November 19, 1996
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Perini Corporation Revised Preliminary Proxy Materials
Ladies and Gentlemen:
On behalf of Perini Corporation (the "Company"), we enclose herewith
the following revised documents for filing pursuant to the requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and the applicable rules
and regulations thereunder.
(i) A letter to stockholders, revised preliminary proxy statement,
and form of proxy to be furnished to stockholders of the
Company in connection with a Special Meeting of Stockholders.
At the meeting, stockholders of the Company will be asked to
approve two proposals: (a) the issuance of 150,150 shares of
Series B Cumulative Convertible Preferred Stock, par value
$1.00 per share, of the Company (the "Series B Preferred
Stock") to PB Capital Partners, L.P., The Union Labor Life
Insurance Company Separate Account P, The Common Fund for
Non-Profit Organizations for the account of its Equity Fund,
and permitted assigns (the "Investors") for an aggregate
purchase price of $30,030,000, upon the terms and conditions
described in the Proxy Statement and the issuance of any other
shares of the Series B Preferred Stock as dividends on
outstanding shares of the Series B Preferred Stock upon the
terms and conditions described in the Proxy Statement and (b)
an amendment to the By-Laws of the Company, as more fully
described in the Proxy Statement, which requires the Board of
Directors to elect an Executive Committee and sets forth its
powers and composition. This amendment, if approved, will take
effect only if shares of the Series B Preferred Stock are in
fact issued to the Investors.
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(ii) The $125 filing fee required to be paid to the Commission
pursuant to Rule 14a-6(i) has been paid previously with
preliminary materials.
Subject to approval by the Commission, the Company will mail the letter
to stockholders, definitive proxy statement, proxy card, 10-K for the fiscal
year ended December 31, 1995, and 10-Q for the fiscal quarter ended September
30, 1996 as soon as is practicable. Please note that the 10-K and 10-Q have
been incorporated by reference into the Proxy Statement and have been
previously filed via EDGAR.
If you have any questions or require any further information with
respect to this filing, please contact me at (617) 570-1087.
Very truly yours,
/s/ Thomas I. Benda
--------------------------
Thomas I. Benda
Enclosures:
cc: David B. Perini
Perini Corporation
Richard A. Soden, Esq.
Stephen W. Carr, P.C.
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14(a)-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Perini 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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per
each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3). [ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] 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:
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
4) Date Filed:
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November __, 1996
To Our Stockholders:
We will be holding a Special Meeting on [______________ at
_____] at [State Street Bank and Trust Company, Enterprise Room, Fifth
Floor, 225 Franklin Street,] Boston, Massachusetts.
At this meeting you will be asked to consider and vote upon
two proposals that will enable Perini to satisfy the final conditions
to closing our previously announced $30 Million issuance of new Series
B Cumulative Convertible Preferred Stock to an investor group led by
Richard C. Blum & Associates, L.P. The two stockholder proposals which
are described in the accompanying Proxy Statement have been unanimously
approved by Perini's Board of Directors.
Perini Corporation has a recognized construction franchise
built upon an enviable record of performance that spans over 100 years.
We have grown to be one of the largest, most respected contractors in
the United States, and our current backlog and prospects are extremely
promising. The new Series B Preferred Stock will enhance our strategic
operating and financial flexibility by increasing our equity base and
concurrently extending the term of our existing bank debt, as well as
favorably adjusting certain bank terms and covenants. The issuance of
the new Series B Preferred Stock may also be supplemented by the
acceleration of the sale of certain real estate assets which would
further bolster the liquidity position of the Company.
As I announced during our Annual Meeting last May, we have
been reviewing options to improve the near and long term liquidity of
the Company, including bringing in new equity. The choice of the
proposed issuance came after an exhaustive review of the options
available. Management and the Board of Directors believe that the
issuance of the new Series B Preferred Stock, together with the
simultaneous extension of our current senior credit agreements, form
key and critical elements of our strategy to regain the financial
health and strength required to sustain and grow our core construction
operations in the years ahead.
Implementation of the issuance of the new Series B Preferred
Stock will reduce the relative voting power of current stockholders.
However, if the new Series B Preferred Stock is not issued, the Company
may not be able to sustain its current level of construction operations
and will have to once again renegotiate its senior credit agreements
without the benefit of new equity coming into the Company. As a result,
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more restrictive financial and operating covenants may be imposed on
the Company.
The Board of Directors believes that approval of these two
proposals is in the best interest of Perini and its stockholders. The
Board of Directors has unanimously approved the proposals and
recommends that stockholders vote FOR approval of the proposals.
Whether or not you expect to attend the Special Meeting of
Stockholders in person, you are encouraged to date, sign and return the
proxy card or voting instructions form in the addressed, postage
prepaid envelope provided. Your vote is important, regardless of the
size of your holdings. To vote in accordance with the recommendation of
your Board of Directors, you need only date, sign and return the proxy
card or voting instructions form in the addressed, postage prepaid
envelope provided.
Thank you for your continued support.
Sincerely,
DAVID B. PERINI
Chairman, President and
Chief Executive Officer
If you need assistance in voting your shares, please call
Perini's proxy solicitor, D.F. King & Co., Inc., 77 Water Street, New
York, NY 10005-4495 at 1- 800-769-5414. You also may call Investor
Relations at Perini for assistance at (508) 628-2402.
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Draft: 11/19/96
PERINI CORPORATION
73 Mt. Wayte Avenue
Framingham, Massachusetts 01701-9160
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________, 1996
---------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders
(the "Special Meeting") of Perini Corporation (the "Company") will be held on at
A.M. at State Street Bank and Trust Company, Enterprise Room, 5th Floor, 225
Franklin Street, Boston, Massachusetts] for the following purposes:
1. To approve (a) the issuance of 150,150 shares of Series B
Cumulative Convertible Preferred Stock, par value $1.00 per share, of
the Company (the "Series B Preferred Stock") to PB Capital Partners,
L.P., The Union Labor Life Insurance Company Separate Account P, The
Common Fund for Non-Profit Organizations for the account of its Equity
Fund, and permitted assigns (the "Investors") for an aggregate purchase
price of $30,030,000, upon the terms and conditions described in the
attached proxy statement (the "Proxy Statement") and (b) the issuance
of any other shares of the Series B Preferred Stock as dividends on
outstanding shares of Series B Preferred Stock upon the terms and
conditions described in the attached Proxy Statement.
2. To approve an amendment to the By-Laws of the Company, as
more fully described in the attached Proxy Statement, which requires
the Board of Directors to elect an Executive Committee and sets forth
its powers and composition. This amendment, if approved, will take
effect only if shares of the Series B Preferred Stock are in fact
issued to the Investors.
Under the Company's Restated Articles of Organization, as
amended, and the Massachusetts Business Corporation Law, the Board of
Directors of the Company has the authority to approve the issuance of
the Series B Preferred Stock and to amend the By-Laws without
stockholder approval. However, as explained in more detail in the Proxy
Statement, because the Series B Preferred Stock is convertible into
common stock, par value $1.00 per share, of the Company ("Common
Stock") that represents more than 20% of the presently outstanding
Common Stock at a conversion price that is less than book value, Rule
713 of the American Stock Exchange requires stockholder approval in
order for the Company to list the Common Stock to be issued upon
conversion. Under the terms of the Stock Purchase and Sale Agreement
between the Company and the Investors relating to the Series B
Preferred Stock, stockholder approval of the issuance of the Series B
Preferred Stock and of the amendment to the By-Laws is a condition to
the Investors' obligation to purchase the Series B Preferred
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Stock.
Action may be taken on the foregoing matters at the Special
Meeting on the date specified above, or on any date or dates to which
the Special Meeting may be postponed or adjourned.
The Board of Directors has fixed the close of business on
[October 10, 1996] as the record date (the "Record Date") for
determining the stockholders entitled to notice of, and to vote at, the
Special Meeting and at any adjournments thereof. Only stockholders of
record of the Company's Common Stock at the close of business on the
Record Date will be entitled to notice of, and to vote at, the Special
Meeting and at any adjournments thereof.
You are requested to fill in and sign the enclosed Proxy Card,
which is being solicited by the Board of Directors, and to mail it
promptly in the enclosed postage-prepaid envelope. Any proxy may be
revoked by notice to the Secretary of the Company or by delivery of a
later dated proxy. Stockholders of record who attend the Special
Meeting may vote in person, even if they have previously delivered a
signed proxy.
By Order of the Board of Directors
Richard E. Burnham
Secretary
Framingham, Massachusetts
[ , 1996]
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE PROVIDED. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR
PROXY CARD.
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PERINI CORPORATION
73 Mt. Wayte Avenue
Framingham, Massachusetts 01701-9160
---------------
PROXY STATEMENT
---------------
FOR SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [ , 1996]
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Perini Corporation
(the "Company") for use at a Special Meeting of Stockholders of the
Company to be held on [ ] and at any adjournments thereof (the "Special
Meeting"). At the Special Meeting, stockholders will be asked to
approve (1) the issuance of 150,150 shares of Series B Cumulative
Convertible Preferred Stock, par value $1.00 per share, of the Company
(the "Series B Preferred Stock") to PB Capital Partners, L.P. ("PB
Capital"), The Union Labor Life Insurance Company Separate Account P
(the "Union"), The Common Fund for NonProfit Organizations for the
account of its Equity Fund ("The Common Fund", collectively with PB
Capital and Union and their permitted assigns, the "Investors") for an
aggregate purchase price of $30,030,000, upon the terms and conditions
described herein and the issuance of any other shares of the Series B
Preferred Stock as dividends on outstanding shares of Series B
Preferred Stock upon the terms and conditions described herein; and (2)
to approve an amendment to the By-Laws of the Company, as more fully
described herein, which requires the Board of Directors to elect an
Executive Committee and sets forth its powers and composition. This
amendment, if approved, will take effect only if shares of the Series B
Preferred Stock are in fact issued to the Investors.
This Proxy Statement and the accompanying Notice of Special
Meeting of Stockholders and Proxy Card are first being sent to
stockholders on or about [ , 1996]. The Board of Directors has fixed
the close of business on [_________________] as the record date for the
determination of stockholders entitled to notice of and to vote at the
Special Meeting (the "Record Date"). Only stockholders of record of the
Company's common stock, par value $1.00 per share (the "Common Stock"),
at the close of business on the Record Date will be entitled to notice
of and to vote at the Special Meeting. As of the Record Date, there
were [4,851,381] shares of
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Common Stock outstanding and entitled to vote at the Special Meeting.
Holders of Common Stock outstanding as of the close of business on the
Record Date will be entitled to one vote for each share held by them.
The presence, in person or by proxy, of holders of at least a
majority of the total number of issued and outstanding shares of Common
Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Special Meeting. The Company is seeking
the affirmative vote of the holders of a majority of the shares of
Common Stock cast at the Special Meeting for the approval of the
issuance of the Series B Preferred Stock and for the amendment to the
Company's By-Laws. Under Massachusetts law, abstentions and broker
non-votes (that is, shares represented at the meeting which are held by
a broker or nominee and as to which (i) instructions have not been
received from the beneficial owner or the person entitled to vote and
(ii) the broker or nominee does not have discretionary voting power)
shall be treated as shares that are present and entitled to vote for
the purpose of determining whether a quorum is present, but shall not
constitute a vote "for" or "against" a matter and will be disregarded
in determining the "votes cast."
Stockholders of the Company are requested to complete, sign,
date and promptly return the accompanying Proxy Card in the enclosed
postage-prepaid envelope. Shares represented by a properly executed
Proxy Card received prior to the vote at the Special Meeting and not
revoked will be voted at the Special Meeting as directed on the Proxy
Card. If a properly executed Proxy Card is submitted but not marked as
to a particular item, the shares will be voted FOR the approval of the
issuance of the Series B Preferred Stock and FOR the amendment to the
Company's By-Laws.
A stockholder of record may revoke a proxy at any time before
it has been exercised by filing a written revocation with the Secretary
of the Company at the address of the Company set forth above, by filing
a duly executed proxy bearing a later date, or by appearing in person
and voting by ballot at the Special Meeting. Any stockholder of record
as of the Record Date attending the Special Meeting may vote in person
whether or not a proxy has been previously given, but the presence
(without further action) of a stockholder at the Special Meeting will
not constitute revocation of a previously given proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE APPROVAL OF THE FOLLOWING PROPOSALS.
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PROPOSAL 1
APPROVAL OF THE ISSUANCE OF THE SERIES B PREFERRED STOCK
Reason for Stockholder Approval
Under the Company's Restated Articles of Organization, as
amended, and the Massachusetts Business Corporation Law, the Board of
Directors of the Company has the authority to approve the issuance of
the Series B Preferred Stock without stockholder approval. However,
because the Series B Preferred Stock is convertible into Common Stock
of the Company that represents more than 20% of the presently
outstanding Common Stock at a conversion price that is less than book
value, Rule 713 of the American Stock Exchange requires stockholder
approval in order for the Company to list the Common Stock to be issued
upon conversion. In addition, PB Capital has required stockholder
approval as a condition to the Investors' obligations to acquire the
Series B Preferred Stock. As a result, the Company is seeking
stockholder approval for the issuance of the Series B Preferred Stock.
Need for Additional Equity and Working Capital
As disclosed for the last two years in the Company's reports
to shareholders and in its public filings, the Company has been cash
constrained as its core construction business has experienced growth
and, in particular, as the Company has increased its level of higher
margin civil construction work. Generally, civil construction work
requires more working capital than building construction work because
of its equipment intensive nature, progress billing terms imposed by
certain public owners and, in some instances, the time required to
process contract change orders. In addition, some of the Company's real
estate assets have required regular cash support which has adversely
affected its working capital. Over the period from January 1, 1995 to
the date of this Proxy Statement the Company has increased its
revolving credit facilities with its bank group from $70 million to
$139.5 million. As previously indicated to shareholders, since late
1995 the Company has been seeking new equity to support its growth and
to allow the Company over time to reduce debt. In this regard, the
Company in October 1995 retained J.P. Morgan Securities Inc. as its
investment bank to advise the Company on its strategic alternatives to
obtain additional equity. The original efforts focused largely on
potential strategic partners but also sought interest from select
financial investors. From those efforts, the $30,030,000 investment
opportunity, before fees and expenses, presented by PB Capital, a
Delaware investment limited partnership managed by Richard C. Blum &
Associates, L.P. ("RCBA"), was determined by the Board of Directors to
be the best opportunity. RCBA has in the past taken significant
ownership positions in public corporations and subsequently worked
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with management to enhance shareholder value. As a result, with the
approval of the Board of Directors, the Company entered into a Stock
Purchase and Sale Agreement, as amended (the "Agreement"), with PB
Capital whereby PB Capital agreed to purchase 150,150 shares of Series
B Preferred Stock subject to certain conditions and subject to the
right, prior to the date of the closing of such purchase (the "Closing
Date"), to assign PB Capital's right to purchase a specified number of
shares (not to exceed 65,000) to financially responsible third parties
that are not competitors of the Company (the "Transaction") (see
"Description of Transaction"). Subsequent to execution of the
Agreement, PB Capital and the Company entered into a Stock Assignment
and Assumption Agreement (the "Assignment") with the Union whereby
Union agreed to purchase at least 32,500 but no more than 37,500 shares
of the Series B Preferred Stock under the Agreement. In addition, The
Common Fund expects to purchase up to 25,000 shares of the Series B
Preferred Stock for the account of its Equity Fund. As a result, the
investor group consists at this time, of PB Capital, Union and The
Common Fund.
In conjunction with PB Capital, the Company is reviewing all
the Company's real estate assets and current strategies related to
those assets with the possibility that a plan may be developed to
generate short term liquidity of up to an additional $20 million for
the Company. Currently, the Company's strategy has been to hold all of
its real estate assets through the necessary development and
stabilization periods to achieve full value. A strategy which includes
earlier disposal of those assets could require a write down of such
assets to the lower of carrying amounts or current fair values, less
costs to sell. The specific assets or timing of sales of such a plan
has not yet been determined, but it is anticipated that implementation
would require the Company to take a significant writedown of its real
estate assets which could range from as little as $30 million to as
much as $80 million on a pretax basis. If such a writedown were
required, it is expected that it would be done after the plan was
formalized, but in advance of the actual sale of properties.
