MK Rail Stock Distribution
Information Sheet*
As part of its bankruptcy plan, Morrison Knudsen plans to distribute
its 63 percent ownership of MK Rail stock to its creditors and, in certain
circumstances, to its current stockholders. The distribution is expected to
occur during the first week of October 1996, at which time Morrison Knudsen will
no longer be an MK Rail stockholder.
The shares that are being distributed are unregistered and subject to
the provisions of a Stockholders Agreement between MK Rail and Morrison Knudsen.
The Agreement includes standstill and voting provisions, which, among other
things, require that for a specified period the stock must be voted in favor of
MK Rail's nominees to its board. Also in the Agreement and subject to certain
conditions, MK Rail has granted registration rights for this stock so that the
shares can be registered and sold in secondary offerings.
Following are answers to questions frequently asked about this stock
distribution:
When and how will the stock distribution occur?
Under Morrison Knudsen's plan of reorganization, the stock cannot be
distributed until Sept. 27, which is a Friday, so the actual
distribution will probably occur the following week or shortly
thereafter. To distribute the stock, Morrison Knudsen will send its
stock certificate to MK Rail's transfer agent with a list of recipients
and how much stock they will own. The transfer agent will then issue
new certificates to the new holders.
Can these shares be sold immediately?
Yes, there are a variety of ways the shares could be sold, but there
are probably three logical ways. First, the shares could be sold in
"ordinary trading transactions" through the Nasdaq stock exchange. If
the stock is sold through this exchange, the provisions contained in
the Stockholders Agreement would no longer apply and the shares would
be freely tradeable. Second, under certain conditions, the shares could
be sold in private transactions not using Nasdaq. In this case, the
registration rights and provisions contained in the Stockholders
Agreement would transfer to the purchaser. Finally, the shares could be
sold under a shelf registration statement that MK Rail has agreed to
file later this month. The company cannot, however, offer any
assurances as to when, or if, the SEC will declare the registration
statement effective. If the shares are sold in this manner and the
transaction is anonymous (the sellers and buyers do not know each
other), then the provisions in the Stockholders Agreement would not
transfer to the new buyer and the shares would be freely tradeable.
*This Information Sheet presents a brief discussion in question-and-answer
format of information reported by MK Rail Corporation in its various SEC
filings, including its Annual Report on Form 10-K for the year ended December
31, 1995, its Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996, and its Current Reports on Form 8-K filed July 3, 1996
and September 10, 1996. These reports, in turn, include or incorporate by
reference as exhibits various documents summarized therein or herein. This
summary Information Sheet is qualified in its entirety by the more detailed
discussions in the SEC filings and by the text of the documents included or
incorporated therein as exhibits.
What are "ordinary trading transactions"?
In general,"ordinary trading transactions" are sales made through a
stock exchange or in the over-the-counter market by persons who are
not affiliates of MK Rail or Morrison Knudsen, and who are not acting
alone or in concert with others as a dealer or underwriter. Whether
any given transaction is considered "ordinary," or whether a person is
an affiliate, underwriter or dealer will depend on the specific facts
and circumstances in each instance.
What incentive do the new shareholders have to hold onto their stock?
If they believe in the company's new management team and believe that
the stock is currently undervalued they may want to hold their stock.
Also, subject to certain conditions, we have given the new
stockholders the right to register their shares in underwritten
secondary offerings once a year for five years, beginning after the
company has filed its 1996 10-K. These rights should give the new
stockholders ample opportunity to sell their shares when they think
market conditions are favorable. It's important to note that the
registration rights apply to the original recipients of the Morrison
Knudsen stock. The rights will not transfer to future buyers unless
they also agree to be bound by the provisions of the Stockholders
Agreement.
What impact, if any, does Rule 144 have on the sale of creditors' stock?
Rule 144 imposes limitations on the sale of "restricted securities" or
stock held by affiliates of an issuer. Generally, these restrictions
should not affect non-affiliate holders who plan to hold their shares
for the long term or who plan to sell the shares in "ordinary trading
transactions" or under an effective registration statement, as long
as, in either case, the transactions are anonymous.
Could the new Morrison Knudsen change its mind and decide to keep the stock?
No, the stock distribution is part of Morrison Knudsen's bankruptcy
plan, so it cannot be revoked.
What impact does this stock distribution have on existing MK Rail shareholders?
Existing shareholders don't need to do anything. They will continue to
own the same percentage of MK Rail stock as they did prior to the
distribution. The company cannot predict what impact, if any, the
distribution of new shares into the public float may have. Any impact
could depend on when the new stockholders choose to sell their shares
and how many shares they choose to sell. In any event, you should
remember that the stock distribution will have no impact whatsoever on
MK Rail's fundamental business operations. In the longer term,
therefore, we view the Morrison Knudsen stock distribution as a
positive step that will diversify our shareholder base and increase
liquidity in the market, and we welcome new investors into the fold.
What is MK Rail doing to protect the stock price?
We are very focused on continuing to improve and grow our businesses.
In the long term, that's the best way to protect and increase
shareholder value. We do, however, conduct an active investor
relations program through which we meet with stockholders to discuss
the company's operations and answer any questions.
Are you considering a stock buyback to support the price?
That would be up to the Board of Directors. But currently the Board
believes that investing excess cash in future operations is a better
long-term strategy than a stock buyback.
Who will receive the stock? And how much will each new stockholder receive?
We won't know for sure who will receive the stock and how much they
will receive until the distribution date because the Morrison Knudsen
debt continues to trade in the secondary market. Also, Morrison
Knudsen's current equity holders have an option to purchase some of
the Morrison Knudsen debt, which would entitle them to receive some of
the MK Rail stock. We do believe, however, that no one will end up
with more than 15 percent of MK Rail stock, or about 2.6 million
shares, because that would trigger our shareholders rights plan.