<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended
June 30, 1996
Commission File Number 1-8889
MORRISON KNUDSEN CORPORATION
(Debtor-in-Possession as of June 25, 1996)
A Delaware Corporation
IRS Employer Identification No. 82-0393735
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208/386-5000
The registrant's common stock is registered on the New York and Pacific Stock
Exchanges.
At July 31, 1996, 33,044,157 shares of the registrant's common stock were
outstanding (excluding 456,380 shares held in treasury).
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
---
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MORRISON KNUDSEN CORPORATION
(Debtor-in-Possession as of June 25, 1996)
Quarterly Report Form 10-Q for the
Three Month Period Ended June 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1. Consolidated Condensed Financial Statements and Notes to Financial
Statements
Statements of Operations for the Three and Six Month Periods
Ended June 30, 1996 and 1995 I-1
Balance Sheets at June 30, 1996 and
December 31, 1995 I-2
Statements of Cash Flows for the Six Month Periods
Ended June 30, 1996 and 1995 I-4
Notes to Financial Statements I-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations I-17
PART II. OTHER INFORMATION
Item 3. Legal Proceedings II-1
Item 6. Exhibits and Reports on Form 8-K II-1
Signatures II-1
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION
(Debtor-in-Possession as of June 25, 1996)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
(Thousands of dollars except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1996 1995 (a) 1996 1995 (a)
<S> <C> <C> <C> <C>
Revenue $ 353,481 $ 459,209 $ 677,684 $ 825,695
Cost of revenue (335,635) (448,581) (645,109) (810,359)
----------- ----------- ----------- ----------
Gross profit from continuing operations 17,846 10,628 32,575 15,336
General and administrative expenses (10,529) (15,165) (24,027) (25,784)
Interest expense (4,924) (9,008) (10,148) (14,439)
Other income (expense), net - 2,248 - 2,563
Equity in net income of unconsolidated affiliates 1,517 2,514 4,757 14,461
Gain (loss) on disposition of investments in affiliates,
and other assets, net - (1,282) 2,130 (21,301)
----------- ----------- ----------- ----------
Income (loss) from continuing operations before
reorganization items and income taxes 3,910 (10,065) 5,287 (29,164)
Reorganization items (20,904) - (20,904) -
----------- ----------- ----------- ----------
Loss from continuing operations before income taxes (16,994) (10,065) (15,617) (29,164)
Income tax expense (1,275) (371) (2,357) (908)
----------- ----------- ----------- ----------
Loss from continuing operations (18,269) (10,436) (17,974) (30,072)
Discontinued operations:
Loss from discontinued MK Rail and Transit operations - (1,952) - (8,135)
Loss on disposition of discontinued operations (9,805) - (9,805) (25,500)
----------- ----------- ----------- ----------
Net loss $ (28,074) $ (12,388) $ (27,779) $ (63,707)
=========== =========== =========== ===========
Loss per common share:
Continuing operations $ (.55) $ (.31) $ (.54) $ (.91)
Discontinued operations (.30) (.06) (.30) (1.02)
----------- ----------- ----------- ----------
Net loss $ (.85) $ (.37) $ (.84) $ (1.93)
=========== =========== =========== ===========
Common shares used to compute loss per share 33,044,000 33,042,000 33,044,000 32,954,000
=========== =========== =========== ===========
</TABLE>
I-1
<PAGE>
MORRISON KNUDSEN CORPORATION
(Debtor-in-Possession as of June 25, 1996)
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
(Thousands of dollars except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995 (a)
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 68,102 $ 63,086
Accounts receivable including retentions of $13,608 and $16,952 143,862 166,104
Unbilled receivables 98,087 87,902
Refundable income taxes, net - 22,803
Investments in and advances to construction joint ventures 14,873 15,186
Deferred income taxes 15,510 10,590
Investments in unconsolidated affiliates held for sale 5,260 32,189
Net assets of discontinued MK Rail operations 72,000 72,000
Other 13,530 14,944
-------- --------
Total current assets 431,224 484,804
-------- --------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 27,439 24,440
Investments in and advances to unconsolidated affiliates 54,774 51,031
Goodwill and other intangibles, net 3,556 4,006
Other investments and assets 15,848 18,493
-------- --------
Total investments and other assets 101,617 97,970
-------- --------
PROPERTY AND EQUIPMENT, AT COST
Land and mineral rights 10,016 10,507
Leasehold improvements 58,297 60,079
Machinery and equipment 3,049 9,140
Construction equipment 98,746 132,776
-------- --------
Total property and equipment 170,108 212,502
LESS ACCUMULATED DEPRECIATION (131,653) (156,410)
-------- --------
Property and equipment, net 38,455 56,092
-------- --------
TOTAL ASSETS $571,296 $638,866
======== ========
</TABLE>
(a) Certain amounts reclassified to conform to 1996 financial statement
presentation.
The accompanying notes are an integral part of the financial statements.
I-2
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 (a)
- ------------------------------------ ---- ----
CURRENT LIABILITIES
<S> <C> <C>
Short-term bank debt $ 24,481 $ 251,226
Estimated reimbursement obligations of discontinued Transit operations - 111,444
Liabilities subject to settlement under reorganization proceedings 352,814 -
Accounts payable including retentions of $18,713 and $20,076 112,154 130,969
Accrued salaries, wages and benefits 36,482 45,362
Accruals for estimated losses on uncompleted contracts 24,402 21,973
Accrued and deferred interest on antecedent debt - 9,320
Other accrued liabilities 64,837 74,990
Billings in excess of costs and estimated earnings on uncompleted contracts 48,278 63,252
Advances from customers 9,172 19,181
Income taxes payable 7,123 -
-------- --------
Total current liabilities 679,743 727,717
-------- --------
NON-CURRENT LIABILITIES
Note payable 6,500 -
Deferred income taxes 8,813 8,061
Deferred compensation 12,603 12,999
Deferred income 9,209 10,572
Accrued workers' compensation insurance and other non-current liabilities 21,699 19,006
Accrued postretirement benefit obligation 30,009 29,193
Accrued litigation settlements subject to settlement under reorganization proceedings 25,000 25,000
-------- --------
Total non-current liabilities 113,833 104,831
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $.10, authorized 10,000,000 shares, none
Common stock, par value $1.67, authorized 100,000,000 shares, issued
33,500,537 and 33,692,857 shares 55,834 56,156
Capital in excess of par value 270,036 270,661
Accumulated deficit (537,926) (510,147)
Treasury stock, 456,380 and 454,914 shares, at cost (7,793) (7,757)
Unearned compensation -- restricted stock (592) (1,582)
Cumulative translation adjustments (1,823) (1,578)
Net unrealized holding gain (loss) on securities available for sale (16) 565
-------- --------
Total stockholders' equity (deficiency) (222,280) (193,682)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 571,296 $ 638,866
======== ========
</TABLE>
I-3
<PAGE>
MORRISON KNUDSEN CORPORATION
(Debtor-in-Possession as of June 25, 1996)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
(Thousands of dollars)
<TABLE>
<CAPTION>
<S> 1996 1995
OPERATING ACTIVITIES ---- ----
<C> <C>
Net loss $(27,779) $(63,707)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Results of discontinued operations and loss on dispositions 9,805 29,130
(Gain) loss on disposition of certain assets and non-core businesses, net (2,130) 21,303
Depreciation and amortization 9,463 9,569
Provision for (realization of) estimated losses on uncompleted contracts, net 2,429 (21,500)
Increase in working capital from cancellation
of accounts receivable sales - (60,000)
Other changes in working capital, net (2,758) (2,144)
Increase (decrease) in non-current assets and liabilities, net (9,492) 6,388
-------- --------
Net cash used by operating activities (20,462) (80,961)
-------- --------
Net cash used by discontinued operations - (60,883)
-------- --------
INVESTING ACTIVITIES
Property and equipment acquisitions (4,216) (4,579)
Property and equipment disposals 10,625 6,928
Purchase of securities available for sale (10,904) (11,339)
Proceeds from sales of securities available for sale 7,322 15,664
Proceeds from sales of investments in unconsolidated affiliates and other assets 29,764 22,500
Other investing activities, net (213) 1,744
-------- --------
Net cash provided by investing activities 32,378 30,918
-------- --------
FINANCING ACTIVITIES
Borrowings under credit agreements 24,481 128,011
Repayments of borrowings under credit agreements (37,881) -
Borrowings of long-term debt 6,500 -
-------- --------
Dividends paid - (6,164)
-------- --------
Net cash provided (used) by financing activities (6,900) 121,847
-------- --------
Cash and cash equivalents of businesses held for sale - (3,436)
-------- --------
Increase in cash and cash equivalents 5,016 7,485
Cash and cash equivalents at beginning of period 63,086 65,011
-------- --------
Cash and cash equivalents at end of period $ 68,102 $ 72,496
======== ========
Other cash flow information for continuing and discontinued operations
Interest paid $ 24,049 $ 17,613
Income taxes paid (refunded), net (20,013) (21,121)
Reorganization expenses paid:
Professional consultants' fees and out-of-pocket expenses 6,219 -
Debtor-in-possession financing fees 600 -
-------- --------
</TABLE>
(a) Certain amounts reclassified to conform to 1996 financial statement
presentation.
The accompanying notes are an integral part of the financial statements.
I-4
<PAGE>
MORRISON KNUDSEN CORPORATION
(DEBTOR-IN-POSSESSION AS OF JUNE 25, 1996)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
The term "Corporation" as used in this Quarterly Report includes Morrison
Knudsen Corporation and its consolidated subsidiaries unless otherwise indicated
and where the context requires otherwise.
1. BANKRUPTCY FILING AND PLAN OF REORGANIZATION
The Corporation, which has been experiencing significant operating losses and
facing severe liquidity problems, determined that it was not likely to meet its
cash repayment obligations on existing indebtedness including (i) $100,000 of
antecedent bank debt due on September 30, 1996, (ii) $113,345 of antecedent bank
debt due 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 the lender banks on such dates and to
ultimately fund the remaining $31,249 reimbursement obligation to the bonding
company and the estimated $90,000 reimbursement obligation to the lender banks
("Metra Banks"). 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 sale of its remaining
investment held for sale would not be sufficient to meet its existing antecedent
debt obligations and the required escrow payments under the Transit
reimbursement obligations in 1996.
CHAPTER 11 BANKRUPTCY FILING: On June 25, 1996, Morrison Knudsen Corporation, a
Delaware corporation, filed a petition for relief under Chapter 11 of the United
States Bankruptcy Code by filing a prepackaged Plan of Reorganization in the
United States Bankruptcy Court for the District of Delaware, Bankruptcy Case
Number 96-1006 (PJW) (the "Plan"). The Corporation's wholly-owned subsidiaries
were not included in the filing. The Plan provides for a settlement of the
Corporation's obligations to its impaired creditors. Claims which the
Corporation believes will be allowed are stated in the June 30, 1996 balance
sheet as "liabilities subject to settlement under reorganization proceedings"
and "accrued litigation settlements subject to settlement under reorganization
proceedings." The Corporation's obligations to its vendors, subcontractors and
material suppliers are not impaired under the Plan. The Plan provides 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. The Corporation intends to conduct its business as usual, and 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 Plan has already been accepted by the Corporation's impaired
creditors to the extent required under the Bankruptcy Code. On or about August
1, 1996, the Corporation commenced soliciting acceptances of the Plan from the
holders of Touchstone claims and holders of the Corporation's common stock,
including securities class actions claimants. The Corporation continues to
operate its businesses as debtor-in-possession, and the Corporation's officers
and directors remain in control subject to the limitations and requirements of
the Bankruptcy Code.
I-5
<PAGE>
Pursuant to the American Institute of Certified Public Accountant's Statement
of Position 90-7, "Financial Reporting By Entities in Reorganization Under the
Bankruptcy Code" ("SOP90-7"), the following condensed financial statements of
Morrison Knudsen Corporation, a Delaware corporation and a debtor-in-possession,
have been prepared using the equity method of accounting for reporting the
results of operations of all wholly-owned subsidiaries of the Corporation that
are not included in the Chapter 11 proceedings.
Morrison Knudsen Corporation
(a Delaware Corporation)
Condensed Statements of Operations
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1996 1995
--------- ---------
<S> <C> <C>
Revenue $ 5,297 $ 947
Cost of revenue (6,393) (947)
--------- ---------
Gross loss (1,096) -
General and administrative expenses (2,132) (1,556)
Interest expense (9,841) (12,227)
Other income (expense), net 6,005 584
Equity in net income of unconsolidated affiliates 854 8,531
Gain (loss) on disposition of investments in affiliates 2,130 (9,256)
Equity in net loss of wholly-owned subsidiaries (3,656) (49,783)
--------- ---------
Loss before reorganization items and income taxes (7,736) (63,707)
Reorganization items (20,904) -
--------- ---------
Loss before income taxes (28,640) (63,707)
Income tax benefit 861 -
--------- ---------
Net loss $ (27,779) $ 63,707
========= =========
</TABLE>
Morrison Knudsen Corporation
(a Delaware Corporation)
Condensed Statements of Cash Flows
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1996 1995
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (27,779) $ (63,707)
Adjustments to reconcile net loss to cash provided (used) by operating activities:
Loss on disposal of discontinued operations 9,805 14,196
Equity in net loss of consolidated subsidiaries, net 3,656 54,601
(Gain) loss on disposition of certain assets and non-core businesses, net (2,130) 9,256
Depreciation and amortization 1,414 2,001
Provision for (realization of) estimated losses on uncompleted contracts, net (2,954) (14,333)
Other changes in working capital, net (11,109) 9,109
Increase (decrease) in other assets and liabilities, net (802) 4,320
-------- ---------
Net cash provided (used) by operating activities (29,899) 15,443
-------- ---------
INVESTING ACTIVITIES
Proceeds from sales of investments and other assets 27,430 22,500
Investments in and advances to consolidated subsidiaries 2,150 (156,001)
Other investing activities, net (29) (347)
-------- ---------
Net cash provided (used) by investing activities 29,551 (133,848)
-------- ---------
FINANCING ACTIVITIES
Borrowings under credit agreements 24,481 142,980
Repayments of borrowings under credit agreements (37,881) -
Dividends paid - (6,164)
-------- ----------
Net cash provided (used) by financing activities (13,400) 136,816
-------- ---------
Increase in cash and cash equivalents (13,748) 18,411
Cash and cash equivalents at beginning of period 15,722 4,548
-------- ---------
Cash and cash equivalents at end of period $ 1,974 $ 22,959
========= =========
</TABLE>
I-6
<PAGE>
MORRISON KNUDSEN CORPORATION
(A DELAWARE CORPORATION)
CONDENSED BALANCE SHEETS
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,974 $ 15,722
Accounts receivable and unbilled receivables, including retentions
of $1,409 and $1,279 11,245 11,379
Refundable federal income taxes - 4,877
Investments in unconsolidated affiliates held for sale 5,260 30,689
Other 1,244 1,058
--------- ---------
Total current assets 19,723 63,725
--------- ---------
Investments in and advances to wholly-owned subsidiaries 180,653 168,239
Other investments and assets 1,965 1,978
Property and equipment, net 4,845 5,060
--------- ---------
Total Assets $ 207,186 $ 239,002
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Short-term bank debt $ 24,481 $ 251,226
Estimated reimbursement obligations of discontinued Transit operations - 111,444
Accrued and deferred interest on antecedent debt - 9,320
Liabilities subject to settlement under reorganization proceedings 352,814 -
Accounts payable and accrued liabilities 13,870 19,443
Accruals for estimated losses on uncompleted contracts 11,469 14,423
--------- ---------
Total current liabilities 402,634 405,856
--------- ---------
NONCURRENT LIABILITIES
Accrued litigation settlements subject to settlement under reorganization
proceedings 25,000 25,000
Deferred compensation 1,832 1,828
--------- ---------
Total noncurrent liabilities 26,832 26,828
--------- ---------
Stockholders' equity (deficiency) (222,280) (193,682)
--------- ---------
Total liabilities and stockholders' equity $ 207,186 $ 239,002
========= =========
</TABLE>
PLAN OF REORGANIZATION AND MERGER: As disclosed in its Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, (i) in February 1996 the Corporation
proposed an initial restructuring plan to its impaired creditors which formed
the basis for an initial plan of reorganization of the Corporation (the "Initial
Plan") and (ii) in May 1996 the Corporation and Washington Construction Group,
Inc. ("Washington") entered into a non-binding term sheet relating to the
possible merger of the Corporation with and into Washington (the "Merger"), with
Washington being the surviving Corporation in the Merger and being renamed
Morrison Knudsen Corporation (as such, the "Combined Company"). Following the
completion of Washington's review of the Corporation's businesses and extensive
negotiations regarding the definitive terms of the Merger and of modifications
to the Initial Plan to provide for, among other things, the Merger and the
distribution of securities of the Combined Company to the Corporation's impaired
creditors, the Corporation and Washington entered into a merger agreement (the
"Merger Agreement") on May 28, 1996. Following the execution of the Merger
Agreement and further negotiations with various creditor and stockholder
representatives, the Corporation modified the Initial Plan to reflect the Merger
Agreement and certain accommodations reached with the impaired creditors'
steering committee and other creditor and stockholder representatives.
PRINCIPAL TERMS OF THE PLAN AND THE MERGER AGREEMENT: In addition to the Merger,
the Plan provides for the satisfaction and discharge of substantially all of the
Corporation's existing senior debt obligations and the cancellation of all of
the Corporation's outstanding common stock. The Plan provides that, unless the
Merger Agreement is terminated, each holder of record of shares of the
Corporation's common stock as of the date the Plan is confirmed (including
shares held for distribution to certain securities litigation plaintiffs) will
receive (i) its pro rata share of warrants to purchase an aggregate of 2,765,000
shares of the Combined Company's common stock at an exercise price of $12.00 per
share (subject to adjustment), (ii) a number of
I-7
<PAGE>
rights, equal to the number of shares of the Corporation's common stock so held,
to purchase a portion of the consideration otherwise distributable under the
Plan to certain of the Corporation's creditors as described below, and (iii) its
pro rata share of any distributions that may be required under the Plan to
prevent the assumed value of the aggregate consideration otherwise distributable
under the Plan to certain of the Corporation's creditors as described below from
exceeding the aggregate amount of such creditors' allowed claims (all as
determined in the manner provided in the Plan). The Plan also provides that,
unless the Merger Agreement is terminated, certain creditors of the Corporation
will receive distributions (a portion of which may be made to a trust for their
benefit) of (i) $13,300 in cash, (ii) all of the common stock of MKRail owned by
the Corporation, (iii) the promissory note of MK Rail owned by the Corporation
(or the proceeds thereof), (iv) newly issued shares of common stock of the
Combined Company equal to 45% of the total number of such shares to be
outstanding after giving effect to such issuance, (v) newly issued shares of
preferred stock of the Combined Company entitling the holders thereof to receive
up to $18,000 (subject to adjustment) on account of certain tax refunds that may
be claimed by the Combined Company as successor to the Corporation, and (vi) if
applicable, the proceeds of any exercises of the rights described in clause (ii)
of the preceding sentence (in lieu of a portion of the distributions described
in this sentence).
The Plan provides that, if the Merger Agreement is terminated (in which event
the Merger would not occur), in lieu of the distributions described above, (i)
each holder of record of shares of the Corporation's common stock as of the date
the Plan is confirmed will receive its pro rata share of warrants to purchase an
aggregate number of shares (estimated to be approximately 1,000,000) of common
stock of the reorganized Corporation equal to 10% of the total number of such
shares to be outstanding after giving effect to the issuance of such shares to
certain creditors of the Corporation as described below, at a price determined
pursuant to a formula set forth in the Plan, and (ii) certain creditors of the
Corporation will receive distributions (a portion of which may be made to a
trust for their benefit) of (i) all of the common stock of MK Rail owned by the
Corporation, (ii) the promissory note of MK Rail owned by the Corporation (or
the proceeds thereof), (iii) all of the common stock of the reorganized
Corporation to be outstanding as of the effective date of the Plan (estimated to
be approximately 10,000,000 shares), and (iv) newly issued shares of preferred
stock of the reorganized Corporation entitling the holders thereof to receive up
to $18,000 (subject to adjustment) on account of certain tax refunds that may be
received by the reorganized Corporation.
The effectiveness of the Plan and the respective obligations of the
Corporation and Washington to consummate the Merger are subject to certain
conditions. In addition, the Merger Agreement may be terminated by the
Corporation or Washington under certain circumstances. Although there can be no
assurance with respect thereto, it is presently expected that all conditions to
the effectiveness of the Plan and the consummation of the Merger will be
satisfied or waived, that the Merger Agreement will not be terminated, and that
the Plan will become effective and the Merger will be consummated in September
1996. The Merger Agreement provides that, in the event (i) the Corporation(a)
fails to consummate the Merger in breach of its obligations under the Merger
Agreement, or (b) terminates the Merger Agreement and enters into a definitive
agreement with respect to a Substantial Transaction (as defined below) within
one year of such termination and (ii) in all such cases Washington is not in
material breach of its obligations under the Merger Agreement and, at the time
of such failure or termination, is ready, willing and able to proceed to
consummate the transactions thereunder, the Corporationwill pay Washington a fee
of $9,000 plus reimbursement of expenses. The Merger Agreement further provides
that if the Corporationconsummates such Substantial Transaction, the
Corporationwill also pay to Washington the lesser of (i) $3,000 and (ii) 40% of
the amount by which the value of the consideration provided in the Substantial
Transaction exceeds $250,000, plus reimbursement of expenses. For purposes of
the Merger Agreement, the term "Substantial Transaction" means an alternative
transaction involving the sale of the Corporation, the sale of a majority of the
stock of the Corporation (by means of a merger, stock sale or other
transaction), the sale of any of the Corporation's principal operating
businesses (other than MKRail) and any other reorganization involving an equity
infusion.
The foregoing descriptions of the principal terms of the Plan and Merger
Agreement are qualified in their entirety by the full texts of such documents,
which are filed as Exhibits 2.1 and 2.2, respectively, hereto and incorporated
herein by this reference. In addition, a Disclosure Statement relating to the
Plan and the Merger, was mailed to holders of record, of the Corporation's
common stock on or about August 1, 1996. Stockholders are urged to carefully
read the Disclosure Statement in its entirety.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Corporation and its majority-owned subsidiaries. Investments in 20% to 50% 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
gross profit is included in the consolidated statements of operations.
Intercompany accounts and transactions have been eliminated.
The consolidated financial statements have been prepared without audit,
pursuant to the rules and regulations of the SEC. Certain financial information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Corporation's Annual
Report on Form 10-K for the year ended
I-8
<PAGE>
December 31, 1995. The comparative consolidated balance sheet and financial
statement footnotes included herein as December 31, 1995 amounts have been
derived from the audited balance sheet and financial statement footnotes at
December 31, 1995.
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. Actual results of contract
operations could differ from the estimates.
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. See Note 3 "Changes in Business - Discontinued Transit Operations
and Reimbursement Obligations."
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, the Corporation can give no
assurance that it will not revise its estimates of completion costs in the near-
term for certain construction projects.
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.
The unaudited consolidated financial statements included herein reflect all
adjustments consisting of normal recurring adjustments which are, in the opinion
of management, necessary to a fair presentation of the results of operations and
cash flows for the interim periods. The results of operations for the six month
period ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
The accompanying unaudited consolidated financial statements of Morrison
Knudsen Corporation and its subsidiaries have been prepared on a going concern
basis, which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. The accompanying
unaudited consolidated financial statements do not give effect to all
adjustments of the carrying amounts of assets or amounts and classifications of
liabilities that might be necessary as a consequence of the bankruptcy
proceedings. The appropriateness of using the going concern basis is dependent
upon, among other things, confirmation of the Plan, success of future operations
and the ability to provide sufficient cash from operations and financing sources
to meet obligations. The Corporation's financial statements as of June 30, 1996
have been presented in conformity with SOP90-7 which requires a segregation of
liabilities subject to settlement under reorganization proceedings by the
bankruptcy court as of the bankruptcy filing date (June 25, 1996) and
identification of all transactions and events that are directly associated with
the reorganization of the Corporation.
Liabilities and accrued litigation settlements subject to settlement under
reorganization proceedings are segregated on the balance sheet as of June 30,
1996 and include the following claims:
<TABLE>
<S> <C>
Current liabilities subject to settlement under reorganization proceedings:
Antecedent bank debt $213,345
Estimated reimbursement obligations of discontinued Transit operations 121,249
Accrued Touchstone, Inc. litigation settlement 5,250
Liability for estimated allowed claim arising from rejection of the Boise leases 12,970
--------
Total $352,814
========
Non-current liabilities subject to settlement under reorganization proceedings:
Accrued litigation settlements $ 25,000
========
</TABLE>
I-9
<PAGE>
3. CHANGES IN BUSINESS
Discontinued Transit Operations and Reimbursement Obligations: 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. 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.
In connection with the disposition of Transit, two new credit facilities were
provided to Amerail, (i) an $80,000 facility guaranteed by the Corporation's
bonding company to fund the non-Metra Contracts and (ii) a $65,000 revolving
credit facility provided by the Metra Banks to fund the Metra Contract. The
Corporation's reimbursement obligation to its bonding company for the surety's
future losses on the Metra and non-Metra Contracts including the guarantee of
the $80,000 facility is governed by the Transit Reimbursement Agreement. The
agreement provides, among other things, that the Corporation's maximum
reimbursement obligation to its bonding company for net cash losses of the Metra
and non-Metra Contracts is $31,249. Such actual net cash losses of the bonding
company were estimated to exceed the Corporation's maximum reimbursement
obligation at June 30, 1996.
The Corporation's reimbursement obligation to the Metra Banks, which are
providing a standby letter of credit and revolving credit facility up to an
aggregate commitment of $119,673 at June 30, 1996, including the $65,000
revolving credit facility to fund the Metra Contract, is governed by the Metra
Guaranty. The amount available under the standby letter of credit is reduced by
a predetermined amount for each transit car delivered to and accepted by Metra.
For purposes of estimating the Corporation's reimbursement obligation under
the Metra Guaranty, the Corporation has assumed, among other things, (i) that
the standby letter of credit is not drawn, if ever, prior to its reduction to
approximately $90,000, based on continued delivery by Amerail of transit cars
under the Metra Contract, and (ii) that the Metra Banks do not increase their
commitment to provide financing to Amerail for the Metra Contract beyond
approximately $90,000. Although the completion of the Metra Contract by Amerail
may require financing over and above such amount, the Corporation has assumed
that such additional financing would be provided by the bonding company. Any
such additional financing by the bonding company would be subject to the $31,249
maximum reimbursement obligation of the Corporation to the bonding company.
However, if Amerail were to default under the Metra Contract prior to the
reduction of the standby letter of credit to such amount and the letter of
credit is drawn or the Metra Banks provide financing over and above such amount,
then the Corporation's reimbursement obligation under the Metra Guaranty could
increase above the estimated amount at June 30, 1996.
The Corporation's reimbursement 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 reimbursement obligation under the Metra Guaranty (estimated
at $90,000 at June 30, 1996) 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.
As described in Note 1 above, the Plan provides for the settlement and
discharge of the Corporation's debt obligations to its secured creditors,
including its reimbursement obligations relating to the discontinued Transit
operations.
Discontinued MK Rail Operations: In March 1995, the Corporation adopted a plan
to dispose of its 65% ownership interest in MK Rail Corporation. Accordingly,
the Corporation has accounted for the planned divestiture as a discontinued
operation. In connection with its decision to dispose of MK Rail, the
Corporation has recorded an estimated loss on disposition of its ownership
interest in and note receivable from MK Rail based upon the best information
available in the circumstances.
As described in Note 1 above, the Plan provides for, among other things, the
distribution of the Corporation's 65% ownership interest in MK Rail and the
Corporation's note receivable from MK Rail (or the proceeds thereof) to or for
the benefit of certain creditors of the Corporation.
I-10
<PAGE>
Summary results of operations for the discontinued segment for the six month
periods ended June 30, 1996 and 1995 follows:
<TABLE>
<CAPTION>
Results of Operations (Unaudited) (Unaudited)
Six Month Periods Ended June 30, 1996 1995
------------ ----------
<S> <C> <C>
Revenue $136,236 $139,073
Gross profit (loss) 10,824 (3,886)
Net income (loss) 5,021 (9,048)
======== ========
Corporation's share of net income (loss) $ 3,264 $ (5,881)
======== ========
</TABLE>
The assets and liabilities of MK Rail have been segregated on the consolidated
balance sheets at June 30, 1996 and December 31, 1995. Such amounts are
summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996 December 31, 1995
------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 3,815 $ 5,696
Accounts receivable and unbilled receivables 52,698 43,934
Inventories 93,134 99,459
Other current assets 6,879 2,903
Property and equipment, net 49,010 61,587
Deferred income taxes 26,173 28,363
Goodwill and other intangibles, net 29,601 31,575
Prepaid lease cost 6,764 7,182
Short-term and current portion of long-term debt (19,029) (60,825)
Accounts payable and accrued liabilities (51,776) (51,780)
Advances from customers (17,671) -
Debt due after one year (11,894) (7,198)
Other non-current liabilities (10,496) (10,901)
Minority interests (36,840) (35,083)
Cumulative translation losses 5,189 5,223
Accrual for estimated loss on disposal (53,557) (48,135)
-------- --------
Net assets of discontinued MK Rail operations $ 72,000 $ 72,000
======== ========
</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 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. In
connection with the Plan, the Corporation and MK Rail entered into an agreement
(the "Note Cancellation Agreement") which provides that, on the terms and
subject to the conditions set forth therein, the promissory note of MK Rail
owned by the Corporation will be cancelled and retired upon the payment of
$34,500 in two installments. A copy of the Note Cancellation Agreement is filed
as Exhibit 4.1 hereto and incorporated herein by this reference. As described in
Note 1 above, the Plan provides for the distribution of the promissory note of
MK Rail owned by the Corporation (or the proceeds thereof) to or for the benefit
of certain creditors of the Corporation.
4. DISPOSITIONS OF INVESTMENTS IN AFFILIATES AND OTHER ASSETS
Dispositions in 1996
McConnell Dowell Corporation, Limited ("MDC"): In the first quarter of 1996, the
Corporation sold its 62.8% ownership interest in MDC for $28,000 net cash
proceeds and recognized a gain on disposal of $2,130. The Corporation, MDC and
its lender banks, as of the date of this Quarterly Report on Form 10-Q, are
holding discussions concerning the banks' release of the Corporation's financial
guarantees amounting to $32,652 in support of MDC's contract performance
obligations to its customers.
I-11
<PAGE>
Strait Crossing Development, Inc. ("SCDI"): 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,
outstanding or potential liabilities to bonding companies and liabilities
related to a bank-provided letter of credit) 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, and to assign to an SCDI member, the
promissory note received as partial consideration for the sale of its 9%
ownership interest in SCDI. The Corporation further agreed to sell its interest
in certain marine equipment to the SCDI members.
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 had 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 recognized a gain of $4,831 in connection with the sale of
its marine equipment to the SCDI members and its withdrawal from the SCDI joint
venture in March 1996.
Dispositions in 1995
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.
MK Investments, Inc. (North Pacific construction operations)("MKI"): Based on
preliminary negotiations with a prospective buyer of the Corporation's North
Pacific construction operations, the Corporation recognized a provision of
$8,836 to write-down the carrying amount of its 100% ownership interest in MKI
to its estimated recovery value. In September 1995, the Corporation completed
the sale of certain MKI net assets and operations for $17,100 cash.
Sale of Morrison Knudsen Depot ("Depot"): Based on an indicative offer by the
City of Boise to buy the Depot the Corporation wrote-down its carrying amount by
$3,209. In December 1995, the Corporation completed the sale of the Depot for
$1,500 cash, payable in three equal installments ending June 1996.
5. 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 project is
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 at June 30, 1996 and
December 31, 1995 and for the six months in the periods ended June 30, 1996 and
1995.
<TABLE>
<CAPTION>
(Unaudited)
Financial Position at June 30, 1996 December 31, 1995
- --------------------- ------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 47,039 $ 49,781
Other current assets 61,485 65,781
Non-current assets - 22,112
Property and equipment, net 804 67,038
Advances from customers (19) (16,197)
Other current liabilities (98,416) (161,066)
------- --------
Net assets $10,893 $ 27,449
======= ========
Corporation's investments in and advances to construction joint ventures $14,873 $ 15,186
======= ========
</TABLE>
I-12
<PAGE>
<TABLE>
<CAPTION>
Results of Operations (Unaudited) (Unaudited)
Six Month Periods Ended June 30, 1996 1995
- -------------------------------- --------- ---------
<S> <C> <C>
Combined joint ventures, net
Revenue $ 185,911 $ 453,242
Cost of revenue (169,313) (434,724)
--------- ---------
Gross profit $ 16,598 $ 18,518
========= =========
Corporation's share, net
Revenue $ 49,301 $ 137,003
Cost of revenue (46,253) (126,463)
--------- ---------
Gross profit $ 3,048 $ 10,540
========= =========
</TABLE>
6. 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 at June 30, 1996 and December 31, 1995 and for the
six months in the periods ended June 30, 1996 and 1995. Amounts for all periods
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%),
Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG mbH") (33%) and MDC (62.8%)
until its disposition in the first quarter of 1996.
Because of the Corporation's decision to dispose of its ownership interest in
AmerBank, the carrying amount of its investment therein is reflected in the
accompanying balance sheets at June 30, 1996 and December 31, 1995 under the
caption "Investments in Unconsolidated Affiliates Held for Sale". The carrying
amount of the Corporation's 29.5% ownership interest in AmerBank at June 30,
1996 was $5,260 and was less than the fair market value of AmerBank's publicly
traded stock, based on published market prices at June 30, 1996.
<TABLE>
<CAPTION>
(Unaudited)
Financial Position at June 30, 1996 December 31, 1995
- --------------------- ------------- -----------------
<S> <C> <C>
Current assets $ 456,397 $ 618,701
Non-current assets 726,795 754,462
Current liabilities (164,718) (274,537)
Long-term debt (250,457) (211,331)
Other non-current liabilities (580,467) (665,662)
--------- ---------
Net assets $ 187,550 $ 221,633
========= =========
Corporation's investments in and advances to unconsolidated affiliates $ 54,774 $ 51,031
========= =========
<CAPTION>
Results of Operations (Unaudited) (Unaudited)
Six Month Periods Ended June 30, 1996 1995
- -------------------------------- --------- ---------
<S> <C> <C>
Revenue $ 321,294 $ 485,955
Gross profit 8,321 15,282
Net income 14,458 32,387
========= =========
Corporation's equity in net income of unconsolidated affiliates $ 4,757 $ 14,461
========= =========
</TABLE>
The Corporation's equity in the net income of unconsolidated affiliates of
$14,461 for the six month period ended June 30, 1995 includes its $9,128
proportionate share of MDC's net income. See Note 4. "Dispositions of
Investments in Affiliates and Other Assets."
I-13
<PAGE>
7. SHORT-TERM AND LONG-TERM DEBT
Short-term debt at June 30, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Antecedent debt, interest rates of 8.25% at June 30, 1996 and
8.5% at December 31, 1995 $ - $213,345
Bridge loan, interest rates of 9.75% at June 30, 1996 and
11.5% at December 31, 1995 24,481 37,881
------- -------
Total short-term debt $24,481 $251,226
======= ========
</TABLE>
The weighted average interest rates on short-term borrowings outstanding at
June 30, 1996 and December 31, 1995 were 8.40% and 9.0%, respectively.
Long-term debt at June 30, 1996 consisted of an unsecured note payable in the
principal amount of $6,500 with interest at 6.25% per annum and payable to a
construction joint-venture partner. The principal amount is due and payable as
follows: $2,000 on September 1, 1997; $3,500 on October 1, 1997; and $1,000 on
November 1, 1997 with interest on the unpaid balance due and payable at the end
of each calendar quarter and November 1, 1997.
New and Amended Credit Facilities: 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 are
subject to interest at the prime rate plus one and one-half percent per annum
(9.75% at June 30, 1996) due and payable on the last day of each month and on
the termination date. On July 2, 1996, the Corporation paid off the $24,481
outstanding balance of the amended bridge loan facility and concurrently
borrowed $20,000 under a new Debtor-In-Possession ("DIP") Credit Agreement dated
June 28, 1996. Outstanding borrowings under the DIP Credit Agreement bear
interest at the prime rate plus two percent (10.25% at August 14, 1996) payable
on the last day of each month and on the termination date, as defined in the
DIP Credit Agreement. The Corporation paid a $600 financing fee related to the
DIP Credit Agreement on June 28, 1996.
8. LEGAL PROCEEDINGS
The Corporation and its respective directors and officers (the "defendants")
were subject to a number of lawsuits in the following four general categories
that have been settled; (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 former stockholders of three corporations, Touchstone, Inc., TMS,
Inc., and Clark Industries, Inc., acquired by the Corporation in exchange for
shares of the Corporations' common stock. These actions have been described in
detail in prior reports. With the exception of the TMS, Inc. action, such
actions have been settled and are subject to final, non-appealable judgements.
The settlements have been described in detail in prior reports. The Corporation
has filed a motion in the United States Bankruptcy Court for the District of
Delaware to approve such settlements and the release of stock and assets to the
control of the plaintiffs. The TMS, Inc. action, (Pilarczyk, et al. -vs-
Morrison Knudsen Corporation, USDC NDNY 95-CY-1835) has been removed from the
court's open docket pending a lifting of the bankruptcy stay.
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.
9. 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.
CF Systems: In 1990, the Corporation acquired CF Systems, which had developed a
solvent-extraction technology. The Corporation's investment in CF Systems, was
$7,143 at June 30, 1996 and $4,844 at December 31, 1995.
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
I-14
<PAGE>
a maximum of $13,600. 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 would recover the front-end costs from the Corporation. After revision
of the estimated costs to complete the design, fabrication and erection of the
solvent-extraction facility, among other things, a $2,000 provision for
anticipated loss was recorded in March 1996 to reflect estimated contract
completion costs in excess of contract revenue.
Discontinued Shipbuilding 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 terminated concurrently with the delivery
and acceptance by the U.S. Navy of the last NASSCO-built ship in a multiple-ship
contract in May, 1996.
The Corporation has guaranteed $21,000 of NASSCO's port facility bonds until
not later than December 1, 2002, and guaranteed $1,544 of NASSCO's federal
workers' compensation bonds. NASSCO's floating dry dock is pledged as collateral
for the $21,000 port facility 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.
DISCONTINUED REAL ESTATE DEVELOPMENT OPERATIONS: At June 30, 1996, the
Corporation was liable for $4,249 of secured bank loans due September 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 were included in the accompanying
consolidated balance sheets at June 30, 1996 and December 31, 1995 under the
caption "Other Accrued Liabilities".
The bank lenders agreed to waive the event of default resulting from Emkay's
non-payment of the balance of its loan outstanding at June 30, 1996 and further
agreed to extend the maturity date for such payment from June 30, 1996 to
September 30, 1996. As of June 30, 1996, three properties were in escrow, with
net cash proceeds estimated at approximately $2,870 expected at closing. Emkay
expects to recover net cash proceeds of approximately $1,950 from the sale of
the remaining properties not in escrow at June 30, 1996, and further anticipates
that net cash proceeds from sales of all properties available for sale at June
30, 1996 will be, in the aggregate, sufficient to repay the $4,249 loan balance
if they are sold by September 30, 1996 at the expected sales prices.
<TABLE>
<CAPTION>
(Unaudited)
Financial Position at June 30, 1996 December 31, 1995
- --------------------- ------------- -----------------
<S> <C> <C>
Real estate assets held for sale $ 2,621 $ 11,928
Other assets and liabilities, net (1,332) 318
Secured term bank loans, due September 30, 1996, interest rate
of 8.75% at June 30, 1996 and December 31, 1995 (4,249) (15,519)
------- --------
Net liabilities $(2,960) $ (3,273)
======= ========
</TABLE>
Letters of Credit and Financial Guarantees: At June 30, 1996 the Corporation was
contingently liable, in the normal course of business, for $37,448 related to
letters of credit under contract performance obligations to customers not
reflected in the balance sheet at June 30, 1996. Of this aggregate amount,
$2,367 in letters of credit were for contract performance obligations to
customers of its discontinued MK Rail operations.
In addition, at June 30, 1996, the Corporation had provided guarantees for
$32,731 and $32,652 in letters of credit issued by third parties in connection
with Amerail's performance of the Metra Contract and MDC's contract performance
obligations, respectively. In the first quarter of 1996, the Corporation sold
its 62.8% ownership interest in MDC. MDC and its lender banks are holding
discussions as of the date of this Quarterly Report on Form 10-Q concerning the
banks release of the Corporation's financial guarantees. In addition, the
Corporation was contingently liable for $14,443 related to letters of credit 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 securities available for sale ($27,439 fair value at June 30,
1996) 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 analyses 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.
I-15
<PAGE>
10. KEY EMPLOYEE COMPENSATION PLANS
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 the confirmation of 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 estimated liability for retention plan awards of $5,107 was
included in the accompanying consolidated balance sheet at June 30, 1996 under
the caption "Other Accrued Liabilities". Maximum cash awards under the retention
plan are estimated to be approximately $6,900.
Reorganization Bonus: On April 2, 1996, the compensation committee of the Board
of Directors awarded to certain key employees cash bonuses totaling $1,115,
payment of which is conditioned upon the successful reorganization of the
Corporation.
I-16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Although there can be no assurance with respect thereto, it is presently
anticipated that the Plan will become effective and the Merger will be
consummated in September 1996. If the Plan becomes effective, the reorganized
Corporation will have a new capital structure and will have divested itself of
the common stock and promissory note of MK Rail owned by the Corporation (or the
proceeds thereof). In addition, if the Merger is consummated, the Combined
Company will operate the existing businesses of Washington and the Corporation
(other than the business of MK Rail) on a combined basis under a new capital
structure. Consequently, the Corporation's financial condition and results of
operations at and for the six month period ended June 30, 1996 are not expected
to be comparable to the financial condition or results of operations of the
reorganized Corporation or the Combined Company, as the case may be, at or for
periods ending on dates subsequent to the effective date of the Plan.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 COMPARED TO
THE THREE AND SIX MONTH PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
(Millions of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue $353.5 $459.2 $677.7 $825.7
Gross profit from continuing operations 17.8 10.6 32.6 15.3
General and administrative expenses (10.5) (15.2) (24.0) (25.8)
Interest expense (4.9) (9.0) (10.1) (14.4)
Other income (expense), net - 2.2 - 2.6
Equity in net income of unconsolidated affiliates 1.5 2.5 4.8 14.5
Gain (loss) on disposition of investments in affiliates, net - (1.3) 2.1 (21.3)
Reorganization items (20.9) - (20.9) -
Income tax expense (1.3) (.4) (2.4) (.9)
Discontinued operations (9.8) (2.0) (9.8) (33.6)
======= ====== ====== ======
</TABLE>
Revenue: Revenue from continuing operations for the three and six month periods
ended June 30, 1996 decreased $105.7 million and $148.0 million, respectively,
compared to the comparable periods of 1995. The decreases were primarily due to
(i) the sale in late 1995 of the North Pacific construction operations with
prior period revenues of $62.5 million and $98.6 million in the three and six
month periods ended June 30, 1995, respectively, (ii) the execution and
completion of a number of heavy civil construction contracts, principally for
public works, in the six month period ended June 30, 1995 and (iii) a decline in
the amount of new work booked in prior periods.
Gross profit: Gross profit from continuing operations for the three and six
month periods ended June 30, 1996 increased $7.2 million and $17.3 million,
respectively, compared to the comparable periods of 1995. The $7.2 million
increase in gross profit for the three months ended June 30, 1996 was primarily
attributable to increases in gross profit from engineering and construction and
environmental contracts and an approximately $2.0 million increase in mining
services fees of the Corporation's German subsidiary. In addition, the
Corporation recognized a $5.1 million gain from the reversal of certain reserves
that had been accrued in prior periods and were determined to no longer be
required. Gross profit for the three months ended June 30, 1996, was adversely
affected by $1.5 million of provisions for anticipated losses on fixed price
contracts.
The $17.3 million increase in gross profit for the six month period ended June
30, 1996 was primarily attributable to increases in gross profit from
engineering and construction and environmental contracts and an approximately
$4.0 million increase in mining services fees of the Corporation's German
subsidiary. In addition, the Corporation recognized (i) a $5.1 million gain from
the reversal of certain reserves that had been accrued in prior periods and were
determined to no longer be required, (ii) a $4.8 million gain in connection with
the sale of marine equipment to SCDI members and (iii) $1.2 million of
additional claims revenue. Gross profit for the six month period ended June 30,
1996 was adversely affected by $8.3 million of provisions for anticipated losses
on a number of fixed-price contracts.
General and Administrative Expenses: General and administrative expenses for the
three and six month periods ended June 30, 1996 decreased $4.7 million and $1.8
million, respectively, compared to the comparable periods of 1995. The decreases
are principally due to lower professional consultants' fees in connection with
the Corporation's prolonged effort to effect a financial restructuring
(including debt restructuring, dispositions of certain assets and businesses and
resolution of securities class actions) leading up to the development of the
Plan and the commencement of reorganization pro-
I-17
<PAGE>
ceedings on June 25, 1996. Such expenses decreased approximately $6.1 million
and $8.0 million in the three and six month periods ended June 30, 1996,
respectively, compared to the comparable periods of 1995.
Interest Expense: Interest expense for the three and six month periods ended
June 30, 1996 decreased $4.1 million and $4.3 million, respectively, compared to
the comparable periods of 1995. The decreases were the result of lower average
outstanding borrowings in 1996 and lower weighted average interest rates
compared to the comparable periods of 1995. Interest expense reported during the
Chapter 11 proceedings will be paid and such interest does not differ from
contractual interest.
Equity in Net Income (Loss) of Unconsolidated Affiliates: Equity in the net
income of unconsolidated affiliates for the three and six month periods ended
June 30, 1996 decreased $1.0 million and $9.7 million, respectively. The
decreases were attributed to the sale in the first quarter of 1996 of MDC. The
Corporation's share of equity in MDC's net income for the three and six month
periods ended June 30, 1995 was $.9 million and $9.1 million, respectively. In
addition, the Corporation's equity in the net income of MIBRAG mbH for the first
half of 1996 was $1.7 million less than the comparable period of 1995
principally due to an increase in coal premium payments to the German government
and lower sales prices on customers' long-term coal supply contracts.
Disposition of Investments in Affiliates and Other Assets: The $2.1 million gain
on disposition of investments in affiliates for the six month period ended June
30, 1996 stems from the Corporation's sale of its 62.8% ownership interest in
MDC in the first quarter of 1996.
The $21.3 million loss on disposition of investments in affiliates and other
assets for the six month period ended June 30, 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, a loss provision of $8.8 million to write-down the carrying
amount of its investment in the North Pacific construction operations, including
the $1.3 million additional provision in the second quarter of 1995, and a $3.2
million loss provision to write-down the carrying amount of the Morrison Knudsen
Depot. See Note 4. "Dispositions of Investments in Affiliates and Other Assets".
REORGANIZATION ITEMS: Pursuant to the guidance provided in SOP90-7, the
Corporation segregated on its statement of operations for the three month period
ended June 30, 1996 certain non-recurring periodic expenses and accruals related
to the Chapter 11 proceedings as follows:
<TABLE>
<S> <C>
Professional consultants' fees and out-of-pocket expenses $ 6,219
Compensation expense for reorganization bonus 1,115
Debtor-in-possession financing fees 600
Provision for estimated allowed claim arising from the rejection of the Boise leases 12,970
-------
Total $20,904
=======
</TABLE>
Income Tax Expenses: The Corporation recognized tax expense for the three and
six month periods ended June 30, 1996 and 1995 consisting of estimated foreign
and state income taxes relating to certain jurisdictions in which the
Corporation had net taxable income. The Corporation did not provide a federal
tax benefit in 1996 and 1995. Net deferred tax assets reflect management's
estimate of the amount which will more likely than not, be realized.
Discontinued Operations: In the second quarter of 1996, the Corporation
recognized (without providing any future tax benefit) an additional $9.8 million
provision to its estimated reimbursement obligation for the estimated net cash
losses resulting from Amerail's performance of the Metra Contracts transferred
to Amerail. 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.
In connection with its decision to dispose of MK Rail and the disposition of
Transit, the Corporation in the first half of 1995 recorded an aggregate loss
from discontinued operations of $33.6 million, without providing any future tax
benefit. The loss includes (i) a $25.5 million write-down of the Corporation's
carrying value of its investment in MK Rail to estimated net realizable value
based upon the best information available in the circumstances and (ii) an
aggregate $8.1 million provision for the Corporation's share of MK Rail and
Transit net operating losses for the six months ended June 30, 1995.
I-18
<PAGE>
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Liquidity and capital resources (thousands of dollars) June 30,
-----------------------------
1996 1995
<S> <C> <C>
Cash and cash equivalents:
Beginning of period $ 63,086 $ 65,011
End of period 68,102 72,496
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
<S> <C> <C>
Net cash provided (used) by:
Operating activities $(20,462) $(80,961)
Investing activities 32,378 30,918
Financing activities (6,900) 121,847
</TABLE>
The Corporation generated cash flows from investing activities in the first
half of 1996 principally from the receipt of $29.8 million cash from the sales
of MDC and the Depot, received $21.3 million income tax refunds and borrowed
$6.5 million which enabled it to fund operations and repay the $37.9 million of
outstanding borrowings under its bridge loan and increase its consolidated cash
balance at June 30, 1996 by $5.0 million. In addition, on July 2, 1996, the
Corporation paid off the $24.5 million outstanding balance of the amended bridge
loan facility and concurrently borrowed $20.0 million under a new DIP Credit
Agreement dated June 28, 1996. Outstanding borrowings under the DIP Credit
Agreement bear interest at the prime rate plus two percent (10.25% at August 14,
1996) payable on the last day of each month and on the termination date, as
defined in the DIP Credit Agreement. The Corporation paid a $600 financing fee
relating to the DIP Credit Agreement on June 28, 1996.
Net cash used by continuing operations in the first half of 1995 of $81.0
million consisted of an increase in accounts receivable at June 30, 1995 of
$60.0 million. These accounts receivable were sold at December 31, 1994,
cancelled effective March 31, 1995, and subsequently absorbed into the new bank
credit facility on April 11, 1995. In addition, approximately $24.0 million of
cash was used to fund cost overruns on a number of fixed-price contracts. Net
cash provided by investing activities in the first half of 1995 of $30.9 million
arose substantially from the $22.5 million net proceeds from the sale of MKGold,
$4.3 million from the sale of securities available for sale and $4.1 million
from sales of property, equipment and other assets. See Note 4. "Disposition of
Investments in Affiliates and Other Assets". Net cash provided by financing
activities in the first half of 1995 of $121.8 million included $128.0 million
additional net borrowings under bank credit agreements less the cash payment of
the fourth quarter 1994 dividend of $6.2 million.
LIQUIDITY
The Corporation, which has been experiencing significant operating losses and
facing severe liquidity problems, determined that it was not likely to meet its
cash repayment obligations on existing indebtedness including (i) $100.0 million
of antecedent bank debt due on September 30, 1996, (ii) $113.3 million of
antecedent bank debt due 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 the lender banks on such dates and to
ultimately fund the remaining $31.2 million reimbursement obligation to the
bonding company and the estimated $90.0 million reimbursement obligation to the
lender banks ("Metra Banks"). 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 sale of its remaining
investment held for sale would not be sufficient to meet its existing antecedent
debt obligations and the required escrow payments under the Transit
reimbursement obligations in 1996.
CHAPTER 11 BANKRUPTCY FILING: On June 25, 1996, Morrison Knudsen Corporation, a
Delaware corporation, filed a petition for relief under Chapter 11 of the United
States Bankruptcy Code by filing a prepackaged Plan of Reorganization in the
United States Bankruptcy Court for the District of Delaware, Bankruptcy Case
Number 96-1006 (PJW) (the "Plan"). The Corporation's wholly-owned subsidiaries
were not included in the filing. The Plan provides for a settlement of the
Corporation's obligations to its impaired creditors. Claims which the
Corporation believes will be allowed are stated in the June 30, 1996 balance
sheet as "liabilities subject to settlement under reorganization proceedings"
and "accrued litigation settlements subject to settlement under reorganization
proceedings." The Corporation's obligations to its vendors, subcontractors and
material suppliers are not impaired under the Plan. The Plan provides 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. The Corporation intends
I-19
<PAGE>
to conduct its business as usual, and 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 Plan has already
been accepted by the Corporation's impaired creditors to the extent required
under the Bankruptcy Code. On or about August 1, 1996, the Corporation commenced
soliciting acceptances of the Plan from the holders of Touchstone claims and
holders of the Corporation's common stock, including securities class actions
claimants. The Corporation continues to operate its businesses as debtor-in-
possession, and the Corporation's officers and directors remain in control
subject to the limitations and requirements of the Bankruptcy Code.
PLAN OF REORGANIZATION AND MERGER: As disclosed in its Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, (i) in February 1996 the Corporation
proposed an initial restructuring plan to its impaired creditors which formed
the basis for an initial plan of reorganization of the Corporation (the "Initial
Plan") and (ii) in May 1996 the Corporation and Washington Construction Group,
Inc. ("Washington") entered into a non-binding term sheet relating to the
possible merger of the Corporation with and into Washington (the "Merger"), with
Washington being the surviving Corporation in the Merger and being renamed
Morrison Knudsen Corporation (as such, the "Combined Company"). Following the
completion of Washington's review of the Corporation's businesses and extensive
negotiations regarding the definitive terms of the Merger and of modifications
to the Initial Plan to provide for, among other things, the Merger and the
distribution of securities of the Combined Company to the Corporation's impaired
creditors, the Corporation and Washington entered into a merger agreement (the
"Merger Agreement") on May 28, 1996. Following the execution of the Merger
Agreement and further negotiations with various creditor and stockholder
representatives, the Corporation modified the Initial Plan to reflect the Merger
Agreement and certain accommodations reached with the impaired creditors'
steering committee and other creditor and stockholder representatives.
