. The Corporation has fully
provided for the divestiture of its investment in the joint venture and
cancelation of its note receivable and accrued interest thereon at December 31,
1995. The Corporation does not expect to recognize any loss from the sale of its
marine equipment.
NAVASOTA MINING SERVICES CONTRACT: The Corporation, through its wholly-owned
subsidiary Navasota Mining Company, Inc. ("Navasota") had a mining services
contract with Texas Municipal Power Agency, ("TMPA") a separate municipal
corporation to operate a lignite mine in Texas. In early 1995, TMPA announced
its intention to switch from lignite mined by Navasota to Wyoming steam coal,
and in late 1995, TMPA notified Navasota to cease mining lignite on or about
February 29, 1996. In connection with the mine closing, TMPA acknowledged its
obligations to (i) pay Navasota certain termination costs and (ii) assume
Navasota's interest as lessee under a leveraged lease concurrent with the
termination date. In addition, TMPA asserted a claim against the Corporation
and Navasota relating to adverse consequences to TMPA as a result of
excessive groundwater conditions which occurred at the mine in past years.
TMPA and the Corporation are currently attempting to resolve these matters as
part of a comprehensive settlement of all matters relating to the mining
services contract and its termination. Other than the loss of future revenue
and earnings, the Corporation does not expect that resolution of these
matters will have a material adverse effect on its 1996 results of operations
or financial condition.
BRIDGE LOAN REPAYMENT AND BRIDGE LOAN EXTENSION: On March 29, 1996, the
Corporation paid the outstanding balance owing under the bridge loan. On March
31, 1996, the Corporation agreed to amend certain terms and conditions of the
bridge loan facility including, among other things, establishment of a new
borrowing capacity and extension of the maturity date. On April 2, 1996, as
partial consideration for the extension of the bridge loan facility, the
Corporation paid $14,427 interest on the antecedent debt that had been accrued
and deferred from July 1, 1995 through March 31, 1996. See the "Short-Term Debt
- - New and Amended Credit Facilities "Note to Consolidated Financial Statements.
MK RAIL STOCKHOLDERS' RIGHTS PLANS: In January 1996, MK Rail's Board of
Directors adopted a Stockholders' Rights Plan (the "Rail Rights Plan"). Under
the terms of the Rail Rights Plan, preferred stock purchase rights ("Rail
Rights") were distributed as a dividend at the rate of one Rail Right for
each share of MK Rail's common stock held as of the close of business on
January 30, 1996. The number of Rail Rights outstanding is subject to
adjustment under certain circumstances, and all Rail Rights expire on January
30, 2006.
Each Rail Right will entitle the holder to buy 1/100th of a share of the MK
Rail's Series C Junior Participating Preferred Stock at an exercise price of $16
for each 1/100th of a share. Each preferred share is designed to be equivalent
in voting and dividend rights to 100 shares of common stock. The Rail Rights
will be exercisable and will trade separately from the common stock only if a
person or group of persons (such as a potential acquisition of the Corporation's
65% ownership interest in MK Rail) becomes the beneficial owner of 10 percent or
more of MK Rail's common stock, if a person commences a tender or exchange offer
the consummation of which would result in such person becoming the beneficial
owner of 10 percent or more of MK Rail's common stock, if a current holder (such
as the Corporation) of 10 percent or more of the common stock acquires
additional shares of the MK Rail's common stock, or if a "change of control
event" occurs with respect to a current holder (such as the Corporation) of 20
percent or more of the MK Rail's common stock.
MK Rail will be entitled to redeem the Rail Rights at a price of $.001 per
Rail Right at any time prior to the time any person acquires 10 percent or more
of MK Rail's common stock or a current holder of 10 percent or more of the
common stock acquires additional shares of the common stock, or, with respect to
a current holder that owns more than 20 percent of the common stock, a "change
of control event" occurs.
In April 1996, the MK Rail Board of Directors amended the Rail Rights Plan
to provide that the Corporation's creditors would not be deemed to beneficially
own shares of MK Rail by reason of negotiations among the Corporation and those
creditors with respect to the Recapitalization or other restructuring
alternatives. The Corporation has requested that MK Rail's Board of Directors
further amend the Rail Rights Plan to exclude agreements with respect, or
implementation of, the Corporation's Recapitalization from the triggering events
under the Rail Rights Plan. The MK Rail Board has not yet agreed to adopt such
amendments.
II-44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
II-45
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Following is a list as of March 31, 1996, of the names and ages of the
directors of the Corporation, all positions held by them with the Corporation,
their terms of office as directors together with the date of their election as
such, the business experience of each director during the past five years and
other directorships held by each director.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE UNTIL 1996
Christopher B. Hemmeter, Age 56
Owner, Hemmeter Companies (Real Estate Development), Los Angeles,
California. Formerly, Partner of Hemmeter Partners and Chairman of Hemmeter
Enterprises, Inc., Denver, Colorado. Mr. Hemmeter also serves as director for
Hemmeter Enterprises, Inc. and Harrah's Jazz Company, neither of which is a
parent, subsidiary or affiliate of the Corporation. Mr. Hemmeter has served as a
director since 1988.
Member: Executive Compensation and Nominating Committee
Robert A. McCabe, Age 61
President, Pilot Capital Corporation (Private Equity Financing), New York,
New York. Mr. McCabe also serves as a director for Church & Dwight Co., Inc.,
Thermo Electron Corporation, Thermo Instruments Systems, Inc. and Borg-Warner
Security Corporation, none of which is a parent, subsidiary or affiliate of the
Corporation. Mr. McCabe has served as a director since 1972.
Member: Executive Compensation and Nominating Committee.
Robert S. Miller, Jr., Age 54
Chairman of the Board of the Corporation. Formerly, Senior Partner, James
D. Wolfensohn, Inc. (Investment Banking Firm) and formerly, Vice Chairman of
Chrysler Corporation. Mr. Miller also serves as a director of MK Rail
Corporation, a majority-owned subsidiary of the Corporation, and as a director
for Coleman Corp., Federal-Mogul Corp., Fluke Corporation, Pope & Talbot, Inc.
and Symantec Corp., none of which is a parent, subsidiary or affiliate of the
Corporation. Mr. Miller has served as a director since 1995.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE UNTIL 1997
Peter S. Lynch, Age 52
Trustee, the Fidelity Group of Funds and Vice Chairman, Fidelity Management
& Research Company (Mutual Fund and Pension Management Firm), Boston,
Massachusetts. Formerly, Portfolio Manager, Fidelity Magellan Fund, Boston,
Massachusetts. Mr. Lynch also serves as a director for W. R. Grace & Co., which
is not a parent, subsidiary or affiliate of the Corporation. Mr. Lynch has
served as a director since 1988.
Member: Audit Committee.
Gerard R. Roche, Age 64
Chairman of the Board, Heidrick & Struggles, Inc. (International Executive
Search Firm), New York, New York. Heidrick & Struggles, Inc. performs general
executive search services for the Corporation. Mr. Roche has served as a
director since 1990.
Member: Audit Committee.
Robert A. Tinstman, Age 49
President and Chief Executive Officer of the Corporation. Formerly,
President of the Corporation's Mining Group. Mr. Tinstman has served as a
director since 1995.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE UNTIL 1998
Lindsay E. Fox, Age 58
Founder and Non-Executive Chairman, Fox Group Holdings Pty. Ltd.
(Transport, Warehousing and Logistics), Melbourne Australia. Formerly, Chairman
of Linfox Group, Melbourne, Australia. Mr. Fox also serves as a director for
Premier Investments, Limited, which is not a parent, subsidiary or affiliate of
the Corporation. Mr. Fox has served as a director since 1992.
Member: Executive Compensation and Nominating Committee.
III-1
<PAGE>
John W. Rogers, Jr., Age 37
Founder and President, Ariel Capital Management, Inc. (Institutional Money
Management and Investment Advisor Firm), Chicago, Illinois. Mr. Rogers also
serves as a director for Aon Corporation which is not a parent, subsidiary or
affiliate of the Corporation. Mr. Rogers has served as a director since 1993.
Member: Audit Committee.
EXECUTIVE OFFICERS.
Following is a list as of March 31, 1996, of the names and ages of the executive
officers and all positions held by them with the Corporation together with the
date of their election to corporate office. Executive officers of the
Corporation are elected by the Board of Directors for terms of one year or until
their successors are elected and qualified.
<TABLE>
<CAPTION>
POSITIONS WITH OFFICER
NAME AGE THE CORPORATION SINCE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert A. Tinstman 49 President and Chief Executive Officer 1995
(Principal Executive Officer)
Stephen G. Hanks 45 Executive Vice President, 1990
Chief Legal Officer and Secretary
Denis M. Slavich 55 Executive Vice President and 1995
Chief Financial Officer
(Principal Financial Officer)
Gregg A. Crockett 37 Vice President - Business Management and Controller 1995
(Principal Accounting Officer)
Thomas H. Zarges 48 Senior Vice President - Operations 1995
Thomas F. Kealey 44 Senior Vice President - Finance 1994
Douglas L. Brigham 30 Vice President and Treasurer 1993
Charles W. Simpson 59 Vice President - Government and Public Affairs February 1996
Alvia L. Henderson 46 Vice President - Human Resources 1995
</TABLE>
During the past five years, Messrs. Tinstman, Hanks, Crockett, Brigham and
Simpson and Ms. Henderson served the Corporation and its subsidiaries in various
executive or management capacities.
Prior business experience of executive officers that have not been employed
by the Corporation in an executive or managerial capacity during the last five
years:
Mr. Slavich was previously vice president, marketing of Fluor Daniel, Inc.
Prior to his association with Fluor Daniel, Inc., he served as corporate
director, senior vice president and manager of international power projects and
chief financial officer of Bechtel Group, Inc., where he was employed for 20
years.
Mr. Zarges served the Corporation as president of the engineering and
construction group since his employment with the Corporation in August 1991.
Prior to his employment with the Corporation, Mr. Zarges served as vice
president of Business Development and Support Services of United Engineers &
Constructors, a subsidiary of Raytheon Corporation.
Mr. Kealey served the Corporation as senior vice president - finance since
his employment with the Corporation in August 1994. Prior to his employment with
the Corporation, Mr. Kealey served as senior vice president - business
development and international of GE Capital Railcar Services, a unit of General
Electric Company in Chicago, Illinois where he was employed for four and
one-half years. Prior to his employment with GE Capital Railcar Services he
served for four years as President of The RoadRailer Company and President of
Transportation Corporation of America, subsidiaries of Duchossois Enterprises,
Elmhurst, Illinois.
III-2
<PAGE>
CERTAIN LEGAL PROCEEDINGS
See the disclosure under Item 3. "Legal Proceedings" for a discussion
concerning certain lawsuits either settled or currently pending against the
Corporation and its directors and/or officers.
In addition, Christopher B. Hemmeter, a director of the Corporation, has
served as an executive officer of each Hemmeter Enterprises, Inc. and Grand
Palais Riverboat, Inc., and a member of the executive committee of Harrah's Jazz
Company, which companies have filed petitions under Chapter 11 of the Federal
bankruptcy laws.
FILING DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Corporation's officers and directors and persons who own
more than 10% of the Corporation's common stock to file reports of beneficial
ownership and changes in beneficial ownership in the Corporation's common stock
with, among others, the Securities and Exchange Commission and to furnish the
Corporation with copies.
Based on its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Corporation believes that,
during the last completed fiscal year, the following late reports were filed
with the Securities and Exchange Commission by directors, officers and/or
beneficial owners of more than 10 percent of the Company's common stock: J.
Arrillaga, a director of the Corporation, filed an amended Form 5, Annual
Statement of Changes in Beneficial Ownership, dated January 25, 1996, to report
the acquisition from March 1992 through January 1995 of 480.822 shares of the
Corporation's common stock under the Corporation's Dividend Reinvestment
Program; T.F. Kealey, an executive officer of the Corporation, filed a Form 4,
Statement of Changes in Beneficial Ownership, dated August 24, 1995, to report
the sale on July 14, 1995 of 1,000 shares of the Corporation's common stock;
T.H. Zarges, an executive officer of the Corporation, filed a Form 4, Statement
of Changes in Beneficial Ownership, dated September 8, 1995, to report the
disposition on May 13, 1995 of 624 shares of the Corporation's common stock
surrendered in payment of taxes upon vesting of restricted stock pursuant to tax
withholding rights under the Corporation's Stock Compensation Plan.
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation. Non-employee directors receive a retainer fee of
$5,000 per quarter, plus $1,000 for each day of attendance at a Board of
Directors meeting and $500 for each standing or special committee meeting
attended. Committee chairmen receive an additional $3,000 per year. Directors
who are employees of the Corporation receive no additional compensation for
serving as directors.
William P. Clark was elected to the position of Acting Chairman of the
Board on February 9, 1995, and served therein until his resignation on March 20,
1995. During that time, Mr. Clark did not receive any retainer or meeting fees.
On March 27, 1995, the Board approved payment to Mr. Clark of the amount of
$147,000, which was invoiced by Mr. Clark for services he rendered as Chairman
of the Succession and Search Committee of the Board and as Acting Chairman of
the Board.
On April 1, 1995, the Corporation entered into a three-year agreement with
Robert S. Miller, Jr., pursuant to which Mr. Miller was retained as a
non-executive Chairman of the Board. Under the terms of the agreement, Mr.
Miller is to receive an annual fee of $180,000. In addition to the options
normally granted to new directors under the Stock Option Plan for Non-Employee
Directors (as described below), he was also granted options to purchase 250,000
shares of the Corporation's common stock at an exercise price of $6.00 per
share. Such options are scheduled to vest with respect to 100,000 shares on
April 1, 1996, 100,000 shares on April 1, 1997 and the remaining 50,000 shares
on April 1, 1998. Mr. Miller was also awarded 20,000 shares of restricted stock,
all of which vested on October 1, 1995. Mr. Miller is paid no meeting or
retainer fees. On February 9, 1996, the Executive Compensation and Nominating
Committee of the Board of Directors ("Compensation Committee") awarded a bonus
to Mr. Miller in the amount of $250,000 in recognition of his efforts in the
restructuring of the Corporation.
Non-employee directors may also participate in the Corporation's group
health and dental plan, group life insurance plan and group travel accident
insurance plan. The Corporation pays all costs associated with the non-employee
directors' participation in the group plans, although such costs are imputed as
taxable income to the directors. During 1995, Mrs. Peden and Messrs. Brzezinski,
Clark, McCabe, Roche and Rogers participated in some or all of the group plans.
Retirement Plan for Non-employee Directors. In order to attract and retain
qualified outside directors, the Corporation maintains the Retirement Plan for
Non-employee Directors. The plan provides that non-employee directors are
eligible for a retirement benefit if they retire from the Board (i) at age 55 or
above with at least five years of service, (ii) at any age with at least
15 years of service or (iii) after becoming disabled while serving. An eligible
non-employee director who becomes disabled or who retires from the Board is
entitled to receive an annual benefit over a period of time equal to the number
of months such eligible non-employee director served on the Board (not to exceed
180 months). The amount of such annual benefit is equal to 100% of the
director's total compensation for the final 12 months immediately preceding
III-3
<PAGE>
retirement from the Board. This benefit is referred to as the "standard
benefit." Pursuant to the terms of the settlement of derivative litigation,
incumbent non-employee directors who were defendants in such litigation (other
than Mrs. Peden) will relinquish five years of credited service under the plan.
See Item 3. "Legal Proceedings."
In lieu of the standard benefit, non-employee directors who were first
elected to the Board prior to November 20, 1992 have the following retirement
options: (i) for retirement after reaching mandatory retirement age (currently
age 70 unless waived by the Board of Directors) or after having served at least
15 years, such director may elect to receive an annual benefit for life equal to
50% of the director's total compensation for the final 12 months immediately
preceding retirement from the Board, (ii) for disability or retirement prior to
mandatory retirement age or 15 years of service, such director may elect to
receive for a period of time equal to the number of months he or she served on
the Corporation's Board an annual benefit equal to 50% of the director's total
compensation for the final 12 months immediately preceding retirement from the
Board. Payments under the plan are made quarterly in equal amounts.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. The Corporation's Stock
Option Plan for Non-employee Directors was approved by stockholders of the
Corporation on April 30, 1990. The purpose of the plan is to encourage the
highest level of performance from members of the Board of Directors who are not
employees of the Corporation by providing non-employee directors with a
proprietary interest in the financial success of the Corporation. Under the
plan, non-employee directors are granted discounted options to purchase the
Corporation's common stock. Each current non-employee director has been granted
an option to purchase 12,000 shares of common stock. The purchase price per
share for shares covered by the option award is equal to 50% of the fair market
value of the Corporation's common stock on the date of grant. Options granted
under the plan are nontransferable and nonassignable by the participant other
than by will or by the laws of descent and distribution.
The options granted under the plan vest over a three-year period in annual
increments of one-third on each anniversary of the date of grant for
participants who continue to serve on the Board of Directors. If a participant
ceases to be a non-employee director for any reason except termination for
cause, all vested options then held are exercisable for a period of three years
and all unvested options terminate 30 days after the participant ceases to be a
non-employee director. If a participant is terminated for cause, all vested
options are exercisable for a period of 30 days and all unvested options
automatically terminate.
Non-employee Directors Deferred Compensation Plan. The Corporation's
Non-employee Directors Deferred Compensation Plan provides non-employee
directors with the option of electing to defer compensation (which is defined as
retainer and meeting attendance fees). The plan provides for compensation to be
deferred until a time following the participant's termination as a director.
Such compensation may be deferred to a cash account which accrues interest at
prime rate (established by Citibank, N.A.) or into stock units, upon which
dividends, if any, are credited in the form of additional stock units. Stock
units are distributed in the form of actual shares of the Corporation's common
stock in a single sum or in annual installments over a period of between five
and 20 years, at the participant's election. Cash accounts may be distributed
over the same periods.
III-4
<PAGE>
EXECUTIVE COMPENSATION. The following table summarizes all plan and
non-plan compensation awarded or paid to, or earned by, each of the Named
Executives (all individuals who acted as the chief executive officer during the
last fiscal year and the other four most highly-compensated executive officers
of the Corporation and its subsidiaries, plus Mr. L.E. Salci, who would have
been included as one of the Named Executives but for the fact that he terminated
employment with the Corporation prior to year-end):
SUMMARY COMPENSATION TABLE FOR FISCAL YEARS ENDED 1993, 1994 AND 1995
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------------------------------------
AWARDS PAYOUTS
------------------------- ---------
SECURITIES
OTHER RESTRICTED UNDERLYING ALL
ANNUAL STOCK OPTIONS/ LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMP.
POSITION YEAR ($) ($) ($) ($) (#) ($)16 ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. A. Tinstman 1995 305,481 35,000 24,241 1 211,505 15 100,000 0 29,220 17
President and 1994 284,615 0 23,988 2 0 0 0 28,851
Chief Executive Officer 1993 250,000 140,000 23,430 3 0 0 102,515 37,379
S. G. Hanks 1995 316,442 35,000 20,050 4 211,505 15 100,000 0 22,720 18
Executive Vice President 1994 358,173 0 16,548 5 1,010,000 15 50,000 0 31,216
and Chief Legal Officer 1993 250,000 150,000 13,311 6 0 0 102,515 35,320
T. H. Zarges 1995 250,000 29,166 13,390 7 176,256 15 0 0 25,052 19
Senior Vice President - 1994 243,700 0 6,322 8 108,125 15 0 0 23,844
Operations and President - 1993 206,768 10,000 0 123,125 15 7,000 -- 16,235
Engineering & Construction Group
D. M. Slavich 1995 219,231 35,000 7,203 9 211,505 15 100,000 0 24,107 20
Executive Vice President and 1994 -- -- -- -- -- -- --
Chief Financial Officer 1993 -- -- -- -- -- -- --
S. Y. Chi 1995 214,212 26,250 0 0 0 0 9,872 21
President - Mining Group 1994 175,000 60,000 0 0 10,000 0 11,972
1993 147,500 55,000 0 123,125 15 15,000 0 8,449
W. J. Agee 1995 115,385 0 4,345 10 0 0 0 5,769 22
Chairman, President and 1994 750,000 0 198,508 11 0 0 0 70,040
Chief Executive Officer 1993 750,000 950,000 169,761 12 0 0 395,415 164,919
through 2/09/95
L. E. Salci 1995 253,205 125,000 15,450 13 0 0 0 40,181 23
President - Transit Group 1994 186,539 37,500 8,168 14 432,500 25,000 0 470
through 10/20/95 1993 -- -- -- -- -- -- --
</TABLE>
- ---------------
1 Disability insurance premium of $12,164 and tax gross-up of $12,077 on the
foregoing disability insurance premium and the value of the term life insurance
premium reported under footnote 17 to this table.
2 Disability insurance premium of $12,089 and tax gross-up of $11,899 on the
foregoing disability insurance premium and the value of the term life insurance
premium included for such year in the last column to this table.
3 Disability insurance premium of $12,020 and tax gross-up of $11,410 on the
foregoing disability insurance premium and the value of the term life insurance
premium included for such year in the last column to this table.
4 Disability insurance premium of $10,073 and tax gross-up of $9,977 on the
foregoing disability insurance premium and the value of the term life insurance
premium reported under footnote 18 to this table.
5 Disability insurance premium of $8,243 and tax gross-up of $8,305 on the
foregoing disability insurance premium and the value of the term life insurance
premium included for such year in the last column to this table.
6 Disability insurance premium of $6,783 and tax gross-up of $6,528 on the
foregoing disability insurance premium and the value of the term life insurance
premium included for such year in the last column to this table.
7 Disability insurance premium of $6,482 and tax gross-up of $6,908 on the
foregoing disability insurance premium and the value of the term life insurance
premium reported under footnote 19 to this table.
8 Disability insurance premium of $2,957 and tax gross-up of $3,365 on the
foregoing disability insurance premium and the value of the term life insurance
premium included for such year in the last column to this table.
9 Disability insurance premium of $3,252 and tax gross-up of $3,951 on the
foregoing disability insurance premium and the value of the term life insurance
premium reported under footnote 20 to this table.
10 Reimbursement for medical coverage continuation upon termination of his
employment with the Corporation.
11 Imputed income of $46,075 for use of the Corporation facilities and $48,898
tax gross-up thereon, gross-up of $90,621 on prior years' salary adjustment for
use of Corporation facilities, disability insurance premium of $4,533 and tax
gross-up of $8,381 on the foregoing disability insurance premium and the value
of the term life insurance premium included for such year in the last column to
this table.
III-5
<PAGE>
12 Imputed income of $40,403 for use of Corporation facilities and $37,713 tax
gross-up thereon, $81,212 tax gross-up on prior years' salary adjustments for
use of Corporation facilities, disability insurance premium of $4,423 and tax
gross-up of $6,010 on the foregoing disability insurance premium and the value
of the term life insurance premium included for such year in the last column to
this table.
13 Disability insurance premium of $8,737 and tax gross-up of $6,713 on the
foregoing disability insurance premium.
14 Disability insurance premium of $4,415 and tax gross-up of $3,753 on the
foregoing disability insurance premium and the value of the term life insurance
premium included for such year in the last column to this table.
15 As of December 31, 1995, the number and value of shares of restricted stock
held by Messrs. Tinstman, Hanks, Zarges, Slavich, Chi, Agee, and Salci were,
respectively: Mr. Tinstman held 31,334 shares granted under the Stock
Compensation Plan valued at $135,128 at year-end 1995. As of March 15, 1996,
such shares carried a value of $47,001. Mr. Hanks held 31,334 shares granted
under the Stock Compensation Plan valued at $135,128 at year-end 1995. As of
March 15, 1996, such shares carried a value of $47,001. Mr. Hanks also held
24,000 shares granted under the Stock Incentive Plan valued at $103,500 at
year-end 1995. As of March 15, 1996, such shares carried a value of $36,000. Mr.
Zarges held 2,500 shares granted under the Stock Incentive Plan valued at
$10,781 at year-end 1995. As of March 15, 1996, such shares carried a value of
$3,750. Mr. Zarges also held 29,862 shares granted under the Stock Compensation
Plan valued at $128,780 at year-end 1995. As of March 15, 1996, such shares
carried a value of $44,793. Mr. Slavich held 31,334 shares granted under the
Stock Compensation Plan valued at $135,128 at year-end 1995. As of March 15,
1996, such shares carried a value of $47,001. Mr. Chi held 2,500 shares granted
under the Stock Incentive Plan valued at $10,781 at year-end 1995. As of
March 15, 1996, such shares carried a value of $3,750. Messrs. Agee and Salci
each hold 0 shares of restricted stock. Dividends are payable on shares of
restricted stock granted under the Stock Incentive Plan and the Stock
Compensation Plan to the extent the Corporation declares a dividend. On June 30,
1995, Mr. Tinstman, Mr. Hanks and Mr. Slavich were each granted an award of
31,334 shares under the Stock Compensation Plan (each valued at $47,001 as of
March 15, 1996) which will vest based upon the formula described in the second
paragraph to this footnote 15. On February 7, 1994, Mr. Hanks was granted an
award of 40,000 shares of restricted stock (valued at $60,000 as of March 15,
1996), which vested immediately with respect to 20% of the shares, with the
remainder vesting in four equal increments over the following four years. On
June 30, 1995, Mr. Zarges was granted an award of 26,112 shares of stock under
the Stock Compensation Plan (valued at $39,168 as of March 15, 1996) which will
vest based upon the formula described in the second paragraph to this footnote
15. On August 6, 1993, Mr. Zarges was granted an award of 5,000 shares of
restricted stock (valued at $7,500 as of March 15, 1996), which vests in four
equal increments on each of the first, second, third, and fourth anniversaries
of the date of grant. On May 13, 1994, Mr. Zarges was granted an award of 5,000
shares of restricted stock (valued at $7,500 as of March 15, 1996), which vests
in four equal increments on each of the first, second, third, and fourth
anniversaries of the date of grant. On August 8, 1993, Mr. Chi was granted an
award of 5,000 shares of restricted stock (valued at $7,500 as of March 15,
1996), which vests in four equal increments on each of the first, second, third
and fourth anniversaries of the date of grant.
Shares of restricted stock awarded to the Named Executives on June 30, 1995
under the Stock Compensation Plan are subject to a vesting schedule determined
by the following formula: The number of shares of each Named Executive for which
restrictions will lapse on July 1, 1996, up to a maximum 100% vesting, equals
(X/Y) x N, where X = the Award Date Value; Y = the Incentive Fair Market Value
of the Shares, and N = the number of Shares of Restricted Stock awarded on June
30, 1995. The Award Date Value of each Named Executive is determined by
multiplying each Named Executive's Incentive Award (70% of base salary) by
two-thirds. The Award Date Value for Messrs. Tinstman, Hanks, and Slavich is
$140,000 each, and the Award Date Value for Mr. Zarges is $116,667. The
Incentive Fair Market Value for each Named Executive is determined by
multiplying the number of shares under each Named Executive's award by the
lesser of (i) the average fair market value of a share between July 1, 1995 and
July 1, 1996 and (ii) the average fair market value of a share between June 1,
1996 and July 1, 1996. Any shares which remain subject to restrictions on
July 2, 1996 will be forfeited by the Named Executives. The restricted stock
granted to the Named Executives on June 30, 1995 will be forfeited if the
Corporation files bankruptcy under Title 11 of the United States Code prior to
July 1, 1996.
16 This column discloses amounts paid under the Corporation's 3-Year Plan. For a
description of such plan, see the section herein titled "Long-Term Incentive
Plans. A. 3-Year Plan."
17 Amount is comprised of $7,909 matching contributions to employee's ESOP and
401(k) accounts, $489 matching contribution to employee's Deferred Compensation
Plan account, $3,274 attributable to a rebate paid to Mr. Tinstman by the
Corporation as a result of savings realized by booking air travel at an economy
class, and $17,548 attributable to a life insurance policy on Mr. Tinstman's
life under the Key Executive Life Insurance Plan, of which $584 represents the
dollar value of the term life insurance premium and $16,964 represents Mr.
Tinstman's interest in the policy's cash surrender value as projected on an
actuarial basis attributable to the 1995 premium.
18 Amount is comprised of $7,998 matching contributions to employee's ESOP and
401(k) accounts, $864 for service recognition, and $13,858 attributable to a
life insurance policy on Mr. Hanks' life under the Key Executive Life Insurance
Plan, of which $458 represents the dollar value of the term life insurance
premium and $13,400 represents Mr. Hanks' interest in the policy's cash
surrender value as projected on an actuarial basis attributable to the 1995
premium.
19 Amount is comprised of $7,849 matching contributions to employee's ESOP and
401(k) accounts, $80 matching contribution to employee's Deferred Compensation
Plan account, and $17,123 attributable to a life insurance policy on Mr. Zarges'
life under the Key Executive Life Insurance Plan, of which $440 represents the
dollar value of the term life insurance premium and $16,683 represents Mr.
Zarges' interest in the policy's cash surrender value as projected on an
actuarial basis attributable to the 1995 premium.
20 Amount is comprised of $6,010 matching contributions to employee's ESOP and
401(k) accounts and $18,097 attributable to a life insurance policy on Mr.
Slavich's life under the Key Executive Life Insurance Plan, of which $918
represents the dollar value of the term life insurance premium and $17,179
represents Mr. Slavich's interest in the policy's cash surrender value as
projected on an actuarial basis attributable to the 1995 premium.
21 Amount is comprised of $7,940 matching contributions to employee's ESOP and
401(k) accounts, $1,050 matching contributions to employee's Deferred
Compensation Plan account, and $882 for service recognition.
22 Amount is comprised of matching contributions to Mr. Agee's ESOP and 401(k)
accounts.
23 Amount is comprised of $22,269 paid to Mr. Salci in a lump sum as
compensation for a forfeited retirement benefit with his previous employer, and
$17,912 attributable to a life insurance policy on Mr. Salci's life under the
Key Executive Life Insurance Plan, of which $495 represents the dollar value of
the term life insurance premium and $17,417 represents Mr. Salci's interest in
the policy's cash surrender value as projected on an actuarial basis
attributable to the 1995 premium.
III-6
<PAGE>
Option Grants. The following table summarizes pertinent information
concerning individual grants of stock options, including a theoretical grant
date present value for each such grant.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME (#)1 IN FISCAL YEAR ($/SH) DATE PRESENT VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R. A. Tinstman 100,000 2 32.8 $6.00 4/01/05 $343,696 4
S. G. Hanks 100,000 2 32.8 $6.00 4/01/05 $343,696 4
T. H. Zarges 0 0 N/A N/A 0
D. M. Slavich 100,000 3 32.8 $8.00 3/08/05 $460,689 4
S. Y. Chi 0 0 N/A N/A 0
W. J. Agee 0 0 N/A N/A 0
L. E. Salci 0 0 N/A N/A 0
</TABLE>
1 Limited Stock Appreciation Rights ("LSARs") in a like number were granted to
the optionee in conjunction with the grant of stock options. An LSAR provides
the optionee with the right, under certain circumstances, to receive cash in an
amount equal to the difference between the exercise price of the option and its
fair market value on the date of exercise. Subject to the conditions below,
LSARs are exercisable only to the extent the underlying options are exercisable.
When an LSAR is exercised, the underlying option is canceled, and vice versa.
LSARs may not be exercised within six months of the date of grant and may be
exercised only during the 60-day period following a "trigger event", as defined
in the plan pursuant to which the LSARs were granted. Such trigger events
generally involve circumstances constituting a change in control of the
corporation granting the stock option.
2 The stock options were granted on April 1, 1995. The options vested with
respect to 50% of the shares on October 1, 1995, with the remaining shares
vesting on April 1, 1996. Limited Stock Appreciation Rights in a like number
were granted in connection with the options. For a description of such Limited
Stock Appreciation Rights, see footnote 1 to this table.
3 The stock options were granted by the Corporation on March 8, 1995. All of
such options were immediately exercisable. Limited Stock Appreciation Rights in
a like number were granted in connection with the option. For a description of
such Limited Stock Appreciation Rights, see footnote 1 to this table.
4 These dollar amounts are the result of calculations using the Black-Scholes
based option valuation model. In calculating the grant date present value set
forth in the table, a factor of 43.1% has been assigned to the volatility of the
common stock and the annualized dividend yield has been set at 0.0%, based on 36
months of historical data. The risk-free rate of return has been determined to
equal the yield on the U.S. Treasury Security whose duration matches the
expected life of each option. The expected option life of seven years has been
used and the grant date present value has been calculated considering a 3% per
year forfeiture rate for nonvested options. The grant date present value set
forth in the table is a theoretical value and may not accurately determine
present value. The actual value, if any, the optionee will realize will depend
on the excess of the market value of the common stock over the exercise price on
the date the option is exercised.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES. The following
table summarizes pertinent information concerning the exercise of stock options
during fiscal year 1995 by each of the Named Executives and the fiscal year-end
value of unexercised options:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED,
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS FISCAL YEAR END ($)
AT FISCAL YEAR END (#)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. A. Tinstman 0 0 101,602 / 0 /
55,000 0
S. G. Hanks 0 0 119,952 / 0 /
133,750 0
T. H. Zarges 0 0 19,000 / 0 /
6,000 0
D. M. Slavich 0 0 100,000 / 0 /
0 0
S. Y. Chi 0 0 21,238 / 0 /
17,500 0
W. J. Agee 0 0 0 / 0 /
0 0
L. E. Salci 0 0 25,000 / 0 /
0 0
</TABLE>
III-7
<PAGE>
LONG-TERM INCENTIVE PLANS.
A. 3-YEAR PLAN. On October 3, 1991 the Corporation established the 3-Year
Plan. Participation in the 3-Year Plan is limited to those individuals who are
able to significantly influence the Corporation's long-term performance and who
are selected to participate by the Compensation Committee.
The 3-Year Plan is designed to compare Total Shareholder Return for the
Corporation at the end of the initial three-year period (January 1, 1989 to
December 31, 1991) and each rolling three-year period thereafter, against Total
Shareholder Return for the same period for each of 12 other companies
("Competitors")1 which operate primarily in the same markets in which the
Corporation operates.
At the end of each three-year performance period, each Competitor and the
Corporation are ranked based upon their Total Shareholder Return. The 3-Year
Plan provides that targeted bonuses 2, if any, are paid at the end of each
performance period according to the following table:
CORPORATION'S PERCENTILE RANKING PERCENT OF TARGET BONUS EARNED
WITHIN COMPETITOR GROUP BY PARTICIPANTS
------------------------------------------------------------------
0 to 35th 0%
47.5th 50%
60th 100%
72.5th 150%
85 to 100th 200%
A percentile ranking falling between numbers is interpolated.
In the event of a change in control, as defined in the 3-Year Plan, bonuses
become immediately payable. Such bonuses would be based upon Total Shareholder
Return calculated as of the last day of the month immediately preceding the
month in which the change in control occurred and would be prorated based upon
the number of full calendar months of service rendered by the participant during
the performance period and prior to the change in control.
On February 10, 1995, Messrs. Tinstman, Hanks, Salci, and Zarges were
designated as participants in the 3-Year Plan for the 1995-1997 performance
period. Accordingly, the following table summarizes estimated payment
information under the 3-Year Plan for the performance period January 1, 1995
through December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN - ESTIMATED PAYOUTS UNDER 3-YEAR PLAN
ESTIMATED FUTURE PAYOUTS
-----------------------------------
NUMBER OF SHARES, UNITS PERFORMANCE THRESHOLD 2 TARGET 3 MAXIMUM 4
NAME OR OTHER RIGHTS (#)1 PERIOD UNTIL PAYOUT ($) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R. A. Tinstman January 1, 1995 - December 31, 1997 5,712 105,000 210,000
S. G. Hanks January 1, 1995 - December 31, 1997 5,712 105,000 210,000
T. H. Zarges January 1, 1995 - December 31, 1997 4,760 87,500 175,000
L. E. Salci 5 January 1, 1995 - December 31, 1997 0 0 0
</TABLE>
- ---------------
1 This column is left blank because payouts under the 3-Year Plan are made in
cash, rather than stock or stock units.
2 Assumes that the Corporation's Total Shareholder Return falls on the 36.36th
percentile when ranked with the Competitors.
3 Assumes that the Corporation's Total Shareholder Return falls on the 60th
percentile when ranked with the Competitors.
4 Assumes that the Corporation's Total Shareholder Return falls above the 85th
percentile when ranked with the Competitors.
5 In order for a participant to be entitled to an award under the 3-Year Plan,
such individual generally must be rendering services to the Corporation on the
last day of the performance period. Mr. Salci constructively terminated on
October 20, 1995, under the terms of his employment agreement. Under the terms
of the agreement, Mr. Salci's award became immediately vested on that date.
Because the Corporation's ranking as of that date was below the threshold, the
value of the award was zero. Accordingly, Mr. Salci is not entitled to any
benefit thereunder.
B. 5-YEAR PLANS. During 1993, Messrs. Hanks and Tinstman were awarded
participation in long-term incentive plans that were tailored to each of their
positions (the "Individual 5-Year Plans"). Such plans provide the participants
with an opportunity for a cash award at the end of a five-year performance
period. No shares of Corporation common stock, performance units or other stock
rights are involved.
- ---------------
1 The Competitors are Guy F. Atkinson Company of California; Enserch
Corporation; Fluor Corporation; Foster Wheeler Corporation; Jacobs Engineering
Group, Inc.; McDermott International, Inc.; Perini Corporation; Stone & Webster,
Incorporated and The Turner Corporation
2 The Compensation Committee, in conjunction with recommendations previously
made by compensation experts, has set each participant's target bonus, which is
a percentage of his base salary. Target bonus percentages for the three-year
period ending on December 31, 1995, were 35% for each of Messrs. Tinstman,
Hanks, and Chi, and 45% for Mr. Agee. The first three-year period for which
Messrs. Zarges and Salci are eligible to receive an award would be the three-
year period ending December 31, 1996.
III-8
<PAGE>
Mr. Hanks' Individual 5-Year Plan measures annually (over the five-year
period January 1, 1993 to December 31, 1997) the Corporation's after-tax net
income as a percentage of its average total capital. In the case of Mr.
Tinstman, who was President of the Mining Group at the time he was awarded
participation in his Individual 5-Year Plan, the performance formula is modified
to measure over the same period the contribution to net income at the Mining
Group level over such group's average capital employed ("ROTC").
A positive award pool is created each year during the performance period in
an amount equal to the Corporation's net income (in the case of Mr. Hanks) or
contribution to net income by each group (in the case of Mr. Tinstman) in excess
of the predetermined ROTC goal set by the Compensation Committee. If net income
or contribution to net income falls below the ROTC goal in any given year, the
amounts by which the Corporation or Mining Group failed to meet its goal become
a negative award pool for such individual. The negative award pool is not capped
at any maximum amount.
Each participant shares in the annual award pool (which may be positive or
negative based upon Corporation or group performance) applicable to his position
in accordance with a sharing percentage established by the Compensation
Committee. The participant's share of the award pool, which may be positive or
negative, is not paid to the executive. Rather, such amounts are tracked
throughout the five-year performance period by the Corporation and "netted" at
the end thereof. With respect to Mr. Hanks, a "cumulative" five-year award
greater than zero can be adjusted upward if the compound annual growth rate in
the Corporation's stock price exceeds targets established by the Compensation
Committee. Payments to participants under the Individual 5-Year Plans, if any,
are reduced by payments received by participants during the same period under
the Corporation's 3-Year Plan and for awards of restricted stock granted as
incentive compensation during such period.
Except in the case of death, disability or termination without cause, any
payments due to participants under the Individual 5-Year Plans will be made
within 120 days following December 31, 1997. In the event of a change in
control, as defined in the Individual 5-Year Plans, the participants' accrued
awards are immediately vested and payable.
It is impossible for the Corporation to estimate with reasonable accuracy
the many variables affecting potential payments under the Individual 5-Year
Plans. Thus, it is impossible to determine whether participation in the
Individual 5-Year Plans by Messrs. Hanks and Tinstman will result in cash
bonuses to them at the end of the performance period and, if so, in what
amounts. However, if one assumed that such plans were terminated as of
December 31, 1995, Messrs. Hanks and Tinstman would be entitled to receive the
following unaudited amounts: $0 and $1,618,093 respectively.
Although Mr. Zarges was awarded participation in an Individual 5-Year Plan
during 1994 applicable to his position as President of the Engineering and
Construction Group, no such plan was drafted. If such plan is ultimately drafted
for Mr. Zarges, it will function in all material respects as the plan described
for Mr. Tinstman.
Although Mr. Salci was awarded participation in an Individual 5-Year Plan
during 1994 applicable to his position as President of the Transit Group, no
such plan was drafted prior to his departure from the Corporation.
C. CEO 5-YEAR PLAN. In February 1991, the Compensation Committee approved
the Key Executive Long-Term Incentive Plan ("CEO 5-Year Plan") upon the advice
of independent compensation experts. The plan measures annually return on total
capital ("ROTC") over the five-year period January 1, 1991 to December 31, 1995.
An award pool is created each year in the amount by which net income exceeds the
ROTC goal set by the Compensation Committee at the beginning of the five-year
performance period. If net income for a given year meets but does not exceed the
ROTC goal established by the Compensation Committee, the award pool for such
year is $0. Finally, the award pool is negative in the amount by which net
income falls below the ROTC goal for a given year.
On February 9, 1995, Mr. Agee terminated employment with the Corporation.
Mr. Agee's net accrual for years 1991 through his termination was negative.
Thus, Mr. Agee received no award from the CEO 5-Year Plan.
PENSION. Corporation retirement or actuarial benefits to the Named
Executives are derived principally from three sources: (i) an annuity issued by
United Pacific Life Insurance Company arising out of the termination of the
Morrison Knudsen Corporation Retirement Plan established January 1, 1970 and
terminated December 12, 1987 ("UPL Annuity"); (ii) a retirement benefit from the
Morrison Knudsen Corporation Retirement Plan established January 1, 1988 and
frozen December 31, 1991 ("Frozen MKRP Benefit"); and (iii) a retirement benefit
from supplemental retirement benefit agreements ("SRBA Benefit"). The details as
to the source and amount of each Named Executive's retirement benefits are
provided below.
III-9
<PAGE>
The following table summarizes the estimated annual benefits payable in the
form of a straight-life annuity upon normal retirement to each of the Named
Executives:
PENSION TABLE
FROZEN MKRP SRBA BENEFIT 3 TOTAL ANNUAL
UPL ANNUITY 1 BENEFIT 2 AT AGE 65 BENEFIT AT AGE 65
NAME ($) ($) ($) ($)
- --------------------------------------------------------------------------------
R. A. Tinstman 9,385 17,860 10,568 37,813
S. G. Hanks 7,284 13,755 0 21,039
T. H. Zarges 0 0 0 0
D. M. Slavich 0 0 0 0
S. Y. Chi 13,983 7,513 0 21,496
W. J. Agee 0 9,052 99,750 99,750 4
L. E. Salci 0 0 0 0
- ---------------
1 The amounts shown in this column are fixed amounts based upon the formula
contained in the Morrison Knudsen Corporation Retirement Plan established
January 1, 1970 and terminated December 12, 1987. Such amounts will not increase
due to compensation paid or service rendered by the Named Executive after
December 12, 1987.
2 The amounts shown in this column are fixed amounts based upon the formula
contained in the Morrison Knudsen Corporation Retirement Plan established
January 1, 1988 and frozen December 31, 1991. Such amounts will not increase due
to compensation paid or service rendered by the Named Executive after
December 31, 1991.
3 The Corporation has entered into a nonqualified and unfunded SRBA to provide
retirement income to Mr. Tinstman. The SRBA provides Mr. Tinstman with a
retirement benefit equal to the difference between (a) the retirement benefit
that would be payable to him under the Morrison Knudsen Corporation Retirement
plan established January 1, 1988 and frozen December 31, 1991, if it were not
for certain limits imposed on him under the Internal Revenue Code of 1986, as
amended; and (b) his Frozen MKRP Benefit. This difference is referred to
hereafter as the "Standard SRBA Benefit." Mr. Tinstman's Standard SRBA Benefit
will not increase, absent any future amendments to his SRBA, due to compensation
paid or services rendered after December 31, 1991. Mr. Tinstman currently has 14
years credited service under the Frozen MKRP with the Corporation. Mr. Agee's
SRBA Benefit is fixed pursuant to a settlement agreement between Mr. Agee and
the Corporation dated September 20, 1995. Under the terms of such agreement, Mr.
Agee waived his rights to any benefit otherwise payable under a
Corporation-sponsored nonqualified pension plan or SRBA, and is provided with a
supplemental employee retirement pension plan ("SERP") benefit of $99,750 per
year for his life and the life of his wife. Mr. Hanks and Mr. Chi currently have
16 and 15 years credited service with the Corporation, respectively.
4 Under the aforementioned settlement agreement with Mr. Agee, when Mr. Agee
reaches age 65, his SERP benefit will be reduced by the amount of his Frozen
MKRP Benefit, for a total annual benefit of $99,750.
KEY EMPLOYEE RETENTION PLANS. Effective June 30, 1995 the Corporation
approved the following plans to attract and retain employees in key positions
during the ensuing critical 12-month period which plans were amended on April
10, 1996. An additional plan was adopted on April 10, 1996 as described below:
A. KEY EMPLOYEE RETENTION INCENTIVE PLAN. The Corporation approved the
Key Employee Retention Incentive Plan. The plan is designed to attract and
retain key employees by providing them with additional compensation from the
date of adoption through July 1, 1996. The identified employees are paid a
Retention Incentive Award expressed as a percentage of salary. The award
percentage varies by salary and/or organization level. The award levels follow
for members of the employee group who are not Statutory Insiders ("Statutory
Insiders" are defined as officers, directors, or beneficial owners of 10% or
more of the Corporation's common stock for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended.): Executive Management (70%),
Senior Management (62.5%), and Management/Professional and Technical (55%) of
base salary as of June 30, 1995. The Award levels for Statutory Insiders by
employee group are: Executive Management (23.3%); Senior Management (20.83%);
Professional/Technical (18.33%) of base salary as of June 30, 1995. The
individual Retention Incentive Award to each key employee is equal to the
employee's annual base salary as of June 30, 1995, times the multiplier set
forth in the Plan, which corresponds to the relevant employee group/organization
level. The Retention Incentive Award for key employees other than Statutory
Insiders is comprised of one-third cash (half of which was paid on December 15,
1995 and the remaining half to be paid on July 1, 1996) and two-thirds stock (to
be issued on July 1, 1996). The Retention Incentive Award for the Statutory
Insiders, including the Named Executives other than Mr. Chi, is a cash payment
equal to the named executive officer's annual base salary multiplied by the
appropriate multiplier listed in the Plan (23.3% for the Named Executives), half
of which was paid on December 15, 1995 and the remaining half of which is to be
paid on July 1, 1996. However, in the event of a Chapter 11 bankruptcy filing,
covered employees will have the option of receiving a cash payment on July 1,
1996 equal to twice the cash payment received on December 15, 1995 ("initial
cash payment"), or elect to postpone the July 1, 1996 cash payment until the
earlier of the Corporation's emergence from a Chapter 11 proceeding or September
30, 1996. Covered employees who elect (prior to April 30, 1996) to postpone
payment will receive an additional cash amount equal to the initial cash payment
prorated on the number of days from July 1, 1996 to September 30, 1996, but no
later than September 30, 1996 and no less than twenty-five percent (25%) of the
initial cash payment.
B. RETENTION SEVERANCE PAY PLAN. The Corporation approved the Retention
Severance Pay Plan . This plan encourages employees to remain employees of the
Corporation notwithstanding the outcome of reorganization or restructuring of
the Corporation over the 12-month period beginning July 1, 1995, by providing
enhanced severance benefits to employees who are involuntarily terminated during
the 12-month period. If certain events trigger the effective date of the plan
and a participating employee suffers an involuntary termination of employment
other than for cause during the term of the plan, such employee will receive an
amount equal to four, six or nine months of his or her base salary, depending
upon
III-10
<PAGE>
which group/organization level the employee falls within, reduced by (i) amounts
paid or payable to the employee under the Morrison Knudsen Corporation Severance
Pay Plan other than the payments made thereunder with respect to placement
assistance, and (ii) in the event restrictions lapse on the restricted stock
granted to the Statutory Insiders pursuant to the action of the Compensation
Committee on June 30, 1995 under Section 11(c) of the Morrison Knudsen
Corporation Stock Compensation Plan, the value of such stock on the date the
restrictions lapse. Events that would trigger the effective date under the Plan
are (a) if the Corporation sells or transfers to one or more persons,
corporations or entities more than one-half of the voting shares or assets of
any business unit, division or subsidiary of the Corporation, unless exempted by
affirmative vote of two-thirds of the members of the Board of Directors; or (b)
the filing of a petition for bankruptcy under Title 11 of the United States
Code. If no event triggers the effective date of the plan, the plan
automatically terminates on July 1, 1996. The plan also terminates on the
confirmation of any Chapter 11 plan concerning the Corporation. Mr. Chi is the
only Named Executive participating in the plan. The additional plan adopted on
April 10, 1996 is substantially similar but provides covered employees with
severance benefits if they are involuntarily terminated (without cause) between
April 10, 1996 and December 31, 1997. Covered employees for the purposes of the
new plan are employees who elect to postpone payment of their cash award under
the Employee Retention Incentive Plan until after July 1, 1996.
Employment Contracts, Termination of Employment, and Change In Control
Arrangements. The Corporation has entered into the following employment
agreements with the Named Executives:
A. MESSRS. HANKS, TINSTMAN AND ZARGES. Effective January 1, 1993, the
Corporation entered into five-year employment agreements (January 1, 1993
through December 31, 1997) with Messrs. Tinstman and Hanks. Effective January 1,
1994, the Corporation entered into a similar five-year employment agreement with
Mr. Zarges (January 1, 1994 through December 31, 1998). Pursuant to the terms of
the employment agreements, Messrs. Tinstman, Hanks and Zarges are entitled to
receive a minimum annual base salary of $250,000 each and to participate in the
Corporation's annual bonus plan applicable to their corporate position or
operating group position. They are also entitled to participate in (i) an
Individual 5-Year Plan tailored to their corporate position or operating group
position (for a description of such plans, see the section herein titled
"Long-Term Incentive Plans. B. Individual 5-Year Plans"); (ii) the Key Executive
Life Insurance Plan (which provides pre-retirement life insurance of three times
base salary, inclusive of the Corporation's group plan and which provides
post-retirement life insurance of one times base salary); (iii) the Key
Executive Disability Insurance Plan (which provides a disability benefit of 60%
of base salary and annual bonus, inclusive of all Corporation and government
programs); and (iv) all other health and welfare benefits generally available to
executive officers of the Corporation.
Under the employment agreements, Messrs. Tinstman, Hanks and Zarges are
also entitled to receive a severance benefit equal to twice their annual base
compensation (which includes such items as, base salary in effect immediately
preceding the termination of employment for Mr. Zarges and, for Messrs. Tinstman
and Hanks, the greater of base salary in effect immediately preceding
termination of employment or base salary in effect immediately preceding a
salary reduction experienced by such individuals in February 1995, and also
bonuses and participation in health and retirement programs) if their employment
is terminated for a reason other than death, disability, cause, voluntary
resignation under circumstances not constituting constructive termination, or
the expiration of their employment agreements. Under such circumstances, the
Corporation will fully vest all unvested stock options and restricted stock
awards previously granted except those granted on June 30, 1995, and fully vest
and immediately pay any accrued awards and bonuses. If any payments due under
the employment agreements will result in liability by Messrs. Tinstman, Hanks,
and Zarges for any excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended, the Corporation has agreed to pay to them an amount
which (after deducting any Federal, state and local income taxes payable with
respect to such amount) is sufficient to fully satisfy such tax. Messrs.
Tinstman, Hanks and Zarges were awarded by the Compensation Committee on April
2, 1996, additional cash bonuses of $250,000, $150,000 and $125,000, equal to
83% , 50% and 50% of their annual base salaries, respectively, payment of which
is conditioned upon the successful reorganization of the Corporation.
B. Mr. Slavich. Effective April 9, 1995, the Corporation entered into a
four-year employment agreement (March 8, 1995 through March 7, 1999) with Mr.
Slavich. Pursuant to the terms of the agreement, Mr. Slavich is entitled to
receive an annual base salary of $300,000 and to participate in the
Corporation's annual bonus plan applicable to his corporate position. He was
also granted options to purchase 100,000 shares of the Corporation's common
stock under the Stock Compensation Plan at an exercise price of $8.00 per share,
which options vested immediately. Mr. Slavich is also entitled to participate in
(i) the Key Executive Life Insurance Plan (ii) the Key Executive Disability
Insurance Plan and (iii) all other health and welfare benefits generally
available to executive officers of the Corporation.
Under the agreement, Mr. Slavich is also entitled to receive a severance
benefit equal to twice his annual base salary if his employment is terminated
for a reason other than death, disability, cause, voluntary resignation under
circumstances not constituting constructive termination, or the expiration of
his employment agreement. Mr. Slavich was awarded by the Compensation Committee
on April 2, 1996, an additional cash bonus of $150,000 equal to 50% of his
annual base salary, payment of which is conditioned upon the successful
reorganization of the Corporation.
III-11
<PAGE>
C. Mr. Chi. On April 2, 1996, the Compensation Committee authorized the
Company to enter into an employment agreement with Mr. Chi extending through
December 31, 1998. Under the terms of such employment agreement, should Mr. Chi
experience an involuntary termination of employment, other than for cause, he
would be entitled to receive a severance benefit equal to 18 months of his base
compensation. Mr. Chi was awarded by the Compensation Committee on April 2,
1996, an additional cash bonus of $67,500 equal to 30% of his annual base
salary, payment of which is conditioned upon the successful reorganization of
the Corporation.
D. Mr. Agee. On April 2, 1991, the Corporation entered into a five-year
employment agreement (April 2, 1991 through December 31, 1995) with Mr. Agee.
Pursuant to the terms of the employment agreement, Mr. Agee was entitled to
receive a minimum annual base salary of $750,000 and was to be considered for an
annual bonus of at least 50% of his base salary, with the actual bonus
determined by the Compensation Committee after an assessment of the
Corporation's financial performance and Mr. Agee's strategic accomplishments. He
was also entitled to participate in (i) the CEO 5-Year Plan, (ii) the Key
Executive Life Insurance Plan (which provides pre-retirement life insurance of
three times base salary, inclusive of the Corporation's group plan and which
provides post-retirement life insurance of one times base salary), (iii) the Key
Executive Disability Insurance Plan (which provides a disability benefit of 60%
of base salary and annual bonus, inclusive of all Corporation and government
programs), and (iv) all other health and welfare benefits generally available to
executive officers of the Corporation. Upon retirement at age 65, he was to be
entitled to receive a retirement benefit of 45% of his final average
compensation, less any benefits provided under the Corporation's frozen MKRP
Benefit and Standard SRBA Benefit. Lesser benefits were payable if he retired
before age 65.
Under the employment agreement, Mr. Agee was also entitled to receive a
severance benefit equal to twice his base compensation (which includes such
items as base salary, bonuses and participation in health and retirement
programs) if his employment was terminated for a reason other than death,
disability, cause (as defined in such agreement), voluntary resignation under
circumstances not constituting constructive termination or the expiration of the
employment agreement. Under such circumstances, the Corporation was to fully
vest all unvested stock options and restricted stock awards previously granted
and fully vest and immediately pay any accrued awards and bonuses. Finally, if
any payments due under the employment agreement were to result in liability to
Mr. Agee for any excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended, the Corporation has agreed to pay him an amount which
(after deducting any Federal, state and local income taxes payable with respect
to such amount) would be sufficient to fully satisfy such tax. Under the
employment agreement, if Mr. Agee's employment were terminated for death,
disability, cause, as defined in the employment agreement, voluntary resignation
not constituting constructive termination, or upon expiration of the agreement,
Mr. Agee would not be entitled to any of the benefits described above.
Pursuant to a settlement reached with Mr. Agee in September of 1995, Mr.
Agee has waived his right to all compensation, including salary, bonuses,
unvested stock options, unvested restricted stock, and pensions, with the
following exceptions: (i) Mr. Agee will receive an annual supplemental employee
retirement pension plan payment of $99,750 per year, offset by any payments from
the Corporation's frozen Retirement Plan, for the remainder of his life, with a
right of survivorship for the term of his wife's life; (ii) Mr. Agee received
payment of the balance remaining in his deferred compensation plan account,
equal to $367,062.30; (iii) the Corporation was to reimburse Mr. Agee for
medical continuation payments made by him during the period from March 1, 1995
through December 31, 1995; (iv) continued coverage will be provided under the
Corporation's comprehensive medical, health and dental insurance benefit plan
for Mr. Agee and his dependents (the Corporation will pay all costs associated
with such medical, health and dental insurance benefits and will report the
actuarial value of the coverage as income to Mr. Agee); and (v) the Corporation
agreed to advance legal fees and expenses and to indemnify Mr. Agee in
connection with any claims brought against him by reason of, or arising out of,
his tenure at the Corporation.
E. Mr. Salci. Effective March 22, 1994, the Corporation entered into a
five-year employment agreement (March 22, 1994 through March 21, 1999) with Mr.
Salci. Pursuant to the terms of the employment agreement, Mr. Salci was entitled
to receive a minimum annual base salary of $250,000 and to participate in the
Corporation's annual bonus plan applicable to his operating group position. He
was also entitled to participate in (i) an Individual 5-Year Plan tailored to
his operating group position (for a description of such plans, see the section
herein titled "Long-Term Incentive Plans. B. Individual 5-Year Plans"); (ii) the
Key Executive Life Insurance Plan (iii) the Key Executive Disability Insurance
Plan and (iv) all other health and welfare benefits generally available to
executive officers of the Corporation. In addition, a recommendation was to be
made to the Compensation Committee that Mr. Salci be granted options to purchase
25,000 shares of the Corporation's common stock under the Corporation's Stock
Compensation Plan, which option would vest over a four-year period, and 20,000
restricted shares of the Corporation's common stock under the Stock Compensation
Plan, which award would vest immediately with respect to 20% of the shares, with
the remaining shares vesting in four equal increments over the first, second,
third and fourth anniversaries of the date of grant. The Corporation was also to
provide
III-12
<PAGE>
Mr. Salci with a Deferred Compensation Agreement intended to compensate Mr.
Salci for those pension benefits provided by his previous employer that he
forfeited as a result of his resignation from that corporation.
Under the employment agreement, Mr. Salci was also entitled to receive a
severance benefit equal to twice his annual base compensation (which includes
such items as base salary in effect immediately preceding the termination of
employment, bonuses and participation in health and retirement programs) upon
termination of his employment for a reason other than death, disability, cause,
voluntary resignation under circumstances not constituting constructive
termination, or the expiration of his employment agreement. Under such
circumstances, the Corporation would fully vest all unvested stock options and
restricted stock awards previously granted, and fully vest and immediately pay
any accrued awards and bonuses. If any payments due under the employment
agreement would result in liability by Mr. Salci for an excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, the Corporation
agreed to pay to him an amount which (after deducting any Federal, state and
local income taxes payable with respect to such amount) is sufficient to fully
satisfy such tax.
Mr. Salci's employment with the Corporation constructively terminated on
October 20, 1995, in connection with the divestiture of the Corporation's
transit operations. Pursuant to the terms of his employment agreement, Mr. Salci
will receive his base compensation for a period of two years, including
continued participation in the Corporation's Key Executive Long-Term Disability
Insurance Plan, and immediate and full vesting of his unvested stock options and
restricted stock. Since he immediately began work with American Passenger Rail
Car Company, L.L.C. upon his termination from the Corporation, he is no longer
eligible to participate in the Corporation's health and retirement plans.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Holders Thereof. The Company knows of no
person (as the term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934) who beneficially owns more than 5% of the Company's common stock.
III-13
<PAGE>
The following table shows beneficial ownership as of February 14, 1996 of
the common stock of the Company and its subsidiaries for all directors of the
Company, Named Executives, and directors and executive officers of the Company
as a group. Unless otherwise noted, the amount beneficially owned in column (2)
below reflects shares for which the beneficial owner has sole voting power and
sole investment power.
<TABLE>
<CAPTION>
COMMON STOCK OF THE COMPANY
(1) (2) (3) (4)
AMOUNT & NATURE OPTIONS TO PURCHASE SHARES
NAME OF OF BENEFICIAL OWNERSHIP 1 WITHIN 60 DAYS % OF
BENEFICIAL OWNER (INCLUDING OPTIONS IN COLUMN 3) OF FEBRUARY 14, 1996 CLASS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors
Lindsay E. Fox 12,000 12,000 *
Christopher B. Hemmeter 12,000 12,000 *
Peter S. Lynch 19,000 12,000 *
Robert A. McCabe 12,806 12,000 *
Robert S. Miller, Jr. 124,000 104,000 *
Gerard R. Roche 12,000 8,000 *
John W. Rogers, Jr. 14,500 12,000 *
Robert A. Tinstman 218,345 2 154,602 *
Named Executives
William J. Agee 3 19,000 4 0 *
Steven Y. Chi 31,944 5 26,238 *
Stephen G. Hanks 6 248,325 7 178,702 *
Larry E. Salci 0 0 *
Denis M. Slavich 132,276 8 100,000 *
Thomas H. Zarges 55,731 9 19,000 *
All Directors and Executive
Officers as a Group (16)10 960,685 11 653,554 2.85%
</TABLE>
- ---------------
* Indicates that the percentage of shares beneficially owned does not exceed 1%
of the class.
1 For purposes of this table, shares are considered to be "beneficially" owned
if the person directly or indirectly has the sole or shared power to vote or
direct the voting of the securities or the sole or shared power to dispose of or
direct the disposition of the securities; and a person is considered to be the
beneficial owner of shares if that person has the right to acquire the
beneficial ownership of the shares within 60 day of February 14, 1996.
2 Mr. Tinstman shares voting power with the Corporation's 401(k) Savings Plan
trustee as to 3,425 shares owned pursuant to such plan; shares voting and
dispositive power with his wife as to 4,036 shares; and has no dispositive power
as to 31,334 unvested shares of restricted stock granted under the Corporation's
Stock Compensation Plan.
3 Amounts included in this table for Mr. Agee are based on best records
available to the Corporation.
4 Amount represents 19,000 shares issued in the name of The Semper Charitable
Foundation of which Mr. Agee is a director and, as such, shares voting and
dispositive power with one other director over such shares.
5 Mr. Chi shares voting power with the Corporation's 401(k) Savings Plan trustee
as to 1,190 shares owned pursuant to such plan; and has no dispositive power as
to 2,500 unvested shares of restricted stock granted pursuant to the
Corporation's Stock Incentive Plan.
6 Mr. Hanks also has the right to acquire 25,000 shares of common stock in MK
Rail Corporation, a majority owned subsidiary of the Corporation, which amount
represents less than one percent of the class.
7 Mr. Hanks shares voting power with the Corporation's 401(k) Savings Plan
trustee as to 3,124 shares owned pursuant to such plan; has no dispositive power
as to 16,000 unvested shares of restricted stock granted pursuant to the
Corporation's Stock Incentive Plan; and has no dispositive power as to 31, 334
unvested shares of restricted stock granted under the Corporation's Stock
Compensation Plan.
8 Mr. Slavich shares voting power with the Corporation's 401(k) Savings Plan
trustee as to 942 shares owned pursuant to such plan; and has no dispositive
power as to 31, 334 unvested shares of restricted stock granted under the
Corporation's Stock Compensation Plan.
9 Mr. Zarges shares voting power with the Corporation's 401(k) Savings Plan
trustee as to 1,679 shares owned pursuant to such plan; has no dispositive power
as to 2,500 unvested shares of restricted stock granted pursuant to the
Corporation's Stock Incentive Plan; and has no dispositive power as to 29,862
unvested shares of restricted stock granted pursuant to the Corporation's Stock
Compensation Plan.
10 In addition to the shares of MK Rail Corporation beneficially owned by Mr.
Hanks (see footnote 6), executive officers of the Corporation beneficially own
13,200 shares of MK Rail Corporation common stock, a majority owned subsidiary
of the Corporation, which amount includes the right to acquire 10,000 shares and
represents less than one percent of the class.
11 The directors and executive officers as a group share voting power with the
Corporation's 401(k) Savings Plan trustee as to 17,719 shares owned pursuant to
such plan; have no dispositive power as to 21,000 unvested shares of restricted
stock granted pursuant to the Corporation's Stock Incentive Plan ; and have no
dispositive power as to 181,707 unvested shares of restricted stock granted
pursuant to the Corporation's Stock Compensation Plan.
Change in Control. See the disclosure under Item 1. "Recent Developments".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Transactions with Management and Certain Business Relationships. There are
no directors or executive officers of the Corporation who were, at any time
during the last three completed fiscal years, parties to any transactions in
excess of $60,000 to which the Corporation or any of its subsidiaries was a
party or who had any other business relationships with the Corporation or any of
its subsidiaries required to be disclosed in Item 13.
III-14
<PAGE>
Indebtedness of Management. Mr. Tinstman previously entered into promissory
notes with the Company in connection with the exercise of a portion of his
options to purchase the Company's common stock. Pursuant to such notes, payment
of the exercise price for each purchase is deferred over twenty quarters with
interest on the principal balance of six percent per annum. The notes are
collateralized by the shares of the Corporation's common stock which were
purchased by Mr. Tinstman upon each option exercise. In 1993, the largest
aggregate amount of indebtedness owed by Mr. Tinstman to the Corporation was
$62,929 with a current balance owing at April 5, 1996 of $8,841. No other
director or executive officer of the Corporation has been indebted to the
Corporation at any time since the beginning of the last three completed fiscal
years in an amount in excess of $60,000.
III-15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
PAGE(S)
(a) DOCUMENTS FILED AS A PART OF THIS ANNUAL REPORT ON
FORM 10-K.
1. The Consolidated Financial Statements, together with
the report thereon of Deloitte & Touche, LLP dated
April 12, 1996, are included in Part II, Item 8 of
this Annual Report on Form 10-K
Independent Auditors' Report II-19
Consolidated Statements of Operations for years ended
December 31, 1995, 1994, and 1993 II-20
Consolidated Balance Sheets at December 31, 1995
and 1994 II-21, II-22
Consolidated Statements of Cash Flows for years ended
December 31, 1995, 1994 and 1993 II-23
Consolidated Statements of Stockholders' Equity
(Deficiency) for years ended December 31, 1995, 1994
and 1993 II-24
Notes to Consolidated Financial Statements II-25-II-44
2. Financial Statement Schedule as of December 31, 1995
and 1994 included in Part IV of this Annual Report on
Form 10-K Valuation and Qualifying Accounts IV-3
Financial statement schedules not listed above are
omitted because they are not required or are not
applicable, or the required information is given in the
financial statements including the notes thereto.
Captions and column headings have been omitted where
not applicable.
3. Exhibits
The exhibits to this Annual Report on Form 10-K are listed in the
Exhibit Index contained else-
where in this Annual Report.
(b) REPORTS ON FORM 8-K.
The registrant filed a current report on Form 8-K dated October 17,
1995 to report that it had reached an agreement to transfer
substantially all of the assets, certain liabilities, contract
operations and management of its Transit segment to American Passenger
Rail Car Company, L.L.C., ("Amerail") a newly-formed company
wholly-owned by persons not affiliated with the registrant. The
registrant has accounted for the disposition of Transit as a
discontinued operation. In connection with the disposition of Transit,
the registrant and certain of its creditors agreed to (i) reduce the
maximum secured borrowing amount under the registrant's bridge loan
from $129 million to $100 million, (ii) replace the registrant's
standby letter of credit supporting Transit's performance under a
contract with the Metra Transit Authority with the registrant's
guaranty of Amerail's reimbursement obligations to the same bank
creditors under a replacement letter of credit and a new $141 million
credit facility for Amerail to support performance of the Metra
contract and (iii) enter into a reimbursement agreement with its
bonding company pursuant to which the registrant's reimbursement
obligation to its bonding company for the bonding company's losses in
connection with certain non-Metra contracts was capped at
approximately $31 million. In addition, the registrant completed the
sale of its North Pacific Operations on September 22, 1995 for $17
million in cash.
The registrant filed a current report on Form 8-K dated November 15,
1995 to report that preliminary results of operations for the quarter
ended September 30, 1995 were expected to result in an after-tax loss
from continuing operations of $37 million and an after-tax loss from
discontinued operations of approximately $68 million for a
consolidated net loss of approximately $105 million.
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on
April 14, 1996.
Morrison Knudsen Corporation
By /s/ R.A.Tinstman
-----------------------------------------------------
R.A. Tinstman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below on April 14, 1996 by the following persons on
behalf of the Corporation in the capacities indicated.
President and Chief Executive Officer and Director
/s/ R.A. Tinstman (Principal Executive Officer)
- ---------------------
R.A. Tinstman
Executive Vice President and Chief Financial Officer
/s/ D.M. Slavich (Principal Financial Officer)
- ---------------------
D.M. Slavich
Vice President and Controller
/s/ G.A. Crockett (Principal Accounting Officer)
- ---------------------
G.A. Crockett
Director
- ---------------------
L.E. Fox
/s/ C.B. Hemmeter* Director
- ---------------------
C.B. Hemmeter
/s/ P.S. Lynch* Director
- ---------------------
P.S. Lynch
/s/ R.A. McCabe* Director
- ---------------------
R.A. McCabe
/s/ R.S. Miller, Jr.* Director
- ---------------------
R.S. Miller, Jr.
/s/ J.W. Rogers, Jr.* Director
- ---------------------
J.W. Rogers, Jr.
/s/ G.R. Roche* Director
- ---------------------
G.R. Roche
* Stephen G. Hanks, by signing his name hereto, does hereby sign this Annual
Report on Form 10-K on behalf of each of the above-named officers and directors
of Morrison Knudsen Corporation, pursuant to powers of attorney executed on
behalf of each such officer and director.
*By /s/ S.G. Hanks
- ----------------------------
S.G. Hanks, Attorney-in-fact
IV-2
<PAGE>
MORRISON KNUDSEN CORPORATION
SCHEDULE II. VALUATION AND QUALIFYING AND RESERVE ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(THOUSANDS OF DOLLARS)
ALLOWANCE FOR DOUBTFUL NOTES AND ACCOUNTS RECEIVABLES DEDUCTED IN THE BALANCE
SHEET FROM ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 $(16,156) $ (1,746) $5,098 $(12,804)
December 31, 1994 (1) (1,179) (15,411) 434 (16,156)
December 31, 1993 (1) (1,148) (778) 747 (1,179)
<CAPTION>
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE DEDUCTED IN THE BALANCE SHEET FROM DEFERRED INCOME TAXES
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 $(127,594) $(109,408) -- $(237,002)
December 31, 1994 (1) -- (127,594) -- (127,594)
<CAPTION>
ACCRUALS FOR ESTIMATED LOSSES ON UNCOMPLETED CONTRACTS REFLECTED IN THE BALANCE SHEET
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 $(38,110) $(12,444) $28,581 $(21,973)
December 31, 1994 0,(930) (39,400) 2,220 (38,110)
December 31, 1993 (7,091) (1,869) 8,030 (930)
<CAPTION>
ACCRUALS FOR ESTIMATED LOSSES ON UNCOMPLETED CONTRACTS DEDUCTED IN THE BALANCE SHEET
FROM INVESTMENTS IN AND ADVANCES TO CONSTRUCTION JOINT VENTURES
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 $(31,861) $(16,800) $35,680 $(12,981)
December 31, 1994 (1) (2,569) (29,292) -- (31,861)
December 31, 1993 (1) (216) (2,569) 216 (2,569)
</TABLE>
(1) Amounts restated to give effect to the recognition of MK Rail Corporation
and Transit as discontinued operations.
IV-3
<PAGE>
MORRISON KNUDSEN CORPORATION
EXHIBIT INDEX
COPIES OF EXHIBITS WILL BE SUPPLIED UPON REQUEST.
EXHIBITS WILL BE PROVIDED AT A FEE OF $.25 PER PAGE REQUESTED.
EXHIBITS MARKED WITH AN ASTERISK ARE FILED HEREWITH, THE
REMAINDER OF THE EXHIBITS HAVE HERETOFORE BEEN FILED WITH THE
COMMISSION AND ARE INCORPORATED BY REFERENCE.
Exhibit
Number Exhibits
- ------- --------
3.1 The registrant's Restated Certificate of Incorporation, including all
amendments thereto (filed as Exhibit 4.1 to Form S-3 Registration
Statement No. 33-55402 filed on December 4, 1992 and incorporated
herein by reference.)
3.2 The registrant's Restated By-Laws, including all amendments thereto
(filed as Exhibit 3.2 to Form 10-K Annual Report for year ended
December 31, 1994 and incorporated herein by reference.)
4.1.1 The registrant's Rights Agreement dated as of June 12, 1986 (the
"Rights Agreement") with Bank of America National Trust and Savings
Association, as Rights Agent (filed as Exhibit 2.1 to Registration
Statement on Form 8-A filed on June 25, 1986 and incorporated herein
by reference).
4.1.2 Amendment dated as of July 7, 1988 to the registrant's Rights
Agreement with Bank of America National Trust and Savings Association
(filed as Exhibit 28 to Form 8-K Current Report dated July 7, 1988 and
incorporated herein by reference.)
4.1.3 Second Amendment dated as of December 23, 1994 to the registrant's
Rights Agreement with Norwest Bank Minnesota, N.A., as Successor
Rights Agent (filed as part of Exhibit 4.1 to Form 10K Annual Report
for year ended December 31, 1994 and incorporated herein by
reference.)
4.1.4 Third Amendment effective as of August 1, 1995 to the registrant's
Rights Agreement with Norwest Bank Minnesota, N.A., as Successor
Rights Agent to Bank of America National Trust and Savings Association
(filed as Exhibit 4.1 to Form 10-Q Quarterly Report for quarter ended
June 30, 1995 and incorporated hereby by reference.)
4.1.5* Fourth Amendment dated as of April 10, 1996 to the registrant's Rights
Agreement with Norwest Bank Minnesota, N.A., as Successor Rights Agent
to Bank of America National Trust and Savings Association.
4.2 The form of Warrant to Purchase 9,415,696 Shares of Common Stock of
the registrant by the financial institutions named therein (filed as
Exhibit 4.6 to Form 10-Q Quarterly Report for quarter ended June 30,
1995 and incorporated hereby by reference.)
4.3 The form of Warrant to Purchase 4,613,695 Shares of Common Stock of
the registrant by the financial institutions named therein (filed as
Exhibit 4.7 to Form 10-Q Quarterly Report for quarter ended June 30,
1995 and incorporated hereby by reference.)
4.4 The form of Warrant to Purchase 830,039 of Common Stock of the
registrant by Fidelity and Deposit Company of Maryland and certain
cosureties and other reinsurers (filed as Exhibit 4.8 to Form 10-Q
Quarterly Report for quarter ended June 30, 1995 and incorporated
hereby by reference.)
4.5 The registrant's Registration Rights Agreement dated as of July 31,
1995 with certain financial institutions in connection with Warrants
to Purchase 14,029,391 shares of Common Stock of the registrant (filed
as Exhibit 4.11 to Form 10-Q Quarterly Report for quarter ended June
30, 1995 and incorporated hereby by reference.)
4.6 The registrant's Registration Rights Agreement dated as of July 31,
1995 with Fidelity and Deposit Company of Maryland and certain
cosureties and other reinsurers in connection with Warrants to
Purchase 830,039 shares of Common Stock of the registrant (filed as
Exhibit 4.12 to Form 10-Q Quarterly Report for quarter ended June 30,
1995 and incorporated hereby by reference.)
4.7 The registrant's amended standby letter of credit and reimbursement
agreement dated as of August 4, 1992 with Bank of America National
Trust and Savings Association, as Agent, and other financial
institutions with combined commitments of the banks in the aggregate
amount of $190 million (filed as Exhibit 4.4 to Form 10K/A Annual
Report for year ended December 31, 1993 filed on April 13, 1995 and
incorporated herein by reference.)
4.8 The registrant's Revolving Credit Agreement with Bank of America
National Trust and Savings Association, as Agent, and other financial
institutions named therein (filed as Exhibit 4.5 to Form 10-Q
Quarterly Report for quarter ended June 30, 1995 and incorporated
hereby by reference.)
E-1
<PAGE>
Exhibit
Number Exhibits
- ------- --------
4.9 The registrant's Security Purchase Agreement dated as of July 31, 1995
with Mellon Bank, N.A., as Agent, and other financial institutions
named therein (filed as Exhibit 4.9 to Form 10-Q Quarterly Report for
quarter ended June 30, 1995 and incorporated hereby by reference.)
4.10 The registrant's Securities Purchase Agreement dated as of July 31,
1995 with Fidelity and Deposit Company of Maryland and certain
cosureties and other reinsurers (filed as Exhibit 4.10 to Form 10-Q
Quarterly Report for quarter ended June 30, 1995 and incorporated
hereby by reference.)
4.11 The registrant's Indemnification and Reimbursement Agreement dated as
of July 31, 1995 with Fidelity and Deposit Company of Maryland and
Colonial American Casualty and Surety Company (filed as Exhibit 4.13
to Form 10-Q Quarterly Report for quarter ended June 30, 1995 and
incorporated hereby by reference.)
4.12 The registrant's Guaranty dated as of July 31, 1995, with Bank of
America National Trust and Savings Association, as agent, and other
financial institutions named therein (filed as Exhibit 4.14 to Form
10-Q Quarterly Report for quarter ended June 30, 1995 and incorporated
hereby by reference.)
4.13 Amended and Restated Override Agreement dated as of October 10, 1995,
among the registrant, Morrison Knudsen Corporation, an Ohio
corporation and a wholly owned subsidiary of registrant, The Banks and
Other Financial Institutions named therein, Mellon Bank, N.A., as
Agent, and Bank of America National Trust and Savings Association, as
Metra Agent (filed as Exhibit 4.1 to Form 8-K Current Report dated
October 17, 1995 and incorporated herein by reference.)
4.14 The registrant's Amended and Restated Credit Agreement dated as of
July 31, 1995 with Mellon Bank, N.A., as Administrative Agent and
Co-Agent, and Bank of America National Trust and Savings Association,
as Co-Agent, and other financial institutions named therein with
combined commitments of the banks in the aggregate of $129 million
(filed as Exhibit 4.3 to Form 10-Q Quarterly Report for quarter ended
June 30, 1995 and incorporated hereby by reference.)
4.15 First Amendment dated as of October 10, 1995 to the Amended and
Restated Credit Agreement dated as of July 31, 1995, among the
registrant, Morrison Knudsen Corporation, an Ohio corporation and a
wholly owned subsidiary of registrant, the banks and other financial
institutions named on Schedule A therein ("Lenders"), Mellon Bank,
N.A., as administrative agent for the Lenders, and Mellon Bank, N.A.
and Bank of America National Trust and Savings Association as coagents
for the Lenders (filed as Exhibit 4.2 to Form 8-K Current Report dated
October 17, 1995 and incorporated herein by reference.)
4.16* Second Amendment dated as of January 18, 1996 to the Amended and
Restated Credit Agreement dated as of July 31, 1995, among the
registrant, Morrison Knudsen Corporation, an Ohio corporation and a
wholly owned subsidiary of registrant, the banks and other financial
institutions named on Schedule A therein ("Lenders"), Mellon Bank,
N.A., as administrative agent for the Lenders, and Mellon Bank, N.A.
and Bank of America National Trust and Savings Association as coagents
for the Lenders .
4.17* Third Amendment dated as of March 31, 1996 to the Amended and Restated
Credit Agreement dated as of July 31, 1995, among the registrant,
Morrison Knudsen Corporation, an Ohio corporation and a wholly owned
subsidiary of registrant, the banks and other financial institutions
named on Schedule A therein ("Lenders"), Mellon Bank, N.A., as
administrative agent for the Lenders, and Mellon Bank, N.A. and Bank
of America National Trust and Savings Association as coagents for the
Lenders
4.18 Reimbursement Agreement dated as of October 10, 1995, among the
registrant, Morrison Knudsen Corporation, an Ohio Corporation and a
wholly owned subsidiary of registrant, and each of the affiliates of
the registrant listed on the signature pages thereof, to and for the
benefit of Fidelity and Deposit Company of Maryland (filed as Exhibit
4.3 to Form 8-K Current Report dated October 17, 1995 and incorporated
herein by reference.)
4.19 Guaranty dated as of October 10, 1995 by Morrison Knudsen Corporation,
an Ohio corporation and a wholly owned subsidiary of registrant, in
favor of Bank of America National Trust and Savings Association, as
Metra Agent, guarantying the obligations of American Passenger Rail
Car Company, L.L.C. under that certain Revolving Credit Agreement
dated as of October 10, 1995 among American Passenger Rail Car
Company, L.L.C., Bank of America National Trust and Savings
Association and the Lenders identified therein (filed as Exhibit 4.4
to Form 8-K Current Report dated October 17, 1995 and incorporated
herein by reference.)
E-2
<PAGE>
Exhibit
Number Exhibits
- ------- --------
4.20 New Bonds Agreement dated as of October 10, 1995, by and among the
registrant, Fidelity and Deposit Company of Maryland, Morrison Knudsen
Corporation, an Ohio corporation and a wholly owned subsidiary of
registrant, and the entities listed on Annex A thereto (filed as
Exhibit 4.5 to Form 8-K Current Report dated October 17, 1995 and
incorporated herein by reference.)
4.21* Amendment dated as of March 29, 1996 to the New Bonds Agreement dated
as of October 10, 1995, by and among the registrant, Fidelity and
Deposit Company of Maryland, Morrison Knudsen Corporation, an Ohio
corporation and a wholly owned subsidiary of registrant, and the
entities listed on Annex A thereto.
4.22 The registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of instruments defining the
rights of holders of other long-term debt of the registrant.
10.1 Form of Guaranty by the registrant, as Guarantor, in favor of Morgan
Guaranty Trust Company of New York, as Trustee (filed as Exhibit 4.2
to Amendment No. 1 to Form S-3 Registration Statement No. 33-50046
filed on October 30, 1992 and incorporated herein by reference.)
10.2 Form of Indenture of Trust between the City of San Diego and Morgan
Guaranty Trust Company of New York, as Trustee (filed as Exhibit 4.3
to Amendment No. 1 to Form S-3 Registration Statement No. 33-50046
filed on October 30, 1992 and incorporated herein by reference.)
10.3 Form of Loan Agreement between the City of San Diego and National
Steel and Shipbuilding Company (filed as Exhibit 4.4 to Amendment No.
1 to Form S-3 Registration Statement No. 33-50046 filed on October 30,
1992 and incorporated herein by reference.)
10.4 Transfer Agreement between the registrant and MK Rail Corporation
(filed as Exhibit 10.4 to Form 10-Q Quarterly Report for quarter ended
June 30, 1994 and incorporated herein by reference.)
10.5 Environmental Liability Transfer Agreement between the registrant and
MK Rail Corporation (filed as Exhibit 10.5 to Form 10-Q Quarterly
Report for quarter ended June 30, 1994 and incorporated herein by
reference.)
10.6 Tax Matters Agreement between the registrant and MK Rail Corporation
(filed as Exhibit 10.6 to Form 10-Q Quarterly Report for quarter ended
June 30, 1994 and incorporated herein by reference.)
10.7 Employee Transfer and Benefits Agreement between the registrant and MK
Rail Corporation (filed as Exhibit 10.7 to Form 10-Q Quarterly Report
for quarter ended June 30, 1994 and incorporated herein by reference.)
10.8 Indemnification Agreement dated October 20, 1994 between Morrison
Knudsen Corporation, an Ohio corporation, and MK Rail Corporation
(filed as Exhibit 10.1 to Form 10-Q Quarterly Report for quarter ended
September 30, 1994 and incorporated herein by reference.)
10.9 The registrant's Global Settlement Agreement dated as of June 15, 1995
with MK Rail Corporation (filed as Exhibit 10.10 to Form 10-K Annual
Report for year ended December 31, 1994 and incorporated herein by
reference.)
10.10 Form of Note Agreement between the registrant and MK Rail Corporation
(filed as Exhibit 10.11 to Form 10-K Annual Report for year ended
December 31, 1994 and incorporated herein by reference.)
10.11 Form of Mutual Release between the registrant and MK Rail Corporation
(filed as Exhibit 10.12 to Form 10-K Annual Report for year ended
December 31, 1994 and incorporated herein by reference.)
10.12 Form of Indemnification Agreement between the registrant and MK Rail
Corporation (filed as Exhibit 10.13 to Form 10-K Annual Report for
year ended December 31, 1994 and incorporated herein by reference.)
10.13 The registrant's Share Purchase Agreement dated as of June 15, 1995
with MK Rail Corporation (filed as Exhibit 10.14 to Form 10-K Annual
Report for year ended December 31, 1994 and incorporated herein by
reference.)
10.14 Shareholders Agreement dated December 18, 1993 among Morrison Knudsen
BV, a wholly owned subsidiary of the registrant, Lambique Beheer BV
and Ergon Overseas Holdings Limited (filed as Exhibit 10.15 to Form
10-K Annual Report for year ended December 31, 1994 and incorporated
herein by reference.) [Subject to Freedom of Information Act request
for confidential treatment.]
10.15 The registrant's Agreement of Indemnity dated July 1, 1992 with
Fidelity and Deposit Company of Maryland and Amendment thereto dated
March 3, 1995 (filed as Exhibit 10.16 to Form 10-K Annual Report for
year ended December 31, 1994 and incorporated herein by reference.)
E-3
<PAGE>
Exhibit
Number Exhibits
- ------- --------
10.16* Amendment dated September 21, 1995 to the registrant's Agreement of
Indemnity dated July 1, 1992, as amended, with Fidelity and Deposit
Company of Maryland.
10.17 Agreement of Indemnity dated February 1, 1995 between MK Rail
Corporation and Fidelity and Deposit Company of Maryland (filed as
Exhibit 10.17 to Form 10-K Annual Report for year ended December 31,
1994 and incorporated herein by reference.)
10.18 Stock Purchase Agreement dated as of May 12, 1995 between the
registrant and Leucadia National Corporation, as amended by Amendment
No. 1 to Stock Purchase Agreement dated as of May 17, 1995, Amendment
No. 2 to Stock Purchase Agreement dated as of May 22, 1995, and
Amendment No. 3 to Stock Purchase Agreement dated as of May 24, 1995
(filed as Exhibit 10.18 to Form 10-K Annual Report for year ended
December 31, 1994 and incorporated herein by reference.)
10.19 Stock Purchase Agreement dated as of June 2, 1995 between the
registrant and Western Acquisition Corp (filed as Exhibit 10.19 to
Form 10-K Annual Report for year ended December 31, 1994 and
incorporated herein by reference.)
10.20 The registrant's Forbearance Agreement dated as of June 30, 1995, with
Mellon Bank, N.A., United States National Bank of Oregon and Emkay
Development Company, Inc., a wholly owned subsidiary of registrant
(filed as Exhibit 10.1 to Form 10-Q Quarterly Report for quarter ended
June 30, 1995 and incorporated herein by reference.)
10.21 Asset Purchase Agreement dated as of October 10, 1995 by and among the
registrant, American Passenger Rail Car Company, L.L.C., Morrison
Knudsen Corporation, an Ohio corporation and a wholly owned subsidiary
of registrant, and the entities listed on Schedule 1 thereto (filed as
Exhibit 10.1 to Form 8-K Current Report dated October 17, 1995 and
incorporated herein by reference.)
10.22 Stock Purchase Agreement dated as of September 21, 1995, by and
between the registrant, Morrison Knudsen Corporation, an Ohio
corporation and a wholly owned subsidiary of registrant, and
Tutor-Saliba Corporation, a California corporation (filed as Exhibit
10.2 to Form 8-K Current Report dated October 17, 1995 and
incorporated herein by reference.)
10.23* The registrant's Withdrawal Agreement dated as of March 29, 1996
relating to the Strait Crossing Joint Venture and Strait Crossing
Development, Inc.
10.24* The registrant's news release dated March 22, 1996 in connection with
the registrant's sale of all of its shares in McConnell Dowell
Corporation Limited.
10.25 The registrant's Securities Litigation Memorandum of Understanding
between Plaintiffs and the registrant filed as Exhibit 10.1 to Form
8-K Current Report dated September 20, 1995 and incorporated herein by
reference.)
10.26 The registrant's Securities Litigation Memorandum of Understanding
between Plaintiffs and the Individual Defendants (filed as Exhibit
10.2 to Form 8-K Current Report dated September 20, 1995 and
incorporated herein by reference.)
10.27 The registrant's Derivative Litigation Memorandum of Understanding
(filed as Exhibit 10.3 to Form 8-K Current Report dated September 20,
1995 and incorporated herein by reference.)
10.28 The MK Rail Corporation Securities Litigation Memorandum of
Understanding among Plaintiffs, the Underwriter Defendants, MK Rail
Corporation and the registrant (filed as Exhibit 10.4 to Form 8-K
Current Report dated September 20, 1995 and incorporated herein by
reference.)
10.29 The MK Rail Corporation Securities Litigation Memorandum of
Understanding between Plaintiffs and the Individual Defendants (filed
as Exhibit 10.5 to Form 8-K Current Report dated September 20, 1995
and incorporated herein by reference.)
10.30 The MK Rail Corporation Derivative Litigation Memorandum of
Understanding (filed as Exhibit 10.6 to Form 8-K Current Report dated
September 20, 1995 and incorporated herein by reference.)
10.31 Separation Agreement dated September 20, 1995 between the registrant
and William J. Agee (filed as Exhibit 10.7 to Form 8-K Current Report
dated September 20, 1995 and incorporated herein by reference.)
10.32* The registrant's Securities Litigation Stipulation of Settlement dated
as of 9/11/95.
E-4
<PAGE>
Exhibit
Number Exhibits
- ------- --------
10.33* The registrant's Securities Litigation Final Judgement and Order dated
as of 12/1/95.
10.34* The registrant's Securities Litigation Stipulation of Settlement
relating to Deloitte & Touche LLP dated as of 10/1/95.
10.35* The registrant's Securities Litigation Final Judgement and Order
relating to Deloitte & Touche LLP dated as of 12/1/95.
10.36* The registrant's Derivative Litigation Stipulation of Settlement dated
as of 1/26/96.
10.37* The registrant's Derivative Litigation Stipulation of Settlement
relating to State Board of Administration of Florida v. Morrison
Knudsen Corporation, et al dated as of 11/95.
10.38* The registrant's Settlement Agreement and Release relating to Theodore
E. Nelson v. Morrison Knudsen Corporation dated as of 1/1/96.
10.39* MK Rail Corporation Securities Litigation Stipulation of Settlement
dated as of 12/22/95.
10.40* MK Rail Corporation Securities Litigation Final Judgement and Order
dated as of 3/29/96.
10.41* MK Rail Corporation Derivative Litigation Stipulation of Settlement
dated as of 3/12/96.
Management contract or compensatory plan or arrangement which is
separately identified in accordance with Item 14(a) (3) of Form 10-K.
10.42 The registrant's Executive Incentive Plans for the years 1972 through
1981, inclusive (filed as Exhibit 10.2 to Form 10-K Annual Report for
year ended December 31, 1990 and incorporated herein by reference.)
10.43 The registrant's 1982 Executive Incentive Plan, as amended (filed as
Exhibit 10.7 to Form 10-K Annual Report for year ended December 31,
1993 and incorporated herein by reference.)
10.44 A description of the registrant's Key Executive Disability Insurance
Plan (filed as Exhibit 10.12 to Form 10-K Annual Report for year ended
December 31, 1992 and incorporated herein by reference.)
10.45 The registrant's Key Executive Life Insurance Plan (filed as Exhibit
10.13 to Form 10-K Annual Report for year ended December 31, 1992 and
incorporated herein by reference.)
10.46 The registrant's Key Executive Long-Term Incentive Plan (filed as
Exhibit 10.2 to Form 10-Q Quarterly Report for quarter ended March 31,
1991 and incorporated herein by reference.)
10.47 The registrant's Long-Term Performance Compensation Benefit Plan
(filed as Exhibit 10.8 to Form 10-K Annual Report for year ended
December 31, 1991 and incorporated herein by reference.)
10.48 The registrant's Long-Term Incentive Plan for Corporate Executives
(filed as Exhibit 10.3 to Form 10-Q Quarterly Report for quarter ended
March 31, 1994 and incorporated herein by reference.)
10.49 The registrant's Long-Term Incentive Plan for the Engineering and
Construction Group (filed as Exhibit 10.4 to Form 10-Q Quarterly
Report for quarter ended March 31, 1994 and incorporated herein by
reference.)
10.50* The registrant's Long-Term Incentive Plan for the Mining Group.
10.51 The registrant's Stock Incentive Plan, as amended (filed as Exhibit
10.16 to Form 10K Annual Report for year ended December 31, 1992 and
incorporated herein by reference.)
10.52 The registrant's Chief Executive Officer Incentive Plan (filed as
Appendix I to Proxy Statement dated April 4, 1994 and incorporated
herein by reference.)
10.53 The registrant's Stock Compensation Plan (filed as Appendix II to
Proxy Statement dated April 4, 1994 and incorporated herein by
reference.)
10.54 The registrant's Non-Employee Directors' Deferred Compensation Plan,
as amended (filed as Exhibit 10.31 to Form 10-K Annual Report for year
ended December 31, 1994 and incorporated herein by reference.)
10.55 The registrant's Retirement Plan for Non-Employee Directors, as
amended (filed as Exhibit 10.22 to Form 10-K Annual Report for year
ended December 31, 1992 and incorporated herein by reference.)
E-5
<PAGE>
Exhibit
Number Exhibits
- ------- --------
10.56 The registrant's Stock Option Plan for Non-Employee Directors, as
amended (filed as Exhibit 10.23 to Form 10-K Annual Report for year
ended December 31, 1992 and incorporated herein by reference.)
10.57* The registrant's Amended and Restated Key Employee Retention Incentive
Plan adopted on April 10, 1996.
10.58 The registrant's Retention Severance Pay Plan adopted on June 30, 1995
(filed as Exhibit 10.3 to Form 10-Q Quarterly Report for quarter ended
June 30, 1995 and incorporated herein by reference.)
10.59* The registrant's First Amendment to Retention Severance Pay Plan
adopted on April 10, 1996.
10.60* The registrant's 1996 Retention Severance Pay Plan adopted on April
10, 1996.
10.61* The form of registrant's Restricted Stock Agreement relating to
restricted stock granted to certain employees on June 30, 1995 under
the registrant's Stock Compensation Plan in connection with the
registrant's financial restructuring. [A schedule listing the
individuals with whom the registrant has entered into such agreements
is filed herewith.]
10.62* The form of registrant's Revised Employee Benefit Agreement entered
into with certain key employees in connection with the registrant's
financial restructuring. [A schedule listing the individuals with whom
the registrant has entered into such agreements is filed herewith.]
10.63* The form of registrant's Employment Agreement relating to extended
severance benefits for certain key employees in connection with the
registrant's financial restructuring. [A schedule listing the
individuals with whom the registrant has entered into such agreements
is filed herewith.]
10.64 Form of registrant's Indemnification Agreement (filed as Exhibit B to
Proxy Statement dated March 23, 1987, and incorporated herein by
reference.) [A schedule listing the individuals with whom the
registrant has entered into such agreements is filed herewith.]
10.65 Form of registrant's Supplemental Retirement Benefit Agreement (filed
as Exhibit 10.6 to Form 10-K Annual Report for year ended December 31,
1988 and incorporated herein by reference.) [A schedule listing the
individuals with whom the registrant has entered into such agreements
is filed herewith.]
10.66 The registrant's employment agreement with Robert S. Miller, Jr. dated
as of April 1, 1995 (filed as Exhibit 10.43 to Form 10-K Annual Report
for year ended December 31, 1994 and incorporated herein by
reference.)
10.67* The registrant's employment agreement with Robert A. Tinstman dated as
of January 1, 1993 and form of amendment thereto approved on April 2,
1996.
10.68* The registrant's employment agreement with Stephen G. Hanks dated as
of January 1, 1993 and form of amendment thereto approved on April 2,
1996.
10.69 The registrant's employment agreement with Denis M. Slavich dated as
of March 9, 1995 (filed as Exhibit 10.44 to Form 10-K Annual Report
for year ended December 31, 1994 and incorporated herein by
reference.)
10.70* The registrant's employment agreement with Thomas F. Kealey dated as
of July 11, 1994.
10.71* The registrant's employment agreement with Thomas H. Zarges dated as
of January 1, 1994.
10.72* The registrant's employment agreement with Larry E. Salci dated as of
March 22, 1994 and amendment thereto dated April 19, 1995.
21.* Subsidiaries of the registrant.
23.* Consent of Deloitte & Touche, independent auditors.
24.* Powers of Attorney.
27.* Financial Data Schedule.
E-6
<PAGE>
STRAIT CROSSING JOINT VENTURE
STRAIT CROSSING DEVELOPMENT INC.
WITHDRAWAL AGREEMENT
As of March 29, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
INTERPRETATION
1.1 Defined Terms.................................................. 4
1.2 Currency....................................................... 7
1.3 Sections and Headings.......................................... 7
1.4 Number, Gender and Persons..................................... 7
1.5 Entire Agreement............................................... 8
1.6 Time of Essence................................................ 8
1.7 Applicable Law................................................. 8
1.8 Successors and Assigns......................................... 8
1.9 Amendments and Waivers......................................... 8
1.10 Schedules...................................................... 8
ARTICLE II
WITHDRAWAL OF NORTHERN FROM THE JOINT VENTURE
2.1 Withdrawal of Northern from the Joint Venture.................. 9
2.2 Assignment and Transfer of Ownership Interests................. 9
2.3 Representations of and to Northern............................. 10
2.4 Releases....................................................... 10
2.5 Indemnification................................................ 12
2.6 Assumption of Northern's Liabilities........................... 15
ARTICLE III
PARENT COMPANY OBLIGATIONS
3.1 Release, Indemnification and Assumption of Liabilities of MKD
and MKO........................................................ 16
3.2 Transfer of MKD and MKO Interests.............................. 17
3.3 Release of GTM, BNNV and SCI................................... 17
3.4 Developer Loan Release......................................... 18
3.5 Parent Company Further Assurances.............................. 18
ARTICLE IV
TRANSFER OF SHARES OF THE DEVELOPER
4.1 Representation of Northern..................................... 18
4.2 Transfer of the Developer Shares............................... 19
4.3 Assignment of BNC Note......................................... 19
4.4 BNNV Guarantee................................................. 19
4.5 SCDI Shareholders Agreement.................................... 19
<PAGE>
ii
ARTICLE V
CONDITIONS
5.1 Conditions..................................................... 20
5.2 Covenants to Satisfy Conditions................................ 21
ARTICLE VI
CLOSING
6.1 Place of Closing............................................... 22
6.2 Further Assurances and Power of Attorney....................... 22
ARTICLE VII
INDEMNIFICATION PROCEDURES
7.1 Notice of Claim................................................ 22
7.2 Third party Claims............................................. 23
7.3 Settlement of Third Party Claims............................... 23
7.4 Co-operation................................................... 24
7.5 Direct Claims.................................................. 24
7.6 Authority to Bind.............................................. 24
ARTICLE VIII
GENERAL REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties................................. 25
ARTICLE IX
MISCELLANEOUS
9.1 Notices........................................................ 26
9.2 Legal Fees and Disbursements................................... 27
9.3 Counterparts................................................... 28
SCHEDULES
Schedule 2.8(a) - Contractor Agreements
Schedule 2.8(b) - Developer Agreements
Schedule 3.3(a) - Form of Parent Company Consent and
Acknowledgement
<PAGE>
iii
Schedule 5.1(a) - Form of Consent and Acknowledgement of the
Government
Schedule 5.1(b) - Form of Release by Government
Schedule 5.1(c) - Form of Release by the Developer
Schedule 5.1(d) - Form of Rider Regarding Amendment to Contract
and Withdrawal of Joint Venturer
<PAGE>
WITHDRAWAL AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 29th day of March, 1996.
B E T W E E N:
BALLAST NEDAM N.V.,
a corporation existing under the laws of
the Netherlands,
(hereinafter referred to as "BNNV"),
OF THE FIRST PART,
- and -
BALLAST NEDAM CANADA LIMITED,
a corporation existing under the laws of
the Province of Alberta,
(hereinafter referred to as "BNC"),
OF THE SECOND PART,
- and -
G.T.M.I. (CANADA) INC.,
a corporation existing under the laws
of the Province of Quebec,
(hereinafter referred to as "GT Canada"),
OF THE THIRD PART,
- and -
GTM-ENTREPOSE, S.A.,
a corporation existing under the laws of
France,
(hereinafter referred to as "GTM"),
OF THE FOURTH PART,
<PAGE>
-2-
- and -
GTM INTERNATIONAL, S.A.,
a corporation existing under the laws of
France,
(hereinafter referred to as "GTM International"),
OF THE FIFTH PART,
- and -
MORRISON KNUDSEN CORPORATION,
a corporation existing under the laws of
the State of Delaware,
(hereinafter referred to as "MKD"),
OF THE SIXTH PART,
- and -
MORRISON KNUDSEN CORPORATION,
a corporation existing under the laws of
the State of Ohio,
(hereinafter referred to as "MKO"),
OF THE SEVENTH PART,
- and -
NORTHERN CONSTRUCTION COMPANY LTD.,
a corporation existing under the laws of
Canada,
(hereinafter referred to as "Northern"),
OF THE EIGHTH PART,
- and -
<PAGE>
-3-
STRAIT CROSSING INC.,
a corporation existing under the laws of
the Province of Prince Edward Island,
(hereinafter referred to as "SCI"),
OF THE NINTH PART,
- and -
STRAIT CROSSING DEVELOPMENT INC.,
a corporation existing under the
laws of the Province of Ontario,
(hereinafter referred to as the "Developer"),
OF THE TENTH PART,
- and -
STRAIT CROSSING BRIDGE LIMITED,
a corporation existing under the
Business Corporations Act (Ontario),
(hereinafter referred to as "SCBL"),
OF THE ELEVENTH PART,
- and -
BALLAST NEDAM INTERNATIONAL B.V.,
a corporation existing under the
laws of the Netherlands,
(hereinafter referred to as "BNIBV"),
OF THE TWELFTH PART,
- and -
BALLAST NEDAM CANADA B.V.
a corporation existing under the
laws of the Netherlands,
<PAGE>
-4-
(hereinafter referred to as "BNCBV"),
OF THE THIRTEENTH PART.
THIS AGREEMENT WITNESSES THAT in consideration of the respective
covenants, agreements, representations, warranties and indemnities of the
parties herein contained and for other good and valuable consideration (the
receipt and sufficiency of which are acknowledged by each party), the parties
agree as follows:
ARTICLE I
INTERPRETATION
2. DEFINED TERMS
For the purposes of this Agreement, unless the context otherwise
requires, the following terms shall have the respective meanings set out below
and grammatical variations of such terms shall have corresponding meanings:
(i) "Affiliate" shall have the meaning attributed thereto in the
Business Corporations Act (Ontario) as in force on the
Closing Date, provided that when referring to MKC and its
Affiliates, "Affiliate" shall not include MK Rail
Corporation;
(ii) "Assignment Proportion" shall mean in respect of GT Canada,
GTM International and GTM 58.06% and in respect of BNC,
BNIBV and BNNV 41.94%;
(iii) "Atlas" shall mean Atlas Construction Inc., a corporation
existing under the laws of the Province of Quebec;
(iv) "Bonds" shall mean any performance bond, labour and
materials payment bond or other form of payment,
performance, indemnity or maintenance bond as contemplated
by, or provided pursuant to, the Project Agreements;
(v) "Bridge Operating Agreement" shall mean the agreement so
entitled between the Developer and the Government made as of
October 7, 1993, as amended by agreement made as of
September 30, 1994;
<PAGE>
-5-
(vi) "Business Day" shall mean any day, other than a Saturday or
a Sunday, on which the main branches of the Royal Bank of
Canada, the Bank of Nova Scotia and the Bank of Montreal in
Toronto, Ontario are open for business;
(vii) "Claim" shall mean any and all actions, causes of action,
suits, debts, duties, accounts, bonds, covenants, contracts,
claims, demands, liabilities or obligations of any kind or
nature, whether known or unknown, whatsoever;
(viii) "Closing Date" shall mean March 29, 1996 or such other date
as the parties may mutually determine;
(ix) "Construction Contract" shall mean the agreement dated
October 7, 1993 among the Developer and SCI, GT Canada and
Northern in their respective capacities as members of
Contractor, as amended by agreement dated September 30, 1994
among such parties and BNC, and as further amended by
agreement dated February 22, 1996;
(x) "Contractor" shall mean, collectively, SCI, GT Canada, BNC
(and, prior to giving effect to the withdrawal provided for
in this Agreement, but not thereafter, Northern) jointly and
severally in their capacities as Members of The Strait
Crossing Joint Venture and any other Persons who may from
time to time become a party to the Joint Venture Agreement
in compliance with subsection 15.2(c) of the Construction
Contract, but only in such Person's capacity as a Member of
The Strait Crossing Joint Venture under the Joint Venture
Agreement;
(xi) "Contractor Security" shall have the meaning set out in
Schedule "A" to the Development Agreement as in force on the
day preceding the Closing Date;
(xii) "Development Agreement" shall mean the agreement so entitled
between the Developer and the Government made as of October
7, 1993, amended by agreement made as of September 30, 1994;
(xiii) "Facility" shall have the meaning set out in Schedule "A" to
the Development Agreement as in force on the day preceding
the Closing Date;
(xiv) "Government" shall mean Her Majesty the Queen in right of
Canada as represented by the Minister of Supply and Services
and of Public Works;
(xv) "Independent Engineer" shall mean the Person identified as
such in the Independent Engineer Retainer Agreement;
<PAGE>
-6-
(xvi) "Independent Engineer Retainer Agreement" shall mean the
agreement so entitled among the Developer, the Contractor,
Buckland & Taylor Ltd. and the Government made as of October
7, 1993;
(xvii) "Joint Venture" shall mean the joint venture among the
Members existing pursuant to the Joint Venture Agreement;
(xviii) "Joint Venture Agreement" shall mean the First Amended and
Restated Joint Venture Agreement made as of February 27,
1996 among SCI, Northern, GT Canada and BNC;
(xix) "Member" shall mean any one of SCI, GT Canada or BNC (and,
prior to giving effect to the withdrawal provided for in
this Agreement, but not thereafter, Northern), or any other
Person who becomes party to the Joint Venture Agreement and
to whom rights and obligations are assigned pursuant to
subsection 15.2(c) of the Construction Contract, but only in
such Person's capacity as a member of The Strait Crossing
Joint Venture;
(xx) "MKC" shall mean, collectively, MKD and MKO;
(xxi) "Parent Company Guarantee Agreement" shall mean the Second
Amended and Restated Parent Company Guarantee Agreement made
as of February 27, 1996 among MKD, MKO, GTM, SCI and BNNV;
(xxii) "Parent Companies' Contractor Guarantee" shall mean the
guarantee so entitled made as of October 7, 1993 by MKD, MKO
and GTM in favour of the Developer, as modified by a
declaration in writing made as of September 30, 1994 by
BNNV;
(xxiii) "Parent Companies' Developer Guarantee" shall mean the
guarantee so entitled made as of October 7, 1993 by MKD, MKO
and GTM in favour of the Government, as modified by a
declaration in writing made as of September 30, 1994 by
BNNV;
(xxiv) "Percentage Participation" of each Member shall be, after
giving effect to the transactions provided for in this
Agreement:
GT Canada 49.9%
BNC 35.1%
SCI 15.0%;
<PAGE>
-7-
(xxv) "Person" shall mean an individual, corporation, partnership,
limited partnership, limited liability company, joint
venture, trust, union, unincorporated association, public
authority, government, and the heirs, executors, legal
representatives or administrators of an individual;
(xxvi) "Project" shall have the meaning set out in Schedule "A" to
the Development Agreement as in force on the day preceding
the Closing Date;
(xxvii) "Project Agreements" shall have the meaning set out in
Schedule "A" to the Development Agreement as in force on the
day preceding the Closing Date;
(xxviii) "Project Trust Agreement" shall mean the agreement so
entitled among the Developer, the Contractor, Montreal
Trust Company of Canada, as trustee, the Provinces of
New Brunswick and Prince Edward Island and the
Government made as of October 7, 1993, as amended by
agreement made as of September 30, 1994;
(xxix) "Project Trustee" shall mean the Person identified as such
in the Project Trust Agreement;
(xxx) "SCDI Shareholders Agreement" shall mean the Second Amended
and Restated Unanimous Shareholders Agreement made as of
February 27, 1996 among SCI, Northern, GT Canada, BNC, Atlas
and the Developer;
(xxxi) "Security" shall have the meaning set out in Schedule "A" to
the Development Agreement as in force on the day preceding
the Closing Date;
(xxxii) "Security Trustee" shall have the meaning set out in
Schedule "A" to the Development Agreement as in force on the
day preceding the Closing Date;
(xxxiii) "Sureties" shall mean, collectively, American Home Assurance
Company, Commerce and Industry Insurance Company of Canada,
Zurich Insurance Company and The Guarantee Company of North
America;
(xxxiv) "Technical Service Agreement" shall mean the agreement made
as of January 1, 1996 among MKO and the Contractor;
(xxxv) "Time Of Closing" shall mean 10:00 a.m. (Toronto time) on
the Closing Date, or such other time on the Closing Date as
the parties may mutually determine;
<PAGE>
-8-
(xxxvi) "Transferred Interest" shall have the meaning attributed to
such term in section 2.2 of this Agreement;
(xxxvii) "Work" shall have the meaning set out in Schedule A to the
Development Agreement as in force on the day preceding the
Closing Date.
(b) CURRENCY
Unless otherwise indicated, all dollar amounts in this Agreement
are expressed in Canadian funds.
(c) SECTIONS AND HEADINGS
The division of this Agreement into Articles, sections and
subsections and the insertion of headings are for convenience of reference only
and shall not affect the interpretation of this Agreement. Unless otherwise
indicated, any reference in this Agreement to an Article, section, subsection or
Schedule refers to the specified Article, section or subsection of or Schedule
to this Agreement.
