<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-34627
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PKS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
STATE OF DELAWARE 91-1842817 161,162
(State Or Other Jurisdiction Of (I.R.S. Employer Identification No.) (Primary Standard Industrial
Incorporation Or Organization) Classification Code Number)
</TABLE>
------------------------------
PETER KIEWIT SONS', INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
STATE OF DELAWARE 47-0210602 1221, 161, 162, 4813, 4911, 7374
(State Or Other Jurisdiction Of (I.R.S. Employer Identification No.) (Primary Standard Industrial
Incorporation Or Organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
PKS HOLDINGS, INC. PETER KIEWIT SONS', INC.
1000 KIEWIT PLAZA 1000 KIEWIT PLAZA
OMAHA, NEBRASKA 68131 OMAHA, NEBRASKA 68131
(402) 342-2052 (402) 342-2052
</TABLE>
(Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Each Registrant's Principal Executive Offices)
------------------------------
<TABLE>
<S> <C>
THOMAS C. STORTZ, ESQ. MATTHEW J. JOHNSON, ESQ.
PKS HOLDINGS, INC. PETER KIEWIT SONS', INC.
1000 KIEWIT PLAZA 1000 KIEWIT PLAZA
OMAHA, NEBRASKA 68131 OMAHA, NEBRASKA 68131
(402) 342-2052 (402) 342-2052
</TABLE>
(Name, Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Each Registrant's Agent For Service)
COPIES TO:
JOHN S. D'ALIMONTE, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the satisfaction or waiver of the
conditions of the transaction referred to in this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE FEE
<S> <C> <C> <C> <C>
PKS Holdings, Inc.
Common Stock, par value $.01 per share..... 10,519,662 $40.00 (1) $420,786,480 (1) $ 127,512*
Peter Kiewit Sons', Inc.
Class R Convertible Common Stock, par value 8,415,730 -- -- -- **
$.01 per share, convertible into Class D
Diversified Group Convertible Exchangeable
Common Stock, par value $.0625 per share...
Peter Kiewit Sons', Inc.
Class D Diversified Group Convertible 2,566,771(2) $54.25 (3) $456,553,353 (3) $ 138,350**
Exchangeable Common Stock, par value $.0625
per share, issuable upon conversion of the
Class R Convertible Common Stock...........
</TABLE>
(1) Estimated pursuant to Rule 457 based on the formula value per share of Class
C Stock of Peter Kiewit Sons', Inc. (calculated pursuant to its Certificate
of Incorporation) to be received in exchange for each share of Common Stock
of PKS Holdings, Inc.
(2) Together with such presently indeterminate number of shares of such stock as
may be issued as a result of changes in the conversion ratio of the Class R
Stock in accordance with the terms of Class R Stock.
(3) Estimated pursuant to Rule 457 based on the formula value per share of Class
D Stock (calculated pursuant to the Certificate of Incorporation of Peter
Kiewit Sons', Inc.).
* Registration fee has been paid previously.
** The registration fee with respect to the Class R Stock and the Class D Stock
into which it converts was previously paid with respect to Warrants and
Class D Stock issuable upon exercise of the Warrants that were included in
this Registration Statement as filed with the Commission on August 29, 1997.
PKS has substituted the Class R Stock and the Class D Stock into which it
converts for such Warrants and Class D Stock issuable upon exercise of the
Warrants.
- ------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
The matters discussed below are referred to herein as the "Transaction."
Acting pursuant to authority granted to it in the Restated Certificate of
Incorporation (the "PKS Certificate") of Peter Kiewit Sons', Inc. ("PKS"), the
Board of Directors of PKS (the "PKS Board") has determined to require, subject
to the satisfaction of certain conditions, all holders of its Class C
Construction & Mining Group Restricted Redeemable Convertible Exchangeable
Common Stock, par value $.0625 per share ("Class C Stock"), to exchange (the
"Share Exchange") such shares for shares of Common Stock, par value $.01 per
share (the "Exchanged Shares") of PKS Holdings, Inc. ("PKS Holdings"), a newly
formed, direct, wholly owned subsidiary of PKS which will hold all of the assets
and liabilities of the construction business of PKS. This Registration Statement
constitutes a registration statement of PKS Holdings with respect to the
Exchanged Shares.
Prior to the Share Exchange, PKS will declare a dividend of eight-tenths of
one share of newly created Class R Convertible Common Stock, par value $.01 per
share ("Class R Stock"), of PKS with respect to each then-outstanding share of
Class C Stock. Subject to the terms and conditions of the Class R Stock to be
contained in the PKS Certificate, each share of Class R Stock will be
convertible into shares of Class D Diversified Group Convertible Exchangeable
Common Stock, par value $.0625 per share ("Class D Stock"), of PKS. The
eight-tenths of one share of Class R Stock will attach to the Exchanged Share
which will be exchanged for such share of Class C Stock in the Share Exchange.
This Registration Statement also constitutes a registration statement of PKS
with respect to the Class R Stock and the shares of Class D Stock issuable upon
conversion of the Class R Stock.
Although stockholder action with respect to the Share Exchange is not
required under applicable law or the PKS Certificate, the PKS Board has
determined to seek stockholder ratification of the Transaction due to the
importance of the Transaction to PKS and PKS stockholders. In addition, certain
pre-Transaction and post-Transaction changes to the PKS Certificate are being
proposed which require approval of the holders of Class C Stock, the holders of
Class D Stock and all holders of PKS stock as a group. The amendment and
restatement of the Peter Kiewit Sons', Inc. 1995 Class D Stock Plan is also
being presented for the approval of all holders of PKS stock as a group. The
Proxy Statement/Joint Prospectus included in this Registration Statement
constitutes a proxy statement of PKS with respect to the PKS Board's
solicitation of such ratification and approval.
<PAGE>
PETER KIEWIT SONS', INC.
1000 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
, 1997
Dear Kiewit Shareholder:
After careful consideration, the Peter Kiewit Sons', Inc. Board of Directors
has decided to separate the Construction Group and the Diversified Group into
two independent companies. The Board of Directors believes that this separation
will enable the Diversified Group to pursue aggressively its business plan while
allowing the Construction Group to focus on its core construction and mining
businesses.
The enclosed Proxy Statement/Joint Prospectus describes certain transactions
and certain amendments to the PKS Certificate of Incorporation that are intended
to accomplish the separation and to recognize the elimination of the Class C
stockholders' right to convert Class C Stock into Class D Stock. It also
describes the amendment and restatement of the PKS Stock Option Plan. The Board
of Directors believes that these transactions, the certificate amendments and
the option plan amendment and restatement are in the best interest of PKS and
its stockholders, and unanimously recommends that you vote for the transactions,
certificate amendments and the option plan amendment and restatement. We urge
you to read the Proxy Statement/Joint Prospectus carefully and to return your
signed proxy as soon as possible.
Sincerely yours,
Walter Scott, Jr.
CHAIRMAN OF THE BOARD
AND PRESIDENT
<PAGE>
PETER KIEWIT SONS', INC.
1000 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1997
A special meeting (the "Special Meeting") of stockholders ("PKS
Stockholders") of Peter Kiewit Sons', Inc. ("PKS") will be held on ,
1997, at 10:00 a.m. local time, at the Cloud Room, Kiewit Plaza, Omaha, Nebraska
68131, to consider and vote on four separate proposals that, as described more
fully in the attached Proxy Statement/Joint Prospectus, provide for:
1. Ratification of the decision of the Board of Directors of PKS (the "PKS
Board") to separate the construction business of PKS and the diversified
business of PKS into two independent companies. The PKS Board would effect this
separation by (i) declaring a dividend of eight-tenths of one share of newly
created Class R Convertible Common Stock, par value $.01 per share ("Class R
Stock"), of PKS with respect to each outstanding share of Class C Construction &
Mining Group Restricted Redeemable Convertible Exchangeable Common Stock, par
value $.0625 per share ("Class C Stock"), of PKS, and (ii) causing each
outstanding share of Class C Stock to be mandatorily exchanged (the "Share
Exchange") by resolution of the PKS Board pursuant to existing provisions of the
PKS Restated Certificate of Incorporation (the "PKS Certificate") for one share
of Common Stock, par value $.01 per share, of PKS Holdings, Inc., a newly
formed, direct, wholly owned subsidiary of PKS, to which the eight-tenths of one
share of Class R Stock would attach (collectively, the "Transaction").
2. Approval of amendments to the PKS Certificate (the "Initial Certificate
Amendments"), to be implemented promptly following approval at the Special
Meeting, to: (i) create the Class R Stock to be distributed in the Transaction;
(ii) increase from 50,000,000 to 500,000,000 the number of shares of Class D
Diversified Group Convertible Exchangeable Common Stock, par value $.0625 per
share ("Class D Stock"), which PKS is authorized to issue and (iii) designate 10
shares of Class D Stock as "Class D Stock, Non-Redeemable Series."
3. Approval of amendments to the PKS Certificate (the "Post-Transaction
Certificate Amendments" and, together with the Initial Certificate Amendments,
the "Certificate Amendments") to be effected only if the Transaction is
consummated, to: (i) change the name of PKS from "Peter Kiewit Sons', Inc." to
"Diversified Holdings, Inc." (PKS following the Transaction is referred to as
"Diversified Holdings"); (ii) redesignate Class D Stock as "Common Stock, par
value $.01 per share"; (iii) authorize the issuance of series of preferred
stock, the terms of which are to be determined by the board of directors of
Diversified Holdings (the "Diversified Holdings Board"); (iv) modify the
repurchase rights to which the holders of Class D Stock are entitled; (v) delete
the provisions regarding Class C Stock; (vi) classify the Diversified Holdings
Board; (vii) prohibit stockholder action by written consent; (viii) empower the
Diversified Holdings Board, exclusively, to call special meetings of the
stockholders; (ix) require a super-majority vote of stockholders to amend the
Diversified Holdings by-laws; and (x) make certain other changes consistent with
the implementation of the foregoing, as described in the attached Proxy
Statement/Joint Prospectus.
4. Approval of the amendment and restatement of the Peter Kiewit Sons', Inc.
1995 Class D Stock Plan (the "Restated Plan").
Holders of record of PKS stock at the close of business on ,
1997 are entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. No business other than the Transaction, the
Certificate Amendments and the Restated Plan is expected to be considered at the
Special Meeting or at any adjournment or postponement thereof. This Notice, the
Proxy Statement/ Joint Prospectus and the accompanying form of proxy are first
being mailed to PKS Stockholders on or about , 1997.
Although stockholder action with respect to the Share Exchange is not
required under applicable law or the PKS Certificate, the PKS Board has
determined to seek stockholder ratification of the Transaction due to the
importance of the Transaction to PKS and PKS Stockholders. Ratification of the
Transaction
<PAGE>
requires the affirmative vote of (i) a majority of the shares of Class C Stock
present and voting at the Special Meeting, voting separately as a class, and
(ii) a majority of the shares of Class D Stock present and voting at the Special
Meeting, voting separately as a class. Approval of the Certificate Amendments
under Delaware law and the PKS Certificate requires the affirmative vote of (x)
at least 80% of the outstanding shares of Class C Stock, voting separately as a
class, (y) a majority of the outstanding shares of Class D Stock, voting
separately as a class, and (z) a majority of the outstanding shares of Class C
Stock and Class D Stock, voting together. Approval of the Restated Plan requires
the affirmative vote of a majority of the shares of Class C Stock and Class D
Stock present and voting at the Special Meeting, voting together as a single
class.
The PKS Board has unanimously approved the Transaction, the Certificate
Amendments and the Restated Plan and recommends that PKS Stockholders ratify the
Transaction and approve the Certificate Amendments and the Restated Plan. Each
member of the PKS Board has indicated to PKS that he intends to vote all of his
shares of Class C Stock and Class D Stock to ratify the Transaction and to
approve the Certificate Amendments and the Restated Plan.
Consummation of the Transaction is subject to ratification of the
Transaction and approval of the Certificate Amendments by PKS Stockholders and
the receipt of certain rulings from the Internal Revenue Service or a favorable
opinion of counsel as to certain U.S. federal income tax consequences of the
Transaction. Consummation of the Transaction is not subject to the approval of
the Restated Plan. The PKS Board will retain discretion, even if stockholder
ratification of the Transaction and approval of the Certificate Amendments are
obtained and such rulings or opinion are received, to abandon, defer or modify
the Transaction if the PKS Board believes that to do so would be in the best
interests of all PKS Stockholders. Unless the PKS Board determines to extend the
date, the PKS Board intends to abandon the Transaction if it is not consummated
by October 15, 1998. The PKS Board also has determined that if the Transaction
is not ratified or the Certificate Amendments are not approved or such rulings
or opinion are not received, the PKS Board will not proceed with the
Transaction. The Post-Transaction Certificate Amendments will be effected only
if the Transaction is consummated. The Restated Plan, if approved, will be
implemented as soon as possible after receipt of approval.
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
By order of the Board of Directors,
Secretary
, 1997
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROXY STATEMENT/JOINT PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT/JOINT PROSPECTUS DATED OCTOBER 10, 1997
<TABLE>
<S> <C>
PETER KIEWIT SONS', INC. PKS HOLDINGS, INC.
1000 KIEWIT PLAZA 1000 KIEWIT PLAZA
OMAHA, NEBRASKA 68131 OMAHA, NEBRASKA 68131
</TABLE>
------------------------
PROXY STATEMENT FOR SPECIAL MEETING/PROSPECTUS
OF
PETER KIEWIT SONS', INC.
------------------------
PROSPECTUS OF PKS HOLDINGS, INC.
------------------------
INTRODUCTION
This Proxy Statement/Joint Prospectus is being furnished to stockholders of
Peter Kiewit Sons', Inc., a Delaware corporation ("PKS"), who hold either shares
of its Class C Construction & Mining Group Restricted Redeemable Convertible
Exchangeable Common Stock, par value $.0625 per share ("Class C Stock"), or
shares of its Class D Diversified Group Convertible Exchangeable Common Stock,
par value $.0625 per share ("Class D Stock"), in connection with the
solicitation of proxies by the Board of Directors of PKS (the "PKS Board") for
use at a special meeting of stockholders of PKS (the "Special Meeting") to be
held on , 1997, at 10:00 a.m. local time, at the Cloud Room, Kiewit
Plaza, Omaha, Nebraska 68131, and at any adjournment or postponement thereof for
the purposes set forth in the accompanying Notice of Special Meeting. At the
Special Meeting, holders of Class C Stock and holders of Class D Stock
(together, "PKS Stockholders") will be asked to ratify a proposed transaction
(the "Transaction") to effect separation of PKS' construction business (the
"Construction Group") and its diversified business (the "Diversified Group" and,
together with the Construction Group, the "Business Groups"). The Transaction
consists of the Share Exchange and the Class R Stock Distribution (each, as
defined below).
