DRAVO CORP, DEF 14A, 1998-03-30

DRAVO CORP
DEF 14A, 1998-03-30
MINING & QUARRYING OF NONMETALLIC MINERALS (NO FUELS)

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<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

DRAVO CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

<PAGE>

LOGO
DRAVO
1891

March 27, 1998

Dear Shareholder:

You are cordially invited to attend the 1998 Annual Meeting of Shareholders
on Thursday, April 23, 1998 at 10:00 a.m. local time, to be held in Room
Winfrey E of The Winfrey Hotel located at the Riverchase Galleria in
Birmingham, Alabama.

A Proxy Card or Voter Direction Card is enclosed with the notice of meeting
and proxy statement. Whether or not you now plan to attend the annual meeting,
we urge you to sign, date and mail the enclosed card and return it in the
enclosed envelope at your earliest convenience. Regardless of the size of your
holding, it is important that your shares be represented. If you attend the
annual meeting, you may withdraw your proxy and vote in person.

Admission to the meeting will be by Admission Card only. If you plan to
attend, you may obtain an Admission Card by completing the Admission Card
Request Form and returning it along with your Proxy Card or Voter Direction
Card.

We look forward with pleasure to seeing you on April 23rd.

Sincerely,

/s/ Arthur E. Byrnes /s/ Carl A. Gilbert
Arthur E. Byrnes Carl A. Gilbert
Chairman of the President and Chief
Board of Directors Executive Officer

<PAGE>

DRAVO CORPORATION

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1998

The 1998 Annual Meeting of the Shareholders of Dravo Corporation, a
Pennsylvania corporation (the "Company"), will be held, in accordance with a
resolution of the Board of Directors adopted pursuant to the By-laws of the
Company, on Thursday, April 23, 1998, at 10:00 a.m., local time, in Room
Winfrey E of The Winfrey Hotel, located at the Riverchase Galleria in
Birmingham, Alabama for the following purposes:

1. To elect two directors for terms expiring at the annual meeting of the
Company's shareholders in 2001 (the "Class of 2001");

2. To act upon a shareholder proposal regarding the location of the
annual meeting of the shareholders;

3. To act upon a shareholder proposal regarding the establishment of a
corporate-wide cost-reduction program;

4. To act upon a shareholder proposal regarding establishment of a
moratorium on all new expansion of capacity;

5. To elect independent auditors to examine and to report upon the
consolidated financial statements of the Company and its subsidiaries as of
December 31, 1998; and

6. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on March 4, 1998 as
the record date for determining those shareholders entitled to notice of and
to vote at the 1998 Annual Meeting or any adjournment thereof.

The Board of Directors' nominees for directors are set forth in the
accompanying proxy statement.

A copy of the Company's Annual Report for the fiscal year-ended December 31,
1997 is being mailed herewith to each shareholder.

Your vote is important. Please mark, date and sign the enclosed Proxy Card
or Voter Direction Card and promptly mail it in the enclosed postage-paid and
addressed envelope to the Company's vote tabulators, Continental Stock
Transfer & Trust Company.

THE ENCLOSED PROXY CARD OR VOTER DIRECTION CARD, WHICH IS BEING SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY, SHOULD BE RETURNED IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.

By Order of the Board of Directors

Earl J. Bellisario,
Secretary

11 Stanwix Street
Pittsburgh, Pennsylvania 15222
March 27, 1998
<PAGE>

PROXY STATEMENT

This proxy statement and the related letter to shareholders, notice of
meeting and Proxy Card or Voter Direction Card are being mailed to the
shareholders of Dravo Corporation, a Pennsylvania corporation (the "Company"),
on or about March 27, 1998 in connection with the solicitation by the Board of
Directors (the "Board") of the Company of proxies to be voted at the 1998
Annual Meeting of Shareholders to be held on Thursday, April 23, 1998, at
10:00 a.m., local time, in Room Winfrey E of The Winfrey Hotel, located at the
Riverchase Galleria in Birmingham, Alabama and any adjournments thereof (the
"1998 Annual Meeting").

The Board has fixed the close of business on March 4, 1998 as the record
date (the "Record Date") for determining shareholders entitled to vote at the
1998 Annual Meeting. At the close of business on the Record Date, the Company
had outstanding 14,713,509 shares of Common Stock, par value $1.00 per share
(the "Common Stock"), 16,000 shares of $2.475 Cumulative Convertible Series B
Preference Stock, par value $1.00 per share (the "Series B Preference Stock"),
and 200,000 shares of Series D Cumulative Convertible Exchangeable Preference
Stock, par value $1.00 per share (the "Series D Preference Stock").

Each holder of record at the close of business on the Record Date of Common
Stock, Series B Preference Stock and Series D Preference Stock is entitled to
one vote for each share of any class held and to cumulative voting rights in
the election of directors. Under cumulative voting, each shareholder, or the
shareholder's proxy, is entitled, in the election of directors, to that number
of votes as determined by multiplying the number of directors to be elected by
the number of shares held by the shareholder. The shareholder may then
accumulate such votes and give to one or distribute to either nominee as many
votes as shall equal the total number of votes to which the shareholder is
entitled. The nominees receiving the greatest number of votes will be elected
directors. If a shareholder desires specifically to allocate votes among one
or more nominees, the shareholder should so specify on the Proxy Card or Voter
Direction Card.

The shareholders of each class of the Company's outstanding capital stock
will vote together as a single class on those matters brought to the
shareholders of the Company for their vote or approval at the 1998 Annual
Meeting, including the elections of Directors and independent auditors, and
each of the three shareholder proposals.

ELECTION OF DIRECTORS

The Company has a staggered Board of Directors, and accordingly the
Directors of the Company are divided into three classes with the terms of each
class expiring in different years. The term of each class of Directors is
three years, and accordingly the term of those individuals elected to serve as
Directors at the 1998 Annual Meeting will expire at the annual meeting of the
shareholders in the year 2001 (the "Class of 2001").

The Company has been advised by the persons named in the accompanying proxy
that they intend to vote pursuant to the proxy for the election of the
nominees identified below and, if necessary, to exercise cumulative voting
rights to secure the election of as many as possible of each of the individual
nominees. Each individual nominee has agreed to serve if elected. However, the
Company is informed that in the event of the refusal or inability of any
nominee to serve, the persons named in the accompanying proxy intend to vote
at the 1998 Annual Meeting pursuant to the proxy for the election of such
other person, if any, as may be nominated by the Board, subject to the right
of the persons named in the proxy to exercise cumulative voting rights.

1
<PAGE>

NOMINEES FOR TERMS TO EXPIRE IN 2001

CARL A. GILBERT
President and Chief Executive Officer of the Company

Director since 1994 Age: 56

Mr. Gilbert has served as President and Chief Executive Officer of the
Company since January 1, 1995. Prior to such date, Mr. Gilbert served as
President and Chief Operating Officer of the Company from March 31, 1994 to
December 31, 1994. Mr. Gilbert has served as President of Dravo Lime Company
since February 1983. Mr. Gilbert also served as a Senior Vice President of the
Company from October 1988 to December 1994.

WILLIAM G. ROTH
Former Chairman of the Board of Directors
and Chief Executive Officer of the Company

Director since 1987 Age: 59

Member--Audit Committee, Compensation Committee, Finance Committee and
Nominating Committee

Mr. Roth served as Chairman of the Board of Directors of the Company from
June 1987 until his retirement in May 1994. Mr. Roth also served as Chief
Executive Officer of the Company from June 1987 until December 1989 and as
President from June 1987 to June 1988. In addition to his position on the
Board of Directors of the Company, Mr. Roth also serves on the boards of
directors of Amcast Industrial Corporation, Teknowledge Corporation and
Service Experts Inc.