PRINCIPAL TERMS OF THE PLAN AND THE MERGER AGREEMENT: In addition to the Merger,
the Plan provides for the satisfaction and discharge of substantially all of the
Corporation's existing senior debt obligations and the cancellation of all of
the Corporation's outstanding common stock. The Plan provides that, unless the
Merger Agreement is terminated, each holder of record of shares of the
Corporation's common stock as of the date the Plan is confirmed (including
shares held for distribution to certain securities litigation plaintiffs) will
receive (i) its pro rata share of warrants to purchase an aggregate of 2,765,000
shares of the Combined Company's common stock at an exercise price of $12.00 per
share (subject to adjustment), (ii) a number of rights, equal to the number of
shares of the Corporation's common stock so held, to purchase a portion of the
consideration otherwise distributable under the Plan to certain of the
Corporation's creditors as described below, and (iii) its pro rata share of any
distributions that may be required under the Plan to prevent the assumed value
of the aggregate consideration otherwise distributable under the Plan to certain
of the Corporation's creditors as described below from exceeding the aggregate
amount of such creditors' allowed claims (all as determined in the manner
provided in the Plan). The Plan also provides that, unless the Merger Agreement
is terminated, certain creditors of the Corporation will receive distributions
(a portion of which may be made to a trust for their benefit) of (i) $13.3
million in cash, (ii) all of the common stock of MK Rail owned by the
Corporation, (iii) the promissory note of MK Rail owned by the Corporation (or
the proceeds thereof), (iv) newly issued shares of common stock of the Combined
Company equal to 45% of the total number of such shares to be outstanding after
giving effect to such issuance, (v) newly issued shares of preferred stock of
the Combined Company entitling the holders thereof to receive up to $18.0
million (subject to adjustment) of certain tax refunds that may be claimed by
the Combined Company as successor to the Corporation, and (vi) if applicable,
the proceeds of any exercises of the rights described in clause (ii) of the
preceding sentence (in lieu of a portion of the distributions described in this
sentence).
The Plan provides that, if the Merger Agreement is terminated (in which event
the Merger would not occur), in lieu of the distributions described above, (i)
each holder of record of shares of the Corporation's common stock as of the date
the Plan is confirmed will receive its pro rata share of warrants to purchase an
aggregate number of shares (estimated to be approximately 1,000,000) of common
stock of the reorganized Corporation equal to 10% of the total number of such
shares to be outstanding after giving effect to the issuance of such shares to
certain creditors of the Corporation as described below, at a price determined
pursuant to a formula set forth in the Plan, and (ii) certain creditors of the
Corporation will receive distributions (a portion of which may be made to a
trust for their benefit) of (i) all of the common stock of MK Rail owned by the
Corporation, (ii) the promissory note of MK Rail owned by the Corporation (or
the proceeds thereof), (iii) all of the common stock of the reorganized
Corporation to be outstanding as of the effective date of the Plan (estimated to
be approximately 10,000,000 shares), and (iv) newly issued shares of preferred
stock of the reorganized Corporation entitling the holders thereof to receive up
to $18.0 million (subject to adjustment) of certain tax refunds that may be
received by the reorganized Corporation.
The effectiveness of the Plan and the respective obligations of the
Corporation and Washington to consummate the Merger are subject to certain
conditions. In addition, the Merger Agreement may be terminated by the
Corporation or Washington under certain circumstances. Although there can be no
assurance with respect thereto, it is presently expected that all conditions to
the effectiveness of the Plan and the consummation of the Merger will be
satisfied or waived, that the Merger Agreement will not be terminated, and that
the Plan will become effective and the Merger will be consummated in September
I-20
<PAGE>
1996. The Merger Agreement provides that, in the event (i) the Corporation(a)
fails to consummate the Merger in breach of its obligations under the Merger
Agreement, or (b) terminates the Merger Agreement and enters into a definitive
agreement with respect to a Substantial Transaction (as defined below) within
one year of such termination and (ii) in all such cases Washington is not in
material breach of its obligations under the Merger Agreement and, at the time
of such failure or termination, is ready, willing and able to proceed to
consummate the transactions thereunder, the Corporation will pay Washington a
fee of $9.0 million plus reimbursement of expenses. The Merger Agreement further
provides that if the Corporation consummates such Substantial Transaction, the
Corporationwill also pay to Washington the lesser of (i) $3.0 million and (ii)
40% of the amount by which the value of the consideration provided in the
Substantial Transaction exceeds $250.0 million, plus reimbursement of expenses.
For purposes of the Merger Agreement, the term "Substantial Transaction" means
an alternative transaction involving the sale of the Corporation, the sale of a
majority of the stock of the Corporation (by means of a merger, stock sale or
other transaction), the sale of any of the Corporation's principal operating
businesses (other than MK Rail) and any other reorganization involving an equity
infusion.
The foregoing descriptions of the principal terms of the Plan and Merger
Agreement are qualified in their entirety by the full texts of such documents,
which are filed as Exhibits 2.1 and 2.2, respectively, hereto and incorporated
herein by this reference. In addition, a Disclosure Statement relating to the
Plan and the Merger, was mailed to holders of record, of the Corporation's
common stock on or about August 1, 1996. Stockholders are urged to carefully
read the Disclosure Statement in its entirety.
Representatives of the Corporation and Washington are presently engaged in
negotiations with respect to a $200.0 million senior secured working capital and
letter of credit facility for the Combined Company. Although it is presently
expected that the Combined Company will be able to obtain such a facility on
acceptable terms, there can be no assurance with respect thereto.
NEW BUSINESS AND BACKLOG
New Business: The Corporation booked new business of $341.2 million in the first
six months of 1996 compared to $1,098.1 million in the last six months of 1995.
New business consists of new engineering, construction, environmental and mining
services contracts and changes to existing contracts.
Backlog: Backlog of all uncompleted contracts at June 30, 1996 was $3,527.9
million, compared with $3,864.4 million at year-end 1995. Backlog consists of
(i) uncompleted portions of engineering and construction contracts, including
the proportionate share of construction joint-venture contracts, (ii) the next
five-year portion of long-term mining services contracts and, (iii) 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. 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.
The Corporation's business is being adversely affected by its poor financial
condition, and by the reluctance of some potential customers to engage the
Corporation on new or additional projects. The Corporation has experienced a
decline in new business booked in the first half of 1996 and the year ended
December 31, 1995 compared to prior periods. 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.
I-21
<PAGE>
PART II. OTHER INFORMATION
(All dollar amounts in thousands)
Item 3. Legal Proceedings
The Corporation and its respective directors and officers (the "defendants")
were subject to a number of lawsuits in the following four general categories
that have been settled; (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 former stockholders of three corporations, Touchstone, Inc., TMS,
Inc., and Clark Industries, Inc., acquired by the Corporation in exchange for
shares of the Corporations' common stock. These actions have been described in
detail in prior reports. With the exception of the TMS, Inc. action, such
actions have been settled and are subject to final, non-appealable judgements.
The settlements have been described in detail in prior reports. The Corporation
has filed a motion in the United States Bankruptcy Court for the District of
Delaware to approve such settlements and the release of stock and assets to the
control of the plaintiffs. The TMS, Inc. action, (Pilarczyk, et al. -vs-Morrison
Knudsen Corporation, USDC NDNY 95-CY-1835) has been removed from the court's
open docket pending a lifting of the bankruptcy stay.
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Filed in Part I
None
Filed in Part II
The Exhibits to this Quarterly Report on Form 10-Q are listed in
the Exhibit Index contained elsewhere in this Quarterly Report.
(b) Reports on Form 8-K
The Registrant filed a current report on Form 8-K on May 28, 1996
to report that the Registrant entered into a definitive agreement
to merge with Washington Construction Group, Inc.
The Registrant filed a current report on Form 8-K on June 25, 1996
to report that Morrison Knudsen Corporation, a Delaware
corporation, filed in the United States Bankruptcy Court a petition
for reorganization under Chapter 11 of the United States Bankruptcy
Code.
All other items required under Part II are omitted because they are not
applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORRISON KNUDSEN CORPORATION
/s/ G.A. Crockett
-----------------------------
Vice President -- Business Management and
Controller and Principal Accounting
Officer, in his respective capacities
as such
Date: August 14, 1996
1
<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.
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
- ------ --------
<C> <S>
2.1* The registrant's First Amended Plan of Reorganization under
Chapter 11 of the Bankruptcy Code as filed in the United
States Bankruptcy Court for the District of Delaware, Case
No. 96-1006(PJW).
2.2 The registrant's Restructuring and Merger Agreement dated as
of May 28, 1996 with Washington Construction Group, Inc.
(filed as Exhibit 2.1 to the registrant's Form 8-K Current
Report dated May 28, 1996 and incorporated herein by
reference.)
4.1* The registrant's Debtor-in-Possession Credit Agreement dated
as of June 28, 1996 with Mellon Bank, N.A., as Agent, and
other financial institutions named therein and Bank of
America National Trust and Savings Association, Bank of
America Illinois and Key Bank of Idaho, as Deposit Banks.
10.1* The registrant's Settlement Agreement with Richard J. Clark,
Richard K. Clark and Dennis E. Clark dated as of May 20,
1996.
10.2 MK Rail Note Cancellation and Restructuring Agreement dated as
of June 20, 1996 among the Registrant, MK Rail and the
Registrant's wholly owned subsidiary, Morrison Knudsen
Corporation, an Ohio corporation ("MKO") (filed as Exhibit
10.1 to the registrant's Form 8-K Current Report dated June
25, 1996 and incorporated herein by reference.)
10.3 MK Rail Stockholders Agreement dated as of June 20, 1996,
between MK Rail and MKO (filed as Exhibit 10.2 to the
registrant's Form 8-K Current Report dated June 25, 1996 and
incorporated herein by reference.)
27.* Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: )
)
MORRISON KNUDSEN CORPORATION, ) CASE NO. 96-1006 (PJW)
a Delaware corporation, )
) Chapter 11
Debtor. )
FIRST AMENDED PLAN OF REORGANIZATION
OF
MORRISON KNUDSEN CORPORATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
David S. Kurtz
Jeffrey W. Linstrom
Kathleen M. Boege
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive
Chicago, Illinois 60601-1692
(312) 782-3939
Robert Dean Avery
JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013-1025
(213) 489-3939
ATTORNEYS FOR
MORRISON KNUDSEN CORPORATION
Laura Davis Jones
YOUNG, CONAWAY, STARGATT & TAYLOR
Rodney Square North, Eleventh Floor
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
CO-COUNSEL FOR
MORRISON KNUDSEN CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introduction............................................................. I - 1
ARTICLE I. DEFINED TERMS, RULES OF INTERPRETATION, COMPUTATION OF
TIME AND GOVERNING LAW....................................... I - 1
A. Defined Terms................................................ I - 1
1. "Administrative Claim".................................. I - 1
2. "Affiliate"............................................. I - 1
3. "Allowed Claim" or "Allowed Unsecured Claim"............ I - 1
4. "Allowed . . . Claim"................................... I - 2
5. "Allowed Interest"...................................... I - 2
6. "Amerail"............................................... I - 2
7. "Amerail Environmental Security Agreement".............. I - 2
8. "Ballots"............................................... I - 2
9. "Bankruptcy Code"....................................... I - 2
10. "Bankruptcy Court"...................................... I - 2
11. "Bankruptcy Rules"...................................... I - 2
12. "Bar Date".............................................. I - 2
13. "Beneficial Holder"..................................... I - 2
14. "Boise Landlord"........................................ I - 2
15. "Boise Landlord Cash Distribution"...................... I - 2
16. "Boise Landlord Claims"................................. I - 2
17. "Boise Landlord Class MK-6 Rights Exercise Proceeds".... I - 3
18. "Boise Landlord Combined Company Common Stock".......... I - 3
19. "Boise Landlord New MK Common Stock".................... I - 3
20. "Boise Leases".......................................... I - 3
21. "Bonding Company"....................................... I - 3
22. "Bonding Company Cash Distribution"..................... I - 3
23. "Bonding Company Class MK-3 Rights Exercise Proceeds"... I - 3
24. "Bonding Company Class MK-6 Rights Exercise Proceeds"... I - 3
25. "Bonding Company Combined Company Common Stock"......... I - 3
26. "Bonding Company MK Rail Note Proceeds"................. I - 3
27. "Bonding Company MK Rail Stock"......................... I - 3
28. "Bonding Company New MK Common Stock"................... I - 3
29. "Bridge Loan"........................................... I - 4
30. "Bridge Loan Agent"..................................... I - 4
31. "Bridge Loan Agreement"................................. I - 4
32. "Bridge Loan Claims".................................... I - 4
33. "Bridge Loan Documents"................................. I - 4
34. "Bridge Loan Lenders"................................... I - 4
35. "Business Day".......................................... I - 4
36. "Capital Stock"......................................... I - 4
37. "Cash".................................................. I - 4
38. "Cash Distribution"..................................... I - 4
39. "Chapter 11 Case"....................................... I - 4
40. "Claim"................................................. I - 4
41. "Class"................................................. I - 4
42. "Class 3 Funded Debt Distribution"...................... I - 4
43. "Class 3 Metra Lender Distribution"..................... I - 4
44. "Class 3 Transit Bonding Distribution".................. I - 4
45. "Class MK-3 Rights Exercise Proceeds"................... I - 5
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46. "Class MK-6 Rights Exercise Proceeds"................... I - 5
47. "Combined Company"...................................... I - 5
48. "Combined Company Bylaws"............................... I - 5
49. "Combined Company Certificate of Incorporation"......... I - 5
50. "Combined Company Common Stock"......................... I - 5
51. "Combined Company Registration Rights Agreement"........ I - 5
52. "Combined Company Rights"............................... I - 5
53. "Combined Company Rights Aggregate Consideration"....... I - 6
54. "Combined Company Rights Aggregate Percentage".......... I - 6
55. "Combined Company Rights Exercise Period"............... I - 6
56. "Combined Company Rights Exercise Price"................ I - 6
57. "Combined Company Rights Exercise Proceeds"............. I - 6
58. "Combined Company Rights Expiration Date"............... I - 6
59. "Combined Company Securities"........................... I - 6
60. "Combined Company Series A Preferred Stock"............. I - 6
61. "Combined Company Warrants"............................. I - 7
62. "Combined Company Warrant Agreement".................... I - 7
63. "Common Stock Exchange"................................. I - 7
64. "Confirmation".......................................... I - 7
65. "Confirmation Date"..................................... I - 7
66. "Confirmation Order".................................... I - 7
67. "Creditor Distribution Exhibit"......................... I - 7
68. "Debtor"................................................ I - 7
69. "Delaware General Corporation Law"...................... I - 7
70. "Derivative Actions".................................... I - 7
71. "Derivative Actions Settlements"........................ I - 7
72. "DIP Financing Facility"................................ I - 7
73. "Disbursing Agent"...................................... I - 7
74. "Disclosure Statement".................................. I - 7
75. "Disputed Claim"........................................ I - 8
76. "Disputed Interest"..................................... I - 8
77. "Distribution Agreement"................................ I - 8
78. "Distribution Record Date".............................. I - 8
79. "Double Derivative Action".............................. I - 8
80. "Effective Date"........................................ I - 8
81. "Effective Time"........................................ I - 8
82. "Estate"................................................ I - 8
83. "Exchange Act".......................................... I - 8
84. "Exercise Notice"....................................... I - 8
85. "Existing Guaranties"................................... I - 8
86. "Existing Guaranty Claims".............................. I - 8
87. "Existing Indebtedness Agent"........................... I - 8
88. "Existing LC Claims".................................... I - 8
89. "Existing Lender Agreements"............................ I - 8
90. "Existing Letters of Credit"............................ I - 9
91. "Existing Loan Documents"............................... I - 9
92. "Existing Loans"........................................ I - 9
93. "File," "Filed" or "Filing"............................. I - 9
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94. "Final Order"........................................... I - 9
95. "Funded Debt Cash Distribution"......................... I - 9
96. "Funded Debt Claims".................................... I - 9
97. "Funded Debt Class MK-3 Rights Exercise Proceeds"....... I - 9
98. "Funded Debt Class MK-6 Rights Exercise Proceeds"....... I - 9
99. "Funded Debt Combined Company Common Stock"............. I - 9
100. "Funded Debt Lenders"................................... I - 9
101. "Funded Debt MK Rail Note Proceeds"..................... I - 9
102. "Funded Debt MK Rail Stock"............................. I - 9
103. "Funded Debt New MK Common Stock"....................... I - 10
104. "Funded Debt Pro Rata Share"............................ I - 10
105. "Holder"................................................ I - 10
106. "Impaired . . ."........................................ I - 10
107. "Indemnification Agreement"............................. I - 10
108. "Initial Equity Recovery"............................... I - 10
109. "Initial Residual Equity Distribution".................. I - 10
110. "Intercreditor Agreement"............................... I - 10
111. "Interest".............................................. I - 10
112. "Lender Cash Distribution".............................. I - 10
113. "Lender Class MK-3 Rights Exercise Proceeds"............ I - 11
114. "Lender Class MK-6 Rights Exercise Proceeds"............ I - 11
115. "Lender Combined Company Common Stock".................. I - 11
116. "Lender MK Rail Note Proceeds".......................... I - 11
117. "Lender MK Rail Stock".................................. I - 11
118. "Lender New MK Common Stock"............................ I - 11
119. "Lender Steering Committee"............................. I - 11
120. "Lenders"............................................... I - 11
121. "Liquidating Trust"..................................... I - 11
122. "Liquidating Trust Agreement"........................... I - 11
123. "Liquidating Trust Cash Distribution"................... I - 11
124. "Liquidating Trust Class MK-3 Rights Exercise Proceeds". I - 12
125. "Liquidating Trust Class MK-6 Rights Exercise Proceeds". I - 12
126. "Liquidating Trust Combined Company Common Stock"....... I - 12
127. "Liquidating Trust MK Rail Note Proceeds"............... I - 12
128. "Liquidating Trust MK Rail Stock"....................... I - 12
129. "Liquidating Trust New MK Common Stock"................. I - 12
130. "Liquidating Trustee"................................... I - 12
131. "MK".................................................... I - 12
132. "MKO"................................................... I - 12
133. "MK Rail"............................................... I - 12
134. "MK Rail Note".......................................... I - 12
135. "MK Rail Note Cancellation Agreement"................... I - 12
136. "MK Rail Note Proceeds"................................. I - 12
137. "MK Rail Rights"........................................ I - 13
138. "MK Rail Rights Plan"................................... I - 13
139. "MK Rail Securities Class Action Plaintiffs"............ I - 13
140. "MK Rail Securities Class Actions"...................... I - 13
141. "MK Rail Stock"......................................... I - 13
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142. "MK Rail Stockholders Agreement"........................ I - 13
143. "MK Securities Class Action Plaintiffs"................. I - 13
144. "MK Securities Class Actions"........................... I - 13
145. "Master Ballots"........................................ I - 13
146. "Merger"................................................ I - 13
147. "Merger Agreement"...................................... I - 13
148. "Metra Agent"........................................... I - 13
149. "Metra Ceiling Amount".................................. I - 13
150. "Metra Credit Agreement"................................ I - 13
151. "Metra Floor Amount".................................... I - 13
152. "Metra Guaranty"........................................ I - 13
153. "Metra Lender Cash Distribution"........................ I - 13
154. "Metra Lender Claims"................................... I - 14
155. "Metra Lender Class MK-3 Rights Exercise Proceeds"...... I - 14
156. "Metra Lender Class MK-6 Rights Exercise Proceeds"...... I - 14
157. "Metra Lender Combined Company Common Stock"............ I - 14
158. "Metra Lender MK Rail Note Proceeds".................... I - 14
159. "Metra Lender MK Rail Stock"............................ I - 14
160. "Metra Lender New MK Common Stock"...................... I - 14
161. "Metra Lender Pro Rata Share"........................... I - 14
162. "Metra Lenders"......................................... I - 14
163. "National Steel Guaranty"............................... I - 14
164. "National Steel Guaranty Claim"......................... I - 15
165. "New Bonds Agreement"................................... I - 15
166. "New Bonds Security Agreement".......................... I - 15
167. "New Credit Facility"................................... I - 15
168. "New Credit Facility Agreement"......................... I - 15
169. "New Credit Facility Documents"......................... I - 15
170. "New Guaranty".......................................... I - 15
171. "New Lease"............................................. I - 15
172. "New Letter of Credit Reimbursement Agreement".......... I - 15
173. "New MK Amended Certificate of Incorporation"........... I - 15
174. "New MK Bylaws"......................................... I - 15
175. "New MK Common Stock"................................... I - 15
176. "New MK Compensation Plans"............................. I - 15
177. "New MK Non-Employee Director Plan"..................... I - 16
178. "New MK Registration Rights Agreement".................. I - 16
179. "New MK Securities"..................................... I - 16
180. "New MK Series A Preferred Stock"....................... I - 16
181. "New MK Stock Compensation Plan"........................ I - 16
182. "New MK Warrant Agreement".............................. I - 16
183. "New MK Warrant Exercise Price Formula"................. I - 16
184. "New MK Warrants"....................................... I - 16
185. "Nondebtor Subsidiaries"................................ I - 16
186. "Old Common Stock"...................................... I - 16
187. "Old Stock Options"..................................... I - 17
188. "Old Warrants".......................................... I - 17
189. "Ordinary Course Professionals' Order".................. I - 17
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190. "Other Secured Claims".................................. I - 17
191. "Override Agreement".................................... I - 17
192. "Override Loan Documents"............................... I - 17
193. "Petition Date"......................................... I - 17
194. "Plan".................................................. I - 17
195. "Plan Participants"..................................... I - 17
196. "Priority Claim"........................................ I - 17
197. "Priority Tax Claim".................................... I - 17
198. "Pro Rata".............................................. I - 17
199. "Professional".......................................... I - 18
200. "Reinstated" or "Reinstatement"......................... I - 18
201. "Reorganization Investment Yield"....................... I - 18
202. "Reorganized Debtor".................................... I - 18
203. "Residual Equity Recovery Exhibit"...................... I - 18
204. "Restructuring"......................................... I - 18
205. "Rights"................................................ I - 18
206. "Rights Agreement"...................................... I - 18
207. "Schedules"............................................. I - 18
208. "Secured Claim"......................................... I - 18
209. "Secured Funded Debt Claims"............................ I - 18
210. "Secured Metra Lender Claims"........................... I - 18
211. "Secured Transit Bonding Claims"........................ I - 18
212. "Securities Act"........................................ I - 19
213. "Securities Plaintiffs"................................. I - 19
214. "Shareholder Litigation Settlements".................... I - 19
215. "Stipulation of Amount and Nature of Claim"............. I - 19
216. "Subsequent Equity Recovery"............................ I - 19
217. "Subsequent Residual Equity Distribution"............... I - 19
218. "Subsidiaries".......................................... I - 19
219. "Third-Party Disbursing Agent".......................... I - 19
220. "Touchstone Actions".................................... I - 19
221. "Touchstone Cash Distribution".......................... I - 19
222. "Touchstone Claims"..................................... I - 19
223. "Touchstone Class MK-6 Rights Exercise Proceeds"........ I - 19
224. "Touchstone Combined Company Common Stock".............. I - 19
225. "Touchstone New MK Common Stock"........................ I - 20
226. "Touchstone Settlement Agreement"....................... I - 20
227. "Trade Claim"........................................... I - 20
228. "Transit Asset Purchase Agreement"...................... I - 20
229. "Transit Bonding Claims"................................ I - 20
230. "Transit Bonding Companies"............................. I - 20
231. "Transit Bonds"......................................... I - 20
232. "Transit Reimbursement Agreement"....................... I - 20
233. "Transit Release"....................................... I - 20
234. "Transit Security Agreement"............................ I - 20
235. "Unimpaired Claim"...................................... I - 20
236. "Unofficial Equity Committee"........................... I - 20
237. "Unsecured Claim"....................................... I - 20
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238. "Unsecured Funded Debt Claims".......................... I - 20
239. "Unsecured Metra Lender Claims"......................... I - 21
240. "Unsecured Transit Bonding Claims"...................... I - 21
241. "Voting Instructions"................................... I - 21
242. "Voting Record Date".................................... I - 21
243. "Washington"............................................ I - 21
B. Rules of Interpretation, Computation of Time and
Governing Law................................................ I - 21
1. Rules of Interpretation................................. I - 21
2. Computation of Time..................................... I - 21
3. Governing Law........................................... I - 21
ARTICLE II. ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS................ I - 22
A. Administrative Claims........................................ I - 22
1. In General.............................................. I - 22
2. Professionals........................................... I - 22
B. Priority Tax Claims.......................................... I - 22
ARTICLE III. CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND
INTERESTS................................................... I - 23
A. Summary of Claims and Interests............................. I - 23
B. Classification and Treatment of Claims Against and
Interests in MK............................................. I - 23
1. Class MK-1 - Priority Claims............................ I - 23
2. Class MK-2 - Bridge Loan Claims......................... I - 24
3. Class MK-3 - Secured Funded Debt Claims, Secured Metra
Lender Claims and Secured Transit Bonding Claims........ I - 24
4. Class MK-4 - Existing LC Claims and Existing Guaranty
Claims.................................................. I - 25
5. Class MK-5 - Other Secured Claims....................... I - 25
6. Class MK-6 - Unsecured Funded Debt Claims, Unsecured
Metra Lender Claims, Unsecured Transit Bonding Claims,
Boise Landlord Claims and Touchstone Claims............. I - 26
7. Class MK-7 - Unsecured Claims........................... I - 27
8. Class MK-8 - Interests of Holders of Old Common Stock
and Securities Plaintiffs............................... I - 28
9. Class MK-9 - Interests of Holders of Old Stock Options
and Old Warrants........................................ I - 28
C. Special Provision Regarding Unimpaired Claims............... I - 29
D. Accrual of Postpetition Interest; Payment of Postpetition
Fees and Expenses........................................... I - 29
ARTICLE IV. ACCEPTANCE OR REJECTION OF THE PLAN......................... I - 29
A. Voting Classes.............................................. I - 29
B. Acceptance by Impaired Classes.............................. I - 29
C. Presumed Acceptance of Plan................................. I - 30
D. Deemed Non-Acceptance of Plan............................... I - 30
E. Non-Consensual Confirmation................................. I - 30
ARTICLE V. MEANS FOR IMPLEMENTATION OF THE PLAN........................ I - 30
A. Continued Corporate Existence, Vesting of Assets in the
Reorganized Debtor and Preservation of Rights of Action..... I - 30
1. Continued Corporate Existence and Vesting of Assets..... I - 30
</TABLE>
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2. Preservation of Rights of Action........................ I - 30
B. The Restructuring Transactions.............................. I - 31
1. The Merger.............................................. I - 31
a. Consummation of the Merger......................... I - 31
b. Cancellation of Capital Stock and Existing Loan
Documents; Surrender of Securities and Other
Documentation...................................... I - 31
c. Effect of the Merger on Transfer of Securities..... I - 31
d. The Reorganized Debtor's Obligations Under the Plan I - 32
2. New Letter of Credit Reimbursement Agreement and New
Guaranties.............................................. I - 32
3. Issuance of Securities and Related Documentation........ I - 32
4. Establishment of Liquidating Trust...................... I - 32
5. Establishment of New Credit Facility.................... I - 33
6. Procedures for Exercise of Combined Company Rights...... I - 33
C. Corporate Governance, Directors and Officers, Employment-
Related Agreements and Compensation Programs................ I - 35
1. Certificate of Incorporation and Bylaws................. I - 35
a. Combined Company/Reorganized MK.................... I - 35
2. Directors and Officers.................................. I - 35
a. The Combined Company/Reorganized MK................ I - 35
3. Employment, Retirement, Indemnification and Other
Agreements and Incentive Compensation Programs; Retiree
Health and Welfare Benefits................................. I - 36
4. Corporate Action........................................ I - 36
D. Sources of Cash for Plan Distributions...................... I - 37
E. Releases and Related Matters................................ I - 37
1. Releases by the Debtor.................................. I - 37
2. Releases by Holders of Claims or Interests.............. I - 37
3. Injunction Related to Releases.......................... I - 38
F. Release of Liens............................................ I - 39
G. Effectuating Documents; Further Transactions; Exemption
from Certain Transfer Taxes................................. I - 39
H. Approval of Shareholder Litigation Settlements.............. I - 39
I. MK Rail Note Cancellation Agreement......................... I - 39
ARTICLE VI. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES....... I - 40
A. Executory Contracts and Unexpired Leases to be Assumed...... I - 40
1. Assumptions Generally................................... I - 40
2. Cure of Defaults........................................ I - 40
B. Executory Contracts and Unexpired Leases to be Rejected;
Bar Date for Rejection Damages.............................. I - 40
1. Rejection Generally..................................... I - 40
2. Bar Date for Rejection Damages.......................... I - 41
C. Special Executory Contract and Unexpired Lease Matters...... I - 41
1. Existing Employment, Retirement and Other Agreements and
Incentive Compensation Programs......................... I - 41
2. Indemnification Obligations............................. I - 41
D. Executory Contracts and Unexpired Leases Entered Into
and Other Obligations Incurred After the Petition Date...... I - 41
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ARTICLE VII. PROVISIONS GOVERNING DISTRIBUTIONS.......................... I - 41
A. Distributions for Claims and Interests Allowed as of
the Effective Date.......................................... I - 41
B. Distributions by Disbursing Agents.......................... I - 42
1. Disbursing Agents....................................... I - 42
C. Delivery of Distributions and Undeliverable or Unclaimed
Distributions............................................... I - 42
1. Delivery of Distributions in General.................... I - 42
2. Undeliverable Distributions............................. I - 42
a. Holding and Investment of Undeliverable
Distributions...................................... I - 42
b. After Distributions Become Deliverable............. I - 43
c. Failure to Claim Undeliverable Distributions....... I - 43
D. Distribution Record Date.................................... I - 43
E. Means of Cash Payments...................................... I - 44
F. Timing and Calculation of Amounts to be Distributed......... I - 44
1. In General.............................................. I - 44
2. Distributions of Stock.................................. I - 44
3. Distributions of Warrants............................... I - 44
4. Distributions of Rights................................. I - 45
5. Compliance with Tax Requirements........................ I - 45
G. Setoffs..................................................... I - 45
H. Surrender of Cancelled Debt Instruments or Securities....... I - 45
1. Existing Loan Documents and Capital Stock Certificates.. I - 46
2. Lost, Stolen, Mutilated or Destroyed Existing Loan
Documents or Capital Stock Certificates................. I - 46
3. Failure to Surrender Canceled Existing Loan Documents
or Capital Stock Certificates........................... I - 46
I. Restrictions Related to MK Rail Stock....................... I - 46
J. Pledge by Holder of Boise Landlord Claims of Entitlement
to Receive Distributions.................................... I - 46
ARTICLE VIII. PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND DISPUTED
INTERESTS.................................................. I - 47
A. Prosecution of Objections to Claims and Interests.......... I - 47
B. Treatment of Disputed Claims or Interests.................. I - 47
1. No Payments on Account of Disputed Claims or Interests. I - 47
2. Resolution or Estimation of Claims..................... I - 47
C. Distributions on Account of Disputed Claims or Interests
Once They Are Allowed...................................... I - 47
ARTICLE IX. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF
THE PLAN................................................... I - 48
A. Conditions to Confirmation................................. I - 48
B. Conditions to Effective Date............................... I - 48
C. Waiver of Conditions....................................... I - 48
D. Effect of Nonoccurrence of Conditions to Effective Date.... I - 49
ARTICLE X. CRAMDOWN................................................... I - 49
ARTICLE XI. DISCHARGE OF CLAIMS, TERMINATION OF INTERESTS, INJUNCTIONS
AND SUBORDINATION RIGHTS................................... I - 49
A. Discharge of Claims and Termination of Interests........... I - 49
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B. Injunctions................................................ I - 50
1. Injunction Related to Discharged Claims and Terminated
Interests.............................................. I - 50
2. Released Claims........................................ I - 50
3. Consent to Injunction.................................. I - 50
4. Regulatory or Enforcement Actions...................... I - 50
C. Termination of Subordination Rights and Settlement of
Related Claims and Controversies........................... I - 51
D. Limitation of Liability in Connection with the Plan,
Disclosure Statement and Related Documents and Related
Indemnity.................................................. I - 51
ARTICLE XII. RETENTION OF JURISDICTION.................................. I - 51
ARTICLE XIII. MISCELLANEOUS PROVISIONS................................... I - 53
A. Payment of Statutory Fees.................................. I - 53
B. Modification of the Plan................................... I - 53
C. Revocation of the Plan..................................... I - 53
D. Severability of Plan Provisions............................ I - 53
E. Successors and Assigns..................................... I - 53
F. Exhibits................................................... I - 53
G. Service of Documents on the Debtor or Reorganized Debtor... I - 54
H. Regulatory or Enforcement Action........................... I - 54
</TABLE>
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TABLE OF EXHIBITS
<TABLE>
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EXHIBIT NAME
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A Merger Agreement (without exhibits)
B Combined Company Bylaws*
C Combined Company Certificate of Incorporation*
D [Intentionally Omitted]
E List of Lenders
F List of Existing Lender Agreements
G List of Existing Guaranties
H List of Existing Letters of Credit
I Combined Company Registration Rights Agreement
J Combined Company Warrant Agreement
K Exclusive Schedule of Executory Contracts and Unexpired Leases to be
Rejected
L Summaries of New MK Compensation Plans
M List of New MK Employment, Retirement, Indemnification and Other
Agreements and Incentive Compensation Programs That Will Remain in
Effect as of the Effective Date
N New MK Bylaws*
O New MK Amended Certificate of Incorporation*
P New MK Registration Rights Agreement*
Q New MK Warrant Agreement*
R-1 Creditor Distribution Exhibit - Merger Agreement Consummated
R-2 Creditor Distribution Exhibit - Merger Agreement Terminated
S Residual Equity Recovery Exhibit
T MK Rail Stockholders Agreement*
U Non-Exclusive List of Retained Claims, Rights and Causes of Action
V Liquidating Trust Agreement
W MK Rail Note Cancellation Agreement*
</TABLE>
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* To be provided upon request.
I-x
<PAGE>
INTRODUCTION
Morrison Knudsen Corporation, a Delaware corporation ("MK" or the
"Debtor"), proposes the following first amended plan of reorganization (the
"Plan") for the satisfaction of the Debtor's outstanding creditor claims and
equity interests. Reference is made to the Debtor's second amended disclosure
statement, distributed contemporaneously with the Plan (the "Disclosure
Statement"), for a discussion of the Debtor's history, businesses, properties,
results of operations and projections for future operations, and for a summary
and analysis of the Plan and certain related matters, including the Merger,
which is a central feature of the Plan. All Holders of Claims against and
Interests in the Debtor entitled to vote on the Plan are encouraged to read the
Plan and the Disclosure Statement in their entirety before voting to accept or
reject the Plan. Subject to certain restrictions and requirements set forth in
the Plan and the Merger Agreement, the Debtor reserves the right to alter,
amend, modify, revoke or withdraw the Plan prior to its consummation.
Unless the Merger Agreement is terminated as provided therein, the Merger
shall be consummated in accordance with the terms of the Merger Agreement and
the Plan will become effective simultaneously with such consummation. If the
Merger Agreement is terminated as provided therein, the Plan will nonetheless
become effective in accordance with its terms, which provide for alternative
treatment of various matters in that event.
ARTICLE I.
DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. Defined Terms
As used in the Plan, capitalized terms and phrases have the meanings set
forth below. Any term used in the Plan that is not defined herein, but that is
used in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
1. "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date of preserving the Estate and operating the
businesses of the Debtor (such as wages, salaries or commissions for services
and payments for goods or other services); (b) compensation for legal, financial
advisory, accounting and other services and reimbursement of expenses awarded or
allowed under sections 330(a) or 331 of the Bankruptcy Code; (c) all fees and
charges assessed against the Estate under chapter 123 of title 28, United States
Code, 28 U.S.C. (S)(S) 1911-1930; and (d) any such Claim held by an Affiliate
arising on or after the Petition Date.
2. "AFFILIATE" means MK or any corporation, limited liability company or
partnership in which MK directly or indirectly owns 50% or more of the equity
interest of such entity, excluding MK Rail.
3. "ALLOWED CLAIM" or "Allowed Unsecured Claim" means (subject to the
provisions of Section III.E below):
a. a Claim that has been listed by the Debtor in its Schedules as other
than disputed, contingent or unliquidated and (i) is not otherwise a Disputed
Claim or (ii) as to which the Debtor has not delivered to the Holder of the
Claim a Stipulation of Amount and Nature of Claim;
b. a Claim that is allowed: (i) in any Stipulation of Amount and Nature
of Claim executed prior to the Confirmation Date and approved by the
Bankruptcy Court; (ii) in any Stipulation of Amount and Nature of Claim
executed on or after the Confirmation Date (except with respect to the Metra
Lender
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Claims); (iii) in any contract, instrument, indenture or other agreement or
document entered into in connection with the Plan; (iv) in a Final Order; or
(v) pursuant to the terms of the Plan;
c. a Claim relating to a rejected executory contract or unexpired lease
that satisfies either (a) or (b) above, but in either case only if a proof of
Claim has been Filed by the Bar Date or has otherwise been deemed timely
Filed under applicable law; or
d. a Claim (other than a Claim relating to a rejected executory contract
or unexpired lease) not satisfying either clause (a) or (b) above, but that
is not a Disputed Claim.
4. "ALLOWED . . . CLAIM" means an Allowed Claim in the particular
Class(es) or categories described.
5. "ALLOWED INTEREST" means an Interest: (a) that is registered as of
the Distribution Record Date in a stock register that is maintained by or on
behalf of the Debtor and (b) either (i) is not a Disputed Interest or (ii) has
been allowed by a Final Order.
6. "AMERAIL" means American Passenger Rail Car Company L.L.C. and its
successors and assigns.
7. "AMERAIL ENVIRONMENTAL SECURITY AGREEMENT" means that certain Pledge
and Security Agreement (Environmental Obligations) dated as of October 10, 1995
by MK, MKO and certain of the Subsidiaries in favor of Amerail.
8. "BALLOTS" means the ballots accompanying the Disclosure Statement
upon which Holders of Impaired Claims or Impaired Interests entitled to vote on
the Plan shall indicate their acceptance or rejection of the Plan in accordance
with the Voting Instructions.
9. "BANKRUPTCY CODE" means title 11 of the United States Code, as now in
effect or hereafter amended.
10. "BANKRUPTCY COURT" means the United States District Court having
jurisdiction over the Chapter 11 Case and, to the extent of any reference made
pursuant to 28 U.S.C. (S) 157, the bankruptcy unit of the District Court.
11. "BANKRUPTCY RULES" means, collectively, the Federal Rules of
Bankruptcy Procedure and the general and local rules of the Bankruptcy Court, as
now in effect or hereafter amended.
12. "BAR DATE" means the bar date for Filing proofs of Claim with respect
to executory contracts and unexpired leases that are rejected pursuant to the
Plan or otherwise pursuant to section 365 of the Bankruptcy Code.
13. "BENEFICIAL HOLDER" means the entity holding the beneficial interest
in a Claim or Interest.
14. "BOISE LANDLORD" means MK Plaza Trust, a Delaware business trust.
15. "BOISE LANDLORD CASH DISTRIBUTION" means the amount of the Cash
Distribution to be distributed, subject to the exercise of the Combined Company
Rights, on or as soon as practicable after the Effective Date, unless the Merger
Agreement is terminated, to the Holder of an Allowed Boise Landlord Claim in
accordance with Part A of the Creditor Distribution Exhibit.
16. "BOISE LANDLORD CLAIMS" means the rejection damage Claims of the
Boise Landlord against MK with respect to the rejection of the Boise Leases.
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17. "BOISE LANDLORD CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the amount
of the Class MK-6 Rights Exercise Proceeds to be distributed on or as soon as
practicable after the Effective Date to Holder of Allowed Boise Landlord Claims
in accordance with Part A of the Creditor Distribution Exhibit.
18. "BOISE LANDLORD COMBINED COMPANY COMMON STOCK" means the aggregate
number of shares of Combined Company Common Stock to be distributed, subject to
the exercise of the Combined Company Rights, on or as soon as practicable after
the Effective Date, unless the Merger Agreement is terminated, to the Holder of
an Allowed Boise Landlord Claim in accordance with Part A of the Creditor
Distribution Exhibit.
19. "BOISE LANDLORD NEW MK COMMON STOCK" means the aggregate number of
shares of New MK Common Stock to be distributed on or as soon as practicable
after the Effective Date, if the Merger Agreement is terminated, to the Holder
of an Allowed Boise Landlord Claim in accordance with Part A of the Creditor
Distribution Exhibit.
20. "BOISE LEASES" means those certain Amended and Restated Leases dated
as of January 9, 1990, as amended from time to time prior to the Petition Date.
21. "BONDING COMPANY" means Fidelity and Deposit Company of Maryland.
22. "BONDING COMPANY CASH DISTRIBUTION" means the amount of the Cash
Distribution to be distributed, subject to the exercise of the Combined Company
Rights, on or as soon as practicable after the Effective Date, unless the Merger
Agreement is terminated, to Holders of Allowed Unsecured Transit Bonding Claims
in accordance with Part B of the Creditor Distribution Exhibit.
23. "BONDING COMPANY CLASS MK-3 RIGHTS EXERCISE PROCEEDS" means the
amount of the Class MK-3 Rights Exercise Proceeds to be distributed on or as
soon as practicable after the Effective Date to Holders of Allowed Secured
Transit Bonding Claims in accordance with Part B of the Creditor Distribution
Exhibit.
24. "BONDING COMPANY CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the
amount of the Class MK-6 Rights Exercise Proceeds to be distributed on or as
soon as practicable after the Effective Date to Holders of Allowed Unsecured
Transit Bonding Claims in accordance with Part B of the Creditor Distribution
Exhibit.
25. "BONDING COMPANY COMBINED COMPANY COMMON STOCK" means the aggregate
number of shares of Combined Company Common Stock to be distributed, subject to
the exercise of the Combined Company Rights, on or as soon as practicable after
the Effective Date, unless the Merger Agreement is terminated, to Holders of
Allowed Unsecured Transit Bonding Claims in accordance with Part B of the
Creditor Distribution Exhibit.
26. "BONDING COMPANY MK RAIL NOTE PROCEEDS" means the aggregate amount of
MK Rail Note Proceeds to be distributed, subject to the exercise of the Combined
Company Rights, on or as soon as practicable after the Effective Date to Holders
of Allowed Secured Transit Bonding Claims in accordance with Part B of the
Creditor Distribution Exhibit.
27. "BONDING COMPANY MK RAIL STOCK" means the aggregate number of shares
of MK Rail Stock to be distributed, subject to the exercise of the Combined
Company Rights, on or as soon as practicable after the Effective Date to Holders
of Allowed Secured Transit Bonding Claims in accordance with Part B of the
Creditor Distribution Exhibit.
28. "BONDING COMPANY NEW MK COMMON STOCK" means the aggregate number of
shares of New MK Common Stock to be distributed on or as soon as practicable
after the Effective Date, if the Merger Agreement is terminated, to Holders of
Allowed Unsecured Transit Bonding Claims in accordance with Part B of the
Creditor Distribution Exhibit.
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29. "BRIDGE LOAN" means, collectively, any loans made to MK and MKO under
the Bridge Loan Agreement.
30. "BRIDGE LOAN AGENT" means Mellon Bank, N.A. in its capacity as
administrative agent and collateral agent with respect to the Bridge Loan
Agreement.
31. "BRIDGE LOAN AGREEMENT" means that certain Amended and Restated
Credit Agreement dated as of July 31, 1995, as amended, among MK and MKO as
borrowers, the Bridge Loan Lenders and the Bridge Loan Agent.
32. "BRIDGE LOAN CLAIMS" means the Claims of the Bridge Loan Lenders
arising under the Bridge Loan Documents.
33. "BRIDGE LOAN DOCUMENTS" means the Bridge Loan Agreement and all "Loan
Documents," as defined in the Bridge Loan Agreement.
34. "BRIDGE LOAN LENDERS" means, collectively: (a) Mellon Bank, N.A.;
Merrill Lynch, Pierce, Fenner & Smith Incorporated; Swiss Bank Corporation,
Cayman Islands Branch; Nomura Holding America, Inc.; Internationale Nederlanden
(U.S.) Capital Corp; Bear, Stearns & Co., Inc. and Banque Nationale De Paris and
their successors and assigns and (b) Bank of America National Trust & Savings
Association, Bank of America Illinois and Key Bank of Idaho, solely in their
capacity as the deposit banks.
35. "BUSINESS DAY" means any day, other than a Saturday, Sunday or "legal
holiday" (as defined in Bankruptcy Rule 9006(a)).
36. "CAPITAL STOCK" means, collectively, the Old Common Stock, the Old
Stock Options and the Old Warrants.
37. "CASH" means cash and cash equivalents.
38. "CASH DISTRIBUTION" means the $13,300,000 to be distributed, unless
the Merger Agreement is terminated, on or as soon as practicable after the
Effective Date.
39. "CHAPTER 11 CASE" means the case commenced by the Debtor under
chapter 11 of the Bankruptcy Code.
40. "CLAIM" means a claim (as defined in section 101(5) of the Bankruptcy
Code) against the Debtor.
41. "CLASS" means a class of Claims or Interests, as described in Article
III below.
42. "CLASS 3 FUNDED DEBT DISTRIBUTION" means the value, determined in
accordance with the Residual Equity Recovery Exhibit, of the property to be
distributed to the Funded Debt Lenders pursuant to Section III.B.3 hereof;
provided, however, that if the Merger Agreement is terminated, the value of such
property shall be determined by an order of the Bankruptcy Court.
43. "CLASS 3 METRA LENDER DISTRIBUTION" means the value, determined in
accordance with the Residual Equity Recovery Exhibit, of the property to be
distributed to the Metra Lenders pursuant to Section III.B.3 hereof; provided,
however, that if the Merger Agreement is terminated, the value of such property
shall be determined by an order of the Bankruptcy Court.
44. "CLASS 3 TRANSIT BONDING DISTRIBUTION" means the value, determined in
accordance with the Residual Equity Recovery Exhibit, of the property to be
distributed to the Bonding Company pursuant to
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Section III.B.3 hereof; provided, however, that if the Merger Agreement is
terminated, the value of such property shall be determined by an order of the
Bankruptcy Court.
45. "CLASS MK-3 RIGHTS EXERCISE PROCEEDS" means the Combined Company
Rights Exercise Proceeds to be allocated to Class MK-3, calculated in accordance
with the following formula:
Class MK-3 Rights Exercise Proceeds = (MK Rail Stock Exercise Proceeds + MK Rail
Note Exercise Proceeds)
where
(i) MK Rail Stock Exercise Proceeds = (.85)(MK Rail Stock Price)(Rights
MK Rail Stock);
(ii) "MK Rail Stock Price" means the weighted (i.e., taking into account
the volume of trading on each trading day during the period) average
closing price for shares of MK Rail Stock on the Nasdaq National
Market System during the period of 20 consecutive trading days ending
on the 20th trading day following the Confirmation Date;
(iii) "Rights MK Rail Stock" means the total number of shares of MK Rail
Stock to be distributed to or for the benefit of holders of Combined
Company Rights pursuant to the exercise of Combined Company Rights;
and
(iv) "MK Rail Note Exercise Proceeds" means the aggregate amount of MK
Rail Note Proceeds distributed to or for the benefit of holders of
Combined Company Rights pursuant to the exercise of Combined Company
Rights.
46. "CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the Combined Company
Rights Exercise Proceeds to be allocated to Class MK-6, calculated in accordance
with the following formula:
Class MK-6 Rights Exercise Proceeds = Combined Company Rights Exercise
Proceeds - Class MK-3 Rights Exercise Proceeds
47. "COMBINED COMPANY" means the Delaware corporation which is the
surviving corporation of the Merger, and which shall bear the corporate name
"Morrison Knudsen Corporation."
48. "COMBINED COMPANY BYLAWS" means the Bylaws of the Combined Company,
which shall be substantially in the form set forth in Exhibit B.
49. "COMBINED COMPANY CERTIFICATE OF INCORPORATION" means the Certificate
of Incorporation of the Combined Company, which shall be substantially in the
form set forth in Exhibit C.
50. "COMBINED COMPANY COMMON STOCK" means the shares of common stock of
the Combined Company, authorized pursuant to the Combined Company Certificate of
Incorporation, to be issued and distributed (unless the Merger Agreement is
terminated) in accordance with the provisions hereof, which shares shall
constitute 45% of the total number of shares of such common stock issued and
outstanding immediately after the Effective Time.
51. "COMBINED COMPANY REGISTRATION RIGHTS AGREEMENT" means that certain
agreement to be entered into on the Effective Date, unless the Merger Agreement
is terminated, by the Combined Company and the recipients of Combined Company
Common Stock, which shall be in substantially the form set forth in Exhibit I.
52. "COMBINED COMPANY RIGHTS" means uncertificated, nontransferable
rights, exercisable in the aggregate to purchase the Combined Company Rights
Aggregate Consideration, which rights shall, unless the Merger Agreement is
terminated, be issued to Holders of Allowed Class MK-8 Interests pursuant to
Section III.B.8 of the
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Plan and be exercisable in accordance with the provisions of Section VII.B.6 of
the Plan. Each Combined Company Right shall be identical in all respects to
every other Combined Company Right.
53. "COMBINED COMPANY RIGHTS AGGREGATE CONSIDERATION" means,
collectively, the Combined Company Rights Aggregate Percentage of (a) the MK
Rail Stock, MK Rail Note Proceeds, Cash Distribution, Combined Company Common
Stock (excluding in each case any portion of the foregoing distributed to the
Liquidating Trust in accordance with the Creditor Distribution Exhibit) and (b)
the rights and benefits under the Liquidating Trust Agreement, that in the
absence of the exercise of any Combined Company Rights, are distributable to or
are otherwise to inure to the benefit of Holders of Allowed Class MK-3 and MK-6
Claims in accordance with Sections III.B.3 and III.B.6 of the Plan, representing
and including a succession, to the extent of the Combined Company Rights
Aggregate Percentage, to the rights, privileges, obligations and restrictions of
each of the (a) Funded Debt Lenders, (b) Metra Lenders, (c) Bonding Company, (d)
Holders of Touchstone Claims, and (e) Boise Landlord under the Plan (but only,
insofar as the Boise Landlord is concerned, as such rights, privileges and
obligations pertain to distributions to be made to the Boise Landlord pursuant
to the Plan and not otherwise) and the Exhibits hereto.
54. "COMBINED COMPANY RIGHTS AGGREGATE PERCENTAGE" means a percentage
determined pursuant to the following formula:
(.50) ++Total Minimum Creditor Claims++
+ ----------------------------- +
++Total Maximum Creditor Claims++
where
(i) Total Minimum Creditor Claims = Allowed Funded Debt Claims + Allowed
Transit Bonding Claims + Allowed Boise Landlord Claims + Allowed
Touchstone Claims + Metra Floor Amount; and
(ii) Total Maximum Creditor Claims = Allowed Funded Debt Claims + Allowed
Transit Bonding Claims + Allowed Boise Landlord Claims + Allowed
Touchstone Claims + Metra Ceiling Amount (determined as of the
Confirmation Date).
55. "COMBINED COMPANY RIGHTS EXERCISE PERIOD" means the period commencing
on the Effective Date and concluding on the Combined Company Rights Expiration
Date.
56. "COMBINED COMPANY RIGHTS EXERCISE PRICE" means an amount in Cash per
Combined Company Right determined pursuant to the following formula:
(Combined Company Rights Aggregate Percentage)(Total Maximum Creditor
---------------------------------------------------------------------
Claims)
-------
Number of Combined Company Rights Issued Under the Plan
57. "COMBINED COMPANY RIGHTS EXERCISE PROCEEDS" means the aggregate Cash
proceeds generated by the exercise of the Combined Company Rights pursuant to
Section V.B.6 of the Plan.
58. "COMBINED COMPANY RIGHTS EXPIRATION DATE" means the 5:00 p.m. Eastern
Time on the later of (i) the 23rd trading day following the Confirmation Date
and (ii) the fifth Business Day following the Effective Date. For purposes of
the foregoing, the term "trading day" means any day on which both the New York
Stock Exchange and the Nasdaq National Market are open for the transaction of
business.
59. "COMBINED COMPANY SECURITIES" means, collectively, the (a) Combined
Company Common Stock, (b) Combined Company Series A Preferred Stock, (c)
Combined Company Warrants, and (d) Combined Company Rights.
60. "COMBINED COMPANY SERIES A PREFERRED STOCK" means the 18,000 shares
of Series A Preferred Stock of the Combined Company authorized pursuant to the
Combined Company Certificate of Incorporation, to be
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issued and distributed (unless the Merger Agreement is terminated), subject to
the provisions of Section V.B.4 (pursuant to which the number of shares may be
increased to 1,800,000 in certain circumstances), to the Liquidating Trust,
which shares shall constitute 100% of the total number of shares of such
preferred stock issued and outstanding immediately after the Effective Time, or
the proceeds associated therewith.
61. "COMBINED COMPANY WARRANTS" means the 2,765,000 warrants, each to
purchase one share of Combined Company Common Stock, to be issued by the
Combined Company pursuant to the Combined Company Warrant Agreement unless the
Merger Agreement is terminated, which warrants shall be issued to Holders of
Allowed Class MK-8 Interests pursuant to Section III.B.8 of the Plan, and which
warrants each shall (a) have an exercise price of $12.00 per share and (b)
expire on the date occurring six years and six months after the Effective Time.
62. "COMBINED COMPANY WARRANT AGREEMENT" means the Combined Company
Warrant Agreement in substantially the form set forth in Exhibit J.
63. "COMMON STOCK EXCHANGE" means the exchange of Old Common Stock for
Combined Company Warrants, or, if the Merger Agreement is terminated, the
exchange of Old Common Stock for New MK Warrants.
64. "CONFIRMATION" means the entry of the Confirmation Order.
65. "CONFIRMATION DATE" means the date on which the Bankruptcy Court
enters the Confirmation Order on its docket, within the meaning of Bankruptcy
Rules 5003 and 9021.
66. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
67. "CREDITOR DISTRIBUTION EXHIBIT" means the Creditor Distribution
Exhibit which shall be substantially in the form set forth in Exhibit R-1;
provided, however, that if the Merger Agreement is terminated, "Creditor
Distribution Exhibit" shall mean the Creditor Distribution Exhibit which shall
be substantially in the form of Exhibit R-2.
68. "DEBTOR" means MK.
69. "DELAWARE GENERAL CORPORATION LAW" means title 8 of the Delaware
Code, as now in effect or hereafter amended.
70. "DERIVATIVE ACTIONS" means the Derivative Actions as defined in the
Disclosure Statement.
71. "DERIVATIVE ACTIONS SETTLEMENTS" means the settlements of the
Derivative Actions and the Double Derivative Action described in the Disclosure
Statement.
72. "DIP FINANCING FACILITY" means the postpetition credit facility
extended to the Debtor under section 364 of the Bankruptcy Code and any
replacement facility therefor.
73. "DISBURSING AGENT" means the Combined Company (or, if the Merger
Agreement is terminated, Reorganized MK), in its capacity as Disbursing Agent
pursuant to Section VII.B below, or any Third-Party Disbursing Agent.
74. "DISCLOSURE STATEMENT" means the Second Amended Disclosure Statement
dated July 25, 1996, as amended, modified or supplemented (and all exhibits or
schedules annexed thereto or referenced therein), which relates to the Plan, and
which has been prepared and distributed in accordance with sections 1125 and
1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018.
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75. "DISPUTED CLAIM" means any Claim as to which the Debtor has
interposed a timely objection or request for estimation in accordance with the
Bankruptcy Code and the Bankruptcy Rules, or any Claim otherwise disputed by the
Debtor in accordance with applicable law, which objection, request for
estimation or dispute has not been withdrawn or determined by a Final Order.