(d) NUMBER, GENDER AND PERSONS
In this Agreement, words importing the singular number only shall
include the plural and VICE VERSA, words importing gender shall include all
genders and words importing persons shall include individuals, corporations,
partnerships, associations, trusts, unincorporated organizations, governmental
bodies and other legal or business entities of any kind whatsoever.
(e) ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether written or
oral. There are no conditions, covenants, agreements, representations,
warranties or other provisions, express or implied, collateral, statutory or
otherwise, relating to the subject matter hereof except as herein provided.
(f) TIME OF ESSENCE
Time shall be of the essence of this Agreement.
<PAGE>
-9-
(g) APPLICABLE LAW
This Agreement shall be construed, interpreted and enforced in
accordance with, and the respective rights and obligations of the parties shall
be governed by, the laws of the Province of Ontario and the federal laws of
Canada applicable therein, and each party irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
(h) SUCCESSORS AND ASSIGNS
This Agreement shall enure to the benefit of and shall be binding
on and enforceable by the parties and, where the context so permits, their
respective successors and permitted assigns. No party may assign any of its
rights or obligations hereunder without the prior written consent of the other
parties hereto.
(i) AMENDMENTS AND WAIVERS
No amendment or waiver of any provision of this Agreement shall
be binding on any party unless consented to in writing by such party. No waiver
of any provision of this Agreement shall constitute a waiver of any other
provision, nor shall any waiver constitute a continuing waiver unless otherwise
provided.
(j) SCHEDULES
The following Schedules are attached to and form part of this
Agreement:
Schedule 2.8(a) - Contractor Agreements
Schedule 2.8(b) - Developer Agreements
Schedule 3.3(a) - Form of Parent Company Consent and
Acknowledgement
Schedule 5.1(a) - Form of Consent of the Government
Schedule 5.1(b) - Form of Release by Government
Schedule 5.1(c) - Form of Release by the Developer
Schedule 5.1(d) - Form of Rider Regarding Amendment to Contract
and Withdrawal of Joint Venturer
<PAGE>
-10-
ARTICLE II
WITHDRAWAL OF NORTHERN FROM THE JOINT VENTURE
(a) WITHDRAWAL OF NORTHERN FROM THE JOINT VENTURE
Subject to the provisions of and in consideration of the
respective covenants and representations contained in this Agreement, the
parties agree that effective the Closing Date, Northern withdraws from and is no
longer a member of the Joint Venture. From and as of the Closing Date, all
notices, letterhead, advertising and documentation issued by the Joint Venture
or by any party hereto in respect of or that identifies the Members of the Joint
Venture shall not identify in any way Northern as a Member of the Joint Venture.
From and as of the Closing Date, neither Northern nor MKC nor any of their
respective Affiliates shall identify itself as a current participant in the
Project or as a member of the Joint Venture and shall not produce or reprint any
advertising or promotional materials of any kind or in any form which describe
or refer to the participation or former participation of Northern or MKC in the
Project, the Work or Joint Venture.
(b) ASSIGNMENT AND TRANSFER OF OWNERSHIP INTERESTS
Northern, on its own behalf and on behalf of its Affiliates,
hereby assigns and transfers to GT Canada and BNC in their respective Assignment
Proportions on a non-recourse basis and without any representation or warranty
except as expressly set out in this Agreement and subject to the Security and
Contractor Security, all of the interests of Northern and its Affiliates in the
Joint Venture, including, without limitation, (i) all of the rights and
entitlements of Northern and any of its Affiliates under the Joint Venture
Agreement, and all of the interest of Northern and any of its Affiliates in any
and all property, assets or rights used primarily in connection with or
otherwise relating to the Facility or the Project, whether real or personal,
tangible or intangible, of every kind and description, including any right to
use any assets, goods or services contributed or otherwise provided to, or
procured for, the Project or the Facility or the performance of the Work by
Northern or any of its Affiliates and (ii) all of the interest of Northern and
any of its Affiliates in and rights to its capital account in the Joint Venture
and all other accounts payable to Northern by the Joint Venture, in each case
subject to all applicable terms of the Joint Venture Agreement and with all
applicable interest thereon accrued to and as at the Closing Date as recorded in
the books and records of the Joint Venture (collectively, the "Transferred
Interest"), and the Members consent to such assignment and transfer and shall
record it in the books and records of the Joint Venture; PROVIDED THAT if any
consent of any third party is required to the assignment by Northern of any of
its right, title or interest in any contract or agreement and such consent is
not obtained prior to the Closing Date, Northern will hold all of its right,
title and interest in that contract or agreement in trust for GT Canada and BNC
in their respective Assignment Proportions until, and the assignment by Northern
of its right, title and interest in such contract or agreement will not become
effective until, the consent of such third party has been obtained.
<PAGE>
-11-
(c) REPRESENTATIONS OF AND TO NORTHERN
(i) Northern hereby represents and warrants to GT Canada and BNC
that: (i) Northern is the beneficial owner of the Transferred Interest with good
and marketable title thereto and that at the Time of Closing the Transferred
Interest will be free and clear of all encumbrances, other than encumbrances in
favour of the Government or the Security Trustee or any party hereto, and (ii)
except with respect to the Joint Venture Agreement, Northern is not in default
in performance of any obligation of Northern under any agreement entered into by
Northern in its capacity as a Member of the Joint Venture, or any agreement
entered into by Northern or any of its Affiliates that relates to any assets,
goods or services contributed or otherwise provided to, or procured for, the
Project or the Facility or the performance of the Work (an "Ancillary Northern
Agreement"). Notwithstanding the foregoing, Northern makes no representation or
warranty as to any agreement that is or has been approved or acquiesced in by an
officer of any other Member of the Joint Venture or any of their respective
Affiliates or a member of the senior management of the Joint Venture.
(ii) GT Canada, BNC and SCI represent and warrant that they and each
of them have no knowledge, without independent inquiry, of any default or
alleged default by Northern of Northern's obligations under any Ancillary
Northern Agreement.
(d) RELEASES
(i) Each of GT Canada, BNC, SCI and the Developer hereby releases and
forever discharges Northern and its Affiliates and their respective current and
former directors, officers, employees, and agents (collectively, the "Northern
Releasees") from any and all Claims that GT Canada, BNC, SCI or the Developer
may now have or hereafter can, shall or may have or assert against any Northern
Releasee for or by reason of or in any way arising out of any cause, matter or
thing relating to the Project or the Facility or the performance or
non-performance of the Work or pursuant to any of the obligations of Northern
under the Joint Venture Agreement or under the Developer Shareholders Agreement,
or of Northern or the Contractor pursuant to any Project Agreement or any other
agreement entered into by the Contractor or by Northern in its capacity as a
Member of the Joint Venture in relation to the Project, the Facility or the
performance of the Work, including any direct Claims which any of GT Canada,
BNC, SCI or the Developer may have against any Northern Releasee or any indirect
Claim which any Person may have against any Northern Releasee as a result of a
Claim being made by any third party against any of GT Canada, BNC, SCI or the
Developer in relation to the Project, the Facility or the performance or
non-performance of the Work; PROVIDED THAT the foregoing releases shall not
extend or apply to:
(i) any Claim arising out of any cause, matter or thing
that occurred prior to the Closing Date that is
asserted against Northern for which Northern and not
any other Member of the Joint Venture would have
<PAGE>
-12-
been liable had Northern remained as a Member of the
Joint Venture; PROVIDED THAT the exclusion contained in
this subclause (i) shall not apply to any cause, matter
or thing (x) for which Northern would have been
entitled to claim full or partial indemnity from any
other Member or any of their Affiliates under the Joint
Venture Agreement or any other agreement related to the
Project, or (y) arising out of the performance of the
Work by Northern, its Affiliates or its employees
(other than arising out of the wilful misconduct or
fraud of Northern, its Affiliates or its employees), or
(z) arising out of any agreement or the performance of
any agreement relating to the Project that is or has
been approved or acquiesced in by an officer of any
other Member or any of their respective Affiliates or a
member of the senior management of the Joint Venture;
(ii) any Claim arising out of any cause, matter or thing
that occurred prior to the Closing Date that is
asserted against any Northern Releasee pursuant to the
last sentence of Paragraph 5 of the Joint Venture
Agreement or that is asserted by any employee or former
employee of any Northern Releasee for payment of wages,
or termination, or otherwise arising from the
employment of such employees by any Northern Releasee;
(iii) any Claim asserted against any Northern Releasee for
breach of any representation, warranty or covenant
under this Agreement; and
(iv) any Claim for taxes payable by any Northern Releasee.
(all such excluded liabilities being hereinafter referred to as "Northern
Excluded Obligations").
(ii) Northern hereby releases and forever discharges each of GT
Canada, BNC, SCI and the Developer, and their respective Affiliates, and their
respective current and former directors, officers, employees and agents
(collectively, the "Member Releasees") from any and all Claims which Northern
may now have or hereafter can, shall or may have or assert against any Member
Releasee for or by reason of or in any way arising out of any cause, matter or
thing relating to the Project or the Facility or the performance or
non-performance of the Work or pursuant to any of the respective obligations of
GT Canada, BNC or SCI under the Joint Venture Agreement or under the Developer
Shareholders Agreement, or of GT Canada, BNC, SCI or the Contractor pursuant to
any Project Agreement or any other agreement entered into by the Contractor or
by GT Canada, BNC or SCI in their respective capacities as Members of the Joint
Venture in relation to the Project, the Facility or the performance of the Work,
including any direct Claims which Northern may have against any Member Releasee
or any indirect Claim which any Person may have against any
<PAGE>
-13-
Member Releasee as a result of a Claim being made by any third party against
Northern in relation to the Project, the Facility or the performance or
non-performance of the Work; PROVIDED THAT, this release shall not be a release
of:
(i) any of the Transferred Interest;
(ii) the Joint Venture's obligations to repay Northern's
capital account in the Joint Venture and interest
accrued thereon and all other accounts payable to
Northern by the Joint Venture;
(iii) any Claim which Northern may have pursuant to this
Agreement including, without limitation, pursuant to
section 2.5 hereof; or
(iv) any Claim for taxes payable by any Member Releasee.
(e) INDEMNIFICATION
(i) Each of GT Canada and BNC severally to the extent of its
respective Assignment Proportion, hereby indemnifies and holds harmless
Northern, MKD and MKO and their respective Affiliates against any Claim brought
against or incurred or suffered by, Northern, MKD or MKO or any of their
respective Affiliates, which has arisen or may now or hereafter arise out of any
cause, matter or thing relating to the Project or the Facility or the
performance or non-performance of the Work or pursuant to any of the obligations
of Northern under the Joint Venture Agreement or under the SCDI Shareholders
Agreement, or of Northern or the Contractor pursuant to any Project Agreement or
any other agreement entered into by the Contractor or by Northern in its
capacity as a Member of the Joint Venture in relation to the Project, the
Facility or the performance of the Work; PROVIDED THAT, this indemnification
shall not apply or extend to the Northern Excluded Obligations.
(i) Each of GTM and BNNV hereby unconditionally and
irrevocably guarantees to MKD, MKO, Northern and their
respective Affiliates (collectively, the "Releasee
Guarantee Obligees") the due and punctual payment and
performance by GT Canada and BNC, respectively, of
their respective several obligations now or at any time
or from time to time hereafter arising under subsection
2.5(a) (the "Releasee Obligations"). Each of GTM and
BNNV severally to the extent of its respective
Assignment Proportion hereby also agrees to pay all
costs and expenses incurred by the Releasee Guarantee
Obligees in enforcing their rights hereunder,
including, without limitation, the reasonable fees and
disbursements of counsel for the Releasee Guarantee
Obligees, in connection with such enforcement.
<PAGE>
-14-
(ii) The guarantee provided for in clause (i) above shall
continue irrespective of any change in the name,
objects, powers, capital or constitution of GT Canada
or BNC.
(iii) The Releasee Guarantee Obligees shall not be bound or
obliged to exhaust their recourse against GT Canada or
BNC or any other persons or any securities or
collateral they may hold or to take any other action
(other than make demand as hereinafter set forth)
before being entitled to demand payment from GTM and/or
BNNV hereunder.
(iv) The guarantee provided for in clause (i) above shall
continue to be effective or be reinstated, as the case
may be, if at any time payment of any of the Releasee
Obligations is rescinded or must otherwise be returned
by the Releasee Guarantee Obligees upon the insolvency,
bankruptcy, dissolution or reorganization of GT Canada
or BNC or upon, or as a result of, the appointment of a
custodian, receiver, trustee or other officer with
similar powers with respect to GT Canada or BNC or any
substantial part of the property of either of them, or
otherwise, all as though such payment had not been
made.
(v) Each of GTM and/or BNNV shall make payment to the
Releasee Guarantee Obligees of the amount of its
several liability, if any, hereunder forthwith after
demand therefor is made to GTM and BNNV in writing,
with no further or other obligation of the Releasee
Guarantee Obligees to make demand or presentment or to
give notice. GTM and BNNV hereby waive notice of
acceptance of this instrument. Except as expressly
otherwise provided herein, nothing herein shall
constitute a waiver of any defence which GTM and/or
BNNV or their respective Affiliates may have.
(vi) The guarantee provided for in clause (i) above is in
addition and without prejudice to any guarantees or
securities of any kind (including, without limitation,
guarantees whether or not in the same form as this
instrument) now or hereafter held by the Releasee
Guarantee Obligees.
<PAGE>
-15-
(vii) Upon payment and fulfilment of all of the indebtedness
and obligations of GT Canada and BNC to the Releasee
Guarantee Obligees and the fulfilment of all
indebtedness and obligations of GTM and BNNV pursuant
to the guarantee, the rights granted pursuant to such
guarantee shall cease and become null and void and the
Releasee Guarantee Obligees shall, at the request of
GTM and BNNV, execute and deliver to GTM and BNNV such
deeds or other instruments as shall be required to
release and discharge GTM and BNNV from their covenants
under this subsection 2.5(b).
(viii) The guarantee provided for in clause (i) above is a
continuing guarantee and shall (x) remain in full force
and effect until payment and performance in full of the
Releasee Obligations, (y) be binding upon GTM and BNNV,
their respective successors and assigns, and (z) enure
to the benefit of and be enforceable by the Releasee
Guarantee Obligees and their respective successors,
transferees and assigns.
(iii) Northern hereby indemnifies and holds harmless each of GT
Canada, BNC, SCI and the Developer (an "Indemnitee") against any Claim brought
against or incurred or suffered by an Indemnitee from any Northern Excluded
Obligations.
(iv) (i) MKD and MKO hereby jointly and severally
unconditionally and irrevocably guarantee to each of GT
Canada, BNC, SCI and the Developer and their Affiliates
(collectively, the "Indemnity Guarantee Obligees") the
due and punctual payment and performance by Northern of
its obligations now or at any time or from time to time
hereafter arising under subsection 2.5(c) (the
"Indemnity Obligations"). MKD and MKO jointly and
severally hereby also agree to pay all costs and
expenses incurred by the Indemnity Guarantee Obligees
in enforcing their rights hereunder, including, without
limitation, the reasonable fees and disbursements of
counsel for the Indemnity Guarantee Obligees, in
connection with such enforcement.
(ii) The guarantee provided for in clause (i) above shall
continue irrespective of any change in the name,
objects, powers, capital or constitution of MKD or MKO.
<PAGE>
-16-
(iii) The Indemnity Guarantee Obligees shall not be bound or
obliged to exhaust their recourse against Northern or
any other persons or any securities or collateral they
may hold or to take any other action (other than make
demand as hereinafter set forth) before being entitled
to demand payment from MKD and/or MKO hereunder.
(iv) The guarantee provided for in clause (i) above shall
continue to be effective or be reinstated, as the case
may be, if at any time payment of any of the Indemnity
Obligations is rescinded or must otherwise be returned
by the Indemnity Guarantee Obligees upon the
insolvency, bankruptcy, dissolution or reorganization
of Northern or upon, or as a result of, the appointment
of a custodian, receiver, trustee or other officer with
similar powers with respect to Northern or any
substantial part of the property of Northern, or
otherwise, all as though such payment had not been
made.
(v) MKD and/or MKO shall make payment to the Indemnity
Guarantee Obligees of the amount of its joint
liability, if any, hereunder forthwith after demand
therefor is made to MKD or MKO in writing, with no
further or other obligation of the Indemnity Guarantee
Obligees to make demand or presentment or to give
notice. MKD and MKO hereby waive notice of acceptance
of this instrument. Except as expressly otherwise
provided herein, nothing herein shall constitute a
waiver of any defence which MKD and/or MKO or their
respective Affiliates may have.
(vi) The guarantee provided for in clause (i) above is in
addition and without prejudice to any guarantees or
securities of any kind (including, without limitation,
guarantees whether or not in the same form as this
instrument) now or hereafter held by the Indemnity
Guarantee Obligees.
(vii) Upon payment and fulfilment of all of the indebtedness
and obligations of Northern to the Indemnity Guarantee
Obligees and the fulfilment of all indebtedness and
obligations of Northern pursuant to the guarantee
provided for in clause (i) above, the rights granted
pursuant to such guarantee shall cease and become null
and void and the Indemnity Guarantee Obligees shall, at
the request of MKD or MKO, execute and deliver to MKD
and MKO such deeds or other instruments as shall be
required to release and discharge MKD and MKO from
their covenants under this subsection 2.5(d).
<PAGE>
-17-
(viii) The guarantee provided for in clause (i) above is a
continuing guarantee and shall (x) remain in full force
and effect until payment and performance in full of the
Indemnity Obligations, (y) be binding upon MKD and MKO,
their respective successors and assigns, and (z) enure
to the benefit of and be enforceable by the Indemnity
Guarantee Obligees and their respective successors,
transferees and assigns.
(f) ASSUMPTION OF NORTHERN'S LIABILITIES
Each of GT Canada and BNC severally in its respective Assignment
Proportion hereby assumes all Northern's liability for and agrees in a due and
proper manner to discharge, perform and fulfil all those agreements,
obligations, contracts, commitments, liabilities, costs, leases and licences
entered into, incurred or suffered by the Contractor or by the Members of the
Joint Venture or by Northern in its capacity as a Member of the Joint Venture
that in any way relate to the Project, the Facility or the performance of the
Work; PROVIDED THAT this assumption of liabilities shall not apply or extend to
the Northern Excluded Obligations or to any liability or obligation of Northern
to MKD or MKO or to any of Affiliate of MKD or MKO or to any creditor of MKD or
MKO (other than a party hereto).
(g) AMENDMENT TO THE JOINT VENTURE AGREEMENT
Each of the parties that is a party to the Joint Venture
Agreement hereby amends, effective the Closing Date, the Joint Venture Agreement
in every respect necessary to provide for the withdrawal of Northern from the
Joint Venture as provided for in this Agreement. Each of GT Canada, SCI and BNC
agrees to execute and deliver an amended and restated Joint Venture Agreement to
reflect this amendment.
(h) CONTRACTOR AND DEVELOPER FURTHER ASSURANCES
(i) CONTRACTOR AGREEMENTS. Each of the Parties that is a party to
any of the agreements of the Contractor listed in Schedule 2.8(a) agrees to
execute and deliver on the Closing Date agreements in the form and content of
the amending agreements contained in Schedule 2.8(a) to amend such agreements.
(ii) DEVELOPER AGREEMENTS. Each of the parties that is a party to any
of the agreements of the Developer listed in Schedule 2.8(b) agrees to execute
and deliver on the Closing Date agreements in the form and content of the
amending agreements contained in Schedule 2.8(b) to amend such agreements.
<PAGE>
-18-
ARTICLE III
PARENT COMPANY OBLIGATIONS
(a) RELEASE, INDEMNIFICATION AND ASSUMPTION OF LIABILITIES OF MKD AND MKO.
Each of GTM, BNNV, SCI, the Members and the Developer hereby
releases and forever discharges each of MKD and MKO and their Affiliates and
respective current and former directors, officers, employees and agents
(collectively, the "MK Releasees") from all Claims that GTM, BNNV, SCI, the
Members or the Developer or any of their Affiliates may now have or hereafter
can, shall or may have or assert against any MK Releasee for or by reason of or
in any way arising out of any cause, matter or thing relating to the Project or
the Facility or the performance or non-performance of the Work or pursuant to
any of the obligations of MKD or MKO under the Parent Company Guarantee
Agreement, the Parent Companies' Contractor Guarantee, the Parent Companies'
Developer Guarantee or the Charter (as defined in subsection 5.1(h)) or any
other agreement entered into by MKD or MKO in its capacity as the parent company
of a Member of the Joint Venture in relation to the Project, the Facility or the
performance of the Work, including any direct Claims which any of GTM, BNNV,
SCI, the Members or the Developer may have against any MK Releasee or any
indirect Claim which any Person may have against any MK Releasee as a result of
a Claim being made by any third party against any of GTM, BNNV, SCI, the
Members, the Developer or any of their Affiliates in relation to the Project,
the Facility or the performance or non-performance of the Work. Each of GTM and
BNNV severally in their respective Assignment Proportions hereby indemnifies and
holds harmless any MK Releasee against any Claim brought against or incurred or
suffered by any MK Releasee, which has arisen or may now or hereafter arise as a
result of any cause, matter or thing relating to the Project or the Facility or
the performance or non-performance of the Work or pursuant to any obligations of
MKD or MKO under the Parent Company Guarantee Agreement, the Parent Companies'
Contractor Guarantee or the Parent Companies' Developer Guarantee and assumes in
its respective Assignment Proportion all liability for and agrees in a due and
proper manner to discharge, perform and fulfil all the agreements, obligations
and liabilities of MKD and/or MKO under and pursuant to the Parent Company
Guarantee Agreement, the Parent Companies' Contractor Guarantee and the Parent
Companies' Developer Guarantee or any other agreement relating to the Project
under which MKD or MKO may be liable; PROVIDED THAT, the releases,
indemnifications and assumptions provided for in this section 3.1 shall not
apply or extend to:
(i) any liability of MKD or MKO under the Technical Service
Agreement;
(ii) any liability of MKD or MKO for breach of any
representation, warranty or covenant of MKD or MKO
under this Agreement; and
(iii) any liability for taxes payable by any MK Releasee.
<PAGE>
-19-
(b) TRANSFER OF MKD AND MKO INTERESTS.
Each of MKD and MKO hereby assigns and transfers to GTM and BNNV,
in their respective Assignment Proportions, all of MKD's and MKO's interest in
the Project, the Facility, the Work, the Joint Venture and the Developer,
including, without limitation, any amounts payable by either the Joint Venture
or the Developer to either MKD or MKO (but excluding its rights and entitlements
under the Technical Services Agreement), on a non-recourse basis and without any
representation or warranty except as expressly set out in this Agreement.
(c) RELEASE OF GTM, BNNV AND SCI
Other than with respect to any Claim which MKD or MKO may have
pursuant to this Agreement including, without limitation, pursuant to Section
3.1 hereof, each of MKD and MKO hereby releases and forever discharges each of
GTM, BNNV and SCI and their respective affiliates and respective directors,
officers, employees and agents (collectively, the "Parent Releasees") from all
Claims that MKD or MKO may now have or hereafter can, shall or may have or
assert against any Parent Releasee for or by reason of or in any way arising out
of any cause, matter or thing relating to the Project or the Facility or the
performance or non-performance of the Work or pursuant to any of the obligations
of GTM, BNNV and SCI under the Parent Company Guarantee Agreement, the Parent
Companies' Contractor Guarantee or the Parent Companies' Developer Guarantee or
any other agreement entered into by GTM, BNNV and SCI in their respective
capacities as parent companies of, or as, a Member of the Joint Venture in
relation to the Project, the Facility or the performance of the Work, including
any direct Claims which either MKD or MKO may have against any Parent Releasee
or an indirect Claim which any Person may have against any Parent Releasee as a
result of a Claim being made by any third party against either MKD or MKO in
relating to the Project, the Facility or the performance or non-performance of
the Work, including, without limitation, any amounts payable by the Joint
Venture or the Developer to MKD or MKO; PROVIDED THAT, such release shall not
apply or extend to any Claim arising under the Technical Services Agreement.
(d) DEVELOPER LOAN RELEASE.
GTM International hereby releases and discharges MKD and its
current and former directors, officers, employees and agents (collectively, MKD
Releasees") from all Claims that GTM International may now have or hereafter
can, shall or may have or assert against MKD for or by reason of or in any way
arising out of the obligations of MKD pursuant to Section 7.3 of the Developer
Loan Agreement made as of October 7, 1993 among Strait Crossing Finance Inc.,
the Developer, MKD and GTM International (the "the Developer Obligations") and
each of GTM International and BNIBV severally in their respective Assignment
Proportions hereby indemnifies MKD against any Claim brought against or incurred
or suffered by MKD pursuant to Section 7.3 of the Developer Loan Agreement, and
each of GTM International and BNIBV in the respective
<PAGE>
-20-
Assignment Proportions severally hereby assumes all liability for and agrees in
a due and proper manner to discharge, perform and fulfil the obligations set
forth in Section 7.3 of the Developer Loan Agreement.
(e) PARENT COMPANY FURTHER ASSURANCES.
Each of GTM and BNNV agrees to execute and deliver a consent and
acknowledgement to affirm the Parent Companies' Contractor Guarantee and the
Parent Companies' Developer Guarantee in form and content substantially the same
as the form and content of the draft consent and acknowledgement contained in
Schedule 3.3(a) of this Agreement. Each of the parties that is a party to the
Second Amended and Restated Parent Company Guarantee Agreement hereby amends,
effective the Closing Date, the Second Amended and Restated Parent Company
Guarantee Agreement in every respect necessary to provide for the releases and
other provisions of this Agreement relating to the withdrawal of MKD and MKO.
Each of GTM, BNNV and SCI agrees to execute and deliver an amended and restated
Parent Company Guarantee Agreement to reflect this amendment.
ARTICLE IV
TRANSFER OF SHARES OF THE DEVELOPER
(a) REPRESENTATION OF NORTHERN
Northern hereby represents and warrants to GT Canada and BNC that
it is the beneficial owner of record of 360 common shares (the "Transferred
Shares") in the capital of the Developer, with good and marketable title
thereto, which will at delivery of the Transferred Shares be free and clear of
all encumbrances, other than encumbrances pursuant to the Amended and Restated
Share Pledge Agreement made as of September 30, 1994 among SCI, GT Canada,
Northern, BNC and Montreal Trust Company in its capacity as trustee and agent
for the Government and, without limiting the foregoing, none of the Transferred
Shares is subject to any voting trust, shareholder agreement or voting agreement
other than the SCDI Shareholders Agreement.
(b) TRANSFER OF THE DEVELOPER SHARES
Northern hereby agrees to sell, assign and transfer to GT Canada
209 common shares in the capital of the Developer and agrees to sell, assign and
transfer to BNC 151 common shares in the capital of the Developer, in each case,
without recourse and only with the representations and warranties set forth in
this Agreement, in consideration for the respective covenants and agreements of
GT Canada and BNC contained in this Agreement.
<PAGE>
-21-
(c) ASSIGNMENT OF BNC NOTE
Northern hereby agrees to assign and transfer, without recourse
and only with the representations and warranties set forth in this Agreement, to
BNCBV the promissory note issued by BNC as of September 30, 1994 in favour of
Northern ("the BNC Note") in consideration for the covenants and agreements of
BNNV and BNC hereunder. Northern hereby represents and warrants to BNCBV that
as of the Closing Date Northern is the beneficial owner of the BNC Note free and
clear of all encumbrances except encumbrances pursuant to the Note Pledge
Agreement made as of September 30, 1994 among Atlas-Gest Inc., Northern and
Montreal Trust Company in its capacity as trustee and agent for the Government.
BNC hereby acknowledges and consents to the transfer of the BNC Note by Northern
to BNCBV. BNCBV hereby assumes each and every obligation and covenant of
Northern pursuant to the Share Subscription Agreement made as of September 30,
1994 (the "Share Subscription Agreement") among Northern, Atlas-Gest Inc., the
Developer and the Government, and agrees to indemnify Northern in respect of any
Claim, brought against or incurred or suffered by Northern as a present or
former party to the Share Subscription Agreement.
(d) BNNV GUARANTEE
BNNV hereby acknowledges and consents to the assignment of the
BNC Note by Northern to BNCBV and acknowledges and agrees that the guarantee
(the "BNNV Guarantee") made by BNNV as of September 30, 1994 in respect of the
BNC Note shall remain in full force and effect unamended by the transfer of the
BNC Note from Northern to BNCBV and BNCBV as the transferee of the BNC Note
shall be entitled to all of the rights and obligations made in favour of
Northern by BNNV pursuant to the BNNV Guarantee. BNNV hereby indemnifies and
holds harmless Northern against any Claim brought against or suffered by
Northern which has arisen or may now or hereafter arise out of any cause, matter
or thing relating to the obligations of Northern under the Share Subscription
Agreement.
(e) SCDI SHAREHOLDERS AGREEMENT
Each of the parties that is a party to the SCDI Shareholders
Agreement hereby amends the SCDI Shareholders Agreement in every respect
necessary to reflect the disposition by Northern of all of its shares of the
Developer and the other transaction provided for in this Agreement. Each of
SCI, GT Canada, BNC and the Developer agrees to, and GT Canada will cause Atlas
Construction Inc. to, execute and deliver an amended and restated Unanimous
Shareholders' Agreement to reflect this amendment.
ARTICLE V
<PAGE>
-22-
CONDITIONS
(a) CONDITIONS.
The performance of the obligations of each of the parties under
this Agreement is subject to the following conditions, each of which is for the
benefit of each of the parties, to be performed or fulfilled at or prior to the
Time of Closing. If any of the conditions set forth below shall not be
performed or fulfilled at or prior to the Time of Closing to the satisfaction of
a party, acting reasonably, that party may, by notice to each of the other
parties terminate its obligations under this Agreement and upon the obligations
of that party hereunder being terminated, the obligations of each of the other
parties hereto are also terminated, without prejudice to the right any party
hereunder may have as a result of any breach of covenant, representation or
warranty by any other party. Any such condition may be waived in whole or in
part by any party without prejudice to any other right such party may have:
(i) CONSENT OF GOVERNMENT. The Government shall have executed and
delivered a Consent in substantially the form and content of the form of Consent
attached hereto as Schedule 5.1(a);
(ii) RELEASE BY GOVERNMENT. The Government shall have executed and
delivered a form of release in substantially the form and content of the form of
Release attached hereto as Schedule 5.1(b) releasing MKD and MKO from their
obligations under the Parent Companies' Developer Guarantee;
(iii) RELEASE BY THE DEVELOPER. The Developer shall have executed
and delivered a form of release in substantially the form and content of the
form of Release attached hereto as Schedule 5.1(c) releasing MKD and MKO from
their obligations under the Parent Companies' Contractor Guarantee;
(iv) RIDERS TO BONDS. Each of the Sureties shall have executed
and delivered the Riders to the Bonds in substantially the form and content of
the forms of Rider attached hereto in Schedule 5.1(d);
(v) AMENDMENTS TO AGREEMENTS. Each of the parties to the agreements
listed in Schedule 2.8(a) and (b) shall have executed and delivered agreements
amending all such agreements in substantially the form and content of the draft
amending agreements attached hereto in Schedules 2.8(a) and 2.8(b);
(vi) LENDER CONSENTS. MKO and MKD shall have obtained all
required consents and releases of MKD's and MKO's creditors necessary to give
effect to the transactions provided for herein in form and substance
satisfactory to GTM, BNNV and SCI;
<PAGE>
-23-
(vii) RELEASES BY SURETIES AND CREDIT LYONNAIS CANADA. The
Sureties shall have released MKD, MKO, Northern and their respective Affiliates,
as applicable, from their respective obligations under the Application for
Performance and Payment Bonds and Indemnity Agreement in Form No. 2 executed by
Northern, SCI, GT Canada, BNC and the Sureties; and Credit Lyonnais Canada shall
have released MKD, MKO, Northern and their respective Affiliates, as applicable,
from their obligations under the standby letter of credit and reimbursement
agreement dated as of October 7, 1993 among the Developer, MKD, MKO, GTM and
Credit Lyonnais Canada and the guarantee agreement dated as of October 7, 1993
among MKD, MKO and Credit Lyonnais Canada in each case in form and substance
satisfactory to MKO, MKD and Northern; and
(viii) TRANSFER OF BETTY L BARGE. MKO shall have transferred the
Betty L Barge to such person as BNNV and GTM shall have jointly in writing
designated to MKO (the "Betty L Transferee"), the Betty L Transferee shall have
assumed the obligations of MKO under the charter party lease among MKO and the
Joint Venture dated as of January 11, 1994 (the "Charter"), and the Betty L
Transferee shall have agreed to be bound by, or executed and delivered an
agreement in substantially the same terms as, the non-disturbance agreement
previously executed and delivered by MKO with respect to its rights as lessor
under the Charter.
(b) COVENANTS TO SATISFY CONDITIONS.
Each of the parties covenants and agrees to use all of its
reasonable best efforts to ensure that each of the conditions to the performance
of its obligations under this Agreement is satisfied at the Time of Closing.
Each party also hereby covenants and agrees to use all its reasonable best
efforts to ensure that the conditions, if any, to the Consent of the Government
referred to in paragraph 5.1(a) and the Riders to the Bonds referred to in
Schedule 5.1(d) are satisfied.
ARTICLE VI
CLOSING
(a) PLACE OF CLOSING.
The closing shall take place at the Time of Closing at the
offices of Davies, Ward & Beck, Suite 4400, 1 First Canadian Place, Toronto,
Ontario.
(b) FURTHER ASSURANCES AND POWER OF ATTORNEY.
From time to time subsequent to the Closing Date, each party to
this Agreement covenants and agrees that it will at all times after the Closing
Date, at the expense of the requesting party, promptly execute and deliver all
such documents, including, without limitation, all such
<PAGE>
-24-
additional conveyances, transfers, consents and other assurances and do all such
other acts and things as the other party, acting reasonably, may from time to
time request be executed or done in order to better evidence or perfect or
effectuate any provision of this Agreement or of any agreement or other document
executed pursuant to this Agreement or any of the respective obligations
intended to be created hereby or thereby. Each of MKD, MKO and Northern agrees
to execute and deliver to the Joint Venture a power of attorney in favour of any
member of the Executive Committee of the Joint Venture to execute and deliver
all of the agreements, instruments and other documents referred to in this
section 6.2 on behalf of MKD, MKO or Northern as the case may be. Each of GT
Canada, GTM, BNNV and BNC jointly and severally hereby indemnifies and holds
harmless MKD, MKO and Northern against any Claim brought against or incurred or
suffered by any of MKD, MKO or Northern as a result of the use of the Power of
Attorney provided for in the foregoing sentence.
ARTICLE VII
INDEMNIFICATION PROCEDURES
(a) NOTICE OF CLAIM
In the event that a party (the "Indemnified Party") shall become
aware of any Claim in respect of which another party (the "Indemnifying Party")
agreed to indemnify the Indemnified Party pursuant to any provision of this
Agreement, the Indemnified Party shall promptly give written notice thereof to
the Indemnifying Party. Such notice shall specify whether the Claim arises as a
result of a Claim by a Person against the Indemnified Party (a "Third Party
Claim") or whether the Claim does not so arise (a "Direct Claim") and shall also
specify with reasonable particularity (to the extent that the information is
available) the factual basis for the Claim and the amount of the Claim, if
known.
If, through the fault of the Indemnified Party, the Indemnifying
Party does not receive notice of any Claim in time to effectively contest the
determination of any liability susceptible of being contested, the Indemnifying
Party shall be entitled to set off against the amount claimed by the Indemnified
Party the amount of any losses incurred by the Indemnifying Party resulting
directly from the Indemnified Party's failure to give such notice on a timely
basis.
(b) THIRD PARTY CLAIMS
With respect to any Third Party Claim, the Indemnifying Party
shall have the right, at its expense, to participate in or assume control of the
negotiation, settlement or defence of the Claim and, in such event, the
Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified
Party's out-of-pocket expenses as a result of such participation or assumption.
If the Indemnifying Party elects to assume such control, the Indemnified Party
shall have the right to
<PAGE>
-25-
participate in the negotiation, settlement or defense of such Third Party Claim
and to retain counsel to act on its behalf, provided that the fees and
disbursements of such counsel shall be paid by the Indemnified Party unless the
Indemnifying Party consents to the retention of such counsel or unless the named
parties to any action or proceeding include both the Indemnifying Party and the
Indemnified Party and a representation of both the Indemnifying Party and the
Indemnified Party by the same counsel would be inappropriate due to the actual
or potential differing interests between them (such as the availability of
different defences). If the Indemnifying Party, having elected to assume such
control, thereafter fails to defend the Third party Claim within a reasonable
time, the Indemnified Party shall be entitled to assume such control and the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party with respect to such Third party Claim. If any Third Party Claim is of a
nature such that the Indemnified Party is required by applicable law to make a
payment to any Person (a "Third Party") with respect to the Third Party Claim
before the completion of settlement negotiations or related legal proceedings,
the Indemnified Party may make such payment and the Indemnifying Party shall,
forthwith after demand by the Indemnified Party, reimburse the Indemnified Party
for such payment. If the amount of any liability of the Indemnified Party under
the Third party Claim in respect of which such payment was made, as finally
determined, is less than the amount that was paid by the Indemnifying Party to
the Indemnified Party, the Indemnified Party shall, forthwith after receipt of
the difference from the Third Party, pay the amount of such difference to the
Indemnifying Party.
(c) SETTLEMENT OF THIRD PARTY CLAIMS
If the Indemnifying Party does not assume control of the defence
of any Third Party Claim within a reasonable time, the Indemnified Party shall
have the exclusive right to contest, settle or pay the amount claimed. Whether
or not the Indemnifying Party assumes control of the negotiation, settlement or
defence of any Third party Claim, the Indemnifying Party shall not settle any
Third Party Claim without the written consent of the Indemnified Party, which
consent shall not be unreasonably withheld or delayed; provided, however, that
the liability of the Indemnifying Party shall be limited to the proposed
settlement amount only if (i) any such consent is not obtained for any reason,
and (ii) the settlement contains no admission of liability of the Indemnified
Party or, if it does contain such an admission, the parties to the settlement
agree to maintain such admission of liability as confidential information and,
subject to law, not to disclose it to any other person.
(d) CO-OPERATION
The Indemnified Party and the Indemnifying Party shall co-operate
fully with each other with respect to Third Party Claims, and shall keep each
other fully advised with respect thereto (including supplying copies of all
relevant documentation promptly as it becomes available).
(e) DIRECT CLAIMS
<PAGE>
-26-
With respect to any Direct Claim, following receipt of notice
from the Indemnified Party of the Claim, the Indemnifying Party shall have 60
days to make such investigation of the Claim as is considered necessary or
desirable. For the purposes of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If both parties
agree at or prior to the expiration of such 60 - day period (or any mutually
agreed upon extension thereof), as to the validity and amount of such Claim, the
Indemnifying Party shall immediately pay to the Indemnified Party the full
agreed upon amount of the Claim, failing which the matter shall be referred to
binding arbitration if and in such manner as the parties may agree or failing
such agreement shall be determined by a court of competent jurisdiction.
(f) AUTHORITY TO BIND
For the purposes of this Article 7, where any MK Releasee or
Northern Releasee is an Indemnified Party and GTM or any Affiliate of GTM and
BNNV or any Affiliate of BNNV is an Indemnifying Party, GTM shall provide, and
the MK Releasee or Northern Releasee shall for all purposes of this Article 7 be
entitled to rely on, notices, agreements, consents, acknowledgements,
confirmations, undertakings or settlements made by GTM or any Affiliate of GTM
as an Indemnifying Party as being binding upon each and every other Indemnifying
Party, unless GTM advises the MK Releasee or Northern Releasee that BNNV is to
perform this role, in which case BNNV shall provide, and the MK Releasee or
Northern Releasee shall for all purposes of this Article 7 be entitled to rely
on, notices, agreements consents, acknowledgements, confirmations, undertakings
or settlements made by BNNV or any Affiliate of BNNV as an Indemnifying Party as
being binding upon each and every other Indemnifying Party.
ARTICLE VIII
GENERAL REPRESENTATIONS AND WARRANTIES
(a)
REPRESENTATIONS AND WARRANTIES
Each of the parties hereby represents and warrants to each of the
other parties hereby as follows:
(i) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was
incorporated or continued, and has full corporate power and
authority to execute, deliver and perform its obligations under
this agreement and each other agreement which this agreement
contemplates such party will execute and deliver (the "Ancillary
Agreements").
<PAGE>
-27-
(ii) the execution and delivery by it of this agreement and the
Ancillary Agreements and the performance by it of its obligations
under this agreement and the Ancillary Agreement have been duly
and validly authorized in accordance with all applicable
requirements. Upon execution and delivery by it, this agreement
and the Ancillary Agreements are and will be legal, valid and
binding obligations of it enforceable against it in accordance
with their respective terms.
(iii) the execution and delivery of this agreement and the
Ancillary Agreements by it and the performance and
consummation of the transactions contemplated hereby and
thereby by it, do not conflict with or constitute a default
under (or an event which could constitute a default with the
giving of notice, the lapse of time or both) or result in a
breach of any of the terms, conditions or provisions of:
(I) its articles or by-laws;
(II) any judgment, order, writ, injunction or decree of
any court, other tribunal or governmental
authority;
(III) any agreement, instrument, indenture, mortgage, lease
or arrangement to which it is a party or by which it or
its property or assets are bound; or
(IV) any law, statute or regulation binding upon it or its
property and assets,
except in any case where any necessary consent has been obtained
or where any such default which has been waived.
ARTICLE IX
MISCELLANEOUS
(a) NOTICES
(i) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be delivered in person or,
transmitted by telecopy or similar means of record electronic communication
addressed as follows:
(I) if to BNNV, BNCBV, BNIBV or BNC, addressed to such
company at:
<PAGE>
-28-
Ballast Nedam Canada Limited
Laan van Kronenburg 2
1183 AS Amstelveen
The Netherlands
Fax: 31 20 640 2186
Attention: Mr. Roy H. Draper
With a copy to:
Reynolds, Mirth, Richards and Farmer
3200 Manulife Place
10180 - 101 Street
Edmonton, Alberta
T5J 3W8
Fax: 403-429-3044
Attention: Mr. Rob Graesser
(II) if to GT Canada or GTM, addressed to such company at:
GTM-Entrepose
61, Avenue Jules-Quentin
92000 Nanterre, France
Fax: 331 4695 7432
Attention: Mr. Jerome Tolot
With a copy to:
G.T.M.I. (Canada) Inc.
8200 Decarie Blvd., Suite 200
Montreal, Quebec
H4P 2P5
Fax: 514-341-3060
Attention: Mr. Alain H. Boisset
(III) if to GTMI International, addressed to such company at:
GTM International
57, Avenue Jules-Quentin
92000 Nanterre, France
Fax: 331 4695 4871
Attention: Mr. Herve Tricot
<PAGE>
-29-
(IV) if to MKD, MKO or Northern:
Morrison Knudsen Corporation/Northern Construction
Company
720 Park Boulevard
Boise, Idaho
83712 U.S.A.
Fax: 208-386-5298
Attention: Mr. Stephen G. Hanks
(V) if to SCI:
Strait Crossing Inc.
7th Floor
1177 - 11th Avenue S.W.
Calgary, Alberta
T2R 1K9
Fax: 403-228-8643
Attention: Mr. J. David Pirie
(VI) if to the Developer or SCBL:
To each Member of the Joint Venture at the address for
notice specified under this section.
(ii) Any such notice or other communication shall be deemed to have
been given and received on the day on which it was delivered or transmitted (or
if such day is not a Business Day, on the next following Business Day).
(iii) Either party may at any time change its address for service
from time to time by giving notice to the other party in accordance with this
section 10.1.
(b) LEGAL FEES AND DISBURSEMENTS
The parties agree that the fees and disbursements of Davies, Ward &
Beck, of Stewart, McKelvey, Sterling & Scales, local counsel in the Provinces of
New Brunswick and PEI to the Joint Venture and the Developer and of Patterson,
Palmer, Hunt & Murphy and Borden & Elliot, and Akin, Gump, Strauss, Hauer and
Feld, L.L.P., incurred in respect of settling this agreement and all of the
agreements, documents and instruments required to be delivered pursuant to or as
contemplated by this Agreement, completing the transactions contemplated by this
Agreement and obtaining the consents and acknowledgements of the Government and
other third parties as contemplated by this Agreement, shall be shared as to
50% by BNNV and GTM jointly
<PAGE>
-30-
and severally and as to 50% by MKD and MKO jointly and severally. The fees and
disbursements of any separate counsel to any individual party to this Agreement
shall be the sole responsibility of such party.
(c) COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall constitute an original and all of which taken together shall constitute
one and same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the
parties as of the 29th day of March, 1996.
BALLAST NEDAM N.V. BALLAST NEDAM CANADA LIMITED
/s/ ROY H. DRAPER /s/ ROY H. DRAPER
by by
--------------------------- ---------------------------
G.T.M.I. (CANADA) INC. GTM-ENTREPOSE, S.A.
/s/ ALAIN H. BOISSET /s/ HERVE TRICOT
by by
--------------------------- ---------------------------
GTM INTERNATIONAL, S.A. MORRISON KNUDSEN CORPORATION (a
Delaware corporation)
/s/ HERVE TRICOT /s/ JONATHAN M. ROBERTSON
by by
--------------------------- ---------------------------
<PAGE>
MORRISON KNUDSEN CORPORATION NORTHERN CONSTRUCTION
(An Ohio Corporation) COMPANY LTD.
/s/ FRANK FINLAYSON /s/ FRANK FINLAYSON
by by
--------------------------- ---------------------------
STRAIT CROSSING INC. STRAIT CROSSING DEVELOPMENT INC.
/s/ J. DAVID PIRIE /s/ J. DAVID PIRIE
by by
--------------------------- ---------------------------
STRAIT CROSSING BRIDGE LIMITED BALLAST NEDAM INTERNATIONAL B.V.
/s/ J. DAVID PIRIE /s/ ROY H. DRAPER
by by
--------------------------- ---------------------------
BALLAST NEDAM CANADA B.V.
/s/ ROY H. DRAPER
by
---------------------------
<PAGE>
SCHEDULES
[The Registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the Schedules hereto.]
<PAGE>
Conformed Copy
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of March 31, 1996 is entered into among MORRISON KNUDSEN
CORPORATION, a Delaware corporation ("MKD"), and MORRISON KNUDSEN CORPORATION,
an Ohio corporation ("MKO"), (MKD and MKO each a "Borrower," and collectively,
the "Borrowers"), the banks and other financial institutions named on Schedule A
to the Credit Agreement (as defined below) and whose signatures appear on the
signature pages hereto (each, together with its successors and assigns, a
"Lender," and collectively, the "Lenders"), Mellon Bank, N.A., as administrative
agent for the Lenders (in such capacity, the "Administrative Agent"), Bank of
America National Trust and Savings Association, Bank of America Illinois and Key
Bank of Idaho (each a "Deposit Bank" and collectively, the "Deposit Banks") with
reference to the following facts:
RECITALS
A. Pursuant to the Amended and Restated Credit Agreement dated as of July
31, 1995, as amended October 10, 1995 and January 18, 1996, by and among the
Borrowers, the Lenders, the Administrative Agent and Mellon Bank, N.A. and Bank
of America National Trust and Savings Association, as Co-Agents (the "Credit
Agreement"), the Lenders agreed to make certain financial accommodations to or
for the benefit of the Borrowers upon the terms and conditions contained
therein. Unless otherwise defined in this Amendment, (i) capitalized terms used
herein shall have the meanings attributed to them in the Credit Agreement as
amended hereby, and (ii) references to sections and subsections shall refer to
sections or subsections of the Credit Agreement.
B. The Borrowers have requested that the Credit Agreement be amended,
among other things, to extend the Termination Date and reduce the Maximum Loan
Amount.
C. The Lenders are willing to amend the Credit Agreement upon the terms
and conditions set forth in this Amendment, but only upon the condition, among
others, that the Borrowers, the Administrative Agent and the Lenders shall have
executed and delivered this Amendment to the Administrative Agent.
NOW, THEREFORE, in consideration of the continued performance by the
Borrowers of their promises and obligations under the Credit Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
A G R E E M E N T
1. AMENDMENT TO CREDIT AGREEMENT.
1.1 Section 1.1 of the Credit Agreement is hereby amended as follows:
(a) A new definition of "Cash Collateral Account" is added in
appropriate alphabetical order to read as follows:
"'Cash Collateral Account' has the meaning assigned to it in Section
2.9(a)."
(b) A new definition of "Cash Collateral Agreement" is added in
the appropriate alphabetical order to read as follows:
"'Cash Collateral Agreement' has the meaning assigned to it in Section
2.9(a)."
(c) The definition of "Default Rate" is deleted in its entirety
and the following is substituted therefor:
"'Default Rate' means a rate of interest equal to the rate of interest
in effect under this Agreement at the time an Event of Default occurs or is
continuing plus two percent (2%) per annum."
(d) The definition of "Existing Lender" is amended by adding a
new phrase at the end thereof as follows: "and the successors and assigns of
the Existing Lenders."
(e) A new definition of "Override Agent" is added in appropriate
alphabetical order to read as follows:
"'Override Agent' means the agent under the Override Agreement."
(f) The definition of "Termination Date" is amended by deleting
the date "March 31, 1996" and substituting the date "September 30, 1996"
therefor.
(g) A new definition of "Third Amendment" is hereby added in
appropriate alphabetical order to read as follows:
"'Third Amendment' means the Third Amendment to Amended and Restated
Credit Agreement dated as of March 31, 1996, among the Borrowers, the
Administrative Agent and the Lenders."
2
<PAGE>
1.2 Section 2.1 is hereby amended by adding a new Borrowing Period of
"April 1, 1996 -- September 30, 1996" at the end of the chart listing the
Borrowing Periods and a new Maximum Loan Amount of "$47,500,000" is added
opposite such new Borrowing Period on such chart.
1.3 Section 2.6(a) is amended by deleting the phrase "three percent
(3%)" and substituting the phrase "one and one-half percent (1 1/2%)" therefor.
1.4 Section 2.7 is amended by adding a new subsection (g) to read as
follows:
"(g) THIRD AMENDMENT CLOSING FEE. On the date when the Third
Amendment becomes effective, the Borrowers shall pay to the Administrative
Agent for the benefit of the Lenders an additional closing fee of $350,000
to be distributed by the Administrative Agent to each Lender in an amount
equal to such Lender's Equalization Pro Rate Share."
1.5 Section 2.9 is amended as follows:
(a) Section 2.9(a) is amended by adding the following after the
last sentence thereof:
"If the Net Cash Proceeds or insurance proceeds received by the
Borrowers is greater than the Loans, the Borrowers shall place such excess
in an account to be established pursuant to the terms of a cash collateral
agreement (the "Cash Collateral Account") to be executed in substantially
the form of Exhibit F - Form of Cash Collateral Agreement (the "Cash
Collateral Agreement"). Funds maintained in the Cash Collateral Account
shall be maintained and disbursed pursuant to the terms of the Cash
Collateral Agreement. The Commitments shall not be reduced by the amount
held in the Cash Collateral Account unless All Lenders shall agree to such
reduction of the Commitments."
(b) Section 2.9(b) is amended by adding the following after the
last sentence thereof:
"If the Net Cash Proceeds or insurance proceeds received by the
Borrowers is greater than the Loans, the Borrowers shall place such excess
in the Cash Collateral Account pursuant to the terms of the Cash Collateral
Agreement. Funds maintained in the Cash Collateral Account shall be
maintained and disbursed pursuant to the terms of the Cash Collateral
Agreement. The Commitments shall not be reduced by the amount held in the
Cash Collateral Account
3
<PAGE>
unless All Lenders shall agree to such reduction of the Commitments."
(c) Section 2.9 is amended by adding a new subsection (g) to
read as follows:
"(g) Immediately upon the refinancing of all of the Existing
Indebtedness (as such term is defined in the Override Agreement), the
Borrowers shall prepay the Obligations in full."
1.6 Section 13.6 is hereby amended by adding new clauses (iv) and (v)
at the end of the first sentence thereof as follows:
"(iv) any change to the Cash Management System, any change to the
definition of Obligations that reduces the extent of the obligations
arising under the Cash Management System that are included within such
definition, any change to Section 2.10 or Section 2.11 that reduces or
delays payment of any Obligations under the Cash Management System or the
rights of any Deposit Bank under such Sections, any change to the
definitions in the Collateral Agent Agreement of "Cash Management Bank,"
"Cash Management Deficiency Notice," "Cash Management Loss," "Cash
Management Share," "Determination Date" or "Trigger Date," or any change to
Section 4.5 of the Collateral Agent Agreement, shall require the consent of
each Deposit Bank affected by such change; PROVIDED, HOWEVER, that no
Deposit Bank's consent shall be required for Majority Lenders to amend the
Cash Management System or the definition in the Collateral Agent Agreement
of "Cash Management Bank" to (x) replace a Deposit Bank with a new bank or
financial institution or (y) terminate a Deposit Bank's status as a Deposit
Bank under the Cash Management System, so long as such replacement or
termination does not change any rights that such Deposit Bank had with
respect to any transactions occurring or Obligations arising prior to its
replacement or termination; and (v) any change to any agreement expressly
made by or any obligation expressly owed to Bank of America National Trust
and Savings Association in any capacity other than as a Deposit Bank, shall
require the consent of Bank of America National Trust and Savings
Association.
1.7 Exhibit C -- Budget is hereby deleted in its entirety and the
Budget attached hereto as Exhibit C is substituted therefor.
1.8 A new Exhibit F - Form of Cash Collateral Agreement is added in
the form attached hereto as Exhibit F.
4
<PAGE>
1.9 Schedule A -- Schedule of Lenders is hereby deleted in its
entirety and the Schedule of Lenders attached hereto as Schedule A is
substituted therefor.
1.10 Each reference in the Credit Agreement to a Co-Agent or the Co-
Agents and to the words "and," "or," "together with" or any other words of like
import used in conjunction therewith are deleted hereby, and any references to
the Agents shall mean and refer to the Administrative Agent and the Collateral
Agent.
2. WAIVER OF ESTABLISHMENT OF CASH COLLATERAL ACCOUNT OUTSIDE OF THE CASH
MANAGEMENT SYSTEM
Pursuant to Sections 2.13 and 7.17 of the Credit Agreement, the
Borrowers are required to maintain the Cash Management System set forth in
Schedule F to the Credit Agreement and to comply with each of the covenants
therein. Pursuant to Section 2 of the Cash Management System, the Borrowers are
prohibited from opening any new accounts without the prior written consent of
the Collateral Agent. In addition, pursuant to Section 5 of the Cash Management
System, the Borrowers covenant that all funds shall be deposited in the Cash
Management System accounts. The Bridge Lenders hereby waive the requirements of
Sections 2.13 and 7.17 of the Credit Agreement and Sections 2 and 5 of the Cash
Management System with respect to, and only with respect to, the opening of the
Cash Collateral Account for deposit of amounts pursuant to Section 2.9.
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
only upon satisfaction of each of the following conditions:
(a) THIRD AMENDMENT. The Administrative Agent shall have
received copies of this Amendment that, when taken together, bear the signatures
of the Borrowers, the Administrative Agent and each of the Lenders, and the
consent of each of the Deposit Banks.
(b) GUARANTOR CONSENTS. The Administrative Agent shall have
received a copy of the accompanying Guarantor Consents executed by each of the
Guarantors.
(c) THE NOTES. The Administrative Agent shall have received,
for the benefit of each Lender, a Note conforming to the requirements of
Section 2.4 of the Credit Agreement.
5
<PAGE>
(d) SURRENDER OF EXISTING NOTES. Each Lender shall have
delivered the Notes outstanding under the Credit Agreement prior to the
effective date of this Amendment for cancellation and delivery to the Borrowers.
(e) LETTER AGREEMENT RE: INTERCREDITOR AGREEMENT. The
Administrative Agent shall have received copies of that certain letter dated
March 31, 1996 from the Lenders to the Override Agreement regarding the
Intercreditor Agreement that, when taken together, bear the signatures of the
Administrative Agent and each of the Lenders.
(f) PAYMENT OF DEFERRED INTEREST. The Deferred Interest (as
such term is defined under the Override Agreement) together with interest
thereon shall have been paid in full.
(g) LEGAL OPINION OF THE BORROWERS' COUNSEL. The Administrative
Agent shall have received the legal opinion of Jones, Day, Reavis & Pogue and of
Hawley Troxell Ennis & Hawley, counsel to the Borrowers and Guarantors, and such
other counsel approved by the Administrative Agent, dated the date hereof, and
addressed to the Administrative Agent for the benefit of the Lenders, in form
and substance satisfactory to the Administrative Agent.
(h) PAYMENT OF FEES AND EXPENSES. The Borrowers shall have paid
all fees set forth in Section 2.7 of the Credit Agreement, as modified hereby,
that are payable upon the effective date of this Amendment and such other fees
and expenses of the Steering Committee Lenders and their Professionals set forth
in that certain side letter dated March 31, 1996.
(i) ASSIGNMENTS OF COMMITMENTS. The assignment and assumption
of the Loans and Commitments set forth on the Schedule of Lender Assignments
attached as Schedule I hereto shall have been consummated.
(j) PREPAYMENT. The Borrowers shall have paid (i) the accrued
and unpaid interest on the Loans as of the effective date of this Amendment,
(ii) the accrued and unpaid Unused Commitment Fee as of the effective date of
this Amendment, and (iii) the aggregate principal amount of any Loans that
exceed the Maximum Loan Amount or the Commitments under the Credit Agreement, as
amended hereby.
(k) OTHER MATTERS. The Administrative Agent shall have received
all other documents, instruments, agreements, opinions, certificates, insurance
policies, consents and evidence of other legal matters, in form and substance
satisfactory to the
6
<PAGE>
Administrative Agent and its counsel, as the Administrative Agent may reasonably
request.
4. REFERENCE TO AND EFFECT ON CREDIT AGREEMENT AND RELATED
DOCUMENTS.
(a) Upon the effectiveness of this Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall mean and be a
reference to the Credit Agreement as amended hereby and each reference in the
Loan Documents to the Credit Agreement shall also mean and be a reference to
the Credit Agreement as amended hereby.
(b) Except as expressly modified under Section 1 of this
Amendment, all of the terms and conditions set forth in the Credit Agreement
and the other Loan Documents are incorporated herein by this reference, and
the Obligations of the Borrowers under the Credit Agreement and the other
Loan Documents are hereby acknowledged, confirmed and ratified by the
Borrowers.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of the Agents or the Lenders under the Credit
Agreement or any of the Loan Documents or Restructuring Documents, nor
constitute a waiver of any provision of the Credit Agreement or any of the
Loan Documents or Restructuring Documents.
5. AMENDMENT TO OVERRIDE AGREEMENT. Pursuant to Section 6 of the
Intercreditor Agreement, upon receipt by the Override Agent or the Existing
Lenders of written notice of this Amendment and the waiver contained therein,
the Override Agent and the Existing Lenders are deemed to have agreed to, and
voted in favor of, the same waiver with respect to the Cash Collateral Account
under Section 2.13 and 7.17 of the Override Agreement and Sections 2 and 5 of
the Cash Management System (Schedule E) to the Override Agreement.
6. ENTIRE AGREEMENT. This Amendment, together with the Credit Agreement
and the other Loan Documents, is the entire agreement between the parties hereto
with respect to the subject matter hereof. This Amendment supersedes all prior
and contemporaneous oral and written agreements and discussions with respect to
the subject matter hereof. Except as otherwise expressly modified herein, the
Loan Documents shall remain in full force and effect.
7
<PAGE>
7. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and
warrants that the representations and warranties contained in the Credit
Agreement were true and correct in all material respects when made and, except
to the extent (a) that a particular representation or warranty by its terms
expressly applies only to an earlier date, or (b) such Borrower has previously
advised the Administrative Agent in writing as contemplated under the Credit
Agreement, are true and correct in all material respects as of the date hereof.
The recitals set forth at the beginning of this Amendment are true and correct,
and such recitals are incorporated into and are a part of this Amendment.
8. MISCELLANEOUS.
8.1 COUNTERPARTS. This Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Amendment. Any Person
delivering this Amendment by facsimile shall send the original manually executed
counterpart of this Amendment to the Administrative Agent promptly after such
facsimile transmission.
8.2 AUTHORITY. Each Person executing this Amendment represents and
warrants that he or she is lawfully authorized and empowered to execute this
Amendment on behalf of the entity on whose behalf such Person is signing, and
that upon execution, this Amendment will be binding upon such entity, without
any further approval, ratification or other action.
8.3 HEADINGS. Section headings used herein are for convenience of
reference only, are not part of this Amendment, and are not to be taken into
consideration in interpreting this Amendment.
8.4 GOVERNING LAW. This Amendment shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts made and performed in such commonwealth,
without regard to the principles thereof regarding conflict of laws.
8.5 CONFLICT OF TERMS. In the event of any inconsistency between
the provisions of this Amendment and any provision of the Credit Agreement,
the terms and provisions of this Amendment shall govern and control.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective duly authorized representatives as of the
day and year first above written.
BORROWERS: MORRISON KNUDSEN CORPORATION
(a Delaware corporation)
By: /s/ Douglas L. Brigham
--------------------------------
Title: Vice President and Treasurer
MORRISON KNUDSEN CORPORATION
(an Ohio corporation)
By: /s/ Douglas L. Brigham
--------------------------------
Title: Vice President and Treasurer
AGENT:
MELLON BANK, N.A., as Administrative
Agent and a Lender
By /s/ Kurt L. Hewett
--------------------------------
Title: Vice President
[ADDITIONAL SIGNATURES CONTINUED ON NEXT PAGE]
9
<PAGE>
LENDERS:
BANQUE NATIONALE DE PARIS
By: /s/ Katherine Wolfe
-----------------------------
Title: Vice President
By: /s/ Debra Hermsmeyer
-----------------------------
Title: Vice President
INTERNATIONALE NEDERLANDEN (U.S) CAPITAL CORP.
By: /s/ Joan M. Chiappe
-----------------------------
Title: Vice President
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ John Engelen
-----------------------------
Title: Managing Director
NOMURA HOLDING AMERICA, INC.
By: /s/ Lawrence Pomerantz
-----------------------------
Title: Exec. Managing Director
SWISS BANK CORPORATION, CAYMAN ISLANDS BRANCH
By: /s/ Andrea Lodahl Henneman
----------------------------
Title: Director, Legal Affairs
-------------------------
By: /s/ Bernd E. Kallmeyer
----------------------------
Title: Director, Legal Affairs
-------------------------
<PAGE>
DEPOSIT BANKS:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ C.Y. Strand
-----------------------------
Title: Vice President
BANK OF AMERICA ILLINOIS
By: /s/ C.Y. Strand
-----------------------------
Title: Attorney In Fact
KEY BANK OF IDAHO
By: /s/ Richard L. Toney
-----------------------------
Title: Vice President
<PAGE>
GUARANTOR CONSENTS
Each of the undersigned, a Guarantor under a Guaranty, hereby (i)
ratifies and reaffirms, as of the date hereof, all of the provisions of its
Guaranty and its Guaranty Security Agreement, (ii) acknowledges receipt of a
copy of the Third Amendment to Amended and Restated Credit Agreement dated as of
March 31, 1996 (the "Amendment") and (iii) consents to all of the provisions of
the Amendment.
NATIONAL PROJECTS, INC., CHEMICAL DEMILITARIZATION OF ANNISTON
a Nevada corporation COMPANY, a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Treasurer Title: Vice President and Treasurer
MORRISON-KNUDSEN SERVICES, INC., MK PROJECTS COMPANY,
a Nevada corporation a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Treasurer Title: Vice President and Assistant
Treasurer
ATASCOSA MINING CO., MK CAPITAL COMPANY
a Nevada corporation a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
CENTENNIAL ENGINEERING, INC., MK-FERGUSON ENGINEERING COMPANY,
a Colorado corporation a Michigan corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Assistant Treasurer Title: Assistant Treasurer
CF SYSTEMS CORPORATION,
a Massachusetts corporation
By: /s/ Douglas L. Brigham
--------------------------
Title: Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
MK-FERGUSON OF IDAHO COMPANY, YAMPA MINING CO.,
a Idaho corporation a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
MK-FERGUSON OF OAK RIDGE COMPANY, MORRISON-KNUDSEN COMPANY, INC.,
a Tennessee corporation a Delaware corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Treasurer Title: Vice President and Treasurer
MK INFRASTRUCTURE CORPORATION, MORRISON-KNUDSEN ENGINEERS, INC.,
a Delaware corporation a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Assistant Treasurer Title: Vice President and Treasurer
MK-TRAIN CONTROL, INC., MORRISON-KNUDSEN INTERNATIONAL
a Nevada corporation Company, Inc., a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- ---------------------------
Title: Treasurer Title: Vice President and Treasurer
NAVASOTA MINING COMPANY, INC., AMERICAN PIPING & BOILER CO.,
a Nevada corporation a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
MORRISON KNUDSEN CORPORATION OF
VIET NAM, a Nevada corporation
By: /s/ Douglas L. Brigham
--------------------------
Title: Treasurer
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of Exhibits and or Schedules hereto.]
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 11th day of July,
1994, by and between Morrison Knudsen Corporation, an Ohio corporation
("Company"), and Thomas F. Kealey, an individual residing at 639 West Fullerton
Parkway, Chicago, IL 60614 ("Executive").
WHEREAS, Executive has acquired an extensive background in finance, accounting
and business operations: and
WHEREAS, Company desires to employ Executive in such executive capacity as the
parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the date Executive first becomes an employee of Company, which
date the parties anticipate will be between July 25, 1994 and September 15,
1994, (the "Employment Commencement Date") and ending five years thereafter,
upon the terms and conditions set forth herein. Employment may be terminated
earlier only in accordance with the provisions herein. Company shall provide
Executive with one year's advance written notice of the expiration of this
Agreement.
1.2 Notwithstanding the foregoing, if Executive's employment shall not have
been terminated in accordance with the provisions herein on or before five years
from the Employment Commencement Date, this Agreement shall be extended such
that at each and every moment of time thereafter, the remaining term of the
Agreement shall be one year (the "Renewal Period"), unless (a) Executive's
employment is terminated during the Renewal Period in accordance with the
provisions herein or (b) Company provides Executive with one year's advance
written notice during the Renewal Period of the expiration of this Agreement.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the sum of (i)
the annual base salary (as defined in Section 3.1) in effect for Executive
immediately preceding termination of employment (excluding any reduction in base
salary made in breach of this Agreement), (ii) an amount equal to the product of
(A) and (B), where (A) equals the percentage derived by dividing the cumulative
"annual bonus" (as defined in Section 3.2) paid to Executive under the Executive
Incentive Plan or Group Incentive Plan, whichever is applicable, for the three
most recently completed calendar years prior to termination (including any
annual bonus amounts deferred by Executive under any Company deferred
compensation plan or arrangement) by the cumulative annual base salary paid to
Executive for the same three-year period (including any annual base salary
deferred by Executive under any Company deferred compensation plan or
arrangement), and (B)
-1-
<PAGE>
equals the amount set forth in 2.1(i) above, (iii) continued participation in
any and all basic and supplemental life, accident, disability, medical, dental
and other Company-sponsored welfare benefit programs provided to Executive
immediately preceding termination (or, if continued participation in one or more
of these benefits is not possible per the terms of the plan or applicable law,
an amount of money that would enable Executive to purchase similar benefits),
and (iv) continuance of vesting and benefit accrual under any Company-sponsored
basic and supplemental retirement programs in effect for Executive immediately
prior to termination (or, if continued participation in such programs is not
possible per the terms of the plan or applicable law, the monetary value of such
benefits).
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer or Executive Vice President -
Finance & Administration of Morrison Knudsen Corporation, a Delaware corporation
("MK Delaware"), (ii) Executive's willful and continued failure to perform his
duties under this Agreement (except due to Executive's incapacity due to
physical or mental illness) after a written demand is delivered to Executive by
the Chief Executive Officer or Executive Vice President - Finance &
Administration of MK Delaware specifically identifying the manner in which such
individual believes that Executive has failed to perform his duties, (iii)
Executive's willful engagement in conduct materially injurious to the Company,
or (iv) Executive's conviction for any felony involving moral turpitude. For
purposes of clauses (i), (ii), and (iii) of this definition, no act, or failure
to act on Executive's part shall be deemed "willful" unless done, or omitted to
be done, by Executive not in good faith and without reasonable belief that
Executive's act, or failure to act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
(i) A failure by the Company to abide by any part of this Agreement that is not
remedied within ten (10) business days of notification by Executive of such
failure, including any violation of Executive's rights as described in
Section 3 of this Agreement unless such rights are replaced by alternative
rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities below that agreed to
in Section 6.1.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his attaining age 65.
ARTICLE 3 - COMPENSATION AND BENEFITS
3.1 BASE SALARY. Executive shall be paid the annual base salary set by
Company, which salary shall be commensurate with Executive's duties and
consistent with the compensation policies of the Executive Compensation and
Nominating Committee (the "Committee") of the Board of Directors
-2-
<PAGE>
of MK Delaware. Such salary shall be, at a minimum, $225,000 per year. At least
annually, Company shall review Executive's base salary to determine the amount
of any increase. Upon any such increase in Executive's base salary, such
increased rate shall thereafter constitute Executive's annual base salary for
all purposes of this Agreement. The foregoing to the contrary notwithstanding,
the Company may reduce Executive's annual base salary during any year by not
more than 10% below the base salary in effect at the beginning of the year as
part of any general salary reduction which applies to all officers of the
Company.
3.2 ANNUAL BONUS. Executive shall be entitled to participate in the Executive
Incentive Plan (the "EIP") applicable to his position. As a participant therein
for 1994, he shall be eligible for a bonus in 1994 that falls between $100,000
and $125,000, with the exact amount in such range to be determined by the
Committee based upon the recommendation of the Chief Executive Officer of MK
Delaware. The 1994 bonus payable to Executive under the Executive Incentive
Plan shall be pro rated according to the following formula: n/365 (where n
equals the number of days between the Employment Commencement Date and December
31, 1994). After 1994, Executive shall be eligible for a target bonus between
$100,000 and $125,000, with the actual bonus falling below, above or in the
foregoing range dependent upon Executive's success in meeting predetermined
financial and nonfinancial goals mutually agreed to by the parties, including,
but not limited to, success in carrying out specified business transactions,
such as acquisitions, financings, joint ventures, divestitutres, etc. of Company
and its affiliates Executive shall switch participation from the Executive
Incentive Plan to the Group Incentive Plan (the "GIP") during the term of this
Agreement, with the exact time of such switch being determined by mutual
agreement of the parties. Both the EIP and the GIP shall measure financial and
nonfinancial areas of performance under Executive's responsibility, including
but not limited to, the business transactions mentioned above. A copy of the
EIP (and the GIP, following the switch) shall be provided to Executive and by
this reference made a part hereof.
3.3 5-YEAR PLAN. Executive shall be entitled to participate in a Long-Term
Incentive Plan applicable to his group position ("5-Year Plan"). The 5-Year
Plan shall measure performance in the areas of income, return on total capital
employed and cash flow for the operations under Executive's responsibility.
Upon being finalized and approved by the Committee, the 5-Year Plan shall
contain Executive's sharing percentages and performance targets in the foregoing
areas, shall be executed by Executive and shall be attached hereto and made a
part hereof.
3.4 3-YEAR PLAN. Executive shall be recommended for participation in the Long-
Term Performance Compensation Benefit Plan ("3-Year Plan") to the extent such
plan is continued by Company. A copy of the 3-Year Plan shall be provided to
Executive and by this reference, made a part hereof.
3.5 RESTRICTED STOCK. Company shall recommend to the Committee that Executive
be awarded 7,500 restricted shares of MK Delaware common stock under the Stock
Compensation Plan. The restrictions on such stock shall lapse as to 20% of the
stock as of the date of the award and 20% of the original amount per year
thereafter over a period of four consecutive years on the anniversary date of
the award.
-3-
<PAGE>
3.6 MK STOCK OPTIONS. Company shall recommend to the Committee that Executive
be granted options to purchase 25,000 shares of MK Delaware common stock under
the Stock Compensation Plan at a price equal to the mean between the highest and
lowest selling price of such stock on the New York Stock Exchange on the
effective date of grant. Pursuant to the terms of the Stock Compensation Plan,
the option shall vest on the anniversary date of the grant at a rate of 25% per
year over a period of four consecutive years and shall have a life of ten years.
3.7 MK RAIL STOCK OPTIONS. Company shall recommend to the Executive
Compensation Committee of MK Rail Corporation that Executive be granted options
to purchase 25,000 shares of MK Rail common stock under MK Rail's Stock
Incentive Plan at a price equal to the mean between the highest and lowest
selling price of such stock on the NASDAQ System on the effective date of grant.
Pursuant to the terms of the Stock Incentive Plan, the option shall vest 20% on
the date of grant and 20% of the original grant per year on each of the four
succeeding anniversary dates of the grant. The option shall have a life of ten
years.
3.8 INSURANCE, VACATION AND OTHER RETIREMENT, HEALTH AND WELFARE BENEFITS.
Executive shall be eligible to participate in all perquisites, retirement,
health and welfare benefits generally available to other executive officers of
Company or MK Delaware, including but not limited to, participation in the
qualified retirement plans, deferred compensation plan, and the receipt of 3
weeks of vacation time, or such greater amount as may be agreed to by the
parties. In addition, during his employment, Executive shall be provided with
supplemental benefits at no cost to Executive which shall result in the
following levels of coverage, inclusive of any coverage provided by basic
Company-sponsored benefits:
a. Pre-Retirement life insurance equal to three time Executive's annual
base salary (defined in Section 3.1);
b. Post-Retirement life insurance equal to one times Executive's annual
base salary (defined in Section 3.1) as of the date of Executive's retirement;
and
c. Disability coverage from all Company-sponsored and government sources
equal to 60% of the sum of annual base salary (defined in Section 3.1) plus
annual EIP or GIP bonus, as the case may be, less any offsets under the terms of
such disability programs.
3.9 RELOCATION EXPENSES. Executive shall be entitled to relocation assistance,
including but not limited to, (i) reimbursement for relocation, moving, and
temporary living expenses, and (ii) an agreement to purchase Executive's
residence in Illinois following reasonable efforts by Executive to sell such
residence. Such relocation assistance by Company shall be made pursuant to
Company's policies.
3.8 NEW VENTURE PARTICIPATION. Company contemplates establishing a new
entity(s) called "MK Capital Ventures" or such other name as mutually agreed
upon by the parties. Company also contemplates providing Executive with equity
participation in such entity(s) in the range of five (5%) to ten (10%) percent.
The parties understand that the scope and nature of the new venture(s) are yet
-4-
<PAGE>
to be determined and the provisions of Executive's participation and disposal of
such equity position(s) will be mutually agreed upon by the parties.
ARTICLE 4 - EXECUTIVE'S RIGHTS UPON TERMINATION
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement, Company will pay to Executive Base Compensation for a period of two
years. In addition, Company will fully and immediately vest all unvested stock
options and restricted stock awards previously granted by Company to Executive
and fully vest and immediately pay to Executive any accrued award earned by
Executive under the 5-Year Plan applicable to his group, or any other Company-
sponsored long-term cash incentive plan in which Executive is a participant.
Base Compensation payments shall be made when payments would otherwise have been
made to Executive if he were still employed by Company, except in such cases
where a different payment schedule is provided for in other Company-sponsored
plans or programs.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in Company-
sponsored plans or programs that are generally applicable to salaried personnel.
ARTICLE 5 - DESIGNATION OF BENEFICIARIES
If Executive should die while receiving payments pursuant to Article 4, the
remaining payments which would have been paid to Executive if he had lived shall
be paid as designated by Executive on the attached Beneficiary Designation Form.
Such payments shall be made at the same time and in the same manner as if
Executive were alive to receive the payments, except in such cases where a
different payment schedule is provided for in other Company-sponsored plans or
programs. The filing of a new Beneficiary Designation Form will cancel all
designations previously filed. The spouse of a married Executive shall join in
any designation of a beneficiary other than the spouse.
If Executive fails to designate a beneficiary as provided for above, then
Company shall direct the distribution of any benefits under this Agreement to
Executive's estate.
ARTICLE - 6 DUTIES OF EXECUTIVE
6.1 Executive agrees to serve as President and Chief Executive Officer of the
entity currently known as MK Capital Ventures, or in such other executive
capacity as the parties may mutually agree, and to perform the duties and
services appertaining to such office and such other duties or services he may be
reasonably directed to perform from time to time by the Chief Executive Officer
or the Executive Vice President - Finance & Administration of MK Delaware. The
parties
-5-
<PAGE>
acknowledge that the name of MK Capital Ventures has not been finalized and may
be changed based upon their mutual agreement.
6.2 Executive agrees, during the period of his employment by Company, to devote
his primary business time, energy and best efforts to the business and affairs
of Company and, except with the consent of the Chief Executive Officer or
Executive Vice President - Finance & Administration, not to engage in any other
business activity (except passive personal investments).
6.3 The parties acknowledge and agree that Executive shall perform his duties
beginning on the Employment Commencement Date and ending on December 31, 1994
from his principal office in Illinois.
ARTICLE 7 - TAX "GROSS-UP" PROVISION
If any payments due Executive under this Agreement result in Executive's
liability for an excise tax under Section 4999 of the Internal Revenue Code of
1986 as amended ("parachute tax"), the Company will pay Executive, after
deducting any Federal, state or local income tax imposed on the payment, an
amount sufficient to fully satisfy the parachute tax liability. Such payment
shall be made to Executive no later than 30 days prior to the date of the
parachute tax.
ARTICLE 8 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 9 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. No amendments
to this Agreement may be made except through a written document signed by both
parties.
ARTICLE 10 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
-6-
<PAGE>
ARTICLE 11 - ARTICLES AND HEADINGS
Paragraphs or other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretations of
this Agreement.
ARTICLE 12 - NOTICES
Any notice or demand required or permitted to be given under this Agreement
shall be made in writing and shall be deemed effective upon the personal
delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid, and addressed in the case
of Company to its then principal place of business, presently Morrison-Knudsen
Plaza, 720 Park Blvd., Boise, Idaho 83729, and in the case of Executive to
Morrison Knudsen Corporation, Morrison-Knudsen Plaza, P. O. Box 73, Boise, ID
83729. Either party may change the address to which such notices are to be
addressed by giving the other party notice in the manner herein set forth.
ARTICLE 13 - ATTORNEY'S FEES
In any action at law or in equity to enforce any of the provisions or rights
under this Agreement, the unsuccessful party to such litigation, as determined
by the Court in a final judgment or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorneys' fees incurred therein by
such party or parties (including without limitation such costs, expenses and
fees on any appeals), and if such successful party or parties shall recover
judgment in any such action or proceeding, such costs, expenses and attorneys'
fees shall be included as part of such judgment.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover an amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceeds the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
ARTICLE 14 - TAXES
To the extent required by law, the Company shall withhold from any payments
under this Agreement any applicable federal, state or local taxes.
ARTICLE 15 - FORMER EMPLOYMENT & INDEMNIFICATION
15.1 Executive represents and warrants that his employment by Company will not
conflict with and will not violate or be constrained by any prior employment or
consulting agreement or relationship and that he does not possess confidential
information arising out of prior employment which, in his best judgment, would
be utilized in connection with his employment by Company, except in accordance
with any agreements between a former employer and Company. The parties
acknowledge the existence of the G.E. Railcar Services Variable Compensation
Agreement and do not believe that Executive's employment with Company shall
violate or be constrained by such agreement.
-7-
<PAGE>
15.2 Notwithstanding the representation and warranty contained in Section 15.,
should any action in law or in equity be brought by or on behalf of G.E. Capital
Railcar Services, or an affiliated company, Company shall indemnify and defend
Executive and hold him harmless from any cost, expense or liability arising out
of or relating to his acceptance of employment with Company or his termination
of employment with G.E. Capital Railcar Services, or an affiliated company,
provided Executive's action in accepting employment with Company and his
termination of employment with G.E. Railcar Services, or an affiliated company,
was made in good faith.
ARTICLE 16 - APPLICABLE LAW
To the full extent controllable by stipulation of the parties, this Agreement
shall be interpreted and enforced under Idaho law.
ARTICLE 17 - SIGNATURES
The parties may execute this document in any number of counterparts with each
such counterpart having the same force and effect as an originally-executed
original document. Signatures exchanged by facsimile shall have the same force
and effect as original signatures.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this 11th day of July, 1994.
ATTEST MORRISON KNUDSEN CORPORATION
/s/ David A. Channer /s/ Stephen G. Hanks
By:
- ------------------------- ---------------------------------
David A. Channer, Stephen G. Hanks,
Assistant Secretary Executive Vice President -
Finance and Administration
EXECUTIVE
/s/ Thomas F. Kealey
--------------------------------------
Thomas F. Kealey
-8-
<PAGE>
MORRISON KNUDSEN CORPORATION
LONG-TERM INCENTIVE PLAN FOR THE MINING GROUP
JANUARY 1993 - DECEMBER 1997
<PAGE>
TABLE OF CONTENTS
SECTION I - PURPOSE........................................... 1
SECTION II - ELIGIBILITY...................................... 1
SECTION III - DEFINITIONS..................................... 1
SECTION IV - GENERAL PLAN DESCRIPTION......................... 3
A. Overview............................................ 3
B. Sharing Percentage.................................. 3
C. New Participants.................................... 4
D. Award Accrual....................................... 4
E. Offset to Accrued Awards for Performance Below
the 20 Percent Return on Capital Threshold.......... 4
F. Valuation Upon Termination.......................... 5
G. Payment of Awards................................... 5
H. Voluntary Deferral Option........................... 5
I. Withholding Tax..................................... 6
J. Term of Plan........................................ 6
K. Adjustment Upon a Change of Control................. 6
L. Adjustments for Extraordinary Events................ 6
SECTION V - PLAN ADMINISTRATION............................... 6
A. General Administration.............................. 6
B. Designation of Beneficiaries........................ 6
C. Amendment of Plan................................... 7
D. Termination of Plan................................. 7
SECTION VI - MISCELLANEOUS PROVISIONS......................... 7
A. Unsecured Status of Claim........................... 7
B. Employment Not Guaranteed........................... 8
C. Right of Offset..................................... 8
D. Nonassignability.................................... 8
E. Validity............................................ 8
F. Applicable Law...................................... 8
G. Inurement of Rights and Obligations................. 9
-i-
<PAGE>
SECTION I - PURPOSE
The purpose of the MORRISON KNUDSEN CORPORATION LONG-TERM INCENTIVE PLAN FOR THE
MINING GROUP (the "Plan") is to provide long-term incentive compensation to key
executives of the Mining Group of Morrison Knudsen Corporation, an Ohio
corporation (the "Company") who are in a position to make important
contributions toward the Group's long-term growth and success. The Plan
provides a means whereby such executives are given an opportunity to share
financially in the future value they help to create for the Company and its
stockholders.
SECTION II - ELIGIBILITY
Eligibility to participate in the Plan is limited to the Group President of the
Mining Group and other key executives of the Company who, in the opinion of the
Compensation Committee of the Board of Directors, have the responsibility and
ability to significantly influence the Group's long-term performance.
SECTION III - DEFINITIONS
"AGREEMENT" refers to the written agreement entered into between the Company and
a Participant to carry out the Plan with respect to the Participant in
accordance with the Plan's terms and conditions.
"AVERAGE TOTAL CAPITAL EMPLOYED" means the average of beginning and ending Total
Capital Employed for the Group's fiscal year.
"AWARD" refers to an amount earned by, and paid in the form of cash to, a
Participant under the terms and provisions of the Plan.
"CAUSE" means (i) willful and continued failure by a Participant to perform his
or her duties (except as a direct result of the Participant's incapacity due to
physical or mental illness) after receiving notification by the Chief Executive
Officer identifying the manner in which the Participant has failed to perform
his or her duties, (ii) willfully engaging in conduct materially injurious to
the Company, or (iii) conviction of the Participant of any felony involving
moral turpitude.
"CHANGE OF CONTROL" means a change in control of the Company of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A,
Regulation 240.14a-101 promulgated under the Securities Exchange Act of 1934 as
now in effect or, if Item 6(e) is no longer in effect, any regulations issued by
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934 which serve similar purposes; provided that, without limitation, such a
Change of Control shall be deemed to have occurred if and when (a) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934) is or becomes a beneficial owner, directly or indirectly, of securities
of the Company representing 30 percent or more of the combined voting power of
the Company's then outstanding securities, or (b) individuals who were members
of the Board of Directors of the Company immediately prior to a meeting of the
stockholders of the
-1-
<PAGE>
Company involving a contest for the election of directors shall not constitute a
majority of the Board of Directors following such election.
"COMPENSATION COMMITTEE" OR "COMMITTEE" refers to the Executive Compensation and
Nominating Committee of the Board of Directors of the Company.
"DISABILITY" refers to any Termination of Service as a result of a physical or
mental condition that prevents a Participant from performing his or her normal
duties of employment. If a Participant makes application for disability
benefits under the Company's long-term disability program and qualifies for such
benefits, the Participant shall be presumed to qualify as totally and
permanently disabled under the Plan. In the absence of a Company-sponsored
long-term disability program, a Participant will be considered totally and
permanently disabled under the Plan if, in the opinion of two doctors, one
retained by the Company and one retained by the Participant, the Participant is
considered unable to perform his or her normal duties of employment as a result
of a physical or mental condition.
"INITIAL PARTICIPANT" refers to an employee of the Company selected by the Chief
Executive Officer to participate in the Plan upon the Plan's approval by the
Committee.
"NET OPERATING INCOME" means the Group's total net contribution to the Company
determined in accordance with Generally Accepted Accounting Principles (GAAP).
Accruals for compensation expense attributable to Awards earned under the Plan
will be deducted in calculating Net Operating Income.
"NEW PARTICIPANT" refers to an employee of the Company selected by the Chief
Executive Officer to participate in the Plan who is not an Initial Participant
as defined in this Section III.
"PARTICIPANT" refers to an executive of the Company designated by the Chief
Executive Officer to participate in the Plan.
"PERFORMANCE PERIOD" refers to the period over which performance is measured to
determine the size of Awards earned under the Plan. For Initial Participants,
Performance Period refers to the period beginning January 1, 1993, and ending
December 31, 1997 or earlier upon a Termination of Service as provided for in
the Plan. For New Participants, Performance Period refers to the period
beginning with the year of initial participation of the Plan and ending
December 31, 1997 or earlier upon a Termination of Service as provided for in
the Plan.
"PLAN" refers to the Company's Long-Term Incentive Plan for the Mining Group
described in this document.
"RETIREMENT" means a Termination of Service in accordance with the provisions of
the Company's frozen retirement plan in effect for a Participant at the time of
Termination of Service.
"RETURN ON TOTAL CAPITAL EMPLOYED" OR "ROTCE" means the ratio of Net Operating
Income to Average Total Capital Employed.
-2-
<PAGE>
"SERVICE" means continuous and substantially full-time employment with the
Company.
"TERMINATION OF SERVICE" refers to a termination of Service from the Company for
any reason, whether voluntary or involuntary, including death, Retirement and
Disability.
"TOTAL CAPITAL EMPLOYED" means the remainder of (A) and (B) where (A) equals
total assets dedicated to the Group and (B) equals the Group's current
liabilities, determined in accordance with Generally Accepted Accounting
Principles (GAAP).
SECTION IV - GENERAL PLAN DESCRIPTION
A. OVERVIEW
The Plan provides each Participant with the opportunity to earn a cash
Award at the end of the Performance Period. The amount of each
Participant's Award opportunity is equal to the sum obtained by adding, for
each year of the Performance Period, the product of (A) and (B), where (A)
equals a percentage ("Sharing Percentage") established by the Committee for
each Participant, and (B) equals the amount by which the Group's cumulative
Net Operating Income for each year of the Performance Period exceeds (or
falls below) a twenty percent (20%) percent Return on Total Capital
Employed.
B. SHARING PERCENTAGE
Sharing Percentages will vary among Participants based on the level of a
Participant's responsibility. In addition, each Participant's Sharing
Percentage may vary according to the Group's level of Return on Total
Capital Employed during each year of the Performance Period.
Sharing Percentages will be determined by the Compensation Committee and
will be communicated in an Agreement executed between the Participant and
the Company.
A Participant's Sharing Percentage may be increased or decreased by the
Compensation Committee during the Performance Period to recognize an
increase or decrease in responsibility. In such cases, the new Sharing
Percentage will become effective beginning with the next full month
following the Sharing Percentage modification. The Participant's Sharing
Percentage for the year of modification will represent an average of the
two Sharing Percentages for that year, weighted by the number of months
that each was in effect. The new Sharing Percentage will be used
prospectively, in that it will not alter any accrued Award opportunity from
prior periods.
C. NEW PARTICIPANTS
New Participants may be added to the Plan at any time at the discretion of
the Compensation Committee. A New Participant will be eligible for accrue
an Award beginning with the next full month following initial entry into
the Plan. Notwithstanding the above, an individual must
-3-
<PAGE>
be a Participant in the Plan for at least three months during a fiscal year
in order to accrue an Award for that fiscal year.
The value of an Award accrued by a New Participant will be calculated based
on the Group's Net Operating Income and Return on Total Capital Employed
performance beginning with the start of the fiscal year during which the
individual initially becomes a Participant in the Plan. In cases where an
individual becomes a Participant in the Plan following the beginning of a
fiscal year, the Participant's accrued Award will be calculated for that
fiscal year by prorating the Award the Participant would have accrued had
he or she participated in the Plan for the full fiscal year. Such
proration will be determined by dividing the number of full months of
participation in the Plan during the fiscal year by twelve.
D. AWARD ACCRUAL
A Participant's earned Award will accrue annually over the Performance
Period. However, payment of accrued Awards will be deferred until after
the conclusion of the Performance Period, except as otherwise described in
Section IV.F.
The cash Award available to each Participant at the end of the Performance
Period will be equal to the sum of the accrued Award attributable to that
Participant for each year of the Performance Period. The foregoing to the
contrary notwithstanding, in no event shall the cash Award paid to Mr.
Tinstman under the Plan at the end of the Performance Period exceed $1.625
million.
E. OFFSET TO ACCRUED AWARDS FOR PERFORMANCE BELOW THE TWENTY PERCENT RETURN ON
CAPITAL THRESHOLD
To the extent that the Group's Return on Total Capital Employed is less
than twenty percent (20%) percent in any fiscal year during the Performance
Period, previously accrued Awards will be reduced by the shortfall in Net
Operating Income multiplied by the Participant's applicable Sharing
Percentage.
Notwithstanding the above, a Participant's cumulative accrued Award balance
as of the end of the Performance Period shall not be less than zero.
-4-
<PAGE>
F. VALUATION UPON TERMINATION
If a Participant terminates employment prior to the end of the Performance
Period for any reason except for death, Disability or involuntary
termination without Cause, any accrued Award will be forfeited.
Upon a Termination of Service due to death, Disability, or involuntary
termination without Cause, 100 percent of a Participant's accrued Award
shall become vested and payable. The value of a Participant's accrued
Award during the year of his or her termination will be based upon the
Group's Net Operating Income and Total Capital Employed for the full fiscal
year. This value will then be prorated by dividing the number of full
months of participation during the fiscal year by twelve.
In order to facilitate the settlement of an estate following a Termination
of Service due to death, the Compensation Committee in its sole discretion
may elect to base the Participant's Award accrual during the year of
termination upon an estimate of the Group's Net Operating Income and Total
Capital Employed for the fiscal year.
G. PAYMENT OF AWARDS
Except in the case of death, Disability or involuntary termination without
Cause, Awards determined under the Plan will be paid within a maximum of
one hundred twenty (120) days following the conclusion of the Performance
Period. Upon termination due to death, Disability or involuntary
termination without Cause, accrued Awards will be paid as soon as possible
following the determination of the value of such Awards.
All Award payments will be made in cash. Any Award earned by a Participant
will be reduced to the extent payments are made to a Participant during the
Performance Period under any other Company-sponsored cash or incentive plan
with a performance measurement period longer than one year or noncash stock
incentive plan (e.g., restricted stock).
H. VOLUNTARY DEFERRAL OPTION
At his or her option, a Participant may elect to defer the timing of
payment to a later date of all or part of an Award earned under the Plan.
Deferred amounts will be credited annually with interest at a rate to be
determined by the Compensation Committee at the time of election.
The election to defer must be made through a written deferral agreement
filed with the Company prior to the beginning of the final year of the
Performance Period. Such Agreement will specify the length of the deferral
period, the percentage of the Award to be deferred, designated
beneficiary(ies) in the event of death, and the interest rater to be
credited to the deferred amount.
-5-
<PAGE>
I. WITHHOLDING TAX
The Company will withhold from all payments under the Plan an amount
sufficient to satisfy any federal, state and local tax withholding
requirements.
J. TERM OF PLAN
The term of the Plan shall be for five years beginning January 1, 1993
unless the Plan is amended or terminated by the Board of Directors in
accordance with Sections V.C. and V.D.
K. ADJUSTMENT UPON A CHANGE OF CONTROL
Upon a Change of Control, 100 percent of a Participant's accrued Award
shall become immediately vested and payable. Such payment will be
calculated consistent with the provisions established in Section IV.F.
herein for a Termination of Service due to death, Disability or involuntary
termination without Cause.
L. ADJUSTMENTS FOR EXTRAORDINARY EVENTS
If an event occurs during the Performance Period that significantly
influences the Net Operating Income of the Group or Total Capital Employed
by the Group, and is deemed by the Compensation Committee to be
extraordinary and out of the control of management, the Compensation
Committee may, in its sole discretion, increase or decrease the Net
Operating Income figure or Total Capital Employed figure. Events
warranting such action may include, but are not limited to, significant
acquisitions or divestitures, changes in accounting, tax or regulatory
rulings or significant changes in economic conditions resulting in
"windfall" gains or losses.
SECTION V - PLAN ADMINISTRATION
A. GENERAL ADMINISTRATION
The Compensation Committee will administer the Plan and related Agreements,
and will interpret and apply the provisions of the Plan and Agreements in
accordance with their terms. The interpretation and application of these
terms by the Compensation Committee shall be binding and conclusive.
B. DESIGNATION OF BENEFICIARIES
Each Participant shall have the right at any time to designate any person
or persons as beneficiary(ies) to whom payments earned under the Plan shall
be made in the event of the Participant's death prior to the distribution
of all benefits due the Participant under the Plan. Each beneficiary
designation shall be effective only when filed in writing with the Company
during the Participant's lifetime, on the attached Beneficiary Designation
Form.
-6-
<PAGE>
The filing of a new Beneficiary Designation Form will cancel all
designations previously filed. Any finalized divorce or marriage (other
than a common law marriage) of a Participant subsequent to the date of
filing of a Beneficiary Designation form shall revoke such designation,
unless:
- In the case of divorce, the previous spouse was not designated as
beneficiary, and
- In the case of marriage, the Participant's new spouse had
previously been designated as beneficiary.
The spouse of a married Participant shall joint in any designation of a
beneficiary other than the spouse.
If a Participant fails to designate a beneficiary as provided for above, or
if the beneficiary designation is revoked by marriage, divorce or otherwise
without execution of a new designation, then the Compensation Committee
shall direct the distribution of such benefits to the Participant's estate.
C. AMENDMENT OF PLAN
The Compensation Committee may amend or suspend the Plan in whole or in
part at any time. However, any amendment or suspension must be prospective
in that it may not deprive Participants of any accrued Awards earned
through the date of amendment or suspension.
D. TERMINATION OF PLAN
The Compensation Committee may terminate the Plan at any time if, in its
judgment, the continuation of the Plan is not in the best interest of the
Company. Upon such termination, 100 percent of the accrued Award shall
become payable for each Participant. Such payment will be calculated
consistent with the provisions established in Paragraph IV.F. for a
Termination of Service due to death, Disability or involuntary termination
without Cause.
Upon termination of the Plan, a Participant shall have no further rights
under the Plan other than to receive payments for accrued benefits as
provided for in this Section.
SECTION VI - MISCELLANEOUS PROVISIONS
A. UNSECURED STATUS OF CLAIM
Participants and their beneficiaries, heirs, successors and assigns shall
have no legal or equitable rights, interests or claims in any specific
property or assets of the Company. No assets of the Company shall be held
under any trust for the benefit of Participants, their beneficiaries,
heirs, successors or assigns, or held in any way as collateral or security
for the fulfillment of the Company's obligations under the Plan.
-7-
<PAGE>
Any and all of the Company's assets shall be, and shall remain, the
general, unpledged and unrestricted assets of the Company. The Company's
obligation under the Plan shall be merely that of an unfunded and unsecured
promise of the Company to pay monies in the future.
B. EMPLOYMENT NOT GUARANTEED
Nothing contained in the Plan nor any Agreement nor any action taken in the
administration of the Plan shall be construed as a contract of employment
or as giving a Participant any right to be retained in the Service of the
Company.
C. RIGHT OF OFFSET
If a Participant becomes entitled to a payment under the Plan, and if at
such time the Participant has outstanding any debt, obligation or other
liability representing any amount owing to the Company, then the Company
may offset such amount against the amount of the payment otherwise due the
Participant under the Plan.
D. NONASSIGNABILITY
No person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, hypothecate or convey in
advance of actual receipt the amounts, if any, payable under the Plan, or
any part thereof, or any interest therein, which are, and all rights to
which are, expressly declared to be unassignable and nontransferable. No
portion of the amounts payable shall, prior to actual payment, be subject
to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person,
nor be transferrable by operation of law in the event of the Participant's
or any other person's bankruptcy or insolvency.
E. VALIDITY
In the event that any provision of the Plan or any related Agreement is
held to be invalid, void or unenforceable, the same shall not affect, in
any respect whatsoever, the validity of any other provision of the Plan or
any related Agreement.
F. APPLICABLE LAW
The Plan and any related Agreements shall be governed in accordance with
the laws of the state of Idaho.
-8-
<PAGE>
G. INUREMENT OF RIGHTS AND OBLIGATIONS
The rights and obligations under the Plan and any related Agreements shall
inure to the benefit of, and shall be binding upon the Company, its
successors and assigns, and the Participants and their beneficiaries.
-9-
<PAGE>
FOURTH AMENDMENT TO RIGHTS AGREEMENT
FOURTH AMENDMENT, dated as of April 10, 1996, to the Rights Agreement dated
as of June 12, 1986, as amended to date (as amended, "Rights Agreement") by and
between Morrison Knudsen Corporation, a Delaware corporation (the "Company") and
Norwest Bank Minnesota, N.A., as Successor Rights Agent to Bank of America
National Trust and Savings Association ("Rights Agent").
WHEREAS, the Company and Rights Agent desire to amend the Rights Agreement
in accordance with Section 25 to the Rights Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth in the Rights Agreement and this Fourth Amendment to Rights Agreement, the
parties hereby agree as follows:
1. "Section 1(d) to the Rights Agreement is hereby amended by inserting
the following after the words 'as agent to certain of such lenders' and before
the period:
"; provided further, however, that a Person shall not be
deemed the Beneficial Owner of, or to Own Beneficially,
Common Shares of the Company by virtue of such Person being
a Beneficial Owner of those certain Warrants to purchase up
to an aggregate of 14,859,430 Common Shares of the Company
at a purchase price of $6.75 per share, which Warrants were
issued pursuant to that certain Securities Purchase
Agreement dated as of July 31, 1995 between the Company,
certain banks and other financial institutions and Mellon
Bank, N.A., as agent, and that certain Securities Purchase
Agreement dated as of July 31, 1995 between the Company and
Fidelity and Deposit Company of Maryland, as purchaser and
agent for certain cosureties and other reinsurers; provided
further, however, that (A) a Person shall not be deemed the
Beneficial Owner of, or to Own Beneficially, any Common
Shares or other securities of the Company that are issued or
issuable to such Person or any other Person pursuant to any
Plan of Reorganization of the Company under Chapter 11 of
the Bankruptcy Code ("Plan"), and (B) a Person shall not be
deemed to be the Beneficial Owner of, or to Own
Beneficially, any Common Shares or other securities which
are Owned Beneficially, directly or indirectly, by any other
Person by reason of any agreement, arrangement or
understanding which such Person or any of such Person's
Affiliates or Associates has with respect to an existing or
proposed Plan, nor shall any Person be deemed to be an
Affiliate or Associate of any other Person by reason of any
agreement, arrangement or understanding with respect to an
existing or proposed Plan"
<PAGE>
2. This Fourth Amendment to Rights Agreement shall be effective as of
April 10, 1996 (the "Effective Date"), and all references to the Rights
Agreement shall, as of and after the Effective Date, be deemed to be references
to the Rights Agreement, as amended by this Amendment.
3. Except as set forth herein, the Rights Agreement shall remain in full
force and effect and shall be otherwise unaffected hereby.
4. This Fourth Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
MORRISON KNUDSEN CORPORATION NORWEST BANK MINNESOTA, N.A.
/s/ Stephen G. Hanks /s/ Suzanne M. Switz
By By
---------------------------- -------------------------
Stephen G. Hanks Suzanne M. Switz
Executive Vice President Assistant Secretary
and Chief Legal Officer
<PAGE>
AMENDMENT TO NEW BONDS AGREEMENT
THIS AMENDMENT TO NEW BONDS AGREEMENT (this "Amendment") is made as of
March 29 1996 by and among Fidelity & Deposit Company of Maryland (the "Surety")
and Morrison Knudsen Corporation, a Delaware corporation ("MKD"), Morrison
Knudsen Corporation, an Ohio corporation ("MKO"), and each of the other entities
listed on the signature pages hereto (together with their successors and
assigns, collectively, the "Company").
W I T N E S S E T H :
WHEREAS, MKO is the sole owner of the whole of the Derrick Barge
"Betty L", Official No. 652 734, of approximately 6103 gross tons, duly
documented in the name of MKO under the laws and flag of the United States of
America, having its home port at Portland, Oregon (the "Vessel");
WHEREAS, the Company and the Surety have entered into that certain New
Bonds Agreement dated as of October 10, 1995 (the "New Bonds Agreement"), and
the Vessel is part of the Collateral, as defined in the New Bonds Agreement;
WHEREAS, MKO previously has executed and delivered to PNC Bank,
Delaware, a Delaware banking corporation (the "Trustee"), not in its individual
capacity but solely as mortgage trustee for the Surety, that certain Third
Preferred Mortgage (the "Third Mortgage") in the amount of Three Hundred Million
United States Dollars (U.S. $300,000,000.00) dated as of October 10, 1995 and
duly filed for recordation, creating a third preferred mortgage on the Vessel;
WHEREAS, MKO previously has executed and delivered to the Trustee that
certain Fourth Preferred Mortgage (together with the Third Mortgage, the
"Mortgages") in the amount of Thirty-One Million Two Hundred Forty-Nine Thousand
Three Hundred Seventy-Seven United States Dollars (U.S. $31,249,377.00) dated as
of October 10, 1995 and duly filed for recordation, creating a fourth preferred
mortgage on the Vessel;
WHEREAS, MKO intends to sell the Vessel in connection with its
withdrawal from the PEI Bridge Project;
WHEREAS, the sale of the Vessel will generate cash proceeds (the
"Vessel Proceeds"), which are expected to aggregate Three Million Four Hundred
Twenty-Three Thousand One Hundred Thirty-Six United States Dollars (U.S.
$3,423,136.00);
<PAGE>
WHEREAS, the Company intends to deposit all of the Vessel Proceeds
into its account with NationsBank of Maryland, account number 3933 299 503 (the
"Cash Collateral Account");
WHEREAS, the Trustee is executing releases of the Mortgages which will
become effective upon the satisfaction of certain conditions;
WHEREAS, the Trustee is executing that certain Agreement on the Sale
of Betty L dated as of even date (the "Consent") herewith, in which, among other
things, the Trustee consents to MKO's sale of the Vessel as aforesaid, provided
certain conditions are satisfied;
WHEREAS, the Company has proposed that Schedule 1.1 of the New Bonds
Agreement be amended to remove the Vessel from the Collateral and to add the
Vessel Proceeds and the Cash Collateral Account to the Collateral;
WHEREAS, MKO, the Surety, and Mellon Bank, N.A., as agent for the
banks and financial institutions named on Schedule A to that certain Amended and
Restated Credit Agreement dated as of July 31, 1995, as amended, and as agent
for the banks and financial institutions named on Schedule A to that certain
Amended and Restated Override Agreement dated as of October 10, 1995, are
entering into that certain Cash Collateral Agreement of even date herewith (the
"Cash Collateral Agreement") and that certain Interparty Agreement of even date
herewith (the "Interparty Agreement"), which Interparty Agreement is being
accepted and agreed to by NationsBank of Maryland;
NOW THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
1. DEFINITIONS. Capitalized terms used herein but not otherwise defined
herein shall have meanings attributed to such terms in the New Bonds Agreement.
2. EFFECT OF AMENDMENT. As used in the New Bonds Agreement (including all
Exhibits thereto), the Security Documents, the Intercreditor Agreement, the Cash
Collateral Agreement, the Interparty Agreement and all other instruments and
documents
-2-
<PAGE>
executed in connection with any of the foregoing, on and subsequent to the date
hereof, any reference to the New Bonds Agreement shall mean the New Bonds
Agreement as amended hereby.
3. SCHEDULE 1.1. (a) Schedule 1.1 of the New Bonds Agreement is hereby
amended by deleting the following:
"Derrick Barge "BETTY L"
Description: 420.0' x 98.0' x 25.0', welded steel barge with CLYDE,
model 42-DE-165+30, 516.2 Short Ton Capacity, tub
mounted revolving crane.
Official No.: 652734
Port of Registry: Portland, Oregon
Flag: U.S.A.
Classification: ABS Maltese Cross A1 Barge (ABS ID No. 8209919)
Built: 1982/FMC Corporation, Portland, Oregon
Reg. Tonnages: Gross 8643/Net 6103
Equip. Included: One (1) MANITOWOC, 4100 W, Crawler Crane, three (3)
Dredge Buckets and all other fixed items."
(b) Schedule 1.1 of the New Bonds Agreement is further amended by
adding the following:
"Cash Collateral Account:
(a) The account of MKO with NationsBank of Maryland, account number
3933 299 503 (the "Cash Collateral Account");
(b) All of the Company's right, title and interest in and to the Cash
Collateral Account and all monies deposited therein, whether now owned
or hereafter acquired; and
(c) to the extent not otherwise included, all proceeds of the
foregoing, in any form (including, without
-3-
<PAGE>
limitation, any insurance proceeds, and all claims by the company against
third parties for loss or damage to, or destruction of, or otherwise
relating to any or all of the foregoing) and all accessions to,
substitutions and replacements for, and rents, profits and products of,
each of the foregoing."
4. CONDITIONS PRECEDENT. The effectiveness of the amendments contained in
Section 3 hereof is conditioned upon the following:
(i) payment by the Company to the Trustee, no later than the date
hereof, of the amounts set forth in the Trustee's final invoice in accordance
with Section 1.2 of the Consent;
(ii) the deposit, no later than the date hereof, of all of the Vessel
Proceeds into the Cash Collateral Account;
(iii) the due execution and delivery of the Cash Collateral
Agreement and the Interparty Agreement by all of the parties thereto.
5. LIMITED NATURE OF AMENDMENTS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be consent to, any waiver
of, or modification of, any other term or condition of the New Bonds Agreement,
the Security Documents, the Intercreditor Agreement, the Cash Collateral
Agreement, the Interparty Agreement or any of the documents referred to in the
foregoing, or (b) prejudice any right or rights which the Surety may now have or
may have in the future under or in connection with the New Bonds Agreement, the
Cash Collateral Agreement, the Interparty Agreement or any of the documents
referred to in the foregoing. Except as expressly amended hereby, the terms and
provisions of the New Bonds Agreement shall remain in full force and effect.
6. GOVERNING LAW. This Amendment shall be construed in accordance with and
governed by the laws of the State of New York without regard to its conflict of
laws doctrine.
7. HEADINGS. The descriptive headings of the various provisions of this
Amendment are inserted for convenience of reference only and shall not be deemed
to affect the meaning or construction of any of the provisions hereof.
8. COUNTERPARTS. This Amendment may be executed in any number of counterparts
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall
-4-
<PAGE>
be an original, but all the counterparts shall together constitute one and the
same instrument. Telecopied signatures hereto shall be of the same force and
effect as an original of a manually signed copy.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their duly authorized officers, all as of the date and year first
above written.
Fidelity and Deposit Company of
Maryland, Maryland corporation
/s/ Richard F. Yeazel
By:
-----------------------
Name: Richard F. Yeazel
Title: Executive Vice President
Morrison Knudsen Corporation,
a Delaware corporation
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Executive Vice President
Morrison Knudsen Corporation,
an Ohio corporation
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Executive Vice President
National Projects, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Senior Vice President and Secretary
Morrison Knudsen Services, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
-5-
<PAGE>
Title: Secretary
Atascosa Mining Co.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Secretary
Centennial Engineering, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Executive Vice President
CF Systems Corporation
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Secretary
Chemical Demilitarization of Anniston Company
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Secretary
MK Projects Company
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Vice President and Secretary
MK Capital Company
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Vice President and Secretary
-6-
<PAGE>
MK-Ferguson Engineering Company
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Assistant Secretary
MK-Ferguson of Idaho Company
By:
-----------------------
Name: Stephen G. Hanks
Title: Assistant Secretary
MK-Ferguson of Oak Ridge Company
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Assistant Secretary
MK Infrastructure Corporation
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Secretary
MK Train Control, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Vice President and Secretary
Navasota Mining Company, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Secretary
-7-
<PAGE>
Yampa Mining Co.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Secretary
Morrison-Knudsen Company, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Chairman and President
Morrison-Knudsen Engineers, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Vice President and Secretary
Morrison-Knudsen International Company, Inc.