The Board of Directors recommends a vote FOR the nominees set forth above.

DIRECTORS WHOSE TERMS EXPIRE IN 2000

ARTHUR E. BYRNES
Chairman of the Board of Directors of the Company

Director since 1993 Age: 53

Member--Audit Committee, Compensation Committee, Finance Committee and
Nominating Committee

Mr. Byrnes has served as a director of the Company since December 9, 1993
and Chairman since January 23, 1997. In addition to his position as Chairman
of the Board of Directors of the Company, Mr. Byrnes is Chairman of Deltec
Asset Management Corp. (independent investment counselors) and is a member of
the boards of directors of Deltec International S.A. and Argo Bancorp, Inc.

JAMES C. HUNTINGTON, JR.
Director

Director since 1988 Age: 70

Member--Audit Committee, Compensation Committee, Finance Committee and
Nominating Committee

Mr. Huntington has served as a director of the Company since January 28,
1988. Since his retirement as a Senior Vice President with American Standard,
Incorporated (manufacturers of air conditioning, building products and
transportation equipment) where he served from January 1977 until August 1988,
Mr. Huntington has pursued a career as an independent businessman and also
serves as a member of the boards of directors of Alumax Inc. and Westinghouse
Air Brake Company.

2
<PAGE>

PETER T. KROSS
Director

Director since 1997 Age 56

Member--Audit Committee, Compensation Committee, Finance Committee and
Nominating Committee

Mr. Kross has served as a director of the Company since April 24, 1997. Mr.
Kross has served as Senior Vice President, Investments, Everen Securities,
Inc. (independent investment counselors) since 1987.

DIRECTOR WHOSE TERM EXPIRES IN 1999

WILLIAM E. KASSLING
Chairman, Chief Executive Officer
and President, Westinghouse Air Brake Company

Director since 1993 Age: 54

Member--Audit Committee (Chairman), Compensation Committee, Finance Committee
(Chairman) and Nominating Committee

Mr. Kassling has served as Chairman, Chief Executive Officer and President
of Westinghouse Air Brake Company (supplier of air brake systems and related
products) since March 9, 1990. Prior to assuming his duties with Westinghouse
Air Brake, Mr. Kassling served as Vice President/Group Executive of the
Railway Products Group of American Standard, Incorporated. Mr. Kassling also
serves as a member of the boards of directors of Scientific Atlantic, Inc. and
Commercial Intertech.

Mr. Konrad M. Weis has notified the Company of his intention to resign from
the Board effective with the date of the 1998 Annual Meeting of Shareholders,
at which time the size of the board will be reduced from seven to six. Mr.
Weis currently serves as Chairman of the Compensation and Nominating
Committees.

The Board held 7 meetings during 1997. Each incumbent director attended at
least 75% of the aggregate of the total number of meetings of the Board and
meetings (13 in total during 1997) of the standing Audit, Compensation,
Finance and Nominating Committees on which each such director served.

DIRECTORS' COMPENSATION

The Chairman of the Board, who is not an officer or employee of the Company,
receives cash compensation of $50,000 per year. Under the Non-Employee
Retainer Fee Plan approved by the shareholders at the 1996 Annual Meeting of
Shareholders, each director of the Company who is not an officer or employee
receives as compensation for his services to the Company, in lieu of an annual
retainer, 1,000 shares of the Company's Common Stock. In addition, directors
receive as compensation $1,000 for every meeting of the Board and meetings of
committees of the Board at which they are in attendance. The chairmen of the
standing committees of the Board are compensated an additional $1,000 per year
for serving as chairmen. Directors who are also officers or employees of the
Company do not receive any additional remuneration for so serving. Under the
Stock Option Plan of 1994, directors who are not officers or employees of the
Company are granted on an annual basis, an option to purchase up to 1,500
shares of Common Stock, priced as of the day following each annual meeting of
the shareholders of the Company.

3
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The By-laws of the Company provide that there shall be, as standing
committees of the Board, an Audit Committee, a Compensation Committee, a
Finance Committee and a Nominating Committee, each comprised exclusively of
directors who are not current officers or employees of the Company. The
committees receive their authority and assignments from the Board and report
to the Board.

Audit Committee --The Committee is comprised of Messrs. Kassling (Chairman),
Byrnes, Huntington, Kross, Roth and, until the effective date of his
resignation, Mr. Weis. The Committee held 2 meetings in 1997. The Committee's
duties include recommending, for nomination by the Board and election at the
annual shareholders' meeting, the firm of independent auditors to audit the
Company's financial records and review the overall approach followed by the
independent auditors and the Company's internal auditors to insure the
integrity of the Company's published financial statements. In discharging
these duties the Committee reviews the audit plans for the fiscal year and
reviews reports from the independent auditors to determine, among other
things, whether there have been any material changes in accounting principles
and, if so, the effect of such changes on the valuation of the Company's
assets or the determination of its earnings. After the end of each fiscal
year, the Committee meets separately with the independent auditors and with
the Chief Financial Officer of the Company to review the audit report prepared
by the independent auditors and their comments with respect thereto.

Compensation Committee --The Committee is comprised of Messrs. Weis
(Chairman, until the effective date of his resignation), Byrnes, Huntington,
Kassling, Kross and Roth. The Committee held 3 meetings in 1997. The Committee
is empowered to fix the compensation of the executives of the Company. The
Committee also selects the participants in the Company's Executive Benefit
Plan, performs the functions of the committee under the Company's Incentive
Compensation Plan and the Stock Incentive Plan encompassed therein, and
performs the functions of the committee which determines awards under the
Company's Employee Stock Option Plan of 1988 and Stock Option Plan of 1994.

Finance Committee --The Committee is comprised of Messrs. Kassling
(Chairman), Byrnes, Huntington, Kross, Roth and, until the date of his
resignation, Mr. Weis. The Committee did not meet in 1997. The Committee
assists and counsels the Chief Executive Officer and Chief Financial Officer
of the Company in the formulation and development of financial policies and
plans.

Nominating Committee --The Committee is comprised of Messrs. Weis (Chairman,
until the date of his resignation), Byrnes, Huntington, Kassling, Kross and
Roth. The Committee held 1 meeting in 1997. The Committee recommends, for
nomination by the Board and election by the shareholders, individuals to serve
as members of the Board. The Committee considers shareholder recommendations
for positions on the Board. Any shareholder wishing to recommend a nominee for
consideration by the Committee may do so by letter addressed to the Secretary
of the Company, 11 Stanwix Street, Pittsburgh, Pennsylvania 15222.

BENEFICIAL SECURITY OWNERSHIP OF
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the beneficial
ownership, direct or indirect, of shares of the Company's outstanding
securities, including shares of Common Stock as to which a right to acquire
beneficial ownership exists (for example, through the exercise of stock
options, conversions of securities or various trust arrangements) within the
meaning of Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended, by (i) each nominee for director, (ii) each director whose term will
extend beyond the 1998 Annual Meeting, (iii) each of the five most highly
compensated executive officers of the Company during the last completed fiscal
year named in the Summary Compensation Table on page 9 hereof (hereinafter,
the "Named Executive Officers") and

