(FORTUNE Magazine) – To the many people who hate them, it was simple greed that propelled Bill Agee and his wife, Mary Cunningham, to Boise six years ago. They arrived eyeing the venerable Morrison Knudsen Corp. the way Bonnie and Clyde eyed small-town banks. To those few who argue the Agees' point of view, Bill and Mary were quite the opposite: reluctant do-gooders--a shy and private couple weary of controversy and criticism--who gave up a comfortable life to save a distressed company in the town where Bill grew up. Of course, it was never as clear-cut as any of that.

A few things are obvious. Agee nearly wrecked the company and thoroughly destroyed his already shaky reputation as a corporate manager. In the simplest terms, he tried to turn Morrison Knudsen--a bridge, dam, and factory builder--into a railcar and locomotive manufacturer, and failed spectacularly: Last year the company lost $310 million on sales of $2.5 billion. Important customers became disillusioned with Agee--one called his railroad business plan "cartoonish." Top executives mutinied. William P. Clark, a former Reagan adviser Agee put on the board, conducted an investigation that prompted Agee's dismissal. A score of shareholder suits have been filed against Agee, the company, and the board.

This isn't a tidy tale of good and evil, though. Behind the devastation of Morrison Knudsen is a complicated mix of ancient feuds, foolish gambles, and personal insecurities. There are clashing cultures, religious fervor, bad luck--even the terrifying specter of a black rose. No simple picture of Agee emerges from the wreckage. He comes across at times as a vain, imperious manipulator, sometimes as a goofy teenager who keeps crashing the family car, at other times as a likable guy excessively devoted to the wife he dragged through purgatory while he sought to regain the corporate wunderkind status he once enjoyed.

Morrison Knudsen was in trouble long before Agee arrived. MK got its start in the 1920s, building dams out West; it created the consortium that built the Hoover Dam. It later constructed bridges, auto assembly plants, breweries, power plants, and military bases. But in the 1970s, MK diversified --disastrously--into land development and shipbuilding. Land prices in Texas and elsewhere cratered, and the demand for oil tankers and Navy ships dwindled. In 1987 the company lost $60 million on revenues of $1.9 billion. Agee, a Boise-area native who had been on the MK board since 1981, was named chairman and CEO in 1988.

It was a curious choice. Agee, now 57, has been the stuff of legend and controversy for most of his career. He might actually have been America's first yuppie--a brash, affable Harvard MBA who zoomed through the ranks at Boise Cascade, becoming chief financial officer of the land and paper company when he was a mere 31. Even more dazzling, he became CEO of Bendix, a $4-billion-a-year auto-parts maker, when he was just 38, in 1976. The company fared well under him at first; he was facile with finance and accounting, shrewdly selling assets and investing in other companies.

A LOVE STORY

It is not too trite to declare, however, that his world was irrevocably altered on a spring morning in 1979, in room 32-F of the Waldorf-Astoria. At 7:30, he opened his hotel room door and cheerfully announced, "Hi, I'm Bill Agee," to the nervous Harvard B-school student standing outside. It was Mary Cunningham, an attractive strawberry blonde (she describes herself as looking like the girl on the Vermont Maid pancake syrup bottle) who didn't, until that moment, know whom she was about to meet. Mary, then 27, had been recommended to Agee by Les Rollins, a recruiter at the B-school who had coaxed Agee to Harvard years earlier. At the end of a long conversation, Agee offered her a job as his executive assistant at Bendix. When she agreed to go to Detroit after graduation, they shook hands. At that moment, from an adjoining room, out stepped a woman in a red dress, high heels, and lots of jewelry. "I'd like you to meet my wife, Diane," Agee said. Mrs. Agee, Mary would recount later, "extended a cold hand."

Mary's career took off. On her first day in Detroit, Agee sent a helicopter to ferry her from the airport to Bendix headquarters. Soon she was flying with the boss on business trips, sitting in on his meetings with bankers, and routing his correspondence to top Bendix executives and asking them to act on it. When one of Agee's three children needed help with a college application, Mary spent many evenings with the girl working on it. She was talented--the dons at Harvard had declared her the woman graduate most likely to run a non-cosmetics Fortune 500 company--but even so, her promotions came fast. After only a year on the job, Agee promoted her to vice president for corporate communications. Three months later she was made VP for strategic planning.

In September 1980, Agee tried to defuse the growing resentment of Mary. At the end of a routine speech to employees, to which he had invited newspaper and magazine reporters, he defended her success and denied rumors that they were having an affair. The denials, which turned a private matter into front-page news around the country, were hard to believe but perhaps forgivable: Mary was a devout Catholic, raised since the age of 5 by her mother and a cousin--a priest called Father Bill whom Mrs. Cunningham had moved to live near after divorcing her husband, a heavy drinker. Mary spent much of her youth in Hanover, New Hampshire, where she preferred Lives of the Saints to more secular fare and imagined becoming a nun or priest herself. At the time of the alleged affair, she was married.