/s/ Stephen G. Hanks
By:
-----------------------
Name: Stephen G. Hanks
Title: Vice President and Secretary
-8-
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
- ------------------------------------
IN RE: MORRISON KNUDSEN : Civil Action
SECURITIES LITIGATION : No. CV 94-334-S-EJL
- ------------------------------------
- -------------------------------------------------------------------------------
STIPULATION OF SETTLEMENT
- -------------------------------------------------------------------------------
This Stipulation of Settlement (the "Stipulation"), dated as of
September 11, 1995, is made and entered into by and among the Plaintiffs and the
Defendants in the actions captioned above (collectively, the "Parties"), and the
Insurers, as those terms are defined herein, by and through their attorneys or
their counsel of record in the actions described in PARA I. herein.
I.
THE LITIGATION
This Litigation began in July 1994. A total of seven purported class
action complaints have been filed in the District of Idaho:
GARBULINSKI, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-334
MEDELLO, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-364
STRAUSS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-373
<PAGE>
DRASNIN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-066
GRUESEN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-070
AKERS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-071
WEISS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-108.
All of the foregoing have been consolidated as IN RE MORRISON KNUDSEN SECURITIES
LITIGATION, No. CV 94-334-S-EJL (the "Litigation").
The defendants in the Litigation are Morrison Knudsen Corporation
("MK"), William J. Agee, Stephen G. Hanks, James F. Cleary, Jr. (the "Individual
Defendants"), and Deloitte & Touche, L.L.P. ("D&T"). The claims against D&T are
not covered by this Stipulation. MK and the Individual Defendants collectively
are termed the "Defendants."
On April 6, 1995, the Plaintiffs filed their Consolidated and Second
Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated
Complaint alleged claims for violations of Sections 10(b), 20(a) and 20A of the
Securities Exchange Act of 1934, 15 U.S.C. Section 578 (the "Exchange Act"), and
Rule 10b-5 promulgated under Section 10(b) by the Securities and Exchange
Commission ("SEC"), and claims under the Idaho securities statutes and common
law.
For purposes of this Stipulation, the Parties have agreed, pursuant to
Rule 23 of the Federal Rules of Civil Procedure, that the Court may certify a
settlement class (the "Class") comprised of:
2
<PAGE>
All persons who purchased shares of the common stock of
Morrison Knudsen Corporation during the period of October
15, 1993 through March 31, 1995, inclusive (the "Class
Period"), and who suffered harm thereby, excluding
defendants MK and D&T and their respective directors,
executive officers, partners, corporate affiliates, and
subsidiaries; the Individual Defendants, their heirs,
successors, and assigns and the members of their immediate
families.
The Parties' agreement to certification of the foregoing Class has been made
without prejudice to their respective rights to urge or oppose this or a
different plaintiff class if the Settlement embodied by this Stipulation is not
approved or is not consummated.
II.
PRETRIAL PROCEEDINGS AND
DISCOVERY IN THE LITIGATION
Counsel for Plaintiffs and the Class have conducted extensive
discovery during the prosecution of the Litigation. The discovery has included:
(i) the review and analysis of hundreds of thousands of documents produced by
the Defendants; (ii) the review and analysis of discovery obtained from stock
analysts who follow MK; (iii) the review and analysis of discovery obtained from
third parties, such as financial analysts and various governmental agencies that
had contracted with MK; (iv) the review and analysis of MK's financial
statements and results for fiscal 1992, 1993 and 1994; (v) interviewing numerous
witnesses, including current and former employees of MK; (vi) the review and
analysis of public documents, including all relevant filings made by MK with the
SEC; (vii) extensive consultation
3
<PAGE>
with damages and accounting experts; and (viii) a thorough analysis and
evaluation of the facts supporting Plaintiffs' claims. Counsel for Plaintiffs
and the Class also have researched thoroughly the applicable law with respect to
the claims of the Plaintiffs against the Defendants and the potential defenses
thereto.
III.
CLAIMS OF PLAINTIFFS
In the Litigation, brought as purported class actions against MK and
the Individual Defendants, Plaintiffs assert claims for violation of certain
federal and state securities laws and certain common law claims. They seek
damages based upon allegations, among other things, that the Defendants issued
false and misleading public statements relating to MK's business position and
future prospects and that certain of MK's financial statements were materially
inaccurate and/or failed to reflect all required information. The Plaintiffs
also allege that material misstatements were made in connection with the initial
public offering of MK Rail Corporation's ("MK Rail") common stock and
thereafter.
Plaintiffs believe that the Litigation has substantial merit.
Entering into, or carrying out, this Stipulation (or the Exhibits hereto) and
any negotiations or proceedings related thereto shall not in any event be
construed as, or be deemed to be, evidence of an admission or a concession by
the Plaintiffs with regard to the merits of their claims and shall not be
offered or received in evidence in any action or proceeding in
4
<PAGE>
any court, administrative agency or other tribunal for any purpose whatsoever
other than to enforce the provisions of this Stipulation and the Exhibits
hereto; except that this Stipulation and the Exhibits hereto may be filed in
this Litigation or related litigation as evidence of the Settlement, or in any
subsequent action against or by the Defendants or the Released Parties to
support a defense of RES JUDICATA, collateral estoppel, release, or other theory
of claim or issue preclusion or similar defense.
IV.
BENEFITS OF SETTLEMENT
TO PLAINTIFFS AND THE CLASS
Counsel for Plaintiffs and the Class recognize and acknowledge the
expense and length of continued proceedings necessary to prosecute the
Litigation against the Defendants through trial and through appeals. Counsel
for Plaintiffs and the Class also have taken into account the uncertain outcome
and the risk of any litigation, especially in complex actions such as the
Litigation, as well as the difficulties and delays inherent in such litigation.
Counsel for Plaintiffs and the Class have taken into account the strengths and
uncertainties of the claims asserted in the Litigation, the possible defenses to
the claims asserted and the substantial benefits of a cash settlement of up to
$35 million, plus interest, plus 2,976,923 shares of MK Common Stock (the
"Settlement Amount") for the Class as set forth in this Stipulation (the
"Settlement"). Counsel for Plaintiffs and the Class have considered the
current financial condition of MK,
5
<PAGE>
the uncertainty that that condition poses for any recovery by the Class, the
effects of the Litigation upon MK's need to carry out a financial restructuring,
and Plaintiffs' Counsel's belief that, given MK's financial condition, the
Settlement has obtained for the Class as much cash as was practically possible
under the circumstances. Counsel for the Plaintiffs and the Class have
therefore determined that the Settlement set forth in this Stipulation is in the
best interests of the Plaintiffs and the Class.
V.
DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
The Defendants in the Litigation have denied and continue to deny each
and all of the claims and contentions alleged by Plaintiffs in the Litigation.
They have asserted and continue to assert many defenses thereto and have
expressly denied and continue to deny any wrongdoing or legal liability arising
out of the conduct alleged in the Litigation. They also have denied that
Plaintiffs or members of the Class have suffered damage or that the price of
MK's common stock was artificially inflated by reason of misrepresentations,
non-disclosures or otherwise. Neither this Stipulation, nor any document
referred to herein, nor any action taken to carry out this Stipulation is, may
be construed as, or may be used as, an admission by, or against, the Defendants
or any of them of any fault, wrongdoing or liability whatsoever. Entering into
or carrying out this Stipulation (or the Exhibits hereto) and any negotiations
or proceedings related thereto shall not in any event be construed
6
<PAGE>
as, or be deemed to be evidence of, an admission or concession with regard to
the denials or defenses of any of the Defendants and shall not be offered or
received in evidence in any action or proceeding in any court, administrative
agency or other tribunal for any purpose whatsoever other than to enforce the
provisions of this Stipulation (and the Exhibits hereto) or the provisions of
any related agreement or release; except that this Stipulation and the Exhibits
hereto may be filed in this Litigation or related litigation as evidence of this
Settlement, or in any subsequent action against or by the Defendants or the
Released Parties to support a defense of RES JUDICATA, collateral estoppel,
release, or other theory of claim or issue preclusion or similar defense.
VI.
BENEFITS OF SETTLEMENT TO THE DEFENDANTS
Defendants have concluded that it is desirable that the Litigation be
settled in the manner and upon the terms and conditions set forth herein in
order to avoid the expense, inconvenience and distraction of further legal
proceedings and to put to rest the Settled Claims, including Unknown Claims (as
defined below), asserted by the Plaintiffs and on behalf of the Class. In
determining to enter into, and/or to perform, the Stipulation, the Defendants
also have considered a number of issues, including the uncertain outcome and the
risk of any litigation, especially in complex actions such as the Litigation, as
well as the difficulties and delays inherent in such litigation and the
strengths and uncertainties of the claims and
7
<PAGE>
defenses asserted in the Litigation. Defendants also have considered the
current financial condition of MK and the need to resolve this Litigation on
terms that will enable MK to carry out a financial restructuring.
VII.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Plaintiffs (on behalf of themselves and the Class), the Defendants, and the
Insurers, by and through their respective counsel of record, that, subject to
the approval of the Court, the Litigation and all claims that have been or could
have been asserted therein shall be finally and fully compromised and settled
and the Litigation shall be dismissed on the merits and with prejudice upon, and
subject to, the terms and conditions of the Stipulation as follows:
A. DEFINITIONS
As used in this Stipulation, the following terms shall have the
defined meanings set forth below:
1. "Attorneys' Fees and Expenses" means the portion of the Settlement
Fund approved by the Court for payment to Plaintiffs' Counsel, including
attorneys' fees, costs, litigation expenses, including fees and expenses of
experts, as well as any interest earned on such attorneys' fees, costs and
expenses from the date of deposit of the Settlement Fund into the Joint Account
until disbursement to Plaintiffs' counsel; as used herein, the
8
<PAGE>
term also includes any incentive payments awarded to the Plaintiffs.
2. "Authorized Claimant" means a member of the Class whose claim has
been allowed as provided by the terms of this Stipulation and the Final Judgment
and Order of Dismissal of the Court approving the Settlement of the Litigation
(as hereinafter defined).
3. "Bank" means the financial institution in Boise, Idaho that shall
be exclusively authorized to hold the funds and securities in the Joint Account
subject to the terms and conditions of this Stipulation and/or pursuant to an
order of the Court until such time as the Net Settlement Fund is transferred to
Plaintiffs' Counsel.
4. "Bank Syndicate" means the group of financial institutions that
provides financing to MK.
5. "Claims Administrator" means the firm retained by Plaintiffs'
Counsel to process proofs of claim and to process payment of the claims of
Authorized Claimants.
6. "Class Member(s)" means all members of the Class, as defined in
Section I above, including all named Plaintiffs, except persons who file valid
and timely requests for exclusion pursuant to the Notice of Class Action and
Hearing on Proposed Settlement.
7. "Class Period" means the period from October 15, 1993 through
March 31, 1995, inclusive.
8. "CNA" means Continental Casualty Company.
9
<PAGE>
9. "Court" means the United States District Court for the District of
Idaho.
10. "Defendants" means each and all of the following persons and
entities: MK, William J. Agee, Stephen G. Hanks, and James F. Cleary, Jr.
11. "D&T" means Deloitte & Touche, L.L.P.
12. "Derivative Actions" means the various derivative actions brought
against MK and/or MK Rail as nominal defendants and the Individual Defendants
and others which are pending before the courts of Idaho and Delaware and
captioned DEKLOTZ, ET AL. V. MK, ET AL., FLINN V. AGEE, ET AL., STEINER V. AGEE,
ET AL., WOHLGELERNTER V. AGEE, ET AL., 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.
13. "Effective Date" means the date on which the Court's Final
Judgment and Order of Dismissal With Prejudice, substantially in the form of
Exhibit "B" hereto, (the "Final Judgment") becomes final, which shall be deemed
to occur upon the last to occur of the following: (a) if no appeal or review of
the Final Judgment is sought, the thirty-first (31st) day after entry of the
Final Judgment (or, if the date for taking an appeal shall be extended, the day
after expiration of the extension); or (b) if an appeal or review of the Final
Judgment is sought, the day after such Final Judgment is affirmed or the appeal
or review is dismissed or denied and such Final Judgment is no longer subject to
further judicial review.
10
<PAGE>
14. "Great American" means Great American Insurance Company.
15. "Insurers" means Great American, Reliance, and CNA, which have
issued the following policies of insurance under which coverage has been
requested by the Individual Defendants:
<TABLE>
<CAPTION>
Issuer Coverage Policy Policy Policy
Layer Limits Number Period
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Great Primary $15,000,000 Policy No. 6/1/94-
American policy DOL 8811567 6/1/95
Reliance First layer $10,000,000 Excess Policy 6/1/94-
excess policy No. NDA 6/1/95
1253891-94
CNA Second layer $15,000,000 Excess Policy 6/1/94-
excess policy No. DOX 6/1/95
120181375
</TABLE>
16. "Joint Account" means, collectively, the interest-bearing
accounts being maintained by the Bank for deposit of the cash portion of the
Settlement Fund and/or the account into which certificates will be deposited,
all as described more particularly in PARA VII (B) below.
17. "MK" means Morrison Knudsen Corporation.
18. "MK Rail" means MK Rail Corporation.
19. "MK Rail Actions" means the consolidated class actions pending
against MK, MK Rail, the Individual Defendants, and others in the United States
District Court for the District of Idaho captioned NEWMAN V. MK RAIL CORP., ET
AL., Case No. 94-478; and SUSSER V. MK RAIL, ET AL., Case No. 94-477.
20. "Net Settlement Fund" means the Settlement Fund, less: (i) taxes
that have become due, if any, with respect to the Settlement Fund, (ii) any
other related fees and expenses as
11
<PAGE>
may be authorized by the Court, and (iii) any fees and expenses charged by the
Bank.
21. "Notice and Administration Account" means the account established
by Plaintiffs' Counsel to hold the Notice and Administration Fund.
22. "Notice and Administration Expenses" means all reasonable costs
and expenses incurred in connection with the preparation, printing, mailing,
publication of the notice to the Class of the proposed Settlement, other costs
to identify and notify Class Members, and all reasonable costs and expenses
incurred in connection with settlement administration.
23. "Notice and Administration Fund" means the principal amount of
One Hundred Thousand Dollars ($100,000) in cash, delivered by Great American to
Plaintiffs' Counsel, plus interest earned thereon after deposit into the Notice
and Administration Account, which shall be deposited in the Bank and used to
defray the Notice and Administration Expenses.
24. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated organization, and any other type of legal entity, and
their heirs, predecessors, successors, representatives, and assigns.
25. "Plaintiffs" means the named plaintiffs in each of the
consolidated actions, individually, and as representatives of the Class Members.
26. "Plaintiffs' Counsel," "Counsel for Plaintiffs" and/or "Counsel
for the Class" includes Steve W. Berman, Esq.,
12
<PAGE>
Hagens & Berman P.S., 1301 Fifth Avenue, Suite 2929, Seattle, Washington 98101;
Jeffrey H. Squire, Esq., Kaufman, Malchman, Kirby & Squire L.L.P., 919 Third
Avenue - 11th Floor, New York, New York 10022; and Michael J. Freed, Esq., Much,
Shelist, Freed, Denenberg & Ament P.C., 200 North LaSalle Street - Suite 2100,
Chicago, Illinois 60601-1095.
27. "Released Parties" or "Released Party" means the Defendants and
the Insurers, and all of their respective predecessors, successors and present,
former and future officers, directors, employees, agents, attorneys,
stockholders, investors, insurers, reinsurers, underwriters, investment bankers,
advisors, affiliates, associates (as defined in SEC Rule 12b-2 promulgated
pursuant to the Exchange Act), present, former or future parents, subsidiaries,
or affiliates, and each of their assigns, representatives, heirs, executors and
administrators. "Released Parties" excludes D&T.
28. "Reliance" means Reliance Insurance Company.
29. "Settled Claims" means, collectively, all claims including
"Unknown Claims," demands, rights, liabilities and causes of action of every
nature and description whatsoever, in law or equity, known or unknown, asserted
or that might have been asserted, including, without limitation, claims for
negligence, gross negligence, breach of duty of care and/or breach of duty of
loyalty and/or breach of duty of candor, fraud, negligent misrepresentation,
breach of fiduciary duty, or violations of any state or federal statutes, rules
or regulations, either directly, in a representative capacity or in any other
capacity, by any
13
<PAGE>
Class Member against any of the Defendants or the Released Parties arising out
of, relating to, or in connection with, purchases or sales of MK common stock
during the Class Period and arising out of, or related to, any of the acts,
omissions, misrepresentations, facts, events, matters, transactions or
occurrences referred to, or which could have been referred to, in any of the
complaints or other pleadings filed in the Litigation or otherwise alleged,
asserted or contended in the Litigation based upon the facts alleged in the
complaints filed in the Litigation.
30. "Settlement" means the full and final compromise, settlement and
dismissal of the Litigation and all claims that have been or could have been
asserted therein, on and subject to the terms and conditions of this
Stipulation.
31. "Settlement Account" means the bank accounts into which the Net
Settlement Fund is deposited after transfer to Plaintiffs' Counsel as provided
herein.
32. "Settlement Amounts" means: (a) the 2,976,923 fully paid,
non-assessable, and freely tradeable shares of MK common stock to be contributed
by MK; (b) $9,850,000 in cash, less the amounts of Attorneys' Fees, to be
contributed by Great American, at the direction of the Individual Defendants
(and the other current and former officers and directors of MK) and in
connection with the settlement of the Derivative Actions and the Litigation
against MK, to obtain for MK the release from liability in respect of the
Litigation provided for in this Stipulation, and (c) $25,150,000 in cash to be
contributed by the
14
<PAGE>
Insurers, at the direction of the Individual Defendants (and the other current
and former officers and directors of MK) and in connection with the Settlement
of the Litigation against the Individual Defendants, to obtain for the
Individual Defendants the release from liability in respect of the Litigation
provided for in this Stipulation. Such $25,150,000 payment shall be allocated
among the Insurers as follows: Great American, $5,150,000; Reliance,
$10,000,000; and CNA, $10,000,000.
33. "Settlement Fund" means, collectively, the Settlement Amounts
minus (a)(i) $100,000 in cash deposited in the Notice and Administration Fund
and (ii) distributions from the Settlement Amounts as hereinafter provided, plus
(b)(i) interest earned on the cash portions of the Settlement Amounts from the
date of deposit with the Bank and (ii) on and after the Effective Date, any
funds remaining in the Notice and Administration Fund which are required to be
transferred to the Settlement Fund pursuant to Section VII(C)(2).
34. "Settlement Memoranda" means the Parties' Memoranda of
Understanding regarding settlement of the Litigation, the Derivative Actions and
the MK Rail Actions.
35. "Unknown Claims" means Settled Claims which the Class Members do
not know or suspect to exist in their favor at the time of the release of the
Released Parties which, if known by them, might have affected their settlement
with the Defendants and release of the Released Parties or other action
including, but not limited to, the decision not to object to the Settlement.
Plaintiffs expressly waive on behalf of themselves and the Class
15
<PAGE>
Members any and all rights that they may have under any statute or common law
principle that would limit the effect of the foregoing releases to those claims
actually known or suspected to exist at the time of execution of this
Stipulation, including the provisions of Section 1542 of the California Civil
Code, to the extent deemed applicable (notwithstanding that this Stipulation
does not provide for the application of California law), which provides as
follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
B. ESTABLISHMENT OF THE JOINT ACCOUNT
1. The Settlement Amounts will be (or will have been) transferred to
the Joint Account within 20 business days after execution of the Settlement
Memoranda in the following manner:
(a) Great American will transfer $5,050,000, Reliance will transfer
$10,000,000 and CNA will transfer $10,000,000 to a Joint Account
maintained by the Bank and controlled jointly by Plaintiffs'
Counsel, P. Craig Storti, as designated counsel for the
Individual Defendants, and James Skarzynski, Michael Gassmann and
Cathy Simon, as designated counsel for the Insurers.
(b) MK will transfer appropriately legended certificates evidencing
2,976,923 shares of MK common stock to a safe deposit box
maintained by
16
<PAGE>
the Bank and controlled jointly by Plaintiffs' Counsel and John
W. Edwards II, counsel for MK.
(c) Great American will transfer $9,850,000 to a Joint Account
maintained by the Bank and controlled jointly by Plaintiffs'
Counsel, James A. Skarzynski, counsel for Great American; and
Marian Rosner and Mack Redford, designated counsel for plaintiffs
in the Derivative Actions.
2. The Bank shall invest and reinvest the funds in the Joint Accounts
in United States Treasury Bills having maturities no greater than 26 weeks, and
shall be authorized by the Court to withdraw and/or disburse funds from the
Joint Accounts solely with the authorization of all counsel named in
PARA VII(B)(1) above as controlling the respective accounts in accordance with
the terms and conditions of this Stipulation and/or pursuant to an order of the
Court until such time as the Net Settlement Fund is transferred to the
Settlement Account.
3. The counsel named in PARA VII(B)(1)(a) are authorized to cause to
be paid from the Joint Account described in such Paragraph all amounts described
in clauses (i), (ii) and (iii) of the definition of "Net Settlement Fund" at
PARA VII(A)(20).
C. NOTICE AND ADMINISTRATION ACCOUNT
1. Plaintiffs' Counsel will establish a Notice and Administration
Account at the Bank. Great American will deliver to Plaintiffs' Counsel the sum
of One Hundred Thousand Dollars ($100,000), and Plaintiffs' Counsel will deposit
that sum into the Notice and Administration Account. The Notice and
17
<PAGE>
Administration Fund shall be used by Plaintiffs' Counsel to defray the Notice
and Administration Expenses, as defined above.
2. On the date the Net Settlement Fund is transferred to the
Settlement Account, any balance (including interest) then remaining in the
Notice and Administration Account shall be transferred to, deposited in and
credited as part of the Settlement Account. Thereafter, Plaintiffs' Counsel
shall have the right to use such portions of the Settlement Account as are, in
their exercise of reasonable judgment, necessary to complete settlement notice
and administration.
D. TRANSFER OF THE NET SETTLEMENT FUND
1. The Net Settlement Fund shall be transferred to the Settlement
Account only upon the occurrence and/or satisfaction of the following:
a. The Effective Date has occurred; and
b. (i) Final nonappealable judgments have been entered
approving the settlements of the MK Rail Action and the Derivative Actions upon,
and subject to, the terms and conditions of the stipulations of settlement dated
September 11, 1995, with respect thereto; and (ii) all other conditions to such
settlements have been satisfied or waived to permit such settlements to be
consummated contemporaneously with this Settlement; AND EITHER;
c. (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
18
<PAGE>
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 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
d. 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 the
payments required by this Stipulation to be made by the Insurers, all in form
and substance satisfactory to the Parties and the Insurers. By agreeing to this
condition, none of the Plaintiffs, the Insurers, nor 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.
e. All other conditions to consummation of the Settlement set
forth herein have been satisfied or waived.
19
<PAGE>
2. Upon the conditions to transfer of the Net Settlement Fund having
been satisfied or waived, Plaintiffs' Counsel, counsel for Defendants and
counsel for the Insurers shall promptly direct in writing that counsel
controlling the Joint Account disburse the Net Settlement Fund to the Settlement
Account, to be held therein by Plaintiffs' Counsel in trust for the Authorized
Claimants until such time as they are authorized by the Court to distribute
those funds pursuant to this Stipulation and any applicable Court orders.
3. Upon satisfaction of all conditions herein set forth for the
transfer of the Net Settlement Fund, MK shall issue and deliver to the
Settlement Account 2,976,923 fully paid, non-assessable, and freely tradeable
shares of MK common stock, which shall thereupon be outstanding and have full
rights to be voted and to receive dividends. The Shares shall be issued
initially in a certificate or certificates as directed by Plaintiffs' Counsel
and may be reissued on one occasion at Plaintiffs' Counsel's direction without
cost or expense to Plaintiffs' Counsel or the Class. At any time after transfer
of the shares, Plaintiffs' Counsel shall have the authority and discretion to
dispose of all or any portion of the Shares by public or private sale, in whole
or in part, or in any other manner that Plaintiffs' Counsel determines in their
reasonable discretion is in the best interests of the Class, provided: (i) no
sales of such shares shall be effected at a price more than $0.50 below the
opening price of MK common stock on the day of such sale(s); (ii) no more than
100,000 shares shall be sold to any single
20
<PAGE>
person, entity, or "group" as defined in Section 13(d) of the Exchange Act;
(iii) proceeds from any such sale shall be deposited into the Settlement
Account; and (iv) any such sales shall be subject to review by the Court.
Plaintiffs' Counsel may elect to distribute all or a portion of the shares in
kind in accordance with PARA VII(K). If, prior to the time MK causes 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 cease to be traded
publicly because of a merger or acquisition of MK (or similar change-of-control
transaction), MK agrees to pay into a Joint Account controlled by counsel
identified in PARA VII(B)(1)(b) 2,976,923 times the per-share consideration paid
to the former public stockholders of MK in the merger, acquisition, or similar
change-of-control transaction. So long as Plaintiffs' Counsel holds or has the
power to direct the voting of any of the shares of MK common stock, Plaintiffs'
Counsel shall cause the shares to be voted on any matter submitted to holders of
shares for a vote, at Plaintiff Counsels' election, either (a) consistent with
the recommendation of management of the Company as set forth in the Company's
proxy materials or (b) in proportion to all other votes cast on any such matter.
E. DISPOSITION UPON DISAPPROVAL OR TERMINATION
1. If the Settlement is not approved or is terminated:
a) All funds then existing in the Joint Account established pursuant
to PARA VII(B)(1)(a) above shall
21
<PAGE>
be returned to the Insurers that deposited them, together with
all interest earned thereon, in accordance with each Insurer's
respective contribution;
b) All funds then existing in the Joint Account established pursuant
to PARA VII(B)(1)(c) above shall be returned to Great American,
together with all interest earned thereon;
c) All funds then existing in the Notice and Administration Account
established pursuant to PARA VII(C) above, less Notice and
Administration Expenses incurred but not yet paid, shall be
returned to Great American, and the limit of the Great American
policy shall be reduced by the total amount of Notice and
Administration Expenses paid from the Account; and
d) The certificates in the Joint Account established pursuant to
PARA VII(B)(1)(b) shall be returned to MK and cancelled.
2. Under no circumstances whatsoever shall any funds in the Joint
Accounts established pursuant to PARA VII(B)(1)(a) and PARA VII(B)(1)(c) above
or the Notice and Administration Account established pursuant to PARA VII(C)
above be payable to, or recoverable by, MK.
3. Upon approval of the Court or receipt of a written notice from
Plaintiffs' Counsel, counsel for the Defendants, and counsel for the Insurers
who control the respective accounts,
22
<PAGE>
that the Settlement is terminated, the counsel controlling the Joint Account are
authorized to transfer the funds and securities in the Joint Account as provided
in this PARA VII(E).
F. THE PRELIMINARY APPROVAL ORDER
Promptly after execution of this Stipulation, Plaintiffs, through
Plaintiffs' Counsel, shall by stipulation or motion, apply to the Court for an
order (the "Preliminary Approval Order"), substantially in the form of Exhibit
"A" hereto, preliminarily approving the Settlement, conditionally certifying the
Class, preliminarily approving the Plaintiffs as representatives of the Class,
and providing for notice to the Class of a hearing regarding the Settlement.
The Approval Order shall specifically include provisions that, among other
things:
1. Preliminarily approve the Settlement set forth in the Stipulation
as fair, reasonable and adequate;
2. Conditionally certify the Class and preliminarily approve the
Plaintiffs as representatives of the Class;
3. Approve forms of mailed notice (the "Notice") and published notice
(the "Summary Notice") (substantially in the form of Exhibits "A-1" and "A-2"
hereto) and a proof of claim and release (the "Proof of Claim and Release")
(substantially in the form of Exhibit "A-3" hereto) for mailing and publishing
to the Class to notify them of the Hearing (i) on final approval of the
Settlement, (ii) on final certification of the Class and approval of the
Plaintiffs as representatives of the Class, (iii) on Plaintiffs' Counsel's
application for Attorneys' Fees and Expenses, and (iv) on final approval of the
Plan of Distribution,
23
<PAGE>
as defined and set forth in the Notice of Class Action and Hearing on Proposed
Partial Settlement attached hereto;
4. Direct Plaintiffs' Counsel to mail or cause to be mailed the
Notice and Proof of Claim and Release to those members of the Class who can be
identified through reasonable effort. Nominees who purchased MK common stock
during the Class Period also will be requested to send the Notice and Proof of
Claim and Release to all beneficial owners within ten (10) days after receipt of
the Notice or, if they have not already done so, to send a list of the names and
addresses of the beneficial owners to the Claims Administrator within ten (10)
days of receipt of the Notice;
5. Direct Plaintiffs' Counsel to cause the Summary Notice to be
published once in the national edition of THE WALL STREET JOURNAL and once in
THE IDAHO STATESMAN;
6. Direct Plaintiffs' Counsel to serve on Defendants' counsel and
file with the Court proof, by affidavits or declarations, of the mailing of the
Notice and publication of the Summary Notice provided for in PARAS VII(D)(4)
and (5) hereof;
7. Find that the mailing and publication pursuant to
PARAS VII(D)(4) and (5) constitute the best and most practicable notice to
members of the Class under the circumstances, including individual notice to all
such members of the Class who can be identified through reasonable effort, and
is due and sufficient notice of the hearing, proposed Settlement, application
for an award of Attorneys' Fees and Expenses, the Plan of Distribution, and
other matters set forth in the Notice to all members of the
24
<PAGE>
Class and that the Notice fully satisfies the requirements of due process, the
Federal Rules of Civil Procedure, and any other applicable law;
8. Provide that Plaintiffs' Counsel are authorized to retain a firm
of their choice to supervise and administer the notice procedure as well as the
processing of the claims;
9. Provide that only the Class Members who complete and submit a
valid and timely Proof of Claim and Release in accordance with the instructions
contained therein shall be entitled to receive any distribution from the
Settlement Fund;
10. Provide that, pending final determination of whether the
Settlement should be approved, neither the Plaintiffs nor any Class Member
either directly, derivatively, in a representative capacity, or in any other
capacity, shall commence, maintain, or prosecute any action or proceeding, other
than this litigation, in any court or tribunal against any Defendant or Released
Party, asserting any of the Settled Claims, including Unknown Claims, as that
term is defined herein;
11. Schedule the hearing to be held by the Court to consider and
determine (1) whether the proposed Settlement should be approved as fair,
reasonable and adequate; (2) whether the Class should be certified and the
Plaintiffs approved as representatives of the Class; (3) whether an order
approving the Settlement and a Final Judgment should be entered thereon
dismissing this Litigation on the merits and with prejudice; (4) whether the
proposed Plan of Allocation, as defined in PARA VII(K)(4) below, is fair and
reasonable; (5) whether the
25
<PAGE>
application of Plaintiffs' Counsel for an award of Attorneys' Fees and Expenses
is reasonable and should be approved; and (6) whether the Plan of Distribution
should be approved.
12. Provide that any objections to (i) the proposed Settlement and
the entry of the Final Judgment approving the Settlement, or (ii) the
application of Plaintiffs' Counsel for an award of Attorneys' Fees and Expenses,
shall be heard and any papers submitted in support of said objections shall be
received and considered by the Court at the hearing (unless, in its discretion,
the Court shall direct otherwise) only if, on or before a date to be specified
in the Approval Order (which shall be 15 days prior to the Hearing), Persons
making objections shall file notice of their intention to appear and copies of
any papers in support of their position with the Clerk of the Court and serve
such notice and papers on:
Steve W. Berman, Esq.
Hagens & Berman P.S.
1301 Fifth Avenue - Suite 2929
Seattle, Washington 98101
Co-Lead Counsel for the Class
John W. Edwards II, Esq.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Counsel for MK
David D. Aufhauser, Esq.
Williams & Connolly
725 Twelfth Street, N.W.
Washington, D.C. 20005
Counsel for William J. Agee
26
<PAGE>
Thomas J. Nolan, Esq.
Howrey & Simon
550 South Hope Street - Suite 1400
Los Angeles, California 90071-2604
Counsel for Stephen G. Hanks
P. Craig Storti, Esq.
Hawley, Troxell, Ennis & Hawley
First Interstate Center
877 West Main Street - Suite 1000
Boise, Idaho 83701
Counsel for James F. Cleary, Jr.
13. Provide that, upon the Effective Date, all members of the Class
who have not filed timely and valid requests for exclusion from the Class,
pursuant to the procedures described herein at PARA VII(F)(17) below, whether or
not they file a Proof of Claim and Release within the time provided for, and
whether or not they participate in the Settlement Fund, shall be barred from
asserting any Settled Claims, including Unknown Claims, and all Class Members
shall be conclusively deemed to have released Defendants and the Released
Parties from any and all such Settled Claims, including Unknown Claims;
14. Provide that no Person, other than a Class Member or Plaintiffs'
Counsel, shall have any right to any portion of, or in the distribution of, the
Settlement Fund unless otherwise ordered by the Court or otherwise provided in
this Stipulation;
15. Provide that, upon the Effective Date, Defendants shall be deemed
conclusively to have released the Plaintiffs and Plaintiffs' Counsel from only
those claims or potential claims against Plaintiffs and Plaintiffs' Counsel that
are based upon, or arise out of, the institution, assertion, prosecution or
27
<PAGE>
resolution of this Litigation, or the Settled Claims, including Unknown Claims,
except that nothing herein releases any claim arising out of a violation of this
Stipulation or a violation by Plaintiffs or Plaintiffs' Counsel of the
Confidentiality Orders in place in the Litigation;
16. Provide that the hearing may, from time to time, and without
further notice to the Class, be continued or adjourned by Order of the Court;
17. Provide that all members of the Class shall have the option to be
excluded from the Class, and thereby elect not to participate in the Settlement
Fund by mailing a timely and valid request for exclusion postmarked on or before
15 days before the hearing to the Claims Administrator pursuant to the
instructions set forth in the Notice (Exhibit A-1), which, in order to be valid,
shall list the date(s) and amount(s) of all purchases and sales of MK common
stock during the Class Period, list prices paid and received on each purchase
and sale, and furnish written confirmation of each such transaction and further
provide that all Persons who submit timely and valid requests for exclusion from
the Class shall not be Class Members and shall have no rights with respect to
the Settlement and no interest in the Settlement Fund; and
18. Provide that the Claims Administrator shall notify, VIA
telecopier and overnight mail, counsel for the Insurers and counsel listed in
PARA VII(F)(12) above of each request for exclusion within two days of receipt.
28
<PAGE>
19. Provide that all papers in support of the Settlement and any
application for Attorneys' Fees and Expenses shall be filed at least six (6)
days prior to the hearing.
20. Provide that all reasonable costs incurred in identifying and
notifying Class Members, as well as administering the Settlement Fund shall be
paid from the Notice and Administration Escrow Account upon the terms set forth
above.
21. Provide that, if the Settlement is disapproved, cancelled or
terminated in accordance with the terms of the Settlement Memoranda or this
Stipulation, then the Settlement Memoranda and this Stipulation shall have no
force or effect, and all negotiations, proceedings and statements made in
connection therewith shall be without prejudice to the right of any Persons, and
the Parties to the Litigation shall be restored to their respective positions
existing as of June 5, 1995; provided however, that the Notice and
Administration Expenses incurred but not yet paid shall be paid out of the
Notice and Administration Fund as provided above; and provided further that the
provisions of PARAS VII(E) and (I) and this paragraph shall continue to
apply.
22. Provide that only Class Members shall have the rights with
respect to approval of, or objection to, the Settlement, the Plan of
Distribution or Plaintiffs' Counsel's request for Attorneys' Fees and Expenses.
Class Members who may appeal any decision with respect thereto must formally
intervene as a party under Rule 24 of the Federal Rules of Civil Procedure.
23. Provide that, pending final determination of whether the
Settlement should be approved, all discovery and all
29
<PAGE>
proceedings in the Litigation are stayed, except for proceedings relating to the
Settlement.
G. FINAL JUDGMENT TO BE ENTERED BY THE COURT APPROVING THE
SETTLEMENT
If (i) the Settlement (including any modification thereto made with
the consent of the Parties and the Insurers as provided for herein) is approved
by the Court; (ii) the Settlement has not been terminated by the Parties or the
Insurers pursuant to this Stipulation; and (iii) if all conditions to
consummation of the Settlement (other than a Final Judgment) have otherwise been
satisfied or waived, the Parties shall jointly request the Court to enter a
Final Judgment, substantially in the form of Exhibit B hereto, that shall:
1. Approve the Settlement as fair, reasonable and adequate to the
Class;
2. Find the terms of this Stipulation to be valid and enforceable
and direct the consummation of the Settlement in accordance with the terms and
provisions of this Stipulation.
3. Certify the Class and approve the Plaintiffs as representatives of
the Class for purposes of this Settlement;
4. Dismiss the Litigation in its entirety as against all Defendants
with prejudice and without costs to any party as against any other party;
5. Adjudge that, as more fully described in PARA VII(J), each Class
Member shall be deemed conclusively to have released the Settled Claims,
including Unknown Claims, against the Released Parties, Plaintiffs and
Plaintiffs' Counsel. Notwithstanding that any Class Member may hereafter
discover
30
<PAGE>
facts in addition to, or different from, those which the Class Members now know
or believe to be true with respect to the Litigation and Settled Claims,
including Unknown Claims, or, with respect to the subject matter of the release,
each Class Member shall be deemed, upon the Effective Date, fully, finally and
forever to have settled and released any and all Settled Claims, including
Unknown Claims, as against the Released Parties, including all claims known or
unknown, suspected or unsuspected, contingent or non-contingent, which now
exist, may hereafter exist, or heretofore have existed, and without regard to
the subsequent discovery or existence of any such different or additional facts.
Upon the Effective Date, Defendants shall be deemed conclusively to have
released the Plaintiffs and Plaintiffs' Counsel from only those claims or
potential claims against Plaintiffs and Plaintiffs' Counsel that are based upon
or arise out of the institution, prosecution, assertion or resolution of this
Litigation and Settled Claims, including Unknown Claims; provided, however, that
such releases shall not extend to claims arising out of any violations of this
Stipulation or any violations of the Confidentiality Orders entered in the
Litigation;
6. Bar and permanently enjoin each Class Member from prosecuting the
Settled Claims, including Unknown Claims, against the Released Parties,
Plaintiffs and Plaintiffs' Counsel;
7. Bar and permanently enjoin each Plaintiff and Class Member,
either directly, representatively, or in any other capacity, from instituting or
prosecuting any action against any
31
<PAGE>
party other than those enumerated in PARA VII(G)(6) above, to the extent such
action asserts any of the claims included in the definition of Settled Claims,
including Unknown Claims, unless (a) appropriate provision satisfactory to the
Court is made to assure that the amounts to be collected pursuant to any
judgment will be available if necessary to meet the obligations that may exist
under the provisions for indemnification set forth in PARA VII(G)(8) below as a
consequence of such judgment; or (b) any settlement of such claims provides for
releases of claims or claims-over of the settling party against the Released
Parties as provided in PARA VII(G)(8) below, subject to the receipt by the
settling party of releases of claims-over from the Released Parties co-extensive
with those received by the Released Parties;
8. For the purpose of effectuating the Parties' intention to protect
the Released Parties from claims or claims- over of third parties arising out of
the Settled Claims, including Unknown Claims:
(a) Bar and permanently enjoin all Persons, including without
limitation D&T, either directly, representatively, or in any other capacity,
from instituting or prosecuting or continuing to prosecute, any action, claim or
claim-over against any Released Party on whatsoever theory (whether by way of
third-or subsequent-party complaint, cross-claim, separate action or otherwise,
and whether under federal or state law) to recover in whole or in part any
liability, direct or indirect, of such Person to any Member of the Class in
connection with, arising out
32
<PAGE>
of, or which is in any way related to, the Settled Claims, including Unknown
Claims;
(b) Dismiss with prejudice and without costs any claims or claims-over
asserted or deemed asserted by any Persons, including without limitation
D&T, against any Released Party on whatsoever theory (whether by way of
third- or subsequent-party complaint, cross-claim, separate action or otherwise,
and whether under federal or state law) to recover in whole or in part any
liability, direct or indirect, of such Person to any Member of the Class in
connection with, arising out of, or which is in any way related to, the Settled
Claims, including Unknown Claims;
(c) Order that any judgment by Plaintiffs or other Members of the
Class as against any Persons, including without limitation D&T, on a claim with
respect to which such Person would have (but for the contribution bar ordered in
PARA VII(G)(8)(a) above) a legally valid and enforceable right to contribution
from any Released Party and that is in connection with, arising out of, or in
any way related to, Settled Claims, including Unknown Claims, shall be reduced
by such percentage as reflects a determination of the relative fault or
culpability, if any, of such Released Party, as compared to the relative fault
or culpability of such other Persons;
(d) Order that, if necessary in order further to effectuate the
intention of the Parties and the Insurers that the Released Parties shall have
no liability to any Person (including without limitation D&T) for contribution
or indemnification with respect to any claim by Plaintiffs or any Class Member
against
33
<PAGE>
any Person with respect to the Settled Claims, including Unknown Claims, the
Class and each Member of the Class (i) shall reduce or credit against any
judgment or settlement (s)he, it or they may obtain against any Person the full
amount of any judgment or settlement such Person may obtain against any Released
Party on any claims-over on whatsoever theory (whether by way of third- or
subsequent-party complaint, cross-claim, separate action or otherwise) in
connection with, arising out of, or which is in any way related to, the Settled
Claims, including Unknown Claims, including but not limited to claims-over that
have been, could have been, or could be, alleged in this Litigation or in any
other action; and (ii) shall obtain from such Person for the benefit of the
Released Parties a satisfaction in full of such Person's judgment or settlement
against the Released Parties;
(e) Approve the agreement of Plaintiffs and all other Members of the
Class (the "Indemnifying Parties"), for good and valuable consideration, receipt
of which is hereby acknowledged, to indemnify the Released Parties and to hold
them harmless from and against any and all liability (including amounts paid in
settlement, subject to all the other provisions of this Stipulation) with
respect to:
(i) any claim by any Member of the Class that is a Settled
Claim, including Unknown Claims; and
(ii) claims-over on whatsoever theory (whether by way of third-
or subsequent-party complaint, cross-claim, separate action or otherwise) by any
Person to recover in whole or in part any liability, direct or indirect, whether
by way of
34
<PAGE>
judgment, settlement or otherwise, of such Person to any Member of the Class in
connection with, arising out of, or in any way related to, the Settled Claims
(including Unknown Claims), including without limitation claims-over that have
been, could have been or could be alleged in this Litigation or in any other
action.
(f) Approve the further agreement of the Parties that, in the event
that any Members of the Class obtain any recovery by judgment, settlement, or
otherwise against any Person (other than the Net Settlement Fund) that is
related in any way to the Settled Claims, including Unknown Claims, appropriate
provision (including delaying distribution of amounts payable under a judgment
and, in the case of settlement, obtaining releases to protect the Released
Parties from any liability to such Persons on claims-over) shall be made to
assure the effectuation of the indemnity provided for herein. Any such recovery
against any Person who has not released any claims or claims-over against the
Released Parties shall be held in escrow pursuant to order of this Court until
any claims or claims-over against the Released Parties are finally determined,
subject to the other limitations and provisions of this Stipulation.
(g) Order that the foregoing provisions of PARAS VII(G)(7) and (8)
with respect to reduction of judgment and effectuation of indemnification are
not intended to be exclusive, and nothing in PARA VII(G)(8)(f) shall be deemed
to modify, lessen or impair the indemnity obligations of the Class or Class
Members as set forth in PARA VII(G)(8)(e) hereof in any situation to which
35
<PAGE>
the provisions contained in PARA VII(G)(8)(f) may not be applicable or may fail
to provide fully for the indemnity protection provided in PARA VII(G)(8)(e);
provided, however, that, to the extent that cash payments are required to
provide the Released Parties with the agreed-upon indemnity, (x) with respect to
a claim for indemnification from and against liability with respect to the claim
of any Member of the Class that is a Settled Claim (including Unknown Claims),
only funds received by, or on behalf of, the Class or Class Members by virtue of
any claim in this action or otherwise related to Settled Claims (including
Unknown Claims), other than the Net Settlement Fund provided for herein, may be
used to satisfy the indemnification obligations hereunder; provided, however,
that, if a Class Member persists in prosecuting its claim despite being notified
that it is barred from doing so by this Settlement (and fails to establish by
Court order that it is not so barred), such indemnification obligations may be
payable out of any funds distributed or to be distributed to such Member of the
Class from the Net Settlement Fund or out of any other funds of such Class
Member; and (y) with respect to a claim for indemnification from and against
liability with respect to claims-over as provided in PARA VII(G)(8)(e)(ii), such
indemnification obligations shall be payable out of the additional recovery by
judgment or settlement and shall not under any circumstances be payable out of
the Net Settlement Fund provided for herein;
(h) Approve the Parties' agreement that, if, after the Effective
Date, a claim-over is or has been asserted against any
36
<PAGE>
Released Party as to which such Released Party is entitled to protection under
PARAS VII(G)(7) and (8)(a)-(g), Plaintiffs' Counsel shall, at their expense,
to the best of their ability and so long as permitted by the forum court, take
control and direct the litigation strategy of the defense of such claim-over
only. If separate counsel is required as to any such claim-over, Plaintiffs'
Counsel shall select competent counsel approved by the Released Party, which
approval shall not be unreasonably withheld. Any legal fees and expenses
incurred by such counsel shall be paid out of the Settlement Fund (or any
additional monies recovered by the Class), subject to Court approval. The
Released Parties shall cooperate fully in the defense of such claim-over and
shall have the right (but shall not be obligated) to retain co-counsel to
participate in such defense at their expense. As between the Class Members and
the Released Parties, the Class (or Members of the Class individually to the
extent the last sentence of this paragraph is applicable), by their counsel,
shall have sole authority to determine the timing and terms of any settlement of
such claim-over, subject to the other provisions of this Stipulation. No such
settlement of any claim-over shall require any financial contribution from any
Released Party. If a claim-over is asserted against any Released Party by any
Person to recover any liability of such Person with respect to a claim brought
by Members of the Class who are not prosecuting such claim on a common class
basis, the obligations set forth herein for defense of such claim-over shall be
the
37
<PAGE>
responsibility only of those Members of the Class who are prosecuting the claim
giving rise to such claim-over;
9. Order that any claims or claims-over that have been, or may in
the future be, asserted in this or any other action against any Released Party
shall (if allowed) be severed and stayed for separate trial after the trial of
Plaintiffs' and the Class's claims against such nonsettling defendant;
10. Determine that, by reason of the Parties' Settlement, there is no
just reason for delay and find expressly that the Final Judgment is a final
judgment upon fewer than all the claims or parties pursuant to Fed. R. Civ. Pro.
54(b);
11. Determine that the Stipulation and the Settlement provided for
herein, and any proceedings taken pursuant thereto are not, and should not in
any event be: (i) offered or received as evidence of a presumption, concession
or an admission of any misrepresentation or omission in any statement or written
document approved or made by any Released Party (as defined herein); or (ii)
offered or received as evidence of a presumption, concession or any admission of
any liability, fault, wrongdoing or other dereliction of duty, or (except with
written consent of the Released Parties) in any way referred to for any other
reason in this Litigation or in any other civil, criminal, bankruptcy, or
administrative action or proceeding; provided, however, that reference may be
made to this Stipulation and the Settlement provided for herein in such
proceedings as may be necessary to effectuate the provisions of this
Stipulation; and provided further that, if this Settlement has been approved by
38
<PAGE>
the Court, Plaintiffs, may, subject to Court approval, at the trial of this
Litigation against other defendants refer to this Settlement in such manner as
this Court may authorize or permit; and
12. Reserve jurisdiction, without affecting the finality of the Final
Judgment entered, over:
(a) Implementation of this Settlement and any award or
distribution of the Settlement Amounts or the Settlement Fund, including
interest accrued thereon;
(b) Disposition of the Net Settlement Fund;
(c) Enforcing and administering this Stipulation and Settlement
including any releases executed in connection therewith, and the provisions of
the Final Judgment; and
(d) Other matters related or ancillary to the foregoing.
H. CONDITIONS OF SETTLEMENT
1. This Stipulation shall be subject to the following conditions and,
except as provided in PARAS VII(E), (F)(21), and (I) hereof, shall be
cancelled and terminated unless:
(a) The Court shall enter the Preliminary Approval Order, as
required by PARA VII(F) above;
(b) The Court shall enter the Final Judgment, as required by
PARA VII(G) above;
(c) The Effective Date as set forth in PARA VII(A) hereof shall
have occurred; and
39
<PAGE>
(d) The conditions to transfer of the Net Settlement Fund to the
Plaintiffs' Counsel set forth in PARA VII(D) shall have been satisfied or
waived.
2. Upon the occurrence of all of the events referenced in
PARA VII(H)(1) hereof, each of the Class Members shall hereby be deemed to have,
and by operation of the Final Judgment shall have, fully, finally, and forever
released, relinquished and discharged all Settled Claims, including Unknown
Claims, against all Released Parties, whether or not such Class Member executes
and delivers the Proof of Claim and Release. Only those Class Members filing
valid and timely Proofs of Claim and Release shall be entitled to receive any
distributions from the Settlement Fund. The Proof of Claim and Release to be
executed by the Class Members shall release all Settled Claims, including
Unknown Claims, against Released Parties and shall be in the form of Exhibit
A-3, hereto. Once executed by a Class Member, each Proof of Claim and Release
shall be delivered to Plaintiffs' Counsel or their designated agent and copies
thereof shall be forthwith delivered to counsel for each Released Party.
3. If, prior to the Hearing, Persons who otherwise would be Members
of the Class have filed with the Court valid and timely requests for exclusion
from the Class in accordance with the provisions of the Preliminary Approval
Order and the Notice given pursuant thereto, and such Persons in the aggregate
purchased a number of shares greater than that specified in a separate
Supplemental Agreement among Plaintiffs, the Defendants and CNA, then each
Defendant and CNA shall have, in his or its
40
<PAGE>
sole and absolute discretion, the option to terminate this Stipulation in
accordance with the procedures set forth in the Supplemental Agreement. The
Supplemental Agreement will be kept confidential, will be disclosed only to the
Parties, their counsel, the Insurers, and the Court, and will not be filed with
the Court unless and until a dispute among the Parties concerning its
interpretation or application arises, and, in that event, it may be filed and
maintained with the Court. As set forth in PARA VII(F)(18) above, counsel for
MK, the Individual Defendants and the Insurers shall be advised of requests for
exclusions.
4. If the conditions specified in PARA VII(D)(1)(a) have been
satisfied but the conditions specified in PARA VII(D)(1)(c) or PARA VII(D)(1)(d)
(whichever then applies) have not then been satisfied, Plaintiffs' Counsel may
elect to terminate the Settlement at any time thereafter by giving written
notice to the Defendants and the Insurers.
5. If any of the conditions specified in PARA VII(D)(1) have not
occurred by a date to be specified in the Supplemental Agreement provided for in
PARA VII(H)(3) above, Plaintiffs' Counsel may elect to terminate the Settlement
at any time thereafter by giving written notice to the Defendants and the
Insurers.
6. Without limiting the provisions in this PARA VII(H) above, a
condition of this Stipulation is that it shall be approved by the Court under
applicable provisions of federal law. However, if: (i) the Court enters a
judgment, but not the Final Judgment provided for in PARA VII(G), or (ii) the
Court enters the Final Judgment and appellate review is sought and on such
review
41
<PAGE>
the Final Judgment is materially modified or reversed, or (iii) any of the
conditions of PARA VII(H) is not satisfied, then this Stipulation shall be
cancelled and terminated unless counsel for each of the Parties and the
Insurers, within ten (10) days from the receipt of such ruling or written notice
of such circumstances, agrees in writing with counsel for all other Parties and
counsel for the Insurers to proceed with this Stipulation and Settlement. For
purposes of this paragraph, neither a modification nor reversal on appeal of
(i) the Plan of Distribution; or (ii) any amount of Attorneys' Fees and Expenses
awarded to any of Plaintiffs' Counsel shall be deemed a material modification of
or a part of the material terms of the Final Judgment or of this Stipulation.
7. If any of the conditions specified in PARA VII(D) have not been
satisfied or waived and have become incapable of satisfaction, counsel to the
Insurers may elect to terminate the Settlement by giving ten (10) days written
notice to Plaintiffs' Counsel and the Defendants.
I. EFFECTS OF TERMINATION OF THE SETTLEMENT
1. If the Effective Date does not occur, or if this Stipulation is
disapproved, terminated, or cancelled pursuant to its terms, the funds and
securities in the Joint Accounts shall be disposed of in accordance with
PARA VII(E).
2. If the Effective Date does not occur, or if this Stipulation is
disapproved, terminated or cancelled pursuant to its terms: (a) all of the
Parties shall be deemed to have returned to their respective litigation
positions as of June 5,
42
<PAGE>
1995; (b) they shall proceed in all respects as if this Stipulation had not been
executed and the related orders and judgments had not been entered (except as
set forth in PARA VII(E)(1)(c)), preserving in that event all of their
respective claims and defenses in the Litigation; and (c) all releases given and
indemnification obligations undertaken in this Stipulation shall be null and
void.
J. RELEASE TERMS
1. Upon the Effective Date, the Plaintiffs and all Class Members,
whether or not each submits a Proof of Claim and Release or otherwise shares in
the Settlement Fund, on behalf of themselves and each of their predecessors,
successors, parents, subsidiaries, affiliates, custodians, agents, assigns,
representatives, heirs, executors, trustees, administrators and any other Person
having any legal or beneficial interest in the common stock of MK purchased by
any Member of the Class, will be deemed by this Settlement to have, and by
operation of the Final Judgment shall have, released and forever discharged the
Released Parties from any and all of the Settled Claims, including Unknown
Claims.
2. Upon the Effective Date, the Plaintiffs, and all Class Members,
and anyone claiming through or on behalf of any of them, will be forever barred
and enjoined from commencing, instituting or prosecuting any action or other
proceeding in any court of law or equity, arbitration tribunal, or
administrative forum, directly, representatively or derivatively, asserting
43
<PAGE>
against any of the Released Parties any claims that relate to or constitute any
of the Settled Claims, including Unknown Claims.
3. From and after the Effective Date, each Class Member individually,
completely, voluntarily, knowingly, unconditionally and forever releases,
remises, acquits and discharges Plaintiffs and Plaintiffs' Counsel from every
and all asserted or potential, separate, joint, individual claims, class claims,
or other claims, actions, rights, causes of action, demands, liabilities, losses
and damages of every kind and nature, anticipated or unanticipated, direct or
indirect, fixed or contingent, known or unknown, under federal, state or common
law or any other law or regulation, or in equity, against Plaintiffs and
Plaintiffs' Counsel or any of them for, which are based upon or arise out of the
institution, prosecution, assertion or resolution of the Litigation or the
Settled Claims, including Unknown Claims, except that nothing herein releases
any claim arising out of a violation of this Stipulation.
4. From after the Effective Date, each of the Defendants
individually, completely, voluntarily, knowingly, unconditionally and forever
releases, remises, acquits and discharges Plaintiffs and Plaintiffs' Counsel
from only those asserted or potential, separate, joint, individual claims, class
claims, or other claims, actions, rights, causes of action, demands,
liabilities, losses and damages of every kind and nature, anticipated or
unanticipated, direct or indirect, fixed or contingent, known or unknown, under
federal, state or common law or any other law or regulation, or at equity,
against
44
<PAGE>
Plaintiffs and Plaintiffs' Counsel, which are based upon or arise out of the
institution, prosecution, assertion or resolution of the Litigation or the
Settled Claims, including Unknown Claims, except that nothing herein releases
any claim arising out of a violation of this Stipulation or a violation by
Plaintiffs or Plaintiffs' Counsel of the Confidentiality Orders in place in the
Litigation.
5. Each Defendant releases and agrees not to assert any crossclaims,
third party claims or other claims-over (however denominated) arising out of the
Settled Claims against any other Defendant or any Insurer, its predecessors or
successors, or its present or former and future partners, members, principals,
officers, directors, employees, agents, attorneys, shareholders, investors,
insurers, reinsurers, auditors, accountants, underwriters, investment bankers,
advisers, corporate affiliates, associates (as defined in SEC Rule 12b-2
promulgated pursuant to the Exchange Act) present, former or future parents,
subsidiaries or affiliates and each of their assigns, representatives, heirs,
executors, administrators, and members of their immediate families.
6. The Parties and the Insurers recognize that, to the extent one of
the mechanisms set forth in PARA VII(G)(8) herein for inclusion in the Final
Judgment to protect fully the Released Parties against claims-over on whatsoever
theory or by whatsoever means (including cross-claims, third-party claims or
other actions for contribution or indemnification) is fully effective to fulfill
the Parties' and the Insurers' objective of protecting
45
<PAGE>
Released Parties from any liability with respect to any such claims-over,
cross-claims, third-party claims or other actions for contribution or
indemnification, it may not be necessary to also employ in addition one or more
of the other mechanisms set forth herein. If and to the extent (i) the Final
Judgment effectively precludes any claim-over against Released Parties, and/or
(ii) there shall be entered a final court order which is no longer subject to
review by any court (whether by appeal, writ of certiorari, motion for
reconsideration or otherwise) determining that judgment reduction pursuant to
PARA VII(G)(8)(c) constitutes a satisfaction in full of any judgment any Person
may obtain against any Released Party on any claim-over, such that the Released
Parties are fully protected from, and shall have no liability with respect to,
claims by any Person for contribution or indemnification, then Plaintiffs'
Counsel shall not be required to delay distribution of amounts payable under a
judgment otherwise potentially giving rise to such claim-over or to defend or
to select or pay the legal fees and expenses of counsel otherwise required to
defend against such a claim-over.
7. If a Bankruptcy Case is commenced in respect of any Defendant and
the court having jurisdiction over the Bankruptcy Case enters an order that has
become final and nonappealable determining the transfer of the Settlement Fund
or any portion thereof to the Settlement Account to be recoverable by MK as a
preference, voidable transfer, fraudulent transfer or similar transaction, then
Plaintiffs' Counsel may elect to have the releases given and judgment entered in
favor of MK pursuant to
46
<PAGE>
this Stipulation become 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; provided, however, that the claims of Plaintiffs and the Class against
MK shall be limited to the product of multiplying $300,000,000 by: (i) a
fraction, the numerator of which shall be the amounts (if any) of the Settlement
Fund 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 that the
resulting product shall be limited to, and never exceed, $300,000,000. The
releases given to the Insurers and the Individual Defendants and the Released
Parties other than MK shall not become null and void or otherwise be affected by
this paragraph or any such order or recovery. In the event that the proceedings
in the Bankruptcy Case result in any recovery of the proceeds of this settlement
by any Insurer and/or any Individual Defendant, the Insurer and/or Individual
Defendant receiving such funds agrees to repay such proceeds to a court
supervised escrow account and the releases given to the Released Parties other
than MK shall remain in full force and effect.
8. The Parties acknowledge that this Stipulation and the foregoing
releases expressly waive any and all rights that Plaintiffs or the Class Members
may have under any statute or common law principle which would limit the effect
of the releases to those claims actually known or suspected to exist at the time
of execution of this Stipulation, including the provisions of
47
<PAGE>
Section 1542 of the California Civil Code, to the extent deemed applicable
(notwithstanding that this Stipulation does not provide for the application of
California law), which provides as follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
K. ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL AWARDS AND
DISTRIBUTION OF SETTLEMENT FUND
1. Plaintiffs' Counsel, or the Claims Administrator acting on behalf
of the Class Members, and subject to the supervision, direction and approval of
the Court, shall administer and calculate the claims submitted by Class Members
and shall oversee distribution of that portion of the Net Settlement Fund that
is finally awarded by the Court to the Class Members.
2. Except as otherwise provided in PARA VII(L) below, on and after
the transfer of the Net Settlement Fund into the Settlement Account, the Net
Settlement Fund shall be treated or applied as follows:
(a) To the extent not paid from the Notice and Administration
Fund, all unpaid costs and expenses (excluding Attorneys' Fees and Expenses)
incurred in connection with providing notice to Class Members, locating Class
Members, soliciting Class Members' claims, assisting with the filing of claims,
administering and distributing the Settlement Fund to
48
<PAGE>
Class Members, processing proofs of claim, processing requests for exclusion,
and escrow fees and costs shall be paid from the Settlement Account.
(b) The Parties, the Insurers, the Bank and Plaintiffs' Counsel
agree to treat the Settlement Fund and Net Settlement Fund as being at all times
a "qualified settlement fund" within the meaning of Treas. Reg. Section 1.4680-1
and Section 4680 of the Internal Revenue Code. In addition, the Bank,
Plaintiffs' Counsel and, as required, the Parties and the Insurers shall jointly
and timely make such elections as necessary or advisable to carry out the
provisions of this paragraph, including the "relation-back election" (as defined
in Treas. Reg. Section 1.468(0-1(j) (2)) back to the earliest permitted date.
Such elections shall be made in compliance with the procedures and requirements
contained in such regulations. It shall be the responsibility of the Bank or
Plaintiffs' Counsel timely and properly to prepare and deliver the necessary
documentation for signature by all necessary parties, and thereafter to cause
the appropriate filing to occur.
(c) For the purpose of Section 4680 of the Internal Revenue Code
of 1986, as amended, and the regulations promulgated thereunder, the
"administrator" shall be the Bank or Plaintiffs' Counsel. The Bank or
Plaintiffs' Counsel shall timely and properly file all informational and other
tax returns necessary or advisable with respect to the Settlement Fund and Net
Settlement Fund (including without limitation the returns described in Treas.
Reg. Sections 1.468(B)-2(k) and 1.4680-2(1)).
49
<PAGE>
Such returns (as well as the election described in PARA K.2.(b)) shall be
consistent with this paragraph and in all events shall reflect that all taxes
(including any interest or penalties) on the income earned by the Settlement
Fund shall be paid out of the Settlement Fund as provided in PARA K.2.(d)
hereof.
(d) All (i) taxes (including any interest or penalties) arising
with respect to the income earned by the Settlement Fund or Net Settlement Fund,
including any taxes or tax detriments that may be imposed upon the Defendants or
the Insurers with respect to any income earned by the Settlement Fund for any
period during which the Settlement Fund does not qualify as a "qualified
settlement fund" for Federal or state income tax purposes ("Taxes") and (ii)
expenses and costs incurred in connection with the operation and implementation
of this paragraph (including, without limitation, expenses of a tax attorney or
consultant and mailing and distribution costs and expenses relating to filing)
(or failing to file) the returns described in this paragraph ("Tax Expenses"),
shall be paid out of the Net Settlement Fund (except to the extent theretofore
paid from the Settlement Fund); in all events, the Defendants and Insurers shall
have no liability or responsibility for the Taxes or the Tax Expenses.
Plaintiffs' Counsel, Plaintiffs, and the Class shall indemnify and hold
Defendants and the Insurers harmless for Taxes and Tax Expenses (including,
without limitation, taxes payable by reason of any such indemnification).
Further, Taxes and Tax Expenses shall be treated as, and considered to be, a
cost of administration of the Settlement and
50
<PAGE>
shall be timely paid by the Bank or Plaintiffs' Counsel out of the Net
Settlement Fund without prior order from the Court and the Bank or Plaintiffs'
Counsel shall be obligated (notwithstanding anything herein to the contrary) to
withhold from distribution to Class Members any funds necessary to pay such
amounts including the establishment of adequate reserves for any Taxes and Tax
Expenses (as well as any amounts that may be required to be withheld under
Treas. Reg. Section 1.468 (B) -2(1) (2)); the Defendants and the Insurers are
not responsible and shall have no liability therefor. Plaintiffs' Counsel are
permitted to retain the services of a tax attorney or consultant to the extent
reasonably necessary to carry out the provisions of this paragraph. The Parties
and the Insurers agree to cooperate with the Bank or Plaintiffs' Counsel, each
other, and their tax attorneys and accountants to the extent reasonably
necessary to carry out the provisions of this paragraph.
(e) For the purpose of this PARA VII(K)(2), references to the
Settlement Fund shall include both the Settlement Fund and the Notice and
Administration Fund and shall also include any earnings thereon.
3. Subject to the approval and further order(s) of the Court, the Net
Settlement Fund shall be available for allocation to Class Members who submit
valid, timely Proofs of Claim ("Authorized Claimants") as follows:
(a) Each person claiming to be an Authorized Claimant shall be
required to submit a separate Proof of Claim and Release that shall include a
general release of the Released
51
<PAGE>
Parties in substantially the form set forth in Exhibit A-3 signed under penalty
of perjury and supported by such documents as specified in the Proof of Claim
and Release;
(b) All Proof of Claim and Release forms must be postmarked or
received within the time prescribed in the Approval Order unless such period is
extended or a late claim is otherwise allowed by order of the Court. Unless
otherwise ordered by this Court, any Class Member who fails to submit a properly
completed Proof of Claim and Release within such period, or such other period as
may be ordered by the Court, shall be forever barred from receiving any payments
pursuant to this Stipulation or from the Net Settlement Fund, but will in all
other respects be subject to the provisions of this Stipulation and the Final
Judgment, including, without limitation, the release of the Settled Claims and
the dismissal of the Litigation;
(c) The amount paid to each Authorized Claimant shall be the
percentage that each Authorized Claimant's Recognized Loss bears to the total of
the Recognized Losses of all Authorized Claimants.
4. The Net Settlement Fund shall be allocated among Authorized
Claimants pursuant to the Plan of Distribution:
(a) The Net Settlement Fund shall be Distributed as follows (the
"Plan of Allocation"): Each Authorized Claimant shall be entitled to receive a
share of the Net Settlement Fund, computed by multiplying the Net Settlement
Fund by a fraction, the numerator of which is the Authorized Claimant's
Recognized Loss and the denominator of which is the total amount of the
52
<PAGE>
Recognized Loss of all Class Members, determined by adding together the
Recognized Losses of all Authorized Claimants.
(b) Definitions:
(1) An Authorized Claimant who purchased MK common stock
during the Class Period and still held those shares as of the close of business
on March 31, 1995, is regarded as having a "Holding Loss." A Holding Loss means
the difference between the price at which each share of MK common stock was
bought, and $8.40/share (the average closing price of MK stock on the four
trading days following March 31, 1995).
(2) An Authorized Claimant who purchased MK stock during
the Class Period and sold those shares prior to the close of business on March
31, 1995, is regarded as having a "Trading Loss." A Trading Loss means the
difference between the price at which the common stock was purchased and the
price at which it was sold.
(3) An Authorized Claimant's Recognized Loss shall be the
sum of all of that Claimant's Holding Losses and Trading Losses. Gains on
transactions including short sales, during the Class Period will be netted
against Recognized Losses.
(c) With respect to multiple transactions in MK common stock,
whether a position was held or open as of the end of the Class Period, for
purposes of calculating Recognized Loss is to be determined on a "first-in,
first-out" basis. Holding Loss and Trading Loss shall be calculated net of any
gains on transactions in MK common stock, and any profits realized on short
positions in MK stock (if the short position has not been
53
<PAGE>
covered as of the date of execution of this Stipulation, such profit, if any,
shall be deemed to be the difference between the price of sale and $8.40/share)
(the average closing price of stock on the four trading days following March 31,
1995);
(d) In determining Recognized Loss, brokers' commissions and all
other transaction costs shall be excluded from the calculation; and
(e) Payment in the manner set forth above shall be deemed
conclusive of compliance with this Stipulation against all Authorized Claimants.
All Class Members who fail to file valid and timely proofs of claim shall be
barred from participating in the distribution of the Net Settlement Fund (unless
otherwise ordered by the Court), but otherwise shall be bound by all of the
terms of this Stipulation, including the terms of any final orders or judgments
entered and the releases given.
(f) In the event shares of MK common stock are distributed to
Authorized Claimants, such shares shall be distributed in the same proportion as
the cash proceeds, except that no fractional shares will be distributed.
5. The Settlement Fund will be no-recapture, I.E., it is not a
claims-made settlement. Neither the Defendants nor the Insurers shall have any
responsibility for, or any obligations or liabilities of any kind whatsoever in
connection with, the Plan of Distribution or the determination, administration,
calculation or payment of claims to Class Members. The definition of Recognized
Loss may be considered by the Court separately from
54
<PAGE>
the Court's consideration of the fairness, reasonableness and adequacy of the
Settlement set forth in the Stipulation, and any order or proceedings relating
to the method of calculating the Recognized Loss, or any appeal from any order
relating thereto or reversal or modification thereof, shall not operate to
terminate or cancel the Stipulation, or affect or delay the finality of the
Final Judgment approving the Stipulation and the Settlement of the Litigation
set forth herein. The method of calculating the Recognized Loss was determined
by Plaintiffs' Counsel; neither the Defendants nor the Insurers take any
position with respect to the definition of Recognized Loss, the manner of
calculating it or its effect on or fairness to any Authorized Claimant other
than to deny that the price of MK's stock was artificially affected or inflated
by Defendants' conduct.
6. In connection herewith, neither the Defendants nor the Insurers
shall have any involvement in the solicitation of Proof of Claim and Release
forms or any involvement in the administration process itself, which will be
conducted by Plaintiffs' Counsel in accordance with this Stipulation and the
Final Judgment to be entered by the Court and subject to the supervision of the
Court.
7. Nothing in this Stipulation shall be construed to provide the
Defendants or the Insurers with standing to challenge or question any
application by Plaintiffs' Counsel for Attorneys' Fees and Expenses.
8. No Authorized Claimant shall have any claim against Plaintiffs'
Counsel or the Claims Administrator based on, or in
55
<PAGE>
any way relating to, distributions from the Net Settlement Fund that have been
made substantially in accordance with this Stipulation.
L. PLAINTIFFS' COUNSEL'S REQUEST FOR AN AWARD OF ATTORNEYS'
FEES AND EXPENSES
1. Plaintiffs' Counsel may submit an application for: (i) an award
of attorneys' fees of up to 30 percent of the Settlement Fund; (ii)
reimbursement of costs and expenses, including fees and expenses of experts,
incurred in connection with the prosecution of the Litigation, (iii) incentive
awards in the amount of $75,000, and (iv) interest on such attorneys' fees,
costs and expenses at the same rate and for the same period as earned by the
Settlement Fund. Plaintiffs' Counsel reserve the right to make additional
application for fees and expenses incurred.
2. To the extent awarded by the Court, Plaintiffs' Counsel's
Attorneys' Fees and Expenses shall be paid from the Settlement Account to
Plaintiffs' Counsel by wire transfer within three (3) business days after
receipt of (i) a written request from Plaintiffs' Counsel controlling such
account requesting payment of Attorneys' Fees and Expenses; and (ii) a copy of
an order from the Court awarding the sums requested. In the event that the
Order awarding Attorneys' Fees and Expenses is reversed or modified on appeal,
and in the event that said award has been paid to any extent, then Plaintiffs'
Counsel shall promptly refund that portion of the Attorneys' Fees and Expenses
distributed to themselves and any of their co-counsel, plus any interest
actually paid or that would have accrued from the date
56
<PAGE>
of payment to the date of repayment at the existing United States Treasury Bill
rate, consistent with the reversal or modification. All counsel receiving any
portion of such Attorneys' Fees and Expenses agree that they, their partners,
and/or shareholders remain subject to the jurisdiction of the Court with respect
to the enforcement of this provision.
3. It is agreed that the procedure for, and the allowance or
disallowance by the Court of any applications of Plaintiffs' Counsel for,
Attorneys' Fees and Expenses to be paid out of the Settlement Account are to be
considered by the Court separately from the Court's consideration of the
fairness, reasonableness and adequacy of the Settlement as set forth in the
Stipulation. Any order or proceedings relating to the Attorneys' Fees and
Expenses, or reversal or modification thereof, shall not operate to terminate or
cancel the Stipulation or to affect or delay the finality of the Final Judgment
entered in accordance with this Stipulation.
M. MISCELLANEOUS PROVISIONS
1. The Parties and Insurers shall cooperate in good faith, and use
their best efforts to obtain, as promptly as practicable, final approval of the
Settlement pursuant to Rule 23 and to implement the Settlement provided for
herein, including execution by the Parties hereto of such further documents as
are reasonably necessary to implement the provisions hereof and cooperation to
obtain appropriate Court orders. None of the Plaintiffs, Defendants, or
Insurers shall seek to evade their good faith obligations to seek approval and
implementation of
57
<PAGE>
this Settlement by virtue of any rulings, orders, governmental or other reports,
legislative action, the results of any proof of claim process or other
developments, whether in the Litigation, any other litigation, or otherwise,
that have occurred after June 5, 1995, or might hereafter occur, and might be
deemed to alter the relative strength of the Plaintiffs, Class Members,
Defendants or Insurers with respect to any claim or defense or their relative
bargaining power with respect to negotiating a settlement. The Parties and
Insurers deem this Settlement to be fair and reasonable and have arrived at this
Settlement in arm's-length negotiations taking into account all relevant
factors, present or potential.
2. The effectiveness of this Stipulation 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.
3. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
4. This Stipulation may be amended or modified only by a written
instrument signed by counsel for all parties to this Stipulation.
5. This Stipulation, the Supplemental Agreement, and any documents
and/or other agreements necessary to effectuate this Stipulation together
constitute the entire agreement among the Parties hereto, and no
representations, warranties or inducements have been made to any Party
concerning this
58
<PAGE>
Stipulation or its exhibits other than the representations, warranties and
covenants contained and memorialized in such documents. This Stipulation and
the Supplemental Agreement supersede and replace the Settlement Memoranda
pertaining to the Litigation. Except as otherwise provided herein, each Party
shall bear its own costs.
6. 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 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.
7. Plaintiffs' Counsel, on behalf of the Class, are expressly
authorized to take all appropriate action required or permitted to be taken by
the Class pursuant to this Stipulation to effectuate its terms and are also
expressly authorized to enter into any modifications or amendments to this
Stipulation on behalf of the Class.
8. Counsel for each Defendant and each Insurer is authorized to sign
this Stipulation on behalf of his or her respective client.
9. This Stipulation may be executed in one or more original,
photocopied or telecopied counterparts. All executed
59
<PAGE>
counterparts and each of them shall be deemed to be one and the same instrument.
Counsel for the parties to this Stipulation shall exchange among themselves
original signed counterparts, and a complete set of original executed
counterparts shall be filed with the Court.
10. This Stipulation shall be binding upon, and inure to the benefit
of, the successors, assigns and heirs of the parties to this Stipulation.
11. All terms of this Stipulation and the exhibits hereto shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and the United States.
12. Without affecting the finality of the Final Judgment entered in
accordance with this Stipulation, the Court shall retain jurisdiction with
respect to the implementation and enforcement of the Stipulation, and all
parties to the Stipulation or to any exhibit thereto submit to the jurisdiction
of the Court for purposes of implementing or enforcing the Settlement embodied
in this Stipulation.
60
<PAGE>
IN WITNESS WHEREOF, the parties to the Stipulation have caused this
Stipulation to be executed, by their duly authorized attorneys, as of the day
and year first above written.
/s/ Steve W. Berman /s/ John W. Edwards II
- -------------------------------- ------------------------------
Steve W. Berman, Esq. John W. Edwards II, Esq.
Hagens & Berman P.S. Jones, Day, Reavis & Pogue
1301 Fifth Avenue - Suite 2929 901 Lakeside Avenue
Seattle, Washington 98101 Cleveland, Ohio 44414
Attorneys for Defendant
Morrison Knudsen Corporation
/s/ David D. Aufhauser
-------------------------------
David D. Aufhauser, Esq.
Williams & Connolly
725 Twelfth Street, N.W.
Washington, D.C. 20005
Attorney for Defendant
William J. Agee
61
<PAGE>
/s/ Michael J. Freed /s/ Thomas J. Nolan
- -------------------------------- ------------------------------
Michael J. Freed, Esq. Thomas J. Nolan, Esq.
Much, Shelist, Freed, Denenberg Howrey & Simon
& Ament, P.C. 550 South Hope Street -
200 North LaSalle Street - Suite 1400
Suite 2100 Los Angeles, California 90071-
Chicago, Illinois 60601-1095 2604
Attorney for Defendant
Stephen G. Hanks
/s/ Jeffrey H. Squire /s/ P. Craig Storti
- -------------------------------- ------------------------------
Jeffrey H. Squire, Esq. P. Craig Storti, Esq.
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 Hoise, Idaho 83701
Lead Counsel for Plaintiffs Attorney for Defendant
and the Class James F. Cleary, Jr.
/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 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., N.W.
North Building
Washington, D.C. 20004-2688
Attorney for Continental
Casualty Company
62
<PAGE>
Exhibit B to
Stipulation of Settlement
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
- -------------------------------------
IN RE: MORRISON KNUDSEN SECURITIES : Civil Action
LITIGATION : No. CV 94-334-S-EJL
- -------------------------------------
- -----------------------------------------------------------------------------
FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
- -----------------------------------------------------------------------------
The Plaintiffs, the Defendants, and the Insurers, (as those terms are
defined in the Stipulation of Settlement dated as of September 11, 1995) (the
"Stipulation"), by and through their attorneys or their counsel of record,
having executed and filed the Stipulation; the Court having entered its Order
thereon dated September 27, 1995, directing that notice of the proposed
Settlement (1) of the Litigation be mailed to the Class and scheduling a
hearing to be held to determine, among other things whether: (1) the proposed
Settlement should be approved as fair, reasonable and adequate; and (2) the
application of Plaintiffs' Counsel for the payment of attorneys' fees and
expenses and incentive awards to Plaintiffs is reasonable and should be
approved; said notice having been given; a hearing having been held on
December 1, 1995 at which all interested persons were given an opportunity
to be heard; and the Court having read and considered all submissions in
connection with the proposed
- -----------------
(1) All capitalized terms have the meaning or definition set forth in the
Stipulation.
<PAGE>
Settlement, and having reviewed and considered the files and records herein, the
Court finds and concludes that:
This litigation began in July 1994. A total of seven class action
complaints have been filed in the District of Idaho:
GARBULINSKI, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-334
MEDELLO, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-364
STRAUSS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-373
DRASNIN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-066
GRUESEN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-070
AKERS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-071
WEISS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-108
All of the foregoing have been consolidated as IN RE MORRISON KNUDSEN SECURITIES
LITIGATION, No. 94-334-S-EJL.
The defendants in the action are Morrison Knudsen Corporation ("MK"),
William J. Agee, Stephen G. Hanks, James F. Cleary, Jr. (the "Individual
Defendants"), and Deloitte & Touche, L.L.P. ("D&T"). The claims against D&T are
not covered by the Stipulation or this Final Judgment.
On April 6, 1995, the plaintiffs filed their Consolidated and Second
Amended Class Action Complaint, which alleged claims for violations of Sections
10(b), 20(a) and 20A of the Securities Exchange Act of 1934, 15 U.S.C.
Section 78 (the "Exchange Act"), and Rule 10b-5 of the Securities and Exchange
Commission ("SEC"), the Idaho securities statutes, and common law.
2
<PAGE>
In the Approval Order dated September 27, 1995, the Court approved the
plaintiffs as representatives of the Class and conditionally certified, for
purposes of the Settlement, a Class comprised of:
All persons who purchased shares of common stock of Morrison
Knudsen Corporation ("MK") during the period from October
15, 1993 through March 31, 1995, inclusive (the "Class
Period") and who suffered harm thereby, excluding defendants
MK and Deloitte & Touche, L.L.P. and their respective
directors, executive officers, partners, corporate
affiliates, and subsidiaries; the Individual Defendants,
their heirs, successors and assigns and the members of their
immediate families.
This definition of the Class applies for purposes of the Litigation, the
Settlement and this Final Judgment and Order of Dismissal With Prejudice (the
"Final Judgment").
The Stipulation between and among the Plaintiffs and Defendants provides
for the Settlement of the Litigation on behalf of the Plaintiffs and all Class
Members with the Defendants subject to approval by this Court of its terms and
to the entry of this Final Judgment. The Court scheduled a hearing to consider
the approval of the Stipulation and directed that notice of the proposed
Settlement and hearing be mailed to all members of the Class.
In accordance with the Stipulation, and an Approval Order of the Court
entered on September 27, 1995, Settlement Counsel caused to be mailed to the
Class, a notice (the "Notice") dated October 11, 1995 and caused to be published
in the national edition of THE WALL STREET JOURNAL and THE IDAHO STATESMAN, a
summary notice (the "Summary Notice") of the proposed Settlement
3
<PAGE>
of the Litigation and of the opportunity to object to the Settlement.
Affidavits and/or declarations of mailing of the Notice and publication of the
Summary Notice were filed with the Court on November 22, 1995.
The Notice and Summary Notice provided to potential members of the Class
constitute the best and most practicable notice under the circumstances and
include individual notice to all members of the Class who could be identified by
reasonable effort. The affidavits or declarations of mailing filed with this
Court demonstrate compliance with this Court's orders with respect to the Notice
and Summary Notice and, further, that the best and most practicable notice under
the circumstances was in fact given and constituted valid, due, and sufficient
notice to members of the Class, complying fully with due process and Rule 23 of
the Federal Rules of Civil Procedure and any other applicable law.
Plaintiffs and the Defendants have applied to the Court for approval of the
terms of the Stipulation and for the entry of this Final Judgment. Pursuant to
the Notice and Summary Notice, and upon notice to all parties, a Hearing was
held before this Court on December 1, 1995, to consider, among other things,
whether the Settlement set forth in the Stipulation should be approved by this
Court as fair, reasonable, and adequate and whether the application of
Plaintiffs' Counsel for the payment of attorneys' fees and expenses and
incentive awards to Plaintiffs is reasonable and should be approved by this
Court.
4
<PAGE>
Approval of the Stipulation will result in substantial savings in time and
money to the Court and the litigants and will further the interests of justice.
The Stipulation is the product of good faith arm's length negotiations by
the Parties thereto, each of whom was represented by experienced counsel.
NOW THEREFORE, GOOD CAUSE APPEARING, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED THAT:
1. The Court has jurisdiction over the subject matter of this Litigation
and all Parties in this Litigation, including all Class Members.
2. The members of the Class who have filed timely and valid requests for
exclusion (and who are therefore not Class Members) are not bound by this Final
Judgment. A listing of those persons is attached hereto as Exhibit "A". All
Class Members who purchased MK common stock during the period from October 15,
1993 through and including March 31, 1995 are bound by this Final Judgment and
by the Settlement, including the releases provided for in this Final Judgment.
3. The Stipulation and Settlement are not an admission by the Defendants,
and this Final Judgment is not a finding of the validity of any claims in the
Litigation or of any wrongdoing by Defendants. Furthermore, neither the
Stipulation nor the Settlement is a concession by any Defendant, and neither
shall be used as an admission of any fault or omission by any person. Neither
this Final Judgment, the Stipulation nor any document referred to herein nor any
action taken to carry out this Stipulation, is, may be construed as, or may be
used as an
5
<PAGE>
admission by or against the Defendants of any fault, wrongdoing or liability
whatsoever. Entering into or carrying out the Stipulation, and the Exhibits
thereto, and any negotiations or proceedings related thereto shall not in any
event be construed as, or deemed to be evidence of, an admission or concession
with regard to the denials or defenses by any of the Defendants and shall not be
offered or received in evidence in any action or proceeding against any party
hereto in any court, administrative agency or other tribunal for any purpose
whatsoever, other than to enforce the provisions of this Final Judgment, the
Stipulation, or the provisions of this Final Judgment or any related agreement
or release; except that the Stipulation and the Exhibits may be filed in this
Litigation or related litigation as evidence of the Settlement or in any
subsequent action against or by the Defendants to support a defense of RES
JUDICATA, collateral estoppel, release, or other theory of issue preclusion or
similar defense.
4. The Stipulation and Settlement are fair, reasonable and adequate as to
the Class, and the Stipulation and Settlement are hereby finally approved in all
respects, and the Parties to the Stipulation are hereby directed to consummate
and perform its terms.
5. This Litigation is dismissed on the merits, with prejudice as to the
Defendants and without costs to any Party as against any other, and all Class
Members (except those identified in Exhibit "A" who have requested exclusion
from the Class) are forever barred from commencing or prosecuting, either
directly, derivatively, in a representative capacity, or in any other
6
<PAGE>
capacity, a class action or any other action against the Defendants and the
Released Parties (as defined in the Stipulation) with respect to, based on,
arising from, or for any and all Settled Claims, including Unknown Claims,
demands, rights, liabilities and causes of action of every nature and
description whatsoever, known or unknown, asserted or that might have been
asserted, including, but not limited to, claims for negligence, gross
negligence, breach of duty of care and/or breach of duty of loyalty, breach of
duty of candor, fraud, negligent misrepresentation, breach of fiduciary duty or
violations of any state or federal statutes, rules or regulations by any
Defendant or Released Party arising out of, relating to, or in connection with
purchases or sales of MK common stock during the Class Period and arising out of
or related to any of the acts, omissions, misrepresentations, facts, events,
matters, transactions or occurrences referred to, or that could have been
referred to, in any of the complaints or other pleadings filed in the Litigation
or otherwise alleged, asserted or contended in the Litigation based upon the
facts alleged in any of the complaints.
6. On the Effective Date, as defined in the Stipulation, each member of
the Class who has not timely and validly requested exclusion shall be deemed
conclusively to have released the Settled Claims, including Unknown Claims,
against the Defendants, the Insurers, and the Released Parties. Notwithstanding
that the Plaintiffs and/or Class Members may hereafter discover facts in
addition to, or different from, those that the Plaintiffs or Class Members now
know or believe to be true with respect to the Litigation and the Settled
Claims, including Unknown Claims, or
7
<PAGE>
to the subject matter of the Release, each such Plaintiff and Class Member shall
be deemed, upon the Effective Date, fully, finally and forever to settle and
release any and all Settled Claims, including Unknown Claims, against the
Defendants and the Released Parties, including all claims known or unknown,
suspected or unsuspected, contingent or non-contingent, that now exist, may
hereafter exist, or heretofore have existed, and without regard to the
subsequent discovery or existence of such different or additional facts. In
giving such releases, all Class Members and Plaintiffs are deemed to have waived
any and all rights that they may have under any statute or common law principle
which would limit the effect of the foregoing releases to those claims actually
known or suspected to exist at the time of execution of this Settlement
Stipulation, including the provisions of Section 1542 of the California Civil
Code, to the extent deemed applicable, which provides as follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
7. From and after the Effective Date, each Class Member individually,
completely, voluntarily, knowingly, unconditionally and forever releases,
remises, acquits and discharges plaintiffs and plaintiffs' Counsel from every
and all asserted or potential, separate, joint, individual claim, class claim,
or other claims, actions, rights, causes of action, demands, liabilities, losses
and damages of every kind and nature, anticipated or unanticipated, direct or
indirect, fixed or contingent, known or
8
<PAGE>
unknown, under federal, state or common law or any other law or regulation, or
at equity, against Plaintiffs and Plaintiffs' Counsel or any of them, that are
based upon, or arise out of, the institution, prosecution, assertion or
resolution of the Litigation or the Settled Claims, including Unknown Claims.
8. Defendants shall be deemed conclusively to have released the
Plaintiffs and Plaintiffs' Counsel from only those claims or potential claims
against Plaintiffs and Plaintiffs' Counsel that are based upon, or arise out of,
the institution, assertion, prosecution or resolution of this Litigation, or the
Settled Claims, including Unknown Claims, except that nothing herein releases
any claim arising out of a violation of the Stipulation or a violation by
Plaintiffs or Plaintiffs' Counsel of the Confidentiality Orders in place in the
Litigation.
9. Each member of the Class who did not timely and validly request
exclusion is barred and permanently enjoined from commencing and prosecuting,
either directly, derivatively, in a representative capacity, or in any other
capacity, against the Defendants and the Released Parties, any and all of the
Settled Claims, including Unknown Claims.
10. Each Plaintiff and Class Member, is hereby barred and permanently
enjoined, either directly, representatively, or in any other capacity, from (i)
instituting or prosecuting any action to the extent such action asserts any of
the claims included in the definition of Settled Claims, including Unknown
Claims, and (ii) collecting upon any judgment in connection with, arising out
of, or that is in any way related to any Settled Claims, including Unknown
Claims, unless appropriate provision
9
<PAGE>
satisfactory to the Court is made to assure that the amounts to be collected
will be available if necessary to meet the obligations that may exist under the
provisions for indemnification set forth below as a consequence of such
judgment; and (iii) entering into any other settlement in connection with,
arising out of, or that is in any way related to, the Settled Claims, including
Unknown Claims, unless such settlement provides for releases of claims or
claims-over of the settling party against the Defendants as provided below,
subject to the receipt by the settling party of releases of claims-over from the
Defendants co-extensive with those received by Defendants;
11. (a) All persons or entities, including without limitation D&T, are
hereby barred and permanently enjoined, either directly, representatively, or in
any other capacity, from instituting or prosecuting or continuing to prosecute,
any action, claim or claim-over against any Released Party on whatsoever theory
(whether by way of third-or subsequent-party complaint, cross-claim, separate
action or otherwise, and whether under federal or state law) to recover in whole
or in part any liability, direct or indirect, of such person or entity to any
Member of the Class in connection with, arising out of, or that is in any way
related to, the Settled Claims;
(b) Any and all claims and claims-over asserted or deemed asserted by
any persons or entities, including without limitation D&T, against any Released
Party or whatsoever thereof (whether by way of third- or subsequent-party
complaint, cross-claim, separate action or otherwise, and whether under federal
or
10
<PAGE>
state law) to recover in whole or in part any liability, direct or indirect, of
such person or entity to any Member of the Class in connection with, arising out
of, or that is in any way related to, the Settled Claims, including Unknown
Claims, are hereby dismissed with prejudice and without costs to any Party.
(c) Any judgment by Plaintiffs or other members of the Class as
against any persons or entities, including without limitation D&T, on a claim
with respect to which such person or entity would have (but for the contribution
bar ordered in PARA 9(a) above) a legally valid and enforceable right to
contribution from a Released Party, and that is in connection with, arising out
of, or that is in any way related to, the Settled Claims, including Unknown
Claims, shall be reduced by such percentage as reflects a determination of the
relative fault or culpability, if any, of the Released Parties, as compared to
the relative fault or culpability of such other persons or entities.
(d) If necessary in order further to effectuate the intention of the
Parties that the Released Parties shall have no liability to any person or
entity (including without limitation D&T) for contribution or indemnification
with respect to any claim by plaintiff or any Class Member against any person or
entity with respect to the Settled Claims, including Unknown Claims, the Class
and each Member of the Class (i) shall reduce or credit against any judgment or
settlement (s)he, it or they may obtain against any person or entity the full
amount of any judgment or settlement such person or entity may obtain against
any Released Party on any claims-over on whatsoever theory (whether by way of
third- or subsequent-party complaint, cross-
11
<PAGE>
claim, separate action or otherwise) in connection with, arising out of, or that
is in any way related to, the Settled Claims, including Unknown Claims,
including, but not limited to, claims-over that have been, could have been, or
could be, alleged in this litigation or in any other action; and (ii) shall
obtain from such person or entity for the benefit of the Released Parties a
satisfaction in full of such person's or entity's judgment or settlement against
the Released Parties.
(e) The Court expressly approves the agreement by Plaintiffs and all
other Members of the Class (the "Indemnifying Parties"), for good and valuable
consideration, receipt of which is acknowledged, to indemnify the Released
Parties and to hold them harmless from and against any and all liability
(including amounts paid in settlement, subject to all the other provisions of
this Settlement Stipulation) with respect to:
(i) any claim by any Member of the Class which is a Settled
Claim, including Unknown Claims; and
(ii) claims-over on whatsoever theory (whether by way of third-
or subsequent-party complaint, cross-claim, separate action or otherwise) by any
person or entity to recover in whole or in part any liability, direct or
indirect, whether by way of judgment, settlement or otherwise, of such person or
entity to any Member of the Class in connection with, arising out of, or that is
in any way related to, the Settled Claims, including without limitation claims-
over that have been, could have been or could be alleged in this litigation or
in any other action.
12
<PAGE>
(f) The Court hereby expressly approves the further agreement of the
Parties that, in the event that any Members of the Class obtain any recovery by
judgment, settlement, or otherwise against any person or entity (other than the
Net Settlement Amount) that is related in any way to the Settled claims,
appropriate provision (including delaying distribution of amounts payable under
a judgment and, in the case of settlement, obtaining releases to protect the
Released Parties from any liability to such persons or entities on claims-over)
shall be made to assure the effectuation of the indemnity provided for herein.
Any such recovery against any person or entity who has not released any claims
or claims-over against the Released Parties shall be held in escrow pursuant to
order of this Court until any claims or claims-over against the Released Parties
are finally determined, subject to the other limitations and provisions of this
Settlement Stipulation.
(g) It is further ordered that the foregoing provisions of PARAS 8
and 9 with respect to reduction of judgment and effectuation of indemnification
are not intended to be exclusive, and nothing in PARA 9(f) shall be deemed to
modify, lessen or impair the indemnity obligations of the Class or Class Members
as set forth in PARA 9(e) hereof in any situation to which the provisions
contained in PARA 9(f) may not be applicable or may fail to provide fully for
the indemnity protection provided in PARA 9(e); provided, however, that, to the
extent that cash payments are required to provide the Released Parties with the
agreed-upon indemnity, (x) with respect to a claim for indemnification from and
against liability with respect to the claim of any Member of
13
<PAGE>
the Class that is a Settled Claim (as defined herein), only funds received by,
or on behalf of, the Class or Class Members by virtue of any claim in this
action or otherwise related to Settled Claims, other than the Net Settlement
Amount, or the Settlement Fund, may be used to satisfy the indemnification
obligations hereunder; provided, however, that, if a Class Member persists in
prosecuting its claim despite being notified that it is barred by this
Settlement (and fails to establish by Court order that it is not so barred),
such indemnification obligations may be payable out of any funds distributed or
to be distributed to such Member of the Class from the Settlement Sum or
Settlement Fund or out of any other funds of such Class Member; and (y) with
respect to a claim for indemnification from and against liability with respect
to claims-over as provided in PARA 11(e)(ii), such indemnification obligations
shall be payable out of the additional recovery by judgment or settlement and
shall not under any circumstances be payable out of the Settlement Sum or the
Settlement Fund.
(h) The Court expressly approves the Parties' agreement that, if,
after the Effective Date, a claim-over is or has been asserted against any
Released Party as to which such Released Party is entitled to protection under
PARAS 10 and 11(a)-(g), Plaintiffs' Counsel shall at their expense, to the
best of their ability and so long as permitted by the forum court, take control
and direct the litigation strategy of the defense of such claim-over only. If
separate counsel is required as to any such claim-over, Plaintiffs' Counsel
shall select competent counsel approved by the Released Party, which approval
shall not be
14
<PAGE>
unreasonably withheld. Any legal fees and expenses incurred by such counsel
shall be paid out of the Settlement Fund (or any additional monies recovered by
the Class) in the same manner as provided for herein as to the fees and expenses
of Plaintiffs' Counsel. The Released Parties shall cooperate fully in the
defense of such claim-over, and shall have the right (but shall not be
obligated) to retain co-counsel to participate in such defense at their expense.
As between the Class Members and the Defendants, the Class (or Members of the
Class individually to the extent the last sentence of this paragraph is
applicable) shall have sole authority to determine the timing and terms of any
settlement of such claim-over; provided, however, that no such settlement of any
claim-over shall require any financial contribution on the Released Party. If a
claim-over is asserted against any Released Party by any person or entity to
recover any liability of such person or entity with respect to a claim brought
by Members of the Class who are not prosecuting such claim on a common class
basis, the obligations set forth herein for defense of such claim-over shall be
the responsibility only of those Members of the Class who are prosecuting the
claim giving rise to such claim-over.
12. It is further ordered that any claims or claims-over that have been,
or may in the future be, asserted in this or any other action against any
Released Party shall (if allowed) be served and stayed for separate trial after
the trial of Plaintiffs' and the Class' claims against such nonsettling
defendant.
15
<PAGE>
13. The Court finds and determines that, by reason of the Parties'
Settlement, there is no just reason for delay in finds expressly that this Final
Judgment is a final judgment upon fewer than all the claims or parties pursuant
to Fed. R. Civ. Pro. 54(b);
14. Members of the Class who have validly and timely requested exclusion
may pursue their own individual remedies, if any.
15. The law firms representing Plaintiffs and the Class are hereby
awarded, from the Settlement Fund, attorneys' fees in the amount of
$ 15.99 million, representing 25.32% of the Settlement Fund, and accrued
interest, and the reimbursement of their expenses in the amount of $463,191.94.
Both amounts shall be paid at the time indicated in the Stipulation.
Plaintiffs' Co-Lead Counsel are ordered to distribute the fees in their
discretion to all Plaintiffs' Counsel in accordance with each firm's respective
contribution to the results obtained for the Class. In the event the Settlement
is cancelled or terminated, Plaintiffs' Counsel shall, within ten days of notice
of termination or cancellation, refund any and all Attorneys' Fees and Expenses
distributed to them from the Settlement Fund, together with accrued interest, in
accordance with the Stipulation. Each of Plaintiff's attorneys who receive fees
from the Settlement Fund, their partners, and/or shareholders remain subject to
the jurisdiction of this Court for purposes of enforcing the provisions of this
paragraph.
16. The Plaintiffs are awarded, from the Settlement Fund, an incentive
payment in the aggregate amount of $75,000 to be
16
<PAGE>
paid to each named Plaintiff as determined by Plaintiffs' Counsel, on the
Effective Date, as defined in the Stipulation. Such amount shall be paid in
addition to each Plaintiff's pro rata share of the Net Settlement Fund.
17. The Court reserves jurisdiction, without affecting the finality of
this Final Judgment, over: (a) implementation of this Settlement and any award
or distribution of the Settlement Fund, including interest earned thereon; (b)
disposition of the Net Settlement Fund; (c) enforcing and administering the
Stipulation including any releases executed in connection therewith; and (d)
other matters related or ancillary to the foregoing.
IT IS SO ORDERED.
/s/ Edward J. Lodge
------------------------------
United States District Judge
December 1st 1995.
- ------------------
Boise, Idaho
17
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
- ------------------------------------
IN RE: MORRISON KNUDSEN : Civil Action
SECURITIES LITIGATION : No. 94-334-S-EJL
- ------------------------------------
- -----------------------------------------------------------------------------
STIPULATION OF SETTLEMENT
- -----------------------------------------------------------------------------
This Stipulation of Settlement (the "Stipulation"), dated as of October 1,
1995, is made and entered into by and between the Plaintiffs, as defined
below, and Deloitte & Touche LLP ("D&T") in the actions captioned above, by
and through their attorneys or their counsel of record in the actions described
in Section I herein.
I.
THE LITIGATION
This Litigation began in July 1994. A total of seven purported class
action complaints have been filed in the District of Idaho:
GARBULINSKI, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-334
<PAGE>
MEDELLO, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-364
STRAUSS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-373
DRASNIN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-066
GRUESEN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-070
AKERS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-071
WEISS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-108.
All of the foregoing have been consolidated as IN RE MORRISON KNUDSEN SECURITIES
LITIGATION, No. 94-334 (the "Litigation").
The defendants in the Litigation are Morrison Knudsen Corporation ("MK"),
William J. Agee, Stephen G. Hanks, James F. Cleary, Jr. (the "Individual
Defendants"), and D&T. MK and the Individual Defendants collectively are termed
the "Defendants." Only the claims against D&T are covered by this Stipulation.
On April 6, 1995, the Plaintiffs filed their Consolidated and Second
Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated
Complaint alleged claims for violations of Sections 10(b), 20(a) and 20A of the
Securities Exchange Act of 1934, 15 U.S.C. Section 578 (the "Exchange Act"), and
Rule 10b-5 promulgated under Section 10(b) by the Securities and
2
<PAGE>
Exchange Commission ("SEC"), and claims under the Idaho securities statutes and
common law.
For purposes of this Stipulation, the Parties have agreed, pursuant to Rule
23 of the Federal Rules of Civil Procedure, that the Court may certify a
settlement class (the "Class") comprised of:
All persons who purchased shares of the common stock of
Morrison Knudsen Corporation during the period of October
15, 1993 through March 31, 1995, inclusive (the "Class
Period"), and who suffered harm thereby, excluding
defendants MK and D&T and their respective directors,
executive officers, partners, corporate affiliates, and
subsidiaries; the Individual Defendants, their heirs,
successors, and assigns and the members of their immediate
families.
The Parties' agreement to certification of the foregoing Class has been made
without prejudice to their respective rights to urge or oppose this or a
different plaintiff class if the Settlement embodied by this Stipulation is not
approved or is not consummated.
II.
PRETRIAL PROCEEDINGS AND
DISCOVERY IN THE LITIGATION
Counsel for Plaintiffs and the Class represent that they have conducted
extensive discovery during the prosecution of the Litigation. The discovery has
included: (i) the review and
3
<PAGE>
analysis of hundreds of thousands of documents produced by the Defendants;
(ii) the review and analysis of voluminous discovery from D&T, including
thousands of workpapers related to its audit services for MK; (iii) the review
and analysis of discovery obtained from stock analysts who follow MK; (iv) the
review and analysis of discovery obtained from third parties, such as financial
analysts and various governmental agencies that had contracted with MK; (v) the
review and analysis of MK's financial statements and results for fiscal 1992,
1993 and 1994; (vi) interviewing numerous witnesses, including current and
former employees of MK and current and former employees of the transit
authorities with whom MK had contracted to build transit cars; (vii) the review
and analysis of public documents, including all relevant filings made by MK with
the SEC; (viii) extensive consultation with damages and accounting experts; and
(ix) a thorough analysis and evaluation of the facts supporting Plaintiffs'
claims. Counsel for Plaintiffs and the Class also have researched thoroughly
the applicable law with respect to the claims of the Plaintiffs against D&T and
the potential defenses thereto.
4
<PAGE>
III.
CLAIMS OF PLAINTIFFS
In the Litigation, brought as purported class actions against MK, the
Individual Defendants, and D&T, Plaintiffs assert claims for violation of
certain federal and state securities laws and certain common law claims. They
seek damages based upon allegations, among other things, that the Defendants and
D&T issued false and misleading public statements relating to MK's business
position and future prospects and that certain of MK's financial statements were
materially inaccurate and/or failed to reflect all required information. The
Plaintiffs also allege that material misstatements were made in connection with
the initial public offering of MK Rail Corporation's ("MK Rail") common stock
and thereafter.
Plaintiffs believe that the Litigation has substantial merit. Entering
into, or carrying out, this Stipulation (or the Exhibits hereto) and any
negotiations or proceedings related thereto shall not in any event be construed
as, or be deemed to be, evidence of an admission or a concession by the
Plaintiffs with regard to the merits of their claims and shall not be offered or
received in evidence in any action or proceeding in any court, administrative
agency or other tribunal for any purpose whatsoever other than to enforce the
provisions of this
5
<PAGE>
Stipulation and the Exhibits hereto; except that this Stipulation and the
Exhibits hereto may be filed in this Litigation or related litigation as
evidence of the Settlement, or in any subsequent action against or by D&T
or the other Released Parties to support a defense of RES JUDICATA,
collateral estoppel, release, or other theory of claim or issue preclusion or
similar defense.
IV.
BENEFITS OF SETTLEMENT
TO PLAINTIFFS AND THE CLASS
Counsel for Plaintiffs and the Class recognize and acknowledge the expense
and length of continued proceedings necessary to prosecute the Litigation
against the D&T through trial and through appeals. Counsel for Plaintiffs and
the Class also have taken into account the uncertain outcome and the risk of any
litigation, especially in complex actions such as the Litigation, as well as the
difficulties and delays inherent in such litigation. Counsel for Plaintiffs and
the Class have taken into account the strengths and uncertainties of the claims
asserted in the Litigation, the possible defenses to the claims asserted and the
substantial benefits of a cash settlement of $8.8 million, (the "Settlement
Amount") for the Class as set forth in this Stipulation. Counsel for the
Plaintiffs and the Class
6
<PAGE>
have therefore determined that the Settlement set forth in this Stipulation is
in the best interests of the Plaintiffs and the Class.
V.
D&T'S DENIALS OF WRONGDOING AND LIABILITY
D&T has denied and continues to deny each and all of the claims and
contentions alleged by Plaintiffs in the Litigation. It has asserted and
continues to assert many defenses thereto and has expressly denied and continues
to deny any wrongdoing or legal liability arising out of the conduct alleged in
the Litigation. D&T has also denied that Plaintiffs or members of the Class
have suffered damage or that the price of MK's common stock was artificially
inflated by reason of misrepresentations, non-disclosures or any conduet of
D&T. Neither this Stipulation, nor any document referred to herein, nor any
action taken to carry out this Stipulation is, may be construed as, or may be
used as, an admission by, or against D&T of any fault, wrongdoing or liability
whatsoever. Entering into or carrying out this Stipulation (or the Exhibits
hereto) and any negotiations or proceedings related thereto shall not in any
event be construed as, or be deemed to be evidence of, an admission or
concession with regard to D&T's denials or defenses and shall not be offered or
received in evidence in any action or proceeding in
7
<PAGE>
any court, administrative agency or other tribunal for any purpose whatsoever
other than to enforce the provisions of this Stipulation (and the Exhibits
hereto) or the provisions of any related agreement or release; except that this
Stipulation and the Exhibits hereto may be filed in this Litigation or related
litigation as evidence of this Settlement, or in any subsequent action against
or by D&T or the other Released Parties to support a defense of RES JUDICATA,
collateral estoppel, release, or other theory of claim or issue preclusion or
similar defense.
VI.
BENEFITS OF SETTLEMENT TO D&T
D&T has concluded that it is desirable that the Litigation be settled in
the manner and upon the terms and conditions set forth herein in order to avoid
the expense, inconvenience and distraction of further legal proceedings and to
put to rest the Settled Claims, including Unknown Claims (as defined below),
asserted by the Plaintiffs and on behalf of the Class. In determining to enter
into, and/or to perform, the Stipulation, D&T also has considered a number of
issues, including the uncertain outcome and the risk of any litigation,
especially in complex actions such as the Litigation, as well as the
difficulties and delays inherent in such litigation and the
8
<PAGE>
strengths and uncertainties of the claims and defenses asserted in the
Litigation.
VII.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Plaintiffs (on behalf of themselves and the Class) and D&T, by and through their
respective counsel of record, that, subject to the approval of the Court, the
Litigation and all claims that have been or could have been asserted therein
shall be finally and fully compromised and settled and the Litigation shall be
dismissed on the merits and with prejudice upon, and subject to, the terms and
conditions of the Stipulation as follows:
A. DEFINITIONS
As used in this Stipulation, the following terms shall have the defined
meanings set forth below:
1. "Attorneys' Fees and Expenses" means the portion of the Settlement
Fund approved by the Court for payment to Plaintiffs' Counsel, including
attorneys' fees, costs, litigation expenses, including fees and expenses of
experts, as well as any interest earned on such attorneys' fees, costs and
expenses from the date of deposit of the Settlement Amount into the Settlement
9
<PAGE>
Account (or the Escrow Account as provided in PARA VII(B)) until disbursement to
Plaintiffs' Counsel; as used herein, the term also
includes any incentive payments awarded to the Plaintiffs.
2. "Authorized Claimant" means a member of the Class whose claim has
been allowed as provided by the terms of this Stipulation and the Final Judgment
and Order of Dismissal with Prejudice of the Court approving the Settlement of
the Litigation (as hereinafter defined).
3. "Bank" means the financial institution chosen by Plaintiffs'
Counsel and authorized to hold the funds deposited into the Settlement Account
subject to the terms and conditions of this Stipulation.
4. "Claims Administrator" means the firm retained by Plaintiffs'
Counsel to process proofs of claim and to process payment of the claims of
Authorized Claimants.
5. "Class Member(s)" means all members of the Class, as defined in
Section I above, including all named Plaintiffs, except persons who file valid
and timely requests for exclusion pursuant to the Notice of Class Action and
Hearing on Proposed Settlement.
6. "Class Period" means the period from October 15, 1993 through
March 31, 1995, inclusive.
10
<PAGE>
7. "Court" means the United States District Court for the District of
Idaho.
8. "Defendants" means each and all of the following persons and
entities: MK, William J. Agee, Stephen G. Hanks, and James F. Cleary, Jr.
9. "D&T" means Deloitte & Touche, LLP
10. "Effective Date" means the date on which the Court's Final
Judgment and Order of Dismissal With Prejudice, substantially in the form of
Exhibit "B" hereto, (the "Final Judgment") becomes final, which shall be deemed
to occur upon the last to occur of the following: (a) if no appeal or review of
the Final Judgment is sought, the thirty-first (31st) day after entry of the
Final Judgment (or, if the date for taking an appeal shall be extended, the day
after expiration of the extension); or (b) if an appeal or review of the Final
Judgment is sought, the day after such Final Judgment is affirmed or the appeal
or review is dismissed or denied and such Final Judgment is no longer subject to
further judicial review.
11. "Insurer" or "Insurers" means Great American Insurance Company,
Reliance Insurance Company and Continental Casualty Company, and any of their
predecessors, successors, assigns, and present, former and future reinsurers,
parents, subsidiaries, and affiliates.
11
<PAGE>
12. "MK" means Morrison Knudsen Corporation.
13. "MK Rail" means MK Rail Corporation.
14. "MK Rail Actions" means the consolidated class actions pending
against MK, MK Rail, the Individual Defendants, and others in the United States
District Court for the District of Idaho captioned NEWMAN V. MK RAIL CORP., ET
AL., Case No. 94-478; and SUSSER V. MK RAIL, ET AL., Case No. 94-477.
15. "Net Settlement Fund" means the Settlement Fund, less: (i) taxes
that have or may become due, if any, with respect to the Settlement Fund, (ii)
any other related fees and expenses as may be authorized by the Court, and (iii)
any fees and expenses charged by the Bank where the Settlement Account is
maintained by Plaintiffs' Counsel.
16. "Notice and Administration Account" means the account established
by Plaintiffs' Counsel to hold the Notice and Administration Fund.
17. "Notice and Administration Expenses" means all reasonable costs
and expenses incurred in connection with the preparation, printing, mailing,
publication of the notice to the Class of the proposed Settlement, other costs
to identify and notify Class Members, and all reasonable costs and expenses
incurred in connection with settlement administration.
12
<PAGE>
18. "Notice and Administration Fund" means the principal amount of
One Hundred Thousand Dollars ($100,000) in cash, delivered by Great American to
Plaintiffs' Counsel, plus interest earned thereon after deposit into the Notice
and Administration Account, which will be used to defray the Notice and
Administration Expenses.