As a result of the Transaction: (i) PKS Holdings, Inc. ("PKS Holdings"), a
newly formed, direct, wholly owned subsidiary of PKS, will become an independent
company, in which PKS no longer will have an ownership interest, conducting the
business of the Construction Group, and each share of Class C Stock outstanding
at the time of the consummation of the Transaction (the "Effective Time") will
be mandatorily exchanged (the "Share Exchange") for one share of Common Stock,
par value $.01 per share ("PKS Holdings Stock"), of PKS Holdings; and (ii) PKS
will become an independent company conducting the business of the Diversified
Group, and the shares of Class D Stock outstanding at the Effective Time and the
shares of Class R Stock (as defined below) distributed in the Class R Stock
Distribution will constitute the only outstanding shares of capital stock of
PKS. Immediately following the Transaction, PKS Holdings will be renamed "Peter
Kiewit Sons', Inc." and PKS will be renamed "Diversified Holdings, Inc." PKS,
following the Transaction, is referred to in this Proxy Statement/Joint
Prospectus as "Diversified Holdings."
Prior to the Effective Time, PKS will declare a dividend (the "Class R Stock
Distribution") of eight-tenths of one share of newly created Class R Convertible
Common Stock, par value $.01 per share ("Class R Stock"), of PKS with respect to
each then-outstanding share of Class C Stock. Subject to the terms and
conditions of the Class R Stock to be contained in the Restated Certificate of
Incorporation of PKS (the "PKS Certificate"), each share of Class R Stock will
be convertible into shares of Class D Stock (or fractions thereof) with a value
varying from $15.00 to $25.00 based upon the appraised value or average trading
price per share of Diversified Holdings Stock. Conversion and transfer of Class
R Stock will be subject to significant restrictions and conditions. Each
eight-tenths of one share of Class R Stock distributed in the Class R Stock
Distribution initially will attach to the share of Class C Stock with respect to
which it is distributed and, at the Effective Time, will attach to the share of
PKS Holdings Stock which is exchanged for such share of Class C Stock in the
Share Exchange. PKS will have the right to redeem all the Class R Stock at a
price per share equal to the par value of Class R Stock if the Transaction is
abandoned. Persons issued shares of either Class C Stock or PKS Holdings Stock
following the record date for the Class R Stock Distribution will not be
entitled to receive Class R Stock with respect to such shares. The Transaction
will be consummated on a date to be determined by the PKS Board after the
satisfaction of the conditions of the Transaction. See "The Transaction."
The PKS Stockholders are also being asked to approve two separate sets of
amendments to the PKS Certificate: the "Initial Certificate Amendments" and the
"Post-Transaction Certificate Amendments." The Initial Certificate Amendments
would amend the PKS Certificate to create the Class R Stock to be distributed in
the Class R Stock Distribution, increase from 50,000,000 to 500,000,000 the
number of shares of Class D Stock which PKS is authorized to issue and designate
10 shares of Class D Stock as "Class D Stock, Non-Redeemable Series." If
approved, the Initial Certificate Amendments will be implemented promptly
following the Special Meeting. See "The Initial Certificate Amendments." The
Post-Transaction Certificate Amendments would amend the PKS Certificate to
change the name of PKS to "Diversified Holdings, Inc.", redesignate Class D
Stock as "Common Stock, par value $.01 per share", modify the repurchase rights
to which the holders of Class D Stock are entitled, delete the provisions
regarding Class C Stock, add certain corporate governance provisions and make
certain other changes consistent with the foregoing, as described herein. If
approved, the Post-Transaction Certificate Amendments will be implemented
immediately following the consummation of the Transaction. See "The Post-
Transaction Certificate Amendments." The Initial Certificate Amendments and the
Post-Transaction Certificate Amendments are collectively referred to in this
Proxy Statement/Joint Prospectus as the "Certificate Amendments." Class D Stock
as so redesignated and modified by the Post-Transaction Certificate Amendments
is referred to herein as "Diversified Holdings Stock."
In addition, PKS Stockholders are being asked to approve the amendment and
restatement of the Peter Kiewit Sons', Inc. 1995 Class D Stock Plan (the
"Restated Plan").
This Proxy Statement/Joint Prospectus constitutes a prospectus under the
Securities Act of 1933, as amended (the "Securities Act"), (i) of PKS Holdings
with respect to the shares of PKS Holdings Stock to be exchanged for Class C
Stock in the Transaction and (ii) of PKS with respect to (a) the shares of Class
R Stock to be distributed to holders of Class C Stock pursuant to the
Transaction and (b) the shares of Class D Stock issuable upon conversion of such
shares of Class R Stock.
FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE TRANSACTION, SEE "RISK FACTORS REGARDING PKS HOLDINGS AFTER THE
TRANSACTION AND OWNERSHIP OF CLASS R STOCK" ON PAGE 23 AND "RISK FACTORS
REGARDING DIVERSIFIED HOLDINGS AFTER THE TRANSACTION" ON PAGE 27.
This Proxy Statement/Joint Prospectus and the accompanying form of proxy are
first being mailed to PKS Stockholders on or about , 1997. This
Proxy Statement/Joint Prospectus is dated , 1997.
NEITHER THE TRANSACTION NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS
PROXY STATEMENT/JOINT PROSPECTUS HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTION OR THE CERTIFICATE
AMENDMENTS OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/JOINT PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
<PAGE>
AVAILABLE INFORMATION
PKS is subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by PKS with the Commission can be inspected, and copies may be
obtained, at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates, as well as at the following
Regional Offices of the Commission: Seven World Trade Center, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. The Commission also maintains a web site that contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. The address of such site is http://
www.sec.gov.
PKS and PKS Holdings have jointly filed a Registration Statement on Form S-4
(as amended and including exhibits, the "Registration Statement") with the
Commission under the Securities Act (i) of PKS Holdings with respect to the
shares of PKS Holdings Stock to be exchanged for Class C Stock in the
Transaction, and (ii) of PKS with respect to (x) the shares of Class R Stock to
be distributed to holders of Class C Stock pursuant to the Transaction and (y)
the shares of Class D Stock issuable upon conversion of such shares of Class R
Stock. Such information can be inspected at and obtained from the Commission in
the manner set forth above. For further information pertaining to PKS, PKS
Holdings, the Construction Group, the Diversified Group, Class C Stock, Class D
Stock, PKS Holdings Stock and Class R Stock, reference is made to the
Registration Statement. Statements contained herein concerning any document
filed as an exhibit to the Registration Statement are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such statement is qualified in
its entirety by such reference.
PKS' publicly available information, including information filed with the
Commission, includes separate financial statements, financial data and business
descriptions for each of the Construction Group and the Diversified Group. The
business of PKS Holdings after the Transaction will consist entirely of the
business of the Construction Group. Accordingly, information herein with respect
to the business of PKS Holdings is information regarding the Construction Group.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by PKS with the Commission,
are incorporated herein by reference:
1. Annual Report of PKS on Form 10-K for the fiscal year ended December 28,
1996;
2. Quarterly Report of PKS on Form 10-Q for the quarter ended March 31,
1997; and
3. Quarterly Report of PKS on Form 10-Q for the quarter ended June 30, 1997.
All documents filed by PKS with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Joint Prospectus and prior to the consummation of the Transaction
shall be deemed to be incorporated by reference in this Proxy Statement/Joint
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Joint Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Joint Prospectus.
ii
<PAGE>
THIS PROXY STATEMENT/JOINT PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS, OTHER
THAN THE EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE FROM PKS TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT/JOINT PROSPECTUS IS
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON TO PETER KIEWIT
SONS', INC., 1000 KIEWIT PLAZA, OMAHA, NEBRASKA 68131, ATTENTION: STOCK
REGISTRAR (TELEPHONE NUMBER (402) 271-2977). IN ORDER TO ENSURE TIMELY DELIVERY
OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE WITHIN 15 BUSINESS DAYS OF THE
DATE OF MAILING OF THIS PROXY STATEMENT/JOINT PROSPECTUS.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
INTRODUCTION.............................................................................................. i
AVAILABLE INFORMATION..................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... ii
SUMMARY................................................................................................... 1
Introduction.......................................................................................... 1
The Special Meeting................................................................................... 1
PKS Holdings.......................................................................................... 2
Diversified Holdings.................................................................................. 2
The Transaction....................................................................................... 5
The Certificate Amendments............................................................................ 8
The Restated Plan..................................................................................... 8
Diversified Holdings Rights Plan...................................................................... 9
Risk Factors Regarding PKS Holdings After the Transaction and Ownership of Class R Stock.............. 9
Risk Factors Regarding Diversified Holdings After the Transaction..................................... 9
Summary Comparison of Class C Stock and PKS Holdings Stock............................................ 11
Summary Comparison of Class D Stock and Diversified Holdings Stock.................................... 15
Installment Note Program.............................................................................. 19
Summary Historical and Pro Forma Financial Data of Peter Kiewit Sons', Inc............................ 20
Summary Historical and Pro Forma Financial Data of the Construction Group............................. 22
RISK FACTORS REGARDING PKS HOLDINGS AFTER THE TRANSACTION AND OWNERSHIP OF CLASS R STOCK.................. 23
Loss of Conversion Right.............................................................................. 23
Future Sales of PKS Holdings Stock by PKS Holdings.................................................... 23
Limitations on the Value of Class R Stock............................................................. 23
Limitations on Dividend, Liquidation and Voting Rights of Class R Stock............................... 24
Restrictions on Conversion and Transfer of Class R Stock.............................................. 24
Transfers from the Construction Group................................................................. 25
No Public Market for PKS Holdings Stock............................................................... 25
Risks Associated with the Construction Business....................................................... 25
Effect of Separation of the Business Groups........................................................... 26
No Assurance of Achievement of Business Objective..................................................... 26
Forward-Looking Information May Prove Inaccurate...................................................... 26
RISK FACTORS REGARDING DIVERSIFIED HOLDINGS AFTER THE TRANSACTION......................................... 27
No Assurance of Achievement of Business Objectives.................................................... 27
No Assurance of Transaction Completion................................................................ 27
Potential Consequences of a Failure to Consummate the Transaction..................................... 27
Expansion Plan Risks.................................................................................. 28
Limited Public Market for Diversified Holdings Stock; No Assurance as to Listing...................... 29
Modification of Repurchase Obligation................................................................. 29
Risks Relating to Existing Businesses................................................................. 30
Dividend Policy....................................................................................... 30
</TABLE>
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Effect of Separation of the Business Groups........................................................... 30
Certain Limitations on Changes in Control of Diversified Holdings..................................... 31
Forward-Looking Information May Prove Inaccurate...................................................... 31
THE SPECIAL MEETING....................................................................................... 32
Date, Time and Place of the Special Meeting........................................................... 32
Purpose of the Special Meeting........................................................................ 32
Recommendation of the PKS Board....................................................................... 32
Special Meeting Record Date........................................................................... 32
Appraisal Rights...................................................................................... 32
Voting................................................................................................ 32
Proxies............................................................................................... 33
Solicitation Costs.................................................................................... 33
THE TRANSACTION........................................................................................... 34
General............................................................................................... 34
Background and Purposes of the Transaction............................................................ 34
Opinion of Financial Advisor.......................................................................... 37
Recommendation of the PKS Board....................................................................... 41
Effects of the Transaction............................................................................ 41
Management of PKS Holdings and Diversified Holdings................................................... 41
The Class R Stock Distribution........................................................................ 42
Exchange of Class C Stock; Delivery of Certificates for PKS Holdings Stock and Class R Stock.......... 43
Conditions of the Transaction......................................................................... 43
Conversion of Class C Stock Prior to the Transaction.................................................. 44
Installment Note Program.............................................................................. 45
Arrangements for Canadian Class C Holders............................................................. 45
Conversion of the Debentures.......................................................................... 46
Trading of PKS Holdings Common Stock.................................................................. 46
Trading of Diversified Holdings Stock................................................................. 46
Required Vote for the Transaction..................................................................... 46
Material U.S. Federal Income Tax Considerations....................................................... 47
Certain Canadian Federal Income Tax Considerations.................................................... 49
Nebraska Tax Ruling................................................................................... 50
Regulatory Approvals.................................................................................. 51
Appraisal Rights...................................................................................... 51
Accounting Treatment.................................................................................. 51
Post-Transaction Arrangements Between PKS Holdings and Diversified Holdings........................... 51
Existing Arrangements and Relationships............................................................... 52
THE INITIAL CERTIFICATE AMENDMENTS........................................................................ 54
Class R Stock......................................................................................... 54
Increase in Authorized Shares of Class D Stock........................................................ 54
Class D Stock, Non-Redeemable Series.................................................................. 54
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THE POST-TRANSACTION CERTIFICATE AMENDMENTS............................................................... 55
General............................................................................................... 55
Capital Structure of Diversified Holdings............................................................. 55
Board of Directors.................................................................................... 56
Stockholder Consent................................................................................... 57
Stockholders' Meetings................................................................................ 57
Amendment of By-laws.................................................................................. 58
Repurchase Rights..................................................................................... 58
Reasons for the Corporate Governance Provisions....................................................... 59
Potential Consequences of the Corporate Governance Provisions......................................... 63
Section 203 of the Delaware General Corporation Law................................................... 63
Diversified Holdings Rights Plan...................................................................... 63
THE RESTATED PLAN......................................................................................... 66
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF PETER KIEWIT SONS', INC. AND THE CONSTRUCTION GROUP... 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE CONSTRUCTION
GROUP................................................................................................... 74
PKS HOLDINGS DIRECTORS AND EXECUTIVE OFFICERS............................................................. 77
DIVERSIFIED HOLDINGS DIRECTORS AND EXECUTIVE OFFICERS..................................................... 79
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................ 81
INTEREST OF CERTAIN PERSONS IN THE POST-TRANSACTION CERTIFICATE AMENDMENTS................................ 82
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............................................... 82
COMPARISON OF CLASS C STOCK AND PKS HOLDINGS STOCK........................................................ 83
General............................................................................................... 83
Dividend Policy....................................................................................... 83
Voting Rights......................................................................................... 84
Repurchase Rights..................................................................................... 84
Liquidation Rights.................................................................................... 85
Conversion Rights..................................................................................... 85
Formula Value......................................................................................... 86
Mandatory Exchange.................................................................................... 86
Ownership and Transferability Restrictions............................................................ 86
Listing............................................................................................... 87
Preferred Stock....................................................................................... 88
Limitation on Directors' Liability.................................................................... 88
COMPARISON OF CLASS D STOCK AND DIVERSIFIED HOLDINGS STOCK................................................ 89
General............................................................................................... 89
Dividend Policy....................................................................................... 89
Voting Rights......................................................................................... 90
Repurchase Rights..................................................................................... 90
Liquidation Rights.................................................................................... 91
Conversion Rights..................................................................................... 91
Formula Value......................................................................................... 91
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Mandatory Exchange.................................................................................... 92
Ownership and Transferability Restrictions............................................................ 92
Listing............................................................................................... 92
Diversified Holdings Stock, Non-Redeemable Series..................................................... 93
Preferred Stock....................................................................................... 93
Limitation on Directors' Liability.................................................................... 93
CERTAIN PER SHARE INFORMATION............................................................................. 94
Class C Dividends and Per Share Values................................................................ 94
Class D Dividends and Per Share Values................................................................ 94
DESCRIPTION OF CLASS R STOCK.............................................................................. 95
General............................................................................................... 95
Rank.................................................................................................. 95
Dividends............................................................................................. 96
Liquidation Rights.................................................................................... 96
Voting Rights......................................................................................... 96
Optional Conversion................................................................................... 97
Conversion Periods.................................................................................... 97
Conversion Condition.................................................................................. 97
Conversion Ratio...................................................................................... 98
Certain Adjustments................................................................................... 99
Conversion at the Option of Diversified Holdings...................................................... 99
Mandatory Conversion.................................................................................. 99
Restrictions on Transfer.............................................................................. 100
Mandatory Redemption.................................................................................. 100
Listing............................................................................................... 100
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PKS, PKS HOLDINGS AND DIVERSIFIED
HOLDINGS................................................................................................ 101
PKS (Before the Transaction).......................................................................... 101
PKS Holdings.......................................................................................... 102
Diversified Holdings.................................................................................. 103
LEGAL MATTERS............................................................................................. 104
EXPERTS................................................................................................... 104
Index to Financial Statements............................................................................. F-1
Index to Pro Forma Information............................................................................ F-26
</TABLE>
APPENDIX A -- BUSINESS OF PKS HOLDINGS
APPENDIX B -- BUSINESS OF DIVERSIFIED HOLDINGS
APPENDIX C -- FAIRNESS OPINION OF GLEACHER NATWEST
APPENDIX D -- FORM OF RESTATED CERTIFICATE OF INCORPORATION OF PKS HOLDINGS
APPENDIX E-I -- TERMS OF INITIAL CERTIFICATE AMENDMENTS
APPENDIX E-II -- FORM OF SECOND RESTATED CERTIFICATE OF INCORPORATION OF
DIVERSIFIED HOLDINGS
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere or incorporated by reference in this Proxy
Statement/Joint Prospectus and the Appendices hereto. PKS Stockholders are urged
to read this Proxy Statement/Joint Prospectus and the Appendices hereto in their
entirety.