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<PAGE>

(iv) all directors and executive officers as a group, as of December 31, 1997.
No shares of Series B Preference Stock or Series D Preference Stock are
beneficially owned by any director or Named Executive Officer of the Company.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED BY DIRECTORS, NOMINEES AND
NAMED EXECUTIVE OFFICERS ON FEBRUARY 6, 1998
--------------------------------------------------
NO. OF PERCENT OF
NO. OF SHARES SUBJECT OUTSTANDING
SHARES TO STOCK COMMON
BENEFICIALLY OPTIONS AND AGGREGATE STOCK
NAME OF BENEFICIAL OWNER OWNED (#)(1) SARS (#)(2) TOTAL (#) OWNED (%)
------------------------ ------------ -------------- --------- -----------
<S> <C> <C> <C> <C>
Arthur E. Byrnes, 15,000 4,500 19,500 *
Chairman of the Board and
Director
Carl A. Gilbert, 10,033 200,000 210,033 1.4%
Director, President and
Chief Executive Officer
James C. Huntington, Jr., 20,000 4,500 24,500 *
Director
William E. Kassling, 6,000 4,500 10,500 *
Director
Peter T. Kross, 535,700(3) 0 535,700 3.6%
Director
John R. Major, 4,571 67,000 71,571 *
Senior Vice President,
Chief Operating Officer
James J. Puhala, 4,934(4) 67,000 71,934 *
Former Vice President,
General Counsel & Secretary
William G. Roth, 71,000 153,000 224,000 1.5%
Director
Donald H. Stowe, Jr., 1,235(5) 52,000 53,235 *
Former Vice President,
Sales and Technology
Marshall S. Johnson, 1,733 51,500 53,233 *
Vice President, Operations
& Engineering
All Directors, nominees for
Director and executive
officers as a group (13
persons) 671,824 684,500 1,356,324 9.2%
</TABLE>
- --------
* Less than 1%

(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power over such securities.

(2) Includes stock options granted to each of the persons and the group
identified above which are currently exercisable as well as those options
which will become exercisable within 60 days after December 31, 1997. No
separately granted SARs are presently outstanding.

(3) Includes 7,200 shares owned by his wife, and 29,000 and 20,500 shares
held by his daughter and son respectively.

(4) Includes 800 shares owned jointly with his wife.

(5) Includes 27 shares owned jointly with his wife.

5
<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee has furnished the following report on executive
compensation:

Objectives of the Executive Compensation Program

In order to attain its short- and long-term performance objectives, the
Company must attract, motivate and retain outstanding individuals.
Accordingly, the Company provides a total executive compensation package that
is intended to enable it to attract, motivate and retain such individuals and
align their success with that of the Company's shareholders.

The following general principles guide all of the Company's executive
officer compensation programs. The programs are designed in the aggregate to
support a consistent, organization-wide philosophy which is internally
equitable and externally competitive, and are directed toward securing and
retaining the services of outstanding individuals who exhibit a high degree of
business responsibility, personal integrity and professionalism. The programs
provide key executives with a mix of total cash compensation, including base
salaries targeted at the middle of the competitive salary market and a formula
determined Incentive Compensation Program (ICP) opportunity supportive of the
business planning process and targeted to produce awards at the 50th
percentile of competitor organizations based on appropriate corporate results.
The Compensation Committee believes that the Company's most direct competitors
for executive talent are not necessarily the companies that would be included
in a peer group established to compare shareholder returns. Thus, the
compensation peer group is not the same as the Peer Group index in the
Comparison of Five Year Cumulative Total Return Graph included in this Proxy
Statement. Rather, competitor organizations are defined annually as part of
the planning process and include selected companies engaged in the production
and sale of natural resource materials, as well as companies selected on the
basis of broader industry comparison (e.g., comparable-sized general industry
companies).

Base salaries of the Company's executives are based upon general industry
data for employees of companies with comparable revenues holding positions
with comparable responsibilities. The award targets under the Incentive
Compensation Plan are similarly established. The Company annually reviews
published surveys in the competitive market (e.g., Wyatt ECS, Towers Perrin
Compensation Data Bank). Variability of actual payments in the ICP, both up
and down, is a function of business objectives approved each year by the
Compensation Committee of the Board. The long-term incentive component of the
program is provided by the Dravo Corporation Employee Stock Option Plan of
1988 and the Dravo Corporation Stock Option Plan of 1994 ("Long-Term
Incentives") and emphasizes long-term incentive opportunity for the key
individuals at the 50th percentile of competitor organizations. The Long-Term
Incentives are designed to encourage stock ownership and executive retention.
Executive benefits are provided on a competitive basis but are not emphasized.

All programs are developed and administered in such a fashion as to fulfill
the commitment of the Company to nondiscrimination as to race, age, sex or
other factors unrelated to an individual's performance, and to comply with all
applicable federal, state and local laws and regulations.

Base Salary Program

The level of base salary paid to executive officers, in general, and to the
Chief Executive Officer, in particular, is determined on the basis of
performance, experience and such other factors that may, from time to time, be
appropriately considered by the Compensation Committee. Specific marketplaces
which the Company uses in the analysis of base salary competitiveness are
determined on the basis of the nature and level of the position(s) in question
and the labor market(s) from which the qualified individuals would be
recruited. The primary marketplace in which the Company desires to be
competitive for key executives is the natural resource industry. For positions
which are not specific to the natural resource industry (e.g., human
resources, finance, etc.), the relevant marketplace(s) is expanded to include
general industry companies of comparable size. Annual salary increase budgets

6
<PAGE>

are based on such factors as corporate performance, general economic
conditions, marketplace compensation trends, and the appropriateness of
aggregate individual pay levels. As indicated in the Summary Compensation
Table, no Named Executive Officers received any increase in salary in 1997.

Incentive Compensation Program (ICP)

The purposes of the ICP are to encourage and reward management achievements
that contribute to the value of the Company; focus participants' efforts on
specific performance areas and objectives established by the organization
recognizing individual and team performance which support overall corporate
success; communicate key corporate and divisional priorities through the
compensation program; provide an element of compensation which varies directly
with performance on both the upside and the downside; provide managers and
other key employees a competitive 50th percentile of competitor organizations'
annual incentive compensation opportunity; utilize programs and approaches
which are consistent with industry and other competitors' practices; and
provide additional motivation toward achievement of predetermined levels of
excellence.

The ICP was adopted by the Board in January 1989, to replace the Executive
Incentive Compensation Plan which had been adopted in 1983. The ICP was
amended in January 1995 to permit the Committee, at its discretion, to divide
awards to senior executives into cash and stock. A further amendment,
clarifying changes adopted in 1995, was adopted by the Board in January 1996,
and approved by the shareholders at the 1996 Annual Meeting.

The ICP is a target incentive plan which provides for the establishment of
threshold, target and maximum levels of awards based on performance against
specific predetermined performance objectives. The business objectives include
earnings per share from continuing operations, and earnings before interest
and taxes at the divisional level. For the Chief Executive Officer, the other
Named Executive Officers, and for management employees at the corporate level,
the performance objective is based upon earnings per share from continuing
operations. For management employees at the divisional level, there are two
performance components: earnings per share from continuing operations, and as
appropriate, division operating performance. The Plan is administered by the
Compensation Committee which is comprised exclusively of directors who are not
employees. Awards may be made under the ICP to officers and key employees of
the Company and its subsidiaries who are in a position to make significant
contributions to the financial success of the Company.

Prior to the beginning of the 1997 fiscal year, financial measures were
established for corporate and divisional performance for the year.
Recommendations for 1997 as to proposed participants, threshold, target and
maximum award levels and allocation of awards among the performance components
for each individual were made by the Chief Executive Officer to the
Compensation Committee. The final determination as to participants and awards
was made solely by the Compensation Committee.

In January 1998, each participant's performance was reviewed against the
pre-established performance objectives. No awards were made to any of the
Named Executives for 1997 performance.

In the event of extraordinary circumstances, the Compensation Committee
retains the right to make adjustments to incentive award amounts as
appropriate to maintain the fairness of the Plan.

Long-Term Incentives

The purposes of long-term incentive compensation are to focus key
executives' efforts on performance which will increase the value of the
Company for its shareholders; align the interests of key executives with those
of the shareholders by encouraging share ownership; provide a 50th percentile
of competitor organizations' long-term incentive and capital accumulation
opportunity; and provide a significant retention incentive for key
individuals.