The ensuing publicity and scorn virtually killed Cunningham's career; she quit Bendix in the middle of the scandal and surfaced soon after as a strategic planner at Seagram, where she spent about three years. In June 1982, Agee married her, and the two got bashed again for plotting Bendix's ill-conceived effort to go high tech: a takeover attempt of rocket builder Martin Marietta. When it backfired, leading to the sale of Bendix to Allied Corp., now AlliedSignal, Agee worked there briefly. Then he and Mary dropped from sight.

Agee has said he was reluctant to run Morrison Knudsen, but even that is in dispute. He has told people he went to Boise with a "great deal of hesitation." When the MK board asked him to become CEO, he and Mary were living in a "dream house" in Cape Cod, raising their two kids, and running a small but prosperous venture capital firm. They were planning to spend time at a mansion they had just purchased on the fairway at the Pebble Beach golf course in California. Only a few weeks before he was approached by MK, he told a group of students at the Harvard business school that he would not take another job at a publicly held company. No pesky reporters, no revealing proxy statements, would darken his door again.

Velma Morrison, widow of one of MK's founders, a former board member, and now Agee's loudest critic, has a different view of his intentions. She says she saw him scheming for months to become CEO. "I think he always saw himself in that position," she says. "He was constantly criticizing the performance of the chief executive, saying this was wrong, that was wrong." Agee's behavior the night he was named CEO does suggest someone eager to make a splash rather than disdain the limelight. Vern Nelson, former head of corporate communications at Morrison Knudsen, recalls being told not only to consult with an outside public relations firm but also to meet early the next morning at a hotel with Agee's own personal media consultant, who had flown into Boise.

By all accounts, Agee was popular and impressive when he first arrived at Morrison Knudsen. In his trademark V-neck sweaters, he gave uplifting speeches to workers--even a special talk to cafeteria employees--badly demoralized by the company's misfortunes. He brought in a pair of top managers with whom he had worked at Bendix and Allied, quickly sold off the hemorrhaging shipbuilding and land development operations, and booked a loss of $127 million for the year. With the two troubled businesses gone, he declared in his first annual report, "we could refocus on MK's basic strengths."

It never happened. Ultimately, Agee made some dreadful business decisions. In addition, the chemistry between Agee, Boise, and Morrison Knudsen proved almost fatally corrosive.

A HOMETOWN ENEMY

Outside the office, Agee and his wife didn't mix well with Boise's old-guard social set. It's not as if he was an interloper; he grew up a few miles outside of town, where his father managed a steel company, owned a dairy farm, and served in the state legislature. But Agee had powerful enemies. He was vigorously disliked by John Fery, the recently retired CEO of Boise Cascade, where both were rising stars 25 years ago. Fery declined to be interviewed by Fortune. However, Agee, who was then Boise Cascade's CFO, believes Fery blames him for aggressive accounting practices that badly damaged the company in the early 1970s.

Boise Cascade was thriving in the late 1960s, largely by selling off small parcels of its timberland at high prices. Its accounting was legal but hardly cautious. If a buyer put 10% down on a $100,000 parcel and signed a note promising to pay the rest over 20 years, the company immediately booked all $100,000 as revenues. When the economy soured later, thousands of Boise Cascade's would-be ranchers defaulted. In 1971 and 1972 the company wrote off $250 million in losses, then some of the largest corporate write-downs ever. Agee wasn't the architect of the land-selling program, and he couldn't have booked sales that way without the approval of top management. But years later, according to some, Fery still viewed him with suspicion.

Socially, Fery appears to have delivered a slap to Agee when he returned to Boise. During the Depression, Morrison Knudsen had helped rescue Idaho First National Bank, the state's biggest. Ever since, the CEO of MK had sat on the bank's board. Fery was also on the board. However, when Agee took over at MK, the bank, now called West One Bancorp, declined to name him a director; one bank official hints strongly that Fery threatened to quit and pull Boise Cascade's business with him if Agee got on. Stung, Agee took MK's deposits to Key Bank, where he promptly got a seat on the parent company's board and one for Mary at the local subsidiary. A friend in Boise says Agee also blames Fery for keeping him off the board of Albertson's, a supermarket chain headquartered there.

BOISE

Amid less stratospheric levels of Boise society, the Agees were the subject of intense interest. Boise is not the kind of place where any couple, particularly a pair like the Agees, could slip in unnoticed. The city is more sophisticated than its end-of-the-universe reputation suggests. It is the state capital, and three big public corporations, plus large private companies like that of billionaire potato king J.R. Simplot, have helped sponsor a pleasant mix of good restaurants and shops. But it is close-knit and strait-laced--people don't jaywalk, even in the evening when auto traffic is almost nonexistent. There's a sense of isolation too; the 140,000 residents are bordered by a wide, empty plain on one side and steep mountains on the other.