General Effect of Transaction on Existing Stockholders
If the Transaction is approved, the rights of existing
stockholders will be effected in several principal ways. Since the
Series B Preferred Stock is convertible into Common Stock and has
voting rights, the voting rights of the current stockholders will be
diluted. In addition, the right of holders of the Series B Preferred
Stock to designate certain directors and members of the Executive
Committee will also have a dilutive effect on the voting rights of the
current stockholders, including providing such members with an
effective veto over certain major decisions of the Company. In
addition, the issuance of the Series B Preferred Stock may have a
dilutive effect on the earnings per share of the Company due to the
increase in number of shares of Common
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Stock on a fully diluted basis. Furthermore, the book value of each
share of Common Stock may decrease due to a conversion price below book
value. These dilutive effects are a consequence of the significant
capital interest that the Investors will have in the Company. The
issuance of the Series B Preferred Stock will allow the Company to
obtain this needed capital and restructure its bank facilities.
Furthermore, it will add the expertise of RCBA to the resources of the
Company. Please refer to the remainder of this Proxy Statement for a
more detailed description of the Transaction.
Description of Transaction
The Agreement provides that the Company's Board of Directors
will classify 500,000 shares of preferred stock of the Company as
Series B Preferred Stock. Of that amount 150,150 shares would be issued
to the Investors at the time of the closing of the Transaction. The
remainder would be set aside for possible future payment-in-kind
dividends to the holders of the Series B Preferred Stock. The purchase
price of the Series B Preferred Stock to be issued on the Closing Date
will be $200.00 per share, for a total of $30,030,000.
As a condition to the Investors' obligations to acquire the
Series B Preferred Stock, PB Capital is requiring that the By-Laws of
the Company be amended as described below (see "BY-LAW AMENDMENT"),
that the Company's Shareholder Rights Agreement be revised as described
below (see "Shareholder Rights Agreement Amendment"), that the Company
enter into a management agreement (the "Management Agreement") with
Tutor-Saliba Corporation and Ronald N. Tutor as described below (see
"Management Agreement"), and that three persons designated by holders
of the Series B Preferred Stock be elected to the Board of Directors of
the Company (the "Designated Directors") -- one in Class I, one in
Class II, and one in Class III. All three Designated Directors will be
appointed to the newly reconstituted Executive Committee of the Board
of Directors, and certain of them will be appointed to other committees
as well. Other conditions to the Investors' obligations to acquire the
Series B Shares include but are not limited to: (i) compliance by the
Company with all terms, covenants and conditions of the Agreement in
all material respects; (ii) that the Company's representations and
warranties in the Agreement are true and correct in all material
respects at and as of the Closing Date; (iii) the approval by the
Company's stockholders of the issuance of the Series B Preferred Stock
sought by this Proxy Statement; (iv) that there be no additional
holders of 5% or more of the equity of the Company (which holders could
jeopardize the Company's ability to use present and future net
operating losses (see "Shareholder Rights Agreement Amendment")); (v)
that the waiting period under the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended, shall have expired or been
terminated, if applicable; (vi) that Ronald N. Tutor shall not be
prevented from serving on the Board of Directors of the Company or
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from serving as acting Chief Operating Officer of the Company by (a)
any action of a state or federal governmental authority, or (b) his
death or disability and that no lawsuit or administrative action shall
have been threatened by a state or federal governmental authority
related to Mr. Tutor and further that in the reasonable judgment of
RCBA there is not a material risk of such a suit or action; and (vii)
that given the relationship of a principal of RCBA to a United States
Senator, (a) the Senate Ethics Committee and regular counsel for the
Senator on such matters shall each have given an opinion concerning
RCBA's involvement with the Company that, in the reasonable judgment of
RCBA, does not require the imposition of material restrictions on the
business of the Company or upon the ability of the Senator to vote on
matters of concern to her constituents, and (b) that RCBA be assured by
the Executive Committee of the Company's Board of Directors that it
will cause the Company not to bid for a project when and if advised of
RCBA's view that such bid could create a significant risk of exposing
the Company, RCBA, PB Capital, and/or the Senator to a conflict of
interest problem. The issuance of the Series B Preferred Stock was also
conditioned upon (a) the renegotiation and confirmation of the
Company's existing credit agreements and (b) confirmation that the
Company's bonding is adequate, both of which conditions have been
satisfied (see "Credit Facilities").
The conditions to the Company's obligations to sell the Series
B Preferred Stock to the Investors include, but are not limited to: (i)
compliance by the Investors and RCBA with all terms, covenants and
conditions of the Agreement in all material respects; (ii) that their
representations and warranties in the Agreement are true and correct in
all material respects at and as of the Closing Date; (iii) the Company
having received certain fairness opinions regarding the Transaction
from its investment bankers; and (iv) the approval by the Company's
stockholders of the issuance of the Series B Preferred Stock sought by
this Proxy Statement.
Use of Proceeds
The net proceeds of the proposed issuance of the Series B
Preferred Stock will be used to repay the recent $10,000,000 increase
in the bridge loans and for working capital purposes (see "Bridge Loan
and Participation Agreement").
Description of Series B Preferred Stock
The vote of the Company's Board of Directors establishing the
terms of the Series B Preferred Stock (the "Certificate of Vote")
provides as follows:
Amount
The number of shares constituting the Series B Preferred Stock
shall be 500,000
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of which 150,150 shall be issued initially and the remainder shall be
reserved for issuance as dividends to the holders of the Series B
Preferred Stock (see "Dividends"). The number of shares designated as
Series B Preferred Stock shall not be increased without a vote of the
stockholders, but may be decreased without a vote of the stockholders
so long as the decrease is approved by 66 2/3% of the then outstanding
shares of Series B Preferred Stock.
Liquidation Preference
Upon liquidation the holders of Series B Preferred Stock would
be entitled to $200.00 per share (the "Liquidation Preference") plus
accrued and unpaid dividends. The Series B Preferred Stock will rank
junior in liquidation preference to the Company's $21.25 Convertible
Exchangeable Preferred Stock and senior to all other currently issued
capital stock of the Company (including the Common Stock).
Dividends
Dividends will be payable on the Series B Preferred Stock
either in cash or in additional shares of Series B Preferred Stock (a
"Payment-In-Kind"). The cash dividend rate is 7 percent per annum (9
percent while there is a Special Default) of the Liquidation Preference
and the Payment-In-Kind dividend rate is 10 percent per annum (12
percent while there is a Special Default) of the Liquidation
Preference. Dividends will be payable quarterly commencing on March 15,
1997. A Special Default would occur upon (1) the making of certain
changes to the Executive Committee without the prior written approval
of a majority of the members of the Executive Committee who were
members prior to such change; (2) the taking of the following actions
required to be approved by the Executive Committee: (a) any borrowing
or guarantee by the Company exceeding $15 million, (b) except for
issuance of stock or stock options pursuant to the Company's incentive
compensation plans or programs, any issuance of stock other than Common
Stock of the Company in an aggregate amount not exceeding five percent
(5%) of the Common Stock of the Company issued and outstanding on the
date of the initial issuance of Series B Preferred Stock to the
Investors, (c) any strategic alliance (other than a construction joint
venture) involving a capital commitment by the Company exceeding $5
million, (d) any asset sale by the Company or lease as lessor exceeding
$5 million (other than equipment dispositions in the normal course of
business); (e) any redemption or amendment of the rights issued
pursuant to the Shareholder Rights Agreement or the preferred stock of
the Company issuable upon the exercise of such rights; and (f) any
termination of or amendment to the Management Agreement (see "By-Law
Amendment" and "Management Agreement") without that Committee's
approval; (3) any change by the Company in the composition of the
Executive Committee which results in members of such Committee selected
by the
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holders of the Series B Preferred Stock being fewer in number than the
number of directors such shareholders are entitled to designate; and
(4) solely for purposes of the right to elect additional directors, the
failure of the Company to authorize, declare, and pay dividends on the
Series B Preferred Stock when due.
Prior to December 15, 1999, the Company will make annual
elections as to whether dividends will be paid in cash or in kind.
Beginning December 15, 1999, the Company will make such election
semiannually. In the event that, during any period for which the
Company has elected to pay cash dividends, it is unable to pay the full
amount of the cash dividend due, the Board of Directors is required to
authorize, declare and pay a supplemental stock dividend equal to the
difference between the dividend that would have been paid in kind at
the Payment-In-Kind rate (assuming that the Board of Directors had
elected to pay dividends for such in-kind and assuming that a Special
Default existed) and the cash dividend actually declared and paid on
such dividend payment date, if any, and on the previous dividend
payment date during such payment period. Dividends not paid will
cumulate. There is no sinking fund.
The Series B Preferred Stock will rank junior in cash dividend
preference to the $21.25 Convertible Exchangeable Preferred Stock and
senior to the Common Stock. The terms of the Series B Preferred Stock
further provide that no cash dividends or other distributions payable
in cash will be authorized, declared, paid or set apart for payment on
any shares of Common Stock or other stock of the Company ranking junior
as to dividends to the Series B Preferred Stock except for certain
limited dividends on Common Stock beginning in 2001.
In addition, the new credit facilities will further limit the
ability of the Company to pay cash dividends. (See "Credit
Facilities").
Redemption by the Company (Optional and Mandatory)
All, but not less than all, of Series B Preferred Stock may be
redeemed after the third anniversary of the Closing Date at the
election of the Board of Directors for the Redemption Price (defined
below) plus accrued and unpaid dividends, if and when the shares of the
Common Stock have traded (i) for at least forty (40) of the forty-five
(45) trading days (each of which trading days shall be after the third
anniversary of the original issue date) immediately preceding the date
on which the redemption decision is made by the Board of Directors (the
"Determination Date"), and (ii) on each of the ten (10) consecutive
trading days immediately prior to the Determination Date, at a price in
excess of 150% (125% after the fifth anniversary of the Closing Date)
of the conversion price then in effect for the Series B Preferred Stock
for each such trading day.
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The Redemption Price will be the Liquidation Preference where
there have been no Special Defaults and, if one or more Special
Defaults has occurred, will be 130% of the greater of the Liquidation
Preference or the market value of the Common Stock (valued at the
average of the closing prices on the preceding twenty (20) trading days
immediately prior to the occurrence of the most recent Special Default)
into which the Series B Preferred Stock would then be convertible,
assuming such shares were then immediately convertible.
On the eighth, ninth, and tenth anniversaries of the Closing
Date, the Company is required to purchase from each holder of Series B
Preferred Stock at the then- effective Redemption Price (plus accrued
but then unpaid dividends) one-third of the number of shares of the
Series B Preferred Stock held by such holder on the eighth anniversary
(plus a portion of any subsequently issued shares).
In addition, if one or more Special Defaults were to occur at
any time or from time to time on or after the Closing Date, each holder
of Series B Preferred Stock would have the right, at such holder's
option exercisable at any time within 120 days after the occurrence of
each such Special Default, to require the Company to purchase all or
any part of the shares of Series B Preferred Stock then held by such
holder as such holder may elect at the Redemption Price plus the
accrued and unpaid dividends thereon. The terms of the Series B
Preferred Stock do not contain any restrictions on the redemption of
the Series B Preferred Stock while there is an arrearage on the payment
of dividends; however, such repurchases shall be for the Redemption
Price plus accrued and unpaid dividends.
The new credit facilities will limit the aforementioned rights
of redemption. (See "Credit Facilities").
Conversion
Each Share of Series B Preferred Stock shall be convertible,
at the election of the holder, at any time (including immediately prior
to any scheduled or announced redemption) into fully paid and
nonassessable shares of Common Stock (or, in certain instances, other
securities and property of the Company) at the rate of that number of
shares of Common Stock for each full share of Series B Preferred Stock
that is equal to the Liquidation Preference plus an amount in cash
equal to the accrued and unpaid dividends thereon, whether or not
authorized or declared, divided by the then applicable conversion price
per share of Common Stock. The Company shall at all times reserve and
keep available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of the Series B Preferred
Stock, such number of shares of its Common Stock free of preemptive
rights as shall from time to time be
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sufficient to effect the conversion of all Series B Preferred Stock.
The conversion price as initially established represented a 15% premium
over the average closing price of the Company's Common Stock over the
45 day trading period leading up to the final price negotiations with
RCBA. As adjusted for the issuance of warrants to the Company's bank
group (see "Effect of Warrants"), the conversion price will initially
be $9.68219 per share. The conversion price will be adjusted
periodically to account for certain distributions of Common Stock or
other securities convertible into Common Stock.
Election of Directors
In addition to being entitled to select the Designated Directors, holders of the
Series B Preferred Stock have the right to designate the successors to each
Designated Director. The Company is required to nominate and use its best
efforts to elect such directors. In addition, holders of the Series B Preferred
Stock have the right to appoint to the Executive Committee the same number of
directors as they are entitled to designate for election to the Board of
Directors. Holders of the Series B Preferred Stock also have the right to remove
from the Executive Committee any director that they have appointed to such
committee. The number of directors that holders of the Series B Preferred Stock
are entitled to designate (initially, three) drops to two when the Investors'
holdings (including any payment-in-kind dividends) have been reduced by 66-2/3%
from the Investors' holdings at the Closing Date (including any payment- in-kind
dividends), to one when such holdings of the Investors have been reduced by 80%
from their holdings at the Closing Date, and to zero when such holdings of the
Investors have been reduced by 90% from their holdings at the Closing Date.
PB Capital has informed the Company that it intends to
nominate Michael R. Klein, Douglas J. McCarron, and Ronald N. Tutor as the
initial Designated Directors, and the Company has indicated that such nominees
are acceptable to it. It is contemplated that they will be elected to the Board
of Directors, effective on the Closing Date.
Michael R. Klein. Mr. Klein is 53 years old. Mr. Klein has
been a partner in the law firm of Wilmer, Cutler & Pickering since 1974. Since
1987, he has been the Chairman of Realty Information Group, Inc. (real estate
information). He has been a Director of National Educational Corporation
(education) since April 1991 and a Director of Steck Vaughn Publishing
Corporation (educational publishing) since June 1993.
Douglas J. McCarron. Mr. McCarron is 46 years old. Mr.
McCarron has been President of the Carpenters Local Union No. 1506 (a labor
union) and President
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of the Southern California Conference of Carpenters (a bargaining agent for all
Southern California Carpenters local unions), since 1982. He has also been
General President of the United Brotherhood of Carpenters and Joiners of America
(a labor union) since November 1995 and a Member of the Executive Council of the
AFL-CIO since 1995. Mr. McCarron is a director of ULLICO, Inc. which is the
parent company of The Union Labor Life Insurance Company which through its
Separate Account P is expected to purchase a significant number of shares of
Series B Preferred Stock. From 1992 through 1995, Mr. McCarron was General
Second Vice President of the United Brotherhood of Carpenters and Joiners of
America (a labor union). Mr. McCarron also served as Secretary-Treasurer of the
Southern California District Council of Carpenters (a labor union) from 1987
through 1995. Mr. McCarron has been the Chairman since 1986, and a Trustee since
1987, of the United Brotherhood of Carpenters Pension Fund for Officers and
Directors ("United Brotherhood Pension Fund"). The United Brotherhood Pension
Fund is expected to be a significant investor in PB Capital.
Ronald N. Tutor. Mr. Tutor is 56 years old. Since 1972, Mr.
Tutor has been President and Chief Executive Officer of Tutor-Saliba
Corporation, a California-based company (construction) with 1995 company-wide
revenues of approximately $421 million. Mr. Tutor has been a Director of
Southdown, Inc. since 1993 and a Trustee of the Carpenters Pension Trust, a
pension fund governed by the provisions of the Employee Retirement Income
Security Act of 1974, as amended. In addition, as described below, Mr. Tutor
will be appointed acting Chief Operating Officer of the Company in connection
with the Transaction. Tutor-Saliba Corporation, a corporation controlled by Mr.
Tutor, has been a participant in joint ventures with the Company since 1977. The
Company currently has eight (8) active joint ventures with Tutor- Saliba
Corporation, with a total contract value of over $1 billion. Mr. Tutor is
expected to be an investor in PB Capital.
The new credit facilities provide that it will be an event of
default if the Designated Directors cease to constitute a majority of the
members of the Executive Committee. (See "Credit Facilities").
Voting Rights
The holders of Series B Preferred Stock will each initially
have 20.65648 votes for each share held after the issuance of warrants to the
Company's bank group. The Series B Preferred Stock will vote as a class with the
holders of the Common Stock on all matters on which the Common Stock may vote,
except as set forth below. Upon the occurrence of any event that causes an
increase or decrease in the conversion price, the number of votes possessed by
each share of Series B Preferred Stock shall be
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correspondingly decreased or increased.