INTRODUCTION
This Proxy Statement/Joint Prospectus is being furnished to PKS Stockholders
in connection with the solicitation of proxies by the PKS Board for use at the
Special Meeting. At the Special Meeting, PKS Stockholders will be asked to
ratify the Transaction and approve the Certificate Amendments and the Restated
Plan. The Transaction will be consummated on a date to be determined by the PKS
Board after the satisfaction of the conditions of the Transaction. See "The
Transaction." The Initial Certificate Amendments will be effected promptly
following the Special Meeting, and the Post-Transaction Certificate Amendments
will be effected only if the Transaction is consummated. See "The Initial
Certificate Amendments" and "The Post-Transaction Certificate Amendments." The
Restated Plan will become effective upon the approval thereof at the Special
Meeting. See "The Restated Plan."
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING. The Special Meeting will be
held on , 1997, at 10:00 a.m. local time, at the Cloud Room, Kiewit
Plaza, Omaha, Nebraska 68131.
PURPOSE OF THE SPECIAL MEETING. The Special Meeting is being held to
consider and vote upon (i) ratification of the Transaction, (ii) approval of the
Certificate Amendments and (iii) approval of the Restated Plan.
RECOMMENDATION OF THE PKS BOARD. The PKS Board has unanimously approved the
Transaction, the Certificate Amendments and the Restated Plan and recommends
that PKS Stockholders ratify the Transaction and approve the Certificate
Amendments and the Restated Plan. For a description of the reasons for the
Transaction, see "The Transaction--Background and Purposes of the Transaction."
For a description of the reasons for the Certificate Amendments and the Restated
Plan, see "The Initial Certificate Amendments", "The Post-Transaction
Certificate Amendments" and "The Restated Plan", respectively. Each member of
the PKS Board has indicated to PKS that he intends to vote all of his shares of
Class C Stock and Class D Stock to ratify the Transaction and to approve the
Certificate Amendments and the Restated Plan.
SPECIAL MEETING RECORD DATE. PKS Stockholders as of the close of business
on , 1997 (the "Special Meeting Record Date") are entitled to notice
of and to vote at the Special Meeting.
APPRAISAL RIGHTS. PKS Stockholders will not be entitled to appraisal rights
as a result of the Transaction.
VOTING. Although stockholder action with respect to the Share Exchange is
not required under applicable law or the PKS Certificate, the PKS Board has
determined to seek stockholder ratification of the Transaction due to the
importance of the Transaction to PKS and PKS Stockholders. Ratification of the
Transaction requires the affirmative vote of (i) a majority of the shares of
Class C Stock present and voting at the Special Meeting, voting separately as a
class, and (ii) a majority of the shares of Class D Stock present and voting at
the Special Meeting, voting separately as a class. Approval of the Certificate
Amendments under Delaware law and the PKS Certificate requires the affirmative
vote of (x) at least 80% of the outstanding shares of Class C Stock, voting
separately as a class, (y) a majority of the outstanding shares of Class D
Stock, voting separately as a class, and (z) a majority of the outstanding
shares of Class C Stock and Class D Stock, voting together. Approval of the
Restated Plan requires the affirmative vote of a
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majority of the shares of Class C Stock and Class D Stock present and voting at
the Special Meeting, voting together.
Each share of Class C Stock and Class D Stock (together, the "PKS Stock")
outstanding at the close of business on the Special Meeting Record Date is
entitled to one vote at the Special Meeting. As of the Special Meeting Record
Date, there were shares of Class C Stock and shares of Class D Stock
outstanding and entitled to vote at the Special Meeting. The representation in
person or by proxy of at least a majority of the outstanding shares entitled to
vote is necessary to provide a quorum at the Special Meeting.
SOLICITATION COSTS. PKS will bear the costs of this solicitation.
PKS HOLDINGS
The Construction Group's business is conducted by operating subsidiaries of
Kiewit Construction Group Inc. ("KCG"), which is a direct, wholly owned
subsidiary of PKS. Prior to the Share Exchange, PKS will contribute all of the
capital stock of KCG to PKS Holdings, and KCG will become a wholly owned
subsidiary of PKS Holdings. Immediately following the Transaction, PKS Holdings
will be renamed "Peter Kiewit Sons', Inc."
The Construction Group and its joint ventures perform a full range of
engineering, procurement, construction, maintenance, management and related
services for a broad range of public and private customers primarily in the
United States and Canada. Contract awards of the Construction Group during 1996
were distributed among the following construction markets: transportation
(including highways, bridges, airports, railroads and mass transit)--45%, dams
and reservoirs--17%, commercial buildings-- 16%, sewage and waste disposal--12%,
power, heat, cooling--4%, water supply--2%, and mining--2%.
The Construction Group primarily performs its services as a general
contractor. As a general contractor, the Construction Group is responsible for
the overall direction and management of construction projects and for completion
of each contract in accordance with terms, plans and specifications. The
Construction Group plans and schedules the projects, procures materials, hires
workers as needed and awards subcontracts. The Construction Group generally
requires performance and payment bonds or other assurances of operational
capability and financial capacity from its subcontractors. Several subsidiaries
within the Construction Group, primarily in Arizona and Oregon, produce
construction materials, including ready-mix concrete, asphalt, sand and gravel.
The Construction Group also has quarrying operations in New Mexico and Wyoming,
which produce landscaping materials and railroad ballast. Kiewit Mining Group,
Inc., a subsidiary within the Construction Group, provides mine management
services to Kiewit Coal Properties Inc. ("KCP"), a subsidiary within the
Diversified Group, and owns a 47% interest in a coal mine located in Shelby
County, Alabama.
PKS Holdings was incorporated in 1997 as a Delaware corporation. Its
principal offices are located at 1000 Kiewit Plaza, Omaha, Nebraska 68131, and
its telephone number is (402) 342-2052.
For further information concerning the business of PKS Holdings, see
Appendix A hereto.
DIVERSIFIED HOLDINGS
CURRENT BUSINESS. The Diversified Group engages in the information
services, telecommunications, coal mining and energy businesses, through
ownership of operating subsidiaries, joint venture investments and ownership of
substantial positions in public companies. The Diversified Group also holds
smaller positions in a number of development stage or startup ventures.
The Diversified Group engages in the information services business through
its wholly owned subsidiary, PKS Information Services, Inc. ("PKSIS"), which
provides computer outsourcing and systems
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integration services to customers in the United States and abroad. The
Diversified Group currently engages in the telecommunications business through
ownership of a 48.5% common stock interest in each of the three public companies
(the "C-TEC Companies") into which C-TEC Corporation ("C-TEC") split on
September 30, 1997. The C-TEC Companies have interests in the local telephone,
video programming, long distance telephone, communication engineering and
competitive telephone businesses. In September 1995, PKS distributed to holders
of Class D Stock all of the Diversified Group's interest in MFS Communications
Company, Inc. ("MFS"). MFS provided a wide range of telecommunications services
to business and government customers. In December 1996, WorldCom, Inc. acquired
MFS in a stock-for-stock merger.
The Diversified Group engages in the coal mining business through ownership
of a 50% interest in three coal mines managed by the Construction Group. The
Diversified Group engages in the energy business through ownership of: (i)
approximately 30% of the outstanding stock of CalEnergy Company, Inc.
("CalEnergy"), a public company engaged in the generation, transmission and
distribution of electric power in the United States and abroad; (ii) joint
venture interests in several power plants developed, built and operated by
CalEnergy in the Philippines and Indonesia (the "Joint Venture Energy
Projects"); and (iii) ownership of a 30% equity interest in Northern Electric
plc, one of the twelve regional electricity companies created by the
privatization of the electricity industry in the United Kingdom in 1990.
On September 10, 1997, KDG entered into an agreement (the "CalEnergy
Agreement") pursuant to which KDG has agreed to sell to CalEnergy all of its
interests in CalEnergy, the Joint Venture Energy Projects and Northern Electric
plc. See "Appendix B--Business of Diversified Holdings--CalEnergy Company, Inc."
For the 1996 fiscal year, the Diversified Group had revenues of $652
million. Of those revenues, 6% were attributable to its information services
business, 56% were attributable to its telecommunications business (giving
effect to the consolidation of C-TEC's revenues) and 36% were attributable to
its coal mining business. In 1996, the Diversified Group did not have
significant revenues attributable to its energy business because revenues from
CalEnergy ($576 million in 1996), the Joint Venture Energy Projects and Northern
Electric plc are not consolidated with those of the Diversified Group.
In connection with the Expansion Plan (described below), the Diversified
Group expects to devote substantially more management time and capital resources
to its information services business with a view to making the information
services business, over time, the principal business of KDG. In that respect,
the management of the Diversified Group intends to conduct a comprehensive
review of the existing Diversified Group businesses to determine how those
businesses will complement the Diversified Group focus on information services
businesses as a result of the Expansion Plan. For example, the management of the
Diversified Group negotiated the CalEnergy Agreement because it believes that
ongoing ownership by the Diversified Group of its energy businesses will not be
compatible with its future focus on the information services business as a
result of the Expansion Plan, and because sale of those assets to CalEnergy will
provide a substantial portion of the money necessary to fund the early stages of
the Expansion Plan. In addition, the Construction Group and the Diversified
Group are currently discussing a number of possible changes to their existing
relationship with respect to the coal mining properties operated by the
Construction Group. These possible changes include a restructuring of the
current mine management arrangement between the two Business Groups, the
formation of a partnership between the two Business Groups to hold all of their
interests with respect to the mining properties, the transfer by the Diversified
Group to the Construction Group of its interests in the mining joint ventures or
another transaction. The Diversified Group's objectives in any such
restructuring would include a reduction in the degree of active participation by
the Diversified Group in the coal mining business, with a view toward
termination of the Diversified Group's coal mining activities in the near
future, and current receipt by the Diversified Group of the long-term value
embedded in the coal mining business. The Diversified Group has no current
intention to sell, dispose or otherwise alter its ownership interest in the
C-TEC Companies.
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EXPANSION PLAN. The Diversified Group recently has determined to increase
substantially the emphasis it places on and the resources devoted to its
information services business, with a view to becoming a facilities-based
provider (I.E., a provider of information services that owns or leases a
substantial portion of the plant, property and equipment necessary to provide
those services) of a broad range of integrated information services to business
(the "Expansion Plan"). Pursuant to the Expansion Plan, the Diversified Group
intends to expand substantially its current information services business,
through both the expansion of the business of PKSIS and the creation, through a
combination of construction, purchase and leasing of facilities and other
assets, of a substantial facilities-based Internet communications network.
Through PKSIS, the Diversified Group currently provides the following
information services:
- Consulting and implementation services to businesses wishing to convert
existing software systems which operate on older computer systems to newer
client server-based systems, with an emphasis on Internet connected
networks;
- Computer outsourcing services, including networking and computing services
necessary both for older mainframe-based systems and newer client
server-based systems; and
- Reengineering services which allow companies to convert older legacy
software systems to modern networked computing systems, with a focus on
reengineering software to enable older software application and data
repositories to be accessed by Hypertext Markup Language (HTML)-based
browsers ("Web browsers") over the Internet or over private or limited
access Transmission Control Protocol/Internet Protocol ("TCP/IP")
networks.
In order to grow and expand substantially the information services provided
by the Diversified Group, the Diversified Group is developing a comprehensive
plan to construct, purchase and lease local and backbone facilities necessary to
provide a wide range of Internet-based communications services. These services
include:
- After construction, purchase and lease of local and backbone facilities, a
range of Internet access services at varying capacity levels and, as
technology development allows, at specified levels of quality of service
and security; and
- A number of business-oriented communications services using a combination
of network facilities the Diversified Group would construct, purchase and
lease from third parties, which may include fax services which are
transmitted in part over TCP/IP networks and are offered at a lower price
than public telephone network-based fax service and voice message storing
and forwarding over the same TCP/IP-based networks.
The Diversified Group believes that, over time, a substantial number of
businesses will convert existing computer application systems (which run on
standalone or networked computing platforms utilizing a wide variety of
operating systems, applications and data repositories) to computer systems which
communicate using TCP/IP and are accessed by users employing Web browsers. The
Diversified Group believes that such a conversion will occur for the following
reasons:
- TCP/IP has become a de facto networking standard supported by numerous
hardware and software vendors and, as such, provides a common protocol for
connecting computers utilizing a wide variety of operating systems;
- Web browsers can provide a standardized interface to data and applications
and thus help to minimize costs of training personnel to access and use
these resources; and
- As a packet-switched technology, in many instances, TCP/IP utilizes
network capacity more efficiently than the circuit-switched public
telephone network. Consequently, certain services provided over TCP/IP
networks may be less costly than such services provided over telephone
network-based services.