19. "Parties" means the Plaintiffs, the Class Members and D&T.
20. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated organization, and any other type of legal entity, and
their heirs, predecessors, successors, representatives, and assigns.
21. "Plaintiffs" means the named plaintiffs in each of the
consolidated actions, individually, and as representatives of the Class Members.
22. "Plaintiffs' Counsel," "Counsel for Plaintiffs" and/or "Counsel
for the Class" includes Steve W. Berman, Esq., Hagens & Berman P.S., 1301 Fifth
Avenue, Suite 2929, Seattle, Washington 98101; Jeffrey H. Squire, Esq., Kaufman,
Malchman, Kirby & Squire L.L.P., 919 Third Avenue - 11th Floor, New York, New
York 10022; and Michael J. Freed, Esq., Much, Shelist, Freed,
13
<PAGE>
Denenberg & Ament P.C., 200 North LaSalle Street - Suite 2100, Chicago, Illinois
60601-1095.
23. "Released Parties" or "Released Party" means D&T Deloitte &
Touche and all of their respective predecessors, successors and present, former
and future partners, principals, officers, directors, employees, agents,
attorneys, stockholders, investors, insurers, reinsurers, underwriters,
investment bankers, advisors, affiliates, divisions, associates (as defined in
SEC Rule 12b-2 promulgated pursuant to the Exchange Act), present, former or
future parents, subsidiaries, or affiliates, and each of their assigns,
representatives, heirs, executors and administrators.
24. "Settled Claims" means, collectively, all claims, including
"Unknown Claims," demands, rights, liabilities and causes of action of every
nature and description whatsoever, in law or equity, known or unknown, asserted
or that might have been asserted, including, without limitation, claims for
negligence, gross negligence, breach of duty of care and/or breach of duty of
loyalty and/or breach of duty of candor, fraud, negligent misrepresentation,
breach of fiduciary duty, or violations of any state or federal statutes, rules
or regulations, either directly, in a representative capacity or in any other
capacity, by any Class Member against D&T or the other Released Parties arising
14
<PAGE>
out of, relating to, or in connection with, any and all services provided by D&T
to MK during the Class Period or purchases or sales of MK common stock during
the Class Period and arising out of, or related to, any of the acts, omissions,
misrepresentations, facts, events, matters, transactions or occurrences which
were, or which could have been, referred to in any of the complaints or other
pleadings filed in the Litigation or otherwise alleged, asserted or contended in
the Litigation based upon the facts alleged in the complaints filed in the
Litigation.
25. "Settlement" means the full and final compromise, settlement and
dismissal of the Litigation and all claims that have been or could have been
asserted therein, on and subject to the terms and conditions of this
Stipulation.
26. "Settlement Account" means any account(s) maintained by any
financial institution into which the Settlement Amount is deposited as directed
by Plaintiffs' Counsel as provided herein.
27. "Settlement Fund" means, collectively, the Settlement Amount
minus distributions from the Settlement Amount as hereinafter provided, plus
interest earned on the Settlement Amount from the date of deposit in the
Settlement Account (or the Escrow Account as provided for in PARA VII(B)).
15
<PAGE>
28. "Settlement Memorandum" means the Parties' Memorandum of
Understanding regarding settlement of the Litigation.
29. "Unknown Claims" means Settled Claims which the Class Members do
not know or suspect to exist in their favor at the time of the release of the
Released Parties which, if known by them, might have affected their settlement
with D&T and release of the Released Parties or other action including, but not
limited to, the decision not to object to the Settlement. Plaintiffs expressly
waive on behalf of themselves and the Class Members any and all rights that they
may have under any statute or common law principle that would limit the effect
of the foregoing releases to those claims actually known or suspected to exist
at the time of execution of this Stipulation, including the provisions of
Section 1542 of the California Civil Code, to the extent deemed applicable
(notwithstanding that this Stipulation does not provide for the application of
California law), which provides as follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
16
<PAGE>
B. ESTABLISHMENT OF THE SETTLEMENT ACCOUNT
The Settlement Amount will be transferred to the Settlement Account
within three (3) business days of Effective Date upon written instructions from
Plaintiffs' Counsel identifying the Bank and the Settlement Account; provided,
however, that if a final judgment has not then been entered approving the
settlement of any claims that might have been asserted against D&T in the MK
Rail Actions, which settlement is evidenced by a Settlement Memorandum dated
September 7, 1995 (the "MK Rail Settlement"), and the time for any appeal from
that judgment has not expired or the judgment has not been affirmed on appeal,
then the Settlement Amount shall be transferred into an escrow account jointly
controlled by D&T and Plaintiffs' Counsel (the "Escrow Account") pending such a
final judgment approving the MK Rail Settlement and the expiration of the time
for any appeal from such judgment or the dismissal of any appeal from such
judgment. Upon the entry of a final judgment approving the MK Rail Settlement
and the expiration of the time for any appeal from that judgment or the
dismissal of any appeal from that judgment, then any funds in the Escrow
Account, together with any interest thereon, shall be transferred to the
Settlement Account, upon written instruction from Plaintiffs' Counsel.
C. THE PRELIMINARY APPROVAL ORDER
17
<PAGE>
Promptly after execution of this Stipulation, Plaintiffs, through
Plaintiffs' Counsel, shall by stipulation or motion, apply to the Court for an
order (the "Preliminary Approval Order"), substantially in the form of Exhibit
"A" hereto, preliminarily approving the Settlement, conditionally certifying the
Class, preliminarily approving the Plaintiffs as representatives of the Class,
and providing for notice to the Class of a hearing regarding final approval of
the Settlement (the "Hearing"). The Preliminary Approval Order shall
specifically include provisions that, among other things:
1. Preliminarily approve the Settlement set forth in the Stipulation
as fair, reasonable and adequate;
2. Conditionally certify the Class and preliminarily approve the
Plaintiffs as representatives of the Class;
3. Approve forms of mailed notice (the "Notice") and published notice
(the "Summary Notice") (substantially in the form of Exhibits "A-1" and "A-2"
hereto) and a proof of claim and release (the "Proof of Claim and Release")
(substantially in the form of Exhibit "A-3" hereto) for mailing and publishing
to the Class to notify them of the Hearing on (1) whether the proposed
Settlement should be approved as fair, reasonable and adequate; (2) whether the
Class should be certified and the Plaintiffs approved as representatives of the
Class; (3) whether an order
18
<PAGE>
approving the Settlement and a Final Judgment should be entered thereon
dismissing this Litigation on the merits and with prejudice; (4) whether the
proposed Plan of Allocation, as defined in PARA VII(I)(4) below, is fair and
reasonable; (5) whether the application of Plaintiffs' Counsel for an award of
Attorneys' Fees and Expenses is reasonable and should be approved; and (6)
whether the Plan of Distribution, as defined and set forth in the Notice of
Class Action and Hearing on Proposed Partial Settlement attached hereto, should
be approved.
4. Direct Plaintiffs' Counsel to mail or cause to be mailed the
Notice and Proof of Claim and Release to those members of the Class who can be
identified through reasonable effort. Nominees who purchased MK common stock
during the Class Period also will be requested to send the Notice and Proof of
Claim and Release to all beneficial owners within ten (10) days after receipt of
the Notice or, if they have not already done so, to send a list of the names and
addresses of the beneficial owners to the Claims Administrator within ten (10)
days of receipt of the Notice;
5. Direct Plaintiffs' Counsel to cause the Summary Notice to be
published once in the national edition of THE WALL STREET JOURNAL and once in
THE IDAHO STATESMAN;
19
<PAGE>
6. Direct Plaintiffs' Counsel to serve on D&T's counsel and file with
the Court proof, by affidavits or declarations, of the mailing of the Notice and
publication of the Summary Notice provided for in PARAS VII(C)(4) and (5)
hereof;
7. Find that the mailing and publication pursuant to PARAS VII(C)(4)
and (5) constitute the best and most practicable notice to members of the Class
under the circumstances, including individual notice to all such members of the
Class who can be identified through reasonable effort, and is due and sufficient
notice of the hearing, proposed Settlement, application for an award of
Attorneys' Fees and Expenses, the Plan of Distribution, and other matters set
forth in the Notice to all members of the Class and that the Notice fully
satisfies the requirements of due process, the Federal Rules of Civil Procedure,
and any other applicable law;
8. Provide that Plaintiffs' Counsel are authorized to retain a firm
of their choice to supervise and administer the notice procedure as well as the
processing of the claims;
9. Provide that only the Class Members who complete and submit a
valid and timely Proof of Claim and Release in accordance with the instructions
contained therein shall be entitled to receive any distribution from the
Settlement Fund;
20
<PAGE>
10. Provide that, pending final determination of whether the
Settlement should be approved, neither the Plaintiffs nor any Class Member
either directly, derivatively, in a representative capacity, or in any other
capacity, shall commence, maintain, or prosecute any action or proceeding, other
than this Litigation, in any court or tribunal against D&T or any other Released
Party, asserting any of the Settled Claims, including Unknown Claims, as that
term is defined herein;
11. Schedule the hearing to be held by the Court to consider and
determine (1) whether the proposed Settlement should be approved as fair,
reasonable and adequate; (2) whether the Class should be certified and the
Plaintiffs approved as representatives of the Class; (3) whether an order
approving the Settlement and a Final Judgment should be entered thereon
dismissing this Litigation on the merits and with prejudice; (4) whether the
proposed Plan of Allocation, as defined in PARA VII(I)(4) below, is fair and
reasonable; (5) whether the application of Plaintiffs' Counsel for an award of
Attorneys' Fees and Expenses is reasonable and should be approved; and (6)
whether the Plan of Distribution should be approved.
12. Provide that any objections to (i) the proposed Settlement and
the entry of the Final Judgment approving the Settlement, or (ii) the
application of Plaintiffs' Counsel for an
21
<PAGE>
award of Attorneys' Fees and Expenses, shall be heard and any papers submitted
in support of said objections shall be received and considered by the Court at
the Hearing (unless, in its discretion, the Court shall direct otherwise) only
if, on or before a date to be specified in the Preliminary Approval Order (which
shall be 15 days prior to the Hearing), Persons making objections shall file
notice of their intention to appear and copies of any papers in support of their
position with the Clerk of the Court and serve such notice and papers on:
Steve W. Berman, Esq.
Hagens & Berman P.S.
1301 Fifth Avenue - Suite 2929
Seattle, Washington 98101
Co-Lead Counsel for the Class
Frank B. Vanker, Esq;
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Counsel for D&T
13. Provide that, upon the Effective Date, all members of the Class
who have not filed timely and valid requests for exclusion from the Class,
pursuant to the procedures described herein at PARA VII(C)(17) below, whether or
not they file a Proof of Claim and Release within the time provided for, and
whether or not they participate in the Settlement Fund, shall be barred from
asserting any Settled Claims, including Unknown Claims, and all
22
<PAGE>
Class Members shall be conclusively deemed to have released D&T and the other
Released Parties from any and all such Settled Claims, including Unknown Claims;
14. Provide that no Person, other than a Class Member or Plaintiffs'
Counsel, shall have any right to any portion of, or in the distribution of, the
Settlement Fund unless otherwise ordered by the Court or otherwise provided in
this Stipulation;
15. Provide that, upon the Effective Date, D&T shall be deemed
conclusively to have released the Plaintiffs from only those claims or potential
claims against Plaintiffs that are based upon, or arise out of, the institution,
assertion, prosecution or resolution of this Litigation, or the Settled Claims,
including Unknown Claims, except that nothing herein releases any claim arising
out of a violation of this Stipulation or a violation by Plaintiffs of the
Confidentiality Orders in place in the Litigation;
16. Provide that the hearing may, from time to time, and without
further notice to the Class, be continued or adjourned by Order of the Court;
17. Provide that all members of the Class shall have the option to be
excluded from the Class, and thereby elect not to participate in the Settlement
Fund by mailing a timely and valid request for exclusion postmarked on or before
15 days
23
<PAGE>
before the hearing to the Claims Administrator pursuant to the instructions set
forth in the Notice (Exhibit A-I), which, in order to be valid, shall list the
date(s) and amount(s) of all purchases and sales of MK common stock during the
Class Period, list prices paid and received on each purchase and sale, and
furnish written confirmation of each such transaction and further provide that
all Persons who submit timely and valid requests for exclusion from the Class
shall not be Class Members and shall have no rights with respect to the
Settlement and no interest in the Settlement Fund; and
18. Provide that the Claims Administrator shall notify, VIA
telecopier and overnight mail, counsel listed in PARA VII(C)(12) above of each
request for exclusion within two days of receipt.
19. Provide that all papers in support of the Settlement and any
application for Attorneys' Fees and Expenses shall be filed at least six (6)
days prior to the hearing.
20. Provide that all reasonable costs incurred in identifying and
notifying Class Members, as well as administering the Settlement Fund, may be
paid from the Notice and Administration Account upon the terms set forth above.
21. Provide that, if the Settlement is cancelled or terminated in
accordance with the terms of the Settlement
24
<PAGE>
Memorandum or this Stipulation, or is disapproved, then the Settlement
Memorandum and this Stipulation shall have no force or effect, and all
negotiations, proceedings and statements made in connection therewith shall be
without prejudice to the right of any Persons, and the Parties shall be restored
to their respective positions existing as of June 22, 1995 provided that the
provisions of PARAS VII(G) and this paragraph shall continue
to apply.
22. Provide that only Class Members shall have the rights with
respect to approval of, or objection to, the Settlement, the Plan of
Distribution or Plaintiffs' Counsel's request for Attorneys' Fees and Expenses.
Class Members who may appeal any decision with respect thereto must formally
intervene as a party under Rule 24 of the Federal Rules of Civil Procedure.
23. Provide that, pending final determination of whether the
Settlement should be approved, all discovery and all proceedings in the
Litigation are stayed, except for proceedings relating to the Settlement.
D. FINAL JUDGMENT TO BE ENTERED BY THE COURT APPROVING THE SETTLEMENT
If (i) the Settlement (including any modification thereto made with
the consent of the Parties as provided for herein) is approved by the Court;
(ii) the Settlement has not been terminated by the Parties pursuant to this
Stipulation; and
25
<PAGE>
(iii) if all conditions to consummation of the Settlement (other than a Final
Judgment) have otherwise been satisfied or waived, the Parties shall jointly
request the Court to enter a Final Judgment, substantially in the form of
Exhibit B hereto, that shall:
1. Approve the Settlement as fair, reasonable and adequate to the
Class;
2. Find the terms of this Stipulation to be valid and enforceable
and direct the consummation of the Settlement and the transactions
contemplated thereby in accordance with the terms and provisions of this
Stipulation.
3. Certify the Class and approve the Plaintiffs as representatives of
the Class for purposes of this Settlement;
4. Dismiss the Litigation in its entirety as against D&T with
prejudice and without costs to any party as against any other party;
5. Adjudge that, as more fully described in PARA VII(H), each Class
Member shall be deemed conclusively to have released the Settled Claims,
including Unknown Claims, against the Released Parties, Plaintiffs and
Plaintiffs' Counsel. Notwithstanding that any Class Member may hereafter
discover facts in addition to, or different from, those which the Class Members
now know or believe to be true with respect to the
26
<PAGE>
Litigation and Settled Claims, including Unknown Claims, or, with respect to the
subject matter of the release, each Class Member shall be deemed, upon the
Effective Date, fully, finally and forever to have settled and released any and
all Settled Claims, including Unknown Claims, as against the Released Parties,
including all claims known or unknown, suspected or unsuspected, contingent or
non-contingent, which now exist, may hereafter exist, or heretofore have
existed, and without regard to the subsequent discovery or existence of any such
different or additional facts. Upon the Effective Date, D&T shall be deemed
conclusively to have released the Plaintiffs from only those claims or potential
claims against Plaintiffs that are based upon or arise out of the institution,
prosecution, assertion or resolution of this Litigation and Settled Claims,
including Unknown Claims; provided, however, that such releases shall not extend
to claims arising out of any violations of this Stipulation or any violations of
the Confidentiality Orders entered in the Litigation;
6. Bar and permanently enjoin each Class Member from prosecuting the
Settled Claims, including Unknown Claims, against the Released Parties,
Plaintiffs and Plaintiffs' Counsel;
7. Bar and permanently enjoin each Plaintiff and Class Member,
either directly, representatively, or in any other
27
<PAGE>
capacity, from instituting or prosecuting any action against any party other
than those enumerated in PARA VII(D)(6) above, to the extent such action asserts
any of the claims included in the definition of Settled Claims, including
Unknown Claims, unless (a) appropriate provision satisfactory to the Court is
made to assure that the amounts to be collected pursuant to any judgment will be
available if necessary to meet the obligations that may exist under the
provisions for indemnification set forth in PARA VII(D)(8) below as a
consequence of such judgment; or (b) any settlement of such claims provides for
releases of claims or claims-over of the settling party against the Released
Parties as provided in PARA VII(D)(8) below, subject to the receipt by the
settling party of releases of claims-over from the Released Parties co-extensive
with those received by the Released Parties;
8. For the purpose of effectuating the Parties' intention to protect
the Released Parties from claims or claims-over of third parties arising out of
the Settled Claims, including Unknown Claims:
(a) Bar and permanently enjoin all Persons, either directly,
representatively, or in any other capacity, from instituting or prosecuting or
continuing to prosecute, any action, claim or claim-over against any Released
Party on whatsoever theory (whether by way of third-or subsequent-party
28
<PAGE>
complaint, cross-claim, separate action or otherwise, and whether under federal
or state law) to recover in whole or in part any liability, direct or indirect,
of such Person to any Member of the Class in connection with, arising out of, or
which is in any way related to, the Settled Claims, including Unknown Claims;
(b) Dismiss with prejudice and without costs any claims or claims-
over asserted or deemed asserted by any Persons against any Released Party on
whatsoever theory (whether by way of third- or subsequent-party complaint,
cross-claim, separate action or otherwise, and whether under federal or state
law) to recover in whole or in part any liability, direct or indirect, of such
Person to any Member of the Class in connection with, arising out of, or which
is in any way related to, the Settled Claims, including Unknown Claims;
(c) Order that any judgment by Plaintiffs or other Members of the
Class as against any Persons on a claim with respect to which such Person would
have (but for the contribution bar ordered in PARA VII(D)(8)(a) above) a legally
valid and enforceable right to contribution from any Released Party and that is
in connection with, arising out of, or in any way related to, Settled Claims,
including Unknown Claims, shall be reduced by such percentage as reflects a
determination of the relative fault
29
<PAGE>
or culpability, if any, of such Released Party, as compared to the relative
fault or culpability of such other Persons;
(d) Order that, if necessary in order further to effectuate the
intention of the Parties that the Released Parties shall have no liability to
any Person for contribution or indemnification with respect to any claim by
Plaintiffs or any Class Member against any Person with respect to the Settled
Claims, including Unknown Claims, the Class and each Member of the Class (i)
shall reduce or credit against any judgment or settlement (s)he, it or they may
obtain against any Person the full amount of any judgment or settlement such
Person may obtain against any Released Party on any claims-over on whatsoever
theory (whether by way of third- or subsequent-party complaint, cross-claim,
separate action or otherwise) in connection with, arising out of, or which is in
any way related to, the Settled Claims, including Unknown Claims, including but
not limited to claims-over that have been, could have been, or could be, alleged
in this Litigation or in any other action; and (ii) shall obtain from such
Person for the benefit of the Released Parties a satisfaction in full of such
Person's judgment or settlement against the Released Parties;
(e) Approve the agreement of Plaintiffs and all other Members of the
Class (the "Indemnifying Parties"), for good and
30
<PAGE>
valuable consideration, receipt of which is hereby acknowledged, to indemnify
the Released Parties and to hold them harmless from and against any and all
liability (including amounts paid in settlement, subject to all the other
provisions of this Stipulation) with respect to:
(i) any claim by any Member of the Class that is a Settled
Claim, including Unknown Claims; and
(ii) claims-over on whatsoever theory (whether by way of third-
or subsequent-party complaint, cross-claim, separate action or otherwise) by any
Person to recover in whole or in part any liability, direct or indirect, whether
by way of judgment, settlement or otherwise, of such Person to any Member of the
Class in connection with, arising out of, or in any way related to, the Settled
Claims (including Unknown Claims), including without limitation claims-over that
have been, could have been or could be alleged in this Litigation or in any
other action.
(f) Approve the further agreement of the Parties that, in the event
that any Members of the Class obtain any recovery by judgment, settlement, or
otherwise against any Person (other than the Net Settlement Fund) that is
related in any way to the Settled Claims, including Unknown Claims, appropriate
provision (including delaying distribution of amounts payable under a
31
<PAGE>
judgment and, in the case of settlement, obtaining releases to protect the
Released Parties from any liability to such Persons on claims-over) shall be
made to assure the effectuation of the indemnity provided for herein. Any such
recovery against any Person who has not released any claims or claims-over
against the Released Parties shall be held in escrow pursuant to order of this
Court until any claims or claims-over against the Released Parties are finally
determined, subject to the other limitations and provisions of this
Stipulation and shall be applied first to satisfy any indemnification
obligation provided herein.
(g) Order that the foregoing provisions of PARAS VII(D)(7) and (8)
with respect to reduction of judgment and effectuation of indemnification are
not intended to be exclusive, and nothing in PARA VII(D)(8)(f) shall be deemed
to modify, lessen or impair the indemnity obligations of the Class or Class
Members as set forth in PARA VII(D)(8)(e) hereof in any situation to which the
provisions contained in PARA VII(D)(8)(f) may not be applicable or may fail to
provide fully for the indemnity protection provided in PARA VII(D)(8)(e);
provided, however, that, to the extent that cash payments are required to
provide the Released Parties with the agreed-upon indemnity, (x) with respect to
a claim for indemnification from and against liability with respect to the claim
of any Member of the Class that is a Settled Claim
32
<PAGE>
(including Unknown Claims), only funds received by, or on behalf of, the Class
or Class Members by virtue of any claim in this action or otherwise related to
Settled Claims (including Unknown Claims), other than the Net Settlement Fund
provided for herein, may be used to satisfy the indemnification obligations
hereunder; provided, however, that, if a Class Member persists in prosecuting
its claim despite being notified that it is barred from doing so by this
Settlement (and fails to establish by Court order that it is not so barred),
such indemnification obligations may be payable out of any funds distributed or
to be distributed to such Member of the Class from the Net Settlement Fund or
out of any other funds of such Class Member; and (y) with respect to a claim for
indemnification from and against liability with respect to claims-over as
provided in PARA VII(D)(8)(e)(ii), such indemnification obligations shall be
payable out of the additional recovery by judgment or settlement and shall not
under any circumstances be payable out of the Net Settlement Fund provided for
herein;
(h) Approve the Parties' agreement that, if, after the Effective
Date, a claim-over is or has been asserted against any Released Party as to
which such Released Party is entitled to protection under PARAS VII(D)(7) and
(8)(a)-(g), such Released Party may select competent counsel to defend against
any such claims.
33
<PAGE>
Legal fees and expenses of any such defense will be paid out of the Settlement
Fund. Plaintiffs' Counsel shall cooperate fully in the defense of such claim-
over. The Released Parties, by their counsel, shall have sole authority to
determine the timing and terms of any settlement of such claim-over, subject to
the other provisions of this Stipulation and further subject to the approval of
Plaintiffs' Counsel, which approval shall not be unreasonably withheld. If a
claim-over is asserted against any Released Party by any Person to recover any
liability of such Person with respect to a claim brought by Members of the Class
who are not prosecuting such claim on a common class basis, the obligations set
forth herein for defense of such claim-over shall be the responsibility only of
those Members of the Class who are prosecuting the claim giving rise to such
claim-over;
9. Order that any claims or claims-over that have been, or may in
the future be, asserted in this or any other action against any Released Party
shall (if allowed) be severed and stayed for separate trial after the trial of
Plaintiffs' and the Class's claims against such nonsettling defendant;
10. Determine that, by reason of the Parties' Settlement, there is no
just reason for delay and find expressly that the Final Judgment is a final
judgment upon fewer than all the claims or parties pursuant to Fed. R. Civ. Pro.
54(b);
34
<PAGE>
11. Determine that the Stipulation and the Settlement provided for
herein, and any proceedings taken pursuant thereto are not, and should not in
any event be: (i) offered or received as evidence of a presumption, concession
or an admission of any misrepresentation or omission in any statement or written
document approved or made by any Released Party; or (ii) offered or received as
evidence of a presumption, concession or any admission of any liability, fault,
wrongdoing or other dereliction of duty, or (except with written consent of the
Released Parties) in any way referred to for any other reason in this Litigation
or in any other civil, criminal, bankruptcy, or administrative action or
proceeding; provided, however, that reference may be made to this Stipulation
and the Settlement provided for herein in such proceedings as may be necessary
to effectuate the provisions of this Stipulation; and provided further that, if
this Settlement has been approved by the Court, Plaintiffs, may, subject to
Court approval, at the trial of this Litigation against other defendants refer
to this Settlement in such manner as this Court may authorize or permit; and
12. Reserve jurisdiction, without affecting the finality of the Final
Judgment entered, over:
35
<PAGE>
(a) Implementation of this Settlement and any award or
distribution of the Settlement Amounts or the Settlement Fund, including
interest accrued thereon;
(b) Disposition of the Net Settlement Fund;
(c) Enforcing and administering this Stipulation and Settlement
including any releases executed in connection therewith, and the provisions of
the Final Judgment; and
(d) Other matters related or ancillary to the foregoing.
E. TERMINATION OF SETTLEMENT
1. Prior to the earlier of the Court's entry of the Final Judgment as
required by PARA VII(D) above or December 31, 1995, Plaintiffs' counsel shall
have the right, in their sole and absolute discretion, to terminate the
Settlement due to the occurrence of either: (i) the commencement by MK of a
voluntary case under Title 11 of the United States Code and the entry of an
order for relief by a court of competent jurisdiction with respect thereto; or
(ii) the commencement of an involuntary case against MK under Title 11 of the
United States Code and the entry of an order for relief by a court of competent
jurisdiction with respect thereto. Plaintiffs may not elect to terminate the
Settlement, as permitted by this paragraph, if they have not done
36
<PAGE>
so prior to the earlier of the Court's entry of the Final Judgment or
December 31, 1995;
2. If, prior to the Effective Date, MK shall not have executed a
mutual release agreement with D&T, in a form satisfactory to D&T, then D&T shall
have the right, in its sole and absolute discretion, to terminate the
Settlement. D&T may not elect to terminate the Settlement, as permitted by this
paragraph, if D&T has not done so prior to the Effective Date;
3. If, prior to the Hearing, Persons who otherwise would be Members
of the Class have filed with the Court valid and timely requests for exclusion
from the Class in accordance with the provisions of the Preliminary Approval
Order and the Notice given pursuant thereto, and such Persons in the aggregate
have incurred Trading Losses and Holding Losses (as defined in PARA I 4(b)(1)
and (2) greater than that specified in a separate Supplemental Agreement among
Plaintiffs and D&T, then D&T shall have, in its sole and absolute discretion,
the option to terminate this Stipulation in accordance with the procedures set
forth in the Supplemental Agreement. The Supplemental Agreement will be kept
confidential, will be disclosed only to the Plaintiffs, Plaintiffs' Counsel,
D&T, and the Court, and will not be filed with the Court unless and until a
dispute among the Parties concerning its interpretation or application arises,
and,
37
<PAGE>
in that event, it may be filed and maintained with the Court. As set forth in
PARA VII(C)(18) above, counsel for D&T shall be advised of requests for
exclusions; and
4. If the MK Rail Settlement is cancelled, terminated, or disapproved
by the District Court or on appeal, then D&T shall have the right, in its sole
and absolute discretion, to terminate this Settlement. If D&T elects to
terminate this Settlement because the MK Rail Settlement is cancelled,
terminated, or disapproved by the District Court or on appeal, then any funds
existing in the Escrow Account, together with any interest thereon, shall be
returned to D&T. If D&T does not elect to terminate this Settlement by written
notice to Plaintiffs' Counsel within three business days of notice to D&T of any
cancellation, termination, or disapproval of the MK Rail Settlement, then D&T
shall be deemed to have waived its right of termination provided in this
paragraph and any funds existing in the Escrow Account, together with any
interest thereon, shall be transferred to the Settlement Account upon written
instruction of Plaintiffs' Counsel.
F. CONDITIONS OF SETTLEMENT
1. This Stipulation shall be subject to the following conditions and,
except as provided in PARAS VII(C)(21), (F), and K(1) hereof, shall be cancelled
and terminated unless:
38
<PAGE>
(a) The Court shall enter the Preliminary Approval Order, as
required by PARA VII(C) above;
(b) The Court shall enter the Final Judgment, as required by
PARA VII(D) above;
(c) The Effective Date as set forth in PARA VII(A) hereof shall
have occurred; and
(d) All rights of termination provided in PARA VII(E) shall have
expired, been extinguished according to their terms, or been waived by the Party
possessing the right.
2. Upon the occurrence of all of the events referenced in PARA
VII(F)(1) hereof, each of the Class Members shall hereby be deemed to have, and
by operation of the Final Judgment shall have, fully, finally, and forever
released, relinquished and discharged all Settled Claims, including Unknown
Claims, against all Released Parties, whether or not such Class Member executes
and delivers the Proof of Claim and Release. Only those Class Members filing
valid and timely Proofs of Claim and Release shall be entitled to receive any
distributions from the Settlement Fund. The Proof of Claim and Release to be
executed by the Class Members shall release all Settled Claims, including
Unknown Claims, against Released Parties and shall be in the form of
Exhibit A-3, hereto. Once executed by a Class Member, each Proof of Claim and
Release shall be delivered to Plaintiffs'
39
<PAGE>
Counsel or their designated agent and copies thereof shall be forthwith
delivered to counsel for each Released Party.
3. Without limiting the provisions in this PARA VII(F) above, a
condition of this Stipulation is that it shall be approved by the Court under
applicable provisions of federal law. However, if: (i) the Court enters a
judgment that is a material modification of the Final Judgment provided for in
PARA VII(D), or (ii) the Court enters the Final Judgment and appellate review is
sought and on such review the Final Judgment is materially modified or reversed,
or (iii) any of the conditions of PARA VII(F) is not satisfied, then this
Stipulation shall be cancelled and terminated unless counsel for each of the
Parties within ten (10) days from the receipt of such ruling or written notice
of such circumstances, agrees in writing with counsel to proceed with this
Stipulation and Settlement. For purposes of this paragraph, neither a
modification by the Court nor modification or reversal on appeal of (i) the Plan
of Distribution; or (ii) any amount of Attorneys' Fees and Expenses requested
by or awarded to any of Plaintiffs' Counsel shall be deemed a material
modification of or a part of the material terms of the Final Judgment or of this
Stipulation.
G. EFFECTS OF CANCELLATION OR TERMINATION OF THE SETTLEMENT
40
<PAGE>
If the Effective Date does not occur, or if this Stipulation is
disapproved, terminated or cancelled pursuant to its terms: (a) the Settlement
Memorandum and this Stipulation shall have no force or effect, and all
negotiations, proceedings and statements made in connection therewith shall be
without prejudice to the right of any Persons, and the Parties shall be restored
to their respective positions existing as of June 22, 1995 provided that the
provisions of this paragraph shall continue to apply; (b) any funds in the
Escrow Account or Settlement Account, together with interest thereon, shall be
returned to D&T; and (c) all releases given and indemnification obligations
undertaken in this Stipulation shall be null and void.
H. RELEASE TERMS
1. Upon the Effective Date, the Plaintiffs and all Class Members, whether
or not each submits a Proof of Claim and Release or otherwise shares in the
Settlement Fund, on behalf of themselves and each of their predecessors,
successors, parents, subsidiaries, affiliates, custodians, agents, assigns,
representatives, heirs, executors, trustees, administrators and any other Person
having any legal or beneficial interest in the common stock of MK purchased by
any Member of the Class, will be deemed by this Settlement to have, and by
operation of the Final
41
<PAGE>
Judgment shall have, released and forever discharged the Released Parties from
any and all of the Settled Claims, including Unknown Claims.
2. Upon the Effective Date, the Plaintiffs, and all Class Members,
and anyone claiming through or on behalf of any of them, will be forever barred
and enjoined from commencing, instituting or prosecuting any action or other
proceeding in any court of law or equity, arbitration tribunal, or
administrative forum, directly, representatively or derivatively, asserting
against any of the Released Parties any of the Settled Claims, including
Unknown Claims, or any claims that relate to any Settled Claims.
3. From and after the Effective Date, each Class Member individually,
completely, voluntarily, knowingly, unconditionally and forever releases,
remises, acquits and discharges Plaintiffs and Plaintiffs' Counsel from every
and all asserted or potential, separate, joint, individual claims, class claims,
or other claims, actions, rights, causes of action, demands, liabilities, losses
and damages of every kind and nature, anticipated or unanticipated, direct or
indirect, fixed or contingent, known or unknown, under federal, state or common
law or any other law or regulation, or in equity, against Plaintiffs and
Plaintiffs' Counsel or any of them for, which are
42
<PAGE>
based upon or arise out of the institution, prosecution, assertion or resolution
of the Litigation or the Settled Claims, including Unknown Claims, except that
nothing herein releases any claim arising out of a violation of this
Stipulation.
4. From and after the Effective Date, D&T individually, completely,
voluntarily, knowingly, unconditionally and forever releases, remises, acquits
and discharges Plaintiffs from only those asserted or potential, separate,
joint, individual claims, class claims, or other claims, actions, rights, causes
of action, demands, liabilities, losses and damages of every kind and nature,
anticipated or unanticipated, direct or indirect, fixed or contingent, known or
unknown, under federal, state or common law or any other law or regulation, or
at equity, against Plaintiffs, which are based upon or arise out of the
institution, prosecution, assertion or resolution of the Litigation or the
Settled Claims, including Unknown Claims, except that nothing herein releases
any claim arising out of a violation of this Stipulation or a violation by
Plaintiffs of the Confidentiality Orders in place in the Litigation.
5. To the extent that any Defendant or Insurer has released D&T and
the other Released Parties and agreed not to assert against D&T and the other
Released Parties any cross-claims, third-party claims, or other claims, however
denominated,
43
<PAGE>
arising out of, or relating to, claims that were, or could have been, asserted
by the Plaintiffs or Class Members against such Defendant or Insurer in the
Litigation, then, from and after the Effective Date, D&T releases and agrees not
to assert any cross claims, third party claims or other claims-over (however
denominated) arising out of the Settled Claims against such Defendant or Insurer
to recover any part of the Settlement Amount.
6. The Plaintiffs and Class Members agree that from and after the
Effective Date they will indemnify and hold harmless D&T and each other Released
Party as provided in PARA VII(D)(8).
7. The Parties recognize that, to the extent one of the mechanisms
set forth in PARA VII(D)(8) herein for inclusion in the Final Judgment to
protect fully the Released Parties against claims and claims-over on whatsoever
theory or by whatsoever means (including cross-claims, third-party claims or
other actions for contribution or indemnification) is fully effective to fulfill
the Parties' objective of protecting Released Parties from any liability with
respect to any such claims, claims-over, cross-claims, third-party claims or
other actions for contribution or indemnification, it may not be necessary to
also employ in addition one or more of the other mechanisms set forth
44
<PAGE>
herein. If and to the extent (i) the Final Judgment effectively precludes any
claim-over against Released Parties, and/or (ii) there shall be entered a final
court order which is no longer subject to review by any court (whether by
appeal, writ of certiorari, motion for reconsideration or otherwise) determining
that judgment reduction pursuant to PARA VII(D)(8)(c) constitutes a satisfaction
in full of any judgment any Person may obtain against any Released Party on any
claim-over, such that the Released Parties are fully protected from, and shall
have no liability with respect to, claims by any Person for contribution or
indemnification, then Plaintiffs' Counsel shall not be required to delay
distribution of amounts payable under a judgment otherwise potentially giving
rise to such claim-over or to defend or to select or pay the legal fees and
expenses of counsel otherwise required to defend against such a claim-over.
8. The Parties acknowledge that this Stipulation and the foregoing
releases expressly waive any and all rights that Plaintiffs or the Class Members
may have under any statute or common law principle which would limit the effect
of the releases to those claims actually known or suspected to exist at the time
of execution of this Stipulation, including the provisions of Section 1542 of
the California Civil Code, to the extent deemed applicable (notwithstanding that
this Stipulation does not
45
<PAGE>
provide for the application of California law), which provides as follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims
which the creditor does not know or suspect
to exist in his favor at the time of
executing the release, which if known by him
must have materially affected his settlement
with the debtor.
I. ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL AWARDS AND
DISTRIBUTION OF SETTLEMENT FUND
1. Plaintiffs' Counsel, or the Claims Administrator acting on behalf
of the Class Members, and subject to the supervision, direction and approval of
the Court, shall administer and calculate the claims submitted by Class Members
and shall oversee distribution of that portion of the Net Settlement Fund that
is finally awarded by the Court to the Class Members.
2. Except as otherwise provided in PARA VII(J) below, the Net
Settlement Fund shall be treated or applied as follows:
(a) To the extent not paid from the Notice and Administration
Fund, all unpaid costs and expenses (excluding Attorneys' Fees and Expenses)
incurred in connection with providing notice to Class Members, locating Class
Members, soliciting Class Members' claims, assisting with the filing of claims,
administering and distributing the Settlement Fund to Class Members, processing
proofs of claim, processing requests
46
<PAGE>
for exclusion, and escrow fees and costs shall be paid from the Settlement
Account.
(b) The Plaintiffs, Class Members, Bank and Plaintiffs' Counsel
agree to treat the Settlement Fund and Net Settlement Fund as being at all times
a "qualified settlement fund" within the meaning of Treas. Reg. Section 1.4680-1
and Section 4680 of the Internal Revenue Code. In addition, the Bank,
Plaintiffs' Counsel and, as required, the Parties shall jointly and timely make
such elections as necessary or advisable to carry out the provisions of this
paragraph, including the "relation-back election" (as defined in Treas. Reg.
Section 1.468(0-1(j) (2)) back to the earliest permitted date. Such elections
shall be made in compliance with the procedures and requirements contained in
such regulations. It shall be the responsibility of the Bank or Plaintiffs'
Counsel timely and properly to prepare and deliver the necessary documentation
for signature by all necessary parties, and thereafter to cause the appropriate
filing to occur.
(c) For the purpose of Section 4680 of the Internal Revenue Code
of 1986, as amended, and the regulations promulgated thereunder, the
"administrator" shall be the Bank or Plaintiffs' Counsel. The Bank or
Plaintiffs' Counsel shall timely and properly file all informational and other
tax returns
47
<PAGE>
necessary or advisable with respect to the Settlement Fund and Net Settlement
Fund (including without limitation the returns described in Treas. Reg. Sections
1.468(B)-2(k) and 1.4680-2(1)). Such returns (as well as the election described
in PARA VII (I)(2)(b)) shall be consistent with this paragraph and in all events
shall reflect that all taxes (including any interest or penalties) on the income
earned by the Settlement Fund shall be paid out of the Settlement Fund as
provided in PARA VII (I)(2)(d) hereof.
(d) All (i) taxes (including any interest or penalties) arising
with respect to the income earned by the Settlement Fund, including any taxes or
tax detriments that may be imposed upon D&T with respect to any income earned by
the Settlement Fund for any period during which the Settlement Fund does not
qualify as a "qualified settlement fund" for Federal or state income tax
purposes ("Taxes") and (ii) expenses and costs incurred in connection with the
operation and implementation of this paragraph (including, without limitation,
expenses of a tax attorney or consultant and mailing and distribution costs and
expenses relating to filing) (or failing to file) the returns described in this
paragraph ("Tax Expenses"), shall be paid out of the Settlement Fund; in all
events, D&T shall have no liability or responsibility for the Taxes or the Tax
Expenses.
48
<PAGE>
Plaintiffs' Counsel, Plaintiffs, and the Class shall indemnify and hold D&T
harmless for Taxes and Tax Expenses (including, without limitation, taxes
payable by reason of any such indemnification). Further, Taxes and Tax Expenses
shall be treated as, and considered to be, a cost of administration of the
Settlement and shall be timely paid by the Bank or Plaintiffs' Counsel out of
the Settlement Fund without prior order from the Court and the Bank or
Plaintiffs' Counsel shall be obligated (notwithstanding anything herein to the
contrary) to withhold from distribution to Class Members any funds necessary to
pay such amounts including the establishment of adequate reserves for any Taxes
and Tax Expenses (as well as any amounts that may be required to be withheld
under Treas. Reg. Section 1.468 (B) -2(1) (2)); D&T is not responsible and shall
have no liability therefor. Plaintiffs' Counsel are permitted to retain the
services of a tax attorney or consultant to the extent reasonably necessary to
carry out the provisions of this paragraph. The Parties agree to cooperate with
the Bank or Plaintiffs' Counsel, each other, and their tax attorneys and
accountants to the extent reasonably necessary to carry out the provisions of
this paragraph.
(e) For the purpose of this PARA VII(I)(2), references to the
Settlement Fund shall include both the
49
<PAGE>
Settlement Fund and the Notice and Administration Fund and shall also include
any earnings thereon.
3. Subject to the approval and further order(s) of the Court, the Net
Settlement Fund shall be available for allocation to Class Members who submit
valid, timely Proofs of Claim ("Authorized Claimants") as follows:
(a) Each person claiming to be an Authorized Claimant shall be
required to submit a separate Proof of Claim and Release that shall include a
general release of the Released Parties in substantially the form set forth in
Exhibit A-3 signed under penalty of perjury and supported by such documents as
specified in the Proof of Claim and Release;
(b) All Proof of Claim and Release forms must be postmarked or
received within the time prescribed in the Preliminary Approval Order unless
such period is extended or a late claim is otherwise allowed by order of the
Court. Unless otherwise ordered by this Court, any Class Member who fails to
submit a properly completed Proof of Claim and Release within such period, or
such other period as may be ordered by the Court, shall be forever barred from
receiving any payments pursuant to this Stipulation or from the Settlement
Fund or Net Settlement Fund, but will in all other respects be subject to the
provisions of this Stipulation and the Final Judgment, including, without
50
<PAGE>
limitation, the release of the Settled Claims and the dismissal of the
Litigation;
(c) The amount paid to each Authorized Claimant shall be the
percentage that each Authorized Claimant's Recognized Loss bears to the total of
the Recognized Losses of all Authorized Claimants.
4. The Net Settlement Fund shall be allocated among Authorized
Claimants pursuant to the Plan of Distribution:
(a) The Net Settlement Fund shall be Distributed as follows (the
"Plan of Allocation"): Each Authorized Claimant shall be entitled to receive a
share of the Net Settlement Fund, computed by multiplying the Net Settlement
Fund by a fraction, the numerator of which is the Authorized Claimant's
Recognized Loss and the denominator of which is the total amount of the
Recognized Loss of all Class Members, determined by adding together the
Recognized Losses of all Authorized Claimants.
(b) Definitions:
(1) An Authorized Claimant who purchased MK common stock
during the Class Period and still held those shares as of the close of business
on March 31, 1995, is regarded as having a "Holding Loss." A Holding Loss means
the difference between the price at which each share of MK common stock was
51
<PAGE>
bought, and $8.40/share (the average closing price of MK stock on the four
trading days following March 31, 1995).
(2) An Authorized Claimant who purchased MK stock during
the Class Period and sold those shares prior to the close of business on March
31, 1995, is regarded as having a "Trading Loss." A Trading Loss means the
difference between the price at which the common stock was purchased and the
price at which it was sold.
(3) An Authorized Claimant's Recognized Loss shall be the
sum of all of that Claimant's Holding Losses and Trading Losses. Gains on
transactions including short sales, during the Class Period will be netted
against Recognized Losses.
(c) With respect to multiple transactions in MK common stock,
whether a position was held or open as of the end of the Class Period, for
purposes of calculating Recognized Loss is to be determined on a "first-in,
first-out" basis. Holding Loss and Trading Loss shall be calculated net of any
gains on transactions in MK common stock, and any profits realized on short
positions in MK stock (if the short position has not been covered as of the date
of execution of this Stipulation, such profit, if any, shall be deemed to be the
difference between the price of sale and $8.40/share) (the average closing price
of stock on the four trading days following March 31, 1995);
52
<PAGE>
(d) In determining Recognized Loss, brokers' commissions and all
other transaction costs shall be excluded from the calculation; and
(e) Payment in the manner set forth above shall be deemed
conclusive of compliance with this Stipulation against all Authorized Claimants.
All Class Members who fail to file valid and timely proofs of claim shall be
barred from participating in the distribution of the Settlement Fund or Net
Settlement Fund (unless otherwise ordered by the Court), but otherwise shall be
bound by all of the terms of this Stipulation, including the terms of any final
orders or judgments entered and the releases given.
(f) In the event shares of MK common stock received pursuant to
a separate settlement with the Defendants are distributed to Authorized
Claimants, such shares shall be distributed in the same proportion as the cash
proceeds, except that no fractional shares will be distributed.
5. The Settlement Fund will be no-recapture, I.E., it is not a
claims-made settlement. D&T shall have no responsibility for, or any
obligations or liabilities of any kind whatsoever in connection with the
administration of the Settlement, the Plan of Distribution or the determination,
administration, calculation or payment of claims to Class
53
<PAGE>
Members. The definition of Recognized Loss may be considered by the Court
separately from the Court's consideration of the fairness, reasonableness and
adequacy of the Settlement set forth in the Stipulation, and any order or
proceedings relating to the method of calculating the Recognized Loss, or any
appeal from any order relating thereto or reversal or modification thereof,
shall not operate to terminate or cancel the Stipulation, or affect or delay the
finality of the Final Judgment approving the Stipulation and the Settlement of
the Litigation set forth herein. The method of calculating the Recognized Loss
was determined by Plaintiffs' Counsel; D&T takes no position with respect to the
definition of Recognized Loss, the manner of calculating it or its effect on or
fairness to any Authorized Claimant other than to deny that the price of MK's
stock was artificially affected or inflated by any conduct of D&T.
6. In connection herewith, D&T shall have no involvement in or
responsibility for the solicitation of Proof of Claim and Release forms or any
involvement in or responsibility for the administration process itself, which
will be conducted by Plaintiffs' Counsel in accordance with this Stipulation and
the Final Judgment to be entered by the Court and subject to the supervision of
the Court.
54
<PAGE>
7. Nothing in this Stipulation shall be construed to provide D&T with
standing to challenge or question any application by Plaintiffs' Counsel for
Attorneys' Fees and Expenses.
8. No Authorized Claimant shall have any claim against Plaintiffs'
Counsel or the Claims Administrator based on, or in any way relating to,
distributions from the Net Settlement Fund that have been made substantially in
accordance with this Stipulation.
J. PLAINTIFFS' COUNSEL'S REQUEST FOR AN AWARD OF ATTORNEYS' FEES AND
EXPENSES
1. Plaintiffs' Counsel may submit an application for: (i) an award
of attorneys' fees of up to 30 percent of the Settlement Fund; (ii)
reimbursement of costs and expenses, including fees and expenses of experts,
incurred in connection with the prosecution of the Litigation, (iii) incentive
awards in the amount of $75,000, and (iv) interest on such attorneys' fees,
costs and expenses at the same rate and for the same period as earned by the
Settlement Fund. Plaintiffs' Counsel reserve the right to make additional
application for fees and expenses incurred.
2. To the extent awarded by the Court, Plaintiffs' Counsel's
Attorneys' Fees and Expenses shall be paid from the Settlement Account to
Plaintiffs' Counsel by wire transfer within
55
<PAGE>
three (3) business days after receipt of (i) a written request from Plaintiffs'
Counsel controlling such account requesting payment of Attorneys' Fees and
Expenses; and (ii) a copy of an order from the Court awarding the sums
requested. In the event that the Order awarding Attorneys' Fees and Expenses is
reversed or modified on appeal, and in the event that said award has been paid
to any extent, then Plaintiffs' Counsel shall promptly refund that portion of
the Attorneys' Fees and Expenses distributed to themselves and any of their co-
counsel, plus any interest actually paid or that would have accrued from the
date of payment to the date of repayment at the existing United States Treasury
Bill rate, consistent with the reversal or modification. All counsel receiving
any portion of such Attorneys' Fees and Expenses agree that they, their
partners, and/or shareholders remain subject to the jurisdiction of the Court
with respect to the enforcement of this provision.
3. It is agreed that the procedure for, and the allowance or
disallowance by the Court of any applications of Plaintiffs' Counsel for,
Attorneys' Fees and Expenses to be paid out of the Settlement Account are to be
considered by the Court separately from the Court's consideration of the
fairness, reasonableness and adequacy of the Settlement as set forth in the
Stipulation. Any order or proceedings relating to the Attorneys'
56
<PAGE>
Fees and Expenses, or reversal or modification thereof, shall not operate to
terminate or cancel the Stipulation or to affect or delay the finality of the
Final Judgment entered in accordance with this Stipulation.
K. MISCELLANEOUS PROVISIONS
1. The Stipulation and Settlement are not an admission by the
Defendants, and any Final Judgment is not a finding of the validity of any
claims in the Litigation or of any wrongdoing by D&T. Furthermore, neither the
Stipulation nor the Settlement is a concession by D&T, and neither shall be used
as an admission of any fault or omission by any person. Neither the Final
Judgment, the Stipulation nor any document referred to herein nor any action
taken to carry out this Stipulation, is, may be construed as, or may be used as
an admission by or against D&T of any fault, wrongdoing or liability whatsoever.
Entering into or carrying out the Stipulation, and the Exhibits thereto, and any
negotiations or proceedings related thereto shall not in any event be construed
as, or deemed to be evidence of, an admission or concession with regard to the
denials or defenses by D&T and shall not be offered or received in evidence in
any action or proceeding against any party hereto in any court, administrative
agency or other tribunal for any purpose whatsoever, other than to enforce the
provisions of the Final
57
<PAGE>
Judgment, the Stipulation, or the provisions of the Final Judgment or any
related agreement or release; except that the Stipulation and the Exhibits may
be filed in this Litigation or related litigation as evidence of the Settlement
or in any subsequent action against or by D&T to support a defense of RES
JUDICATA, collateral estoppel, release, or other theory of claim or issue
preclusion or similar defense.
2. The Parties shall cooperate in good faith, and use their best
efforts to obtain, as promptly as practicable, final approval of the Settlement
pursuant to Rule 23 and to implement the Settlement provided for herein,
including execution by the Parties hereto of such further documents as are
reasonably necessary to implement the provisions hereof and cooperation to
obtain appropriate Court orders. Neither the Plaintiffs nor D&T shall seek to
evade their good faith obligations to seek approval and implementation of this
Settlement by virtue of any rulings, orders, governmental or other reports,
legislative action, the results of any proof of claim process or other
developments, whether in the Litigation, any other litigation, or otherwise,
that have occurred after June 22, 1995, or might hereafter occur, and might be
deemed to alter the relative strength of the Plaintiffs or D&T with respect to
any claim or defense or their relative bargaining power with respect to
negotiating a
58
<PAGE>
settlement. The Parties deem this Settlement to be fair and reasonable and have
arrived at this Settlement in arm's-length negotiations taking into account all
relevant factors, present or potential.
3. The terms of the Settlement and the amounts paid by D&T shall be
disclosed only as required for obtaining approval of the Settlement by the
Court. No press release or other public statements, other than what is
contained in the Stipulation and the Notice, shall be made by either of the
Parties except as agreed to by the Parties. Plaintiffs and their agents and
counsel will not refer to or assist any other person or entity in making any
claims against D&T arising out of D&T's services for MK, except as required
by law.
4. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
5. This Stipulation may be amended or modified only by a written
instrument signed by counsel for all parties to this Stipulation.
6. This Stipulation and the Supplemental Agreement together
constitute the entire agreement among the Parties hereto, and no
representations, warranties or inducements have been made to any Party
concerning this Stipulation or its exhibits other than the representations,
warranties and covenants
59
<PAGE>
contained and memorialized in such documents. This Stipulation and the
Supplemental Agreement supersede and replace the Settlement Memorandum in all
respects. Except as otherwise provided herein, each Party shall bear its own
costs.
7. Plaintiffs' Counsel, on behalf of the Class, are expressly
authorized to take all appropriate action required or permitted to be taken by
the Class pursuant to this Stipulation to effectuate its terms and are also
expressly authorized to enter into any modifications or amendments to this
Stipulation on behalf of the Class.
8. Counsel for D&T is authorized to sign this Stipulation on behalf
of his or her respective client.
9. This Stipulation may be executed in one or more original,
photocopied or telecopied counterparts. All executed counterparts and each of
them shall be deemed to be one and the same instrument. Counsel for the parties
to this Stipulation shall exchange among themselves original signed
counterparts, and a complete set of original executed counterparts shall be
filed with the Court.
10. This Stipulation shall be binding upon, and inure to the benefit
of, the successors, assigns and heirs of the parties to this Stipulation.
60
<PAGE>
11. All terms of this Stipulation and the exhibits hereto shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and the United States. Without affecting the finality of the Final Judgment
entered in accordance with this Stipulation, the Court shall retain jurisdiction
with respect to the implementation and enforcement of the Stipulation, and all
parties to the Stipulation or to any exhibit thereto submit to the jurisdiction
of the Court for purposes of implementing or enforcing the Settlement embodied
in this Stipulation.
13. The waiver by any Party of any breach of this Stipulation by any
other Party shall not be deemed to be a waiver of any other prior or subsequent
breach of this Stipulation.
14. The headings used in this Stipulation are for purposes of
convenience, and are not meant to have legal effect, nor are they meant to
influence the construction of this Stipulation.
61
<PAGE>
IN WITNESS WHEREOF, the parties to the Stipulation have caused this
Stipulation to be executed, by their duly authorized attorneys, as of the day
and year first above written.
/s/ Steve W. Berman /s/ Frank B. Vanker
- -------------------------------- ------------------------------
Steve W. Berman, Esq. Frank B. Vanker, Esq.
Hagens & Berman P.S. Sidley & Austin
1301 Fifth Avenue - Suite 2929 One First National Plaza
Seattle, Washington 98101 Chicago, Illinois 60603
Attorneys for
Deloitte & Touche, L.L.P.
/s/ Michael J. Freed
- --------------------------------
Michael J. Freed, Esq.
Much, Shelist, Freed, Denenberg
& Ament, P.C.
200 North LaSalle Street -
Suite 2100
Chicago, Illinois 60601-1095
/s/ Jeffrey H. Squire
- --------------------------------
Jeffrey H. Squire, Esq.
Kaufman, Malchman, Kirby &
Squire, L.L.P.
919 Third Avenue, 11th Floor
New York, New York 10022
Lead Counsel for Plaintiffs
and the Class
<PAGE>
I. AMENDMENTS
This Stipulation may not be modified except by a writing signed by all of
the Parties and the Insurers.
DATED: , 1996
---------------
Respectfully submitted,
/s/ J. Dennis Fancher /s/ David D. Aufhauser
- -------------------------------- ----------------------------------------
J. Denis Fancher David D. Aufhauser
Miller, Fancher, Chertow, Cafferty Williams & Connolly
and Wexler Attorney for Defendant William J. Agee
Co-Lead Counsel for Idaho
Consolidated Derivative Plaintiffs
/s/ Jill Abrams /s/ John W. Edwards II
- -------------------------------- ----------------------------------------
Jill Abrams John W. Edwards II
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
- -------------------------------- ----------------------------------------
Marian Rosner 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
- -------------------------------- ----------------------------------------
Park Redford Thomas & Burkett P. Craig Storti
Attorney for Idaho Consolidated Hawley Troxell Ennis & Hawley
Derivative Plaintiffs Attorney for James F. Cleary
41
<PAGE>
/s/ Jules Brody /s/ Cezar M. Froelich
- -------------------------------- ----------------------------------------
Jules Brody Cezar M. Froelich
Stull Stull & Brody Michael J. Howlett, Jr.
Attorney for Wohlgelemter 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
/s/ James M. Doyle Jr.
----------------------------------------
James M. Doyle, Jr.
Matthews & Branscomb
Attorney for John P. Herbots
/s/ Jim Jones
----------------------------------------
Jim Jones
Jim Jones & Associates
Attorney for Thomas Smith
/s/ Lawrence T. Hoyle Jr.
----------------------------------------
Hoyle Morris & Kerr
Attorney for Gunnar E. Sarsten
/s/ Stephen D. Hibbard
----------------------------------------
Steven Hibbard
McCutchen Doyle Brown & Enersen
Attorney for Stephen R. Grant
/s/ Robert A. Tinstman
----------------------------------------
Robert Tinstman
/s/ James Skarzynski
----------------------------------------
James Skarzynski
Peterson & Ross
Attorney for Great American Insurance
Co.
/s/ Michael L. Gassmann
----------------------------------------
Michael Gassmann
Drinker, Biddle & Reath
Attorney for Reliance Insurance Co.
/s/ Cathy A. Simon
----------------------------------------
Cathy A. Simon
Ross Dixon & Mossback
Attorney for Continental Casualty
/s/ Joseph Rosenthal /s/ Kenneth J. Nachbar
- -------------------------------- ----------------------------------------
Joseph Rosenthal Kenneth J. Nachbar
Rosenthal, Monhait, Gross & Goddess, Morris, Nichols, Arsht & Tunnell
P.A. Delaware Counsel for the MK Board of
Liaison Counsel for Plaintiffs Directors
42
<PAGE>
/s/ R. Franklin Balotti
by Anne Foster
----------------------------------------
R. Franklin Balotti
Richards, Layton & Finger
Delaware Counsel for MK
/s/ A.G. Connolly Jr.
by A.G. Connolly III
----------------------------------------
Arthur G. Connolly, Jr.
Connolly, Bove, Lodge & Hutz
Delaware Counsel for William Agee
<PAGE>
Exhibit E to
Stipulation of Settlement
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
- -----------------------------------
IN RE: MORRISON KNUDSEN SECURITIES : Civil Action
LITIGATION : No. CV 94-334-S-EJL
- -----------------------------------
- --------------------------------------------------------------------------------
FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
- --------------------------------------------------------------------------------
The Plaintiffs and Deloitte & Touche, L.L.P. ("D&T"), by and through
their attorneys or their counsel of record, having executed and filed a
Stipulation of Settlement dated as of October 1, 1995 (the "Stipulation")(1);
the Court having entered its Order thereon dated October 11, 1995, directing
that notice of the proposed Settlement of the Litigation be mailed to the
Class and scheduling a hearing to be held to determine, among other things
whether: (1) the proposed Settlement should be approved as fair, reasonable and
adequate; (2) the Class should be certified and the Plaintiffs approved as
representatives of the Class; (3) a Final Judgment should be entered dismissing
this Litigation on the merits and with prejudice; (4) the proposed
- --------------------
All capitalized terms have the meaning or definition set forth in the
Stipulation.
<PAGE>
Plan of Allocation and Plan of Distribution are fair and reasonable and should
be approved; and (5) the application of Plaintiffs' Counsel for the payment of
attorneys' fees and expenses is reasonable and should be approved; said notice
having been given; a hearing having been held on December 1, 1995 at which all
interested persons were given an opportunity to be heard; and the Court having
read and considered all submissions in connection with the proposed Settlement,
and having reviewed and considered the files and records herein, the Court finds
and concludes that:
This litigation began in July 1994. A total of seven class action
complaints have been filed in the District of Idaho:
GARBULINSKI, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL.,
No. 94-334
MEDELLO, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-364
STRAUSS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 94-373
DRASNIN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-066
GRUESEN, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-070
AKERS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-071
WEISS, ET AL. V. MORRISON KNUDSEN CORPORATION, ET AL., No. 95-108
2
<PAGE>
All of the foregoing have been consolidated as IN RE MORRISON KNUDSEN SECURITIES
LITIGATION, No. 94-334-S-EJL.
The defendants in the action are Morrison Knudsen Corporation ("MK"),
William J. Agee, Stephen G. Hanks, James F. Cleary, Jr. (the "Individual
Defendants"), and Deloitte & Touche, L.L.P. ("D&T").
On April 6, 1995, the plaintiffs filed their Consolidated and Second
Amended Class Action Complaint, which alleged claims for violations of Sections
10(b), 20(a) and 20A of the Securities Exchange Act of 1934, 15 U.S.C.
Section 78 (the "Exchange Act"), and Rule 10b-5 of the Securities and Exchange
Commission ("SEC"), the Idaho securities statutes, and common law.
D&T denies each and all of the claims and contentions alleged by
Plaintiffs in the Litigation and asserts that it has many defenses thereto,
and expressly denies any wrongdoing or legal liability arising out of the
conduct alleged in the Litigation.
In the Preliminary Approval Order dated October 11, 1995, the Court
approved the plaintiffs as representatives of the Class and conditionally
certified, for purposes of the Settlement, a Class comprised of:
All persons who purchased shares of common stock of Morrison
Knudsen Corporation ("MK") during the period from October
15, 1993 through March 31, 1995, inclusive (the "Class
Period") and who suffered harm thereby, excluding defendants
MK and Deloitte &
3
<PAGE>
Touche, L.L.P. and their respective directors, executive officers,
partners, corporate affiliates, and subsidiaries; the Individual
Defendants, their heirs, successors and assigns and the members of
their immediate families.
This definition of the Class applies for purposes of the Litigation, the
Settlement and this Final Judgment and Order of Dismissal With Prejudice (the
"Final Judgment").
The Stipulation between and among the Plaintiffs and D&T provides for
the Settlement of the Litigation on behalf of the Plaintiffs and all Class
Members with D&T subject to approval by this Court of its terms and to the entry
of this Final Judgment. The Court scheduled a hearing to consider the approval
of the Stipulation and directed that notice of the proposed Settlement and
hearing be mailed to all members of the Class.
In accordance with the Stipulation, and a Preliminary Approval Order
of the Court entered on October 11, 1995, Plaintiffs' Counsel caused to be
mailed to the Class, a notice (the "Notice") dated October 25, 1995 and caused
to be published in the national edition of THE WALL STREET JOURNAL and THE IDAHO
STATESMAN, a summary notice (the "Summary Notice") of the proposed Settlement of
the Litigation and of the opportunity to object to the Settlement. Affidavits
and/or declarations of
4
<PAGE>
mailing of the Notice and publication of the Summary Notice were filed with the
Court on November 22, 1995.
The Notice and Summary Notice provided to potential members of the
Class constitute the best and most practicable notice under the circumstances
and include individual notice to all members of the Class who could be
identified by reasonable effort. The affidavits or declarations of mailing
filed with this Court demonstrate compliance with this Court's orders with
respect to the Notice and Summary Notice and, further, that the best and most
practicable notice under the circumstances was in fact given and constituted
valid, due, and sufficient notice to members of the Class, complying fully with
due process and Rule 23 of the Federal Rules of Civil Procedure and any other
applicable law.
Plaintiffs and D&T have applied to the Court for approval of the terms
of the Stipulation and for the entry of this Final Judgment. Pursuant to the
Notice and Summary Notice, and upon notice to all parties, a Hearing was held
before this Court on December 1, 1995, to consider, among other things, whether
the Settlement set forth in the Stipulation should be approved by this Court as
fair, reasonable, and adequate and whether the application of Plaintiffs'
Counsel for the payment of
5
<PAGE>
attorneys' fees and expenses and incentive awards to plaintiffs is reasonable
and should be approved by this Court.
Approval of the Stipulation and the transactions contemplated thereby
will result in substantial savings in time and money to the Court and the
litigants and will further the interests of justice.
The Stipulation is the product of good faith arm's length negotiations
by the Parties thereto, each of whom was represented by experienced counsel.
NOW THEREFORE, GOOD CAUSE APPEARING, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED THAT:
1. The Court has jurisdiction over the subject matter of this
Litigation and all Parties in this Litigation, including all Class Members.
2. For purposes of the Settlement only, the Court approves Plaintiffs
as representatives of the Class and certifies the Class as described above.
3. The members of the Class who have filed timely and valid requests
for exclusion (and who are therefore not Class Members) are not bound by this
Final Judgment. A listing of those persons is attached hereto as Exhibit "A".
All Class Members who purchased MK common stock during the period from October
15, 1993 through and including March 31, 1995 are bound
6
<PAGE>
by this Final Judgment and by the Settlement, including the releases provided
for in this Final Judgment.
4. The Stipulation and Settlement are not an admission by D&T or
any other Released Party, and this Final Judgment is not a finding of the
validity of any claims in the Litigation or of any wrongdoing by D&T or any
other Released Party. Furthermore, neither the Stipulation nor the
Settlement is a concession by D&T or any other Released Party, and neither
shall be used as an admission of any fault or omission by any person.
Neither this Final Judgment, the Stipulation nor any document referred to
herein nor any action taken to carry out this Stipulation, is, may be
construed as, or may be used as an admission by or against D&T or any other
Released Party of any fault, wrongdoing or liability whatsoever. Entering
into or carrying out the Stipulation, and the Exhibits thereto, and any
negotiations or proceedings related thereto shall not in any event be
construed as, or deemed to be evidence of, an admission or concession with
regard to the denials or defenses by D&T or any other Released Party and
shall not be offered or received in evidence in any action or proceeding
against any party hereto in any court, administrative agency or other
tribunal for any purpose whatsoever, other than to enforce the provisions of
this Final Judgment, the Stipulation, or the provisions of this
7
<PAGE>
Final Judgment or any related agreement or release; except that the Stipulation
and the Exhibits may be filed in this Litigation or related litigation as
evidence of the Settlement or in any subsequent action against or by D&T or
any other Released Party to support a defense of RES JUDICATA, collateral
estoppel, release, or other theory of issue preclusion or similar defense.
5. The Stipulation and Settlement are fair, reasonable and adequate
as to the Class, and the Stipulation and Settlement are hereby finally approved
in all respects, and the Parties to the Stipulation are hereby directed to
consummate and perform its terms.
6. This Litigation is dismissed on the merits, with prejudice as to
D&T and without costs to any Party as against any other, and all Class Members
(except those identified in Exhibit "A" who have requested exclusion from the
Class) are forever barred from commencing or prosecuting, either directly,
derivatively, in a representative capacity, or in any other capacity, a class
action or any other action against D&T and the other Released Parties with
respect to, based on, arising from, or for any and all Settled Claims, including
Unknown Claims, demands, rights, liabilities and causes of action of every
nature and description whatsoever, known or unknown, asserted or that
8
<PAGE>
might have been asserted, including, but not limited to, claims for
negligence, gross negligence, breach of duty of care and/or breach of duty of
loyalty, breach of duty of candor, fraud, negligent misrepresentation, breach
of fiduciary duty or violations of any state or federal statutes, rules or
regulations by D&T or any other Released Party arising out of, relating to,
or in connection with, any and all services provided by D&T to MK during the
Class Period or purchases or sales of MK stock during the Class Period and
arising out of, or relating to, any of the acts, omissions, misrepresentations,
facts, events, matters, transactions or occurrences which were, or that could
have been, referred to in any of the complaints or other pleadings filed in the
Litigation or otherwise alleged, asserted or contended in the Litigation based
upon the facts alleged in any of the complaints.
7. On the Effective Date, as defined in the Stipulation, each member
of the Class who has not timely and validly requested exclusion shall be deemed
conclusively to have released the Settled Claims, including Unknown Claims,
against D&T and the Released Parties. Notwithstanding that the Plaintiffs
and/or Class Members may hereafter discover facts in addition to, or different
from, those that the Plaintiffs or Class Members now know or believe to be true
with respect to the Litigation and the Settled Claims, including Unknown Claims,
or to the subject
9
<PAGE>
matter of the Release, each such Plaintiff and Class Member shall be deemed,
upon the Effective Date, fully, finally and forever to settle and release any
and all Settled Claims, including Unknown Claims, against D&T and the other
Released Parties, including all claims known or unknown, suspected or
unsuspected, contingent or non-contingent, that now exist, may hereafter
exist, or heretofore have existed, and without regard to the subsequent
discovery or existence of such different or additional facts. In giving such
releases, all Class Members and Plaintiffs are deemed to have waived any and
all rights that they may have under any statute or common law principle which
would limit the effect of the foregoing releases to those claims actually
known or suspected to exist at the time of execution of this Settlement
Stipulation, including the provisions of Section 1542 of the California Civil
Code, to the extent deemed applicable, which provides as follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
8. From and after the Effective Date, each Class Member individually,
completely, voluntarily, knowingly, unconditionally and forever releases,
remises, acquits and discharges plaintiffs
10
<PAGE>
and plaintiffs' Counsel from every and all asserted or potential, separate,
joint, individual claim, class claim, or other claims, actions, rights, causes
of action, demands, liabilities, losses and damages of every kind and nature,
anticipated or unanticipated, direct or indirect, fixed or contingent, known or
unknown, under federal, state or common law or any other law or regulation, or
at equity, against Plaintiffs and Plaintiffs' Counsel or any of them, that are
based upon, or arise out of, the institution, prosecution, assertion or
resolution of the Litigation or the Settled Claims, including Unknown Claims.
9. D&T shall be deemed conclusively to have released the Plaintiffs
from only those claims or potential claims against Plaintiffs and Plaintiffs'
Counsel that are based upon, or arise out of, the institution, assertion,
prosecution or resolution of this Litigation and the Settled Claims, including
Unknown Claims, except that nothing herein releases any claim arising out of a
violation of the Stipulation or this Final Order or a violation by Plaintiffs of
the Confidentiality Orders in place in the Litigation.
10. Each member of the Class who did not timely and validly request
exclusion is barred and permanently enjoined from commencing and prosecuting,
either directly, derivatively, in a representative capacity, or in any other
capacity, against D&T
11
<PAGE>
and the Released Parties, any and all of the Settled Claims, including Unknown
Claims.
11. Each Plaintiff and Class Member, is hereby barred and permanently
enjoined, either directly, representatively, or in any other capacity, from (i)
instituting or prosecuting any action to the extent such action asserts any of
the claims included in the definition of Settled Claims, including Unknown
Claims, and (ii) collecting upon any judgment in connection with, arising out
of, or that is in any way related to any Settled Claims, including Unknown
Claims, unless appropriate provision satisfactory to the Court is made to assure
that the amounts to be collected will be available if necessary to meet the
obligations that may exist under the provisions for indemnification set forth
below as a consequence of such judgment; and (iii) entering into any other
settlement in connection with, arising out of, or that is in any way related to,
the Settled Claims, including Unknown Claims, unless such settlement provides
for releases of claims or claims-over of the settling party against D&T and the
other Released Parties as provided below, subject to the receipt by the settling
party of releases of claims-over from D&T co-extensive with those received from
the settling party;
12
<PAGE>
12. (a) All persons or entities, including without limitation the
Defendants and Insurers, are hereby barred and permanently enjoined, either
directly, representatively, or in any other capacity, from instituting or
prosecuting or continuing to prosecute, any action, claim or claim-over against
D&T or any other Released Party on whatsoever theory (whether by way of
third-or subsequent-party complaint, cross-claim, separate action or otherwise,
and whether under federal or state law) to recover in whole or in part any
liability, direct or indirect, of such person or entity to any Member of the
Class in connection with, arising out of, or that is in any way related to, the
Settled Claims, including Unknown Claims;
(b) Any and all claims and claims-over asserted or deemed
asserted by any persons or entities, including without limitation the
Defendants and Insurers, against D&T or any other Released Party or
whatsoever thereof (whether by way of third- or subsequent-party complaint,
cross-claim, separate action or otherwise, and whether under federal or state
law) to recover in whole or in part any liability, direct or indirect, of
such person or entity to any Member of the Class in connection with, arising
out of, or that is in any way related to, the Settled Claims, including
Unknown Claims, are hereby dismissed with prejudice and without costs to any
Party.
13
<PAGE>
(c) Any judgment by Plaintiffs or other members of the Class
as against any persons or entities, including without limitation the
Defendants and Insurers, on a claim with respect to which such person or
entity would have (but for the contribution bar ordered in PARA 9(a) above) a
legally valid and enforceable right to contribution from D&T or any other
Released Party, and that is in connection with, arising out of, or that is in
any way related to, the Settled Claims, including Unknown Claims, shall be
reduced by such percentage as reflects a determination of the relative fault
or culpability, if any, of D&T or the other Released Parties, as compared to
the relative fault or culpability of such other persons or entities.
(d) If necessary in order further to effectuate the intention
of the Parties that D&T and the other Released Parties shall have no liability
to any person or entity (including without limitation the Defendants or
Insurers) for contribution or indemnification with respect to any claim by
plaintiff or any Class Member against any person or entity that is in any way
related to the Settled Claims, including Unknown Claims, the Class and each
Member of the Class (i) shall reduce or credit against any judgment or
settlement (s)he, it or they may obtain against any person or entity the full
amount of any judgment or settlement such person or entity may obtain against
any Released
14
<PAGE>
Party on any claims-over on whatsoever theory (whether by way of third- or
subsequent-party complaint, cross-claim, separate action or otherwise) in
connection with, arising out of, or that is in any way related to, the
Settled Claims, including Unknown Claims, including, but not limited to,
claims-over that have been, could have been, or could be, alleged in this
litigation or in any other action; and (ii) shall obtain from such person or
entity for the benefit of D&T and the other Released Parties a satisfaction
in full of such person's or entity's judgment or settlement against D&T and
the other Released Parties.
(e) The Court expressly approves the agreement by Plaintiffs
and all other Members of the Class (the "Indemnifying Parties"), for good and
valuable consideration, receipt of which is acknowledged, to indemnify D&T
and the other Released Parties and to hold them harmless from and against any
and all liability (including amounts paid in settlement, subject to all the
other provisions of this Stipulation) with respect to:
(i) any claim by any Member of the Class which is a
Settled Claim, including Unknown Claims; and
(ii) claims-over on whatsoever theory (whether by way of
third-or subsequent-party complaint, cross-claim, separate action or
otherwise) by any person or entity to recover in whole or in part any
liability, direct or indirect, whether by
15
<PAGE>
way of judgment, settlement or otherwise, of such person or entity to any
Member of the Class in connection with, arising out of, or that is in any way
related to, the Settled Claims (including Unknown Claims), including without
limitation claims-over that have been, could have been or could be alleged in
this litigation or in any other action.
(f) The Court hereby expressly approves the further agreement
of the Parties that, in the event that any Members of the Class obtain any
recovery by judgment, settlement, or otherwise against any person or entity
(other than the Net Settlement Amount) that is related in any way to the
Settled Claims, appropriate provision (including delaying distribution of
amounts payable under a judgment and, in the case of settlement, obtaining
releases to protect the Released Parties from any liability to such persons
or entities on claims-over) shall be made to assure the effectuation of the
indemnity provided for herein. Any such recovery against any person or entity
who has not released any claims or claims-over against D&T and the other
Released Parties shall be held in escrow pursuant to order of this Court
until any claims or claims-over against D&T and the other Released Parties
are finally determined, subject to the other limitations and provisions of
this Settlement Stipulation.
16
<PAGE>
(g) It is further ordered that the foregoing provisions of
PARAS 11 and 12 with respect to reduction of judgment and effectuation of
indemnification are not intended to be exclusive, and nothing in PARA 12(f)
shall be deemed to modify, lessen or impair the indemnity obligations of the
Class or Class Members as set forth in PARA 12(e) hereof in any situation to
which the provisions contained in PARA 12(f) may not be applicable or may
fail to provide fully for the indemnity protection provided in PARA 12(e);
provided, however, that, to the extent that cash payments are required to
provide the Released Parties with the agreed-upon indemnity, (x) with respect
to a claim for indemnification from and against liability with respect to the
claim of any Member of the Class that is a Settled Claim, only funds received
by, or on behalf of, the Class or Class Members by virtue of any claim in the
Litigation or otherwise related to Settled Claims, other than the Net
Settlement Fund, may be used to satisfy the indemnification obligations
hereunder; provided, however, that, if a Class Member persists in prosecuting
its claim despite being notified that it is barred by this Settlement (and
fails to establish by Court order that it is not so barred), such
indemnification obligations may be payable out of any funds distributed or to
be distributed to such Member of the Class from the Settlement Fund or out of
any other funds of such Class
17
<PAGE>
Member; and (y) with respect to a claim for indemnification from and against
liability with respect to claims-over as provided in PARA 12(e)(ii), such
indemnification obligations shall be payable out of the additional recovery by
judgment or settlement and shall not under any circumstances be payable out of
the Settlement Sum or the Settlement Fund.
(h) The Court expressly approves the Parties' agreement that,
if, after the Effective Date, a claim-over is or has been asserted against
any Released Party as to which such Released Party is entitled to protection
under PARAS 11 and 12(a)-(g), such Released Party may select competent
counsel to defend against such claims. Legal Fees and expenses will be paid
out of the Settlement Fund (or any additional monies recovered by the Class),
subject to Court approval. Plaintiffs' Counsel shall at their expense, to
the best of their ability and so long as permitted by the forum court, take
control and direct the litigation strategy of the defense of such claim-over
only. If separate counsel is required as to any such claim-over, Plaintiffs'
Counsel shall select competent counsel approved by the Released Party, which
approval shall not be unreasonably withheld. Any legal fees and expenses
incurred by such counsel shall be paid out of the Settlement Fund (or any
additional monies recovered by the Class) in the same manner as provided for
herein as to the fees and expenses of Plaintiffs' Counsel. The Released
Parties shall cooperate fully in the defense of such claim-over, and shall
have the right (but shall not be obligated) to retain co-counsel to
participate in such defense at their expense. As between the Class Members
and D&T, the Class (or Members of the Class individually to the extent the
last sentence of this paragraph is applicable) shall have sole authority to
determine the timing and terms of any settlement of such claim-over;
provided, however, that no such settlement of any claim-over shall require
any financial contribution on the Released Party. If a claim-over is
asserted against any Released Party by any person or entity to recover any
liability of such person or entity with respect to a claim brought by Members
of the Class who are not prosecuting such claim on a common class basis, the
obligations set forth herein for defense of such claim-over shall be the
responsibility only of
18
<PAGE>
those the Class Members who are prosecuting the claim giving rise to such
claim-over.
13. It is further ordered that any claims or claims-over that have
been, or may in the future be, asserted in this or any other action against any
Released Party shall (if allowed) be severed and stayed for separate trial after
the trial of the claims of the Plaintiff(s) or the Class Member(s).
14. The Court finds and determines that, by reason of the Parties'
Settlement, there is no just reason for delay in finds expressly that this Final
Judgment is a final judgment upon fewer than all the claims or parties pursuant
to Fed. R. Civ. Pro. 54(b). The Clerk of the Court shall enter a final judgment
upon this Order in accordance with Fed. R. Civ. P 54(b).
15. Members of the Class who have validly and timely requested
exclusion may pursue their own individual remedies, if any.
16. The law firms representing Plaintiffs and the Class are hereby
awarded, from the Settlement Fund, attorneys' fees in the amount of $15.99
million, representing 25.32% of the Settlement Fund, and accrued interest, and
the reimbursement of their expenses in the amount of $463,191.94. Both amounts
shall be paid at the time indicated in the Stipulation. Plaintiffs' Co-Lead
Counsel are ordered to distribute the fees in their
19
<PAGE>
discretion to all Plaintiffs' Counsel in accordance with each firm's respective
contribution to the results obtained for the Class. In the event the Settlement
is cancelled or terminated, Plaintiffs' Counsel shall, within ten days of notice
of termination or cancellation, refund any and all Attorneys' Fees and Expenses
distributed to them from the Settlement Fund, together with accrued interest, in
accordance with the Stipulation. Each of Plaintiff's attorneys who receive fees
from the Settlement Fund, their partners, and/or shareholders remain subject to
the jurisdiction of this Court for purposes of enforcing the provisions of this
paragraph.
17. The Court reserves jurisdiction, without affecting the finality
of this Final Judgment, over: (a) implementation of this Settlement and any
award or distribution of the Settlement Fund, including interest earned thereon;
(b) disposition of the Net Settlement Fund; (c) enforcing and administering the
Stipulation and the transactions contemplated thereby, including any releases
executed in connection therewith; and (d) other matters related or ancillary to
the foregoing.
IT IS SO ORDERED.
/s/ Edward J. Lodge
----------------------------
United States District Judge
December 1, 1995
- -----------
Boise, Idaho
20
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -------------------------------------- x
IN RE MORRISON KNUDSEN CORPORATION : CONSOLIDATED
DERIVATIVE LITIGATION : C.A. No. 14032
- -------------------------------------- x
STIPULATION OF SETTLEMENT
THIS STIPULATION (the "Stipulation") is entered on this 26th day of
January, 1996 by and among the plaintiffs named below acting derivatively, all
defendants herein (collectively, the "Parties") and the Insurers by and through
their respective undersigned attorneys, all of whom state that:
I.
THE LITIGATION
This litigation began on February 8, 1995 when certain actions were filed
in the District Court for the Fourth District, Ada County, Idaho, and in the
Court of Chancery, State of Delaware in and for New Castle County (the
"Litigation"). A list of the cases comprising the Litigation is attached hereto
as Exhibit A. The plaintiffs ("Plaintiffs" are listed on Exhibit B), who are
stockholders in Morrison Knudsen Corporation ("MK"), filed the Litigation
against, among others, the undersigned defendants ("Defendants" are listed on
Exhibit C) alleging derivative claims relating to injuries allegedly sustained
by MK.
Plaintiffs believe that the claims they have asserted in the Litigation
have merit and that the evidence developed to date supports the claims asserted.
The Individual Defendants, as defined below, specifically deny any liability
whatsoever and have asserted numerous defenses to the claims and causes of
action against them, which they believe would be established if the Litigation
continued to conclusion. All Parties, however, recognize and acknowledge that
the
1
<PAGE>
expense and length of continued proceedings necessary to prosecute the
Litigation against the Individual Defendants through trials and appeals would be
substantial. The Parties also have taken into account the uncertain outcome and
risk of any litigation, especially complex actions such as the Litigation, as
well as the difficulties and delays inherent in such litigation and the
likelihood of protracted appellate review. All Parties recognize that these
considerations are particularly compelling in view of MK's financial condition
and MK management's view of the need to restructure to regain financial
stability and increase stockholder value. Moreover, the Parties have incurred
substantial legal fees and expenses to date and, if the Litigation were to
continue, would incur substantial additional legal fees and expenses.
The Parties and the Insurers have engaged in lengthy, arduous and intense
arms-length settlement negotiations. After months of such negotiations, they
reached the agreement embodied in this Stipulation. The Individual Defendants
without admitting or conceding liability, and the Plaintiffs without admitting
merit or the lack of merit of any claim or defense in the Litigation, wish to
avoid the costs, expenses, disruption and uncertainties associated with
continuation of the Litigation.
Plaintiffs and their counsel believe that the settlement set forth in
this Stipulation confers substantial benefits upon MK. Based upon their
evaluation, Plaintiffs and their counsel have determined that the settlement set
forth in this Stipulation is fair, reasonable and adequate, and in the best
interests of the Plaintiffs, the current holders of MK common stock and MK.
MK has, through the Special Committee, given extensive consideration to
all of the foregoing and has determined independently that the settlement
reflected herein is fair, reasonable and adequate to MK, provides MK with
adequate consideration and provides reasonably equivalent value for the claims
herein being released.
2
<PAGE>
It is the intention of the Parties and the Insurers that the proposed
settlement resolve all Settled Claims including Unknown Claims as defined in
paragraphs VII, A, 27 and 30 of this Stipulation. This Stipulation does not,
however, resolve the derivative claims of MK Rail which shall be governed by a
separate Stipulation of Settlement.
II.
PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION
MK Derivative Counsel have conducted discovery during the prosecution of
the Litigation. This discovery has included (i) the review and analysis of
hundreds of thousands of documents produced by the Defendants, (ii) interviews
of numerous individuals who either are or were employees of MK, (iii) the review
and analysis of documents obtained from third parties regarding MK, (iv) a
review of the insurance proceeds potentially available, (v) a review of the
financial condition of MK and MK's needs in light of its current financial
crisis, (vi) depositions of the current Chairman of the Board of Directors, the
Chief Financial Officer of MK and an Individual Defendant, and (vii) certain
third party interviews. MK Derivative Counsel also have researched thoroughly
the applicable law with respect to the claims made against the Individual
Defendants and the potential defenses thereto. Through such analysis and
evaluation of the facts and law supporting the Plaintiffs' claims, MK Derivative
Counsel and Plaintiffs have concluded that this settlement is in the best
interests of MK.
Beginning in May and continuing through September, 1995, the Parties and
the Insurers engaged in long, arduous negotiations under the direction of
retired United States District Court Judge J. Lawrence Irving. Based upon these
settlement negotiations, the aforementioned discovery and analysis, and
subsequent negotiations, the Parties reached a settlement that all Parties
believe is in the best interests of the Plaintiffs, MK and MK's stockholders.
3
<PAGE>
III.
CLAIMS OF PLAINTIFFS
In the Litigation, brought as a derivative action against the Individual
Defendants, Plaintiffs assert claims for violation of certain common law
fiduciary duties owed by the Defendants to MK. They seek damages based upon
allegations, among others, that the Individual Defendants failed to
appropriately conduct the Company's business and affairs and to adequately
supervise certain management personnel.
Plaintiffs believe that the Litigation has substantial merit. Entering
into or carrying out this Stipulation (or the exhibits hereto) and any
negotiations or proceedings related hereto shall not in any event be construed
as, or deemed to be evidence of, an admission or concession by the Plaintiffs
with regard to the merits of their claims and shall not be offered or received
in evidence in any action or proceeding in any court, administrative agency or
other tribunal for any purpose whatsoever other than to enforce the provisions
of this Stipulation and exhibits; except that this Stipulation and exhibits
hereto may be filed in the Litigation or related litigation as evidence of the
settlement or in any subsequent action against or by the Defendants or the
Released Parties to support a defense of RES JUDICATA, collateral estoppel,
accord and satisfaction, release or other theory of claim or issue preclusion,
or similar defense.
IV.
BENEFITS OF SETTLEMENT TO MK
MK Derivative Counsel recognize and acknowledge the expense and length of
continued proceedings necessary to prosecute the Litigation against the
Defendants through trial and appeals. MK Derivative Counsel also have taken
into account the uncertain outcome and the risk of any litigation, especially in
complex actions such as the Litigation, as well as the difficulties and delays
inherent in such litigation. MK Derivative Counsel have taken into account the
4
<PAGE>
strengths and uncertainties of the claims asserted in the Litigation, the
possible defenses to the claims asserted and the substantial benefits of the
settlement to MK. MK Derivative Counsel have considered the current financial
condition of MK, and its impact on MK's ability to conduct future business, the
effects of the Litigation upon MK's need to carry out financial restructuring
and MK Derivative Counsel's belief that, given MK's current financial condition,
the settlement has obtained for MK as much consideration as practicably
possible under the circumstances. MK Derivative Counsel, therefore, have
determined that the settlement set forth in this Stipulation is in the best
interests of the Plaintiffs and MK.
The Special Committee has likewise taken into account the strength and
uncertainties of the claims asserted in litigation, the possible defenses to the
claims asserted, and the substantial benefits of the settlement to MK.
Similarly, the Special Committee has considered the financial conditions of MK,
its impact on MK's ability to conduct future business and the effects of the
Litigation on MK's need to carry out financial restructuring and that the
settlement has obtained for MK as much consideration as is practically possible
under the circumstances and is, therefore, in the best interests of MK and its
stockholders.
V.
DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
The Individual Defendants in the Litigation have denied and continue to
deny each and every claim and contention alleged by the Plaintiffs in the
Litigation. They have asserted and continue to assert many defenses thereto and
have expressly denied and continue to deny any wrongdoing or legal liability
whatsoever arising out of the conduct alleged in the Litigation. Director
Defendants recognize that the current financial condition of MK is tenuous and
that the completion of this settlement is critical to the efforts to restructure
MK and to maximize stockholder value. Neither this Stipulation nor any document
referred to herein nor any action
5
<PAGE>
taken to carry out this Stipulation is, may be construed as or may be used as an
admission by or against the Defendants, or any of them, of any fault, wrongdoing
or liability whatsoever. Entering into or carrying out this Stipulation or the
exhibits hereto or any negotiations or proceedings related hereto shall not in
any event be construed as, or deemed to be evidence of, an admission or
concession with regard to the denials or defenses of any of the Defendants and
shall not be offered or received in evidence in any action or proceeding in any
court, administrative agency or other tribunal for any purpose whatsoever, other
than to enforce the provisions of this Stipulation and the exhibits hereto or
the provisions of any related agreement or release; except this Stipulation and
the exhibits hereto may be filed in this Litigation or in related litigation as
evidence of this settlement or in any subsequent action against or by the
Defendants or the Released Parties to support a defense of RES JUDICATA,
collateral estoppel, accord and satisfaction release or other theory of claim or
issue preclusion, or similar defense.
VI.
BENEFITS OF SETTLEMENT TO INDIVIDUAL DEFENDANTS
Individual Defendants have concluded that it is desirable that the
Litigation be settled in a manner and upon the terms and conditions set forth
herein in order to avoid the expense, inconvenience and distraction of further
legal proceedings and to put to rest the Settled Claims, including Unknown
Claims (as defined below), asserted by the Plaintiffs on behalf of MK. In
determining whether to enter into and/or to perform the Stipulation, the
Individual Defendants also have considered a number of issues including the
uncertain outcome and risk of any litigation, especially in complex actions such
as the Litigation, as well as the difficulties and delays inherent in such
litigation and the strengths and uncertainties of the claims and defenses
asserted in the Litigation. Defendants also have considered the current
financial condition of MK
6
<PAGE>
and the need to resolve the Litigation on terms that will enable MK to carry out
a financial restructuring.
VII.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, it is hereby stipulated and agreed by and among the
Plaintiffs (on behalf of themselves and MK), the Defendants and the Insurers by
and through their respective counsel of record that, subject to the approval of
the Delaware Court, the Litigation and all claims that have been or could have
been asserted therein shall be finally and fully compromised and settled and the
Litigation shall be dismissed by the Delaware Court and the Idaho Court on the
merits and with prejudice upon and subject to the terms and conditions of the
Stipulation as follows:
A. DEFINITIONS.
As used in this Stipulation, the following terms shall have the defined
meanings set forth below:
1. "MK" means Morrison Knudsen Corporation.
2. "MK Rail" means MK Rail Corporation.
3. "Individual Defendants" means William J. Agee, John Arrillaga,
James F. Cleary, Michael J. Farrell, Joseph G. Fearon, Lindsay E.
Fox, Stephen R. Grant, Stephen G. Hanks, Christopher B. Hemmeter,
John P. Herbots, Peter S. Lynch, Robert A. McCabe, Irene C.
Peden, Gerard R. Roche, John W. Rogers, Jr., Gunnar E. Sarsten,
Thomas J. Smith, Robert Tinstman, and Peter Ueberroth.
7
<PAGE>
4. "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
Ueberroth.
5. "Parties" means the Derivative Plaintiffs, MK, and the Individual
Defendants.
6. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal
representative, trust, unincorporated organization or any other
type of legal entity and their heirs, predecessors, successors,
representatives and assigns.
7. "Idaho Court" means the District Court, Ada County, Idaho.
8. "Delaware Court" means the Court of Chancery, New Castle County,
Delaware.
9. "Great American" means Great American Insurance Company.
10. "Fidelity" means The Fidelity and Casualty Company of New York.
11. "Reliance" means Reliance Insurance Company.
12. "CNA" means Continental Casualty Company.
13. "Settlement" means a full and final compromise settlement and
dismissal of the MK Derivative Actions and all claims that have
been or could have been asserted therein on and subject to the
terms and conditions of this Stipulation.
14. "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.
15. "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
8
<PAGE>
AL., Case No. 94-478; and SUSSER V. MK RAIL, ET AL., Case No. 94-
477 (the "MK Rail Securities Actions").
16. "Settlement Account" means the fund created after Final Court
Approval of the Securities Actions and Derivative Actions.
17. "Shareholder Notice Account" means a fund set up after the entry
of the Preliminary Order of the settlement and subject to court
supervision which is to be used to pay the costs of Notice. Such
account shall be controlled by, and all payments from such
account shall be subject to the approval of, James A. Skarzynski,
counsel to Great American, Marian Rosner, and Mack Redford,
designated MK Derivative Counsel.
18. "MK Derivative Plaintiffs" means the named plaintiffs
individually and derivatively on behalf of MK. "MK Rail
Derivative Plaintiff" means the named plaintiff individually and
derivatively on behalf of MK Rail (collectively "Derivative
Plaintiffs").
19. "MK Derivative Counsel" means those individuals and firms set
forth on Exhibit D. "MK Rail Derivative Counsel" means the
individuals and firms set forth on Exhibit E (collectively
"Derivative Counsel").
20. "Defendants" means MK and the Individual Defendants.
21. "Bank Syndicate" means the group of financial institutions that
provide financing to MK.
22. "Idaho Derivative Cases" means: DEKLOTZ, ET AL. V. MK, ET AL.,
Case No. CV9500605; FLINN V. AGEE, ET AL., Case No. C9500765;
STEINER V. AGEE, ET AL., Case No. CV9500745; WOHLGELERNTER V.
AGEE, ET AL., Case No. CV9500656.
9
<PAGE>
23. "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.
24. "MK Derivative Actions" means the Idaho Derivative Cases and the
Delaware Derivative Cases brought derivatively on behalf of MK.
"MK Rail Derivative Action" means WOHLGELERNTER V. AGEE, Case No.
C 95000656 (collectively "Derivative Actions").
25. "Final Court Approval" means that (a) an order has been entered
by the Delaware Court in substantially the form set forth as
Exhibit I and has become final and non-appealable (i) approving
the Settlement on terms mutually satisfactory to the Parties and
the Insurers and (ii) 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 MK is providing for the
Settled Claims, including Unknown Claims, and (iii) setting the
fees, expenses and costs for MK Derivative Counsel; and (b) the
Idaho Court has entered an order which becomes final and non-
appealable dismissing the Idaho Derivative Cases on the merits
with prejudice and without costs except as provided herein.
26. "Effective Date" means the date when the following has occurred:
(1) Final Court Approval and (2) satisfaction of all other
conditions to the Settlement set forth in this Stipulation.
10
<PAGE>
27. "Released Parties" or "Released Party" means the Defendants and
the Insurers and all of their respective predecessors, successors
and present, former and future officers, directors, employees,
agents, attorneys, stockholders, investors, insurers, reinsurers,
underwriters, investment bankers, advisors, affiliates,
associates, present, former or future parents, subsidiaries or
affiliates and each of their assigns, representatives, heirs,
executors and administrators. Released Party excludes Deloitte &
Touche L.L.P.
28. "Settled Claims" means collectively all claims including "Unknown
Claims," demands, rights, liabilities, and causes of action of
every nature and description whatsoever in law or equity, known
or unknown, asserted or that might have been asserted either
directly or derivatively including, without limitation, claims
for negligence, gross negligence, contribution or indemnity,
breach of duty of care and/or breach of duty of loyalty and/or
breach of duty of candor, fraud, negligent misrepresentation,
breach of fiduciary duty, or violations of any state or federal
statutes, rules or regulations, either directly, in a
representative capacity or in any other capacity by MK, a
stockholder of MK, or any Plaintiff against any of the Defendants
or the Released Parties (i) arising out of, relating to, or in
connection with, any of the acts, omissions, facts, events,
matters, transactions or occurrences referred to, or which could
have been referred to, in any of the complaints or other
pleadings filed in the Litigation or otherwise alleged, asserted
or contended in the Litigation based upon facts that were or
could have been alleged in the complaints filed in the Litigation
on or before June 6, 1995, (ii) arising out of, relating to, or
in connection with any compromise or settlement of claims that
were or could have been asserted by or against any Party to the
Litigation and/or the Securities
11
<PAGE>
Actions, or any of the Insurers, or (iii) that (x) otherwise,
without limiting the foregoing, in any manner whatsoever relate
to the formation, operation, administration, finances, securities
or business of MK on or before the date of filing the Stipulation
of Settlement and (y) are not insured under policy No. 444-57-00
issued by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania to MK and policies excess thereof. Notwithstanding
the foregoing, nothing herein shall release or apply to any claim
or claims that have been asserted on behalf of MK Rail in the MK
Rail Derivative Action, or that may be asserted by a Plaintiff or
stockholder of MK in any capacity other than as a purchaser,
seller or holder of MK shares.
29. "Settlement Amount" means $9,850,000.00 in cash contributed by
Great American.
30. "Derivative Settlement Memoranda" means the Parties' memorandum
of understanding executed September 20, 1995, regarding the
settlement of the Litigation.
31. "Unknown Claims" means Settled Claims that the Plaintiffs or MK
or its stockholders do not know or suspect to exist in their
favor at the time of the release of the Released Parties, which,
if known by them, might have affected their settlement with the
Defendants and release of the Released Parties or other action,
including, but not limited to, the decision not to object to the
settlement. Plaintiffs expressly waive on behalf of themselves
and the stockholders of MK and MK any and all rights that they
may have under any statute or common law principle that would
limit the effect of the foregoing releases to those claims
actually known or suspected to exist at the time of execution of
this Stipulation, including the provisions of Section 1542 of the
California Civil Code, or other
12
<PAGE>
similar provision of any other law, to the extent deemed
applicable (notwithstanding that the Stipulation does not provide
for the application of California law), which provides as
follows:
Section1542 GENERAL RELEASE; EXTENT. A general release does
not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of the execution
of the release, which if known by him, must have materially
affected his settlement with the debtor.
32. "Special Committee" means a committee composed of Robert S.
Miller, Chairman of the Board of Directors of MK, and Robert
Tinstman, President and CEO of MK, appointed by the Board of
Directors of MK with the full authority of the Board of Directors
to direct, defend, settle or prosecute the Litigation.
33. "Bank" means the financial institution in Boise, Idaho that shall
be exclusively authorized to hold the Derivative Cash Account and
the Shareholder Notice Account subject to this Stipulation, and
orders of court.
34. "Notice" means the notice provided to the stockholders of MK as
approved by the Delaware Court and Idaho Court.
B. ESTABLISHMENT OF DERIVATIVE CASH ACCOUNT.
1. At the direction of the Individual Defendants and the other
Released Parties, on or before October 11, 1995, Great American
paid $9.85 million into a joint interest bearing account
("Derivative Cash Account") at the Bank controlled jointly by
James A. Skarzynski, Counsel for Great American, Marian Rosner
and Mack Redford, designated Derivative Counsel, Lead Counsel in
the Securities Action, and counsel for the Individual Defendants.
2. The Bank shall invest and reinvest the funds in the Derivative
Cash Account in United States Treasury bills, having a maturity
no greater than 26 weeks, and shall
13
<PAGE>
be authorized by the Delaware Court to withdraw and/or disburse
funds from the Derivative Cash Account solely with the
authorization of all counsel named above as controlling the
respective account, in accordance with the terms and conditions
of this Stipulation.
3. Upon the entry of the Preliminary Order by the Delaware Court,
counsel controlling the Derivative Cash Account, as set forth
above, shall direct the Bank to pay $50,000 into the Shareholder
Notice Account to be used to pay the cost of printing and mailing
Notice to MK stockholders in substantially the form set forth on
Exhibit F attached hereto. With approval of the Delaware Court
additional monies may be taken from the Derivative Cash Account
to pay for the costs of printing and mailing such Notice. As
soon as practicable, but in no event later than the Effective
Date, any funds remaining in the Shareholder Notice Account after
the payment of the above cost of the Notice shall be repaid to
the Derivative Cash Account. Under no circumstances shall MK
Derivative Counsel be required to pay for the costs of Notice.
C. THERAPEUTIC MEASURES TO BE TAKEN BY MK.
1. 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.
14
<PAGE>
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 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 By-Laws. 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 MK 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
15
<PAGE>
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 or group travel and accident
insurance plan, he or she may continue 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 G 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.
16
<PAGE>
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 any 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 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 Stipulation, 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
17
<PAGE>
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.
D. TRANSFER OF FUNDS FROM THE DERIVATIVE CASH ACCOUNT.
1. Upon the satisfaction of the conditions set forth below, the
funds remaining in the Derivative Cash Account provided for in
paragraph VII, B above, together with all interest earned
thereon, will be paid and transferred as follows:
a. MK Derivative Counsel shall be paid such fees as may be
awarded by the Delaware Court (which fees shall in no event
exceed $2,955,000) and such interest, reasonable costs and
expenses 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 shall be immediately transferred to the
Settlement Account established in the Securities Litigation
in such manner as MK shall have agreed.
2. The conditions to any payment or transfer of funds from the
Derivative Cash Account, other than transfers to the Shareholder
Notice Account as set forth in paragraph VII, B, 3, are:
18
<PAGE>
a. The Effective Date shall have occurred; and
b. an order has been entered which has become final and non-
appealable dismissing with prejudice STATE BOARD OF
ADMINISTRATION OF FLORIDA, ETC. V. AGEE, ET AL., Case No. CV
9502463 filed in the Fourth District Court of Ada County,
Idaho; and
c. (i) final judgments have been entered which have become non-
appealable approving the settlements of the Securities
Actions and the MK Rail Derivative Action; and (ii) all
other conditions to such settlements have been satisfied or
waived to permit such settlements to be consummated
contemporaneously with this Settlement and either:
d. (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 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,
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 the Bank
Syndicate has given all waivers and consents necessary to
permit MK to effect this settlement; or
e. 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
19
<PAGE>
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 Derivative Cash Account to make
such payments into the Settlement Account, and to pay for
attorneys' fees and costs all in form and substance
satisfactory to the Parties and the Insurers. 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; and
f. All other conditions to the consummation of the Settlement
set forth herein have been satisfied or waived.
3. All funds in the Derivative Cash Account shall be (a) used to pay
the Notice expenses and costs described in paragraph VII, B, 3;
(b) paid to MK Derivative Counsel pursuant to paragraph VII, D,
1, a; (c) paid into the Settlement Account pursuant to this
paragraph VII, D, 1, b above; or,(d) if this Settlement is
terminated or not consummated, repaid to Great American.
4. If a Bankruptcy Case has been commenced in respect of MK 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 Derivative Cash Account to be
recoverable by MK as a preference, voidable transfer, fraudulent
transfer or similar transaction, the releases of the Individual
Defendants and the Insurers shall remain in full force and
effect.
20
<PAGE>
E. PRELIMINARY ORDER, NOTICE AND SETTLEMENT HEARING
1. As promptly as practicable after the execution hereof by all
Parties hereto, the undersigned counsel shall submit this
Stipulation to the Delaware Court and request a Preliminary Order
scheduling a date for a hearing before the Delaware Court (the
"Settlement Hearing") to consider whether the settlement herein
should be approved as fair, reasonable, and adequate, and to
consider the application of MK Derivative Counsel for an award of
attorneys' fees and reimbursement of costs and expenses and
interest, and providing that Notice shall be sent to all
stockholders of MK substantially in the form attached hereto as
Exhibit F.
2. The Preliminary Order shall specifically include provisions that,
among other things:
a. Approve the Notice for mailing to stockholders of record as
of January 1, 1996, notifying them of the Settlement Hearing
and of their right to object to the settlement;
b. Direct the parties to mail or cause to be mailed Notice to
all current stockholders of MK, which Notice shall request
that nominees for current stockholders send the Notice to
all beneficial owners of MK shares as soon as practicable
after receipt of the Notice;
c. Direct counsel for Defendants to file with the Delaware
Court proof of the mailing of the Notice;
d. Schedule a hearing to be held as soon as practicable to
consider and determine (i) whether the proposed Settlement
should be approved as fair, reasonable,and adequate, and
that it provides reasonably equivalent value to MK for the
releases being provided, and as being in the best interests
21
<PAGE>
of MK and its stockholders; (ii) whether an order approving
the Settlement and entering a final judgment should be
entered thereon, dismissing the Litigation on the merits and
with prejudice; and (iii) whether the application of MK
Derivative Counsel for an award of attorneys' fees, costs,
interest and expenses is reasonable and should be approved;
e. Provide that objections to the proposed Settlement and entry
of a final judgment approving the Settlement or the
application of MK Derivative Counsel for an award of
attorneys' fees, costs, expenses and interest shall be heard
and any papers submitted in support of said objection shall
be received and considered by the Delaware Court at the
Settlement Hearing only if on or before the date to be
specified in the Preliminary Order (which shall be 10 days
prior to the Settlement Hearing) Persons making objections
shall file a notice of their intention to appear and copies
of any papers in support of their position with the clerk of
the court and serve such notice and papers on:
Joseph Rosenthal
Rosenthal, Monhait, Gross & Goddess, P.A.
First Federal Plaza
P. O. Box 1070
Wilmington, DE 19899
Kenneth J. Nachbar
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P. O. Box 1347
Wilmington, DE 19899-1347
R. Franklin Balotti
Richards, Layton & Finger
One Rodney Square
P. O. Box 551
Wilmington, Delaware 19899
22
<PAGE>
Arthur G. Connolly
Connolly, Bove, Lodge & Hutz
1220 Market Street
Wilmington, Delaware 19899
f. Provide that the Settlement Hearing may, from time to time
and without further notice, be continued or adjourned by
order of the Delaware Court;
g. Provide that all papers in support of the Settlement and any
application for attorneys' fees, interest, costs and
expenses shall be filed prior to the Settlement Hearing;
h. Provide that all reasonable costs incurred in printing,
mailing or otherwise providing Notice to the stockholders of
this settlement shall be paid from the Shareholder Notice
Account;
i. Provide that if the Settlement is disapproved, cancelled or
terminated in accordance with the terms of the Settlement
Memorandum or this Stipulation, then the Settlement
Memorandum and the Stipulation shall have no force and
effect and all negotiations, proceedings and statements made
in connection herewith shall be without prejudice to the
right of any Person and the Parties to the Litigation shall
be restored to their respective positions existing as of
June 5, 1995, provided however, that expenses of printing,
mailing and otherwise providing Notice, incurred but not yet
paid, shall be paid out of the Shareholder Notice Account as
provided above;
j. Provide that, pending final determination of whether the
settlement should be approved, all discovery and other
proceedings in the Litigation are stayed; and
23
<PAGE>
k. Provide that, after the Settlement Hearing, all Parties
shall move the Idaho Court to dismiss the Idaho Cases with
prejudice, without costs and, except as provided herein,
without further notice to the stockholders.
F. APPLICATION FOR COUNSEL FEES
1. At the Settlement Hearing MK Derivative Counsel may apply to the
Delaware Court for an award of counsel fees and interest for
services rendered by them and for reimbursement of costs and
expenses. Defendants take no position whether or not such fees,
expenses, costs and interest should be awarded. Subject to
Delaware Court approval, attorneys' fees, costs, interest and
expenses will be paid entirely out of the Derivative Cash
Account. In no event shall the amount of such fee request exceed
$2,955,000 exclusive of costs, expenses and interest.
2. In their application, Plaintiffs will specify the amount of
attorneys' fees sought. It is agreed that the procedure for, and
the allowance or disallowance by the Delaware Court of any
application of MK Derivative Counsel for attorneys' fees,
interest, costs and expenses to be paid out of the Derivative
Cash Account are to be considered by the Delaware Court
separately from the Delaware Court's consideration of the
fairness, reasonableness and adequacy of the Settlement as set
forth in the Stipulation. Any order or proceedings related to
the attorneys' fees, interest, costs and expenses, or reversal or
modification thereof, shall not operate to terminate or cancel
the Stipulation or to affect or delay the finality of the final
judgment entered in accordance with this Stipulation.