The famous Agees were courted, naturally, by high-level executives and their spouses from MK and elsewhere. "When they first arrived," says a Boise woman, "the place was all 'Oh, wow!' Everybody was in the curiosity-gossipy zone. Wives who used to wear miniskirts were being all matronly and respectable, wanting to be noticed, wanting to have them over for dinner."

The attention wasn't always a warm embrace. Pat Moore, who piloted the company plane, sensed resistance to the Agees even before they arrived. He traces it to Agee's first wife, Diane, a former Boise resident who had endured his public romancing of Mary eight years earlier, and who had many friends and sympathizers there. Mary portrayed her as cold and difficult in a book she wrote in 1984, descriptions that didn't play well in Boise. "The resistance to Bill and Mary goes back to his first wife," says Moore. "She was well liked here."

The fallout from Agee's first marriage was compounded by the way he left his wife. In order to marry Cunningham in her church, he converted to Catholicism and had his first marriage annulled. (Mary also had her first marriage annulled.) Mike Shirley, a former VP of finance at Morrison Knudsen, said Boiseans were dismayed. "Most people can maybe understand getting a divorce. But with annulment, you're saying the marriage never really happened. He bastardized his three kids, and a lot of people couldn't forgive him for that." He didn't really bastardize the kids, because the annulment was a church proceeding, not a civil one. But other Boiseans also cited the "bastardization" with intense bitterness.

MARY

The Agees were cool toward Boise, too. One close friend describes them as "personable but shy," focused on their kids. "They did the social stuff well, but they hated it," says the friend. "They were pleasant, they extended themselves, but they didn't take the next step--show up for everything, take a lot of tables at social functions." On the company plane, Mary rarely chatted with other executives or their wives, says Moore, and was much more likely to take out a briefcase and work during the flight. "If you pulled out pictures of your grandchildren her face would light up," says Moore, "but she wouldn't start a conversation."

Mary's chief interest was the Nurturing Network, a charity she founded that offers help, including housing and jobs, to give pregnant college and working women an alternative to abortion. It was an activity that made her highly visible to bishops and cardinals in the Catholic Church and, even today, much of her life appears to revolve around it. In the days after Agee was fired, several church leaders sent letters of encouragement to her.

Agee, who should have been sensitive to nepotism charges after his experience at Bendix, put Mary in charge of another charity, the Morrison Knudsen Foundation. It spends close to $1 million a year on social and cultural causes. Because running the two charities took considerable effort, Mary was rarely in a mood to socialize. "Did I, at the end of the day, enjoy putting on a sparkly dress and greeting employees?" she once said. "No. I'm tired at the end of the day. I'm not the kind of person with painted nails." Even opponents concede that Mary's commitment to her charities was sincere. "She's not a hypocrite," says one.

Agee's devotion to his wife seemed excessive at times. For a surprise birthday party at Pebble Beach in 1991, he flew friends and executives in from Boise on the company plane and a rented commercial jet. He went out of his way to praise her adoringly in speeches, in ways that made aides squirm. In a 1993 talk to employees at a company picnic, says one aide, "Agee said things like, 'I'm the luckiest guy on the planet.' It's okay to tip your hat, but he made Mary the centerpiece. He did the same thing when we were opening a railcar rehab plant in Chicago and the governor was present."

Mary, by all accounts, is a complicated, unusual woman. "She is the most astounding mix of interesting, spiritual, funny, driven," says an executive who was a frequent companion of both Agees. "She wants to save the world, and she wanted to help Bill succeed." What really drives the relationship between them is, of course, unknowable. There is plenty of simple and genuine affection. But Agee often seemed overprotective of her-as if burdened by guilt that he had crippled her career with his Bendix speech. Agee tried hard to make Morrison Knudsen succeed, says the executive who knows both Bill and Mary, but his loyalties were divided between the company and his wife. "Once on the plane he looked at me with tears in his eyes and said, 'The first time, I put my job, my kids, my wife in that order. And that's exactly the wrong order.' " He adds, "If Bill had a choice of screwing things up at MK or screwing things up with Mary, he'd rather screw up MK."

Rightly or wrongly, Boiseans were offended by the Agees' distant demeanor--"They had a high-and-mighty manner," says Velma Morrison, along with many others--and the pair became the object of relentless, mostly unflattering gossip. According to one completely unsubstantiated rumor, Agee tried to buy Mary a seat on the board of a local Catholic charity with a fat contribution, then withheld the gift when no seat was offered. Another rumor had Mary screaming at a florist's delivery boy who arrived too early; the boy was said to be the grandson of Joe Albertson, founder of the supermarket chain. There were more: Mary was undergoing dialysis. Mary and Bill donated a $100,000 gold cross to the local cathedral and secretly stuck MK with the tab. None of these rumors had any apparent basis in fact. "You couldn't go anywhere in Boise without people saying, 'Did you hear about Mary?' " says a prominent local attorney.