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The Diversified Group further believes that businesses will prefer to contract
for assistance in making this conversion with those vendors able to provide a
full range of services from initial consulting to Internet access with requisite
quality and security levels.
Pursuant to the Expansion Plan, the Diversified Group's strategy will be to
attempt to meet this customer need by: (i) growing and expanding its existing
capabilities in computer network systems, consulting, outsourcing, and software
reengineering, with particular emphasis on conversion of legacy software systems
to systems which are compatible with TCP/IP networks and Web browsers access;
and (ii) creating a national end-to-end TCP/IP-based network through a
combination of construction, purchase and leasing of assets. The Diversified
Group intends to optimize this national network to provide Internet-based
services to businesses at low cost and high quality, and to design the network,
to the extent possible, to more easily include future technological upgrades
than older, less flexible networks owned by competitors.
To direct its new emphasis on these businesses, the Diversified Group
recruited James Q. Crowe and R. Douglas Bradbury, formerly chief executive
officer and chief financial officer, respectively, of MFS, as chief executive
officer and chief financial officer, respectively, of Kiewit Diversified Group
Inc. ("KDG"), effective August 1, 1997. The decision to separate the Diversified
Group and the Construction Group was an important factor in recruiting Mr. Crowe
and Mr. Bradbury. See "The Transaction--Background and Purposes of the
Transaction" and "Certain Relationships and Related Transactions."
PKS, which is to be renamed "Diversified Holdings, Inc." if the Transaction
is consummated, was incorporated in 1941 as a Delaware corporation. Its
principal offices are located at 1000 Kiewit Plaza, Omaha, Nebraska 68131, and
its telephone number is (402) 342-2052.
For further information concerning the current business of the Diversified
Group, see Appendix B hereto.
THE TRANSACTION
PURPOSES OF THE TRANSACTION. The Transaction is intended to separate the
Business Groups into two independent companies. The PKS Board believes that
separation of the Business Groups will (i) permit the Diversified Group to
attract and retain the senior management and employees needed to implement and
develop the Diversified Group's Expansion Plan, including Mr. Crowe and Mr.
Bradbury, (ii) enable the Diversified Group to access the capital markets in
order to fund the Expansion Plan on more advantageous terms than would be
available to the Diversified Group as part of PKS, (iii) enable the Diversified
Group to pursue strategic investments and acquisitions, as part of the Expansion
Plan, which could be foreclosed to the Diversified Group as part of PKS and (iv)
allow the management of each Business Group to focus its attention and financial
resources on that Business Group's business. Except for the anticipated effect
of the Transaction on the management of the Construction Group, the PKS Board
does not believe that the Transaction will have any other significant effect on
the Construction Group. Accordingly, the PKS Board believes that the separation
of the Business Groups is in the best interests of PKS and the Business Groups
and, therefore, all PKS Stockholders.
The Class R Stock Distribution recognizes the potential value of the right
of holders of Class C Stock to convert Class C Stock into Class D Stock pursuant
to the PKS Certificate (the "Conversion Right"), which will be eliminated by a
separation of the Business Groups. See "The Transaction--Background and Purposes
of the Transaction."
DESCRIPTION OF THE TRANSACTION. The Transaction consists of the Share
Exchange and the Class R Stock Distribution. PKS Stockholders are being asked to
ratify the decision of the PKS Board to effect the Transaction.
THE SHARE EXCHANGE. The Share Exchange will be consummated at the Effective
Time, which will be a date to be determined by the PKS Board after the
satisfaction of the conditions of the Transaction. At the
5
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Effective Time, by resolution of the PKS Board pursuant to existing provisions
of the PKS Certificate, the PKS Board will cause each outstanding share of Class
C Stock to be mandatorily exchanged, pursuant to the Share Exchange, for one
share of PKS Holdings Stock.
As a result of the Share Exchange: (i) PKS Holdings, a newly formed, direct,
wholly owned subsidiary of PKS, will become an independent company, in which PKS
no longer will have an ownership interest, conducting the business of the
Construction Group, and each outstanding share of Class C Stock at the Effective
Time will be mandatorily exchanged for one share of PKS Holdings Stock; and (ii)
PKS will become an independent company conducting the business of the
Diversified Group, and the outstanding shares of Class D Stock at the Effective
Time and the shares of Class R Stock distributed in the Class R Stock
Distribution will constitute the only outstanding shares of capital stock of
PKS. Immediately following the Share Exchange, PKS Holdings will be renamed
"Peter Kiewit Sons', Inc.", and PKS will be renamed "Diversified Holdings, Inc."
THE CLASS R STOCK DISTRIBUTION. Prior to the Effective Time, PKS will
effect the Class R Stock Distribution by declaring a dividend of eight-tenths of
one share of newly created Class R Stock with respect to each then-outstanding
share of Class C Stock. Subject to the terms and conditions of the Class R Stock
to be contained in the PKS Certificate, each share of Class R Stock will be
convertible into such number of shares of Diversified Holdings Stock as equals
(i) a conversion value varying from $15.00 to $25.00 based upon the appraised
value or average trading price per share of Diversified Holdings Stock, divided
by (ii) such price per share of Diversified Holdings Stock. The conversion value
will equal $25.00 if such price per share of Diversified Holdings Stock is
greater than or equal to $82.00, subject to certain adjustments. If such price
per share of Diversified Holdings Stock is less than $82.00, the conversion
value will equal $25.00 minus the amount by which $82.00 exceeds such price per
share, subject to certain adjustments; provided, however, that the conversion
value will in no event be less than $15.00.
Conversion and transfer of Class R Stock will be subject to significant
restrictions and conditions. Each eight-tenths of one share of Class R Stock
distributed in the Class R Stock Distribution initially will attach to the share
of Class C Stock with respect to which it is distributed and, at the Effective
Time, will attach to the share of PKS Holdings Stock which is exchanged for such
share of Class C Stock in the Share Exchange. PKS will have the right to redeem
all the Class R Stock at a price per share equal to the par value of such Class
R Stock ($.01 per share) if the Transaction is abandoned. Persons issued shares
of either Class C Stock or PKS Holdings Stock following the record date for the
Class R Stock Distribution will not be entitled to receive Class R Stock with
respect to such shares. See "The Transaction--The Class R Stock Distribution"
and "Description of Class R Stock."
Assuming the conversion into Class C Stock of all outstanding PKS
convertible debentures (other than any issued in 1997), the conversion of
1,500,000 shares of Class C Stock in the 1997 Conversion Period and an $82.00
appraised value or average trading price per share of Diversified Holdings
Stock, the Class R Stock issuable in the Class R Stock Distribution would be
convertible into approximately 8.57% of the Class D Stock outstanding as of
October 1, 1997. Assuming that 3,000,000 shares of Class C Stock are converted
in the 1997 Conversion Period, such Class R Stock would be convertible into
approximately 6.85% of the Class D Stock outstanding as of such date.
CONVERSIONS OF CLASS C STOCK INTO CLASS D STOCK PRIOR TO THE
TRANSACTION. Holders of PKS Holdings Stock (I.E., the former holders of Class C
Stock) will have no rights comparable to the Conversion Right, which permits
holders of Class C Stock to convert shares of Class C Stock into Class D Stock.
Consequently, should the Transaction be consummated, the conversion election
period beginning on October 15, 1997 and ending on December 15, 1997 for
conversions effective as of January 1, 1998 (the "1997 Conversion Period") would
be the final opportunity to convert shares of Class C Stock into Class D Stock.
Holders of Class C Stock who convert their shares during the 1997 Conversion
Period will not receive shares of Class R Stock with respect to such converted
shares pursuant to the Class R Stock Distribution.
6
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See "Risk Factors Regarding PKS Holdings After the Transaction and Ownership of
Class R Stock--Loss of Conversion Right" and "The Transaction--The Class R Stock
Distribution."
Pursuant to the PKS Certificate, the PKS Board has set a limit of 3,000,000
on the number of shares of Class C Stock that can be converted during the 1997
Conversion Period (the "Conversion Cap"). If shares of Class C Stock in excess
of the Conversion Cap are tendered to PKS for conversion during the 1997
Conversion Period, PKS will elect to repurchase the excess shares of Class C
Stock (on a pro rata basis) for either cash or a short-term promissory note of
PKS, at the election of the tendering holder. Tendering holders of such excess
stock who are eligible at that time to own Class C Stock may elect to withdraw
such excess shares rather than having them purchased by PKS. See "The
Transaction--Conversion of Class C Stock Prior to the Transaction."
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS. PKS will request rulings
(the "IRS Rulings") from the Internal Revenue Service (the "IRS") to the effect
that (i) the Share Exchange will be treated as a tax-free exchange under
Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) the Class R Stock Distribution will be tax-free. Accordingly,
for U.S. federal income tax purposes, no gain or loss will be recognized by the
U.S. holders of Class C Stock or, in general, PKS on the Class R Stock
Distribution or on the Share Exchange. Consummation of the Transaction is
conditioned upon receipt of the IRS Rulings. However, at any time before the IRS
Rulings have been issued, PKS may elect to effect the Transaction in reliance on
an opinion of counsel (the "Tax Opinion") generally to the effect that the tax
consequences described above should result. The receipt of either the IRS
Rulings or the Tax Opinion is referred to as the "Tax Condition." The PKS Board
has determined that if the Tax Condition is not satisfied, the PKS Board will
not proceed with the Transaction. See "The Transaction-- Certain U.S. Federal
Income Tax Considerations."
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. A holder of Class C
Stock who, for purposes of the Income Tax Act (Canada) (the "Canadian Act"), is
a resident of Canada will (i) be required to include in computing the holder's
income an amount equal to the fair market value of any shares of Class R Stock
received in the Class R Stock Distribution and (ii) generally realize a capital
gain on the exchange of shares in the Share Exchange. See "The
Transaction--Certain Canadian Federal Income Tax Considerations."
CONVERSION OF THE DEBENTURES. If PKS Stockholders ratify the Transaction,
PKS will permit holders of its Series 1993 through 1996 Class C Convertible
Debentures (collectively, the "Debentures") to convert such Debentures into
Class C Stock subsequent to the expiration of the 1997 Conversion Period and
prior to the record date for the Class R Stock Distribution. Accordingly,
holders of Debentures who convert their Debentures into shares of Class C Stock
will receive shares of Class R Stock with respect to such shares in the Class R
Stock Distribution and have such shares exchanged in the Share Exchange. A total
of 388,237 shares of Class C Stock would be issuable if all of the Debentures
were so converted. See "The Transaction--Conversion of the Debentures" and
"Certain Relationships and Related Transactions."
CONDITIONS OF THE TRANSACTION. Consummation of the Transaction is subject
to ratification of the Transaction and approval of the Certificate Amendments by
PKS Stockholders and satisfaction of the Tax Condition. Consummation of the
Transaction is not subject to the approval of the Restated Plan. The PKS Board
will retain discretion, even if stockholder ratification of the Transaction and
approval of the Certificate Amendments are obtained and the Tax Condition is
satisfied, to abandon, defer or modify the Transaction if the PKS Board believes
that to do so would be in the best interests of all PKS Stockholders. Unless the
PKS Board determines to extend the date, the PKS Board intends to abandon the
Transaction if it is not consummated by October 15, 1998. The PKS Board also has
determined that if the Transaction is not ratified or the Certificate Amendments
are not approved or the Tax Condition is not satisfied, the PKS Board will not
proceed with the Transaction. The Initial Certificate Amendments will be
effected promptly following the Special Meeting, and the Post-Transaction
Certificate Amendments will be effected only if
7
<PAGE>
the Transaction is consummated. The Restated Plan, if approved, will be
implemented as soon as possible after receipt of approval.
If the Transaction is not ratified or the Certificate Amendments are not
approved by the PKS Stockholders, the PKS Board intends to assess other possible
courses of action, including the possible restructuring of the Transaction and
reproposal of the restructured Transaction to PKS Stockholders, the listing of
Class D Stock for public trading or the continuation of PKS' existing capital
stock structure. The PKS Board's choice of alternatives will depend upon a
number of factors that it will be able to evaluate only at that time, including
the perceived reasons for the failure of any of the proposals to receive
approval, the status of the Expansion Plan, the status of the Diversified Group
businesses and the intentions of Mr. Crowe.
THE CERTIFICATE AMENDMENTS
PKS Stockholders are also being asked to approve the Certificate Amendments.
The Initial Certificate Amendments would amend the PKS Certificate by creating
the Class R Stock to be distributed in the Class R Stock Distribution,
increasing from 50,000,000 to 500,000,000 the number of shares of Class D Stock
which PKS is authorized to issue and designating 10 shares of Class D Stock as
Class D Stock, Non-Redeemable Series. See "The Initial Certificate Amendments."
The Post-Transaction Amendments would amend the PKS Certificate by changing the
name of PKS to "Diversified Holdings, Inc.", redesignating Class D Stock as
"Common Stock, par value $.01 per share", modifying the repurchase rights to
which the holders of Class D Stock are entitled, deleting the provisions
regarding Class C Stock, providing for the classification of the Board of
Directors of Diversified Holdings (the "Diversified Holdings Board"),
authorizing the issuance of preferred stock without stockholder approval,
prohibiting stockholder action by written consent, eliminating the ability of
stockholders to call special stockholder meetings, requiring a supermajority
vote to amend the by-laws of Diversified Holdings and making certain other
changes consistent with the implementation of the foregoing, as described under
"The Post-Transaction Certificate Amendments." If approved, the Initial
Certificate Amendments will be effected promptly following the Special Meeting
and the Post-Transaction Certificate Amendments will be effected immediately
following the consummation of the Transaction. See "The Initial Certificate
Amendments" and "The Post-Transaction Certificate Amendments."
Certain of the proposed corporate governance provisions included in the
Post-Transaction Certificate Amendments could have the effect of delaying,
deferring or preventing a change in control of Diversified Holdings, even if
such a change would be favorable to the interests of the stockholders of
Diversified Holdings, and of limiting any opportunity to realize premiums over
prevailing market prices for Diversified Holdings Stock in connection therewith.
See "Risk Factors Regarding Diversified Holdings After the Transaction--Certain
Limitations on Changes of Control of Diversified Holdings." The PKS Board has
proposed these corporate governance provisions with a view toward better
enabling Diversified Holdings to (i) develop its business and foster long-term
growth through long-range planning, (ii) attempt to avoid the necessity of
sacrificing these plans for the sake of short-term gains and the disruptions
caused by any threat of a takeover not deemed by the Diversified Holdings Board
to be in the best interests of Diversified Holdings stockholders and (iii) allow
the Diversified Holdings Board to make a reasoned and unpressured evaluation in
the event of an unsolicited takeover proposal.