76. "DISPUTED INTEREST" means any Interest as to which the Debtor has
interposed a timely objection or request for estimation in accordance with the
Bankruptcy Code and the Bankruptcy Rules or any Interest otherwise disputed by
the Debtor in accordance with applicable law, which objection, request for
estimation or dispute has not been withdrawn or determined by a Final Order.
77. "DISTRIBUTION AGREEMENT" means that certain Distribution Agreement
dated as of October 10, 1995, as amended, among MK, MKO and the Subsidiaries,
the Bonding Company, and the Existing Indebtedness Agent.
78. "DISTRIBUTION RECORD DATE" means, collectively, (a) with respect to
identification of the Holders of Allowed Class MK-8 Interests entitled to
receive distributions under the Plan, the Confirmation Date and (b) with respect
to identification of Holders of Claims entitled to receive distributions under
the Plan, the Business Day immediately preceding the Effective Date.
79. "DOUBLE DERIVATIVE ACTION" means the action arising out of the Double
Derivative Claims, as defined in the Disclosure Statement.
80. "EFFECTIVE DATE" means a Business Day, as determined by MK, that is
as soon as reasonably practicable but that is at least 11 days after the
Confirmation Date and on which: (a) no stay of the Confirmation Order is in
effect and (b) all conditions to the Effective Date set forth in Section IX.B
below have been satisfied or waived (if available) pursuant to Section IX.C
below. Unless the Merger Agreement is terminated, the Effective Date will be
deemed to commence simultaneously with the Effective Time.
81. "EFFECTIVE TIME" means the time at which the Merger is consummated
and becomes effective pursuant to the terms of the Merger Agreement and
applicable law.
82. "ESTATE" means, collectively, the estate created for the Debtor in
its Chapter 11 Case pursuant to section 541 of the Bankruptcy Code.
83. "EXCHANGE ACT" means the Exchange Act of 1934, as amended.
84. "EXERCISE NOTICE" has the meaning specified in Section V.B.6.e
hereof.
85. "Existing Guaranties" means the guaranties of the Guaranty Lenders
listed in Exhibit G hereto.
86. "EXISTING GUARANTY CLAIMS" means the contingent Claims of the Holders
of Existing Guaranties (in such capacity, "Guaranty Lenders") arising under the
Existing Guaranties and the Existing Loan Documents.
87. "EXISTING INDEBTEDNESS AGENT" means Mellon Bank, N.A. in its capacity
as administrative agent and collateral agent with respect to the Override
Agreement.
88. "EXISTING LC CLAIMS" means the Claims of Holders of undrawn Existing
Letters of Credit (in such capacity, "LC Lenders") arising under Existing
Letters of Credit and the Existing Loan Documents.
89. "EXISTING LENDER AGREEMENTS" means, collectively, the original credit
agreements, Existing Guaranties, Existing Letters of Credit, reimbursement
agreements and other documents executed and/or agreements entered into by the
Debtor, as modified by the Override Loan Documents, including, but not limited
to, those agreements listed in Exhibit F hereto.
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90. "EXISTING LETTERS OF CREDIT" means the letters of credit issued by
the LC Lenders listed in Exhibit H hereto.
91. "EXISTING LOAN DOCUMENTS" means the Override Loan Documents, the
Existing Lender Agreements and all documents executed by the Debtor and the
Nondebtor Subsidiaries in connection therewith, including, but not limited to,
the Existing Guaranties and the Existing Letters of Credit, as amended from time
to time prior to the Petition Date.
92. "EXISTING LOANS" means, collectively, as of the Effective Date (a)
"Existing Loans" as defined in the Override Agreement, (b) any other liquidated
Claims of the LC Lenders under Existing Letters of Credit that have been drawn
and (c) any other liquidated Claims of the Guaranty Lenders under the Existing
Guaranties.
93. "FILE," "FILED" or "FILING" means file, filed or filing with the
Bankruptcy Court in the Chapter 11 Case.
94. "FINAL ORDER" means an order or judgment of the Bankruptcy Court, or
other court of competent jurisdiction, as entered on the docket in the Chapter
11 Case, which has not been reversed, stayed, modified or amended, and as to
which the time to appeal or seek certiorari has expired, and no appeal or
petition for certiorari has been timely taken, or as to which any appeal that
has been or may be taken or any petition for certiorari that has been or may be
filed has been dismissed or resolved by the highest court to which the order or
judgment was appealed or from which certiorari was sought.
95. "FUNDED DEBT CASH DISTRIBUTION" means the aggregate amount of the
Lender Cash Distribution to be distributed on or as soon as is practicable after
the Effective Date, unless the Merger Agreement is terminated, to Holders of
Allowed Unsecured Funded Debt Claims in accordance with Part C of the Creditor
Distribution Exhibit.
96. "FUNDED DEBT CLAIMS" means, collectively, all Secured Funded Debt
Claims and Unsecured Funded Debt Claims.
97. "FUNDED DEBT CLASS MK-3 RIGHTS EXERCISE PROCEEDS" means the aggregate
amount of Class MK-3 Rights Exercise Proceeds to be distributed on or as soon as
practicable after the Effective Date to Holders of Allowed Secured Funded Debt
Claims in accordance with Part C of the Creditor Distribution Exhibit.
98. "FUNDED DEBT CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the aggregate
amount of the Class MK-6 Rights Exercise Proceeds to be distributed on or as
soon as practicable after the Effective Date to Holders of Allowed Unsecured
Funded Debt Claims in accordance with Part C of the Creditor Distribution
Exhibit.
99. "FUNDED DEBT COMBINED COMPANY COMMON STOCK" means the aggregate
number of shares of Lender Combined Company Common Stock to be distributed,
subject to the exercise of the Combined Company Rights, on or as soon as
practicable after the Effective Date, unless the Merger Agreement is terminated,
to Holders of Allowed Unsecured Funded Debt Claims in accordance with Part C of
the Creditor Distribution Exhibit.
100. "FUNDED DEBT LENDERS" means the Lenders with respect to the Existing
Loans and their successors and assigns.
101. "FUNDED DEBT MK RAIL NOTE PROCEEDS" means the aggregate amount of
Lender MK Rail Note Proceeds to be distributed, subject to the exercise of the
Combined Company Rights, on or as soon as practicable after the Effective Date
to Holders of Allowed Secured Funded Debt Claims in accordance with Part C of
the Creditor Distribution Exhibit.
102. "FUNDED DEBT MK RAIL STOCK" means the aggregate number of shares of
Lender MK Rail Stock to be distributed, subject to the exercise of the Combined
Company Rights, on or as soon as practicable after the
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Effective Date to Holders of Allowed Secured Funded Debt Claims in accordance
with Part C of the Creditor Distribution Exhibit.
103. "FUNDED DEBT NEW MK COMMON STOCK" means the aggregate number of
shares of Lender New MK Common Stock to be distributed on or as soon as
practicable after the Effective Date, if the Merger Agreement is terminated, to
Holders of Allowed Unsecured Funded Debt Claims in accordance with Part C of the
Creditor Distribution Exhibit.
104. "FUNDED DEBT PRO RATA SHARE" means proportionately so that with
respect to an Allowed Funded Debt Claim, the ratio of (i)(a) the number of
shares of Combined Company Common Stock or MK Rail Stock or the amount of the
Cash Distribution or MK Rail Note Proceeds or Combined Company Rights Exercise
Proceeds to be distributed on account of a particular Allowed Funded Debt Claim
to (b) the amount of such Allowed Funded Debt Claim, is the same as the ratio of
(ii)(a) the number of shares of Combined Company Common Stock or MK Rail Stock
or the amount of the Cash Distribution or MK Rail Note Proceeds or Combined
Company Rights Exercise Proceeds to be distributed on account of all Allowed
Funded Debt Claims to (b) the amount of all Allowed Funded Debt Claims;
provided, however, that if the Merger Agreement is terminated, "Funded Debt Pro
Rata Share" means proportionately so that with respect to an Allowed Funded Debt
Claim, the ratio of (i)(a) the number of shares of New MK Common Stock or MK
Rail Stock or the amount of MK Rail Note Proceeds to be distributed on account
of a particular Allowed Funded Debt Claim to (b) the amount of such Allowed
Funded Debt Claim, is the same as the ratio of (ii)(a) the number of shares of
New MK Common Stock or MK Rail Stock or the amount of MK Rail Note Proceeds to
be distributed on account of all Allowed Funded Debt Claims to (b) the amount of
all Allowed Funded Debt Claims.
105. "HOLDER" means an entity holding an Interest or Claim, and with
respect to a vote on the Plan means the Beneficial Holder as of the applicable
Voting Record Date or any authorized signatory who has completed and executed a
Ballot or on whose behalf a Master Ballot has been completed and executed in
accordance with the Voting Instructions.
106. "IMPAIRED . . ." means, when used with reference to a Claim or
Interest, a Claim or Interest that is impaired within the meaning of section
1124 of the Bankruptcy Code.
107. "INDEMNIFICATION AGREEMENT" means that certain Indemnification
Agreement dated as of October 10, 1995 by and among MK, MKO, certain of the
Subsidiaries and the Bonding Company.
108. "INITIAL EQUITY RECOVERY" means Initial Equity Recovery as defined in
the Residual Equity Recovery Exhibit.
109. "INITIAL RESIDUAL EQUITY DISTRIBUTION" means (unless the Merger
Agreement is terminated), in the event of an Initial Equity Recovery, the number
of shares of Combined Company Common Stock to be distributed on or as soon as is
practicable after the Effective Date to Holders of Allowed Class MK-8 Interests,
as calculated in accordance with the Residual Equity Recovery Exhibit.
110. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement
dated as of October 10, 1995 among the Bridge Loan Agent, the Existing
Indebtedness Agent, the Bonding Company and Amerail.
111. "INTEREST" means, collectively, (a) the rights of Holders of Capital
Stock, including redemption rights, dividend rights and liquidation preferences,
(b) the Rights and (c) the rights of the Securities Plaintiffs under the
Shareholder Litigation Settlements.
112. "LENDER CASH DISTRIBUTION" means the aggregate amount of the Cash
Distribution to be allocated, unless the Merger Agreement is terminated, subject
to the exercise of the Combined Company Rights, to Holders of the Unsecured
Funded Debt Claims and the Unsecured Metra Lender Claims in accordance with Part
B of the Creditor Distribution Exhibit.
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113. "LENDER CLASS MK-3 RIGHTS EXERCISE PROCEEDS" means the aggregate
amount of Class MK-3 Rights Exercise Proceeds to be allocated to Holders of the
Secured Funded Debt Claims and the Secured Metra Lender Claims in accordance
with Part B of the Creditor Distribution Exhibit.
114. "LENDER CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the aggregate
amount of Class MK-6 Rights Exercise Proceeds to be allocated to Holders of the
Unsecured Funded Debt Claims and the Unsecured Metra Lender Claims in accordance
with Part B of the Creditor Distribution Exhibit.
115. "LENDER COMBINED COMPANY COMMON STOCK" means the aggregate number of
shares of Combined Company Common Stock to be allocated, subject to the exercise
of the Combined Company Rights, unless the Merger Agreement is terminated, to
Holders of the Unsecured Funded Debt Claims and the Unsecured Metra Lender
Claims in accordance with Part B of the Creditor Distribution Exhibit.
116. "LENDER MK RAIL NOTE PROCEEDS" means the aggregate amount of MK Rail
Note Proceeds to be allocated, subject to the exercise of the Combined Company
Rights, to Holders of the Secured Funded Debt Claims and the Secured Metra
Lender Claims in accordance with Part B of the Creditor Distribution Exhibit.
117. "LENDER MK RAIL STOCK" means the aggregate number of shares of MK
Rail Stock to be allocated, subject to the exercise of the Combined Company
Rights, to Holders of the Secured Funded Debt Claims and the Secured Metra
Lender Claims in accordance with Part B of the Creditor Distribution Exhibit.
118. "LENDER NEW MK COMMON STOCK" means the aggregate number of shares of
New MK Common Stock to be allocated, if the Merger Agreement is terminated, to
Holders of the Unsecured Funded Debt Claims and the Unsecured Metra Lender
Claims in accordance with Part B of the Creditor Distribution Exhibit.
119. "LENDER STEERING COMMITTEE" means the unofficial lender steering
committee consisting of Credit Lyonnais, CS First Boston, Mellon Bank, N.A.,
Swiss Bank Corporation (Cayman Islands and London Branches) and Union Bank of
Switzerland, and such other Lenders, if any, as may become members thereof, but
only so long as such Lenders remain members thereof.
120. "LENDERS" means, collectively, the Existing Indebtedness Agent and
the other banks, financial institutions and entities listed on Exhibit E and
their successors and assigns, but shall not include any Lender(s) in their
capacity as Bridge Loan Lender(s).
121. "LIQUIDATING TRUST" means, subject to the provisions of Section
V.B.4, that certain trust created pursuant to the Liquidating Trust Agreement,
into which (a) the Liquidating Trust MK Rail Stock, (b) the Liquidating Trust MK
Rail Note Proceeds (and, if the MK Rail Note has not been cancelled pursuant to
the MK Rail Note Cancellation Agreement, the MK Rail Note), (c) the Liquidating
Trust Cash Distribution, (d) the Liquidating Trust Combined Company Common
Stock, (e) the Combined Company Series A Preferred Stock, (f) the Liquidating
Trust Class MK-3 Rights Exercise Proceeds, and (g) the Liquidating Trust Class
MK-6 Rights Exercise Proceeds, or the proceeds of each thereof, shall be
conveyed; provided, however, that if the Merger Agreement is terminated, (a) the
Liquidating Trust MK Rail Stock, (b) the Liquidating Trust MK Rail Note Proceeds
(and, if the MK Rail Note has not been cancelled pursuant to the MK Rail Note
Cancellation Agreement, the MK Rail Note), (c) the Liquidating Trust New MK
Common Stock, and (d) the New MK Series A Preferred Stock, or the proceeds of
each thereof, shall be conveyed to the Liquidating Trust.
122. "LIQUIDATING TRUST AGREEMENT" means that certain Liquidating Trust
Agreement to be entered into, subject to the provisions of Section V.B.4, to
govern the Liquidating Trust, which shall be substantially in the form set forth
in Exhibit V.
123. "LIQUIDATING TRUST CASH DISTRIBUTION" means, subject to the
provisions of Section V.B.4, (i) the Liquidating Trust Part A Cash Distribution,
as determined in accordance with Part A of the Creditor Distribution Exhibit,
(ii) the Liquidating Trust Part B Cash Distribution, as determined in accordance
with Part B of the Creditor
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Distribution Exhibit, and (iii) that portion of the Lender Cash Distribution to
be allocated to the Liquidating Trust under Part C of the Creditor Distribution
Exhibit.
124. "LIQUIDATING TRUST CLASS MK-3 RIGHTS EXERCISE PROCEEDS" means,
subject to the provisions of Section V.B.4, (i) the Liquidating Trust Part B
Class MK-3 Rights Exercise Proceeds, as determined in accordance with Part B of
the Creditor Distribution Exhibit and (ii) that portion of the Lender Class MK-3
Rights Exercise Proceeds to be allocated to the Liquidating Trust under Part C
of the Creditor Distribution Exhibit.
125. "LIQUIDATING TRUST CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means,
subject to the provisions of Section V.B.4, (i) the Liquidating Trust Part A
Class MK-6 Rights Exercise Proceeds, as determined in accordance with Part A of
the Creditor Distribution Exhibit and (ii) that portion of the Lender Class MK-6
Rights Exercise Proceeds to be allocated to the Liquidating Trust under Part C
of the Creditor Distribution Exhibit.
126. "LIQUIDATING TRUST COMBINED COMPANY COMMON STOCK" means, subject to
the provisions of Section V.B.4, (i) the Liquidating Trust Part A Combined
Company Common Stock, as determined in accordance with Part A of the Creditor
Distribution Exhibit, (ii) the Liquidating Trust Part B Combined Company Common
Stock, as determined in accordance with Part B of the Creditor Distribution
Exhibit, and (iii) that portion of the Lender Combined Company Common Stock to
be allocated to the Liquidating Trust under Part C of the Creditor Distribution
Exhibit.
127. "LIQUIDATING TRUST MK RAIL NOTE PROCEEDS" means, subject to the
provisions of Section V.B.4, (i) the Liquidating Trust MK Rail Note Proceeds, as
determined in accordance with Part B of the Creditor Distribution Exhibit, and
(ii) that portion of the Lender MK Rail Note Proceeds to be allocated to the
Liquidating Trust under Part C of the Creditor Distribution Exhibit.
128. "LIQUIDATING TRUST MK RAIL STOCK" means, subject to the provisions of
Section V.B.4, (i) the Liquidating Trust MK Rail Stock, as determined in
accordance with Part B of the Creditor Distribution Exhibit, and (ii) that
portion of the Lender MK Rail Stock to be allocated to the Liquidating Trust
under Part C of the Creditor Distribution Exhibit.
129. "LIQUIDATING TRUST NEW MK COMMON STOCK" means, subject to the
provisions of Section V.B.4, (i) the Liquidating Trust Part A New MK Common
Stock, as determined in accordance with Part A of the Creditor Distribution
Exhibit, (ii) the Liquidating Trust Part B New MK Common Stock, as determined in
accordance with Part B of the Creditor Distribution Exhibit, and (iii) that
portion of the Lender New MK Common Stock to be allocated to the Liquidating
Trust under Part C of the Creditor Distribution Exhibit.
130. "LIQUIDATING TRUSTEE" means, subject to the provisions of Section
V.B.4, the Liquidating Trustee with respect to the Liquidating Trust.
131. "MK" means Morrison Knudsen Corporation, a Delaware corporation.
132. "MKO" means Morrison Knudsen Corporation, an Ohio corporation.
133. "MK RAIL" means MK Rail Corporation, a Delaware corporation.
134. "MK RAIL NOTE" means that certain note made by MK Rail and dated as
of June 26, 1995, in the original principal amount of $52,200,000.
135. "MK RAIL NOTE CANCELLATION AGREEMENT" means the Note Cancellation and
Restructuring Agreement, in substantially the form of Exhibit W.
136. "MK RAIL NOTE PROCEEDS" means the net Cash amount, if any, received
by MKO pursuant to the MK Rail Note Cancellation Agreement.
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137. "MK RAIL RIGHTS" means the rights issued pursuant to the MK Rail
Rights Plan.
138. "MK RAIL RIGHTS PLAN" means that certain MK Rail Rights Plan dated as
of January 19, 1996, as amended from time to time prior to the Petition Date.
139. "MK RAIL SECURITIES CLASS ACTION PLAINTIFFS" means, collectively, the
class plaintiffs in the MK Rail Securities Class Actions.
140. "MK RAIL SECURITIES CLASS ACTIONS" means, collectively, the cases of
Susser, et al. v. Agee, et al., No. CIV 940477SLMB and Newman, et al. v. Agee,
- ------------------------------ -----------------------
et al., No. CIV 940478SEJL, consolidated in the United States District Court,
- ------
District of Idaho.
141. "MK RAIL STOCK" means the common stock of MK Rail owned by MKO.
142. "MK RAIL STOCKHOLDERS AGREEMENT" means the stockholders agreement in
substantially the form of Exhibit T.
143. "MK SECURITIES CLASS ACTION PLAINTIFFS" means, collectively, the
class plaintiffs in the MK Securities Class Actions.
144. "MK SECURITIES CLASS ACTIONS" means, collectively, the cases
consolidated as In re Morrison Knudsen Securities Litigation, No. 9403345EJL,
--------------------------------------------
United States District Court, District of Idaho.
145. "MASTER BALLOTS" means the master ballots accompanying the Disclosure
Statement upon which the acceptance or rejection of the Plan by Holders of
Impaired Interests shall be indicated in accordance with the Voting
Instructions.
146. "MERGER" means the merger of Washington and MK pursuant to Section
V.B.1 of the Plan and the Merger Agreement.
147. "MERGER AGREEMENT" means the agreement and plan of merger in
substantially the form of Exhibit A, pursuant to which the Merger will be
effected.
148. "METRA AGENT" means the Agent as defined in the Metra Credit
Agreement.
149. "METRA CEILING AMOUNT" means the "Available Amount" plus the
"Revolving Availability Amount" plus any outstanding "L/C Loans" (as such terms
are defined in the Metra Credit Agreement) plus any accrued and unpaid interest,
fees and other charges guaranteed under the Metra Guaranty, all determined as of
the Effective Date unless otherwise specified.
150. "METRA CREDIT AGREEMENT" means the "Metra Credit Agreement" as
defined in the Override Agreement.
151. "METRA FLOOR AMOUNT" means $65,000,000.
152. "METRA GUARANTY" means the Guaranty dated as of October 10, 1995,
among MK, MKO and Bank of America National Trust and Savings Association as
agent for itself and the other Metra Lenders.
153. "METRA LENDER CASH DISTRIBUTION" means the aggregate Cash
Distribution to be distributed on or as soon as practicable after the Effective
Date, unless the Merger Agreement is terminated, to Holders of Allowed Unsecured
Metra Lender Claims in accordance with Part C of the Creditor Distribution
Exhibit.
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154. "METRA LENDER CLAIMS" means, collectively, all Secured Metra Lender
Claims and Unsecured Metra Lender Claims.
155. "METRA LENDER CLASS MK-3 RIGHTS EXERCISE PROCEEDS" means the
aggregate amount of Class MK-3 Rights Exercise Proceeds to be distributed on or
as soon as is practicable after the Effective Date to Holders of Allowed Secured
Metra Lender Claims in accordance with Part C of the Creditor Distribution
Exhibit.
156. "METRA LENDER CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the
aggregate amount of the Class MK-6 Rights Exercise Proceeds to be distributed on
or as soon as is practicable after the Effective Date to Holders of Allowed
Unsecured Metra Lender Claims in accordance with Part C of the Creditor
Distribution Exhibit.
157. "METRA LENDER COMBINED COMPANY COMMON STOCK" means the aggregate
number of shares of Lender Combined Company Common Stock to be distributed,
subject to the exercise of the Combined Company Rights, on or as soon as
practicable after the Effective Date, unless the Merger Agreement is terminated,
to Holders of Allowed Unsecured Metra Lender Claims in accordance with Part C of
the Creditor Distribution Exhibit.
158. "METRA LENDER MK RAIL NOTE PROCEEDS" means the aggregate amount of
Lender MK Rail Note Proceeds to be distributed, subject to the exercise of the
Combined Company Rights, on or as soon as practicable after the Effective Date
to Holders of Allowed Secured Metra Lender Claims in accordance with Part C of
the Creditor Distribution Exhibit.
159. "METRA LENDER MK RAIL STOCK" means the aggregate number of shares of
Lender MK Rail Stock to be distributed on or as soon as practicable after the
Effective Date to Holders of Allowed Secured Metra Lender Claims in accordance
with Part C of the Creditor Distribution Exhibit.
160. "METRA LENDER NEW MK COMMON STOCK" means the aggregate number of
shares of Lender New MK Common Stock to be distributed on or as soon as
practicable after the Effective Date, if the Merger Agreement is terminated, to
Holders of Allowed Unsecured Metra Lender Claims in accordance with Part C of
the Creditor Distribution Exhibit.
161. "METRA LENDER PRO RATA SHARE" means proportionately so that with
respect to an Allowed Metra Lender Claim, the ratio of (i)(a) the number of
shares of Combined Company Common Stock or MK Rail Stock or the amount of the
Cash Distribution or MK Rail Note Proceeds or Combined Company Rights Exercise
Proceeds to be distributed on account of a particular Allowed Metra Lender Claim
to (b) the amount of the Allowed Metra Lender Claim, is the same as the ratio of
(ii)(a) the number of shares of Combined Company Common Stock or MK Rail Stock
or the amount of the Cash Distribution or MK Rail Note Proceeds or Combined
Company Rights Exercise Proceeds to be distributed on account of all Allowed
Metra Lender Claims to (b) the amount of all such Allowed Metra Lender Claims;
provided, however, that if the Merger Agreement is terminated, "Metra Lender Pro
Rata Share" means proportionately so that with respect to an Allowed Metra
Lender Claim, the ratio of (i)(a) the number of shares of New MK Common Stock or
MK Rail Stock or MK Rail Note Proceeds to be distributed on account of a
particular Allowed Metra Lender Claim to (b) the amount of the Allowed Metra
Lender Claim, is the same as the ratio of (ii)(a) the number of shares of New MK
Common Stock or MK Rail Stock or MK Rail Note Proceeds to be distributed on
account of all Allowed Metra Lender Claims to (b) the amount of all Allowed
Metra Lender Claims.
162. "METRA LENDERS" means the Lenders that are banks under the Metra
Credit Agreement solely in their capacity as banks under the Metra Credit
Agreement and their successors and assigns.
163. "NATIONAL STEEL GUARANTY" means that certain Guaranty dated as of
November 1, 1992, by MK in favor of Morgan Trust Guaranty Trust Company of New
York, as Trustee, for the benefit of the holders from time to time of the City
of San Diego Port Facilities Refunding Revenue Bonds, Series 1992 (National
Steel and Shipbuilding Company Project).
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<PAGE>
164. "NATIONAL STEEL GUARANTY CLAIM" means the contingent claim of the
holder of the National Steel Guaranty arising under the National Steel Guaranty.
165. "NEW BONDS AGREEMENT" means that certain agreement dated as of
October 10, 1995 among the Bonding Company, the Debtor, MKO and certain other
Affiliates of the Debtor that are parties thereto, as amended from time to time
prior to the Petition Date.
166. "NEW BONDS SECURITY AGREEMENT" means that certain Pledge and Security
Agreement (New Bonds) dated as of October 10, 1995 by the Debtor, MKO and
certain of the Subsidiaries in favor of the Bonding Company as amended from time
to time prior to the Petition Date.
167. "NEW CREDIT FACILITY" means the lending facility to be provided, if
the Merger Agreement is terminated, to the Reorganized Debtor as of the
Effective Date, pursuant to the terms and conditions of the New Credit Facility
Agreement.
168. "NEW CREDIT FACILITY AGREEMENT" means the agreement to be entered
into as of the Effective Date, if the Merger Agreement is terminated, by and
among the Reorganized Debtor and the lender(s) that are signatories thereto,
pursuant to which such lender(s) will provide the Reorganized Debtor with the
New Credit Facility.
169. "NEW CREDIT FACILITY DOCUMENTS" means the New Credit Facility
Agreement and all documents executed in connection therewith.
170. "NEW GUARANTY" means a new or amended and restated guaranty to be
entered into among the Reorganized Debtor and holders of Existing Guaranties,
which shall provide, inter alia, that (i) the guaranty shall be a collection
guaranty and not a payment guaranty and (ii) the guarantor shall have no
obligation to cash collateralize any of its liability thereunder.
171. "NEW LEASE" means the new lease, the term of which shall commence on
the Effective Date, between the Boise Landlord, as landlord, and Reorganized MKO
and the Combined Company (or, if the Merger Agreement is terminated, Reorganized
MK), as tenants, as approved by the Bankruptcy Court and referenced in the
Confirmation Order.
172. "NEW LETTER OF CREDIT REIMBURSEMENT AGREEMENT" means a new or amended
and restated letter of credit reimbursement agreement to be entered into among
the Reorganized Debtor and issuers of Existing Letters of Credit, which shall
provide, inter alia, that the Reorganized Debtor shall have no obligation to
cash collateralize its reimbursement obligations thereunder, unless and only to
the extent that, the subject letter of credit is drawn.
173. "NEW MK AMENDED CERTIFICATE OF INCORPORATION" means the Certificate
of Incorporation of Reorganized MK, which shall be in substantially the form set
forth in Exhibit O.
174. "NEW MK BYLAWS" means the Bylaws of Reorganized MK, which shall be
substantially in the form set forth in Exhibit N.
175. "NEW MK COMMON STOCK" means the 10,000,000 shares of common stock of
Reorganized MK authorized pursuant to the New MK Amended Certificate of
Incorporation to be issued and distributed (if the Merger Agreement is
terminated) in accordance with the provisions hereof, which shares shall
constitute 100% of the total number of shares of such common stock issued and
outstanding immediately after the Effective Time.
176. "NEW MK COMPENSATION PLANS" means, if the Merger Agreement is
terminated, collectively, the employment, retirement, indemnification and other
agreements, and the welfare benefits and other incentive plans to be entered
into or implemented by Reorganized MK as of the Effective Date, summaries of
which are set forth in Exhibit L.
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<PAGE>
177. "NEW MK NON-EMPLOYEE DIRECTOR PLAN" means the New MK Non-Employee
Director Plan as defined in the Disclosure Statement.
178. "NEW MK REGISTRATION RIGHTS AGREEMENT" means that certain agreement
to be entered into on the Effective Date, if the Merger Agreement is terminated,
by Reorganized MK and the Holders of Allowed Class MK-6 Claims, which shall be
in substantially the form set forth in Exhibit P.
179. "NEW MK SECURITIES" means, collectively, the: (a) New MK Common
Stock, (b) New MK Series A Preferred Stock, and (c) New MK Warrants.
180. "NEW MK SERIES A PREFERRED STOCK" means, if the Merger Agreement is
terminated, the 18,000 shares of Series A Preferred Stock of Reorganized MK
authorized pursuant to the New MK Amended Certificate of Incorporation to be
issued and distributed (if the Merger Agreement is terminated), subject to the
provisions of Section V.B.4 (pursuant to which event the number of shares may be
increased to 18,000,000 in certain circumstances), to the Liquidating Trust,
which shares shall constitute 100% of the total number of shares of such
preferred stock issued and outstanding immediately after the Effective Time, or
the proceeds associated therewith.
181. "NEW MK STOCK COMPENSATION PLAN" means the New MK Stock Compensation
Plan as defined in the Disclosure Statement.
182. "NEW MK WARRANT AGREEMENT" means the New MK Warrant Agreement in
substantially the form set forth in Exhibit Q.
183. "NEW MK WARRANT EXERCISE PRICE FORMULA" means the following formula:
(1.1) [(Total Lender Claims) - ((Aggregate Lender Plan Value - Value of Lender
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New MK Common Stock))]
----------------------
Total Number of Shares of Lender New MK Common Stock;
where
(i) Total Lender Claims = Aggregate amount of all Funded Debt Claims +
the Metra Ceiling Amount determined as of October 1, 1996 and not as
of the Effective Date;
(ii) Aggregate Lender Plan Value = the aggregate value attributed by an
order of the Bankruptcy Court to the Lender New MK Common Stock,
Lender MK Rail Stock and the interests of the Funded Debt Lenders and
the Metra Lenders in the Liquidating Trust plus the amount of the
Lender MK Rail Note Proceeds, if any, distributed to the Lenders; and
(iii) Value of Lender New MK Common Stock = the value of the Lender New MK
Common Stock determined by the Bankruptcy Court in connection with
the determination of Aggregate Lender Plan Value.
184. "NEW MK WARRANTS" means the warrants, each to purchase one share of
New MK Common Stock, to be issued by Reorganized MK pursuant to the New MK
Warrant Agreement if the Merger Agreement is terminated, which warrants shall be
issued to Holders of Allowed Class MK-8 Interests pursuant to Section III.B.8 of
the Plan, and which warrants each shall (a) have an exercise price to be
determined in accordance with the New MK Warrant Exercise Price Formula, and (b)
expire on October 1, 2001.
185. "NONDEBTOR SUBSIDIARIES" means, collectively, MKO and the
Subsidiaries.
186. "OLD COMMON STOCK" means the common stock issued by MK and
outstanding immediately prior to the Effective Date.
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187. "OLD STOCK OPTIONS" means the options, outstanding immediately prior
to the Petition Date, to purchase Old Common Stock.
188. "OLD WARRANTS" means the warrants, outstanding immediately prior to
the Petition Date, to purchase Old Common Stock.
189. "ORDINARY COURSE PROFESSIONALS' ORDER" means an order entered by the
Bankruptcy Court authorizing the Debtor to retain, employ and pay certain
professionals, as specified in the order, which are not involved in the
administration of the Chapter 11 Case, in the ordinary course of the Debtor's
businesses, without further order of the Bankruptcy Court.
190. "OTHER SECURED CLAIMS" means, collectively, all Secured Claims
against the Debtor held by any entity, other than the Bridge Loan Claims, the
Secured Funded Debt Claims, the Secured Metra Lender Claims, the Existing
Guaranty Claims, the Existing LC Claims and the Secured Transit Bonding Claims.
191. "OVERRIDE AGREEMENT" means that certain Amended and Restated Override
Agreement dated as of October 10, 1995, by and among MK, MKO, the Lenders which
are signatories thereto and their respective successors and assigns, and the
Existing Indebtedness Agent, as amended from time to time prior to the Petition
Date.
192. "OVERRIDE LOAN DOCUMENTS" means, collectively, the "Loan Documents"
as defined in the Override Agreement.
193. "PETITION DATE" means June 25, 1996.
194. "PLAN" means this chapter 11 plan of reorganization for the Debtor
and all Exhibits annexed hereto or referenced herein, as the same may be
amended, modified or supplemented.
195. "PLAN PARTICIPANTS" means, collectively, the: (a) Debtor; (b)
Reorganized Debtor; (c) Washington (unless the Merger Agreement is terminated);
(d) MKO; and (e) the respective directors, officers, employees and
Professionals, acting in such capacity, of any of the foregoing entities.
196. "PRIORITY CLAIM" means a Claim that is entitled to priority in
payment pursuant to section 507(a) of the Bankruptcy Code and that is not an
Administrative Claim or a Priority Tax Claim.
197. "PRIORITY TAX CLAIM" means a Claim of a governmental unit that is
entitled to priority in payment pursuant to section 507(a)(8) of the Bankruptcy
Code.
198. "PRO RATA" means:
a. when used with reference to distributions of Combined Company
Warrants or, if applicable, Initial Residual Equity Distribution or
Subsequent Residual Equity Distribution (or, if the Merger Agreement is
terminated, the New MK Warrants) pursuant to Article III below,
proportionally so that with respect to an Allowed Class MK-8 Interest, the
ratio of (i)(a) the number of warrants or, if applicable, the amount of the
Initial Residual Equity Distribution or Subsequent Residual Equity
Distribution distributed on account of a particular Allowed Class MK-8
Interest to (b) the amount of the Allowed Class MK-8 Interest, is the same
as the ratio of (ii)(a) the number of warrants or, if applicable, the
amount of the Initial Residual Equity Distribution or Subsequent Residual
Equity Distribution distributed on account of all Allowed Class MK-8
Interests to (b) the amount of all Allowed Class MK-8 Interests; and
b. when used with reference to distributions of the Reorganization
Investment Yield, the ratio, as of the date upon which the distribution of
the Reorganization Investment Yield is made, of (i)(a) the portion of the
Reorganization Investment Yield to be distributed to the Holder of an
Allowed Claim (or to a successor in interest by virtue of the exercise of
the Combined Company Rights) pursuant to Section VII.C
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of the Plan to (b) the aggregate amount of the Reorganization Investment
Yield is the same as the ratio of (ii)(a) the Allowed Amount of such Claim
to (b) the sum of the aggregate amount of the Claims which are Disputed and
the aggregate amount of Claims on account of which distributions are
undeliverable.
199. "PROFESSIONAL" means any professional employed in the Chapter 11 Case
pursuant to sections 327 or 1103 of the Bankruptcy Code and the professionals
seeking compensation or reimbursement of expenses in connection with the Chapter
11 Case pursuant to section 503(b)(4) of the Bankruptcy Code.
200. "REINSTATED" or "Reinstatement" means rendering a Claim unimpaired
pursuant to section 1124 of the Bankruptcy Code.
201. "REORGANIZATION INVESTMENT YIELD" means the net yield earned by the
Disbursing Agent from the investment of Cash held pending distribution pursuant
to the Plan (including dividends and other distributions on undeliverable
Combined Company Common Stock, or, if the Merger Agreement is terminated, New MK
Common Stock), which investment shall be in a manner consistent with the
Debtor's investment and deposit guidelines.
202. "REORGANIZED DEBTOR" means the Debtor on and after the Effective
Date, including any successor thereto, by merger, consolidation or otherwise.
Unless the Merger Agreement is terminated, the term "Reorganized Debtor" shall
specifically include, without limitation, the Combined Company.
203. "RESIDUAL EQUITY RECOVERY EXHIBIT" means the Residual Equity Recovery
Exhibit which shall be substantially in the form of Exhibit S.
204. "RESTRUCTURING" means, collectively, the transactions and transfers
described below in Section V.B.
205. "RIGHTS" means the rights issued pursuant to the Rights Agreement.
206. "RIGHTS AGREEMENT" means that certain Morrison Knudsen Rights
Agreement dated as of June 12, 1986, as amended from time to time prior to the
Petition Date.
207. "SCHEDULES" means, collectively, the: (a) schedules of assets and
liabilities and the statements of financial affairs, if any, Filed by the Debtor
in the Chapter 11 Case, pursuant to section 521 of the Bankruptcy Code, the
Bankruptcy Rules and the Official Bankruptcy Forms; and (b) schedule of
unliquidated, disputed or contingent Claims, as required by any Local Rule of
the Bankruptcy Court, as such requirements may be modified by any order of the
Bankruptcy Court.
208. "SECURED CLAIM" means a Claim that is secured by a lien on property
in which the Estate has an interest or that is subject to setoff under section
553 of the Bankruptcy Code, to the extent of the value of the Claim Holder's
interest in the Estate's interest in such property or to the extent of the
amount subject to setoff, as applicable, as determined pursuant to section
506(a) of the Bankruptcy Code.
209. "SECURED FUNDED DEBT CLAIMS" means all Claims of the Funded Debt
Lenders arising under the Existing Loan Documents and consisting of Existing
Loans and any accrued and unpaid interest with respect thereto, in an aggregate
amount equal to the Class 3 Funded Debt Distribution.
210. "SECURED METRA LENDER CLAIMS" means all Claims of the Metra Lenders
arising under the Metra Guaranty and the Override Loan Documents, in an
aggregate amount equal to the Class 3 Metra Lender Distribution.
211. "SECURED TRANSIT BONDING CLAIMS" means, collectively, all Claims of
the Bonding Company, on its own behalf or on behalf of the other Transit Bonding
Companies, arising under the Transit Reimbursement Agreement, the Transit
Release, the Transit Bonds, the Transit Security Agreement and/or the
Distribution Agreement, and any and all documents executed in connection
therewith, excluding the New Bonds Agreement, in an aggregate amount equal to
the Class 3 Transit Bonding Distribution.
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212. "SECURITIES ACT" means the Securities Act of 1933, 15 U.S.C. (S)(S)
77a-77aa, as now in effect or hereafter amended.
213. "SECURITIES PLAINTIFFS" means, collectively, the MK Securities Class
Action Plaintiffs and the MK Rail Securities Class Action Plaintiffs.
214. "SHAREHOLDER LITIGATION SETTLEMENTS" means, collectively, the
settlements of the MK Securities Class Actions, the MK Rail Securities Class
Actions, the Derivative Actions and the Double Derivative Actions.
215. "STIPULATION OF AMOUNT AND NATURE OF CLAIM" means a stipulation or
other document that the Debtor has sent or may send to a Holder of a Claim that
states the Debtor's position regarding the amount or nature of the Holder's
Claim and requests such Holder's agreement with the Debtor's position.
216. "SUBSEQUENT EQUITY RECOVERY" means the Subsequent Equity Recovery as
defined in the Residual Equity Recovery Exhibit.
217. "SUBSEQUENT RESIDUAL EQUITY DISTRIBUTION" means (unless the Merger
Agreement is terminated), in the event of a Subsequent Equity Recovery, the
amount of the proceeds from the Combined Company Series A Preferred Stock to be
distributed by the Liquidating Trustee to the Disbursing Agent and/or the number
of shares of Combined Company Common Stock to be distributed by the Liquidating
Trustee to the Disbursing Agent, in each case for distribution to Holders of
Allowed Class MK-8 Interests, both calculated in accordance with the Residual
Equity Recovery Exhibit.
218. "SUBSIDIARIES" means, collectively, American Piping & Boiler Co.,
Atascosa Mining Co., Centennial Engineering, Inc., CF Systems Corporation,
Chemical Demilitarization of Anniston Company, MK Projects Company, MK Capital
Company, MK-Ferguson Engineering Company, MK-Ferguson of Idaho Company, MK-
Ferguson of Oak Ridge Company, MK Infrastructure Corporation, MK Train Control,
Inc., Morrison-Knudsen Company, Inc., Morrison-Knudsen Corporation of Viet Nam,
Morrison-Knudsen Engineers, Inc., Morrison-Knudsen International Company, Inc.,
Morrison-Knudsen Services, Inc., National Projects, Inc., Navasota Mining
Company, Inc., and Yampa Mining Co.
219. "THIRD-PARTY DISBURSING AGENT" means any entity designated by the
Debtor or the Reorganized Debtor (other than the Combined Company or, if the
Merger Agreement is terminated, Reorganized MK) to act as a Disbursing Agent
pursuant to Section VII.B below.
220. "TOUCHSTONE ACTIONS" means the Touchstone Actions as defined in the
Disclosure Statement.
221. "TOUCHSTONE CASH DISTRIBUTION" means the amount of the Cash
Distribution to be distributed, subject to the exercise of the Combined Company
Rights, on or as soon as practicable after the Effective Date, unless the Merger
Agreement is terminated, to Holders of Touchstone Claims in accordance with Part
A of the Creditor Distribution Exhibit.
222. "TOUCHSTONE CLAIMS" means any and all Claims of the plaintiffs in the
Touchstone Actions arising under the Touchstone Settlement Agreement or in the
Touchstone Actions.
223. "TOUCHSTONE CLASS MK-6 RIGHTS EXERCISE PROCEEDS" means the amount of
the Class MK-6 Rights Exercise Proceeds to be distributed on or as soon as
practicable after the Effective Date to Holders of Allowed Touchstone Claims in
accordance with Part A of the Creditor Distribution Exhibit.
224. "TOUCHSTONE COMBINED COMPANY COMMON STOCK" means the aggregate number
of shares of Combined Company Common Stock to be distributed, subject to the
exercise of the Combined Company Rights, on or as soon as practicable after the
Effective Date, unless the Merger Agreement is terminated, to Holders of
Touchstone Claims in accordance with Part A of the Creditor Distribution
Exhibit.
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<PAGE>
225. "TOUCHSTONE NEW MK COMMON STOCK" means the aggregate number of shares
of New MK Common Stock to be distributed on or as soon as practicable after the
Effective Date, if the Merger Agreement is terminated, to Holders of Touchstone
Claims in accordance with Part A of the Creditor Distribution Exhibit.
226. "TOUCHSTONE SETTLEMENT AGREEMENT" means that certain Settlement
Agreement dated as of January 12, 1996 among the parties to the Touchstone
Actions.
227. "TRADE CLAIM" means any Unsecured Claim against the Debtor arising
from or with respect to the sale of goods or services to the Debtor, prior to
the Petition Date, in the ordinary course of the Debtor's business, including
any Claim of an employee that is not a Priority Claim.
228. "TRANSIT ASSET PURCHASE AGREEMENT" means that certain Asset Purchase
Agreement dated as of October 10, 1995, by and among the Debtor, MKO and
Amerail.
229. "TRANSIT BONDING CLAIMS" means, collectively, all Secured Transit
Bonding Claims and Unsecured Transit Bonding Claims.
230. "TRANSIT BONDING COMPANIES" means, collectively, the Bonding Company,
Colonial American Casualty and Surety Company, North American Reinsurance
Corporation, Prudential Reinsurance Corporation, American Re-insurance Company,
Universal Underwriters Insurance Company, Skandia America Reinsurance
Corporation, The Reinsurance Corporation of New York, Safeco Insurance Company
of America and United States Fidelity and Guaranty Company.
231. "TRANSIT BONDS" means the "Transit Bonds" as defined in the Transit
Release.
232. "TRANSIT REIMBURSEMENT AGREEMENT" means that certain Reimbursement
Agreement dated as of October 10, 1995, by and among MK, MKO, the Subsidiaries
and the Bonding Companies, as amended from time to time prior to the Petition
Date.
233. "TRANSIT RELEASE" means that certain Release dated as of October 10,
1995 by the Transit Bonding Companies identified as signatories thereto in favor
of MK, MKO and the Subsidiaries listed therein.
234. "TRANSIT SECURITY AGREEMENT" means that certain Pledge and Security
Agreement (Reimbursement Agreement Obligations) dated as of October 10, 1995 by
MK, MKO and certain of the Subsidiaries, in favor of the Bonding Company.
235. "UNIMPAIRED CLAIM" means a Claim that is not impaired within the
meaning of section 1124 of the Bankruptcy Code.
236. "UNOFFICIAL EQUITY COMMITTEE" means the unofficial equity committee
consisting of Trendex Capital Management, Cypress Management, L.P., Heartland
Capital Corp., Richard Steiner and, solely in its capacity as co-lead counsel to
the Securities Plaintiffs, Much Shelist Freed Denenberg & Ament, P.C.
237. "UNSECURED CLAIM" means any Claim which is not an Administrative
Claim, Priority Claim, Priority Tax Claim, Secured Claim, Unsecured Funded Debt
Claim, Unsecured Metra Lender Claim, Unsecured Transit Bonding Claim, Boise
Landlord Claim or Touchstone Claim.
238. "UNSECURED FUNDED DEBT CLAIMS" means the Allowed Funded Debt Claims
arising under the Existing Loan Documents and consisting of Existing Loans and
any accrued and unpaid interest with respect thereto outstanding after giving
effect to the distributions made under the Plan on account of the Secured Funded
Debt Claims.
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<PAGE>
239. "UNSECURED METRA LENDER CLAIMS" means the Allowed Metra Lender Claims
arising under the Metra Guaranty and the Override Loan Documents outstanding
after giving effect to the distributions made under the Plan on account of the
Secured Metra Lender Claims.
240. "UNSECURED TRANSIT BONDING CLAIMS" means, collectively, the Allowed
Claims of the Bonding Company, on its own behalf or on behalf of the other
Transit Bonding Companies, arising under the Transit Reimbursement Agreement,
the Transit Release, the Transit Bonds, the Transit Security Agreement and/or
the Distribution Agreement, and any and all documents executed in connection
therewith, excluding the New Bonds Agreement, outstanding after giving effect to
the distributions made under the Plan on account of the Secured Transit Bonding
Claims.
241. "VOTING INSTRUCTIONS" means the instructions for voting on the Plan
contained in the section of the Disclosure Statement entitled "Voting and
Confirmation of the Plan -- Voting Procedures and Requirements" and accompanying
the Ballots and the Master Ballots.
242. "VOTING RECORD DATE" means, collectively, (i) with respect to
identification of Holders of Impaired Claims (other than Touchstone Claims)
entitled to vote on the Plan, June 10, 1996 and (ii) with respect to
identification of the Holders of Allowed Class MK-8 Interests and Touchstone
Claims entitled to vote on the Plan, July 25, 1996.
243. "WASHINGTON" means Washington Construction Group, Inc., a Delaware
corporation.
B. RULES OF INTERPRETATION, COMPUTATION OF TIME AND GOVERNING LAW
1. RULES OF INTERPRETATION
For purposes of the Plan: (a) whenever from the context it is appropriate,
each term, whether stated in the singular or the plural, shall include both the
singular and the plural; (b) any reference in the Plan to a contract,
instrument, release, indenture or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions; (c) any reference in the Plan to an existing document or Exhibit
Filed or to be Filed means such document or Exhibit, as it may have been or may
be amended, modified or supplemented; (d) if the Plan's description of the terms
of an Exhibit is inconsistent with the terms of the Exhibit, the terms of the
Exhibit shall control; (e) unless otherwise specified, all references in the
Plan to Articles, Sections, Clauses and Exhibits are references to Articles,
Sections, Clauses and Exhibits of or to the Plan; (f) the words "herein" and
"hereto" refer to the Plan in its entirety rather than to a particular portion
of the Plan; (g) captions and headings to Articles and Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the interpretation of the Plan; (h) all references to the termination of the
Merger Agreement are references to the termination thereof in accordance with
the terms thereof; and (i) the rules of construction set forth in section 102 of
the Bankruptcy Code shall apply, to the extent such rules are not inconsistent
with any other provision in this Section I.B.1.
2. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
3. GOVERNING LAW
Except to the extent that the Bankruptcy Code or Bankruptcy Rules are
applicable, and subject to the provisions of any contract, instrument, release,
indenture or other agreement or document entered into in connection with the
Plan, the rights and obligations arising under the Plan shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
I-21
<PAGE>
ARTICLE II.
ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS
In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims, as described below in Article II,
have not been classified.
A. ADMINISTRATIVE CLAIMS
1. IN GENERAL
Subject to the provisions of Section II.A.2 below with respect to
Professionals and certain other entities, on the Effective Date, each Holder of
an Allowed Administrative Claim shall receive Cash equal to the amount of such
Allowed Administrative Claim, unless such Holder and the Debtor or Reorganized
Debtor agree to other terms or a Final Order of the Bankruptcy Court provides
for other terms; provided, however, that Allowed Administrative Claims
representing obligations incurred in the ordinary course of business or
otherwise assumed by the Debtor pursuant to the Plan (including Administrative
Claims of governmental units for taxes) shall be assumed on the Effective Date
and paid, performed or settled by the Reorganized Debtor when due in accordance
with the terms and conditions of the particular agreements governing such
obligations.
2. PROFESSIONALS
Professionals or other entities requesting compensation or reimbursement of
expenses pursuant to sections 327, 328, 330, 331, 503(b) or 1103 of the
Bankruptcy Code for services rendered before the Effective Date (including
compensation requested pursuant to section 503(b)(4) of the Bankruptcy Code by
any Professional or other entity for making a substantial contribution in the
Chapter 11 Case) shall File and serve on the Reorganized Debtor and counsel for
the Reorganized Debtor an application for final allowance of compensation and
reimbursement of expenses no later than 30 days after the Effective Date, unless
such Filing and service deadline is extended by the Bankruptcy Court; provided,
however, that any Professional who may receive compensation or reimbursement of
expenses pursuant to the Ordinary Course Professionals' Order without having
Filed an application for compensation or reimbursement of expenses may continue
to receive compensation and reimbursement of expenses for services rendered
before the Effective Date without further Bankruptcy Court review or approval
pursuant to the Ordinary Course Professionals' Order. Objections to applications
of Professionals or other entities for compensation or reimbursement of expenses
must be Filed and served on the Reorganized Debtor, counsel for the Reorganized
Debtor and the requesting Professional or other entity no later than 30 days
after the date on which the applicable application for compensation or
reimbursement was Filed.
B. PRIORITY TAX CLAIMS
On the Effective Date, each Holder of an Allowed Priority Tax Claim due and
payable on or prior to the Effective Date shall receive Cash equal to the amount
of such Allowed Priority Tax Claim, unless such Holder and the Debtor or
Reorganized Debtor agree to other terms, or a Final Order of the Bankruptcy
Court provides for other terms. The amount of any Priority Tax Claim that is not
an Allowed Claim or that is not otherwise due and payable on or prior to the
Effective Date, and the rights of the Holder of such Claim, if any, to payment
in respect thereof shall: (1) survive the Effective Date and consummation of the
Plan and be determined in the manner in which the amount of such Claim and the
rights of the Holder of such Claim would have been resolved or adjudicated if
the Chapter 11 Case had not been commenced and (2) not be discharged pursuant to
section 1141 of the Bankruptcy Code. In accordance with section 1124 of the
Bankruptcy Code, the Plan shall leave unaltered the legal, equitable and
contractual rights of each Holder of an Allowed Priority Tax Claim.
I-22
<PAGE>
ARTICLE III.
CLASSIFICATION AND TREATMENT OF
CLASSIFIED CLAIMS AND INTERESTS
All Claims and Interests, except Administrative Claims and Priority Tax
Claims, are placed in the Classes described below.
A Claim or Interest is classified in a particular Class only to the extent
that the Claim or Interest qualifies within the description of that Class and is
classified in other Classes only to the extent that any remainder of the Claim
or Interest qualifies within the description of such other Classes. A Claim or
Interest is also classified in a particular Class only to the extent that such
Claim or Interest is an Allowed Claim or Allowed Interest in that Class and has
not been paid, released or otherwise satisfied prior to the Effective Date.
<TABLE>
<CAPTION>
A. SUMMARY OF CLAIMS AND INTERESTS
CLASS Status
<S> <C>
Class MK-1 - Priority Claims Unimpaired - not entitled to vote
Class MK-2 - Bridge Loan Claims Unimpaired - not entitled to vote
Class MK-3 - Secured Funded Impaired - entitled to vote
Debt Claims, Secured Metra
Lender Claims and Secured
Transit Bonding Claims
Class MK-4 - Existing LC Impaired - entitled to vote
Claims and Existing
Guaranty Claims
Class MK-5 - Other Secured Claims Unimpaired - not entitled to vote
Class MK-6 - Unsecured Funded Impaired - entitled to vote
Debt Claims, Unsecured Metra
Lender Claims, Unsecured Transit
Bonding Claims, Boise Landlord
Claims and Touchstone Claims
Class MK-7 - Unsecured Claims Unimpaired - not entitled to vote
Class MK-8 - Interests of Impaired - entitled to vote
Holders of Old Common Stock
and Securities Plaintiffs
Class MK-9 - Interests of Impaired - deemed to have rejected the Plan
Holders of Old Stock
Options and Old Warrants
</TABLE>
B. CLASSIFICATION AND TREATMENT OF CLAIMS AGAINST AND INTERESTS IN MK
1. CLASS MK-1 - PRIORITY CLAIMS
(a) Classification: Class MK-1 consists of all Priority Claims
against MK.
(b) Treatment: On the Effective Date, each Holder of an Allowed
Class MK-1 Claim shall receive Cash equal to the amount of such Claim,
unless the Holder of such Claim and the Combined Company (or, if the Merger
Agreement is terminated, Reorganized MK) agree to a different treatment.
Any Allowed Class MK-1 Claim not due and owing on the Effective Date will
be paid in full in Cash by the Combined Company (or, if the Merger
Agreement is terminated, Reorganized MK) when such Claim becomes due and
owing.
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<PAGE>
(c) Voting: Class MK-1 is unimpaired, and the Holders of Claims in
Class MK-1 are not entitled to vote to accept or reject the Plan.
2. CLASS MK-2 - BRIDGE LOAN CLAIMS
(a) Classification: Class MK-2 consists of all Bridge Loan Claims
against MK.
(b) Treatment: All Allowed Class MK-2 Claims have been paid in full
in cash in accordance with an order of the Bankruptcy Court pursuant to
borrowings under the DIP Financing Facility. On the Effective Date, to the
extent not previously paid, each Holder of an Allowed Class MK-2 Claim
shall receive Cash equal to the amount of such Claim, unless the Holder of
such a Claim and the Combined Company (or, if the Merger Agreement is
terminated, Reorganized MK) agree to a different treatment.
(c) Voting: Class MK-2 is unimpaired and the Holders of Claims in
Class MK-2 are not entitled to vote to accept or reject the Plan.