Sometimes Mary claimed to be resigned to, if not amused by, all the talk. "I knew what the caricature of me would be the day I arrived," she said to a friend. Other times, says the friend, she was frustrated, isolated, even desperate. "We had tearful times. Mary would say to me, 'Tell me what to do. What did I say?' "

A TYRANT EMERGES

Inside the company, executives were becoming disenchanted with Agee. In a macho business like heavy construction, where engineers risk their lives dangling from wires or swelter in remote desert camps, the boss came across as prissy and prudish. He banned smoking at company headquarters. He complained about the girl-in-every-port infidelities of managers who spent months in faraway places. When he learned that MK executives belonged to a bridge builders' association called the "Beavers," he was offended and told employees they couldn't attend the group's boisterous weeklong conventions at company expense. "I wasn't one of the boys," he would say later.

More substantively, Agee never fixed Morrison Knudsen's core construction business. Much of the $35 million or so in annual earnings that MK reported in the first years of Agee's regime derived from accounting decisions and nontraditional sources such as investment income. When the company filed a claim with a customer to recover unexpected costs on a construction project, for instance, it often booked all the money in question as revenues immediately, even though MK's claim might be denied or reduced years later. MK executives say the company boosted earnings by tens of millions of dollars that way.

In another maneuver typical of Agee, he sold the company's headquarters in 1990 for $46 million and leased some of the space back for $3 million a year. He calculated he could earn 20% annually on the $46 million, thus collecting an extra $6 million every year. In 1992, Agee sold two company jets for $17 million and leased a Falcon 900 that cost $4 million a year to operate.

Agee's style of firing people embittered and frightened employees. Managers would be summoned to his office for what they thought was a routine meeting only to find themselves ordered to leave the building. "You came in, you were gone in five minutes," said one of his secretaries, who watched people leave. Agee decided to fire the company's chief pilot, a 40-year veteran, during a flight to Boise from the East Coast. He called Pat Moore, then the assistant pilot, to the back of the plane. Recalls Moore: "He said he didn't like the chief pilot and asked me if we should fire him right then or wait until we were on the ground. I couldn't believe it. I told him to at least wait until we landed."

Some managers came to believe they had to produce optimistic projections or lose their jobs. Says a high-ranking MK official: "Four years ago I watched Agee pressing on a strategic planner. Bill kept chewing on him to produce better numbers. The guy said, 'Bill, you can make what numbers you want. Here's what we can do.' Bill got mad and walked out of the meeting, and the next day the planner was gone."

Fairly or not, many executives thought Mary had a part in deciding who got fired and promoted. Their anxieties were aroused in 1991 when Tom Sawyer, head of investor relations, lost his position five months after his wife quit her job at Mary's Nurturing Network. Later, MK employees grumbled about Mary's influence when Ann Granger began working at Nurturing Network, saying that her husband's career seemed to take off. But Jack Granger, now president of the civil construction group, had been steadily rising through the ranks for years. The Grangers deny any connection.

Bill and Mary appeared aware of the perception that she was too influential. He wouldn't eat lunch with her at company headquarters and once had PR head Vern Nelson make sure the halls were empty when Mary came for a visit. Mary, according to acquaintances, was furious when Agee fired Sawyer, fearing she would be blamed. But it was no use. Mary's charity was nicknamed the "Neutering Network" by fired executives.

Increasingly, people felt Agee was jettisoning real talent. In 1990, after little more than a year, he fired Donald Kayser, the CFO he had worked with at Allied. Keith Price, executive vice president and a member of the board, was also let go. Price was revered at MK and went on to head vast portions of the Chunnel, the tunnel under the English Channel. One director says Agee tried to keep talented managers away from the board. "He'd move people up, but then when they got to where we could see them, he'd move them back down," says this director. "As soon as we liked someone, Bill would say he wasn't a performer. We saw Keith Price--a good guy. All of a sudden, we started hearing horror stories about him, and then he was out." The board had "a couple of contentious meetings about succession and getting talent," says the board member. "But Bill wouldn't act on it." Agee, he concluded, lacked confidence. "He was afraid to have talent around."

Many of the people Agee installed were young and inexperienced. A review of Morrison Knudsen's 10-Ks reveals that in 1989 the average age of the company's top officers was 53. By 1993 the average age of officers was 40. One vice president was 33, another 30; the treasurer was 28. "They're bright," says one executive, "but they were in no position to argue with him."

BLUNDERS AND REVERSES

Agee, it turned out, could have used some "no men." His strategy for fixing Morrison Knudsen wasn't all bad, but his tactics and execution were poor. He concluded that the construction division was bidding on too many small jobs--a highway overpass here, a breakwater there--where MK had difficulty making money because local competition was intense. The company's size and expertise equipped it to compete on billion-dollar projects, argued Agee. The concept seemed to work. In 1991, MK and a partner won a $1.25 billion contract to help build a particle accelerator in Texas. The same year, the city of Honolulu voted to give MK a $1.1 billion job constructing a rapid transit system.