7
<PAGE>

The Company's Stock Option Plan of 1978 (the "1978 Plan"), which terminated
in January, 1988, the Long-Term Incentive Award Plan of 1983 (the "1983
Plan"), which terminated in July, 1993, the Employee Stock Option Plan of 1988
(the "1988 Plan"), and the Stock Option Plan of 1994 (the "1994 Plan")
authorize the granting of options and stock appreciation rights ("SARs"),
whether separately or in tandem with each other. The 1978 Plan, the 1983 Plan,
the 1988 Plan and the 1994 Plan are hereinafter collectively referred to as
the "Plans" and individually as a "Plan". The Compensation Committee
administers the Plans.

Officers and other key employees of the Company and its subsidiaries were
eligible for awards under the 1978 Plan and the 1983 Plan, and are eligible
for awards under the 1988 Plan and the 1994 Plan. The Compensation Committee
selects the participants under each Plan and the amount and form of each
award. The Committee also determines the terms of options and SARs. Options
and SARs may be granted for terms up to ten years.

In July, 1997, the Company awarded options to the Named Executive Officers
based on the considerations as set forth in this report.

Severance Agreements

During 1997, the Compensation Committee acted to replace the change-in-
control agreements then existing with key executives with new severance
agreements. The change-in-control agreements provided for three years'
continued pay and benefits in the event of an executive's termination (other
than for cause) following a change-in-control. The new agreements provide an
executive who is terminated by the Company for any reason, other than for
cause, with continued pay and benefits for a period of two years following
termination. The new agreements incorporate broad non-compete provisions,
which were not present in the change-in-control agreements.

Other

The Compensation Committee, in exercising its responsibility to review and
establish the compensation levels of the Company's executive officers, to
administer the Company's various incentive plans and to authorize bonuses,
grants of stock options and other forms of remuneration, has solicited the
advice and counsel of KPMG Peat Marwick LLP, Towers Perrin, and Buchanan
Ingersoll Professional Corporation to assist with issues related to
accounting, design and legal considerations, respectively.

Respectfully submitted by the Compensation Committee,

Konrad M. Weis (Chairman)
Arthur E. Byrnes
James C. Huntington, Jr.
William E. Kassling
Peter T. Kross
William G. Roth (former Chief Executive Officer of
the Company).

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Roth, a former executive officer of the Company, serves on the
Compensation Committee.

8
<PAGE>

EXECUTIVE OFFICERS' COMPENSATION

The following table shows the compensation received by the Chief Executive
Officer and the Named Executive Officers for services to the Company and its
subsidiaries during the last three fiscal years:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) AWARD(S) SARS (1) PAYOUTS COMPENSATION
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl A. Gilbert 1997 290,000 0 0 0 40,000 0 0
President & Chief 1996 290,000 93,850 0 0 0 0 0
Executive Officer 1995 225,000 111,900 0 0 140,000 0 0

Donald H. Stowe, Jr. (2) 1997 120,840 0 0 0 7,000 0 $24,260(3)
Former Vice President, 1996 145,000 22,920 0 0 0 0 0
Sales & Technology 1995 140,000 27,300 0 0 35,000 0 0

John R. Major (4) 1997 145,000 0 0 0 10,000 0 0
Senior Vice President, 1996 145,000 22,920 0 0 0 0 0
Chief Operating Officer 1995 140,000 27,300 0 0 35,000 0 0

James J. Puhala (5) 1997 140,000 0 0 0 10,000 0 0
Former Vice President, 1996 140,000 22,920 0 0 0 0 0
General Counsel & 1995 135,000 27,300 0 0 35,000 0 0
Secretary

Marshall S. Johnson 1997 140,000 0 0 0 10,000 0 0
Vice President, 1996 140,000 22,920 0 0 0 0 0
Operations & Engineering 1995 135,000 27,300 0 0 35,000 0 0
</TABLE>
- --------
(1) In 1995, stock options awarded to Named Executive Officers were intended
to represent two years' worth of awards. There were no additional stock
option awards made to any Named Executive Officers during 1996.
(2) Mr. Stowe's employment as an executive officer terminated on October 31,
1997.
(3) Includes payments made under Mr. Stowe's Severance Agreement.
(4) Mr. Major was elected to his present position on October 21, 1997. Prior
thereto, he was Vice President, Administration.
(5) Mr. Puhala's employment as an executive officer terminated on December
31, 1997.

9
<PAGE>

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding the grant of stock
options during 1997 under the 1988 Plan and the 1994 Plan to each of the Named
Executive Officers:

<TABLE>
<CAPTION>
PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE PRESENT VALUE
NAME GRANTED (#)(1) FISCAL YEAR (%) PRICE ($/SHARE) EXPIRATION DATE ($)(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carl A. Gilbert 40,000 20.8 10.1875 7/25/07 165,694
Donald H. Stowe, Jr. 7,000 3.6 10.1875 7/25/07 28,980
John R. Major 10,000 5.2 10.1875 7/25/07 41,400
James J. Puhala 10,000 5.2 10.1875 7/25/07 41,400
Marshall S. Johnson 10,000 5.2 10.1875 7/25/07 41,400
</TABLE>
- --------
(1) All options are to purchase shares of Dravo Common Stock and vest and
become exercisable one year after the grant date.

(2) In accordance with Securities and Exchange Commission rules, the estimated
grant date present values were determined using the Black-Scholes model.
The material assumptions and adjustments incorporated in the model
include: an option term of six years, volatility of 29.89%, a risk free
rate of return of 6.11% and a reduction of 3% to reflect the probability
that the above options will be forfeited prior to the vesting date. The
ultimate value of the options will depend on the future market price of
the Company's stock which cannot be forecast with reasonable accuracy.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

The following table sets forth information regarding the exercise of stock
options during 1997 and the unexercised options held as of the end of 1997 by
each of the Named Executive Officers:

<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
VALUE REALIZED UNEXERCISED IN-THE-MONEY
SHARES (MARKET PRICE AT OPTIONS/SARS OPTIONS/SARS
ACQUIRED ON EXERCISE LESS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
NAME EXERCISE (#) EXERCISE PRICE) ($) ------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carl A. Gilbert 0 0 200,000/40,000 114,531/32,500
John R. Major 0 0 67,000/10,000 32,313/ 8,125
James J. Puhala 0 0 67,000/10,000 32,313/ 8,125
Donald H. Stowe, Jr. 0 0 52,000/ 7,000 6,874/ 5,688
Marshall S. Johnson 0 0 51,500/10,000 20,688/ 8,125
</TABLE>

SEVERANCE AGREEMENTS

The Company has entered into severance agreements with Messrs. Gilbert,
Major, Puhala, Stowe, Johnson and three other executive officers. An executive
receives benefits under these agreements only in the event of the termination
of such executive's employment by the Company other than for cause (as defined
in the agreements). In such event, the executive is entitled to receive
continued compensation and benefits, including eligibility, coverage, vesting
and benefit provisions under the company's benefit plans as if he were still
an employee of the company, for a period of two (2) years following the date
of the executive's termination.

10
<PAGE>

PERFORMANCE GRAPH

In accordance with requirements of the Securities and Exchange Commission,
the following line-graph presents a comparison of the cumulative, five-year
shareholder returns (including reinvestment of dividends) with the S&P 500
Stock Index and a market capitalization weighted index of peer companies. The
peer company group is the Value Line Investment Survey Cement and Aggregates
Industry Grouping, which is the same group as used last year.