3. CLASS MK-3 - SECURED FUNDED DEBT CLAIMS, SECURED METRA LENDER CLAIMS
AND SECURED TRANSIT BONDING CLAIMS
(a) Classification: Class MK-3 consists of all Secured Funded Debt
Claims, Secured Metra Lender Claims and Secured Transit Bonding Claims
against MK.
(b) Treatment: Subject to the provisions of Section V.B.4, the
Liquidating Trust MK Rail Stock, the Liquidating Trust MK Rail Note
Proceeds and the Liquidating Trust Class MK-3 Rights Exercise Proceeds
shall be distributed to the Liquidating Trust (and, if the MK Rail Note has
not been cancelled pursuant to the MK Rail Note Cancellation Agreement, the
MK Rail Note shall also be distributed to the Liquidating Trust). Following
such distributions to the Liquidating Trust, and (unless the Merger
Agreement is terminated) subject to (i) the exercise of the Combined
Company Rights and (ii) the provisions of Section III.B.8 in the event of
an Initial Equity Recovery or a Subsequent Equity Recovery, Allowed Class
MK-3 Claims shall be accorded the following treatment:
(i) Secured Funded Debt Claims. On the Effective Date, the
--------------------------
Existing Loan Documents shall be automatically terminated without any
further action by any party and shall no longer be of any force or
effect. Each Holder of an Allowed Class MK-3 Claim consisting of a
Secured Funded Debt Claim, in full and final satisfaction of such
Allowed Claim, (A) shall receive, on or as soon as practicable after
the Effective Date, its Funded Debt Pro Rata Share of (i) the Funded
Debt MK Rail Stock, (ii) the Funded Debt MK Rail Note Proceeds, and
(iii) the Funded Debt Class MK-3 Rights Exercise Proceeds and (B)
shall have the rights and benefits accorded a Holder of a Secured
Funded Debt Claim under the Liquidating Trust Agreement.
(ii) Secured Metra Lender Claims. On the Effective Date, the
---------------------------
Existing Loan Documents shall be automatically terminated without any
further action by any party and shall no longer be of any force or
effect. Each Holder of an Allowed Class MK-3 Claim consisting of a
Secured Metra Lender Claim, in full and final satisfaction of such
Allowed Claim, (A) shall receive, on or as soon as practicable after
the Effective Date, its Metra Lender Pro Rata Share of (i) the Metra
Lender MK Rail Stock, (ii) the Metra Lender MK Rail Note Proceeds, and
(iii) the Metra Lender Class MK-3 Rights Exercise Proceeds and (B)
shall have the rights and benefits accorded a Holder of a Secured
Metra Lender Claim under the Liquidating Trust Agreement.
(iii) Secured Transit Bonding Claims. On the Effective
------------------------------
Date, the Transit Reimbursement Agreement and the Transit Security
Agreement shall be automatically terminated without any further action
by any party and shall no longer be of any force or effect. The
Bonding Company shall receive, on or as soon as practicable after the
Effective Date, in full and final
I-24
<PAGE>
satisfaction of all Allowed Class MK-3 Claims consisting of Secured
Transit Bonding Claims, the Bonding Company MK Rail Stock, the Bonding
Company MK Rail Note Proceeds and the Bonding Company Class MK-3
Rights Exercise Proceeds and shall have the rights and benefits
accorded a Holder of a Secured Transit Bonding Claim under the
Liquidating Trust Agreement.
(c) Voting: Class MK-3 is impaired and the Holders of Allowed Class
MK-3 Claims are entitled to vote to accept or reject the Plan.
4. CLASS MK-4 - EXISTING LC CLAIMS AND EXISTING GUARANTY CLAIMS
(a) Classification: Class MK-4 consists of all Existing LC Claims
and Existing Guaranty Claims against MK.
(b) Treatment: On or before the Effective Date, the reimbursement
agreements with respect to the Existing Letters of Credit shall be
automatically terminated without any further action by any party and shall
no longer be of any force or effect and each Holder of an Allowed Class MK-
4 Claim consisting of an Existing LC Claim shall enter into a New Letter of
Credit Reimbursement Agreement with the Reorganized Debtor in full and
final satisfaction of such Allowed Claim. Each such Existing LC Claim shall
be entitled to be paid in full in Cash in accordance with the terms of the
New Letter of Credit Reimbursement Agreement. On or before the Effective
Date, the Existing Guaranties shall be automatically terminated without any
further action by any party and shall no longer be of any force or effect
and each Holder of an Allowed Class MK-4 Claim consisting of an Existing
Guaranty Claim shall enter into a New Guaranty with the Reorganized Debtor
in full and final satisfaction of such Allowed Claim. Each such Allowed
Claim shall be entitled to be paid in full in Cash in accordance with the
terms of the New Guaranty.
(c) Voting: Class MK-4 is impaired and the Holders of Allowed Class
MK-4 Claims are entitled to vote to accept or reject the Plan.
5. CLASS MK-5 - OTHER SECURED CLAIMS
(a) Classification: Class MK-5 consists of all Other Secured Claims
against MK, including the Secured Claims of Amerail under the Amerail
Environmental Security Agreement.
(b) Treatment: On the Effective Date, at the option of MK or the
Combined Company (or, if the Merger Agreement is terminated, Reorganized
MK), each Allowed Class MK-5 Claim shall be treated pursuant to either
clause (i) or (ii) below:
(i) MK or the Combined Company (or, if the Merger Agreement
is terminated, Reorganized MK) may transfer the property securing such
Claim to the Holder of the Claim, in full satisfaction of the Claim;
or
(ii) such Claim may be Reinstated as follows: (A) any default,
other than a default of a kind specified in section 365(b)(2) of the
Bankruptcy Code, shall be cured; (B) the maturity of the Claim shall
be reinstated as the maturity existed before any default; (C) the
Holder of the Claim shall be compensated for any damages incurred as a
result of any reasonable reliance by the Holder on any contractual
provision that entitled the Holder to demand or receive accelerated
payment of the Claim; and (D) the other legal, equitable or
contractual rights to which the Claim entitles the Holder shall not
otherwise be altered. The Other Secured Claims against MK of Amerail
under the Amerail Environmental Security Agreement shall be treated
pursuant to this subclause (ii).
I-25
<PAGE>
(c) Voting: Class MK-5 is unimpaired and the Holders of Claims in
Class MK-5 are not entitled to vote to accept or reject the Plan.
6. CLASS MK-6 - UNSECURED FUNDED DEBT CLAIMS, UNSECURED METRA LENDER
CLAIMS, UNSECURED TRANSIT BONDING CLAIMS, BOISE LANDLORD CLAIMS AND
TOUCHSTONE CLAIMS
(a) Classification: Class MK-6 consists of all Unsecured Funded Debt
Claims, Unsecured Metra Lender Claims, Unsecured Transit Bonding Claims,
Boise Landlord Claims and Touchstone Claims against MK.
(b) Treatment: Subject to the provisions of Sections III.B.6(c) and
V.B.4, the Combined Company Series A Preferred Stock, the Liquidating Trust
Cash Distribution, the Liquidating Trust Combined Company Common Stock and
the Liquidating Trust Class MK-6 Rights Exercise Proceeds shall be
distributed to the Liquidating Trust. Following such distribution to the
Liquidating Trust, and (unless the Merger Agreement is terminated) subject
to (i) the exercise of the Combined Company Rights and (ii) the provisions
of Section III.B.8 in the event of an Initial Equity Recovery or a
Subsequent Equity Recovery, Allowed Class MK-6 Claims shall be treated as
follows:
(i) Unsecured Funded Debt Claims. On the Effective Date, the
----------------------------
Existing Loan Documents shall be automatically terminated without any
further action by any party and shall no longer be of any force or
effect. Each Holder of an Allowed Class MK-6 Claim consisting of an
Unsecured Funded Debt Claim, in full and final satisfaction of such
Allowed Claim, (A) shall receive, on or as soon as practicable after
the Effective Date, its Funded Debt Pro Rata Share of (i) the Funded
Debt Combined Company Common Stock, (ii) the Funded Debt Cash
Distribution, and (iii) the Funded Debt Class MK-6 Rights Exercise
Proceeds and (B) shall have the rights and benefits accorded a Holder
of an Unsecured Funded Debt Claim under the Liquidating Trust
Agreement.
(ii) Unsecured Metra Lender Claims. On the Effective Date, the
-----------------------------
Existing Loan Documents shall be automatically terminated without any
further action by any party and shall no longer be of any force or
effect. Each Holder of an Allowed Class MK-6 Claim consisting of an
Unsecured Metra Lender Claim, in full and final satisfaction of such
Allowed Claim, (A) shall receive, on or as soon as practicable after
the Effective Date, its Metra Lender Pro Rata Share of (i) the Metra
Lender Combined Company Common Stock, (ii) the Metra Lender Cash
Distribution, and (iii) the Metra Lender Class 6 Rights Exercise
Proceeds and (B) shall have the rights and benefits accorded a Holder
of an Unsecured Metra Lender Claim under the Liquidating Trust
Agreement.
(iii) Unsecured Transit Bonding Claims. On the Effective
--------------------------------
Date, the Transit Reimbursement Agreement and the Transit Security
Agreement shall be automatically terminated without any further action
by any party and shall no longer be of any force or effect. The
Bonding Company (A) shall receive, on or as soon as practicable after
the Effective Date, in full and final satisfaction of all Allowed
Class MK-6 Claims consisting of Unsecured Transit Bonding Claims, the
Bonding Company Combined Company Common Stock, the Bonding Company
Cash Distribution and the Bonding Company Class 6 Rights Exercise
Proceeds and (B) shall have the rights and benefits accorded a Holder
of an Unsecured Transit Bonding Claim under the Liquidating Trust
Agreement.
(iv) Boise Landlord Claims. On or as soon as is practicable
---------------------
after the Effective Date, the Holder of an Allowed Boise Landlord
Claim (A) shall receive, in full and final satisfaction of such
Allowed Claim, the Boise Landlord Combined Company Common Stock, the
Boise Landlord Cash Distribution and the Boise Landlord Class 6 Rights
Exercise Proceeds and (B) shall have the
I-26
<PAGE>
rights and benefits accorded a Holder of a Boise Landlord Claim under
the Liquidating Trust Agreement.
(v) Touchstone Claims. On or as soon as is practicable after
-----------------
the Effective Date, the Holders of the Allowed Touchstone Claims (A)
shall receive, in full and final satisfaction of such Allowed Claims,
the Touchstone Combined Company Common Stock, the Touchstone Cash
Distribution and the Touchstone Class 6 Rights Exercise Proceeds and
(B) shall have the rights and benefits accorded the Holders of the
Touchstone Claims under the Liquidating Trust Agreement.
(c) Alternative Treatment: If the Merger Agreement is terminated,
the New MK Series A Preferred Stock and the Liquidating Trust New MK Common
Stock shall be distributed to the Liquidating Trust. Following such
distribution, Allowed Class MK-6 Claims shall be treated as follows:
(i) Unsecured Funded Debt Claims. On the Effective Date, the
----------------------------
Existing Loan Documents shall be automatically terminated without any
further action by any party and shall no longer be of any force or
effect. Each Holder of an Allowed Class MK-6 Claim consisting of an
Unsecured Funded Debt Claim, in full and final satisfaction of such
Allowed Claim, (A) shall receive, on or as soon as practicable after
the Effective Date, its Funded Debt Pro Rata Share of the Funded Debt
New MK Common Stock and (B) shall have the rights and benefits
accorded a Holder of an Unsecured Funded Debt Claim under the
Liquidating Trust Agreement.
(ii) Unsecured Metra Lender Claims. On the Effective Date, the
-----------------------------
Existing Loan Documents shall be automatically terminated without any
further action by any party and shall no longer be of any force or
effect. Each Holder of an Allowed Class MK-6 Claim consisting of an
Unsecured Metra Lender Claim, in full and final satisfaction of such
Allowed Claim, (A) shall receive, on or as soon as practicable after
the Effective Date, its Metra Lender Pro Rata Share of the Metra
Lender New MK Common Stock and (B) shall have the rights and benefits
accorded a Holder of an Unsecured Metra Lender Claim under the
Liquidating Trust Agreement.
(iii) Unsecured Transit Bonding Claims. On the Effective
--------------------------------
Date, the Transit Reimbursement Agreement and the Transit Security
Agreement shall be automatically terminated without any further action
by any party and shall no longer be of any force or effect. The
Bonding Company (A) shall receive, on or as soon as practicable after
the Effective Date, in full and final satisfaction of all Allowed
Class MK-6 Claims consisting of Unsecured Transit Bonding Claims, the
Bonding Company New MK Common Stock and (B) shall have the rights and
benefits accorded a Holder of an Unsecured Transit Bonding Claim under
the Liquidating Trust Agreement.
(iv) Boise Landlord Claims. On or as soon as is practicable
---------------------
after the Effective Date, the Holder of an Allowed Boise Landlord
Claim (A) shall receive, in full and final satisfaction of such
Allowed Claim, the Boise Landlord New MK Common Stock and (B) shall
have the rights and benefits accorded a Holder of a Boise Landlord
Claim under the Liquidating Trust Agreement.
(v) Touchstone Claims. On or as soon as is practicable after
-----------------
the Effective Date, the Holders of the Allowed Touchstone Claims (A)
shall receive, in full and final satisfaction of such Allowed Claims,
the Touchstone New MK Common Stock and (B) shall have the rights and
benefits accorded the Holders of the Touchstone Claims under the
Liquidating Trust Agreement.
(d) Voting: Class MK-6 is impaired and the Holders of Allowed Class
MK-6 Claims are entitled to vote to accept or reject the Plan.
7. CLASS MK-7 - UNSECURED CLAIMS
(a) Classification: Class MK-7 consists of all Unsecured Claims
against MK.
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<PAGE>
(b) Treatment: On the Effective Date, subject to the treatment set
forth below for Trade Claims, at the option of MK or the Combined Company
(or, if the Merger Agreement is terminated, Reorganized MK), each Allowed
Class MK-7 Claim shall be treated pursuant to clauses (i), (ii) or (iii)
below:
(i) the Claim shall be Reinstated by providing the Holder
thereof with Cash equal to the amount of such Claim, in accordance
with the contractual terms governing such Claim;
(ii) the Claim may be Reinstated other than as provided in
clause (i) above; or
(iii) the Holder of such Claim may receive payment pursuant to
any other terms agreed to by the Holder and MK or the Combined
Company, (or, if the Merger Agreement is terminated, Reorganized MK).
With respect to matured and liquidated Allowed Trade Claims, MK shall pay
Allowed Trade Claims in full in Cash equal to the amount of each such Trade
Claim in the ordinary course of business.
The National Steel Guaranty Claim shall be Reinstated in accordance with
the contractual terms of the National Steel Guaranty.
(c) Voting: Class MK-7 is unimpaired and the Holders of Claims in
Class MK-7 are not entitled to vote to accept or reject the Plan.
8. CLASS MK-8 - INTERESTS OF HOLDERS OF OLD COMMON STOCK AND SECURITIES
PLAINTIFFS
(a) Classification: Class MK-8 consists of the Interests of (i)
Holders of Old Common Stock and (ii) the Securities Plaintiffs.
(b) Treatment: Subject to the provisions hereof providing for
additional distributions in the event of an Initial Equity Recovery or a
Subsequent Equity Recovery, on or as soon as is practicable after the
Effective Date, each Holder of an Allowed Class MK-8 Interest shall
receive, in full and final satisfaction of such Interest, (A) its Pro Rata
Share of Combined Company Warrants (or, if the Merger Agreement is
terminated, New MK Warrants) and (B) unless the Merger Agreement is
terminated, a number, equal to the number of shares of Old Common Stock
held by such Holder as of the applicable Distribution Date, of Combined
Company Rights. Any Combined Company Rights distributed pursuant to this
Section III.B.8 may be exercised in accordance with the provisions of
Section VII.B.6 of the Plan. In addition to the distribution of Combined
Company Warrants and Combined Company Rights, unless the Merger Agreement
is terminated, (i) in the event of an Initial Equity Recovery, each Holder
of an Allowed Class MK-8 Interest shall receive its Pro Rata Share of the
Initial Residual Equity Distribution and (ii) in the event of a Subsequent
Equity Recovery, each Holder of an Allowed Class MK-8 Interest shall
receive its Pro Rata Share of the Subsequent Residual Equity Distribution.
For purposes of this clause (b), (A) the MK Securities Class Action
Plaintiffs shall be deemed to hold 2,976,923 shares of Old Common Stock and
(B) the MK Rail Securities Class Action Plaintiffs shall be deemed to hold
869,231 shares of Old Common Stock.
(c) Voting: Class MK-8 is impaired and the Holders of Allowed Class
MK-8 Interests are entitled to vote to accept or reject the Plan.
9. CLASS MK-9 - INTERESTS OF HOLDERS OF OLD STOCK OPTIONS AND OLD
WARRANTS
(a) Classification: Class MK-9 consists of the Interests of the
Holders of Old Stock Options and Old Warrants.
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(b) Treatment: The Holders of Class MK-9 Interests shall not receive
or retain any property under the Plan on account of such Interests.
(c) Voting: Class MK-9 is impaired and because no distribution of
property will be made to Holders of Class MK-9 Interests, nor will such
Holders retain any property, Class MK-9 is deemed not to have accepted the
Plan.
C. SPECIAL PROVISION REGARDING UNIMPAIRED CLAIMS
Except as otherwise provided in the Plan, nothing shall affect the Debtor's
or the Reorganized Debtor's rights and legal and equitable defenses in respect
of any Unimpaired Claims, including but not limited to all rights in respect of
legal and equitable defenses to setoffs or recoupments against Unimpaired
Claims.
D. ACCRUAL OF POSTPETITION INTEREST; PAYMENT OF POSTPETITION FEES AND
EXPENSES
Subject to entry of an order by the Bankruptcy Court, interest on and fees
and expenses with respect to the Other Secured Claims and the Funded Debt Claims
and the fees and expenses of the Existing Indebtedness Agent and the Lender
Steering Committee shall be paid during the Chapter 11 Case as they come due
under the terms of the Override Agreement at the applicable non-default
contractual rate. Additionally, the reasonable fees and expenses of counsel to,
and the members of, the Unofficial Equity Committee shall be paid promptly by
the Debtor or Reorganized Debtor; provided, however, that if the amount of
counsel's fees and expenses payable hereunder is not agreed to, then only the
undisputed amount, if any, of such fees and expenses shall be paid and counsel's
sole recourse with respect to the balance sought will be to request payment of
the same pursuant to section 503(b) of the Bankruptcy Code; and provided,
further, that the aggregate fees and expenses payable to the members of the
Unofficial Equity Committee shall not exceed $100,000. To the extent not
previously paid when due or otherwise provided for under the Plan, such
undisputed interest, fees and expenses, together with any unpaid professional
fees due the Holders of Other Secured Claims, shall be paid in Cash on the
Effective Date, together with any additional amounts required to be paid in
respect of Unimpaired Claims pursuant to section 1124. Except as otherwise
provided above or in the Plan, no Holder of an Allowed Unsecured Claim shall be
entitled to the accrual of postpetition interest or the payment by the Debtor or
Reorganized Debtor of postpetition interest on account of such Claim for any
purpose; provided, however, that interest, fees and other charges shall continue
to accrue under the Metra Credit Agreement and the Metra Guaranty to the
Effective Date for purposes of determining the Metra Ceiling Amount.
ARTICLE IV.
ACCEPTANCE OR REJECTION OF THE PLAN
A. VOTING CLASSES
Each Holder of an Allowed Class MK-3, MK-4 or MK-6 Claim or an Allowed
Class MK-8 Interest shall be entitled to vote to accept or reject the Plan.
B. ACCEPTANCEBY IMPAIRED CLASSES
An Impaired Class of Claims shall have accepted the Plan if (i) the Holders
(other than any Holder designated under section 1126(e) of the Bankruptcy Code)
of at least two-thirds in amount of the Allowed Claims actually voting in such
Class have voted to accept the Plan and (ii) the Holders (other than any Holder
designated under section 1126(e) of the Bankruptcy Code) of more than one-half
in number of the Allowed Claims actually voting in such Class have voted to
accept the Plan. An Impaired Class of Interests shall have accepted the Plan if
the Holders (other than any Holder designated under section 1126(e) of the
Bankruptcy Code) of at least two-thirds in amount of the Allowed Interests
actually voting in such Class have voted to accept the Plan.
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C. PRESUMED ACCEPTANCE OF PLAN
Classes MK-1, MK-2, MK-5 and MK-7 are unimpaired under the Plan, and,
therefore, conclusively are presumed to have accepted the Plan pursuant to
section 1126(f) of the Bankruptcy Code.
D. DEEMED NON-ACCEPTANCE OF PLAN
Holders of Class MK-9 Interests shall not receive or retain any property
under the Plan on account of their Interests, and therefore, Class MK-9 is
deemed not to have accepted the Plan pursuant to Section 1126(g) of the
Bankruptcy Code.
E. NON-CONSENSUAL CONFIRMATION
The Debtor will seek Confirmation of the Plan under section 1129(b) of the
Bankruptcy Code in view of the deemed non-acceptance by Class MK-9. In the
event that any Impaired Class of Claims or Interests does not accept the Plan in
accordance with section 1126 of the Bankruptcy Code, the Debtor hereby requests
that the Bankruptcy Court confirm the Plan in accordance with section 1129(b) of
the Bankruptcy Code. Subject to the Merger Agreement, the Debtor reserves the
right to modify the Plan to the extent, if any, that Confirmation pursuant to
section 1129(b) of the Bankruptcy Code requires modification.
ARTICLE V.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE, VESTING OF ASSETS IN THE REORGANIZED
DEBTOR AND PRESERVATION OF RIGHTS OF ACTION
1. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS
On the Effective Date, MK will merge into Washington pursuant to the Merger
Agreement, unless the Merger Agreement is terminated. The Reorganized Debtor
will continue to exist after the Effective Date as a separate corporate entity,
with all of the powers of a corporation under the Delaware General Corporation
Law and without prejudice to any right to alter or terminate their existence
(whether by merger or otherwise). Except as otherwise provided in the Plan, on
and after the Effective Date, all property of the Estate of the Debtor,
including all claims, rights and causes of action (other than those released
pursuant to Section V.E below), and any property acquired by the Debtor or
Reorganized Debtor under or in connection with the Plan, shall vest in the
Reorganized Debtor free and clear of all Claims, liens, charges, other
encumbrances and Interests. On and after the Effective Date, the Reorganized
Debtor may operate its businesses and may use, acquire and dispose of property
and compromise or settle any Claims or Interests without supervision or approval
by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or
Bankruptcy Rules, other than restrictions expressly imposed by the Plan or the
Confirmation Order. Without limiting the foregoing, the Reorganized Debtor may
pay the charges that it incurs on or after the Effective Date for Professionals'
fees, disbursements, expenses or related support services without application to
the Bankruptcy Court, except for compensation or reimbursement of expenses for
any services rendered after the Effective Date in connection with any
applications for compensation or reimbursement pending on the Effective Date or
Filed and served after the Effective Date pursuant to Section II.A.2 above.
2. PRESERVATION OF RIGHTS OF ACTION
Except as provided in Section V.E below, or in any contract, instrument,
release, indenture or other agreement entered into in connection with the Plan,
in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized
Debtor shall retain and may enforce any claims, rights and causes of action that
the Debtor or its Estate may hold against any entity, including but not limited
to the claims, rights and causes of action set forth in Exhibit
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U. Failure to list a claim, right or cause of action on Exhibit U shall not
constitute a waiver or release by the Debtor of such claim, right or cause of
action. The Reorganized Debtor or its successors may pursue such retained
claims, rights or causes of action, as appropriate, in accordance with the best
interests of the Reorganized Debtor.
B. THE RESTRUCTURING TRANSACTIONS
1. THE MERGER
a. CONSUMMATION OF THE MERGER
Simultaneously with the commencement of the Effective Date, unless the
Merger Agreement is terminated, MK shall take all such actions, including
without limitation all actions set forth in Articles 2 and 3 of the Merger
Agreement, as may be necessary or appropriate to effect the Merger on the terms
and subject to the conditions set forth in the Merger Agreement. Without
limiting the generality of the foregoing sentence, promptly upon the
satisfaction or waiver (pursuant to Section IX.C) of each of the conditions set
forth in Section IX.B, MK will cause the Merger Agreement or a certificate of
merger conforming to the applicable provisions of the Delaware General
Corporation Law to be filed with the Secretary of State of Delaware pursuant to
applicable provisions of the Delaware General Corporation Law and will take or
cause to be taken all other actions, including making appropriate filings or
recordings, that may be required by the Delaware General Corporation Law or
then-applicable law in connection with the Merger.
b. CANCELLATION OF CAPITAL STOCK AND EXISTING LOAN DOCUMENTS;
SURRENDER OF SECURITIES AND OTHER DOCUMENTATION
On the Effective Date, the Capital Stock (whether issued and outstanding or
held in the treasury of MK immediately prior to the Effective Date), the Rights,
the Existing Loan Documents, the Transit Reimbursement Agreement and the Transit
Security Agreement shall be deemed to be cancelled, extinguished, retired and of
no further force and effect, in all events without any further action on the
part of the Debtor, the Reorganized Debtor, the holders of Capital Stock or any
other entity. The Holders of such canceled securities and other documentation
shall have no rights arising from or relating to such securities or other
documentation, or the cancellation thereof, except the rights provided pursuant
to the Plan; provided, however, that no distribution under the Plan shall be
made to or on behalf of any Holder of any Allowed Claim or Allowed Interest
evidenced by such canceled securities or other documentation unless or until
such securities or documentation are received by the Disbursing Agent pursuant
to Section VII.H below. On the Effective Date, the Rights Agreement shall be
deemed to be cancelled, retired and of no further force and effect, without any
further action on the part of the Debtor or the Reorganized Debtor.
c. EFFECT OF THE MERGER ON TRANSFER OF SECURITIES
Unless the Merger Agreement is terminated, the shares of Combined Company
Common Stock shall be distributed to Holders of Allowed Class MK-6 Claims and to
the Liquidating Trust (and, if applicable, to the Holders of Allowed Class MK-8
Interests), and the Combined Company Warrants and the Combined Company Rights
shall be distributed to Holders of Allowed Class MK-8 Interests, pursuant to the
Plan to the same effect as if (i) immediately prior to the Merger on the
Effective Date, newly-issued shares of common stock of Reorganized MK had been
distributed to Holders of Allowed Class MK-6 Claims and to the Liquidating Trust
(and, if applicable, to the Holders of Allowed Class MK-8 Interests) and the
formerly outstanding shares of Old Common Stock had been converted into warrants
to purchase shares of common stock of Reorganized MK, and (ii) immediately
thereafter, pursuant to the Merger, the newly-issued shares of common stock of
Reorganized MK were converted into Combined Company Common Stock and the
warrants to purchase shares of common stock of Reorganized MK were converted
into Combined Company Warrants.
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d. THE REORGANIZED DEBTOR'S OBLIGATIONS UNDER THE PLAN
From and after the Effective Date, the Reorganized Debtor will perform the
obligations of the Debtor under the Plan.
2. NEW LETTER OF CREDIT REIMBURSEMENT AGREEMENT AND NEW GUARANTIES
On the Effective Date, the Reorganized Debtor shall enter into New Letter
of Credit Reimbursement Agreements with issuers of Existing Letters of Credit
and New Guaranties with holders of Existing Guaranties.
3. ISSUANCE OF SECURITIES AND RELATED DOCUMENTATION
On the Effective Date:
(a) The Combined Company shall issue the shares of Combined Company
Common Stock to be distributed pursuant to the Plan (or, if the Merger
Agreement is terminated, Reorganized MK shall issue the shares of New MK
Common Stock to be distributed pursuant to the Plan).
(b) The Combined Company shall issue the Combined Company Series A
Preferred Stock to be distributed pursuant to the Plan (or, if the Merger
Agreement is terminated, Reorganized MK shall issue the shares of New MK
Series A Preferred Stock to be distributed pursuant to the Plan).
(c) The Combined Company shall issue, pursuant to the Combined
Company Warrant Agreement, the Combined Company Warrants to be distributed
pursuant to the Plan (or, if the Merger Agreement is terminated,
Reorganized MK shall issue, pursuant to the New MK Warrant Agreement, the
New MK Warrants to be distributed to the Plan).
(d) The Combined Company shall issue the Combined Company Rights to
be distributed pursuant to the Plan (unless the Merger Agreement is
terminated).
(e) The transferees of the Combined Company Common Stock (or, if the
Merger Agreement is terminated, the New MK Common Stock) shall be deemed to
have entered into the Combined Company Registration Rights Agreement (or,
if the Merger Agreement is terminated, the New MK Registration Rights
Agreement) without further action on the part of the Debtor, Reorganized
Debtor or any other entity.
4. ESTABLISHMENT OF LIQUIDATING TRUST
On or as soon as practicable after the Combined Company Rights Expiration
Date, the Liquidating Trust shall be established pursuant to the Liquidating
Trust Agreement and the Plan. Unless the Merger Agreement is terminated, and
subject to the exercise of the Combined Company Rights, (a) the Liquidating
Trust MK Rail Stock, (b) the Liquidating Trust MK Rail Note Proceeds (and, if
the MK Rail Note has not been cancelled in accordance with the MK Rail Note
Cancellation Agreement, the MK Rail Note), (c) the Liquidating Trust Cash
Distribution, (d) the Liquidating Trust Combined Company Common Stock, (e) the
Combined Company Series A Preferred Stock, (f) the Liquidating Trust Class MK-3
Rights Exercise Proceeds, and (g) the Liquidating Trust Class MK-6 Rights
Exercise Proceeds, or the proceeds of each thereof, shall be conveyed to the
Liquidating Trust. If the Merger Agreement is terminated, (a) the Liquidating
Trust MK Rail Stock, (b) the Liquidating Trust MK Rail Note Proceeds (and, if
the MK Rail Note has not been cancelled in accordance with the MK Rail Note
Cancellation Agreement, the MK Rail Note), (c) the Liquidating Trust New MK
Common Stock, and (d) the New MK Series A Preferred Stock, or the proceeds of
each thereof, shall be conveyed to the Liquidating Trust.
If, prior to the Combined Company Rights Expiration Date (or, if the Merger
Agreement is terminated, the Effective Date), (a) the Metra Final Accounting
Date, as defined in the Liquidating Trust Agreement, has occurred, (b) the MK
Rail Note has been cancelled in accordance with the terms of the MK Rail Note
Cancellation Agreement,
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and (c) the Debtor determines, in accordance with the Residual Equity Recovery
Exhibit, that no Subsequent Equity Recovery will occur, then (a) the Liquidating
Trust shall not be established, (b) the Combined Company Series A Preferred
Stock (or, if the Merger Agreement is terminated, the New MK Series A Preferred
Stock) shall be distributed, subject (unless the Merger Agreement is terminated)
to the exercise of the Combined Company Rights, to Holders of Allowed Class MK-6
Claims in accordance with the provisions of the Creditor Distribution Exhibit
that are applicable solely in the event that the Liquidating Trust is not
established, and (c) all provisions of the Plan, including all exhibits hereto,
relating to the Liquidating Trust shall be of no force or effect, and the
property to be otherwise distributed to the Liquidating Trust shall be
distributed, subject (unless the Merger Agreement is terminated) to the exercise
of the Combined Company Rights, to Holders of Allowed Class MK-3 or MK-6 Claims,
as the case may be, in accordance with the Creditor Distribution Exhibit.
5. ESTABLISHMENT OF NEW CREDIT FACILITY
On the Effective Date, if the Merger Agreement is terminated, the
Reorganized Debtor shall establish the New Credit Facility by entering into the
New Credit Facility Documents.
6. PROCEDURES FOR EXERCISE OF COMBINED COMPANY RIGHTS
(a) Each Combined Company Right may be exercised by the holder thereof at
any time during the Combined Company Rights Exercise Period to purchase a
portion of the Combined Company Rights Aggregate Consideration equal to the
quotient that results from dividing (i) one by (ii) the number of Combined
Company Rights issued under the Plan (the exercise of any Combined Company
Rights in such manner being referred to as a "Primary Exercise"). Although a
holder of Combined Company Rights may exercise all or any portion of such
holder's Combined Company Rights pursuant to a Primary Exercise, all such
Combined Company Rights that are to be exercised by such holder pursuant to a
Primary Exercise shall be exercised concurrently. Any holder of Combined Company
Rights that seeks to exercise all of such holder's Combined Company Rights
pursuant to a Primary Exercise may also seek to exercise a notional number of
additional Combined Company Rights not to exceed the difference that results
from subtracting (i) the number of Combined Company Rights sought to be
exercised by such holder pursuant to a Primary Exercise from (ii) the number of
Combined Company Rights issued under the Plan (the exercise of any Combined
Company Rights in such manner being referred to as an "Oversubscription
Exercise"). Any exercise of Combined Company Rights pursuant to a Primary
Exercise or an Oversubscription Exercise will be irrevocable. Any exercise of
Combined Company Rights pursuant to an Oversubscription Exercise will be subject
to prorationing as described in clause (d) below in the event that the total
number of Combined Company Rights sought to be exercised pursuant to Primary
Exercises and Oversubscription Exercises exceeds the number of Combined Company
Rights issued under the Plan.
(b) In order for any Primary Exercise (and any related Oversubscription
Exercise) of Combined Company Rights to be valid and effective, the holder of
Combined Company Rights seeking to effect such Primary Exercise must have been
the Holder of the Allowed Class MK-8 Interests in respect of which the Combined
Company Rights subject to such Primary Exercise were issued pursuant to Section
III.B.8 of the Plan and must deliver to the Disbursing Agent prior to the
Combined Company Rights Expiration Date a properly completed and duly executed
Exercise Notice which (i) indicates the number of Combined Company Rights sought
to be exercised pursuant to a Primary Exercise and the number, if any, of
Combined Company Rights sought to be exercised pursuant to an Oversubscription
Exercise and (ii) is accompanied by a certified check or bank draft drawn upon a
United States bank or wire transfer in an amount equal to the sum of (a) the
product of the Combined Company Rights Exercise Price and the number of Combined
Company Rights sought to be exercised pursuant to a Primary Exercise and (b) the
product of the Combined Company Rights Exercise Price and the number, if any, of
Combined Company Rights sought to be exercised pursuant to an Oversubscription
Exercise. The foregoing items will not be deemed to have been timely delivered
to the Disbursing Agent (and thus the attempted exercise of Combined Company
Rights pursuant to a Primary Exercise and/or an Oversubscription Exercise will
not be valid or effective) unless they are actually received by the Disbursing
Agent at the address specified therefor in the instructions (the "Exercise
Instructions") accompanying the form of Exercise Notice to be provided pursuant
to clause (e) below prior
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to the Combined Rights Expiration Date and are completed and executed in
conformity with the Exercise Instructions.
(c) As promptly as practicable following the Combined Company Rights
Expiration Date, the Disbursing Agent will mail to each holder of Combined
Company Rights that has sought to exercise Combined Company Rights in a Primary
Exercise and/or an Oversubscription Exercise a written statement specifying the
number of Combined Company Rights that were validly and effectively exercised by
such holder (after giving effect, if applicable, to prorationing pursuant to
clause (d) below of Combined Company Rights sought to be exercised by such
holder pursuant to an Oversubscription Exercise) and the quantity or magnitude
of each form of consideration included in the portion of the Combined Company
Rights Aggregate Consideration purchased upon such exercise of such Combined
Company Rights, together with (i) a check in the amount of sum of the portion of
the Cash Distribution so purchased, the portion of the MK Rail Note Proceeds so
purchased and, if applicable, the amount being refunded (without interest) in
respect of the Combined Company Rights Exercise Price relating to any Combined
Company Rights that were not validly and effectively exercised by such holder as
a result of untimeliness, noncompliance with the requirements specified herein
or in the Exercise Instructions, prorationing pursuant to clause (d) below or
otherwise and (ii) stock certificates representing the shares of each class of
stock so purchased. No fractional shares of stock will be delivered upon the
exercise of any Combined Company Right. When any exercise of Combined Company
Rights would otherwise result in the purchase of a number of shares of any class
of stock that is not a whole number, the actual number of shares of stock of
such class that will be purchased upon such exercise shall be rounded to the
next higher or lower number as follows: (a) fractions of 1/2 or greater will be
rounded to the next higher whole number and (b) fractions of less than 1/2 will
be rounded to the next lower whole number.
(d) In the event that the total number of Combined Company Rights sought
to be exercised pursuant to Primary Exercises and Oversubscription Exercises
exceeds the number of Combined Company Rights issued under the Plan, (i) all
Combined Company Rights that shall have otherwise been validly and effectively
exercised pursuant to Primary Exercises shall be deemed to have been validly and
effectively exercised and (ii) the number of Combined Company Rights that shall
be deemed to have been validly and effectively exercised by any holder of
Combined Company Rights pursuant to an Oversubscription Exercise (assuming that
all other requirements for valid and effective exercise shall have been
satisfied) shall be determined by (a) multiplying the aggregate number of
Combined Company Rights that were not validly and effectively exercised pursuant
to Primary Exercises by a fraction, the numerator of which will be the number of
Combined Company Rights issued under the Plan to such holder and the denominator
of which shall be the number of Combined Company Rights issued under the Plan to
all holders of Combined Company Rights who shall have exercised Combined Company
Rights pursuant to Oversubscription Exercises and (b) eliminating any resulting
fractions. If the prorationing pursuant to the immediately preceding sentence
would otherwise result in any holder being deemed to have validly and
effectively exercised a greater number of Combined Company Rights than such
holder sought to exercise pursuant to its Oversubscription Exercise, then such
holder will be deemed to have validly and effectively exercised only that number
of Combined Company Rights which such holder sought to exercise pursuant to its
Oversubscription Exercise and any remaining Combined Company Rights not
otherwise deemed to have been validly and effectively exercised will be deemed
to have been validly and effectively exercised by other holders of Combined
Company Rights that have made Oversubscription Exercises on the basis set forth
in the immediately preceding sentence. This proration process will be repeated
as necessary until all Combined Company Rights shall have been deemed to have
been validly and effectively exercised by such holders.
(e) In order to facilitate the exercise of Combined Company Rights, the
Disbursing Agent will mail on or as promptly as is practicable after the
applicable Distribution Record Date to each Holder of Allowed Class MK-8
Interests as of the applicable Distribution Record Date a form of the Exercise
Notice (an "Exercise Notice") together with the Exercise Instructions (which
will include instructions for the proper completion and due execution of the
Exercise Notice and timely delivery thereof, together with payment of the
applicable exercise price for Combined Company Rights sought to be exercised, to
the Disbursing Agent and may specify other requirements relating to the valid
and effective exercise of Combined Company Rights). All determinations as to
proper completion, due execution, timeliness, eligibility, prorationing and
other matters affecting the validity or effectiveness
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of any attempted exercise of any Combined Company Rights shall be made by the
Disbursing Agent, whose determination shall be final and binding. The Disbursing
Agent in its sole discretion may waive any defect or irregularity, or permit a
defect or irregularity to be corrected within such time as it may determine or
reject the purported exercise of any Combined Company Right subject to any such
defect or irregularity. Deliveries required to be received by the Disbursing
Agent in connection with a purported exercise of Combined Company Rights will
not be deemed to have been so received or accepted until actual receipt thereof
by the Disbursing Agent shall have occurred and any defects or irregularities
shall have been waived or cured within such time as the Disbursing Agent may
determine in its sole discretion. Neither the Debtor nor the Disbursing Agent
will have any obligation to give notice to any holder of a Combined Company
Right of any defect or irregularity in connection with any purported exercise
thereof or incur any liability as a result of any failure to give any such
notice.
C. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS, EMPLOYMENT-RELATED AGREEMENTS
AND COMPENSATION PROGRAMS
1. CERTIFICATE OF INCORPORATION AND BYLAWS
a. COMBINED COMPANY/REORGANIZED MK
As of the Effective Date, the Combined Company Certificate of Incorporation
and the Combined Company Bylaws shall be substantially in the forms of Exhibits
C and B, respectively, to the Plan. The Combined Company Certificate of
Incorporation shall, among other things: (i) prohibit the issuance of nonvoting
equity securities, to the extent required by section 1123(a) of the Bankruptcy
Code; and (ii) authorize the issuance of Combined Company Common Stock, Combined
Company Series A Preferred Stock and Combined Company Warrants in amounts not
less than the amounts necessary to permit the distributions thereof required or
contemplated by the Plan. After the Effective Time, the Combined Company may
amend and restate the Combined Company Certificate of Incorporation or Combined
Company Bylaws as permitted by applicable law. If the Merger Agreement is
terminated, as of the Effective Date, the New MK Amended Certificate of
Incorporation and the New MK Bylaws shall be substantially in the forms of
Exhibits O and N, respectively, to the Plan. The New MK Amended Certificate of
Incorporation shall, among other things: (i) prohibit the issuance of nonvoting
equity securities, to the extent required by section 1123(a) of the Bankruptcy
Code; and (ii) authorize the issuance of New MK Common Stock, New MK Series A
Preferred Stock and New MK Warrants in amounts not less than the amounts
necessary to permit the distributions thereof required or contemplated by the
Plan. After the Effective Date, Reorganized MK may amend and restate the New MK
Amended Certificate of Incorporation or New MK Bylaws as permitted by applicable
law.
2. DIRECTORS AND OFFICERS
a. THE COMBINED COMPANY/REORGANIZED MK
Unless the Merger Agreement is terminated, subject to any requirement of
Bankruptcy Court approval pursuant to section 1129(a)(5) of the Bankruptcy Code,
the initial directors of the Combined Company will consist of Terry W. Payne,
Dorn Parkinson and Dennis R. Washington, whose terms shall expire at the 1999
meeting of stockholders, Leonard R. Judd (whose term expires at the 1998 meeting
of stockholders) and David H. Batchelder (whose term expires at the 1997 meeting
of stockholders), Robert S. Miller and Robert A. Tinstman (whose terms expire at
the 1997 meeting of stockholders) and John D.C. Roach and William C. Langley
(whose terms expire at the 1998 meeting of stockholders), who were designated by
the Lender Steering Committee and must be approved by Washington. Unless the
Merger Agreement is terminated, subject to any requirement of Bankruptcy Court
approval pursuant to section 1129(a)(5) of the Bankruptcy Code, the initial
officers of the Combined Company will be named prior to Confirmation. All
directors of the Combined Company shall serve until their successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Combined Company Certificate of Incorporation and
Combined Company Bylaws. Each officer of the Combined Company will serve from
and after the Effective Time until his or her successor is duly appointed and
qualified or until their earlier death, resignation or removal in accordance
with the terms of the Combined Company Certificate
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of Incorporation and Combined Company Bylaws. If the Merger Agreement is
terminated, subject to any requirement of Bankruptcy Court approval pursuant to
section 1129(a)(5) of the Bankruptcy Code: (i) the officers of Reorganized MK
shall be the officers of MK immediately prior to the Effective Date and (ii) the
board of directors of Reorganized MK shall consist of the Chairman and Chief
Executive Officer of Reorganized MK and other directors to be named prior to
Confirmation by Reorganized MK in consultation with the Lender Steering
Committee. Each director and officer of Reorganized MK will serve from the
Effective Date until a successor is duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of the New MK Amended Certificate of Incorporation and New MK Bylaws.
3. EMPLOYMENT, RETIREMENT, INDEMNIFICATION AND OTHER AGREEMENTS AND
INCENTIVE COMPENSATION PROGRAMS; RETIREE HEALTH AND WELFARE BENEFITS
a. As of the Effective Date, the Reorganized Debtor shall have the
authority to (i) enter into employment, retirement, indemnification and other
agreements with its active directors, officers and employees and (ii) implement
retirement income plans, welfare benefit plans and other incentive plans in
which directors, officers and other active employees of the Reorganized Debtor
may be eligible to participate. Such agreements and plans may include equity,
bonus and other incentive plans. The terms of the New MK Compensation Plans, to
be entered into or implemented by Reorganized MK if the Merger Agreement is
terminated, are set forth in Exhibit L. A list of the Debtor's and (unless the
Merger Agreement is terminated) Washington's existing employment, retirement,
indemnification and other agreements and incentive compensation plans and
programs that are to remain in effect as of and after the Effective Date is set
forth in Exhibit M to the Plan. The Disclosure Statement contains information as
to the compensation to be paid to insiders who are the subject of such
agreements, plans or programs.
b. If the Merger Agreement is terminated, approval of the Plan by
the Classes of Impaired Claims against MK shall, as of the Effective Date, be
deemed to constitute the requisite shareholder approval of each of the New MK
Stock Compensation Plan and the New MK Non-Employee Director Plan for purposes
of compliance with Rule 16b-3 under the Exchange Act, and the Reorganized Debtor
shall have the authority to implement both the New MK Stock Compensation Plan
and the New MK Non-Employee Director Plan as of the Effective Date. The
Disclosure Statement contains information regarding both the New MK Stock
Compensation Plan and the New MK Non-Employee Director Plan. The terms of each
such plan, as well as the text of each such plan, are set forth in Exhibit L to
the Plan.
c. From and after the Effective Date, pursuant to section
1129(a)(13) of the Bankruptcy Code, the Reorganized Debtor shall continue to pay
all retiree benefits (as defined in section 1114(a) of the Bankruptcy Code), at
the level established pursuant to subsection (e)(1)(B) or (g) of section 1114 of
the Bankruptcy Code, at any time prior to Confirmation, in accordance with the
contract or program giving rise to such benefits.
4. CORPORATE ACTION
The adoption of new or amended and restated certificates or articles of
incorporation and bylaws or regulations or similar constituent documents for the
Reorganized Debtor; the initial selection of directors and officers for the
Reorganized Debtor; the distribution of Cash pursuant to the Plan; the issuance
and distribution of Combined Company Securities (or, if the Merger Agreement is
terminated, New MK Securities) pursuant to the Plan; the grant of mortgages,
deeds of trust, liens and other security interests; the adoption, execution,
delivery and implementation of all contracts, leases, instruments, releases,
indentures and other agreements or documents related to any of the foregoing;
the adoption, execution and implementation of employment, retirement and
indemnification agreements, incentive compensation programs, retirement income
plans, welfare benefit plans and other employee plans and related agreements;
and the other matters provided for under the Plan involving the corporate
structure of the Debtor or Reorganized Debtor or corporate action to be taken by
or required of the Debtor or Reorganized Debtor, including without limitation
all action to be taken under the Merger Agreement, will occur and be effective
as provided herein, and will be authorized and approved in all respects and for
all purposes without any requirement of further action by stockholders or
directors of any of the Debtor or the Reorganized Debtor.
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D. SOURCES OF CASH FOR PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan, the Merger Agreement or the
Confirmation Order, all Cash necessary for the Reorganized Debtor to make
payments pursuant to the Plan shall be obtained from the Reorganized Debtor's
cash balances, the Combined Company Rights Exercise Proceeds and the operations
of the Debtor or Reorganized Debtor (and, if the Merger Agreement is terminated,
the New Credit Facility).
E. RELEASES AND RELATED MATTERS
1. RELEASES BY THE DEBTOR
a. As of the Effective Date, the Debtor and the Reorganized Debtor
will be deemed to have released and waived all causes of action of the Debtor
arising under sections 510, 544, 547, 548, 549 or 550 of the Bankruptcy Code.
b. As of the Effective Date, for good and valuable consideration,
the adequacy of which is hereby confirmed, the Debtor and the Reorganized Debtor
will be deemed to forever release, waive and discharge all claims, obligations,
suits, judgments, damages, demands, debts, rights, causes of action and
liabilities whatsoever in connection with or related to the Debtor, the Chapter
11 Case or the Plan (other than the rights of the Debtor or the Reorganized
Debtor to enforce the Plan and the contracts, instruments, releases, indentures
and other agreements or documents delivered thereunder), whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, in law, equity or
otherwise that are based in whole or in part on any act, omission, transaction,
event or other occurrence taking place on or prior to the Effective Date in any
way relating to the Debtor, Washington (unless the Merger Agreement is
terminated), the parties released pursuant to this Section V.E.1, the Chapter 11
Case or the Plan, and that may be asserted by or on behalf of the Debtor or its
Estate against (i) the Debtor's current and former officers, directors and
shareholders, (ii) Washington's current officers, directors and shareholders
(unless the Merger Agreement is terminated), (iii) the respective current and
former agents, employees, consultants, advisors, attorneys, accountants and
other representatives of the Debtor and Washington (including the respective
current and former members and professionals of the foregoing) acting in such
capacity, (iv) the Bridge Loan Lenders, the Bridge Loan Agent, the Funded Debt
Lenders, the Existing Indebtedness Agent, the Metra Lenders, the Metra Agent,
the Transit Bonding Companies (excluding any claims of the Debtor or the
Reorganized Debtor under the Indemnification Agreement), the Lender Steering
Committee and their respective predecessors in interest and the Boise Landlord
with respect to the transactions relating to their respective Claims, (v) the
Unofficial Equity Committee with respect to the transactions relating to the
Interests of its members and the Interests of other Holders of Class MK-8
Interests, and (vi) the respective current and former agents, advisors,
attorneys and representatives of the Bridge Loan Lenders, the Bridge Loan Agent,
the Funded Debt Lenders, the Existing Indebtedness Agent, the Metra Lenders, the
Metra Agent, the Lender Steering Committee, the Transit Bonding Companies and
the Unofficial Equity Committee (including the respective current and former
members and professionals of the foregoing and their respective predecessors in
interest) acting in such capacity; provided, however, that the Debtor shall not
release the persons identified in subclauses (i) and (ii) of this Section
V.E.1.b from any claims with respect to (a) any loan, advance or similar payment
by the Debtor to such person or (b) any contractual obligation owed by such
person to the Debtor. Notwithstanding this Section V.E.1, if and to the extent
that the Bankruptcy Court concludes that the Plan cannot be confirmed with any
portion of the releases set forth in the Plan, then the Plan may be confirmed
with that portion excised so as to give effect as much as possible to the
foregoing releases without precluding confirmation of the Plan.
2. RELEASES BY HOLDERS OF CLAIMS OR INTERESTS
a. Holders of Claims. As of the Effective Date, in consideration
-----------------
for the obligations of the Debtor and the Reorganized Debtor under the Plan and
the Cash, securities, contracts, instruments, releases and other agreements or
documents to be delivered in connection with the Plan, each holder of a Claim
that is Impaired under the Plan will be deemed to forever release, waive and
discharge all claims, demands, debts, rights, causes of action and liabilities
(other than the right to enforce the Debtor's or the Reorganized Debtor's
obligations under the Plan
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and the contracts, instruments, releases and other agreements and documents
delivered thereunder), whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing or
thereafter arising, that are based in whole or in part on any act, omission or
other occurrence taking place on or prior to the Effective Date in any way
relating to their Claims against the Debtor, the Chapter 11 Case or the Plan
against (i) the Debtor, (ii) the current and former officers and directors of
the Debtor (excluding certain former officers of the Debtor that are current or
former officers of Amerail, solely in their capacity as officers of Amerail with
respect to their activities in connection with Amerail) or (iii) its agents,
advisors, attorneys and representatives (including the current and former
officers, directors, employees, shareholders and professionals of the
foregoing), acting in such capacity.
b. Holders of Interests. As of the Effective Date, to the fullest
--------------------
extent permissible under applicable law, in consideration for the obligations of
the Debtor and the Reorganized Debtor under the Plan, the Combined Company
Rights and the Combined Company Warrants (or, if the Merger Agreement is
terminated, the New MK Warrants), any Initial Residual Equity Distribution or
Subsequent Residual Equity Distribution, contracts, instruments, releases or
other agreements or documents to be delivered in connection with the Plan, each
entity that has held, holds or may hold an Interest will be deemed to forever
release, waive and discharge all claims, demands, debts, rights, causes of
action and liabilities (other than the right to enforce the Debtor's or the
Reorganized Debtor's obligations under the Plan and the contracts, instruments,
releases and other agreements and documents delivered thereunder), whether
liquidated or unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, then existing or thereafter arising, that are
based in whole or in part on any act, omission or other occurrence taking place
on or prior to the Effective Date in any way relating to their Interests in the
Debtor, the Chapter 11 Case or the Plan against: (i) the Debtor, (ii) the
current or former officers and directors of the Debtor or (iii) its agents,
advisors, attorneys and representatives (including the current and former
directors, officers, employees, shareholders and professionals of the
foregoing), acting in such capacity.
c. Release of Lender Steering Committee and Unofficial Equity
----------------------------------------------------------
Committee. As of the Effective Date, to the fullest extent permissible under
- ---------
applicable law, in consideration for the contracts, instruments, releases or
other agreements or documents to be delivered in connection with the Plan, each
entity that has held, holds or may hold a Claim which is Impaired or an Interest
will be deemed to forever release, waive and discharge all claims, demands,
debts, rights, causes of action and liabilities, whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, that are based in
whole or in part on any act, omission or other occurrence taking place on or
prior to the Effective Date in any way relating to their Claims against or
Interests in the Debtor, the Chapter 11 Case or the Plan against the Lender
Steering Committee and the Unofficial Equity Committee, or their respective
advisors, attorneys and representatives, acting in such capacity.
d. Federal Regulatory Agencies. Nothing in this Plan will restrict
---------------------------
any federal government regulatory agency from pursuing any regulatory or police
enforcement action against the Debtor, the Reorganized Debtor, their current or
former officers, directors or employees, and their respective agents, advisors,
attorneys and representatives acting in any capacity, other than any action or
proceeding of any type to recover monetary claims, damages or penalties against
the Debtor for an act or omission occurring prior to Confirmation.
3. INJUNCTION RELATED TO RELEASES
As further provided in Section XI.B, the Confirmation Order will enjoin the
prosecution, whether directly, derivatively or otherwise, of any claim, demand,
debt, right, cause of action, liability or interest released, discharged or
terminated pursuant to the Plan. Nothing in this Plan will restrict any federal
government regulatory agency from pursuing any regulatory or police enforcement
action against the Debtor, the Reorganized Debtor, their current or former
officers, directors or employees, and their respective agents, advisors,
attorneys and representatives acting in any capacity, other than any action or
proceeding of any type to recover monetary claims, damages or penalties against
the Debtor for an act or omission occurring prior to Confirmation.
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F. RELEASE OF LIENS
Except as otherwise provided in the Plan with respect to Other Secured
Claims or in any contract, instrument, indenture or other agreement or document
created in connection with the Plan, on the Effective Date, all mortgages, deeds
of trust, liens or other security interests against the property of the Estate
shall be released, and all the right, title and interest of any holder of such
mortgages, deeds of trust, liens or other security interests shall revert to the
Reorganized Debtor and its successors and assigns. The foregoing release shall
not apply to liens or security interests arising under the New Bonds Security
Agreement or the Amerail Environmental Security Agreement.
G. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; EXEMPTION FROM CERTAIN
TRANSFER TAXES
The Chairman of the Board, Chief Executive Officer, any Executive Vice
President or Vice President and the Chief Legal Officer of the Debtor or
Reorganized Debtor shall be authorized to execute, deliver, file or record such
contracts, instruments, releases, indentures and other agreements or documents
and to take such actions as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of the Plan. The Secretary or any
Assistant Secretary of the Debtor or Reorganized Debtor shall be authorized to
certify or attest to any of the foregoing actions. Pursuant to section 1146(c)
of the Bankruptcy Code: (1) the issuance, distribution, transfer or exchange of
the Combined Company Securities (or, if the Merger Agreement is terminated, the
New MK Securities) or MK Rail Stock; (2) the creation, modification,
consolidation or recording of any mortgage, deed of trust or other security
interest, the securing of additional indebtedness by such means or by other
means (whether (a) in connection with the issuance and distribution of the
Combined Company Securities (or, if the Merger Agreement is terminated, the New
MK Securities) or MK Rail Stock or (b) otherwise in furtherance of, or in
connection with, the Plan or the Confirmation Order); (3) the making, assignment
or recording of any lease or sublease; or (4) the making, delivery or recording
of any deed or other instrument of transfer under, in furtherance of, or in
connection with, the Plan, including any merger agreements or agreements of
consolidations, deeds, bills of sale, assignment or other instruments of
transfer executed in connection with the Plan, the Confirmation Order or any
transaction contemplated in Section V.B above, or any transactions arising out
of, contemplated by or in any way related to the foregoing, shall not be subject
to any document recording tax, stamp tax, conveyance fee, intangibles or similar
tax, mortgage tax, stamp act, real estate transfer tax, mortgage recording tax
or other similar tax or governmental assessment, and the appropriate state or
local governmental officials or agents shall be, and hereby are, directed to
forego the collection of any such tax or governmental assessment and to accept
for filing and recordation any of the foregoing instruments or other documents
without the payment of any such tax or governmental assessment.
H. APPROVAL OF SHAREHOLDER LITIGATION SETTLEMENTS
Unless separately approved through previously issued orders of the
Bankruptcy Court, the entry of the Confirmation Order shall be deemed to
constitute approval of the Shareholder Litigation Settlements, within the
meaning of the applicable stipulations of settlement and orders.
I. MK RAIL NOTE CANCELLATION AGREEMENT
Unless terminated by its terms prior to the Effective Date, and whether or
not it was previously approved by Final Order, the MK Rail Note Cancellation
Agreement and the MK Rail Stockholders Agreement and the transactions
contemplated thereby shall be binding on the Debtor, MKO and MK Rail in
accordance with their terms, and shall be deemed incorporated by reference
herein and shall constitute an integral part of this Plan. Except as provided in
Section V.E.1.a hereof, nothing in the Plan shall affect the respective claims
of MK Rail and of the Debtor against one another, other than with respect to the
MK Rail Note as set forth in the MK Rail Note Cancellation Agreement.
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ARTICLE VI.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
1. ASSUMPTIONS GENERALLY
Except as otherwise provided in the Plan, including Section VI.B below, or
in any contract, instrument, release, indenture or other agreement or document
entered into in connection with the Plan, on the Effective Date, pursuant to
section 365 of the Bankruptcy Code, the Debtor shall assume each executory
contract and unexpired lease entered into by the Debtor prior to the Petition
Date that has not previously: (a) expired or terminated pursuant to its own
terms or (b) been assumed or rejected pursuant to section 365 of the Bankruptcy
Code. The Confirmation Order shall constitute an order of the Bankruptcy Court
approving the assumptions described in this Section VI.A.1, pursuant to section
365 of the Bankruptcy Code, as of the Effective Date. Without limiting the
generality of the foregoing, the execution, delivery and performance by the
Debtor of the Lease dated as of May 22, 1996 between the Boise Landlord, as
lessor, and the Debtor and MKO, as tenant, as amended by the First Amendment
dated as of July 1, 1996 (collectively, the "New Lease") and the provisions of
the Settlement Agreement (as defined in the New Lease) are authorized, directed
and confirmed. Consummation of the Plan and the occurrence of the Effective Date
shall conclusively be deemed to be approval of such Settlement Agreement by the
Bankruptcy Court for all purposes of the Plan.
2. CURE OF DEFAULTS
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default shall be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor or
Reorganized Debtor: (a) by payment of the default amount in Cash on the
Effective Date or (b) on such other terms as are agreed to by the parties to
such executory contract or unexpired lease. If there is a dispute regarding: (i)
the amount of any cure payments; (ii) the ability of the Reorganized Debtor to
provide "adequate assurance of future performance" (within the meaning of
section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (iii) any other matter pertaining to assumption, the cure payments required
by section 365(b)(1) of the Bankruptcy Code shall be made following the entry of
a Final Order resolving the dispute and approving the assumption.
B. EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED; BAR DATE FOR
REJECTION DAMAGES
1. REJECTION GENERALLY
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtor shall reject each of the executory contracts and unexpired
leases listed on Exhibit K to the Plan; provided, however, that the Debtor
reserves the right, at any time prior to the Effective Date, to amend Exhibit K
to delete any executory contract or unexpired lease listed therein, thus
providing for its assumption pursuant to Section VI.A.1 above. Each contract
and lease listed on Exhibit K shall be rejected only to the extent that any such
contract or lease constitutes an executory contract or unexpired lease. Listing
a contract or lease on Exhibit K shall not constitute an admission by the Debtor
or Reorganized Debtor that such contract or lease is an executory contract or
unexpired lease or that the Debtor or Reorganized Debtor has any liability
thereunder. The Confirmation Order shall constitute an order of the Bankruptcy
Court approving such rejections, pursuant to section 365 of the Bankruptcy Code,
as of the Effective Date.
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2. BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant to
Section VI.B.1 above gives rise to a Claim by the other party or parties to such
contract or lease, such Claim shall be forever barred and shall not be
enforceable against the Debtor, Reorganized Debtor, its successors or property
unless (a) a Stipulation of Amount and Nature of Claim has been entered into
with respect to the rejection of such executory contract or unexpired lease or
(b) a proof of Claim is Filed and served on the Reorganized Debtor and counsel
for the Reorganized Debtor within 30 days after the Effective Date or such
earlier date as established by the Bankruptcy Court.
C. SPECIAL EXECUTORY CONTRACT AND UNEXPIRED LEASE MATTERS
1. EXISTING EMPLOYMENT, RETIREMENT AND OTHER AGREEMENTS AND INCENTIVE
COMPENSATION PROGRAMS
The employment, retirement and other agreements and incentive compensation
programs that are listed on Exhibit M to the Plan are treated as executory
contracts under the Plan and, on the Effective Date, shall be assumed pursuant
to sections 365 and 1123 of the Bankruptcy Code.
2. INDEMNIFICATION OBLIGATIONS
To the extent any indemnification obligation of the Debtor existing as of
the Petition Date to any current or former officer or director constitutes an
executory contract, the Debtor shall be deemed to have assumed such executory
contract as of the Effective Date pursuant to section 365 of the Bankruptcy
Code.
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER OBLIGATIONS
INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other obligations
incurred after the Petition Date by the Debtor shall be performed by the Debtor
or Reorganized Debtor in the ordinary course of its business. Accordingly, such
executory contracts, unexpired leases and other obligations shall survive and
remain unaffected by entry of the Confirmation Order.
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS
A. DISTRIBUTIONS FOR CLAIMS AND INTERESTS ALLOWED AS OF THE EFFECTIVE DATE
Except as otherwise provided in this Article VII, or as may be ordered by
the Bankruptcy Court, distributions to be made on account of Claims or Interests
that are Allowed as of the Effective Date shall be made on the Effective Date.
Distributions to be made on account of Allowed Class MK-3 and MK-6 Claims and
Class MK-8 Interests shall not be made until as promptly as practicable after
the occurrence of the Combined Company Rights Expiration Date. Distributions
shall be deemed made on the Effective Date if made on the Effective Date or as
promptly thereafter as practicable, but in any event no later than 20 days after
the Effective Date or such later date when the applicable conditions of Sections
VI.A.2; (regarding cure payments for executory contracts and unexpired leases
being assumed); VII.C.2 (regarding undeliverable distributions); VII.F.4.b
(regarding arrangements for the satisfaction and payment of tax obligations
relating to distributions of Cash or securities pursuant to the Plan); or V.D
and VII.H (regarding surrender of canceled debt instruments and securities) are
satisfied. Securities to be issued shall be deemed issued as of the Effective
Date regardless of the date on which they are actually distributed.
Distributions on account of Claims or Interests that are Allowed after the
Effective Date shall be made pursuant to Sections VII.F and VIII.C below.
Notwithstanding the date on which any distribution of securities is actually
made to a Holder of a Claim or Interest that is an Allowed Claim or Allowed
Interest on the Effective Date, as of the date
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of the distribution such Holder shall be deemed to have the rights of a Holder
of such securities distributed as of the Effective Date.
B. DISTRIBUTIONS BY DISBURSING AGENTS
1. DISBURSING AGENTS
The Combined Company (or, if the Merger Agreement is terminated,
Reorganized MK) (either in its capacity as Disbursing Agent), or such Third-
Party Disbursing Agents as either may employ in its sole discretion, shall make
all distributions of Cash, Combined Company Securities (or, if the Merger
Agreement is terminated, New MK Securities) MK Rail Note Proceeds, MK Rail Stock
and Combined Company Rights Exercise Proceeds required to be distributed under
the applicable provisions of the Plan. Additionally, if the MK Rail Note has not
been cancelled in accordance with the MK Rail Note Cancellation Agreement, the
Disbursing Agent shall deliver the MK Rail Note to the Liquidating Trust. Any
Disbursing Agent may employ or contract with other entities to assist in or make
the distributions required by the Plan. Each Disbursing Agent shall serve
without bond, and each Third-Party Disbursing Agent shall receive, without
further Bankruptcy Court approval, reasonable compensation for distribution
services rendered pursuant to the Plan and reimbursement of reasonable out-of-
pocket expenses incurred in connection with such services from the Combined
Company (or, if the Merger Agreement is terminated, Reorganized MK) on terms
acceptable to the applicable reorganized entity.
C. DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
1. DELIVERY OF DISTRIBUTIONS IN GENERAL
Except with respect to distributions to the Liquidating Trust,
distributions to Holders of Allowed Claims (other than the Metra Lender Claims)
or Allowed Interests (other than the Interests of the Securities Plaintiffs)
shall be made at the addresses set forth in the Schedules or other records of
the Debtor or Reorganized Debtor at the time of the distribution. Distributions
to Holders of Allowed Metra Lender Claims shall be made to the Metra Agent.
Distributions to the MK Securities Class Action Plaintiffs shall be made to
their designated representative. Distributions to the MK Rail Securities Class
Action Plaintiffs shall be made to their designated representative.
Distributions of certain securities, a portion of the Cash Distribution and
Combined Company Rights Exercise Proceeds (each as determined in accordance with
the Creditor Distribution Exhibit) and the MK Rail Note, if the MK Rail Note has
not been cancelled in accordance with the MK Rail Note Cancellation Agreement,
shall be delivered to the Liquidating Trust for the benefit of the Holders of
certain Allowed Claims, to be distributed by the Liquidating Trustee in
accordance with the Liquidating Trust Agreement.
2. UNDELIVERABLE DISTRIBUTIONS
a. HOLDING AND INVESTMENT OF UNDELIVERABLE DISTRIBUTIONS
(i) If the distribution to any Holder of an Allowed Claim or
Allowed Interest is returned to a Disbursing Agent as undeliverable, no further
distributions shall be made to such Holder unless and until the applicable
Disbursing Agent is notified in writing of such Holder's then-current address.
Undeliverable distributions shall remain in the possession of the applicable
Disbursing Agent pursuant to this Section VII.C.2.a.i. until such time as a
distribution becomes deliverable. Undeliverable Cash shall be held in trust in
segregated bank accounts in the name of the applicable Disbursing Agent for the
benefit of the potential claimants of such funds, and shall be accounted for
separately. Any Disbursing Agent holding undeliverable Cash shall invest such
Cash in a manner consistent with the Debtor's investment and deposit guidelines.
Undeliverable Combined Company Securities (or, if the Merger Agreement is
terminated, New MK Securities), or MK Rail Stock shall be held in trust for the
benefit of the potential claimants of such securities by the applicable
Disbursing Agent in principal amounts or number of shares sufficient to fund the
unclaimed amounts of such securities and shall be accounted for separately.
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(ii) Pending the distribution of any undeliverable Combined
Company Common Stock (or, if the Merger Agreement is terminated, New MK Common
Stock) or MK Rail Stock, pursuant to the Plan, the Disbursing Agent shall cause
the Combined Company Common Stock (or, if the Merger Agreement is terminated,
New MK Common Stock) or MK Rail Stock held by it in its capacity as Disbursing
Agent to be: (A) represented in person or by proxy at each meeting of the
stockholders of the Combined Company (or, if the Merger Agreement is terminated,
Reorganized MK) or MK Rail, as applicable; and (B) voted with respect to any
matter of the Combined Company (or, if the Merger Agreement is terminated,
Reorganized MK) or MK Rail, as applicable, proportionally with the votes cast by
the other stockholders of the Combined Company (or, if the Merger Agreement is
terminated, Reorganized MK) or MK Rail, as applicable.
b. AFTER DISTRIBUTIONS BECOME DELIVERABLE
Within 15 days after the end of each calendar month following the calendar
month in which the Effective Date occurs, the applicable Disbursing Agent will
make all distributions that become deliverable to holders of Allowed Claims or
Allowed Interests during the preceding calendar month. Each such distribution
will include, to the extent applicable: (i) dividends or other distributions, if
any, that shall have theretofore been paid to the Disbursing Agent in respect of
any Combined Company Common Stock (or, if the Merger Agreement is terminated,
New MK Common Stock) and Combined Company Series A Preferred Stock (or, if the
Merger Agreement is terminated, New MK Series A Preferred Stock) included in
such distribution and (ii) a Pro Rata share of the Reorganization Investment
Yield from the investment of any undeliverable cash (including dividends or
other distributions on undeliverable Combined Company Common Stock, from the
date that such distribution would have first been due had it then been
deliverable to the date that such distribution becomes deliverable).
c. FAILURE TO CLAIM UNDELIVERABLE DISTRIBUTIONS
Any Holder of an Allowed Claim or Allowed Interest that does not assert a
claim pursuant to the Plan for an undeliverable distribution within one year
after the Effective Date (or in the case of a Subsequent Equity Recovery, within
one year after the applicable distribution date) shall have its claim for such
undeliverable distribution discharged and shall be forever barred from asserting
any such claim for an undeliverable distribution against the Reorganized Debtor
or its property. In such cases: (i) any Cash or MK Rail Stock held for
distribution on account of such claims for undeliverable distributions shall be
property of the Combined Company (or, if the Merger Agreement is terminated,
Reorganized MK) free of any restrictions thereon; (ii) any Combined Company
Common Stock (or, if the Merger Agreement is terminated, New MK Common Stock)
held for issuance on account of such claims for undeliverable distributions
shall either be canceled or held as treasury shares as the Combined Company (or,
if the Merger Agreement is terminated, Reorganized MK) may determine is
appropriate; and (iii) any Combined Company Warrants (or, if the Merger
Agreement is terminated, New MK Warrants) and Combined Company Rights (unless
the Merger Agreement is terminated) held for issuance on account of such claims
for undeliverable distributions shall be canceled. To the extent that such
undeliverable Cash, MK Rail Stock or Combined Company Securities (or, if the
Merger Agreement is terminated, New MK Securities) are held by a Third-Party
Disbursing Agent, the Third-Party Disbursing Agent shall return such Cash or the
securities or other instruments evidencing such MK Rail Stock or Combined
Company Securities (or, if the Merger Agreement is terminated, New MK
Securities) to the Combined Company (or, if the Merger Agreement is terminated,
Reorganized MK). Nothing contained in the Plan shall require the Debtor,
Reorganized Debtor or any Disbursing Agent to attempt to locate any holder of an
Allowed Claim or Allowed Interest.
D. DISTRIBUTION RECORD DATE
As of the close of business on the Confirmation Date, the transfer
registers for the Old Common Stock maintained by the Debtor, or its agent, shall
be closed. The Disbursing Agents and their respective agents shall have no
obligation to recognize the transfer of any Old Common Stock occurring after the
Confirmation Date or the transfer of any Claim occurring after the close of
business on the Business Day immediately preceding the Effective Date, and shall
be entitled for all purposes herein to recognize and deal only with those
Holders of record as of the close of business on the Distribution Record Date.
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E. MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan shall be in U.S. dollars by checks
drawn on a domestic bank selected by the Disbursing Agent, or by wire transfer
from a domestic bank, at the option of the Disbursing Agent. Cash payments of
$1,000,000.00 or more to be made pursuant to the Plan will, to the extent
requested in writing no later than five days after the Confirmation Date, be
made by wire transfer from a domestic bank. Cash payments to foreign creditors
may be made, at the option of the Disbursing Agent, in such funds and by such
means as are necessary or customary in a particular foreign jurisdiction.
F. TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
1. IN GENERAL
On the Effective Date, to the extent that the Plan provides for
distributions on account of Allowed Claims or Allowed Interests in the
applicable Class, each Holder of an Allowed Claim or Allowed Interest shall
receive the full amount of the distributions that the Plan provides for Allowed
Claims or Allowed Interests in the applicable Class. Beginning on the date that
is 15 days after the end of the calendar month following the calendar month in
which the Effective Date occurs and 15 days after the end of each calendar month
thereafter, distributions shall also be made, pursuant to Sections VII.C and
VIII.C below, respectively, to (a) Holders of Claims or Interests to whom a
distribution has become deliverable during the preceding calendar month and (b)
to Holders of Disputed Claims or Disputed Interests in any such Class whose
Claims or Interests were Allowed during the preceding calendar month. Such
monthly distributions shall also be in the full amount that the Plan provides
for Allowed Claims or Allowed Interests in the applicable Class.
2. DISTRIBUTIONS OF STOCK
Notwithstanding any other provision of the Plan, only whole numbers of
shares of Combined Company Common Stock (or, if Merger Agreement is terminated,
New MK Common Stock), MK Rail Stock and (if the Liquidating Trust is not
established) Combined Company Series A Preferred Stock (or, if the Merger
Agreement is terminated, the New MK Series A Preferred Stock) shall be issued or
transferred, as the case may be, pursuant to the Plan. When any distribution on
account of an Allowed Claim pursuant to the Plan would otherwise result in the
issuance or transfer of a number of shares of Combined Company Common Stock (or,
if Merger Agreement is terminated, New MK Common Stock), MK Rail Stock or (if
the Liquidating Trust is not established) Combined Company Series A Preferred
Stock (or, if the Merger Agreement is terminated, the New MK Series A Preferred
Stock) that is not a whole number, the actual distribution of shares of such
stock shall be rounded to the next higher or lower whole number as follows: (a)
fractions of 1/2 or greater shall be rounded to the next higher whole number and
(b) fractions of less than 1/2 shall be rounded to the next lower whole number.
The total number of shares of Combined Company Common Stock (or, if Merger
Agreement is terminated, New MK Common Stock), MK Rail Stock and (if the
Liquidating Trust is not established) Combined Company Series A Preferred Stock
(or, if the Merger Agreement is terminated, the New MK Series A Preferred Stock)
to be distributed to a Class of Claims shall be adjusted as necessary to account
for the rounding provided for in this Section VII.F.2. No consideration shall be
provided in lieu of fractional shares that are rounded down.
3. DISTRIBUTIONS OF WARRANTS
Notwithstanding any other provision of the Plan, only whole numbers of
Combined Company Warrants (or, if the Merger Agreement is terminated, New MK
Warrants) shall be issued pursuant to the Plan. When any distribution on account
of an Allowed Class MK-8 Interest pursuant to the Plan would otherwise result in
the issuance of a number of Combined Company Warrants (or, if the Merger
Agreement is terminated, New MK Warrants) that is not a whole number, the actual
distribution of such Combined Company Warrants (or, if the Merger Agreement is
terminated, New MK Warrants) shall be rounded to the next higher or lower whole
number as follows: (a) fractions of 1/2 or greater shall be rounded to the next
higher whole number and (b) fractions of less than 1/2 shall be rounded to the
next lower whole number. The total number of Combined Company Warrants (or, if
the Merger
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Agreement is terminated, New MK Warrants) to be distributed to a Holder of an
Allowed Class MK-8 Interest shall be adjusted as necessary to account for the
rounding provided for in this Section VII.F.3. No consideration shall be
provided in lieu of fractional warrants that are rounded down.
4. DISTRIBUTIONS OF RIGHTS
On the Effective Date, the Rights shall be distributed to Holders of
Allowed Class MK-8 Interests in accordance with Sections III.B.8 and V.B.6.
5. COMPLIANCE WITH TAX REQUIREMENTS
a. In connection with the Plan, to the extent applicable, the
Disbursing Agent shall comply with all tax withholding and reporting
requirements imposed on it by any governmental unit, and all distributions
pursuant to the Plan shall be subject to such withholding and reporting
requirements. The Disbursing Agent shall be authorized to take any and all
actions that may be necessary or appropriate to comply with such withholding and
reporting requirements.
b. Notwithstanding any other provision of the Plan: (i) each Holder
of an Allowed Claim or Interest that is to receive a distribution of Cash, MK
Rail Stock or Combined Company Securities (or, if the Merger Agreement is
terminated, New MK Securities) pursuant to the Plan (including pursuant to the
exercise of Combined Company Rights) shall have sole and exclusive
responsibility for the satisfaction and payment of any tax obligations imposed
by any governmental unit, including income, withholding and other tax
obligations, on account of such distribution; and (ii) no distribution shall be
made to or on behalf of such Holder pursuant to the Plan (or to any successor in
interest thereto) unless and until such Holder (or such successor in interest,
if any) has made arrangements satisfactory to the Disbursing Agent for the
payment and satisfaction of such tax obligations. Any Cash, MK Rail Stock or
Combined Company Securities (or, if the Merger Agreement is terminated, New MK
Securities) to be distributed pursuant to the Plan shall, pending the
implementation of such arrangements, be treated as an undeliverable distribution
pursuant to Section VII.C.2 above.
G. SETOFFS
Except with respect to claims of a Debtor or Reorganized Debtor released
pursuant to the Plan or any contract, instrument, release, indenture, or other
agreement or document created in connection with the Plan, the Debtor or
Reorganized Debtor may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim (other than a
Funded Debt Claim, a Metra Lender Claim, a Transit Bonding Claim or a Boise
Landlord Claim) and the distributions to be made pursuant to the Plan on account
of such Claim (before any distribution is made on account of such Claim), the
claims, rights and causes of action of any nature that the Debtor or Reorganized
Debtor may hold against the Holder of such Allowed Claim; provided, however,
that neither the failure to effect such a setoff nor the allowance of any Claim
hereunder shall constitute a waiver or release by the Debtor or Reorganized
Debtor of any such claims, rights and causes of action that the Debtor or
Reorganized Debtor may possess against such Holder.
H. SURRENDER OF CANCELLED DEBT INSTRUMENTS OR SECURITIES
As a condition precedent to receiving any distribution pursuant to the Plan
on account of an Allowed Claim or Allowed Interest evidenced by the instruments,
securities or other documentation canceled pursuant to Section V.B.1 above,
other than distribution of the Combined Company Rights to Holders of Allowed
Class MK-8 Interests, the Holder of such Claim or Interest shall tender the
applicable instruments, securities or other documentation evidencing such Claim
or Interest to the Disbursing Agent pursuant to a letter of transmittal
furnished by the Disbursing Agent. Any Cash, MK Rail Stock or Combined Company
Securities (or, if the Merger Agreement is terminated, New MK Securities) to be
distributed pursuant to the Plan on account of any such Claim or Interest shall,
pending such surrender, be treated as an undeliverable distribution pursuant to
Section VII.C.2 above. For purposes of this Section VII.H, references to
delivery of Existing Loan Documents shall be deemed to refer only to
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copies of documents evidencing that such creditor is a Holder of such Funded
Debt Claim, which may be accomplished through a Stipulation of Amount and of
Nature of Claim.
1. EXISTING LOAN DOCUMENTS AND CAPITAL STOCK CERTIFICATES
Except as provided in Section VII.H.2 below for lost, stolen, mutilated or
destroyed Existing Loan Documents or Capital Stock certificates, each Holder of
an Allowed Claim or Allowed Interest evidenced by an Existing Loan Document or
Capital Stock certificate shall tender such Existing Loan Document or Capital
Stock certificate to the Disbursing Agent in accordance with written
instructions to be provided in a letter of transmittal to such Holders by the
Disbursing Agent as promptly as practicable following the Effective Date. Such
letter of transmittal shall specify that delivery of such Existing Loan
Documents or Capital Stock certificates will be effected, and risk of loss and
title thereto will pass, only upon the proper delivery of such Existing Loan
Documents or Capital Stock certificates with the letter of transmittal in
accordance with such instructions. Such letter of transmittal shall also
include, among other provisions, customary provisions with respect to the
authority of the holder of the applicable Existing Loan Document or Capital
Stock certificate to act and the authenticity of any signatures required on the
letter of transmittal. All surrendered Existing Loan Documents and Capital
Stock certificates shall be marked as canceled and delivered to the Combined
Company (or, if the Merger Agreement is terminated, Reorganized MK).
2. LOST, STOLEN, MUTILATED OR DESTROYED EXISTING LOAN DOCUMENTS OR
CAPITAL STOCK CERTIFICATES
In addition to any requirements under the applicable certificate or
articles of incorporation or bylaws of the Debtor, any Holder of a Claim or an
Interest evidenced by an Existing Loan Document or a Capital Stock certificate
that has been lost, stolen, mutilated or destroyed shall, in lieu of
surrendering such Existing Loan Document or Capital Stock certificate, deliver
to the Disbursing Agent: (a) evidence satisfactory to the Disbursing Agent of
the loss, theft, mutilation or destruction; and (b) such security or indemnity
as may be required by the Disbursing Agent to hold the Disbursing Agent harmless
from any damages, liabilities or costs incurred in treating such individual as a
Holder of an Existing Loan Document or a Capital Stock certificate. Upon
compliance with this Section VII.H.2 by a Holder of a Claim or an Interest
evidenced by an Existing Loan Document or Capital Stock certificate, such Holder
shall, for all purposes under the Plan, be deemed to have surrendered an
Existing Loan Document or a Capital Stock certificate, as applicable.
3. FAILURE TO SURRENDER CANCELED EXISTING LOAN DOCUMENTS OR CAPITAL STOCK
CERTIFICATES
Any Holder of an Existing Loan Document or Capital Stock certificate that
fails to surrender or be deemed to have surrendered such Existing Loan Document
or Capital Stock certificate within one year after the Effective Date shall have
its claim for a distribution pursuant to the Plan on account of such Existing
Loan Document or Capital Stock certificate discharged and shall be forever
barred from asserting any such claim against the Reorganized Debtor or its
property. In such cases, any Cash, MK Rail Stock or Combined Company Securities
(or, if the Merger Agreement is terminated, New MK Securities) held for
distribution on account of such Claim shall be disposed of pursuant to the
provisions set forth in Section VII.C.2 above.
I. RESTRICTIONS RELATED TO MK RAIL STOCK
Each recipient of MK Rail Stock under the Plan shall be deemed to be bound
by the MK Rail Stockholders Agreement, whether or not such recipient executed
such agreement and shall not be permitted to transfer such MK Rail Stock except
pursuant to the terms of the MK Rail Stockholders Agreement.
J. PLEDGE BY HOLDER OF BOISE LANDLORD CLAIMS OF ENTITLEMENT TO RECEIVE
DISTRIBUTIONS
Upon written notice from the Holder of the Boise Landlord Claims, such
Holder may pledge and assign all or any portion of its right to receive
distributions of Combined Company Common Stock (or, if the Merger Agreement is
terminated, New MK Common Stock) and (unless the Merger Agreement is terminated)
Boise Landlord Cash Distribution in respect of the Boise Landlord Claims and its
rights as a beneficiary of the Liquidating Trust,
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such notice to be irrevocable unless such revocation shall be joined in by the
pledgee or assignee. Any such pledge or assignment shall be binding upon the
Debtor and shall be effective for all purposes of this Plan.
ARTICLE VIII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND
DISPUTED INTERESTS
A. PROSECUTION OF OBJECTIONS TO CLAIMS AND INTERESTS
After the Confirmation Date, only the Debtor and Reorganized Debtor shall
have the authority to File objections, settle, compromise, withdraw or litigate
to judgment objections to Claims and Interests. Except with respect to the Metra
Lender Claims, from and after the Confirmation Date, the Debtor and Reorganized
Debtor may settle or compromise any Disputed Claim or Disputed Interest without
approval of the Bankruptcy Court.
B. TREATMENT OF DISPUTED CLAIMS OR INTERESTS
1. NO PAYMENTS ON ACCOUNT OF DISPUTED CLAIMS OR INTERESTS
Notwithstanding any other provisions of the Plan, no payments or
distributions shall be made on account of a Disputed Claim or a Disputed
Interest until such Claim or Interest becomes an Allowed Claim or Allowed
Interest. Prior to the Petition Date, the Debtor delivered Stipulations of
Amount and Nature of Claim to the Holders of the Funded Debt Claims, the Boise
Landlord Claims and the Transit Bonding Claims. Such Claims shall be treated as
Allowed Claims as of the Petition Date in the amounts set forth in such
Stipulations of Amount and Nature of Claim and shall not be treated as Disputed
Claims.
2. RESOLUTION OR ESTIMATION OF CLAIMS
The Debtor or the Reorganized Debtor may, at any time, request that the
Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to
section 502(c) of the Bankruptcy Code, irrespective of whether the Debtor or
Reorganized Debtor has previously objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection. The Bankruptcy Court will
retain jurisdiction to estimate any contingent or unliquidated Claim at any time
during litigation concerning any objection to the Claim, including during the
pendency of any appeal relating to any such objection. If the Bankruptcy Court
estimates any contingent or unliquidated Claim, that estimated amount will
constitute either the Allowed Amount of such Claim or a maximum limitation on
such Claim, as determined by the Bankruptcy Court. If the estimated amount
constitutes a maximum limitation on such Claim, the Debtor or Reorganized Debtor
may elect to pursue any supplemental proceedings to object to any ultimate
payment on account of such Claim. All of these Claims objection, estimation and
resolution procedures are cumulative and not necessarily exclusive of one
another. In addition to seeking estimation of Claims as provided in this
Section VIII.B.2, the Debtor or Reorganized Debtor may resolve or adjudicate any
Disputed Claim in the manner in which the amount of such Claim and the rights of
the Holder of such Claim would have been resolved or adjudicated if the Chapter
11 Case had not been commenced. Claims may be subsequently compromised,
settled, withdrawn or resolved by the Debtor or Reorganized Debtor pursuant to
Section VIII.A above.
C. DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS OR INTERESTS ONCE THEY ARE
ALLOWED
Within 15 days after the end of each calendar month following the calendar
month in which the Effective Date occurs, the applicable Disbursing Agent shall
make all distributions on account of any Disputed Claim or Disputed Interest
that has become an Allowed Claim or Allowed Interest during the preceding
calendar month. Such distributions shall be made pursuant to the provisions of
the Plan governing the applicable Class. Holders of Disputed Claims or Disputed
Interests that are ultimately allowed shall also be entitled to receive, on the
basis of the amount ultimately allowed: (1) matured and payable interest, if
any, at the rate provided for the Class to which
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such Claim belongs; (2) any dividends or other payments made on account of
Combined Company Common Stock (or, if the Merger Agreement is terminated, New MK
Common Stock) held pending distribution; and (3) a Pro Rata share of the
Reorganization Investment Yield from the investment of any Cash held pending
distribution from the date such amounts would have been due had such Claim or
Interest then been allowed to the end of the calendar month when such Claim or
Interest was allowed.
ARTICLE IX.
CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
A. CONDITIONS TO CONFIRMATION
The Confirmation Order shall be in form and substance satisfactory to the
Debtor and (unless the Merger Agreement is terminated) Washington, and the
Confirmation Order shall expressly authorize and direct the Debtor and
Reorganized Debtor to perform those actions specified in Sections III.B.3, B.4,
B.6 and B.8, V.B, V.C, V.E, V.F, V.G, VII.F, and XI.D of the Plan.
B. CONDITIONS TO EFFECTIVE DATE
The Plan shall not be consummated and the Effective Date shall not occur
unless and until each of the following conditions has been satisfied or duly
waived (if available) pursuant to Section IX.C below:
1. The Confirmation Order shall authorize and direct the Debtor and
Reorganized Debtor to take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases,
leases, indentures and other agreements or documents created in connection
with the Plan or the Restructuring, including those actions contemplated by
the provisions of the Plan set forth in Section IX.A above. The
Confirmation Order shall not be subject to a presently effective stay
pending appeal.
2. All borrowings under the DIP Financing Facility have been paid
in full in Cash and all commitments terminated thereunder.
3. If the Merger Agreement has been terminated, the lenders under
the New Credit Facility shall be obligated to fund the New Credit Facility
on terms acceptable to the Debtor.
4. Final Orders have been entered approving the Derivative Action
Settlements.
5. The conditions to effectiveness of the New Lease have been
satisfied.
6. MK Rail shall have redeemed the MK Rail Rights or the Debtor
shall be satisfied, by reason of an amendment to the MK Rail Rights Plan, a
judicial determination or otherwise, that the MK Rail Rights are
inapplicable to the transactions contemplated by the Plan.
7. Either MK Rail shall have completed the repurchase of the entire
MK Rail Note or the MK Rail Note Cancellation Agreement shall have been
terminated in accordance with its terms.
C. WAIVER OF CONDITIONS
The conditions to Confirmation and the Effective Date, other than the
condition set forth above in Section IX.B.1, B.2 and B.7, may be waived in whole
or in part by the Debtor and (unless the Merger Agreement is terminated),
Washington at any time, without notice, an order of the Bankruptcy Court or any
further action other than proceeding to Confirmation and consummation of the
Plan. The failure to satisfy or waive any condition may
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be asserted by the Debtor and (unless the Merger Agreement is terminated)
Washington regardless of the circumstances giving rise to the failure of such
condition to be satisfied (including any action or inaction by the Debtor or
Washington). The failure of the Debtor and (unless the Merger Agreement is
terminated) Washington to exercise any of the foregoing rights shall not be
deemed a waiver of any other rights and each such right shall be deemed an
ongoing right that may be asserted at any time.
D. EFFECT OF NONOCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to consummation and the Effective Date must be
satisfied or duly waived, as provided above, within 30 days after the
Confirmation Date unless the Debtor extend this time for a period not exceeding
90 days. If each condition to the Effective Date has not been satisfied or duly
waived pursuant to Section IX.C above, within 90 days after the Confirmation
Date, then upon motion by any party in interest made before the time that each
of such conditions has been satisfied or duly waived and upon notice to such
parties in interest as the Bankruptcy Court may direct, the Confirmation Order
shall be vacated by the Bankruptcy Court; provided, however, that,
notwithstanding the filing of such motion, the Confirmation Order may not be
vacated if each of the conditions to the Effective Date is either satisfied or
duly waived before the Bankruptcy Court enters an order granting such motion. If
the Confirmation Order is vacated pursuant to this Section IX.D, the Plan shall
be deemed null and void in all respects, including the discharge of Claims and
termination of Interests pursuant to section 1141 of the Bankruptcy Code and the
assumptions or rejections of executory contracts and unexpired leases pursuant
to Sections VI.A and VI.B above, and nothing contained in the Plan shall (1)
constitute a waiver or release of any Claims by or against, or any Interests in,
the Debtor or (2) prejudice in any manner the rights of the Debtor.
ARTICLE X.
CRAMDOWN
The Debtor hereby requests Confirmation of the Plan under section 1129(b)
of the Bankruptcy Code if any Impaired Class does not accept the Plan in
accordance with section 1126 of the Bankruptcy Code. Subject to the Merger
Agreement, the Debtor reserves the right to modify the Plan to the extent, if
any, that Confirmation pursuant to section 1129(b) of the Bankruptcy Code
requires modification.
ARTICLE XI.
DISCHARGE OF CLAIMS, TERMINATION OF
INTERESTS, INJUNCTIONS AND SUBORDINATION RIGHTS
A. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
1. Except as provided in the Plan or the Confirmation Order, the rights
afforded under the Plan and the treatment of Claims and Interests under the Plan
shall be in exchange for and in complete satisfaction, discharge and release of
all Claims and termination of all Interests, including any interest accrued on
Claims from the Petition Date. Except as provided in the Plan or the
Confirmation Order, Confirmation shall: (a) discharge the Debtor from all
Claims or other debts that arose before the Confirmation Date and all debts of
the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not: (i) a proof of Claim based on such debt is Filed or deemed
Filed pursuant to section 501 of the Bankruptcy Code, (ii) a Claim based on such
debt is Allowed pursuant to section 502 of the Bankruptcy Code or (iii) the
Holder of a Claim based on such debt has accepted the Plan; and (b) terminate
all Interests and other rights of equity security holders in the Debtor.
2. As of the Confirmation Date, except as provided in the Plan or the
Confirmation Order, all entities shall be precluded from asserting against the
Debtor, Reorganized Debtor, Plan Participants, their successors or their
property, any other or further claims, debts, rights, causes of action,
liabilities or equity interests relating to the
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Debtor based upon any act, omission, transaction or other activity of any nature
that occurred prior to the Confirmation Date. In accordance with the foregoing,
except as provided in the Plan or the Confirmation Order, the Confirmation Order
shall be a judicial determination of discharge of all such Claims and other
debts and liabilities against the Debtor and termination of all such Interests
and other rights of equity security holders in the Debtor, pursuant to sections
524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment
obtained against the Debtor at any time, to the extent that such judgment
relates to a discharged Claim or terminated Interest.
3. Nothing in this Plan will restrict any federal government regulatory
agency from pursuing any regulatory or police enforcement action against the
Debtor, the Reorganized Debtor, their current or former officers, directors or
employees, and their respective agents, advisors, attorneys and representatives
acting in any capacity, other than any action or proceeding of any type to
recover monetary claims, damages or penalties against the Debtor for an act or
omission occurring prior to Confirmation.
B. INJUNCTIONS
1. INJUNCTION RELATED TO DISCHARGED CLAIMS AND TERMINATED INTERESTS
Except as provided in the Plan or the Confirmation Order, as of the
Confirmation Date, all entities that have held, currently hold or may hold a
Claim or other debt or liability that is discharged or an Interest or other
right of an equity security holder that is terminated pursuant to the terms of
the Plan are permanently enjoined from taking any of the following actions
against the Debtor, Reorganized Debtor or its property on account of any such
discharged Claims, debts or liabilities or terminated Interests or rights: (a)
commencing or continuing, in any manner or in any place, any action or other
proceeding; (b) enforcing, attaching, collecting or recovering in any manner any
judgment, award, decree or order; (c) creating, perfecting or enforcing any lien
or encumbrance; (d) asserting a setoff, right of subrogation or recoupment of
any kind against any debt, liability or obligation due to the Debtor or
Reorganized Debtor; and (e) commencing or continuing, in any manner or in any
place, any action that does not comply with or is inconsistent with the
provisions of the Plan.
2. RELEASED CLAIMS
As of the Effective Date, all entities that have held, currently hold or
may hold a claim, demand, debt, right, cause of action or liability that is
released pursuant to Section V.E are permanently enjoined from taking any of the
following actions on account of such released claims, demands, debts, rights,
causes of action or liabilities: (a) commencing or continuing in any manner any
action or other proceeding; (b) enforcing, attaching, collecting or recovering
in any manner any judgment, award, decree or order; (c) creating, perfecting or
enforcing any lien or encumbrance; (d) asserting a setoff, right of subrogation
or recoupment of any kind against any debt, liability or obligation due to any
released entity; and (e) commencing or continuing any action, in any manner, in
any place that does not comply with or is inconsistent with the provisions of
the Plan.
3. CONSENT TO INJUNCTION
By accepting distributions pursuant to the Plan, each holder of an Allowed
Claim or Allowed Interest receiving distributions pursuant to the Plan will be
deemed to have specifically consented to the injunctions set forth in this
Section XI.B.
4. REGULATORY OR ENFORCEMENT ACTIONS
Nothing in this Plan will restrict any federal government regulatory agency
from pursuing any regulatory or police enforcement action against the Debtor,
the Reorganized Debtor, their current or former officers, directors or
employees, and their respective agents, advisors, attorneys and representatives
acting in any capacity, other than any action or proceeding of any type to
recover monetary claims, damages or penalties against the Debtor for an act or
omission occurring prior to Confirmation.
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C. TERMINATION OF SUBORDINATION RIGHTS AND SETTLEMENT OF RELATED CLAIMS AND
CONTROVERSIES
1. The classification and manner of satisfying all Claims and Interests
under the Plan take into consideration all contractual, legal and equitable
subordination rights, whether arising under general principles of equitable
subordination, section 510(c) of the Bankruptcy Code or otherwise, that a Holder
of a Claim or Interest may have against other Claim or Interest Holders with
respect to any distribution made pursuant to the Plan. On the Confirmation Date,
all contractual, legal or equitable subordination rights that a Holder of a
Claim or Interest may have with respect to any distribution to be made pursuant
to the Plan (other than pursuant to the Metra Credit Agreement as to the Metra
Lenders) shall be discharged and terminated, and all actions related to the
enforcement of such subordination rights shall be permanently enjoined.
Accordingly, distributions pursuant to the Plan to Holders of Allowed Claims and
Allowed Interests shall not be subject to payment to a beneficiary of such
terminated subordination rights, or to levy, garnishment, attachment or other
legal process by any beneficiary of such terminated subordination rights.
2. Pursuant to Bankruptcy Rule 9019 and in consideration for the
distributions and other benefits provided under the Plan, the provisions of this
Section XI.C shall constitute a good faith compromise and settlement of all
claims or controversies relating to the termination of all contractual, legal
and equitable subordination rights that a Holder of a Claim or an Interest may
have with respect to any Allowed Claim or Allowed Interest, or any distribution
to be made on account of an Allowed Claim or Allowed Interest. The entry of the
Confirmation Order shall constitute the Bankruptcy Court's approval of the
compromise or settlement of all such claims or controversies and the Bankruptcy
Court's finding that such compromise or settlement is in the best interests of
the Debtor, Reorganized Debtor and its property and Claim and Interest Holders,
and is fair, equitable and reasonable.
D. LIMITATION OF LIABILITY IN CONNECTION WITH THE PLAN, DISCLOSURE STATEMENT
AND RELATED DOCUMENTS AND RELATED INDEMNITY
1. The Plan Participants, the Lender Steering Committee and the
Unofficial Equity Committee and their professionals shall neither have nor incur
any liability to any entity, including, specifically any Holder of a Claim or
Interest, for any act taken or omitted to be taken in connection with or related
to the formulation, preparation, dissemination, implementation, Confirmation or
consummation of the Plan, the Disclosure Statement, the Confirmation Order or
any contract, instrument, release or other agreement or document created or
entered into, or any other act taken or omitted to be taken in connection with
the Plan, the Disclosure Statement or the Confirmation Order, including
solicitation of acceptances of the Plan.
2. The Combined Company (or, if the Merger Agreement is terminated,
Reorganized MK) shall indemnify each Plan Participant, hold each Plan
Participant harmless from, and reimburse each Plan Participant for, any and all
losses, costs, expenses (including attorneys' fees and expenses), liabilities
and damages sustained by a Plan Participant arising from any liability described
in this Section XI.D.
ARTICLE XII.
RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the occurrence of
the Effective Date, the Bankruptcy Court shall retain such jurisdiction over the
Chapter 11 Case after the Effective Date to the fullest extent permitted by
applicable law, including, without limitation, jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any Claim or
Interest, including the resolution of any request for payment of any
Administrative Claim, the resolution of any objections to the allowance or
priority of Claims or Interests and the resolution of any dispute as to the
treatment necessary to Reinstate a Claim pursuant to the Plan;
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2. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
3. Resolve any matters related to the assumption or rejection of
any executory contract or unexpired lease to which the Debtor is a party or
with respect to which the Debtor may be liable, and to hear, determine and,
if necessary, liquidate any Claims arising therefrom;
4. Ensure that distributions to Holders of Allowed Claims or
Allowed Interests are accomplished pursuant to the provisions of the Plan;
5. Decide or resolve any motions, adversary proceedings, contested
or litigated matters and any other matters and grant or deny any
applications involving the Debtor or Reorganized Debtor that may be pending
on the Effective Date;
6. Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures and other agreements or documents created
in connection with the Plan, the Disclosure Statement or the Confirmation
Order, except as provided in Section XII.7 below;
7. Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or enforcement of
the Plan or the Confirmation Order, including the release and injunction
provisions set forth in and contemplated by the Plan and the Confirmation
Order, or any entity's rights arising under or obligations incurred in
connection with the Plan or the Confirmation Order; provided, however, that
such retention of jurisdiction shall not apply to any cases, controversies,
suits or disputes that may arise in connection with the Combined Company's
(or, if the Merger Agreement is terminated, Reorganized MK's) or any other
entity's rights or obligations as: (a) the issuer or a holder,
respectively, of the Combined Company Securities (or, if the Merger
Agreement is terminated, the New MK Securities); (b) a party to any
agreements governing, instruments evidencing or documents relating to the
Combined Company Securities (or, if the Merger Agreement is terminated, the
New MK Securities); (c) if the Merger Agreement is terminated, a party to
any agreements or guaranties in connection with the New Credit Facility or
(d) a party to any agreements governing or documents relating to the New
Lease;
8. Subject to any restrictions on modifications provided in the
Merger Agreement or any contract, instrument, release, indenture or other
agreement or document created in connection with the Plan, modify the Plan
before or after the Effective Date pursuant to section 1127 of the
Bankruptcy Code or modify the Disclosure Statement, the Confirmation Order
or any contract, instrument, release, indenture or other agreement or
document created in connection with the Plan, the Disclosure Statement or
the Confirmation Order; or remedy any defect or omission or reconcile any
inconsistency in any Bankruptcy Court order, the Plan, the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection with the
Plan, the Disclosure Statement or the Confirmation Order, in such manner as
may be necessary or appropriate to consummate the Plan, to the extent
authorized by the Bankruptcy Code;
9. Issue injunctions, enter and implement other orders or take such
other actions as may be necessary or appropriate to restrain interference
by any entity with consummation, implementation or enforcement of the Plan
or the Confirmation Order;
10. Enter and implement such orders as are necessary or appropriate
if the Confirmation Order is for any reason modified, stayed, reversed,
revoked or vacated;
11. Determine any other matters that may arise in connection with or
relating to the Plan, the Disclosure Statement, the Confirmation Order or
any contract, instrument, release, indenture or other
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<PAGE>
agreement or document created in connection with the Plan, the Disclosure
Statement or the Confirmation Order, except as otherwise provided in the
Plan; and
12. Enter an order concluding the Chapter 11 Case.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
A. PAYMENT OF STATUTORY FEES
All fees payable pursuant to section 1930 of title 28 of the United States
Code, as determined by the Bankruptcy Court at the Plan Confirmation hearing
pursuant to section 1128 of the Bankruptcy Code, shall be paid on or before the
Effective Date.
B. MODIFICATION OF THE PLAN
Subject to the Merger Agreement, the restrictions on modifications set
forth in section 1127 of the Bankruptcy Code and any applicable notice
requirements, the Debtor reserves the right to alter, amend or modify the Plan
before its substantial consummation.
C. REVOCATION OF THE PLAN
Subject to the Merger Agreement, the Debtor reserves the right to revoke or
withdraw the Plan prior to the Confirmation Date. If the Debtor revokes or
withdraws the Plan, or if Confirmation does not occur, then the Plan shall be
null and void in all respects, and nothing contained in the Plan shall: (1)
constitute a waiver or release of any Claims by or against, or any Interests in,
the Debtor; or (2) prejudice in any manner the rights of the Debtor.
D. SEVERABILITY OF PLAN PROVISIONS
If, prior to Confirmation, any term or provision of the Plan is held by the
Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court, at
the request of the Debtor, shall have the power to alter and interpret such term
or provision to make it valid or enforceable to the maximum extent practicable,
consistent with the original purpose of the term or provision held to be
invalid, void or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order shall constitute a judicial determination and shall provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
E. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to in
the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
F. EXHIBITS
Because certain of the Exhibits referred to in the Plan are extremely
voluminous, these Exhibits are not being served with copies of the Plan and the
Disclosure Statement. The table of contents for the Plan indicates which
Exhibits are attached to the Plan as distributed and which are available only
upon request from the Debtor.
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G. SERVICE OF DOCUMENTS ON THE DEBTOR OR REORGANIZED DEBTOR
Any pleading, notice or other document required by the Plan or Confirmation
Order to be served on or delivered to the Debtor or the Reorganized Debtor shall
be sent by first class U.S. mail, postage prepaid, to:
MORRISON KNUDSEN CORPORATION
Morrison Knudsen Plaza
720 Park Boulevard
Boise, Idaho 83712
Attention: Chief Legal Officer
with copies to:
JONES, DAY, REAVIS & POGUE
77 West Wacker
Chicago, Illinois 60601-1692
Attention: David S. Kurtz, Esq.
and (unless the Merger Agreement is terminated):
Latham & Watkins
First Interstate World Center
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attention: Robert Klyman
H. REGULATORY OR ENFORCEMENT ACTION
Nothing in this Plan will restrict any federal government regulatory agency
from pursuing any regulatory or police enforcement action against the Debtor,
the Reorganized Debtor, their current or former officers, directors or
employees, and their respective agents, advisors, attorneys and representatives
acting in any capacity, other than any action or proceeding of any type to
recover monetary claims, damages or penalties against the Debtor for an act or
omission occurring prior to Confirmation.
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Wilmington, Delaware
July 25, 1996
Respectfully submitted,
MORRISON KNUDSEN CORPORATION,
a Delaware corporation
By: /s/ Denis M. Slavich
-------------------------
Denis M. Slavich
Executive Vice President and
Chief Financial Officer
COUNSEL:
David S. Kurtz
Jeffrey W. Linstrom
Kathleen M. Boege
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive
Chicago, Illinois 60601-1692
(312) 782-3939
Robert Dean Avery
JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013-1025
(213) 489-3939
ATTORNEYS FOR
MORRISON KNUDSEN CORPORATION
Laura Davis Jones
YOUNG, CONAWAY, STARGATT & TAYLOR
Rodney Square North, Eleventh Floor
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
CO-COUNSEL FOR
MORRISON KNUDSEN CORPORATION
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<PAGE>
SCHEDULES AND EXHIBITS
THE REGISTRANT AGREES TO PROVIDE TO THE
SECURITIES AND EXCHANGE COMMISSION, UPON REQUEST,
COPIES OF THE SCHEDULES AND EXHIBITS HERETO.