Agee figured MK could serve as a developer too--originating projects and maintaining an interest when the work was finished. Morrison Knudsen and French company GEC Alsthom tried to get money and approval for a high-speed rail line that would connect several Texas cities; they intended to retain an interest in the completed project. In return for helping to build an 8.4-mile bridge to Prince Edward Island from New Brunswick and a road to the new Denver airport, MK was to keep a portion of the tolls.

But the real hope for Morrison Knudsen wasn't heavy construction, Agee believed; it was passenger railcars and locomotives. He argued that the federal government would soon start spending on mass transit the way it had on highways during the Eisenhower years. MK was already in the business of overhauling passenger cars and locomotives. In 1989 it won a $208 million contract to build 256 new subway cars for the Chicago transit authority. The work went smoothly and profitably.

So well, in fact, that Morrison Knudsen moved into the transit car manufacturing business on an enormous scale. In 1992 alone it won four contracts for 531 cars, worth $780 million. Its railcar backlog soon reached $1 billion. Around the same time, MK was advocating the development of new freight locomotives, including a 5,000-horsepower monster that was among the most powerful ever made. But the plunge into transit cars was badly flawed. Says a former strategic planning executive at MK: "It was not plausible. As far as I know, Bill commissioned no research." Designing transit cars turned out to be far more difficult than anybody at MK realized. The company's success with those first cars in Chicago was deceptive; the design and engineering had been done by another firm.

Passenger railcars look simple enough, but they require complicated struts and braces to meet federal safety standards. Some cars were particularly complex: One, the M-6 designed for Metro-North Commuter Rail, required 650 volts in New York and 16,000 volts in Connecticut. MK had virtually no experience in passenger railcar design. "We totally screwed up," says a company vice president. "We never built a prototype." Metro-North rejected the first M-6 cars it received. Morrison Knudsen executives, already struggling with three new factories, hundreds of recently hired workers, and difficulties designing other railcars, spent much of their time trying to fix the M-6's problems. "We fell further and further behind," says one.

The locomotive business wasn't going well, either. MK relied on outdated direct-current technology, which required cumbersome carbon brushes in key motors. Meanwhile, General Electric came out with a 6,000-horsepower locomotive that used alternating current and electronics that eliminated the carbon brushes. Although the MK locomotives were rugged and well built, they sold poorly. "The company had a cartoonish business plan," says one rail company executive, who wasn't impressed by the top people around Agee either. "His inner circle was made up of sycophants and yes men. People at the next level down caught hell."

A BLACK ROSE ARRIVES

There were personal crises as well. In 1991, Mary was diagnosed with a form of cancer--non-Hodgkin's lymphoma, she told the Detroit Free Press the following year. Despite four lumps in her neck, she refused biopsies and chemotherapy. Mary says that on October 2, the Feast of the Guardian Angels, the lumps disappeared. ("I believe the angels went before almighty God and said, 'This woman is doing something good. Give her a chance,' " she reportedly said.)

Also in 1991, CNBC reported, erroneously, that Bill had been fired. He was furious, and Mary was disturbed that someone with enough clout and credibility to deceive the national press was out to embarrass him. In May of 1992, it was discovered that someone had tapped the phones of a half-dozen company executives. Although federal investigators never determined who ordered the taps, many at the company thought it was Agee. MK spent several months and $2 million defending itself before investigators dropped the matter.

Around the same time, anonymous employees complained to the IRS that the Agees were living lavishly at MK's expense. Some of the charges were true. For example, in 1990 Bill and Mary, along with board member Peter Lynch and his wife, took the company plane to visit a religious site in Yugoslavia. MK spent considerable time and money defending Agee, who was told by the IRS in 1992 to pay $158,000 in back taxes. Agee attributed the tax problems to clerical errors by his staff; the board of directors, which had already given him a compensation package worth $1.7 million that year, agreed to cover the bill. But as late as last year, the Agees were still using the company plane for personal travel, including a trip to the Vatican and to Lourdes, a French shrine venerated by Catholics.

The Agees became increasingly disturbed by the hostility they sensed in Boise. There were vaguely described "incidents" on the playground of the school their daughter attended. Agee attributed them to the resentment surrounding him and his wife, and to the layoffs he had ordered of hundreds of MK employees. He and Mary took the two children, Mary Alana, now 9, and Billy, 7, out of school in 1991. Mary personally educated them at home for a while; they now attend school in California.