24
<PAGE>
G. FINAL JUDGMENT TO BE ENTERED BY COURT APPROVING THE SETTLEMENT
1. If the Settlement, including any modification thereto made with
the consent of the Parties and the Insurers as provided herein,
is approved by the Delaware Court, and the Settlement has not
been terminated by the Parties or the Insurers pursuant to the
Stipulation and all conditions to the consummation of the
Settlement other than the entry of a final judgment have
otherwise been satisfied or waived, the Parties shall ask the
Delaware Court to enter a final judgment substantially in the
form of Exhibit I attached hereto that shall:
a. Approve the Settlement as fair, reasonable and adequate to
the plaintiffs, MK and its stockholders;
b. Find that MK received reasonably equivalent value for the
releases provided to the Individual Defendants and Released
Parties;
c. Find the terms of this Stipulation to be valid and
enforceable and direct consummation of the Settlement in
accordance with the terms and provisions of this
Stipulation;
d. Dismiss the Delaware Derivative Cases in their entirety
against all Defendants with prejudice and without cost to
any Party as against any other Party;
e. Adjudge that, as more fully described herein, the Plaintiffs
and MK shall be deemed conclusively to have released the
Settled Claims, including Unknown Claims, against the
Individual Defendants and Released Parties. Notwithstanding
that any stockholder or MK may hereafter discover facts in
addition to or different from those which Plaintiffs or MK
now know or believe to be true with respect to the
Litigation and the Settled Claims,
25
<PAGE>
including Unknown Claims, or with respect to the subject
matter of the release, the Plaintiffs, MK and all MK
stockholders upon the Effective Date shall be deemed to
fully, finally and forever to have settled and released any
and all Settled Claims, including Unknown Claims, against
the Individual Defendants and Released Parties, including
all claims known or unknown, suspected or unsuspected,
contingent or non-contingent, which now exist or heretofore
have existed and without regard to subsequent discovery or
existence of any such different or additional facts. Upon
the Effective Date, Individual Defendants shall be deemed
conclusively to have released the Plaintiffs and MK
Derivative Counsel only from those claims or potential
claims against Plaintiffs and MK Derivative Counsel that are
based upon or arise out of the institution, prosecution,
assertion or resolution of the Litigation and the Settled
Claims, including Unknown Claims, provided however, such
releases shall not extend to claims arising out of any
violations of this Stipulation;
f. Bar and permanently enjoin each Plaintiff and the
stockholders of MK from prosecuting the Settled Claims,
including Unknown Claims, against the Individual Defendants
and Released Parties;
g. Bar and permanently enjoin each Plaintiff and the
stockholders of MK, either directly or representatively, or
in any other capacity from instituting or prosecuting any
action against any person other than the Released Parties,
to the extent that such action asserts any claim included in
the definition of Settled Claim, including Unknown Claims
unless (i) appropriate provision satisfactory to the
Delaware Court is made to assure
26
<PAGE>
that the amounts to be collected pursuant to any Judgment
will be available, if necessary, to meet the obligations
that may exist under the provisions for indemnification set
forth below in Paragraphs VII, G, 1, i and j as a
consequence of such judgment, or (ii) any settlement of such
claims provides for releases of claims or claims over of the
settling party against the Released Parties co-extensive
with those received by the Released Parties herein;
h. For the purpose of effectuating the Parties' intention to
protect the Released Parties from claims or claims-over of
third parties arising out of the Settled Claims, including
Unknown Claims:
(i) Bar and permanently enjoin all Persons, subject to the
jurisdiction of the Court, either directly,
representatively or in any other capacity from
instituting or prosecuting or continuing to prosecute,
any action, claim or claim-over against any Released
Party on whatsoever theory (whether by way of third
party or subsequent party complaint, cross-claim,
separate action or otherwise, and whether under federal
or state law) to recover in whole or in part any
liability, direct or indirect, of such Person to any
Plaintiff or stockholder of MK in connection with,
arising out of, or which is in any way related to, the
Settled Claims, including Unknown Claims;
(ii) Dismiss with prejudice and without costs any claims or
claims-over asserted or deemed asserted by any Person
against any Released Party on whatsoever theory
(whether by way of third-party or subsequent-party
complaint, cross-claim, separate action or
27
<PAGE>
otherwise, and whether under federal or state law) to
recover in whole or in part any liability, direct or
indirect, of such Person to any Plaintiff or
stockholder of MK in connection with, arising out of,
or which in any way related to, the Settled Claims,
including Unknown Claims;
(iii)Order that any judgment by the Plaintiffs or
stockholders of MK as against any Person on a claim
with respect to which such Person would have (but for
the contribution bar ordered set forth above) a legally
valid and enforceable right to contribution from any
Released Party and that is in connection with, arising
out of, or in any way related to, the Settled Claims,
including Unknown Claims, shall be reduced by such
percentage as reflects a determination of the relative
fault or culpability, if any, of the Released Parties,
as compared to the relative fault or culpability of
such Person;
(iv) Order that, if necessary in order to further effectuate
the intention of the Parties that the Released Parties
shall have no liability to any Person for contribution
or indemnification with respect to any claim by
Plaintiffs or any stockholder of MK against any Person
with respect to the Settled Claims, including Unknown
Claims, the Plaintiffs and each stockholder of MK shall
reduce or credit against any judgment or settlement he,
she or it may obtain against any Person the full amount
of any judgment or settlement such Person may obtain
against any Released Party on any of the claims-over on
whatsoever theory (whether by way of third-party or
28
<PAGE>
subsequent-party complaint, cross-claim, separate
action or otherwise) in connection with or arising out
of, or which is in any way related to, the Settled
Claims, including Unknown Claims, including but not
limited to claims-over that have been, could have been,
or could be alleged in this Litigation or in any other
action; and shall obtain from such Person for the
benefit of the Released Parties a satisfaction in full
of such Person's judgment or settlement against the
Released Parties;
i. Approve the agreement of Plaintiffs and stockholders of MK
that for good and valuable consideration, the receipt of
which is hereby acknowledged, each Plaintiff and each
stockholder of MK indemnifies the Individual Defendants and
the Released Parties and holds them harmless from and
against any and all liability including amounts paid in
settlement and reasonable costs of defense with respect to
any claim made against such Individual Defendant or Released
Party that is a Settled Claim, including an Unknown Claim or
a claim over under whatsoever theory (whether by way of
third- or subsequent-party claimant, cross-claim or separate
action or otherwise) by any Person arising out of or in any
way related to the Settled Claims, including Unknown Claims,
including without limitation, claims over that have been, or
could have been alleged in this Litigation; provided that
the obligation of each Plaintiff or stockholder of MK to
indemnify and hold harmless is limited to the amount
obtained by such Plaintiff or stockholder of MK, if any, as
a result of any claims made
29
<PAGE>
against the Person asserting claims against an Individual
Defendant or Released Party for which indemnification is
sought;
j. Approve the further agreement of the Parties and the
Insurers that in the event that any Person obtains any
recovery by judgment, settlement or otherwise against any
Individual Defendant or Released Party that is related in
any way to the Settled Claims, including Unknown Claims,
appropriate provision (including delaying distribution of
the amounts payable under a judgment and, in case of
settlement, obtaining releases to protect an Individual
Defendant or a Released Party from any liability to such
Persons on claims over) shall be made to assure the
effectuation of the indemnity provided herein. In such
event, any recovery against a Person that has not released
any claims or claims over against an Individual Defendant or
a Released Party shall be held in escrow pursuant to Order
of this Court until any claims or claims over against a
Released Party are finally determined, subject to the other
limitations and provisions of this Stipulation;
k. Order that the foregoing provisions of this Stipulation with
respect to reduction of judgment and effectuation of
indemnification are not intended to be exclusive and nothing
herein shall be deemed to modify, lessen or impair the
indemnity obligations of MK in any situation to which the
provisions apply;
l. Approve the agreement of MK Derivative Counsel that should
an action be brought against the Released Parties based upon
the Settled Claims, including Unknown Claims, they shall
cooperate with the Released Parties
30
<PAGE>
in moving for appropriate relief in accordance with this
Stipulation at no cost to the Released Parties;
m. Determine that by reason of the Parties' Settlement there is
no just reason to delay and find expressly that the final
judgment is a final judgment for purposes of appeal;
n. Determine that the Stipulation and any proceedings in
connection herewith are not, and should not in any event, be
offered or received as evidence of a presumption, concession
or admission of any misrepresentation or omission in any
statement or written document made by any Released Party or
offered or received as evidence of a presumption, concession
or any admission of liability, fault, wrong-doing or any
other dereliction of duty in this Litigation or any other
civil, criminal, bankruptcy or administrative action or
proceeding, provided however, that reference may be made to
this Stipulation and the Settlement in such proceedings as
may be necessary to effectuate the provisions of this
Stipulation;
o. Reserve jurisdiction without affecting the finality of the
final judgment for the purposes of implementing and
enforcing the settlement embodied in the Stipulation.
H. CONDITIONS OF SETTLEMENT
1. This Stipulation shall be subject to the following conditions
and, except as provided herein, shall be cancelled and terminated
unless:
31
<PAGE>
a. The Delaware Court shall enter a Preliminary Order as
required by Section VII, E above;
b. The Idaho Court shall enter an order approving the Notice;
c. The Delaware Court shall enter a final judgment as required
by Section VII, G above;
d. The Idaho Court shall dismiss the Idaho Derivative Cases
with prejudice and without costs, except as provided herein;
e. An Order has been entered which has become final and non-
appealable dismissing with prejudice STATE BOARD OF
ADMINISTRATION OF FLORIDA V. AGEE, ET AL., Case No. CVOC
950243 filed in the Fourth District Court of Ada County,
Idaho;
f. The Effective Date shall have occurred and the conditions to
transfer of the Derivative Cash Account set forth in Section
VII, D above shall have been satisfied or waived.
I. EFFECTS OF TERMINATION OF THE SETTLEMENT
1. If the Effective Date does not occur or if this Stipulation is
disapproved, terminated or cancelled pursuant to its terms:
a. The funds remaining in the Derivative Cash Account and the
Shareholder Notice Account shall be returned to Great
American;
b. All Parties shall be deemed to have returned to their
respective litigation positions as of June 5, 1995;
c. All Parties shall proceed in all respects as if this
Stipulation had not been executed and the related orders and
judgments had not been entered
32
<PAGE>
preserving in that event all of their respective claims and
defenses in the Litigation; and
d. All releases given in this Stipulation shall be null and
void.
J. EXTENT OF RELEASES
1. From and after the Effective Date:
a. Plaintiffs acting in their derivative capacities, on behalf
of themselves, their heirs, executors and administrators,
successors and assigns and any Person(s) they represent
including without limitation all stockholders of MK, and
their respective present and former parents, subsidiaries,
affiliates, associates, officers, directors, employees and
agents, attorneys and consultants insofar as any of such
Persons are acting on behalf of any Plaintiff, shall
release, remise, acquit and forever discharge each of the
Individual Defendants and Released Parties, their respective
affiliates, associates, legal representatives, and the
heirs, executors and administrators, successors and assigns
of each, of and from every asserted or potential claim,
right or cause of action, under federal, state or common
law, or any other law, including without limitation claims
for negligence, gross negligence, contribution or indemnity,
breach of duty of care and/or duty of loyalty and/or duty of
candor, fraud, negligent misrepresentation, breach of
fiduciary duty or violations of any state or federal
statutes, rules or regulations, known or unknown, that has
been, might have been, or might be asserted (i) arising out
of, relating to, or in connection with, any of the acts,
omissions, facts, events, matters, transactions or
occurrences
33
<PAGE>
referred to, or which could have been referred to, in any of
the complaints or other pleadings filed in the Litigation or
otherwise alleged, asserted or contended in the Litigation
based upon facts that were or could have been alleged in the
complaints filed in the Litigation on or before June 6,
1995, (ii) arising out of, relating to, or in connection
with any compromise or settlement of claims that were or
could have been asserted by or against any Party to the
Litigation and/or the Securities Actions, or any of the
Insurers, or (iii) that (x) otherwise, without limiting the
foregoing, in any manner whatsoever relate to the formation,
operation, administration, finances, securities or business
of MK on or before the date of the filing of this
Stipulation and (y) are not insured under policy No.
444-57-00 issued by National Union Fire Insurance Company of
Pittsburgh, Pennsylvania to MK and policies excess thereof.
Notwithstanding the foregoing, nothing herein shall release
or apply to any claim or claims that have been asserted on
behalf of MK Rail in the MK Rail Derivative Action, or that
may be asserted by a Plaintiff or stockholder of MK in any
capacity other than as a purchaser, seller or holder of MK
shares.
b. Each of the Individual Defendants, their affiliates,
associates, employees and agents, attorneys, or consultants,
and the heirs, executors and administrators, successors and
assigns of each, release one another of and from every
asserted or potential claim, right or cause of action,
including without limitation claims for negligence, gross
negligence, contribution or indemnity, breach of duty of
care and/or duty of loyalty and/or duty of candor, fraud,
negligent misrepresentation, breach of fiduciary duty or
34
<PAGE>
violations of any state or federal statutes, rules or
regulations known or unknown, that has been, might have
been, or might be asserted in the Litigation or in any other
court or forum whatsoever (i) in connection with, arising
out of, or in any way relating to any acts, facts,
transactions, occurrences, representations, omissions or
other subject matter occurring on or before the date of
signing of this Stipulation set forth, alleged, embraced or
otherwise referred to in the Litigation or (ii) that in any
manner whatsoever relates to the formation, operation,
administration or business of MK.
c. MK, through its Special Committee, on behalf of itself, its
subsidiaries, affiliates, trustees, officers, directors,
employees and agents and their respective heirs, executors
and administrators, successors and assigns shall release,
remise, acquit and forever discharge each of the Individual
Defendants and Released Parties, their affiliates, heirs,
executors and administrators, successors and assigns of
each, of and from every asserted or potential claim, right
or cause of action, under federal, state or common law, or
any other law, including without limitation claims for
negligence, gross negligence, contribution or indemnity,
breach of duty of care and/or duty of loyalty and/or duty of
candor, fraud, negligent misrepresentation, breach of
fiduciary duty or violations of any state or federal
statutes, rules or regulations, known or unknown, that has
been, might have been, or might be asserted (i) arising out
of, relating to, or in connection with, any of the acts,
omissions, facts, events, matters, transactions or
occurrences referred to, or which could have been referred
to, in any of the complaints
35
<PAGE>
or other pleadings filed in the Litigation or otherwise
alleged, asserted or contended in the Litigation based upon
facts that were or could have been alleged in the complaints
filed in the Litigation on or before June 6, 1995, (ii)
arising out of, relating to, or in connection with any
compromise or settlement of claims that were or could have
been asserted by or against any Party to the Litigation
and/or the Securities Actions, or any of the Insurers, or
(iii) that (x) otherwise, without limiting the foregoing, in
any manner whatsoever relate to the formation, operation,
administration, finances, securities or business of MK on or
before the date of the filing of this Stipulation and (y)
are not insured under policy No. 444-57-00 issued by
National Union Fire Insurance Company of Pittsburgh,
Pennsylvania to MK and policies excess thereof.
d. Individual Defendants and MK on behalf of themselves, their
subsidiaries, affiliates, trustees, officers, directors,
employees and agents, and their respective heirs, executors
and administrators, successors, assigns shall release,
remise and acquit and forever discharge each of the
Plaintiffs and MK Derivative Counsel only from those claims
or potential claims against the Plaintiffs and MK Derivative
Counsel that are based upon or arise out of or in connection
with the institution, assertion, prosecution or resolution
of the Litigation or the Settled Claims, including Unknown
Claims. Notwithstanding the foregoing, nothing herein
releases any claim arising out of a violation of this
Stipulation by the Plaintiffs or MK Derivative Counsel.
36
<PAGE>
2. The Parties each acknowledge that they may have sustained
damages, expenses and losses in connection with the subject
matter of the Settled Claims, including Unknown Claims, that are
presently unknown or not suspected and that such damages,
expenses and losses, if any, may give rise to additional damages,
expenses or losses in the future that are not now anticipated by
them. The Parties acknowledge that this Stipulation and the
foregoing releases have been negotiated and agreed upon in light
of this realization and, being represented by counsel and fully
advised thereof, hereby expressly waive any and all rights that
they may have under any statute or common law principle that
would limit the effect of the foregoing releases to those claims
actually known or suspected to exist at the time of execution of
this Stipulation, including the provisions of Section 1542 of the
California Civil Code, to the extent deemed applicable
(notwithstanding the choice of law provision of this Stipulation
to the contrary), which provides as follows:
"1542. GENERAL RELEASE-CLAIMS EXTINGUISHED. A
general release does not extend to claims which
the creditor does not know or suspect to exist
in his favor at the time of executing the
release, which if known by him must have
materially affected his settlement with the
debtor."
K. GOVERNING LAW
This Stipulation shall be governed by, subject to, and construed in
accordance with the internal laws of the State of Delaware without regard to
choice of law rules.
L. ENFORCEMENT OF STIPULATION
This Stipulation shall be enforced solely in the Delaware Court. The
Parties waive any objection that each such Party may now have or hereafter have
to the venue of any such suit, action or proceeding to enforce this Stipulation
and irrevocably consent to the jurisdiction of the
37
<PAGE>
Delaware Court in any suit, action or proceeding and agree to accept and
acknowledge service of process that may be served in any such suit, action or
proceeding. Insofar as an issue arises in a proceeding in another forum
requiring interpretation of any of the provisions of this Stipulation and any
Defendant intends to bring the issue before the Delaware Court, that Defendant
will provide reasonable notice to all parties to that proceeding of that intent,
and shall make a good faith effort to negotiate an agreement on such issues in
order to avoid the need to present the issue in the Delaware Court.
M. COUNTERPARTS
This Stipulation may be executed in two or more counterparts.
N. RELEASES TO INSURERS
The effectiveness of this Stipulation 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.
O. MISCELLANEOUS PROVISIONS
1. The Parties and the Insurers shall cooperate in good faith and
use their best efforts to obtain as promptly as practical final
approval of the Settlement and to implement the Settlement,
including execution by the Parties and the Insurers of such
further documents as are reasonably necessary to implement the
provisions hereof and to obtain appropriate court orders. None
of the Parties or Insurers shall seek to evade their good faith
obligation to seek approval and implementation of this Settlement
by virtue of any rulings, orders or governmental or other
reports, legislative action, results of any further developments
whether in the Litigation, any other litigation or otherwise that
have occurred after June 5, 1995 or might
38
<PAGE>
occur hereafter and might be deemed to alter the relative
strength of the Parties or Insurers with respect to any claims or
defenses or their relative bargaining power with respect to
negotiating the settlement. The Parties deem this Settlement to
be fair and reasonable and have arrived at this Settlement
through arms' length negotiation, taking into account all
relevant factors present or potential.
2. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
3. This Stipulation and the exhibits hereto constitute the entire
agreement among the Parties and no representations, warranties or
inducements have been made to any Party concerning this
Stipulation or its exhibits other than the representations and
warranties and covenants contained and memorialized in such
document. This Stipulation supersedes and replaces the
Settlement Memorandum. Except for indemnification provided by
MK to the Individual Defendants or as otherwise provided herein,
each Party shall bear its own costs.
4. Counsel for each Party and each Insurer is authorized to sign
this Stipulation on behalf of his/her respective client.
P. SUCCESSORS AND ASSIGNS
This Stipulation shall be binding upon and shall inure to the benefit of
the Parties and the Insurers and their respective successors, assigns,
executors, administrators, heirs and legal representatives, as the case may be;
provided, however, that no assignment by any Party or the Insurers shall operate
to relieve such Party or Insurer of his, her, or its obligations hereunder.
39
<PAGE>
Q. NON-WAIVER OF PROVISIONS
Any failure by any Party or Insurer to insist upon the strict performance
by any other Party or Insurer of any of the provisions of this Stipulation shall
not be deemed a waiver of any of the provisions hereof, and such Party or
Insurer, notwithstanding such failure, shall have the right thereafter to insist
upon the strict performance of any and all of the provisions of this Stipulation
to be performed by such other Party or Insurer.
R. CAPTIONS
The captions contained in this Stipulation are inserted only as a matter
of convenience and in no way define, limit, extend or describe the scope of this
Stipulation or the intent of any provision hereof.
S. ARM'S-LENGTH NEGOTIATIONS AND INTERPRETATION OF SETTLEMENT
AGREEMENT
This Stipulation, including the exhibits attached hereto, was executed
after arm's length negotiations among the Parties and Insurers and reflects the
conclusion of counsel for all the Parties and Insurers that the Settlement
contemplated hereby, is fair, equitable and in the best interests of their
respective clients.
This Stipulation shall not be construed more strictly against any one
Party or Insurer than another merely by virtue of the fact that the Stipulation
may have been prepared by counsel for one of the Parties, it being recognized
that, because of the arm's-length negotiations described above, all Parties and
Insurers hereto have contributed substantially and materially to the preparation
of this Stipulation.
40
<PAGE>
T. AMENDMENTS
This Stipulation may not be modified except by a writing signed by all of
the Parties and the Insurers.
DATED: JANUARY 26 , 1996
-------------------------------
Respectfully submitted,
/s/ J. Dennis Fancher /s/ David D. Aufhauser
- -------------------------------- ----------------------------------------
J. Denis Fancher David D. Aufhauser
Miller, Fancher, Chertow, Cafferty Williams & Connolly
and Wexler Attorney for Defendant William J. Agee
Co-Lead Counsel for Idaho
Consolidated Derivative Plaintiffs
/s/ Jill Abrams /s/ John W. Edwards II
- -------------------------------- ----------------------------------------
Jill Abrams John W. Edwards II
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
- -------------------------------- ----------------------------------------
Marian Rosner 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
41
<PAGE>
/s/ Jules Brody /s/ Cezar M. Froelich
- -------------------------------- ----------------------------------------
Jules Brody Cezar M. Froelich
Stull Stull & Brody Michael J. Howlett, Jr.
Attorney for Wohlgelemter 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
/s/ James M. Doyle Jr.
----------------------------------------
James M. Doyle, Jr.
Matthews & Branscomb
Attorney for John P. Herbots
/s/ Jim Jones
----------------------------------------
Jim Jones
Jim Jones & Associates
Attorney for Thomas Smith
/s/ Lawrence T. Hoyle Jr.
----------------------------------------
Laurence T. Hoyle, Jr.
Hoyle Morris & Kerr
Attorney for Gunnar E. Sarsten
/s/ Stephen D. Hibbard
----------------------------------------
Steven Hibbard
McCutchen Doyle Brown & Enersen
Attorney for Stephen R. Grant
/s/ Robert A. Tinstman
----------------------------------------
Robert Tinstman
/s/ James Skarzynski
----------------------------------------
James Skarzynski
Peterson & Ross
Attorney for Great American Insurance
Co.
/s/ Michael L. Gassmann
----------------------------------------
Michael Gassmann
Drinker, Biddle & Reath
Attorney for Reliance Insurance Co.
/s/ Cathy A. Simon
----------------------------------------
Cathy A. Simon
Ross Dixon & Mossback
Attorney for Continental Casualty
/s/ Joseph Rosenthal /s/ Kenneth J. Nachbar
- -------------------------------- ----------------------------------------
Joseph Rosenthal Kenneth J. Nachbar
Rosenthal, Monhait, Gross & Goddess, Morris, Nichols, Arsht & Tunnell
P.A. Delaware Counsel for the MK Board of
Liaison Counsel for Plaintiffs Directors
42
<PAGE>
/s/ R. Franklin Balotti
by Anne Foster
----------------------------------------
R. Franklin Balotti
Richards, Layton & Finger
Delaware Counsel for MK
/s/ A.G. Connolly Jr.
by A.G. Connolly III
----------------------------------------
Arthur G. Connolly, Jr.
Connolly, Bove, Lodge & Hutz
Delaware Counsel for William Agee
<PAGE>
IN THE DISTRICT COURT OF THE FOURTH JUDICIAL DISTRICT
OF THE STATE OF IDAHO IN AND FOR THE COUNTY OF ADA
- ----------------------------------
STATE BOARD OF ADMINISTRATION :
OF FLORIDA, in behalf of itself :
and in behalf of all other :
parties similarly situated and :
circumstanced, :
:
Plaintiff, :
:
v. : Case Number
: CV OC 9502463D
MORRISON KNUDSEN CORPORATION, :
ET AL., :
:
Defendants. :
- ----------------------------------
STIPULATION OF SETTLEMENT
THIS STIPULATION (the "Stipulation") is entered on this ____ day of
November, 1995 by and among the plaintiff named below acting derivatively
through its undersigned attorneys and all defendants (collectively, the
"Parties") herein through their undersigned attorneys, all of whom state that:
I.
THE LITIGATION
This litigation began on June 2, 1995 with the filing of the above-
captioned action in the District Court for the Fourth District, Ada County,
Idaho (the "Litigation"). Plaintiff is a stockholder in Morrison Knudsen
Corporation ("MK") and has filed this case against, among others, the
undersigned defendants ("Defendants" are listed on Exhibit A) alleging
derivative claims relating to injuries allegedly sustained by MK.
<PAGE>
Plaintiff believes that the claims it has asserted in the Litigation have
merit and that the evidence developed to date supports the claims asserted.
Defendants specifically deny any liability whatsoever and have asserted numerous
defenses to the claims and causes of action against them, which they believe
would be sustained if the Litigation continued to conclusion. All Parties
however recognize and acknowledge that the expense and length of continued
proceedings necessary to prosecute the Litigation against the Defendants through
trials and through appeals is great. The Parties have also taken into account
the uncertain outcome and risk of any litigation, especially complex actions
such as the Litigation, as well as the difficulties and delays inherent in such
litigation and the likelihood of protracted appellate review. MK and the
Director Defendants recognize that these considerations are particularly
compelling in view of MK's financial condition and management's view of the need
to restructure in order to regain financial stability and increase stockholder
value. Moreover, the Parties to date have incurred substantial legal fees and
expenses and, if the Litigation were to continue, would incur substantial
additional legal fees and expenses.
The Parties have engaged in arms-length settlement negotiations. After
weeks of negotiations, they reached the agreement embodied in this Stipulation.
Defendants, without admitting or conceding liability, and the Plaintiff, without
admitting merit or the lack of merit of any claim or defense in
-2-
<PAGE>
the Litigation, wish to avoid the costs, expenses, disruption and uncertainties
associated with continuation of the Litigation.
Plaintiff and its counsel believe that the settlement set forth in this
Stipulation confers substantial benefits upon MK. Based upon their evaluation,
Plaintiff and its counsel have determined that the settlement set forth in this
Stipulation is fair, reasonable and adequate, and in the best interests of the
Plaintiff, the current holders of MK common stock and MK.
MK, after having established a Special Committee (as defined below), which
the Defendants and the Plaintiff agree is composed of disinterested directors,
and providing the committee with full authority to direct, prosecute, defend or
settle the Litigation, has, through such committee, given extensive
consideration to all of the foregoing and has determined independently that the
settlement reflected herein is fair, reasonable and adequate to MK, provides MK
with adequate consideration and provides reasonably equivalent value for the
claims herein being released.
It is the intention of the Parties that the proposed settlement resolve all
Settled Claims including Unknown Claims as defined in paragraphs (VII)(A)(17)
and (18) of this Stipulation.
II.
PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION
Plaintiff's Counsel has conducted discovery during the prosecution of the
Litigation. This discovery has included (i) the review and analysis of
documents including court filings in related actions and public documents filed
by MK with regulatory authorities, (ii) interviews of numerous individuals
relating to
-3-
<PAGE>
the claims made by Plaintiff in this case, (iii) review and analysis of
documents obtained from third parties regarding MK, and (iv) a review of the
financial condition of MK and MK's needs in light of its current financial
crisis. Plaintiff's Counsel has also researched thoroughly the applicable law
with respect to the claims made against the defendants and the potential
defenses thereto. Through such analysis and evaluation of the facts and law
supporting the Plaintiff's claims, Plaintiff and its counsel have concluded that
this settlement is in the best interests of Plaintiff, MK and MK's shareholders.
Plaintiff and Plaintiff's Counsel have also been advised of proposed
settlements made by MK and the Defendants relating to the MK Derivative Cases
and the Securities Actions (as those terms are defined below). Plaintiff and
Plaintiff's Counsel did not participate in the negotiation of any of the
aforesaid other settlements. Plaintiff is not a class member with respect to
the aforesaid Securities Actions and therefore takes no position with respect to
the propriety thereof other than stating that the Plaintiff is not believed to
be entitled to oppose the same. With respect to the proposed settlements
reached with the other plaintiffs in the MK Derivative Cases, other than the
proposed attorneys' fee award that such other plaintiffs' counsel seek from the
appropriate Courts, which the Plaintiff reserves the right to oppose, the
Plaintiff and Plaintiff's Counsel believe that the settlement provisions of the
MK Derivative Cases involve the proper application of business judgment on the
part of MK.
-4-
<PAGE>
III.
CLAIMS OF PLAINTIFF
In the Litigation, brought as a derivative action against the Individual
Defendants, Plaintiff asserts claims for violation of certain common law
fiduciary duties owed by the Individual Defendants to MK. It seeks damages
based upon allegations, among other things, that the Individual Defendants
failed adequately to supervise certain management personnel.
Plaintiff believes that the Litigation has substantial merit. Entering
into, or carrying out, this Stipulation (or the exhibits thereto) and any
negotiations or proceedings related thereto shall not in any event be construed
as, or deemed to be evidence of, an admission or concession by the Plaintiff
with regard to the merits of its claims and shall not be offered or received in
evidence in any action or proceeding in any court, administrative agency or
other tribunal for any purpose whatsoever, other than to enforce the provisions
of this Stipulation and exhibits; except that this Stipulation and exhibits
hereto may be filed in the Litigation or related litigation as evidence of the
settlement or in any subsequent action against or by the Defendants or the
Released Parties to support a defense of RES JUDICATA, collateral estoppel,
release or other theory of claim or issue preclusion or similar defense.
IV.
BENEFITS OF SETTLEMENT TO MK
Plaintiff's Counsel recognize and acknowledge the expense and length of
continued proceedings necessary to prosecute the
-5-
<PAGE>
Litigation against the Defendants through trial and appeals. Plaintiff's
Counsel and the Special Committee also have taken into account the uncertain
outcome and the risk of any litigation, especially in complex actions such as
the Litigation, as well as the difficulties and delays inherent in such
litigation. Plaintiff's Counsel and the Special Committee have taken into
account the strengths and uncertainties of the claims asserted in the
Litigation, the possible defenses to the claims asserted and the substantial
benefits of the settlement to MK. Plaintiff's Counsel and the Special Committee
have considered the current financial condition of MK, the uncertainty that the
condition poses relative to MK's ability to conduct business going forward, the
effects of the Litigation upon MK's need to carry out financial restructuring
and Plaintiff's Counsel's belief that, given MK's current financial condition,
the settlement has obtained for MK as much consideration as practicably possible
under the circumstances. Plaintiff's Counsel and the Special Committee,
therefore, have determined that the settlement set forth in this Stipulation is
in the best interests of the Plaintiff and MK.
V.
DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
The Defendants in the Litigation have denied and continue to deny each and
every claim and contention alleged by the Plaintiff in the Litigation. They
have asserted and continue to assert many defenses thereto and have expressly
denied and continue to deny any wrongdoing or legal liability whatsoever arising
out of
-6-
<PAGE>
the conduct alleged in the Litigation. MK and the Director Defendants recognize
that the current financial condition of MK is tenuous and that the completion of
this settlement is critical in the plan to restructure MK and maximize
shareholder value. Neither this Stipulation nor any document referred to herein
nor any action taken to carry out this Stipulation is, may be construed as, or
may be used as, an admission by, or against, the Defendants, or any of them, of
any fault, wrongdoing or liability whatsoever. Entering into, or carrying out,
this Stipulation or the exhibits hereto or any negotiations or proceedings
related thereto shall not in any event be construed as, or deemed to be evidence
of, an admission or concession with regard to the denials or defenses of any of
the Defendants and shall not be offered or received in evidence in any action or
proceeding in any court, administrative agency or other tribunal for any purpose
whatsoever, other than to enforce the provisions of this Stipulation. This
Stipulation and the exhibits hereto may be filed in this Litigation or in
related litigation as evidence of this settlement or in any subsequent action
against or by the Defendants or the released parties to support a defense of RES
JUDICATA, collateral estoppel, release or other theory of claim or issue
preclusion or similar defense.
VI.
BENEFITS OF SETTLEMENT TO DEFENDANTS
Defendants have concluded that it is desirable that the Litigation be
settled in a manner and upon the terms and conditions set forth herein in order
to avoid the expense,
-7-
<PAGE>
inconvenience and distraction of further legal proceedings and to put to rest
the Settled Claims, including Unknown Claims (as defined below), asserted by the
Plaintiff on behalf of MK. In determining to enter into, and/or to perform, the
Stipulation, the Defendants also have considered a number of issues including
the uncertain outcome and risk of any litigation, especially in complex actions
such as the Litigation, as well as the difficulties and delays inherent in such
litigation and the strengths and uncertainties of the claims and defenses
asserted in the Litigation. Defendants also have considered the current
financial condition of MK and the need to resolve the Litigation on terms that
will enable MK to carry out a financial restructuring.
VII.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, it is hereby stipulated and agreed by, and among, the
Plaintiff (on behalf of itself and MK) and the Defendants, by and through their
respective counsel of record, that, subject to the approval of the Idaho Court,
the Litigation and all claims that have been or could have been asserted therein
shall be finally and fully compromised and settled and the Litigation shall be
dismissed by the Idaho Court on the merits and with prejudice upon and subject
to the terms and conditions of the Stipulation as follows:
A. DEFINITIONS.
1. "MK" means Morrison Knudsen Corporation.
-8-
<PAGE>
2. "Individual Defendants" means Stephen G. Hanks, William J. Agee,
Mary Cunningham 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., and Peter Ueberroth.
3. "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
Ueberroth.
4. "Parties" means the Derivative Plaintiff, MK, and the Individual
Defendants.
5. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal
representative, trust, unincorporated organization or any other
type of legal entity and their heirs, predecessors, successors,
representatives and assigns.
6. "Idaho Court" means the District Court, Ada County, Idaho.
7. "Securities Actions" means the cases consolidated before the
United States District Court 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;
-9-
<PAGE>
and SUSSER V. MK RAIL, ET AL., Case No. 94-477 (the "MK Rail
Securities Actions").
8. "MK Derivative Cases" means: the following cases pending in the
Idaho Court: DEKLOTZ, ET AL. V. MK, ET AL., Case No. CV 9500605;
FLINN V. AGEE, ET AL., Case No. CV 9500765; STEINER V. AGEE, ET
AL., Case No. CV 9500745; and WOHLGELERNTER V. AGEE, ET AL., Case
No. CV 9500656; and the following cases pending in the Court of
Chancery, New Castle County, Delaware: 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.
9. "Shareholder Notice Account" means a fund set up after
preliminary approval and subject to court supervision which is to
be used to pay the costs of Notice. Such account shall be
initially established with funds contributed by MK, however, the
costs of Notice will be attributed to expenses of Plaintiff's
counsel. Such account shall be controlled by, and all payments
from such account shall be subject to the approval of, John W.
Edwards II, counsel to MK, and I. Walton Bader, Plaintiff's
Counsel.
-10-
<PAGE>
10. "Plaintiff" means the named plaintiff individually and
derivatively on behalf of MK, and refers to all capacities in
which the Plaintiff brought the Litigation.
11. "Plaintiff's Counsel" means I. Walton Bader, Stephen Beane and/or
Horace Schow, II.
12. "Defendants" means MK and the Individual Defendants.
13. "Final Court Approval" means that an order entered by the Idaho
Court in substantially the form set forth as Exhibit C approving
the settlement on terms mutually satisfactory to the Parties has
become final and non-appealable.
14. "Effective Date" means the date when the following has occurred:
(1) Final Court Approval and (2) satisfaction of all conditions
set forth in this Stipulation.
15. "Attorney's Fees and Expenses" means that amount approved by the
Idaho Court for payment to Plaintiff's Counsel, including
attorney's fees, costs and litigation expenses, including the
costs of Notice to MK shareholders of this Settlement.
16. "Released Parties" or "Released Party" means the Defendants and
all of their respective predecessors, successors and present,
former and future officers, directors, employees, agents,
attorneys, stockholders, investors, insurers,
-11-
<PAGE>
17. reinsurers, underwriters, investment bankers, advisors,
affiliates, associates, present, former or future parents,
subsidiaries or affiliates and each of their assigns,
representatives, heirs, executors and administrators.
"Settled Claims" means collectively all claims including "Unknown
Claims," demands, rights, liabilities, and causes of action of
every nature and description whatsoever in law or equity, known
or unknown, asserted or that might have been asserted, including,
without limitation, claims for negligence, gross negligence,
breach of duty of care and/or breach of duty of loyalty and/or
breach of duty of candor, fraud, negligent misrepresentation,
breach of fiduciary duty, or violations of any state or federal
statutes, rules or regulations, known or unknown, that have been,
might have been, or might be asserted, either directly or in a
representative capacity or in any other capacity by MK, a
shareholder of MK, or any Plaintiff against any of the Defendants
or other Released Parties (i) in connection with, arising out of,
or in any way relating to any of the acts, omissions,
representations, facts, events, matters, transactions or
occurrences or other subject matter occurring on or before the
date of signing this Stipulation that was, or could have
-12-
<PAGE>
been, referred to in the complaint or other pleadings filed in
the Litigation or otherwise alleged, asserted or contended in
the Litigation based upon facts alleged in the complaint filed in
the Litigation; or (ii) that in any manner whatsoever relates to
the formation, operation, administration, finances, securities or
business of MK.
18. "Unknown Claims" means Settled Claims that the Plaintiff, MK or
its shareholders do not know or suspect to exist in their favor
at the time of the release of the Released Parties, which, if
known by them, might have affected their settlement with the
Defendants and release of the Released Parties or other action,
including, but not limited to, the decision not to object to the
settlement. Plaintiffs expressly waive on behalf of themselves
and the shareholders of MK any and all rights that they may have
under any statute or common law principle that would limit the
effect of the foregoing releases to those claims actually known
or suspected to exist at the time of execution of this settlement
Stipulation, including the provisions of Section 1542 of the
California Civil Code, or other similar provision of any other
law, to the extent deemed applicable (notwithstanding that the
settlement Stipulation does not provide
-13-
<PAGE>
for the application of California law), which provides as
follows:
Section 1452 GENERAL RELEASE; EXTENT. A general release
does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of the
execution of the release, which if known by him, must have
materially affected his settlement with the debtor.
19. "Special Committee" means a committee composed of Robert S.
Miller, Chairman of the Board of Directors of MK, and Robert
Tinstman, President and CEO of MK, appointed by the Board of
Directors of MK with the full authority of the Board of Directors
to direct, defend, settle or prosecute the Litigation.
20. "Bank" means the financial institution in Boise, Idaho that shall
be exclusively authorized to hold the Shareholder Notice Account
subject to this Stipulation, and orders of court.
21. "Notice" means the notice provided to the shareholders of MK as
approved by the Idaho Court.
B. ESTABLISHMENT OF THE SHAREHOLDER NOTICE ACCOUNT.
1. Upon preliminary approval of the settlement by the Idaho Court,
MK shall pay $12,000 into the Shareholder Notice Account, to be
used to pay the cost of printing and mailing Notice to MK
Stockholders in substantially the form set forth on Exhibit D
attached hereto.
-14-
<PAGE>
2. The costs of Notice are an expense of Plaintiff's Counsel and are
to be reimbursed to Plaintiff's Counsel in connection with
counsel's application for Attorney's Fees and Expenses. Notice
costs, up to and including the $12,000 deposited into the
Shareholder Notice Account by MK, so ordered to be paid to
Plaintiff's Counsel shall be deducted from the amount of
Attorney's Fees and Expenses ordered to be paid to Plaintiff's
Counsel by MK.
C. THERAPEUTIC MEASURES TO BE TAKEN BY MK
1. The settlement of the Litigation between the Plaintiff and the
Defendants provides for the following therapeutic measures to be taken by MK.
2. On or before the Effective Date, MK will adopt the following
procedures:
a. All new directors elected to serve on the MK Board of
Directors will agree to be, or become, stockholders of MK
upon their assuming such directorship. In recognition of
the fact that directors are not, and will not be, chosen
based upon financial considerations, no minimum number of
shares will be required to be purchased by any director.
b. For so long as a significant component of the business of MK
relates to construction, MK will endeavor to have at least
one member of
-15-
<PAGE>
its board of directors be an individual who possesses an
engineering background, either as a result of academic
training and/or as a result of work experience; and
c. MK shall, by enacting the appropriate resolution, provide
for the creation, within the Office of Investor Relations,
of the position of Stockholder Liaison (the "Liaison") to
the Stockholders' Advisory Committee (the "Committee") of
MK. The Committee shall consist of representatives of the
six largest stockholders of MK who are willing to serve and
who will agree to serve at their own expense. The Committee
will, in writing, report to the Liaison any advice and/or
suggestions regarding public information stockholders have
received from MK. The Liaison will provide any such written
communication to the MK Board, which will review the same at
its next regularly scheduled board of directors meeting.
The Committee may also make suggestions to MK management,
through the Liaison, of any person the Committee believes
could be a candidate for a vacancy on the MK Board. The
Liaison position will be created for a three year period.
At the next annual meeting
-16-
<PAGE>
following the end of such three year period a stockholder
proposal regarding the continuation of the Liaison position
will be voted upon by all stockholders eligible to vote.
All stockholders who are eligible and willing to serve on
the Committee shall first acknowledge that if, as a result
of their service on the Committee, they incur any
responsibilities and/or obligations under the securities
laws of the United States, or any state thereof, those
responsibilities and/or obligations are solely their own and
are not the obligation and/or responsibility of MK.
D. NOTICE, PRELIMINARY APPROVAL, HEARING, AND COURT REVIEW
1. As promptly as practicable after the execution hereof by all
Parties hereto, the undersigned counsel shall submit this
Stipulation to the Idaho Court and request that the Preliminary
Hearing Order be executed substantially in the form attached as
Exhibit B hereto preliminarily approving the settlement provided
for in this Stipulation, subject to further consideration after a
public hearing, scheduling a date for a hearing before the Idaho
Court to consider whether the settlement herein should be
approved as fair, reasonable, and adequate, to consider the
application of Plaintiff's Counsel for an award of
-17-
<PAGE>
Attorneys' Fees and Expenses (the "Final Hearing"), and providing
that a notice shall be sent to all shareholders of MK
substantially in the form attached hereto as Exhibit D.
2. The Preliminary Hearing Order shall specifically include
provisions that, among other things:
a. Preliminarily approve the settlement set forth in the
Stipulation as fair, reasonable, adequate and in the best
interests of MK and its shareholders;
b. Approve the Notice for mailing to shareholders of record of
MK stock as of September 20, 1995 ("Recordholders"),
notifying them of the Final Hearing for the settlement and
of their right to object to the settlement;
c. Direct the Parties to mail or cause to be mailed Notice to
all Recordholders, nominees for current shareholders will
also be requested to send the Notice to all beneficial
owners of MK shares within ten (10) days after the receipt
of Notice;
d. Direct Counsel to serve on the Court proof, by affidavit and
declaration, of the mailing of the Notice;
e. Schedule a hearing to consider and determine (i) whether the
proposed Settlement should be
-18-
<PAGE>
approved as fair, reasonable, adequate, provides reasonably
equivalent value to MK for the releases being provided, and
is in the best interests of MK and its shareholders; (ii)
whether an order approving the Settlement and Final Judgment
should be entered thereon, dismissing the litigation on the
merits and with prejudice; and (iii) whether the application
of Plaintiff's Counsel for an award of Attorneys' Fees and
Expenses is reasonable and should be approved.
f. Provide that objections to the proposed settlement and entry
of a final judgment approving the settlement or the
application of Plaintiff's Counsel for an award of
Attorneys' Fees and Expenses shall be heard and any papers
submitted in support of said objection shall be received and
considered by the Court at the Final Hearing only if on or
before the date to be specified in the Preliminary Hearing
Order (which shall be 15 days prior to the Final Hearing)
persons making objections shall file a notice of their
intention to appear and copies of any papers in support of
their position with the
-19-
<PAGE>
clerk of the Idaho Court and serve such notice and papers
on:
Stephen Beane, Esq.
P.O. Box 2694
Boise, Idaho 83701
I. Walton Bader, Esq.
Bader and Bader
65 Court Street
White Plains, N.Y. 10601
Horace Schow, II, Esq.
General Counsel
State Board of Administration
of Florida
1801 Hermitage Boulevard
Tallahassee, Florida 32308
John W. Edwards II, Esq.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Michael J. Howlett, Jr., Esq.
James D. Wilson, Esq.
Shefsky Froelich & Devine Ltd.
25th Floor
444 N. Michigan Avenue
Chicago, IL 60611
David Aufhauser, Esq.
Williams & Connolly
725 12th Street, N.W.
Washington, D.C. 20005
Thomas J. Nolan, Esq.
Howrey & Simon
550 S. Hope Street
Suite 1400
Los Angeles, CA 90071-2604
Richard D. Parry, Esq.
Associate General Counsel
Morrison Knudsen Corporation
Box 73
Boise, Idaho 83729
g. Provide that, upon the Effective Date, Individual Defendants
shall be deemed conclusively to have released Plaintiff and
-20-
<PAGE>
Plaintiff's Counsel from only those claims or potential
claims against the Plaintiff and Plaintiff's Counsel that
are based upon or arise out of the institution, assertion,
prosecution or resolution of the Litigation, or the Settled
Claims, including Unknown Claims, except that nothing herein
releases any claim arising out of the violation of this
Stipulation.
h. Provide that upon the Effective Date, Plaintiffs and MK
shall be deemed conclusively to have released the Individual
Defendants and Released Parties, using substantially the
release language set forth in Paragraph VII(I)(1)(a) and (c)
below.
i. Provide that the Final Hearing may, from time to time and
without further notice, be continued or adjourned by order
of Court.
j. Provide that all papers in support of the settlement and any
application for Attorney's Fees and Expenses shall be filed
at least six days prior to the Final Hearing.
k. Provide that all reasonable costs incurred in printing,
mailing or otherwise providing Notice to the shareholders of
this settlement shall be paid from the Shareholder Notice
Account.
-21-
<PAGE>
l. Provide that, if the Settlement is disapproved, cancelled or
terminated in accordance with the terms of this Stipulation,
then the Stipulation shall have no force and effect and all
negotiations, proceedings and statements made in connection
herewith shall be without prejudice to the right of any
Person, and the Parties to the Litigation shall be restored
to their respective positions existing as of the date of
this Stipulation, provided, however, that expenses of
printing, mailing and otherwise providing Notice, incurred
but not yet paid, shall be paid out of the Shareholder
Notice Account as provided above.
m. Provide that, pending final determination of whether the
settlement should be approved, all discovery and other
proceedings in the Litigation are stayed;
n. Provide that, upon the Idaho Court finding that the
settlement is fair, just and reasonable, provides reasonably
equivalent value to MK for the releases being provided, and
is in the best interests of MK and its shareholders, this
matter shall be dismissed with prejudice.
-22-
<PAGE>
E. HEARING ON FINAL APPROVAL
1. At the Final Hearing the Plaintiff's Counsel may apply to the
Idaho Court for an award of attorney's fees for services rendered
by them and for reimbursement of costs and expenses, all to be
paid by MK. In no event shall the amount of such request for
Attorney's Fees and Expenses exceed $140,000.
2. In their application, Plaintiff's Counsel may represent to the
Idaho Court that Defendants consent to the application for
Attorney's Fees and Expenses to the extent that they are entitled
to do so by law and that Defendants believe the amount requested
by Plaintiff's Counsel is fair and reasonable.
3. Subject to Idaho Court approval, Attorney's Fees and Expenses, in
an amount not to exceed $140,000, shall be paid by MK. To the
extent that the cost of Notice to Shareholders is deemed an
expense of Plaintiff, such expense shall be limited to the cost
to MK of printing the required Notice and, in any event, shall
not exceed the sum of $2,000.00.
4. It is agreed that the procedure for, and the allowance or
disallowance by the Idaho Court of, any application of
Plaintiff's Counsel for Attorney's Fees and Expenses are to be
considered by the Idaho Court separately from the Idaho
-23-
<PAGE>
Court's consideration of the fairness, reasonableness and
adequacy of the settlement as set forth in this Stipulation. Any
order or proceedings relating to Plaintiff's Counsel's
application for Attorney's Fees and Expenses, or reversal or
modification thereof, shall not operate to terminate or cancel
this Stipulation or to affect or delay the finality of the final
judgment entered in accordance with this Stipulation.
F. FINAL JUDGMENT TO BE ENTERED BY COURT APPROVING THE SETTLEMENT
1. If the settlement, including any modification thereto made with
the consent of the Parties as provided herein, is approved by the
Idaho Court and the settlement has not been terminated by the
Parties pursuant to the Stipulation and all conditions to the
consummation of the settlement other than final judgment have
otherwise been satisfied or waived, the Parties shall ask the
Court to enter a final judgment substantially in the form of
Exhibit C attached hereto that shall:
a. Approve the settlement as fair, reasonable and adequate to
the Plaintiff, MK and its shareholders;
b. Find that MK received reasonably equivalent value for the
releases provided to the Individual Defendants and Released
Parties;
-24-
<PAGE>
c. Find the terms of this Stipulation to be valid and
enforceable and direct consummation of the settlement in
accordance with the terms and provisions of this
Stipulation.
d. Dismiss the Litigation in its entirety against all
defendants with prejudice;
e. Adjudge that, as more fully described herein, the Plaintiff
and MK shall be deemed conclusively to have released the
Settled Claims, including Unknown Claims, against the
Individual Defendants and Released Parties. Notwithstanding
that any shareholder of MK may hereafter discover facts in
addition to or different from those which Plaintiff or MK
now know or believe to be true with respect to the
Litigation and the Settled Claims, including Unknown Claims,
or with respect to the subject matter of the release, the
Plaintiff, MK and all MK shareholders upon the Effective
Date shall be deemed fully, finally and forever to have
settled and released any and all Settled Claims, including
Unknown Claims, against the Individual Defendants and
Released Parties, including all claims known or unknown,
suspected or unsuspected, contingent or non-contingent,
which now exist or heretofore
-25-
<PAGE>
have existed and without regard to subsequent discovery or
existence of any such different or additional facts. Upon
the Effective Date, Individual Defendants shall be deemed
conclusively to have released the Plaintiff and Plaintiff's
Counsel from only those claims or potential claims against
Plaintiff and Plaintiff's Counsel that are based upon or
arise out of the institution, prosecution, assertion or
resolution of the Litigation and the Settled Claims,
including Unknown Claims, provided however, such release
shall not extend to claims arising out of any violation of
this Stipulation.
f. Bar and permanently enjoin Plaintiff and any shareholder of
MK from prosecuting the Settled Claims, including Unknown
Claims, against the Individual Defendants and Released
Parties.
g. Bar and permanently enjoin Plaintiff and the shareholders of
MK, either directly or representatively, or in any other
capacity, from instituting or prosecuting any action against
any party other than those enumerated above, to the extent
that such action asserts any claim included in the
definition of Settled Claim, including Unknown Claims
-26-
<PAGE>
unless (i) an appropriate provision satisfactory to the
Idaho Court is made to assure that the amounts to be
collected pursuant to any Judgment will be available if
necessary to meet the obligations that may exist under the
provisions for indemnification set forth below as a
consequence of such Judgment or, (ii) any settlement of such
claims provides for releases of claim or claims over the
settling party against the Released Parties.
h. Approve the agreement of Plaintiff and shareholders of MK
for good and valuable consideration, the receipt of which is
hereby acknowledged, to indemnify the Individual Defendants
and the Released Parties and hold them harmless from and
against any and all liability including amounts paid in the
settlement, subject to all the provisions of this
Stipulation with respect to:
(i) Any claim that is a Settled Claim, including Unknown
Claims; and
(ii) Claims over under whatsoever theory (whether by way of
third-or subsequent-party complaint, cross-claim or
separate action or otherwise) by any Person to recover
in whole or in part, liability,
-27-
<PAGE>
direct or indirect, whether by way of judgment,
settlement or otherwise, of such Person in connection
with, arising out of or in any way related to the
Settled Claims, including Unknown Claims, including
without limitation claims over that have been, or could
have been alleged in this Litigation or other action;
i. Approve the further agreement of the Parties that, in the
event that any Person obtained any recovery by judgment,
settlement or otherwise against any Individual Defendant or
Released Party that is related in any way to the Settled
Claims, including Unknown Claims, appropriate provision
(including delaying distribution of the amounts payable
under a judgment and, in case of settlement, obtaining
releases to protect an Individual Defendant or a Released
Party from any liability to such Persons on claims over)
shall be made to assure the effectuation of the indemnity
provided herein. Any such recovery against any Person who
has not released any claim or claims-over against an
Individual Defendant or a Released Party shall be held in
escrow pursuant to Order of
-28-
<PAGE>
this Court until any claims or claims-over against the
Released Parties are finally determined, subject to the
other limitations and provisions of this Stipulation.
j. Order that the foregoing provisions of this Stipulation with
respect to reduction of judgment and effectuation of
indemnification are not intended to be exclusive and nothing
herein shall be deemed to modify, lessen or impair the
indemnity obligations of MK in any situation to which the
provisions apply.
k. Determine that by reason of the Parties' settlement there is
no just reason to delay and find expressly that the final
judgment is a final judgment for purposes of appeal.
l. Determine that the Stipulation provided herein, and any
proceedings taken pursuant thereto, are not, and should not
be in any event, offered or received as evidence of a
presumption, concession or admission of any
misrepresentation or omission in any statement or written
document made by any Released Party or offered or received
as evidence of a presumption, concession or any admission of
liability, fault, wrongdoing or any other dereliction of
duty in any way referred to or for any reason in this
-29-
<PAGE>
Litigation or any other civil, criminal, bankruptcy or
administrative action or proceeding, provided however, that
reference may be made to this Stipulation and the settlement
provided herein in such proceedings as may be necessary to
effectuate the provisions of this Stipulation.
m. Reserve jurisdiction without affecting the finality of the
final judgment.
G. CONDITIONS OF SETTLEMENT
1. This Stipulation shall be subject to the following conditions
and, except as provided herein, shall be cancelled and terminated
unless:
a. The Idaho Court shall enter a Preliminary Approval Order as
required by Section VII(D) above.
b. The Idaho Court shall enter an order approving the Notice to
Shareholders.
c. The Idaho Court shall enter a final judgment as required by
Section VII(F) above.
d. Neither Plaintiff nor Plaintiff's Counsel shall have filed
any objection in any Court to the proposed settlements of
the MK Securities Actions, the MK Rail Securities Actions
and/or the MK Derivative Cases. Nothing contained in the
foregoing sentence shall preclude Plaintiff or Plaintiff's
-30-
<PAGE>
Counsel from filing an objection to any application for
Attorney's Fees and Expenses sought by counsel for any party
in any of the MK Securities Actions, the MK Rail Securities
Actions and/or the MK Derivative Cases.
H. EFFECTS OF TERMINATION OF THE SETTLEMENT
1. If this Stipulation is disapproved, terminated or cancelled
pursuant to its terms, the funds in the Shareholder Notice
Account shall be returned to MK.
2. If this Stipulation is disapproved, terminated or cancelled
pursuant to its terms:
a. All the Parties shall be deemed to have returned to their
respective litigation positions as of the date of signing
this Stipulation;
b. All parties shall proceed in all respects as if this
Stipulation had not been executed and the related orders and
judgments had not been entered preserving in that event all
of their respective claims and defenses in the Litigation;
and
c. All releases given in this Stipulation shall be null and
void.
I. EXTENT OF RELEASES
1. From and after the Effective Date:
-31-
<PAGE>
a. Plaintiff acting in its derivative capacity on behalf of
itself, administrators, successors and assigns and any
Person(s) or entities it represents and its respective
present and former parents, subsidiaries, affiliates,
associates, officers, directors, employees and agents,
attorneys and consultants insofar as any of such Persons are
acting on behalf of Plaintiff, shall release, remise, acquit
and forever discharge each of the Individual Defendants and
Released Parties, their respective affiliates, associates,
attorneys, and consultants, and the heirs, executors and
administrators, successors and assigns of each, of and from
every asserted or potential claim, right or cause of action,
under federal, state or common law, or any other law,
including without limitation claims for negligence, gross
negligence, breach of duty of care and/or breach of duty of
loyalty and/or breach of duty of candor, fraud, negligent
misrepresentation, breach of fiduciary duty or violations of
any state or federal statutes, rules or regulations known or
unknown, that has been, might have been, or might be
asserted on behalf of MK in the
-32-
<PAGE>
Litigation or in any other court or forum whatsoever, (i) in
connection with, arising out of, or in any way relating to
any acts, facts, transactions, occurrences, representations,
omissions or other subject matter occurring on or before the
date of signing this Stipulation that was or could have been
set forth, alleged, embraced or otherwise referred to in the
Litigation or (ii) that in any manner whatsoever relates to
the formation, operation, administration, finances,
securities or business of MK.
b. Each of the Individual Defendants, their affiliates,
associates, employees and agents, attorneys, or consultants,
and their heirs, executors and administrators, successors
and assigns of each, release one another of and from every
asserted or potential claim, right or cause of action,
including without limitation claims for negligence, gross
negligence, breach of duty of care and/or breach of duty of
loyalty and/or breach of duty of candor, fraud, negligent
misrepresentation, breach of fiduciary duty or violations of
any state or federal statutes, rules or regulations, known
or unknown, that has been, might have been, or
-33-
<PAGE>
might be asserted in the Litigation or in any other court or
forum whatsoever (i) in connection with, arising out of, or
in any way relating to any acts, facts, transactions,
occurrences, representations, omissions or other subject
matter occurring on or before the date of signing of this
Stipulation that was or could have been set forth, alleged,
embraced or otherwise referred to in the Litigation or (ii)
that in any manner whatsoever relates to the formation,
operation, administration or business of MK.
c. MK, through its Special Committee, on behalf of itself, its
subsidiaries, affiliates, trustees, officers, directors,
employees and agents and their respective heirs, executors
and administrators, successors and assigns shall release,
remise, acquit and forever discharge each of the Individual
Defendants and Released Parties, their affiliates, heirs,
executors and administrators, successors and assigns of
each, of and from every asserted or potential claim, right
or cause of action, under federal, state or common law, or
any other law, including without limitation claims for
negligence,
-34-
<PAGE>
gross negligence, breach of duty of care and/or breach of
duty of loyalty and/or breach of duty of candor, fraud,
negligent misrepresentation, breach of fiduciary duty or
violations of any state or federal statutes, rules or
regulations known or unknown, that has been, might have
been, or might be asserted on behalf of MK in the Litigation
or in any other court or forum whatsoever (x) in connection
with, arising out of, or in any way relating to any acts,
facts, transactions, occurrences, representations, omissions
or other subject matter occurring on or before the date of
signing of this Stipulation that was or could have been set
forth, alleged, embraced or otherwise referred to in the
Litigation or (y) that in any manner whatsoever relates to
the formation, operation, administration, finances,
securities or business of MK.
d. Individual Defendants and MK on behalf of themselves, their
subsidiaries, affiliates, trustees, officers, directors,
employees and agents, and their respective heirs, executors
and administrators, successors and assigns shall release,
remise and, acquit and forever discharge Plaintiff and
Plaintiff's Counsel
-35-
<PAGE>
from only those claims or potential claims against the
Plaintiff and Plaintiff's Counsel that are based upon or
arise out of the institution, assertion, prosecution or
resolution of the Litigation or the Settled Claims,
including Unknown Claims, except that nothing herein
releases any claim arising out of a violation of this
Stipulation by the Plaintiff or Plaintiff's Counsel.
2. The Parties each acknowledge that they may have sustained
damages, expenses and losses in connection with the subject
matter of the Settled Claims, including Unknown Claims, that are
presently unknown or not suspected and that such damages,
expenses and losses, if any, may give rise to additional damages,
expenses or losses in the future that are not now anticipated by
them. The Parties acknowledge that this Stipulation and the
foregoing releases have been negotiated and agreed upon in light
of this realization and, being represented by counsel and fully
advised thereof, hereby expressly waive any and all rights that
they may have under any statute or common law principle that
would limit the effect of the foregoing releases to those claims
actually known or suspected to exist at the time of execution of
this Stipulation, including the provisions of
-36-
<PAGE>
Section 1542 of the California Civil Code, to the extent deemed
applicable (notwithstanding the choice of law provision of this
Stipulation to the contrary), which provides as follows:
1542. GENERAL RELEASE CLAIMS EXTINGUISHED. A general
release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
J. GOVERNING LAW
This Stipulation shall be governed by, subject to, and construed in
accordance with, the internal laws of the State of Idaho without regard to
choice of law rules.
K. ENFORCEMENT OF STIPULATION
This Stipulation shall be enforced solely in the Idaho Court. The Parties
waive any objection that each such Party may now have or hereafter have to the
venue of any suit, action or proceeding to enforce this Stipulation and
irrevocably consent to the jurisdiction of the Idaho Court in any such suit,
action or proceeding and agree to accept and acknowledge service of process that
may be served in any such suit, action or proceeding. Insofar as an issue
arises in a proceeding in another forum requiring interpretation of any of the
provisions of this Stipulation and any Defendant intends to bring the issue
before the Idaho Court, that Defendant will provide reasonable notice to all
parties to that proceeding of that intent and shall make a good faith effort to
negotiate an agreement on such issues in order to avoid the need to present the
issue to the Idaho Court.
-37-
<PAGE>
L. COUNTERPARTS
This Stipulation may be executed in two or more counterparts.
M. MISCELLANEOUS PROVISIONS
1. The Parties shall cooperate in good faith and use their best
efforts to obtain, as promptly as practical, final approval of
the settlement and to implement the settlement provided herein,
including execution by the parties hereto of such further
documents as are reasonably necessary to implement the provisions
hereof in cooperation to obtain appropriate court orders. None
of the Parties shall seek to evade their good faith obligation to
seek approval and implementation of this settlement by virtue of
any rulings, orders or governmental or other reports, legislative
action, results of any further developments whether in the
Litigation, any other litigation, or otherwise that have occurred
after the date of signing this Stipulation, or might occur
hereafter and might be deemed to alter the relative strength of
the Parties with respect to any claims
-38
<PAGE>
or defense or their relative bargaining power with respect to
negotiating the settlement. The Parties deem this settlement to
be fair and reasonable and have arrived at this settlement at
arm's length negotiation, taking into account all relevant
factors present or potential.
2. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
3. This Stipulation and the exhibits hereto constitute the entire
agreement among the Parties and no representations, warranties or
inducements have been made to any party concerning this
Stipulation or its exhibits other than the representations and
warranties and covenants contained and memorialized in such
document. Except as otherwise provided herein, each Party shall
bear its own costs.
4. Counsel for each Party is authorized to sign this Stipulation on
behalf of his/her respective client.
N. SUCCESSORS AND ASSIGNS
This Stipulation shall be binding upon and shall inure to the benefit of
the Parties hereto and their respective successors, assigns, executors,
administrators, heirs and legal
-39-
<PAGE>
representatives, as the case may be; provided, however, that no assignment by
any party hereto shall operate to relieve such Party hereto of its obligations
hereunder.
O. NON-WAIVER OF PROVISIONS
Any failure by any Party to insist upon the strict performance by any other
Party of any of the provisions of this Stipulation shall not be deemed a waiver
of any of the provisions hereof, and such Party, notwithstanding such failure,
shall have the right thereafter to insist upon the strict performance of any and
all of the provisions of this Stipulation to be performed by such other Party.
P. CAPTIONS
The captions contained in this Stipulation are inserted only as a matter of
convenience and in no way define, limit, extend or describe the scope of this
Stipulation or the intent of any provision hereof.
Q. ARM'S LENGTH NEGOTIATIONS AND INTERPRETATION OF SETTLEMENT AGREEMENT
This Stipulation, including the exhibits attached hereto, was executed
after arm's length negotiations among the Parties and reflects the conclusion of
counsel for all the Parties that the settlement contemplated hereby, is fair,
equitable and in the best interests of their respective clients.
This Stipulation shall not be construed more strictly against any one Party
than another merely by virtue of the fact that it may have been prepared by
counsel for one of the Parties, being recognized that, because of the arm's-
length negotiations described above, all Parties hereto have contributed
-40-
<PAGE>
substantially and materially to the preparation of this Stipulation.
R. AMENDMENTS
This Stipulation may not be modified except by a writing signed by all of
the Parties.
Dated: , 1995
----------------------
Respectfully submitted,
- -------------------------------- ----------------------------------------
I. Walton Bader David D. Aufhauser
Bader and Bader Williams & Connolly
Counsel for William J. Agee and Mary
Cunningham Agee
- -------------------------------- ----------------------------------------
Stephen Beane John W. Edwards, II
Adrian Wager-Zito
Jones, Day, Reavis & Pogue
Counsel for Morrison Knudsen Corporation
- --------------------------------
Horace Schow, II
Counsel for Derivative Plaintiff,
State Board of Administration of
Florida
----------------------------------------
Thomas J. Nolan
Howrey & Simon
Counsel for Stephen G. Hanks
41
<PAGE>
/s/ Cezar M. Froelich
----------------------------------------
Cezar M. Froelich
Michael J. Howlett, Jr.
Shefsky Froelich & Devine Ltd.
Counsel 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
-42-
<PAGE>
SETTLEMENT AGREEMENT & RELEASE
This memorandum is the final, complete, and exclusive expression of an
agreement (hereinafter abbreviated "THIS AGREEMENT") between and among Morrison
Knudsen Corporation ("MK"); Richard L. Jacobs ("JACOBS"); James L. Fri, Jr.
("J.FRI"); Ellida S. Fri ("E.FRI"); and Theodore E. Nelson ("NELSON"); comprised
of the following terms:
1. AGREEMENT FORMATION. THIS AGREEMENT shall become a binding contract
automatically and instantaneously upon the occurrence, prior to 11:59 p.m.
Central Time on January 2, 1996, of all of the following conditions, which shall
hereinafter be referred to as the "FORMATION":
[a] the execution of any counterpart or combination of counterparts of
this memorandum by each and all of the above-named parties;
[b] the payment of $425,000.00 in immediately available U.S. funds by MK
to Wyatt, Tarrant & Combs, a Kentucky law partnership, as escrow agent for
JACOBS, J.FRI, E.FRI, and NELSON; and
[c] the authorized execution and due filing of the "Consent Order
Consolidating Actions and Stipulation of Settlement" attached to THIS
AGREEMENT as "Exhibit A."
2. DEFINITIONS. In addition to the abbreviations specified above, the
following terms shall have the accompanying meaning, and no other meaning,
whenever used in THIS AGREEMENT:
[a] "PLAINTIFF(S)": Any and each (in the singular) and all (in the
plural) of JACOBS, J.FRI, E.FRI, and NELSON.
[b] "TENNESSEE ACTIONS": Each and all of the following civil actions:
[1] the civil action originally filed on January 31, 1995 and
assigned Docket Number 95-1024 in the United States District Court for
the Western District of Tennessee, Eastern Division, styled in
substance RICHARD L. JACOBS; JAMES L. FRI, JR.; AND ELLIDA S. FRI,
PLAINTIFFS, V. MORRISON KNUDSEN CORPORATION, DEFENDANT;
[2] the civil action originally filed on or about February 7, 1995 and
assigned Docket Number 95-1029 in the United States District Court for
the Western District of Tennessee, Eastern Division, styled in
substance THEODORE E. NELSON, PLAINTIFF, V. MORRISON KNUDSEN
CORPORATION, DEFENDANT;
<PAGE>
[3] the civil action originally filed on or about July 18, 1995 and
assigned Docket Number 95-1168 in the United States District Court for
the Western District of Tennessee, Eastern Division, styled in
substance RICHARD L. JACOBS; JAMES L. FRI, JR.; ELLIDA S. FRI; AND
THEODORE E. NELSON, PLAINTIFFS, V. WILLIAM J. AGEE, DEFENDANT.
[c] "CLASS ACTION": The consolidated civil actions against MK, Deloitte &
Touche LLP, and others in the United States District Court for the District
of Idaho assigned Docket Number CV 94-334-S-EJL and known, on such
consolidated basis, as IN RE MORRISON KNUDSEN SECURITIES LITIGATION; in
which two documents entitled "Final Judgment and Order of Dismissal With
Prejudice" were filed on December 1, 1995.
[d] "CLASS SETTLEMENT STIPULATION(S)": Either, each and both of the
Stipulation of Settlement dated as of September 11, 1995 by and among MK
and others, filed in the CLASS ACTION on September 20, 1995; and the
Stipulation of Settlement dated as of October 1, 1995 by and among Deloitte
& Touche LLP and others, filed in the CLASS ACTION on October 5, 1995;
together with and including all exhibits and attachments thereto.
[e] "CLASS JUDGMENT(S)": Either, each and both of two documents entitled
"Final Judgment and Order of Dismissal With Prejudice," filed in the CLASS
ACTION on December 1, 1995.
[f] "TOUCHSTONE": Touchstone, Inc., a Tennessee business corporation
headquartered in Jackson, Tennessee.
[g] "EXCHANGE AGREEMENT": The Share Exchange Agreement by and among
PLAINTIFFS and MK dated as of January 31, 1994, together with and including
all other agreements, opinions, certificates, consents, terminations,
resignations, and other documents and actions executed and/or delivered in
connection with the formation, closing, or performance thereof; pursuant to
which MK acquired TOUCHSTONE on January 31, 1994; and all subsequent
amendments to any of the foregoing.
[h] "NELSON NON-COMPETE AGREEMENT": The Non-Competition Agreement entered
into by and between NELSON, TOUCHSTONE, and MK on January 31, 1994,
pursuant to Section 9.4(a) of the EXCHANGE AGREEMENT.
[i] "NELSON NON-COMPETE ESCROW": All property held in escrow pursuant to
Section 2 of the NELSON NON-COMPETE AGREEMENT.
[j] "JACOBS NON-COMPETE AGREEMENT": The Non-Competition Agreement entered
into by and between JACOBS, TOUCHSTONE, and MK on January 31, 1994,
pursuant to Section 9.4(a) of the EXCHANGE AGREEMENT.
2
<PAGE>
[k] "JACOBS NON-COMPETE ESCROW": All property held in escrow pursuant to
Section 2 of the JACOBS NON-COMPETE AGREEMENT.
[l] "J.FRI NON-COMPETE AGREEMENT": The Non-Competition Agreement entered
into by and between J.FRI, TOUCHSTONE, and MK on January 31, 1994, pursuant
to Section 9.4(a) of the EXCHANGE AGREEMENT.
[m] "E.FRI NON-COMPETE AGREEMENT": The Non-Competition Agreement entered
into by and between E.FRI, TOUCHSTONE, and MK on January 31, 1994, pursuant
to Section 9.4(a) of the EXCHANGE AGREEMENT.
[n] "LODGE PURCHASE OPTION": The option to purchase TOUCHSTONE's interest
in the recreational facility known as the "Touchstone Lodge" situated on
Crawford Springs Road in Jackson, Tennessee, provided in Section 13.2 of
the EXCHANGE AGREEMENT, to the extent such option still exists.
[o] "NELSON EMPLOYMENT AGREEMENT": The Employment Agreement between
NELSON, TOUCHSTONE, and MK dated as of January 31, 1994, entered into
pursuant to Section 9.4(b) of the EXCHANGE AGREEMENT.
[p] "TOUCHSTONE BOND LETTER AGREEMENT": The agreement(s) evidenced by
Section 8.7 of the Exchange Agreement and that certain letter dated January
27, 1994, from MK to NationsBank, 2670 Union Avenue, Memphis, Tennessee
38112, Attention: William Brooks, Vice President, relating to MK's
assumption of liability for certain Floating Rate Demand Revenue Bonds in
the original principal amount of $2,500,000.
[q] "MK RAIL ACTIONS": The actions defined as such in the CLASS
SETTLEMENT STIPULATIONS.
[r] "RELEASED MK PARTY(IES)": Any and each (in the singular) and all (in
the plural) of the following:
[1] MK; William J. Agee; Stephen G. Hanks; James F. Cleary, Jr.;
Great American Insurance Company; Reliance Insurance Company; and
Continental Casualty Company;
[2] Deloitte & Touche LLP; and Deloitte & Touche;
[3] all of their respective predecessors, successors and present,
former and future partners, principals, officers, directors,
employees, agents, attorneys, stockholders, investors, insurers,
reinsurers, underwriters, investment bankers, advisors, affiliates,
divisions, associates (as defined in SEC Rule 12b-2 promulgated
pursuant to the Securities Exchange Act of 1934),
3
<PAGE>
present, former or future parents, subsidiaries, or affiliates, and
each of their assigns, representatives, heirs, executors and
administrators.
[s] "CLAIM[S]": Any and all demands, rights, liabilities, claims, causes
of action, contracts, warranties and guaranties of every nature and
description whatsoever, in law or equity, known or unknown, asserted or
that might have been asserted, including, without limitation, claims for
negligence, gross negligence, breach of contract, breach of warranty,
breach of fiduciary duty (including, without limitation, the duties of
care, loyalty and/or candor), fraud, negligent misrepresentation, violation
of any federal or state statutes, rules, or regulations; either directly,
in a representative capacity, or any other capacity.
[t] "SETTLED CLAIM(S)": any and all CLAIM(S) arising out of, relating to,
or in connection with: [i] any matter that was or could have been raised
in the CLASS ACTION or the TENNESSEE ACTIONS; [ii] the acquisition or
disposition of common stock of MK or TOUCHSTONE at any time prior to
FORMATION of THIS AGREEMENT; [iii] any contracts or agreements between
PLAINTIFFS and MK, including the EXCHANGE AGREEMENT; [iv] the formation,
operation, finances, financial statements, securities, or business of MK
prior to FORMATION of THIS AGREEMENT; and/or [v] the commencement and/or
prosecution of the TENNESSEE ACTIONS, including the filing and/or service
of any paper therein; all except and excluding any CLAIM(S):
[1] under THIS AGREEMENT;
[2] under the NELSON NON-COMPETE AGREEMENT;
[3] under the JACOBS NON-COMPETE AGREEMENT;
[4] under the J.FRI NON-COMPETE AGREEMENT;
[5] under the E.FRI NON-COMPETE AGREEMENT;
[6] under the LODGE PURCHASE OPTION (to the extent such option still
exists);
[7] under the NELSON EMPLOYMENT AGREEMENT;
[8] under the TOUCHSTONE BOND LETTER AGREEMENT; and/or
[9] asserted on behalf of any PLAINTIFF or PLAINTIFFS in the MK RAIL
ACTIONS.
4
<PAGE>
[u] "CLASS SETTLEMENT PROCEEDS": Immediately available U.S. funds and/or
fully-paid, non-assessable, and freely tradeable shares of MK common stock
(with full rights to be voted and receive dividends) actually received by
or distributable to any, each and all of PLAINTIFFS from the Claims
Administrator (as defined in the CLASS SETTLEMENT STIPULATIONS) pursuant to
the CLASS SETTLEMENT STIPULATIONS and the CLASS JUDGMENTS. CLASS
SETTLEMENT PROCEEDS shall not include any money, stock, or other property
paid or payable by MK pursuant to THIS AGREEMENT.
3. PREDICATE WARRANTIES; APPROVAL AND CANCELLATION. Effective upon
FORMATION of THIS AGREEMENT, each of the parties identified below makes the
following warranties:
[a] Each PLAINTIFF warrants to MK:
[1] that except for the TENNESSEE ACTIONS, no PLAINTIFF has commenced
any action or proceeding asserting any SETTLED CLAIM against any
RELEASED MK PARTY in any forum;
[2] that no PLAINTIFF has made, purported to make, suffered, or
incurred any assignment or functionally equivalent transfer of any
SETTLED CLAIM against any RELEASED MK PARTY to any other person or
entity;
[3] that no PLAINTIFF has executed, transmitted, or otherwise made
any request for exclusion from the CLASS ACTION since 12:01 a.m. on
December 1, 1995; and
[4] that the amounts of the FORMATION payment made by MK pursuant to
paragraph 1(b) of THIS AGREEMENT, and the expense balance payment
prescribed for MK in paragraph 5[b] of THIS AGREEMENT, do not in the
aggregate exceed PLAINTIFFS' actual out-of-pocket expenditures for
legal and accounting services in connection with the TENNESSEE
ACTIONS.
[b] MK warrants to each PLAINTIFF:
[1] that MK has not commenced any action or proceeding asserting any
SETTLED CLAIM against any PLAINTIFF in any forum;
[2] that MK has not made, purported to make, suffered, or incurred
any assignment or functionally equivalent transfer of any SETTLED
CLAIM against any PLAINTIFF to any other person or entity;
[3] that MK is not the subject of any bankruptcy, receivership,
conservatorship, or functionally equivalent proceeding; and
5
<PAGE>
[4] that to MK's actual knowledge, except for the effect of any
contrary or conflicting provision (if any) of any loan agreement
between MK and one or more of its bank creditors, there does not exist
any judgment, injunction, order, or contract which prohibits or
precludes the FORMATION or performance of THIS AGREEMENT.
[c] If and to the extent that any loan agreement between MK and one or
more of its bank creditors prohibits or precludes the FORMATION or
performance of THIS AGREEMENT or will be breached thereby, MK covenants
effective upon FORMATION of THIS AGREEMENT to initiate (if not already
initiated) and thereafter to expeditiously take all commercially reasonable
action, within MK's power, necessary to obtain requisite approval from such
creditor(s) and/or otherwise to cure any material conflict between THIS
AGREEMENT and such loan agreement(s) by no later than January 10, 1996;
provided that this covenant shall not be construed to require MK to
undertake any material economic burden or materially increase any existing
economic burden. If MK does not timely obtain such creditor approval(s),
MK may cancel THIS AGREEMENT by effecting actual delivery of explicit
written notice of such cancellation to PLAINTIFFS by no later than 5:00
p.m. Memphis, Tennessee time on January 11, 1996. In the event of such
cancellation, the $425,000.00 sum paid by MK pursuant to paragraph 1[b] of
THIS AGREEMENT above shall be immediately returned by or on behalf of
PLAINTIFFS to MK in full, and the remaining settlement covenants in
paragraph 5 of THIS AGREEMENT shall be terminated without necessity of
performance, and have no further force or effect. Unless so cancelled in
strict accordance with the foregoing provision, THIS AGREEMENT shall remain
in effect perpetually and be performed in full according to all its terms.
4. INTERRELATIONSHIP WITH CLASS ACTION SETTLEMENT. The parties covenant
and stipulate with each other that their rights and obligations with respect to
the subjects of THIS AGREEMENT, including (without limitation) the CLAIMS
asserted by PLAINTIFFS in the TENNESSEE ACTIONS, the extinguishment of SETTLED
CLAIMS by and against PLAINTIFFS and the RELEASED MK PARTIES, and the
consideration received by PLAINTIFFS, are to be determined and controlled by
THIS AGREEMENT without conflict or interference from the CLASS SETTLEMENT
STIPULATIONS or the CLASS JUDGMENTS. MK accordingly stipulates, warrants and
covenants with PLAINTIFFS that neither CLASS JUDGMENT, nor any provision of
either CLASS SETTLEMENT STIPULATION, nor any other aspect of the settlement of
the CLASS ACTION, can or will be asserted to supersede, bar, estop, or otherwise
affect MK's obligations to PLAINTIFFS under THIS AGREEMENT. To the extent, if
any, that either CLASS JUDGMENT, or any term of either CLASS SETTLEMENT
STIPULATION, or any other aspect of the settlement of the CLASS ACTION, would
otherwise create a res judicata defense or other defense or right interfering
with performance or enforcement of THIS AGREEMENT, MK hereby waives any such
defense and/or right.
6
<PAGE>
5. PRIMARY SETTLEMENT COVENANTS. Effective automatically upon the
expiration of the cancellation period prescribed in paragraph 3[c] of THIS
AGREEMENT above, and provided that the right of cancellation prescribed therein
has not been timely exercised, the parties described below simultaneously take
and make the following prescribed actions and covenants:
[a] Each of PLAINTIFFS covenants:
[1] to refrain from requesting exclusion from the CLASS ACTION or
the MK RAIL ACTIONS;
[2] to accurately complete and sign a "Proof of Claim and Release and
Substitute Form W-9" in the form attached to the CLASS SETTLEMENT
STIPULATION filed on October 5, 1995;
[3] to mail such form postmarked on or before April 8, 1996,
addressed to MK Securities Litigation Claims Administrator, P.O. Box
990, Corte Madera, CA 94976-0990;
[4] to promptly and accurately furnish any known relevant information
requested by such Claims Administrator at any time prior to June 30,
1997; and
[5] to take any other reasonable action necessary to receive the
maximum amount of CLASS SETTLEMENT PROCEEDS, provided that this
covenant shall not be construed to require any PLAINTIFF to commence
or participate in the prosecution or defense of any civil action or
proceeding, to engage or pay any legal counsel, to incur any
unreasonable expense, to respond to any legal process initiated by or
on behalf of MK, or to take any action or suffer any detriment not
contemplated for class members generally in the CLASS SETTLEMENT
STIPULATIONS and the CLASS JUDGMENTS.
[b] MK hereby unconditionally promises and covenants to pay to PLAINTIFFS,
in care of JACOBS as agent for all PLAINTIFFS, independently of and
cumulatively with the FORMATION payment prescribed in paragraph 1[b] of
THIS AGREEMENT, a sum equal to the difference between [1] PLAINTIFFS'
aggregate actual out-of-pocket expenditures for legal and accounting
services in connection with the TENNESSEE ACTIONS and the CLASS ACTION, not
exceeding $581,088.29; and [2] the $425,000.00 FORMATION payment prescribed
in paragraph 1[b] of THIS AGREEMENT (such difference, therefore, not to
exceed $156,088.29). Such sum shall be due and payable, at MK's sole
election, either [1] on April 1, 1996, or [2] on the same date on which the
principal payment prescribed in paragraph 5[c] immediately below is due and
payable. Except as specifically provided in paragraph
7
<PAGE>
5[c] below, the obligation prescribed by this paragraph 5[b] is independent
of and cumulative with the obligation prescribed in paragraph 5[c].
[c] MK hereby unconditionally promises and covenants to pay to PLAINTIFFS,
in care of JACOBS as agent for all PLAINTIFFS, independently of and
cumulatively with the FORMATION payment prescribed in paragraph 1[b] of
THIS AGREEMENT and (except as otherwise provided below) the additional
expense reimbursement prescribed in paragraph 5[b] immediately above, the
following prescribed principal sum and (if applicable) interest and
collection expenses, according to the following conditions and terms:
[1] The principal amount of MK's obligation shall be [A] $5,250,000,
less [B] any and all CLASS SETTLEMENT PROCEEDS actually received by
PLAINTIFFS through June 30, 1997, less [C] any sum due from MK to
PLAINTIFFS under paragraph 5[b] above which MK has paid in full on or
before April 1, 1996 (such latter component not exceeding
$156,088.29). If the CLASS SETTLEMENT PROCEEDS actually received by
PLAINTIFFS through June 30, 1997, together with any sum received by
PLAINTIFFS from MK pursuant to paragraph 5[b] on or before April 1,
1996, equal or exceed $5,250,000, then this subparagraph 5[c] shall be
null and void.
[2] If PLAINTIFFS receive all CLASS SETTLEMENT PROCEEDS ever to be
due them prior to January 3, 1997, then the difference between such
CLASS SETTLEMENT PROCEEDS (together with any sum paid by MK pursuant
to paragraph 5[b] on or before April 1, 1996) and $5,250,000 shall be
payable by MK on January 3, 1997.
[3] If PLAINTIFFS receive all CLASS SETTLEMENT PROCEEDS ever to be
due them between January 3, 1997 and June 30, 1997, then the
difference between such CLASS SETTLEMENT PROCEEDS (together with any
sum paid by MK pursuant to paragraph 5[b] on or before April 1, 1996)
and $5,250,000 shall be payable by MK within ten calendar days of such
receipt.
[4] If, as of June 30, 1997, PLAINTIFFS either have not yet received
any CLASS SETTLEMENT PROCEEDS or have received some CLASS SETTLEMENT
PROCEEDS but circumstances indicate that additional CLASS SETTLEMENT
PROCEEDS will be distributable to one or more PLAINTIFFS thereafter,
then each affected PLAINTIFF shall execute an "Assignment of Class
Action Claim" in the form attached to THIS AGREEMENT as "Exhibit B",
and the difference between any CLASS SETTLEMENT PROCEEDS received by
PLAINTIFFS through June 30, 1997 (together with any sum paid by MK
pursuant to paragraph 5[b] on or before April 1, 1996) and $5,250,000
shall be payable by MK on July 10, 1997, upon simultaneous
8
<PAGE>
delivery of such assignment to MK (irrespective of whether MK has
received or thereafter receives anything by reason of such
assignment).
[5] Written certificates of PLAINTIFFS delivered to MK (at its notice
address below) as to the fact, date, amount, and partial or complete
nature of any distribution of CLASS SETTLEMENT PROCEEDS shall be
presumed correct unless promptly controverted by or on authority of
the Claims Administrator under the CLASS SETTLEMENT STIPULATION.
[6] For purposes of calculating the principal sum due from MK under
the foregoing subparagraphs, the value of any MK common stock received
by any PLAINTIFF as CLASS SETTLEMENT PROCEEDS shall be deemed to be
the highest closing market price attained by such stock during the
period between PLAINTIFF'S receipt of such stock and the earlier of
[i] the fifth trading day preceding the due date of MK's payment and
[ii] the trade date of any sale of such stock by such PLAINTIFF.
[7] The principal sum due from MK hereunder shall be made in cash or,
at MK's election, up to 50% thereof may be paid in the form of
unrestricted, immediately marketable, fully-paid, non-assessable, and
freely tradeable shares of MK common stock (with full rights to be
voted and receive dividends). The value and number of any shares
transferred by MK to PLAINTIFFS for such purpose shall be determined
by the closing market price of such shares on the fifth trading day
preceding the applicable payment deadline. If requested by
PLAINTIFFS, MK will sell any shares of MK common stock on behalf of
PLAINTIFFS and remit the proceeds of such sale upon receipt. If MK
elects to make any payment in stock as provided above but fails timely
to deliver qualifying stock as prescribed, then MK shall be deemed not
to have made such election and the full amount due shall be
immediately payable in cash.
[8] If MK defaults in timely payment of any amount due under this
paragraph 5[c], MK additionally covenants to pay PLAINTIFFS interest
on such amount at the annual rate of 10% until paid in full. If MK
fails timely to make any payment which is to be exchanged for an
"Assignment of Class Action Claim" in the form attached to THIS
AGREEMENT as "Exhibit B", PLAINTIFFS may, in mitigation of loss from
such default, withhold delivery of and cancel such assignment in order
to receive additional CLASS SETTLEMENT PROCEEDS.
[9] Except as specifically provided otherwise in this paragraph 5[c],
all sums payable by MK under THIS AGREEMENT shall be payable in
immediately available U.S. funds.
9
<PAGE>
[10] Payment of any sum due to any PLAINTIFF to JACOBS shall
constitute, insofar as MK is concerned, payment to the proper
PLAINTIFF, and MK shall have no obligation to inquire into the actual
authority of JACOBS to receive any such payment or any disposition of
any money or property by JACOBS thereafter.
[11] In the event any PLAINTIFF breaches any of such PLAINTIFF'S
covenants in paragraph 5[a] of THIS AGREEMENT above, and thereby
causes himself or herself to receive no CLASS SETTLEMENT PROCEEDS, or
to receive a smaller amount of CLASS SETTLEMENT PROCEEDS than he or
she would have received absent such breach, such PLAINTIFF shall be
deemed for purposes of this paragraph 5[c] to have received the full
amount of CLASS SETTLEMENT PROCEEDS which he or she would have
received absent such breach, and MK may deduct the amount of CLASS
SETTLEMENT PROCEEDS lost by such PLAINTIFF due to such breach against
the amount owed by MK under this paragraph 5[c].
[d] Each and all of PLAINTIFFS release each and all of the RELEASED MK
PARTIES from all SETTLED CLAIMS.
[e] MK releases each and all of PLAINTIFFS from all SETTLED CLAIMS.
[f] PLAINTIFFS authorize their counsel and covenant to take all action
necessary to cause the immediate filing and service of the "Notice of
Voluntary Dismissal With Prejudice" attached to THIS AGREEMENT as "Exhibit
C."
[g] PLAINTIFFS and MK authorize their respective counsel and covenant to
take all action necessary to cause the immediate entry of the "Consent
Order Dismissing Actions With Prejudice" attached to THIS AGREEMENT as
"Exhibit D."
[h] MK covenants that upon notice from NELSON, it will use its best
efforts to cause the NELSON NON-COMPETE ESCROW to be transferred to Key
Trust Company of Idaho, Boise, Idaho, or such other financial institution
reasonably satisfactory to MK and NELSON ("Escrow Agent") pursuant to an
escrow agreement with terms reasonably agreeable to MK, NELSON and the
Escrow Agent ("Escrow Agreement"). The Escrow Agreement shall permit the
transfer or sale of the Shares held in the NELSON NON-COMPETE ESCROW and
the subsequent investment of any proceeds of such Shares, all as directed
by NELSON, until distribution in accordance with the NELSON NON-COMPETE
AGREEMENT, provided, however, that the Escrow Agreement and any such
transactions directed by NELSON shall be in compliance with [i] all
applicable laws, including but not limited to all federal and state
securities laws, [ii] the EXCHANGE AGREEMENT, [iii] the NELSON NON-COMPETE
AGREEMENT, and [iv] the NELSON NON-COMPETE ESCROW. NELSON expressly
acknowledges and agrees that the best
10
<PAGE>
efforts to be undertaken by MK do not include any steps that would be
unduly burdensome or that would be economically and/or legally unfeasible.
Specifically, NELSON acknowledges and agrees that MK shall not be required
or obligated, at this time, to file or cause to be filed a registration
statement with the Securities and Exchange Commission or a registration
statement or application under any state securities law with respect to
the registration, or qualification of any of the MK Shares subject to the
NELSON NON-COMPETE ESCROW.
[i] MK covenants that upon notice from JACOBS, it will use its best
efforts to cause the JACOBS NON-COMPETE ESCROW to be transferred to Key
Trust Company of Idaho, Boise, Idaho, or such other financial institution
reasonably satisfactory to MK and JACOBS ("Escrow Agent") pursuant to an
escrow agreement with terms reasonably agreeable to MK, JACOBS and the
Escrow Agent ("Escrow Agreement"). The Escrow Agreement shall permit the
transfer or sale of the Shares held in the JACOBS NON-COMPETE ESCROW and
the subsequent investment of any proceeds of such Shares, all as directed
by JACOBS, until distribution in accordance with the JACOBS NON-COMPETE
AGREEMENT, provided, however, that the Escrow Agreement and any such
transactions directed by JACOBS shall be in compliance with [i] all
applicable laws, including but not limited to all federal and state
securities laws, [ii] the EXCHANGE AGREEMENT, [iii] the JACOBS NON-COMPETE
AGREEMENT, and [iv] the JACOBS NON-COMPETE ESCROW. JACOBS expressly
acknowledges and agrees that the best efforts to be undertaken by MK do not
include any steps that would be unduly burdensome or that would be
economically and/or legally unfeasible. Specifically, JACOBS acknowledges
and agrees that MK shall not be required or obligated, at this time, to
file or cause to be filed a registration statement with the Securities and
Exchange Commission or a registration statement or application under any
state securities law with respect to the registration, or qualification of
any of the MK Shares subject to the JACOBS NON-COMPETE ESCROW.
[j] If MK defaults in any payment or other performance covenanted in THIS
AGREEMENT, MK additionally covenants to pay all attorney fees and other
legal expense incurred by PLAINTIFFS (or any of PLAINTIFFS) in remedying
such default.
6. GENERAL PROVISIONS.
[a] Any party aggrieved by any breach of THIS AGREEMENT may seek specific
performance, and specific enforcement may be granted without regard to the
xistence or adequacy of, and without prejudice to, any other remedy.
[b] Each person and entity within the scope of the definition of the
RELEASED MK PARTIES is an intended third-party beneficiary of the related
terms of THIS AGREEMENT and shall be entitled to enforce such terms in the
same manner as
11
<PAGE>
a named party. THIS AGREEMENT also shall be binding upon the heirs,
successors and assigns of the parties. Otherwise, no other third party
is intended to have any rights hereunder.
[c] Each party stipulates and warrants that THIS AGREEMENT constitutes a
compromise and settlement of disputed claims and matters which have been in
controversy since 1994; that such party has negotiated THIS AGREEMENT with
the assistance and advice of independent legal counsel and the benefit of
all information, investigation, legal research, and/or other action which
that party and/or its counsel has deemed desirable before commencing or
including such negotiations; and that, due to the nature of THIS AGREEMENT
and the adversary litigation being settled hereby, such party has not
relied or predicated its assent hereto upon any representation by any other
party made otherwise than in THIS AGREEMENT or any duty of such other party
to disclose any facts. Each party further unconditionally and irrevocably
represents to and stipulates with each other party that:
[1] the settlement of each party's claim and/or defense prescribed by
THIS AGREEMENT is reasonable, taking into account all the benefits
received and rights given up by that party, and all other relevant
factors;
[2] the FORMATION and performance of THIS AGREEMENT each constitutes
a contemporaneous exchange of the considerations prescribed, for new
value in each case; and
[3] the values exchanged by each party with each other party, and
with all other parties, in both the FORMATION and performance of THIS
AGREEMENT, are reasonably equivalent.
[d] Neither the negotiation nor any term of THIS AGREEMENT nor any act
hereunder is intended to or shall be asserted to constitute or evidence any
admission by any party that any SETTLED CLAIM referred to herein is either
valid or invalid. All obligations prescribed in THIS AGREEMENT shall
remain fixed and liquidated and shall be performed without regard to the
previous validity or invalidity of any SETTLED CLAIM referenced herein or
any state of facts underlying any such SETTLED CLAIM.
[e] THIS AGREEMENT shall be construed objectively in light of its overall
purpose, which is to terminate existing legal controversy and prescribe
certain future conduct with minimal further controversy. Neither the
source nor authorship of THIS AGREEMENT nor the contents of any non-final
drafts shall cause any other bias or presumption in the construction or
interpretation of THIS AGREEMENT.
12
<PAGE>
[f] Any waiver of any right under THIS AGREEMENT, in order to be
effective, must be specifically expressed in a written document manually
executed by a representative of the waiving party who has actual authority
to make such waiver; and otherwise, such purported waiver shall not be
effective.
[g] THIS AGREEMENT shall be governed by the internal laws, both statutory
and otherwise, of the State of Tennessee, without reference to its choice-
of-law rules; except to the extent governed by federal law.
[h] Payments and deliveries of cash and securities to be made pursuant to
THIS AGREEMENT shall be made in person unless otherwise agreed. Any notice
from any party to another pertaining to THIS AGREEMENT shall be sent to all
of the parties addressed as follows or as otherwise specified in a
subsequent notice complying with this provision:
Morrison Knudsen Corporation
P.O. Box 73
MK Plaza
720 Park Blvd.
Boise, ID 83729 (P.O.) 83712 (Street Address)
Attention: Mr. Richard Parry, Vice-President/Legal
Phone: 208-386-5199
Fax: 208-386-5220
Richard L. Jacobs
James L. Fri, Jr.
Ellida S. Fri
Theodore E. Nelson
c/o Mr. Richard L. Jacobs
P.O. Box 997
1010 Prospect Ave.
Jackson, TN 38302-0997 (P.O.) 38301 (Street Address)
Phone: 800-427-5686
Fax: 901-427-6114
With a copy to: Mark Vorder-Bruegge, Jr., Esq.
Wyatt, Tarrant & Combs
6075 Poplar Ave., Suite 650
Memphis, TN 38119
Phone/Voice Mail: 901-537-1069
Fax: 901-537-1010
[i] Time is of the essence with respect to all time periods and deadlines
prescribed in THIS AGREEMENT.
13
<PAGE>
MORRISON KNUDSEN CORPORATION
By:
------------------------------------------------
[manual signature]
------------------------------------------------
[printed name]
------------------------------------------------
[title]
------------------------------------------------
[date]
/s/ RICHARD L. JACOBS
- -----------------------------------------------------
RICHARD L. JACOBS
1/2/96
- -----------------------------------------------------
[date]
- -----------------------------------------------------
JAMES L. FRI, JR.
- -----------------------------------------------------
[date]
- -----------------------------------------------------
ELLIDA S. FRI
- -----------------------------------------------------
[date]
/s/ THEODORE E. NELSON
- -----------------------------------------------------
THEODORE E. NELSON
1/2/96
- -----------------------------------------------------
[date]
14
<PAGE>
EXHIBIT A
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE, EASTERN DIVISION
<TABLE>
<S> <C> <C>
RICHARD L. JACOBS; JAMES L. )
FRI, JR.; and ELLIDA S. FRI; )
Plaintiffs, )
)
v. ) No. 95-1024
)
MORRISON KNUDSEN CORPORATION; )
Defendant )
THEODORE E. NELSON, )
Plaintiff, )
)
v. ) No. 95-1029
)
MORRISON KNUDSEN CORPORATION, )
Defendant )
</TABLE>
_______________________________________________________________________________
CONSENT ORDER CONSOLIDATING ACTIONS
AND STIPULATION OF SETTLEMENT
_______________________________________________________________________________
By consent of all parties to both of the above-entitled actions, the Court
hereby consolidates such actions for all purposes. Documents placed in the
Court's file on either action shall hereafter be deemed applicable to both
actions.
Through their undersigned counsel, all parties to these actions hereby
stipulate that they have entered into a binding, definitive agreement for the
settlement of all matters in controversy in these actions (the "Tennessee
Actions") and of plaintiffs' interests in certain class actions consolidated
under docket number CV 94-334-S-EJL in the United States District Court for the
District of Idaho, entitled IN RE: MORRISON KNUDSEN SECURITIES
<PAGE>
LITIGATION (the "Class Action"), subject to various conditions and provisions
set forth in such definitive agreement. The parties further stipulate to the
following matters pertinent to such settlement.
The Class Action asserts claims against defendant Morrison Knudsen
Corporation ("MK") and others for alleged fraud on the securities market
resulting in damage to holders of MK common stock between October 15, 1993 and
March 31, 1995, inclusive. The Tennessee Actions are predicated upon
plaintiffs' sale of one hundred percent of the common stock of Touchstone, Inc.
(a corporation headquartered in Jackson, Tennessee) to MK, and entry into
certain non-compete agreements with MK, in exchange for 770,000 shares of MK
common stock on January 31, 1994, pursuant to an Exchange Agreement between MK
and plaintiffs in which MK made certain direct representations and warranties to
plaintiffs concerning MK's financial condition. In the Tennessee Actions,
plaintiffs assert claims against MK for breach of warranty, for direct
misrepresentations, and for material omissions in direct communications, which
are not and could not be asserted in the Class Action. At the same time,
because plaintiffs' transaction with MK occurred on January 31, 1994, plaintiffs
are putative members of the class defined in the Class Action.
The Class Action has been settled. Its putative class has been certified
for settlement purposes, and a "FINAL JUDGMENT AND ORDER OF DISMISSAL WITH
PREJUDICE" (the "Class Judgment") was filed on December 1, 1995. By
simultaneous order of the court administering the Class Action, the plaintiffs
in the Tennessee Actions
2
<PAGE>
have been granted a period of 45 days from December 1, 1995, in which to request
exclusion from the Class Action settlement with MK.
According to the terms of the settlement agreement between MK and the
plaintiffs in the Tennessee Actions, as stipulated herein, MK covenants (INTER
ALIA) that plaintiffs will receive $5,250,000 in cash and/or marketable
securities by a prescribed date no later than June 30, 1997, a portion of which
may be funded by plaintiffs' participation in the Class Action settlement.
In order to permit such funding, the parties have made certain reciprocal
agreements and stipulations regarding plaintiffs' participation in the Class
Action settlement. Plaintiffs have agreed not to request exclusion from the
Class Action settlement, and MK has agreed and stipulated, and so stipulates
here, that neither the Class Judgment, nor any other aspect of the Class Action
settlement, can or will be asserted to supersede, bar, estop, or otherwise
affect MK's obligations to plaintiffs under the agreement for settlement of the
Tennessee Actions. To the extent, if any, that the Class Judgment or any other
aspect of the Class Action settlement would otherwise create a res judicata
defense or other defense or right interfering with performance or enforcement of
the parties' agreement for settlement of the Tennessee Actions, MK has waived
such defense and/or right.
The parties further stipulate that [1] the settlement of each party's claim
and/or defense as prescribed by their settlement agreement is reasonable, taking
into account all the benefits received and rights given up by that party, and
all other relevant factors; [2] the formation and consummation of the settlement
agreement each constitutes a
3
<PAGE>
contemporaneous exchange of the considerations prescribed, for new value in each
case; and [3] the values exchanged by each party with each other party, and with
all other parties, in both the formation and consummation of the settlement
agreement, are reasonably equivalent.
Upon application of the parties, the Court hereby accepts and approves the
foregoing stipulation.
----------------------------------
ODELL HORTON
SENIOR JUDGE
----------------------------------
DATE OF SIGNATURE
STIPULATED, APPROVED & CONSENTED TO:
- --------------------------------
Mark Vorder-Bruegge, Jr.
Wyatt, Tarrant & Combs
Attorney for Plaintiffs
- --------------------------------
John W. Edwards, II
Jones, Day, Reavis & Pogue
Attorney for Defendant
- --------------------------------
Saul C. Belz
Waring Cox
Attorney for Defendant
4
<PAGE>
EXHIBIT B
ASSIGNMENT OF CLASS ACTION CLAIM
The undersigned hereby unconditionally and irrevocably assigns to Morrison
Knudsen Corporation all of the undersigned's right, title, and interest in any
cash, securities, and other property distributable after the date of this
assignment to the undersigned as a member of the plaintiff class in those
certain consolidated civil actions in the U.S. District Court for the District
of Idaho, Docket Number CV 94-334-S-EJL, entitled IN RE MORRISON KNUDSEN
SECURITIES LITIGATION. This assignment is made without warranty or recourse,
and any warranty which otherwise would be implied herein is hereby affirmatively
disclaimed.
---------------------------------
[manual signature]
---------------------------------
[printed name]
---------------------------------
[date of signature]
<PAGE>
EXHIBIT C
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE, EASTERN DIVISION
RICHARD L. JACOBS; JAMES L. )
FRI, JR.; ELLIDA S. FRI; and )
THEODORE E. NELSON; )
)
)
)
Plaintiffs, )
)
v. ) No. 95-1168
)
WILLIAM J. AGEE; )
)
)
)
Defendant )
______________________________________________________________________________
NOTICE OF VOLUNTARY DISMISSAL WITH PREJUDICE
______________________________________________________________________________
Pursuant to Fed.R.Civ.P. 41(a)(1), this action is dismissed with prejudice.
----------------------------------
Mark Vorder-Bruegge, Jr., Esq.
WYATT, TARRANT & COMBS
P.O. Box 775000
Memphis, Tn. 38177-5000
DELIVERIES:
6075 Poplar Ave., Suite 650
Memphis, Tn. 38119
TELECOMMUNICATIONS:
Phone: 901-537-1069
Fax: 901-537-1010
Internet: [email protected]
Attorneys for Plaintiffs
<PAGE>
CERTIFICATE OF SERVICE
The undersigned attorney hereby certifies that a copy of the foregoing
paper has been served upon the defendant in this action by First Class U.S.
Mail, postage prepaid, this ____ day of ____________, 199__, addressed to:
David D. Aufhauser, Esq.
Williams & Connolly
725 Twelfth Street, N.W.
Washington, D.C. 20005
----------------------------------
MARK VORDER-BRUEGGE, JR.
2
<PAGE>
EXHIBIT D
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE, EASTERN DIVISION
RICHARD L. JACOBS; JAMES L. )
FRI, JR.; and ELLIDA S. FRI; )
)
)
Plaintiffs, )
)
v. ) No. 95-1024
)
MORRISON KNUDSEN CORPORATION; )
)
)
Defendant )
)
THEODORE E. NELSON, )
)
)
Plaintiff, )
)
v. ) No. 95-1029
)
MORRISON KNUDSEN CORPORATION, )
)
)
Defendant )
______________________________________________________________________________
CONSENT ORDER DISMISSING ACTIONS WITH PREJUDICE
______________________________________________________________________________
Upon application and by consent of the parties, the Court hereby dismisses
all claims in these actions with prejudice.
Upon application and by consent of the parties, the Court retains
jurisdiction of these actions and the parties for the purpose of enforcing the
parties' settlement agreement.
---------------------------------
ODELL HORTON
SENIOR JUDGE
---------------------------------
DATE OF SIGNATURE
<PAGE>
APPROVED & CONSENTED TO:
- ----------------------------------
Mark Vorder-Bruegge, Jr.
Wyatt, Tarrant & Combs
Attorney for Plaintiffs
- ----------------------------------
John W. Edwards, II
Jones, Day, Reavis & Pogue
Attorney for Defendant
- ----------------------------------
Saul C. Belz
Waring Cox
Attorney for Defendant
2
<PAGE>
FINAL CHANGES MADE 12-22-95
EXECUTION COPY - 12-22-95
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
TAMMY NEWMAN, on behalf of : No. CIV-94-0478-S-EJL
herself and all others : (Lead Case)
similarly situated :
:
Plaintiffs, :
:
vs. :
:
WILLIAM J. AGEE, et al., :
:
Defendants. :
____________________________________ :
ROBERT SUSSER and ALLEN : No. CIV-94-0477-S-LMB
BUNNING, on behalf of :
themselves and all others :
similarly situated, :
:
Plaintiffs, :
:
vs. :
:
WILLIAM J. AGEE, et al., :
:
Defendants. :
STIPULATION OF SETTLEMENT
This Stipulation of Settlement (the "Stipulation"), dated as of December
22, 1995, is made and entered into by and among the Plaintiffs, the Defendants
in the actions captioned above (collectively, the "Parties"), Deloitte & Touche
LLP ("D&T") and the Insurers, as those terms are defined herein, by and through
their attorneys or their counsel of record in the actions described in Section I
herein.
<PAGE>
THE LITIGATION
This Litigation began in October 1994. Two purported class action
complaints have been filed in the District of Idaho:
SUSSER, ET AL. V. AGEE, ET AL., No. 94-0477-S-LMB and
NEWMAN, ET AL. V. AGEE, ET AL., No. 94-0478-S-EJL.
These actions have been consolidated at the NEWMAN docket number (94-CV-478-S-
EJL) with NEWMAN as the lead case (See Order of Consolidation dated February 17,
1995), and are referred to herein as the "Litigation."
The defendants in the Litigation are MY. Rail Corporation ("MK Rail"),
William J. Agee, James F. Cleary, Jr., Michael J. Farrell, Stephen G. Hanks and
Gilbert E. Carmichael (the "Individual Defendants"), Morrison Knudsen
Corporation ("MK") and Morgan Stanley & Co. Incorporated and C. S. First Boston
Corporation (the "Underwriter Defendants"). MK Rail, MK, the Underwriter
Defendants and the Individual Defendants collectively are termed the
"Defendants."
On May 24, 1995, the Plaintiffs filed their Consolidated and Second Amended
Class Action Complaint (the "Consolidated Complaint"). The Consolidated
Complaint alleged claims for violations of Sections 10(b), 20(a) and 20A of the
Securities Exchange Act of 1934, 15 U.S.C. Section 578 (the "Exchange Act"), and
Rule 10b-5 promulgated under Section 10(b) by the Securities and Exchange
Commission ("SEC"), and claims under the Idaho securities statutes and common
law.
2
<PAGE>
For purposes of this Stipulation, the Parties have agreed, pursuant to Rule
23 of the Federal Rules of Civil Procedure, that the Court may certify a
settlement class (the "Class") comprised of:
All persons who purchased shares of the common stock of MK Rail
Corporation during the period of April 26, 1994 through April 25, 1995,
inclusive, (the "Class Period"), and who suffered harm thereby, excluding
defendants MK Rail, MK and the Underwriter Defendants, and their respective
directors, executive officers, partners, corporate affiliates, and
subsidiaries; the Individual Defendants, their heirs, successors, and
assigns and the members of their immediate families.
The Parties' agreement to certification of the foregoing Class has been made
without prejudice to their respective rights to urge or oppose this or a
different plaintiff class if the Settlement embodied by this Stipulation is not
approved or is not consummated.
II.
PRETRLAL PROCEEDINGS AND
DISCOVERY IN THE LITIGATION
Counsel for Plaintiffs and the Class have conducted extensive discovery
during the prosecution of the Litigation. The discovery has included: (i) the
review and analysis of hundreds of thousands of documents produced by the
Defendants; (ii) the review and analysis of discovery obtained from stock
analysts who follow MK and MK Rail; (iii) the review and analysis of discovery
obtained from third parties, such as financial analysts and various entities
that had contracted with MK Rail; (iv) the review and analysis of MK Rail's
financial statements and results for fiscal 1994; (v) interviewing numerous
witnesses, including current and former employees of MK and MK Rail; (vi) the
review and analysis of audit work papers prepared by
3
<PAGE>
D&T; (vii) the review and analysis of public documents, including all relevant
filings made by MK and MK Rail with the SEC; (viii) extensive consultation with
damages and accounting experts; and (ix) a thorough analysis and evaluation of
the facts supporting Plaintiffs' claims. Counsel for Plaintiffs and the Class
also have researched thoroughly the applicable law with respect to the claims of
the Plaintiffs against the Defendants and the potential defenses thereto.
III.
CLAMS OF PLAINTIFFS
In the Litigation, brought as purported class actions against MK Rail, MK,
the Underwriter Defendants and the Individual Defendants, Plaintiffs assert
claims for violation of certain federal and state securities laws and certain
common law claims. They seek damages based upon allegations, among other
things, that the Defendants issued false and misleading public statements
relating to MK Rail's business position and future prospects and that certain of
MK Rail's financial statements were materially inaccurate and/or failed to
reflect all required information. The Plaintiffs also allege that material
misstatements were made in connection with the initial public offering of MK
Rail's common stock and thereafter.
Plaintiffs believe that the Litigation has substantial merit. Entering
into, or carrying out, this Stipulation (or the Exhibits hereto), and any
negotiations or proceedings related thereto, shall not in any event be construed
as, or be deemed to be, evidence of an admission or a concession by the
Plaintiffs with regard to the merits of their claims and shall not be offered or
received in evidence in any action or proceeding in any court, administrative
agency or other tribunal for any purpose whatsoever, other than to enforce the
provisions of this Stipulation and
4
<PAGE>
the Exhibits hereto; except that this Stipulation and the Exhibits hereto
may be filed in this Litigation or related litigation as evidence of the
Settlement, or in any subsequent action against or by the Defendants or the
Released Parties to support a defense of RES JUDICATA, collateral estoppel,
release, or other theory of claim or issue preclusion or similar defense.
IV.
BENEFITS OF SETTLEMENT
TO PLAINTIFFS AND THE CLASS
Counsel for Plaintiffs and the Class recognize and acknowledge the expense
and length of continued proceedings necessary to prosecute the Litigation
against the Defendants through trial and through appeals. Counsel for
Plaintiffs and the Class also have taken into account the uncertain outcome and
the risk of any litigation, especially in complex actions such as the
Litigation, as well as the difficulties and delays inherent in such litigation.
Counsel for Plaintiffs and the Class have taken into account the strengths and
uncertainties of the claims asserted in the Litigation, the possible defenses to
the claims asserted and the substantial benefits of a cash settlement of up to
$5,375,000 (less $30,000 for the Notice and Administration Fund) plus interest,
plus 413,793 shares of MK Rail Common Stock, 869,231 shares of MK Common Stock
and MK Rail Preferred Stock with a stated and redemption value of $1 million(1)
(the "Settlement Amount") for the Class as set forth in this Stipulation (the
"Settlement"). Counsel
____________________________
(1) As explained in more detail in SECTION VII, hereto, MK Rail may elect, at
its option, to contribute non-voting preferred stock with a stated and
redemption value of $1 million on the terms set forth in Attachment A hereto
(the "Preferred Stock") or to contribute $1 million in cash. If MK Rail shall
initially elect to contribute non-voting preferred stock with a stated and
redemption value of $1 million on the terms set forth in Attachment A, it may,
at its option, elect to replace the same with $1 million cash.
5
<PAGE>
for the Plaintiffs and the Class have therefore determined that the Settlement
set forth in this Stipulation is in the best interests of the Plaintiffs and the
Class.
V.
DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
The Defendants in the Litigation have denied and continue to deny each and
all of the claims and contentions alleged by Plaintiffs in the Litigation. They
have asserted and continue to assert many defenses thereto, and have expressly
denied and continue to deny any wrongdoing or legal liability arising out of the
conduct alleged in the Litigation. They also have denied that Plaintiffs or
members of the Class have suffered damage, or that the price of MK Rail's
common stock was artificially inflated by reason of misrepresentations, non-
disclosures or otherwise. Neither this Stipulation, nor any document referred
to herein, nor any action taken to carry out this Stipulation is, may be
construed as, or may be used as an admission by, or against, the Defendants, or
any of them, or D&T of any fault, wrongdoing or liability whatsoever. Entering
into or carrying out this Stipulation (or the Exhibits hereto) and any
negotiations or proceedings related thereto shall not in any event be construed
as, or be deemed to be, evidence of an admission or concession with regard to
the denials or defenses of any of the Defendants or D&T and shall not be offered
or received in evidence in any action or proceeding in any court, administrative
agency or other tribunal for any purpose whatsoever, other than to enforce the
provisions of this Stipulation (and the Exhibits hereto) or the provisions of
any related agreement or release; except that this Stipulation and the Exhibits
hereto may be filed in this Litigation or related litigation as evidence of this
Settlement, or in any subsequent
6
<PAGE>
action against or by the Defendants or the Released Parties to support a defense
of RES JUDICATA, collateral estoppel, release, or other theory of claim or issue
preclusion or similar defense.
VI.
BENEFITS OF SETTLEMENT TO THE DEFENDANTS
Defendants have concluded that it is desirable that the Litigation be
settled in the manner and upon the terms and conditions set forth herein in
order to avoid the expense, inconvenience and distraction of further legal
proceedings and to put to rest the Settled Claims, including Unknown Claims (as
defined below), asserted by the Plaintiffs and on behalf of the Class. In
determining to enter into, and/or to perform, the Stipulation, the Defendants
also have considered a number of issues, including the uncertain outcome and the
risk of any litigation, especially in complex actions such as the Litigation, as
well as the difficulties and delays inherent in such litigation and the
strengths and uncertainties of the claims and defenses asserted in the
Litigation.
VII.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Plaintiffs (on behalf of themselves and the Class), the Defendants, the
Insurers, and D&T, by and through their respective attorneys or counsel of
record, that, subject to the approval of the Court, the Litigation and all
claims that have been or could have been asserted therein shall be finally and
fully compromised and settled and the Litigation shall be dismissed
7
<PAGE>
on the merits and with prejudice upon, subject to, the terms and conditions of
the Stipulation as follows:
A. DEFINITIONS
As used in this Stipulation, the following terms shall have the defined
meanings set forth below:
1. "Attorneys' Fees and Expenses" means the portion of the Settlement
Fund approved by the Court for payment to Plaintiffs' Counsel, including
attorneys' fees; costs; litigation expenses, including fees and expenses of
experts; as well as any interest earned on such attorneys' fees, costs and
expenses from the date of deposit of the Settlement Fund into the Joint Account
until disbursement to Plaintiffs' Counsel. As used herein, the term also
includes any incentive payments awarded to the Plaintiffs.
2. "Authorized Claimant" means a member of the Class whose claim has
been allowed as provided by the terms of this Stipulation and the Final Judgment
and Order of Dismissal of the Court approving the Settlement of the Litigation
(as hereinafter defined).
3. "Bank" means the financial institution in Boise, Idaho that shall be
exclusively authorized to hold the funds and securities in the Joint Account
subject to the terms and conditions of this Stipulation and/or pursuant to an
order of the Court until such time as the Net Settlement Fund is transferred to
Plaintiffs' Counsel.
4. "Claims Administrator" means the firm retained by Plaintiffs' Counsel
to process proofs of claim and to process payment of the claims of Authorized
Claimants.
8
<PAGE>
5. "Class Member(s)" means all members of the Class, as defined in
Section I above, including all Plaintiffs, except persons who file valid and
timely requests for exclusion pursuant to the Notice of Class Action and Hearing
on Proposed Settlement.
6. "Class Period" means the period from April 26, 1994 through April 25,
1995, inclusive.
7. "CNA" means Continental Casualty Company.
8. "Court" means the United States District Court for the District of
Idaho.
9. "D&T" means Deloitte & Touche LLP.
10. "Defendants" means each and all of the following persons and entities:
MK Rail, MK, William J. Agee, James F. Cleary, Michael J. Farrell, Stephen G.
Hanks, Gilbert E. Carmichael, Morgan Stanley & Co., Incorporated and C. S. First
Boston Corporation.
11. "Derivative Action" means the derivative action brought against MK
Rail and MK as nominal defendants and the Individual Defendants and others and
pending before the court of Ada County, Idaho and captioned WOHLGELERNTER V.
AGEE, ET AL., CV-OC-9500656 D.
12. "Effective Date" means the date on which the Court's Final Judgment
and Order of Dismissal With Prejudice, substantially in the form of Exhibit "B"
hereto (the "Final Judgment"), becomes final, which shall be deemed to occur
upon the last to occur of the following: (a) if no appeal or review of the Final
Judgment is sought, the thirty-first (31st) day after entry of the Final
Judgment (or, if the date for taking an appeal shall be extended, the day after
expiration of the extension); or (b) if an appeal or review of the Final
Judgment is sought, the day after such Final Judgment is affirmed or the appeal
or review is dismissed or denied and such Final Judgment is no longer subject to
further judicial review.
9
<PAGE>
13. "Fidelity" means The Fidelity and Casualty Company of New York.
14. "Great American" means Great American Insurance Company.
15. "Insurers" means Fidelity, Great American, Reliance, and CNA, each of
which has issued a Directors and Officers Liability Insurance Policy to MK Rail
or MK, under which coverage has been requested by the Individual Defendants.
16. "Joint Account" means, collectively, the interest-bearing accounts
being maintained by the Bank for deposit of the cash portion of the Settlement
Fund and/or the account into which certificates will be deposited, all as
described more particularly in SECTION VII (B) below.
17. "MK" means Morrison Knudsen Corporation.
18. "MK Rail" means MK Rail Corporation.
19. "MK Actions" means the consolidated class actions pending against MK,
certain of the Individual Defendants, and others in the United States District
Court for the District of Idaho.
20. "Net Settlement Fund" means the Settlement Fund, less: (i) taxes that
may become due, if any, with respect to the Settlement Fund, (ii) any other
related fees and expenses as may be authorized by the Court, and (iii) any fees
and expenses charged by the Bank.
21. "Notice and Administration Account" means the account established by
Plaintiffs' Counsel to hold the Notice and Administration Fund.
22. "Notice and Administration Expenses" means all reasonable costs and
expenses incurred in connection with the preparation, printing, mailing,
publication of the notice to the Class of the proposed Settlement, other costs
to identify and notify Class Members, and all reasonable costs and expenses
incurred in connection with settlement administration.
10
<PAGE>
23. "Notice and Administration Fund" means the principal amount of Thirty
Thousand Dollars ($30,000) in cash, delivered by Fidelity to Plaintiffs' Counsel
as part of Fidelity's overall $5,000,000 cash contribution, plus interest earned
thereon after deposit into the Notice and Administration Account, which shall be
deposited in the Bank and used to defray the Notice and Administration Expenses.
24. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated organization, and any other type of legal entity, and
their heirs, predecessors, successors, representatives, and assigns.
25. "Plaintiffs" means the named plaintiffs in each of the consolidated
actions, individually, and as representatives of the Class Members.
26. "Plaintiffs' Counsel," "Counsel for Plaintiffs" and/or "Counsel for
the Class" includes Steve Berman, Esquire, Hagens & Berman, P.S., 1301 Fifth
Avenue, Suite 2929, Seattle, Washington 98101; John E. Grasberger, Esquire,
Milberg, Weiss, Bershad, Hynes & Lerach, 222 Kearny Street - 10th Floor, San
Francisco, CA 94108; and Kevin Yourman, Esquire, Weiss & Yourman, 10940
Wilshire Boulevard, 24th Floor, Los Angeles, CA 90024.
27. "Released Parties" or "Released Party" means the Defendants, the
several U.S. and international underwriters identified in Schedules I and II to
the Underwriting Agreement dated April 26, 1994, Deloitte & Touche LLP, and the
Insurers, and all of their respective predecessors, successors and present,
former and future officers, directors, employees, partners, principals, agents,
attorneys, stockholders, investors, insurers, reinsurers,
11
<PAGE>
underwriters, investment bankers, advisors, affiliates, associates (as defined
in SEC Rule 12b-2 promulgated pursuant to the Exchange Act), present, former or
future parents, subsidiaries, or affiliates, and each of their assigns,
representatives, heirs, executors and administrators.
28. "Reliance" means Reliance Insurance Company.
29. "Settled Claims" means, collectively, all claims including "Unknown
Claims," demands, rights, liabilities and causes of action of every nature and
description whatsoever, in law or equity, known or unknown, asserted or that
might have been asserted, including, without limitation, claims for negligence,
gross negligence, breach of duty of care and/or breach of duty of loyalty and/or
breach of duty of candor, fraud, negligent misrepresentation, breach of
fiduciary duty, or violations of any state or federal statutes, rules or
regulations, either directly, in a representative capacity or in any other
capacity, by any Class Member against any of the Defendants or the Released
Parties arising out of, relating to, or in connection with, purchases or sales
of MK Rail common stock during the Class Period and arising out of, or related
to, any of the acts, omissions, misrepresentations, facts, events, matters,
transactions or occurrences referred to, or which could have been referred to,
in any of the complaints or other pleadings filed in the Litigation or otherwise
alleged, asserted or contended in the Litigation based upon the facts alleged in
the complaints filed in the Litigation.
30. "Settlement' means the full and final compromise, settlement and
dismissal of the Litigation and all claims that have been or could have been
asserted therein, on and subject to the terms and conditions of this
Stipulation.
31. "Settlement Account" means the bank account into which the Net
Settlement Fund is deposited after transfer to Plaintiffs' Counsel as provided
herein.
12
<PAGE>
32. "Settlement Amounts" means: (a) the 413,793 fully paid, non-
assessable, and freely tradeable shares of MK Rail common stock to be
contributed by MK Rail; (b) the MK Rail Preferred Stock with a stated and
redemption value of $1 million to be contributed by MK Rail or, if MK Rail shall
elect, $1 million in cash to be contributed by MK Rail in lieu of or to replace
the Preferred Stock with a stated and redemption value of $1 million referred to
above; (c) the 869,231 fully paid, non-assessable and freely tradeable shares of
MK Common Stock to be contributed by MK; (d) the $5,000,000 in cash to be
contributed by Fidelity, at the direction of the Individual Defendants (and the
other current and former officers and directors of MK Rail) in connection with
the Settlement of the Litigation against the Individual Defendants, to obtain
for the Individual Defendants the release from liability in respect of the
Litigation provided for in this Stipulation; and (e) $375,000 in cash to be paid
by D&T.
33. "Settlement Fund" means collectively, the Settlement Amounts, minus
(a)(i) $30,000 in cash deposited in the Notice and Administration Fund and (ii)
distributions from the Settlement Amounts as hereinafter provided, plus (b)(i)
interest earned on the cash portions of the Settlement Amounts from the date of
deposit with the Bank and (ii) on and after the Effective Date, any funds
remaining in the Notice and Administration Fund which are required to be
transferred to the Settlement Fund pursuant to Section VII(C)(2).
34. "Settlement Memoranda" means the Parties' Memoranda of Understanding
regarding settlement of the Litigation, the Derivative Action and the MK
Actions.
35. "Unknown Claims" means Settled Claims which the Class Members do not
know or suspect to exist in their favor at the time of the release of the
Released Parties which, if known by them, might have affected their settlement
with the Defendants and release of the
13
<PAGE>
Released Parties or other action including, but not limited to, the decision not
to object to the Settlement. Plaintiffs expressly waive on behalf of themselves
and the Class Members any and all rights that they may have under any statute or
common law principle that would limit the effect of the foregoing releases to
those claims actually known or suspected to exist at the time of execution of
this Stipulation, including the provisions of Section 1542 of the California
Civil Code, to the extent deemed applicable (notwithstanding that this
Stipulation does not provide for the application of California law), which
provides as follows:
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
B. ESTABLISHMENT OF THE JOINT ACCOUNT
1 . The following Settlement Amounts will be (or will have been)
transferred to the Joint Account within 20 business days after execution of the
Settlement Memoranda in the following manner:
(a) Fidelity will transfer $5,000,000 to a Joint Account maintained by the
Bank and controlled jointly by Plaintiffs' Counsel; David Aufhauser,
counsel for William Agee; P. Craig Storti, counsel for Jim Cleary;
Thomas Nolan, counsel for Stephen Hanks; Douglas M. Kraus, counsel for
Michael Farrell; Kim West, counsel for Fidelity.
(b) MK Rail, shall either (i) deposit in the Joint Account referred to in
Section VII(B)(1)(a) above for the benefit of the class the sum of
$1 million (if MK Rail contributes the sum of $1 million to the Joint
Account referred
14
<PAGE>
to in Section VII(B)(1) above, the Joint Account shall be controlled
jointly by the persons identified in (a) above, and by Jennifer Wilson
Hewitt, counsel for MK Rail) or (ii) cause to be created and
transferred for the benefit of the Class to a safe deposit box
maintained by the Bank and controlled jointly by Plaintiffs' counsel,
Steve Berman, and Jennifer Wilson Hewitt, counsel for MK Rail,
appropriately legended certificates evidencing shares of non-voting
preferred stock with a stated and redemption value of $1 million on the
terms set forth in Attachment A hereto (the "Preferred Stock") issued
in the name of David G. Edwards, Agent in connection with the Class
Action Settlement (the "stock Agent"). 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 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(s) evidencing the Preferred Stock shall be released
from the Joint Account or the Settlement Account and shall be cancelled
and not
15
<PAGE>
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 million in accordance
with this Stipulation of Settlement within five (5) business days
after transfer of the Net Settlement Fund (including the Preferred
Stock) to the Settlement Account. 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. If
at any time prior to Final Court Approval, any matter is presented to
the holder(s) of preferred stock of MK Rail for consideration and
approval, the Stock Agent shall vote the Preferred Stock in the manner
recommended by a majority of the disinterested directors of the Board
of Directors of MK Rail (or by a majority of the members of MK Rail's
Select Committee to the extent the Board authorizes it to make any
such recommendation) or, if no such recommendation is made, as
directed by Plaintiffs' Counsel; provided, however, if Plaintiffs'
Counsel fails to direct the Stock Agent as to how to vote the
Preferred Stock on a timely basis, the Stock Agent shall have
authority to vote such shares as he shall elect in his sole
discretion, without liability to Plaintiffs therefor. In no event
shall the Stock Agent agree to sell or tender the
16
<PAGE>
Preferred Stock to any person for consideration less than
$1 million in cash, unless directed by Plaintiffs' Counsel.
(c) MK Rail will transfer appropriately legended certificate(s)
evidencing 413,793 shares of MK Rail common stock (the "Agent's
Shares") to a safe deposit box maintained by the Bank and
controlled jointly by Plaintiffs' counsel, Steve Berman, and
Jennifer Wilson Hewitt, counsel for MK Rail.
(d) MK will transfer appropriately legended certificate(s) evidencing
869,231 shares of MK common stock to a safe deposit box
maintained by the Bank and controlled jointly by Plaintiffs'
counsel, Steve Berman, and Adrian Wager-Zito, counsel for MK.
2. The Bank shall invest and reinvest the funds in the Joint Account at
the direction of Plaintiffs' Counsel and shall be authorized by the Court to
withdraw and/or disburse funds from the Joint Account solely with the
authorization of all counsel named above as controlling the respective accounts
in accordance with the terms and conditions of this Stipulation and/or pursuant
to an order of the Court until such time as the Net Settlement Fund is
transferred to the Settlement Account.
3. D&T will transfer $375,000 in cash into the Settlement Account within
three (3) business days following the occurrence of the conditions set forth in
PARA VII(D)(1)-(6) herein.
17
<PAGE>
C. NOTICE AND ADMINISTRATION ACCOUNT
1. Plaintiffs' Counsel will establish a Notice and Administration Account
at the Bank. Fidelity will deliver to Plaintiffs' Counsel the sum of Thirty
Thousand Dollars ($30,000), and Plaintiffs' Counsel will deposit that sum into
the Notice and Administration Account. The Notice and Administration Fund shall
be used by Plaintiffs' Counsel to defray the Notice and Administration Expenses,
as defined above.
2. On the date the Net Settlement Fund is transferred to the Settlement
Account, any balance (including interest) then remaining in the Notice and
Administration Account shall be transferred to, deposited and credited as part
of the Settlement Account. Thereafter, Plaintiffs' Counsel shall have the right
to use such portions of the Settlement Account as are, in their exercise of
reasonable judgment, necessary to complete settlement notice and administration.
3. If the Settlement is not disapproved, cancelled or terminated, then
the Notice and Administration Account, less any monies paid or expenses incurred
but not yet paid, shall be transferred to, deposited, and disposed of, as part
of the Settlement Fund.
D. TRANSFER OF THE NET SETTLEMENT FUND
The Net Settlement Fund shall be transferred to the Settlement Account only
upon the occurrence and/or satisfaction of the following:
1. The Court has entered the Final Judgment as provided in PARA G hereof
approving the Settlement of the Litigation;
2. The Effective Date has occurred; and
18
<PAGE>
3. (a) Final nonappealable judgments have been entered approving the
settlement of the MK Rail Derivative Action; and (b) all other conditions to
such settlement have been satisfied or waived, and such settlement is being
consummated contemporaneously with this Settlement; AND EITHER;
4. (a) 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
5. 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 Fidelity policy to make the
payments required by this Stipulation to be made by Fidelity, all in form and
substance satisfactory to the Parties and the Insurers. By agreeing to this
condition, none of the Plaintiffs, the Insurers, D&T, nor any other Party
(except MK Rail) 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.
6. All other conditions to consummation of the Settlement set forth
herein have been satisfied or waived.
7. Upon the conditions to transfer of the Net Settlement Fund having been
satisfied or waived, Plaintiffs' Counsel, counsel for Defendants and counsel for
the Insurers shall
19
<PAGE>
promptly direct in writing that counsel controlling the Joint Account disburse
the Net Settlement Fund to the Settlement Account, to be held therein by
Plaintiffs' Counsel in trust for the Authorized Claimants until such time as
Plaintiffs' Counsel are authorized by the Court to distribute those funds
pursuant to this Stipulation and any applicable Court orders.
8. Upon satisfaction of all conditions herein set forth for the transfer
of the Net Settlement Fund, MK Rail shall issue and deliver to the Settlement
Account 413,793 fully paid, non-assessable, and freely tradeable shares of MK
Rail common stock, which shall thereupon be outstanding and have full rights to
be voted and to receive dividends. The Shares shall be issued initially in a
certificate or certificates as directed by Plaintiffs' Counsel and may be
reissued on one occasion at Plaintiffs' Counsel's direction without cost or
expense to Plaintiffs' Counsel or the Class. At any time after transfer of the
shares, Plaintiffs' Counsel shall have the authority and discretion to dispose
of all or any portion of the Shares by public or private sale, in whole or in
part, or in any other manner that Plaintiffs' Counsel determines in their
reasonable discretion is in the best interests of the Class, provided: (i) no
sales of such shares shall be effected at a price more than $0.50 below the
opening price of MK Rail common stock on the day of such sale(s); (ii) no more
than 100,000 shares shall be sold to any single person, entity, or "group" as
defined in Section 13(d) of the Exchange Act; (iii) proceeds from any such sale
shall be deposited into the Settlement Account; and (iv) any such sales shall be
subject to review by the Court. Plaintiffs' Counsel may elect to distribute all
or a portion of the shares in kind in accordance with PARA VII(K). If, prior to
the time 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 cease to be traded publicly because of a
20
<PAGE>
merger or acquisition of MK Rail (or similar change-of-control transaction), MK
Rail agrees to pay into a Joint Account controlled by counsel identified in PARA
VII(B)(1)(b) 413,793 times the per-share consideration paid to the former public
stockholders of MK Rail in the merger, acquisition, or similar change-of-control
transaction upon release of such shares from the Joint Account. If at any time
prior to Final Court Approval, any matter is presented to the holder(s) of
common stock of MK Rail for consideration and approval, or if the Stock Agent is
requested to tender the Agent's Shares to any person in connection with a
tender offer made pursuant to Rule 14d-1 or Rule 13e-4 of the Rules of the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
the Stock Agent shall vote the Agent's Shares or act on the tender offer, as the
case may be, in the manner recommended by a majority of the disinterested
directors of the Board of Directors of MK Rail (or by a majority of the members
of MK Rail's Select Committee to the extent the Board authorizes it to make any
such recommendation) or, if no such recommendation is made, as directed by
Plaintiffs' Counsel; provided, however, if Plaintiffs' Counsel fails to direct
the Stock Agent as to how to vote the Agent's Shares or act upon the tender
offer on a timely basis, the Stock Agent shall have authority to vote such
shares or act upon the tender offer as he shall elect in his sole discretion,
without liability to Plaintiffs therefor.
9. Upon satisfaction of all conditions herein set forth for the transfer
of the Net Settlement Fund, MK shall issue and deliver to the Settlement Account
869,231 fully paid, non-assessable, and freely tradeable shares of MK common
stock, which shall thereupon be outstanding and have full rights to be voted and
to receive dividends. The shares shall be issued initially in a certificate or
certificates as directed by Plaintiffs' Counsel and may be reissued on
21
<PAGE>
one occasion at Plaintiffs' Counsel's direction without cost or expense to
Plaintiffs' Counsel or the Class. At any time after transfer of the shares,
Plaintiffs' Counsel shall have the authority and discretion to dispose of all or
any portion of the Shares by public or private sale, in whole or in part, or in
any other manner that Plaintiffs' Counsel determines in their reasonable
discretion is in the best interests of the Class, provided: (i) no sales of such
shares shall be effected at a price more than $0.50 below the opening price of
MK common stock on the day of such sale(s); (ii) no more than 100,000 shares
shall be sold to any single person, entity, or "group" as defined in Section
13(d) of the Exchange Act; (iii) proceeds from any such sale shall be deposited
into the Settlement Account; and (iv) any such sales shall be subject to review
by the Court. Plaintiffs' Counsel may elect to distribute all or a portion of
the shares in kind in accordance with PARA VII(K). If, prior to the time MK
causes 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 cease
to be traded publicly because of a merger or acquisition of MK (or similar
change-of-control transaction), MK agrees to pay into a Joint Account controlled
by counsel identified in PARA VII(B)(1)(b) 869,231 times the per-share
consideration paid to the former public stockholders of MK in the merger,
acquisition, or similar change-of-control transaction.
E. DISPOSITION UPON DISAPPROVAL OR TERMIINATION
1. If the Settlement is not approved or is terminated:
a) All funds then existing in the Joint Account established pursuant
to PARA VII(B)(1)(a) above shall be returned to Fidelity (and to
MK Rail if MK Rail has contributed $1 million in cash to the
Joint Account pursuant to
22
<PAGE>
PARA VII(B)(1)(b)), together with all interest earned thereon in
accordance with each entity's respective contribution;
b) All funds then existing in the Notice and Administration Account
established pursuant to PARA VII(C) above, less Notice and
Administration Expenses incurred but not yet paid, shall be
returned to Fidelity, and the limit of the Fidelity policy shall
be reduced by the total amount of Notice and Administration
Expenses paid and to be paid from the Notice and Administration
Account; and
C) The certificates in the Joint Account established pursuant to PARA
VII(B)(1)(b), VII(B)(1)(c) and VII(B)(1)(d) shall be returned to
MK and MK Rail and cancelled.
2. Under no circumstances whatsoever shall any funds in the Joint
Account established pursuant to PARA VII(B)(1)(a) and PARA VII(B)(1)(b), above,
or the Notice and Administration Account established pursuant to PARA VII(C),
above, be payable to, or recoverable by, MK or D&T. If MK Rail has elected to
deposit $1 million in cash in the Joint Account pursuant to PARA VII(B)(1)(b),
MK Rail shall be entitled to recover that $1 million in cash, plus interest
thereon, in the event that Final Court Approval is not obtained or this
settlement is otherwise terminated. Otherwise, none of the funds in the Joint
Account established pursuant to PARA VI(B)(1)(a) and PARA VII(B)(1)(b) or the
Notice and Administration Account established pursuant to PARA VII(C) shall be
payable to, or recoverable by, MK Rail.
23
<PAGE>
3. Upon approval of the Court or receipt of a written notice from
Plaintiffs' Counsel, counsel for the Defendants, and counsel for the Insurers
who control the respective accounts that the Settlement is terminated, the
counsel controlling the Joint Account are authorized to transfer the funds and
securities in the Joint Account as provided in this PARA VII(E).
F. THE PRELIMINARY APPROVAL ORDER
Promptly after execution of this Stipulation, Plaintiffs, through
Plaintiffs' Counsel, shall, by stipulation or motion, apply to the Court for an
order (the "Preliminary Approval Order"), substantially in the form of Exhibit
"A" hereto, preliminarily approving the Settlement, conditionally certifying the
Class, preliminarily approving the Plaintiffs as representatives of the Class,
and providing for notice to the Class of a hearing regarding the Settlement.
The Approval Order shall specifically include provisions that, among other
things:
1. Preliminarily approve the Settlement set forth in the Stipulation
as fair, reasonable and adequate;
2. Conditionally certify the Class and preliminarily approve the
Plaintiffs as representatives of the Class;
3. Approve forms of mailed notice (the "Notice") and published
notice (the "Summary Notice") (substantially in the form of Exhibits "A-I" and
"A-2" hereto) and a proof of claim and release (the "Proof of Claim and
Release") (substantially in the form of Exhibit "A-3" hereto) for mailing and
publishing to the Class to notify them of the Hearing (i) on final approval of
the Settlement, (ii) on final certification of the Class and approval of the
Plaintiffs as representatives of the Class, (iii) on Plaintiffs' Counsel's
application for Attorneys' Fees and Expenses, and (iv) on final approval of the
Plan of Distribution;
24
<PAGE>
4. Direct Plaintiffs' Counsel to mail or cause to be mailed the
Notice and Proof of Claim and Release to those members of the Class who can be
identified through reasonable effort. Nominees who purchased MK Rail common
stock during the Class Period also will be requested to send the Notice and
Proof of Claim and Release to all beneficial owners within ten (10) days after
receipt of the Notice or, if they have not already done so, to send a list of
the names and addresses of the beneficial owners to the Claims Administrator
within ten (10) days of receipt of the Notice;
5. Direct Plaintiffs' Counsel to cause the Summary Notice to be
published once in the national edition of THE WALL STREET JOURNAL and once in
THE IDAHO STATESMAN;
6. Direct Plaintiffs' Counsel to serve on Defendants' counsel and
file with the Court proof, by affidavits or declarations, of the mailing of the
Notice and publication of the Sununary Notice provided for in PARAS VII(F)(4)
and (5) hereof;
7. Find that the mailing and publication pursuant to PARAS VII(F)(4)
and (5) constitute the best and most practicable notice to members of the Class
under the circumstances, including individual notice to all such members of the
Class who can be identified through reasonable effort, and is due and sufficient
notice of the hearing, proposed Settlement, application for an award of
Attorneys' Fees and Expenses, the Plan of Distribution, and other matters set
forth in the Notice to all members of the Class, and that the Notice fully
satisfies the requirements of due process, the Federal Rules of Civil Procedure,
and any other applicable law;
8. Provide that Plaintiffs' Counsel are authorized to retain a firm
of their choice to supervise and administer the notice procedure as well as the
processing of the claims;
25
<PAGE>
9. Provide that only the Class Members who complete and submit a
valid and timely Proof of Claim and Release in accordance with the instructions
contained therein shall be entitled to receive any distribution from the
Settlement Fund;
10. Provide that, pending final determination of whether the
Settlement should be approved, neither the Plaintiffs nor any Class Member
either directly, derivatively, in a representative capacity, or in any other
capacity, shall commence, maintain, or prosecute any, other action or proceeding
in any court or tribunal against any Defendant, D&T or other Released Party,
asserting any of the Settled Claims, including Unknown Claims, as that term is
defined herein except in this Litigation;
11. Schedule the hearing to be held by the Court to consider and
determine (1) whether the proposed Settlement should be approved as fair,
reasonable and adequate; (2) whether the Class should be certified and the
Plaintiffs approved as representatives of the Class; (3) whether an order
approving the Settlement and a Final Judgment should be entered thereon
dismissing this Litigation on the merits and with prejudice; (4) whether the
proposed Plan of Allocation is fair and reasonable; (5) whether the application
of Plaintiffs' Counsel for an award of Attorneys' Fees and Expenses is
reasonable and should be approved; and (6) whether the Plan of Distribution
should be approved.
12. Provide that any objections to (i) the proposed Settlement and
the entry of the Final Judgment approving the Settlement, or (ii) the
application of Plaintiffs' Counsel for an award of Attorneys' Fees and Expenses,
shall be heard and any papers submitted in support of said objections shall be
received and considered by the Court at the hearing (unless, in its discretion,
the Court shall direct otherwise) only if, on or before a date to be specified
in the
26
<PAGE>
Approval Order (which shall be 15 days prior to the Hearing), Persons making
objections shall file notice of their intention to appear and copies of any
papers in support of their position with the Clerk of the Court and serve such
notice and papers on:
John E. Grasberger, Esquire
Milberg, Weiss, Bershad, Hynes & Lerach
222 Kearny Street - 10th Floor
San Francisco, CA 94108
Co-Lead Counsel for the Class
John W. Edwards II, Esquire
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Counsel for MK
Jennifer Wilson Hewitt, Esquire
Doepken Keevican & Weiss
37th Floor USX Tower
6000 Grant Street
Pittsburgh, PA 15219
Counsel for MK Rail
David D. Aufhauser, Esquire
Williams & Connolly
725 Twelfth Street, N.W.
Washington, D.C. 20005
Counsel for William J. Agee
Thomas J. Nolan, Esquire
Howrey & Simon
550 South Hope Street - Suite 1400
Los Angeles, California 90071-2604
Counsel for Stephen G. Hanks
27
<PAGE>
P. Craig Storti, Esquire
Hawley, Troxell, Ennis & Hawley
First Interstate Center
877 Main Street - Suite 1000
Boise, Idaho 83701
Counsel for James F. Cleary, Jr.
Douglas M. Kraus, Esquire
Skadden, Arps, Slate, Meagher & Flom
914 Third Avenue
New York, NY 10022
Counsel for Michael Farrell and
Gilbert E. Carmichael
Frank B. Vanker, Esquire
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Counsel for Deloitte & Touche LLP
Steven A. Brick, Esquire
Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
Counsel for Morgan Stanley & Co., Incorporated
C.S. First Boston Corporation
13. Provide that, upon the Effective Date, all members of the Class
who have not filed timely and valid requests for exclusion from the Class,
pursuant to the procedures described herein at PARA VII(F)(17) below, whether or
not they file a Proof of Claim and Release within the time provided for, and
whether or not they participate in the Settlement Fund, shall be barred from
asserting any Settled Claims, including Unknown Claims, and all Class Members
28
<PAGE>
shall be conclusively deemed to have released Defendants and the Released
Parties from any and all such Settled Claims, including Unknown Claims;
14. Provide that no Person, other than a Class Member or Plaintiffs'
Counsel, shall have any right to any portion of, or in the distribution of, the
Settlement Fund unless otherwise ordered by the Court or otherwise provided in
this Stipulation;
15. Provide that, upon the Effective Date, Defendants shall be deemed
conclusively to have released the Plaintiffs and Plaintiffs' Counsel from only
those claims or potential claims against Plaintiffs and Plaintiffs' Counsel that
are based upon, or arise out of, the institution, assertion, prosecution or
resolution of this Litigation, or the Settled Claims, including Unknown Claims,
except that nothing herein releases any claim arising out of a violation of this
Stipulation or a violation by Plaintiffs or Plaintiffs' Counsel of any
Confidentiality Orders which are or may later be in place in the Litigation;
16. Provide that the hearing may, from time to time, and without further
notice to the Class, be continued or adjourned by Order of the Court;
17. Provide that all members of the Class shall have the option to be
excluded from the Class, and thereby elect not to participate in the Settlement
Fund by mailing a timely and valid request for exclusion postmarked on or before
15 days before the hearing to the Claims Administrator pursuant to the
instructions set forth in the Notice (Exhibit A-I), which, in order to be valid,
shall list the date(s) and amount(s) of all purchases and sales of MK Rail
common stock during the Class Period, list prices paid and received on each
purchase and sale, and furnish written confirmation of each such transaction and
further provide that all Persons who
29
<PAGE>
submit timely and valid requests for exclusion from the Class shall not be Class
Members and shall have no rights with respect to the Settlement and no interest
in the Settlement Fund; and
18. Provide that the Claims Administrator shall notify, VIA telecopier
and overnight mail, counsel listed in PARA VII(F)(12) above of each request for
exclusion within two days of receipt.
19. Provide that all papers in support of the Settlement and any
application for Attorneys' Fees and Expenses shall be filed at least six (6)
days prior to the hearing.
20. Provide that all reasonable costs incurred in identifying and
notifying Class Members, as well as administering the Settlement Fund shall be
paid from the Notice and Administration Escrow Account upon the terms set forth
above.
21. Provide that, if the Settlement is disapproved, cancelled or
terminated in accordance with the terms of the Settlement Memoranda or this
Stipulation, then the Settlement Memoranda and this Stipulation shall have no
force or effect, and all negotiations, proceedings and statements made in
connection therewith shall be without prejudice to the right of any Persons, and
the Parties to the Litigation shall be restored to their respective positions
existing as of June 5, 1995; provided however, that the Notice and
Administration Expenses incurred but not yet paid shall be paid out of the
Notice and Administration Fund as provided above; and provided further that the
provisions of PARAS VII(E) and (I) and this paragraph shall continue to apply.
22. Provide that only Class Members shall have rights with respect to
approval of, or objection to, the Settlement, the Plan of Distribution or
Plaintiffs' Counsel's request for Attorneys' Fees and Expenses. Class Members
who may appeal any decision with respect
30
<PAGE>
thereto must formally intervene as a party under Rule 24 of the Federal Rules of
Civil Procedure.
23. Provide that, pending final determination of whether the
Settlement should be approved, all discovery and all proceedings in the
Litigation are stayed, except for proceedings relating to the Settlement.
G. FINAL JUDGMENT TO BE ENTERED BY THE COURT APPROVING THE
SETTLEMENT
If (i) the Settlement (including any modification thereto made with
the consent of the Parties and the Insurers as provided for herein) is approved
by the Court; (ii) the Settlement has not been terminated by the Parties, D&T or
the Insurers pursuant to this Stipulation; and (iii) if all conditions to
consummation of the Settlement have otherwise been satisfied or waived, the
Parties shall jointly request the Court to enter a Final Judgment, substantially
in the form of Exhibit B hereto, that shall:
1. Approve the Settlement as fair, reasonable and adequate to the
Class;
2. Find the terms of this Stipulation to be valid and enforceable
and direct the consummation of the Settlement in accordance with the terms and
provisions of this Stipulation.
3. Certify the Class and approve the Plaintiffs as representatives
of the Class for purposes of this Settlement;
4. Dismiss the Litigation in its entirety as against all Defendants
with prejudice and without costs to any party as against any other party;
5. Adjudge that, as more fully described in PARA VII(J), each Class
Member shall be deemed conclusively to have released the Settled Claims,
including Unknown Claims, against
31
<PAGE>
the Defendants, D&T, the Insurers, Released Parties, Plaintiffs and Plaintiffs'
Counsel. Notwithstanding that any Class Member may hereafter discover facts in
addition to, or different from, those which the Class Members now know or
believe to be true with respect to the Litigation and Settled Claims, including
Unknown Claims, or, with respect to the subject matter of the release, each
Class Member shall be deemed, upon the Effective Date, fully, finally and
forever to have settled and released any and all Settled Claims, including
Unknown Claims, as against the Defendants, D&T, the Insurers and other Released
Parties, including all claims known or unknown, suspected or unsuspected,
contingent or non-contingent, which now exist, may hereafter exist, or
heretofore have existed, and without regard to the subsequent discovery or
existence of any such different or additional facts. Upon the Effective Date,
Defendants shall be deemed conclusively to have released the Plaintiffs and
Plaintiffs' Counsel from only those claims or potential claims against
Plaintiffs and Plaintiffs' Counsel that are based upon or arise out of the
institution, prosecution, assertion or resolution of this Litigation and Settled
Claims, including Unknown Claims; provided, however, that such releases shall
not extend to claims arising out of any violations of this Stipulation or any
violations of the Confidentiality Orders entered in the Litigation;
6. Bar and permanently enjoin each Class Member from prosecuting the
Settled Claims, including Unknown Claims, against the Released Parties,
including Defendants, D&T, the Insurers, Plaintiffs and Plaintiffs' Counsel;
7. Bar and permanently enjoin each Plaintiff and Class Member,
either directly, representatively, or in any other capacity, from instituting or
prosecuting any action against any party other than those enumerated in
Paragraph 6 above, to the extent such action asserts any
32
<PAGE>
of the claims included in the definition of Settled Claims, including Unknown
Claims, unless (i) appropriate provision satisfactory to the Court is made to
assure that the amounts to be collected pursuant to any judgment will be
available if necessary to meet the obligations that may exist under the
provisions for indemnification set forth in Paragraph VII(G)(8) below as a
consequence of such judgment; or (H) any settlement of such claims provides for
releases of claims or claimsover of the settling party against the Released
Parties as provided in Paragraph VII(G)(8) below, subject to the receipt by the
settling party of releases of claims-over from the Released Parties coextensive
with those received by the Released Parties;
8. For the purpose of effectuating the Parties' intention to protect
the Released Parties from claims or claims-over of third parties arising out of
the Settled Claims, including Unknown Claims:
(a) Bar and permanently enjoin all Persons, either directly,
representatively, or in any other capacity, from instituting or prosecuting or
continuing to prosecute, any action, claim or claim-over against any Released
Party on whatsoever theory (whether by way of third or subsequent-party
complaint, cross-claim, separate action or otherwise, and whether under federal
or state law) to recover in whole or in part any liability, direct or indirect,
of such Person to any Member of the Class in connection with, arising out of, or
which is in any way related to, the Settled Claims, including Unknown Claims,
but without in any way affecting the rights of the Underwriters (defined as
Morgan Stanley & Co., Incorporated, C.S. First Boston Corporation and the
several U.S. and international underwriters identified in Schedules I and II to
the Underwriting Agreement dated April 26, 1994), if any, to recover their
expenses and
33
<PAGE>
attorneys' fees incurred in connection with this Litigation from MK, and MK Rail
(MK and MK Rail shall reserve all defenses to such claims by the Underwriters);
(b) Dismiss with prejudice and without costs any claims or claims-
overasserted or deemed asserted by any Persons against any Released Party on
whatsoever theory (whether by way of third- or subsequent-party complaint,
cross-claim, separate action or otherwise, and whether under federal or state
law) to recover in whole or in part any liability, direct or indirect, of such
Person to any Member of the Class in connection with, arising out of, or which
is in any way related to, the Settled Claims, including Unknown Claims;
(c) Order that any judgment by Plaintiffs or other members of the
Class as against any Persons on a claim with respect to which such Person would
have (but for the contribution bar ordered in Paragraph VII(G)(8)(a) above) a
legally valid and enforceable right to contribution from any Released Party and
that is in connection with, arising out of, or in any way related to, Settled
Claims, including Unknown Claims, shall be reduced by such percentage as
reflects a determination of the relative fault or culpability, if any, of such
Released Party, as compared to the relative fault or culpability of such other
Persons;
(d) Order that, if necessary in order further to effectuate the
intention of theParties and the Insurers that the Released Parties shall have no
liability to any Person for contribution or indemnification with respect to any
claim by Plaintiffs or any Class Member against any Person with respect to the
Settled Claims, including Unknown Claims, the Class and each Member of the Class
(i) shall reduce or credit against any judgment or settlement (s)he, it or they
may obtain against any Person the full amount of any judgment or settlement such
Person may obtain against any Released Party on any claims-over on whatsoever
theory (whether
34
<PAGE>
by way of third- or subsequent-party complaint, cross-claim, separate action or
otherwise) in connection with, arising out of, or which is in any way related
to, the Settled Claims, including Unknown Claims, including but not limited to
claims-over that have been, could have been, or could be, alleged in this
Litigation or in any other action; and (ii) shall obtain from such Person for
the benefit of the Released Parties a satisfaction in full of such Person's
judgment or settlement against the Released Parties;
(e) Approve the agreement of Plaintiffs and all other Members of the
Class (the "Indemnifying Parties"), for good and valuable consideration, receipt
of which is hereby acknowledged, to indemnify the Released Parties and to hold
them harmless from and against any and all liability (including amounts paid in
settlement, subject to all the other provisions of this Stipulation) with
respect to:
(i) any claim by any Member of the Class that is a Settled
Claim, including Unknown Claims; and
(ii) claims-over on whatsoever theory (whether by way of third-
or subsequent-party complaint, cross-claim, separate action or otherwise) by any
Person to recover in whole or in part any liability, direct or indirect, whether
by way of judgment, settlement or otherwise, of such Person to any Member of the
Class in connection with, arising out of, or in any way related to, the Settled
Claims (including Unknown Claims), including without limitation claims-over that
have been, could have been or could be alleged in this Litigation or in any
other action;
(f) Approve the further agreement of the parties to this Stipulation
that, in the event that any Members of the Class obtain any recovery by
judgment, settlement, or otherwise
35
<PAGE>
against any Person (other than the Net Settlement Amount) that is related in any
way to the Settled Claims, including Unknown Claims, appropriate provision
(including delaying distribution of amounts payable under a judgment and, in the
case of settlement, obtaining releases to protect the Released Parties from any
liability to such Persons on claims-over) shall be made to assure the
effectuation of the indemnity provided for herein. Any such recovery against
any Person who has not released any claims or claims-over against the Released
Parties shall be held in escrow pursuant to order of this Court until any claims
or claims-over against the Released Parties are finally determined, subject to
the other limitations and provisions of this Stipulation.
(g) Order that the foregoing provisions of Paragraphs VII(G)(7) and
(8) with respect to reduction of judgment and effectuation of indemnification
are not intended to be exclusive, and nothing in Paragraph VII(G)(8)(f) shall be
deemed to modify, lessen or impair the indemnity obligations of the Class or
Class Members as set forth in Paragraph VII(G)(8)(e) hereof in any situation to
which the provisions contained in Paragraph VII(G)(8)(f) may not be applicable
or may fail to provide fully for the indemnity protection provided in Paragraph
VII(G)(8)(e); provided, however, that, to the extent that cash payments are
required to provide the Released Parties with the agreed-upon indemnity, (x)
with respect to a claim for indemnification from and against liability with
respect to the claim of any Member of the Class that is a Settled Claim
(including Unknown Claims), only funds received by, or on behalf of, the Class
or Class Members by virtue of any claim in this action or otherwise related to
Settled Claims (including Unknown Claims), other than the Net Settlement Fund
provided for herein, may be used to satisfy the indemnification obligations
hereunder; provided, however, that, if a Class Member persists in prosecuting
its claim despite
36
<PAGE>
being notified that it is barred from doing so by this Settlement (and fails to
establish by Court order that it is not so barred), such indemnification
obligations may be payable out of any funds distributed or to be distributed to
such Member of the Class from the Net Settlement Fund or out of any other funds
of such Class Member; and (y) with respect to a claim for indemnification from
and against liability with respect to claims-over as provided in Paragraph
VII(G)(8)(e)(ii), such indemnification obligations shall be payable out of the
additional recovery by judgment or settlement and shall not under any
circumstances be payable out of the Net Settlement Fund provided for herein;
(h) Approve the agreement of the parties to this Stipulation that,
if, after the Effective Date, a claim-over is or has been asserted against any
Released Party as to which such Released Party is entitled to protection under
Paragraphs VII(G)(7) and (8)(a)-(g), then, upon the request of such Released
Party, Plaintiffs' Counsel shall, at their expense, to the best of their ability
and so long as permitted by the forum court, take control and direct the
litigation strategy of the defense of such claim-over only. If separate counsel
is required as to any such claim-over, which Plaintiffs' Counsel has been
requested to take control of and defend, then Plaintiffs' Counsel shall select
competent counsel approved by the Released Party, which approval shall not be
unreasonably withheld. Any legal fees and expenses incurred by such counsel
shall be paid out of the Settlement Fund (or any additional monies recovered by
the Class), subject to Court approval. The Released Parties shall cooperate
fully in the defense of such claim-over and shall have the right (but shall not
be obligated) to retain co-counsel to participate in such defense at their
expense. If Plaintiffs Counsel has been requested to take control of and defend
a claim over as provided herein then, as between the Class Members and the
Released Parties,
37
<PAGE>
the Class (or Members of the Class individually to the extent the last sentence
of this paragraph is applicable), by their counsel, shall have sole authority to
determine the timing and terms of any settlement of such claim-over, subject to
the other provisions of this Stipulation. No such settlement of any claim-over
shall require any financial contribution from any Released Party. If a claim-
over is asserted against any Released Party by any Person to recover any
liability of such person or entity with respect to a claim brought by Members of
the Class who are not prosecuting such claim on a common class basis, the
obligations set forth herein for defense of such claim-over shall be the
responsibility only of those Members of the Class who are prosecuting the claim
giving rise to such claim-over;
9. Order that any claims or claims-over that have been, or may in
the future be, asserted in this or any other action against any Released Party
shall (if allowed) be severed and stayed for separate trial after the trial of
Plaintiffs' and the Class's claims against such nonsettling defendant;
10. Determine that, by reason of the Parties' Settlement, there is no
just reason for delay and find expressly that the Final Judgment is a final
judgment upon fewer than all the claims or parties pursuant to Fed. R. Civ. P.
54(b);
11. Determine that the Stipulation and the Settlement provided for
herein, and any proceedings taken pursuant thereto are not, and should not in
any event be: (i) offered or received as evidence of a presumption, concession
or an admission of any misrepresentation or omission in any statement or written
document approved or made by any Released Party (as defined herein); or (ii)
offered or received as evidence of a presumption, concession or any admission of
any liability, fault, wrongdoing or other dereliction of duty, or (except with
written
38
<PAGE>
consent of the Released Parties) in any way referred to for any other reason in
this Litigation or in any other civil, criminal, bankruptcy, or administrative
action or proceeding; provided, however, that reference may be made to this
Stipulation and the Settlement provided for herein in such proceedings as may be
necessary to effectuate the provisions of this Stipulation; and provided further
that, if this Settlement has been approved by the Court, Plaintiffs, may,
subject to Court approval, at the trial of this Litigation against other
defendants refer to this Settlement in such manner as this Court may authorize
or permit; and
12. Reserve jurisdiction, without affecting the finality of the Final
Judgment entered, over:
(a) Implementation of this Settlement and any award or
distribution of the Settlement Fund, including interest accrued thereon;
(b) Disposition of the Net Settlement Fund;
(c) Enforcing and administering this Stipulation and Settlement
including any releases executed in connection therewith, and the provisions of
the Final Judgment; and
(d) Other matters related or ancillary to the foregoing.
H. CONDITIONS OF SETTLEMENT
1. This Stipulation shall be subject to the following conditions
and, except as provided in Paragraphs VII(E), (F)(21), and (1) hereof, shall be
cancelled and terminated unless:
(a) The Court shall enter the Preliminary Approval Order, as
required by Paragraph VII(F) above;
39
<PAGE>
(b) The Court shall enter the Final Judgment, as required by
Paragraph VII(G) above;
(c) The Effective Date as set forth in Paragraph VII(A) hereof
shall have occurred; and
(d) The conditions to transfer of the Net Settlement Fund to the
Plaintiffs' Counsel set forth in Paragraph VII(D) shall have been satisfied or
waived.
2. Upon the occurrence of all of the events referenced in Paragraph
VII(H)(1) hereof, each of the Class Members shall hereby be deemed to have, and
by operation of the Final Judgment shall have, fully, finally, and forever
released, relinquished and discharged all Settled Claims, including Unknown
Claims, against all Defendants, D&T, the Insurers and all Released Parties,
whether or not such Class Member executes and delivers the Proof of Claim and
Release. Only those Class Members filing valid and timely Proofs of Claim and
Release shall be entitled to receive any distributions from the Settlement Fund.
The Proof of Claim and Release to be executed by the Class Members shall release
all Settled Claims, including Unknown Claims, against all Defendants, D&T, the
Insurers and all Released Parties and shall be in the form of Exhibit A-3,
hereto. Once executed by a Class Member, each Proof of Claim and Release shall
be delivered to Plaintiffs' Counsel or their designated agent and copies thereof
shall be forthwith delivered to counsel for each Defendant.
3. If, prior to the Hearing, Persons who otherwise would be Members
of the Class have filed with the Court valid and timely requests for exclusion
from the Class in accordance with the provisions of the Preliminary Approval
Order and the Notice given pursuant thereto, and such Persons in the aggregate
purchased a number of shares greater than that
40
<PAGE>
specified in a separate Supplemental Agreement among Plaintiffs and the
Defendants, then each Defendant and D&T shall have, in his or its sole and
absolute discretion, the option to terminate this Stipulation in accordance with
the procedures set forth in the Supplemental Agreement. The Supplemental
Agreement will be kept confidential, will be disclosed only to the Parties,
their counsel, D&T, the Insurers, and the Court, and will not be filed with the
Court unless and until a dispute among the parties concerning its interpretation
or application arises, and, in that event, it may be filed and maintained with
the Court. As set forth in Paragraph VII(F)(18) above, counsel for MK Rail, the
Individual Defendants and D&T shall be advised of requests for exclusions. The
execution of a separate Supplemental Agreement among Plaintiffs and the
Defendants is a condition to the effectiveness of this Stipulation.
4. If the conditions specified in Paragraph VII(D)(3) have been
satisfied but the conditions specified in Paragraph VII(D)(4) or Paragraph
VII(D)(5) (whichever then applies) have not then been satisfied, Plaintiffs'
Counsel may elect to terminate the Settlement at any time thereafter by giving
written notice to the Defendants, D&T and the Insurers. In the event that this
Settlement is terminated pursuant to this provision, the Plaintiffs and D&T
shall prepare and execute a Stipulation of Settlement between themselves in
accordance with the provisions of a memorandum of understanding between
Plaintiffs and D&T dated September 7, 1995.
5. If any of the conditions specified in Paragraph VII(D)(3) have
not occurred by a date to be specified in the Supplemental Agreement provided
for in Paragraph VII(G)(3) above, Plaintiffs' Counsel may elect to terminate the
Settlement at any time thereafter by giving written notice to the Defendants,
D&T and the Insurers. In the event that this Settlement is terminated pursuant
to this provision, the Plaintiffs and D&T shall prepare and execute a
Stipulation of Settlement
41
<PAGE>
between themselves in accordance with the provisions of a memorandum of
understanding between Plaintiffs and D&T dated September 7, 1995.
6. Without limiting the provisions in this Paragraph VII(H) above, a
condition of this Stipulation is that it shall be approved by the Court under
applicable provisions of federal law. However, if: (i) the Court enters a
judgment, but not the Final Judgment provided for in Paragraph VII(G), or (ii)
the Court enters the Final Judgment and appellate review is sought and on such
review the Final Judgment is materially modified or reversed, or (iii) any of
the conditions of Paragraph VII(H) are not satisfied, then this Stipulation
shall be cancelled and terminated unless counsel for each of the Parties, D&T
and the Insurers, within ten (10) days from the receipt of such ruling or
written notice of such circumstances, agrees in writing with counsel for all
other Parties and counsel for D&T and the Insurers to proceed with this
Stipulation and Settlement. For purposes of this paragraph, neither a
modification nor reversal on appeal of (i) the Plan of Distribution; or (ii) any
amount of Attorneys' Fees and Expenses shall be deemed a material modification
of or a part of the material terms of the Final Judgment or of this Stipulation.
7. If any of the conditions specified in Paragraph VII(D) have not
been satisfied or waived and have become incapable of satisfaction, counsel to
the Insurers may elect to terminate the Settlement by giving written notice to
Plaintiffs' Counsel and the Defendants.
8. 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 as to all Defendants, D&T and
other Released Parties, except for MK.
42
<PAGE>
9. The effectiveness of this Stipulation is conditioned upon the
execution and delivery by MK, MK Rail, D&T, and the Individual Defendants to the
Insurers of agreements in form and substance satisfactory to the Insurers
regarding releases and related matters.
I. EFFECTS OF TERMINATION OF THE SETTLEMENT
1. If the Effective Date does not occur, or if this Stipulation is
disapproved, terminated, or cancelled pursuant to its ten-rives, the funds and
securities in the Joint Account shall be disposed of in accordance with
Paragraph VII(E).
2. If the Effective Date does not occur, or if this Stipulation is
disapproved, terminated or cancelled pursuant to its terms: (a) all of the
Parties shall be deemed to, have returned to their respective litigation
positions as of June 5, 1995; (b) they shall proceed in all respects as if this
Stipulation had not been executed and the related orders and judgments had not
been entered (except as set forth in Paragraph VII(E)(1)(c)), preserving in that
event all of their respective claims and defenses in the Litigation; and (c) all
releases given and indemnification obligations undertaken in this Stipulation
shall be null and void.
J. RELEASE TERMS
1. Upon the Effective Date, the Plaintiffs and all Class Members,
whether or not each submits a Proof of Claim and Release or otherwise shares in
the Settlement Fund, on behalf of themselves and each of their predecessors,
successors, parents, subsidiaries, affiliates, custodians, agents, assigns,
representatives, heirs, executors, trustees, administrators and any other Person
having any legal or beneficial interest in the common stock of MK Rail purchased
by any Member of the Class, will be deemed by this Settlement to have, and by
43
<PAGE>
operation of the Final Judgment shall have, released and forever discharged the
Released Parties from any and all of the Settled Claims, including Unknown
Claims.
2. Upon the Effective Date, the Plaintiffs, and all Class Members,
and anyone claiming through or on behalf of any of them, will be forever barred
and enjoined from commencing, instituting or prosecuting any action or other
proceeding in any court of law or equity, arbitration tribunal, or
administrative forum, directly, representatively or derivatively, asserting
against any of the Released Parties any claims that relate to or constitute any
of the Settled Claims, including Unknown Claims.
3. From and after the Effective Date, each Class Member
individually, completely, voluntarily, knowingly, unconditionally and forever
releases, remises, acquits and discharges Plaintiffs and Plaintiffs' Counsel
from every and all asserted or potential, separate, joint, individual claims,
class claims, or other claims, actions, rights, causes of action, demands,
liabilities, losses and damages of every kind and nature, anticipated or
unanticipated, direct or indirect, fixed or contingent, known or unknown, under
federal, state or common law or any other law or regulation, or in equity,
against Plaintiffs and Plaintiffs' Counsel or any of them for, which are based
upon or arise out of the institution, prosecution, assertion or resolution of
the Litigation or the Settled Claims, including Unknown Claims, except that
nothing herein releases any claim arising out of a violation of this
Stipulation.
4. From and after the Effective Date, each of the Defendants
individually, completely, voluntarily, knowingly, unconditionally and forever
releases, remises, acquits and discharges Plaintiffs and Plaintiffs' Counsel
from only those asserted or potential, separate, joint, individual claims, class
claims, or other claims, actions, rights, causes of action, demands,
44
<PAGE>
liabilities, losses and damages of every kind and nature, anticipated or
unanticipated, direct or indirect, fixed or contingent, known or unknown, under
federal, state or common law or any other law or regulation, or at equity,
against Plaintiffs and Plaintiffs' Counsel, which are based upon or arise out of
the institution, prosecution, assertion or resolution of the Litigation or the
Settled Claims, including Unknown Claims, except that nothing herein releases
any claim arising out of a violation of this Stipulation or a violation by
Plaintiffs or Plaintiffs' Counsel of the .Confidentiality Orders in place in the
Litigation.
5. Each Defendant and D&T releases and agrees not to assert any
crossclaims, third party claims or other claims-over (however denominated)
arising out of the Settled Claims including unknown claims, against any other
Defendant, D&T or any Insurer, its predecessors or successors, or its present or
former and future partners, members, principals, officers, directors, employees,
agents, attorneys, shareholders, investors, insurers, reinsurers, auditors,
accountants, underwriters, investment bankers, advisers, corporate affiliates,
associates (as defined in SEC Rule 12b-2 promulgated pursuant to the Exchange
Act), present, former or future parents, subsidiaries or affiliates and each of
their assigns, representatives, heirs, executors, administrators, and members of
their immediate families. The Underwriters, however, do not release and may
assert their claims, if any, against MK and MK Rail for expenses and attorneys'
fees incurred in connection with this Litigation. MK and MK Rail expressly
reserve all defenses to such claims by the Underwriters.
6. The Parties, D&T and the Insurers recognize that, to the extent
one of the mechanisms set forth in Paragraph VII(G)(8) herein for inclusion in
the Final Judgment to protect fully the Released Parties against claims-over on
whatsoever theory or by whatsoever means
45
<PAGE>
(including cross-claims, third-party claims or other actions for contribution or
indemnification) is fully effective to fulfill the Parties', D&T's and the
Insurers' objective of protecting Released Parties from any liability with
respect to any such claims-over, cross-claims, third-party claims or other
actions for contribution or indemnification, it may not be necessary to employ
in addition one or more of the other mechanisms set forth herein. If and to the
extent (i) the Final Judgment effectively precludes any claim-over against
Released Parties, and/or (ii) there shall be entered a formal court order which
is no longer subject to review by any court (whether by appeal, writ of
certiorari, motion for reconsideration or otherwise) determining that judgment
reduction pursuant to Paragraph VII(F)(8)(c) constitutes a satisfaction in full
of any judgment any Person may obtain against any Released Party on any claim-
over, such that the Released Parties are fully protected from, and shall have no
liability with respect to, claims by any Person for contribution or
indemnification, then Plaintiffs' Counsel shall not be required to delay
distribution of amounts payable under a judgment otherwise potentially giving
rise to such claimover or to defend or to select or pay the legal fees and
expenses of counsel otherwise required to defend against such a claim-over.
7. If a Bankruptcy Case is commenced in respect of any Defendant and
the court having jurisdiction over the Bankruptcy Case enters an order that has
become final and nonappealable determining the transfer of the Settlement Fund
or any portion thereof to the Settlement Account to be recoverable by MK and/or
MK Rail as a preference, voidable transfer, fraudulent transfer or similar
transaction, then Plaintiffs' Counsel may elect to have the releases given and
judgment entered in favor of MK and/or MK Rail pursuant to this Stipulation
become null and void, and Plaintiffs, the Class and MK and MK Rail shall
thereupon be restored to their
46
<PAGE>
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
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 Settlement Fund 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
Insurers, D&T 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, the Insurers and/or
Individual Defendants receiving such funds agree to repay such proceeds to a
court supervised escrow account and the releases given to the Insurers, the
Individual Defendants and the Released Parties other than MK and/or MK Rail
shall remain in full force and effect.
8. The Parties acknowledge that this Settlement Stipulation and the
foregoing releases expressly waive any and all rights that Plaintiffs or the
Class Members may have under any statute or common law principle which would
limit the effect of the releases to those claims actually known or suspected to
exist at the time of execution of this Settlement Stipulation, including the
provisions of Section 1542 of the California Civil Code, to the extent deemed
applicable (notwithstanding that this Settlement Stipulation does not provide
for the application of California law), which provides as follows:
47
<PAGE>
Section 1542. GENERAL RELEASE, EXTENT
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
K. ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL AWARDS AND
DISTRIBUTION OF SETTLEMENT FUND
1. Plaintiffs' Counsel, or the Claims Administrator acting on behalf
of the Class Members, and subject to the supervision, direction and approval of
the Court, shall administer and calculate the claims submitted by Class Members
and shall oversee distribution of that portion of the Net Settlement Fund that
is finally awarded by the Court to the Class Members.
2. Except as otherwise provided in Paragraph VII(L) below, on and
after the transfer of the Net Settlement Fund into the Settlement Account, the
Net Settlement Fund shall be treated or applied as follows:
(a) To the extent not paid from the Notice and Administration
Fund, all unpaid costs and expenses (excluding Attorneys' Fees and Expenses)
incurred in connection with providing notice to Class Members, locating Class
Members, soliciting Class Members' claims, assisting with the filing of claims,
administering and distributing the Settlement Fund to Class Members, processing
proofs of claim, processing requests for exclusion, and escrow fees and costs
shall be paid from the Settlement Fund.
(b) The Parties, the Insurers, the Bank and Plaintiffs' Counsel
agree to treat the Settlement Fund as being at all times a 'qualified settlement
fund" within the
48
<PAGE>
meaning of Treas. Reg. Section 1.4680-1 and Section 4680 of the Internal Revenue
Code. In addition, the Bank, Plaintiffs' Counsel and, as required, the Parties
and the Insurers shall jointly and timely make such elections as necessary or
advisable to carry out the provisions of this paragraph, including the
"relation-back election" (as defined in Treas. Reg. Section 1.468(0-1(j)(2))
back to the earliest permitted date. Such elections shall be made in compliance
with the procedures and requirements contained in such regulations. It shall be
the responsibility of the Bank or Plaintiffs' Counsel timely and properly to
prepare and deliver the necessary documentation for signature by all necessary
parties, and thereafter to cause the appropriate filing to occur.
(c) For the purpose of Section 4680 of the Internal Revenue Code of
1986, as amended, and the regulations promulgated thereunder, the
"administrator" shall be the Bank or Plaintiffs' Counsel. The Bank or
Plaintiffs' Counsel shall timely and properly file all informational and other
tax returns necessary or advisable with respect to the Settlement Fund
(including without limitation the returns described in Treas. Reg. Sections
1.468(B)-2(k) and 1.4680-2(l)). Such returns (as well as the election described
in Paragraph I.2.(b)) shall be consistent with this paragraph and in all events
shall reflect that all taxes (including any interest or penalties) on the income
earned by the Settlement Fund shall be paid out of the Settlement Fund as
provided in Paragraph I.2.(d) hereof.
(d) All (i) taxes (including any interest or penalties) arising with
respect to the income earned by the Settlement Fund, including any taxes or tax
detriments that may be imposed upon the Defendants or the Insurers with respect
to any income earned by the Settlement Fund for any period during which the
Settlement Fund does not qualify as a
49
<PAGE>
"qualified settlement fund" for Federal or state income tax purposes ("Taxes")
and (ii) expenses and costs incurred in connection with the operation and
implementation of this paragraph (including, without limitation, expenses of a
tax attorney or consultant and mailing and distribution costs and expenses
relating to filing) (or failing to file) the returns described in this paragraph
("Tax Expenses"), shall be paid out of the Settlement Fund; in all events, the
Defendants and Insurers shall have no liability or responsibility for the Taxes
or the Tax Expenses. Plaintiffs' Counsel, Plaintiffs, and the Class shall
indemnify and hold Defendants and the Insurers harmless for Taxes and Tax
Expenses (including, without limitation, taxes payable by reason of any such
indemnification). Further, Taxes and Tax Expenses shall be treated as, and
considered to be, a cost of administration of the Settlement and shall be timely
paid by the Bank or Plaintiffs' Counsel out of the Settlement Fund without prior
order from the Court and the Bank or Plaintiffs' Counsel shall be obligated
(notwithstanding anything herein to the contrary) to withhold from distribution
to Class Members any funds necessary to pay such amounts including the
establishment of adequate reserves for any Taxes and Tax Expenses (as well as
any amounts that may be required to be withheld under Treas. Reg.
Section 1.468(B)-2(l) (2)); the Defendants and the Insurers are not responsible
and shall have no liability therefor. Plaintiffs' Counsel are permitted to
retain the services of a tax attorney or consultant to the extent reasonably
necessary to carry out the provisions of this paragraph. The Parties and the
Insurers agree to cooperate with the Bank or Plaintiffs' Counsel, each other,
and their tax attorneys and accountants to the extent reasonably necessary to
carry out the provisions of this paragraph.
50
<PAGE>
(e) For the purpose of this Paragraph VII(K)(2), references to
the Settlement Fund shall include both the Settlement Fund and the Notice and
Administration Fund and shall also include any earnings thereon.
3. Subject to the approval and further order(s) of the Court, the
Net Settlement Fund shall be available for allocation to Class Members who
submit valid, timely Proofs of Claim ("Authorized Claimants") as follows:
(a) Each person claiming to be an Authorized Claimant shall be
required to submit a separate Proof of Claim and Release that shall include a
general release of the Defendants and the Released Parties in substantially the
form set forth in Exhibit A-3 signed under penalty of perjury and supported by
such documents as specified in the Proof of Claim and Release;
(b) All Proof of Claim and Release forms must be postmarked or
received within the time prescribed in the Approval Order unless such period is
extended or a late claim is otherwise allowed by order of the Court. Unless
otherwise ordered by this Court, any Class Member who fails to submit a properly
completed Proof of Claim and Release within such period, or such other period as
may be ordered by the Court, shall be forever barred from receiving any payments
pursuant to this Stipulation or from the Net Settlement Fund, but will in all
other respects be subject to the provisions of this Stipulation and the Final
Judgment, including, without limitation, the release of the Settled Claims and
the dismissal of the Litigation;
51
<PAGE>
(c) The amount paid to each Authorized Claimant shall be the
percentage that each Authorized Claimant's Recognized Loss bears to the total of
the Recognized Losses of all Authorized Claimants.
4. The Net Settlement Fund shall be allocated among Authorized
Claimants pursuant to the Plan of Distribution:
(a) The Net Settlement Fund shall be Distributed as follows (the
"Plan of Allocation"): Each Authorized Claimant shall be entitled to receive a
share of the Net Settlement Fund, computed by multiplying the Net Settlement
Fund by a fraction, the numerator of which is the Authorized Claimant's
Recognized Loss and the denominator of which is the total amount of the
Recognized Loss of all Class Members, determined by adding together the
Recognized Losses of all Authorized Claimants.
(b) Definitions:
(1) An Authorized Claimant who purchased MK Rail common
stock during the Class Period and still held those shares as of the close of
business on April 25, 1995, is regarded as having a "Holding Loss." A Holding
Loss means the difference between the price at which each share of MK Rail
common stock was bought, and $7.09/share (the average closing price of MK Rail
stock on the four trading days following April 25, 1995).
(2) An Authorized Claimant who purchased MK Rail stock
during the Class Period and sold those shares prior to the close of business on
April 25, 1995, is regarded as having a "Trading Loss." A Trading Loss means
the difference between the price at which the common stock was purchased and the
price at which it was sold.
52
<PAGE>
(3) An Authorized Claimant's Recognized Loss shall be the
sum of all of that Claimant's Holding Losses and Trading Losses. Gains on
transactions including short sales, during the Class Period will be netted
against Recognized Losses.
(c) With respect to multiple transactions in MK Rail common
stock, whether a position was held or open as of the end of the Class Period,
for purposes of calculating Recognized Loss is to be determined on a "first-in,
first-out" basis. Holding Loss and Trading Loss shall be calculated net of any
gains on transactions in MK Rail common stock, and any profits realized on short
positions in MK Rail stock (if the short position has not been covered as of the
date of execution of this Stipulation, such profit, if any, shall be deemed to
be the difference between the price of sale and $7.09/share) (the average
closing price of MK Rail stock on the four trading days following April 25,
1995);
(d) In determining Recognized Loss, brokers' commissions and all
other transaction costs shall be excluded from the calculation; and
(e) Payment in the manner set forth above shall be deemed
conclusive of compliance with this Stipulation against all Authorized Claimants.
All Class Members who fail to file valid and timely proofs of claim shall be
barred from participating in the distribution of the Net Settlement Fund (unless
otherwise ordered by the Court), but otherwise shall be bound by all of the
terms of this Stipulation, including the terms of any final orders or judgments
entered and the releases given.
(f) In the event shares of MK Rail common stock are distributed
to Authorized Claimants, such shares shall be distributed in the same proportion
as the cash proceeds, except that no fractional shares will be distributed.
53
<PAGE>
5. The Settlement Fund will be no-recapture, I.E., it is not a
claims-made settlement. The Defendants, D&T and the Insurers shall have no
responsibility for, nor any obligations or liabilities of any kind whatsoever in
connection with, the Plan of Distribution or the determination, administration,
calculation or payment of claims to Class Members. The deformation of
Recognized Loss may be considered by the Court separately from the Court's
consideration of the fairness, reasonableness and adequacy of the Settlement set
forth in the Stipulation, and any order or proceedings relating to the method of
calculating the Recognized Loss, or any appeal from any order relating thereto
or reversal or modification thereof, shall not operate to terminate or cancel
the Stipulation, or affect or delay the finality of the Final Judgment approving
the Stipulation and the Settlement of the Litigation set forth herein. The
method of calculating the Recognized Loss was determined by Plaintiffs' Counsel;
the Defendants, D&T and the Insurers take no position with respect to the
definition of Recognized Loss, the manner of calculating it or its effect on or
fairness to any Authorized Claimant other than to deny that the price of MK
Rail's stock was artificially affected or inflated by Defendants' conduct.
6. In connection herewith, the Defendants, D&T and the Insurers
shall have no involvement in the solicitation of Proof of Claim and Release
forms nor any involvement in the administration process itself, which will be
conducted by Plaintiffs' Counsel in accordance with this Stipulation and the
Final Judgment to be entered by the Court and subject to the supervision of the
Court.
54
<PAGE>
7. Nothing in this Stipulation shall be construed to provide the
Defendants, D&T or the Insurers with standing to challenge or question any
application by Plaintiffs' Counsel for attorneys' fees and expenses or any fee,
expense or incentive award.
8. No Authorized Claimant shall have any claim against Plaintiffs'
Counsel or the Claims Administrator based on, or in any way relating to,
distributions from the Net Settlement Fund that have been made substantially in
accordance with this Stipulation.
L. PLAINTIFFS' COUNSEL'S REQUEST FOR AN AWARD OF ATTORNEYS' FEES AND
EXPENSES
1. Plaintiffs' Counsel may submit an application for: (i) an award
of attorneys' fees of up to 30 percent of the Settlement Fund; (ii)
reimbursement of costs and expenses, including fees and expenses of experts,
incurred in connection with the prosecution of the Litigation, (iii) incentive
awards in the amount of $15,000 and (iv) interest on such attorneys' fees, costs
and expenses at the same rate and for the same period as earned by the
Settlement Fund. Plaintiffs' Counsel reserve the right to make additional
application for fees and expenses incurred.
2. To the extent awarded by the Court, Plaintiffs' Counsels'
Attorneys' Fees and Expenses shall be paid from the Settlement Account to
Plaintiffs' Counsel by wire transfer within three (3) business days after
receipt of (i) a written request from Plaintiffs' Counsel controlling such
account requesting payment of Attorneys' Fees and Expenses; and (ii) a copy of
an order from the Court awarding the sums requested. In the event that the
Order awarding Attorneys' Fees and Expenses is reversed or modified on appeal,
and in the event that said award has been paid to any extent, then Plaintiffs'
Counsel shall promptly refund that portion of the Attorneys' Fees and Expenses
distributed to themselves and any of their co-counsel, plus
55
<PAGE>
any interest actually paid or that would have accrued from the date of payment
to the date of repayment at the existing United States Treasury Bill rate,
consistent with the reversal or modification. All counsel receiving any portion
of such Attorneys' Fees and Expenses agree that they, their partners, and/or
shareholders remain subject to the jurisdiction of the Court with respect to the
enforcement of this provision.
3. It is agreed that the procedure for, and the allowance or
disallowance by the Court of any applications of Plaintiffs' Counsel for,
attorneys' fees and expenses to be paid out of the Settlement Account are to be
considered by the Court separately from the Court's consideration of the
fairness, reasonableness and adequacy of the Settlement as set forth in the
Stipulation. Any order or proceedings relating to the Attorneys' Fees and
Expenses, or reversal or modification thereof, shall not operate to terminate or
cancel the Stipulation or to affect or delay the finality of the Final Judgment
entered in accordance with this Stipulation.
M. MISCELLANEOUS PROVISIONS
1. The Parties, D&T and the Insurers shall cooperate in good
faith, and use their best efforts to obtain, as promptly as practicable, final
approval of the Settlement pursuant to Rule 23 and to implement the Settlement
provided for herein, including execution by the parties hereto of such further
documents as are reasonably necessary to implement the provisions hereof and
cooperation to obtain, appropriate Court orders. None of the Plaintiffs,
Defendants, D&T or the Insurers shall seek to evade their good faith obligations
to seek approval and implementation of this Settlement by virtue of any rulings,
orders, governmental or other reports, legislative action, the results of any
proof of claim process or other developments, whether in the Litigation, any
other litigation, or otherwise, that have occurred after June 5,
56
<PAGE>
1995, or might hereafter occur, and might be deemed to alter the relative
strength of the Plaintiffs, Class Members, Defendants or Insurers with respect
to any claim or defense or their relative bargaining power with respect to
negotiating a settlement. The Parties, D&T and the Insurers deem this
Settlement to be fair and reasonable and have arrived at this Settlement in
arm's-length negotiations taking into account all relevant factors, present or
potential.
2. All of the exhibits attached hereto are hereby incorporated
by reference as though fully set forth herein.
3. This Stipulation may be amended or modified only by a
written instrument signed by counsel for all Parties, D&T and the Insurers.
4. This Stipulation and the Supplemental Agreement together
constitute the entire agreement among the parties hereto, and no
representations, warranties or inducements have been made to any Party
concerning this Stipulation or its exhibits other than the representations,
warranties and covenants contained and memorialized in such documents. Except
as otherwise provided herein, each Party shall bear its own costs.
5. Plaintiffs' Counsel, on behalf of the Class, are expressly
authorized to take all appropriate action required or permitted to be taken by
the Class pursuant to this Stipulation to effectuate its terms and are also
expressly authorized to enter into any modifications or amendments to this
Stipulation on behalf of the Class.
6. Counsel for each Defendant, D&T and each Insurer is
authorized to sign this Stipulation on behalf of his or her respective client.
7. This Stipulation may be executed in one or more original,
photocopied or telecopied counterparts. All executed counterparts and each of
them shall be deemed to be one
57
<PAGE>
and the same instrument. Counsel for the Parties, D&T and the Insurers shall
exchange among themselves original signed counterparts, and a complete set of
original executed counterparts shall be filed with the Court.
8. This Stipulation shall be binding upon, and inure to the
benefit of, the successors, assigns and heirs of the Parties, D&T and the
Insurers.
9. All terms of this Stipulation and the exhibits hereto shall
be governed by ,and interpreted in accordance with the laws of the State of
Delaware and the United States.
10. Without affecting the finality of the Final Judgment entered
in accordance with this Stipulation, the Court shall retain jurisdiction with
respect to the implementation and enforcement of the Stipulation, and all
parties to the Stipulation or to any exhibit thereto submit to the jurisdiction
of the Court for purposes of implementing or enforcing the Settlement embodied
in this Stipulation.
IN WITNESS WHEREOF, the Parties, D&T and the Insurers have caused
this Stipulation to be executed, by their duly authorized attorneys, as of the
day and year first above written.
/s/ Steve W. Berman, Esquire /s/ John W. Edwards II, Esquire
_________________________________ ____________________________________
Steve W. Berman, Esquire John W. Edwards II, Esquire
Hagens & Berman P.S. Jones, Day, Reavis & Pogue
1301 Fifth Avenue - Suite 2929 901 Lakeside Avenue
Seattle, Washington 98101 Cleveland, Ohio 44414
Co-Lead Counsel Counsel for Defendant
for Plaintiffs Morrison Knudsen Corporation
/s/ John E. Grasberger, Esquire /s/ Jennifer Wilson Hewitt, Esquire
_________________________________ ____________________________________
John E. Grasberger, Esquire Jennifer Wilson Hewitt, Esquire
Milberg, Weiss, Bershad, Hynes Doepken, Keevican & Weiss
& Lerach 37th Floor, USX Tower
222 Kearny Street - 10th Floor Pittsburgh, PA 15219
San Francisco, CA 94108
Counsel for Defendant
Co-Lead Counsel MK Rail
for Plaintiffs
/s/ Kevin Yourman, Esquire /s/ David D. Aufhauser, Esquire
_________________________________ ___________________________________
Kevin Yourman, Esquire David D. Aufhauser, Esquire
Weiss & Yourman Williams & Connolly
10940 Wilshire Boulevard 725 Twelfth Street, N.W.
Los Angeles, CA 90024 Washington, D.C. 20005
Co-Lead Counsel Counsel for Defendant
for Plaintiffs William J. Agee
58
<PAGE>
/s/ Thomas J. Nolan, Esquire /s/ Douglas M. Kraus, Esquire
_________________________________ ___________________________________
Thomas J. Nolan, Esquire Douglas M. Kraus, Esquire
Howrey & Simon Skadden, Arps, Slate, Meagher & Flom
550 South Hope Street - 919 Third Avenue
Suite 1400 New York, NY 10022
Los Angeles, California 90071-2604
Counsel for Defendants Michael Farrell
Counsel for Defendant and Gilbert Carmichael
Stephen G. Hanks
/s/ Steven A. Brick, Esquire /s/ P. Craig Storti, Esquire
_________________________________ ___________________________________
Steven A. Brick, Esquire P. Craig Storti, Esquire
Orrick, Herrington & Sutcliffe Hawley, Troxell, Ennis & Hawley
Old Federal Reserve Bank Building First Interstate Center
400 Sansome Street 877 Main Street - Suite 1000
San Francisco, CA 94111 Boise, Idaho 83701
Counsel for Underwriter Defendants Counsel for Defendant
James F. Cleary, Jr.
/s/ Kim West, Esquire /s/ Michael L. Gassmann, Esquire
_________________________________ ___________________________________
Kim West, Esquire Michael L. Gassmann, Esquire
Arter & Hadden Drinker, Biddle & Reath
700 South Flower Street 901 Fifteenth Street, N.W.
Suite 3000 Suite 900
Los Angeles, CA 90017 Washington, D.C. 20005
Counsel for The Fidelity & Counsel for Reliance Insurance
Casualty Company of New York Company
59
<PAGE>
/s/ James A. Skarzynski, Esquire /s/ Cathy A. Simon, Esquire
_________________________________ ___________________________________
James A. Skarzynski, Esquire Cathy A. Simon, Esquire
Peterson & Ross Ross, Dixon & Masback
805 3rd Avenue, 6th Floor 601 Pennsylvania Ave., N.W.
Chicago, Illinois 60601-6969 North Building
Washington, D.C. 20004-2688
Counsel for Great American
Insurance Company Counsel for Continental
Casualty Company
/s/ Frank B. Vanker, Esquire
_________________________________
Frank B. Vanker, Esquire
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Counsel for Deloitte & Touche LLP
60
<PAGE>
Honorable Edward J. Lodge
UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO
TAMMY NEWMAN, On Behalf of Herself ) No. 94-CV-478-S-EJL
and All Others Similarly Situated, ) CLASS ACTION
)
Plaintiff, )
VS. )
)
WILLIAM J. AGEE, et al., )
)
Defendants. )
- -----------------------------------)
ROBERT SUSSER, et al., On Behalf of) No. 94-CV-477-S-EJL
Themselves and All Others Similarly)
Situated, ) CLASS ACTION
Plaintiffs, )
VS. )
)
WILLIAM J. AGEE, et al., ) DATE: March 29, 1996
) TIME: 2:00 p.m.
Defendants. ) COURTROOM 2 - The Honorable
) Edward J. Lodge
- -----------------------------------
FINAL JUDGMENT AND ORDER
OF DISMISSAL WITH PREJUDICE
<PAGE>
The Plaintiffs, the Defendants, D&T and the Insurers (as those terms are
defined in the Stipulation of Settlement dated as of January 5, 1996) (the
"Stipulation"), by and through their attorneys or their counsel of record,
having executed and filed the Stipulation; the Court having entered its Order
thereon dated January 26, 1996, directing that notice of the proposed
Settlement(1) of the Litigation be mailed to the Class and scheduling a hearing
to be held to determine, among other things, whether: (1) the proposed
Settlement should be approved as fair, reasonable and adequate; and (2) the
application of Plaintiffs' Counsel for the payment of attorneys' fees and
expenses and incentive awards to Plaintiffs is reasonable and should be
approved; said notice having been given; a hearing having been held on
March 29, 1996 at which all interested persons were given an opportunity to be
heard; and the Court having read and considered all submissions in connection
with the proposed Settlement, and having reviewed and considered the files and
records herein, the Court finds and concludes that:
This Litigation began in October 1994. Two purported class action
complaints have been filed in the District of Idaho:
SUSSER, ET AL. V. AGEE, ET AL., No. 94-0477-S-LMB and
NEWMAN, ET AL. V. AGEE, ET al., No. 94-0478-S-EJL.
These actions have been consolidated at the NEWMAN docket number (94-CV-478-S-
EJL) with NEWMAN as the lead case (SEE Order of Consolidation dated February 17,
1995), and are referred to herein as the "Litigation."
- ---------------
(1) All capitalized terms have the meaning or definition set forth in the
Stipulation.
-1-
<PAGE>
The defendants in the Litigation are MK Rail Corporation ("MK Rail"),
William J. Agee, James F. Cleary, Jr., Michael J. Farrell, Stephen G. Hanks and
Gilbert E. Carmichael (the "Individual Defendants"), Morrison Knudsen
Corporation ("MK") and Morgan Stanley & Co., Incorporated and C.S. First Boston
Corporation (the "Underwriter Defendants"). MK Rail, MK, the Underwriter
Defendants and the Individual Defendants collectively are termed the
"Defendants."
On May 24, 1995, the Plaintiffs filed their Consolidated and Second Amended
Class Action Complaint (the "Consolidated Complaint"). The Consolidated
Complaint alleged claims for violations of Sections 10(b), 20(a) and 20A of the
Securities Exchange Act of 1934, 15 U.S.C. Section 578 (the "Exchange Act"), and
Rule 10b-5 promulgated under Section 10(b) by the Securities and Exchange
Commission ("SEC"), and claims under the Idaho securities statutes and common
law.
In the Approval Order dated January 26, 1996, the Court approved the
Plaintiffs as representatives of the Class and conditionally certified, for
purposes of the Settlement, a Class comprised of:
All persons who purchased shares of the common stock of MK Rail Corporation
during the period of April 26, 1994 through April 25, 1995, inclusive, (the
"Class Period"), and who suffered harm thereby, excluding defendants MK
Rail, MK and the Underwriter Defendants, and their respective directors,
executive officers, partners, corporate affiliates, and subsidiaries; the
Individual Defendants, their heirs, successors, and assigns and the members
of their immediate families.
This definition of the Class applies for purposes of the Litigation, the
Settlement and this Final Judgment and order of Dismissal with Prejudice (the
"Final Judgment").
- 2 -
<PAGE>
The Stipulation between and among the Plaintiffs, Defendants, Insurers and
D&T provides for the Settlement of the Litigation on behalf of the Plaintiffs
and all Class Members with the Defendants subject to approval by this Court of
its terms and to the entry of this Final Judgment. The Court scheduled a
hearing to consider the approval of the Stipulation and directed that Notice of
the proposed Settlement and hearing be mailed to all members of the Class.
In accordance with the Stipulation, and an Approval Order of the Court
entered on January 26, 1996, Settlement Counsel caused to be mailed to the
Class, a notice (the "Notice") dated February 9, 1996 and caused to be published
in the national edition of The WALL STREET JOURNAL and THE IDAHO STATESMAN, a
summary notice (the "Summary Notice") of the proposed Settlement of the
Litigation and of the opportunity to object to the Settlement. Affidavits
and/or declaration of mailing of the Notice and publication of the Summary
Notice were filed with the Court on March 22, 1996.
The Notice and Summary Notice provided to potential members of the Class
constitute the best and most practicable notice under the circumstances and
include individual notice to all members of the Class who could be identified by
reasonable effort. The affidavits or declarations of mailing filed with the
Court demonstrate compliance with this Court's Orders with respect to the Notice
and Summary Notice and, further, that the best and most practicable notice under
the circumstances was in fact given and constituted valid, due, and sufficient
notice to members of the Class, complying fully with due process and Rule 23 of
the Federal Rules of Civil Procedure and any other applicable law.
- 3 -
<PAGE>
Plaintiffs, Defendants and D&T have applied to the Court for approval of
the terms of the Stipulation and for the entry of this Final Judgment. Pursuant
to the Notice and Summary Notice, and upon notice to all parties, a Hearing was
held before this Court on March 29, 1996, to consider, among other things,
whether the Settlement set forth in the Stipulation should be approved by this
Court as fair, reasonable, and adequate and whether the application of
Plaintiffs' Counsel for the payment of attorneys' fees and expenses and
incentive awards to Plaintiffs is reasonable and should be approved by this
Court.
Approval of the Stipulation will result in substantial savings in time and
money to the Court and the litigants and will further the interests of justice.
The Stipulation is the product of good faith arm's length negotiations by
the parties thereto, each of whom was represented by experienced counsel.
NOW THEREFORE, GOOD CAUSE APPEARING, IT IS HEREBY ORDERED, ADJUDGED AND
DECREED THAT:
1. The Court has jurisdiction over the subject matter of this Litigation
and all Parties in this Litigation, including all Class Members.
2. The members of the Class who have filed timely and valid requests for
exclusion (and who are therefore not Class Members) are not bound by this Final
Judgment. A listing of those persons is attached hereto as Exhibit A. All
Class Members who purchased MK Rail common stock during the period from April
26, 1994 through and including April 25, 1995 are bound by this Final Judgment
and
- 4 -
<PAGE>
by the Settlement, including the releases provided for in this Final Judgment.
3. The Stipulation and Settlement are not an admission by the Defendants
or D&T and this Final Judgment is not a finding of the validity of any claims in
the Litigation or of any wrongdoing by Defendants. Furthermore, neither the
Stipulation nor the Settlement is a concession by any Defendant or D&T, and
neither shall be used as an admission of any fault or omission by any person.
Neither this Final Judgment, the Stipulation nor any document referred to herein
nor any action taken to carry out this Stipulation, is, may be construed as, or
may be used as an admission by or against the Defendants or D&T of any fault,
wrongdoing or liability whatsoever. Entering into or carrying out the
Stipulation, and the Exhibits thereto, and any negotiations or proceedings
related thereto shall not in any event be construed as, or deemed to be evidence
of, an admission or concession with regard to the denials or defenses by any of
the Defendants and shall not be offered or received in evidence in any action or
proceeding against any party to the Stipulation in any court, administrative
agency or other tribunal for any purpose whatsoever, other than to enforce the
provision of this Final Judgment, the Stipulation, or the provisions of this
Final Judgment or any related agreement or release; except that the Stipulation
and the Exhibits may be filed in this Litigation or related litigation as
evidence of the Settlement or in any subsequent action against or by the
Defendants to support a defense of RES JUDICATA, collateral estoppel, release,
or other theory of issue preclusion or similar defense.
- 5 -
<PAGE>
4. The Stipulation and Settlement are fair, reasonable and adequate as to
the Class, and the Stipulation and Settlement are hereby finally approved in
all respects, and the Parties to the Stipulation are hereby directed to
consummate and perform its terms.
5. This Litigation is dismissed on the merits, with prejudice as to the
Defendants and without costs to any Party as against any other, all Class
Members (except those identified in Exhibit A who have requested exclusion from
the Class) are forever barred from commencing or prosecuting, either directly,
derivatively, in a representative capacity, or in any other capacity, a class
action or any other action against the Defendants and the Released Parties (as
defined in the Stipulation) with respect to, based on, arising from, or for any
and all Settled Claims, including Unknown Claims, demands, rights, liabilities
and causes of action of every nature and description whatsoever, known or
unknown, asserted or that might have been asserted, including, but not limited
to, claims for negligence, gross negligence, breach of duty of care and/or
breach of duty of loyalty, breach of duty of candor, fraud, negligent
misrepresentation, breach of fiduciary duty or violations of any state or
federal statutes, rules or regulations by any Defendant or Released Party
arising out of, relating to, or in connection with purchases or sales of MK Rail
common stock during the Class Period or arising out of or related to D&T's
services for MK Rail, any of the acts, omissions, misrepresentations, facts,
events, matters, transactions or occurrences referred to, or that could have
been referred to, in any of the complaints or any pleadings filed in the
litigation or
- 6 -
<PAGE>
otherwise alleged, asserted or contended in the litigation based upon the facts
alleged in any of the complaints.
6. On the Effective Date, as defined in the Stipulation, each member of
the Class who has not timely and validly requested exclusion shall be deemed
conclusively to have released the Settled Claims, including Unknown Claims,
against all Released Parties, including the Defendants, D&T, and the Insurers.
Notwithstanding that the Plaintiffs and/or Class Members may hereafter discover
facts in addition to, or different from, those that the Plaintiffs or Class
Members now know or believe to be true with respect to the Litigation and the
Settled Claims, including Unknown Claims, or to the subject matter of the
Release, each such Plaintiff and Class Member shall be deemed, upon the
Effective Date, fully, finally and forever to settle and release any and all
Settled Claims, including Unknown Claims, against the Defendants and all other
Released Parties, including all claims known or unknown, suspected or
unsuspected, contingent or non-contingent, that now exist, may hereafter exist,
or heretofore have existed, and without regard to the subsequent discovery or
existence of such different or additional facts. In giving such releases, all
Class members and Plaintiffs are deemed to have waived any and all rights that
they may have under any statute or common law principle which would limit the
effect of the foregoing releases to those claims actually known or suspected to
exist at the time of execution of this Settlement Stipulation, including the
provisions of Section 1542 of the California Civil Code, to the extent deemed
applicable, which provides as follows:
- 7 -
<PAGE>
Section 1542. GENERAL RELEASE; EXTENT
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
7. From and after the Effective Date, each Class Member individually,
completely, voluntarily, knowingly, unconditionally and forever releases,
remises, acquits and discharges Plaintiffs and Plaintiffs' Counsel from every
and all asserted or potential, separate, joint, individual claim, class claim,
or other claims, actions, rights, causes of action, demands, liabilities, losses
and damages of every kind and nature, anticipated or unanticipated, direct or
indirect, fixed or contingent, known or unknown, under federal, state or common
law or any other law or regulation, or at equity, against Plaintiffs and
Plaintiffs' Counsel or any of them, that are based upon, or arise out of, the
institution, prosecution, assertion or resolution of the Litigation or the
Settled Claims, including Unknown Claims.
8. Defendants shall be deemed conclusively to have released the
Plaintiffs and Plaintiffs' Counsel from only those claims or potential claims
against Plaintiffs and Plaintiffs' Counsel that are based upon, or arise out of,
the institution, assertion, prosecution or resolution of this Litigation, or the
Settled Claims, including Unknown Claims, except that nothing herein releases
any claim arising out of a violation of the Stipulation or a violation by
Plaintiffs or Plaintiffs' Counsel of the Confidentiality Orders in place in the
Litigation.
9. Each member of the Class who did not timely and validly
request exclusion is barred and permanently enjoined from
- 8 -
<PAGE>
commencing and prosecuting, either directly, derivatively, in a representative
capacity, or in any other capacity, against the Defendants and the Released
Parties, any and all of the Settled Claims, including Unknown Claims.
10. Each Plaintiff and Class Member, is hereby barred and permanently
enjoined, either directly, representatively, or in any other capacity, from (i)
instituting or prosecuting any action to the extent such action asserts any of
the claims included in the definition of Settled Claims, including Unknown
Claims, and (ii) collecting upon any judgment in connection with, arising out
of, or that is in any way related to any Settled Claims, including Unknown
Claims, unless appropriate provision satisfactory to the Court is made to assure
that the amounts to be collected will be available if necessary to meet the
obligations that may exist under the provisions for indemnification set forth
below as a consequence of such judgment; and (iii) entering into any other
settlement in connection with, arising out of, or that is in any way related to,
the Settled Claims, including Unknown Claims, unless such settlement provides
for releases of claims or claims-over of the settling party against the
Defendants and other Released Parties as provided below, subject to the receipt
by the settling party of releases of claims-over from the Defendants or other
Released Parties co-extensive with those received by Defendants or other
Released Parties.
11. (a) All persons or entities are hereby barred and permanently
enjoined, either directly, representatively, or in any other capacity, from
instituting or prosecuting or continuing to prosecute, any action, claim or
claim-over against any Released
- 9 -
<PAGE>
Party on whatsoever theory (whether by way of third- or subsequent-party
complaint, cross-claim, separate action or otherwise, and whether under federal
or state law) to recover in whole or in part any liability, direct or indirect,
of such person or entity to any Member of the Class in connection with, arising
out of, or that is in any way related to, the Settled Claims, but without in any
way affecting the rights of the Underwriters, if any, to recover their expenses
and attorneys' fees incurred in connection with this litigation from MK and MK
Rail. (MK and MK Rail reserving all defenses to such claims by the
Underwriters).
(b) Any and all claims and claims-over asserted or deemed asserted by any
persons or entities against any Released Party on whatsoever theory (whether by
way of third- or subsequent-party complaint, cross-claim, separate action or
otherwise, and whether under federal or state law) to recover in whole or in
part any liability, direct or indirect, of such person or entity to any Member
of the Class in connection with, arising out of, or that is in any way related
to, the Settled Claims, including Unknown Claims, are hereby dismissed with
prejudice and without costs to any Party, except however, that the rights, if
any, of the Underwriters to recover their expenses and attorneys' fees incurred
in connection with this litigation from MK and MK Rail (MK and MK Rail reserving
all defenses to such claims by the Underwriters) are not affected.
(c) Any judgment by Plaintiffs or other members of the Class as against
any persons or entities on a claim with respect to which such person or entity
would have (but for the contribution bar ordered in PARA 11(a) above) a legally
valid and enforceable right to contribution from a Released Party, and that is
in connection
- 10 -
<PAGE>
with, arising out of, or that is in any way related to, the Settled Claims,
including unknown Claims, shall be reduced by such percentage as reflects a
determination of the relative fault or culpability, if any, of the Released
Parties, as compared to the relative fault or culpability of such other persons
or entities.
(d) If necessary in order to further effectuate the intention of the
Parties that the Released Parties shall have no liability to any person or
entity for contribution or indemnification with respect to any claim by
plaintiff or any Class Member against any person or entity with respect to the
Settled Claims, including Unknown Claims, the Class and each Member of the
Class (i) shall reduce or credit against any judgment or settlement (s)he, it or
they may obtain against any person or entity the full amount of any judgment or
settlement such person may obtain against any Released Party on any claims-over
on whatsoever theory (whether by way of third- or subsequent-party complaint,
cross-claim, separate action or otherwise) in connection with, arising out of,
or that is in any way related to, the Settled Claims, including Unknown Claims,
including, but not limited to, claims-over that have been, could have been, or
could be, alleged in this litigation or in any other action; and (ii) shall
obtain from such person or entity for the benefit of the Released Parties a
satisfaction in full of such person's or entity's judgment or settlement against
the Released Parties.
(e) The Court expressly approves the agreement by Plaintiffs and all other
Members of the Class (the "Indemnifying Parties"), for good and valuable
consideration, receipt of which is acknowledged to indemnify the Released
Parties and to hold them
- 11 -
<PAGE>
harmless from and against any and all liability (including amounts paid in
settlement, subject to all the other provisions of this Settlement Stipulation)
with respect to:
(i) any claim by any Member of the Class which is a Settled Claim,
including Unknown Claims; and
(ii) claims-over on whatsoever theory (whether by way of third- or
subsequent-party complaint, cross-claim, separate action or otherwise) by any
person or entity to recover in whole or in part any lability, direct or
indirect, whether by way of judgment, settlement or otherwise, of such person or
entity to any Member of the Class in connection with, arising out of, or that is
in any way related to, the Settled Claims, including without limitation claims-
over that have been, could have been or could be alleged in this litigation or
in any other action.
(f) The Court hereby expressly approves the further agreement of the
Parties that, in the event that any Members of the Class obtain any recovery by
judgment, settlement, or otherwise against any person or entity (other than the
Net Settlement Amount) that is related in any way to the Settled Claims,
appropriate provision (including delaying distribution of amounts payable under
a judgment and, in the case of settlement, obtaining releases to protect the
Released Parties from any liability to such persons or entities on claims-over)
shall be made to assure the effectuation of the indemnity provided for herein.
Any such recovery against any person or entity who has not released any claims
or claims-over against the Released Parties shall be held in escrow pursuant to
order of this Court until any claims or claims-over against the
- 12 -
<PAGE>
Released Parties are finally determined, subject to the other limitations and
provisions of this Settlement Stipulation.
(g) It is further ordered that the foregoing provisions of PARAS 10 and 11
with respect to reduction of judgment and effectuation of indemnification are
not intended to be exclusive, and nothing in PARA 11(f) shall be deemed to
modify, lessen or impair the indemnity obligations of the Class or Class Members
as set forth in PARA 11(e) hereof in any situation to which the provisions
contained in PARA 11(f) may not be applicable or may fail to provide fully for
the indemnity protection provided in PARA 11(e); provided, however, that, to the
extent that cash payments are required to provide the Released Parties with the
agreed-upon indemnity, with respect to a claim for indemnification from and
against liability with respect to the claim of any Member of the Class that is a
Settled Claim (as defined herein), only funds received by, or on behalf of, the
Class or Class Members by virtue of any claim in this action or otherwise
related to Settled Claims, other than the Net Settlement Amount, or the
Settlement Fund, may be used to satisfy the indemnification obligations
hereunder; provided, however, that, if a Class Member persists in prosecuting
its claim despite being notified that it is barred by this Settlement (and fails
to establish by Court order that it is not so barred), such indemnification
obligations may be payable out of any funds distributed or to be distributed to
such Member of the Class from the Settlement Sum or Settlement Fund or out of
any other funds of such Class Member; and with respect to a claim for
indemnification from and against liability with respect to claims-over as
provided in PARA 11(e)(ii), such indemnification obligations shall be payable
- 13 -
<PAGE>
out of the additional recovery by judgment or settlement and shall not under any
circumstances be payable out of the Settlement Sum or the Settlement Fund.
(h) The Court expressly approves the Parties' agreement that, if, after
the Effective Date, a claim-over is or has been asserted against any Released
Party as to which such Released Party is entitled to protection under PARAS 10
and 11(a)-(g), then, upon the request of such released party, Plaintiffs'
Counsel shall at their expense, to the best of their ability and so long as
permitted by the forum court, take control and direct the litigation strategy of
the defense of such claim-over only. If separate counsel is required as to any
such claim-over which Plaintiffs' Counsel has been requested to take control of
and defend, the Plaintiffs' Counsel shall select competent counsel approved by
the Released Party, which approval shall not be unreasonably withheld. Any
legal fees and expenses incurred by such counsel shall be paid out of the
Settlement Fund (or any additional monies recovered by the Class) in the same
manner as provided for herein as to the fees and expenses of Plaintiffs'
Counsel. The Released Parties shall cooperate fully in the defense of such
claim-over, and shall have the right (but shall not be obligated) to retain co-
counsel to participate in such defense at their expense. If Plaintiffs' Counsel
has been requested to take control of and defend a claim-over as provided herein
then, as between the Class Members and the Defendants, the Class (or Members of
the Class individually to the extent the last sentence of this paragraph is
applicable) shall have sole authority to determine the timing and terms of any
settlement of such claim-over; provided, however, that no such
- 14 -
<PAGE>
settlement of any claim-over shall require any financial contribution of the
Released Party. If a claim-over is asserted against any Released Party by any
person or entity to recover any liability of such person or entity with respect
to a claim brought by Members of the Class who are not prosecuting such claim on
a common Class basis, the obligations set forth herein for defense of such
claim-over shall be the responsibility only of those Members of the Class who
are prosecuting the claim giving rise to such claim-over.
12. It is further ordered that any claims or claims-over that have been,
or may in the future be, asserted in this or any other action against any
Released Party shall (if allowed) be served and stayed for separate trial after
the trial of Plaintiffs' and the Class claims against such nonsettling
defendant.
13. The Court finds and determines that, by reason of the Parties'
Settlement, there is no just reason for delay and finds expressly that this
Final Judgment is a final judgment upon fewer than all the claims or parties
pursuant to Fed. R. Civ. P. 54(b).
14. Members of the Class who have validly and timely requested exclusion
may pursue their own individual remedies, if any.
15. The Court reserves jurisdiction, without affecting the finality of
this Final Judgment, over: (a) implementation of this Settlement and any award
or distribution of the Settlement Fund, including interest earned thereon; (b)
disposition of the Net Settlement Fund; (c) enforcing and administering the
Stipulation
- 15 -
<PAGE>
including any releases executed in connection therewith; and (d) other matters
related or ancillary to the foregoing.
DATED: 3/29/96 /s/ Edward J. Lodge
----------------- ----------------------------------------
THE HONORABLE EDWARD J. LODGE
UNITED STATES DISTRICT JUDGE
Submitted by:
GORDON LAW OFFICES
PHILIP H. GORDON
- -----------------------------------
PHILIP H. GORDON
419 South 9th Street
Boise, ID 83702
Telephone: 208/345-1449
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
JOHN E. GRASBERGER
KIMBERLY C. EPSTEIN
/s/ John Grasberger
- -----------------------------------
JOHN E. GRASBERGER
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
HAGENS & BERMAN
STEVE W. BERMAN
/s/ Steve Berman
- -----------------------------------
STEVE W. BERMAN
1301 Fifth Avenue
- 16 -
<PAGE>
Suite 2929
Seattle, WA 98101
Telephone: 206/623-7292
WEISS & YOURMAN
KEVIN J. YOURMAN
10940 Wilshire Blvd.
Suite 2300
Los Angeles, CA 90024
Telephone: 310/208-2800
Co-Lead Counsel for Plaintiffs
BERNSTEIN LIEBHARD & LIFSHITZ
SANDY LIEBHARD
274 Madison Avenue
New York, NY 10016
Telephone: 212/779-1414
KAUFMAN, MALCHMAN, KIRBY
& SQUIRE
JEFFREY H. SQUIRE
919 Third Avenue, lith Floor
New York, NY 10022
Telephone: 212/371-6600
Attorneys for Plaintiffs
- 17 -
<PAGE>
EXHIBIT A
<PAGE>
D. I hereby warrant and represent that I have not assigned or transferred
or purported to assign or transfer voluntarily or involuntarily, any matter
released pursuant to this release or any other part or portion thereof.
E. I (we) certify that I am (we are) not subject to backup withholding
under the provisions of Section 3406(a)(1)(c) of the Internal Revenue Code.
Note: If you have been notified by the Internal Revenue Service that you are
subject to backup withholding, please strike out the language that you are not
subject to backup withholding in the certification above.
I declare under penalty of perjury under the laws of the United States of
America that the foregoing information supplied by the undersigned is true and
correct and that this Proof of Claim and Release Form was executed this
6th day of March 1996 in Venice, FL SARASOTA .
- ----- ----------------- ---------------------------
(Month) (Year) (City, State, County)
/s/ Ralph Langieri, Jr. Beverlie M. Langieri
- -----------------------------------
(Sign your name here)
Ralph Langieri, Jr. Beverlie M. Langieri
- -----------------------------------
(Type or print your name here)
PURCHASERS
- -----------------------------------
(Capacity of persons signing, E.G.,
Beneficial Purchaser, Executor or
Administrator)
ACCURATE CLAIMS PROCESSING TAKES A
SIGNIFICANT AMOUNT OF TIME.
THANK YOU FOR YOUR PATIENCE.
Reminder Checklist:
1. Please sign the above release and declaration. /x/
2. Remember to attach supporting documentation, if available. /x/
3. Do not send original or copies of stock certificates.
4. Keep a copy of your claim form for your records. /x/
5. If you desire an acknowledgement of receipt of your claim form,
please send it Certified Mail, Return Receipt Requested.
6. If you move, please send us your new address.
NOTE!
WE WISH TO BE EXCLUDED FROM THIS CLASS ACTION SUIT.
RECEIVED
MARCH 12 1996
- ---- CENTER 1A
6
<PAGE>
- --------------------------------------------------------------------------------
YOU QUANTITY PRICE DESCRIPTION CUBIP NUMBER
- --------------------------------------------------------------------------------
BOUGHT 100 15 MK RAIL CORP 55305T102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT NUMBER IB T TRF MKT OFFICE PHONE NUMBER SYMBOL
- --------------------------------------------------------------------------------
31 390-079 202 1 4 3 813-488-6751 MKRL
- --------------------------------------------------------------------------------
WHEN COMMUNICATING WITH US PLEASE REFER TO YOUR ACCOUNT NUMBER
RALPH LANGIERI JR &
BEVERLIE M LANGIERI
JT TEN
9065 SOUTH TAMIAMI TR
VENICE FL 34293-5142
PD 8-15-94
CH # 136 .SB.
TRADE DATE
----------
08/10/94
UNSOLICITED
- --------------------------------------------------------------------------------
TRANSACTION
PRINCIPAL STATE TAX ACCRUED INTEREST COMMISSION SEQ FEE CHARGE AMOUNT
- --------------------------------------------------------------------------------
1,500.00 55.55 3.00 1,558.55
- --------------------------------------------------------------------------------
RETAIN THIS FOR YOUR TAX RECORDS
<PAGE>
Ralph & Beverlie [POSTMARK] MANASOTA, FL 342
Langieri PM
9065 S. Tamiami Trail 6 MAR
Venice, FL 34293-5142 1996
MK Rail Securities Litigation
c/o Gilardi & Co.
P.O. Box 8040
San Rafael, CA 94912-8040
MKR
<PAGE>
DECLARATION OF SERVICE BY FEDERAL EXPRESS
I, the undersigned, declare:
1. That declarant is and was, at all times herein mentioned, a citizen of
the United States and a resident of the County of San Diego, over the age of 18
years, and not a party to or interested in the within action; that declarant's
business address is 600 West Broadway, Suite 1800, San Diego, California 92101.
2. That on March 21, 1996, declarant caused true copies of (PROPOSED)
FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE to be delivered to Federal
Express for service on each of the parties listed on the attached Service List
on March 22, 1996.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this 21st day of March, 1996, at San Diego, California.
/s/ Danelle L. McNertney
-----------------------------------
Danelle L. McNertney
<PAGE>
MK RAIL
Service List - 01/31/96
Page 1
COUNSEL FOR PLAINTIFF(S)
Kevin J. Yourman Sandy Liebhard
WEISS & YOURMAN BERNSTEIN LIEBHARD & LIFSHITZ
10940 Wilshire Blvd., 24th Floor 274 Madison Avenue
Los Angeles, CA 90024 New York, NY 10016
310/208-2800 212/779-1414
310/209-2348 (fax) 212/779-3218 (fax)
John E. Grasberger Philip H. Gordon
Kimberly C. Epstein GORDON LAW OFFICES
MILBERG WEISS BERSHAD HYNES & 419 South 9th Street
LERACH LLP Boise, ID 83702
222 Kearny Street, 10th Floor 208/345-1449
San Francisco, CA 94108 208/345-4700 (fax)
415/288-4545
415/288-4534 (fax)
William S. Lerach Joseph H. Weiss
MILBERG WEISS BERSHAD HYNES & WEISS & YOURMAN
LERACH LLP 319 Fifth Avenue
600 West Broadway, Suite 1800 New York, NY 10016
San Diego, CA 92101-5050 212/532-4171
619/231-1058 212/682-3010 (fax)
619/231-7423 (fax)
Jeffrey H. Squire Steve W. Berman
KAUFMAN, MALCHMAN, KIRBY & HAGENS & BERMAN
SQUIRE 1301 Fifth Avenue, Suite 2929
919 Third Avenue, 11th Floor Seattle, WA 98101
New York, NY 10022 206/623-7292
212/371-6600 206/623-0594 (fax)
212/751-2540 (fax)
COUNSEL FOR DEFENDANTS
George A. Borden George M. Medved
David Aufhauser DOEPKEN, KEEVICAN, WEISS &
WILLIAMS & CONNOLLY MEDVED
725 12th Street, N.W. 37th Floor, USX Tower
Washington, DC 20005 600 Grant Street
202/434-5000 Pittsburgh, PA 15219
202/434-5029 (fax) 412/355-2600
412/355-2609 (fax)
<PAGE>
MK RAIL
Service List - 01/31/96
Page 2
COUNSEL FOR DEFENDANTS
B. Newal Squyres, Jr. Richard E. Hall
HOLLAND & HART HALL, FARLEY, OBERRECHT &
West One Plaza, Suite 1400 BLANTON, P.A.
101 South Capitol Blvd. 702 W. Idaho Street, Suite 700
Boise, ID 83701 P.O. Box 1271
208/342-5000 Boise, ID 83701
208/343-8869 (fax) 208/336-0404
208/336-5193 (fax)
P. Craig Storti Richard D. Parry, Esq.
HAWLEY, TROXELL ENNIS HAWLEY MORRISON KNUDSEN CORPORATION
877 W. Main St., Suite 1000 720 Park Blvd., Legal Dept.
P.O. Box 1617 Morrison Knudsen Plaza
Boise, ID 83701 Boise, ID 83729
208/344-6000 208/386-5000
208/342-3829 (fax) 208/386-7186 (fax)
Steven A. Brick Douglas M. Kraus
John H. Kanberg SKADDEN, ARPS, SLATE, MEAGHER
ORRICK, HERRINGTON & & FLOM
SUTCLIFFE, A.P.C. 919 Third Avenue
400 Sansome Street New York, NY 10022-3897
Old Federal Reserve Bank Bldg. 212/735-3000
San Francisco, CA 94111 212/735-2000 (fax)
415/392-1122
415/773-5759 (fax)
John M. Newman, Jr.
JONES, DAY, REAVIS & POGUE
901 Lakeside Avenue, North Point
Cleveland, OH 44114
216/586-3939
216/579-0212 (fax)
<PAGE>
October 15, 1995
MK SECURITIES
LITIGATION CLAIMS
P.O. BOX 990
CORTE MADERA, CA 94976-0990 CERTIFIED MAIL
RETURN RECEIPT
RE; CIVIL ACTION NO: CV 94-334-S-EGL
NO: 30-286102
TO WHOM IT MAY CONCERN:
This letter will serve as my formal request for exclusion from the Class Action
against Morrison Knudsen Securities Litigation. It is my understanding that by
being excluded form the class action that I am not precluded from seeking to
prosecute claims on an individual basis. In accordance with my request for
exclusion, the following information with respect to my account is:
William W. Martin, Ph.D., P.C.,
A Professional Corporation,
Money Purchase Plan
3909 Via Del Campo
San Clemente, CA 92673-2628
tax payer ID#: 33 0286102
Original purchase date: September 30, 1994
for $1,000.00
There were additional deposits made to this account at various times. Attached
is a statement of 6/30/95 reflecting 60.6442 shares of stock. Copies of all my
statements to date are enclosed. My intention of being excluded from the class
action is to prosecute claim on an individual basis.