<PAGE>
EXHIBIT 4.1
DEBTOR IN POSSESSION
CREDIT AGREEMENT
dated as of
June 28, 1996
among
Morrison Knudsen Corporation,
a Delaware corporation,
Debtor and Debtor in Possession
as Borrower
The Banks and Other Financial Institutions Listed Herein
as Lenders
Mellon Bank, N.A.,
as Agent
and
Bank of America National Trust and Savings Association,
Bank of America Illinois and Key Bank of Idaho
as Deposit Banks
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS............................. 3
1.1. Definitions.................................................... 3
1.2. Accounting Terms and Determinations............................ 19
1.3. General Construction........................................... 19
ARTICLE II
AMOUNT AND TERMS OF THE LOANS............................ 19
2.1. The Loans...................................................... 19
2.2. Notice of Borrowing............................................ 20
2.3. Notice to Lenders; Funding of Loans............................ 21
2.4. Notes.......................................................... 21
2.5. Maturity of Loans.............................................. 22
2.6. Interest Rates................................................. 22
2.7. Fees........................................................... 22
(a) Closing Fee............................................... 22
(b) Agent's Fee............................................... 22
(c) Bank of America's Fee..................................... 23
(d) Collateral Agent's Fee.................................... 23
(e) Unused Commitment Fee..................................... 23
(f) Fees Cumulative........................................... 23
2.8. Optional Prepayments........................................... 23
2.9. Mandatory Prepayment........................................... 24
2.10. Application of Payments........................................ 25
2.11. General Provisions as to Payments.............................. 25
2.12. Computation of Interest and Fees............................... 26
2.13. Cash Management System......................................... 26
2.14. Superpriority Nature of Obligations............................ 26
2.15. Subordination of Obligations................................... 26
(a) Professionals Employed By Borrower........................ 26
(b) Official Committees....................................... 27
(c) United States Trustee Fees................................ 27
2.16. Use of Collateral and Cash Collateral; Adequate
Protection..................................................... 28
ARTICLE III
CHANGE IN CIRCUMSTANCES.......................... 28
3.1. Increased Cost................................................. 28
3.2. Taxes.......................................................... 29
ARTICLE IV
SECURITY................................. 30
4.1. The Borrower's Obligations..................................... 30
4.2. Priority of Security Interests................................. 31
4.3. Automatic Perfection........................................... 31
4.4. Further Assurances............................................. 31
</TABLE>
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ARTICLE V
CONDITIONS PRECEDENT..................... 32
5.1. Conditions Precedent to Effectiveness of
Agreement...................................................... 32
(a) Loan Documents............................................ 32
(b) The Notes................................................. 32
(c) Legal Opinion of the Borrower's Counsel................... 32
(d) Disbursement Authorization................................ 32
(e) Payment of Fees and Expenses.............................. 32
(f) Bankruptcy Court Approval................................. 32
(g) Repayment of the Prepetition Credit
Agreement................................................. 32
(h) Guarantor Releases........................................ 33
(i) Other Matters............................................. 33
5.2. Conditions Precedent to All Loans.............................. 33
(a) Borrowings................................................ 33
(b) Representations and Warranties............................ 33
(c) No Default or Event of Default............................ 33
(d) No Violations............................................. 33
(e) Certificate of Chief Financial Officer
Regarding the Budget...................................... 33
(f) Officer's Certificate..................................... 34
(g) Deposit Accounts.......................................... 34
(h) Compliance with Bankruptcy Court Orders;
Bankruptcy Court Approval................................. 34
ARTICLE VI
REPRESENTATIONS AND WARRANTIES........................ 35
6.1. Organization and Qualification................................. 35
6.2. Corporate Power and Authorization; Binding
Effect......................................................... 35
6.3. No Conflict.................................................... 35
6.4. No Consents.................................................... 36
6.5. Absence of Litigation.......................................... 36
6.6. No Default under the Loan Documents............................ 36
6.7. Indebtedness................................................... 36
6.8. Material Contracts............................................. 37
6.9. Correctness of Collateral Schedules............................ 37
6.10. Correctness of Financial Information........................... 37
6.11. Security Documents............................................. 38
6.12. Taxes.......................................................... 38
6.13. No Burdensome Restrictions..................................... 38
6.14. Compliance with Laws........................................... 38
6.15. Compliance with ERISA.......................................... 39
6.16. Governmental Authorizations; Permits, Licenses
and Accreditations; Other Rights............................... 39
6.17. Environmental Matters.......................................... 40
6.18. Consolidated Subsidiaries; Subsidiaries........................ 40
6.19. Margin Securities.............................................. 40
6.20. Investment Company Act......................................... 41
</TABLE>
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<TABLE>
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6.21. Business Locations and Trade Names............................. 41
6.22. Title to Real Property and Other Assets........................ 41
6.23. Labor Matters.................................................. 41
6.24. Employment and Investment Agreements........................... 41
6.25. No Misstatements............................................... 42
6.26. Cash Management System......................................... 42
ARTICLE VII
AFFIRMATIVE COVENANTS......................... 42
7.1. Financial Statements; Additional Reporting
Requirements................................................... 42
7.2. Provision of Notices........................................... 45
(a) Default................................................... 45
(b) Other Default or Litigation............................... 45
(c) Reportable Events......................................... 45
(d) Environmental Matters..................................... 45
(e) Material Contracts; Material Obligations.................. 46
(f) Casualty Losses........................................... 46
(g) Notices re: Bonding Issues................................ 46
(h) Notices of Violation...................................... 46
(i) Changes to Schedules...................................... 46
(j) Notices re: Merger Agreement............................. 46
(k) Notices re: MK Rail Documents............................ 46
7.3. Filing of Returns; Payment of Taxes............................ 46
7.4. Maintenance of Existence....................................... 47
7.5. Compliance with Laws........................................... 47
7.6. Maintenance of Properties...................................... 47
7.7. Insurance...................................................... 47
7.8. Books and Records.............................................. 48
7.9. Compliance With Terms of All Real Property
Related Agreements............................................. 48
7.10. Hazardous Materials............................................ 48
7.11. Intellectual Property Assignments.............................. 49
7.12. Further Assurances............................................. 49
7.13. Inspection of Property, Books and Records...................... 49
7.14. Use of Proceeds................................................ 50
7.15. Cash Management System......................................... 50
7.16. Statement of Financial Affairs................................. 50
ARTICLE VIII
NEGATIVE COVENANTS........................ 50
8.1. Indebtedness................................................... 50
8.2. Negative Pledge................................................ 51
8.3. Prohibition of Fundamental Changes............................. 52
8.4. Prohibition on Sale of Assets.................................. 52
8.5. Investments.................................................... 52
8.6. Compliance with ERISA.......................................... 53
8.7. Restricted Payments............................................ 53
8.8. Transactions With Affiliates................................... 54
8.9. Sale/Lease-Backs............................................... 54
</TABLE>
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8.10. Operating Leases............................................... 54
8.11. Capital Expenditures........................................... 54
8.12. Amendment of Charter or Bylaws................................. 54
8.13. No Consent to Subordination.................................... 55
8.14. Intercompany Obligations....................................... 55
8.15. Prepetition Indebtedness....................................... 55
ARTICLE IX
DEFAULTS................................. 55
9.1. Events of Default.............................................. 55
9.2. Remedies....................................................... 59
9.3. Waivers by Borrower............................................ 59
9.4. Relief from the Automatic Stay................................. 59
9.5. Other Remedies................................................. 60
ARTICLE X
THE AGENT................................ 61
10.1. Appointment.................................................... 61
10.2. The Agent and Affiliates....................................... 61
10.3. Retention of Documents and Information to the
Lenders........................................................ 61
10.4. Delegation of Duties........................................... 61
10.5. Limitation of Liability........................................ 61
10.6. Reliance by the Agent.......................................... 62
10.7. Notice of Default.............................................. 63
10.8. Non-Reliance on the Agent and the Other
Lenders........................................................ 63
10.9. Regulation U................................................... 64
10.10. Indemnification................................................ 64
10.11. The Agent in its Individual Capacity........................... 64
10.12. The Successor Agent............................................ 64
10.13. Applicability of Section to The Borrower....................... 65
ARTICLE XI
MISCELLANEOUS.............................. 65
11.1. Notices........................................................ 65
11.2. Entire Agreement............................................... 66
11.3. No Waivers..................................................... 66
11.4. Expenses; Indemnification...................................... 66
11.5. Set-Off; Sharing of Set-Offs................................... 68
11.6. Amendments and Waivers......................................... 69
11.7. Effect of Waivers; Modification of Documents................... 70
11.8. Successors and Assigns......................................... 71
11.9. Headings and Captions.......................................... 72
11.10. Interpretation................................................. 72
11.11. Inconsistencies With Other Documents........................... 73
11.12. Severability................................................... 73
11.13. GOVERNING LAW.................................................. 73
11.14. CONSENT TO JURISDICTION........................................ 73
11.15. WAIVER OF JURY TRIAL........................................... 73
</TABLE>
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11.16. Cumulative Remedies............................... 74
11.17. Survival of Representations and Warranties........ 74
11.18. Relationship of the Parties....................... 74
11.19. Counterparts 74
</TABLE>
v
<PAGE>
EXHIBITS
EXHIBIT A FORM OF PROMISSORY NOTE
EXHIBIT B FORM OF NOTICE OF BORROWING
EXHIBIT C BUDGET
EXHIBIT D FORM OF FINAL ORDER
EXHIBIT E FORM OF INTERIM ORDER
EXHIBIT F FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT G FORM OF GUARANTOR RELEASE
SCHEDULES
SCHEDULE A SCHEDULE OF LENDERS
SCHEDULE B SCHEDULE OF THE EXISTING LENDERS AND EXISTING AGREEMENTS
SCHEDULE C SCHEDULE OF DOCUMENTS
SCHEDULE D SCHEDULE FOR NOTICES
SCHEDULE E SCHEDULE OF GUARANTORS
SCHEDULE F SCHEDULE OF SUBSIDIARIES
SCHEDULE G CASH MANAGEMENT SYSTEM
SCHEDULE H SCHEDULE OF REAL PROPERTY COLLATERAL
SCHEDULE I SCHEDULE OF SENIOR PERMITTED LIENS
SCHEDULE 6.5 SCHEDULE OF PENDING AND THREATENED LITIGATION
SCHEDULE 6.7A SCHEDULE OF INDEBTEDNESS
SCHEDULE 6.7B SCHEDULE OF CONTINGENT OBLIGATIONS
SCHEDULE 6.8 SCHEDULE OF MATERIAL CONTRACTS
SCHEDULE 6.8A SCHEDULE OF MATERIAL DEFAULTS
SCHEDULE 6.15 SCHEDULE OF MULTI-EMPLOYER PLAN WITHDRAWAL LIABILITY
SCHEDULE 6.21A SCHEDULE OF BUSINESS LOCATIONS
SCHEDULE 6.21B SCHEDULE OF TRADE NAMES
SCHEDULE 6.22 SCHEDULE OF CONTRACTS OR OPTIONS FOR SALE OR LEASE OF REAL
PROPERTY COLLATERAL
SCHEDULE 6.24 SCHEDULE OF EMPLOYMENT AND INVESTMENT AGREEMENTS
SCHEDULE 7.1(k) BACKLOG CERTIFICATE
SCHEDULE 7.2(c)(A) SCHEDULE OF REPORTABLE EVENTS
SCHEDULE 7.2(c)(B) SCHEDULE OF PLAN TERMINATIONS
SCHEDULE 8.1 SCHEDULE OF EXISTING INDEBTEDNESS
SCHEDULE 8.2 SCHEDULE OF PERMITTED LIENS
SCHEDULE 8.5 SCHEDULE OF PERMITTED INVESTMENTS
SCHEDULE 8.10 SCHEDULE OF OPERATING LEASES
vi
<PAGE>
DEBTOR IN POSSESSION
CREDIT AGREEMENT
----------------
THIS DEBTOR IN POSSESSION CREDIT AGREEMENT (this "Agreement"), dated
as of June 28, 1996, is entered into among MORRISON KNUDSEN CORPORATION ("MKD"),
a Delaware corporation (the "Borrower"), the banks and other financial
institutions named on SCHEDULE A hereto (the "Schedule of Lenders") and whose
signatures appear on the signature pages hereto (each, together with its
successors and assigns, a "Lender," and collectively, the "Lenders"), and Mellon
Bank, N.A., as agent for the Lenders (in such capacity, the "Agent"), and Bank
of America National Trust & Savings Association ("Bank of America"), Bank of
America Illinois and Key Bank of Idaho as deposit banks (each, a "Deposit Bank"
and collectively, the "Deposit Banks").
The parties hereto agree as follows:
RECITALS
--------
A. MKD and Morrison Knudsen Corporation ("MKO"), an Ohio corporation are
currently indebted to certain Lenders (the "Prepetition Lenders") in the
approximate amount of $25,000,000 (the "Prepetition Loans") pursuant to that
certain Amended and Restated Credit Agreement dated as of July 31, 1995, as
amended, among MKO, MKD, the Prepetition Lenders, Mellon Bank, N.A. as agent for
the Prepetition Lenders, and Bank of America, Bank of America Illinois and Key
Bank of Idaho as Deposit Banks (the "Prepetition Credit Agreement"). The
Prepetition Loans are secured by substantially all of the assets of MKD and MKO
and guaranteed by substantially all of the Subsidiaries (as hereinafter defined)
of MKD and MKO, which guaranties are secured by substantially all of the assets
of such Subsidiaries (collectively, the "Prepetition Credit Agreement
Collateral").
B. MKD and MKO have obligations (funded, contingent or otherwise) of
approximately $361,000,000 (the "Existing Indebtedness") to certain lenders or
their predecessors in interest (the "Existing Lenders") pursuant to the terms of
the respective loan agreements and other financing arrangements set forth on the
Schedule of the Existing Lenders and Existing Agreements attached hereto as
SCHEDULE B (the "Existing Agreements") each as amended by that certain Amended
and Restated Override Agreement dated as of October 10, 1995, as amended (the
"Override Agreement"), among MKO, MKD, the Existing Lenders, Mellon Bank, N.A.
as Agent and Bank of America as Metra Agent. The Existing Indebtedness is
secured by substantially all of the assets of MKD and MKO and guaranteed by
substantially all of the Subsidiaries of MKD and MKO which guarantees are
secured by substantially all of the assets of such Subsidiaries.
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C. MKD and MKO are currently indebted to Fidelity and Deposit Company of
Maryland and Colonial American Casualty and Surety Company and certain other
sureties for payment and/or performance bonds and in connection with certain
other arrangements relating to American Passenger Rail Car Company, L.L.C.
("Amerail").
D. On June 25, 1996, the Borrower filed a voluntary petition for relief
under the Bankruptcy Code (as defined below) with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). The Borrower is
operating its business and managing its affairs as a debtor and debtor in
possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
E. As of the commencement of the Case (as defined below), MKD and MKO
were in default under the Prepetition Credit Agreement.
F. The Borrower has requested the Lenders to provide senior, secured,
superpriority postpetition loans of up to $60,000,000 to be used for working
capital purposes during the pendency of the Case and to repay the Prepetition
Credit Agreement. Funds loaned hereunder will be used by the Borrower and each
of the Borrower's Subsidiaries for working capital purposes in different amounts
as set forth in the Budget (as hereinafter defined) and as distributed to them
pursuant to the Cash Management System (as hereinafter defined).
G. A portion of the loans under this Agreement will be used to repay all
obligations under the Prepetition Credit Agreement. Upon the repayment in full
of the Prepetition Credit Agreement and the approval of the Bankruptcy Court,
the security interests to be granted to the Lenders in connection with this
Agreement shall have the same priority as the security interests granted to the
Prepetition Lenders in connection with the Prepetition Credit Agreement
Collateral as set forth in the Intercreditor Agreement (as hereinafter defined)
and shall be senior to the security interests securing the Existing Indebtedness
and have the same priority relative to certain security interests granted to
Amerail and the Bonding Company as set forth in the Intercreditor Agreement (as
hereinafter defined).
H. A portion of the Loans will be used to pay accrued interest and fees,
and reasonable expenses under the Override Agreement.
I. A portion of the Loans will be used to pay the transaction expense of
Washington (as hereinafter defined) under the Merger Agreement (as hereinafter
defined).
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<PAGE>
J. The Borrower is unable to obtain secured credit, allowable as an
administrative expense, from the Lenders or from any other sources whatsoever on
terms that are materially better than the terms offered by the Lenders.
K. The Lenders are willing to extend such postpetition loans on the terms
and conditions set forth herein and in the documents executed in connection
herewith, including the condition that the Borrower secure its obligations under
this Agreement with substantially all of its assets, senior to and subject to no
other liens or security interests, other than Senior Permitted Liens (as
hereinafter defined).
In consideration of the foregoing, MKD, the Agent, the Deposit Banks and
each of the Lenders hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1. Definitions. The following terms, as used herein, have the following
-----------
meanings:
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. As used herein, the term "control" means possession, directly or
indirectly, or the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means Mellon Bank, N.A., in its capacity as agent for the
Lenders hereunder, and its successors in such capacity.
"Agents" means, collectively, the Agent and the Collateral Agent.
"Agent's Fee" has the meaning assigned to it in SECTION 2.7(b).
"All Lenders" means one hundred percent (100%) of the Lenders listed
on SCHEDULE A without regard to their Pro Rata Share.
"Amerail" has the meaning assigned to it in RECITAL C.
"Asset Disposition Program" means a program designed by the Borrower
setting forth a detailed list of actions to be taken by specified dates with
respect to the proposed disposition
3
<PAGE>
of assets, including dates when materials are to be prepared and when
solicitations are to be commenced relating to the Borrower or the following
Subsidiaries: MKO, MK Rail Corporation; AmeriBank; Morrison Knudsen
Investments, Inc. For purposes of this Agreement, any disposition of MKO's
interest under any leases or subleases pertaining to real property in Fayette
County, West Virginia, shall be considered a disposition under the Asset
Disposition Program.
"Assignee" has the meaning assigned to it in SECTION 11.8(c).
"Bank of America" means Bank of America National Trust & Savings
Association.
"Bank of America Fee" has the meaning assigned to it in Section
2.7(c).
"Bankruptcy Code" means the provisions of Title 11 of the United Sates
Code, 11 U.S.C. (S)(S) 101, et seq., as the same may be amended, modified or
-- ---
supplemented from time to time.
"Bankruptcy Court" has the meaning assigned to it in RECITAL D, and
includes any federal district court or bankruptcy court to which the Case is
transferred.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a Multi-
employer Plan and which is maintained or otherwise contributed to by any member
of the ERISA Group.
"Bonding Company" means, collectively, Fidelity and Deposit Company of
Maryland and Colonial American Casualty and Surety Company or any such other
Person that provides the Borrower or its Subsidiaries with payment or
performance bonds.
"Borrower" means MKD, as debtor and debtor in possession.
"Borrower's Professionals" has the meaning assigned to it in SECTION
2.15(a).
"Borrowing" means a borrowing consisting of Loans made on the same
day.
"Borrowing Period" has the meaning assigned to it in SECTION 2.1.
"Budget" means the projections of the Borrower for the period from the
Closing Date through the Termination Date attached hereto as EXHIBIT C or such
other budget submitted by
4
<PAGE>
the Borrower and accepted by the Majority Lenders as an acceptable substitute
Budget.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City, New York, Los Angeles, California or
Pittsburgh, Pennsylvania are authorized by law to close.
"Capital Expenditures" means, as to any Person, any expenditures for
the acquisition or construction of fixed assets which would be capitalized on a
balance sheet of such Person prepared in accordance with Generally Accepted
Accounting Principles.
"Capital Lease" means, as to any Person, any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Generally Accepted Accounting Principles.
"Capital Lease Obligation" means, as to any Person, collectively, the
capitalized amount of the obligations of such Person and its Subsidiaries under
all Capital Leases.
"Case" means the chapter 11 case of MKD, Case number 96-1006, pending
before the Bankruptcy Court, whether or not such case is hereafter jointly
administered or substantively consolidated with any other case subsequently
filed by one or more of MKD's Subsidiaries.
"Cash" means money, currency or a credit balance in a Deposit Account.
"Cash Collateral" means "cash collateral" as that term is defined in
Section 363(a) of the Bankruptcy Code.
"Cash Equivalent" means, at any time, (a) United States of America
government securities having a maturity not exceeding one year from the date
acquired, (b) commercial paper rated at least A-l+ by Standard & Poor's Ratings
Group or P-1 by Moody's Investors Service, Inc., having a maturity not exceeding
one year from the date acquired, (c) certificates of deposit or time deposits of
commercial banks with capital and undivided surplus of at least $300,000,000
issuing commercial paper rated as described in the preceding clause (b) and
organized and existing under the laws of the United States or any State thereof
or the District of Columbia, having a maturity not exceeding one year from the
date acquired, and (d) time deposits (of one year or less) and demand deposits
with any FDIC insured bank, not exceeding the maximum amount insured thereby.
"Cash Management System" means the Cash Management System set forth on
SCHEDULE G.
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"Closing Date" means June 28, 1996, or such other later date on which
the Agent shall have determined that all conditions precedent set forth in
ARTICLE V have been satisfied in full or waived.
"Collateral" means collectively, all real and personal property,
fixtures and interests in such property and proceeds thereof presently owned or
hereafter created or acquired by the Borrower or the Guarantors, including the
Real Property Collateral, in which a security interest or Mortgage is granted in
favor of the Collateral Agent for the benefit of the Lenders, Agents and Deposit
Banks to secure the Obligations.
"Collateral Account" shall have the meaning assigned to it in SCHEDULE
G.
"Collateral Agent" means the entity or person serving as the
"Collateral Agent" under and as defined in the Collateral Agent Agreement, in
its capacity as agent or trustee for the Lenders, the Agent and the Deposit
Banks, or any successor agent or trustee pursuant to the terms thereof.
"Collateral Agent Agreement" means the Collateral Agent Agreement
dated as of even date herewith, among the Lenders, the Agent, the Deposit Banks
and the Collateral Agent.
"Commitment" means, with respect to each Lender, the amount set forth
opposite the name of such Lender on the Schedule of Lenders as such Lender's
commitment.
"Commonly Controlled Entity" means a Person, which is under common
control with the Borrower within the meaning of Section 414(b) or Section 414(c)
of the Internal Revenue Code.
"Concentration Account" has the meaning assigned to it in SCHEDULE G.
"Consolidated," when used with respect to any of the terms defined
herein, refers to such terms as reflected in a consolidation of the accounts or
other items of the Borrower and of the accounts or other items of the Borrower's
Subsidiaries, if any, in conformity with Generally Accepted Accounting
Principles.
"Consolidated Subsidiary" means at any date each of the Guarantors and
any other Subsidiary or other entity (i) having obligations in excess of
$500,000, and (ii) the accounts of which would be Consolidated in accordance
with Generally Accepted Accounting Principles with those of the Borrower in its
Consolidated financial statements if such statements were prepared as of such
date; provided, that any Consolidated Subsidiary which ceases to be a
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Consolidated Subsidiary solely because it is classified as a discontinued
6
<PAGE>
operation shall be deemed to be a Consolidated Subsidiary so long as it remains
a Subsidiary; and provided, further, that MK Rail shall not be deemed to be a
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Consolidated Subsidiary.
"Contingent Obligations" means, as to any Person, collectively, all
Indebtedness, obligations or other liabilities of such Person guarantying or in
effect guarantying the payment or performance of any Indebtedness, obligation or
other liability, whether or not contingent (collectively, the "primary
obligations"), of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including any Indebtedness, obligation or other
liability of such Person (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, (d) any contingent reimbursement
obligation of such Person in respect of any letter of credit or any other
financing accommodations, or (e) otherwise to assure or hold harmless the owner
of such primary obligation against loss with respect thereto.
"Contractual Obligation" means, as to any Person, collectively, any
Indebtedness, obligation or other liability of such Person (whether for the
payment of money or otherwise), now existing or hereafter arising, whether due
or not due, absolute or contingent, liquidated or unliquidated, direct or
indirect, express or implied, individually or jointly with others, pursuant to
the provisions of any security issued by such Person or any document, instrument
or agreement to which such Person is a party or by which such Person or any of
its property is or may be bound or affected.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"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, provided, that to the extent the
--------
Default Rate exceeds the Maximum Lawful Rate, the Default Rate shall be a rate
equal to the Maximum Lawful Rate.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan
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association, credit union or like organization, other than an account evidenced
by a negotiable certificate of deposit.
"Deposit Bank" has the meaning assigned to it in SCHEDULE G and means
each of Bank of America, Bank of America Illinois and Key Bank of Idaho in such
capacity, and any of their successors in such capacity.
"Distribution Agreement" means that certain Distribution Agreement
dated as of October 10, 1995 by and among Fidelity and Deposit Company of
Maryland, Mellon Bank, N.A. as agent and collateral agent for itself and the
Existing Lenders, the Borrowers, and each of the Subsidiaries that are
signatories thereto."
"Environmental Laws" means all Federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any applicable judicial
or administrative interpretation thereof relating to the disposal of waste and
the regulation and protection of human health, safety, the environment and
natural resources (including ambient air, surface water, groundwater, wetlands,
land surface or subsurface strata, wildlife, aquatic species and vegetation).
Environmental Laws include the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S)(S) 9601 et
--
seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49
- ---
U.S.C. (S)(S) 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
-- ---
Act, as amended (7 U.S.C. (S)(S) 136 et seq.); the Resource Conservation and
-- ---
Recovery Act, as amended (42 U.S.C. (S)(S) 6901 et seq.) ("RCRA"); the Toxic
-- ---
Substance Control Act, as amended (15 U.S.C. (S)(S) 2601 et seq.); the Clean Air
-- ---
Act, as amended (42 U.S.C. (S)(S) 7400 et seq.); the Federal Water Pollution
-- ---
Control Act, as amended (33 U.S.C. (S)(S) 1251 et seq.); the Occupational Safety
-- ---
and Health Act, as amended (29 U.S.C. (S)(S) 651 et seq.) ("OSHA"); and the Safe
-- ---
Drinking Water Act, as amended (42 U.S.C. (S)(S) 300(f) et seq.); and any and
-- ---
all regulations promulgated thereunder, and all analogous state and local
counterparts or equivalents and any transfer of ownership notification or
approval statutes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower and its Subsidiaries and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
of its Subsidiaries, are treated as a single employer under Section 414 of the
Internal Revenue Code.
8
<PAGE>
"Event of Default" has the meaning set forth in SECTION 9.1.
"Existing Agreements" has the meaning assigned to it in RECITAL B;
provided that, unless the context otherwise requires, all references to Existing
- --------
Agreements shall be references to the Existing Agreements as modified by the
Override Agreement.
"Existing Indebtedness" has the meaning assigned to it in RECITAL B.
"Existing Lenders" has the meaning assigned to it in RECITAL B.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided, that (i) if such day is not a Business Day, the
--------
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to Mellon
Bank, N.A. on such day on such transactions as determined by the Agent.
"Final Order" means the "Final Order Approving Debtor in Possession
Financing and Use of Cash Collateral," substantially in the form attached hereto
as EXHIBIT D.
"Financing Shortfall" means the amounts, if any, set forth on the
Budget as "Financing Shortfall."
"Financing Statements" means any Uniform Commercial Code financing
statement on form UCC-1 or a comparable form executed pursuant to the provisions
of this Agreement or any of the other Loan Documents or any such similar
statement to be filed in Canada.
"Foreign Tax Credit Refunds" shall have the meaning assigned to that
term in SECTION 2.9(c).
"Form 10-K" means the annual report on Form 10-K as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
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<PAGE>
"Form 10-Q means the report on Form 10-Q as filed with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
"Generally Accepted Accounting Principles" means accounting principles
that are generally accepted and consistently applied and maintained throughout
the period indicated and that are consistent with the prior financial practices
of the Borrower, except for changes mandated by the Financial Accounting
Standards Board or any similar accounting authority of comparable standing.
"Governmental Authority" means any nation, province, state or other
political subdivision thereof, any government or any natural person or entity
exercising executive, legislative, regulatory or administrative functions of or
pertaining to government.
"Guarantor" means each of the indirectly or directly wholly-owned
Subsidiaries of the Borrower listed on SCHEDULE E and "Guarantors" means all of
the foregoing.
"Guaranty" means, collectively, the Guaranty Agreements dated as of
even date herewith, made by a Guarantor or Guarantors in favor of the Agent, for
the benefit of the Lenders, and to the Deposit Banks, guarantying the
Obligations.
"Guaranty Security Agreement" means a Pledge and Security Agreement
(Guaranty) dated as of even date herewith, among the Guarantors who are
signatories thereto, and the Collateral Agent securing the Obligations under
Guaranties.
"Hazardous Materials" means (i) any substance, material or waste,
which is either (a) defined as, (b) included in the definition, listing or
identification of, or (c) otherwise regulated as, a "solid waste," "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous waste"
or "restricted hazardous waste" or other similar term or phrase under any
Environmental Laws, or (ii) petroleum or any fraction or by-product thereof,
asbestos, polychlorinated biphenyls, or radioactive substances.
"Indebtedness" of any Person means without duplication, any obligation
of such Person for borrowed money, including (a) any obligation of such Person
evidenced by bonds, debentures, notes or other similar debt instruments, (b) any
obligation of such Person for the deferred purchase price of any property or
services, except trade accounts payable of such Person with a maturity of not
greater than 90 days incurred in the ordinary course of such Person's business,
(c) any obligation of such Person as lessee under a Capital Lease, (d)
Contingent Obligations, (e) any reimbursement obligation in respect of any
10
<PAGE>
letter of credit or any other financing accommodations, and (f) any obligation
for borrowed money which is non-recourse to such Person but which is secured by
a Lien on any asset of such Person.
"Intercreditor Agreements" means (i) that certain Intercreditor and
Subordination Agreement dated as of October 10, 1995 among Fidelity and Deposit
Company of Maryland, Mellon Bank, N.A. as agent and collateral agent for itself
and the Lenders, Mellon Bank, N.A. as agent and collateral agent for itself and
the Existing Lenders, and Amerail, (ii) that certain Intercreditor and
Subordination Agreement dated as of even date herewith among Fidelity and
Deposit Company of Maryland, Mellon Bank, N.A. as Agent and Collateral Agent to
itself, the Lenders, and the Deposit Banks and Mellon Bank, N.A. as Agent and
Collateral Agent for itself and the Existing Lenders and Amerail, and (iii) the
Distribution Agreement.
"Interim Order" means the "Interim Order Approving Debtor in
Possession Financing and Use of Cash Collateral," substantially in the form
attached hereto as EXHIBIT E.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investments" has the meaning assigned to it in SECTION 8.5.
"Lender" and "Lenders" have the meanings assigned to them in the
preamble hereto, and shall include the Agent in its individual capacity.
"Lien" means, as to any asset, (a) any lien, charge, claim, mortgage,
security interest, pledge or other encumbrance of any kind with respect to such
asset, (b) any interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset, (c) any reservation, exception, encroachment, easement, right-of-way,
covenant, condition, restriction, lease or other title exception affecting such
asset, or (d) any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest).
"Loan Documents" means this Agreement, the Notes, the Security
Documents, each Guaranty, the Collateral Agent Agreement, and any other of those
documents listed on the
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Schedule of Documents and therein specified to be executed and delivered, or
caused to be executed and delivered, by the Borrower or the Guarantors to the
Agents, the Lenders or the Deposit Banks in connection with this Agreement.
"Loan" and "Loans" have the meaning assigned to them in SECTION 2.1.
"Majority Lenders" means the Lenders holding at least sixty-six and
two-thirds percent (66 2/3%) of the Pro Rata Shares.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of the
Borrower, any Guarantor or any of their Consolidated Subsidiaries; (b) the
ability of the Borrower, any Guarantor or their Consolidated Subsidiaries to pay
or perform the Obligations under the Loan Documents in accordance with the terms
thereof; (c) the Collateral or the Collateral Agent's Liens on the Collateral or
the priority of any such Lien; or (d) the Lenders', Agents' and Deposit Banks'
rights and remedies under any Loan Documents.
"Material Contract" means, as to the Borrower, any Guarantor or their
Consolidated Subsidiaries, a Contractual Obligation (a) the cancellation, non-
performance or non-renewal of which by any party thereto could have or result in
a Material Adverse Effect on the Borrower, any Guarantor or the Borrower, any
Guarantor and their Consolidated Subsidiaries taken as a whole or (b) which
involves amounts, payments or Indebtedness in excess of $10,000,000.
"Maximum Commitment" means, with respect to each Lender, the
Commitment of such Lender listed on the Schedule of Lenders for the Borrowing
Period of the Closing Date through July 31, 1996.
"Maximum Lawful Rate" means the highest rate of interest permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable under this Agreement.
"Maximum Loan Amount" has the meaning assigned to it in SECTION 2.1.
"Merger Agreement" means the Restructuring and Merger Agreement by and
among Washington and MKD dated May 28, 1996.
"Metra Agent" means the agent under the Metra Credit Agreement.
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<PAGE>
"Metra Credit Agreement" means that certain Revolving Credit Agreement
dated as of October 10, 1995 among Amerail, Bank of America as agent and the
financial institutions named therein as lenders.
"MKD" means Morrison Knudsen Corporation, a Delaware corporation, and
its successors.
"MKD Security Agreement" means the Pledge and Security Agreement dated
as of even date herewith, executed by MKD in favor of the Collateral Agent, for
the benefit of the Agents, the Lenders and the Deposit Banks granting a security
interest in the personal property Collateral described therein.
"MKO Security Agreement" means the Pledge and Security Agreement
(Guaranty) dated as of even date herewith, executed by MKO in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders and the Deposit
Banks securing the Obligations under MKO's Guaranty.
"MKO" means Morrison Knudsen Corporation, an Ohio corporation, and its
successors.
"MK Rail" means MK Rail Corporation, a Delaware corporation.
"MK Rail Documents" means that certain Note Cancellation and
Restructuring Agreement dated as of June 20, 1996 by and among MK Rail, MKD and
MKO, that certain Stockholders Agreement dated as of June 20, 1996 between MK
Rail and MKO, and that certain Second Amendment dated as of June 20, 1996 to
that certain Rights Agreement dated as of January 19, 1996 of MK Rail.
"MK Rail Note" means that certain Note dated June 26, 1995, issued by
MK Rail Corporation in favor of MKO in the amount of $52,200,000.
"Mortgages" means, collectively, the fee and leasehold deeds of trust
and mortgages and any modification thereto, executed by the Borrower or any
Guarantor in favor of the Collateral Agent for the benefit of the Lenders, the
Agents and the Deposit Banks granting a lien on and security interest in the
Real Property Collateral.
"Multi-employer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
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<PAGE>
"Net Cash Proceeds" means, with respect to either the sale or
refinancing of any asset of the Borrower, any Guarantor or any Consolidated
Subsidiary or any other transaction identified in SECTION 2.9, all amounts
payable to such Borrower, such Guarantor or such Consolidated Subsidiary as a
result of such transaction after payment of (i) all reasonable and customary
closing costs, including, brokerage commissions, appraisal fees, recording fees,
attorneys' fees, title insurance premiums, inspection report charges, prepayment
penalties payable to senior lienholders, escrow credits in favor of the
purchaser or financier, customary prorations, transfer and other taxes, escrow
fees, points and other loan fees, and (ii) Indebtedness secured by Senior
Permitted Liens on such asset.
"New Bonds Agreement" means that certain New Bonds Agreement dated as
of October 10, 1995 among Fidelity and Deposit Company of Maryland, the Borrower
and the other parties listed on the signature pages thereto.
"Notes" means promissory notes of the Borrower, substantially in the
form of EXHIBIT A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Acceleration" means a written notice sent to the Borrower
pursuant to SECTION 9.2, accelerating the Obligations.
"Notice of Borrowing" has the meaning assigned to it in SECTION 2.2.
"Obligations" means, as to the Borrower or any Guarantor,
collectively, all liabilities of such Borrower or such Guarantor, arising in
connection with or pursuant to the provisions of this Agreement, the Notes, or
the other Loan Documents, owing to the Agents, the Lenders or the Deposit Banks
of any kind and description, now existing or hereafter arising, whether due or
not due, absolute or contingent, liquidated or unliquidated, direct or indirect,
express or implied, individually or jointly with others, howsoever evidenced or
acquired including the payment and performance of all Indebtedness, obligations
and other liabilities of such Borrower or Guarantor and overdraft coverage and
account funding obligations in connection with the Cash Management System,
arising in connection with or pursuant to the provisions of this Agreement, the
Notes or the other Loan Documents; provided, however, that the Obligations shall
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not include any Indebtedness, obligations or other liabilities arising under the
Override Agreement, the Override Agreements or the Prepetition Credit Agreement.
14
<PAGE>
"Official Committees" has the meaning assigned to it in SECTION
2.15(b).
"Operating Lease" means, as to any Person, any lease of property
(whether real, personal or mixed) by such Person as lessee which is not a
Capital Lease.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
the execution or delivery of, or otherwise with respect to, this Agreement or
any Note.
"Override Agent" means the agent under the Override Agreement."
"Override Agreement" has the meaning assigned to it in RECITAL B, as
the same may be amended, modified, supplemented and restated from time to time.
"Override Agreements" means the Override Agreement, the loan
agreements and other financing arrangements executed in connection with the
Override Agreement and the Existing Agreements.
"Override Collateral" means the "Collateral" as defined in the
Override Agreement.
"Parent" means, with respect to any Lender, any Person controlling
such Lender directly or indirectly.
"Participant" has the meaning set forth in SECTION 11.8(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, collectively, those certain Liens, in
existence on the date hereof, described in SCHEDULE 8.2 and as permitted under
SECTION 8.2.
"Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, Governmental
Authority or any other form of entity not specifically listed herein.
"Petition Date" means June 25, 1996, the date on which the Borrower
filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code
thereby commencing the Case.
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<PAGE>
"Plan" means at any time an employee pension benefit plan (other than
a Multi-employer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Plan of Reorganization" means the first amended joint chapter 11 plan
of reorganization for the Borrower and all exhibits thereto, as the same may be
amended, modified or supplemented.
"Prepetition Credit Agreement" has the meaning assigned to it in
RECITAL A.
"Prepetition Credit Agreement Collateral" has the meaning assigned to
it in RECITAL A.
"Prepetition Lenders" has the meaning assigned to it in RECITAL A.
"Prepetition Loans" has the meaning assigned to it in RECITAL A.
"Prime Rate" means, for any day, a rate per annum equal to the higher
of (i) the rate of interest publicly announced by Mellon Bank, N.A. from time to
time as its Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Professionals" means, collectively, all attorneys, accountants,
paraprofessionals, appraisers, auditors, inspectors, engineers, title insurance
companies, and environmental experts employed, retained, or internally used by
the Collateral Agent or the Agent in connection with the Borrower's or
Guarantors' performance of their Obligations or in asserting any of the
Collateral Agent's, the Agent's, the Lenders' or the Deposit Banks' rights or
remedies under this Agreement.
"Pro Rata Share" means, with respect to each Lender the percentage set
forth opposite the name of such Lender on the Schedule of Lenders, as such
Lender's pro rata share.
"Real Property" means all of the right, title and interest of the
Borrower or any Guarantor in and to land, improvements and fixtures (to the
extent interests therein arise under the real property law of the jurisdiction
where located).
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"Real Property Collateral" means, collectively, all of the Borrower's
or any Guarantor's right, title and interest in and to the real property more
specifically described on SCHEDULE H attached hereto, including their fee and
leasehold interests in such real property, pledged by such Borrower or
Guarantor, in favor of the Collateral Agent for the benefit of the Lenders, the
Agents and the Deposit Banks pursuant to the Mortgages.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reportable Event" means any of the events set forth under Section
4043(b) of ERISA or the PBGC regulations thereunder for which notice to the PBGC
has not been waived by applicable law or administrative guidance.
"Requirement of Law" means, as to any Person, collectively, (a) the
partnership agreement, certificate of incorporation, bylaws or other
organizational or governing documents of such Person; (b) any Federal, state or
local law, treaty, ordinance, rule or regulation; and (c) any order, decree or
determination of a court, arbitrator or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Schedule for Notices" means the schedule annexed as SCHEDULE D
hereto, listing the name, address and wiring instructions for each Lender.
"Schedule of Documents" means the schedule annexed as SCHEDULE C
hereto, listing those documents to be delivered in connection with the closing
of the transactions contemplated by this Agreement and the other Loan Documents.
"Schedule of Lenders" means the schedule annexed as SCHEDULE A hereto,
listing the name of each Lender, such Lender's Commitment and such Lender's Pro
Rata Share.
"Security Documents" means the Mortgages, the MKD Security Agreement,
the MKO Security Agreement, the Guaranty Security Agreement, the Financing
Statements and all documents, instruments and agreements now or hereafter
executed or delivered pursuant thereto or in connection therewith.
"Senior Permitted Liens" means the Permitted Liens that are senior to
the Lien of the Collateral Agent on any Collateral listed on SCHEDULE I.
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<PAGE>
"Single Employer Plan" means any Plan which is not a Multi-employer
Plan.
"Subject Equipment" has the meaning set forth in SECTION 8.4.
"Subsidiary" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means any Subsidiary of MKD or the Guarantors.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Lender and the Agents, taxes
---------
imposed on its income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which such Lender or the Agents (as the case may
be) are organized or in which its principal executive office is located and (ii)
in the case of each Lender, any United States withholding tax imposed on such
payments but only to the extent that such Lender is subject to United States
withholding tax at the time such Lender first becomes a party to this Agreement.
"Termination Date" means the earlier of (a) October 31, 1996, (b) such
date as the Commitments are terminated or the Loans are accelerated pursuant to
SECTION 9.2, (c) the date that is thirty (30) days after the date hereof, if the
Interim Order has been entered by the Bankruptcy Court but the Final Order has
not been entered by the Bankruptcy Court; and (d) the date a plan of
reorganization in the Case becomes effective.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Uniform Commercial Code" means the Uniform Commercial Code as the
same may, from to time, be in effect in the Commonwealth of Pennsylvania;
provided, that in the event that, by reason of mandatory provisions of law, any
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or all of the
18
<PAGE>
attachment perfection or priority of, or remedies with respect to, the
Collateral Agent's security interests in any Post Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the
Commonwealth of Pennsylvania, the term "Uniform Commercial Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions of the Loan Documents relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Unused Commitment Fee" has the meaning assigned to it in SECTION
2.7(e).
"Washington" means Washington Construction Group, Inc., a Delaware
corporation.
1.2. Accounting Terms and Determinations. Unless otherwise specified
-----------------------------------
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with Generally Accepted
Accounting Principles.
1.3. General Construction. As used in this Agreement, the masculine,
--------------------
feminine and neuter genders, and the plural and singular numbers shall be deemed
to include the others in all cases where they would so apply. "Includes" and
"including" are not limiting, and "or" is not exclusive.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
-----------------------------
2.1. The Loans.
---------
From time to time until the Business Day preceding the Termination
Date, each Lender severally agrees, on the terms and conditions set forth in
this Agreement, to make one or more loans (each a "Loan", and collectively, the
"Loans"), to the Borrower during the periods listed below (each such period
being a "Borrowing Period") in a maximum amount equal to its Pro Rata
19
<PAGE>
Share of the aggregate amount of the Loans set forth below opposite the
Borrowing Period for such Loan (the "Maximum Loan Amount"):
<TABLE>
<CAPTION>
Borrowing Period Aggregate Amount of Loans
---------------- -------------------------
<S> <C>
Closing Date - August 15, 1996 $ 60,000,000
August 16, 1996 - October 31, 1996 $ 50,000,000
</TABLE>
provided, that the aggregate principal amount of the Loans by such Lender
- --------
outstanding at any time during a Borrowing Period to the Borrower shall not
exceed the amount of its Maximum Loan Amount and during the last Borrowing
Period, its Commitment, as such Maximum Loan Amount and Commitment may be
reduced pursuant to this SECTION 2.1 or SECTION 2.9 ; provided, that pursuant to
--------
this SECTION 2.1 in amounts such that the aggregate principal amount of the
Loans by such Lender at any one time outstanding to the Borrower shall not
exceed the amount of its Commitment; provided that, for any calendar week, the
--------
aggregate amount of the Loans outstanding shall not exceed the amounts set forth
on the Budget for such calendar week. Each Borrowing under this SECTION 2.1
shall be in an aggregate amount of $5,000,000 or multiples thereof; provided,
--------
that during the last Borrowing Period set forth above, the amount of any
Borrowing which would cause the aggregate Loans to equal the maximum aggregate
amount of Loans permitted during such Borrowing Period need not equal an
integral multiple of $5,000,000. Subject to SECTION 2.9, amounts borrowed
hereunder and repaid or prepaid may be reborrowed.
2.2. Notice of Borrowing. The Borrower shall give notice to the Agent by
-------------------
telephone, at the telephone number listed in the Schedule for Notices, to
Agent's account executive responsible for Borrower's account, confirmed
immediately in writing, or in writing (by facsimile at the address listed in the
Schedule of Notices), substantially in the form of EXHIBIT B, or to such other
telephone or facsimile number as Agent may designate, (a "Notice of Borrowing")
no later than 12:00 Noon (Pittsburgh, Pennsylvania time) on the Business Day
immediately preceding a Borrowing Period, specifying:
(a) The date of such Borrowing;
(b) The aggregate amount of such Borrowing; and
(c) That the aggregate amount of such Borrowing, plus the aggregate
outstanding principal amount of the outstanding Loans, do not exceed the
aggregate amount of each Lender's Maximum Loan Amount or the Commitments and
that all the conditions described in ARTICLE V of this Agreement have been
satisfied.
20
<PAGE>
2.3. Notice to Lenders; Funding of Loans.
-----------------------------------
(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Lender of the contents thereof and of such Lender's Pro Rata Share
of such Borrowing, and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 1:00 p.m. (Pittsburgh, Pennsylvania time) on the
date of each Borrowing, each Lender shall make available its Pro Rata Share of
such Borrowing, in Federal or other funds immediately available in Pittsburgh,
Pennsylvania, to the Agent at its address referred to in the Schedule for
Notices. Unless the Agent determines that any applicable condition specified in
ARTICLE V has not been satisfied, the Agent will make the funds so received from
the Lenders available to the Borrower at 3:00 p.m. (Pittsburgh, Pennsylvania
time) at the Agent's aforesaid address.
(c) Unless the Agent shall have received notice from a Lender prior to
the date of any Borrowing that such Lender will not make available to the Agent
such Lender's Pro Rata Share of such Borrowing, the Agent may assume that such
Lender has made such Pro Rata Share available to the Agent on the date of such
Borrowing in accordance with subsection (b) of this SECTION 2.3 and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such Pro Rata Share available to the Agent, such Lender and the
Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal
to the Prime Rate plus two percent (2%), and (ii) in the case of such Lender,
the Federal Funds Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's Loan
included in such Borrowing for purposes of this Agreement.
2.4. Notes.
-----
(a) The Loans of each Lender to the Borrower shall be evidenced by a
single Note of the Borrower payable to the order of such Lender in an original
principal amount equal to such Lender's Maximum Commitment.
(b) Upon receipt of each Lender's Note pursuant to SECTION 5.1(b), the
Agent shall forward such Note to such Lender. Each Lender shall record the
date, amount and maturity of each Loan made by it to the Borrower and the date
and amount of each payment of principal made by the Borrower with respect
thereto,
21
<PAGE>
and may, if such Lender so elects in connection with any transfer or enforcement
of its Note, endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; provided, that the failure of any Lender to make any such
--------
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes absent manifest error. Each Lender is hereby
irrevocably authorized by the Borrower to endorse its Note and to attach to and
make a part of any Note a continuation of any such schedule as and when
required.
2.5. Maturity of Loans. Each Loan included in any Borrowing shall mature,
-----------------
and the principal amount thereof shall be due and payable, on the Termination
Date.
2.6. Interest Rates.
--------------
(a) Except as provided in SECTION 2.6(B), each Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Prime
Rate for such day plus two percent (2%). Interest shall be payable each
calendar month on the last day of such month and on the Termination Date.
(b) Any overdue principal of or interest on any Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the Default Rate. In addition, from and after the occurrence of any Event of
Default and continuing until such Event of Default is cured or has been waived
in writing by the Agent in accordance with the terms of this Agreement, interest
shall accrue on the Obligations at the Default Rate and is payable on demand.
Any interest, reasonable professional fees and expenses of the Agent and the
Collateral Agent due under SECTION 11.4, which are not paid as and when due,
shall bear interest at the Default Rate. The interest rate increase shall take
effect immediately upon written notice by the Agent to the Borrower of the
occurrence of an Event of Default.
2.7. Fees.
----
(a) Closing Fee. The Borrower shall pay to the Agent for the benefit
-----------
of the Lenders, on the Closing Date, a closing fee of $600,000 to be distributed
by the Agent to each Lender in an amount equal to such Lender's Pro Rata Share.
(b) Agent's Fee. The Borrower shall pay to the Agent on the Closing
-----------
Date and monthly thereafter on the first day of each month in advance, a non-
refundable fee in an amount equal to $30,000 per month (the "Agent's Fee"). The
Agent's Fee is payable from the Closing Date until such time as the Borrower and
the Agent have no Obligations under this Agreement and the other Loan Documents
and the obligation to pay the Agent's Fee shall
22
<PAGE>
survive the payment in full of the Obligations under this Agreement.
(c) Bank of America's Fee. The Borrower shall pay to Bank of America,
---------------------
as a Deposit Bank, on the Closing Date and monthly thereafter on the first day
of each month in advance, a non-refundable fee in an amount equal to $30,000 per
month (the "Bank of America Fee"). The Bank of America Fee is payable from the
Closing Date until such time as the Borrower has no Obligations under this
Agreement and the other Loan Documents and the obligation to pay the Bank of
America Fee shall survive the payment in full of the Obligations under this
Agreement.
(d) Collateral Agent's Fee. The Borrower shall pay to the Collateral
----------------------
Agent on the Closing Date and monthly thereafter on the first day of each month
in advance, a non-refundable fee in an amount equal to $30,000 per month (the
"Collateral Agent's Fee"). The Collateral Agent's Fee is payable from the
Closing Date until such time as the Borrower and the Collateral Agent have no
Obligations under this Agreement and the other Loan Documents and the obligation
to pay the Collateral Agent's Fee shall survive the payment in full of the
Obligations under this Agreement.
(e) Unused Commitment Fee. From and after the Closing Date and until
---------------------
the Termination Date, the Borrower shall pay to the Agent, for the account of
the Lenders in accordance with their respective Pro Rata Shares, a fee (the
"Unused Commitment Fee") equal to one-half of one percent (1/2%) per annum of
the amount by which the Maximum Loan Amount exceeds the Loans on any day. The
Unused Commitment Fee shall be calculated based on the actual number of days
elapsed and a year of 360 days. The accrued portion of the Unused Commitment
Fee shall be payable (i) monthly, in arrears, on the first day of the
immediately succeeding calendar month and (ii) on the Termination Date.
(f) Fees Cumulative. All fees payable under this Agreement shall be
---------------
cumulative, and fully earned on the date of payment.
2.8. Optional Prepayments.
--------------------
(a) The Borrower may, upon at least one Business Day's notice to the
Agent, prepay any Borrowing, in each case in whole at any time, or from time to
time in part in amounts aggregating $1,000,000 or any larger multiple of
$1,000,000, by paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment. Each such optional prepayment shall
be applied to prepay each Lender's Loans in an amount equal to such Lender's Pro
Rata Share of such prepayment.
23
<PAGE>
(b) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Lender of the contents thereof and of such
Lender's Pro Rata Share of such prepayment and such notice shall not thereafter
be revocable by the Borrower.
2.9. Mandatory Prepayment.
--------------------
(a) Immediately upon receipt by the Borrower, any Guarantor or any
Consolidated Subsidiary or the Agent of Net Cash Proceeds of (i) any sale, lease
or other disposition of assets (other than sales in the ordinary course of
business, sales of equipment under SECTION 8.4(ii), (iii), (iv), and (v), sales
of equipment which are promptly replaced or Net Cash Proceeds from the merger or
sale of assets which are to be distributed to creditors pursuant to the Plan
including, but not limited to, Net Cash Proceeds from the MK Rail Note), (ii)
Net Cash Proceeds of any issuance of capital stock by the Borrower, any
Guarantor or their Consolidated Subsidiaries or (iii) insurance proceeds, the
Borrower shall pay or cause to be paid such Net Cash Proceeds or insurance
proceeds to the Agent on account of the Obligations for the benefit of Lenders;
provided, however, that so long as no Event of Default exists and is continuing
- -------- -------
at the time such proceeds are received, and unless otherwise set forth in the
Security Documents, the Borrower may retain up to an aggregate amount of
$1,000,000 of insurance proceeds to rebuild or replace insured property
destroyed or damaged, if such property is capable of being rebuilt or replaced
within a reasonable period of time. Amounts prepaid under this SECTION 2.9(a)
may not be reborrowed and each Lender's Maximum Loan Amount and Commitment shall
be reduced in the amount of such Lender's Pro Rata Share in such mandatory
prepayment.
(b) To the extent funds are on deposit in the Collateral Account, at
the close of business on the last Business Day of each week, the Borrower shall
pay to the Agent, for the benefit of the Lenders in respect of the Obligations,
such funds pursuant to the terms of the Cash Management System or otherwise.
Amounts prepaid under this SECTION 2.9(b) may be reborrowed. To the extent
funds are on deposit in the Collateral Account, at the close of business on any
Business Day, such funds shall be treated pursuant to the terms of the Cash
Management System. Any amounts prepaid under this SECTION 2.9(b) may be
reborrowed.
(c) Immediately upon receipt by the Borrower, any Guarantor or any of
their Consolidated Subsidiaries of any tax refund (other than any Foreign Tax
Credit Refunds as defined in the Restated and Amended Certificate of
Incorporation of Washington Construction Group, Inc. attached to the Plan of
Reorganization as Exhibit C) which are to be distributed to creditors pursuant
to the Plan), the Borrower shall pay or cause to be paid the amount of such tax
refunds to the Agent on account
24
<PAGE>
of the Obligations for the benefit of the Lenders. Amounts prepaid under this
SECTION 2.9(c) may not be reborrowed and each Lender's Maximum Loan Amount and
Commitment shall be reduced in the amount of such Lender's Pro Rata Share in
such mandatory prepayment.
(d) If at any time the aggregate principal amount of the Loans of
any Lender outstanding at any time exceeds the amount of such Lender's Maximum
Loan Amount or Commitment as such Lender's Maximum Loan Amount and Commitment
may be reduced pursuant to this SECTION 2.9, the Borrower shall immediately pay
to the Agent for the benefit of such Lender, the amount necessary to reduce the
aggregate principal amount of such Loans to the amount of such Lender's Maximum
Loan Amount and Commitment.
2.10. Application of Payments. All payments (including prepayments),
-----------------------
other than regularly scheduled interest payments, on the Loans or on any of the
other Obligations (other than Obligations under the Cash Management System)
shall be made to the Lenders or the Agent, as the case may be, for application
against the Borrower's Obligations as follows (regardless of how each Lender may
treat such payments for purposes of its own accounting): first to then due and
-----
outstanding fees, expenses or other charges of the Agent,or the Collateral Agent
under this Agreement or any of the other Loan Documents to the extent payable by
the Borrower; second to then due interest on the Loans accrued and unpaid prior
------
to the date such funds are received by the Lenders; and third to the principal
-----
balance of the Loans.
2.11. General Provisions as to Payments. The Borrower shall make each
---------------------------------
payment of principal of, and interest on, the Loans and of fees and of all other
Obligations (other than Obligations payable under the Cash Management System)
hereunder, not later than 12:00 Noon (Pittsburgh, Pennsylvania time) on the date
when due, in Federal or other funds immediately available in Pittsburgh,
Pennsylvania, to the Agent at its address referred to in the Schedule for
Notices. Subject to the provisions of SECTION 2.10, the Agent will promptly
distribute to each Lender its Pro Rata Share of each such payment received by
the Agent for the account of the Lenders. The Borrower agrees to pay to the
Agent, upon demand, the amount of any payment received by the Agent pursuant to
the terms of the Cash Management System that is subsequently returned to any
bank that has transferred funds to the Concentration Account in accordance with
the Cash Management System, because such bank transferred funds in advance of
final collection and such funds are not finally collected. If such payment has
already been applied in accordance with SECTION 2.10 and is not paid by the
Borrower within one (1) Business Day after the Agent's demand therefor, then
each Lender shall pay to the Agent the share of such returned payment received
by it. Upon receipt by the Agent of any such payment from the Borrower, or from
the Lenders in the event the Borrower fails to make such
25
<PAGE>
payment after the Agent's demand, the Agent shall pay such funds to Bank of
America Illinois, Bank of America or Key Bank of Idaho, as appropriate, in such
bank's capacity as a Deposit Bank, in order to pay the bank that transferred
funds that were not finally collected and the Loans shall be reinstated to the
extent the Agent makes such payment. Whenever any payment of principal of, or
interest on, the Loans or of fees with respect to the Loans or of any other
Obligations shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day. If the
date for any payment of principal is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
2.12. Computation of Interest and Fees. Interest and fees shall be
--------------------------------
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
2.13. Cash Management System. The Borrower will establish, on or prior
----------------------
to the Closing Date, and the Borrower will maintain until the Obligations
have been paid in full and all Commitments have been terminated, the Cash
Management System described in SCHEDULE G.
2.14. Superpriority Nature of Obligations. Pursuant to Section 364(d) of
-----------------------------------
the Bankruptcy Code, all Obligations under this Agreement and the other Loan
Documents shall be secured by Liens on the terms and with the priorities senior
and prior to all other Liens other than Senior Permitted Liens as set forth in
the Security Documents. In addition thereto, repayment of the Obligations shall
have priority under Section 364(c)(1) of the Bankruptcy Code, and, in the event
the Agent has an unsecured claim in the Case for any portion of the Obligations
arising under the Loan Documents, said claim shall have, pursuant to Section
364(c)(1) of the Bankruptcy Code, the priority of an expense of administration
in the Case, which priority shall be senior to any other administrative expense
in the Case of the kind specified in Sections 503(b), 507(a)(1), or 507(b) of
the Bankruptcy Code, subject only to subordination on the terms, in the amounts
and in favor of the Persons set forth in SECTION 2.15 below.
2.15. Subordination of Obligations. The Obligations and the liens on the
----------------------------
assets of the Borrower securing the Obligations shall only be subordinate
to other claims, rights and interests as follows:
(a) Professionals Employed By Borrower. To the claims of the
----------------------------------
professionals employed by the Borrower (the "Borrowers Professionals"), but only
so long as the Borrower's Professionals are employed by the Borrower pursuant to
an order
26
<PAGE>
of the Bankruptcy Court and only to the payment of reasonable fees and out-of-
pocket expenses (approved by the Bankruptcy Court pursuant to Section 330 of the
Bankruptcy Code after proper notice to each Lender and upon proper application,
hearing, and approval by the Bankruptcy Court), but specifically excluding from
such subordination any fees or costs incurred in the preparation, investigation,
commencement, or prosecution of any litigation against the Collateral Agent, any
Lender, the Agent or any Deposit Bank or challenges to any Lender's, the
Collateral Agent's, the Agent's or any Deposit Bank's claims against the
Borrower; provided, that the claims of the Borrower's Professionals, together
--------
with the claims of the professionals employed by the Official Committees, do not
exceed the maximum aggregate amount of $5,000,000.