Whenever a Special Default exists or if the Company has failed
to repurchase Shares of Series B Preferred Stock that it is required to
purchase, (i) the number of members of the Board of Directors shall be increased
by such number as is necessary to allow the election of the directors specified
in clause (ii), and (ii) the holders of the Series B Preferred Stock, voting
separately as a class, shall have the right to elect an additional number of
directors to the Board of Directors such that directors selected by the holders
of the Series B Preferred Stock constitute a majority of the Board of Directors.
The terms of the Series B Preferred Stock provide that, so long as any of the
Series B Preferred Stock is outstanding, the Company shall not, directly or
indirectly, without the affirmative vote or consent of the holders of at least
66-2/3% of all outstanding Series B Preferred Stock voting separately as a
class: (i) amend, alter or repeal any provision of the Company's Restated
Articles of Organization, Certificate of Vote, or By-Laws, if such amendment,
alteration or repeal would alter the contract rights, as expressly set forth in
the Certificate of Vote, of the Series B Preferred Stock or otherwise to
adversely affect the rights of or protections afforded to the holders thereof or
the holders of the Common Stock; (ii) create, authorize or issue, or reclassify
shares of any authorized stock of the Company; or (iii) approve certain
fundamental changes (e.g., any plan or agreement pursuant to which all or
substantially all of the shares of Common Stock shall be exchanged for,
converted into, acquired for or constitute solely the right to receive cash,
securities, property or other assets).
Restrictions on Transfer
The Investors have covenanted not to transfer their interest
in the Company to, and not to permit their investors to transfer their interests
in any of the Investors to, entities that are competitive with the Company for a
period of two years after the Closing Date. Thereafter, for an additional two
years, the Investors have granted to the Company a right of first refusal on any
transfer of Company stock by the Investors to an entity that is competitive with
the Company. In addition, the New Credit Agreement (as hereinafter defined)
provides that certain transfers by the Investors will be considered events of
default. (See "Credit Facilities").
Bridge Loan and Participation Agreement
In order to meet the company's need for additional working
capital, in November 1996 the banking group increased the outstanding amount of
its bridge loan facility by $10,000,000 to a total of $25,000,000. As a
condition to the increase in the bridge loan facility, the banking group
required that PB Capital purchase for $10,000,000 a participation interest in
the outstanding bridge loans. Upon the closing
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of the Transaction, the $10,000,000 increase in the bridge loans must be repaid.
In consideration of PB Capital's purchase of a participation interest in the
bridge loans, the Company has paid PB Capital a fee consisting of 47,267 newly
issued shares of Common Stock. The number of shares of Common Stock was
determined by dividing $400,000 by the average daily closing market price of the
Company's Common Stock on the five trading days immediately preceding the date
of the closing of the participation. Upon closing of the Transaction and
repayment of the $10,000,000 increase in the bridge loans, the bridge loan
facility is anticipated to be restructured as part of the New Credit Agreement
(as hereinafter defined). (See "Credit Facilities").
Credit Facilities
In conjunction with the proposed issuance of the Series B
Preferred Stock, the Company, with the assistance of RCBA, has renegotiated the
Company's credit facilities. As a result of these negotiations, the Company has
agreed upon the terms of an Amended and Restated Credit Agreement (the "New
Credit Agreement") which is to become effective upon the consummation of the
Transaction and the satisfaction or waiver of certain customary closing
conditions, but only if such conditions are satisfied or waived on or before
January 31, 1997. The New Credit Agreement provides for a restructuring of the
Company's $114.5 million existing revolving credit facility and its $25 million
existing bridge loan facility into a single $129.5 million revolving credit
facility, comprised of a Tranche A commitment in the amount of $110 million and
a Tranche B commitment in the amount of $19.5 million. The Tranche B commitment
provides for a higher interest rate than the Tranche A commitment. The New
Credit Agreement further requires that the Company repay the loans based upon
the following schedule:
December 31, 1997 $15,000,000
December 31, 1998 $15,000,000
March 31, 1999 $ 2,500,000
June 30, 1999 $ 5,000,000
September 30, 1999 $ 5,000,000
January 1, 2000 Remaining Balance
The New Credit Agreement also requires that a percentage of
certain net proceeds from the disposition of real estate be used to prepay the
loans and reduce the maximum amount of the facility. In this regard, the first
$20 million of net proceeds from real estate sales may be retained by the
Company to fund its operations. Thereafter, fifty percent (50%) of all net
proceeds would be used to reduce the credit facility, with the remaining fifty
percent (50%) available to the Company to fund its operations. In addition,
eighty percent (80%) of the net proceeds from the disposition
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of other assets must be paid to the banks to prepay the facility when the
aggregate net proceeds from such sales equal at least $125,000 (and at each
$125,000 increment thereafter). All mandatory prepayments resulting from asset
dispositions will reduce the mandatory principal payments detailed above.
In consideration of the restructuring of the credit
facilities, the banks will receive restructuring fees of $323,750, one half
payable at the closing of the New Credit Agreement and one half payable on the
second anniversary of the closing. The agent bank, Morgan Guaranty, will also
receive a $120,000 fee in addition to its share of the aforementioned
restructuring fee. In addition, upon commencement of the New Credit Agreement
the banks will also be granted warrants to purchase an aggregate of 4.9%
(currently equivalent to approximately 410,000 shares) of the Common Stock of
the Company (on a fully diluted basis, after giving effect to the issuance of
the Series B Preferred Stock to the Investors) with an exercise price equal to
the average daily closing market price on the five trading days before the
effective date of the New Credit Agreement. The warrants will be exercisable
three years after the date of grant (or in certain other limited circumstances
at an earlier date) and will expire ten years from the date of grant. The
warrants will have customary antidilution provisions and registration rights.
Among the general covenants of the New Credit Agreement are
certain restrictions on the Company and/or its subsidiaries' ability to incur
new debt. No new debt may be incurred without approval of the banks except as
follows: debt existing on September 30, 1996; debt provided for in the New
Credit Agreement; debt owing to joint ventures of which the Company is a
participant; debt incurred to finance insurance premiums not to exceed $3
million at any time; and debt incurred for financing fixed assets up to $3
million in any twelve consecutive calendar months. In addition, the Company's
aggregate outstanding debt shall not exceed $150 million at any time.
Also provided for in the covenants is a negative pledge that
prohibits the Company from incurring liens on Company assets with the exception
of existing liens at September 30, 1996, liens created by the New Credit
Agreement and certain bonding company exceptions and permitted encumbrances
related to disputes properly reserved for and contested in good faith and by
appropriate proceedings. The Company also is restricted to $3 million of capital
expenditures annually and to the following annual limits on investments in real
estate: 1996 - $12 million, 1997 - $12.5 million, 1998 - $8.6 million; and 1999
- - - $3 million.
To remain in compliance with the loan covenants, the Company
also must satisfy certain financial tests, including maintaining a minimum
adjusted tangible net worth as follows:
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MINIMUM CONSOLIDATED
FISCAL QUARTER ADJUSTED TANGIBLE
ENDING NET WORTH
December 31, 1996 $109,244,000
March 31, 1997 $109,661,000
June 30, 1997 $110,078,000
September 30, 1997 $110,495,000
December 31, 1997 $112,899,000
March 31, 1988 $113,275,000
June 30, 1998 $115,651,000
September 30, 1998 $115,977,000
December 31, 1998 $119,303,000
March 31, 1999 $119,629,000
June 30, 1999 $121,955,000
September 30, 1999 $122,281,000
December 31, 1999 $126,611,000
The net worth test is adjustable for non-cash gains or charges
related to real estate investments or of any other real property.
The Company must also maintain a minimum working capital ratio
of 1:1 and is required, starting January 1, 1997, to generate minimum operating
cash flow as follows:
MINIMUM
OPERATING
PERIOD CASH FLOW
January 1, 1997 through March 31, 1997 ($ 20,000,000)
January 1, 1997 through June 30, 1997 ($ 10,000,000)
January 1, 1997 through September 30, 1997 $ 0
January 1, 1997 through December 31, 1997 $ 10,000,000
Each four consecutive fiscal quarters
ending March 31, 1998 and thereafter $ 15,000,000
The New Credit Agreement further provides that there will be
an event of default if (i) PB Capital, Union, The Common Fund, RCBA, Richard C.
Blum, Ronald Tutor, Tutor-Saliba Corporation, and their respective affiliates
(defined in the New
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Credit Agreement as the "Investor Group") fail to maintain collectively an
ownership interest in the Company of at least 75,075 shares of Series B
Preferred Stock, or cease to be the beneficial owners of at least 20% of the
outstanding shares of Common Stock of the Company or the owners collectively of
shares of Series B Preferred Stock convertible into at least 20% of the
outstanding shares of Common Stock of the Company, (ii) any person or group of
persons (excluding the Investor Group and certain other parties) within the
meaning of the Securities Exchange Act of 1934 acquires beneficial ownership of
25% or more of the outstanding shares of Common Stock of the Company,(iii) the
members of Board of Directors designated by members of the Investor Group cease
to constitute a majority of the members of the Executive Committee of the Board
of Directors, or (iv) the powers of the Executive Committee of the Board of
Directors of the Company are diminished in any material respect.
The New Credit Agreement, in addition to general covenants,
further provides that there may be no purchase or redemption by the Company or
any of its subsidiaries of any of the Series B Preferred Stock at any time prior
to the date when the credit facility is paid in full. The New Credit Agreement
also provides that the Company may not pay cash dividends or make other
restricted payments prior to September 30, 1998 and thereafter may not pay cash
dividends or make other restricted payments unless: (i) the Company is not in
default under the credit agreement; (ii) commitments under the credit facility
have been reduced to less than $90 million; (iii) restricted payments in any
quarter, when added to restricted payments made in the prior three quarters, do
not exceed fifty percent (50%) of net income from continuing operations for the
prior four quarters; and (iv) net worth (after taking into consideration the
amount of the proposed cash dividend or restricted payment) is at least equal to
the amount shown below, adjusted for losses from dispositions of real estate,
provided that unadjusted net worth must be at least $60,000,000:
October 1, 1998 to December 30, 1998 $161,977,000
December 31, 1998 to March 31, 1999 $167,303,000
April 1, 1999 to June 30, 1999 $170,129,000
July 1, 1999 to September 30, 1999 $172,955,000
October 1, 1999 to January 1, 2000 $175,781,000
For purposes of the New Credit Agreement net worth shall include the net
proceeds from the sale of the Series B Preferred Stock to the Investors.
Effect of Warrants
If, as contemplated, the warrants are issued to the Company's
banks (see "Credit Facilities"), the conversion price of the Series B Preferred
Stock will be
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lowered to $9.68219, a reduction from the $10.50 conversion price originally
announced by the Company.
Impact of Failure to Approve the Issuance of the Series B Preferred Stock
If the Transaction is not consummated by January 31, 1997, the
Company would be in default under its existing credit facilities. As a result,
the Company would have to enter into immediate negotiations with its banking
group (including PB Capital) to obtain a waiver of the default and an extension
of the January 31, 1997 termination date of the $25 million bridge loan
facility. In addition, the Company would need to enter into negotiations
regarding an extension of its existing $114.5 million revolving credit facility,
which currently is scheduled to mature on December 6, 1997. Without the
continued availability of these funds the Company cannot conduct operations at
its current level of business. There is no assurance at this time that any such
waiver of default or loan extensions could be obtained and there is also no
assurance that negotiations with the banking group will result in lending levels
sufficient to provide the necessary liquidity to meet the Company's needs.
The failure to obtain such new credit facilities or other
alternative financing might force the Company to change its current real estate
strategies, as they relate to certain of its holdings, and sell some properties
on an accelerated basis to provide near term liquidity. Such a change in
strategy would result in the writedown of those real estate assets to current
disposition levels as opposed to longer term full development values. Moreover,
without the equity infusion from the Investors and the negotiation of new credit
facilities, it is not certain that the real estate sales by the Company could
generate sufficient cash to meet the Company's needs.
Employment and Severance Agreements
In connection with the closing of the Transaction, the Company
plans to enter into separate employment agreements with David B. Perini, John H.
Schwarz, Richard J. Rizzo and Donald E. Unbekant. Under the terms of Mr.
Perini's agreement, Mr. Perini will continue as Chief Executive Officer and
Chairman of the Board of Directors of the Company (subject to election by the
Board of Directors) for a period of three years. Mr. Perini will also remain
President of the Company until the appointment of a Chief Operating Officer for
the Company. The agreement will provide that Mr. Perini will receive his current
salary, which will continue to be reviewed by the Board of Directors. Mr. Perini
will also continue to receive certain benefits, including, but not limited to,
health and life insurance and pension accrual. In addition, Mr. Perini will
continue to receive incentive compensation under the Company's current plans
until the end of 1996 and pursuant to any plans which are in effect thereafter.
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Mr. Perini's agreement will provide that Mr. Perini may
voluntarily terminate his employment for any reason with 60 days notice to the
Company. In such event, Mr. Perini would be entitled to receive his accrued
salary and his accrued bonus up to the date of such termination. Mr. Perini's
agreement will also provide that, during the 90-day period following the first
anniversary of the agreement, Mr. Perini may voluntarily terminate his
employment for any reason with 90 days notice to the Company. In such event, Mr.
Perini would be entitled to receive his salary and benefits for the balance of
the contract term and to the extent that pension benefits cannot be provided
under the Company's qualified plan, they shall be provided under a non-qualified
plan. In the event of Mr. Perini's termination without cause, a reduction in Mr.
Perini's salary, a reduction in other benefits, a material change in his
responsibilities at the Company or certain other events deemed to be a
"Constructive Termination", Mr. Perini would be entitled to terminate his
employment with the Company and receive his base compensation and benefits for
up to three years, depending on when the termination of employment occurred and
to the extent that pension benefits cannot be provided under the Company's
qualified plan, they shall be provided under a non-qualified plan. In the event
Mr. Perini's employment were terminated in accordance with any of the above
provisions, his stock options would become fully exercisable and/or vested and
could be exercised at any time during the salary continuation period (but not
beyond the applicable option term).
Each of the agreements with Messrs. Schwarz, Rizzo and
Unbekant will provide that the executive will continue to serve the Company, in
the position or positions currently held, through December 31, 1997. Each
agreement will provide that the executive will receive his current salary, which
will continue to be reviewed by the Board of Directors. Each executive will also
continue to receive benefits, including, but not limited to, health and life
insurance and pension accrual. In addition, each executive will continue to
receive incentive compensation under the Company's current plans until the end
of 1996 and pursuant to any plans which are in effect thereafter.
Each agreement will provide that the executive may voluntarily
terminate his employment for any reason with 60 days notice to the Company. In
such event, the executive would be entitled to receive his accrued salary and
his accrued bonus up to the date of such termination. Each agreement will
provide that, in the event of the termination of the executive without cause, a
reduction in the executive's salary or other benefits (other than a reduction
that is similar to the reduction made to the salaries or other benefits provided
to all or most other employees of the Company), or a material change in the
executive's responsibilities at the Company or certain other events deemed to be
a "Constructive Termination," the executive would be entitled to terminate his
employment with the Company and receive his base compensation and benefits for
the greater of one year or the remaining contract term and to the extent that
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pension benefits cannot be provided under the Company's qualified plan, they
shall be provided under a non-qualified plan. In the event the executive's
employment were terminated in accordance with the above provision, his stock
options would become fully exercisable and/or vested and could be exercised at
any time during the salary continuation period (but not beyond the applicable
option term).
Bart W. Perini will retire as an active employee of the
Company effective December 31, 1996. He will continue to serve as a Director.
The Company will enter into a severance agreement with Mr. Perini which, in
recognition of his thirty-five years of service, provides for the continuation
of his base salary and benefits, including health and life insurance and pension
accrual, through December 31, 1998 and to the extent that pension benefits
cannot be provided under the Company's qualified plan, they shall be provided
under a non-qualified plan. In addition, he will continue to receive incentive
compensation under the Company's current plans through 1996.