Respectfully,
/s/ Bill Martin
William W. Martin, Ph.D., P.C.
Professional Corporation
Money Purchase Plan
RECEIVED
OCT 19 1995
<PAGE>
MERRILL LYNCH THE BLUEPRINT PROGRAM
QUARTERLY STATEMENT
- --------------------------------------------------------------------------------
0-330286102-421-09379-C0034832
- ----------------------------------------
STATEMENT PERIOD ACCOUNT NO. PAGE
10-1-94 TO 12-30-94 ###-##-#### 2 WILLIAM W MARTIN PHD APC
- ----------------------------------------
MORRISON KNUDSEN CORPORATION
DIVIDEND REINVESTMENT PLAN
1994 ANNUAL SUMMARY
- --------------------------------------------------------------------------------
DATE TRANSACTION DESCRIPTION MKT PRICE COMM AMOUNT
- --------------------------------------------------------------------------------
09/30 PURCHASE .0084 MORRISON KNUDSEN COR P 16.750 .14
09/30 PURCHASE 59.7015 MORRISON KNUDSEN COR P 16.750 1000.00
IF CIRCUMSTANCES ARE MAKING IT NECESSARY TO CLOSE YOUR ACCOUNT, PLEASE NOTIFY
MORRISON KNUDSEN STOCK RECORD DEPT. AT 1(800)635-5000 AND MERRILL LYNCH
AT 1(800)876-0908.
<PAGE>
MERRILL LYNCH THE BLUEPRINT PROGRAM
QUARTERLY STATEMENT
- --------------------------------------------------------------------------------
0-330286102-421-09379-C0034831
- ----------------------------------------
STATEMENT PERIOD ACCOUNT NO.
10/1/94 TO 12/30/94 ###-##-#### WILLIAM W MARTIN PHD APC
- ---------------------------------------- MONEY PURCHASE PLAN
3909 VIA DEL CAMPO
SAN CLEMENTE CA
92673-2628
FOR SERVICE CALL OR WRITE:
(800)637-3766
P.O. BOX 30430
NEW BRUNSWICK, NJ 08989-0430
*** TAX INFORMATION ***
- --------------------------------------------------------------------------------
DESCRIPTION THIS PERIOD YEAR-TO-DATE
- --------------------------------------------------------------------------------
* REPORTABLE DIVIDENDS $.00 $.00
*** TRANSACTION SUMMARY ***
- --------------------------------------------------------------------------------
DATE TRANSACTION DESCRIPTION MKT PRICE COMM AMOUNT
- --------------------------------------------------------------------------------
*** PURCHASES, SALES AND OTHER TRANSACTIONS ***
10/07 PURCHASE .0084 MORRISON KNUDSEN COR P 16.750 .14
SETTLED TRADE OF 09/30
10/07 PURCHASE 59.7015 MORRISON KNUDSEN COR P 16.750 1000.00
SETTLED TRADE OF 09/30
*** CURRENT HOLDINGS ***
- --------------------------------------------------------------------------------
DESCRIPTION OPENING POSITION CLOSING POSITION DEC 30 PRICE MARKET VALUE
- --------------------------------------------------------------------------------
MORRISON KNUDSEN COR .0000 59.7099 12.750 761.30
TOTAL 761.30
*** SECURITY SYMBOLS OF CURRENT HOLDINGS ***
MORRISON KNUDSEN COR MRN
<PAGE>
MERRILL LYNCH THE BLUEPRINT PROGRAM
QUARTERLY STATEMENT
- --------------------------------------------------------------------------------
0-330286102-421-09379-B0077355
- ----------------------------------------
STATEMENT PERIOD ACCOUNT NO.
12/31/94 TO 3/31/95 ###-##-#### WILLIAM W MARTIN PHD APC
- ---------------------------------------- MONEY PURCHASE PLAN
3909 VIA DEL CAMPO
SAN CLEMENTE CA
92673-2628
FOR SERVICE CALL OR WRITE:
(800)637-3766
P.O. BOX 30430
NEW BRUNSWICK, NJ 08989-0430
*** TAX INFORMATION ***
- --------------------------------------------------------------------------------
DESCRIPTION THIS PERIOD YEAR-TO-DATE
- --------------------------------------------------------------------------------
* REPORTABLE DIVIDENDS $11.94 $11.94
*** TRANSACTION SUMMARY ***
- --------------------------------------------------------------------------------
DATE TRANSACTION DESCRIPTION MKT PRICE COMM AMOUNT
- --------------------------------------------------------------------------------
*** PURCHASES, SALES AND OTHER TRANSACTIONS ***
01/04 DIV REINVEST .9185 MORRISON KNUDSEN COR P 13.000 11
01/06 PURCHASE .0158 MORRISON KNUDSEN COR P 12.625
*** CURRENT HOLDINGS ***
- --------------------------------------------------------------------------------
DESCRIPTION OPENING POSITION CLOSING POSITION MAR 31 PRICE MARKET VALUE
- --------------------------------------------------------------------------------
MORRISON KNUDSEN COR 59.7099 60.6442 6.000 363.80
TOTAL 363.80
*** SECURITY SYMBOLS OF CURRENT HOLDINGS ***
MORRISON KNUDSEN COR MRN
THE 1/6/95 PURCHASE REFLECTS THE REINVESTMENT OF DIVIDENDS PAIN FOR SHARES
HELD AS OF THE 11/23/94 RECORD DATE, PAYABLE ON 1/3/95, AT A RATE OF $0.20
PER SHARE.
<PAGE>
MERRILL LYNCH THE BLUEPRINT PROGRAM
QUARTERLY STATEMENT
- --------------------------------------------------------------------------------
0-330286102-421-09379-B0074616
- ----------------------------------------
STATEMENT PERIOD ACCOUNT NO.
4/1/95 TO 6/30/95 ###-##-#### WILLIAM W MARTIN PHD APC
- ---------------------------------------- MONEY PURCHASE PLAN
3909 VIA DEL CAMPO
SAN CLEMENTE CA
92673-2628
FOR SERVICE CALL OR WRITE:
(800)637-3766
P.O. BOX 30430
NEW BRUNSWICK, NJ 08989-0430
*** TAX INFORMATION ***
- --------------------------------------------------------------------------------
DESCRIPTION THIS PERIOD YEAR-TO-DATE
- --------------------------------------------------------------------------------
* REPORTABLE DIVIDENDS $.00 $11.94
*** CURRENT HOLDINGS ***
- --------------------------------------------------------------------------------
DESCRIPTION OPENING POSITION CLOSING POSITION JUN 30 PRICE MARKET VALUE
- --------------------------------------------------------------------------------
MORRISON KNUDSEN COR 60.6442 60.6442 6.750 409.35
TOTAL 409.35
*** SECURITY SYMBOLS OF CURRENT HOLDINGS ***
MORRISON KNUDSEN COR MRN
YOUR DIVIDEND REINVESTMENT PLAN PROVIDES YOU WITH A CONVENIENT WAY TO PUT YOUR
DIVIDENDS TO WORK TO INCREASE YOUR HOLDINGS IN THE COMPANY'S STOCK. IN ORDER
FOR US TO BE CERTAIN THAT ALL IMPORTANT INFORMATION REGARDING THE COMPANY AND
YOUR ACCOUNT REACH YOU, REMEMBER TO KEEP US INFORMED OF ANY CHANGE IN YOUR
MAILING ADDRESS.
REMEMBER, OUR AUTOMATED VOICE RESPONSE SYSTEM PROVIDES YOU WITH 24 HOURS A DAY,
7 DAYS A WEEK ACCESS TO ACCOUNT BALANCE INFORMATION, STOCK QUOTES AND TELE-SELL
BY CALLING THE TOLL-FREE # AT THE TOP OF THIS STATEMENT. CUSTOMER SERVICE
REPRESENTATIVES ARE AVAILABLE TO ASSIST YOU WEEKDAYS FROM 8 A.M. TO 7 P.M.
EASTERN TIME. IF CALLING FROM OUTSIDE THE UNITED STATES, PUERTO RICO OR CANADA,
PLEASE CALL 908-563-7304.
<PAGE>
PART II: SCHEDULE OF TRANSACTIONS IN MORRISON KNUDSEN CORPORATION ("MK")
COMMON STOCK
A) SHARES OF MK COMMON STOCK, held as of the close of business on
October 14, 1993. 200 number of shares.
--------------
B) PURCHASES (October 15, 1993 - March 31, 1995, Inclusive) OF MK COMMON STOCK:
Proof of
Trade Date Number of Total Purchase Enclosed?
---------- --------- ----- --------------------
Mo. Day Year Shares Purchased Purchase Price (1) Yes No
--- --- ---- ---------------- ------------------ --- --
1. 4 10 95 200 1423.25 gross cost no
------------ ---------------- ------------------ ----- -----
2.
------------ ---------------- ------------------ ----- -----
3.
------------ ---------------- ------------------ ----- -----
4.
------------ ---------------- ------------------ ----- -----
Walter J. and Dale A. Angies JT TEN
We are not involved in this class action suit because the date of purchase was
10 April 95. We want no part of this suit --
C) SALES (October 15, 1993 - March 31, 1995, Inclusive) OF MK COMMON STOCK:
Proof of
Trade Date Number of Total Sale Enclosed?
---------- --------- ----- ----------------
Mo. Day Year Shares Sold Sales Price (1) Yes No
--- --- ---- ---------------- ------------------ --- --
1.
------------ ---------------- ------------------ ----- -----
2.
------------ ---------------- ------------------ ----- -----
3.
------------ ---------------- ------------------ ----- -----
4.
------------ ---------------- ------------------ ----- -----
D) SHARES OF MK COMMON STOCK held as of the close of business on March 31, 1995:
number of shares.
-----------
If you require additional space, attach extra schedules in the same format as
above. Sign and print your name on each additional page.
YOU MUST READ AND SIGN RELEASE ON PAGE 6.
- --------------------
(1) Exclude brokers' commissions or other fees.
(2) Without any subtraction of brokers' commissions or other fees.
RECEIVED
OCT 25 1995
<PAGE>
MK Securities Litigation Claims Administration
PO Box 990
Corte Madera, California 94976-0990
Sir:
This letter is my request to EXCLUDE myself from the Class Action suit re:
Morrison Knudsen Securities Litigation, Civil Action No. CV 94-334-S-EJL in
The United States District Court for the District of Idaho.
Name: Virginia Fekl Johnson
Address: 3544 Deer Park Road, Port Angeles, Washington 98362
Soc Sec No: 536 14 6783
Purchases:
A--------:100 shares
Trade Date: 19 October 1994
Price Paid: $1,712.50
/s/ Virginia Fekl Johnson
Virginia Fekl Johnson
3544 Deer Park Road
Port Angeles, WA 98362
25 October 1995
1 Incl: Copy of Confirmation from SmithBarneyShearson showing purchase of 100
shares of Morrison Knudsen Corp at 17-1/8 on 10-19-94.
RECEIVED
OCT 27 1995
CLAIM CENTER
<PAGE>
102094-0136
403 SOUTH LINCOLN
PORT ANGELES, WA
98362 BRANCH TELEPHONE NUMBER SMITH BARNEY SHEARSON
206-457-9471
FINANCIAL CONSULTANT
MIKE S./JOE D.
VIRGINIA FEKL JOHNSON
3544 DEER PARK RD
PORT ANGELES, WA 98362 SMITH BARNEY
403 SOUTH LINCOLN
PORT ANGELES, WA
98362
CONFIRMATION
To confirm the following
transaction, See reverse TRANSFER & MAIL
for further details.
- --------------------------------------------------------------------------------
TRADE BRANCH ACCOUNT TYPE C FC CUSIP MARKED CAP SU PE DUE
DATE NO. NO. DATE
YOU BOUGHT 10/19/94 883 08523 1 0 025 61844/-10-8 10/26/94
- --------------------------------------------------------------------------------
PRICE DESCRIPTION REFERENCE NO. AMOUNT
100 17 1/8 MORRISON KNUDSEN CORP 179896 1,779
- --------------------------------------------------------------------------------
MATURITY GROSS COMMISSION ACCRUED BOND SEC FEE SERVICE FEE AMOUNT
AMOUNT INTEREST
100 1,712.50 62.53 4.00 1,779.03
- --------------------------------------------------------------------------------
PD 10/19/94 SN M633425 MRN TMS 10/19/94 0179896
<PAGE>
Corinne M. and Alex W. Snow
P.O. Box 440
West Dover, VT 05356
October 26,1995
MK Securities Litigation Claims Administrator
P.O. Box 990
Corte Madera, CA 94976-0990
Dear Sir;
We hereby request exclusion from the Class involved in this class action
litigation.
Names: s.s. #
Corinne M. Snow ###-##-####
Alex W. Snow ###-##-####
Purchased, date: 2/13/95; Settlement date: 2/21/95
150 Shares of MK Corp. at $10.50 per share; $1,575.
We still hold the stock, and were aware of the company's difficulties when we
bought it, on a gamble that the company would survive and eventually prosper.
Enclosed is a copy of the broker's "buy confirmation" report.
/s/ Alex W. Snow 10/26/95
/s/ Corinne M. Snow 10/26/95
RECEIVED
OCT 31 1995
CLAIM CENTER
<PAGE>
ROBERT THOMAS TRANSACTION INFORMATION REPORT
SECURITIES, INC. BUY CONFIRMATION
P.O. BOX 33016 ST. PETERSBURG, FLORIDA 33733-8016
ACCOUNT CARRIED BY RAYMOND JAMES & ASSOCIATES, INC.,
MEMBER NEW YORK STOCK EXCHANGE/SIPC.
ACCOUNT ID: 43174180
TRADE DATE: 02/13/95
SETTLEMENT DATE: 02/21/95
CORINNE M SNOW &
ALEX W SNOW JT/WROS JAMES LEWIS
PO BOX 440 Phone: (802) 258-4065
WEST DOVER VT 05356-0440 Branch ID: S1M4893
Dear Client:
This is to confirm that the following transaction was completed in your account
on an unsolicited basis. Thank you for the opportunity to service your
investment account. We encourage you to review the information on this
confirmation. If you have a question, please contact your Account Executive,
JAMES LEWIS at (802) 258-4065 or our Client Services Department at
1-800-647-SERV.
STOCK TRANSACTION SUMMARY
BOUGHT: 150 shares of MORRISON KNUDSEN CORPORATION Symbol MRN at $10 1/2 per
share
Trade Amount Commission Handling Net Amount
- ------------ ---------- -------- ----------
$1,575.00 $45.08 $3.00 $1,623.08
Most clients choose to pay for transactions automatically with funds held in
either their Heritage Cash Trust, Heritage Cash Trust Municipal or the Raymond
James Credit Interest Program. If your account does not currently have
sufficient funds to pay for this transaction, or you pay for transactions
individually, please forward payment to reach us by February 21, 1995. For
proper credit, please write your account ID on the front of any checks sent to
us and make them payable to Raymond James & Associates, Inc. Unless you have
advised us otherwise, we will follow the instructions set up on your account to
process this transaction.
This transaction was executed on an agency basis on the New York Stock Exchange.
The industry standard identification number (CUSIP) assigned to this security is
618447106. The standard trading symbol for this stock is MRN and the primary
market is the New York Stock Exchange. While some newspapers may refer to the
standard trading symbol, your local newspaper may use varying abbreviations for
securities listings. Other information regarding the execution of this
transaction, including the date and time of the transaction, will be furnished
upon written request.
This trade has been executed for you at a preferred commission rate at your
Account Executive's instruction.
This stock currently pays a dividend which is estimated at $0.80 per share
annually. These dividends are generally subject to federal, state and/or local
taxes. If we hold your securities in street name, we will report these
dividends to you at yearend on Form 1099-DIV for use in preparing your tax
return.
We sincerely hope that you are pleased with the quality of the investment and
support services which you are receiving. If you know of other investors who
could benefit from our services, please refer them to your Account Executive.
<PAGE>
GWENDOLYN L. WOMACK
300 LUMAN ROAD 184 - PHOENIX. OREGON 97535 U.S.A.
BEAR LAKE
October 30, 1995
MK Securities Litigation Claims Administrator
P.O. Box 990
Corte Madera, CA 94976-0990
RE: Morrison Knudsen Securities Litigation
Civil Action
No. CV 94-334-S-EJL
Gentlemen:
This letter is to advise you that I DO NOT WISH TO TAKE PART IN ANY ASPECT
OF ABOVE-LISTED CLASS ACTION SUIT against Morrison Knudsen.
Thank you for advising me of the action.
Sincerely yours,
/s/ Gwendolyn L. Womack
RECIEVED
NOV 03 1995
CLAIM CENTER
<PAGE>
NOVEMBER 2, 1995
LESLIE TAKACS
12050 LAKE AVE APT. 108
LAKEWOOD OH 44107
THIS IS TO NOTIFY YOU THAT I WISH TO BE EXCLUDED FROM THE CLASS ACTION SUIT. MY
REASON IS THAT I DO NOT UNDERSTAND THESE KIND OF THINGS AND ALWAYS HAVE TO ASK
OTHER PEOPLE TO INTERPRET FOR ME. I DO NOT WANT TO BE INVOLVED. ENCLOSED IS A
COPY OF MY PURCHASE OF 600 SHARE AND SALE OF 600 SHARES. I LOST MONEY ON THE
TRANSACTION. MY LOSS WAS 5515.66
RESPECTFULLY SUBMITTED
LESLIE TAKACS
/S/ Leslie Takacs
RECIEVED
NOV 08 1995
CLAIM CENTER
<PAGE>
[ENVELOPES]
<PAGE>
Rlynn Anderson
418 Fast Oak Lane
Kaysville, Utah 84037
###-##-####
November 14, 1995
MK Securities Litigation Claims Administrator
P. 0. Box 990
Corte Madera, California 94976-0990
Gentlemen:
I, Rlynn Anderson, at the address as listed above and with the social security
number listed above wish to be excluded from the Morrison Knudsen Securities
Litigation Civil Action No. CV 94-334-S-EJL.
My reason for requesting not to he included, in my opinion, is that I do not
qualify to be a Class Member for the following reason.
I Purchased 1000 shares of MK stock on 3-29-95 at a cost of $5.875 per share or
a total sum cost of $5969.78 including commissions. This is less than the $8.40
per share which is used in the Class Action Suit to determine any losses.
For this reason I wish not to be included as a Class Member as part of the Class
Action Suit.
Sincerely
/s/ Rlynn Anderson
Rlynn Anderson
RECIEVED
NOV 16 1995
CLAIM CENTER
<PAGE>
February 1993
<TABLE>
Page 1 of 2
Invested assets $ 6,520.10
BARRY MURPHY & COMPANY, INC. Net account value on February 26 $ 6,520.10
270 CONGRESS STREET, 3RD FLOOR Net account value on January 29 $ 921.58 Account Number 832179604
BOSTON, MA 02210 -Excluding unpriced assets Social Security Number ###-##-####
NC2L071591-14 - 0293 - B3 - 0 Your Investment Executive
BARRY MURPHY AND CO 617-426 1770
<CAPTION>
EARNINGS AND CAPITAL RETURN SUMMARY
Earnings/capital retain categories are for the current calendar year. All prior year earnings are summarized separately.
This information should not be used for other purposes. See back for details.
- ------------------------------------------------------------------------------------------------------------------------------------
Current period Year-to-date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends 6.16 8.65
Prior year(s) entries and adjustments .06 2.83
Total earnings/capital return 6.16 11.28
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET SUMMARY
See reverse side for information on assets excluded from this summary.
- ------------------------------------------------------------------------------------------------------------------------------------
H of portfolio Value
- ------------------------------------------------------------------------------------------------------------------------------------
Equities 98.99 6,454.37
Money funds 1.01 65.73
Total invested assets 100.00 $ 6,520.10
Net account value $ 6,520.10
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET PORTFOLIO
Prices, income and current values may be approximate. Some Direct/Private investments are presented at Initial offering price.
Details on back.
- ------------------------------------------------------------------------------------------------------------------------------------
Quantity/Face value Description Price Value Est. Income
- ------------------------------------------------------------------------------------------------------------------------------------
5,000 JOHNSON & JOHNSON COM 42,500 212.50 5
5,000 MORRISON KNUDSEN CORP 21,375 106.87 4
100,000 MOTOROLA INC 58,750 5,875.00 44
5,000 PROCTER & GAMBLE CO 52,000 260.00 6
65,730 INFINITY CCR MNY MKT FND 1,000 65.73
Opening balance $ 15.33
Avg yield 2.53% for period 01/21-02/17
Total $ 8,520.10 $ 53
ACTIVITY
- ------------------------------------------------------------------------------------------------------------------------------------
Date Activity Description Quantity Price/Comment Amount
- ------------------------------------------------------------------------------------------------------------------------------------
1/28 Balance forward $ .00
</TABLE>
continued on page 2
RECIEVED
NOV 17 1995
CLAIM CENTER
<PAGE>
REQUEST FOR EXCLUSION
It is the intention of the undersigned to be excluded from the Class Action in
RE: Morrison Knudsen, Civil Action No. CV 94-334-S-EIL.
In connection with the Request for Exclusion we hereby submit the following
information:
1. Names of Joint Tenants:
T.W. Stivers
144 North Juniper Street
Twin Falls, Idaho 83301
SS No.: ###-##-####
Winifred Stivers
144 North Juniper Street
Twin Falls, Idaho 83301
SS No.: ###-##-####
2. Dates and Amount of Purchase of MK Common Stock March 23, 1995 - 500
shares @ 6 1/4 per share
3. Confirmation of purchase is attached as Exhibit "A"
4. No other purchase or sales.
Dated this 14th day of November, 1995
/s/ T.W. Stivers
T.W. STIVERS
JOINT TENANTS
/S/ Winifred Stivers
WINIFRED STIVERS
RECIEVED
NOV 17 1995
CLAIM CENTER
<PAGE>
[EDWARD D. JONES TRADE CONFIRMATION [EDWARD D. JONES &
CO. LETTERHEAD] & CO. LETTERHEAD]
TO: EX-A
T.W. STIVERS &
WINIFRED STIVERS ROBERT SEIBEL
144 NORTH JUNIPER P.O. BOX 266
TWIN FALLS ID 83301-3344 TWIN FALLS, ID 83303-0266
ANY QUESTIONS CALL:
(208) 733-4925
SOC. SEC NO. ###-##-####
- --------------------------------------------------------------------------------
WE ARE PLEASED TO CONFIRM THE FOLLOWING TRANSACTION:
IN YOUR CASH:ACCOUNT 832-02307-1-O
ON TRADE DATE 03/23/95 FOR SETTLEMENT DATE 03/30/95
YOU SOUGHT 500 SHARES PRICE $ 6 1/4
DESCRIPTION
MORRISON KNUDSEN CORP PRINCIPAL AMOUNT $ 3,125.00
COM
W/RTS TO PURCHASE COMMON STOCK COMMISSION 105.79
UNDER CERTAIN CIRCUMSTANCES
UNSOLICITED TRANSACTION FEE 1.95
SPECIAL COMMISSION RATE
-------------
AMOUNT DUE (IF NOT PAID) $ 3,232.70
- --------------------------------------------------------------------------------
ORDER NUMBER 832501296 CONFIRM PROCESSED ON 03/23/95 @ 08:38:34
SECURITY NUMBER M633425 (MRE) CUSIP NUMBER 618447106000
INVESTMENT REP NO. 832832 F0R INTERNAL USE B-03 00543 3H
THANK YOU FOR ALLOWING EDWARD D. JONES & CO. THE OPPORTUNITY TO SERVE YOU.
<PAGE>
We are requesting that We be excluded from the Class action being brought
against Morrison Knudsen.
Name: Bruce & Peggy Lord
5021 Southside Blvd.
Nampa, Id 83686
SS# Bruce: ###-##-####
Peggy: ###-##-####
Purchased 2,000 Shares @ $8.25 per share
March 1995
Due to the fact that we do not want to be included in this class action, We
do not feel it is necessary to provide you with proof of our purchase.
/S/ Bruce W. Lord /s/ Peggy J. Lord
BRUCE W. LORD PEGGY J. LORD
<PAGE>
VIA CERTIFIED MAIL
TO: MK Securities
Claims Administrator
P.O. Box 990
Corte Madera, CA 94976-0990
In Re: Morrison Knudsen Securities Litigation Civil Action No.
CV94-334-S-EIL
REQUEST FOR EXCLUSION
Name: Dennis E. Clark
Address: 809 S. Poplar, Onarga, IL 60955
Social Security No.: ###-##-####
Date(s) and Amount of All Purchases and Sales of MK Stock During the Class
Period, and Prices Paid and Received on Each Purchase and Sale:
On December 30, 1993, I entered into a Share Exchange Agreement
with Morrison Knudsen pursuant to which I exchanged all of my shares in Clark
Industries, Inc. for shares of Morrison Knudsen Corporation. A copy of page one
of the Share Exchange Agreement, containing information regarding the "Structure
of Share Exchange" is enclosed herewith. These shares are or were subject to
various restriction and escrows. I also entered into a Non-Competition
Agreement, pursuant to which I was issued various shares of stock of Morrison
Knudsen which were placed in escrow which were, and are to be, released to me
over a period of time.
I received shares of Morrison Knudsen stock in the following
amounts, at the following "nominal" price, on the following dates:
Quantity "Nominal Price" Date
26,084 $25.40 12/30/93
I sold shares of Morrison Knudsen stock in the following
amounts, at the following prices, on the following dates:
Quantity Price Date
2,000 $21.375 5/24/94
3,073 $21.00 6/01/94
9,000 $21.00 6/02/94
I intend to be, and hereby request to be, excluded form the
settlement class in the above-referenced action as to all
RECEIVED
NOV 20 1995
CLAIM CENTER
<PAGE>
shares of Morrison Knudsen stock which I now own or held, or ever owned or held,
whether directly, or in escrow. I do not release any party in connection with
this matter, and specifically reserve any and all rights which I might have
against Morrison Knudsen and /or the Released Parties as defined in the "Proof
of Claim".
/s/ Dennis E. Clark
Dennis E. Clark
<PAGE>
VIA CERTIFIED MAIL
TO: MK Securities
Claims Administrator
P.O. Box 990
Corte Madera, CA 94976-0990
In Re: Morrison Knudsen Securities Litigation Civil Action No.
CV94-334-S-EIL
REQUEST FOR EXCLUSION
Name: Richard J. Clark
Address: R.R.#1, Box 155, Gilman, IL 60938
Social Security No.: ###-##-####
Date(s) and Amount of All Purchases and Sales of MK Stock During the Class
Period, and Prices Paid and Received on Each Purchase and Sale:
On December 30, 1993, I entered into a Share Exchange Agreement with
Morrison Knudsen pursuant to which I exchanged all of my shares in Clark
Industries, Inc. for shares of Morrison Knudsen Corporation. A copy of page one
of the Share Exchange Agreement, containing information regarding the "Structure
of Share Exchange" is enclosed herewith. These shares are or were subject to
various restriction and escrows. I also entered into a Non-Competition
Agreement, pursuant to which I was issued various shares of stock of Morrison
Knudsen which were placed in escrow which were, and are to be, released to me
over a period of time.
I received shares of Morrison Knudsen stock in the following amounts,
at the following "nominal" price, on the following dates:
Quantity "Nominal Price" Date
26,084 $25.40 12/30/93
I sold shares of Morrison Knudsen stock in the following
amounts, at the following prices, on the following dates:
Quantity Price Date
14,173 $21.375 5/12/94
I intend to be, and hereby request to be, excluded form the
settlement class in the above-referenced action as to all shares of Morrison
Knudsen stock which I now own or held, or ever
<PAGE>
owned or held, whether directly, or in escrow. I do not release any part in
connection with this matter, and specifically reserve any and all rights which I
might have against Morrison Knudsen and /or the Released Parties as defined in
the "Proof of Claim".
/s/ Richard J. Clark
Richard J. Clark
<PAGE>
[KECK, MAHIN & CATE LETTERHEAD]
VIA CERTIFIED MAIL
TO: MK Securities
Claims Administrator
P.O. Box 990
Corte Madera, CA 94976-0990
In Re: Morrison Knudsen Securities Litigation Civil Action No.
CV94-334-S-EIL
REQUEST FOR EXCLUSION
Name: Richard K. Clark
Address: R.R.#2, Box 234, Onarga, IL 60955
Social Security No.: ###-##-####
Date(s) and Amount of All Purchases and Sales of MK Stock During the Class
Period, and Prices Paid and Received on Each Purchase and Sale:
On December 30, 1993, I entered into a Share Exchange Agreement with
Morrison Knudsen pursuant to which I exchanged all of my shares in Clark
Industries, Inc. for shares of Morrison Knudsen Corporation. A copy of page one
of the Share Exchange Agreement, containing information regarding the "Structure
of Share Exchange" is enclosed herewith. These shares are or were subject to
various restriction and escrows. I also entered into a Non-Competition
Agreement, pursuant to which I was issued various shares of stock of Morrison
Knudsen which were placed in escrow which were, and are to be, released to me
over a period of time.
I received shares of Morrison Knudsen stock in the following amounts,
at the following "nominal" price, on the following dates:
Quantity "Nominal Price" Date
26,084 $25.40 12/30/93
I sold shares of Morrison Knudsen stock in the following
amounts, at the following prices, on the following dates:
RECEIVED
NOV 20 1995
CLAIM CENTER
<PAGE>
Quantity Price Date
1,000 $21.00 6/03/94
8,000 $21.375 6/10/94
1,400 $12.50 1/26/95
I intend to be, and hereby request to be, excluded from the
settlement class in the above-referenced action as to all shares of Morrison
Knudsen stock which I now own or held, or ever owned or held, whether directly,
or in escrow. I do not release any part in connection with this matter, and
specifically reserve any and all rights which I might have against Morrison
Knudsen and /or the Released Parties as defined in the "Proof of Claim".
Richard K. Clark
By: /s/ Robert M. Riffle
Robert M. Riffle
His duly authorized Legal
Representative
<PAGE>
11261 410thth Ave.
Claremont, South Dakota 57432-6708
November 14, 1995
MK Securities Litigation Claims Administration
PO Box 990
Corte Madera, California 94976-0990
Reference is made to Civil Action No. CV 94-334-S-EIL, Notice of Class Action
and Hearing on Proposed Partial Settlement regarding Morrison Knudsen Securities
Litigation.
I purchased Morrison Knudsen common stock October 18, 1993 and sold same
April 19, 1994. As a Class Member, I wish to be excluded from the Class and do
not wish to submit a claim to share in the settlement fund.
Sincerely,
/s/ Lourene Pulfrey
Lourene Pulfrey
<PAGE>
[ENVELOPE]
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of January 18, 1996 is entered into among MORRISON KNUDSEN
CORPORATION, a Delaware corporation ("MKD"), and MORRISON KNUDSEN CORPORATION,
an Ohio corporation ("MKO") (MKD and MKO each a "Borrower," and collectively,
the "Borrowers"), the banks and other financial institutions named on Schedule A
to the Credit Agreement (as defined below) and whose signatures appear on the
signature pages hereto (each, together with its successors and assigns, a
"Lender," and collectively, the "Lenders"), Mellon Bank, N.A., as administrative
agent for the Lenders (in such capacity, the "Administrative Agent"), and Mellon
Bank, N.A. and Bank of America National Trust and Savings Association as
co-agents for the Lenders (in such capacity, the "Co-Agents"), with reference to
the following facts:
RECITALS
A. Pursuant to the Amended and Restated Credit Agreement dated as of July
31, 1995, as amended October 10, 1995, by and among the Borrowers, the Lenders,
the Administrative Agent and the Co-Agents (the "Credit Agreement"), the Lenders
agreed to make certain financial accommodations to or for the benefit of the
Borrowers upon the terms and conditions contained therein. Unless otherwise
defined in this Amendment, (i) capitalized terms used herein shall have the
meanings attributed to them in the Credit Agreement as amended hereby, and
(ii) references to sections and subsections shall refer to sections or
subsections of the Credit Agreement.
C. The Borrowers have requested that the Credit Agreement be amended,
among other things, to reduce the Maximum Loan Amount and amend the Cash
Management System.
D. The Lenders are willing to amend the Credit Agreement upon the terms
and conditions set forth in this Amendment, but only upon the condition, among
others, that the Borrowers, the Administrative Agent, the Co-Agents and the
Lenders shall have executed and delivered this Amendment to the Administrative
Agent.
NOW, THEREFORE, in consideration of the continued performance by the
Borrowers of their promises and obligations under the Credit Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and
<PAGE>
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
A G R E E M E N T
1. AMENDMENT TO CREDIT AGREEMENT.
1.1 Section 1.1 of the Credit Agreement is hereby amended as follows:
(a) A new definition of "Second Amendment" is hereby added in
appropriate alphabetical order to read as follows:
"'Second Amendment' means the Second Amendment to Amended and Restated
Credit Agreement dated as of January 18, 1996 among the Borrowers, the
Administrative Agent, the Co-Agents and the Lenders."
1.2 Section 2.1 is hereby amended by deleting the reference to
"100,000,000" and substituting "82,711,619" therefor.
1.3 Section 8.4 is hereby amended by deleting the word "equipment" in
clauses (ii) and (iii) and substituting the word "assets" therefor.
1.4 Each of Section 13.8(b) and 13.8(c) is hereby amended by adding
the phrase "Lenders and" in front of the word "Existing" in the first sentence
thereof.
1.5 Schedule A -- Schedule of Lenders is hereby deleted in its
entirety and the Schedule of Lenders attached hereto as Schedule A is
substituted therefor.
1.6 Schedule F -- Cash Management System is hereby amended by adding
a new proviso to the end of Section 2 thereof as follows:
"; PROVIDED, FURTHER, that neither the Borrowers nor any
Guarantor may alter or modify any account without the consent of
the Administrative Agent."
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
only upon satisfaction of each of the following conditions:
2
<PAGE>
(a) SECOND AMENDMENT. The Administrative Agent shall have
received copies of this Amendment that, when taken together, bear the signatures
of the Borrowers, the Administrative Agent, the Co-Agents and each of the
Lenders.
(b) GUARANTOR CONSENTS. The Administrative Agent shall have
received a copy of the accompanying Guarantor Consents executed by each of the
Guarantors.
(c) AMENDMENTS TO SECURITY AGREEMENTS. The Administrative Agent
shall have received copies of (i) the Third Amendment to the Pledge and Security
Agreement of even date herewith between MKO and the Collateral Agent, (ii) the
Third Amendment to Pledge and Security Agreement of even date herewith between
MKD and the Collateral Agent, and (iii) the Third Amendment to the Pledge and
Security Agreement of even date herewith between each Guarantor and the
Collateral Agent, such that each such amendment, when taken together, bears the
signatures of the Collateral Agent and the appropriate pledgor.
3. REFERENCE TO AND EFFECT ON CREDIT AGREEMENT AND RELATED
DOCUMENTS.
(a) Upon the effectiveness of this Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall mean and be a
reference to the Credit Agreement as amended hereby and each reference in the
Loan Documents to the Credit Agreement shall also mean and be a reference to the
Credit Agreement as amended hereby.
(b) Except as expressly modified under Section 1 of this
Amendment, all of the terms and conditions set forth in the Credit Agreement and
the other Loan Documents are incorporated herein by this reference, and the
Obligations of the Borrowers under the Credit Agreement and the other Loan
Documents are hereby acknowledged, confirmed and ratified by the Borrowers.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Agents or the Lenders under the Credit Agreement
or any of the Loan Documents or Restructuring Documents, nor constitute a waiver
of any provision of the Credit Agreement or any of the Loan Documents or
Restructuring Documents.
4. AMENDMENT TO OVERRIDE AGREEMENT. Pursuant to Section 6 of the
Intercreditor Agreement, upon receipt by the agent to the Override Agreement
(the "Override Agent") or the Existing Lenders of written notice of this
Amendment, the Override Agent and the
3
<PAGE>
Existing Lenders are deemed to have agreed to, and voted in favor of, the same
amendments to the Override Agreement and such amendment to the Override shall be
the amendment set forth on Exhibit A hereto. The Borrowers acknowledge and
agree to the terms of Exhibit A as an amendment to the Override Agreement and by
signing this Amendment agree to be bound by the terms of Exhibit A hereto.
5. ENTIRE AGREEMENT. This Amendment, together with the Credit Agreement
and the other Loan Documents, is the entire agreement between the parties hereto
with respect to the subject matter hereof. This Amendment supersedes all prior
and contemporaneous oral and written agreements and discussions with respect to
the subject matter hereof. Except as otherwise expressly modified herein, the
Loan Documents shall remain in full force and effect.
6. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and
warrants that the representations and warranties contained in the Credit
Agreement were true and correct in all material respects when made and, except
to the extent (a) that a particular representation or warranty by its terms
expressly applies only to an earlier date, or (b) such Borrower has previously
advised the Administrative Agent in writing as contemplated under the Credit
Agreement, are true and correct in all material respects as of the date hereof.
The recitals set forth at the beginning of this Amendment are true and correct,
and such recitals are incorporated into and are a part of this Amendment.
7. MISCELLANEOUS.
7.1 COUNTERPARTS. This Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Amendment. Any Person
delivering this Amendment by facsimile shall send the original manually executed
counterpart of this Amendment to the Administrative Agent promptly after such
facsimile transmission.
7.2 AUTHORITY. Each Person executing this Amendment represents and
warrants that he or she is lawfully authorized and empowered to execute this
Amendment on behalf of the entity on whose behalf such Person is signing, and
that upon execution, this Amendment will be binding upon such entity, without
any further approval, ratification or other action.
4
<PAGE>
7.3 HEADINGS. Section headings used herein are for convenience of
reference only, are not part of this Amendment, and are not to be taken into
consideration in interpreting this Amendment.
7.4 GOVERNING LAW. This Amendment shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts made and performed in such state, without
regard to the principles thereof regarding conflict of laws.
7.5 CONFLICT OF TERMS. In the event of any inconsistency between
the provisions of this Amendment and any provision of the Credit Agreement,
the terms and provisions of this Amendment shall govern and control.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective duly authorized representative as of the
day and year first above written.
BORROWERS: MORRISON KNUDSEN CORPORATION
(a Delaware corporation)
By: /s/ Douglas L. Brigham
----------------------------------
Name: Douglas L. Brigham
Title: Vice President and Treasurer
MORRISON KNUDSEN CORPORATION
(an Ohio corporation)
By: /s/ Douglas L. Brigham
----------------------------------
Name: Douglas L. Brigham
Title: Vice President and Treasurer
AGENTS AND LENDERS:
MELLON BANK, N.A., as Administrative Agent, a Co-Agent
and a Lender
By: /s/ Alan J. Kopolow
----------------------------------
Name: Alan J. Kopolow
----------------------------------
Title: Vice President
----------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as a Co-Agent and a Lender
By: /s/ Henry Y. Yu
----------------------------------
Name: Henry Y. Yu
----------------------------------
Title: Senior Vice President
----------------------------------
[ADDITIONAL SIGNATURES FOR LENDERS CONTINUED ON NEXT PAGE]
<PAGE>
LENDERS:
Bank of America Illinois CIBC Inc.
By: /s/ Henry Y. Yu By: /s/ Robert N. Greer
-------------------------- --------------------------
Name: Henry Y. Yu Name: Robert N. Greer
-------------------------- --------------------------
Title: Attorney in Fact Title: Vice President
-------------------------- --------------------------
Bank of Montreal Citibank, N.A.
By: /s/ Thomas E. McGraw By:
-------------------------- --------------------------
Name: Thomas E. McGraw Name:
-------------------------- --------------------------
Title: Account Manager Title:
-------------------------- --------------------------
The Bank of Nova Scotia Credit Lyonnais, New York Branch
By: /s/ D. N. Gillespie By: /s/ Alan Sidrane
-------------------------- --------------------------
Name: D. N. Gillespie Name: Alan Sidrane
-------------------------- --------------------------
Title: Asst General Manager Title: First Vice President
-------------------------- --------------------------
The Bank of Tokyo, Ltd., Deutsche Bank AG,
Seattle Branch Los Angeles Branch and/or Cayman Islands
Branch
By: By:
-------------------------- --------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
Banque Nationale de Paris
By: /s/ Katherine Wolfe By:
-------------------------- --------------------------
Name: Katherine Wolfe Name:
-------------------------- --------------------------
Title: Vice President Title:
-------------------------- --------------------------
By: /s/ Jeffrey S. Kajisa The Hongkong and Shanghai
-------------------------- Banking Corporation Limited
Name: Jeffrey S. Kajisa
-------------------------- By:
Title: Asst Vice President --------------------------
-------------------------- Name:
--------------------------
Banque Paribas Title:
--------------------------
By: /s/ John Cate
--------------------------
Name: John Cate
--------------------------
Title: Group Vice President
--------------------------
By: /s/ ALAN E. MCLINTOCK
--------------------------
Name: Alan E. McLintock
--------------------------
Title: Regional General Mgr
--------------------------
{ADDITIONAL SIGNATURES FOR LENDERS CONTINUED ON NEXT PAGE}
<PAGE>
The Industrial Bank of Japan, San Paolo Bank SpA
Limited, Los Angeles Agency
By: By:
-------------------------- --------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
Key Bank of Idaho By:
--------------------------
By: Name:
-------------------------- --------------------------
Name: Title:
-------------------------- --------------------------
Title:
-------------------------- Society National Bank
The Long-Term Credit Bank of By: /s/ Justin Maurer
Japan, Ltd., Los Angeles Agency --------------------------
Name: Justin Maurer
By: /s/ Motokazu Uematsu --------------------------
-------------------------- Title: Officer
Name: Motokazu Uematsu --------------------------
--------------------------
Title: Deputy General Mgr Union Bank of Switzerland
--------------------------
By:
Morgan Guaranty Trust Company --------------------------
Name:
By: --------------------------
-------------------------- Title:
Name: --------------------------
--------------------------
Title: By:
-------------------------- --------------------------
Name:
National Westminster Bank PLC --------------------------
Title:
--------------------------
By:
-------------------------- Westdeutsche Landesbank
Name: Girozentrale, New York and
-------------------------- Cayman Islands Branches
Title:
-------------------------- By: /s/ Salvatore Battinelli
--------------------------
Name: Salvatore Battinelli
PNC Bank, N.A. --------------------------
Title: Credit Department
--------------------------
By: /s/ Thomas J. McCool
-------------------------- By: /s/ Catherine Ruhland
Name: Thomas J. McCool --------------------------
-------------------------- Name: Catherine Ruhland
Title: Sr. Vice President --------------------------
Title: Associate
--------------------------
Royal Bank of Canada
By: /s/ Brian W. Dixon
--------------------------
Name: Brian W. Dixon
--------------------------
Title: Senior Manager
--------------------------
<PAGE>
GUARANTOR CONSENTS
Each of the undersigned, a Guarantor under a Guaranty, hereby (i)
ratifies and reaffirms, as of the date hereof, all of the provisions of its
Guaranty and its Guaranty Security Agreement, (ii) acknowledges receipt of a
copy of the Second Amendment to Amended and Restated Credit Agreement dated as
of January 18, 1996 (the "Amendment") and (iii) consents to all of the
provisions of the Amendment.
National Projects, Inc., Chemical Demilitarization of
a Nevada corporation Anniston Company, A Nevada
corporation
By: /s/ Douglas L. Brigham
-------------------------- By: /s/ Douglas L. Brigham
Name: Douglas L. Brigham --------------------------
Title: Treasurer Name: Douglas L. Brigham
Title: Vice President and
Tresurer
Morrison-Knudsen Services, Inc.,
a Nevada corporation
Joy MK Projects Company,
a Nevada corporation
By: /s/ Douglas L. Brigham
--------------------------
Name: Douglas L. Brigham By: /s/ Douglas L. Brigham
Title: Treasurer --------------------------
Name: Douglas L. Brigham
Title: Vice President and
Atascosa Mining Co., Assistant Treasurer
a Nevada corporation
MK Capital Company,
By: /s/ Douglas L. Brigham a Nevada corporation
--------------------------
Name: Douglas L. Brigham
Title: Treasurer By: /s/ Douglas L. Brigham
--------------------------
Name: Douglas L. Brigham
Centennial Engineering, Inc., Title: Treasurer
a Colorado corporation
MK-Ferguson Engineering Company,
By: /s/ Douglas L. Brigham A Michigan Corporation
--------------------------
Name: Douglas L. Brigham
Title: Assistant Treasurer By: /s/ Douglas L. Brigham
--------------------------
Name: Douglas L. Brigham
CF Systems Corporation, Title: Assistant Treasurer
a Massachusetts corporation
By: /s/ Douglas L. Brigham
--------------------------
Name: Douglas L. Brigham
Title: Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
MK-Ferguson of Idaho Company, Yampa Mining Co.,
a Idaho corporation A Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Name: Douglas L. Brigham Name: Douglas L. Brigham
Title: Treasurer Title: Treasurer
MK-Ferguson of Oak Ridge Company, Morrison-Knudsen Company, Inc.,
a Tennessee corporation A Deleware Corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Name: Douglas L. Brigham Name: Douglas L. Brigham
Title: Treasurer Title: Vice President and
Treasurer
MK Infrastructure Corporation, Morrison-Knudsen Engineers, Inc.,
a Delaware corporation a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Name: Douglas L. Brigham Name: Douglas L. Brigham
Title: Assistant Treasurer Title: Vice President and
Treasurer
MK-Train Control, Inc., Morrison-Knudsen International
a Nevada corporation Company, Inc., a Nevada corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Name: Douglas L. Brigham Name: Douglas L. Brigham
Title: Treasurer Title: Vice President and
Treasurer
Navasota Mining Company, Inc., American Piping & Boiler Co.
a Nevada corporation a Nevada Corporation
By: /s/ Douglas L. Brigham By: /s/ Douglas L. Brigham
-------------------------- --------------------------
Name: Douglas L. Brigham Name: Douglas L. Brigham
Title: Treasurer Title: Treasurer
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of Exhibits and or Schedules
hereto.]
<PAGE>
EXHIBIT 99.18
REVISED EMPLOYEE BENEFIT AGREEMENT
This Revised Employee Benefit Agreement is made this _____ day of April,
1996 between MORRISON KNUDSEN CORPORATION, a Delaware corporation (the
"Company"), and __________________ (the "Employee").
WHEREAS, the Employee has been employed by the Company or one of its
subsidiaries (collectively, the "Employer"), has rendered valuable services to
the Employer and has acquired an extensive background in and knowledge of the
Employer's business;
WHEREAS, the Company desires to induce the Employee to continue his
services to the Employer, and the Employee desires to continue to provide
services to the Employer;
WHEREAS, the Company's Board of Directors on June 30, 1995 adopted the Key
Employee Retention Incentive Plan (the "Original Plan") in order to provide
certain incentives to the Employee to remain in the employ of the Employer
during the next year;
WHEREAS, pursuant to an "Agreement" between the Company and the Employee
(the "Original Agreement"), Employee became a beneficiary under the Original
Plan;
WHEREAS, the Company's Board of Directors on April 10, 1996 adopted
proposed modified benefits under the Original Plan (the "Modified Plan") to be
elected (or not) by each Covered Employee in return for a waiver of any
additional benefits under the Original Plan;
WHEREAS, the Company on April 10, 1996 also approved that certain 1996
Retention Severance Pay Plan (the "Revised Severance Pay Plan");
WHEREAS, in order to be eligible for benefits under the Revised Severance
Pay Plan, an employee of the Company must elect to receive benefits under the
Modified Plan, and waive all rights under the Original Plan;
WHEREAS, Employee has elected to waive all further rights under the
Original Plan and to become a beneficiary under the Modified Plan; and
WHEREAS, the Company's Board of Directors on April 10, 1996 adopted
amendments to a Key Employee Retention Incentive Plan (the "Modified Plan")
originally approved by the Board of Directors on June 30,1995 (the "Original
Plan");
WHEREAS, Employee has been selected to be a beneficiary under the Modified
Plan;
WHEREAS, the Company on April 10, 1996 also approved a 1996 Retention
Severance
<PAGE>
Pay Plan (the "Revised Severance Pay Plan"), with respect to which Employee is
also a beneficiary; and
WHEREAS, capitalized terms not otherwise defined herein shall have the same
meaning ascribed to such terms in the Modified Plan;
NOW, THEREFORE, in consideration of the premises, the Company and the
Employee agree as follows:
1. Subject to the vesting provisions set forth in Section 4.4 of the Modified
Plan, the Company shall pay the Employee incentive compensation in cash
equal to a) two times the First Payment, and b) an additional amount
calculated by multiplying the First Payment by a factor, the numerator of
which is the number of days after July 1, 1996 until the New Payment Date
(which shall not exceed 92) and the denominator of which is 92. Such
additional payment, in any event, will not be less than 25% of the first
payment, The total minimum payment under a) and b) shall not be less
than__________________, nor greater than __________________. Payment shall
be made within 10 business days of the new payment date.
2. (a) Additionally, subject to the vesting rules set forth below, upon the
effective date of any confirmed Chapter 11 plan of reorganization (the
"Confirmation Date") with respect to the Company, the Company shall
pay Employee a cash bonus of
$_________________________.
(b) Employee's right to receive the Additional Bonus shall vest on the
Confirmation Date if Employee is employed by the Employer on such
date; PROVIDED, HOWEVER, that if Employee suffers an Involuntary
Termination of Employment (as defined in the Modified Plan) prior to
the Confirmation Date, Employee's right to receive the Additional
Bonus shall vest in such amount and shall become immediately payable.
3. Employee shall be a Covered Employee under the Revised Severance Pay Plan.
Employee understands and hereby acknowledges that by executing this
Agreement, Employee is waiving all rights to receive any benefit under the
Morrison Knudsen Corporation Retention Severance Pay Plan adopted on or
about June 30, 1995.
4. Employee understands and hereby acknowledges that by executing this
Agreement, Employee is waiving all rights to receive any benefit (other
than the already received First Payment) under the Original Plan (and the
Original Agreement) to the extent Employee was a Covered Employee
thereunder, and that, with respect to Employee, the Original Plan (and the
Original Agreement) shall be of no further force or effect.
5. Except as expressly set forth herein, this Agreement shall not limit or
otherwise affect the provisions of any other compensation, employment,
retirement or other benefit programs
2
<PAGE>
or agreements of the Employer to which the Employee is a party.
6. The Employee warrants and represents that he has read the Modified Plan and
the Revised Severance Pay Plan and is fully familiar with all the terms and
conditions of the Modified Plan and the Revised Severance Pay Plan and
hereby agrees to be bound thereby.
7. Nothing in this Agreement, in the Modified Plan or the Revised Severance
Pay Plan, or in the Employee's participation in the Modified Plan or the
Revised Severance Pay Plan, shall confer on the Employee any right to or
guarantee of continued employment by the Employer or in any way limit the
right of the Employer to terminate the employment of the Employee at any
time.
8. In the event this Agreement conflicts with any provisions of the Modified
Plan, the terms of the Modified Plan or the Revised Severance Payment Plan
shall control and the conflicting term in this Agreement shall be null and
void.
9. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Idaho, without
giving effect to the principles of conflicts of laws of such state.
IN WITNESS WHEREOF, this Agreement is executed this _____ day of April,
1996.
WITNESS MORRISON KNUDSEN CORPORATION
_________________________________ ____________________________________
By: Stephen G. Hanks
Its: Executive Vice President
and Chief Legal Officer
_________________________________ ____________________________________
____________Employee
3
<PAGE>
EXHIBIT 99.19
AMENDED AND RESTATED MORRISON KNUDSEN CORPORATION
KEY EMPLOYEE RETENTION INCENTIVE PLAN
Adopted June 30, 1995,
As Amended April 10, 1996
<PAGE>
TABLE OF CONTENTS
INTRODUCTION ............................................................. 1
ARTICLE I DEFINITIONS ................................................ 2
1.1 Award............................................................ 2
1.2 Base Salary...................................................... 2
1.3 Board of Directors............................................... 2
1.4 Cause............................................................ 2
1.5 Change in Control of the Board................................... 3
1.6 Company.......................................................... 3
1.7 Covered Employee................................................. 3
1.8 Effective Date................................................... 3
1.9 Employer......................................................... 3
1.10 Executive Officers............................................... 3
1.11 Fair Market Value................................................ 4
1.12 FirstPayment..................................................... 4
1.13 Involuntary Termination of Employment............................ 4
1.14 New Payment Date................................................. 4
1.15 Optional Retention Incentive Award............................... 4
1.16 Original Plan.................................................... 5
1.17 Plan............................................................. 5
1.18 Reduced Retention Incentive Award................................ 5
1.19 Retention Incentive Award........................................ 5
1.20 Shares........................................................... 5
ARTICLE II PARTICIPATION.................................................. 5
2.1 Covered Employees................................................ 5
ARTICLE III SHARES SUBJECT TO PLAN........................................ 5
3.1 Maximum Shares................................................... 6
3.2 Adjustment of Shares and Price................................... 6
ARTICLE IV RETENTION INCENTIVE AWARDS AND OTHER BENEFITS.................. 6
4.1 Amount of Retention Incentive Award.............................. 6
4.2 Form and Timing of Payment of Retention Incentive Award.......... 7
4.3 Bankruptcy Filing................................................ 8
4.4 Vesting and Involuntary Termination.............................. 10
4.5 Awards Paid in Shares............................................ 11
4.6 Insufficient Shares.............................................. 12
4.7 Optional Retention Incentive Award............................... 12
ARTICLE V TAX WITHHOLDING................................................. 13
i
<PAGE>
ARTICLE VI ADMINISTRATION OF PLAN......................................... 14
6.1 The Committee.................................................... 14
6.2 Committee Action................................................. 14
6.3 Committee Authority.............................................. 14
ARTICLE VIII AMENDMENT OR TERMINATION OF PLAN............................. 16
8.1 Right to Amend or Terminate...................................... 16
8.2 Automatic Termination............................................ 16
ARTICLE IX METHOD OF FUNDING.............................................. 17
9.1 Plan is Not Funded............................................... 17
ARTICLE X MISCELLANEOUS................................................... 17
10.1 Limitation on Rights ............................................ 17
10.2 Headings......................................................... 17
10.3 Governing Law.................................................... 17
10.4 Severability..................................................... 17
10.5 Gender and Number................................................ 18
ii
<PAGE>
INTRODUCTION
On or about June 30, 1995, the Board of Directors (the "Board") of
Morrison Knudsen Corporation, a Delaware corporation (the "Company"), after
considering the effect that recent events had had on employees of the Company
and its subsidiaries (collectively, the "Employer"), adopted a Key Employee
Retention Incentive Plan (the "Original Plan").
The Original Plan was and is designed to enable such employees to make
career decisions without the time pressure and financial uncertainty which may
result from a proposed or threatened transaction, and to encourage such
employees to remain employees of the Employer.
Subsequent to the enactment of the Original Plan, the Board determined
that it would be in the best interests of the Company and its restructuring
effort if as many Covered Employees (as defined below) as possible elected to
defer the consideration payable under the Original Plan. As such, the Board has
approved amendments to the Original Plan, to be applicable solely with respect
to Covered Employees who elect to accept the modified benefits in lieu of the
benefits under the Original Plan. As to employees who elect not to defer their
benefits, the benefits under the Original Plan remain unaffected. Accordingly,
the following Amended and Restated Plan (the "Plan") is hereby adopted.
1
<PAGE>
ARTICLE I
DEFINITIONS
When used in this Plan and initially capitalized, the following words
and phrases shall have the following respective meanings unless the context
clearly requires otherwise:
1.1 "AWARD" shall mean an award granted pursuant to Article IV of the
Plan.
1.2 "BASE SALARY" as to any Covered Employee for any period, shall
mean the base rate of salary paid to the Covered Employee by the Company at the
date of his or her inclusion in the Plan before reduction because of an election
between benefits or cash provided under a plan of the Company maintained
pursuant to Section 125 or 401(k) of the Internal Revenue Code of 1986, as
amended, and before reduction for any other amounts contributed by the Company
on his or her behalf to any other employee-benefit plan.
1.3 "BOARD OF DIRECTORS" or "BOARD" shall mean the board of directors
of the Company.
1.4 "CAUSE" for termination by the Employer, shall mean termination
by the Employer for (i) the willful and continued failure by the Employee to
substantially perform the Employee's duties with the Employer (other than any
such failure resulting from the Employee's incapacity due to physical or mental
illness) or (ii) the willful engaging by the Employee in conduct which is
demonstrably and materially injurious to the
2
<PAGE>
Employer monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Employee's part shall be deemed
"willful" unless done, or omitted to be done, by the Employee not in good faith
and without reasonable belief that the Employee's act, or failure to act, was in
the best interest of the Employer.
1.5 "CHANGE IN CONTROL OF THE BOARD" shall mean the event occurring
when, during any period of two consecutive years, individuals who at the
beginning of such period constituted the directors of the Company cease for any
reason to constitute a majority thereof (unless the election, or the nomination
for election by the Company's shareholders, of each director of the Company
first elected during such period was approved by a vote of at least two-thirds
of the directors then still in office who were directors of the Company at the
beginning of any such period).
1.6 "COMPANY" shall mean Morrison Knudsen Corporation, a Delaware
corporation, or any entity that is a successor to Morrison Knudsen Corporation
in ownership of a majority of its assets.
1.7 "COVERED EMPLOYEE" shall mean an employee described in Article II
of the Plan.
1.8 "EFFECTIVE DATE" shall mean June 30, 1995.
1.9 "EMPLOYER" shall mean the Company or one of its subsidiaries.
3
<PAGE>
1.10 "EXECUTIVE OFFICERS" shall mean those individuals listed on
Schedule B of this Plan.
1.11 "FAIR MARKET VALUE" shall mean as applied to a specific date, the
mean between the highest and lowest quoted selling price of a Share on the New
York Stock Exchange (or such other exchange upon which the Shares might be
listed) on such date, or if there are no reported sales on such date, on the
last preceding date on which sales were reported. The Fair Market Value
determined by the Committee in good faith in such manner shall be final, binding
and conclusive on all parties.
1.12 "FIRST PAYMENT" shall mean that portion of the Retention
Incentive Award payable to each Covered Employee under the Original Plan on or
about December 15, 1995 pursuant to Section 4.2(a)(i) or Section 4.2(b)(i)
hereof.
1.13 "INVOLUNTARY TERMINATION OF EMPLOYMENT" shall mean a termination
of employment with the Employer at the Employer's option other than for Cause.
An Involuntary Termination of Employment shall also occur upon the sale of
substantially all of the assets of a business unit or division of the Company or
upon the sale of a majority of the stock of a subsidiary of the Company.
1.14 "NEW PAYMENT DATE" shall mean the earlier of September 30, 1996
or the effective date of any chapter 11 plan of reorganization confirmed by the
Company.
1.15 "OPTIONAL RETENTION INCENTIVE AWARD" shall mean the alternative
Award provided to a Covered Employee as set forth
4
<PAGE>
in Section 4.7 hereof in waiver of all other Awards under this Plan other than
the First Payment.
1.16 "ORIGINAL PLAN" shall mean the Morrison Knudsen Corporation Key
Employee Retention Incentive Plan as originally approved by the Company on June
30, 1995.
1.17 "PLAN" shall mean this Amended and Restated Morrison Knudsen
Corporation Key Employee Retention Incentive Plan.
1.18 "REDUCED RETENTION INCENTIVE AWARD" shall mean the Retention
Incentive Award as adjusted pursuant to Section 4.3(a) hereof.
1.19 "RETENTION INCENTIVE AWARD" shall mean the award provided to a
Covered Employee and calculated by multiplying the Covered Employee's Base
Salary times the applicable multiplier as set forth in Section 4.1 hereof.
1.20 "SHARES" shall mean shares of the Company's authorized but
unissued or reacquired $1.66 par value common stock, or other securities as may
be applicable pursuant to the provisions of Section 3.2 hereof.
1.21 "TIMELY ELECTION" shall mean the written election by a Covered
Employee prior to April 30, 1996 to accept the Optional Retention Incentive
Award.
ARTICLE II
PARTICIPATION
5
<PAGE>
2.1 COVERED EMPLOYEES. The key employees of the Employer set forth
on Schedule A shall be Covered Employees and shall be eligible to receive Awards
under the Plan.
ARTICLE III
SHARES SUBJECT TO PLAN
3.1 MAXIMUM SHARES. Subject to adjustment by the operation of
Section 3.2 hereof, the maximum number of Shares distributable under the Plan is
3,000,000. Shares distributable under the Plan may be either authorized and
unissued shares heretofore or hereafter reacquired and held as treasury shares.
3.2 ADJUSTMENT OF SHARES AND PRICE. In the event that the Shares are
changed into or exchanged for a different kind or number of shares of stock or
securities of the Company as the result of any stock dividend, stock split,
combination of shares, exchange of shares, merger, consolidation,
reorganization, recapitalization or other change in capital structure, then the
number of Shares subject to this Plan and distributable in partial payment of
Awards granted hereunder (and/or the purchase price for such Shares) shall be
equitably adjusted by the Committee to prevent the dilution or enlargement of
Awards, and any new stock or securities into which the Shares are changed or for
which they are exchanged shall be substituted for the Shares subject to this
Plan; provided, however, that fractional Shares may be deleted from any such
adjustment or substitution.
6
<PAGE>
ARTICLE IV
RETENTION INCENTIVE AWARDS AND OTHER BENEFITS
4.1 AMOUNT OF RETENTION INCENTIVE AWARD. The Company shall make a
Retention Incentive Award to each Covered Employee in an amount equal to the
Covered Employee's Annual Base Salary times the multiplier set forth opposite
the applicable category below:
CATEGORY MULTIPLIER
One: Senior Managers (as listed in Part I .625
of Schedule A)
Two: Senior Managers/Executive Officers .2083
(as listed in Part II of Schedule A)
Three: Management, Professional, Technical .55
Employees (as listed in Part III of
Schedule A)
Four: Management, Professional, Technical .1833
Employees/Executive Officers (as
listed in Part IV of Schedule A)
Five: Senior Executive Managers (as listed .70
in Part V of Schedule A)
Six: Senior Executive Managers/Executive .233
Officers (as listed in Part VI of
Schedule A)
4.2 FORM AND TIMING OF PAYMENT OF RETENTION INCENTIVE AWARD. Subject
to the contingent application of Section 4.3 and the vesting rules set forth in
Section 4.4 hereof:
(a) The Company shall pay the Retention Incentive Award to each
Covered Employee other than Executive Officers, as follows:
7
<PAGE>
(i) 1/6th of each such Covered Employee's Retention
Incentive Award shall be paid in cash on or about
December 15, 1995.
(ii) 1/6th of each such Covered Employee's Retention
Incentive Award shall be paid in cash on or about July
1, 1996.
(iii) two-thirds of each such Covered Employee's Retention
Incentive Award shall be paid in Shares on or about
July 1, 1996.
(b) The Company shall pay the Retention Incentive Award to each
Executive Officer, as follows:
(i) 1/2 of each such Executive Officer's Retention
Incentive Award shall be paid in cash on or about
December 15, 1995.
(ii) 1/2 of each such Executive Officer's Retention
Incentive Award shall be paid in cash on or about July
1, 1996.
4.3 BANKRUPTCY FILING. Subject to the vesting rules contained in
Section 4.4 hereof:
(a) In the event the Company files for bankruptcy prior to
making the payment described in 4.1(a)(i), the Company shall
make a Retention Incentive Award (the "Reduced Retention
Incentive Award") to each Covered Employee, other than an
Executive Officer, in an amount equal to the Covered
Employee's annual Base
8
<PAGE>
Salary times the multiplier set forth opposite the
applicable category below:
CATEGORY MULTIPLIER
One: Senior Managers (as .41666
listed in Part I of
Schedule A)
Three: Management/Professional/ .36666
Technical (as listed in
Part III of Schedule A)
Five: Senior Executive .46666
Managers (as listed in
Part V of Schedule A)
The Reduced Retention Incentive Award shall be paid as
follows:
(i) One-half of such Covered Employee's Reduced Retention
Incentive Award shall be paid in cash on or about
December 15, 1995.
(ii) One-half of such Covered Employee's Reduced Retention
Incentive Award shall be paid in cash on or about July
1, 1996.
The Company shall have no obligation to pay such Covered
Employees any other portion of the Retention Incentive
Award, either in Shares or otherwise.
(b) In the event the Company files for bankruptcy after payment
of the Award in 4.2(a)(i) but prior to the payment of the
Awards in
9
<PAGE>
4.2(a)(ii) and 4.2(a)(iii), the Company shall pay each
Covered Employee, other than an Executive Officer, in cash
on or about July 1, 1996, an amount equal to 1/2 of such
Covered Employee's Reduced Retention Incentive Award. The
Company shall have no obligation to pay such Covered
Employee any other portion of the Retention Incentive Award,
either in Shares or otherwise.
(c) In the event the Company files for bankruptcy prior to the
payment of the Award in 4.2(b)(i), the Company shall pay
each Executive Officer:
(i) an amount equal to his Retention Incentive Award, in
cash on or about December 15, 1995, and
(ii) an additional amount equal to his Retention Incentive
Award, in cash on or about July 1, 1996.
(d) In the event the Company files for bankruptcy after payment
of the Award in 4.2(b)(i), but prior to the payment of the
Award in 4.2(b)(ii) the Company shall pay each Executive
Officer an amount equal to his Retention Incentive Award, in
cash on or about July 1, 1996.
10
<PAGE>
A Covered Employee will in no event be entitled to receive any Shares
under this Section 4.3.
4.4 VESTING AND INVOLUNTARY TERMINATION.
(a) A Covered Employee's right to receive the benefits provided
under Sections 4.2(a)(i), 4.2(b)(i), 4.3(a)(i) and 4.3(c)(i), as applicable,
shall vest on December 15, 1995 and a Covered Employee's right to receive the
benefits provided in Sections 4.2(a)(ii), 4.2(a)(iii), 4.2(b)(ii), 4.3(a)(ii),
4.3(b), 4.3(c)(ii) and 4.3(d), as applicable, shall vest on July 1, 1996 if such
Covered Employee is employed by the Employer on such date; PROVIDED, HOWEVER,
that: (a) if a Covered Employee suffers an Involuntary Termination of Employment
before December 15, 1995, such Employee's right to receive payments under
Section 4.2(a)(i) or 4.2(b)(i), 4.3(a)(i) and 4.3(c)(i), as applicable, shall
vest and such amounts shall become immediately payable and (b) if a Covered
Employee suffers an Involuntary Termination of Employment after December 15,
1995 but before July 1, 1996, such employee's right to receive payments under
4.2(a)(ii), 4.2(b)(ii), 4.3(a)(ii), 4.3(b), 4.3(c)(ii) and 4.3(d), as
applicable, shall vest and such amounts shall become immediately payable.
(b) A Covered Employee's right to receive the Optional Retention
Incentive Award shall vest on the New Payment Date if such Covered Employee is
employed by Employer on such date; PROVIDED, HOWEVER, that if a Covered Employee
suffers an Involuntary Termination of Employment after a Covered Employee
11
<PAGE>
has made a Timely Election but prior to the New Payment Date, such Employee's
right to receive the Optional Retention Incentive Award shall vest and such
amount shall be payable on the New Payment Date.
4.5 AWARDS PAID IN SHARES. The number of Shares payable to a
Covered Employee under this Article IV in satisfaction of the Share portion of
Covered Employee's Retention Incentive Award shall be calculated by dividing the
dollar amount of the portion of the Award payable in Shares by the lesser of (i)
the average Fair Market Value of a Share between July 1, 1995 and July 1, 1996
and (ii) the average Fair Market Value of a Share between June 1, 1996 and July
1, 1996.
4.6 INSUFFICIENT SHARES. In the event that the number of Shares
payable to Covered Employees under this Article IV exceeds the number of Shares
available for distribution pursuant to Section 3.1, each Covered Employee's
Retention Incentive Award shall be reduced and the Company shall distribute the
available Shares pro-rata in accordance with each Covered Employee's Retention
Incentive Award. The Covered Employees shall not be entitled to any additional
payments in cash or Shares under this Article IV.
4.7 OPTIONAL RETENTION INCENTIVE AWARD. Provided that a Covered
Employee makes a Timely Election, in lieu of any then unpaid Award under this
Plan, the Company shall make an Optional Retention Incentive Award to each
Covered Employee on the New Payment Date of (a) the amount of two times the
First Payment to
12
<PAGE>
such Covered Employee PLUS (b) an additional amount equal to each Covered
Employee's First Payment multiplied by a factor, the numerator of which is the
greater of 23 or the number of days after July 1, 1996 until the New Payment
Date (which shall not exceed 92) and the denominator of which is 92.
ARTICLE IV
TAX WITHHOLDING
5.1 The Company shall have the right to withhold from amounts due
Covered Employees or to collect from Covered Employees directly, the amount
which the Company deems necessary to satisfy any taxes required by law to be
withheld at any time by reason of participation in the Plan and the obligations
of the Company under the Plan shall be conditional on payment of such taxes.
The Covered Employee may, prior to the due date of any taxes, pay such amounts
to the Company in cash or, with the consent of the Committee, in Shares (which
shall be valued at their Fair Market Value on the date of payment). There is no
obligation under this Plan that any Covered Employee be advised of the existence
of the tax or the amount required to be withheld. Without limiting the
generality of the foregoing, in any case where the Company determines that a tax
is or will be required to be withheld in connection with the issuance or
transfer of Shares under this Plan, the Company may, pursuant to such rules as
the Committee may establish, reduce the number of such Shares so issued or
transferred by such number of Shares as the Company may deem appropriate in its
sole discretion to
13
<PAGE>
accomplish such withholding or make such other arrangements as it deems
satisfactory. Notwithstanding any other provision of this Plan, the Committee
may impose such conditions on the payment of any withholding obligation as may
be required to satisfy applicable regulatory requirements. The Company and any
Covered Employee may also make similar arrangements with respect to the payment
of any taxes with respect to which withholding is not required.
ARTICLE V
ADMINISTRATION OF PLAN
6.1 THE COMMITTEE. The Plan shall be administered by the Committee,
which shall be comprised of three or more members of the Board of Directors,
each of whom shall be a "disinterested person" as defined in Rule 16b-3 (or
successor provision) promulgated by the Securities and Exchange Commission.
6.2 COMMITTEE ACTION. A majority of the members of the Committee at
the time in office shall constitute a quorum for the transaction of business,
and any determination or action may be taken at a meeting by a majority vote or
may be taken without a meeting by a written resolution signed by all members of
the Committee. All decisions and determinations of the Committee shall be
final, conclusive and binding upon all Participants and upon all other persons
claiming any rights under the Plan with respect to any Awards. Members of the
Board of Directors and members of the Committee acting under the Plan shall be
fully-protected in relying in good faith upon the advice of counsel and
14
<PAGE>
shall incur no liability except for willful misconduct in the performance of
their duties.
6.3 COMMITTEE AUTHORITY. In amplification of the Committee's powers
and duties, but not by way of limitation, the Committee shall have full
authority and power to:
(a) Construe and interpret the provisions of the Plan and make
rules and regulations for the administration of the Plan not
inconsistent with the Plan;
(b) Decide all questions of eligibility for Plan participation
and for the grant of Awards;
(c) Adopt forms of Agreements and other documents consistent
with the Plan;
(d) Engage agents to perform legal, accounting and other such
professional services as it may deem proper for
administering the Plan; and
(e) Take such other actions as may be reasonably required or
appropriate to administer the Plan or to carry out the
Committee activities contemplated by other sections of this
Plan.
6.4 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
the Board of Directors and the members of the Committee shall be indemnified by
the Company against the reasonable expenses, including court costs and
reasonable
15
<PAGE>
attorneys' fees, actually incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Award granted hereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except where such
indemnification is expressly prohibited by applicable law.
ARTICLE VI
EFFECTIVE DATE
7.1 The Effective Date of this Plan shall be June 30, 1995 (the date
the Original Plan was approved by the Board of Directors).
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
8.1 RIGHT TO AMEND OR TERMINATE. The Company reserves the right by
a resolution adopted by a majority of the members of the Board to change,
modify, or amend, the Plan; provided that no such amendment, modification, or
change shall adversely affect any benefit under the Plan previously paid or
provided to a Covered Employee (or his successor in interest) (unless such
amendment is required by law); further provided, however, that no amendment,
change or modification may be made by the Board following a Change in Control of
the Board. An amendment of this
16
<PAGE>
Plan shall automatically effect a corresponding amendment to the rights of all
Covered Employees under this Plan.
8.2 AUTOMATIC TERMINATION. This Plan will terminate automatically
as of the final payment. Termination pursuant to this Section 8.2 hereof shall
occur without any action on the part of the Company and shall be effective
without prior notice to or approval of any employee or former employee of the
Employer.
ARTICLE IX
METHOD OF FUNDING
9.1 PLAN IS NOT FUNDED. The Company shall pay benefits under the
Plan from its general assets. No property of the Employer is or shall be, by
reason of this Plan, held in trust for any employee of the Employer, nor shall
any person have any interest in or any lien or prior claim upon any property of
the Employer by reason of the Plan or the Company's obligations to make payments
hereunder.
ARTICLE X
MISCELLANEOUS
10.1 LIMITATION ON RIGHTS. Participation in the Plan shall not give
any employee the right to be retained in the service of the Employer or any
rights to any benefits whatsoever, except to the extent specifically set forth
herein.
10.2 HEADINGS. Headings of Articles and Sections in this instrument
are for convenience only, and do not constitute any part of the Plan.
17
<PAGE>
10.3 GOVERNING LAW. The validity, interpretation, construction and
performance of this Plan shall be governed by the laws of the State of Idaho,
without giving effect to the principles of conflict of laws of such State.
10.4 SEVERABILITY. If a provision of this Plan shall be held illegal
or invalid, the illegality or invalidity shall not affect the remaining parts of
this Plan and this Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
10.5 GENDER AND NUMBER. Unless the context clearly indicates
otherwise, the masculine gender when used in the Plan shall include the
feminine, and the singular number shall include the plural and the plural number
the singular.
EXECUTED in ___________, ____________ on this _______
day of April, 1996.
MORRISON KNUDSEN CORPORATION
_____________________________
By: Stephen G. Hanks
Executive Vice President
& Chief Legal Officer
18
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of Exhibits and or Schedules
hereto.]
<PAGE>
EXHIBIT ____
FIRST AMENDMENT TO MORRISON KNUDSEN CORPORATION
RETENTION SEVERANCE PAY PLAN
ADOPTED JUNE 30, 1995
On or about June 30, 1995, the Board of Directors (the "Board") of Morrison
Knudsen Corporation, a Delaware corporation (the "Company") adopted that certain
Morrison Knudsen Corporation Retention Severance Pay Plan (the "1995 Severance
Pay Plan"). The purpose of the 1995 Severance Pay Plan was, among other things,
to enable the Company to retain valuable employees, notwithstanding the
uncertainties associated with various proposed transactions and restructurings
of the Company which were under contemplation, given the financial condition of
the Company.
Section 7.1 of the 1995 Severance Pay Plan provides that the "Company, by
resolution adopted by the majority of the members of the Board....at any time
prior to the Effective Date, and without prior or other approval of any
employee....(may) change, modify, amend, or terminate the Plan."
The Board of Directors of the Company has determined to amend the 1995
Severance Pay Plan to correct an omission concerning what appears to be an open-
ended "Term" of the 1995 Severance Pay Plan under certain circumstances. Now,
therefore, the following amendments to the 1995 Severance Pay Plan are hereby
adopted to be effective April 10, 1996.
1. The definition of the term "Involuntary Termination of Employment" set
forth in Section 1.8 is hereby amended by deleting the first sentence of such
definition in its entirety and replacing it with the following (bold language
being added to the existing sentence):
"INVOLUNTARY TERMINATION OF EMPLOYMENT" shall mean the
termination of employment with the Company after the Effective Date
AND PRIOR TO THE EXPIRATION OF THE TERM OF THE PLAN at the Company's
option other than for Cause, PROVIDED, HOWEVER, THAT in the event an
Effective Date arises PRIOR TO THE EXPIRATION OF THE TERM pursuant to
Section 1.6(a) and the (i) Purchaser does not offer Employee
employment with comparable responsibility, pay and benefits provided
to Employee while engaged in employment at the Company, or (ii)
Purchaser has terminated the employee for a reason other than Cause
and such termination occurs within one year following the occurrence
of the Effective Date under 1.6(a).
<PAGE>
2. The definition of "Term" at Section 1.11 is hereby amended by deleting the
entirety of Section 1.11 and replacing it with the following:
1.11 "TERM" shall mean the period commencing on the Effective
Date and ending upon the confirmation of any chapter 11 plan of
reorganization concerning the Company.
Except as provided above, the 1995 Severance Pay Plan shall remain
unamended and in full force and effect.
EXECUTED IN _____________________, on this ____ day of April, 1996.
MORRISON KNUDSEN CORPORATION
____________________________________
By: Stephen G. Hanks
Its: Executive Vice President and
Chief Legal Officer
<PAGE>
EXHIBIT ____
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 1st day of January,
1993, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and Stephen G. Hanks, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered valuable services to Company, and has acquired
an extensive background in and knowledge of Company's business; and
WHEREAS, Company desires to continue the services of Executive in such executive
capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the effective date of this Agreement and ending December 31,
1997, upon the terms and conditions set forth herein, unless such employment is
earlier terminated in accordance with the provisions herein.
1.2 Notwithstanding the foregoing, if this Agreement shall not have been
terminated in accordance with the provisions herein on or before December 31,
1997, the Agreement shall be extended such that at each and every moment of time
thereafter, the remaining term of the Agreement shall be one year unless (a) the
Agreement is terminated earlier in accordance with the provisions herein or (b)
on or after January 1, 1997, Company's Board of Directors notifies Executive in
writing of its determination to have the term of this Agreement expire one year
from the date of notification.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the sum of (i)
the annual base salary rate in effect for Executive immediately preceding
termination of employment (excluding any reduction in base salary made in breach
of this Agreement), (ii) an amount equal to the product of (A) and (B), where
(A) equals the percentage derived by dividing the cumulative bonus paid to
Executive under the Executive Incentive Plan or Group Incentive Plan, whichever
is applicable, for the three most recently completed calendar years prior to
termination (including any bonus amounts deferred by Executive under any Company
deferred compensation plan or arrangement) by the cumulative base salary paid to
Executive for the same three-year period (including any base salary deferred by
Executive under any Company deferred compensation plan or arrangement), and (B)
-1-
<PAGE>
equals the amount set forth in 2.1(i) above, (iii) continued participation in
all basic and supplemental life, accident, disability, medical, dental and other
Company-sponsored welfare benefit programs provided to Executive immediately
preceding termination (or, if continued participation in one or more of these
benefits is not possible per the terms of the plan or applicable law, an amount
of money that would enable Executive to purchase similar benefits), and (iv)
continuance of vesting and benefit accrual under any Company-sponsored basic and
supplemental retirement programs in effect for Executive immediately prior to
termination (or, if continued participation in such programs is not possible per
the terms of the plan or applicable law, the monetary value of such benefits).
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer, (ii) Executive's willful and
continued failure to perform his duties under this Agreement (except due to
Executive's incapacity due to physical or mental illness) after a written demand
is delivered to Executive by the Chief Executive Officer specifically
identifying the manner in which the Chief Executive Officer believes that
Executive has failed to perform his duties, (iii) Executive's willful engagement
in conduct materially injurious to the Company, or (iv) Executive's conviction
for any felony involving moral turpitude. For purposes of clauses (i), (ii),
and (iii) of this definition, no act, or failure to act on Executive's part
shall be deemed "willful" unless done, or omitted to be done, by Executive not
in good faith and without reasonable belief that Executive's act, or failure to
act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
(i) A failure by the Company to abide by any part of this Agreement that is
not remedied within ten (10) business days of notification by Executive
of such failure, including any violation of Executive's rights as
described in Section 3 of this Agreement unless such rights are replaced
by alternative rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities below that agreed
to in Section 6.1.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his Early Retirement Date or Normal Retirement Date as defined in the
Morrison Knudsen Corporation Retirement Plan, established January 1, 1988 and
frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had never been
frozen.
-2-
<PAGE>
ARTICLE 3 - COMPENSATION AND BENEFITS
Executive shall receive the annual base salary set by Company, which salary
shall be commensurate with Executive's duties and consistent with the
compensation policies of the Executive Compensation and Nominating Committee of
Company's Board of Directors. Such salary shall be, at a minimum, the amount of
base salary in effect for Executive as of the date this Agreement is executed.
At least annually, Company will review Executive's base salary to determine the
amount of any increase. Upon any such increase in Executive's base salary, such
increased rate shall thereafter constitute Executive's annual base salary for
all purposes of this Agreement. The foregoing to the contrary notwithstanding,
the Company may reduce Executive's annual base salary during any year by not
more than 10% below the base salary in effect at the beginning of the year as
part of any general salary reduction which applies to all officers of the
Company.
Executive shall be entitled to participate in the Company's Key Executive Long-
Term Incentive Plan applicable to his Group or corporate position ("5-Year
Plan"), as the case may be. Upon being finalized, the 5-Year Plan shall contain
Executive's sharing percentages and performance targets, shall be executed by
Executive and shall be attached hereto and made a part hereof.
Executive shall also be entitled to participate in the Company's Long-Term
Performance Compensation Benefit Plan ("3-Year Plan") to the extent such plan is
continued by Company. A copy of the 3-Year Plan has heretofore been provided to
Executive and by this reference, made a part hereof.
Executive also shall be entitled to participate in either the Group Incentive
Plan for his Group or the Executive Incentive Plan applicable to his corporate
position, as the case may be, a copy of which has heretofore been provided to
Executive and by this reference made a part hereof.
Executive also shall be eligible to participate in all perquisites and health
and welfare benefits generally available to other executive officers of Company.
In addition, during his employment, Executive shall be provided with
supplemental benefits at no cost to Executive which shall result in the
following levels of coverage, inclusive of any coverage provided by basic
Company-sponsored benefits:
a. Pre-Retirement life insurance equal to three time Executive's annual
base salary;
b. Post-Retirement life insurance equal to two times Executive's annual
base salary as of the date of Executive's retirement; and
c. Disability coverage from all Company-sponsored and government sources
equal to 60% of the sum of base salary plus annual Group Incentive Plan bonus or
Executive Incentive Plan bonus, which ever is applicable, less any offsets under
the terms of such disability programs.
ARTICLE 4 - EXECUTIVE'S RIGHTS UPON TERMINATION
-3-
<PAGE>
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement, Company will pay to Executive Base Compensation for a period of two
years. In addition, Company will fully and immediately vest all unvested stock
options and restricted stock awards previously granted by Company to Executive
and fully vest and immediately pay to Executive any accrued award earned by
Executive under the 5-Year Plan applicable to his Group or corporate position,
as the case may be, or any other Company-sponsored long-term cash incentive plan
in which Executive is a participant.
Base Compensation payments shall be made when payments would otherwise have been
made to Executive if he were still employed by Company, except in such cases
where a different payment schedule is provided for in other Company-sponsored
plans or programs.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in Company-
sponsored plans or programs that are generally applicable to salaried personnel.
ARTICLE 5 - DESIGNATION OF BENEFICIARIES
If Executive should die while receiving payments pursuant to Article 4, the
remaining payments which would have been paid to Executive if he had lived shall
be paid as designated by Executive on the attached Beneficiary Designation Form.
Such payments shall be made at the same time and in the same manner as if
Executive were alive to receive the payments, except in such cases where a
different payment schedule is provided for in other Company-sponsored plans or
programs. The filing of a new Beneficiary Designation Form will cancel all
designations previously filed. The spouse of a married Executive shall join in
any designation of a beneficiary other than the spouse.
If Executive fails to designate a beneficiary as provided for above, then
Company shall direct the distribution of any benefits under this Agreement to
Executive's estate.
ARTICLE - 6 DUTIES OF EXECUTIVE
6.1 Executive agrees to serve as Company's Senior Vice President, Secretary and
General Counsel, or in such other executive capacity as the parties may mutually
agree, and to perform the duties and services appertaining to such office and
such other duties or services he may be reasonably directed to perform from time
to time by the Chief Executive Officer of Company.
6.2 Executive agrees, during the period of his employment by Company, to devote
his primary business time, energy and best efforts to the business and affairs
of Company and, except with the consent of the Chief Executive Officer, not to
engage in any other business activity (except passive personal investments).
ARTICLE 7 - MITIGATION AND OFFSET
-4-
<PAGE>
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking employment or otherwise, nor to offset the
amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
ARTICLE 8 - TAX "GROSS-UP" PROVISION
If any payments due Executive under this Agreement result in Executive's
liability for an excise tax under Section 4999 of the Internal Revenue Code of
1986 as amended ("parachute tax"), the Company will pay Executive, after
deducting any Federal, state or local income tax imposed on the payment, an
amount sufficient to fully satisfy the parachute tax liability. Such payment
shall be made to Executive no later than 30 days prior to the date of the
parachute tax.
ARTICLE 9 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 10 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. This Agreement
shall not affect the provisions of any other compensation, retirement or other
benefit programs of Company to which Executive is a party or of which he is a
beneficiary, except the Key Executive Long-Term Incentive Plan established April
1991 (the LTIP"). In the case of the LTIP Executive agrees that this Agreement
is entered into in exchange for, and in lieu of, his participation in the LTIP
and that Executive shall have no interest whatsoever in such LTIP or be entitled
to receive any benefit therefrom. No amendments to this Agreement may be made
except through a written document signed by both parties.
ARTICLE 11 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
ARTICLE 12 - ARTICLES AND HEADINGS
Paragraphs or other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretations of
this Agreement.
ARTICLE 13 - NOTICES
-5-
<PAGE>
Any notice or demand required or permitted to be given under this Agreement
shall be made in writing and shall be deemed effective upon the personal
delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid, and addressed in the case
of Company to its then principal place of business, presently Morrison-Knudsen
Plaza, 720 Park Blvd., Boise, Idaho 83729, and in the case of Executive to
Morrison Knudsen Corporation, Morrison-Knudsen Plaza, P. O. Box 73, Boise, ID
83729. Either party may change the address to which such notices are to be
addressed by giving the other party notice in the manner herein set forth.
ARTICLE 14 - ATTORNEY'S FEES
In any action at law or in equity to enforce any of the provisions or rights
under this Agreement, the unsuccessful party to such litigation, as determined
by the Court in a final judgment or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorneys' fees incurred therein by
such party or parties (including without limitation such costs, expenses and
fees on any appeals), and if such successful party or parties shall recover
judgment in any such action or proceeding, such costs, expenses and attorneys'
fees shall be included as part of such judgment.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover an amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceeds the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
ARTICLE 15 - TAXES
To the extent required by law, the Company shall withhold from any payments
under this Agreement any applicable federal, state or local taxes.
ARTICLE 16 - APPLICABLE LAW
To the full extent controllable by stipulation of the parties, this Agreement
shall be interpreted and enforced under Idaho law.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this 8th day of July, 1993.
ATTEST MORRISON KNUDSEN CORPORATION
/s/ David A. Channer By: /s/ William J. Agee
- ---------------------------- -------------------------------------
David A. Channer, William J. Agee,
Assistant Secretary Chairman and Chief Executive Officer
and Associate General Counsel
-6-
<PAGE>
EXECUTIVE
/s/ Stephen G. Hanks
-------------------------------------------
Stephen G. Hanks
-7-
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of Exhibits and or Schedules
hereto.]
-8-
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made as of this
_____ day of April, 1996 by and between Morrison Knudsen Corporation, a Delaware
corporation ("Company") and Stephen G. Hanks, an executive employee of the
Company ("Executive").
WHEREAS, the Company and Executive are parties to a certain Employment
Agreement made as of January 1, 1993 (the "Agreement"); and
WHEREAS, under the Agreement, Executive is entitled to receive a severance
benefit equal to twice his annual base compensation upon involuntary termination
(which includes annual base salary in effect immediately preceding the
termination of employment) and
WHEREAS, in February 1995, due to the financial conditions of the Company,
Executive agreed to accept a voluntary reduction in annual base salary to
$300,000, in exchange for a grant to Executive of certain stock options; and
WHEREAS, this voluntary reduction had the inadvertent effect of reducing
the severance benefits to Executive under the formula referenced above; and
WHEREAS, in order to avoid any ambiguity, the Company has agreed that the
Agreement should be amended to tie the severance benefits under the Agreement to
the greater of the Executive's original annual base salary in place immediately
prior to the voluntary reduction in February, 1995 or the Executive's base
salary in effect immediately prior to an involuntary termination.
NOW, THEREFORE, the Agreement is hereby amended by deleting Article 2.1 in
its entirety and replacing it with the following:
"BASE COMPENSATION" shall mean an amount per annum equal to the sum of
(i) the annual base salary rate in effect for Executive immediately
preceding termination of employment, or if greater, the annual base
salary in effect for Executive immediately prior to the Executive's
voluntary salary reduction in February 1995 (each excluding any
reduction in base salary made in breach of this Agreement), (ii) an
amount equal to the product of (A) and (B), where (A) equals the
percentage derived by dividing the cumulative bonus paid to Executive
under the Executive Incentive Plan or Group Incentive Plan, whichever
is applicable, for the three most recently completed calendar years
prior to termination (including any bonus amounts deferred by
Executive under any Company deferred compensation plan or arrangement)
by the cumulative base salary paid to Executive for the same three-year
period, notwithstanding whether or not such base salary is
greater or lesser than the annual base salary in effect immediately
prior to February 1995 (including any base salary deferred by
Executive under any Company deferred compensation plan or
arrangement), and (B), equals the amount set forth in 2.1(i) above,
(iii) continued participation in all basic and supplemental life,
<PAGE>
accident, disability, medical, dental and other Company-sponsored
welfare benefit programs provided to Executive immediately preceding
termination (or, if continued participation in one or more of these
benefits is not possible per the terms of the plan or applicable law,
an amount of money that would enable Executive to purchase similar
benefits), and (iv) continuance of vesting and benefit accrual under
any Company-sponsored basic and supplemental retirement programs in
effect for Executive immediately prior to termination (or, if
continued participation in such programs is not possible per the terms
of the plan or applicable law, the monetary value of such benefits).
Except for the foregoing, the Agreement remains unamended and in full force
and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment this _____ day of April, 1996.
MORRISON KNUDSEN CORPORATION
------------------------------------
By:
------------------------------
Its:
------------------------------
EXECUTIVE
------------------------------------
Stephen G. Hanks
ATTEST:
- --------------------------------------
Name:
----------------------------
- --------------------------------------
Name:
----------------------------
- --------------------------------------
-9-
<PAGE>
EXHIBIT ____
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 1st day of January,
1993, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and Robert A. Tinstman, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered valuable services to Company, and has acquired
an extensive background in and knowledge of Company's business; and
WHEREAS, Company desires to continue the services of Executive in such executive
capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the effective date of this Agreement and ending December 31,
1997, upon the terms and conditions set forth herein, unless such employment is
earlier terminated in accordance with the provisions herein.
1.2 Notwithstanding the foregoing, if this Agreement shall not have been
terminated in accordance with the provisions herein on or before December 31,
1997, the Agreement shall be extended such that at each and every moment of time
thereafter, the remaining term of the Agreement shall be one year unless (a) the
Agreement is terminated earlier in accordance with the provisions herein or (b)
on or after January 1, 1997, Company's Board of Directors notifies Executive in
writing of its determination to have the term of this Agreement expire one year
from the date of notification.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the sum of (i)
the annual base salary rate in effect for Executive immediately preceding
termination of employment (excluding any reduction in base salary made in breach
of this Agreement), (ii) an amount equal to the product of (A) and (B), where
(A) equals the percentage derived by dividing the cumulative bonus paid to
Executive under the Executive Incentive Plan or Group Incentive Plan, whichever
is applicable, for the three most recently completed calendar years prior to
termination (including any bonus amounts deferred by Executive under any Company
deferred compensation plan or arrangement) by the cumulative base salary paid to
Executive for the same three-year period (including any base salary deferred by
Executive under any Company deferred compensation plan or arrangement), and (B)
equals the amount set forth in 2.1(i) above, (iii) continued participation in
all basic and supplemental
-1-
<PAGE>
life, accident, disability, medical, dental and other Company-sponsored welfare
benefit programs provided to Executive immediately preceding termination (or, if
continued participation in one or more of these benefits is not possible per the
terms of the plan or applicable law, an amount of money that would enable
Executive to purchase similar benefits), and (iv) continuance of vesting and
benefit accrual under any Company-sponsored basic and supplemental retirement
programs in effect for Executive immediately prior to termination (or, if
continued participation in such programs is not possible per the terms of the
plan or applicable law, the monetary value of such benefits).
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer, (ii) Executive's willful and
continued failure to perform his duties under this Agreement (except due to
Executive's incapacity due to physical or mental illness) after a written demand
is delivered to Executive by the Chief Executive Officer specifically
identifying the manner in which the Chief Executive Officer believes that
Executive has failed to perform his duties, (iii) Executive's willful engagement
in conduct materially injurious to the Company, or (iv) Executive's conviction
for any felony involving moral turpitude. For purposes of clauses (i), (ii),
and (iii) of this definition, no act, or failure to act on Executive's part
shall be deemed "willful" unless done, or omitted to be done, by Executive not
in good faith and without reasonable belief that Executive's act, or failure to
act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
(i) A failure by the Company to abide by any part of this Agreement that is
not remedied within ten (10) business days of notification by Executive
of such failure, including any violation of Executive's rights as
described in Section 3 of this Agreement unless such rights are replaced
by alternative rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities below that agreed
to in Section 6.1.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his Early Retirement Date or Normal Retirement Date as defined in the
Morrison Knudsen Corporation Retirement Plan, established January 1, 1988 and
frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had never been
frozen.
ARTICLE 3 - COMPENSATION AND BENEFITS
Executive shall receive the annual base salary set by Company, which salary
shall be commensurate with Executive's duties and consistent with the
compensation policies of the Executive Compensation and Nominating Committee of
Company's Board of Directors. Such salary shall be, at a minimum, the amount of
base salary in effect for Executive as of the date this Agreement is executed.
At least annually, Company will review Executive's base salary to determine the
amount of any increase.
-2-
<PAGE>
Upon any such increase in Executive's base salary, such increased rate shall
thereafter constitute Executive's annual base salary for all purposes of this
Agreement. The foregoing to the contrary notwithstanding, the Company may
reduce Executive's annual base salary during any year by not more than 10% below
the base salary in effect at the beginning of the year as part of any general
salary reduction which applies to all officers of the Company.
Executive shall be entitled to participate in the Company's Key Executive Long-
Term Incentive Plan applicable to his Group or corporate position ("5-Year
Plan"), as the case may be. Upon being finalized, the 5-Year Plan shall contain
Executive's sharing percentages and performance targets, shall be executed by
Executive and shall be attached hereto and made a part hereof.
Executive shall also be entitled to participate in the Company's Long-Term
Performance Compensation Benefit Plan ("3-Year Plan") to the extent such plan is
continued by Company. A copy of the 3-Year Plan has heretofore been provided to
Executive and by this reference, made a part hereof.
Executive also shall be entitled to participate in either the Group Incentive
Plan for his Group or the Executive Incentive Plan applicable to his corporate
position, as the case may be, a copy of which has heretofore been provided to
Executive and by this reference made a part hereof.
Executive also shall be eligible to participate in all perquisites and health
and welfare benefits generally available to other executive officers of Company.
In addition, during his employment, Executive shall be provided with
supplemental benefits at no cost to Executive which shall result in the
following levels of coverage, inclusive of any coverage provided by basic
Company-sponsored benefits:
a. Pre-Retirement life insurance equal to three time Executive's annual
base salary;
b. Post-Retirement life insurance equal to two times Executive's annual
base salary as of the date of Executive's retirement; and
c. Disability coverage from all Company-sponsored and government sources
equal to 60% of the sum of base salary plus annual Group Incentive Plan bonus or
Executive Incentive Plan bonus, which ever is applicable, less any offsets under
the terms of such disability programs.
ARTICLE 4 - EXECUTIVE'S RIGHTS UPON TERMINATION
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement, Company will pay to Executive Base Compensation for a period of two
years. In addition, Company will fully and immediately vest all unvested stock
options and restricted stock awards previously granted by Company to Executive
and fully vest and immediately pay to Executive any accrued award earned by
Executive under the 5-Year Plan applicable to his
-3-
<PAGE>
Group or corporate position, as the case may be, or any other Company-sponsored
long-term cash incentive plan in which Executive is a participant.
Base Compensation payments shall be made when payments would otherwise have been
made to Executive if he were still employed by Company, except in such cases
where a different payment schedule is provided for in other Company-sponsored
plans or programs.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in Company-
sponsored plans or programs that are generally applicable to salaried personnel.
ARTICLE 5 - DESIGNATION OF BENEFICIARIES
If Executive should die while receiving payments pursuant to Article 4, the
remaining payments which would have been paid to Executive if he had lived shall
be paid as designated by Executive on the attached Beneficiary Designation Form.
Such payments shall be made at the same time and in the same manner as if
Executive were alive to receive the payments, except in such cases where a
different payment schedule is provided for in other Company-sponsored plans or
programs. The filing of a new Beneficiary Designation Form will cancel all
designations previously filed. The spouse of a married Executive shall join in
any designation of a beneficiary other than the spouse.
If Executive fails to designate a beneficiary as provided for above, then
Company shall direct the distribution of any benefits under this Agreement to
Executive's estate.
ARTICLE - 6 DUTIES OF EXECUTIVE
6.1 Executive agrees to serve as the President of the Company's Mining Group,
or in such other executive capacity as the parties may mutually agree, and to
perform the duties and services appertaining to such office and such other
duties or services he may be reasonably directed to perform from time to time by
the Chief Executive Officer of Company.
6.2 Executive agrees, during the period of his employment by Company, to devote
his primary business time, energy and best efforts to the business and affairs
of Company and, except with the consent of the Chief Executive Officer, not to
engage in any other business activity (except passive personal investments).
ARTICLE 7 - MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking employment or otherwise, nor to offset the
amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
-4-
<PAGE>
ARTICLE 8 - TAX "GROSS-UP" PROVISION
If any payments due Executive under this Agreement result in Executive's
liability for an excise tax under Section 4999 of the Internal Revenue Code of
1986 as amended ("parachute tax"), the Company will pay Executive, after
deducting any Federal, state or local income tax imposed on the payment, an
amount sufficient to fully satisfy the parachute tax liability. Such payment
shall be made to Executive no later than 30 days prior to the date of the
parachute tax.
ARTICLE 9 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 10 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. This Agreement
shall not affect the provisions of any other compensation, retirement or other
benefit programs of Company to which Executive is a party or of which he is a
beneficiary, except the Key Executive Long-Term Incentive Plan established April
1991 (the LTIP"). In the case of the LTIP Executive agrees that this Agreement
is entered into in exchange for, and in lieu of, his participation in the LTIP
and that Executive shall have no interest whatsoever in such LTIP or be entitled
to receive any benefit therefrom. No amendments to this Agreement may be made
except through a written document signed by both parties.
ARTICLE 11 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
ARTICLE 12 - ARTICLES AND HEADINGS
Paragraphs or other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretations of
this Agreement.
ARTICLE 13 - NOTICES
Any notice or demand required or permitted to be given under this Agreement
shall be made in writing and shall be deemed effective upon the personal
delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid, and addressed in the case
of Company to its then principal place of business, presently Morrison-Knudsen
Plaza, 720 Park Blvd., Boise, Idaho 83729, and in the case of Executive to
Morrison Knudsen Corporation,
-5-
<PAGE>
Morrison-Knudsen Plaza, P. O. Box 73, Boise, ID 83729. Either party may change
the address to which such notices are to be addressed by giving the other party
notice in the manner herein set forth.
ARTICLE 14 - ATTORNEY'S FEES
In any action at law or in equity to enforce any of the provisions or rights
under this Agreement, the unsuccessful party to such litigation, as determined
by the Court in a final judgment or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorneys' fees incurred therein by
such party or parties (including without limitation such costs, expenses and
fees on any appeals), and if such successful party or parties shall recover
judgment in any such action or proceeding, such costs, expenses and attorneys'
fees shall be included as part of such judgment.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover an amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceeds the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
ARTICLE 15 - TAXES
To the extent required by law, the Company shall withhold from any payments
under this Agreement any applicable federal, state or local taxes.
ARTICLE 16 - APPLICABLE LAW
To the full extent controllable by stipulation of the parties, this Agreement
shall be interpreted and enforced under Idaho law.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this 26th day of August, 1993.
ATTEST MORRISON KNUDSEN CORPORATION
/s/ Stephen G. Hanks By: /s/ William J. Agee
- ---------------------------- -------------------------------------
Stephen G. Hanks William J. Agee,
Sr. Vice President, Secretary Chairman and Chief Executive Officer
and General Counsel
EXECUTIVE
/s/Robert A. Tinstman
-------------------------------------------
Robert A. Tinstman
-6-
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of Exhibits and or Schedules
hereto.]
-7-
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made as of this
_____ day of April, 1996 by and between Morrison Knudsen Corporation, a Delaware
corporation ("Company") and Robert A. Tinstman, an executive employee of the
Company ("Executive").
WHEREAS, the Company and Executive are parties to a certain Employment
Agreement made as of January 1, 1993 (the "Agreement"); and
WHEREAS, under the Agreement, Executive is entitled to receive a severance
benefit equal to twice his annual base compensation upon involuntary termination
(which includes annual base salary in effect immediately preceding the
termination of employment) and
WHEREAS, in February 1995, due to the financial conditions of the Company,
Executive agreed to accept a voluntary reduction in annual base salary to
$300,000, in exchange for a grant to Executive of certain stock options; and
WHEREAS, this voluntary reduction had the inadvertent effect of reducing
the severance benefits to Executive under the formula referenced above; and
WHEREAS, in order to avoid any ambiguity, the Company has agreed that the
Agreement should be amended to tie the severance benefits under the Agreement to
the greater of the Executive's original annual base salary in place immediately
prior to the voluntary reduction in February, 1995 or the Executive's base
salary in effect immediately prior to an involuntary termination.
NOW, THEREFORE, the Agreement is hereby amended by deleting Article 2.1 in
its entirety and replacing it with the following:
"BASE COMPENSATION" shall mean an amount per annum equal to the sum of
(i) the annual base salary rate in effect for Executive immediately
preceding termination of employment, or if greater, the annual base
salary in effect for Executive immediately prior to the Executive's
voluntary salary reduction in February 1995 (each excluding any
reduction in base salary made in breach of this Agreement), (ii) an
amount equal to the product of (A) and (B), where (A) equals the
percentage derived by dividing the cumulative bonus paid to Executive
under the Executive Incentive Plan or Group Incentive Plan, whichever
is applicable, for the three most recently completed calendar years
prior to termination (including any bonus amounts deferred by
Executive under any Company deferred compensation plan or arrangement)
by the cumulative base salary paid to Executive for the same three-
year period, notwithstanding whether or not such base salary is
greater or lesser than the annual base salary in effect immediately
prior to February 1995 (including any base salary deferred by
Executive under any Company deferred compensation plan or
arrangement), and (B), equals the amount set forth in 2.1(i) above,
(iii) continued participation in all basic and supplemental life,
accident, disability, medical, dental and other Company-sponsored
<PAGE>
welfare benefit programs provided to Executive immediately preceding
termination (or, if continued participation in one or more of these
benefits is not possible per the terms of the plan or applicable law,
an amount of money that would enable Executive to purchase similar
benefits), and (iv) continuance of vesting and benefit accrual under
any Company-sponsored basic and supplemental retirement programs in
effect for Executive immediately prior to termination (or, if
continued participation in such programs is not possible per the terms
of the plan or applicable law, the monetary value of such benefits).
Except for the foregoing, the Agreement remains unamended and in full force
and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment this _____ day of April, 1996.
MORRISON KNUDSEN CORPORATION
------------------------------------
By:
------------------------------
Its:
------------------------------
EXECUTIVE
------------------------------------
Robert A. Tinstman
ATTEST:
- --------------------------------------
Name:
--------------------------------
- --------------------------------------
Name:
--------------------------------
9
<PAGE>
EXHIBIT ____
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 1st day of January,
1994, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and Thomas H. Zarges, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered valuable services to Company, and has acquired
an extensive background in and knowledge of Company's business; and
WHEREAS, Company desires to continue the services of Executive in such executive
capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the effective date of this Agreement and ending December 31,
1998, upon the terms and conditions set forth herein, unless such employment is
earlier terminated in accordance with the provisions herein.
1.2 Notwithstanding the foregoing, if this Agreement shall not have been
terminated in accordance with the provisions herein on or before December 31,
1998, the Agreement shall be extended such that at each and every moment of time
thereafter, the remaining term of the Agreement shall be one year unless (a) the
Agreement is terminated earlier in accordance with the provisions herein or (b)
on or after January 1, 1998, Company's Board of Directors notifies Executive in
writing of its determination to have the term of this Agreement expire one year
from the date of notification.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the sum of (i)
the annual base salary rate in effect for Executive immediately preceding
termination of employment (excluding any reduction in base salary made in breach
of this Agreement), (ii) an amount equal to the product of (A) and (B), where
(A) equals the percentage derived by dividing the cumulative bonus paid to
Executive under the Executive Incentive Plan or Group Incentive Plan, whichever
is applicable, for the three most recently completed calendar years prior to
termination (including any bonus amounts deferred by Executive under any Company
deferred compensation plan or arrangement) by the cumulative base salary paid to
Executive for the same three-year period (including any base salary deferred by
Executive under any Company deferred compensation plan or arrangement), and (B)
equals the amount set forth in 2.1(i) above, (iii) continued participation in
all basic and supplemental
-1-
<PAGE>
life, accident, disability, medical, dental and other Company-sponsored welfare
benefit programs provided to Executive immediately preceding termination (or, if
continued participation in one or more of these benefits is not possible per the
terms of the plan or applicable law, an amount of money that would enable
Executive to purchase similar benefits), and (iv) continuance of vesting and
benefit accrual under any Company-sponsored basic and supplemental retirement
programs in effect for Executive immediately prior to termination (or, if
continued participation in such programs is not possible per the terms of the
plan or applicable law, the monetary value of such benefits).
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer, (ii) Executive's willful and
continued failure to perform his duties under this Agreement (except due to
Executive's incapacity due to physical or mental illness) after a written demand
is delivered to Executive by the Chief Executive Officer specifically
identifying the manner in which the Chief Executive Officer believes that
Executive has failed to perform his duties, (iii) Executive's willful engagement
in conduct materially injurious to the Company, or (iv) Executive's conviction
for any felony involving moral turpitude. For purposes of clauses (i), (ii),
and (iii) of this definition, no act, or failure to act on Executive's part
shall be deemed "willful" unless done, or omitted to be done, by Executive not
in good faith and without reasonable belief that Executive's act, or failure to
act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
(i) A failure by the Company to abide by any part of this Agreement that is
not remedied within ten (10) business days of notification by Executive
of such failure, including any violation of Executive's rights as
described in Section 3 of this Agreement unless such rights are replaced
by alternative rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities below that agreed
to in Section 6.1.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his Early Retirement Date or Normal Retirement Date as defined in the
Morrison Knudsen Corporation Retirement Plan, established January 1, 1988 and
frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had never been
frozen.
ARTICLE 3 - COMPENSATION AND BENEFITS
Executive shall receive the annual base salary set by Company, which salary
shall be commensurate with Executive's duties and consistent with the
compensation policies of the Executive Compensation and Nominating Committee of
Company's Board of Directors. Such salary shall be, at a minimum, the amount of
base salary in effect for Executive as of the date this Agreement is executed.
At least annually, Company will review Executive's base salary to determine the
amount of any increase.
-2-
<PAGE>
Upon any such increase in Executive's base salary, such increased rate shall
thereafter constitute Executive's annual base salary for all purposes of this
Agreement. The foregoing to the contrary notwithstanding, the Company may
reduce Executive's annual base salary during any year by not more than 10% below
the base salary in effect at the beginning of the year as part of any general
salary reduction which applies to all officers of the Company.
Executive shall be entitled to participate in the Company's Key Executive Long-
Term Incentive Plan applicable to his Group or corporate position ("5-Year
Plan"), as the case may be. Upon being finalized, the 5-Year Plan shall contain
Executive's sharing percentages and performance targets, shall be executed by
Executive and shall be attached hereto and made a part hereof.
Executive shall also be entitled to participate in the Company's Long-Term
Performance Compensation Benefit Plan ("3-Year Plan") to the extent such plan is
continued by Company. A copy of the 3-Year Plan has heretofore been provided to
Executive and by this reference, made a part hereof.
Executive also shall be entitled to participate in either the Group Incentive
Plan for his Group or the Executive Incentive Plan applicable to his corporate
position, as the case may be, a copy of which has heretofore been provided to
Executive and by this reference made a part hereof.
Executive also shall be eligible to participate in all perquisites and health
and welfare benefits generally available to other executive officers of Company.
In addition, during his employment, Executive shall be provided with
supplemental benefits at no cost to Executive which shall result in the
following levels of coverage, inclusive of any coverage provided by basic
Company-sponsored benefits:
a. Pre-Retirement life insurance equal to three time Executive's annual
base salary;
b. Post-Retirement life insurance equal to two times Executive's annual
base salary as of the date of Executive's retirement; and
c. Disability coverage from all Company-sponsored and government sources
equal to 60% of the sum of base salary plus annual Group Incentive Plan bonus or
Executive Incentive Plan bonus, which ever is applicable, less any offsets under
the terms of such disability programs.
ARTICLE 4 - EXECUTIVE'S RIGHTS UPON TERMINATION
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement, Company will pay to Executive Base Compensation for a period of two
years. In addition, Company will fully and immediately vest all unvested stock
options and restricted stock awards previously granted by Company to Executive
and fully vest and immediately pay to Executive any accrued award earned by
Executive under the 5-Year Plan applicable to his
-3-
<PAGE>
Group or corporate position, as the case may be, or any other Company-sponsored
long-term cash incentive plan in which Executive is a participant.