Subject to the foregoing limitations, so long as the conditions set forth above
have not occurred, following the exhaustion of the amount of their respective
retainers, the Borrower's Professionals may seek and obtain interim compensation
under Section 331 of the Bankruptcy Code.
(b) Official Committees. To the claims of the professionals
-------------------
employed by any official committee appointed pursuant to Section 1102 of the
Bankruptcy Code (the "Official Committees"), but only insofar as such
professionals are employed pursuant to Section 1103 of the Bankruptcy Code and
only to the payment of reasonable fees and out-of-pocket expenses (approved by
the Bankruptcy Court pursuant to Section 330 of the Bankruptcy Code after proper
notice to each Lender and upon proper application, hearing, and approval by the
Bankruptcy Court) that are incurred by such professionals in representing the
interests of the Official Committees in matters that relate to the ordinary
administration of the Cases, not to exceed during the pendency of the Cases,
when taken together with the claims of the Borrower's Professionals, the maximum
aggregate amount of $5,000,000, and specifically excluding from such
subordination any fees or costs incurred in the preparation, investigation,
commencement, or prosecution of any litigation against the Collateral Agent, any
Lender, the Agent or any Deposit Bank or challenges to the Collateral Agent's,
any Lender's, the Agent's or any Deposit Bank's claims against the Borrower, any
Guarantor or any of their Subsidiaries. Subject to the foregoing limitations, so
long as the conditions set forth above have not occurred, professionals for the
Official Committees may seek and obtain interim compensation under Section 331
of the Bankruptcy Code.
(c) United States Trustee Fees. Quarterly fees due to the United
--------------------------
States Trustee in the Case pursuant to 28 U.S.C. (S) 1930.
27
<PAGE>
2.16. Use of Collateral and Cash Collateral; Adequate Protection.
----------------------------------------------------------
(a) Subject to the provisions of SECTION 9.4, and except as
otherwise restricted under the provisions of this Agreement, so long as an Event
of Default or the Termination Date has not occurred, the Lenders consent to the
Borrower's use of the Collateral (i) in the ordinary course of its businesses as
previously conducted and in a manner consistent with the Budget, and (ii) out of
the ordinary course of business upon approval of the Bankruptcy Court after
notice (including notice to each Lender) and an opportunity for a hearing and
the prior written consent of the Majority Lenders or in a manner consistent with
the Budget.
(b) Subject to SECTION 2.15, as adequate protection for the
Borrower's use of the Collateral and Cash Collateral, the Collateral Agent is
hereby granted for the benefit of the Lenders, the Agents and the Deposit Banks
replacement liens and security interests in all of the Borrower's real and
personal property (pari passu with the liens and security interests granted to
---- -----
secure repayment of the Obligations) to the extent of any diminution in the
Collateral or Cash Collateral caused by such use; and the Collateral Agent is
further granted for the benefit of the Lenders, the Agents and the Deposit Banks
a claim under Section 507(b) of the Bankruptcy Code, with the priority of an
expense of administration in the Case, which priority shall be senior to any
other claims or expenses of administration under Sections 503(b) and 507(a), to
the extent the Collateral Agent, any Lender, the Agent or any Deposit Bank has
an unsecured claim because the foregoing replacement liens and security
interests are inadequate to protect the Collateral Agent, any such Lender, the
Agent or any such Deposit Bank.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Increased Cost.
--------------
(a) If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Lender (or its Parent) as a consequence of such Lender's
28
<PAGE>
obligations hereunder to a level below that which such Lender (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, within 15 days
after demand by such Lender (with a copy to the Agent), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
(or its Parent) for such reduction.
(b) Each Lender will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this SECTION 3.1. A certificate
of any Lender claiming compensation under this SECTION 3.1 and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Lender may use
any reasonable averaging and attribution methods.
3.2. Taxes.
-----
(a) Any and all payments by the Borrower to or for the account of any
Lender or the Agents hereunder or under any Note or any other Loan Document
shall be made without deduction for any Taxes or Other Taxes; provided, that if
--------
the Borrower shall be required by law to deduct any Taxes or Other Taxes from
any such payments, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 3.2) such Lender or the Agents (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Agent, at its address referred to in the Schedule
for Notices, the original or a certified copy of a receipt evidencing payment
thereof.
(b) The Borrower agrees to indemnify each Lender, the Collateral Agent
and the Agent for the full amount of Taxes or Other Taxes (including any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this SECTION 3.2) paid by such Lender or the Agents (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Lender or the Agents (as the case may be) makes demand therefor.
(c) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of
29
<PAGE>
each Lender listed on the signature pages hereof and on or prior to the date on
which it becomes a Lender in the case of each other Lender, and from time to
time thereafter if requested in writing by the Borrower (but only so long as
such Lender remains lawfully able to do so), shall provide the Borrower with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such Lender is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts the Lender from United States withholding tax or reduces the
rate of withholding tax on payments of interest for the account of such Lender
or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(d) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form pursuant to SECTION 3.2(c)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Lender shall not be entitled to indemnification under SECTION
3.2(b) or (c) with respect to Taxes imposed by the United States on payments by
such Borrower; provided, that if a Lender, which is otherwise exempt from or
--------
subject to a reduced rate of withholding tax, becomes subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such Lender to
recover such Taxes.
(e) If the Borrower is required to pay additional amounts to or for
the account of any Lender pursuant to this SECTION 3.2, then such Lender will
change the jurisdiction of its lending office to an office it maintains if, in
the judgment of such Lender, such change (i) will eliminate or reduce any such
additional payment which may thereafter accrue and (ii) is not otherwise
disadvantageous to such Lender.
ARTICLE IV
SECURITY
--------
4.1. The Borrower's Obligations. The Obligations of the Borrower to pay
--------------------------
all sums due to the Agents, the Lenders and the Deposit Banks and to perform all
other covenants and agreements under this Agreement, the Notes and the other
Loan Documents to which the Borrower is a party, shall be secured by the
Collateral to the extent provided in the Security Documents. It is agreed and
understood that the Indebtedness, liabilities and other obligations under the
Override Agreements are secured by the Override Collateral, but shall not be
secured by the Collateral.
30
<PAGE>
4.2. Priority of Security Interests. As set forth in SECTION 2.14, all
------------------------------
Obligations under this Agreement and the other Loan Documents shall be secured
by Liens on the terms and with the priorities senior and prior to all other
Liens other than Senior Permitted Liens. Upon the repayment in full of the
Prepetition Credit Agreement and the approval of the Bankruptcy Court, the
security interests to be granted to the Lenders in connection with this
Agreement shall have the same priority as the security interests granted to the
Prepetition Lenders in connection with the Prepetition Credit Agreement
Collateral as set forth in the Intercreditor Agreements and shall be senior to
the security interests securing the Existing Indebtedness and have the same
priority relative to certain security interests granted to Amerail and the
Bonding Company as set forth in the Intercreditor Agreements.
4.3. Automatic Perfection. The Interim Order and Final Order shall provide
--------------------
that the Liens and security interests granted hereunder or pursuant to any of
the other Loan Documents shall be automatically perfected upon entry thereof
without the requirement of any further filings, notices, recordings or actions
of any kind by the Collateral Agent, the Agent, the Lenders, the Deposit Banks,
the Borrower or any other Person. It being agreed and understood that if the
Agent or the Collateral Agent determines to make any filings, recordings or
notices or take any other action with respect to certain types of the
Collateral, that such actions shall not be construed to be a waiver of the
benefits of this SECTION 4.3 with respect to such type of Collateral or any
other Collateral.
4.4. Further Assurances. The Borrower shall, and shall cause the
------------------
Guarantors to, at their sole cost and expense, execute and deliver to the Agent
or the Collateral Agent for the benefit of the Lenders, the Agents and the
Deposit Banks all such further documents, instruments and agreements and agree
to perform all such other acts which may be required in the opinion of the Agent
to enable the Agents, the Lenders and the Deposit Banks to exercise and enforce
their respective rights as the secured parties or beneficiaries under the
Security Documents. To the extent permitted by applicable law, the Borrower
hereby authorizes the Collateral Agent or the Agent on behalf of the Lenders,
the Agents and the Deposit Banks to file Financing Statements and continuation
statements with respect to the security interests granted under the Security
Documents in favor of the Collateral Agent for the benefit of the Agents, the
Lenders and the Deposit Banks and to execute such Financing Statements and
continuation statements on behalf of the Borrower and the Guarantors.
31
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.1. Conditions Precedent to Effectiveness of Agreement. This Agreement
--------------------------------------------------
shall become effective only upon the satisfaction by the Borrower of the
following conditions precedent, unless each Lender shall otherwise agree:
(a) Loan Documents. The Agent shall have received counterpart
--------------
originals of this Agreement, the other Loan Documents and all the other
certificates, schedules, and other items as specified in the Schedule of
Documents attached hereto as SCHEDULE C, each duly and validly executed and
acknowledged, where appropriate, by or on behalf of all the parties hereto or
thereto (as the case may be).
(b) The Notes. The Agent shall have received, for the benefit of each
---------
Lender, a Note conforming to the requirements of SECTION 2.4 duly and validly
executed on behalf of the Borrower.
(c) Legal Opinion of the Borrower's Counsel. The Agent shall have
---------------------------------------
received, with an executed counterpart for each Lender, the legal opinion of
Jones Day Reavis & Pogue and of Hawley Troxell Ennis & Hawley, counsel to the
Borrower and the Guarantors, and such other counsel approved by the Agent, dated
the Closing Date, and addressed to the Agent for the benefit of the Lenders, in
form and substance satisfactory to the Agent.
(d) Disbursement Authorization. The Agent shall have received a
--------------------------
Notice of Borrowing regarding the disbursement of the proceeds of the Loans, if
any, to be made on the Closing Date.
(e) Payment of Fees and Expenses. The Borrower shall have paid all
----------------------------
fees set forth in SECTION 2.7 that are payable on the Closing Date.
(f) Bankruptcy Court Approval. The Bankruptcy Court shall have
-------------------------
entered the Interim Order, or if there is no Interim Order or the Interim Order
is no longer effective, the Final Order, and no appeal, certiorari petition,
reargument, rehearing or other review of the Interim Order or Final Order is
pending or if an appeal has been filed, no stay of such order pending appeal has
been granted.
(g) Repayment of the Prepetition Credit Agreement. The obligations
---------------------------------------------
under the Prepetition Credit Agreement shall have been paid in full and the
commitments thereunder terminated.
32
<PAGE>
(h) Guarantor Releases. Each Guarantor shall have executed a release,
------------------
in substantially the form attached hereto as EXHIBIT G, in favor of each Lender
and each Existing Lender, which release shall become effective on the effective
date of the Borrower's Plan of Reorganization.
(i) Other Matters. The Agent shall have received all other documents,
-------------
instruments, agreements, opinions, certificates, insurance policies, consents
and evidences of other legal matters, in form and substance satisfactory to the
Agent and its counsel, as the Agent reasonably may request.
5.2. Conditions Precedent to All Loans. The obligation of each of the
---------------------------------
Lenders to make any Loans on any date is subject to the satisfaction by the
Borrower, or the waiver by the Agent and the Majority Lenders, of the conditions
set forth below. Each Borrowing by the Borrower shall constitute a
representation and warranty by the Borrower to the Agent and each such Lender,
as of each such borrowing, that the conditions in this SECTION 5.2 have been
satisfied.
(a) Borrowings. The Agent shall have received a Notice of Borrowing
----------
as required by SECTION 2.2. Immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate amount
of each Lender's Maximum Loan Amount or the Commitments.
(b) Representations and Warranties. The representations and
------------------------------
warranties of the Borrower and the Guarantors and each of them set forth in this
Agreement, the Notes or the other Loan Documents, or in any certificate or
opinion by or on behalf of the Borrower and the Guarantors in connection
herewith, shall be correct on and as of the date of any requested Loan as if
made on and as of such date; provided, however, that the Borrower may, from time
-------- -------
to time, amend SCHEDULE 6.8 (Material Contracts), SCHEDULE F (Subsidiaries) and
SCHEDULE 6.24 (Employment and Investment Agreements) by providing the Agent with
amendments to such Schedules.
(c) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on the date of such requested Loan or
after giving effect to the Loans to be made on such date.
(d) No Violations. No Requirement of Law shall prohibit, and no
-------------
order, judgment or decree of any Governmental Authority shall, and no litigation
shall be pending which would enjoin, prohibit or restrain any Lender from making
a requested Loan.
(e) Certificate of Chief Financial Officer Regarding the Budget. The
-----------------------------------------------------------
Agent shall have received a
33
<PAGE>
certificate of the chief financial officer of the Borrower and a certificate of
the chief financial officer of MKO (i) certifying the Borrower's and MKO's
compliance with the Budget for the period prior to the Borrowing and (ii)
setting forth projected uses for requested Loans.
(f) Officer's Certificate. The Agent shall have received a
---------------------
certificate of the chief executive officer and the chief financial officer of
the Borrower dated the date of such requested Loan, that to the best of each
officers' knowledge (i) each of the representations and warranties contained in
ARTICLE VI and in any other Loan Document is true and correct in all material
respects on and as of the date of such requested Loan, with the same force and
effect as if made on and as of such date except to the extent such
representation or warranty was made solely as of an earlier date; (ii) all
obligations, covenants, agreements and conditions contained in this Agreement
and the Loan Documents to be performed or satisfied by the Borrower on or prior
to the date of such requested Loan have been performed or satisfied in all
respects or duly waived by the Majority Lenders or All Lenders as the case may
be; (iii) as of the date of such requested Loan and since April 15, 1996, no
Material Adverse Effect has occurred (except as otherwise disclosed in writing
to the Agent); (iv) no Default or Event of Default has occurred, or would result
from the making of such requested Loan; (v) the documents delivered to the Agent
by the Borrower and each of the Guarantors is true and correct as of the date of
such requested Loan; and (vi) no Liens have arisen or been granted with respect
to the Collateral other than Permitted Liens.
(g) Deposit Accounts. The Borrower's and MKO's deposit accounts and
----------------
investments shall have been maintained at a bank that has acknowledged the
Collateral Agent's security interests, for the benefit of Lenders, Agents and
Deposit Banks in all Cash, Cash Equivalents and other investments of the
Borrower and MKO.
(h) Compliance with Bankruptcy Court Orders; Bankruptcy Court
---------------------------------------------------------
Approval. The Loans requested would not cause the aggregate outstanding amount
- --------
of the Loans to exceed the amount then authorized by the Interim Order or the
Final Order, as the case may be, and no such order shall have been vacated or
reversed, or modified or amended, and no appeal of such order shall have been
timely filed, or if such appeal has been granted, no stay of such order pending
appeal has been granted.
34
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agents, the Lenders and the Deposit Banks to
enter into this Agreement, and to make the Loans and other financial
accommodations provided for herein, the Borrower hereby makes the following
representations and warranties to the Agents, to each Lender and to each Deposit
Bank:
6.1. Organization and Qualification. Each of the Borrower and each of the
------------------------------
Guarantors is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and is duly qualified
and in good standing in each jurisdiction wherein the conduct of its business or
the ownership of its properties requires such qualification, except for those
jurisdictions in which the failure to be qualified and in good standing would
not have or result in a Material Adverse Effect or would not materially
adversely affect the ability of the Collateral Agent to collect any material
account receivable.
6.2. Corporate Power and Authorization; Binding Effect. Subject to
-------------------------------------------------
compliance with any applicable provisions of the Bankruptcy Code, each of the
Borrower and the Guarantors has the corporate power and has taken all corporate
action necessary to authorize it to execute, deliver, and perform this Agreement
and each of the other Loan Documents executed by it and to grant the security
interests and liens granted or created thereunder. All of the Loan Documents
shall have been, or by the Closing Date shall be, duly authorized by the
Bankruptcy Court. This Agreement constitutes, and when executed the other Loan
Documents will constitute, legal and valid obligations of each of the Borrower
and the Guarantors binding upon it and enforceable in accordance with their
respective terms, except as the enforceability of each such Loan Document may,
with respect to the Guarantors, be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors and except as the availability
of equitable remedies are subject to the application of equitable principles.
6.3. No Conflict. The execution, delivery and performance of this
-----------
Agreement, the Notes, the other Loan Documents and the secured financing
transactions contemplated hereby, the use of proceeds thereof, and the
performance by the Borrower and the Guarantors (a) subject to the requirements
of the Bankruptcy Code (with respect to the Borrower), do not conflict with or
violate any provision of the Articles of Incorporation or Certificate of
Incorporation, as the case may be, or By-Laws of the Borrower or any Guarantor,
any material
35
<PAGE>
Requirement of Law or any Contractual Obligation of the Borrower or any
Guarantor, (b) subject to Bankruptcy Court Approval (with respect to the
Borrower), do not conflict in any material respect with, constitute a default or
require any consent under any Contractual Obligation of the Borrower or any
Guarantor, and (c) do not result in the creation of any Lien other than a
Permitted Lien upon any property or assets of the Borrower or any Guarantor.
6.4. No Consents. Except for approval of the Bankruptcy Court, all
-----------
necessary consents, approvals and authorizations of, filings with, and acts by
or with respect to all Governmental Authorities and other Persons (except
possession of certain collateral as filings with the appropriate Governmental
Authorities necessary to perfect the security interests under the Security
Documents) required to be obtained, made or taken by the Borrower or the
Guarantors in connection with the secured financing transactions contemplated
hereby or with the execution, delivery, performance, validity or enforceability
of this Agreement or the other Loan Documents, have been obtained, made or
taken, and remain in effect. All applicable waiting periods have expired
without any Governmental Authority or other Person taking any action which
restricts, prevents or imposes materially adverse conditions upon the
consummation of the secured financing transactions contemplated hereby.
6.5. Absence of Litigation. Except as otherwise set forth in SCHEDULE 6.5,
---------------------
there are no actions, suits, proceedings or other litigation (including
proceedings by or before any arbitrator or Governmental Authority) pending, or,
to the Borrower's knowledge, threatened, against or affecting the Borrower or
the Guarantors or any of their Consolidated Subsidiaries or, to the knowledge of
the Borrower, any basis therefor, (a) which challenge the validity or propriety
of the secured financing transactions contemplated hereby, (b) which could
reasonably be expected to have or result in, individually or in the aggregate, a
Material Adverse Effect, or (c) which is reasonably likely to materially affect
the ability of the Borrower or the Guarantors to perform their obligations under
this Agreement or the other Loan Documents.
6.6. No Default under the Loan Documents. No Default or Event of Default
-----------------------------------
has occurred and is continuing.
6.7. Indebtedness. Set forth on SCHEDULE 6.7A hereto is a complete and
------------
correct list of all Indebtedness of the Borrower and the Guarantors in excess of
$2,000,000, other than Contingent Obligations, and the approximate aggregate
principal amount thereof outstanding. Set forth on SCHEDULE 6.7B is a complete
and correct list of all Contingent Obligations for which the principal amount
outstanding or the amount for which the Borrower or the Guarantors are liable
exceeds $1,000,000, and the
36
<PAGE>
approximate aggregate amount of such principal or of such liability outstanding.
6.8. Material Contracts. Set forth on SCHEDULE 6.8 hereto is a complete
------------------
and accurate list of (a) each Material Contract, and (b) each Capital Lease
Obligation of the Borrower and the Guarantors existing on the Closing Date which
exceeds $10,000,000 annually; other than as set forth in SCHEDULE 6.8 or
otherwise disclosed in writing to the Agent, each such Material Contract or
Capital Lease is, and after giving effect to the consummation of the
transactions contemplated by the Loan Documents will be, in full force and
effect in accordance with the terms thereof. Except as previously disclosed to
the Agent and the Lenders or as listed in SCHEDULE 6.8A hereto, there are no
defaults by the Borrower or the Guarantors or, to the best of their knowledge,
by any other party under any such Material Contract (other than a default
occasioned by the commencement of the Case or otherwise permitted under the
Bankruptcy Code) which could reasonably be expected to have or result in a
Material Adverse Effect, or could reasonably be expected to affect the
Borrower's or the Guarantors' ability to perform their Obligations under this
Agreement, the Notes and the other Loan Documents. Neither the Borrower nor the
Guarantors are in default (nor has any event occurred which, with notice or
lapse of time or both would constitute a default) under any of the Override
Agreements, other than a default occasioned by the commencement of the Case or
otherwise permitted under the Bankruptcy Code. The Borrower and the Guarantors
have delivered to the Agent a true and complete copy of each Material Contract
required to be listed on SCHEDULE 6.8.
6.9. Correctness of Collateral Schedules. The Schedules listed as ITEM
-----------------------------------
NO. 3.00 of the Schedule of Documents and delivered to the Agent in connection
herewith are complete and correct in all material respects.
6.10. Correctness of Financial Information. The financial statements
------------------------------------
described in ITEM NO. 1.00 of the Schedule of Documents and delivered to the
Agent in connection herewith are true and correct and (a) present fairly, in all
material respects, the Consolidated financial condition of the Borrower, the
Guarantors and their Consolidated Subsidiaries as of the date thereof, (b)
disclose all material liabilities of the Borrower, the Guarantors and their
Consolidated Subsidiaries, whether liquidated or unliquidated, fixed or
contingent, that are required to be disclosed under Generally Accepted
Accounting Principles as of the date thereof, and (c) have been prepared in
accordance with Generally Accepted Accounting Principles, consistently applied.
Each of the Budget and the projections described in ITEM 1.00 of the Schedule of
Documents and delivered to Agent in connection herewith are based upon
reasonable estimates and assumptions, and reflect the reasonable estimates
37
<PAGE>
of the Borrower, the Guarantors and their Consolidated Subsidiaries of the
results of operations and other information projected therein.
6.11. Security Documents. The Security Documents to which the Borrower
------------------
and the Guarantors are a party create in favor of the Collateral Agent for the
benefit of the Lenders, Agents and Deposit Banks to secure the Obligations
valid, and, upon entry of the Interim Order by the Bankruptcy Court without any
further action by the Collateral Agent, a first priority, perfected security
interests in the property and assets described in the Security Documents capable
of being perfected by the filing of a Financing Statement, subject only to
Permitted Liens.
6.12. Taxes. The Borrower and the Guarantors have filed all tax returns
-----
which were required to be filed in any jurisdiction, and paid all taxes shown
thereon to be due or otherwise due upon the Borrower and the Guarantors or any
of their properties, income or franchises, including interest, assessments, fees
and penalties (other than any immaterial amounts, which the Borrower or the
Guarantors shall pay or make provision to pay), or have provided adequate
reserves for the payment thereof. To the best knowledge of the Borrower, no
claims are threatened, pending or being asserted with respect to, or in
connection with any return referred to in this SECTION 6.12, which could
reasonably be expected to have or result in a Material Adverse Effect, or could
reasonably be expected to affect the Borrower's or the Guarantors' ability to
perform their Obligations under this Agreement and the other Loan Documents.
6.13. No Burdensome Restrictions. No Material Contract and no material
--------------------------
Requirement of Law relating to or otherwise affecting the Borrower or the
Guarantors will result in a Material Adverse Effect.
6.14. Compliance with Laws. Except as permitted by the Bankruptcy Code,
--------------------
the Borrower and the Guarantors (a) are not and will not be in violation of, or
not in compliance with, any Requirement of Law binding upon the Borrower and the
Guarantors or their properties and assets, including any building, zoning,
occupational safety and health ordinances or regulations relating to their
structure or equipment, or the operation thereof or of its respective business,
or any applicable fair employment, equal opportunity or similar law, ordinance
or regulation, the noncompliance with which could reasonably be expected to have
or result in a Material Adverse Effect, and (b) are not a party to any agreement
or instrument, or subject to any judgment, order, writ, rule, regulation, code
or ordinance which could reasonably be expected to have or result in a Material
Adverse Effect.
38
<PAGE>
6.15. Compliance with ERISA. Except as permitted by the Bankruptcy Code,
---------------------
each member of the ERISA Group has fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each Plan. No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code in respect of any Plan,
(ii) failed to make any contribution or payment to any Plan or Multi-employer
Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan
or Benefit Arrangement, which has resulted or could reasonably result in the
imposition of a Lien or the posting of a bond or other security under ERISA or
the Internal Revenue Code or (iii) except as set forth on SCHEDULE 6.15,
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA which could reasonably be expected
to have or result in a Material Adverse Effect.
6.16. Governmental Authorizations; Permits, Licenses and Accreditations;
------------------------------------------------------------------
Other Rights. Except for Bankruptcy Court approval, the Borrower and the
- ------------
Guarantors have all licenses, permits, approvals, qualifications, consents,
certificates of needs and accreditations (where such are required) and other
authorizations necessary for the lawful conduct of their respective businesses
or operations wherever now conducted and as planned to be conducted, pursuant to
all applicable statutes, laws, ordinances, rules and regulations of all
Governmental Authorities having, asserting or claiming jurisdiction over the
Borrower or the Guarantors, except where such failure could not have or result
in a Material Adverse Effect. Copies of all such licenses, permits, approvals,
qualifications, consents and other authorizations shall be provided to the Agent
upon request. Except for defaults occasioned by the commencement of the Case or
otherwise permitted by the Bankruptcy Code, neither the Borrower nor the
Guarantors are in default under any of such licenses, permits, approvals,
consents, qualifications or authorizations and no event has occurred, and no
condition exists, which, with the giving of notice, the passage of time, or
both, would constitute a default thereunder or would result in the suspension,
revocation, impairment, forfeiture or non-renewal of any such permit, license,
authorization or accreditation, except where such failure could not have or
result in a Material Adverse Effect. The continuation, validity and
effectiveness of all material licenses, permits, approvals, consents,
qualifications and authorizations will not be adversely affected by the
transactions contemplated by this Agreement. Subject to compliance with the
Bankruptcy Code, the Borrower knows of no reason why it or the Guarantors will
not be able to maintain all licenses, permits, approvals, consents,
qualifications, accreditations and other authorizations necessary or appropriate
39
<PAGE>
to own and operate their respective current businesses and to obtain such
licenses, permits, approvals, consents, qualifications and other authorizations
necessary to own and operate their respective current businesses, and otherwise
conduct the business of the Borrower, the Guarantors and their Consolidated
Subsidiaries as now conducted and presently proposed to be conducted.
6.17. Environmental Matters. In the ordinary course of its business, the
---------------------
Borrower conducts an ongoing review of the effect of Environmental Laws on the
business, operations and properties of the Borrower, the Guarantors, and their
Consolidated Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Materials, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, the Borrower has reasonably concluded that such associated
liabilities and costs, including the costs of compliance with Environmental
Laws, are unlikely to have or result in a Material Adverse Effect.
6.18. Consolidated Subsidiaries; Subsidiaries. The Borrower's and each
---------------------------------------
of the Guarantors' Consolidated Subsidiaries is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all legal powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. Set forth on SCHEDULE F is a complete and
correct list of each of the Borrower's and Guarantor's Subsidiaries other than
foreign wholly-owned subsidiaries, Emkay Development Company, Inc. and Emkay
Capital Investments, Inc.
6.19. Margin Securities. Neither the Borrower nor any Guarantor is
-----------------
engaged principally in, nor has as one of its most important activities, the
business of extending credit for the purpose of purchasing or carrying "margin
stock" as that term is defined in Regulation U promulgated by the Board of
Governors of the Federal Reserve System, as now in effect. No part of the
Indebtedness evidenced by the Notes, or otherwise created in connection with
this Agreement or the other Loan Documents, shall be used, directly or
indirectly, for the purpose of purchasing
40
<PAGE>
any such margin stock. If requested by the Agent, the Borrower shall furnish or
cause to be furnished to the Agent a statement, in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U, to the
foregoing effect.
6.20. Investment Company Act. Neither the Borrower nor any Guarantor is
----------------------
an "investment company" nor a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as now in effect.
6.21. Business Locations and Trade Names. Set forth on SCHEDULE 6.21A is
----------------------------------
a complete and correct list of each location where each of the Borrower and the
Guarantors maintains its chief executive office, its principal place of
business, an office, a place of business or any material financial records. Set
forth on SCHEDULE 6.21B is a complete and correct list of each name under or by
which each of the Borrower and the Guarantors conducts its business, or by which
each of the Borrower and the Guarantors (or its predecessors in interest) has
conducted its business during the past five years.
6.22. Title to Real Property and Other Assets. The Borrower and the
---------------------------------------
Guarantors have good and marketable title (or good and marketable leasehold
interests with respect to leased property) to all their Real Property and all
personal property assets and fixtures subject to no Liens other than Permitted
Liens. The Borrower and the Guarantors hold directly the fee and leasehold
interest in all facilities constituting the Real Property Collateral. As of the
Closing Date, there are no contracts or options by the Borrower, any Guarantor
or any of their Subsidiaries for the sale or lease of any of the Real Property
Collateral, except as set forth on SCHEDULE 6.22. All easements, servitudes and
rights of way necessary to the operations presently conducted or proposed to be
conducted at the facilities constituting the Real Property Collateral have been
obtained.
6.23. Labor Matters. There are no controversies pending between the
-------------
Borrower, the Guarantors or their Subsidiaries and their employees which may
constitute or result in a Material Adverse Effect.
6.24. Employment and Investment Agreements. Set forth in SCHEDULE 6.24
------------------------------------
is a complete and accurate list of (i) all employment agreements and executive
compensation arrangements to which the Borrower or any Guarantor or any
Subsidiary of the Borrower or any Guarantor is a party which provides for
aggregate compensation to any Person (assuming compliance with or satisfaction
of all contingencies or conditions) of more than $150,000 per year, and (ii) all
agreements relating to the voting or disposition of any outstanding shares of
capital stock of the Borrower or any Guarantor or any of their Subsidiaries. The
41
<PAGE>
Borrower and the Guarantors have delivered to the Agent a true and complete copy
of each of the agreements required to be listed in SCHEDULE 6.24.
6.25. No Misstatements. Neither this Agreement, the Notes, the other
----------------
Loan Documents, nor any document, instrument and other agreement, certificate,
statement or other information referred to herein or expressly furnished to the
Agent or to any of the Lenders pursuant hereto or thereto, contains any
misstatement of a material fact or omits to state any material fact or any fact
necessary to make the statements contained herein or therein not misleading on
the date furnished or on the Closing Date, except as otherwise subsequently
disclosed to the Agent and all Lenders in writing on or prior to the Closing
Date.
6.26. Cash Management System. The Borrower acknowledges that the Cash
----------------------
Management System is part of this Agreement and each of the representations and
warranties made by the Borrower and MKO in the Cash Management System constitute
representations and warranties of this Agreement.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as any Loans or other amounts due hereunder are unpaid or
outstanding, any Obligations are unperformed or any of the Commitments are in
effect, the Borrower shall, unless the Majority Lenders shall otherwise agree:
7.1. Financial Statements; Additional Reporting Requirements. Furnish to
-------------------------------------------------------
the Agent:
(a) Not later than ten Business Days prior to the start of each
calendar quarter, a projected consolidating income statement for such quarter
and a weekly consolidating cash flow statement for such quarter in the form of
the Budget, certified by the chief financial officer as containing appropriate
assumptions to the best of his knowledge;
(b) Not later than three Business Days after each calendar week, an
unaudited consolidating cash flow statement in the form of the Budget for such
week setting forth a comparison to the Budget for such calendar week, certified
by the chief financial officer as complete and correct to the best of his
knowledge;
(c) Not later than the twenty-fifth (25th) day after each calendar
month, an unaudited consolidating income statement, balance sheet and cash flow
statement (including MK Rail Corporation on an equity basis using the most
current
42
<PAGE>
monthly information available), in each case for such month, and setting forth a
comparison to the projections for such calendar month and the actual results for
such calendar month in the previous fiscal year, certified by the chief
financial officer as complete and correct, subject to normal accounting
adjustments and without footnotes;
(d) As soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of MKD, a Consolidated
balance sheet of MKD and its Consolidated Subsidiaries as of the end of such
quarter and the related Consolidated statements of income and cash flows for
such quarter and for the portion of MKD's fiscal year ended at the end of such
quarter, setting forth in the case of such income and cash flows in comparative
form the figures for the corresponding quarter and the corresponding portion of
MKD's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, Generally Accepted Accounting
Principles and consistency by the chief financial officer, controller or
treasurer of MKD;
(e) As soon as available and in any event by April 15, 1997, a
Consolidated balance sheet of MKD and its Consolidated Subsidiaries as of the
end of such fiscal year and the related Consolidated statements of income,
retained earnings and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, all reported
on in a manner acceptable to the Securities and Exchange Commission by
independent public accountants of nationally recognized standing, together with
an unaudited annual report prepared on a consolidating basis in conformity with
Generally Accepted Accounting Principles;
(f) Promptly upon the mailing thereof to the shareholders of MKD
generally, copies of all financial statements, reports and proxy statements so
mailed;
(g) Promptly upon the filing thereof, copies of all reports on Forms
10-K, 10-Q and 8-K (or their equivalents) which MKD shall have filed with the
Securities and Exchange Commission;
(h) Promptly after the furnishing thereof, copies of any statement or
report furnished to any other holder of the securities or any Indebtedness of
the Borrower pursuant to the terms of any indenture, loan or credit or similar
agreement and not otherwise required to be furnished to the Agent pursuant to
any other clause of this SECTION 7.1;
(i) On a monthly basis a statement listing the outstanding receivable
and payable accounts between the Borrower, and Affiliates of the Borrower;
provided, however, that any transfers or group of related transfers of cash or
- -------- -------
other assets
43
<PAGE>
in excess of $1,000,000 between the Borrower, and Affiliates of the Borrower,
shall be reported on a weekly basis;
(j) On a monthly basis, within twenty five (25) days of the close of
the prior calendar month, a report outlining work status for jobs involving the
Borrower or any Consolidated Subsidiary valued by the Borrower or Consolidated
Subsidiary in excess of $10,000,000 certified by the chief financial officer as
complete and correct;
(k) On a monthly basis, within twenty five (25) days of the close of
the prior calendar month, a report outlining the status of the Borrower's and
MKO's backlog, certified by the chief financial officer as complete and correct
in the form attached hereto as SCHEDULE 7.1(k);
(l) On a monthly basis a report prepared by the Borrower's financial
advisors regarding the status of asset sales by the Borrower or any Consolidated
Subsidiary (excluding the asset sales involving AmeriBank) certified by the
chief financial officer as complete and correct;
(m) Not later than two (2) Business Days after the Borrower receives
all necessary financial information regarding MK Rail Corporation, the financial
statements referred to in (b) above but including MK Rail Corporation, certified
by the chief financial officer as complete and correct, subject to normal
accounting adjustments and without footnotes;
(n) On a daily basis, the Borrower's and MKO's daily cash balances and
outstanding loan balances;
(o) On a weekly basis, a report of any reductions of letter of credit
obligations under the Existing Agreements;
(p) On a weekly basis, the management operation reports prepared for
each of the Borrower's and MKO's divisions;
(q) Promptly upon the filing thereof with the Bankruptcy Court, each
monthly operating report required to be filed by the Borrower in the Case;
(r) Promptly upon the filing thereof with the Bankruptcy Court, the
Statement of Financial Affairs and Schedules of Assets and Liabilities required
to be filed by the Borrower;
(s) Promptly upon the filing thereof with the Bankruptcy Court copies
of all pleadings, papers, reports or other documents filed by the Borrower in
connection with the Case; and
44
<PAGE>
(t) From time to time such additional information regarding the
financial position, business, properties or operations of the Borrower or any
Guarantor and any of their Consolidated Subsidiaries as the Agent, at the
request of any Lender, may reasonably request.
7.2. Provision of Notices. Give notice to the Agent of the occurrence of
--------------------
any of the following events not later than three (3) Business Days after the
Borrower knows of such event:
(a) Default. Any Default or Event of Default.
-------
(b) Other Default or Litigation. (i) Any default or event of default
---------------------------
under any Contractual Obligation of the Borrower or any Guarantor of greater
than $1,000,000 or which could otherwise have or result in a Material Adverse
Effect; (ii) any litigation, investigation or proceeding which may exist at any
time between the Borrower or any Guarantor and any Governmental Authority; or
(iii) any other litigation, which, as relates to (i) or (ii) above, if adversely
determined, could (y) if the remedies prayed for do not include damages, have or
result in a Material Adverse Effect, and (z) if the remedies prayed for include
damages, would result in a liability equal to or in excess of $5,000,000 if the
claim is fully covered by insurance, and in excess of $1,000,000 if the claim is
not covered by insurance.
(c) Reportable Events. Except as provided on SCHEDULE 7.2(c)A, any
-----------------
Reportable Event with respect to any Single Employer Plan maintained by the
Borrower or any Guarantor or (b) the institution of proceedings or except as
provided on SCHEDULE 7.2(c)B the taking or expected taking of any other action
by the PBGC, the Borrower, or any Guarantor or any Commonly Controlled Entity to
terminate, withdraw or partially withdraw from any Single Employer Plan
maintained by the Borrower or any Guarantor and with respect to a Multi-employer
Plan, the reorganizational insolvency of the Plan. In addition to such notice,
the Borrower shall as soon as practicable deliver to the Agent and each Lender
whichever of the following may be applicable: (i) a certificate of the chief
executive officer and the chief financial officer of the Borrower setting forth
details as to such Reportable Event and the action, if any, that it, the
Guarantor or the Commonly Controlled Entity proposes to take with respect
thereto, together with the copy of any notice of such Reportable Event that is
required to be filed with PBGC, or (ii) any notice delivered by PBGC evidencing
its intent to institute such proceedings or any notice to PBGC that such Plan is
to be terminated, as the case may be.
(d) Environmental Matters. (i) Any event which makes any of the
---------------------
representations set forth in SECTION 6.17 inaccurate in any respect or (ii) the
receipt by the Borrower or
45
<PAGE>
any Guarantor of any notice, order, directive or other written communication
from a Governmental Authority alleging violations of or noncompliance with any
Environmental Laws.
(e) Material Contracts; Material Obligations. (i) Any proposed
----------------------------------------
material amendment, change or modification to, or waiver of any material
provision of, or any termination of, any Material Contract, other than
amendments, changes, modifications, waivers or terminations in the ordinary
course of business as presently conducted, and (ii) any new Material Contract
which has not been previously disclosed to the Lender in financial reports or
otherwise in writing.
(f) Casualty Losses. Any casualty loss or losses, not covered by
---------------
insurance, in excess of $1,000,000.
(g) Notices re: Bonding Issues. The receipt by the Borrower or any
--------------------------
Guarantor of any notice or other communication from the Bonding Company
regarding material changes in the Bonding Company's issuance of payment or
performance bonds in connection with the projects to be performed by the
Borrower, any Guarantor or their Consolidated Subsidiaries.
(h) Notices of Violation. The receipt by the Borrower or any
--------------------
Guarantor of any notice, order, directive or other written communication from a
Governmental Authority commencing an investigation or inquiry by any
Governmental Authority or alleging violations of or noncompliance with any
Requirement of Law which could reasonably be expected to have or result in a
Material Adverse Effect.
(i) Changes to Schedules. Any changes to the information on SCHEDULES
--------------------
6.21A and 6.21B.
(j) Notices re: Merger Agreement. Any amendment of the Merger
-----------------------------
Agreement, any breach or default under the Merger Agreement or the termination
of the Merger Agreement.
(k) Notices re: MK Rail Documents. Any amendment of the MK Rail
------------------------------
Documents, any breach or default of any of the MK Rail Documents or the
termination of any MK Rail Document.
7.3. Filing of Returns; Payment of Taxes. Except as permitted by the
-----------------------------------
Bankruptcy Code, file and shall cause each Guarantor and Consolidated Subsidiary
to file all tax returns when due and pay or cause to be paid before the same
shall become delinquent and before penalties have accrued thereon, all taxes,
assessments and governmental charges or levies imposed on the income, profits,
franchises, property or business of the Borrower and the Guarantors except to
the extent and so long as (a) the same are being contested in good faith by
appropriate proceedings, and (b) as to which adequate reserves in conformity
46
<PAGE>
with Generally Accepted Accounting Principles with respect thereto have been
provided on the books of the Borrower and the Guarantors.
7.4. Maintenance of Existence. Maintain and preserve, and, will cause the
------------------------
Guarantors and each of their Consolidated Subsidiaries to maintain and preserve,
its respective existence as a corporation or other form of business
organization, as the case may be, and all rights, privileges, licenses, patents,
patent rights, copyrights, trademarks, trade names, franchises and other
authority to the extent material and necessary for the conduct of its respective
business in the ordinary course as conducted from time to time except where the
failure to do so results solely from the commencement of the Case.
7.5. Compliance with Laws. Except as permitted by the Bankruptcy Code,
--------------------
comply, and cause each Guarantor and each Consolidated Subsidiary to comply,
with all Requirements of Law in all material respects except where the necessity
of compliance therewith is contested in good faith by appropriate proceedings
except where the failure to do so results solely from the commencement of the
Case.
7.6. Maintenance of Properties. Maintain, preserve and keep and cause each
-------------------------
Guarantor and Consolidated Subsidiary to maintain, preserve and keep, all of its
buildings, tangible properties, equipment and other property and assets, whether
owned or leased, used and necessary in its business, in good repair, working
order and condition, and from time to time to make all necessary and proper
repairs and replacements so that at all times the utility, efficiency or value
thereof shall not be impaired in any material respect.
7.7. Insurance. Maintain and cause each Guarantor and Consolidated
---------
Subsidiary to maintain, (a) insurance (in addition to any insurance required
under the Security Documents) on all insurable property and assets owned or
leased by the Borrower or the Guarantors in the manner, to the extent and
against at least such risks (in any event, including liability and casualty,
including hazard, fire and business interruption coverage) usually done by
owners of similar businesses and properties in similar geographic areas, and
adequate workers' compensation insurance and (b) appropriate self-insurance
reserve funds covering those risks for which the Borrower or the Guarantors
presently self-insure, which self-insurance reserves shall be funded to the
extent from time to time required by the insurer for the Borrower and the
Guarantors (which insurer shall be acceptable to the Agent) or another excess
insurance carrier for the Borrower and the Guarantors acceptable to the Agent.
All such insurance shall be in such amounts and form and with such insurance
companies as are reasonably satisfactory to the Agent and shall name the
Collateral Agent, for the benefit of the
47
<PAGE>
Lenders, the Agents and the Deposit Banks, as an additional insured. The
Borrower or the Guarantors shall furnish the following to the Agent: (x)
annually or at any time upon written request, full information as to such
insurance carried, including the amounts of all self-insurance reserve funds;
(y) lender loss payable endorsements (Form 438 BFU) in favor of the Collateral
Agent (for the benefit of the Lenders, the Agents and the Deposit Banks), in
form and substance satisfactory to the Agent; and (z) at least annually and on
such other times as reasonably requested by the Agent, certificates of insurance
from such insurance companies and certified copies of such insurance policies.
All policies of insurance shall provide for not less than 30 days prior written
cancellation notice to the Agent.
7.8. Books and Records. Keep and maintain and cause each Guarantor and
-----------------
Consolidated Subsidiary to keep and maintain full and accurate books of record
and accounts of its operations, dealings and transactions in relation to its
business and activities, in conformity with Generally Accepted Accounting
Principles and all Requirements of Law.
7.9. Compliance With Terms of All Real Property Related Agreements.
-------------------------------------------------------------
Except as permitted by the Bankruptcy Code, make and cause each Guarantor and
Consolidated Subsidiary to make all payments and otherwise perform all of its
obligations in respect of all Real Property Collateral with respect to which the
failure to so perform could have a material adverse effect on the security
afforded thereby, and use its best efforts to keep, and take all action to keep,
the leases on all leaseholds in full force and effect, and not allow such leases
to lapse or be terminated or any rights to renew such leases to be forfeited or
canceled, and notify the Agent of any defaults of the Borrower or any Guarantor
or any default of any other party with respect to such leases and cooperate in
all respects with all actions of the Agent to cure such defaults.
7.10. Hazardous Materials. Except in compliance with all applicable
-------------------
Environmental Laws, the Borrower shall not and shall use its reasonable best
efforts not to cause or permit and Guarantor, any Subsidiary or any other person
or entity to, cause or permit the presence, use, generation, manufacture,
installation, release, discharge, storage or disposal of any Hazardous Materials
on, under, in or about any real property owned by the Borrower, the Guarantors
or any Subsidiary or any real property leased, subleased, occupied or used by
the Borrower, the Guarantor or any Subsidiary, or the transportation of any
Hazardous Materials to or from any such real property unless such use or
transportation is on a temporary basis incidental to the conduct of its business
in the ordinary course and is performed in a manner that does not cause a
material violation of any applicable Environmental Law. In the event of any
breach or violation of the foregoing, or in the event of any
48
<PAGE>
other release or threatened release of Hazardous Materials on, under, in or
about any real property owned by the Borrower or any real property leased,
subleased, occupied or used by the Borrower, the Borrower shall promptly
commence and diligently complete a clean-up or other remediation of any such
environmental contamination to the extent required by applicable Environmental
Law using a duly qualified, licensed and insured contractor. In the event of
any release or threatened release of Hazardous Material on, under, in or about
any real property owned by any Guarantor or Subsidiary or any real property
leased, subleased, occupied or used by any Guarantor or Subsidiary, the Borrower
shall cause such Guarantor or Subsidiary to promptly commence and diligently
complete a clean-up or other remediation of any such environmental contamination
to the extent required by applicable Environmental Law using a duly qualified,
licensed and insured contractor.
7.11. Intellectual Property Assignments. Execute and shall cause each
---------------------------------
Guarantor and Consolidated Subsidiary to execute intellectual property
assignments in form and substance satisfactory to the Agent, upon the Borrower's
or any Guarantor's or Consolidated Subsidiary's applications with any state or
federal agency for or registration of any patents, trademarks or other
intellectual property or licenses thereof, and cooperate with the Agent to have
such assignments or other documents filed with the appropriate state or federal
agency.
7.12. Further Assurances. Perform, make, execute and deliver and cause
------------------
the Guarantors and their Consolidated Subsidiaries to perform, make, execute and
deliver all such additional and further acts, things, deeds, occurrences and
instruments as the Agent or the Majority Lenders may reasonably require to
document and consummate the transactions contemplated hereby and to vest
completely in and ensure the Agent, the Lenders, and the Deposit Banks their
respective rights under this Agreement, the Notes and the other Loan Documents.
7.13. Inspection of Property, Books and Records. Keep, and will cause
-----------------------------------------
each Guarantor and each Consolidated Subsidiary to keep, proper books of record
and account in which full, true and correct entries in conformity with Generally
Accepted Accounting Principles shall be made of all dealings and transactions in
relation to its business and activities; and will permit, and will cause each
Guarantor and Consolidated Subsidiary to permit, representatives and
Professionals of the Agent, including Ernst & Young (at the Borrower's expense),
to enter upon the Real Property Collateral, to take and remove soil and
groundwater samples from the Real Property Collateral, to conduct tests on any
part of the Real Property Collateral, to visit, inspect, and appraise any of the
Collateral, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their
49
<PAGE>
respective officers, employees and independent public accountants, all at such
times and as often as may be desired.
7.14. Use of Proceeds. In addition to the specific restrictions imposed
---------------
under this Agreement, the Borrower shall only use the proceeds of the Loans (a)
to repay the obligations under the Prepetition Credit Agreement, (b) to pay all
accrued and hereafter accruing interest, fees and reimbursable expenses owing to
the Existing Lenders under the Override Agreement, (c) to repay the transaction
expenses as provided under the Merger Agreement, including the break-up fees, if
any, set forth in Section 10.3 of the Merger Agreement, (d) in the ordinary
course of business to the extent such use is consistent with the Budget,
including payments to the Boise Landlord (as defined in the Plan of
Reorganization) pursuant to the terms of the Plan of Reorganization, and (e) out
of the ordinary course of business upon approval of the Bankruptcy Court after
notice (including notice to each Lender) and opportunity for hearing and in a
manner consistent with the Budget or to the extent not consistent with the
Budget, upon the written consent of the Majority Lenders.
7.15. Cash Management System. Comply, and cause MKO and each other
----------------------
Guarantor to comply, with each of the covenants contained in the Cash Management
System.
7.16. Statement of Financial Affairs. File a Statement of Financial
------------------------------
Affairs and Schedules of Assets and Liabilities in the Case and provide a copy
to the Agent by October 31, 1996.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
So long as any Loans or other amounts due hereunder are unpaid or
outstanding, any Obligations are unperformed or any of the Commitments are in
effect, the Borrower shall not, unless the Majority Lenders shall otherwise
agree:
8.1. Indebtedness. Create, incur, assume or suffer to exist, or permit any
------------
Guarantor or Consolidated Subsidiary to create, incur, assume or suffer to
exist, any Indebtedness, except:
------
(a) Indebtedness of the Borrower and the Guarantors in connection with
this Agreement;
(b) Indebtedness existing, or relating to commitments existing, on the
Closing Date, all as set forth on SCHEDULE 8.1;
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<PAGE>
(c) Indebtedness with respect to financed insurance premiums which is
not past due;
(d) Indebtedness for performance or payment bonds incurred in the
ordinary course of the Borrower's or any Guarantor's or Consolidated
Subsidiary's business;
(e) Indebtedness of MKO pursuant to a guaranty of the Corporate Card
Account Agreement between American Express Travel Services, Company, Inc. and
MKO's wholly-owned Subsidiary, Rocky Mountain Remediation Services Limited
Liability, Inc.
8.2. Negative Pledge. Create, assume or suffer to exist, or permit any
---------------
Guarantor or Consolidated Subsidiary to create, assume or suffer to exist, any
Lien on any asset now owned or hereafter acquired by them, except:
(a) Liens of the Loan Documents;
(b) Liens existing on the date of this Agreement securing Indebtedness
outstanding on the date of this Agreement which are listed on SCHEDULE 8.2
hereto;
(c) Any Lien on any asset securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
asset; provided, that such Lien attaches to such asset concurrently with or
--------
within 90 days after the acquisition thereof;
(d) Any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section; provided, that such Indebtedness is not
--------
increased and is not secured by any additional assets;
(e) Liens for taxes either not yet due or being contested in good
faith by appropriate proceedings so long as such proceedings do not involve any
material danger of the sale, forfeiture or loss of any material asset and the
Borrower shall maintain in accordance with Generally Accepted Accounting
Principles appropriate reserves therefor;
(f) Materialmen's, mechanic's, workmen's repairmen's or other like
Liens arising in the ordinary course of business (including those arising under
maintenance agreements entered into in the ordinary course of business) securing
obligations that are not overdue or are being contested in good faith by
appropriate proceedings so long as such proceedings do not involve any material
danger of the sale, forfeiture or loss of any material asset; and
51
<PAGE>
(g) Liens which are bonded in a manner reasonably satisfactory to the
Majority Lenders.
8.3. Prohibition of Fundamental Changes. Other than as set forth in the
----------------------------------
Plan of Reorganization, directly or indirectly, (whether in one transaction or a
series of transactions), (a) enter into any transaction of merger, consolidation
or amalgamation; (b) liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution); (c) convey, sell, lease, transfer or otherwise
dispose of all or a substantial part of its respective business or assets; (d)
acquire by purchase or otherwise all or substantially all the business or
assets, or stock or other evidence of beneficial ownership, of any Person; (e)
make any material change, which could have an adverse effect on the Borrower's
ability to perform its Obligations hereunder, in its present method of
conducting business; (f) enter into any agreement or transaction where they are
bound to do or permit any of the foregoing; or (g) permit any Guarantor or any
Consolidated Subsidiary to do any of the foregoing.
8.4. Prohibition on Sale of Assets. Sell, transfer, convey, lease or
-----------------------------
otherwise dispose of, or permit any Guarantor or any Consolidated Subsidiary
(except Emkay Development Company, Inc.) to sell, transfer, convey, lease, or
otherwise dispose of, all or any of the assets of the Borrower, any Guarantor
and their Consolidated Subsidiaries except (i) sales of inventory in the
ordinary course of business; (ii) sales of assets not exceeding $50,000 for
which no consent shall be required; (iii) sales of assets greater than $50,000
but less than $600,000 which sales shall require the consent of the Agent; (iv)
sales of equipment greater than $600,000 in the aggregate but less than
$1,500,000 in the aggregate which sales shall require the consent of the
Majority Lenders; and (v) sales of equipment in excess of $1,500,000 in the
aggregate which sales shall require the consent of All Lenders; provided,
however, to the extent that any such equipment constitutes equipment that is
subject to the Intercreditor Agreements and secures new bonds issued by the
Bonding Company (the "Subject Equipment"), the Borrower, the Guarantors and the
Consolidated Subsidiaries shall be permitted to sell, transfer, convey, lease or
otherwise dispose of any and all Subject Equipment without the consent of the
Lenders or the Agents and notwithstanding SECTION 2.9(a) hereof, the Borrower,
the Guarantors and the Consolidated Subsidiaries (except Emkay Development
Company, Inc.) shall be permitted to retain the Net Cash Proceeds of such
Subject Equipment so long as (x) such Net Cash Proceeds are used to cash-
collateralize new bonds obtained from the Bonding Company, and (y) such Net Cash
Proceeds are used as the first money to be expended to replace any such Subject
Equipment.
8.5. Investments. Make or commit to make any loan, extension of credit or
-----------
capital contribution to, or purchase of
52
<PAGE>
any stock, bonds, notes, debentures or other securities of, or make any other
investment in any Person (all such transactions being called "Investments"), or
permit any Guarantor or any Consolidated Subsidiary to do any of the foregoing,
except:
(a) Investments in Cash Equivalents;
(b) Investments existing on the Closing Date and set forth in SCHEDULE
8.5 hereto;
(c) Investments made in any Person in accordance with the Budget; and
(d) Investments approved by the Bankruptcy Court so long as the
Collateral Agent has a first priority lien on any such investments.
8.6. Compliance with ERISA. Except as permitted by the Bankruptcy Code:
---------------------
(a) Terminate any Single Employer Plan maintained by the Borrower or a
Commonly Controlled Entity so as to result in any material liability to PBGC.
(b) Engage in any "prohibited transaction" (as defined in Section 4975
of the Code) involving any Single Employer Plan maintained by the Borrower, any
Guarantor or a Commonly Controlled Entity which would result in a material
liability for an excise tax or civil penalty in connection therewith.
(c) Incur or suffer to exist any material "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
involving any Single Employer Plan maintained by the Borrower, any Guarantor or
a Commonly Controlled Entity.
(d) Allow or suffer to exist any event or condition, which presents a
material risk of incurring a material liability to PBGC by reason of the
termination of any Plan.
8.7. Restricted Payments. Except to the extent provided in the Plan of
-------------------
Reorganization, (a) declare, pay or make or permit any Guarantor or Consolidated
Subsidiary to declare, pay or make (i) any dividends or other distributions with
respect to its capital stock or rights to acquire capital stock or any payment
on account of such capital stock or rights to acquire capital stock, or (ii) any
prepayment of principal or prepayment of interest on account of any of its
Indebtedness, (b) set apart assets for a sinking or any analogous fund for the
purchase, redemption, or retirement or other acquisition of, any shares of its
capital stock or rights to acquire capital stock or any of
53
<PAGE>
its Indebtedness, or (c) purchase, defease, acquire or redeem any of its
Indebtedness; provided, that the Borrower may make required or permitted
--------
payments or prepayments on the Loans.