Management Agreement
As a condition of the Investors' obligations to acquire the
Series B Preferred Stock, the Stock Purchase Agreement requires that at or prior
to the Closing Date, the Company enter into the Management Agreement. The
Management Agreement will become effective as of the Closing Date. Under the
terms of the Management Agreement, Tutor-Saliba Corporation and Mr. Tutor each
agree to provide the Company with the management services of Mr. Tutor for a
maximum of ten days in any calendar month (unless otherwise agreed by the
parties in writing). Mr. Tutor shall serve as acting Chief Operating Officer and
Tutor-Saliba Corporation will be paid an annual fee of $150,000 for Mr. Tutor's
services. In addition, in order to provide incentive to Mr. Tutor in his role as
acting Chief Operating Officer, he will be granted, on the Closing Date, options
to purchase 150,000 shares of Common Stock pursuant to the Company's 1982 Stock
Option and Long-Term Performance Incentive Compensation Plan, as amended (the
"Plan") (or, in the event options are unavailable for issuance under such Plan,
an option shall be issued outside of the Plan, with similar terms and conditions
as under the Plan). The options will be granted with an exercise price per share
equal to the closing price of a share of Common Stock on the American Stock
Exchange on the day prior to the Closing Date. The options will not be qualified
under Section 422 of the Internal Revenue Code of 1986, as amended, and will not
vest for forty months (or in certain other limited circumstances at an earlier
date). The options expire after eight years.
Unless terminated earlier by the parties, the Management
Agreement terminates upon the earliest to occur of (i) December 31, 1998, (ii)
Mr. Tutor's inability to perform his services under the Management Agreement,
whether because of death,
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disability or otherwise, (iii) written notice from the Company to Mr. Tutor
after, in the determination of a majority of the Executive Committee of the
Board of Directors of the Company, Mr. Tutor has failed to perform his
obligations under the Management Agreement, and (iv) the reasonable
determination by the Board of Directors or Executive Committee of the Company,
along with written notice thereof to Mr. Tutor, that it would be inadvisable for
Mr. Tutor to continue performing the services contemplated by the Management
Agreement.
Executive Committee Compensation
The non-employee members of the Executive Committee will
receive $4,000 for each Executive Committee meeting attended. In addition, each
of the non-employee members of the Executive Committee will also be granted, on
the Closing Date, options to purchase 25,000 shares of Common Stock pursuant to
the Plan (or, in the event options are unavailable for issuance under such Plan,
options shall be issued outside of the Plan, with similar terms and conditions
as under the Plan). The options will be granted with an exercise price per share
equal to the closing price of a share of Common Stock on the American Stock
Exchange on the day prior to the Closing Date. The options will not be qualified
under Section 422 of the Internal Revenue Code of 1986, as amended, and will not
vest for forty months (or in certain other limited circumstances at an earlier
date). The options expire after eight years.
Registration Rights Agreement
The Series B Preferred Stock will not be listed on the
American Stock Exchange or any other national securities exchange, and the
issuance of the Series B Preferred Stock will not be registered with the SEC.
The shares of Series B Preferred Stock will therefore be restricted securities.
However, the Company will enter into a Registration Rights Agreement (the
"Registration Rights Agreement") with the Investors pursuant to which the
Investors or their permitted successors and assigns under the Agreement (the
"Purchasers") will be entitled to certain additional rights with respect to the
registration under the Securities Act of 1933, as amended, (the "Securities
Act") of the shares of Common Stock received upon conversion of the Series B
Preferred Stock (the "Conversion Shares").
The Registration Rights Agreement will provide that Purchasers
holding unregistered Conversion Shares or Preferred Stock may, upon the receipt
by the Company of a written request by the holders of a majority of all
outstanding Conversion Shares and Preferred Stock, demand that the Company file
with the SEC a registration statement for an offering to be made on a delayed or
continuous basis
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pursuant to Rule 415 of the Securities Act (a "Shelf Registration") for the
purpose of registering the resale of such unregistered Conversion Shares and any
shares of Common Stock into which Preferred Stock may be converted (together,
the "Registrable Securities"). Such agreement will provide that the Company
shall use its best efforts to maintain the effectiveness of such Shelf
Registration until the resale of all such Registrable Securities and, in the
event all Registrable Securities are not resold under such Shelf Registration,
the Company must file a second Shelf Registration statement for the resale of
any and all remaining Registrable Securities.
Voting Agreement
PB Capital, David B. Perini, Bart W. Perini, Ronald N. Tutor,
and Tutor- Saliba Corporation (collectively, the "Stockholders" and each
individually a "Stockholder") have entered into an agreement (the "Voting
Agreement") with the Company, pursuant to which the Stockholders have agreed to
vote all of the shares of Common Stock, Series B Preferred Stock, Series A
Junior Participating Cumulative Preferred Stock, and any other series or class
of voting stock to be issued by the Company (collectively, the "Perini Voting
Stock") owned of record or thereafter acquired by them, or over which they have
voting control, in favor of the election to the Board of Directors of the
Company of three representatives designated by PB Capital and reasonably
satisfactory to the Company at the first meeting of the Stockholders at which
directors will be elected (or by written consent in lieu of a meeting of the
Stockholders) (the "Meeting"). The terms of the Voting Agreement are binding
upon transferees of Perini Voting Stock. The Voting Agreement will remain in
effect until immediately after the holding of the next Meeting at which the
representatives designated by PB Capital are elected.
Shareholder Rights Agreement Amendments
The Company is a party to a Shareholder Rights Agreement,
dated as of September 23, 1988, as amended and restated as of May 17, 1990, with
The First National Bank of Boston as Rights Agent. On September 23, 1988, the
Board of Directors of the Company declared a dividend distribution of one
Preferred Stock Purchase Right (a "Right") for each outstanding share of Common
Stock of the Company to stockholders of record at the close of business on
October 6, 1988. Each Right entitles the registered holder thereof to purchase
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Cumulative Preferred Stock (the "Series A Preferred Stock") at a cash exercise
price of $100.00 per Unit. The Rights expire on September 23, 1998.
The purpose of the Shareholder Rights Agreement is to prevent
hostile attempts
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to acquire control of the Company by making such attempts prohibitively
expensive, unless the Board of Directors acts to redeem the Rights. The Rights
Agreement presently provides that, absent intervention by the Board of
Directors, certain anti-takeover provisions become operative in the event that a
person or group of affiliated or associated persons (other than the Company and
certain of its affiliates and other exempted persons) either: (i) acquires
beneficial ownership of 20% or more of the then outstanding shares of Common
Stock (the date of the announcement of such acquisition being the "Stock
Acquisition Date"), or (ii) acquires beneficial ownership of 10% or more of the
then outstanding shares of Common Stock and the Board of Directors of the
Company determines that such person or group is adverse to the interests of the
Company (an "Adverse Person"). (For purposes of this provision, a person is
deemed to beneficially own the shares of Common Stock into which any class of
preferred stock of the Company is convertible. Such shares issuable on
conversion, however, are generally not counted as part of the number of shares
of Common Stock then outstanding in calculating the percentage of shares owned
by other persons.) Following either such event, the Board of Directors may
provide that each holder of a Right will thereafter have the right to receive
upon exercise that number of Units of Series A Preferred Stock having a market
value of two times the exercise price of the Right, unless the Board of
Directors redeems the Rights. The Board of Directors may also, at its option,
exchange all or any part of the then outstanding and exercisable Rights for
shares of Common Stock or Units of Series A Preferred Stock at an exchange ratio
of one share of Common Stock or one Unit of Preferred Stock per Right.
As part of the Transaction necessary to permit the issuance of
the Series B Preferred Stock, the Board of Directors plans to amend the
Shareholder Rights Agreement in two ways.
o First, in order to permit the acquisition of the Series B
Preferred Stock by the Investors pursuant to the Agreement,
any additional Preferred Stock issued as dividends, and any
Common Stock issued upon conversion of the Series B Preferred
Stock, without triggering the distribution of Rights, the
Board will amend the Shareholder Rights Agreement to provide
that the issuance of the Series B Preferred Stock and the
Common Stock into which such stock is convertible will not
give rise to a "Stock Acquisition Date" within the meaning of
the Rights Agreement and that none of the Investors will be
deemed to be an "Adverse Person." Accordingly, the issuance of
the Series B Preferred Stock will not trigger the
anti-takeover provisions of the Shareholder Rights Agreement.
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o Second, in order to protect significant potential tax benefits
of the Company attributable to certain net operating losses
("NOLs") that the Company already has, as well as those that
it may have in the future (see "The Company's NOLs and Section
382"), the Company plans to lower the threshold for the
occurrence of a Stock Acquisition Date from 20% to 10% of the
issued and outstanding shares of Common Stock, (the "Second
Amendment") for at least 38 months following the closing date
and plans to extend the expiration of the Shareholder Rights
Agreement to a date that is at least 38 months after the
closing date, at which point, the Board may consider the
adoption of a new shareholder rights agreement. Prior to the
new expiration date of the Shareholder Rights Agreement, these
thresholds may not be changed without the prior consent of a
majority of the Executive Committee. The purpose of these
amendments which lower the trigger thresholds for the Rights
is to reduce the risk that one person or a group of persons
will acquire an amount of capital stock of the Company that
would limit the Company's ability to use these NOLs in the
future by making such an acquisition unattractive to buyers.
These amendments do not in any way prevent such acquisitions
from occurring, nor do they render such purchases null and
void. The Company believes that this is the best means
presently available to it to accomplish this end. Depending on
the circumstances in the future, the Company may consider
other means of preventing an "ownership change" as defined by
the Internal Revenue Code of 1986, as amended.
The Shareholder Rights Agreement Amendments may be deemed to
have an "anti-takeover" effect because, during the new term of the Shareholder
Rights Agreement, they will make it unattractive for a person or entity (or
group thereof) to accumulate more than 10% of the Company's Common Stock. The
Shareholder Rights Agreement Amendments thus would discourage or prohibit
accumulations of substantial blocks of shares for which stockholders might
receive a premium above market value. In the opinion of the Board of Directors
of the Company, the fundamental importance to the Company's stockholders of
maintaining the availability of the tax benefits to the Company outweighs the
added anti-takeover effect the Shareholder Rights Agreement Amendments may have.
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THE COMPANY'S NOLS AND SECTION 382
As of December 31, 1995, NOLs of approximately $55 million
were available to offset taxable income recognized by the Company in
periods after December 31, 1995. The Company estimates that as of
December 31, 1996, such NOLs will amount to approximately $52 million.
There are also unused investment tax credits and foreign tax credits as
indicated on the table below that are available to the Company to
offset future tax liabilities after utilizing the above mentioned NOLs.
For Federal income tax purposes, the NOLs and tax credits will
expire according to the following schedule:
(000's)
Year of Unused Investment Foreign Tax Net Operating Loss
Expiration Tax Credits Credits Carryforwards
---------- ----------- ------- -------------
1998 952
1999 26
2001 449
2002 37
2003 3,046 675
2004 293
2005 728
2006 1,142
2009 26,147
2010 26,283
------- -------- ------------
TOTAL 3,532 978 55,268
======= ======== ============
NOLs benefit the Company by offsetting taxable income dollar for dollar by the
amount of the NOLs, thereby eliminating (subject to a relatively minor
alternative minimum tax) the 35% federal corporate tax on such income. In
contrast, tax credits offset federal taxes dollar for dollar after application
of various enumerated rules and limitations.
The benefit of a company's NOLs and tax credits can be reduced
or eliminated under Section 382 of the Internal Revenue Code ("IRC"). Section
382 limits the use of losses and other tax benefits by a company that has
undergone an "ownership change," as defined in Section 382. Generally, an
ownership change occurs if one or more stockholders, each of whom owns 5% or
more in value of a company's capital stock,
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increase their aggregate percentage ownership by more than 50 percentage points
over the lowest percentage of stock owned by such stockholders over the
preceding three year period. For this purpose, all holders who each own less
than 5% of a company's capital stock are generally treated together as one or
more 5 percent stockholders (that is, all holders with less than 5% of a
company's stock are typically treated, in effect, as one "public" stockholder).
In addition, certain constructive ownership rules, which generally attribute
ownership of stock to the ultimate beneficial owner thereof without regard to
ownership by nominees, trusts, corporations, partnerships or other entities, or
to related individuals, are applied in determining the level of stock ownership
of a particular stockholder. Special rules, described below, can result in the
treatment of options (including warrants) as exercised if such treatment would
result in an ownership change. All percentage determinations are based on the
fair market value of a company's capital stock, including any preferred stock
which is voting or convertible (or otherwise participates in corporate growth).
If an ownership change of the Company were to occur, the
amount of taxable income in any year (or portion of a year) subsequent to the
ownership change that could be offset by NOLs or other carryovers existing (or
"built in") prior to such ownership change generally could not exceed the
product obtained by multiplying (i) the aggregate value of the Company's stock
immediately prior to the ownership change (with certain adjustments) by (ii) the
federal long-term tax-exempt rate (currently 5.64%). Because the value of the
Company's stock, as well as the federal long-term tax-exempt rate, fluctuate, it
is not possible to predict with accuracy the annual limitation upon the amount
of taxable income of the Company that could be offset by such NOLs or other
items if an ownership change were to occur on or subsequent to the closing date
of the Transaction. The Company would incur a corporate level tax (current
maximum federal rate of 35%) on any taxable income during a given year in excess
of such limitation plus any prior year's unused NOL that was not utilized in
such prior year. While the NOLs not used as a result of this limitation remain
available to offset taxable income in future years, the effect of an ownership
change, under certain circumstances, would be to significantly defer the
utilization of the NOLs, accelerate the payment of federal income tax, and cause
a portion of the NOLs to expire prior to their use.
Approval and consummation of the Transaction increases the
risk that the Company will undergo an ownership change because of the
significant change in ownership attributable to the Investors' ownership
interest in the Company. Regulations issued by the Internal Revenue Service (the
"IRS") in March 1994 provide that an "option" will be treated as exercised for
purposes of Section 382 if it meets any one of three tests, each of which will
apply only if a "principal purpose" of the issuance, transfer or structuring of
the option was to avoid or ameliorate the impact of
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an ownership change under Section 382. The term "option" for this purpose is
defined broadly to include, among other things, a contingent purchase, warrant
or put, regardless of whether it is contingent or otherwise not currently
exercisable. Under this definition, the Series B Preferred Stock being reserved
for issuance as payment-in- kind dividends (the "PIK Shares") could be viewed as
"options." The Company believes that, based on its estimate of the potential
values of the Series B Preferred Stock, its knowledge of the current ownership
of Common Stock and $21.25 Preferred Stock by 5 percent stockholders, and the
current trading price of the Common Stock and the $21.25 Preferred Stock, all of
which are subject to change following the date of this Proxy Statement, an
ownership change of the Company will not occur on the closing date of the
Transaction whether or not the PIK Shares are considered as "options" under
Section 382 of the IRC.
The Company did not negotiate the terms of the Agreement,
including the terms of the Series B Preferred Stock (including the stock being
reserved as PIK Shares), with a view to avoid or ameliorate the impact of an
ownership change of the Company under Section 382, and the Company believes that
the issuance, transfer, or structuring of any aspect of the Agreement did not
have as one of its purposes the avoidance or amelioration of the impact of an
ownership change. PB Capital also has indicated that it did not negotiate the
terms of the Agreement with a view to avoiding an ownership change, and it has
indicated its belief that the issuance, transfer, or structuring of any aspect
of the Agreement did not have as one of its purposes the avoidance or
amelioration of an ownership change of the Company. The Company and PB Capital's
conclusions are not binding on the IRS, however, and thus the IRS could
challenge this conclusion. Even if the IRS were to successfully challenge this
position, it is unlikely that the consummation of the Transaction in and of
itself would cause an ownership change of the Company.
However, as indicated in the previous paragraph, such a
challenge, if successful, could increase the risk that purchases by other
stockholders of the Company's Common Stock could effect the percentage shift in
the Company's ownership as determined for purposes of Section 382. Any such
acquisition could increase the likelihood that the Company would experience an
ownership change if such shift, coupled with the consummation of the
Transaction, causes the ownership by 5 percent stockholders (including groups of
less than 5 percent stockholders that are treated as 5 percent stockholders) of
the Company to increase by more than 50 percentage points during a three year
period.
The desire of the Company to maintain its NOLs could make it
difficult for the Company to complete any further significant equity issuances
(public or private) for the three years following the closing date of the
Transaction. That is, even if no holder of
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more than 5% of the Company's capital stock other than the Investors, has
increased its holdings of capital stock of the Company during the past three
years, the fact that, by the Company's estimates, the Investors in the aggregate
will own approximately [37%] of the Company's capital stock after consummation
of the Transaction and that the Company may issue up to an additional estimated
7% of the Company's capital stock as PIK Shares for the payment of dividends
over the next three years, means that the Company may have little ability to
obtain further equity during that same period if it wants to maintain its
ability to use NOLs without application of the Section 382 limitation. Under the
terms of the Series B Preferred Stock, the Investors have the right to approve
certain future issuances of equity, whether junior or senior in rank.