DRAVO CORPORATION

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN

VS. S&P 500 AND VALUE LINE CEMENT AND AGGREGATES INDUSTRY GROUP(/1/)

[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG DRAVO, S&P 500 INDEX AND PEER GROUP

Measurement period
(Fiscal year Covered) DRAVO S&P 500 PEER GROUP
- --------------------- ----- ------- ----------
<S> <C> <C> <C>
Measurement PT -
12/31/92 $100 $100 $100
FYE 12/31/93 $125.35 $110.08 $130.64
FYE 12/31/94 $132.39 $111.53 $119.31
FYE 12/31/95 $135.21 $153.45 $138.27
FYE 12/31/96 $159.15 $188.68 $156.42
FYE 12/31/97 $123.94 $251.64 $248.49

</TABLE>

Assumes $100 invested on 12/31/92 in the Company's Common Stock, S&P 500 index
and peer group index assuming dividend reinvestment.

- --------
(1) The Value Line Investment Survey Cement and Industrial Grouping includes
the following companies: CalMat Company, Florida Rock Industries, Inc.,
Lafarge Corp., Medusa Corp., Southdown Inc., Texas Industries, Inc. and
Vulcan Materials Company.

11
<PAGE>

EXECUTIVE BENEFIT PLAN

The Company's Executive Death and Disability Income Plan, as adopted in
October 1980, was amended and restated by the Board effective July 1, 1984,
and redesignated the Executive Benefit Plan (the "Plan"). The Plan was further
amended in 1994 to reflect changes in IRS limitations.

Participation in the Plan is limited to high-ranking officers of the Company
and its subsidiaries as selected by the Compensation Committee. The Plan,
which is noncontributory, affords retirement, pre-retirement death, and
disability benefits. The benefits under the Plan supplement, and are offset
by, benefits payable from the Company's broad-based benefit programs.

Retirement benefits are calculated pursuant to a final average earnings
formula reduced by benefits payable under the Company's pension plan at normal
retirement (age 65). The Compensation Committee has approved early retirement
benefits for current participants in the plan after age 55. The following
chart shows the estimated straight-life annual benefits payable at normal
retirement age to eligible participants in specified earnings and years of
service classifications. These estimates are before reduction for benefits
payable under the Company's pension plan and are not subject to any deduction
for Social Security benefits or other offset amounts. Messrs. Gilbert, Major,
Puhala, Stowe and Johnson are participants in the Plan, having 24, 12, 23, 24
and 17 years of credited service, respectively. One other executive is a
participant in the Plan.

ANNUAL RETIREMENT BENEFIT BASED ON SERVICE

<TABLE>
<CAPTION>
AVERAGE FINAL COMPENSATION
(OVER 5 YEARS PRECEDING RETIREMENT)*
-------------------------------------------------------------------------
YEARS OF
SERVICE $100,000 $200,000 $300,000 $400,000 $500,000 $600,000
- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
5 $15,000 $ 30,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000
10 30,000 60,000 90,000 120,000 150,000 180,000
15 45,000 90,000 135,000 180,000 225,000 270,000
20 47,500 95,000 142,500 190,000 237,500 285,000
25 50,000 100,000 150,000 200,000 250,000 300,000
30 52,500 105,000 157,500 210,000 262,500 315,000
35 55,000 110,000 165,000 220,000 275,000 330,000
40 57,500 115,000 172,500 230,000 287,500 345,000
</TABLE>
- --------
* Earnings for this purpose are amounts reported as Annual Compensation in
the Summary Compensation Table, averaged over the five years preceding
retirement.

In the event of the participant's death, the Plan provides a surviving
spouse an annual benefit equal to 45% of the participant's compensation (basic
annual salary at death plus any incentive compensation paid in the 12-month
period preceding death), reduced by the periodic surviving spouse benefit
payable under the Company's pension plan, if applicable.

The disability benefit provided under the Plan is an annual amount equal to
60% of the participant's compensation (basic annual salary at the onset of
disability plus any incentive compensation paid in the 12-month period
preceding the onset of disability), reduced by benefits payable under, and by
amounts used as an offset in, the Company's long-term disability plan.

12
<PAGE>

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth each person or entity who may be deemed to
have beneficial ownership of more than 5% of the Company's outstanding Common
Stock, Series B Preference Stock and Series D Preference Stock as of December
31, 1997 based upon information furnished to the Company:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP (1)
----------------------------------
NAME AND ADDRESS AGGREGATE PERCENT
CLASS OF BENEFICIAL OWNER SHARES HELD OF CLASS (2)
----- --------------------------------- --------------- --------------
<S> <C> <C> <C>
Common
Stock Cowen & Company 1,654,424(3) 11.2%
Financial Square
New York, NY 10005-3597
Common
Stock The Prudential Insurance 1,621,676(4) 11.0%
Company of America, Inc.
751 Broad Street
Newark, NJ 07102-3777
Common
Stock Norwest Corporation 1,061,909(5) 7.2%
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Common
Stock Mellon Bank Corporation 818,469(6) 5.6%
One Mellon Bank Center
Pittsburgh, PA 15258
Series B
Preference
Stock Floyd A. Mechling 16,000 87.0%
5 North Calibogue Cay
Hilton Head Island, SC 29928-2913
Series B
Preference
Stock NationsBank of South 2,386(7) 13.0%
Carolina, N.A.
P.O. Box 16
Hilton Head Island, SC 29938
as Trustee U/A with D.L. Mechling
for the Benefit of Gladys H. Hale
Series D
Preference
Stock The Prudential Insurance 200,000(4) 100%
Company of America, Inc.
Prudential Plaza
Newark, NJ 07102-3777
</TABLE>
- --------
(1) For purposes of the foregoing table, a "beneficial owner" includes any
person who directly or indirectly has or shares the power to vote or to
direct the voting of shares of the Company's stock or who directly or
indirectly has or shares the power to dispose of or to direct the
disposition of such shares.

(2) As of February 6, 1998 there were 14,705,836 shares of Common Stock,
18,386 shares of Series B Preference Stock and 200,000 shares of Series D
Preference Stock of the Company issued and outstanding.

(3) Cowen & Company, Cowen Incorporated, the parent holding company of Cowen
& Company, and Joseph M. Cohen, an individual who may be deemed to
control Cowen Incorporated, jointly filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 Amendment
No. 3 to Schedule 13G which disclosed that as of December 31, 1997 Cowen
&

13
<PAGE>

Company had sole voting and investment power with respect to 157,400
shares, shared voting power with respect to 1,069,500 shares, and shared
investment power with respect to 1,497,024 shares of Common Stock of the
Company. Cowen & Company is a registered broker-dealer and investment
advisor that holds a portion of the shares of Common Stock covered by the
Schedule 13G on behalf of its clients.

(4) The Prudential Insurance Company of America has filed with the Securities
and Exchange Commission under the Securities Exchange Act of 1934
Amendment No. 11 to Schedule 13G which disclosed that the 200,000 shares
of Series D Preference Stock owned by it are presently convertible into a
total of 1,600,000 shares of Common Stock of the Company. Said Amendment
No. 11 also disclosed that as of December 31, 1997, The Prudential
Insurance Company of America had sole investment and voting power with
respect to 6,900 additional shares and shared investment power with
respect to 14,776 additional shares of Common Stock. The total of the
foregoing, 1,621,676 shares, would represent 11.0% of the Company's
Common Stock.

(5) Norwest Corporation and its subsidiary, Norwest Bank Colorado, N.A.
("NBC"), have jointly filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 Amendment No. 14 to Schedule
13G. NBC's principal place of business is, 1740 Broadway, Denver,
Colorado 80274-8677. In its filing, NBC disclosed that as of December 31,
1997, it was the beneficial owner of 1,048,500 shares of the Company's
Common Stock, including 830,000 shares held for the ATTIMCO Long-Term
Investment Trust with respect to a portion of whose assets NBC acts as an
investment advisor, such amount representing 7.2% of the Company's
outstanding Common Stock. Norwest Corporation, as the parent holding
company of NBC and other various subsidiaries, may be deemed to own the
shares of the Company's Common Stock beneficially owned by such
subsidiaries.