8.8. Transactions With Affiliates. Enter into any transaction, or permit
----------------------------
any Guarantor or any Consolidated Subsidiary to enter into any transaction,
including any purchase, sale, lease or exchange of property or the rendering of
any service, with any Affiliate or employee; except transactions which are
contemplated by this Agreement or are in the ordinary course of the Borrower's,
or such Guarantor's or such Consolidated Subsidiary's business and are made in
accordance with the Budget.
8.9. Sale/Lease-Backs. Enter into any arrangements, directly or
----------------
indirectly, with any Persons whereby the Borrower or any Guarantor or
Consolidated Subsidiary shall sell or transfer any property, whether now owned
or hereafter acquired in connection with the rent or lease of (i) such property
or (ii) other property which the Borrower or such Guarantor or Consolidated
Subsidiary intends to use for substantially the same purpose or purposes as the
property so sold or transferred.
8.10. Operating Leases. Incur, or permit any Guarantor or Consolidated
----------------
Subsidiary to incur, at any time any additional annual lease payments as lessee
under Operating Leases, excluding (i) scheduled increases in lease payments in
connection with leases existing on the Closing Date and as set forth in SCHEDULE
8.10 or replacements of such leases upon expiration thereof and (ii) conversions
of existing Capital Leases to Operating Leases, so long as such conversion does
not have the effect of increasing total annual lease payments to the lessor; and
(iii) lease payments in connection with new Operating Leases, provided that the
--------
aggregate annual lease payments for such Operating Leases shall not exceed
$1,000,000.
8.11. Capital Expenditures. Make, or permit any Guarantor or Consolidated
--------------------
Subsidiary to make, any Capital Expenditures other than (a) items included in
the Budget for Mining, Transit, Infrastructure, and EC&E or (b) other Capital
Expenditures aggregating not more than $1,000,000.
8.12. Amendment of Charter or Bylaws. Except as set forth in the Plan of
------------------------------
Reorganization, amend or permit any Guarantor or Consolidated Subsidiary to
amend, their articles of incorporation to revise, in any material respect, the
Borrower's, any Guarantor's or any Consolidated Subsidiary's capital structure,
or to change the names of the Borrower, any Guarantor, or any Consolidated
Subsidiary or make any other material amendments thereto or to their bylaws
without promptly providing a copy thereof to the Agent.
54
<PAGE>
8.13. No Consent to Subordination. Give its consent, or permit any
---------------------------
Guarantor or Consolidated Subsidiary to give its consent, to the subordination
of any of its rights or claims (including any subordination in the form of an
agreement to defer remedies or extend maturities) to any right or claim of any
other Person other than subordination of the MK Rail Note.
8.14. Intercompany Obligations. Except as provided in the Plan of
------------------------
Reorganization and the MK Rail Documents, adjust, settle or compromise, any
amounts receivable from any Guarantor or Subsidiary or Affiliate including, but
not limited to, accounts receivable, notes receivable, or any other intercompany
account reflected on the books of the Borrower; provided, that the Borrower may
--------
adjust, settle or compromise any amounts receivable from any Guarantor or
Subsidiary or Affiliate if the aggregate amount of such adjustments,
settlements, or compromises does not exceed $500,000.
8.15. Prepetition Indebtedness. Pay any of its Indebtedness that arose
------------------------
prior to the Petition Date unless such payment has been approved by the
Bankruptcy Court, other than (i) interest, fees and reasonable expenses payable
under the Override Agreement and (ii) repayment of all obligations under the
Prepetition Credit Agreement.
ARTICLE IX
DEFAULTS
--------
9.1. Events of Default. Notwithstanding the provisions of Section 362 of
-----------------
the Bankruptcy Code and without application or motion to the Bankruptcy Court,
any one or more of the following described events shall constitute an Event of
Default hereunder, whether such occurrence shall be voluntary or involuntary, or
occur or be effected by operation of law or otherwise:
(a) The Borrower shall fail to pay when due any principal, interest,
fees, expenses, or any other amount owing in respect of any of the Loans or any
of the other Obligations when due and payable pursuant to the terms thereof or
hereof;
(b) The Borrower or any Guarantor shall fail to observe or perform
any covenant contained in ARTICLE VIII;
(c) The Borrower or any Guarantor shall fail to observe or perform
any covenant or agreement contained in this Agreement or the other Loan
Documents (other than those covered by clause (a) or (b) above) for 10 days
after written notice thereof has been given to the Borrower by the Agent;
55
<PAGE>
(d) Any representation or warranty of the Borrower or any Guarantor
set forth in this Agreement, the Notes or the other Loan Documents or in any
other certificate, opinion or other statement at any time provided by or on
behalf of the Borrower or any Guarantor pursuant hereto shall prove to be in any
material respect false or misleading at the time given or deemed given;
(e) Any Guarantor or any Consolidated Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its Indebtedness under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its Indebtedness as it becomes due, or shall take any corporate action to
authorize any of the foregoing;
(f) An involuntary case or other proceeding shall be commenced against
the Borrower or any Guarantor or any Consolidated Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its
Indebtedness under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 20 days; or an order for relief shall
be entered against the Borrower or any Guarantor or Consolidated Subsidiary
under the federal bankruptcy laws as now or hereafter in effect;
(g) Any writ of execution, attachment or garnishment or any lien, any
judgment or any other legal process to be issued against the Borrower or any of
the property of the Borrower, any Guarantor or their Subsidiaries (including the
Collateral) which by itself or together with all other such legal processes is
for an amount in excess of $10,000,000 which shall remain unvacated, unbonded or
unstayed;
(h) Actual disbursements of any type shall exceed the total projected
disbursements as set forth in the Budget by $20,000,000 during the week
following the Closing Date and $10,000,000 in any one week thereafter or
$20,000,000 in the aggregate;
56
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(i) Actual Financing Shortfall shall exceed the projected amount as
set forth in the Budget by $10,000,000 in any one week or $20,000,000 in the
aggregate;
(j) All or substantially all of the property of the Borrower, any
Guarantor or any Consolidated Subsidiary shall be condemned, seized or otherwise
appropriated;
(k) The Borrower, any Guarantor or any Commonly Controlled Entity
shall engage in (a) any "prohibited transaction" (as defined in ERISA or Section
4975 of the Code) involving any Single Employer Plan maintained by the Borrower,
any Guarantor or a Commonly Controlled Entity, (b) any "accumulated funding
deficiency" (as defined in ERISA), whether or not waived, shall exist with
respect to any Single Employer Plan maintained by the Borrower, any Guarantor or
a Commonly Controlled Entity, (c) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or institution of proceedings presents a material risk of
termination of such Plan for purposes of Title IV of ERISA, and, in the case of
a Reportable Event, the continuance of such Reportable Event unremedied for ten
days after notice of such Reportable Event pursuant to Section 4043(a), (c) or
(d) of ERISA is given or the continuance of such proceedings for ten days after
commencement thereof, as the case may be, (d) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (e) the withdrawal or partial
withdrawal from any Multi-employer Plan, or (f) the reorganization or insolvency
of a Single Employer Plan maintained by the Borrower, any Guarantor or a
Commonly Controlled Entity and in each case in clauses (a) through (f) above,
such event or condition together with all other such events or conditions, if
any, would subject the Borrower or any Guarantor to any tax, penalty or other
liabilities in excess of $1,000,000 or would otherwise have a materially adverse
effect on the business, operations, property, financial or other condition of
the Borrower any Guarantor or any Guarantor and any of their Subsidiaries;
(l) Any other event or condition occurs or exists which could have or
result in a Material Adverse Effect;
(m) The Borrower shall bring a motion before the Bankruptcy Court to:
(i) obtain additional financing or incur Indebtedness including Indebtedness
that is (x) secured by a Lien that is equal or prior to any one or more Liens
heretofore, hereby, or hereafter granted to Collateral Agent for the benefit of
Lenders, the Agents and the Deposit Banks or directly to Lenders, the Agents and
the Deposit Banks, or (y) entitled to priority administrative status that is
equal or superior to that granted Collateral Agent for the benefit of Lenders,
the Agents
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and the Deposit Banks or directly to Lenders, the Agents and the Deposit Banks
herein, (ii) use Cash Collateral of Lenders under Section 363(c) of the
Bankruptcy Code without the written consent of Majority Lenders, (iii) surcharge
Lenders, the Collateral or any proceeds of the Collateral for the costs or
expenses of preserving or disposing of such Collateral under Section 506(c) of
the Bankruptcy Code, any other provisions of the Bankruptcy Code or applicable
law, or (iv) take any other action or actions adverse to the Lenders', the
Collateral Agent's, the Deposit Banks' or the Agent's rights and remedies
hereunder or interests in the Collateral that would, individually or in the
aggregate, have a Material Adverse Effect;
(n) The appointment of an interim or permanent trustee in the Case or
the appointment of an examiner (or any other Person) in the Case with the power
to operate or manage the financial affairs, the business, or reorganization of
the Borrower;
(o) The dismissal of the Case or the conversion of the Case from one
under chapter 11 to one under chapter 7 of the Bankruptcy Code;
(p) The entry of an order by the Bankruptcy Court granting relief from
or modifying the automatic stay of Section 362 of the Bankruptcy Code (i) to
allow any creditor to execute upon, enforce or perfect a Lien on any Collateral,
or (ii) with respect to any Lien of, or the granting of any Lien on, any
Collateral to any state or local environmental or regulatory agency or
authority, which in either case would have a Material Adverse Effect;
(q) The modification of the Interim Order or Final Order without the
consent of the Majority Lenders, or the reversal, stay or vacation of the
Interim Order or Final Order; and
(r) The commencement of a suit, action or other proceeding against any
Lender, any Agent or any Deposit Bank that asserts, by or on behalf of the
Borrower, or any of its creditors, any official committee appointed in the Case,
or any other Person: (i) an objection to the allowance of any Lender's, any
Agent's or any Deposit Bank's claims against the Borrower; (ii) an avoidance
action against any Lender, any Agent or any Deposit Bank; (iii) any cause of
action or claim which seeks to reduce, limit, defend against, setoff,
counterclaim, or subordinate the Borrower's Obligations or other indebtedness to
the Collateral Agent, any Lender, any Deposit Bank or the Agent, challenge or
affect the validity, extent, or priority of the Collateral Agent's, any
Lender's, the Agent's or any Deposit Bank's security interest in the Collateral
or any Override Collateral, or assert or recover any legal or equitable remedy
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against the Collateral Agent, any Lender, any Deposit Bank or the Agent;
provided, however, that actions by holders of alleged mechanics', vendors', tax
- -------- -------
or similar Liens arising by operation of law that seek a determination of the
relative priority or extent of the Liens of Lenders shall not constitute an
Event of Default.
9.2. Remedies. Subject to SECTION 9.4 and notwithstanding the provisions
--------
of Section 362 of the Bankruptcy Code and without application or motion to, or
order from, the Bankruptcy Court, if any Event of Default shall have occurred
and be continuing, the Agent may upon the request of Majority Lenders (i) by
notice in writing to the Borrower terminate this facility with respect to
further Loans, whereupon no further Loans may be made hereunder, (ii) by notice
in writing to the Borrower (a "Notice of Acceleration") declare all Obligations
due hereunder and under the Loan Documents, to be immediately due and payable,
(iii) exercise all rights and remedies allowed by applicable laws, including
those rights and remedies set forth in SECTION 9.5, and (iv) revoke Borrower's
right to use Cash Collateral in which the Lenders, the Agents and the Deposit
Banks have an interest.
9.3. Waivers by Borrower. Except as otherwise provided for in this
-------------------
Agreement and applicable law, the Borrower waives (i) presentment, demand and
protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by the Agent, the Collateral Agent, the Lenders or the Deposit
Banks on which the Borrower may in any way be liable and hereby ratify and
confirm whatever the Agent, the Collateral Agent, the Lenders or the Deposit
Banks may do in this regard, (ii) all rights to notice and a hearing prior to
the Collateral Agent's taking possession or control of, or replevy, attachment
or levy upon, the Collateral, or any bond or security which might be required by
any court prior to allowing the Agent or the Collateral Agent to exercise any of
its remedies, and (iii) the benefit of all valuation, appraisal and exemption
laws. The Borrower acknowledges that it has been advised by counsel of its
choice with respect to the effect of the foregoing waivers and this Agreement,
the other Loan Documents and the transactions evidenced by this Agreement and
the other Loan Documents, generally.
9.4. Relief from the Automatic Stay. Pursuant to section 362 of the
------------------------------
Bankruptcy Code, the Agent, the Collateral Agent and/or the Lenders are
obligated to obtain an order from the Bankruptcy Court granting relief from the
automatic stay in order to enforce any rights or remedies in respect of the
Collateral granted by the Borrower, but the Agent, the Collateral Agent, the
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Deposit Banks, and/or the Lenders are not obligated to obtain relief from the
automatic stay in order to terminate funding hereunder or to enforce rights and
remedies against the Guarantors or the Collateral granted by the Guarantors.
The Agent, the Collateral Agent, and/or the Lenders, acting through the
Collateral Agent or Agent, shall have the right to seek relief from the
automatic stay on an expedited basis at a final hearing to be held not earlier
than three (3) Business Days after the Collateral Agent or the Agent delivers
written notice to the Borrower and the representatives of any official
committees appointed under Section 1102 of the Bankruptcy Code of its intent to
seek relief from the automatic stay, or as soon thereafter as the Bankruptcy
Court's calendar permits. Pending final hearing on any such request for relief
from the automatic stay, the Borrower will be required to strictly comply with
the provisions hereof and the other Loan Documents.
9.5. Other Remedies. Subject to SECTION 9.4, upon the occurrence of an
--------------
Event of Default or at any time thereafter, after notice and the lapse of any
cure period, where applicable, and in each and every case, until such Event of
Default shall have been remedied or waived in writing in accordance with SECTION
11.6, in addition to the remedies listed in SECTION 9.2 upon the earlier of a
Notice of Acceleration or acceleration of the Obligations, the Lenders acting by
and through the Agent and the Collateral Agent shall have all rights, powers and
remedies available under each of the Loan Documents and applicable law,
including (i) commencing judicial or nonjudicial foreclosure proceedings against
the Real Property Collateral, (ii) enforcing the Collateral Agent's security
interest in the Collateral by means of one or more public or private sales
thereof, (iii) taking possession of all or any portion of the Collateral, in
person or by means of a court appointed receiver (who shall be appointed without
regard to the value of Collateral Agent's security), and (iv) exercising any or
all of the rights of a beneficiary or secured party pursuant to applicable law.
Subject to SECTION 9.4, all rights, powers and remedies of the Agents, the
Lenders or the Deposit Banks in connection with each of the Loan Documents may
be exercised at any time or from time to time, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity. Subject to SECTION 9.4, upon the request of the Majority Lenders
after the occurrence of an Event of Default, the Agent shall instruct the
Collateral Agent to exercise any remedies under the Loan Documents, including
collection of funds in deposit accounts, foreclosure on Real Property
Collateral, seeking a receiver to take possession of any Collateral and/or the
Real Property Collateral, and commencement of or actions in court proceedings.
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ARTICLE X
THE AGENT
---------
10.1. Appointment. Each Lender hereby (a) irrevocably appoints Mellon
-----------
Bank, N.A. as the Agent of such Lender under this Agreement and the other Loan
Documents, and (b) irrevocably authorizes the Agent to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Agent by the terms of this Agreement and the other Loan Documents, together
with such other powers as are reasonably incidental thereto. Notwithstanding
anything to the contrary herein, the Agent shall have no duties, except those
expressly set forth in this Agreement and the other Loan Documents, and no
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement and the other Loan Documents or otherwise exist against
the Agent.
10.2. The Agent and Affiliates. The Agent shall have the same rights and
------------------------
powers under this Agreement as any other Lender and may exercise or refrain from
exercising the same as though it were not the Agent, and the Agent, and its
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower, any Guarantor or any Subsidiary or Affiliate
of the Borrower or any Guarantor as if it were not the Agent hereunder.
10.3. Retention of Documents and Information to the Lenders. The Agent
-----------------------------------------------------
shall deliver to each Lender any material documents and written information
required under this Agreement to be delivered by the Borrower to the Agent
within a reasonable period after the Agent's receipt of such documents or
information.
10.4. Delegation of Duties. The Agent may exercise any of its powers or
--------------------
execute any of its duties under this Agreement and the other Loan Documents by
or through one or more agents or attorneys-in-fact and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to
such rights and duties. The Agent may utilize the services of such agents and
attorneys-in-fact as the Agent in its sole discretion reasonably determines, and
all fees and expenses of such agents and attorneys-in-fact shall be paid by the
Borrower on demand. The Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by the Agent with
reasonable care.
10.5. Limitation of Liability. Neither the Agent nor its officers,
-----------------------
directors, employees, agents, attorneys-in-fact or affiliates shall be (a)
liable for any waiver, consent or approval given or any action taken or omitted
to be given or
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<PAGE>
taken by them or by such Person under or in connection with this Agreement or
the other the Loan Documents or (b) responsible for the consequences of any
oversight or error in judgment by them or such Person whatsoever, except for
their or such Person's own gross negligence or willful misconduct. The Agent
shall not be responsible for (v) the execution, validity, enforceability,
effectiveness or genuineness of this Agreement or the other Loan Documents, (w)
the collectability of any amounts owing under this Agreement or the other Loan
Documents, (x) the value, sufficiency, enforceability or collectability of any
Collateral security therefor, (y) the failure by the Borrower to perform its
Obligations hereunder or (z) the truth, accuracy and completeness of the
recitals, statements, representations or warranties made by the Borrower or any
officer or agent thereof contained in this Agreement, the other Loan Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent in connection with, this Agreement or
the other Loan Documents.
10.6. Reliance by the Agent. The Agent shall not have any obligation (a)
---------------------
to ascertain or to inquire as to the observance or performance of any of the
conditions, covenants or agreements in this Agreement or the other Loan
Documents or in any document, instrument or agreement at any time constituting,
or intended to constitute, collateral security therefor, (b) to ascertain or
inquire as to whether any notice, consent, waiver or request delivered to them
shall have been duly authorized or is genuine, accurate and complete, or (c) to
inspect the properties, books or records of the Borrower. The Agent shall be
entitled to rely, and shall be fully protected in relying, (x) upon any writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document, instrument or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons, or (y)
upon advice and statements of legal counsel, independent accountants and other
experts selected by the Agent. The Agent may deem and treat each Lender party
hereto or any Assignee as an Lender for all purposes unless a written notice of
the assignment, negotiation or transfer thereof, in accordance with the
provisions of this Agreement shall have been delivered to the Agent identifying
the name of any successor or Assignee. The Agent shall be entitled to fail or
refuse, and shall be fully protected in failing or refusing, to take any action
under this Agreement or the other Loan Documents unless (a) it first shall
receive such advice or concurrence of the Majority Lenders as it deems
appropriate, or (b) it first shall be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. In all cases the Agent
shall be fully protected in acting, or in refraining from acting, under this
Agreement or the Loan Documents in accordance with a request
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<PAGE>
of the Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
Existing Indebtedness.
10.7. Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Event of Default unless the Agent has
received notice from a Lender or the Borrower referring to this Agreement,
describing such Event of Default and stating that such notice is a "notice of
default." If the Agent receives such a notice or has actual knowledge of the
occurrence of an Event of Default, the Agent promptly shall give notice thereof
to the Lenders. The Agent shall take such action with respect to such Event of
Default as shall be directed by the Majority Lenders; provided, however, that
-------- -------
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Event of Default as it deems advisable in the best
interests of the Lenders.
10.8. Non-Reliance on the Agent and the Other Lenders. Each Lender
-----------------------------------------------
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it. The Agent shall have no obligation or
liability to any of the Lenders regarding the creditworthiness or financial
condition of the Borrower. No act by the Agent hereinafter taken, including any
review of the Borrower, shall be deemed to constitute any representation or
warranty by the Agent to any Lender. Each Lender represents to the Agent that,
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it has deemed appropriate, it has made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and has made
its own decision to enter into this Agreement. Each Lender also represents
that, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it deems appropriate at the time, it
shall continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall have no obligation or liability to provide any Lender
with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of either of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
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10.9. Regulation U. Each of the Lenders represents to the Agent and each
------------
of the other Lenders that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
10.10. Indemnification. Each of the Lenders shall indemnify, defend and
---------------
hold harmless the Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their Pro Rata Share as of date demand for payment is made
upon such Lenders from and against any and all claims, demands, lawsuits, costs,
expenses, fees, liabilities, obligations, losses, damages, actions, recoveries,
judgments, suits, costs, expenses or disbursements of any kind whatsoever,
including interest, penalties and attorneys' fees and costs, whether direct,
indirect, consequential or incidental, which at any time (including at any time
following the payment of all amounts payable under the Override Agreements and
the Loan Documents) may be imposed on, incurred by or asserted against the Agent
in its capacity as such and not in its individual capacity in any way relating
to, resulting from or arising out of this Agreement, or the Loan Documents, the
transactions contemplated hereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided, however, that no
-------- -------
Lender shall be liable for the payment of any portion of such claims, demands,
lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages,
actions, remedies, judgments, suits, costs, expenses or disbursements to the
extent such result from the Agent's gross negligence or willful misconduct. The
agreements in this SECTION 10.10 shall survive the payment of all amounts
payable under Loan Documents and shall be in addition to and not in lieu of any
other indemnification agreements set forth in the Loan Documents.
10.11. The Agent in its Individual Capacity. The Agent in its individual
------------------------------------
capacity, and its Affiliates, may make loans and other financial accommodations
to, accept deposits from and generally engage in any kind of business with the
Borrower, the Guarantors and their Subsidiaries as though the Agent was not the
Agent hereunder. With respect to its Existing Indebtedness and any other
Indebtedness made or renewed by it, the Agent in its individual capacity shall
have the same benefits, rights, powers and privileges under this Agreement, and
the Loan Documents as any Lender and may exercise the same as though it were not
the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
10.12. The Successor Agent. The Agent may resign as such upon ten days'
-------------------
prior written notice to the Lenders. The Agent shall concurrently provide the
Borrower with a copy of such notice. If the Agent shall resign as such under
this Agreement,
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then the Majority Lenders shall appoint from among the Lenders a successor agent
for the Lenders. A successor agent may also be appointed by the Majority
Lenders if the Agent ceases to have any Existing Indebtedness, and upon such
appointment of a successor agent the Agent shall resign as such. Upon
acceptance of its appointment as the successor agent in writing, (a) such
successor agent shall succeed to the rights, powers, privileges and duties of
the Agent as the case may be, (b) the retiring Agent shall be discharged of all
its obligations and liabilities in such capacity under this Agreement, and the
Loan Documents, (c) the term "Agent" shall mean such successor agent effective
upon its appointment, and (d) the retiring Agent's rights, powers and duties as
the Agent as the case may be shall be terminated, without any other or further
act or deed on the part of such former Agent or any of the parties to this
Agreement or their successors and assigns. With respect to any actions taken or
omitted to be taken by the retiring Agent while it was the Agent (for which
retiring Agent may still have liability), the retiring Agent shall continue to
receive the benefits of this ARTICLE X, including SECTION 10.10.
10.13. Applicability of Section to The Borrower. Notwithstanding any
----------------------------------------
other provision contained in this ARTICLE X, the rights and obligations of the
Borrower under this Agreement shall not be affected by any provision otherwise
included in this ARTICLE X. The Borrower shall be permitted to rely on
communications from the Agent which it reasonably believes are made on behalf of
the Agent and, if specified therein, the Lenders, and except as otherwise set
forth specifically herein, all notices and payments to be made by the Borrower
hereunder shall be made to the Agent. Further, if any Lender shall be in
default hereunder, such default shall not affect the right and obligations of
the Borrower hereunder. The Agent shall provide the Borrower with prompt notice
of any default by any Lender.
ARTICLE XI
MISCELLANEOUS
-------------
11.1. Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing (including bank wire, facsimile
transmission or similar writing) and shall be given to such party at its address
or facsimile number set forth on the Schedule for Notices attached hereto or
such other address or facsimile number as such party may hereafter specify for
the purpose by notice to the Agent and the Borrower. Each such notice, request
or other communication shall be effective, (i) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (ii) if given by mail, seventy-two (72)
hours after such communication is deposited in
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the mails with first class postage prepaid, addressed as aforesaid or (iii) if
given by any other means, when delivered at the address specified in this
Section; provided, that notices to the Agent under ARTICLE II or ARTICLE III
--------
shall not be effective until received.
11.2. Entire Agreement. The execution and delivery of this Agreement,
----------------
the Notes and the other Loan Documents supersede all the negotiations or
stipulations concerning matters thereof which preceded or accompanied the
execution and delivery hereof and thereof. This Agreement, the Notes and the
other Loan Documents are intended, by the parties hereto and thereto, to be a
complete and exclusive statement of the terms and conditions hereof and thereof.
11.3. No Waivers. No failure or delay by the Agent, any Lender or any
----------
Deposit Bank in exercising any right, power or privilege hereunder or under any
Note or the other Loan Documents shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11.4. Expenses; Indemnification.
-------------------------
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses
of the Agents in connection with the preparation and administration of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder (including allocated costs of internal
counsel), and (ii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Agents or their Professionals, including the reasonable
fees and disbursements of counsel (including allocated costs of internal
counsel), in connection with such Event of Default and collection.
(b) If, at any time or times, regardless of the existence of an
Event of Default, any of the Agents shall employ counsel or other professional
advisors, including environmental and management consultants, for advice or
other representation or shall incur reasonable legal, appraisal, accounting,
consulting or other costs and expenses in connection with:
(i) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by any Lender, any Deposit Bank, the Borrower or any other
Person) in any way relating to the Collateral, any of the Loan Documents, or any
other agreements to be executed or delivered in connection therewith or
herewith, including any litigation, contest, dispute, suit, case, proceeding or
action, and any appeal or review thereof, in connection with a case commenced by
or against
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the Borrower or any other Person that may be obligated to any Lender, the
Collateral Agent, the Agent or any Deposit Bank by virtue of the Loan Documents,
under the Bankruptcy Code, or any other applicable Federal, state, or foreign
bankruptcy or other similar law;
(ii) any attempt to enforce any rights of any Lender, the Collateral
Agent, the Agent or any Deposit Bank against the Borrower, or any other Person
that may be obligated to any Lender, the Collateral Agent, the Agent or any
Deposit Bank by virtue of any of the Loan Documents;
(iii) any attempt to appraise, inspect, verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral, including any real
estate;
(iv) the review or drafting of any pleadings or other documents
related to the Case, attendance at any meetings related to the Case, and general
monitoring of the Case; and
(v) the Case and any Lender's, the Collateral Agent's, the Agent's or
any Deposit Bank's interests with respect to the Borrower, the Collateral or the
obligations and indebtedness under any of the Loan Documents; then, and in any
such event, the reasonable fees of such attorneys and other professional
advisors and consultants arising from such services, including those of any
appellate proceedings, and all reasonable expenses, costs, charges and other
fees incurred by such counsel or other professionals in any way or respect
arising in connection with or relating to any of the events or actions described
in this SECTION 11.4 shall be payable, on demand, by the Borrower and shall be
additional obligations and indebtedness under this Agreement secured under the
Security Documents and the other Loan Documents. Without limiting the
generality of the foregoing, such reasonable expenses, costs, charges and fees
may include: paralegal fees, costs and expenses; accountants' fees, costs and
expenses; appraisers' fees, costs and expenses; management and other
consultants' fees, costs and expenses; court costs and expenses; photocopying
and duplicating expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; secretarial overtime
charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other professional services.
All such fees and costs shall be added to the outstanding principal balance of
the Loans. It is agreed and understood that the Borrower, the Borrower's
subsidiaries, the Lenders and the Agents have had a course of dealing with
respect to the reimbursable fees, costs, expenses and other charges (other than
the fees listed in SECTION 2.7) incurred in connection with this Agreement. The
Agent agrees to invoice the Borrower, and/or the Borrower's subsidiaries bi-
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<PAGE>
weekly for invoices it has received for such fees, costs, expenses and other
charges and the Borrower agrees to pay or cause one of its Subsidiaries to pay,
such fees, costs, expenses and other charges promptly.
(c) The Borrower agrees to indemnify the Agent, each Lender, and each
Deposit Bank, their respective Affiliates and the respective directors,
officers, agents and employees of the foregoing (each an "Indemnitee") and hold
each Indemnitee harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including the reasonable fees and
disbursements of counsel (including allocated costs of internal counsel), which
may be incurred by such Indemnitee in connection with any investigative,
administrative or judicial proceeding (whether or not such Indemnitee shall be
designated a party thereto) brought or threatened (i) relating to or arising out
of this Agreement or any actual or proposed use of proceeds of Loans hereunder
or (ii) directly or indirectly resulting from, arising out of, or is based upon
(x) the presence, use, generation, manufacture, installation, release,
discharge, storage or disposal, at any time, of any Hazardous Materials on,
under, in or about, or the transportation of any such materials to or from, any
Real Property or real property owned, leased or operated by Borrower or any
Affiliate of Borrower (collectively, the "Subject Property") or (y) the
violation or alleged violation by Borrower or any Affiliate of Borrower of any
law, statute, ordinance, order, rule, regulation, permit, judgment or license
relating to the use, generation, manufacture, installation, release, discharge,
storage or disposal of Hazardous Materials to or from the Subject Property;
provided, that no Indemnitee shall have the right to be indemnified hereunder
- --------
(A) for such Indemnitee's own gross negligence or willful misconduct or (B) in
the case of any Lender, for its failure to perform the duties expressly required
to be performed by it by the terms of this Agreement, in each case as determined
by a court of competent jurisdiction.
11.5. Set-Off; Sharing of Set-Offs.
----------------------------
(a) In addition to any rights and remedies of the Agents, the
Lenders and the Deposit Banks provided by law, the Agents, the Lenders and the
Deposit Banks each shall have a security interest in any and all deposits of the
Borrower and any Guarantor (general or special, time or demand, provisional or
final) at any time held by such Lender which security interest shall secure the
Obligations. Upon the occurrence and during the continuance of an Event of
Default, provided that it has first received the written consent of the Agent
and subject to SECTION 9.4, without prior notice to the Borrower or any
Guarantor (any such notice being specifically waived by the Borrower or any
Guarantor to the fullest extent permitted by applicable law) each Lender and
each Deposit Bank may set off and apply against any
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Obligations, whether matured or unmatured, of the Borrower or any Guarantor to
the Lenders, or the Deposit Banks, as the case may be, any amount owing from the
Lenders or Deposit Banks to the Borrower or any Guarantor. No Lender shall
exercise any right of set-off it may have against the Borrower in connection
with the Obligations without the prior written consent of the Agent. Each
Lender promptly shall notify the Borrower and the Guarantors and the Agent after
any such setoff and application made by any such Lender or Deposit Bank;
provided, however, that failure to give such notice shall not affect the
- -------- -------
validity of such setoff and application. Each of the Deposit Banks expressly
agrees that it will not exercise set-off rights with respect to cash in the Cash
Management System for application against any Indebtedness, liabilities or other
obligations of the Borrower, any Guarantor or any Consolidated Subsidiaries
under any agreements other than the Loan Documents.
(b) Each Lender agrees that if it shall, by exercising any right of
set-off or counterclaim or otherwise, receive payment of a proportion of the
aggregate amount of principal and interest due to it which is greater than the
proportion received by any other Lender in respect of the aggregate amount of
principal and interest due to such other Lender, the Lender receiving such
proportionately greater payment shall purchase such participations in the Loans
held by the other Lenders, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Loans held by the Lenders shall be shared by the Lenders pro rata; provided,
--------
that nothing in this Section shall impair the right of any Lender to exercise
any right of set-off or counterclaim it may have and to apply the amount subject
to such exercise to the payment of Indebtedness of the Borrower other than its
Indebtedness hereunder. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Loan, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of such Borrower in the amount of such participation.
11.6. Amendments and Waivers. Any provision of this Agreement, the Notes
----------------------
or the other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower, the Agent and
the Majority Lenders; provided, that (i) the consent of All Lenders shall be
--------
required to amend, modify or waive any provision relating to (a) a change in the
amount or the time of payment of any amount owing on any of the Loans other than
the timing of any payment required under SECTION 2.9(A) OR 2.9(B), (b) a change
in the rate of interest or fees to be paid by the Borrower with respect to any
of the Loans, (c) a change in the definitions of "All
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<PAGE>
Lenders," "Majority Lenders," "Pro Rata Share" or the definitions referred to
therein, (d) any increase in the total amounts of the Commitments or in any
Lender's Maximum Loan Amount or Commitment or any change that subjects any
Lender to any additional obligation, (e) this SECTION 11.6, (f) the release of
the Borrower or any Guarantor, (g) any change in lien priorities created by the
Loan Documents, and (h) release of any Collateral that is not identified in the
Asset Disposition Program (for which the consent of the Majority Lenders shall
be required) or otherwise permitted to be released in connection with the Loan
Documents; (ii) any change in the duties of or indemnities in this Agreement in
favor of any Lender or in a Lender's Pro Rata Share shall require the consent of
such Lender; (iii) any change in the duties of or indemnities in favor of the
Agents shall require the consent of the Agent; and (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 "Deposit 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 "Deposit 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. Notwithstanding anything to the contrary
herein, the Agent and the Majority Lenders may modify, amend, restate,
supplement or waive any provision of ARTICLE X, other than SECTION 10.13,
without the consent of the Borrower.
11.7. Effect of Waivers; Modification of Documents. The Agent's, the
--------------------------------------------
Collateral Agent's, the Lenders' or the Deposit Banks' failure, at any time or
times, to require strict performance by the Borrower or any other Person of any
provision of this Agreement or any of the other Loan Documents shall not waive,
affect or diminish any right of the Agent, the Collateral Agent, the Lenders or
the Deposit Banks thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Agent, the Collateral Agent, the
Lenders or the Deposit Banks of a Default or Event of Default under this
Agreement or any of the other Loan Documents, shall not suspend, waive or affect
any other Default or Event of Default under this
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Agreement or any of the other Loan Documents, whether the same is prior or
subsequent thereto and whether of the same or of a different type. No waiver of
any provision of this Agreement or any other Loan Documents, nor consent to any
departure by the Borrower, or any other person or entity therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Agent
or the Majority Lenders or All Lenders, as the case may be, necessary to
effectuate such waiver or consent and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
11.8. Successors and Assigns.
----------------------
(a) This Agreement and the other Loan Documents shall be binding
upon any trustee appointed, or successor in interest of the Borrower, in the
Case or any subsequent case or cases commenced under the Bankruptcy Code
(including the conversion of the Case to a case under chapter 7), and shall not
be subject to SECTION 365 of the Bankruptcy Code. This Agreement and the other
Loan Documents shall be binding upon, and inure to the benefit of, the
successors of the Collateral Agent, the Agent, the Lenders and the Deposit
Banks, and the assigns, transferees and endorsees of the foregoing Persons. The
security interests and Liens created by this Agreement and the other Loan
Documents shall remain valid and perfected in the event of conversion of the
Case to a case under chapter 7 of the Bankruptcy Code or in the event of
dismissal of the Case or the release of any Collateral from the property of the
Borrower or jurisdiction of the Bankruptcy Court for any reason, without the
necessity that Lenders file financing statements or take any other actions to
perfect their security interests or Liens under applicable law. This Agreement
and all security interests or Liens created hereby or pursuant hereto or by or
pursuant to any of the other Loan Documents shall at all times be binding upon
the Borrower, the Borrower's bankruptcy estate and any trustee appointed in the
Case, or any trustee appointed in the event of the conversion of the Case, or
any other successor in interest to the Borrower. The Borrower may assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of All Lenders.
(b) Any Lender may at any time grant to one or more of the Lenders
(each a "Participant") participating interests in its Commitment or any or all
of its Loans. In the event of any such grant by a Lender of a participating
interest to a Participant, whether or not upon notice to the Borrower and the
Agent, such Lender shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement pursuant to which any Lender
may grant such a participating interest shall provide that such Lender
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<PAGE>
shall retain the sole right and responsibility to enforce the Obligations of the
Borrower hereunder, including the right to approve any amendment, modification
or waiver of any provision of this Agreement. The Borrower agrees that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of ARTICLE III with respect to its participating
interest. An assignment or other transfer which is not permitted by subsection
(c) below shall be given effect for purposes of this Agreement only to the
extent of a participating interest granted in accordance with this subsection
(b).
(c) Lenders may at any time assign to one or more of the Lenders
(each an "Assignee") all of its rights and obligations under this Agreement and
the Notes or any part of, and such Assignee shall assume such rights and
obligations, pursuant to an assignment and assumption agreement in the form of
EXHIBIT F and satisfactory to the Agent executed by such Assignee and such
transferor Lender, with (and subject to) the subscribed consent of the Borrower
and the Agent; provided, that if an Assignee is an Affiliate of such transferor
--------
Lender or was a Lender immediately prior to such assignment, no such consent
shall be required. Upon execution and delivery of such instrument and payment
by such Assignee to such transferor Lender of an amount equal to the purchase
price agreed to between such transferor Lender and such Assignee, such Assignee
shall be deemed to be a Lender under this Agreement and shall have all of the
rights and obligations of a Lender with a Maximum Commitment as set forth in
such instrument of assumption, and the transferor Lender shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Lender, the Agents and the
Borrower shall make appropriate arrangements so that new Notes are issued to the
Assignee and an updated Schedule of Lenders is annexed to the Credit Agreement.
If the Assignee is not incorporated under the laws of the United States or a
state thereof, then it shall deliver to the Borrower and the Agent certification
as to its exemption from deduction or withholding of any United States federal
income taxes in accordance with SECTION 3.2.
11.9. Headings and Captions. The headings and captions used in this
---------------------
Agreement, the Notes and the other Loan Documents are solely for the purpose of
reference and are not to be considered as construing or interpreting the
provisions hereof or thereof.
11.10. Interpretation. Neither this Agreement, the Notes or the other
--------------
Loan Documents, nor any uncertainty or ambiguity herein or therein shall be
construed or resolved against the Agent, the Lenders, the Deposit Banks or the
Borrower, whether under any rule of construction or otherwise. This Agreement,
the Notes and the other Loan Documents have been reviewed by all the parties
hereto and thereto and shall be construed and interpreted
72
<PAGE>
according to the ordinary meaning of the words used as to fairly accomplish the
purposes and intentions of all such parties.
11.11. Inconsistencies With Other Documents. In the event there is a
------------------------------------
conflict or inconsistency between this Agreement, the Notes, or the Loan
Documents, the terms of this Agreement shall control; provided, however, that
-------- -------
any provision of the Security Documents which imposes additional burdens on the
Borrower or further restricts the rights of the Borrower or gives the Lenders
additional rights shall not be deemed to be in conflict or inconsistent with
this Agreement and shall be given full force and effect.
11.12. Severability. If any portion of this Agreement, the Notes and the
------------
other Loan Documents shall be judged by a court of competent jurisdiction to be
unenforceable, the remaining portions shall be valid and enforceable to the
extent that the remaining terms thereof provide for the consummation of the
issuance of the Notes, the grant of collateral security therefor, and the
payment of principal and interest on the Loans substantially on the same terms
and subject to the same conditions as set forth herein and therein.
11.13. GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
-------------
DOCUMENTS, UNLESS OTHERWISE EXPRESSLY SET FORTH THEREIN, SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES
THEREOF.
11.14. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY CONSENTS
-----------------------
TO THE PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE,
AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON A LACK OF JURISDICTION OR VENUE,
IN THE BANKRUPTCY COURT IN ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF A SUMMONS AND COMPLAINT AND OTHER PROCESS IN ANY ACTION, CLAIM OR
PROCEEDING BROUGHT BY THE AGENT OR ANY LENDER IN CONNECTION WITH THIS AGREEMENT,
THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS, ON BEHALF OF
THEMSELVES AND THEIR PROPERTY, IN THE MANNER SPECIFIED IN SECTION 11.1 (PROVIDED
TELECOPY NOTICES MAY NOT BE USED FOR THIS PURPOSE). NOTHING IN THIS SECTION
11.14 SHALL AFFECT THE RIGHT OF THE AGENT, ANY LENDER, OR ANY DEPOSIT BANK TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
THE AGENT, ANY LENDER OR ANY DEPOSIT BANK TO BRING ANY ACTION OR PROCEEDING
AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTIONS.
11.15. WAIVER OF JURY TRIAL. THE AGENT, EACH LENDER, EACH DEPOSIT BANK AND
--------------------
THE BORROWER EACH HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION, CLAIM OR OTHER
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<PAGE>
PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE
NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
11.16. Cumulative Remedies. All rights and remedies provided in and
-------------------
contemplated by this Agreement, the Notes and the other Loan Documents are
cumulative and not exclusive of any right or remedy otherwise provided herein,
therein, at law or in equity.
11.17. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties of the Borrower set forth in this Agreement, the Notes and the
other Loan Documents and in any other certificate, opinion or other statement
provided at any time by or on behalf of the Borrower in connection herewith
shall survive the execution of the delivery of this Agreement, the Notes and the
other Loan Documents and the payment of all Loans and other amounts due
hereunder.
11.18. Relationship of the Parties. Neither the Agent, the Lenders nor the
---------------------------
Deposit Banks shall be deemed partners or joint venturers with the Borrower or
any Affiliate thereof in making this Agreement or by any action taken hereunder.
11.19. Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
74
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective duly authorized representatives as of the
day and year first above written.
BORROWER:
- --------
MORRISON KNUDSEN CORPORATION
(a Delaware corporation)
By: /s/ D.L. Brigham
------------------------
Name: D.L. Brigham
-----------------------
Title: V.P. & Treasurer
----------------------
AGENT AND LENDERS:
- -----------------
MELLON BANK, N.A., as Agent BANQUE NATIONALE DE PARIS
and a Lender
By: /s/
-------------------------
By: /s/ Alan J. Kopolow
-------------------------
Name: Alan J. Kopolow Name: Katherine Wolfe
----------------------- ----------------------
Title: President Debra Hermsmeyer
---------------------- ----------------------
Title: Vice President
-----------------------
BEAR, STEARNS GOVERNMENT
SECURITIES INC.
By: /s/ Gregory A. Harley
------------------------
Name: Gregory A. Harley
-----------------------
Title: Vice President
----------------------
CS FIRST BOSTON SECURITIES
CORPORATION
By: /s/ Not Readable
------------------------
Name: Not Readable
-----------------------
Title:______________________
INTERNATIONALE NEDERLANDEN
(U.S) CAPITAL CORP.
By: /s/ Joan M. Chiappe
------------------------
Name: Joan M. Chiappe
----------------------
Title: Vice President
----------------------
75
<PAGE>
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ J. Engelen
------------------------
Name: J. Engelen
----------------------
Title: Managing Director
----------------------
SWISS BANK CORPORATION, LONDON BRANCH
By: /s/ Andrea Lodahl Henneman
---------------------------
Name: Andrea Lodahl Henneman
-------------------------
Title: Attorney-in-Fact
------------------------
DEPOSIT BANKS:
- -------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Henry Y. Yu
------------------------
Name: Henry Y. Yu
-----------------------
Title: Senior Vice President
----------------------
BANK OF AMERICA ILLINOIS
By: /s/ Henry Y. Yu
-------------------------
Name: Henry Y. Yu
-----------------------
Title: Attorney-in-Fact
----------------------
KEY BANK OF IDAHO
By: /s/ Terry Pitkin
-------------------------
Name: Terry Pitkin
-----------------------
Title: Vice President
----------------------
76
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"SCHEDULES AND EXHIBITS WILL BE PROVIDED UPON REQUEST."
77
<PAGE>
EXHIBIT 10.1
SETTLEMENT AGREEMENT
--------------------
WHEREAS Richard J. Clark, Richard K. Clark and Dennis E. Clark
("Plaintiffs") were formerly the stockholders of Clark Industries, Inc. ("CII")
and sold their stock to Morrison Knudsen Corporation on or about December 30,
1993, in exchange for shares of MK common stock (the "Exchange Agreement");
WHEREAS each Plaintiff entered into a non-compete agreement (the "Non-
Compete Agreements") in connection with the December 30, 1993 Exchange Agreement
between Plaintiffs and MK, pursuant to which shares of MK common stock are being
held in escrow (the "Non-Compete Escrowed Stock");
WHEREAS a Deposit Escrow Agreement (the "Deposit Escrow Agreement") was
separately entered into to secure the payment for the benefit of MK of a certain
receivable of CII maintained on CII's books as of the date of the Exchange
Agreement (the "Deposit Agreement Escrowed Stock");
WHEREAS the Plaintiffs, having acquired their shares of MK stock on or
about December 30, 1993, were eligible to participate in the settlement of the
litigation entitled In re Morrison Knudsen Corporation Securities Litigation,
--------------------------------------------------------
Case No. 94-CV-3345-EJL, which was adjudicated and dismissed with prejudice by
the United States District Court for the District of Idaho (the "Securities
Class Actions"), but chose to opt-out of participation in the settlement of the
Securities Class Actions;
<PAGE>
WHEREAS Plaintiffs have filed a civil action against Morrison Knudsen
Corporation, a Delaware corporation, Morrison Knudsen Corporation, an Ohio
corporation (collectively "MK") and William J. Agee, the former Chairman of MK
("Agee") (the "Litigation");
WHEREAS MK has certain indemnity obligations to Agee, which may be
implicated by reason of Plaintiffs' claims against Agee and which will be
avoided by reason of the settlement between Plaintiffs and MK;
WHEREAS Continental Casualty Company ("CNA") issued to MK a Directors and
Officers Liability Insurance Policy, Excess Policy No. DOX 120181375, for the
period from June 1, 1994 to June 1, 1995, with certain coverage extended to June
1, 1996 (the "Policy");
WHEREAS the Plaintiffs and MK desire to resolve and terminate all
controversies and claims between them on the terms hereinafter set forth:
NOW THEREFORE, the Plaintiffs, MK, Agee and CNA, for and in consideration
of the mutual promises, releases and covenants herein set forth, agree as
follows:
1. Within ten (10) business days of execution of this Agreement by all
parties, CNA, at the direction of Agee, agrees to pay to Plaintiffs the sum of
two-hundred, seventy-five thousand dollars ($275,000.00), which amount will
reduce the remaining limits of liability available under the Policy by a like
amount.
2. MK agrees to release to Plaintiffs the Deposit
-2-
<PAGE>
Agreement Escrowed Stock upon the effective date of this Agreement.
3. Plaintiffs, MK and Agee will forthwith file all papers necessary to
effect the dismissal with prejudice of the Litigation, each party to bear its
own costs.
4. Each of Plaintiffs, for and on behalf of himself and his respective
spouse, assigns, heirs, legatees, devisees, partners, and affiliates, does
hereby release MK and Agee and his or its respective present and former
employees, officers, directors, stockholders, partners, subsidiaries,
affiliates, predecessors, successors, assigns, principals, agents, attorneys,
spouse, heirs, devisees, trustees, and insurers, including but not limited to
CNA, from 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, arising out of, relating to, or in connection with: (i) any matter
that was or could have been raised in the Securities Class Actions or the
Litigation; (ii) the acquisition or disposition of common stock of MK or CII at
any time prior to the date of this Settlement Agreement; (iii) any contracts or
-3-
<PAGE>
agreements between Plaintiffs and MK; (iv) the formation, operation, finances,
financial statements, securities, or business of MK on or before the date of
this Settlement Agreement; and/or (v) the Policy.
5. MK, for and on behalf of itself and its present and former employees,
officers, directors, stockholders, subsidiaries, affiliates, predecessors,
successors, assigns, and agents, and Agee, for and on behalf of himself and his
spouse, assigns, heirs, legatees, devisees, partners, and affiliates, do hereby
release Plaintiffs and their respective spouses, heirs, assigns, legatees,
devisees, partners and affiliates from 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, arising out of, relating to, or in connection with: (i)
any matter that was or could have been raised in the Securities Class Actions or
the Litigation; (ii) the acquisition or disposition of the common stock of MK or
CII at any time prior to the date of this Settlement Agreement; (iii) any
contract or agreement between Plaintiffs and MK, including but not limited to
the
-4-
<PAGE>
Deposit Escrow Agreement; and/or (iv) the formation, operation, finances,
financial statements, securities, or business of CII on or before the date of
this Settlement Agreement.
6. MK, for and on behalf of itself and its present and former employees,
officers, directors, stockholders, subsidiaries, affiliates, predecessors,
successors, assigns, and agents, does hereby release CNA, its present and former
employees, officers, directors, subsidiaries, affiliates, predecessors,
successors, assigns, and agents, from any and all demands, rights, liabilities,
damages, costs, costs of defense, settlements, 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),
breach of the duty of good faith and fair dealing, fraud, negligent
misrepresentation, violation of any federal or state statutes, rules, or
regulations, either directly, in a representative capacity, or any other
capacity, arising out of, relating to, or in connection with (i) any matter that
was or could have been raised by Plaintiffs in the Litigation; and/or (ii) any
claim for coverage under the Policy with respect to the Litigation.
7. Agee, for and on behalf of himself and his spouse, assigns, heirs,
legatees, devisees, partners, and affiliates, does hereby release CNA, its
present and former employees,
-5-
<PAGE>
officers, directors, subsidiaries, affiliates, predecessors, successors,
assigns, and agents, from any and all demands, rights, liabilities, damages,
costs, costs of defense, settlements, 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), breach of the duty of good faith and
fair dealing, fraud, negligent misrepresentation, violation of any federal or
state statutes, rules, or regulations, either directly, in a representative
capacity, or any other capacity, arising out of, relating to, or in connection
with (i) any matter that was or could have been raised by Plaintiffs in the
Litigation; and/or (ii) any claim for coverage under the Policy with respect to
the Litigation.
8. For purposes of the foregoing paragraphs 4, 5, 6 and 7, "unknown
claims" means claims which any of Plaintiffs, MK or Agee (the "Releasing
Parties") does not know or suspect to exist in their favor at the time this
Settlement Agreement is executed which, if known by them, might have affected
their decision to settle the Litigation. The Releasing Parties 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 Settlement
-6-
<PAGE>
Agreement, including the provisions of Section 1542 of the California Civil
Code, to the extent deemed applicable (notwithstanding that this Settlement
Agreement does not provide for the application of California law), which
provides as follows:
(S) 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.
9. In the event that a bankruptcy case is commenced by or against MK,
and the court having jurisdiction over the bankruptcy case enters an order that
has become final and nonappealable determining the funds paid by CNA pursuant to
paragraph 1 above, or any portion thereof, to be recoverable by MK as a
preference, voidable transfer, fraudulent transfer or similar transaction, then
Plaintiffs may elect to have the releases given and judgment entered in favor of
MK pursuant to paragraph 4 hereof become null and void, and Plaintiffs and MK
shall thereupon be restored to their respective positions in the Litigation as
of May 1, 1996, except insofar as the Litigation is affected by the filing of
the bankruptcy case. The releases given to CNA and Agee shall not become null
and void or otherwise be affected by this paragraph or any such order or
recovery. Provided however, in the event that the proceedings in the bankruptcy
case result in any recovery of the proceeds of this settlement by CNA, CNA
agrees to deposit such proceeds in an escrow account for the benefit of
Plaintiffs until such time as
-7-
<PAGE>
CNA and Plaintiffs can fully effectuate the provisions of this Settlement
Agreement.
10. Notwithstanding Paragraphs 4 and 5 of this Agreement, nothing
contained in this Agreement shall serve to release Plaintiffs, or any of them,
from any obligations which they may have as a result of the Non-Compete
Agreements executed by Plaintiffs in connection with the Exchange Agreement.
11. Notwithstanding Paragraphs 4, 5, 6 and 7 of this Agreement,
neither Plaintiffs, MK, Agee nor CNA release(s) any claim relating to any breach
of this Settlement Agreement.
12. Notwithstanding anything set forth herein to the contrary, this
Settlement Agreement shall not in any manner whatsoever effect the employment
relationship between Plaintiffs and MK Rail Corporation and/or CII, and/or any
other obligations of Plaintiffs to MK Rail Corporation and/or CII, and/or any
other obligations of MK Rail Corporation and/or CII to Plaintiffs existing on or
before the date of this Settlement Agreement.
13. Plaintiffs, MK, Agee and CNA each stipulates and warrants that
this Agreement constitutes a compromise and settlement of disputed claims and
matters which are in controversy; that each 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 each such
party and/or its counsel has deemed desirable before commencing or concluding
such negotiations; and that, due to the nature of this Agreement and the
adversary litigation being settled hereby, such party has not relied or
-8-
<PAGE>
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 (a) 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; (b) the formation and performance of this Agreement each
constitutes a contemporaneous exchange of the considerations prescribed, for new
value in each case; and (c) 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.
14. 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 or that coverage under the Policy for any such claim is or is not
available.
15. This Agreement shall be governed by the law of Delaware,
excluding its conflict of laws principles.
16. This Agreement may be signed in counterparts, each of which shall
constitute an original.
MORRISON KNUDSEN CORPORATION
By: /s/ Richard D. Parry
-------------------------
Dated: May 20, 1996
-----------------------
-9-
<PAGE>
/s/ William J. Agee
-----------------------------
William J. Agee
Dated: May 22, 1996
-----------------------
/s/ Richard J. Clark
-----------------------------
Richard J. Clark
Dated: May 21, 1996
-----------------------
/s/ Richard K. Clark
-----------------------------
Richard K. Clark
Dated: May 21, 1996
-----------------------
/s/ Dennis E. Clark
-----------------------------
Dennis E. Clark
Dated: May 21, 1996
-----------------------
CONTINENTAL CASUALTY COMPANY
By: /s/ Thomas F. Taylor
--------------------------
Dated: May 29, 1996
-----------------------
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF
MORRISON KNUDSEN CORPORATION (DEBTOR-IN-POSSESSION AS OF JUNE 25, 1996) AT JUNE
30, 1996 AND FOR THE SIX MONTH PERIOD THEN ENDED, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 68,102
<SECURITIES> 0
<RECEIVABLES> 143,862
<ALLOWANCES> (4,629)
<INVENTORY> 0
<CURRENT-ASSETS> 431,224
<PP&E> 170,108
<DEPRECIATION> (131,653)
<TOTAL-ASSETS> 571,296
<CURRENT-LIABILITIES> 679,743
<BONDS> 0
0
0
<COMMON> 55,834
<OTHER-SE> (278,114)
<TOTAL-LIABILITY-AND-EQUITY> 571,296
<SALES> 0
<TOTAL-REVENUES> 677,684
<CGS> 0
<TOTAL-COSTS> (645,109)
<OTHER-EXPENSES> (24,107)
<LOSS-PROVISION> (5,322)
<INTEREST-EXPENSE> (10,148)
<INCOME-PRETAX> 5,287
<INCOME-TAX> (2,357)
<INCOME-CONTINUING> (17,974)
<DISCONTINUED> (9,805)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,779)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> 0
</TABLE>