CONTINUED RISK OF OWNERSHIP CHANGE
Notwithstanding the Shareholder Rights Agreement Amendments,
there remains a risk that certain changes in relationships among stockholders or
other events will cause an ownership change of the Company under Section 382.
Future significant purchases of the Company's Common Stock and other events that
occur prior to the consummation of the Transaction can effect the percentage
shift in the Company's ownership as determined for purposes of Section 382, and
any such acquisition could increase the likelihood that the Company will
experience an ownership change if such shift, coupled with the consummation of
the Transaction, causes the ownership of 5 percent stockholders of the Company
to increase. There also can be no assurance that the Second Amendment to the
Shareholder Rights Agreement will be effective, either because a person or group
of persons acquires stock in excess of 10% of the capital stock of the Company
(notwithstanding that such acquisition would trigger the distribution of rights
under the Shareholder Rights Agreement) or because of other factors. For
example, while Section 382 provides that fluctuations in the relative values of
different classes of stock are not taken into account in determining whether an
ownership change occurs, no regulations or other guidance have been issued under
this provision. Therefore, the extent to which changes in relative values of the
Series B Preferred Stock, the $21.25 Preferred Stock, and the Common Stock could
result in an ownership change of the Company is unclear, and it is possible that
fluctuations in value could result in an ownership change of the Company.
In addition, the Board of Directors of the Company has the
discretion to prevent the distribution of Rights and also to redeem the Rights
for a nominal sum. Either of these actions would otherwise result in an
ownership change that would limit the use of the tax attributes of the Company.
The Board of Directors of the Company intends to consider any such transactions
individually and determine at the time whether it is in the best interests of
the Company, after consideration of any factors that the Board deems relevant
(including possible future events), to permit any such transactions to
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occur notwithstanding that an ownership change of the Company may occur.
As a result of the foregoing, the Shareholder Rights Agreement
Amendments may serve to reduce, but do not serve to eliminate, the risk that
Section 382 will cause the limitations described above on the use of tax
attributes of the Company to be applicable.
Regulation of Certain Business Combinations under Massachusetts Law
Chapter 110F of the Massachusetts General Laws provides that a
corporation may not engage in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. Chapter 110F further provides that this
prohibition does not apply if, prior to the date that such stockholder became an
interested stockholder, the board of directors of the corporation approved the
transaction which resulted in the stockholder becoming an interested
stockholder.
Upon consummation of the Transaction, each of PB Capital,
Union and The Common Fund would own more than five percent of the outstanding
voting stock of the Company and would therefore be an "interested stockholder"
as defined under chapter 110F. The Board of Directors has voted to approve the
Stock Purchase and Sale Agreement and the transactions contemplated thereby.
Accordingly, the prohibition of chapter 110F will not apply to future
transactions between PB Capital, Union, The Common Fund and the Company.
Fairness Opinions
Opinion of J.P. Morgan Securities Inc.
Pursuant to an engagement letter dated October 9, 1995, the
Company retained J.P. Morgan Securities Inc. ("J.P. Morgan") as its financial
advisor to assist the Company in assessing its alternatives to obtain strategic
capital, including consideration of potential business combinations, private
equity placements, and other transactions including the possible sale of real
estate assets.
At the meeting of the Board of Directors of the Company on
June 12, 1996, J.P. Morgan rendered its oral opinion to the Board of Directors
of the Company that, as of such date, the consideration to be paid to the
Company for the proposed issuance of Series B Preferred Stock was fair from a
financial point of view to the Company. J.P. Morgan has confirmed its June 12,
1996 oral opinion by delivering its written opinion to the Board of Directors of
the Company, dated the date of this Proxy
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Statement, that, as of such date, the consideration to be paid to the Company in
the proposed Transaction is fair from a financial point of view to the Company.
No limitations were imposed by the Company's Board of Directors upon J.P. Morgan
with respect to the investigations made or procedures followed by it in
rendering its opinions.
The full text of the written opinion of J.P. Morgan dated the
date of this Proxy Statement, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached as Annex A to this
Proxy Statement. The Company's stockholders are urged to read the opinion in its
entirety. J.P. Morgan's written opinion is addressed to the Board of Directors
of the Company, is directed only to the consideration to be paid by PB Capital
for the Series B Preferred Stock and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote at the Special
Meeting. The summary of the opinion of J.P. Morgan set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinions, J.P. Morgan reviewed, among other
things, in the case of its June 12, 1996 opinion, the investment offer as then
proposed and negotiated with RCBA, and in the case of its opinion dated the date
of this Proxy Statement, the Stock Purchase and Sale Agreement, related
Transaction documents and this Proxy Statement; the audited financial statements
of the Company for the fiscal years ended December 31, 1995 and December 31,
1994, and the unaudited financial statements of the Company for the period ended
September 30, 1996 in the case of its opinion dated the date of this Proxy
Statement; current and historical market prices of the Common Stock; certain
publicly available information concerning the business of the Company and of
certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; publicly available terms of certain transactions involving
companies comparable to the Company and the consideration paid for such
companies; certain agreements with respect to outstanding indebtedness or
obligations of the Company; certain information regarding the Company's real
estate subsidiary and portfolio of assets provided by the Company; and certain
internal financial analyses and forecasts prepared by the Company and its
management. The internal financial analyses and forecasts furnished to J.P.
Morgan were prepared by the management of the Company. The Company does not
publicly disclose internal management financial analyses and forecasts of the
type provided to J.P. Morgan in connection with J.P. Morgan's analysis of the
Transaction and such financial analyses and forecasts were not prepared with a
view toward public disclosure. These financial analyses and forecasts were based
on numerous variables and assumptions that are inherently uncertain and may be
beyond the control of management, including, without limitation, factors
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related to general economic and competitive conditions and prevailing interest
rates. Accordingly, actual results could vary significantly from those set forth
in such financial analyses and forecasts.
J.P. Morgan also held discussions with certain members of the
management of the Company with respect to certain aspects of the Transaction,
the past and current business operations of the Company, the financial condition
and future prospects and operations of the Company, the effects of the
Transaction on the financial condition and future prospects of the Company, and
certain other matters believed necessary or appropriate to J.P. Morgan's
inquiry. These matters included the overall high debt level of the Company; the
need for further liquidity to support the Company's construction operations and
bonding capacity; limited net proceeds available to the Company if it were to
pursue an accelerated disposition of its real estate assets; potential exposure
to future payments resulting from the Company's WMATA litigation; and the
benefits of the Transaction in strengthening the balance sheet of the Company.
In addition, J.P. Morgan visited certain representative facilities and real
estate assets of the Company, and reviewed such other financial studies and
analyses and considered such other information as deemed appropriate for the
purposes of its opinions.
J.P. Morgan relied upon, without assuming any responsibility
for independent verification, the accuracy and completeness of all information
that was publicly available or that was furnished to it by the Company or
otherwise reviewed by J.P. Morgan, and J.P. Morgan has not assumed any liability
therefor. J.P. Morgan has not conducted any valuation or appraisal of any assets
or liabilities, nor have any valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
J.P. Morgan has assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of the Company to which such analyses or forecasts relate. J.P. Morgan
has also assumed that the Transaction will have the tax consequences described
in discussions with them, and materials furnished to them by, representatives of
the Company, and that the other transactions contemplated by the Agreement will
be consummated as described in such Agreement.
J.P. Morgan's opinions are based on economic, market and other
conditions as in effect on, and the information made available to J.P. Morgan as
of, the date of such opinions. Subsequent developments may affect the written
opinion dated the date of this Proxy Statement, and J.P. Morgan does not
undertake any obligation to update, revise, or reaffirm such opinion. J.P.
Morgan expresses no opinion as to the price at which the Company's Common Stock
will trade at any future time.
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The following is a summary of the material financial analyses
utilized by J.P. Morgan in connection with providing its opinions. The Company
is engaged in both the construction and real estate businesses. J.P. Morgan
valued the Company's construction operations employing generally accepted
valuation methods. In valuing the real estate business, J.P. Morgan estimated
realizable proceeds from an accelerated disposition strategy, an approach which
differs materially from the Company's current and historical long-term hold
strategy toward its real estate operations.
Construction business - Discounted Cash Flow Analysis. J.P.
Morgan conducted a discounted cash flow analysis for the purpose of determining
the equity value per share of the Company's construction operations. J.P. Morgan
calculated the unlevered free cash flows that the Company is expected to
generate through its construction operations during fiscal years 1996 through
2000 based upon management financial projections. J.P. Morgan also calculated a
range of terminal values of the Company's construction operations at the end of
the period ending December 31, 2000 by applying exit earnings before interest
and taxes ("EBIT") multiples to the EBIT of the Company during the final year
period. The EBIT multiples applied were equivalent to EBIT multiples at which
certain publicly traded comparable companies are currently trading. The
unlevered free cash flows and the range of terminal asset values were then
discounted to present values using a range of discount rates from 10.0% to 11.0%
which were chosen by J.P. Morgan based upon an analysis of the average weighted
average cost of capital of certain publicly traded comparable companies. After
giving effect to the total corporate level debt and existing preferred stock of
the Company, the discounted cash flow analysis yielded an implied trading value
for the Company's Common Stock of approximately $6.75 to $11.25 per share for
its construction operations.
Construction business - Public Trading Multiples. J.P. Morgan
compared selected financial data of the Company with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to the Company. The companies selected by J.P. Morgan were Granite
Construction Inc., Guy F. Atkinson Company of California, and The Turner
Corporation. These companies were selected, among other reasons, because they
were principally engaged in the business of general contracting, specifically
commercial buildings and civil projects, without a substantial component of
design and engineering work. For each comparable company, publicly available
financial performance through the twelve months ended December 31, 1995 and
through the six months ended June 30, 1996 was analyzed. In addition, publicly
available estimates of each comparable company's future financial performance
was reviewed in relation to the current market valuation of that company. J.P.
Morgan selected the median value for each multiple, specifically: firm value
divided by projected 1996 EBIT, market value divided by projected 1996
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net income, and market value divided by projected 1997 net income where
available. These multiples were then applied to the Company's projected 1996
EBIT and projected net income for the twelve months ending December 31, 1996 and
December 31, 1997. After giving effect to certain adjustments including the
total corporate level debt and existing preferred stock of the Company, these
multiples yielded an implied trading value for the Company's Common Stock of
approximately $6.00 to $11.25 per share. J.P. Morgan did not use multiples based
on historical financial results due to the distorting effect of the Company's
losses during 1995.
Construction business - Selected Transaction Analysis. Using
publicly available information, J.P. Morgan examined selected transactions
involving general contracting companies of the type analogous to the Company.
J.P. Morgan found that such transactions were very limited and identified only
one transaction which involved a suitably comparable company and occurred
recently enough to be relevant to its valuation of the Company. This transaction
was the merger of Washington Contractors Group, Inc. with Kasler Corporation in
July 1993. J.P. Morgan compared the consideration received by Kasler
shareholders to the financial performance of Kasler Corporation and applied the
implied EBIT multiple to the Company's estimated 1996 EBIT. After giving effect
to the total corporate level debt and existing preferred stock of the Company,
this multiple yielded an implied trading value for the Company's Common stock of
approximately $9.75 per share.
Real Estate Assets. The Company's real estate portfolio
consists of two large assets, the Resort at Squaw Creek in Squaw Valley,
California and Rincon Center in San Francisco, and a diverse group of thirteen
other assets including office buildings, residential land and lots and
commercial land held for development in several regions of the United States.
The Company has a strategy of holding its major real estate assets as long as
required to realize profits on its investments while selectively selling off its
smaller real estate assets. In addition to reviewing the Company's forecasts for
its long-term real estate strategy and analyzing the portfolio's estimated
near-term negative cash flow performance, J.P. Morgan focused on the near-term
net proceeds realizable through an accelerated disposition strategy. In
estimating near-term liquidity, J.P. Morgan employed several valuation
methodologies including a discounted cash flow approach, comparable sales
transactions, and estimated cost of carry of certain assets. The contribution of
the real estate assets in providing potential near-term liquidity to the Company
is estimated to be approximately $15 to $20 million, or $3.00 to $4.00 per
share. Such estimate does not constitute an appraisal of these assets, and the
actual proceeds realized by the Company in any such sales could be materially
different.
WMATA Litigation. J.P. Morgan factored into its financial
analyses a
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preliminary judgment by the U.S. District Court (D.C.) in July 1993 in which the
Company was found liable for $16.5 million, equivalent to approximately $3.40
per share, in connection with subway construction contracts for the Washington
Metropolitan Area Transit Authority (WMATA). The case is awaiting a final
decision and the Company has asked the Court to rule upon undecided claims
outstanding against WMATA which would offset the preliminary judgment and
thereby reduce or eliminate its ultimate exposure at this level or through the
appeals process.
In connection with its opinion dated the date of this Proxy
Statement, J.P. Morgan reviewed the analyses used to render its June 12, 1996
oral opinion to the Board of Directors of the Company by performing procedures
to update certain of such analyses and by reviewing the assumptions upon which
such analyses were based and the factors considered in connection therewith.
The summary set forth above does not purport to be a complete
description of the analyses or data presented by J.P. Morgan. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. J.P. Morgan believes that the summary
set forth above and its analyses must be considered as a whole and that
selecting portions thereof, without considering all of its analyses, could
create an incomplete view of the processes underlying its analyses and opinion.
J.P. Morgan based its analyses on assumptions that it deemed reasonable,
including assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and
its affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to advise the Company
with respect to the Transaction and to deliver an opinion to the Company's Board
of Directors with respect to the Transaction on the basis of such experience and
its familiarity with the Company.
For services rendered as financial advisor to assist the
Company in assessing its alternatives to obtain strategic capital, including
consideration of potential business
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combinations, private equity placements, and other transactions including the
possible sale of real estate assets, J.P. Morgan has received fees totaling
$550,000 prior to the date of this Proxy Statement. Upon the delivery to the
Company's Board of Director's of its written opinion, J.P. Morgan will receive a
fee of $350,000, and upon the closing of the Transaction, J.P. Morgan will
receive an additional fee from the Company of $750,000. In addition, the Company
has agreed to reimburse J.P. Morgan for its expenses incurred in connection with
its services, including the fees and disbursements of counsel, and will
indemnify J.P. Morgan against certain liabilities, including liabilities arising
under the Federal securities laws.
J.P. Morgan and its affiliates maintain banking and other
business relationships with the Company and its affiliates, for which it
receives customary fees. J.P. Morgan's affiliated bank, Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") is the agent bank for the Company's
current revolving credit facility which is being restructured as part of the
Transaction. In connection with the restructuring of the revolving credit
facility, Morgan Guaranty will receive a 20.6% share of the $323,750
restructuring fee and the same percentage of the approximately 410,000 warrants
(see "Credit Facilities"). In addition, Morgan Guaranty will receive a $120,000
fee as the agent bank. In the ordinary course of their businesses, affiliates of
J.P. Morgan may actively trade the debt and equity securities of the Company for
their own accounts or for the accounts of customers and, accordingly, they may
at any time hold long or short positions in such securities.
Opinion of Chase Securities Inc.
The Company engaged Chase Securities Inc. ("Chase") to
evaluate the fairness to the Company of the consideration to be paid to the
Company in connection with the transactions pursuant to the Agreement. On
September 27, 1996, Chase delivered its written opinion to the Board of
Directors of the Company to the effect that, based upon and subject to the
assumptions, factors and limitations set forth in such written opinion, as of
the date of such opinion, the consideration to be paid to the Company in
connection with the Transaction is fair, from a financial point of view, to the
Company.
The full text of Chase's written opinion, which sets forth
assumptions made, factors considered and limitations on the review undertaken by
Chase in rendering its opinion, is attached as Annex B to this Proxy Statement
and is incorporated herein by reference. The summary set forth below is
qualified in its entirety by reference to the full text of such opinion.
Stockholders are urged to read the opinion carefully and in its entirety.