Around 1992, someone broke into the Agees' home. They received threatening phone calls and became convinced they were being stalked. Agee had the company hire bodyguards--dubbed the "Sultan's Guards" by townspeople--and soon he and Mary could be seen driving through Boise trailed by guys in a Chevy Suburban. People thought it was ridiculous, a ruse to get attention and royal treatment at MK expense. Mary didn't need a 300-pound bodyguard to go to the beauty parlor, they said. If the Agees were so worried about safety, the locals asked, why did they drive about in a car with an AG-1 license plate, escorted by a highly visible vehicle? Furthermore, wonders pilot Moore, if Mary had to ride on the company plane for security reasons, why did Agee try, unsuccessfully, to arrange for the serial number on the new plane to end with the letters AG?

The Agees say their fears were real. On October 19, 1992, Bill nearly collapsed and underwent surgery for a gangrenous intestine. On his first day back at work, a package arrived containing a black rose, which he took as a death threat. That was enough for Bill and Mary; they moved permanently to Pebble Beach. Moore says they never spent another night in Boise.

The retreat to California may have been Agee's undoing. Aside from being the ultimate snub to Boise, it ruined morale at MK and engendered even more resentment toward him. Agee was considered a meek husband following his imperious wife. The company plane, designed to whisk Agee and his minions abroad, turned into a shuttle ferrying lone executives out for weekly meetings with the boss. "It was 'Come to the court. Receive your instructions,' " says one frequent schlepper. Although Agee was presumed to be goofing off on the golf course, even critics concede he worked hard. One board member says he didn't realize for a while that Agee had moved. "His phones were set up to ring in Boise and at his office in Carmel," says this director. "I called and thought he was in Idaho."

THE UNRAVELING

After three years of so-so earnings, MK lost $7 million in 1992. Several construction projects were going badly, and the company's backlog fell. In a 5-to-4 vote that one executive called a "heartbreaker," the Honolulu city council reversed its decision of the previous year and canceled its billion-dollar mass-transit project. "The Hawaii vote changed my life," the executive said later. "It would have been a dream job." More heartbreak followed. In 1993, Congress voted to kill the particle accelerator in Texas. And state officials there declared that MK was in default on its financing commitment for the high-speed rail line. In succession, many of the pet projects that Agee hoped would save Morrison Knudsen fell apart.

Agee's operating style and accounting decisions made it hard to grasp the true condition of the company. MK got hundreds of millions of dollars in advances on transit rail projects. Agee invested the money and used the earnings to boost profits (at one point, he invested $6 million in a company that made light bulb dimmers). He sold and spun off parts of operations, too, such as MK's gold-mining business and some of its interest in the Prince Edward Island bridge. Said one former executive: "MK hadn't turned a shovelful of dirt when Agee sold the bridge." Much of the money from those deals was reported as "operating income," which gave the impression that MK's construction and rail operations were doing well. When a few Wall Street security analysts said money from the spinoffs should have been recorded as "nonrecurring income," Agee disagreed. He argued that because he would always be investing in this and selling off that, the income would be recurring--part of operations, in effect.

By April of last year, some Wall Streeters had become concerned by Agee's maneuvering. He spun off the locomotive-overhaul and manufacturing business into a new company, MK Rail, and sold 35% of it to the public. Agee said that Wall Street didn't understand or value the rail business properly, and it would be worth more if spun off. But, says one analyst, "I figured MK Rail would go public with a P/E of 14, at a time when the parent company had a P/E of 23." Agee went ahead anyway. The stock sale raised $88 million, but MK Rail got its mediocre P/E of 14, as predicted. "Something really awful was going on," says this analyst, who did not want to be identified. "My sense was that these guys were screwing the company--selling operations at a discount to get capital gains."

Others are slightly less harsh. Tobias Levkovich, an analyst at Smith Barney, believes Agee wanted to keep MK's stock price high so he could continue making acquisitions. "Everything is forgivable if it works," he says. "But my gut sense is that Agee was being deceitful." An MK executive has another theory: He thinks Agee foresaw big losses from the transit car operations and was trying to buy time with a quick asset sale.

Whatever was behind Agee's strategy, it didn't work. Last July, Morrison Knudsen took $88 million in write-downs for the second quarter. Of that, $59 million was attributed to transit railcar problems, mostly the M-6 car for the New York-area commuter line. Other losses included $14 million on the high-speed rail line in Texas and $5 million on a hazardous-waste incinerator in Arkansas. In October, MK reported more losses, including $9.2 million on a $100 million locomotive refurbishing job being done by MK Rail. Barely six months old, MK Rail laid off 175 workers, citing lack of work. Around the same time, MK learned that orders for new railcars from Amtrak and from BART in San Francisco probably would not materialize. Without the orders, MK was likely to lose more money. In a year, its short-term debt had risen from $37 million to $235 million, and the $88 million raised from selling MK Rail stock had been spent.

BUDDIES ON THE BOARD

Where, one may appropriately ask, was the Morrison Knudsen board through all this? Agee appears to have convinced directors that MK was in far better shape than it really was. "We were told he had inherited a troubled company that had made a lot of mistakes, but he was developing new markets," says one longtime director. "With various bumps and problems, Agee seemed on track. Rail and mining were expanding. He seemed to have a handle on it." Another director says he, too, had no idea how much trouble the company was in. "The tone was upbeat and positive, about the rebuilding of America."