Base Compensation payments shall be made when payments would otherwise have been
made to Executive if he were still employed by Company, except in such cases
where a different payment schedule is provided for in other Company-sponsored
plans or programs.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in Company-
sponsored plans or programs that are generally applicable to salaried personnel.
ARTICLE 5 - DESIGNATION OF BENEFICIARIES
If Executive should die while receiving payments pursuant to Article 4, the
remaining payments which would have been paid to Executive if he had lived shall
be paid as designated by Executive on the attached Beneficiary Designation Form.
Such payments shall be made at the same time and in the same manner as if
Executive were alive to receive the payments, except in such cases where a
different payment schedule is provided for in other Company-sponsored plans or
programs. The filing of a new Beneficiary Designation Form will cancel all
designations previously filed. The spouse of a married Executive shall join in
any designation of a beneficiary other than the spouse.
If Executive fails to designate a beneficiary as provided for above, then
Company shall direct the distribution of any benefits under this Agreement to
Executive's estate.
ARTICLE - 6 DUTIES OF EXECUTIVE
6.1 Executive agrees to serve as the Chief Executive Officer and President of
the Company's Engineering, Construction and Environmental Group, or in such
other executive capacity as the parties may mutually agree, and to perform the
duties and services appertaining to such office and such other duties or
services he may be reasonably directed to perform from time to time by the Chief
Executive Officer of Company.
6.2 Executive agrees, during the period of his employment by Company, to devote
his primary business time, energy and best efforts to the business and affairs
of Company and, except with the consent of the Chief Executive Officer, not to
engage in any other business activity (except passive personal investments).
ARTICLE 7 - MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking employment or otherwise, nor to offset the
amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
-4-
<PAGE>
ARTICLE 8 - TAX "GROSS-UP" PROVISION
If any payments due Executive under this Agreement result in Executive's
liability for an excise tax under Section 4999 of the Internal Revenue Code of
1986 as amended ("parachute tax"), the Company will pay Executive, after
deducting any Federal, state or local income tax imposed on the payment, an
amount sufficient to fully satisfy the parachute tax liability. Such payment
shall be made to Executive no later than 30 days prior to the date of the
parachute tax.
ARTICLE 9 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 10 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. No amendments
to this Agreement may be made except through a written document signed by both
parties.
ARTICLE 11 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
ARTICLE 12 - ARTICLES AND HEADINGS
Paragraphs or other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretations of
this Agreement.
ARTICLE 13 - NOTICES
Any notice or demand required or permitted to be given under this Agreement
shall be made in writing and shall be deemed effective upon the personal
delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid, and addressed in the case
of Company to its then principal place of business, presently Morrison-Knudsen
Plaza, 720 Park Blvd., Boise, Idaho 83729, and in the case of Executive to
Morrison Knudsen Corporation, Morrison-Knudsen Plaza, P. O. Box 73, Boise, ID
83729. Either party may change the address to which such notices are to be
addressed by giving the other party notice in the manner herein set forth.
ARTICLE 14 - ATTORNEY'S FEES
-5-
<PAGE>
In any action at law or in equity to enforce any of the provisions or rights
under this Agreement, the unsuccessful party to such litigation, as determined
by the Court in a final judgment or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorneys' fees incurred therein by
such party or parties (including without limitation such costs, expenses and
fees on any appeals), and if such successful party or parties shall recover
judgment in any such action or proceeding, such costs, expenses and attorneys'
fees shall be included as part of such judgment.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover an amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceeds the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
ARTICLE 15 - TAXES
To the extent required by law, the Company shall withhold from any payments
under this Agreement any applicable federal, state or local taxes.
ARTICLE 16 - APPLICABLE LAW
To the full extent controllable by stipulation of the parties, this Agreement
shall be interpreted and enforced under Idaho law.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this 18th day of July, 1994.
ATTEST MORRISON KNUDSEN CORPORATION
/s/ Stephen G. Hanks By: /s/ William J. Agee
- ---------------------------- -------------------------------------
Stephen G. Hanks William J. Agee,
Secretary Chairman, President and Chief Executive
Officer
EXECUTIVE
/s/ Thomas H. Zarges
-------------------------------------------
Thomas H. Zarges
-6-
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of Exhibits and or Schedules
hereto.]
<PAGE>
EXHIBIT ____
MORRISON KNUDSEN CORPORATION
1996 RETENTION SEVERANCE PAY PLAN
Adopted
April 10, 1996
This Plan will terminate automatically
as of December 31, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Base Salary". . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Cause". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Committee". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 "Company". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Covered Employee" . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Eligible Employee". . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 "Involuntary Termination of Employment". . . . . . . . . . . . . . 2
1.9 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 "Severance Pay". . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 "Term" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 "Purchaser". . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Eligible Employees . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Covered Employees; Entitlement to Benefits . . . . . . . . . . . . . 3
ARTICLE III SEVERANCE PAY AND OTHER BENEFITS. . . . . . . . . . . . . . . . . 4
3.1 Amount of Severance Pay. . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV CESSATION OF BENEFITS. . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Reemployment with the Company. . . . . . . . . . . . . . . . . . . . 4
ARTICLE V DISTRIBUTION OF CASH PAYMENTS . . . . . . . . . . . . . . . . . . . 5
5.1 Severance Pay. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 No Additional Benefits Under Certain Employee Plans. . . . . . . . . 5
ARTICLE VI ADMINISTRATION OF PLAN . . . . . . . . . . . . . . . . . . . . . . 5
6.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.4 Revocability of Committee Action . . . . . . . . . . . . . . . . . . 7
ARTICLE VII AMENDMENT OR TERMINATION OF PLAN. . . . . . . . . . . . . . . . . 7
7.1 Right to Amend or Terminate. . . . . . . . . . . . . . . . . . . . . 7
7.2 Automatic Termination. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII METHOD OF FUNDING. . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 Plan is Not Funded . . . . . . . . . . . . . . . . . . . . . . . . . 8
i
<PAGE>
ARTICLE IX CONFIDENTIALITY AND RELEASE. . . . . . . . . . . . . . . . . . . . 8
9.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.2 Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 Limitation on Rights . . . . . . . . . . . . . . . . . . . . . . . . 9
10.2 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.5 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . . 10
ii
<PAGE>
INTRODUCTION
The Board of Directors (the "Board") of Morrison Knudsen Corporation,
a Delaware corporation (the "Company"), has considered the effect that recent
events have had on employees of the Company. The Board recognizes and
understands the concern such employees have for their careers and their personal
financial security. As a result, absent appropriate assurances, employees are
likely to seek more secure career opportunities.
This Plan is designed to enable such employees to make career
decisions without the time pressure and financial uncertainty which may result
from a proposed or threatened transaction, to encourage such employees to remain
employees of the Company.
As a result, the Board believes that this Plan will assist the Company
in attracting and retaining qualified employees. Accordingly, the following
Plan is hereby adopted.
ARTICLE I
DEFINITIONS
When used in this Plan and initially capitalized, the following words
and phrases shall have the following respective meanings unless the context
clearly requires otherwise:
1.1 "BASE SALARY" as to any Eligible Employee for any period, shall
mean the base rate of salary paid to the Eligible Employee by the Company on the
Involuntary Termination Date before reduction because of an election between
benefits or cash provided under a plan of the Company maintained pursuant to
Section 125 or 401(k) of the Internal Revenue Code of 1986, as amended, and
before reduction for any other amounts contributed by the Company on his or her
behalf to any other employee benefit plan.
1.2 "CAUSE" for termination by the Company, shall mean termination by
the Company for (i) the willful and continued failure by the Employee to
substantially perform the
<PAGE>
Employee's duties with the Company (other than any such failure resulting from
the Employee's incapacity due to physical or mental illness) or (ii) the willful
engaging by the Employee in conduct which is demonstrably and materially
injurious to the Company monetarily or otherwise. For purposes of clauses (i)
and (ii) of this definition, no act, or failure to act, on the Employee's part
shall be deemed "willful" unless done, or omitted to be done, by the Employee
not in good faith and without reasonable belief that the Employee's act, or
failure to act, was in the best interest of the Company.
1.3 "COMMITTEE" shall mean the Compensation and Nominating Committee
of the Board of Directors.
1.4 "COMPANY" shall mean Morrison Knudsen Corporation, a Delaware
corporation, or any entity that is a successor to Morrison Knudsen Corporation
in ownership of a majority of its assets.
1.5 "COVERED EMPLOYEE" shall mean any Eligible Employee who suffers
an Involuntary Termination of Employment during the term of this Plan.
1.6 "EFFECTIVE DATE" shall mean April 10, 1996, the date of adoption
of this Plan.
1.7 "ELIGIBLE EMPLOYEE" shall mean an employee of the Company as
provided in Section 2.1 hereof.
1.8 "INVOLUNTARY TERMINATION OF EMPLOYMENT" shall mean a termination
of employment with the Company after the Effective Date and prior to the
expiration of the Term of the Plan at the Company's option other than for Cause;
provided however that an Involuntary Termination of Employment shall not arise
from a termination of employment from the Company in conjunction with the sale
of the business unit, division, or subsidiary of which the employee is a part
of, unless (i) the Purchaser does not offer Employee employment with comparable
2
<PAGE>
responsibility, pay and benefits provided to Employee while engaged in
employment at the Company or (ii) Purchaser terminates the employee for a reason
other than Cause and such termination occurs prior to December 31, 1997.
Employee shall be deemed to have received comparable pay if Purchaser offers
Employee an annual base salary no less than 95% of Employee's annual base salary
in effect immediately prior to the acquisition.
1.9 "PLAN" shall mean this 1996 Morrison Knudsen Corporation
Retention Severance Pay Plan.
1.10 "SEVERANCE PAY" shall mean the sum payable as set forth in
Section 3.1 of the Plan, subject to the conditions set forth elsewhere in the
Plan.
1.11 "TERM" shall mean the period commencing on the Effective Date and
ending December 31, 1997.
1.12 "PURCHASER" shall mean any person or entity who acquires a
business unit, division, or subsidiary of the Company, in a single transaction
or a series of related transactions.
ARTICLE II
PARTICIPATION
2.1 ELIGIBLE EMPLOYEES. An Eligible Employee shall mean an employee
listed on Schedule A of this Plan.
2.2 COVERED EMPLOYEES; ENTITLEMENT TO BENEFITS. Any Eligible
Employee who suffers an Involuntary Termination of Employment during the Term of
this Plan shall be a Covered Employee and eligible to receive the Severance Pay
described in this Plan.
ARTICLE III
3
<PAGE>
SEVERANCE PAY AND OTHER BENEFITS
3.1 AMOUNT OF SEVERANCE PAY. The Company shall pay Severance Pay to
a Covered Employee in an amount equal to:
CATEGORY PAYMENT
-------- -------
One: Executives (as listed under Part I of 9 months' Base Salary
Schedule A)
Two: Senior Managers (as listed under Part II 6 months' Base Salary
of Schedule A)
Three: Salaried Employees (as listed under Part 4 months' Base Salary
III of Schedule A)
in each case reduced by (i) amounts paid or payable to the Covered Employee
under the Morrison Knudsen Corporation Severance Pay Plan other than the
payments made thereunder with respect to placement assistance and (ii) in the
event restrictions lapse on the restricted stock granted to Covered Employees,
pursuant to an action of the Compensation Committee of the Board on July 7, 1995
under Section 11(c) of the Morrison Knudsen Corporation Stock Compensation Plan,
the value of such stock on the date the restrictions lapse.
ARTICLE IV
CESSATION OF BENEFITS
4.1 REEMPLOYMENT WITH THE COMPANY. Except to the extent he or she
already has received benefits under the Plan, a Covered Employee who recommences
employment with the Company will cease immediately to be entitled to any
benefits under the Plan.
ARTICLE V
DISTRIBUTION OF CASH PAYMENTS
4
<PAGE>
5.1 SEVERANCE PAY. Subject to Section 6.3 and Article IX of this
Plan, the Company shall pay a Covered Employee the amount to which he or she is
entitled under Section 3.1 of the Plan in one lump sum within a reasonable time,
but in no event later than 10 business days after his Involuntary Termination of
Employment.
5.2 NO ADDITIONAL BENEFITS UNDER CERTAIN EMPLOYEE PLANS. In the
event all Severance Pay to which a Covered Employee is entitled to under this
Plan is paid, pursuant to Section 5.1, the Covered Employee shall not be
entitled to receive any additional payments pursuant to the Morrison Knudsen
Corporation Key Employee Retention Incentive Plan as amended.
ARTICLE VI
ADMINISTRATION OF PLAN
6.1 IN GENERAL. The Plan shall be administered by the Company, which
hereby delegates to the Committee all administrative duties, including without
limitation duties with respect to the processing, review, investigation,
approval, and payment of benefits under the Plan. The Committee shall be the
named fiduciary under the Plan. The Committee shall have the sole and absolute
discretion to interpret where necessary all provisions of the Plan (including,
without limitation, by supplying omissions from, correcting deficiencies in, or
resolving inconsistencies or ambiguities in, the language of the Plan), to
determine the rights and status under the Plan of Eligible Employees, Covered
Employees or other persons, to resolve questions or disputes arising under the
Plan and to make any determinations with respect to the benefits payable
hereunder and the persons entitled thereto as may be necessary for the purposes
of the Plan. Without limiting the generality of the foregoing, the Committee is
hereby granted the authority to determine whether a particular employee is an
Eligible Employee or Covered Employee.
5
<PAGE>
6.2 REGULATIONS. The Committee shall promulgate any rules and
regulations that it deems necessary to carry out the purposes of the Plan, or to
interpret the terms and conditions of the Plan; provided that no rule,
regulation, or interpretation shall be contrary to the provisions of the Plan.
The rules, regulations, and interpretations made by the Committee shall, subject
only to the claims procedure outlined in Section 6.3 hereof, be final and
binding on any employee or former employee of the Company, or any successor in
interest of either.
6.3 CLAIMS PROCEDURE. The Committee shall determine the rights of
any employee or former employee of the Company to any benefits hereunder. Any
employee or former employee of the Company who believes that he or she is
entitled to receive any benefits other than as initially determined by the
Committee, may file a claim in writing with the Committee. The Committee shall
no later than 60 days after the receipt of a claim either allow or deny the
claim in writing.
A denial of a claim, wholly or partially, shall be written in a manner
calculated to be understood by the claimant and shall include:
(a) the specific reason or reasons for the denial;
(b) a specific reference to pertinent Plan provisions on which
the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(d) an explanation of the claim-review procedure.
A claimant whose claim is denied (or his duly authorized
representative) may, within 60 days after receipt of denial of his or her claim:
(a) request a review upon written application to Human
Resources;
6
<PAGE>
(b) review pertinent documents; and
(c) submit issues and comments in writing.
The Committee shall notify the claimant of its decision on review
within 60 days after receipt of a request for review. Notice of the decision on
review shall be in writing.
6.4 REVOCABILITY OF COMMITTEE ACTION. Any action taken by the
Committee with respect to the rights under the Plan of any employee or former
employee shall be revocable by the Committee as to payments or distributions not
yet made to such person, and acceptance of any benefits under the Plan
constitutes acceptance of and agreement to any appropriate adjustments made by
the Committee in future payments or distributions to such person to offset any
excess or underpayment previously made to him or her with respect to any
benefits.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
7.1 RIGHT TO AMEND OR TERMINATE. Following the Effective Date,
except as may be required by law, this Plan shall not be amended without the
consent of the Eligible Employees, unless such amendment will not adversely
affect the Eligible Employees. An amendment of this Plan shall automatically
effect a corresponding amendment to the rights of all Covered Employees under
this Plan.
7.2 AUTOMATIC TERMINATION. This Plan will terminate
automatically as of December 31, 1997. Termination pursuant to this Section 7.2
shall occur without any action on the part of the Company and shall be effective
without prior notice to or approval of any employee or former employee of the
Company.
ARTICLE VIII
METHOD OF FUNDING
7
<PAGE>
8.1 PLAN IS NOT FUNDED. The Company shall pay benefits under
the Plan from its general assets. No property of the Company is or shall be, by
reason of this Plan, held in trust for any employee of the Company, nor shall
any person have any interest in or any lien or prior claim upon any property of
the Company by reason of the Plan or the Company's obligations to make payments
hereunder.
ARTICLE IX
CONFIDENTIALITY AND RELEASE
9.1 CONFIDENTIALITY. Payment of the Severance Pay set forth in
Article III hereof to or for the benefit of a Covered Employee is conditioned
upon the Covered Employee agreeing in writing with the Company that all trade
secrets, customer lists, and other confidential business information are the
exclusive property of the Company and that the Covered Employee shall not at any
time reveal or cause to be revealed to any person or entity such trade secrets,
customer lists and other confidential business information obtained as a result
of such Covered Employee's employment or relationship with the Company.
9.2 RELEASE. Payment of the severance pay and provision of
the benefits set forth in Article III hereof to or for the benefit of a
Covered Employee is also conditioned upon the Covered Employee executing and
delivering a release satisfactory to the Company releasing the Company from
any and all claims, demands, damages, actions and/or causes of action
whatsoever, which he or she may have had on account of the termination of his
or her employment, including, but not limited to claims of discrimination,
including on the basis of sex, race, age, national origin, religion, or
handicapped status (with all applicable periods during which the Covered
Employee may revoke the release or any provision thereof having expired), and
any and all claims, demands and causes of action for retirement (other than
under any "pension benefit plan" or under any "welfare benefit plan" of the
Company (as those terms are defined in Sections
8
<PAGE>
3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as
amended)), severance pay (other than under a "welfare benefit plan") or other
termination pay. Such release shall not, however, apply to the ongoing
obligations of the Company arising under this Plan, or rights of
indemnification the Covered Employee may have under the Company's By-laws or
by contract or by statute.
ARTICLE X
MISCELLANEOUS
10.1 LIMITATION ON RIGHTS. Participation in the Plan shall not
give any employee the right to be retained in the service of the Company or any
rights to any benefits whatsoever, except to the extent specifically set forth
herein.
10.2 HEADINGS. Headings of Articles and Sections in this
instrument are for convenience only, and do not constitute any part of the Plan.
10.3 GOVERNING LAW. The validity, interpretation, construction
and performance of this Plan shall be governed by the laws of the State of
Idaho, without giving effect to the principles of conflict of laws of such
State.
10.4 SEVERABILITY. If a provision of this Plan shall be held
illegal or invalid, the illegality or invalidity shall not affect the remaining
parts of this Plan and this Plan shall be construed and enforced as if the
illegal or invalid provision had not been included.
10.5 GENDER AND NUMBER. Unless the context clearly indicates
otherwise, the masculine gender when used in the Plan shall include the
feminine, and the singular number shall include the plural and the plural number
the singular.
9
<PAGE>
EXECUTED in _______________ on this ____ day of April, 1996.
MORRISON KNUDSEN CORPORATION
____________________________________
By: Stephen G. Hanks
Its: Executive Vice President and
Chief Legal Officer
10
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and
Exchange Commission, upon request, with copies of Exhibits
and or Schedules hereto.]
<PAGE>
EXHIBIT ____
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the _____ day of April,
1996, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and ___________________, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered valuable services to Company, and has acquired
an extensive background in and knowledge of Company's business; and
WHEREAS, Company desires to continue the services of Executive in such executive
capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the effective date of this Agreement and ending December 31,
1998, upon the terms and conditions set forth herein, unless such employment is
earlier terminated in accordance with the provisions herein.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the annual base
salary rate in effect for Executive immediately preceding termination of
employment.
2.2 "CAUSE" shall mean (I) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer, (ii) Executive's willful and
continued failure to perform his duties under this Agreement (except due to
Executive's incapacity due to physical or mental illness) after a written demand
is delivered to Executive by the Chief Executive Officer specifically
identifying the manner in which the Chief Executive Officer believes that
Executive has failed to perform his duties, (iii) Executive's willful engagement
in conduct materially injurious to the Company, or (iv) Executive's conviction
for any felony involving moral turpitude. For purposes of clauses (I), (ii),
and (iii) of this definition, no act, or failure to act on Executive's part
shall be deemed "willful" unless done, or omitted to be done, by Executive not
in good faith and without reasonable belief that Executive's act, or failure to
act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
<PAGE>
(i) A failure by the Company to abide by any part of this Agreement that
is not remedied within ten (10) business days of notification by
Executive of such failure, including any violation of Executive's
rights as described in Section 3 of this Agreement unless such rights
are replaced by alternative rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities in effect on the
execution of this agreement.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his Early Retirement Date or Normal Retirement Date as defined in the
Morrison Knudsen Corporation Retirement Plan, established January 1, 1988 and
frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had never been
frozen.
ARTICLE 3 - COMPENSATION AND BENEFITS
Executive shall receive the annual base salary set by Company, which salary
shall be commensurate with Executive's duties and consistent with the
compensation policies of the Executive Compensation and Nominating Committee of
Company's Board of Directors. Such salary shall be, at a minimum, the amount of
base salary in effect for Executive as of the date this Agreement is executed.
At least annually, Company will review Executive's base salary to determine the
amount of any increase. Upon any such increase in Executive's base salary, such
increased rate shall thereafter constitute Executive's annual base salary for
all purposes of this Agreement.
ARTICLE 4 - RIGHTS UPON TERMINATION
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement, Company will pay to Executive Base Salary for a period of _________
months.
The severance payment due under this paragraph shall be paid in a single lump
sum.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in Company-
sponsored plans or programs that are generally applicable to salaried personnel.
ARTICLE 5 - MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking employment or otherwise, nor to
offset the amount of any payment provided for in this
2
<PAGE>
Agreement by amounts earned as a result of Executive's employment or
self-employment during the period he is entitled to such payment.
ARTICLE 6 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 9 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. This Agreement
shall not affect the provisions of any other compensation, retirement or other
benefit programs of Company to which Executive is a party..
ARTICLE 10 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this _____ day of April, 1996.
EXECUTIVE MORRISON KNUDSEN CORPORATION
__________________________________ ____________________________________
Signature By:
Its:
__________________________________ ____________________________________
Date Date
3
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints R. A. Tinstman, D. M. Slavich and S. G. Hanks, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or
both, as the case may be, of Morrison Knudsen Corporation, a Delaware
corporation, Form 10-K Annual Report for year ended December 31, 1995, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 8th day of February, 1996.
/s/ Christopher B. Hemmeter
--------------------------------------
Christopher B. Hemmeter
Director
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints R. A. Tinstman, D. M. Slavich and S. G. Hanks, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or
both, as the case may be, of Morrison Knudsen Corporation, a Delaware
corporation, Form 10-K Annual Report for year ended December 31, 1995, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 8th day of February, 1996.
/s/ Peter S. Lynch
--------------------------------------
Peter S. Lynch
Director
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints R. A. Tinstman, D. M. Slavich and S. G. Hanks, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or
both, as the case may be, of Morrison Knudsen Corporation, a Delaware
corporation, Form 10-K Annual Report for year ended December 31, 1995, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 8th day of February, 1996.
/s/ Robert A. McCabe
--------------------------------------
Robert A. McCabe
Director
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints R. A. Tinstman, D. M. Slavich and S. G. Hanks, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or
both, as the case may be, of Morrison Knudsen Corporation, a Delaware
corporation, Form 10-K Annual Report for year ended December 31, 1995, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 8th day of February, 1996.
/s/ Robert S. Miller, Jr.
--------------------------------------
Robert S. Miller, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints R. A. Tinstman, D. M. Slavich and S. G. Hanks, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or
both, as the case may be, of Morrison Knudsen Corporation, a Delaware
corporation, Form 10-K Annual Report for year ended December 31, 1995, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 8th day of February, 1996.
/s/ Gerard R. Roche
--------------------------------------
Gerard R. Roche
Director
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints R. A. Tinstman, D. M. Slavich and S. G. Hanks, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or
both, as the case may be, of Morrison Knudsen Corporation, a Delaware
corporation, Form 10-K Annual Report for year ended December 31, 1995, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 8th day of February, 1996.
/s/ John W. Rogers, Jr.
--------------------------------------
John W. Rogers, Jr.
Director
<PAGE>
SCHEDULE TO EXHIBIT 10.___
MORRISON KNUDSEN CORPORATION
SCHEDULE OF INDEMNIFICATION AGREEMENTS
Name Date of Agreement
---- -----------------
Agee, William J. February 13, 1987
Arrillaga, John October 10, 1990
Brandon, Brent D. November 5, 1993
Brigham, Douglas L. August 6, 1993
Brzezinski, Zbigniew February 8, 1994
Carmichael, Gilbert E. March 28, 1994
Channer, David A. February 9, 1995
Clark, William P. May 13, 1994
Cleary, James F. (Jr.) August 6, 1993
Crockett, Gregg A. July 27, 1995
Fox, Lindsay E. February 28, 1992
Gorman, Edmund J. February 9, 1990
Grant, Stephen R. May 5, 1989
Hanks, Stephen G. February 9, 1990
Hemmeter, C. B. May 5, 1989
Henderson, Alvia L. July 27, 1995
Howland, Mark E. February 8, 1994
Kealey, Thomas F. October 6, 1994
Lynch, Peter S. May 5, 1989
McCabe, Robert A. February 13, 1987
Miller, Robert S. (Jr.) April 1, 1995
Peden, Irene C. August 3, 1990
Roche, Gerard R. August 3, 1990
Rogers, John W. February 5, 1993
Sarsten, Gunnar E. October 10, 1990
Simpson, Charles February 9, 1996
Slavich, Denis M. March 8, 1995
Tinstman, Robert A. February 9, 1995
Ueberroth, Peter V. August 3, 1989
Zarges, Thomas H. July 27, 1995
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective as of March 22,
1994, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and Larry E. Salci, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered and will render valuable services to the
Company, and has acquired an extensive background in and knowledge of the
Company's business; and
WHEREAS, Company desires to continue the services of Executive in such
executive capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, and in consideration of
the mutual covenants herein contained, Company and Executive agree as follows:
ARTICLE I - TERM AND POSITION
1.1 Company shall employ Executive as the President of the Company's
Transit Group ("MK Transit Group") for a term beginning on the effective date of
this Agreement and ending on March 21, 1999, upon the terms and conditions set
forth herein, unless such employment is earlier terminated in accordance with
the provisions herein. The Executive's position with the Company is a regular
full time position and the Executive is assigned a Grade Level of 27.
1.2 The Executive accepts such employment. In connection with the
said employment, the Executive shall report to the Chief Executive Officer of
the Company.
1.3 Notwithstanding the foregoing, if this Agreement shall not have
been terminated in accordance with the provisions herein on or before March 21,
1999, the Agreement shall be extended such that at each and every moment of time
thereafter, the remaining term of the Agreement shall be one year unless (a)
the Agreement is terminated earlier in accordance with the provisions herein or
(b) on or after March 22, 1999, the Company's Board of Directors notifies
Executive in writing of its determination to have the term of this Agreement
expire one year from the date of notification.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
<PAGE>
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the
sum of (i) the annual base salary rate in effect for Executive immediately
preceding termination of employment (excluding any reduction in base salary made
in breach of this Agreement), (ii) an amount equal to the product of (A) and
(B), where (A) equals the percentage derived by dividing the cumulative bonus
paid to Executive under the 3-Year Plan Plan (a copy of which is attached hereto
as Exhibit "A", and made a part hereof) for the three most recently completed
calendar years prior to termination (including any bonus amounts deferred by
Executive under any Company deferred compensation plan or arrangement) by the
cumulative base salary paid to Executive for the same three-year period
(including any base salary deferred by Executive under any Company deferred
compensation plan or arrangement) and, (B) equals the amount set forth in 2.2(i)
above, (iii) continued participation in all basic and supplemental life,
accident, disability, medical, dental and other Company-sponsored welfare
benefit programs provided to the Executive immediately preceding termination
(or, if continued participation in one or more of these benefits is not possible
per the terms of the plan or applicable law, an amount of money that would
enable Executive to purchase similar benefits), and (iv) continuance of vesting
and benefit accrual under any Company-sponsored basic and supplemental
retirement programs in effect for Executive immediately prior to termination
(or, if continued participation in such programs is not possible per the terms
of the plan or applicable law, the monetary value of such benefits.
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow
a lawful written order of the Chief Executive Officer, (ii) Executive's
willful and continued failure to perform his duties under this Agreement
(except due to Executive's incapability due to physical or mental illness)
after a written demand is delivered to Executive by the Chief Executive
Officer specifically identifying the manner in which the Chief Executive
Officer believes that Executive has failed to perform his duties, (iii)
Executive's willful engagement in conduct materially injurious to the
Company, or (iv) Executive's conviction for any felony involving moral
turpitude. For purposes of clauses (i), (ii), and (iii) of this definition,
no act, failure to act on Executive's part shall be deemed "willful" unless
done, or omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's act, or failure to act, was in the best
interests of the Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean the Executive's voluntary
termination of employment within ninety (90) days following the occurrence of
one or more of the following events, unless such event is approved in writing by
Executive in advance of such event:
-2-
<PAGE>
(i) A failure by the Company to abide by any part of this Agreement that
is not remedied within ten (10) business days of notification by
Executive of such failure, including any violation of Executive's
rights as described in Section 3 of this Agreement unless such are
replaced by alternative rights of approximately equal value;
(ii) A reduction in Executive's title or responsibilities below that agreed
to Section 6.1.
(iii) The Company's sale of MK Transit Group, or the company's sale of
substantially all of the assets of MK Transit Group.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with
Company on or after his Early Retirement Date or Normal Retirement Date as
defined in the Morrison Knudsen Corporation Retirement Plan, established January
1, 1988, and frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had
never been frozen.
ARTICLE 3 - COMPENSATION AND BENEFITS
3.1 Executive shall receive the annual base salary set by the
Company, which salary shall be commensurate with Executive's duties and
consistent with the compensation policies of the Executive Compensation and
Nominating Committee of Company's Board of Directors. Such salary shall be, at
a minimum, $250,000.00 per year. This salary is payable in accordance with the
Company's normal payroll practice (i.e. every two weeks.
3.2 At least annually, Company will review Executive's base salary to
determine the amount of any increase. Upon any such increase in Executive's base
salary, such increased rate shall thereafter constitute Executive's annual base
salary for all purposes of this Agreement. The foregoing to the contrary
notwithstanding, the Company may reduce Executive's annual base salary during
any year by not more than 10% below the base salary in effect at the beginning
of the year as part of any general salary reduction which applies to all
officers of the Company.
3.3 No later than September 30, 1995, Company shall provide a Company
Key Executive Long-Term Performance Incentive Plan, applicable to the
Executive's Group or corporate position, as
-3-
<PAGE>
the came may be, in which the Executive shall be entitled to participate, ("5-
Year Plan"), once the said plan is finalized. Upon being finalized, the 5-Year
Plan shall contain Executive's sharing percentages and performance targets,
shall be executed by Executive and shall be attached hereto and made a part
hereof.
3.4 Executive shall also be entitled to participate in the Company's
Long-Term Performance Compensation Benefit Plan ("3-Year Plan") to the extent
such plan is continued by Company. A copy of the 3-Year Plan which has
heretofore been provided to Executive, is attached hereto as Exhibit "A", and
made a part hereof.
3.5 Executive also shall be eligible to participate in all
prerequisites and health and welfare benefits generally available to other
executive officers of Company, including, but not limited to, 401(k) Savings
Plan, group medical and dental plan, and all other group plans and other
benefits that are normally offered to regular full-time employees.
3.6 In addition, during his employment, Executive shall be provided
with supplemental benefits at no cost to Executive which shall result in the
following levels of coverage, inclusive of any coverage provided by basic
Company-sponsored benefits:
3.6.1 Pre-Retirement life insurance equal to three times
Executive's annual base salary;
3.6.2 Post-Retirement life insurance equal to one time Executive's
annual base salary as of the date of Executive's retirement;
and
3.6.3 Disability coverage from all Company-sponsored and
government sources equal to 60% of the sum of base salary
plus annual Group Incentive Plan bonus or Executive
Incentive Plan bonus, which ever is applicable, less any
offsets under the terms of such disability programs.
3.7 The Executive will be considered for an annual cash bonus at the
end of each calendar year. The Company shall set a targeted bonus of 50% of
annual base salary, assuming that MK Transit Group achieves pre-specified
results in the area of cash flow, not income (after taking into account cash
bonuses) and return on capital employed. A lesser bonus may be paid in the
event the results achieved fall below the predetermined goals. The Executive's
cash bonus for 1994 shall not be less than 20% base salary prorated for the
number of months of service (including partial months) rendered in 1994.
3.8 A recommendation will be made to the Executive Compensation and
Nominating Committee that the Executive be granted
-4-
<PAGE>
options to purchase 25,000 shares of the Company's common stock under the
Company's Stock Incentive Plan (or Stock Compensation Plan if such Plan is
approved by the Board of Directors) at a price equal to the mean between the
highest and lowest selling price of such stock on the New York Stock Exchange on
the effective date of grant. Pursuant to the Stock Incentive Plan, the option
shall vest over a period of four years and shall have a life of ten years.
3.9 A recommendation will be made to the Executive Compensation and
Nominating Committee that the Executive be granted 20,000 restricted shares of
the Company's common stock under the Company's Stock Incentive Plan (or Stock
Compensation Plan if such Plan is approved by the Board of Directors). The
restricted stock shall vest over a period of four years, with 20% vesting
immediately.
3.10 The Executive will be entitled to relocation assistance,
including an agreement for the purchase of the Executive's present residence if
that becomes necessary to avoid the Executive's incurring a loss on the sale of
the Executive's residence with respect to the Executive's move from Virginia to
Chicago (i.e., home purchase option and reimbursement for moving expenses).
3.11 No later than July 21, 1995, the Company will provide a Deferred
Compensation Agreement intended to compensate the Executive for those pension
benefits provided by the Executive's previous employer, Bombardier Corporation,
that the Executive forfeited as a result of his resignation from Bombardier
Corporation. The Deferred Compensation Package must provide the Executive with
at least the same amount of after tax funds, as did Executive's pension package
with Bombardier Corporation, as reflected on Exhibit "B" attached hereto and
made a part hereof. The type of such Deferred Compensation Agreement, as well
as additional terms thereof, will be determined after additional analysis by the
Company of the Executive's pension package with Bombardier Corporation, and will
be subject to mutual agreement between the Company, the Executive and the
Executive's attorneys. In the event that an accord cannot be reached by July 1,
1995, then the matter will be settled by arbitration in Chicago, Illinois in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
ARTICLE 4 - EXECUTIVE'S RIGHTS UPON TERMINATION
4.1 During the term of this Agreement, the Executive may be
terminated by the Company only for Cause.
-5-
<PAGE>
4.2 In the event that the Executive's employment with the Company is
terminated by Constructive Termination or for any other reason other than (a)
death, (b) Disability, (c) Cause, (d) voluntary resignation by Executive not
constituting Constructive Termination, or (e) Retirement, Company will pay to
Executive Base Compensation for a period of two years. In addition, Company will
fully and immediately vest all unvested stock options and restricted stock
awards previously granted by Company to Executive and fully vest and immediately
pay to Executive any accrued award earned by Executive under the 5-Year Plan
applicable to his Group or corporate position, as the case may be, or any other
Company-sponsored long-term cash incentive plan in which Executive is a
participant.
4.3 Base Compensation payments shall be made when payments would
otherwise have been made to Executive if he were still employed by the Company,
except in such cases where a different payment schedule is provided for in other
Company-sponsored plans or programs.
4.4 In the event Executive's employment with Company is terminated
for death, Disability, Cause, voluntary resignation not constituting
Constructive Termination or Retirement, Executive shall be entitled to be
compensated in accordance with the provisions of this Agreement through the date
of such termination, but shall not be entitled to receive any compensation for
the remainder of the term of the Agreement. This statement, however, shall not
preclude Executive from any payments or benefits available to Executive from
participation in Company-sponsored plans or programs that are generally
applicable to salaried personnel.
ARTICLE 5 - DESIGNATION OF BENEFICIARIES
5.1 If Executive should die while receiving payments pursuant to
Article 4, the remaining payments which would have been paid to Executive if he
had lived shall be paid as designated by Executive on the Beneficiary
Designation Form which is attached hereto as Exhibit "C". Such payments shall
be made at the same time and in the same manner as if Executive were alive to
receive the payments, except in such cases where a different payment schedule is
provided for in other Company-sponsored plans or programs. The filing of a new
Beneficiary Designation Form will cancel all designations previously filed. The
spouse of a married Executive shall join in any designation of a beneficiary
other than the spouse.
5.2 If Executive fails to designate a beneficiary as provided for
above, then Company shall direct the distribution of any benefits under this
Agreement to Executive's estate.
-6-
<PAGE>
ARTICLE 6 - DUTIES OF EXECUTIVE
6.1 Executive agrees to serve as the President of the Company's
Transit Group, or in such other executive capacity as the parties may mutually
agree, and to perform the duties and services appertaining to such office and
such other duties or services he may be reasonably directed to perform from time
to time by the Chief Executive Officer of Company.
6.2 Executive agrees, during the period of his employment by Company,
to devote his primary business time, energy and best efforts to the Business and
affairs of Company and, except with the consent of the Chief Executive Officer,
not to engage in any other business activity (except passive personal
investments).
ARTICLE 7 - MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking employment or otherwise, nor to offset
the amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
ARTICLE 8 - TAX "GROSS-UP" PROVISION
If any payments due Executive under this Agreement result in
Executive's liability for an excise tax under Section 4999 of the Internal
Revenue Code of 1986 an amended ("parachute tax"), the Company will pay
Executive, after deducting any Federal, state or local income tax imposed on
the payment, an amount sufficient to fully satisfy the parachute tax liability.
Such payment shall be made to Executive no later than 30 days prior to the date
of the parachute tax.
ARTICLE 9 - LEGAL PROCEEDINGS, FEES AND EXPENSES
9.1 Executive agrees to lawfully cooperate in any and all legal
proceedings, including but not limited to any threatened, pending or completed
action, suit, arbitration or proceedings, whether civil, criminal,
administrative or investigative ("Proceedings"), brought by or against the
Company or its directors, officers or shareholders, to the extent that the
Executive's lawful cooperation is reasonably required, helpful, relevant and
material to the Proceedings.
9.2 The Company shall fully compensate and reimburse the Executive on
account of any wages, benefits or other compensation lost by the Executive as a
result of his attendance or
-7-
<PAGE>
assistance with regard to any Proceedings. In addition, the Company shall pay
the reasonable fees, costs and expenses of any personal legal counsel retained
by Executive to advise and otherwise represent the Executive with respect to any
Proceedings. Any payments to be made by the Company under the provisions of this
paragraph shall be made by the Company to Executive within 30 days of the
Executive's request for payment.
9.3 Within 30 days of the Executive's request for payment, the
Company shall pay Executive for all reasonable legal fees and expenses incurred
by him relating to the preparation of this Instrument.
9.4 The rights and obligations of the parties contained in this
Article shall survive any termination of this Agreement.
ARTICLE 10 - INDEMNIFICATION
10.1 The Company shall indemnify and hold harmless the Executive of
and from all manner of action, cause, and causes of action, suits, debts, sums
of money, accounts, reckonings, bonds, options, contracts, leases, interests,
notes, negotiable and non-negotiable instruments, bills, specialties, covenants,
controversies, agreements, promises, libels, slanders, defamations, variances,
trespasses, torts, negligence, omissions, errors, obligations, fees, penalties,
fines, sanctions, damages, judgments, executions, claims, counterclaims and
demands whatsoever, whether in law or in equity, whether arising out of
statutes, contracts, torts or otherwise, known or unknown, foreseen or
unforeseen, contingent or vested, choate or inchoate, made or brought, or
threatened to be made or brought, against Executive by reason of the fact that
Executive is or was employed by the Company, or otherwise is or was an agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
10.2 The foregoing indemnification and hold harmless will be effective
whether the Executive is made a party, is threatened to be made party, or may be
made a party, to any and all legal proceedings, including, but not limited to
any threatened, pending or completed action, suit, arbitration or proceeding,
whether civil, criminal, administrative or investigative ("Proceedings").
10.3 The foregoing indemnification and hold harmless shall also
include, but is not limited to, all expenses reasonably incurred by Executive,
in the defense and/or settlement of, or otherwise in connection with any
Proceedings, including, but not limited to, reasonable attorneys' fees, court
costs, reasonable
-8-
<PAGE>
expert witness' fees, reproduction and/or photocopy costs, travel expenses,
deposition transcript costs and the like.
10.4 The foregoing indemnification and hold harmless does not include
any Proceedings brought against the Executive as a result of any conduct on his
part that was willful and with the intent to materially injure the Company.
10.5 The indemnification and hold harmless provided by this article
shall not be deemed exclusive of any other rights to which Executive may be
entitled under any law, by-law, agreement, vote of shareholders or directors or
otherwise, and as to action in another capacity while holding such capacity, and
shall inure to the benefit of Executive's heirs, executors, administrators and
assigns.
10.6 The rights and obligations of the parties contained in this
Article shall survive any termination of this Agreement.
ARTICLE 11 - SUCCESSORS
11.1 The rights and duties of a party hereunder shall not be
assignable by that party; provided, however, that this Agreement shall be
binding upon and inure to the benefit of any successor of Company, and any such
successor shall be deemed substituted for Company under the terms of this
Agreement. The term successor as used herein shall include any person, firm,
corporation or other business entity which at any time, by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of
Company.
11.2 This agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns.
ARTICLE 12 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains
the entire agreement between the parties and supersedes all prior oral and
written agreements, understandings and commitments between the parties. This
Agreement shall not affect the provisions of any other compensation, retirement
or other benefit programs or agreements of Company to which Executive is a party
except the Offer of Employment dated March 25, 1994 (the "Offer of Employment").
In the case of the Offer of Employment, Executive agrees that this Agreement
supersedes such Offer of Employment, and that this Agreement is entered into in
exchange for, and in lieu of, the terms and conditions of such Offer of
-9-
<PAGE>
Employment. No amendments to this Agreement may be made except through a
written document signed by both parties.
ARTICLE 13 - VALIDITY AND SEVERABILITY
In the event that any one or more of the provisions of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall be unimpaired and the invalid,
illegal or unenforceable provision shall be replaced by a provision, which,
being valid, legal and enforceable, comes closest to the intention of the
parties underlying the invalid, illegal or unenforceable provision.
ARTICLE 14 - ARTICLES AND READINGS
Paragraphs or other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretations of this Agreement.
ARTICLE 15 - NOTICES
Any notice or demand required or permitted to be given under this
Agreement shall be made in writing and shall be deemed effective upon the
personal delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid and addressed in the case
of the Company to its then principal place of business, presently Morrison
Knudsen Plaza, 720 Park Blvd., Boise, Idaho 83729, and in the case of Executive
to Morrison Knudsen Corporation, Morrison Knudsen Plaza, P.O. Box 73, Boise,
Idaho 83729. Either party may change the address to which such notices are to
be addressed by giving the other party notice in the manner herein set forth.
ARTICLE 16 - ATTORNEYS' FEES
16.1 In any action at law or in equity to enforce any of the
provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the Court in a final Judgment or decree, shall pay
the successful party or parties all costs, expenses and reasonable attorneys'
fees incurred therein by such party or parties (including without limitation
such costs, expenses and fees on any appeals), and if such successful party or
parties shall recover judgment in any such action or proceeding, such costs,
expenses and attorneys' fees shall be included as part of such judgment.
16.2 Notwithstanding the foregoing provision, in no event shall the
successful party or parties be entitled to recover an amount from the
unsuccessful party for costs, expenses and
-10-
<PAGE>
attorneys' fees that exceeds the unsuccessful party's costs, expenses and
attorneys' fees in connection with the action or proceeding.
ARTICLE 17 - TAXES
To the extent required by law, the Company shall withhold from any
payments under this Agreement any applicable federal, state or local taxes.
ARTICLE 18 - APPLICABLE LAW
To the full extent controllable by stipulation of the parties, this
Agreement shall be interpreted and enforced under Idaho law.
ARTICLE 19 - EXECUTION
The Parties agree that this Instrument may be executed in duplicate or
more originals and/or counterparts and each original or counterpart shall have
the same force and effect as the other.
ARTICLE 20 - CONTINGENCIES
This Agreement must be contingent upon the following contingencies:
20.1 The Executive's passing of a drug screening test, pursuant to the
Company's Substance Abuse Prevention Program, and his continued
compliance with such program. After reporting to work, the
Executive will also be required to complete an "Employment
Certification" form that complies with the passing of the Drug-
Free Workplace Act of 1988.
20.2 The Executive's compliance with the following laws:
20.2.1 In accordance with Public Law 99-603, the Immigration and
Naturalization Act of 1986, this offer is made pending
receipt of verifiable documentation from the Executive
confirming his eligibility for employment under the terms
and conditions of this Act. Proof of U.S. citizenship or
adequate identification is required before any hire can be
processed. The Executive must present acceptable documents
for employment
-11-
<PAGE>
eligibility verifications when he reports for his first day
of work.
20.2.2 In accordance with Public Law 100-679, the Office of Federal
Procurement Policy Act Amendments of 1988, the Company is
prohibited for a period of two years from hiring former
government officials or employees (military or civilian) who
participated personally and substantially in the conduct of
any Federal agency procurement. Consequently, this Agreement
is contingent upon receipt of information from the Executive
that his employment with the Company will not result in a
violation of the Procurement Policy Act. The Executive will
be required to complete an employee certification form
verifying his prior employment before his employment with
the Company begins.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer and Executive this 4 day of August, 1995.
ATTEST MORRISON KNUDSEN CORPORATION
/s/ Stephen G. Hanks /s/ Robert A. Tinstman
- ----------------------------------- -----------------------------------
Stephen G. Hanks, Robert A. Tinstman
Sr. Executive Vice President, Chief Executive Officer
Secretary, General Counsel
EXECUTIVE
/s/ Larry E. Salci
-----------------------------------
Larry E. Salci
-12-
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange Commission, upon
request, with copies of Exhibits and or Schedules hereto.]
<PAGE>
AGREEMENT
This Agreement is made this 19th day of April, 1995 between MORRISON KNUDSEN
CORPORATION, an Ohio corporation ("MK" or "Company") and LARRY E. SALCI
("Employee").
WHEREAS, Employee has been employed as President of the MK Transit Division, has
rendered valuable services to MK and has acquired an extensive background in and
knowledge of MK's Transit business; and
WHEREAS, MK desires to continue the services of Employee through the sale of all
or substantially all of the assets associated with MK's Transit Division, if and
when such sale occurs (the "Closing"), and Employee desires to continue to
provide services to the Company through such sale (the "Sale of Transit
Division");
NOW, THEREFORE, in consideration of the foregoing recitals and the agreements
set forth herein, MK and Employee agree as follows:
1. Employee shall be paid a one-time bonus equal to six months of his current
annual base salary, less any applicable taxes, provided that:
a. Employee does not voluntarily resign prior to the earlier of December
31, 1995 or the Closing of the Sale of Transit Division; or
b. Company has completed the Sale of Transit Division or Employee has
been terminated by the Company for a reason other than cause as
defined below, prior to December 31, 1995.
If the Employee is entitled to a payment pursuant to the foregoing
provisions of this paragraph 1, such payment shall be made within two weeks
following the earlier of December 31, 1995 or the Sale of Transit Division,
less any applicable federal, state or local taxes, to the extent required
by law.
2. This Agreement shall not limit or otherwise affect the provisions of any
other compensation, employment, retirement or other benefit programs or
agreements of Company to which Employee is a party. Any payments made
hereunder shall be in addition to those received under Employee's
Employment Agreement effective March 22, 1994 with Company.
3. "Cause" for termination by the Company, shall mean (i) the willful and
continued failure by the Employee to substantially perform the Employee's
duties with the Company (other than any such failure resulting from the
Employee's incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to the Employee by the
Chief Executive Officer of the Company, which demand
<PAGE>
specifically identifies the manner in which the Chief Executive Officer of
the Company believes that the Employee has not substantially performed the
Employee's duties, or (ii) the willful engaging by the Employee in conduct
which is demonstrably and materially injurious to the Company, monetarily
or otherwise. For purposes of clauses (i) and (ii) of this definition, no
act, or failure to act, on the Employee's part shall be deemed "willful"
unless done, or omitted to be done, by the Employee not in good faith and
without reasonable belief that the Employee's act, or failure to act, was
in the best interests of the Company.
4. The individual executing this Instrument on behalf of the Company, as its
Chief Legal Officer, represents and warrants to Employee that the said
individual has been and is legally authorized to enter into this Agreement
on behalf of the Company.
5. To the full extent controllable by stipulation of the parties, this
Agreement shall be interpreted and enforced under Idaho law.
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
------------------------------------
Chief Legal Officer
EMPLOYEE
By: /s/ Larry E. Salci
------------------------------------
Larry E. Salci
<PAGE>
MORRISON KNUDSEN CORPORATION
RESTRICTED STOCK AGREEMENT
WHEREAS, __________________________________ (hereinafter called the
"Grantee") is a key employee of Morrison Knudsen Corporation (hereinafter called
the "Company");
WHEREAS, the Company desires to induce Grantee to continue to provide
his services to the Company;
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee") has approved a grant to the Grantee of a total of
_______ shares of Restricted Stock of the Company (the "Award") pursuant to the
Morrison Knudsen Corporation Stock Compensation Plan dated February 18, 1994
(the "Plan") subject to the terms and conditions of the Plan as well as the
following terms, conditions, limitations and restrictions hereinafter set forth;
WHEREAS, the Committee has determined that the value of Grantee's past
services to the Company are at least equal to the par value of the _____ shares
of Restricted Stock awarded to Grantee herein;
WHEREAS, the execution of a Restricted Stock Agreement (hereinafter
called the "Agreement") substantially in the form hereof has been authorized by
the Committee; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
same meaning ascribed to such terms in the Plan.
NOW, THEREFORE, the Company and the Grantee hereby agree as follows:
1. The Company agrees to cause certificates for any Shares covered
hereunder to be delivered to the Grantee, subject to the terms and conditions of
the Plan and the terms and conditions hereinafter set forth.
<PAGE>
2. Restricted Stock covered by this Agreement shall be fully paid
and nonassessable and shall be represented by a certificate or certificates
registered in the Grantee's name, endorsed with an appropriate legend referring
to the restrictions hereinafter set forth. The Grantee shall have all the
rights of a shareholder with respect to such shares of Restricted Stock,
including the right to vote the Restricted Stock and to receive all dividends
paid thereon, provided that such shares of Restricted Stock, together with any
additional shares of Restricted Stock which the Grantee may become entitled to
receive by virtue of a share dividend, a merger or reorganization in which the
Company is the surviving corporation or any other change in capital structure
shall be subject to the restrictions hereinafter set forth.
3. The Restricted Stock subject to this grant may not be sold,
exchanged, assigned, transferred, pledged or otherwise disposed of by the
Grantee until July 1, 1996, except that the Grantee's right, with respect to the
Restricted Stock may be transferred by will or pursuant to the laws of descent
and distribution. Any purported transfer in violation of the provisions of
this section shall be void, and the purported transferee shall obtain no rights
with respect to such shares. The Company in its sole discretion, when and as
permitted by the Plan, may waive the restrictions on transferability with
respect to all or a portion of the Restricted Stock subject to this grant.
2
<PAGE>
4. The Restricted Stock subject to this grant will be forfeited upon
a filing of Bankruptcy by the Company Under Title 11 of the United States Code.
In such an event, the Grantee shall have no further rights under this Agreement.
5. The "Award Date Value", for purposes of the vesting formula
below, equals $__________. This "Award Date Value" has no relationship to the
fair market value of the grant at the date grant.
6. On July 1, 1996, the restrictions set forth in Sections 2 and 3
hereof shall lapse with respect to the number of Shares of Grantee's Restricted
Stock according to the following formula:
Number of Grantee's Shares for which restrictions will lapse on July
1, 1996 = X
--- x N
Y
Where: X = The Award Date Value
Y = The Retention Incentive Fair Market Value
of the Grantee's Shares
N = The number of Shares of Restricted Stock
under Grantee's Award
For purposes of this Agreement, "Retention Incentive Fair Market
Value" shall mean as applied to July 1, 1996, the number of Shares of Restricted
Stock under Grantee's Award multiplied by the lesser of (i) the Average Fair
Market Value of a Share between July 1, 1995 and July 1, 1996 and (ii) the
Average Fair Market Value of a Share between June 1, 1996 and July 1, 1996.
3
<PAGE>
Any fractional shares resulting from the application of the above
formula, shall be rounded down to a whole share.
Any Shares of Restricted Stock which remain subject to the
restrictions set forth in sections 2 and 3 hereof on July 2, 1996 shall be
forfeited by the Grantee.
7. All the Restricted Stock subject to this grant shall be forfeited
by the Grantee if the Grantee's employment with the Company terminates before
July 1, 1996, for any reason, except as stated in Section 8.
8. If, however, the Grantee's employment with the Company is
terminated before July 1, 1996 as a result of the Grantee's death or permanent
total disability, the restrictions set forth in Sections 2 and 3 hereof on the
Restricted Stock subject to this grant shall lapse as if Grantee had continued
employment through July 1, 1996.
9. The restrictions set forth in Sections 2 and 3 hereof on the
Restricted Stock subject to this grant shall also lapse upon the Grantee's
attainment of age 65, according to the following formula:
For each Award of Restricted Stock:
Number of Shares for which
restrictions shall lapse = X
--- x N
Y
Where:
X = number of months from the date of Award to the
date of the Grantee's termination;
Y = number of months required under the Award for all
restrictions to lapse without regard to early lapse
under Section 11(b) of the Plan;
4
<PAGE>
N = the number of Shares under each Award for which restrictions
have not lapsed.
10. In the event of a "Trigger Event" as hereinafter defined, the
restrictions set forth in Sections 2 and 3 hereof on the Restricted Stock
subject to this grant shall thereupon lapse and terminate. For the purpose of
this section, a Trigger Event shall occur upon the happening of any of the
following events:
(a) The date on which Shares are first purchased pursuant to a
tender offer or exchange offer (other than such an offer by the Company,
any subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding Shares or other securities of the Company
for or pursuant to the terms of such plan), whether or not such offer is
approved or opposed by the Company and regardless of the number of Shares
purchased pursuant to such offer;
(b) The date the Company acquires knowledge that any person or
group deemed a person under Section 13(d)-3 of the Exchange Act (other than
the Company, any Subsidiary, any employee benefit plan of the Company or of
any Subsidiary or any entity holding Shares or other securities of the
Company for or pursuant to the terms of any such plan), in a transaction or
series of transactions, has become the beneficial owner, directly or
indirectly (with beneficial ownership determined as provided in Rule 13d-3,
or any successor rule, under the Exchange Act), of securities of the
Company entitling the person or group to 30% or more of all votes (without
consideration of the rights of any class of stock to elect directors by a
separate class vote) to which all shareholders of
5
<PAGE>
the Company would be entitled in the election of the Board of Directors were an
election held on such date;
(c) The date during any period of two consecutive years, when
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by the shareholders
of the Company, of each new director was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the beginning
of such period; and
(d) The date of approval by the shareholders of the Company of an
agreement (a "reorganization agreement") providing for:
(i) The merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the
merger or consolidation, do not beneficially own, immediately after the
merger or consolidation, shares of the corporation issuing cash or
securities in the merger or consolidation entitling such shareholders to
80% or more of all votes (without consideration of the rights of any class
of stock to elect directors by a separate class vote) to which all
shareholders of such corporation would be entitled in the election of
directors of where the members of the Board of Directors of the Company,
immediately prior to the merger or consideration, do not, immediately after
the merger or
6
<PAGE>
consolidation, constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger or consolidation; or
(ii) The sale or other disposition of all or substantially
all the assets of the company.
11. During the period in which the transferability and forfeiture
restrictions set forth in Sections 2 and 3 hereof are in effect, the
certificates representing the Restricted Stock covered by this grant shall be
retained by the Company, together with the accompanying stock power signed by
the Grantee and endorsed in blank.
12. The Grantee hereby acknowledges that federal and state income,
payroll or other applicable taxes may apply with respect to this grant. If the
Company determines, in its sole discretion, that withholding is required, the
Grantee agrees by the acceptance of this grant that such withholding may be
accomplished through withholding from the cash compensation due to the Grantee
from the Company an amount sufficient to satisfy the full withholding
obligation. If withholding pursuant to the foregoing sentence is insufficient
(in the sole judgment of the Company) to satisfy the full withholding
obligation, the Grantee agrees that either (a) the Grantee will pay over to the
Company the amount of cash necessary to satisfy such remaining withholding
obligation by the time thereafter specified in writing by the Company, or (b)
the Company may retain such number of the shares covered by this grant as shall
be equal in value to the amount of remaining withholding obligation. Upon due
notice from the Grantee, the Company may (in its discretion) satisfy the entire
withholding obligation by retaining shares as provided in (b) above in lieu of
withholding from the
7
<PAGE>
Grantee's cash compensation.
13. For purposes of this Agreement, the continuous employ of the
Grantee with the Company or a Subsidiary shall not be deemed interrupted, and
the Grantee shall not be deemed to have ceased to be an employee of the Company
or any Subsidiary, by reason of the transfer of his or employment among the
Company and its Subsidiaries.
14. Nothing contained in this Agreement shall limit whatever right
the Company or a Subsidiary might otherwise have to terminate the employment of
the Grantee.
15. This Agreement is subject to the terms and conditions of the
Plan. Capitalized terms used herein without definition shall have the meanings
assigned to them in the Plan.
EXECUTED as of the ________ day of ________, 1995.
MORRISON KNUDSEN CORPORATION
-----------------------------------
By:
The undersigned Grantee hereby acknowledges receipt of an executed
original of this Restricted Stock Agreement and accepts the Restricted Stock
granted thereunder.
-----------------------------------
Grantee
8
<PAGE>
Logo
AMENDMENT TO AGREEMENT OF INDEMNITY
THIS DOCUMENT TO BE KNOWN AS THE RELEASE II
It is hereby mutually agreed that for good and valuable consideration,
receipt of which is hereby acknowledged, the Agreement of Indemnity dated the
1st day of July 1992 (hereinafter called the Agreement) and executed by
Morrison Knudsen Corporation, a Delaware Corporation, and all of the
companies listed in paragraph Twenty-Third of said Agreement, their successors
and assigns, (all of whom are hereinafter called Indemnitors) and executed by
said Indemnitors to provide indemnity to Fidelity and Deposit Company of
Maryland and Colonial American Casualty and Surety Company (both of whom are
hereinafter called Surety) in accordance with the terms of said Agreement is
amended as follows:
FIRST Surety and all of the Indemnitors hereby release G. W. Murphy
Construction Company, Inc., Black Construction Corporation,
Black Micro Corporation, and E. E. Black, Limited (hereinafter
called Releasees), their successors and assigns from all
obligations of indemnity to Surety or to each other which
obligations may have been incurred by Releasees because of any
and all bonds which may have been issued by Surety on behalf of
the other Indemnitors whether as a joint venturer or otherwise,
except for those certain contracts and related bonds subject to
the release dated September 21, 1995 between E. E. Black,
Limited, Morrison Knudsen Corporation, Tutor-Saliba Corporation,
and Fidelity and Deposit Company of Maryland. This release does not
apply to any obligation of indemnity which may have been incurred
in the past or which may be incurred in the future because of any
bond issued by Surety in which any one or more of Releasees is
named as bond principal either alone or as a joint venturer.
SECOND Except as amended by the terms of Release II, and any prior
releases, all terms and conditions of the Agreement remain
unchanged.
Dated this 21st day of September, 1995.
---------
ATTEST: FIDELITY AND DEPOSIT COMPANY OF MARYLAND
By: /s/ James I. Keenan, Jr. By: /s/ Richard F. Yeazel
------------------------ ----------------------------------
James I. Keenan, Jr. Richard F. Yeazel
Secretary Senior Vice President
<PAGE>
ATTEST COLONIAL AMERICAN CASUALTY AND SURETY COMPANY
By: /s/ C. Wayne Robbins By: /s/ Stewart F. Duke
------------------------ ---------------------------------
(Title) (Title)
C. Wayne Robbins, Assistant Stewart F. Duke, Vice President
Secretary
ATTEST: MORRISON KNUDSEN CORPORATION (DELAWARE)
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Executive Vice President
ATTEST: MORRISON KNUDSEN CORPORATION (OHIO)
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Executive Vice President
ATTEST: ATASCOSA MINING CO.
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks, Secretary
Assistant Secretary
ATTEST: E. E. BLACK, LTD.
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks, Secretary
Assistant Secretary
ATTEST: BLACK CONSTRUCTION CORPORATION
By: /s/ J. M. Robertson By: /s/ Douglas L. Brigham
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Douglas L. Brigham
Assistant Secretary Treasurer
ATTEST: BLACK MICRO CORPORATION
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Secretary
<PAGE>
ATTEST: CENTENNIAL ENGINEERING, INC.
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Executive Vice President
ATTEST: CF SYSTEMS CORPORATION
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Secretary
ATTEST: G. W. MURPHY CONSTRUCTION CO., INC.
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Secretary
ATTEST: NATIONAL PROJECT, INC.
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Senior Vice President
ATTEST: NAVASOTA MINING COMPANY, INC.
By: /s/ J. M. Robertson By: /s/ Stephen G. Hanks
------------------------ ---------------------------------
(Title) J. M. Robertson (Title) Stephen G. Hanks
Assistant Secretary Secretary
<PAGE>
Logo NEWS RELEASE
- -------------------------------------------------------------------------------
FOR RELEASE: March 22, 1996
MORRISON KNUDSEN SELLS 23% OF McCONNELL DOWELL
TO CEDAR GROUP, INC
BOISE - Morrison Knudsen Corporation announced today that on March 21,
1996, it sold its remaining 9.55 million shares in McConnell Dowell
Corporation for $1.60 (Aus) per share on the Australian Stock Exchange.
Proceeds to Morrison Knudsen from this sale will total approximately $11.6
million (U.S). The purchaser was Ceder Group Australia Pty. Limited.
This transaction completes the sale of Morrison Knudsen's shareholdings in
McConnell Dowell. In two prior transactions in 1996, MK sold approximately
8.27 million shares to Ceder at $1.25 (Aus) per share. And in a transaction
announced March 19, 1996, MK sold approximately 8.27 million shares to Downer
Group Australia Pty.Limited at $1.45 (Aus) per share. Total proceeds to MK
form the sale of all its shareholdings in McConnell Dowell will approximate
$28 million (U.S.).
McConnell Dowell is a Melbourne-based engineering and construction company
with operations throughout Asia, Australia and New Zealand and is listed on the
Australian and New Zealand stock exchanges (MDC).
Morrison Knudsen Corporation (MRN-NYSE), founded in 1912, serves the
world's environmental, industrial, mining, operations and maintenance,
process, power, transportation and heavy construction markets as an engineer
and constructor.
# # # #
<PAGE>
[LOGO] NEWS RELEASE
- --------------------------------------------------------------------------------
FOR RELEASE: MARCH 22, 1996
MORRISON KNUDSEN SELLS 23% OF MCCONNELL DOWELL
TO CEDAR GROUP, INC
BOISE - Morrison Knudsen Corporation announced today that on
March 21, 1996, it sold its remaining 9.55 million shares in McConnell Dowell
Corporation for $1.60 (Aus) per share on the Australian Stock Exchange.
Proceeds to Morrison Knudsen from this sale will total approximately $11.6
million (U.S.). The purchaser was Cedar Group Australia Pty. Limited.
This transaction completes the sale of Morrison Knudsen's shareholdings in
McConnell Dowell. In two prior transactions in 1996, MK sold approximately 8.27
million shares to Cedar at $1.25 (Aus) per share. And in a transaction
announced March 19, 1996, MK sold approximately 8.27 million shares to Downer
Group Australia Pty. Limited at $1.45 (Aus) per share. Total proceeds to MK
from the sale of all its shareholdings in McConnell Dowell will approximate
$28 million (U.S.).
McConnell Dowell is a Melbourne-based engineering and construction company
with operation throughout Asia, Australia and New Zealand and is listed on the
Australian and New Zealand stock exchanges (MDC).
Morrison Knudsen Corporation (MRN-NYSE), founded in 1912, serves the
world's environmental, industrial, mining, operations and maintenance, process,
power transportation and heavy construction markets as an engineer and
constructor.
# # # #
<PAGE>
SCHEDULE TO EXHIBIT 10.___
MORRISON KNUDSEN CORPORATION
SCHEDULE OF RESTRICTED STOCK AGREEMENTS
FOR EXECUTIVE OFFICERS
(Each dated on or about December 1, 1995)
Name Number of Restricted Shares Granted
---- -----------------------------------
Douglas L. Brigham 10,072
Gregg A. Crockett 9,512
Stephen G. Hanks 31,334
Alvia L. Henderson 10,258
Thomas F. Kealey 23,501
Denis M. Slavich 31,334
Robert A. Tinstman 31,334
Thomas H. Zarges 26,112
<PAGE>
SCHEDULE TO EXHIBIT 10.___
MORRISON KNUDSEN CORPORATION
SCHEDULE OF REVISED EMPLOYEE BENEFIT AGREEMENTS
Bonus Pay-Out Amount
Name [PARA2(a) to the Agreement]
---- ------------------------
Douglas L. Brigham $27,000
Steven Y. Chi 67,500
Stephen G. Hanks 150,000
Alvia L. Henderson 27,500
Denis M. Slavich 150,000
Robert A. Tinstman 250,000
Thomas H. Zarges 125,000
<PAGE>
SCHEDULE TO EXHIBIT 10.___
MORRISON KNUDSEN CORPORATION
SCHEDULE OF EMPLOYMENT AGREEMENTS
IN CONNECTION WITH SEVERANCE PAY-OUT
(Each dated on or about April 15, 1996)
# of Months Severance
Name (PARA4 of the Agreement)
---- ------------------------
Douglas L. Brigham 9 months
Steven Y. Chi 18 months
Alvia L. Henderson 9 months
<PAGE>
SCHEDULE TO EXHIBIT 10.___
MORRISON KNUDSEN CORPORATION
SCHEDULE OF SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENTS
Name Date of Agreement
---- -----------------
William J. Agee April 2, 1991
Robert A. Tinstman August 3, 1990
<PAGE>
IN THE DISTRICT COURT OF THE
FOURTH JUDICIAL DISTRICT OF THE STATE OF IDAHO
IN AND FOR THE COUNTY OF ADA
- --------------------------------------------------- x
DANIEL WOHLGELERNTER, ET AL., :
-- --- :
Plaintiff, :
v. : Case No. CV-OC-9500656D
:
WILLIAM J. AGEE, ET AL., :
------ :
Defendants. :
- --------------------------------------------------- x
STIPULATION OF SETTLEMENT
THIS STIPULATION (the "Stipulation") is entered on this 12 day of March,
1996, by and among plaintiff Daniel Wohlgelernter acting derivatively, all
defendants herein (collectively, the "Parties") and the Insurers, by and through
their respective undersigned attorneys, all of whom state that:
I.
THE LITIGATION
On February 15, 1995, this action was filed in the District Court for the
Fourth District, Ada County, Idaho, ("the Litigation") by plaintiff Daniel
Wohlgelernter, a stockholder in Morrison Knudsen Corporation ("MK"), against
defendants William J. Agee, Gunnar E. Sarsten, Stephen R. Grant, Stephen G.
Hanks, Michael J. Farrell, John P. Herbots, Joseph G. Fearon, Thomas J. Smith,
James F. Cleary, Peter S. Lynch, Gerald R. Roche, John Arrillaga, Christopher B.
Hemmeter, Robert A. McCabe, Lindsay E. Fox, Irene C. Peden, John W. Rodgers,
Jr., and Peter W. Ueberroth (the "Individual Defendants"), and MK and MK Rail
<PAGE>
Corporation ("MK Rail"), a corporation the majority of whose shares are owned by
MK and the remainder of which are owned by the public (collectively, the
"Defendants"). Plaintiff asserted derivative claims relating to injuries
allegedly sustained by MK and double derivative claims relating to injuries
allegedly sustained by MK Rail. THIS STIPULATION RELATES ONLY TO THE DOUBLE
DERIVATIVE CLAIMS ON BEHALF OF MK RAIL.
Plaintiff believes that the claims asserted in this action have merit and
that the evidence developed to date supports the claims asserted. The
Individual Defendants specifically deny any liability whatsoever and have
asserted numerous defenses to the claims and causes of action against them,
which they believe would be established if this action continued to conclusion.
All Parties, however, recognize and acknowledge that the expense and length of
continued proceedings necessary to prosecute this action against the Individual
Defendants through trials and appeals would be substantial. The Parties also
have taken into account the uncertain outcome and risk of any litigation,
especially complex actions such as this one, as well as the difficulties and
delays inherent in such litigation and the likelihood of protracted appellate
review. All Parties recognize that these considerations are particularly
compelling in view of MK Rail's plans to develop its business and increase
stockholder value. Moreover, the Parties have incurred substantial legal fees
and expenses to date and, if this action were to continue, would incur
substantial additional legal fees and expenses.
The Parties and the Insurers have engaged in lengthy, arduous and intense
arms-length settlement negotiations. After months of such negotiations, they
reached the agreement embodied in this Stipulation (the "Settlement"). The
Defendants, without admitting or conceding liability, and the Plaintiff, without
admitting merit or the lack of merit of any claim or defense, wish to avoid the
costs, expenses, disruption and uncertainties associated with continuation of
this action.
2
<PAGE>
Plaintiff and his Counsel believe that the Settlement set forth in this
Stipulation confers substantial benefits upon MK Rail. Based upon their
evaluation, Plaintiff and his Counsel have determined that the Settlement set
forth in this Stipulation is fair, reasonable, adequate, and in the best
interests of the Plaintiff, the current holders of MK Rail common stock, and MK
Rail.
MK Rail has given extensive consideration to all of the foregoing and has
determined independently that the Settlement reflected herein is fair,
reasonable and adequate to MK Rail, and provides MK Rail with reasonably
equivalent value for the claims herein being released.
It is the intention of the Parties and the Insurers that the proposed
Settlement resolve all Settled Claims, including Unknown Claims, as defined in
this Stipulation. This Stipulation does not, however, resolve the derivative
claims asserted on behalf of MK, which are governed by a separate stipulation of
settlement.
II.
PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION
Through an analysis and evaluation of the facts and law supporting
Plaintiff's claims, Plaintiff's Counsel and Plaintiff have concluded that this
settlement is in the best interests of MK Rail and its stockholders.
Beginning in May, 1995 and continuing into February, 1996, the Parties and
the Insurers engaged in long, arduous negotiations under the direction of
retired United States District Court Judge J. Lawrence Irving. Based upon these
settlement negotiations, the aforementioned analysis, and subsequent
negotiations, the Parties reached a settlement that all Parties believe is in
the best interests of Plaintiff, MK Rail, and MK Rail's stockholders.
III.
PLAINTIFF'S CLAIMS
3
<PAGE>
In the double derivative action against the Individual Defendants,
Plaintiff asserts claims for violation of certain common law fiduciary duties
owed by the Individual Defendants to MK Rail and seeks damages based upon
allegations, among others, that the Individual Defendants failed to conduct the
Company's business and affairs appropriately and to supervise certain management
personnel adequately.
Plaintiff believes that his claims have substantial merit. Entering into
or carrying out this Stipulation (or the exhibits hereto) and any negotiations
or proceedings related hereto shall not in any event be construed as, or deemed
to be evidence of, an admission or concession by Plaintiff with regard to the
merits of his claims and shall not be offered or received in evidence in any
action or proceeding in any court, administrative agency or other tribunal for
any purpose whatsoever other than to enforce the provisions of this Stipulation
and exhibits; except that this Stipulation and exhibits hereto may be filed in
this action or related litigation as evidence of the Settlement or in any
subsequent action against or by the Defendants or the Released Parties to
support a defense of RES JUDICATA, collateral estoppel, accord and satisfaction,
release, or other theory of claim or issue preclusion, or similar defense.
IV.
BENEFITS OF SETTLEMENT TO MK RAIL
MK Rail's Counsel and MK Rail recognize and acknowledge the expense and
length of continued proceedings necessary to prosecute this action against the
Defendants through trial and appeals. MK Rail's Counsel and MK Rail also have
taken into account the uncertain outcome and the risk of any litigation,
especially in complex actions such as this one, as well as the difficulties and
delays inherent in such litigation. MK Rail's Counsel and MK Rail have taken
into account the strengths and uncertainties of the claims asserted in this
action, the possible defenses to the claims asserted, and the substantial
benefits of the Settlement to MK Rail. MK Rail's Counsel and MK Rail have
considered the current financial condition of MK and MK Rail, and its impact on
4
<PAGE>
MK's ability to conduct future business, the effects of this action upon MK's
need to carry out financial restructuring, the belief of MK Rail and its Counsel
that, given MK's current financial condition, the Settlement has obtained for MK
Rail as much consideration as practicably possible under the circumstances, and
MK Rail's plans to develop its business and increase stockholder value. MK
Rail's Counsel and MK Rail, therefore, have determined that the Settlement set
forth in this Stipulation is in the best interests of MK Rail.
V.
DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
The Individual Defendants in the Litigation have denied and continue to
deny each and every claim and contention alleged by Plaintiff in this action.
They have asserted and continue to assert many defenses thereto and have
expressly denied and continue to deny any wrongdoing or legal liability
whatsoever arising out of the conduct alleged in this action. Neither this
Stipulation nor any document referred to herein nor any action taken to carry
out this Stipulation is, may be construed as, or may be used as, an admission by
or against the Defendants, or any of them, of any fault, wrongdoing or liability
whatsoever. Entering into or carrying out this Stipulation or the exhibits
hereto or any negotiations or proceedings related hereto shall not in any event
be construed as, or deemed to be evidence of, an admission or concession with
regard to the denials or defenses of any of the Defendants and shall not be
offered or received in evidence in any action or proceeding in any court,
administrative agency or other tribunal for any purpose whatsoever, other than
to enforce the provisions of this Stipulation and the exhibits hereto or the
provisions of any related agreement or release; except this Stipulation and the
exhibits hereto may be filed in this action or in related litigation as evidence
of this Settlement or in any subsequent action against or by the Defendants or
the Released Parties to support a defense of RES JUDICATA, collateral estoppel,
accord and satisfaction, release, or other theory of claim or issue preclusion,
or similar defense.
5
<PAGE>
VI.
BENEFITS OF SETTLEMENT TO INDIVIDUAL DEFENDANTS
Individual Defendants have concluded that it is desirable that the
Litigation be settled in a manner and upon the terms and conditions set forth
herein in order to avoid the expense, inconvenience, and distraction of further
legal proceedings and to put to rest the Settled Claims, including Unknown
Claims (as defined below), asserted by Plaintiff on behalf of MK Rail. In
determining whether to enter into and/or to perform the Stipulation, the
Individual Defendants also have considered a number of issues, including the
uncertain outcome and risk of any litigation, especially in complex actions such
as this one, as well as the difficulties and delays inherent in such litigation
and the strengths and uncertainties of the claims and defenses asserted in this
action. Defendants also have considered the current financial condition of MK
and MK Rail, the need to resolve this action on terms that will enable MK to
carry out a financial restructuring and MK Rail's plans to develop its business
and increase stockholder value.
VII.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, it is hereby stipulated and agreed by and among Plaintiff
(on behalf of himself, MK Rail, and its stockholders), the Defendants, and the
Insurers, by and through their respective counsel of record, that, subject to
the approval of the Court, this action and all claims that have been or could
have been asserted therein shall be finally and fully compromised and settled
and this action shall be dismissed by the Court on the merits and with prejudice
upon, and subject to, the terms and conditions of the Stipulation as follows:
6
<PAGE>
A. DEFINITIONS.
As used in this Stipulation, the following terms shall have the defined
meanings set forth below:
1. "MK" means Morrison Knudsen Corporation.
2. "MK Rail" means MK Rail Corporation.
3. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal
representative, trust, unincorporated organization or any other type
of legal entity and their heirs, predecessors, successors,
representatives and assigns.
4. "Court" means the District Court, Ada County, Idaho.
5. "Great American" means Great American Insurance Company.
6. "Fidelity" means The Fidelity and Casualty Company of New York.
7. "Reliance" means Reliance Insurance Company.
8. "CNA" means Continental Casualty Company.
9. "Settlement" means a full and final compromise settlement and
dismissal of all claims that have been or could have been asserted on
behalf of MK Rail in this action on, and subject to, the terms and
conditions of this Stipulation.
10. "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.
11. "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
7
<PAGE>
AL., Case No. 94-478; and SUSSER V. MK RAIL, ET AL., Case No. 94-477
(the "MK Rail Securities Actions").
12. "Defendants" means MK, MK Rail and the Individual Defendants.
13. "Final Court Approval" means that a judgment has been entered by the
Court in substantially the form set forth as Exhibit C and has become
final and non-appealable (i) approving the Settlement on terms
mutually satisfactory to the Parties and the Insurers; (ii) containing
findings to the effect that the consideration for the Settlement is
fair, reasonable and adequate and provides reasonably equivalent value
to MK Rail for the releases MK Rail is providing for the Settled
Claims, including Unknown Claims; and (iii) dismissing this action on
the merits with prejudice and without costs except as provided herein.
14. "Effective Date" means the date when the following has occurred: (1)
Final Court Approval and (2) satisfaction of all other conditions to
the Settlement set forth in this Stipulation.
15. "Released Parties" or "Released Party" means the Defendants and the
Insurers and all of their respective predecessors, successors and
present, former and future officers, directors, employees, agents,
attorneys, accountants, stockholders, investors, insurers, reinsurers,
underwriters, investment bankers, advisors, affiliates, associates,
present, former or future parents, subsidiaries or affiliates and each
of their assigns, representatives, heirs, executors and
administrators.
16. "Settled Claims" means collectively all claims, including "Unknown
Claims," demands, rights, liabilities, and causes of action of every
nature and description whatsoever in law or equity, known or unknown,
asserted or that might have been asserted directly, derivatively, or
double derivatively, including, without limitation, claims for
negligence, gross negligence, contribution or indemnity, breach of
duty
8
<PAGE>
of care and/or breach of duty of loyalty and/or breach of duty of
candor, fraud, negligent misrepresentation, breach of fiduciary duty,
or violations of any state or federal statutes, rules or regulations,
either directly, in a representative capacity or in any other capacity
by MK Rail, a stockholder of MK Rail, or Plaintiff against any of the
Defendants or the Released Parties (i) arising out of, relating to, or
in connection with, any of the acts, omissions, facts, events,
matters, transactions or occurrences referred to, or which could have
been referred to, in the complaint or other pleadings filed in the
Litigation or otherwise alleged, asserted or contended in the
Litigation based upon facts that were or could have been alleged in
the complaint or other pleadings filed in the Litigation on or before
June 6, 1995; (ii) arising out of, relating to, or in connection with
any compromise or settlement of claims that were or could have been
asserted by or against any Party to the Litigation and/or the
Securities Actions, or any of the Insurers; or (iii) that (x)
otherwise, without limiting the foregoing, in any manner whatsoever
relate to the formation, operation, administration, finances,
securities or business of MK Rail occurring on or before January 26,
1996, and (y) are not insured under policy No. 444-83-22 issued by
National Union Fire Insurance Company of Pittsburgh, Pennsylvania to
MK Rail and policies excess thereof or any of such policies that may
be renewed, if any, on terms to be agreed by the insureds and the
Insurers. Notwithstanding the foregoing, nothing herein shall release
or apply to any claim or claims that have been asserted on behalf of
MK in the MK Derivative Action or that may be asserted by any
stockholder of MK Rail in any capacity other than as a purchaser,
seller or holder of MK Rail shares.
9
<PAGE>
17. "MK Rail Derivative Settlement Memorandum" or "Settlement Memorandum"
means the Parties' memorandum of understanding executed as of August,
1995, regarding the settlement of this action.
18. "Unknown Claims" means Settled Claims that Plaintiff or MK Rail or its
stockholders do not know or suspect to exist in their favor at the
time of the release of the Released Parties, which, if known by them,
might have affected their settlement with the Defendants and release
of the Released Parties or other action, including, but not limited
to, the decision not to object to the Settlement. Plaintiff expressly
waives on behalf of himself and the stockholders of MK and MK Rail any
and all rights that they may have under any statute or common law
principle that would limit the effect of the foregoing releases to
those claims actually known or suspected to exist at the time of
execution of this Stipulation, including the provisions of Section
1542 of the California Civil Code, or other similar provision of any
other law, to the extent deemed applicable (notwithstanding that the
Stipulation does not provide for the application of California law),
which provides as follows:
Section 1542 GENERAL RELEASE; EXTENT. A general release does not
extend to claims which the creditor does not know or suspect to
exist in his favor at the time of the execution of the release,
which if known by him, must have materially affected his
settlement with the debtor.
19. "Notice" means the notice provided to the stockholders of MK Rail as
approved by the Court.
20. "Derivative Actions" means all actions listed on Exhibit E hereto.
10
<PAGE>
B. THERAPEUTIC MEASURES TO BE TAKEN BY MK RAIL.
1. On or before the Effective Date, MK Rail will adopt the following
procedures:
a. For three years following the Effective Date, 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 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 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 full-time 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
11
<PAGE>
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
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 Stipulation, MK Rail agrees that it will
prepare resolutions proposing such provisions for inclusion in
the proxy statement preceding the next annual meeting following
the Effective Date and shall recommend stockholder approval of
such resolutions.
2. 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 MK Rail Derivative Action, the
Derivative Actions and the
12
<PAGE>
Securities Actions on the terms as reflected in the collective
memoranda of understanding.
C. NOTICE TO STOCKHOLDERS
1. The cost of providing notice to the stockholders of MK Rail regarding
the Settlement, in the manner ordered by the Court, will be paid by
MK Rail. Plaintiff and Plaintiff's Counsel will cooperate with
MK Rail in order to minimize the cost of notice.
D. PLAINTIFF'S COUNSEL'S FEES
1. Plaintiff's Counsel will receive $250,000 in fees and expenses from
plaintiffs' counsel in the MK Rail Securities Action.
E. PRELIMINARY ORDER, NOTICE AND SETTLEMENT HEARING
1. As promptly as practicable after the execution hereof by all Parties
hereto, the undersigned counsel shall submit this Stipulation to the
Court and request a Preliminary Order scheduling a date for a hearing
before the Court (the "Settlement Hearing") to consider whether the
Settlement should be approved as fair, reasonable, and adequate, and
providing that Notice shall be sent to all stockholders of MK Rail
substantially in the form attached hereto as Exhibit A.
2. The Preliminary Order shall be submitted in proposed form to the Court
in substantially the form attached hereto as Exhibit B. The
Preliminary Order shall specifically include provisions that, among
other things:
a. Approve the Notice for mailing to MK Rail stockholders of record
as of January 15, 1996, or later, if practicable, notifying them
of the Settlement Hearing and of their right to object to the
Settlement;
13
<PAGE>
b. Direct the Parties to mail or cause to be mailed Notice to the
stockholders of MK Rail, which Notice shall request that nominees
for stockholders send the Notice to all beneficial owners of MK
Rail shares within ten (10) days after receipt of the Notice;
c. Direct MK Rail's counsel to serve on the Court proof by affidavit
and declaration of the mailing of the Notice;
d. Schedule a hearing to be held as soon as practicable to consider
and determine (i) whether the proposed Settlement should be
approved as fair, reasonable, and adequate; as providing
reasonably equivalent value to MK Rail for the releases being
provided; and as being in the best interests of MK Rail and its
stockholders; and (ii) whether an order approving the Settlement
and entering a final judgment should be entered thereon,
dismissing this action on the merits and with prejudice.
e. Provide that objections to the proposed Settlement and entry of a
final judgment approving the Settlement shall be heard and any
papers submitted in support of said objection shall be received
and considered by the Court at the Settlement Hearing only if, on
or before the date to be specified in the Preliminary Order
(which shall be 10 days prior to the Settlement Hearing), Persons
making objections shall file a notice of their intention to
appear and copies of any papers in support of their position with
the Clerk of the Court and serve such notice and papers on:
Jules Brody
Stull, Stull & Brody
6 East 45th Street
New York, NY 10017
Bruce J. Bistline
303 W. Bannock
14
<PAGE>
Boise, ID 83701
Plaintiff's Counsel
Jennifer Wilson Hewitt
Doepken, Keevican & Weiss
USX Tower - 37th Floor
600 Grant Street
Pittsburgh, PA 15219
Counsel for MK Rail
P. Craig Storti
Hawley, Troxell, Ennis & Hawley
First Interstate Center
877 West Main Street - Suite 1000
Boise, ID 83701
Counsel for James Cleary
f. Provide that the Settlement Hearing may, from time to time and
without further notice, be continued or adjourned by order of the
Court;
g. Provide that all papers in support of the Settlement shall be
filed prior to the Settlement Hearing;
h. Provide that all reasonable costs incurred in printing, mailing
or otherwise providing Notice to the stockholders of this
settlement shall be paid by MK Rail;
i. Provide that, if the Settlement is disapproved, cancelled or
terminated in accordance with the terms of the Settlement
Memorandum or this Stipulation, then the Settlement Memorandum
and the Stipulation shall have no force and effect, and all
negotiations, proceedings and statements made in connection
herewith shall be without prejudice to the right of any Person,
and the Parties to this action shall be restored to their
respective positions existing as of June 5, 1995, provided,
however, that expenses of
15
<PAGE>
printing, mailing and otherwise providing Notice, incurred but
not yet paid, shall be paid as provided above; and
j. Provide that, pending final determination of whether the
Settlement should be approved, all discovery and other
proceedings in this action are stayed.
F. FINAL JUDGMENT TO BE ENTERED BY COURT APPROVING THE SETTLEMENT
1. If the Settlement, including any modification thereto made with the
consent of the Parties and the Insurers as provided herein, is
approved by the Court and the Settlement has not been terminated by
the Parties or the Insurers pursuant to the Stipulation and all
conditions to the consummation of the Settlement other than the entry
of a final judgment have otherwise been satisfied or waived, the
Parties shall ask the Court to enter a final judgment substantially in
the form of Exhibit C attached hereto that shall:
a. Approve the Settlement as fair, reasonable and adequate to
Plaintiff, MK Rail, and its stockholders;
b. Find that MK Rail received reasonably equivalent value for the
releases provided to the Individual Defendants and Released
Parties;
c. Find the terms of this Stipulation to be valid and enforceable
and direct consummation of the Settlement in accordance with the
terms and provisions of this Stipulation;
d. Dismiss this action against all Defendants with prejudice and
without cost to any Party as against any other Party;
e. Adjudge that, as more fully described herein, Plaintiff, MK Rail,
and MK Rail's stockholders shall be deemed conclusively to have
released the Settled Claims, including Unknown Claims, against
the Released Parties.
16
<PAGE>
Notwithstanding that Plaintiff, any MK Rail stockholder or MK
Rail may hereafter discover facts in addition to, or different
from, those that they now know or believe to be true with respect
to this action and the Settled Claims, including Unknown Claims,
or with respect to the subject matter of the release, the
Plaintiffs, MK Rail and all MK Rail stockholders upon the
Effective Date shall be deemed fully, finally and forever to have
settled and released any and all Settled Claims, including
Unknown Claims, against the Released Parties, including all
claims known or unknown, suspected or unsuspected, contingent or
non-contingent, which now exist or heretofore have existed and
without regard to subsequent discovery or existence of any such
different or additional facts. Upon the Effective Date,
Individual Defendants shall be deemed conclusively to have
released Plaintiff and Plaintiff's Counsel only from those claims
or potential claims against Plaintiff and Plaintiff's Counsel
that are based upon, or arise out of, the institution,
prosecution, assertion or resolution of this action and the
Settled Claims, including Unknown Claims, provided however, that
such releases shall not extend to claims arising out of any
violations of this Stipulation;
f. Bar and permanently enjoin Plaintiff and the stockholders of MK
Rail from prosecuting the Settled Claims, including Unknown
Claims, against the Individual Defendants and Released Parties;
g. Bar and permanently enjoin Plaintiff and the stockholders of MK
Rail, either directly or representatively, or in any other
capacity, from instituting or prosecuting any action against any
Person other than the Released Parties, to the extent that such
action asserts any claim included in the
17
<PAGE>
definition of Settled Claims, including Unknown Claims, unless:
(i) appropriate provision satisfactory to the Court is made to
assure that the amounts to be collected pursuant to any Judgment
will be available, if necessary, to meet the obligations that may
exist under the provisions for indemnification set forth below as
a consequence of such judgment, or (ii) any settlement of such
claims provides for releases of claims or claims over of the
settling party against the Released Parties co-extensive with
those received by the Released Parties herein;
h. For the purpose of effectuating the Parties' intention to protect
the Released Parties from claims or claims-over of third parties
arising out of the Settled Claims, including Unknown Claims:
(i) Bar and permanently enjoin all Persons subject to the
jurisdiction of the Court, either directly,
representatively or in any other capacity, from
instituting or prosecuting or continuing to prosecute, any
action, claim, or claim-over against any Released Party on
whatsoever theory (whether by way of third party or
subsequent party complaint, cross-claim, separate action
or otherwise, and whether under federal or state law) to
recover in whole or in part any liability, direct or
indirect, of such Person to Plaintiff, MK Rail, or any
stockholder of MK Rail in connection with, arising out of,
or which is in any way related to, the Settled Claims,
including Unknown Claims;
(ii) Dismiss with prejudice and without costs any claims or
claims-over asserted or deemed asserted by any Person
against any Released Party on whatsoever theory (whether
by way of third-party or
18
<PAGE>
subsequent-party complaint, cross-claim, separate action
or otherwise, and whether under federal or state law) to
recover in whole or in part any liability, direct or
indirect, of such Person to Plaintiff, MK Rail or any
stockholder of MK Rail in connection with, arising out of,
or which in any way related to, the Settled Claims,
including Unknown Claims;
(iii) Order that any judgment by Plaintiff or stockholders of MK
Rail as against any Person on a claim with respect to
which such Person would have (but for the contribution bar
ordered set forth above) a legally valid and enforceable
right to contribution from any Released Party and that is
in connection with, arising out of, or in any way related
to, the Settled Claims, including Unknown Claims, shall be
reduced by such percentage as reflects a determination of
the relative fault or culpability, if any, of the Released
Parties, as compared to the relative fault or culpability
of such Person;
(iv) Order that, if necessary in order further to effectuate
the intention of the Parties that the Released Parties
shall have no liability to any Person for contribution or
indemnification with respect to any claim by Plaintiff or
any stockholder of MK Rail against any Person with respect
to the Settled Claims, including Unknown Claims, Plaintiff
and each stockholder of MK Rail shall reduce or credit
against any judgment or settlement he, she or it may
obtain against any Person the full amount of any judgment
or settlement such Person may obtain against any Released
Party on any of the claims over on whatsoever theory
(whether by way of third-party or subsequent-
19
<PAGE>
party complaint, cross-claim, separate action or
otherwise) in connection with, or arising out of, or which
is in any way related to, the Settled Claims, including
Unknown Claims, including but not limited to claims over
that have been, could have been, or could be alleged in
this or any other action; and shall obtain from such
Person for the benefit of the Released Parties a
satisfaction in full of such Person's judgment or
settlement against the Released Parties;
i. Approve the agreement of Plaintiff and the stockholders of MK
Rail that, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Plaintiff and each
stockholder of MK Rail indemnifies the Individual Defendants and
the Released Parties and holds them harmless from, and against,
any and all liability, including amounts paid in settlement and
reasonable costs of defense, with respect to any claim made
against such Individual Defendant or Released Party that is a
Settled Claim, including an Unknown Claim or a claim over under
whatsoever theory (whether by way of third- or subsequent-party
claimant, cross-claim or separate action or otherwise) by any
Person arising out of, or in any way related to, the Settled
Claims, including Unknown Claims, including without limitation,
claims over that have been, or could have been, alleged in this
action; provided that the obligation of Plaintiff or each
stockholder of MK Rail to indemnify and hold harmless is limited
to the amount obtained by Plaintiff or stockholder of MK Rail, if
any, as a result of any claims made against the Person asserting
claims against an Individual Defendant or Released Party for
which indemnification is sought;
20
<PAGE>
j. Approve the further agreement of the Parties and the Insurers
that, in the event that any Person obtains any recovery by
judgment, settlement or otherwise against any Individual
Defendant or Released Party that is related in any way to the
Settled Claims, including Unknown Claims, appropriate provision
(including delaying distribution of the amounts payable under a
judgment and, in case of settlement, obtaining releases to
protect an Individual Defendant or a Released Party from any
liability to such Persons on claims over) shall be made to assure
the effectuation of the indemnity provided herein. In such
event, any recovery against a Person that has not released any
claims or claims over against an Individual Defendant or a
Released Party shall be held in escrow pursuant to Order of the
Court until any claims or claims over against a Released Party
are finally determined, subject to the other limitations and
provisions of this Stipulation;
k. Order that the foregoing provisions of this Stipulation with
respect to reduction of judgment and effectuation of
indemnification are not intended to be exclusive and nothing
herein shall be deemed to modify, lessen or impair the indemnity
obligations of MK Rail in any situation to which the provisions
apply;
l. Approve the agreement of Plaintiff's Counsel that, should an
action be brought against the Released Parties based upon the
Settled Claims, including Unknown Claims, they shall cooperate
with the Released Parties in moving for appropriate relief in
accordance with this Stipulation at no cost to the Released
Parties;
21
<PAGE>
m. Determine that, by reason of the Parties' Settlement, there is no
just reason to delay and find expressly that the Final Judgment
is a final judgment for purposes of appeal;
n. Determine that the Stipulation and any proceedings in connection
herewith are not, and should not in any event be, offered or
received as evidence of a presumption, concession or admission of
any misrepresentation or omission in any statement or written
document made by any Released Party or offered or received as
evidence of a presumption, concession or any admission of
liability, fault, wrong-doing or any other dereliction of duty in
this action or any other civil, criminal, bankruptcy or
administrative action or proceeding, provided however, that
reference may be made to this Stipulation and the Settlement in
such proceedings as may be necessary to effectuate the provisions
of this Stipulation;
o. Reserve jurisdiction without affecting the finality of the Final
Judgment for the purposes of implementing and enforcing the
Settlement embodied in the Stipulation.
G. CONDITIONS OF SETTLEMENT
1. This Stipulation shall be subject to the following conditions and,
except as provided PARA H of this Stipulation, shall be cancelled and
terminated unless:
a. The Court shall enter a Preliminary Order as required by Section
VII, E above;
b. Final Court Approval of this Settlement has been obtained; and
c. The settlement of the MK Rail Securities Actions has been
approved by a judgment that has become final and nonappealable.
22
<PAGE>
H. EFFECTS OF TERMINATION OF THE SETTLEMENT
1. If the Effective Date does not occur or if this Stipulation is
disapproved, terminated or cancelled pursuant to its terms:
a. All Parties shall be deemed to have returned to their respective
litigation positions as of June 5, 1995;
b. All Parties shall proceed in all respects as if this Stipulation
had not been executed and the related orders and judgments had
not been entered preserving in that event all of their respective
claims and defenses in the action; and
c. All releases given in this Stipulation shall be null and void.
I. EXTENT OF RELEASES
1. From and after the Effective Date:
a. Plaintiff acting in his derivative capacity, on behalf of
himself, his heirs, executors and administrators, successors and
assigns and any Person(s) he represents, including without
limitation all stockholders of MK Rail, and their respective
present and former parents, subsidiaries, affiliates, associates,
officers, directors, employees and agents, attorneys and
consultants, shall release, remise, acquit and forever discharge
each of the Individual Defendants and Released Parties, their
respective affiliates, associates, legal representatives, and the
heirs, executors and administrators, successors and assigns of
each, of and from every asserted or potential claim, right or
cause of action, under federal, state or common law, or any other
law, including without limitation claims for negligence, gross
negligence, contribution or indemnity, breach of duty of care
and/or
23
<PAGE>
duty of loyalty and/or duty of candor, fraud, negligent
misrepresentation, breach of fiduciary duty or violations of any
state or federal statutes, rules or regulations, known or
unknown, that has been, might have been, or might be asserted (i)
arising out of, relating to, or in connection with, any of the
acts, omissions, facts, events, matters, transactions or
occurrences referred to, or which could have been referred to, in
the complaint or other pleadings filed in the Litigation or
otherwise alleged, asserted or contended in the Litigation based
upon facts that were or could have been alleged in the complaint
or other pleadings filed in the Litigation on or before June 6,
1995; (ii) arising out of, relating to, or in connection with any
compromise or settlement of claims that were or could have been
asserted by or against any Party to the Litigation and/or the
Securities Actions, or any of the Insurers; or (iii) that (x)
otherwise, without limiting the foregoing, in any manner
whatsoever relate to the formation, operation, administration,
finances, securities or business of MK Rail occurring on or
before January 26, 1996, and (y) are not insured under policy No.
444-83-22 issued by National Union Fire Insurance Company of
Pittsburgh, Pennsylvania to MK Rail and policies excess thereof
or any of such policies that may be renewed, if any, on terms to
be agreed by the insureds and the Insurers. Notwithstanding the
foregoing, nothing herein shall release or apply to any claim or
claims that have been asserted on behalf of MK in the MK
Derivative Action or that may be asserted by any stockholder of
MK Rail in any capacity other than as a purchaser, seller or
holder of MK Rail shares.
24
<PAGE>
b. Each of the Individual Defendants, their affiliates, associates,
employees and agents, attorneys, or consultants, and the heirs,
executors and administrators, successors and assigns of each,
release one another of and from every asserted or potential
claim, right or cause of action, including without limitation
claims for negligence, gross negligence, contribution or
indemnity, breach of duty of care and/or duty of loyalty and/or
duty of candor, fraud, negligent misrepresentation, breach of
fiduciary duty or violations of any state or federal statutes,
rules or regulations, known or unknown, that has been, might have
been, or might be asserted in this action or in any other court
or forum whatsoever (i) in connection with, arising out of, or in
any way relating to, any acts, facts, transactions, occurrences,
representations, omissions or other subject matter occurring on
or before the date of signing of this Stipulation set forth,
alleged, embraced or otherwise referred to in the Litigation or
(ii) that in any manner whatsoever relates to the formation,
operation, administration or business of MK Rail.
c. MK Rail, on behalf of itself, its subsidiaries, affiliates,
trustees, officers, directors, employees and agents and their
respective heirs, executors and administrators, successors and
assigns shall release, remise, acquit and forever discharge each
of the Individual Defendants and Released Parties, their
affiliates, heirs, executors and administrators, successors and
assigns of each, of and from every asserted or potential claim,
right or cause of action, under federal, state or common law, or
any other law, including without limitation claims for
negligence, gross negligence, contribution or indemnity, breach
of duty of care and/or duty of loyalty and/or duty of
25
<PAGE>
candor, fraud, negligent misrepresentation, breach of fiduciary
duty or violations of any state or federal statutes, rules or
regulations, known or unknown, that has been, might have been, or
might be asserted (i) arising out of, relating to, or in
connection with, any of the acts, omissions, facts, events,
matters, transactions or occurrences referred to, or which could
have been referred to, in the complaint or other pleadings filed
in the Litigation or otherwise alleged, asserted or contended in
the Litigation based upon facts that were or could have been
alleged in the complaint or other pleadings filed in the
Litigation on or before June 6, 1995; (ii) arising out of,
relating to, or in connection with any compromise or settlement
of claims that were or could have been asserted by or against any
Party to the Litigation and/or the Securities Actions, or any of
the Insurers; or (iii) that (x) otherwise, without limiting the
foregoing, in any manner whatsoever relate to the formation,
operation, administration, finances, securities or business of MK
Rail occurring on or before January 26, 1996, and (y) are not
insured under policy No. 444-83-22 issued by National Union Fire
Insurance Company of Pittsburgh, Pennsylvania to MK Rail and
policies excess thereof, or any of such policies that may be
renewed, if any, on terms to be agreed by the insureds and the
Insurers. Notwithstanding the foregoing, nothing herein shall
release or apply to any claim or claims that have been asserted
on behalf of MK in the MK Derivative Action or that may be
asserted by any stockholder of MK Rail in any capacity other than
as a purchaser, seller or holder of MK Rail shares.
d. Individual Defendants and MK Rail on behalf of themselves, their
subsidiaries, affiliates, trustees, officers, directors,
employees and agents,
26
<PAGE>
and their respective heirs, executors and administrators,
successors, assigns release, remise and acquit and forever
discharge Plaintiff and Plaintiff's Counsel only from those
claims or potential claims against Plaintiff and Plaintiff's
Counsel that are based upon, or arise out of, or are in
connection with, the institution, assertion, prosecution or
resolution of this action or the Settled Claims, including
Unknown Claims. Notwithstanding the foregoing, nothing herein
releases any claim arising out of a violation of this Stipulation
by Plaintiff or Plaintiff's Counsel.
2. The Parties each acknowledge that they may have sustained damages,
expenses and losses in connection with the subject matter of the
Settled Claims, including Unknown Claims, that are presently unknown
or not suspected and that such damages, expenses and losses, if any,
may give rise to additional damages, expenses or losses in the future
that are not now anticipated by them. The Parties acknowledge that
this Stipulation and the foregoing releases have been negotiated and
agreed upon in light of this realization and, being represented by
counsel and fully advised thereof, hereby expressly waive any and all
rights that they may have under any statute or common law principle
that would limit the effect of the foregoing releases to those claims
actually known or suspected to exist at the time of execution of this
Stipulation, including the provisions of Section 1542 of the
California Civil Code, to the extent deemed applicable
(notwithstanding the choice of law provision of this Stipulation to
the contrary), which provides as follows:
"1542. GENERAL RELEASE-CLAIMS EXTINGUISHED. A general
release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the
time of executing the release, which if known by him
must have materially affected his settlement with the
debtor."
27
<PAGE>
J. GOVERNING LAW
This Stipulation shall be governed by, subject to, and construed in
accordance with the internal laws of the State of Delaware without regard to
choice of law rules.
K. ENFORCEMENT OF STIPULATION
This Stipulation shall be enforced solely in the Court. The Parties waive
any objection that each such Party may now have or hereafter have to the venue
of any such suit, action or proceeding to enforce this Stipulation and
irrevocably consent to the jurisdiction of the Court in any suit, action or
proceeding and agree to accept and acknowledge service of process that may be
served in any such suit, action or proceeding. Insofar as an issue arises in a
proceeding in another forum requiring interpretation of any of the provisions of
this Stipulation and any Defendant intends to bring the issue before the Court,
that Defendant will provide reasonable notice to all parties to that proceeding
of that intent and shall make a good faith effort to negotiate an agreement on
such issues in order to avoid the need to present the issue in the Court.
L. COUNTERPARTS
This Stipulation may be executed in two or more counterparts.
M. RELEASES TO INSURERS
The effectiveness of this Stipulation 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.
N. MISCELLANEOUS PROVISIONS
1. The Parties and the Insurers shall cooperate in good faith and use
their best efforts to obtain as promptly as practical final approval
of the Settlement and to implement the Settlement, including execution
by the Parties and the Insurers of
28
<PAGE>
such further documents as are reasonably necessary to implement the
provisions hereof and to obtain appropriate court orders. None of the
Parties or Insurers shall seek to evade their good faith obligation to
seek approval and implementation of this Settlement by virtue of any
rulings, orders or governmental or other reports, legislative action,
results of any further developments whether in this action, any other
litigation, or otherwise that have occurred after June 5, 1995, or
might occur hereafter and might be deemed to alter the relative
strength of the Parties or Insurers with respect to any claims or
defenses or their relative bargaining power with respect to
negotiating the Settlement. The Parties deem this Settlement to be
fair and reasonable and have arrived at this Settlement through arms'
length negotiation, taking into account all relevant factors present
or potential.
2. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
3. This Stipulation and the exhibits hereto constitute the entire
agreement among the Parties and no representations, warranties or
inducements have been made to any Party concerning this Stipulation or
its exhibits other than the representations and warranties and
covenants contained and memorialized in such document. This
Stipulation supersedes and replaces the Settlement Memorandum. Except
for indemnification provided by MK and MK Rail to the Individual
Defendants or as otherwise provided herein, each Party shall bear its
own costs.
4. Counsel for each Party and each Insurer is authorized to sign this
Stipulation on behalf of his/her respective client.
29
<PAGE>
O. SUCCESSORS AND ASSIGNS
This Stipulation shall be binding upon, and shall inure to the benefit of,
the Parties and the Insurers and their respective successors, assigns,
executors, administrators, heirs and legal representatives, as the case may be;
provided, however, that no assignment by any Party or the Insurers shall operate
to relieve such Party or Insurer of his, her, or its obligations hereunder.
P. NON-WAIVER OF PROVISIONS
Any failure by any Party or Insurer to insist upon the strict performance
by any other Party or Insurer of any of the provisions of this Stipulation shall
not be deemed a waiver of any of the provisions hereof, and such Party or
Insurer, notwithstanding such failure, shall have the right thereafter to insist
upon the strict performance of any and all of the provisions of this Stipulation
to be performed by such other Party or Insurer.
Q. CAPTIONS
The captions contained in this Stipulation are inserted only as a matter of
convenience and in no way define, limit, extend or describe the scope of this
Stipulation or the intent of any provision hereof.
R. ARM'S-LENGTH NEGOTIATIONS AND INTERPRETATION OF SETTLEMENT AGREEMENT
This Stipulation, including the exhibits attached hereto, was executed
after arm's length negotiations among the Parties and Insurers and reflects the
conclusion of counsel for all the Parties and Insurers that the Settlement
contemplated hereby, is fair, equitable and in the best interests of their
respective clients.
This Stipulation shall not be construed more strictly against any one Party
or Insurer than another merely by virtue of the fact that the Stipulation may
have been prepared by counsel for one of the Parties; it being recognized that,
because of the arm's-length negotiations described
30
<PAGE>
above, all Parties and Insurers hereto have contributed substantially and
materially to the preparation of this Stipulation.
S. AMENDMENTS
This Stipulation may not be modified except by a writing signed by all of
the Parties and the Insurers.
DATED: March 12 , 1996
--------------------------------
Respectfully submitted,
/s/ Edward Dietrich /s/ Jennifer W. Hewitt
- -------------------------------------- -----------------------------------
Edward Dietrich Jennifer W. Hewitt
Stull, Stull & Brody 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 Stephen G. Hanks
/s/ P. Craig Storti
-----------------------------------
P. Craig Storti
Hawley Troxell Ennis & Hawley
Attorney for James F. Cleary
31
<PAGE>
/s/ Cezar M. Froelich
- --------------------------------------
Cezar M. Froelich
Michael J. Howlett, Jr.
James Wilson
Shefsky Froelich & Devine Ltd.
Attorneys 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
Skaden Arps Slate Meagher & Flom
Attorney for: Joseph F. Fearon and Michael
J. Farrell
/s/ James M. Doyle, Jr.
- --------------------------------------
James M. Doyle, Jr.
Matthews & Branscomb
Attorney for John P. 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/ Kim West
- --------------------------------------
Kim West
Arter & Hadden
Attorney for Fidelity and Casualty Company
32
<PAGE>
/s/ James Skarzynski
- --------------------------------------
James Skarzynski
Peterson & Ross
Attorney for Great American Insurance Co.
/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
33
<PAGE>
EXHIBITS AND SCHEDULES
[The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of Exhibits and or Schedules
hereto.]
34
<PAGE>
Exhibit 21
MORRISON KNUDSEN CORPORATION
Subsidiaries of the Registrant
Consolidated subsidiaries of the
registrant, Morrison Knudsen Corporation (Delaware)
and its consolidated subsidiaries.
State or Country of
Incorporation
-------------------
Atascosa Mining Co. Nevada
Broadway Insurance Company Ltd. Bermuda
Centennial Engineering, Inc. Colorado
CF Systems Corporation Massachusetts
MK-Ferguson of Idaho Company Idaho
MK Ferguson of Oak Ridge Company Tennessee
Morrison Knudsen Corporation Ohio
Morrison Knudsen Limited England
National Projects, Inc. Nevada
Navasota Mining Company, Inc. Nevada
Northern Construction Company, Ltd. Canada
The names of particular subsidiaries have been excluded because when considered
in the aggregate as a single subsidiary, as of December 31, 1995, they would not
constitute a significant subsidiary under Rule 1-02 of Regulation S-X.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No.
2-48200 on Form S-1 and Nos. 33-32413, 33-32414, 33-32415, 33-55339 and 33-63334
on Form S-8 of our report dated April 12, 1996 (which includes an explanatory
paragraph relating to the substantial doubt about the Corporation's ability to
continue as a going concern) appearing in this Annual Report on Form 10-K of
Morrison Knudsen Corporation for the year ended December 31, 1995.
/s/ Deloitte & Touche, LLP
- --------------------------
DELOITTE & TOUCHE, LLP
Boise, Idaho
April 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT FOOTNOTES
OF MORRISON KNUDSEN CORPORATION AT DECEMBER 31, 1995 AND FOR THE YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT FOOTNOTES:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 63,086
<SECURITIES> 0
<RECEIVABLES> 166,104
<ALLOWANCES> (12,804)
<INVENTORY> 0
<CURRENT-ASSETS> 484,804
<PP&E> 212,502
<DEPRECIATION> (156,410)
<TOTAL-ASSETS> 628,160
<CURRENT-LIABILITIES> 717,011
<BONDS> 0
0
0
<COMMON> 56,156
<OTHER-SE> (249,838)
<TOTAL-LIABILITY-AND-EQUITY> 628,160
<SALES> 0
<TOTAL-REVENUES> 1,708,666
<CGS> 0
<TOTAL-COSTS> 1,689,844
<OTHER-EXPENSES> 59,243
<LOSS-PROVISION> 1,746
<INTEREST-EXPENSE> 28,217
<INCOME-PRETAX> (69,742)
<INCOME-TAX> (9,894)
<INCOME-CONTINUING> (79,636)
<DISCONTINUED> (182,302)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,938)
<EPS-PRIMARY> (7.93)
<EPS-DILUTED> 0
</TABLE>