THE RESTATED PLAN AMENDMENTS
In addition, PKS Stockholders are being asked to approve the Restated Plan
which would amend and restate the Peter Kiewit Sons' Inc. 1995 Class D Stock
Plan (the "Original Plan") to (i) increase the number of shares of Class D Stock
reserved for issuance upon the exercise of stock-based awards from 1,000,000 to
, (ii) provide for the acceleration of vesting of such awards in the event
of a Change Control of PKS (as defined in the Restated Plan), (iii) allow the
Compensation Committee of the PKS Board to provide for a tax gross-up in the
event that awards granted or vesting pursuant to the Restated
8
<PAGE>
Plan are deemed to be "excess parachute payments" within the meaning of Section
280G of the Code and (iv) allow for the grant of stock-based awards to directors
of PKS and KDG who are not also employees of PKS or KDG.
The Diversified Group believes that implementation of the Expansion Plan
will require it to hire a substantial number of computer and engineering
professionals, who are presently in high demand, and other employees. The
management of the Diversified Group believes that the amendments to the Original
Plan are a critical piece of a comprehensive compensation program that will be
necessary to attract, retain and motivate those employees and thus to accomplish
the Expansion Plan.
DIVERSIFIED HOLDINGS RIGHTS PLAN
It is anticipated that the Diversified Holdings Board will adopt a
stockholder rights plan (the "Diversified Holdings Rights Plan") at or following
the consummation of the Transaction and in connection therewith enter into a
rights agreement (the "Diversified Holdings Rights Agreement"). A description of
the Diversified Holdings Rights Plan is being furnished only to notify PKS
Stockholders of the anticipated adoption of such plan by the Diversified
Holdings Board. PKS Stockholders are not being asked to approve the adoption of
the Diversified Holdings Rights Plan. The Diversified Holdings Rights Plan will
have certain anti-takeover effects. To implement the Diversified Holdings Rights
Plan, the Diversified Holdings Board will authorize the issuance of one right (a
"Diversified Holdings Right") for each share of Diversified Holdings Stock
outstanding as of a certain date and issued thereafter until the Distribution
Date (as defined in the Diversified Holdings Rights Agreement). Each Diversified
Holdings Right will entitle the holder to purchase from Diversified Holdings one
one-thousandth of a share of a series of preferred stock to be designated by the
Diversified Holdings Board at a specified initial purchase price that will be
subject to adjustment. The Diversified Holdings Rights expire on the tenth
anniversary of the adoption of the Diversified Holdings Rights Plan, unless
extended or earlier redeemed by Diversified Holdings. The Diversified Holdings
Rights will cause substantial dilution to a person or group that attempts to
acquire, or merge with, Diversified Holdings without conditioning the offer on
the Diversified Holdings Rights being rendered inapplicable. See "The
Post-Transaction Certificate Amendments-- Diversified Holdings Rights Plan."
RISK FACTORS REGARDING PKS HOLDINGS AFTER THE TRANSACTION AND OWNERSHIP OF CLASS
R STOCK
Persons who will hold PKS Holdings Stock or Class R Stock if the Transaction
is consummated should consider carefully risk factors regarding PKS Holdings and
ownership of Class R Stock, including (i) the loss of the right of holders of
Class C Stock to convert shares of Class C Stock into Class D Stock, (ii)
limitations on future sales of PKS Holdings Stock by PKS Holdings, (iii)
limitations on the potential value of Class R Stock, (iv) limitations on
dividend, liquidation and voting rights of Class R Stock, (v) limitations on the
conversion and transfer of Class R Stock, (vi) the potential effect of certain
transfers of funds from the Construction Group to the Diversified Group upon
conversion of Class C Stock into Class D Stock during the 1997 Conversion
Period, (vii) lack of public market for PKS Holdings Stock, (viii) certain risks
associated with the construction business, (ix) possible adverse effects on the
business of the Construction Group resulting from separation of the Business
Groups, (x) the possibility that business objectives of the Transaction may not
be achieved and (xi) the risk that forward-looking information included herein
may prove inaccurate. See "Risk Factors Regarding PKS Holdings After the
Transaction and Ownership of Class R Stock" and "Risk Factors Regarding
Diversified Holdings After the Transaction."
RISK FACTORS REGARDING DIVERSIFIED HOLDINGS AFTER THE TRANSACTION
If the Transaction is consummated, holders of Class D Stock will continue to
hold the shares of Class D Stock which they held immediately prior to the
Effective Time and holders of Class C Stock will receive shares of Class R
Stock. Upon the filing of the Post-Transaction Certificate Amendments, Class D
9
<PAGE>
Stock will be redesignated and modified as Diversified Holdings Stock. Holders
of Class D Stock and Class C Stock should consider carefully risk factors
regarding Diversified Holdings after the Transaction, including (i) the
possibility that the business objectives of the Transaction will not be
achieved, (ii) the possibility that the Transaction may not be completed and the
potential consequences of such a failure to complete the Transaction, (iii)
certain risks relating to the Expansion Plan, (iv) the limited market for
Diversified Holdings Stock and uncertainties as to its being listed for trading
in the future, (v) possible effects of modifications of the stock repurchase
obligations of Diversified Holdings, (vi) risks relating to the existing
businesses of the Diversified Group, (vii) the anticipated policy of the
Diversified Holdings Board that dividends will not be paid on Diversified
Holdings Stock in the foreseeable future, (viii) possible adverse effects on the
business of Diversified Holdings resulting from the separation of the Business
Groups, (ix) certain limitations on changes in control of Diversified Holdings
and (x) the risk that forward-looking information included herein may prove
inaccurate. See "Risk Factors Regarding Diversified Holdings After the
Transaction" and "Risk Factors Regarding PKS Holdings After the Transaction and
Ownership of Class R Stock."
10
<PAGE>
SUMMARY COMPARISON OF CLASS C STOCK AND PKS HOLDINGS STOCK
The following is a summary comparison of the terms of Class C Stock and PKS
Holdings Stock for which Class C Stock will be exchanged in the Transaction. The
rights of and restrictions on PKS Holdings Stock (including dividend rights,
repurchase rights, and rights to distributions upon liquidation) under the
Restated Certificate of Incorporation of PKS Holdings, to be in effect after the
Transaction is consummated (the "PKS Holdings Certificate"), will be
substantially similar to those of Class C Stock under the PKS Certificate,
except that there will be no rights or restrictions relating to the Class D
Stock. Appendix D sets forth the proposed form of the PKS Holdings Certificate.
The terms of the PKS Holdings Certificate will be approved by PKS, as the sole
stockholder of PKS Holdings, prior to the Share Exchange and, accordingly, PKS
Stockholders will not have an opportunity to approve such terms. For more
detailed information regarding the terms of Class C Stock and PKS Holding Stock,
see "Comparison of Class C Stock and PKS Holdings Stock."
<TABLE>
<CAPTION>
CLASS C STOCK PKS HOLDINGS STOCK
-------------------------------------- --------------------------------------
<S> <C> <C>
GENERAL.......................... Holders of Class C Stock are Holders of PKS Holdings Stock will be
stockholders of PKS, not of the stockholders of PKS Holdings, which
Construction Group, and have an will not be a subsidiary of PKS and
interest in the equity and assets of which will own only assets of the
PKS, including the assets of the Construction Group. PKS Holdings is a
Construction Group, plus one-half of Delaware corporation.
the unconsolidated stockholders'
equity (whether positive or negative)
of PKS itself. PKS is a Delaware
corporation.
DIVIDEND POLICY.................. Under Delaware law and the PKS Under Delaware law and the PKS
Certificate, after dividends have been Holdings Certificate, after dividends
declared and set aside for payment or have been declared and set aside for
paid on PKS preferred stock (if any) payment or paid on PKS Holdings
having a preference over Class C preferred stock (if any) having a
Stock, dividends on Class C Stock may preference over PKS Holdings Stock,
be declared and paid out of the dividends on PKS Holdings Stock may be
excess, if any, of the amount legally declared and paid out of PKS Holdings
available therefor over the amount funds legally available therefor. PKS
(the "Available Class D Dividend Holdings intends to continue the
Amount") equal to the lesser of (i) current policy of paying in each year
the amount legally available for 15% to 20% of the prior year's
payment of dividends on common stock earnings of the Construction Group as
of PKS and (ii) an amount equal to (x) a cash dividend.
a certain value (the "Class D Formula
Value") derived from a formula in the
PKS Certificate, less (y) dividends on
Class D Stock declared during the
current year. The current policy is to
pay in each year 15% to 20% of the
prior year's earnings of the
Construction Group as a cash dividend.
VOTING RIGHTS.................... Holders of Class C Stock are entitled Holders of PKS Holdings Stock will be
to one vote per share on all matters entitled to one vote per share on all
submitted to a vote of the common matters submitted to a vote of the
stockholders of PKS. Holders of Class common stockholders of PKS Holdings.
C Stock are entitled, as a separate Holders of PKS Holdings Stock will be
class, to elect two-thirds of the PKS entitled to elect the entire Board of
Board by cumulative voting. In Directors of PKS Holdings (the "PKS
addition, the affirmative vote of both Holdings Board") by cumulative
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
CLASS C STOCK PKS HOLDINGS STOCK
-------------------------------------- --------------------------------------
holders of (i) 80% of the outstanding voting. In addition, the supermajority
Class C Stock and (ii) the majority of voting requirements included in the
the outstanding voting power of PKS, PKS Certificate with respect to Class
is required to approve certain C Stock will be included in the PKS
fundamental corporate changes, such as Holdings Certificate with respect to
changes in the capital structure of PKS Holdings Stock.
PKS.
<S> <C> <C>
REPURCHASE RIGHTS................ During the first 15 days of any During the first 15 days of any
calendar month, PKS must repurchase calendar month, PKS Holdings will be
shares of Class C Stock upon the required to repurchase shares of PKS
demand of a holder of such stock at a Holdings Stock upon demand of a holder
price (the "Class C Per Share Price") of such stock at the PKS Holdings Per
determined using the Class C Formula Share Price (as defined in "--Formula
Value (as defined in "--Formula Value" Value" below) determined using the PKS
below). The PKS Board may, under Holdings Formula Value (as defined in
certain circumstances, suspend its "--Formula Value" below). PKS Holdings
repurchase obligation for up to one intends to implement a program to
year. allow holders of PKS Holdings Stock to
elect to receive installment
promissory notes as an alternative to
cash upon PKS Holdings' repurchase of
PKS Holdings Stock. See "The
Transaction-- Installment Note
Program." The PKS Holdings Board may,
under certain circumstances, suspend
its repurchase obligation for up to
one year.
LIQUIDATION RIGHTS............... Upon the liquidation, dissolution or Upon the liquidation, dissolution or
winding up of PKS, after the creditors winding up of PKS Holdings, after the
of PKS and the holders of PKS creditors of PKS Holdings and the
preferred stock (if any) receive the holders of PKS Holdings preferred
full preferential amounts to which stock (if any) receive the full
they are entitled, holders of Class C preferential amounts to which they are
Stock will be entitled to receive entitled, holders of PKS Holdings
assets of PKS based on an account (the Stock will be entitled to receive any
"C Liquidation Account"), the balance assets available for distribution to
of which is equal to the value of the PKS Holdings stockholders.
assets of PKS in excess of an amount
(the "D Liquidation Account") equal to
the value of the assets of the
Diversified Group, plus an amount
equal to one-half of the
unconsolidated stockholders' equity of
PKS itself. Holders of Class C Stock
will receive an amount equal to $1.00
per share out of the C Liquidation
Account. After a payment of $2.00 per
share to the holders of Class D Stock
out of the D Liquidation Account (and
the C Liquidation Account, if the D
Liquidation Account is insufficient to
make such payment), any assets
remaining thereafter in the C
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CLASS C STOCK PKS HOLDINGS STOCK
-------------------------------------- --------------------------------------
Liquidation Account will be
distributed to the holders of Class C
Stock.
<S> <C> <C>
CONVERSION RIGHTS................ As of January 1 of each year, a holder Holders of PKS Holdings Stock will not
of Class C Stock may convert shares of have the right to convert their PKS
Class C Stock into Class D Stock Holdings Stock into any security of
pursuant to the Conversion Right by PKS Holdings or Diversified Holdings.
providing written notice to PKS during PKS Holdings intends to implement a
the period from and including October program to allow holders of PKS
15 through and including December 15 Holdings Stock to elect to receive
of the immediately preceding year. installment promissory notes as an
Shares of Class C Stock are alternative to cash upon PKS Holdings'
convertible into a number of shares of repurchase of PKS Holdings Stock in
Class D Stock that bears the same accordance with the terms of the PKS
ratio to the number of shares Holdings Certificate. See
surrendered for conversion as the "--Repurchase Rights" above and "The
Class C Per Share Price at the Transaction--Installment Note
conversion date bears to either (i) if Program."
Class D Stock is not publicly traded,
the Class D Per Share Price (as
defined below) or (ii) if Class D
Stock is publicly traded, the average
closing price of Class D Stock for
twenty trading days prior to such
date. No conversions of Class C Stock
into Class D Stock will become
effective if PKS' duty to repurchase
Class C or Class D Stock is at the
time suspended, as provided in the PKS
Certificate.
FORMULA VALUE.................... The Class C Per Share Price at which The "PKS Holdings Per Share Price" at
Class C Stock is bought and sold, and which PKS Holdings Stock will be
at which the Class C Stock must be bought and sold, and at which the PKS
repurchased by PKS, is based on the Holdings Stock must be repurchased by
Class C Formula Value. The Class C PKS Holdings, is based on a certain
Formula Value is equal to the formula value (the "PKS Holdings
stockholders' equity of PKS less (i) Formula Value"). The PKS Holdings
the book value of certain property, Formula Value is equal to the
plant and equipment, (ii) the stockholders' equity of PKS Holdings
stockholders' equity attributable to less (i) the book value of certain
outstanding PKS preferred stock (if property, plant and equipment, and
any), and (iii) the Class D Formula (ii) the stockholders' equity
Value. attributable to outstanding PKS
Holdings preferred stock (if any).