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Chase's opinion is directed only to the fairness, from a
financial point of view, of the consideration to be paid to the Company in
connection with the Transaction and does not address the Company's underlying
decision to proceed with or effect the Transaction. Chase's opinion was rendered
for the use and benefit of the Board of Directors of the Company in its
evaluation of the Transaction and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote at the Special
Meeting. Except as set forth in Chase's opinion, the Board of Directors did not
impose any limitations upon the scope of the investigation that Chase deemed
necessary to enable it to deliver its opinion,
In arriving at its opinion, Chase, among other things: (i)
reviewed the Agreement and other Transaction documents referred to therein; (ii)
reviewed a draft Proxy Statement of the Company prepared in connection with
seeking stockholder approval for the Transaction; (iii) reviewed certain
publicly available business and financial information of the Company, including
the audited financial statements of the Company for the fiscal years ended
December 31, 1995 and December 31, 1994 and the unaudited financial statements
of the Company for the period ended June 30, 1996; (iv) reviewed certain
publicly available business and financial information of certain companies
engaged in businesses Chase deemed comparable to those of the Company; (v)
compared current and historical market prices of the Company's Common Stock and
reported market prices of the securities of certain other companies that were
deemed comparable; (vi) reviewed publicly available financial terms of certain
business transactions Chase deemed comparable to the Transaction and otherwise
relevant to Chase's inquiry; (vii) held discussions with members of the
Company's senior management concerning certain aspects of the Transaction, the
Company's past and current business operations, the Company's financial
condition, future prospects, and operations, before and after giving effect to
the Transaction, as well as their views of the business, operational, strategic
benefits, and other implications of the Transaction, and certain other matters
Chase believed necessary or appropriate to Chase's inquiry, including (a) the
overall high debt level of the Company, (b) the need for further liquidity to
support the Company's construction operations and bonding capacity, (c) limited
net proceeds available to the Company if it were to pursue an accelerated
disposition of its real estate assets, (d) potential exposure to future payments
resulting from the Company's Washington Metropolitan Area Transit Authority
litigation in which the Company was found liable in a Preliminary judgment by
the U.S. District Court (D.C.) in July 1993, and (e) the benefits of the
Transaction in strengthening the balance sheet of the Company; (viii) reviewed
certain agreements with respect to outstanding indebtedness or obligations of
the Company; (ix) reviewed certain information provided by the Company regarding
its real estate subsidiary and portfolio of assets; (x) reviewed certain
internal non-public financial and operating data provided by the Company's
management concerning the Company's business, including
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management forecasts and projections of future financial results; and (xi) made
such other analyses and examinations as Chase deemed necessary or appropriate.
The forecasts and projections furnished to Chase were prepared by the management
of the Company. The Company does not publicly disclose internal management
projections of the type provided to Chase in connection with Chase's analysis of
the Transaction, and such projections were not prepared with a view toward
public disclosure. These forecasts and projections were based on numerous
variables and assumptions that are inherently uncertain and may be beyond the
control of management, including, without limitation, factors related to general
economic and competitive conditions and prevailing interest rates. Accordingly,
actual results could vary significantly from these set forth in such forecasts
and projections.
In connection with its opinion, Chase relied upon and did not
assume any responsibility for independently verifying the accuracy and
completeness of all of the information provided to, discussed with, or reviewed
by or for Chase, or publicly available for purposes of its opinion, and did not
assume any liability with respect thereto. Chase has not made nor obtained any
independent evaluations or appraisals of the assets or liabilities of the
Company, and Chase has not conducted a physical inspection of the properties and
facilities of the Company. With respect to financial forecasts and projections
prepared by the Company, Chase assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company.
Chase expressed no views as to such forecasts or projections or the assumptions
on which they were based. Chase also assumed that the Transaction will have the
tax consequences described to it in discussions with, and materials furnished to
Chase by, representatives of the Company, and that the other transactions
contemplated by the Agreement will be consummated as described in such
agreement. In addition, Chase was not authorized and did not solicit any
indications of interest from any third parties with respect to the purchase of
all or part of the Company's business or assets, and accordingly Chase relied
entirely on the results of the process conducted by representatives of J.P.
Morgan in that regard.
For purposes of rendering its opinion, Chase has also assumed,
in all respects material to its analysis, that the representations and
warranties of each party contained in the Agreement are true and correct, that
each party has and will perform all of the covenants and agreements required to
be performed by it under such agreement, and that all conditions to the
consummation of the Transaction will be satisfied without waiver thereof. Chase
necessarily based its opinion on market, economic, and other conditions as they
existed on, and could be evaluated as of, the date of such opinion. Subsequent
developments may affect or have affected Chase's opinion, and Chase did not
undertake any obligation to update, revise, or reaffirm its opinion.
Additionally,
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Chase expressed no opinion as to the price at which the Company's Common Stock
will trade at any future time.
The following is a summary of certain of the financial
analyses utilized by Chase and reviewed with the Board of Directors of the
Company at its meeting on September 27, 1996, and does not purport to be a
complete description of the analyses performed by Chase. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of the analyses as a
whole could create an incomplete view of the processes underlying Chase's
opinion. In arriving at its fairness determination, Chase considered the results
of all such analyses. The analyses were prepared solely for the purpose of
enabling Chase to render its opinion to the Board of Directors of the Company.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future values, which may be significantly more or less favorable than
suggested by such analyses.
Comparable Company Analysis. Chase compared certain publicly
available financial data of selected companies in the construction and the
construction and engineering industries with that of the Company. The selected
construction companies were Guy F. Atkinson Company of California, Banister
Foundation Inc., Granite Construction Incorporated and Turner Corporation. The
selected construction and engineering companies were Fluor Corporation, Foster
Wheeler Corporation, Jacobs Engineering Group and Stone & Webster Incorporated.
For each selected company, Chase, among other things, derived an adjusted market
value of such company, consisting of the aggregate market value of the Company's
common stock trading price, plus the amount of total indebtedness and preferred
stock of such company less its cash and cash equivalents, and analyzed the (i)
revenues, (ii) earnings before interest, taxes, depreciation and amortization
("EBITDA") and (iii) EBIT of these companies for the last twelve months, in each
case as a multiple of adjusted market value. This analysis produced multiples of
(i) revenues to adjusted market value ranging from a high of 0.6x to a low of
0.0x, with a mean of 0.3x, as compared to a multiple for the Company of 0.lx,
(ii) EBITDA to adjusted market value ranging from a high of 9.3x to a low of
5.10x, with a mean of 7.6x, as compared to a multiple for the Company of 18.5x
and (iii) EBIT to adjusted market value ranging from a high of 17.6x to a low of
9.0x, with a mean of 12.9x, as compared to a multiple for the Company of 27.9x.
Due to the depressed financial results of the Company, as well as the financial
condition of some of the comparable companies, Chase did not derive a specific
per share reference range from this analysis.
Merger & Acquisition Transaction Analysis. Chase reviewed nine
merger and acquisition transactions in the construction industry announced since
October 1, 1990.
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The transactions reviewed in this analysis (collectively, the "Transaction
Comparables") were Washington Construction Group Inc.'s acquisition of Morrison
Knudsen Corp., Granite Construction Co.'s acquisition of Gibbons Co., Ogden
Corp.'s acquisition of Ogden Projects Inc., Washington Contractors Group Inc.'s
acquisition of Kasler Corp., Karl Steiner Holding Corp.'s acquisition of Turner
Corp, Banister Capital Foundation Inc.'s acquisition of Majestic Contractors
Ltd., Blackstone Capital Partners LP's acquisition of Great Lakes Dredge & Dock
Co., LE Myers Co. Group's acquisition of Hawkeye Construction Inc. and Ogden
Corp's acquisition of ERC Environmental & Energy Services Inc. For each
Transaction Comparable, Chase, among other things, analyzed each acquired
company's EBIT for the last twelve months, in each case as a multiple of the
transaction value, and derived reference multiples ranging from 7.5x to 8.5x.
Based on this range, Chase calculated the implied equity value of the Company to
be approximately $8.97 to $12.25 per share.
Construction Business Discounted Cash Flow Analysis. Chase
performed a discounted cash flow analysis for the purpose of determining the
equity value per share of the Company's construction business. Based on certain
forecasts and projections provided to Chase by the Company's management for the
fourth quarter of 1996 and the years 1997 through 2000, Chase calculated the
projected stream of unlevered free cash flows of the Company's construction
business through the year 2000. Chase derived the estimated present value of
such cash flows using discount rates ranging from 10.5% (low) to 11.5% (high),
which were selected by Chase based on an analysis of the weighted average cost
of capital of the companies named in the comparable company peer groups. After
taking into account assumed terminal values of the construction business at the
end of the year 2000 (based on exit multiples of projected EBIT ranging from
6.0x and 8.0x) and giving effect to the total corporate debt level, Chase
calculated a per share reference range of $6.31 to $11.50 for the Company's
construction business.
Public Company Transaction Analysis. Chase summarized eight
transactions in which private equity investors purchased significant equity
stakes directly from publicly traded corporations. The companies used in this
analysis were the investment by Brown Brothers Harriman 1818 Fund L.P. in
Columbia Hospital Corp., by Kohlberg Kravis Roberts & Co. in TW Holdings, Inc.,
by Joseph Littlejohn & Levy in Doskocil Companies Inc., by Blackstone Capital
Partners LP in People's Choice TV Corp., by Warburg Pincus
Ventures/International Biotechnology Trust in Amergen Inc., by Hass Wheat &
Harrison Inc. in Playtex Products, Inc., by Insurance Partners, L.P./Management
in Highland Insurance Group Inc. and by Warburg Pincus Ventures/Richard Snyder
in Western Publishing Group Inc. Chase noted that none of the transactions was
identical to the Transaction. However, despite significant variations among
these transactions, this analysis provides a useful benchmark with
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respect to certain structural, corporate governance, and financial aspects of
this type of investment transaction.
The terms of the engagement of Chase by the Board of Directors
are set forth in the letter agreement, dated September 5, 1996, by and between
Chase and the Company (the "Engagement Letter"). Pursuant to the terms of the
Engagement Letter, the Company has paid Chase, in consideration of certain
advisory services with respect to the Transaction, a fee of $500,000 upon
delivery of its written opinion dated as of September 27, 1996. In addition, the
Company has agreed to reimburse Chase for its reasonable out-of-pocket expenses,
including fees and disbursements of its counsel, and to indemnify Chase against
certain liabilities relating to or arising out of this engagement.
In the ordinary course of business, Chase or its affiliates
may trade in the securities of the Company for their own accounts and for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE APPROVAL OF THE ISSUANCE
OF THE SERIES B PREFERRED STOCK
PROPOSAL 2
APPROVAL OF AMENDMENT OF BY-LAWS
Reason for By-Law Amendment
As part of the Transaction pursuant to which the Series B
Preferred Stock will be issued, the Board of Directors of the Company
has approved a By-Law Amendment that will become operative with no
further action of the Board or the stockholders immediately upon the
consummation of the purchase of the Series B Preferred Stock by the
Investors. However, because of the size of their investment in the
Company, the Investors, as a condition of their obligation to acquire
the Series B Preferred Stock, are requiring that the Company obtain
stockholder approval of the By-Law Amendment even though stockholder
approval is not required under Massachusetts law. The ByLaw Amendment
is described in the following paragraph.
Description of By-Law Amendment
Under the By-Laws of the Company, as amended by the By-Law
Amendment, the Executive Committee is fixed at five members. Certain
powers of the Board of Directors are expressly delegated to the
Executive Committee. More specifically, neither the Company nor the
Board of Directors may take any of the following actions without the
approval of a majority of the members of the Executive Committee of the
Board of Directors: (1) any borrowing or guarantee by the Company
exceeding $15 million, (2) except for issuance of stock or stock
options pursuant to the Company's incentive compensation plans or
programs, any issuance of stock other than Common Stock of the Company
in an aggregate amount not exceeding five percent (5%) of the Common
Stock of the Company issued and outstanding on the date of the initial
issuance of Series B Preferred Stock to the Investors, (3) any
strategic alliance (other than a construction joint venture) involving
a capital commitment by the Company exceeding $5 million, (4) any asset
sale by the Company or lease as lessor exceeding $5 million (other than
equipment dispositions in the normal course of business); (5) any
redemption or amendment of the Shareholder Rights Agreement or the
preferred stock of the Company issuable upon the exercise of such
rights; and (6) any termination of or amendment to the Management
Agreement. (See "Management Agreement"). The approval of the Executive
Committee, however, is not required for any decision by the Board of
Directors to redeem the Preferred Stock. (See "Redemption by the
Company (Optional and Mandatory)"). In addition, the Executive
Committee shall have the
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power to supervise the activities of the Company's chief executive
officer. The Certificate of Vote provides that the By-Laws of the
Company may not be amended in a manner that affects the rights of the
holders of the Series B Preferred Stock without the affirmative vote or
consent of two-thirds of such shares.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE
AMENDMENT OF THE COMPANY'S BY-LAWS
Principal Stockholders
The following table sets forth the beneficial ownership of the
Company's voting securities as to (i) each person who is known by the
Company to beneficially own more than five percent of any class of the
Company's voting securities, (ii) each of the Company's directors,
(iii) the Company's Chief Executive Officer and each of the three other
most highly compensated executive officers during 1995 (the "Named
Executive Officers"), and (iv) all directors and Named Executive
Officers as a group, based on representations of officers and directors
of the Company as of October 1, 1996 and filings as of or prior to
October 1, 1996 received by the Company on Schedules 13D and 13G or
Form 13F under the Exchange Act. All such information was provided by
the stockholders listed and reflects their beneficial ownership based
on such representations or filings. In addition, the table sets forth
the pro-forma voting power for the listed beneficial owners in the
event that the closing of the Transaction occurs and in the event that
the Series B Preferred Stock is converted to Common Stock.
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<TABLE>
Pro Forma Voting Power
Assuming
-------------------------------
Amount and Approval of
5% Stockholders, Named Executive Nature of Present Issuance of Conversion of
Title of Officers, and Directors and Named Beneficial Percentage Voting Series B Series B
Class Executive Officers as a Group Ownership(1) of Class Power Preferred(2) Preferred(2)
----- ----------------------------- ------------ -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Series B PB Capital Partners, L.P. 90,150 (3) 60.04% 0.00% 22.27% 22.27%
Preferred 909 Montgomery St.
Suite 400
San Francisco, CA 94113
Series B The Union Labor Life Insurance 35,000 23.31% 0.00% 8.65% 8.65%
Preferred Company Separate Account P
111 Massachusetts Avenue, N.W.
Washington, DC 20001
Series B The Common Fund 25,000 16.65% 0.00% 6.17% 6.17%
Preferred 450 Post Road East
Westport, CT 06881-0909
Total Series B Preferred 150,150 (4) 100.00% 0.00% 37.09%(5) 37.09%(5)
Common Perini Corporation Employee Stock 472,236 (7) 9.73% 9.73% 5.65% 5.65%
Stock Ownership Trust ("ESOT")(6)
73 Mt. Wayte Avenue
Framingham, MA 01701
Common Tutor-Saliba Corporation 351,318 (8) 7.24% 7.24% 4.20% 4.20%
Stock c/o Ronald N. Tutor
15901 Olden Street
Sylmar, CA 91342
Common Quest Advisory Corp. 327,000 (9) 6.74% 6.74% 3.91% 3.91%
Stock 1414 Avenue of the Americas
New York, NY 10019
</TABLE>
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<TABLE>
Pro Forma Voting Power
Assuming
-------------------------------
Amount and Approval of
5% Stockholders, Named Executive Nature of Present Issuance of Conversion of
Title of Officers, and Directors and Named Beneficial Percentage Voting Series B Series B
Class Executive Officers as a Group Ownership(1) of Class Power Preferred(2) Preferred(2)
----- ----------------------------- ------------ -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Common TCW Group, Inc. 284,500(10) 5.86% 5.86% 3.40% 3.40%
Stock 865 So. Figueroa St.