(6) Mellon Bank Corporation, a holding company for various direct or indirect
subsidiaries identified on a Schedule 13G filed by it with the Securities
and Exchange Commission, disclosed that it, as the parent holding company
of such subsidiaries, none of which individually hold in excess of 5% of
the Company's outstanding Common Stock, may be deemed to be the
beneficial owner of in excess of 5% of the Company's outstanding Common
Stock as a result of the aggregation of the holdings of its subsidiaries.
In its Schedule 13G, Mellon Bank Corporation disclosed that it may be
deemed to have sole voting power with respect to 673,369 shares, sole
dispositive power with respect to 718,569 shares and shared dispositive
power with respect to 99,600 shares of the Company's Common Stock.

(7) Such shares were converted into 7,672 shares of Common Stock on March 2,
1998.

SHAREHOLDER PROPOSAL

John B. McGowan, a shareholder of the Company, has notified the Company that
he or his representative will present the following resolution for
consideration at the 1998 Annual Meeting. In submitting this proposal, the
proponent disclosed holdings of 30,000 shares of Common Stock of the Company.
To be adopted, this resolution, which is opposed by the Board of Directors,
would require the affirmative vote of a majority of the votes present in
person or by proxy at the 1998 Annual Meeting.

In accordance with applicable proxy regulations, the proposal is set forth
below:

Proposal

Resolved that the shareholders of the Company hereby request and recommend
the Board of Directors establish as the location of the Annual Meeting in that
City in the United States in which the greatest percentage of its common
shares is held by investors.

14
<PAGE>

Supporting Statement

The purpose of this proposal is to advise the Board of Directors of the
shareholders concerns with respect to the Board's and Management's
responsibilities to provide shareholders with reasonable physical access to
them, at least once a year at the annual meeting. The proponent is of the view
that the Directors and senior management of Dravo maintain too great a
detachment from the shareholders of the Company and therefore ignore or are
extremely tardy in responding to shareholders concerns and wishes for the
successful operation of their Company; as reflected in the performance
comparison in this year's proxy statement.

The proponent believes that holding the Annual Meeting in a city of close
proximity to holders of a large portion of its stock provides the best and
only opportunity for a greater representation of Dravo shareholders to meet
face to face with directors and management for meaningful dialogue and mutual
understanding. The proponent respectfully requests that the shareholders take
this opportunity to increase owner input to the Directors and Managers of
their Company by voting YES for this proposal.

The Board's Statement in Opposition to the Shareholder Proposal

The Board opposes the proposal submitted by its proponent on the basis that
the Board has adopted a policy of rotating the site of its Annual Meeting of
Shareholders taking into account the primary geographic markets for the
Company's products, the location of key operating facilities and metropolitan
areas where large concentrations of shareholders reside. The Board believes
that all three factors need to be considered in selecting an annual meeting
site. The site selection process should not be encumbered by any arbitrarily
determined criteria.

The Board of Directors recommends a vote AGAINST this shareholder proposal.
-------

SHAREHOLDER PROPOSAL

Thomas D. Levis, a shareholder of the Company, has notified the Company that
he or his representative will present the following resolution for
consideration at the 1998 Annual Meeting. In submitting this proposal, the
proponent disclosed holdings of 9,500 shares of Common Stock of the Company.
To be adopted, this resolution, which is opposed by the Board of Directors,
would require the affirmative vote of a majority of the votes present in
person or by proxy at the 1998 Annual Meeting.

In accordance with applicable proxy regulations, the proposal is set forth
below:

Proposal

Resolved that the shareholders of the Company hereby request and recommend
the Board of Directors establish a corporate-wide cost-reduction program with
fixed targets of 10% in 1998, 5% in 1999 and 5% in 2000.

Supporting Statement

The purpose of this proposal is to advise the Board of Directors of the
shareholders concerns with respect to the Board and management's
responsibilities to provide shareholders with the most efficient operation of
the Company possible. The proponent particularly notes that management has
failed to meet its own gross margin targets of 30% since the Black River
expansion. The proponent is of the further view that management and the Board
of Directors has failed to adequately control the growth of its operating
expenses and, despite the investment of almost $90 million in plant
expansions, has failed to achieve any noticeable reductions in operating
expenses. All this in a period when American

15
<PAGE>

industry has, with down-sizing as a key component, become one of the most
productive economies in the world.

The proponent believes that "fixed cost-reduction targets' are necessary
because of management's intransigence and stated defense of the current
corporate operational cost structure; and the failure of the Board of
Directors to act decisively in response to repeated margin shortfalls.

Proponent believes that management and directors may take the position that
consultants have been hired to review the Company's operations and that their
findings have to be relied upon. In the proponent's view this argument might
have some validity had:

1. Management and the Directors acted promptly to hire qualified and
independent consultants back in 1996 when the idea was first proposed by
shareholders.

2. The consultants hired possessed the expertise to evaluate all facets of
Dravo's operations.

3. Dravo's President and CEO not written a three page letter in June 1997
defending the Company's then existing cost structure.

In view of the preceding, the proponent believes that serious questions
arise as to the level of independence and breadth of study that was mandated
to the consultants in their review of the Company's operations and overall
management.

The proponent believes that setting reasonably attainable cost-savings
targets of 10% in 1998; 5% in 1999 and a further 5% in the year 2000 will
serve to ultimately accomplish the 30% gross margins that should already be in
place and fulfill the Board of Directors fiduciary duty not to waste
shareholders assets. The proponent respectfully requests that the shareholders
join in establishing a truly efficient and profitable operating Company by
voting in favor of this proposal.

The Board's Statement In Opposition To The Shareholder Proposal

The Board opposes the proposal submitted by the proponent because it relates
to matters involving the ordinary, day-to-day business operations of the
Company. To that extent, it usurps the prerogatives of the Board and
management and would frustrate their efforts to identify and implement the
measures appropriate to achieving long-term goals and objectives. The Board
believes this proposal unduly restricts the authority of the Board and would
prevent the Board from doing the job for which it was elected.

The Board of Directors recommends a vote AGAINST this shareholder proposal.
-------

SHAREHOLDER PROPOSAL

Ernest T. Greeff, a shareholder of the Company, has notified the Company
that he or his representative will present the following resolution for
consideration at the 1998 Annual Meeting. In submitting this proposal, the
proponent disclosed holdings of 73,000 shares of Common Stock of the Company.
To be adopted, this resolution, which is opposed by the Board of Directors,
would require the affirmative vote of a majority of the votes present in
person or by proxy at the 1998 Annual Meeting.

In accordance with applicable proxy regulations, the proposal is set forth
below:

Proposal

Resolved that the shareholders of the Company hereby request and recommend
the Board of Directors set a moratorium on all new expansion of capacity with
a capital cost in excess of $5,000,000 until such time as gross profit margins
are at or exceed 30% for at least thirty months.

16
<PAGE>

Supporting Statement

The purpose of this proposal is to advise the Board of Directors of the
shareholders concerns with respect to the grossly inadequate returns which are
being earned on the almost $90 million that has been invested in new capacity
capital additions over the past four years principally at the Black River and
Maysville facilities.

The proponent holds the view that Dravo's Directors and Management should
focus their attention and energies on making its current operations perform
with sufficient efficiency and attention to market demands so as to provide
shareholders with a fair and equitable return on their investment before
striking out to make any further capital capacity expansions. In other words
first fix what you got before you go getting more.