MANDATORY
EXCHANGE....................... If all the assets and liabilities of Holders of PKS Holdings Stock will not
the Construction Group are held by a be subject to mandatory exchange
wholly owned subsidiary of PKS (such provisions comparable to those to
as PKS Holdings), the PKS Board may, which Class C stockholders are
by a two-thirds vote, require the subject.
exchange of all the outstanding Class
C Stock for the common stock of such
subsidiary on a pro rata basis. It is
pursuant to this provision that the
Share Exchange will be effected by the
PKS Board.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CLASS C STOCK PKS HOLDINGS STOCK
-------------------------------------- --------------------------------------
<S> <C> <C>
OWNERSHIP AND TRANSFERABILITY
RESTRICTIONS................... Class C Stock may be owned (with PKS Holdings Stock will be owned (with
certain limited exceptions) only by certain limited exceptions comparable
employees of PKS and its subsidiaries. to those applicable to Class C Stock)
Shares of Class C Stock must be resold only by employees of PKS Holdings and
to PKS upon death or termination of its subsidiaries. Shares of PKS
employment of an employee, except that Holdings Stock must be resold to PKS
Class C Stock may, in certain Holdings upon death or termination of
circumstances, be converted into Class employment of an employee. Pursuant to
D Stock. Pursuant to the PKS the PKS Holdings Certificate and
Certificate and repurchase agreements repurchase agreements between PKS
between PKS and holders of Class C Holdings and holders of PKS Holdings
Stock, the holders may only buy Class Stock, the holders will only be
C Stock from PKS and, except for entitled to buy PKS Holdings Stock
transfers for the benefit of certain from PKS Holdings and, except for
family members of the holders and transfers for the benefit of certain
charitable organizations, may only family members of the holders and
sell Class C Stock to PKS. charitable organizations, may only
sell PKS Holdings Stock to PKS
Holdings.
LISTING.......................... The Class C Stock is not listed for PKS Holdings Stock will not be listed
trading on any stock exchange or for trading on any stock exchange or
market. market at the Effective Time or
thereafter.
REDEMPTION....................... Pursuant to the PKS Certificate, the Pursuant to the PKS Holdings
PKS Board may, upon a determination Certificate, the PKS Holdings Board
that the amount of Class C Stock owned may, upon a determination that the
by any PKS employee is excessive in amount of PKS Holdings Stock owned by
light of such employee's level of any PKS Holdings employee is excessive
contribution, effort and in light of such employee's level of
responsibility, repurchase such number contribution, effort and
of shares of Class C stock from such responsibility, repurchase such number
employee as it believes to be of shares of PKS Holdings Stock from
appropriate. In the event of such such employee as it believes to be
repurchase, such employee has the appropriate. In the event of such
right to convert such Class C Stock repurchase, such employee will not
into Class D Stock as an alternative have the right to convert such PKS
to repurchase. Holdings Stock into any security of
PKS Holdings or Diversified Holdings
as an alternative to repurchase.
</TABLE>
14
<PAGE>
SUMMARY COMPARISON OF CLASS D STOCK AND DIVERSIFIED HOLDINGS STOCK
The Post-Transaction Certificate Amendments will change the name of PKS to
"Diversified Holdings, Inc.", redesignate Class D Stock as "Common Stock, par
value $.01 per share", modify the repurchase rights to which the holders of
Class D Stock are entitled, delete the provisions regarding Class C Stock, add
certain corporate governance provisions and make certain other changes
consistent with the implementation of the foregoing, as described herein. See
"The Post-Transaction Certificate Amendments." Appendix E-II sets forth a form
of the restatement of the PKS Certificate after giving effect to the Initial
Certificate Amendments and the Post-Transaction Certificate Amendments (the PKS
Certificate as so amended and restated is referred to herein as the "Diversified
Holdings Certificate"). The following is a summary comparison of the terms of
Class D Stock before such redesignation and Diversified Holdings Stock after
such redesignation and other modifications. For more detailed information
regarding the terms of Class D Stock and Diversified Holdings Stock, see
"Comparison of Class D Stock and Diversified Holdings Stock."
<TABLE>
<CAPTION>
DIVERSIFIED HOLDINGS
CLASS D STOCK STOCK
---------------------------------------- ----------------------------------------
<S> <C> <C>
GENERAL....................... Holders of Class D Stock are Holders of Diversified Holdings Stock,
stockholders of PKS, not of the together with holders of Class R Stock,
Diversified Group, and have an interest will be stockholders of Diversified
in the equity and assets of PKS Holdings, which will own the assets of
including the assets of Diversified the Diversified Group. Diversified
Group plus one-half of the Holdings is a Delaware corporation.
unconsolidated stockholders' equity
(whether positive or negative) of PKS.
PKS is a Delaware corporation.
DIVIDEND POLICY............... Under Delaware law and the PKS Under Delaware law and the Diversified
Certificate, after dividends have been Holdings Certificate, after dividends
declared and set aside for payment or have been declared and set aside for
paid on PKS preferred stock (if any) payment or paid on Diversified Holdings
having a preference over Class D Stock, preferred stock (if any) having a
dividends on Class D Stock may be preference over Diversified Holdings
declared and paid out of the Available Stock, dividends on Diversified Holdings
Class D Dividend Amount. Dividends of Stock and Class R Stock may be declared
$.50 per share were paid on Class D and paid out of Diversified Holdings
Stock in each of 1996 and 1997. Prior to funds legally available therefor. It is
the time the Transaction is consummated currently anticipated that dividends
or abandoned, PKS does not intend to will not be paid on Diversified Holdings
declare or pay any additional dividends Stock or Class R Stock in the
on Class D Stock. foreseeable future.
VOTING RIGHTS................. In general, holders of Class D Stock are Holders of Diversified Holdings Stock
entitled to one vote per share on all will be entitled to one vote per share
matters submitted to a vote of the on all matters submitted to a vote of
common stockholders of PKS. Holders of the common stockholders of Diversified
Class D Stock are entitled, as a Holdings, and, together with holders of
separate class, to elect one-third of Class R Stock (who are entitled to vote
the PKS Board. Holders of Class D Stock for the Diversified Holdings Board on an
have no right to cumulative voting. In as converted basis), will elect the
addition, the affirmative vote of entire Diversified Holdings Board. The
holders of 80% of
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED HOLDINGS
CLASS D STOCK STOCK
---------------------------------------- ----------------------------------------
the outstanding Class D Stock is Diversified Holdings Board will be
required to change the formula for classified. Stockholders of Diversified
determining the Class D Per Share Price Holdings will have no right to
or the Class D Formula Value. cumulative voting. Amendment of the
By-laws of Diversified Holdings by the
Diversified Holdings stockholders will
require the affirmative vote of the
holders of two-thirds of the outstanding
Diversified Holdings Stock. The
affirmative vote of holders of 80% of
Diversified Holdings Stock will be
required to amend the formula for
determining the Diversified Holdings Per
Share Price or Diversified Holdings
Formula Value (each as defined below).
Provisions of the Diversified Holdings
Certificate which provide for
supermajority voting rights will require
the same supermajority to be amended.
Stockholders of Diversified Holdings
will not be entitled to act by written
consent.
<S> <C> <C>
REPURCHASE
RIGHTS........................ Unless and until Class D Stock is Unless and until the Diversified
publicly traded, PKS must repurchase Holdings Stock is publicly traded,
shares of Class D Stock upon the demand Diversified Holdings will be required to
of a holder of such stock, during the repurchase shares of Diversified
first 15 days of any calendar month, at Holdings Stock upon the demand of a
a price (the "Class D Per Share Price") holder of such stock, during the first
determined using the Class D Formula 15 days of any calendar month, at a
Value. The PKS Board may, under certain price (the "Diversified Holdings Per
circumstances, suspend its repurchase Share Price") determined using the
obligation for up to one year. In formula value described below (the
addition, if more than 10% of the shares "Diversified Holdings Formula Value").
of Class D Stock are tendered for The Diversified Holdings Board may,
repurchase in any fiscal year, the PKS under certain circumstances, suspend its
Board may elect to repurchase Class D repurchase obligation for up to one
Stock by delivering two-year promissory year. In addition, if more than 10% of
notes instead of cash. Holders of the 10 the shares of Diversified Holdings Stock
shares of Class D Stock, Non-Redeemable are tendered for repurchase in any
Series will not have any such repurchase fiscal year, the Diversified Holdings
right. Board may elect to repurchase
Diversified Holdings Stock by delivering
interest-bearing promissory notes
instead of cash. Such promissory notes
will have such
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED HOLDINGS
CLASS D STOCK STOCK
---------------------------------------- ----------------------------------------
term to maturity, up to ten years, as
the Diversified Holdings Board may
determine. Holders of the 10 shares of
Diversified Holdings Stock designated as
"Common Stock, Non-Redeemable Series"
("Diversified Holding Stock,
Non-Redeemable Series") will not have
any such repurchase rights
<S> <C> <C>
LIQUIDATION
RIGHTS........................ Upon the liquidation, dissolution or Upon the liquidation, dissolution or
winding up of PKS, after the creditors winding up of Diversified Holdings,
of PKS and the holders of PKS preferred after the creditors of Diversified
stock (if any) receive the full Holdings and the holders of Diversified
preferential amounts to which they are Holdings preferred stock (if any)
entitled, holders of Class D Stock will receive the full preferential amounts to
be entitled to an amount equal to the D which they are entitled, holders of
Liquidation Account. Holders of Class D Diversified Holdings Stock, together
Stock will receive an amount equal to with holders of Class R Stock, will be
$2.00 per share out of the D Liquidation entitled to receive any assets available
Account (and the C Liquidation Account, for distribution to holders of
after the payment of $1.00 to holders of Diversified Holdings Stock. Holders of
Class C Stock, if the D Liquidation Class R Stock will share such assets
Account does not contain sufficient with holders of Diversified Holdings
funds to make such payment). Any assets Stock on an as converted basis, provided
remaining thereafter in the D that each share of Class R Stock will
Liquidation Account will be distributed receive no less than one-fourth of the
to the holders of Class D Stock. amount of assets to which one share of
Diversified Holdings Stock would be
entitled.
CONVERSION
RIGHTS........................ A holder of Class D Stock who is offered Holders of Diversified Holdings Stock
Class C Stock in connection with PKS' will not have the right to convert their
annual offering of stock to employees Diversified Holdings Stock into any
may, in lieu of purchasing such shares security of PKS Holdings or Diversified
of Class C Stock, convert shares of Holdings.
Class D Stock into the number of shares
of Class C Stock (up to the number of
shares of Class C Stock offered) that
bears the same ratio to the number of
shares surrendered for conversion as the
Class D Per Share Price on the date PKS
receives notice of the conversion bears
to the Class C Per Share Price. No
conversions of Class D Stock into Class
C Stock are
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED HOLDINGS
CLASS D STOCK STOCK
---------------------------------------- ----------------------------------------
allowed after Class D Stock has become
publicly traded or if PKS' duty to
repurchase Class D Stock is at the time
suspended, as provided in the PKS
Certificate. Holders of the 10 shares of
Class D Stock, Non-Redeemable Series
will have no such conversion right.
<S> <C> <C>
FORMULA VALUE................. The Class D Formula Value is the basis Unless and until the Diversified
for the determination of the amount paid Holdings Stock is publicly traded, the
as dividends on Class D Stock and, Diversified Holdings Formula Value will
unless and until Class D Stock is be the basis for the determination of
publicly traded, the Class D Per Share the Diversified Holdings Per Share Price
Price at which Class D Stock must be at which Diversified Holdings Stock must
repurchased by PKS upon the demand of a be repurchased by Diversified Holdings
holder of Class D Stock. upon demand of a holder of Diversified
Holdings Stock. The formula for
determining the Diversified Holdings
Formula Value will be substantially
similar to the formula for determining
the Class D Formula Value. The
Diversified Holdings Formula Value will
not be used to determine the amounts
available for dividends on Diversified
Holdings Stock. See "--Dividend Policy"
above.
MANDATORY EXCHANGE............ The PKS Certificate provides that unless Holders of Diversified Holdings Stock
and until Class D Stock becomes publicly will not be subject to mandatory
traded, the PKS Board may, by a exchange provisions comparable to those
two-thirds vote, require an exchange of to which holders of Class D Stock are
the outstanding shares of Class D Stock subject.
for shares of Class C Stock. If a holder
of Class D Stock is not then eligible to
own Class C Stock, PKS must purchase
such holder's shares of Class D Stock
for cash at the Class D Per Share Price.
Holders of the 10 shares of Class D
Stock, Non-Redeemable Series will not be
subject to such mandatory exchange.
OWNERSHIP AND TRANSFERABILITY
RESTRICTIONS.................. Under the PKS Certificate, there are no Under the Diversified Holdings
restrictions on the transfer or Certificate, there will be no
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED HOLDINGS
CLASS D STOCK STOCK
---------------------------------------- ----------------------------------------
ownership of Class D Stock. restrictions on the transfer or
ownership of Diversified Holdings Stock.
<S> <C> <C>
LISTING....................... Class D Stock is not listed for trading Diversified Holdings does not expect to
on any stock exchange or market. list Diversified Holdings Stock for
trading on a stock exchange or market at
the Effective Time. Diversified Holdings
expects that it will not seek such a
listing until it raises capital through
a public equity offering or desires to
have a listed equity security available
for acquisitions. Any determination to
raise public equity capital will depend
on a number of factors including,
without limitation, Diversified
Holdings' capital needs, the
availability and attractiveness of
alternative sources of capital, the
performance of Diversified Holdings and
conditions in the public equity markets.
Accordingly, no assurance can be given
that Diversified Holdings Stock will be
listed for trading in the future, or, if
it is, when such listing will be
accomplished or whether an active
trading market will develop or be
sustained.
</TABLE>
INSTALLMENT NOTE PROGRAM
If the Transaction is consummated, PKS Holdings intends to implement a
program (the "Installment Note Program") to allow holders of PKS Holdings Stock
to elect to receive installment promissory notes of PKS Holdings ("Installment
Notes") as an alternative to cash upon PKS Holdings' repurchase of PKS Holdings
Stock in accordance with the terms of the PKS Holdings Certificate. See "The
Transaction-- Installment Note Program."
19
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC.
(To be renamed Diversified Holdings, Inc. following the consummation of the
Transaction)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (1)(2)(3)
------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
FISCAL YEAR FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 28, 1996
-------------------- -------------------- ------------------------
<CAPTION>
SCENARIO SCENARIO
1995 1996 1996 1997 1 2
--------- --------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue......................................... $ 2,867 $ 2,904 $ 1,363 $ 1,381 $ 285 $ 285
Net earnings.................................... 244 221 71 91 106 108
FINANCIAL POSITION:
Total assets.................................... $ 3,451 $ 3,548 $ 3,805
Current portion of long-term debt............... 42 57 14
Long-term debt, less current portion............ 370 332 393
Stockholders' equity(4)......................... 1,607 1,819 1,926
PER COMMON SHARE:
Net Earnings:
Class C Stock:
Primary..................................... $ 7.78 $ 10.13 $ 3.46 $ 5.34
Fully diluted............................... 7.62 9.82 3.36 5.13
Class D Stock:
Primary..................................... 6.45 4.85 1.54 1.67 $ 3.68 $ 3.65
Fully diluted............................... 6.44 4.85 1.54 1.67 3.67 3.65
Dividends(5):
Class C Stock................................. 1.05 1.30 0.60 0.70
Class D Stock................................. 0.50 0.50 -- --
Stock Price (6):
Class C Stock................................. 32.40 40.70 31.80 40.00
Class D Stock................................. 49.50 54.25 49.50 54.25
Book Value:
Class C Stock................................. 42.90 51.02 45.34 55.38
Class D Stock................................. 49.49 54.23 54.22 55.62
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1997
------------------------
SCENARIO SCENARIO
1 2
----------- -----------
<S> <C> <C>
RESULTS OF OPERATIONS:
Revenue......................................... $ 161 $ 161
Net earnings.................................... 30 31
FINANCIAL POSITION:
Total assets.................................... $ 2,639 $ 2,699
Current portion of long-term debt............... 1 1
Long-term debt, less current portion............ 133 133
Stockholders' equity(4)......................... 1,840 1,900
PER COMMON SHARE:
Net Earnings:
Class C Stock:
Primary.....................................