Los Angeles, CA 90017
Common David B. Perini 375,580(11) 7.74% 7.74% 4.49% 4.49%
Stock Chairman, President and
Chief Executive Officer
Common John J. McHale 4,305(12) * * * *
Stock Director
Common Richard J. Boushka 5,105(12) * * * *
Stock Director
Common Bart W. Perini 218,609(13) 4.51% 4.51% 2.61% 2.61%
Stock Director, Chairman, President and
Chief Executive Officer of Perini
Land and Development Company
Common Marshall M. Criser 4,305(14) * * * *
Stock Director
Common Thomas E. Dailey 12,822(15) * * * *
Stock Director
Common Arthur J. Fox, Jr. 4,468(16) * * * *
Stock Director
Common Jane E. Newman 2,484(17) * * * *
Stock Director
</TABLE>
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<TABLE>
Pro Forma Voting Power
Assuming
------------------------------
Amount and Approval of
5% Stockholders, Named Executive Nature of Present Issuance of Conversion of
Title of Officers, and Directors and Named Beneficial Percentage Voting Series B Series B
Class Executive Officers as a Group Ownership(1) of Class Power Preferred(2) Preferred(2)
----- ----------------------------- ------------ -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Common Albert A. Dorman 3,407(18) * * * *
Stock Director
Common Nancy Hawthorne 3,100(19) * * * *
Stock Director
Common Richard J. Rizzo 28,778(20) * * * *
Stock Executive Vice President,
Building Construction
Common John H. Schwarz 26,117(21) * * * *
Stock Executive Vice President,
Finance & Administration
Common Donald E. Unbekant 35,852(22) * * * *
Stock Executive Vice President,
Civil & Environmental
Construction
Common All directors and executive 519,283(23) 10.70% 10.70% 6.21% 6.21%
Stock officers as a group (13 persons)
</TABLE>
- - ------------------------
* Less than one percent
(1) Unless otherwise noted in the footnotes to this table, each
individual or entity in the table above has sole or shared
voting and investment power over the shares listed.
(2) For purposes of calculating the pro forma beneficial ownership
percentages, the total shares outstanding include the
3,101,571 shares referred to in Notes (4) and (5) below and
409,774 shares applicable to the Stock Purchase Warrants (see
"Credit Facilities").
(3) RCBA is the sole general partner of PB Capital. In turn,
Richard C. Blum & Associates, Inc. ("RCBA Inc.") is the sole
general partner of RCBA. Richard C. Blum is the Chairman of
the Board and substantial shareholder of RCBA Inc. Mr. Blum
disclaims beneficial ownership of all securities reported in
the table except to the extent of his pecuniary interest
therein.
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(4) Assuming issuance of Series B Preferred Stock.
(5) Includes voting power equal to 3,101,571 shares of Common
Stock assuming approval of the issuance of the Series B
Preferred Stock pursuant to this Proxy solicitation. Voting
power, assuming conversion of the Series B Preferred Stock, is
also equal to 3,101,571 shares of Common Stock.
(6) Robert E. Higgins, John E. Chiaverini, and Robert J. Howard
are Trustees of the Perini Corporation ESOT and are members of
the Committee empowered to administer the Perini Corporation
Employee Stock Ownership Plan ("ESOP") under the terms
thereof.
(7) The ESOT has sole voting and investing power for 149,861
shares. In addition, there are 322,375 shares held by the
Trust that have been allocated to the accounts of participants
in the Perini Corporation Employee Stock Ownership Plan.
(8) Based on information contained in Schedule 13D of Tutor-Saliba
Corporation dated March 9, 1995 and subsequent direct
communications by the Company with the appropriate
representatives of Tutor-Saliba Corporation.
(9) Based on information contained in Schedule 13G of Quest
Advisory Corp. (a New York Corporation) and Quest Management
Company (a Connecticut General Partnership) dated February 15,
1996.
(10) Based on information contained in Schedule 13G of the TCW
Group, Inc. dated February 12, 1996.
(11) Includes 12,942 shares in his children's names for which he
has Power of Attorney giving him voting power. Includes 40,500
shares for which Mr. Perini holds options. Includes 596 shares
of Common Stock resulting from the assumed conversion of 900
shares of Convertible Preferred Stock (.662 shares of Common
Stock for each share of Preferred Stock). Includes 56,499
shares, held in a testamentary trust established under the
will of Louis R. Perini Sr. David B. Perini is one of four
trustees of such trust and is one of the beneficiaries of this
trust. David B. Perini disclaims beneficial ownership in
208,544 of such 375,580 shares as follows: (a) Includes 66
shares of Common Stock resulting from the assumed conversion
of 100 shares of Convertible Preferred Stock (.662 shares of
Common Stock for each share of Preferred Stock), which are
owned directly by the wife of Mr. Perini, (b) Includes 205,449
shares, as to which Mr. Perini disclaims beneficial interest,
held by The Perini Memorial Foundation, Inc., a Massachusetts
charitable corporation ("The Perini Foundation"), of which
David B. Perini is one of three officers and directors, and
(c) The wife of Mr. Perini owns 3,029 of such shares directly
in her name, as to all of which shares Mr. Perini disclaims
beneficial ownership.
(12) Includes 1,148 shares awarded on May 19, 1994, 366 shares
awarded on May 19, 1988 and 835 shares awarded on May 16, 1991
pursuant to the 1988 Perini Corporation Restricted Stock Plan
for Outside Directors. Also includes 1,756 shares of Common
Stock received in lieu of the 1996 first, second, third and
fourth quarterly cash payments of the director's annual
retainer due January 2, April 1, July 1 and October 1, 1996,
respectively.
(13) Includes 7,500 shares for which Mr. Perini holds options.
Includes 205,449 shares, as to which Mr. Perini disclaims any
beneficial interest, held by The Perini Foundation, of which
Bart W. Perini is one of three officers and directors.
(14) Includes 1,148 shares awarded on May 19, 1994, 366 shares
awarded on May 19, 1988 and 835 shares awarded on May 16, 1991
pursuant to the 1988 Perini Corporation Restricted Stock Plan
for Outside Directors. Also includes 1,756 shares of Common
Stock received in lieu of the 1996 first,
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second, third and fourth quarterly cash payments of the
director's annual retainer due January 2, April 1, July 1 and
October 1, 1996, respectively. Includes 200 shares which Mr.
Criser owns jointly with his wife.
(15) Includes 4,500 shares for which Mr. Dailey holds options. Also
includes 1,756 shares of Common Stock received in lieu of the
1996 first, second, third and fourth quarterly cash payments
of the director's annual retainer due January 2, April 1, July
1 and October 1, 1996, respectively, and 6,566 shares of
Common Stock received in May, 1996 in lieu of cash payment of
partial amount due in conjunction with the Company's
Construction Business Unit Incentive Compensation Plan.
(16) Includes 1,148 shares awarded on May 19, 1994, 214 shares
awarded on May 19, 1988 and 835 shares awarded on May 16, 1991
pursuant to the 1988 Perini Corporation Restricted Stock Plan
for Outside Directors. Also includes 1,756 shares of Common
Stock received in lieu of the 1996 first, second, third and
fourth quarterly cash payments of the director's annual
retainer due January 2, April 1, July 1 and October 1, 1996,
respectively.
(17) Includes 728 shares awarded on May 19, 1994 pursuant to the
1988 Perini Corporation Restricted Stock Plan for Outside
Directors. Also includes 1,756 shares of Common Stock received
in lieu of the 1996 first, second, third and fourth quarterly
cash payments of the director's annual retainer due January 2,
April 1, July 1 and October 1, 1996, respectively.
(18) Includes 1,148 shares awarded on May 19, 1994, and 303 shares
awarded on March 10, 1993 pursuant to the 1988 Perini
Corporation Restricted Stock Plan for Outside Directors. Also
includes 1,756 shares of Common Stock received in lieu of the
1996 first, second, third and fourth quarterly cash payments
of the director's annual retainer due January 2, April 1, July
1 and October 1, 1996, respectively.
(19) Includes 1,148 shares awarded on May 19, 1994, and 196 shares
awarded on December 7, 1993 pursuant to the 1988 Perini
Corporation Restricted Stock Plan for Outside Directors. Also
includes 1,756 shares of Common Stock received in lieu of the
1996 first, second, third and fourth quarterly cash payments
of the director's annual retainer due January 2, April 1, July
1 and October 1, 1996, respectively.
(20) Includes 14,000 shares for which Mr. Rizzo holds options.
(21) Includes 14,000 shares for which Mr. Schwarz holds options.
(22) Includes 14,000 shares for which Mr. Unbekant holds options.
(23) The number of shares beneficially owned by all directors and
corporate officers as a group has been adjusted to eliminate
the duplicate inclusion of 205,449 shares owned by The Perini
Foundation.
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Change in Control
If the approval of the stockholders for the issuance of the Series B
Preferred Stock is obtained pursuant to this proxy solicitation, the Investors
will upon issuance of the initial 150,150 shares of Series B Preferred Stock
have voting rights equivalent to 3,101,571 Shares of Common Stock, or
approximately 37% voting power, as well as, conversion rights providing equal
voting power as indicated in the table above. Furthermore, as noted in
"Description of Series B Preferred Stock," holders of Series B Preferred Stock
will elect three members to the Board of Directors who will also be appointed as
members of the five member Executive Committee. As a result, the members of the
Executive Committee will have an effective veto over certain of the major
decisions of the Company and provide oversight to the Company's Chief Executive
Officer. (See Description of By-Law Amendment). In addition, assuming the
Company elects to pay dividends in the form of additional Series B Preferred
Stock, the Investors will acquire additional shares of the Company's Common
Stock. As a result, the Transaction may constitute a "Change in Control" for the
purposes of disclosure under the Securities Exchange Act of 1934.
Independent Auditors
The accounting firm of Arthur Andersen LLP has served as the Company's
independent auditors since 1960. A representative of Arthur Andersen LLP will be
present at the Special Meeting and will be available to respond to appropriate
questions.
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<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Nine Months
Ended September 30,
(Unaudited) Year Ended December 31,
-------------------------- -----------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Amounts in thousands, except per share data)
Statement of
Operations Data
Revenues:
Construction $885,398 $ 770,670 $1,056,673 $ 950,884 $1,030,341 $1,023,274 $ 919,641
Real estate development 41,793 32,354 44,395 61,161 69,775 47,578 72,267
Net income (loss) 5,822 (28,916) (27,585)(2) 303 3,165 (16,984)(1) 3,178 (1)
Earnings (loss) per
common share $ 0.88 $ (6.58) $ (6.38) $ (0.42) $ 0.24 $ (4.69) $ 0.27
Proforma Adjustments (3):
In kind dividend (2,549) (2,309) (3,117)
Amortization of stock
purchase warrants (590) (590) (787)
Other (246) (243) (324)
Proforma net income (loss)
available to common
shareholders 844 (33,651) (33,938)
Proforma earnings (loss)
per common shares (3),(4) $ 0.18 $ (7.26) $ (7.29)
Weighed average number
of shares outstanding 4,785 4,636 4,655 4,380 4,265 4,079 3,918
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
At September 30, 1996
----------------------------------
(Amounts in thousands, except per share data)
As Adjusted
Actual (5)
-------------- ---------------
Balance Sheet Data
Working capital $ 76,258 $ 103,258
Long-term debt, less current
maturities 114,739 114,739
Redeemable Preferred Stock
--- 27,000
Stockholders' equity 111,963 114,323
Total assets 563,697 593,057
Backlog $ 1,745,983 $ 1,745,983
(1) Net income (loss) in 1992 and 1991 includes pretax writedowns of
$31.4 million and $2.8 million, respectively, to reduce
the carrying value of certain real estate to net realizable value.
(2) Net income (loss) for 1995 includes a pretax charge of $25.6 million to
provide reserves for previously disclosed litigation in Washington,
D.C. and downward revisions in estimated probable recoveries on certain
outstanding contract claims.
(3) Reflects impact of quarterly payment of "in-kind" dividend at an annual
rate of 10% on the new Series B Cumulative Convertible Preferred Stock,
accretion to the carrying amount of the Series B Preferred Stock
required over time to increase the carrying amount to its "Redemption
Value", and amortization of the initial carrying value attributable to
the Stock Purchase Warrants. The Stock Purchase Warrants will be
amortized over three years, the duration of the related New Credit
Agreement.
(4) Earnings (loss) per common share and proforma earnings (loss) per
common share both reflect the impact of dividends on the $21.25
Convertible Exchangeable Preferred Stock of $1,593 (or approximately
$.34 per share) and $2,125 (or approximately $.46 per share) for the
nine month and twelve month periods, respectively.
(5) Adjusted to give effect to (i) the sale of 150,150 shares of Series B
Cumulative Convertible Preferred Stock at $200 per share less related
expenses and (ii) the estimated grant date present value of Stock
Purchase Warrants of $2.36 million to purchase 409,774 shares of Common
Stock, $1.00 par value (market value is $9.025 per share as of October
1, 1996).
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UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth unaudited quarterly financial data for the nine
months ended September 30, 1996 and for the years ended December 31, 1995 and
1994 (in thousands, except per share amounts):
<TABLE>
1996 by Quarter
---------------
1st 2nd 3rd
<S> <C> <C> <C>
Revenues $270,029 $316,492 $340,670
Net income $1,487 $2,024 $2,311
Earnings per common share $.20 $.31 $.37
1995 by Quarter
---------------
1st 2nd 3rd 4th
Revenues $263,089 $306,961 $232,974 $298,044
Net income (loss) $872 $886 $(30,674)* $ 1,331
Earnings (loss) per common share $.08 $.08 $(6.61) $. 17
1994 by Quarter
---------------
1st 2nd 3rd 4th
Revenues $174,391 $243,105 $304,776 $289,773
Net income (loss) $792 $(2,649) $984 $1,176
Earnings (loss) per common share $.06 $(.73) $.10 $.15
</TABLE>
* Includes a charge, which aggregates $25.6 million, to provide reserves for
previously disclosed litigation in Washington D.C. and downward revisions
in estimated probable recoveries on certain outstanding contract claims.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company at
September 30, 1996, and as adjusted to (1) reflect the issuance of the 150,150
shares of Series B Cumulative Convertible Preferred Stock and (2) the granting
of certain warrants to the Company's Revolving Bank Group:
<TABLE>
(In thousands)
--------------------------------------------
Actual As Adjusted
------------------- --------------------
<S> <C> <C>
Short-term Debt - Current Maturities of Long-term Debt $ 4,482 $ 4,482
------------------- --------------------
Long-term Debt:
Revolving Credit Loans $ 102,557 $ 102,557
Real Estate Development 5,760 5,760
Industrial Revenue Bonds 4,000 4,000
Other 2,422 2,422
------------------- --------------------
Total Long-term Debt $ 114,739 $ 114,739
------------------- --------------------
Redeemable Preferred Stock, $1.00 par value
150,150 shares of Series B Cumulative Convertible
Preferred Stock, liquidation preference of $30,030,000 (1) $ $ 27,000(2)
------------------- --------------------
Stockholders' Equity:
Preferred Stock, $1.00 par value
Authorized - 1,000,000 shares
Issued - 100,000 shares of $21.25 Convertible Exchangeable$ 100 $ 100
Preferred Stock, liquidation preference of
$25,000,000
Stock Purchase Warrants --- 2,360 (3)
Common Stock, $1.00 par value
Authorized - 15,000,000 shares
Issued - 4,985,160 shares (4) 4,985 4,985
Paid-in Surplus 56,751 56,751
Retained Earnings 56,291 56,291
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Real Estate Development 5,760 5,760
ESOT Related Obligations (3,976) (3,976)
Less - Common Stock in Treasury, at cost - 137,307 shares (2,188) (2,188)
------------------- --------------------
Total Stockholders' Equity $ 111,963 $ 114,323
------------------- --------------------
Total Capitalization $ 226,702 $ 256,062
------------------- --------------------
</TABLE>
(1) Dividends on the Series B Preferred Stock are payable
quarterly based on an annual rate of 7% if payable in cash and
10% if payable "in-kind" with additional shares of Series B
Preferred Stock. Also, the Company is required to purchase the
Redeemable Preferred Stock under certain circumstances (see
"Description of Series B Preferred"). In addition, in
connection with the Transaction, the new credit facilities
will limit the aforementioned rights of redemption (see
"Credit Facilities").
(2) Represents proceeds of $30,030,000 less related estimated
expenses of $3,030,000.
(3) The grant date present value of the Stock Purchase Warrants to
purchase 409,774 shares of Common Stock was calculated using
the Black-Scholes option pricing model.
(4) If the Series B Preferred Stock had been converted into Common
Stock, the number of shares of Common Stock issued would have
been increased by 3,101,571 shares.
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 and Quarterly
Report on Form 10- Q for the fiscal quarter ended September 30, 1996 are
incorporated herein by reference and are being provided along with this Proxy
Statement to each person to whom this Proxy Statement is being delivered.
MANAGEMENT DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The Management Discussion and Analysis of the financial condition and results of
operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996 are incorporated herein by reference and are
being provided along with this Proxy Statement to each person to whom this Proxy
Statement is being delivered.