Even allowing for routine shakedown glitches in starting up new equipment
Dravo management has failed to show any appreciably improvement in operating
margins since its 1995 $60 million expansion at the Black River facility; and
if we are to accept the following comment from the Chairman and Presidents
remarks in the 1996 Annual Report the future is equally bleak:

"We began the current year with approximately 3.0 million tons of
annual production capacity available at our three operating plants. We
can register a modest improvement in earnings by deriving even better
utilization out of this existing plant capacity."

The proponent believes that is a shocking illustration of management
inability to manage effectively without the strict guidelines and discipline
imposed upon by the terms of this resolution. Therefore the proponent
respectfully requests that the shareholders vote YES in favor of this
proposal.

The Board's Statement In Opposition To The Shareholder Proposal

The Board opposes the proponent's proposal on the basis that decisions
regarding capacity expansion need to take into account a number of factors,
including market demand, regulatory environment, competition, project lead
times, availability and cost of capital, as well as historical and projected
returns on investments. The balancing of those factors is uniquely in the
hands of the Board of Directors, who are elected by the shareholders to
represent their interests. This proposal would limit the ability of the Board
to do the job for which it was elected.

The Board of Directors recommends a vote AGAINST this shareholder proposal.
-------

ELECTION OF AUDITORS

Upon the recommendation of the Company's Audit Committee, the Board of
Directors of the Company proposes that KPMG Peat Marwick LLP be elected as
independent auditors to examine the financial statements of the Company and
its subsidiaries as of December 31, 1998 and to report upon the financial
statements to the shareholders as of December 31, 1998. One or more
representatives of KPMG Peat Marwick LLP will be present at the 1998 Annual
Meeting with the opportunity to make a statement if they desire to do so. It
is expected that such representatives will be available to respond to
appropriate questions.

KPMG Peat Marwick LLP is a member of the SEC Practice Section of the
American Institute of Certified Public Accountants.

Although election of independent auditors by the shareholders is not
required by Pennsylvania law or the Articles of Incorporation or By-laws of
the Company, the Board believes that the shareholders should have an
opportunity to express themselves on this subject. In the event that the vote
on this matter is negative, the Board, acting upon advice from its Audit
Committee, will select other independent auditors.

17
<PAGE>

PROPOSALS OF SECURITY HOLDERS FOR CONSIDERATION
AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS

Proposals of shareholders intended for inclusion in the Company's proxy
statement relating to the 1999 annual meeting of the shareholders of the
Company must be received at the Company's principal executive offices (to the
attention of the Secretary of the Company), 11 Stanwix Street, Pittsburgh,
Pennsylvania 15222 not later than November 23, 1998. Any such proposal must
comply with Rule 14a-8 of Regulation 14A of the proxy rules of the Securities
and Exchange Commission promulgated under the Securities Exchange Act of 1934,
as amended.

The Company's By-laws require that nominations for a director to be elected
at the 1999 annual meeting of the shareholders, other than those by or on
behalf of the Board, to be submitted in writing to the Secretary of the
Company not later than January 24, 1999. The By-laws also require that notice
of such nominations contain certain information regarding the nominee and
certain information regarding the nominating shareholder. Any shareholder may
obtain a copy of the applicable by-law upon written request to the Secretary
of the Company at 11 Stanwix Street, Pittsburgh, Pennsylvania 15222.

OTHER MATTERS

The Board is not aware that any matter other than those listed in the notice
of meeting is to be presented for action at the meeting. If any of the Board's
nominees is unavailable for election as a director or if any other matter
should properly come before the meeting, it is intended that votes will be
cast pursuant to the proxy in respect thereto in accordance with the best
judgment of the person or persons acting as proxies.

Any shareholder who executes and returns the proxy may revoke the same at
any time before it is exercised by filing with the Secretary of the Company
written notice of such revocation or a duly executed proxy bearing a later
date, or by attending the meeting and voting in person. Attendance at the
meeting will not in and of itself constitute revocation of a proxy.
Abstentions and broker non-votes on any matter submitted to the shareholders
for approval have the effect of votes against such matter since, under the
Company's By-laws, the affirmative vote of at least a majority of the votes
present and entitled to vote at the meeting, in person or by proxy, is
necessary for approval of the matters. Broker non-votes as to any matter are
shares held by nominees which are present and voted at the meeting on matters
as to which the nominee has discretionary authority but which are not voted on
the matter in question because the nominee does not have discretionary voting
authority as to such matter.

The Company will pay the expense in connection with printing, assembling and
mailing the notice of meeting, this proxy statement and the accompanying form
of proxy. In addition to the use of mails, proxies may be solicited by
directors, officers and other employees of the Company, personally or by
telephone or telefax. The Company may request persons holding stock in their
names or in the names of nominees to send proxy material to obtain proxies
from their principals and will reimburse such persons for their expenses in so
doing. The Company has retained the services of Morrow & Co., Inc., a
professional soliciting organization, to assist in soliciting proxies from
brokerage houses, custodians, nominees and other fiduciaries. The fees and
expense of that firm for their services in connection with such solicitation
are not expected to exceed $7,500.

UPON WRITTEN REQUEST BY ANY SHAREHOLDER TO THE SECRETARY OF THE COMPANY, 11
STANWIX STREET, PITTSBURGH, PENNSYLVANIA 15222, A COPY OF THE COMPANY'S 1997
ANNUAL REPORT ON FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.

By Order of the Board of Directors

EARL J. BELLISARIO,
Secretary

11 Stanwix Street
Pittsburgh, Pennsylvania 15222
March 27, 1998

18
<PAGE>

LOGO
DRAVO
1891

- -------------------------------------
NOTICE OF THE
1998 ANNUAL MEETING AND
PROXY STATEMENT
- -------------------------------------
<PAGE>

LOGO VOTER DIRECTION CARD DRAVO CORPORATION SAVINGS PLAN
Dravo FOR ANNUAL MEETING OF SHAREHOLDERS, APRIL 23, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

TO: THE VANGUARD GROUP, TRUSTEE
The undersigned, a participant having Common Stock of Dravo Corporation
credited to my account, does hereby instruct the Trustee that in voting all
shares of Common Stock held in the Dravo Corporation Stock Fund at the above
stated Annual Meeting of Shareholders, and any adjournments thereof, upon the
matters set forth in the Notice and Proxy Statement, the shares of Common
Stock indicated on the reverse side hereof shall be counted as follows:
1. ELECTION OF DIRECTORS to the class of the Board of Directors whose term
expires at the 2001 Annual Meeting of shareholders (check one box only). The
Board of Directors recommends a vote FOR this proposal.
[_] FOR all nominees listed [_] WITHHOLD AUTHORITY to vote for all
below: nominees listed below:
Carl A. Gilbert William G. Roth
To withhold authority for any individual nominee, check the "FOR all
nominees" box and write that nominee's name in the space provided below:

------------------------------------------------------------------------------
2. PROPOSAL to establish the Annual Meeting of the shareholders of the Company
in the city in the United States in which the greatest percentage of the
Company's outstanding shares of common stock are held. The Board of Directors
recommends a vote AGAINST this proposal.
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL to establish a corporate-wide cost-reduction program with fixed
targets of 10% in 1998, 5% in 1999 and 5% in 2000. The Board of Directors
recommends a vote AGAINST this proposal.
[_] FOR [_] AGAINST [_] ABSTAIN
4. PROPOSAL to set a moratorium on all new expansion of capacity with a
capital cost in excess of $5,000,000 until such time as gross profit margins
are at or exceed 30% for at least thirty months. The Board of Directors
recommends a vote AGAINST this proposal.
[_] FOR [_] AGAINST [_] ABSTAIN
5. APPROVAL of the appointment of KPMG Peat Marwick, LLP as independent
auditors for the year 1998. The Board of Directors recommends a vote FOR this
proposal.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse side)
<PAGE>