Fully diluted...............................
Class D Stock:
Primary..................................... $ .99 $ 1.00
Fully diluted............................... .99 1.00
Dividends(5):
Class C Stock.................................
Class D Stock.................................
Stock Price (6):
Class C Stock.................................
Class D Stock................................. 65.75 65.30
Book Value:
Class C Stock.................................
Class D Stock................................. 65.76 65.32
</TABLE>
- ------------------------
(1) The pro forma results of operations data are computed assuming that the
Transaction was consummated on December 31, 1995 and December 29, 1996 for
the fiscal year ended December 28, 1996 and six months ended June 30, 1997,
respectively. The pro forma financial position data as of June 30, 1997
assume that the Transaction was consummated as of such date. The pro forma
financial data of PKS should be read in conjunction with PKS' historical
consolidated financial statements and the notes thereto and the "Pro Forma
Financial Data" included elsewhere herein or incorporated by reference.
(2) The pro forma information assumes, in two separate scenarios, that 1,500,000
shares (Scenario 1) and that 3,000,000 shares (Scenario 2) of Class C Stock
will be converted in the 1997 Conversion Period. The PKS Board has set the
Conversion Cap which limits to 3,000,000 the number of shares of Class C
Stock that can be converted during the 1997 Conversion Period.
(3) The PKS Board approved the Transaction at a special meeting on August 14,
1997. The pro forma results of operations, financial position and per common
share data assume the earnings statement and balance sheet accounts of the
Construction Group have been removed as a result of the Transaction. The
operating results and financial position of C-TEC have been reflected as an
equity method investment in the pro forma data due to C-TEC's restructuring
which reduced PKS' voting interest below fifty percent in three separate
publicly traded entities. Due to the pending sale of PKS' energy investments
to CalEnergy, the net earnings attributable to these investments have been
removed from the results of operations. The pro forma results of such sale
have been reflected on the pro forma balance sheet.
(4) The aggregate redemption value of Class C Stock and Class D Stock at June
30, 1997 was $404 million and $1,333 million, respectively.
20
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC.
(To be renamed Diversified Holdings, Inc. following the consummation of the
Transaction)
(5) The 1995 and 1996 Class C Stock dividends include $.60 and $.70 per share
dividends declared in 1995 and 1996, but paid in January of the subsequent
year. The 1995 and 1996 Class D Stock dividends include $.50 per share
dividends declared in 1995 and 1996, but paid in January of the subsequent
year. Pro forma dividends have not been presented as the amount of any
dividends that may have been declared if the Transaction had occurred as of
the beginning of the respective periods cannot be determined.
(6) Pursuant to the PKS Certificate, the stock price calculation of a share of
Class C Stock and Class D Stock is computed annually at the end of the
fiscal year, except that adjustments to the stock price to reflect dividends
are made at the time such dividends are declared.
See "Selected Historical and Pro Forma Financial Data of Peter Kiewit Sons',
Inc." for further information.
21
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
OF THE CONSTRUCTION GROUP
(To be operated by PKS Holdings, Inc. which will be renamed "Peter Kiewit Sons',
Inc."
following the consummation of the Transaction)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (1)(2)
------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
FISCAL YEAR FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 28, 1996
-------------------- -------------------- ------------------------
<CAPTION>
SCENARIO SCENARIO
1995 1996 1996 1997 1 2
--------- --------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue....................................... $ 2,330 $ 2,286 $ 1,072 $ 1,047 $ 2,286 $ 2,286
Net earnings.................................. 104 108 36 50 107 105
FINANCIAL POSITION:
Total assets.................................. $ 977 $ 1,036 $ 1,117
Current portion of long-term debt............. 2 -- 2
Long-term debt, less current portion.......... 9 12 16
Stockholders' equity(3)....................... 467 562 559
PER COMMON SHARE:
Net earnings:
Primary..................................... $ 7.78 $ 10.13 $ 3.46 $ 5.34 $ 11.21 $ 13.12
Fully diluted............................... 7.62 9.82 3.36 5.13 11.21 13.12
Dividends(4).................................. 1.05 1.30 0.60 0.70
Stock price(5)................................ 32.40 40.70 31.80 40.00
Book value.................................... 42.90 51.02 45.34 55.38
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1997
------------------------
SCENARIO SCENARIO
1 2
----------- -----------
<S> <C> <C>
RESULTS OF OPERATIONS:
Revenue....................................... $ 1,047 $ 1,047
Net earnings.................................. 49 48
FINANCIAL POSITION:
Total assets.................................. $ 1,056 $ 996
Current portion of long-term debt............. 2 2
Long-term debt, less current portion.......... 6 6
Stockholders' equity(3)....................... 505 445
PER COMMON SHARE:
Net earnings:
Primary..................................... $ 5.92 $ 7.10
Fully diluted............................... 5.92 7.10
Dividends(4)..................................
Stock price(5)................................ 42.50 43.00
Book value.................................... 55.92 59.09
</TABLE>
- ------------------------
(1) The pro forma results of operations data are computed assuming the
Transaction was consummated on December 31, 1995 and December 29, 1996 for
the fiscal year ended December 28, 1996 and six months ended June 30, 1997,
respectively. The pro forma financial position data as of June 30, 1997
assume that the Transaction was consummated as of such date. The pro forma
financial data of the Construction Group should be read in conjunction with
the Construction Group's historical financial statements and the notes
thereto and the "Pro Forma Financial Data" included elsewhere herein.
(2) The pro forma information assumes, in two separate scenarios, that 1,500,000
shares (Scenario 1) and that 3,000,000 shares (Scenario 2) of Class C Stock
will be converted in the 1997 Conversion Period. The PKS Board has set the
Conversion Cap which limits to 3,000,000 the number of shares of Class C
Stock that can be converted during the 1997 Conversion Period.
(3) Ownership of Class C Stock is restricted to certain employees and
conditioned upon the execution of repurchase agreements which restrict the
employees from transferring the stock. PKS generally must repurchase shares
of Class C Stock upon demand of the holder of such stock at the
then-applicable Class C Per Share Price, pursuant to the PKS Certificate.
The aggregate redemption value of the Class C Stock at June 30, 1997 was
$404 million.
(4) The 1995 and 1996 Class C Stock dividends include $.60 and $.70 per share
dividends declared in 1995 and 1996, respectively, but paid in January of
the subsequent year. Pro forma dividends have not been presented as the
amount of any dividends that may have been declared if the Transaction had
occurred as of the beginning of the respective periods cannot be determined.
(5) Pursuant to the PKS Certificate, the stock price calculation of a share of
Class C Stock is computed annually at the end of the fiscal year, except
that adjustments to the stock price to reflect dividends are made at the
time such dividends are declared.
See "Selected Historical and Pro Forma Financial Data of the Construction
Group" for further information.
22
<PAGE>
RISK FACTORS REGARDING PKS HOLDINGS AFTER THE TRANSACTION AND
OWNERSHIP OF CLASS R STOCK
If the Transaction is consummated, holders of Class C Stock will receive
shares of PKS Holdings Stock in the Share Exchange and receive shares of Class R
Stock in the Class R Stock Distribution. Holders of Class C Stock should
consider carefully, in addition to the other information set forth in this Proxy
Statement/Joint Prospectus, the factors set forth below.
LOSS OF CONVERSION RIGHT
Holders of PKS Holdings Stock (I.E., the former holders of Class C Stock)
will have no rights comparable to the Conversion Right, which permits holders of
Class C Stock to convert shares of Class C Stock into Class D Stock.
Consequently, should the Transaction be consummated, the 1997 Conversion Period
would be the final opportunity to convert shares of Class C Stock into Class D
Stock. The PKS Board has set the Conversion Cap which limits to 3,000,000 the
number of shares of Class C Stock that can be converted during the 1997
Conversion Period. Since there can be no assurance that the Transaction will be
consummated, holders of Class C Stock who convert their shares of Class C Stock
during the 1997 Conversion Period should consider the potential consequences of
a failure to consummate the Transaction. See "Risk Factors Regarding Diversified
Holdings After the Transaction--No Assurance of Transaction Completion" and
"--Potential Consequences of a Failure to Consummate the Transaction."
FUTURE SALES OF PKS HOLDINGS STOCK BY PKS HOLDINGS
PKS offers Class C Stock for sale to employees annually. The PKS Board and
management select the employees to whom Class C Stock is to be offered and
determine the number of shares to be offered to each such employee based upon
consideration of a wide range of factors, including the employee's effort and
relative contribution to PKS' economic performance, the employee's level of
responsibility, the potential displayed by the employee, the employee's length
of service, and the amount of Class C Stock presently owned by the employee. The
PKS Board and management also consider any sales or conversions of Class C Stock
by an employee permitted under the PKS Certificate in determining whether to
offer Class C Stock to the employee in the following year and have generally
declined to sell Class C Stock to the employee in the year following such sale
or conversion.
The PKS Holdings Board and management expect to use similar criteria in
determining the PKS Holdings employees to whom PKS Holdings Stock will be
offered, and the number of shares of PKS Holdings Stock to be offered to each
such employee, in 1998. Accordingly, PKS Holdings expects that the PKS Holdings
Board and management will not offer PKS Holdings Stock for sale in 1998 to a
holder of Class C Stock who has converted Class C Stock during the 1997
Conversion Period. Furthermore, PKS Holdings does not intend to modify any
criteria utilized to determine participation in its employee stock ownership
program for purposes of enabling persons who converted Class C Stock during the
1997 Conversion Period to restore a comparable level of holdings of PKS Holdings
Stock to such persons through future sales.
LIMITATIONS ON THE VALUE OF CLASS R STOCK
Prior to the Share Exchange, the Class R Stock will hold no dividend,
liquidation or voting rights (other than as required by law), and if the Share
Exchange is not consummated by October 15, 1998 (subject to extension by the PKS
Board) will be mandatorily redeemed by PKS at a per share price equal to the par
value of such Class R Stock ($.01 per share). See "Description of Class R
Stock--Mandatory Redemption."
After the Share Exchange, the number of shares of Diversified Holdings Stock
into which a share of Class R Stock may be converted (the "Conversion Ratio") is
not fixed, but is equal to the Conversion Value (as defined) divided by the
Trading Price (as defined) of the Diversified Holdings Stock. As a result,
23
<PAGE>
the value of a share of Class R Stock is limited to the value of shares of
Diversified Holdings Stock into which such Class R Stock is convertible, plus
the dividend and liquidation rights of such Class R Stock. The Conversion Value,
and thus the value of the shares of Diversified Holdings Stock into which a
share of Class R Stock is convertible, can vary between a minimum of $15.00 and
a maximum of $25.00, based on the Trading Price and subject to certain
adjustments. Although the Class R Stock is being issued in recognition of the
potential value of the Conversion Right, the rights of a holder of Class R Stock
are not the same as the rights of a holder of Class C Stock with respect to the
Conversion Right. See "Description of Class R Stock."
LIMITATIONS ON DIVIDEND, LIQUIDATION AND VOTING RIGHTS OF CLASS R STOCK
Prior to the Share Exchange, Class R Stock will possess no liquidation or
dividend rights, and will possess only those voting rights required by law.
After the Share Exchange, holders of Class R Stock will possess the right to
share in Ordinary Dividends (as defined) paid on Diversified Holdings Stock in
an amount per share of Class R Stock (or fraction thereof) equal to the Ordinary
Dividend paid on the number of shares of Diversified Holdings Stock into which
such share of Class R Stock (or fraction thereof) could be converted, and
Extraordinary Dividends (as defined) in an amount per share of Class R Stock (or
fraction thereof) equal to one fourth of the Extraordinary Dividend paid on the
number of shares of Diversified Holdings Stock into which such share of Class R
Stock (or fraction thereof) could be converted. See "Description of Class R
Stock--Dividends." It is not anticipated that Diversified Holdings will pay
dividends to holders of Diversified Holdings Stock or Class R Stock in the
foreseeable future. See "Risk Factors Regarding Diversified Holdings After the
Transaction--Dividend Policy."
After the Share Exchange, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of Diversified Holdings, holders of Class
R Stock will be entitled to be paid ratably out of the assets and funds of
Diversified Holdings legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of any preferred stock of Diversified Holdings, in an
amount equal to the amount paid on the number of shares of Diversified Holdings
Stock into which such share of Class R Stock (or fraction thereof) could be
converted, subject to certain adjustments which provide, among other things,
that each share of Class R Stock will receive no less than one-fourth of the
amount of assets to which one share of Diversified Holdings Stock would be
entitled upon liquidation, dissolution or winding up. See "Description of Class
R Stock--Liquidation Rights."
After the Share Exchange, holders of Class R Stock will be entitled to vote
only for the election of directors and on such other matters as required by law.
For matters on which holders of Class R Stock are entitled to vote, each such
holder will be entitled to a number of votes per share equal to the Conversion
Ratio then in effect. As result, there may be matters affecting PKS or
Diversified Holdings on which holders of Class R Stock may not be entitled to
vote, or if such holders are entitled to vote, where the number of votes held by
them is much lower than those held by holders of Diversified Holdings Stock. See
"Description of Class R Stock--Voting Rights."
RESTRICTIONS ON CONVERSION AND TRANSFER OF CLASS R STOCK
A particular share of Class R Stock (or fraction thereof) may be converted
into Diversified Holdings Stock only during certain periods (each, a "Conversion
Period"), and only if one of certain specified events has occurred (the
"Conversion Condition"). A Conversion Period occurs (x) if the Diversified
Holdings Stock is not publicly traded, for a 25-day period each year following
the preparation of a valuation used to determine the Conversion Ratio of the
Class R Stock, with the first such period following December 31, 1999, and (y)
if the Diversified Holdings Stock is publicly traded, for a period of six
business days each month, with the first such period following 90 days (subject
to extension to 180 days) after the Diversified Holdings Stock becomes publicly
traded. The Conversion Condition with respect to a particular share of Class R
Stock is the earlier to occur of: (i) the repurchase or redemption by PKS
Holdings of the share of
24
<PAGE>
PKS Holdings Stock to which such share of Class R Common Stock (or fraction
thereof) is attached; (ii) the exchange of the share of PKS Holdings Stock to
which such share of Class R Common Stock (or fraction thereof) is attached into
another class of stock or securities of PKS Holdings intended to be issued
primarily to persons leaving employment of PKS Holdings; and (iii) April 15,
2006. Notwithstanding any of the foregoing limitations, Class R Common Stock
will be convertible after the occurrence of a change of control of Diversified
Holdings. See "Description of Class R Stock."