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Solicitation of Proxies
The cost of solicitation of proxies in the form enclosed herewith will be paid
by the Company. In addition to the solicitation of proxies by mail, the
directors, officers and employees of the Company may also solicit proxies
personally or by telephone or facsimile without additional compensation for such
activities. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries for forwarding solicitation materials to
the beneficial owners of shares held of record by such persons and the Company
will reimburse such persons for their reasonable out-of-pocket expenses incurred
in that connection. The Company has also retained D.F. King, a proxy soliciting
firm, to assist in the solicitation of proxies at a fee of $5,500, plus
reimbursement of certain out-of-pocket costs. The Company will also request
persons, firms and corporations holding shares in their names or in the names of
their nominees, which are beneficially owned by others, to send proxy materials
to and obtain proxies from such beneficial owners. The Company will reimburse
such holders for their reasonable expenses.
Stockholder Proposals for 1997 Annual Meeting
For a proposal of a stockholder (including director nominations) to be presented
to the Company's 1997 Annual Meeting of Stockholders, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company on or before December 11, 1996. Any such proposal should be
mailed to: Perini Corporation, 73 Mt. Wayte Avenue, Framingham, Massachusetts
01701, Attn. Richard E. Burnham. In addition, stockholder proposals and director
nominations must comply with the requirements of the Company's By-Laws.
Incorporation of Certain Documents by Reference
The Company hereby incorporates by reference the documents
listed in (a) and (b) below, which have previously been filed with the
Securities and Exchange Commission.
(a) The Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1995, filed with the Securities and
Exchange Commission (File No. 1-6314) pursuant to the Exchange
Act; and
(b) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996.
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Forward Looking Statements
Statements contained in this Proxy Statement or in the
Documents incorporated herein by reference that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, hopes, beliefs, intentions or
strategies regarding the future. All such forward-looking statements are based
on information available to the Company on the date made and the Company assumes
no obligation to update any such forward-looking statements. It is important to
note that the Company's actual results could differ materially from those in
such forward-looking statements. Reference is made to the contingencies
discussed in the Company's reports on Form 10-K/A (especially Item 1. Business,
and Note 11 to the Notes to Consolidated Financial Statements regarding
contingencies and commitments) and Form 10-Q for the period ended 9/30/96.
Inclusion of Documents Incorporated by Reference
Along with this Proxy Statement, the Company has provided,
without charge, to each person to whom this Proxy Statement is delivered, a copy
of the information that has been incorporated by reference in this Proxy
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Proxy Statement incorporates).
Other Matters
The Board of Directors does not know of any other matters
other than those described in this Proxy Statement which will be presented for
action at the Special Meeting. If other matters are duly presented, proxies will
be voted in accordance with the best judgment of the proxy holders.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS
IMPORTANT TO THE COMPANY. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD TODAY.
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ANNEX A
The Board of Directors
Perini Corporation
73 Mt. Wayte Avenue
Box 9160
Framingham, MA 01701-9160
Attention: Mr. David B. Perini
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to Perini Corporation (the "Company") of the
consideration to be paid to the Company in connection with the proposed issuance
and sale to PB Capital Partners, L.P. (the "Buyer") of 150,150 shares of
Series B Cumulative Convertible Preferred Stock (the "Preferred Stock") of the
Company (the "Transaction"). Pursuant to the Stock Purchase and Sale Agreement,
dated as of July 24, 1996 (the "Agreement"), between the Company, Richard C.
Blum & Associates, L.P. and the Buyer, the Buyer will purchase an aggregate of
150,150 newly issued shares of the Preferred Stock, and the Company will receive
consideration equal to $30,030,000.
In arriving at our opinion, we have reviewed (i) the Agreement
and the other Transaction Documents referred to therein; (ii) the audited
financial statements of the Company for the fiscal years ended December 31, 1995
and December 31, 1994, and the unaudited financial statements of the Company for
the period ended September 30,1996; (iii) current and historical market prices
of the Company's common stock; (iv) certain publicly available information
concerning the business of the Company and of certain other companies engaged in
businesses comparable to those of the Company, and the reported market prices
for certain other companies' securities deemed comparable; (v) publicly
available terms of certain transactions involving companies comparable to the
Company and the consideration paid for such companies; (vi) certain agreements
with respect to outstanding indebtedness or obligations of the Company;
(vii) certain information regarding the Company's real estate subsidiary and
portfolio of assets provided by the Company; and (viii certain internal
financial analyses and forecasts prepared by the Company and its management.
In addition, we have held discussions with certain members of
the management of the Company with respect to certain aspects of the
Transaction, the past and current business
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operations of the Company, the financial condition and future
prospects and operations of the Company, the effects of the Transaction on the
financial condition and future prospects of the Company, and certain other
matters we believed necessary or appropriate to our inquiry. These matters
included the overall high debt level of the Company; the need for further
liquidity to support the Company's construction operations and bonding capacity;
limited net proceeds available to the Company if it were to pursue an
accelerated disposition of its real estate assets; potential exposure to future
payments resulting from the Company's Washington Metropolitan Area Transit
Authority litigation, in which the Company was found liable for $16.5 million in
a preliminary judgment by the U.S. District Court (D.C.) in July 1993; and the
benefits of the transaction in strengthening the balance sheet of the Company.
We have visited certain representative facilities and real estate assets of the
Company, and reviewed such other financial studies and analyses and considered
such other information as we deemed appropriate for the purposes of this
opinion.
In giving our opinion, we have relied upon, without assuming
any responsibility for independent verification, the accuracy and completeness
of all information that was publicly available or was furnished to us by the
Company or otherwise reviewed by us, and we have not assumed any liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company to which
such analyses or forecasts relate. We have also assumed that the Transaction
will have the tax consequences described to us in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
such Agreement.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect
this opinion and that we do not undertake any obligation to update, revise, or
reaffirm this opinion. We are expressing no opinion herein as to the price at
which the Company's Common Stock will trade at any future time.
We have acted as financial advisor to the Company with respect
to the proposed Transaction and have received advisory fees from the Company for
our services. We will receive a fee for delivery of this opinion and, if the
proposed Transaction is consummated, an additional success fee from the Company.
Please be advised that our affiliated bank, Morgan Guaranty Trust Company of New
York, is agent bank for the Company's current revolving credit facility which is
being restructured as part of the Transaction. In the ordinary course of their
businesses, our affiliates may actively trade the equity securities of the
Company for their own account or for the accounts of customers and, accordingly,
they may at any time hold long or
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short positions in such securities.
On the basis of and subject to the foregoing, it is our
opinion as of the date hereof that the consideration to be paid to the Company
in the proposed Transaction is fair, from a financial point of view, to the
Company.
This letter is provided for the benefit of the Board of
Directors of the Company in connection with and for the purposes of its
evaluation of the Transaction. This opinion does not constitute a recommendation
to any stockholder of the Company as to how such stockholder should vote with
respect to the Transaction. This opinion may not be disclosed, referred to, or
communicated (in whole or in part) to any third party for any purpose whatsoever
except with our prior written consent in each instance. This opinion may be
reproduced in full in any proxy or information statement mailed to stockholders
of the Company but may not otherwise be disclosed publicly in any manner without
our prior written approval and, if not so disclosed, must be treated as
confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: Dianne F. Lob
Title: Managing Director
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ANNEX B
PRIVATE AND CONFIDENTIAL
September 27, 1996
The Board of Directors
Perini Corporation
73 Mt. Wayte Avenue
Box 9160
Framingham, MA 01701-9160
Attention: Mr David B. Perini
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to Perini Corporation (the "Company") of the
consideration to be paid to the Company in connection with the issuance and sale
(the "Transaction") of 150,150 newly issued shares of Series B Cumulative
Convertible Preferred Stock (the "Preferred Stock") of the Company to PB Capital
Partners, L.P. (the "Buyer"). You have informed us that the Buyer will purchase
the Preferred Stock pursuant to the Stock Purchase and Sale Agreement, dated as
of July 24, 1996 (the "Agreement"), by and among the Company, the Buyer, and
Richard C. Blum & Associates, L.P., and that the Company will receive cash
consideration before expenses in connection with such purchase of $30,030,000.
In arriving at the opinion set forth below, we have, among
other things:
(a) reviewed the Agreement and other Transaction documents
referred to therein;
(b) reviewed the Company's draft Proxy Statement prepared in
connection with seeking shareholder approval for the Transaction;
(c) reviewed certain publicly available business and financial
information of the Company, including the audited financial statements of the
Company for the fiscal years ended December 31, 1995 and December 31, 1994 and
the
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Perini Corporation
September 27, 1996
unaudited financial statements of the Company for the period ended June 30,
1996;
(d) reviewed certain publicly available business and financial
information of certain companies engaged in businesses we deemed comparable to
those of the Company;
(e) compared current and historical market prices of the
Company's common stock and reported market prices of the securities of certain
other companies that were deemed comparable;
(f) reviewed publicly available financial terms of certain
business transactions we deemed comparable to the Transaction and otherwise
relevant to our inquiry;
(g) held discussions with members of the Company's senior
management concerning certain aspects of the Transaction, the Company's past and
current business operations, the Company's financial condition, future
prospects, and operations, before and after giving effect to the Transaction, as
well as their views of the business, operational, strategic benefits, and other
implications of the Transaction, and certain other matters we believed necessary
or appropriate to our inquiry, including (i) the overall high debt level of the
Company; (ii) the need for further liquidity to support the Company's
construction operations and bonding capacity; (iii) limited net proceeds
available to the Company if it were to pursue an accelerated disposition of its
real estate assets; (iv) potential exposure to future payments resulting from
the Company's Washington Metropolitan Area Transit Authority litigation in which
the Company was found liable in a Preliminary judgment by the U.S. District
Court (D.C.) in July 1993, and (v) the benefits of the Transaction in
strengthening the balance sheet of the Company;
(h) reviewed certain agreements with respect to outstanding
indebtedness or obligations of the Company, including a draft of the summary
terms and conditions of the Company's restructured bank agreement;
(i) reviewed certain information provided by the Company
regarding its real
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Perini Corporation
September 27, 1996
estate subsidiary and portfolio of assets;
(j) reviewed certain internal non-public financial and
operating data provided to us by the Company's management concerning the
Company's business, including management forecasts and projections of future
financial results; and
(k) made such other analyses and examinations as we have
deemed necessary or appropriate.
We have relied upon, without assuming any responsibility for
independent verification, the accuracy and completeness of all of the financial
and other information provided to, discussed with, or reviewed by or for us, or
publicly available for purposes of this opinion, and we have not assumed any
liability therefor. We have neither made nor obtained any independent
evaluations or appraisals of the assets or liabilities of the Company, nor have
we conducted a physical inspection of the properties and facilities of the
Company. We have assumed that the financial forecasts and projections prepared
by the Company have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management of the Company as to
the future financial performance of the Company. We express no views as to such
forecasts or projections or the assumptions on which they were based. We have
also assumed that the Transaction will have the tax consequences described to us
in discussions with, and materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement will be
consummated as described in the Agreement. Furthermore, we have assumed that the
documents that have been furnished to us in draft form in connection with the
Transaction will not, when executed, contain any terms and conditions that
differ materially from the terms and conditions previously disclosed to us. In
addition, you have not authorized us to solicit, and we have not solicited, any
indications of interest from any third parties with respect to the purchase of
all or part of the Company's business or assets, and, accordingly, we have
relied entirely on the results of the process conducted by representatives of
J.P. Morgan Securities Inc. in this regard.
For purposes of rendering our opinion we have assumed, in all
respects material to our analysis, that the representations and warranties of
each party contained in the Agreement are true and correct, that each party has
and will perform all of the covenants and agreements required to be performed by
it under the Agreement and that all conditions to the
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Perini Corporation
September 27, 1996
consummation of the Transaction have and will be satisfied
without waiver thereof.
Our opinion herein is necessarily based on market, economic
and other conditions as they exist and can be evaluated on the date of this
letter. It should be understood that subsequent developments may affect this
opinion and that we do not undertake any obligation to update, revise, or
reaffirm this opinion. We are expressing no opinion herein as to the price at
which the Company's common stock will trade at any future time. Our opinion is
limited to the fairness, from a financial point of view, to the consideration to
be paid to the Company in connection with the Transaction and we express no
opinion as to the merits of the underlying decision by the Company to engage in
the Transaction. This opinion does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote with respect
to the Transaction.
Chase Securities Inc., as part of its financial advisory
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions and valuations for
estate, corporate and other purposes. We have acted as financial advisor to the
Company in connection with the Transaction and will receive a fee for our
services that includes the rendering of this opinion. The Company has agreed to
indemnify us for certain liabilities arising out of our engagement. In the
ordinary course of business, we or our affiliates may trade in the securities of
the Company for our own accounts and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the
opinion, as of the date hereof, that the consideration to be paid to the Company
in connection with the Transaction is fair, from a financial point of view, to
the Company.
This opinion is for the use and benefit of the Board of
Directors of the Company in its evaluation of the Transaction and shall not be
used for any other purpose without the prior written consent of Chase Securities
Inc.
This opinion may be reproduced in full in the Proxy Statement
mailed to stockholders of the Company in connection with the Transaction but may
not otherwise be disclosed publicly in any manner without our prior written
approval and, if not so disclosed, must be
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Perini Corporation
September 27, 1996
treated as confidential.
Very truly yours,
CHASE SECURITIES INC.
321564.c7
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Perini Corporation
September 27, 1996
ANNEX C
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
inclusion in this Proxy of our report dated February 26, 1996 included in Perini
Corporation's Form 10-K for the year ended December 31, 1995 and to all
references to our Firm included in this Proxy.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November____, 1996
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REVOCABLE PROXY/VOTING INSTRUCTION CARD
PERINI CORPORATION
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701-9160
Proxy for Special Meeting of Stockholders
to be Held on [ at a.m.]
This proxy is solicited by the Board of Directors.
The undersigned hereby constitutes and appoints Richard E.
Burnham and [ ], and each of them, as proxies of the undersigned (the
"Proxies"), with full power to substitute, and authorizes each of them to
represent and to vote all shares of Common Stock of Perini Corporation (the
"Company") held by the undersigned at the close of business on [__________] at
the Special Meeting of Stockholders to be held at State Street Bank and Trust
Company, [Enterprise Room, 5th Floor], 225 Franklin Street, Boston,
Massachusetts, on [___________________ at ___ a.m.], local time, and at any
adjournments or postponements thereof.
When properly executed this proxy will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction is given,
this Proxy will be voted FOR the Proposals set forth on the reverse side hereof.
A stockholder wishing to vote in accordance with the Board of Directors'
recommendation need only sign and date this proxy and return it in the stamped
envelope provided.
(Continued, and to be signed and dated, on reverse side)
<PAGE>
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1. Proposal 1: To approve (i) the issuance of 150,150 shares of
Series B Cumulative Convertible Preferred Stock, par value
$1.00 per share, of the Company (the "Series B Preferred
Stock") to PB Capital Partners, L.P., The Union Labor Life
Insurance Company Separate Account P, The Common Fund for
Non-Profit Organizations for the account of its Equity Fund,
and permitted assigns (the "Investors") for an aggregate
purchase price of $30,030,000, upon the terms and conditions
described in the Proxy Statement and (ii) the issuance of any
other shares of the Series B Preferred Stock as dividends on
outstanding shares of the Series B Preferred Stock upon the
terms and conditions described in the Proxy Statement.
FOR ___ AGAINST ___ ABSTAIN ___
2. Proposal 2 to approve an amendment to the By-Laws of the
Company, as more fully described in the Proxy Statement, which
requires the Board of Directors to elect an Executive
Committee and sets forth its powers and composition. This
amendment, if approved, will take effect only if shares of the
Series B Preferred Stock are in fact issued to the Investors.
FOR ___ AGAINST ___ ABSTAIN ___
The undersigned hereby acknowledge(s) receipt of a copy of the
Notice of Special Meeting of Stockholders, the Proxy Statement with respect
thereto and accompanying Annexes, the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1996, and hereby revoke(s)
any proxy or proxies heretofore given. This proxy may be revoked at any time
before it is exercised.
Please sign name exactly as shown. Where
there is more than one holder, each should
sign. When signing as an attorney,
administrator, executor, guardian or
trustee, please add your title as such. If
executed by a corporation, the proxy should
be signed by a duly authorized person,
stating such person's title or authority. If a
partnership, please sign in partnership
name by authorized person.
Dated:
Signature of Stockholder
Please Date, Sign and Mail Your Proxy Card Promptly Votes must be indicated
in the Enclosed Envelope. (X) in Black or Blue ink.
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