The Trustee shall vote upon such other matters as may properly come before
the Annual Meeting of Shareholders, and any adjournments thereof, as the
proxies named in the solicitation of the Board of Directors (the "Board Named
Proxies") determine, including without limitation, the election of any person
to the Board of Directors for which a bona fide nominee is named in the Proxy
Statement and is unable to serve or for good cause will not serve.
THE TRUSTEE WILL VOTE THE SHARES IN THE DRAVO CORPORATION STOCK FUND IN
ACCORDANCE WITH THE PLAN. IN DETERMINING HOW TO VOTE THE FUND'S SHARES, THE
SHARES INDICATED BELOW WILL BE COUNTED AS DIRECTED BY THIS VOTER DIRECTION
CARD. IF NO DIRECTION IS GIVEN, THE SHARES INDICATED BELOW WILL BE COUNTED AS
BEING FOR PROPOSALS 1 AND 5, AND AGAINST PROPOSALS 2, 3 AND 4. IF THE
UNDERSIGNED VOTES FOR THE NOMINEES LISTED, THE TRUSTEE MAY CUMULATE ALL VOTES
WHICH THE UNDERSIGNED IS ENTITLED TO DIRECT AND ALLOCATE THEM IN FAVOR OF ANY
ONE OF THE NOMINEES, AS THE BOARD NAMED PROXIES DETERMINE. THE TRUSTEE MAY
APPOINT THE BOARD NAMED PROXIES TO VOTE THE SHARES IN THE DRAVO CORPORATION
STOCK FUND IN THE MANNER DIRECTED BY THE TRUSTEE. ANY VOTER DIRECTION CARD
HERETOFORE GIVEN BY THE UNDERSIGNED WITH RESPECT TO SUCH STOCK IS HEREBY
REVOKED.

Receipt of Notice of the
Annual Meeting and Proxy
Statement is hereby
acknowledged.

Dated.................... ,1998

PLEASE SIGN EXACTLY AS NAME
APPEARS AT LEFT.

...............................
(Signature)

...............................
(Signature if held jointly)

PLEASE SIGN, DATE, AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>

VOTER DIRECTION CARD
LOGO DRAVO CORPORATION MONEY ACCUMULATION PLAN
Dravo FOR ANNUAL MEETING OF SHAREHOLDERS, APRIL 23, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

TO: THE PNC BANK, N.A., TRUSTEE
The undersigned, a participant having Common Stock of Dravo Corporation
credited to my account, does hereby instruct the Trustee that in voting all
shares of Common Stock held in the Dravo Corporation Money Accumulation PLan
at the above stated Annual Meeting of Shareholders, and any adjournments
thereof, upon the matters set forth in the Notice and Proxy Statement, the
shares of Common Stock indicated on the reverse side hereof shall be counted
as follows:
1. ELECTION OF DIRECTORS to the class of the Board of Directors whose term
expires at the 2001 Annual Meeting of shareholders (check one box only). The
Board of Directors recommends a vote FOR this proposal.
[_] FOR all nominees listed [_] WITHHOLD AUTHORITY to vote for all
below: nominees listed below:
Carl A. Gilbert William G. Roth
To withhold authority for any individual nominee, check the "FOR all
nominees" box and write that nominee's name in the space provided below:

The Trustee shall vote upon such other matters as may properly come before
the Annual Meeting of Shareholders, and any adjournments thereof, as the
proxies named in the solicitation of the Board of Directors (the "Board Named
Proxies") determine, including without limitation, the election of any person
to the Board of Directors for which a bona fide nominee is named in the Proxy
Statement and is unable to serve or for good cause will not serve.
THE TRUSTEE WILL VOTE THE SHARES IN THE DRAVO CORPORATION MONEY ACCUMULATION
PLAN IN ACCORDANCE WITH THE PLAN. IN DETERMINING HOW TO VOTE THE FUND'S
SHARES, THE SHARES INDICATED BELOW WILL BE COUNTED AS DIRECTED BY THIS VOTER
DIRECTION CARD. IF NO DIRECTION IS GIVEN, THE SHARES INDICATED BELOW WILL BE
COUNTED AS BEING FOR PROPOSALS 1 AND 5, AND AGAINST PROPOSALS 2, 3 AND 4. IF
THE UNDERSIGNED VOTES FOR THE NOMINEES LISTED, THE TRUSTEE MAY CUMULATE ALL
VOTES WHICH THE UNDERSIGNED IS ENTITLED TO DIRECT AND ALLOCATE THEM IN FAVOR
OF ANY ONE OF THE NOMINEES, AS THE BOARD NAMED PROXIES DETERMINE. THE TRUSTEE
MAY APPOINT THE BOARD NAMED PROXIES TO VOTE THE SHARES IN THE DRAVO
CORPORATION MONEY ACCUMULATION PLAN IN THE MANNER DIRECTED BY THE TRUSTEE. ANY
VOTER DIRECTION CARD HERETOFORE GIVEN BY THE UNDERSIGNED WITH RESPECT TO SUCH
STOCK IS HEREBY REVOKED.

Receipt of Notice of the
Annual Meeting and Proxy
Statement is hereby
acknowledged.

Dated.................... ,1998

PLEASE SIGN EXACTLY AS NAME
APPEARS AT LEFT.

...............................
(Signature)

...............................
(Signature if held jointly)

PLEASE SIGN, DATE, AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>

LOGO PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, APRIL 23, 1998
Dravo SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints John R. Major and Earl J. Bellisario, and
each of them, with full power of substitution, as proxies (the "Proxies") to
vote all shares of Capital Stock which the undersigned is entitled to vote at
the above stated Annual Meeting of Shareholders, and any adjournments thereof,
upon the matters set forth in the Notice and Proxy Statement, as follows:
1. ELECTION OF DIRECTORS to the class of the Board of Directors whose term
expires at the 2001 Annual Meeting of shareholders (check one box only). The
Board of Directors recommends a vote FOR this proposal.
[_] FOR all nominees listed [_] WITHHOLD AUTHORITY to vote for all
below: nominees listed below:
Carl A. Gilbert William G. Roth
To withhold authority for any individual nominee, check the "FOR all
nominees" box and write that nominee's name in the space provided below:

In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting of shareholders, and
any adjournments thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN. IF NO DIRECTION IS GIVEN THIS
PROXY WILL BE VOTED IN FAVOR OF PROPOSALS 1 AND 5, AND AGAINST PROPOSALS 2, 3
AND 4. IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF,
INCLUDING WITHOUT LIMITATION, THE ELECTION OF ANY PERSON TO THE BOARD OF
DIRECTORS FOR WHICH A BONA FIDE NOMINEE IS NAMED IN THE PROXY STATEMENT AND IS
UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE. A VOTE FOR THE NOMINEES
LISTED WILL GIVE THE PROXIES DISCRETIONARY AUTHORITY TO CUMULATE ALL VOTES TO
WHICH THE UNDERSIGNED IS ENTITLED AND ALLOCATE THEM IN FAVOR OF ANY ONE OF THE
NOMINEES, AS THE PROXIES DETERMINE. ANY PROXY HERETOFORE GIVEN BY THE
UNDERSIGNED WITH RESPECT TO SUCH STOCK IS HEREBY REVOKED.

Receipt of Notice of the
Annual Meeting and Proxy
Statement is hereby
acknowledged.

Dated.................... ,1998

PLEASE SIGN EXACTLY AS NAME
APPEARS AT LEFT.

...............................
(Signature)

...............................
(Signature if held jointly)

PLEASE SIGN, DATE, AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.