Wittingly or not, Agee filled the board with people who proved ineffectual in spotting flaws in his strategy and management. During his 61/2 years at Morrison Knudsen, he replaced every member of the 12-person board except Robert McCabe, head of a private finance company in New York City. Some replacements occurred naturally, as directors reached the mandatory retirement age of 70. But aside from one who died in a plane crash, all the MK employees on the board quit, or were reassigned or fired by Agee. When Gunnar Sarsten, head of MK International, got reshuffled off the board, says one of Agee's former secretaries, "everybody took a deep breath, because he was the last in-house director."

Some of Agee's choices were famous names: Lynch, the fabled stock picker from Fidelity (who is also a director of W.R. Grace, another troubled company); Gerard Roche, chairman of Heidrick & Struggles, the executive recruiting firm; Peter Ueberroth, former baseball commissioner and head of a business management company; Zbigniew Brzezinski, former national security adviser. Some were enormously wealthy: real estate developer John Arrillaga, who built much of Silicon Valley; Christopher Hemmeter, owner of several gambling casinos and the Hyatt Regency Waikoloa Resort, one of the biggest hotels in Hawaii. Others were obscure: Irene Peden, an electrical engineering professor in Seattle; John Rogers, head of a small money management firm in Chicago.

Despite obvious talents, says one security analyst, the board was seriously flawed: "It was full of people whose strengths were just like Agee's. Not golf players, but nobody who has ever run a large company. There was nobody who started at Monsanto and spent 20 years working his way up. They were entrepreneurs. One-man bands from private companies." Peter Lynch was a diligent board member, say three people present at numerous meetings. "He asked a million questions, he took a lot of notes, he remembered things from months earlier," says one of these people. "But he never got the big picture." Lynch declined to respond.

CEOs often choose buddies to be on their boards, of course, but Agee--with help from Mary--seemed to go out of his way to find like-minded people. In 1992, half the members of the MK board had wives on Mary's Nurturing Network board. Two directors, Agee and Roche, served on both boards. Sometimes the two groups met at the same time in the same city, with husbands and wives traveling together on the company plane.

The Agees worked together to make the gatherings enjoyable events that probably diminished any director's resolve to attack the CEO. Says one executive who attended many meetings: "Agee was spectacular with the board. He kept the fun up. He knew when to bring the wives. He made directors look forward to meetings." Until last fall's get-together was moved to California, it was to be held in San Antonio, complete with hot-air balloon rides for directors. The executive believes that by holding board meetings away from Boise, Agee was able to control what directors learned about Morrison Knudsen. "Every meeting after October 1991 was moved to a site outside Boise," he says. "By doing that, you limit the board's access to knowledge and information." There are no reports that Agee told anybody to lie to directors about the company's health, but nobody was encouraged to bring bad news, either. "The board books were scrubbed clean by him," says an executive who attended many meetings.

AN ANONYMOUS LETTER

The directors may have been oblivious, but others saw plenty of dirt. Around Thanksgiving of last year, a mutiny began. A handful of top executives, shareholders, and MK retirees formed a group called the "Committee for Excellence." They sent a lengthy letter to the board "documenting the deteriorating financial performance" of Morrison Knudsen. They cited Agee's poor management, his high pay, his "aggressive if not illusory balance sheet accounting," the high turnover of senior staff, and his presence in Pebble Beach. Moreover, they complained, the company had paid for a painting, gifts, legal fees, and Waterford crystal for the Agees.

Virtually all the directors ignored the letter. Says one: "When you're on a board, you get letters all the time. Huge complaints. You try to take them seriously, but there are lots of disgruntled people out there. This was an anonymous letter with a lot of complaints." The board turned it over to Agee, saying, in effect,"You handle it."

Agee, of course, didn't. But the newest director, William P. Clark, was disturbed by the letter. Clark, 63, is a former California supreme court justice, a former national security adviser to Ronald Reagan, and an active Catholic. The Agees met him last year at an event at a chapel he built on his 5,000-acre California ranch. Afterward Agee offered him a seat on the MK board. In October, Agee told the directors he wanted to quit as CEO in about a year but remain as chairman. Clark was heading the search committee when the Committee for Excellence letter arrived. He began an investigation, explaining that he needed to understand the company better to choose a replacement for Agee. In the next few weeks, he held one-on-one conversations with dozens of executives and retirees. He also spoke to MK bankers and customers.

Agee became increasingly worried about the investigation. On the last Thursday in January, he drove from Pebble Beach to San Francisco, where Clark was attending a board meeting of Pacific Telesis. Agee met him and demanded to know what was going on. They talked for an hour and a half, but Agee was unable to determine what Clark had learned or what he would do. Afterward, despite a blinding rainstorm, Clark suggested they go to the nearby Daughters of St. Paul bookstore--where he was taking a gift of olives, wine, and chili peppers from his ranch to the nuns. While there, they stopped at a chapel in the bookstore and prayed, and Clark handed Agee a prayer card. Agee left with the strong feeling that Clark wanted to become CEO of MK himself. Not so, says one director, laughing. "Agee made the same comment about Ueberroth and McCabe."

Board members, meanwhile, were getting an earful. "What Clark told us was extremely damaging," says one. "Management had lost confidence in Bill. Clark said management, in its dealing with the board, was told only to put the most optimistic stuff up on the projector." Losses on the transit car contracts, for example, would be much worse than the directors had been told. In addition, MK had unexpectedly hit groundwater in Taiwan as it excavated a 4,000-foot-long tunnel, and would have to write off millions. Wall Street analysts and MK's lenders made it plain that they thought Agee should be fired.

THE FIRING

A few days before the February 9 board meeting, Clark called several directors to say his search committee was debating how soon Agee should go. At the meeting, held in San Francisco, Agee was instructed to wait outside. He sensed he was doomed; "Grace and dignity," he implored the board. Agee waited 3 1/2 hours before Lynch and others emerged to tell him he was fired.

Five weeks later, Clark announced that his work was finished and that he was leaving the board. Brzezinski followed soon after; both have been dropped from the shareholder lawsuits. Around the same time, Morrison Knudsen said it was writing off another $135 million, bringing its 1994 losses to $310 million. The directors chose Robert Tinstman, head of MK's successful mining operations, to be the new CEO. He says he will reemphasize construction and concentrate at first on smaller, more manageable projects than Agee did. Robert Miller, the financial whiz who orchestrated Chrysler's bailout and loan renegotiations in 1982, was named chairman. He helped win bridge loans that should keep MK out of bankruptcy, at least for a while.

People who have seen Agee since he left say he is furious with Clark. "The biggest hypocrite, the most despicable person I've met in my whole fucking life," he told one. He was undone too, he believes, by employees of the engineering division who got wind of his plans to sell off various operations and eliminate Boise as the company headquarters. He is absolutely convinced that his asset sales would have saved the company. Several major companies had agreed in principle to buy parts of the rail and transit operations, but, said Agee, the upheaval caused by Clark caused them to back off. He has suffered financially too. He and Mary bought $2 million worth of MK stock, and the company bought them $2 million more--an investment now worth $900,000.

What made everything fall apart? To say that it was purely greed or evil ambition is glib and misleading. Yes, Agee used the company plane for himself, arranged oversize bonuses, and stuffed the board with easygoing cronies. Alas, none of that is as rare as it should be in business--and is ignored if all goes well.

Agee's fatal flaw was his weakness as a manager. A CFO at heart, he relied on buying and selling assets so much that he obscured MK's problems and his own shortcomings until it was too late. "He was a dealmaker, not a manager," says one Wall Street analyst. "He never thrived in a line business." Agee didn't understand the construction business, and his detour into railcars was about as well planned and executed as the charge of the Light Brigade. His optimism and buoyancy, while engaging, hurt him as well, enabling him to keep saying things would be okay if he could just buy more time and raise more cash until, like Captain Queeg in the storm, he had to be relieved of command.

Pinning blame for Agee's dreadful relations with MK employees--and Boise itself--is harder. Was he vastly more insensitive than other CEOs in the way he fired and laid off people? Or was the resentment and anxiety of employees exacerbated by the dearth of job alternatives in a small town like Boise? Was Mary truly haughty and highfalutin? Or was she simply unhappy to be in Boise, and unwittingly rattling the natives by using crystal in a place more comfortable with paper cups? Was Bill so hopelessly in love with Mary that he abandoned his responsibilities to Morrison Knudsen? Or were MK employees intolerant of his unabashed affection for her? Who knows? In any case, Bill and Mary failed to divine the cultural peculiarities of Boise and Morrison Knudsen, which is something people who earn $2.4 million a year are supposed to be able to do.

Agee gets occasional calls from well-wishers, but he lives in exile, far from the glamorous world he once inhabited. The friends he put on the Morrison Knudsen board are angry and humiliated by the problems that erupted so suddenly there, and some have not spoken to him since his ouster. He sits on no boards of public companies. Despite his spectacular Elba at Pebble Beach, arthritis keeps him from playing much golf. He is stung, he says, by reports that portray him as dishonest. Mostly, he is wearied by the whole experience. "At no time was this a fun job."

Mary, says an old friend, is stunned by her husband's firing but praying for the people who did it. With real passion, she told one caller, "I want to convey to you how much my husband loved that company. He worked so hard I didn't see him a whole lot and my children didn't, and that's what breaks my heart." Morrison Knudsen employees weren't so upset. On the day Agee was axed, they gathered in the parking lot at company headquarters and cheered.