Class R Stock may not be transferred prior to the Share Exchange. Following
the Share Exchange and prior to the first day on which the Conversion Condition
with respect to a particular share of Class R Stock (or fraction thereof)
becomes satisfied (the "Restricted Period Termination Date"), such share of
Class R Stock (or fraction thereof) may only be transferred (a) to Diversified
Holdings or its designee (a "Permitted Transfer"), or (b) in a simultaneous
transfer to the same transferee with the share of PKS Holdings Stock to which
such share of Class R Stock (or fraction thereof) is attached (an "Attached
Transfer") provided that such transfer of such share of PKS Holdings Stock is
permitted by the PKS Holdings Certificate. After (i) the Share Exchange and (ii)
the Restricted Period Termination Date with respect to a particular share of
Class R Stock (or fraction thereof), such share of Class R Stock (or fraction
thereof) will be freely transferable.
TRANSFERS FROM THE CONSTRUCTION GROUP
Whenever Class C Stock is converted into Class D Stock, it has been PKS'
practice (although the terms of the PKS Certificate do not require that it do
so) to transfer funds from the Construction Group to the Diversified Group, in
an amount equal to the aggregate Class C Per Share Price of the Class C Stock so
converted, in order that the conversion will not have the effect of diluting the
Class D Formula Value. PKS will take the same action with respect to Class C
Stock converted into Class D Stock during the 1997 Conversion Period. Thus, the
more Class C Stock that is converted during the 1997 Conversion Period, the
greater the funds that will be transferred from the Construction Group to the
Diversified Group. For example, if 1,500,000 shares of Class C Stock were
converted into Class D Stock during the 1997 Conversion Period, PKS would
transfer $72,000,000 from the Construction Group to the Diversified Group; if
3,000,000 shares of Class C Stock were converted into Class D Stock during the
1997 Conversion Period, PKS would transfer $144,000,000 from the Construction
Group to the Diversified Group (calculated in each case assuming a year end 1997
Class C Per Share Price of $48.00). Pursuant to the PKS Certificate, the PKS
Board has set the Conversion Cap, which limits to 3,000,000 the number of shares
of Class C Stock that can be converted during the 1997 Conversion Period. The
Construction Group will be required to borrow funds to make the appropriate
transfer. The degree to which PKS Holdings is required to become leveraged
could, under certain circumstances, limit its financial and operating
flexibility. See "The Transaction--Conversion of Class C Stock Prior to the
Transaction."
NO PUBLIC MARKET FOR PKS HOLDINGS STOCK
The PKS Certificate and repurchase agreements between PKS and holders of
Class C Stock substantially restrict the transfer of shares of Class C stock.
Consequently, there is no public market for Class C Stock. The PKS Holdings
Certificate and repurchase agreements to be executed between PKS Holdings and
holders of PKS Holdings Stock will contain comparable restrictions on transfer.
Thus, there will be no public market for PKS Holdings Stock. See "Comparison of
Class C Stock and PKS Holdings Stock."
RISKS ASSOCIATED WITH THE CONSTRUCTION BUSINESS
The risks associated with the business of the Construction Group include all
of the risks attendant to any construction business, including the impact on the
construction industry of changes in national and regional economies, the
cyclical nature of the construction business, the risk of bankruptcy of, or non-
payment by, owners, the risk of cost overruns and job losses on particular
projects, risks associated with
25
<PAGE>
increasing competition in the construction business, the risks of foreign
construction operations, and the costs and restraints imposed upon operation by
regulatory requirements.
EFFECT OF SEPARATION OF THE BUSINESS GROUPS
The Construction Group from time to time has performed construction services
for Diversified Group companies. For example, the Construction Group is
currently building three of the Joint Venture Energy Projects. See "Appendix
B--Business of Diversified Holdings--International Energy." The Construction
Group also performed services for MFS during the early stages of development
when MFS was controlled by the Diversified Group. If the Business Groups were to
continue to be affiliated, it is possible that similar construction
opportunities would be presented to the Construction Group in the future. If the
Transaction is consummated and the Business Groups are no longer affiliated,
such opportunities might not be available to the Construction Group to the same
extent as before the Transaction.
NO ASSURANCE OF ACHIEVEMENT OF BUSINESS OBJECTIVE
The PKS Board believes that separation of the Business Groups will allow the
management of the Construction Group to focus its attention and financial
resources on its business. Although PKS believes that the Transaction will
enable PKS Holdings to achieve this objective, there can be no assurance as to
whether and to what extent this business objective of the Transaction will be
achieved if the Transaction is consummated. See "The Transaction--Background and
Purposes of the Transaction."
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Proxy Statement/Joint Prospectus contains certain forward-looking
statements and information relating to PKS Holdings that are based on the
beliefs of PKS or management of PKS or the Construction Group as well as
assumptions made by and information currently available to PKS or such
managements. When used in this document, the words "anticipate", "believe",
"estimate" and "expect" and similar expressions, as they relate to PKS or PKS
Holdings or the management of PKS or the Construction Group, are intended to
identify forward-looking statements. Such statements reflect the current views
of PKS or the Construction Group with respect to future events and are subject
to certain risks, uncertainties and assumptions, including the risk factors
described in this Proxy Statement/Joint Prospectus. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. Neither PKS nor PKS Holdings
intends to update these forward-looking statements.
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RISK FACTORS REGARDING DIVERSIFIED HOLDINGS AFTER THE TRANSACTION
If the Transaction is consummated, holders of Class D Stock will continue to
hold the shares of Class D Stock which they held immediately prior to the
Effective Time and holders of Class C Stock will receive shares of Class R
Stock. Upon filing of the Post-Transaction Certificate Amendments, Class D Stock
will be redesignated and modified as Diversified Holdings Stock. Holders of
Class C Stock and Class D Stock should consider carefully, in addition to the
other information set forth in this Proxy Statement/Joint Prospectus, the
factors set forth below.
NO ASSURANCE OF ACHIEVEMENT OF BUSINESS OBJECTIVES
The Transaction is intended, among other things, to (i) permit the
Diversified Group to attract and retain the senior management and employees
needed to implement and develop the Diversified Group's Expansion Plan,
including James Q. Crowe and R. Douglas Bradbury, (ii) enable the Diversified
Group to access the capital markets in order to fund the Expansion Plan on more
advantageous terms than would be available to the Diversified Group as part of
PKS, (iii) enable the Diversified Group to pursue strategic investments and
acquisitions, as part of the Expansion Plan, which could be foreclosed to the
Diversified Group as part of PKS and (iv) allow the management of the
Diversified Group to focus its attention and financial resources on its
business. There can be no assurance as to whether and to what extent any of the
business objectives of the Transaction will be achieved if the Transaction is
consummated. See "The Transaction--Background and Purposes of the Transaction."
NO ASSURANCE OF TRANSACTION COMPLETION
If the Transaction is consummated, the 1997 Conversion Period will be the
last opportunity for holders of Class C Stock to convert Class C Stock into
Class D Stock. In deciding whether to convert their Class C Stock, such holders
of Class C Stock should recognize that consummation of the Transaction is
subject to stockholder ratification of the Transaction and approval of the
Certificate Amendments, satisfaction of the Tax Condition and the decision of
the PKS Board to proceed with the Transaction. Although it is likely that a
holder of Class C Stock will know whether PKS Stockholders have ratified the
Transaction and approved the Certificate Amendments before the holder must make
a conversion decision for the 1997 Conversion Period, the Tax Condition will not
have been satisfied by that time and it is likely that a holder of Class C Stock
will not know at that time whether the Tax Condition will be satisfied when the
holder makes that decision. Furthermore, the PKS Board could subsequently
determine to abandon, defer or modify the Transaction if it were to determine
that such action were in the best interests of all PKS Stockholders.
Accordingly, holders of Class C Stock electing to convert Class C Stock into
Class D Stock during the 1997 Conversion Period will have no assurance that the
Transaction will be consummated.
POTENTIAL CONSEQUENCES OF A FAILURE TO CONSUMMATE THE TRANSACTION
Pursuant to the executive retention agreement among PKS, KDG and James Q.
Crowe (the "Retention Agreement"), if the Transaction is abandoned and if, as
currently anticipated, Mr. Crowe resigns as Chief Executive Officer of KDG, Mr.
Crowe is entitled to acquire substantially all of the Diversified Group's assets
relating to the Expansion Plan, at the Diversified Group's book value for those
assets, and to pursue the business contemplated by the Expansion Plan outside of
the Diversified Group. The Diversified Group has not invested a significant
amount to date in the Expansion Plan. However, the Diversified Group anticipates
that Expansion Plan expenditures through mid-1998 could approach $150 million,
and that a substantial portion of those expenditures would be expensed for
accounting purposes. Accordingly, it is anticipated that such book value will be
substantially lower than the amount of the Diversified Group's aggregate
investment in such assets. See "Certain Relationships and Related Transactions."
If Mr. Crowe chooses to exercise this purchase right, it is likely that
substantially all of the employees retained to pursue the Expansion Plan would
follow Mr. Crowe. As a result, if the Transaction is abandoned for any reason,
it is possible that Mr. Crowe will leave the Diversified Group and that the
Diversified Group would not be able to pursue the Expansion Plan. In addition,
as a result of the
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CalEnergy Agreement, the Diversified Group would no longer participate in the
energy business, and would be left solely with its current information systems
business, its investment in the C-TEC Companies and its coal mining business,
together with substantial cash resources. Accordingly, the Diversified Group
would have to retain new senior management and redirect significantly its
business strategy.
EXPANSION PLAN RISKS
The decision of the Diversified Group to pursue the Expansion Plan entails
significant and substantial risks not presented by the other Diversified Group
businesses or current ownership of Class D Stock. These risks include:
INCREASE IN EMPHASIS ON INFORMATION SERVICES BUSINESS. The Expansion Plan
represents a major increase in emphasis by the Diversified Group on its
information services business. In addition, the Expansion Plan provides for the
creation of a new facilities-based Internet communications network. The
Expansion Plan is in an early stage of development, thus making an evaluation of
its risks and rewards extremely difficult and speculative. Furthermore, the
Expansion Plan's focus on the information services business and the creation of
an information services network ultimately will reduce the overall
diversification of the Diversified Group's businesses, thus increasing the risk
that a downturn in a single area of business could adversely affect overall
Diversified Group performance.
OPERATING LOSSES. The Diversified Group has recorded net profits in each
year since it was established. The development of the Expansion Plan, however,
will require significant capital expenditures, a substantial portion of which
will be incurred before any related revenues from the Expansion Plan are
realized. These expenditures, together with the associated early operating
expenses, will result in negative cash flow until an increased customer base is
established, and could result in substantial net losses for the Diversified
Group in the developmental years of the Expansion Plan. There can be no
assurance that Diversified Holdings will be able to achieve or sustain
profitability in the future. In addition, net losses by the Diversified Group
would reduce the formula price at which Diversified Holdings is required to
repurchase Diversified Holdings Stock.
SIGNIFICANT CAPITAL REQUIREMENTS. Diversified Holdings expects to fund the
Expansion Plan through existing resources, internally generated funds and
additional debt or equity financing as appropriate. In addition, Diversified
Holdings could sell or dispose of existing businesses or investments to fund
portions of the Expansion Plan. For example, the Diversified Group has entered
into the CalEnergy Agreement, pursuant to which it will sell all of its energy
assets to fund a portion of the capital requirements of the Expansion Plan. The
costs of the Expansion Plan, however, are expected to be substantial (in excess
of $1 billion per year within approximately two years after the consummation of
the Transaction), and there can be no assurance that Diversified Holdings will
be successful in producing sufficient cash flow or raising sufficient debt or
equity capital on terms that it will consider acceptable, and proceeds of
dispositions of Diversified Group assets might not reflect their intrinsic
value. Failure to generate sufficient funds may require Diversified Holdings to
delay or abandon some of its future expansion or expenditures, which could have
a material adverse effect on its growth.
COMPETITION. All the businesses encompassed by the Expansion Plan are
subject to significant competition from a wide variety of competitors in the
information services and telecommunications industries. Many of these existing
and potential competitors have more experience than the Diversified Group and
financial, personnel and other resources significantly greater than those of the
Diversified Group.
IMPLEMENTATION RISKS. Implementation of the Expansion Plan will require a
rapid expansion of information services offerings and accelerated development of
a facilities-based Internet network. This expansion and development will depend
on, among other things, Diversified Holdings' ability to assess markets, design
fiber optic network backbone routes, install facilities and obtain
rights-of-way, building access and any required government authorizations and/or
permits. As a result, there can be no assurance
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that Diversified Holdings will be able to accomplish all of the tasks necessary
to implement the Expansion Plan. If Diversified Holdings is not able to
accomplish those tasks efficiently and effectively, there will be a material
adverse effect on its growth.
RAPID TECHNOLOGICAL CHANGES. The businesses encompassed by the Expansion
Plan are subject to rapid and significant changes in technology. While
Diversified Holdings believes that, for the foreseeable future, these changes
will not hinder the Expansion Plan, the effect of technological changes on the
Expansion Plan cannot be predicted.
DEPENDENCE ON KEY PERSONNEL. Diversified Holdings' businesses will be
managed by a small number of key executive officers, particularly James Q.
Crowe, Chief Executive Officer, and R. Douglas Bradbury, Chief Financial
Officer, the loss of certain of whom could have a material adverse effect on
Diversified Holdings. Diversified Holdings believes that its future success will
depend in large part on its ability to attract and retain highly skilled,
knowledgeable, sophisticated and qualified personnel.
OPERATIONAL ISSUES ARISING FROM RAPID GROWTH. Management of the business of
the Diversified Group has required and will continue to require, among other
things, continued development of financial and management controls, further
controls of operating expenses as well as other costs, and the training of new
personnel. There can be no assurance that Diversified Holdings will be able to
manage successfully this growth and development. As Diversified Holdings
continues this strategy of growth through investment and acquisitions, there can
be no assurance that Diversified Holdings will be able to identify other
suitable candidates for strategic investment and acquisition on acceptable terms
or that it will be able to obtain the requisite financing for any such future
investments or acquisitions. Additionally, there can be no assurance that any
future investments or acquisitions will not have a material adverse effect on
Diversified Holdings' operating results or on the value of Diversified Holdings
Stock, particularly during the period immediately following such acquisitions.
DISPOSITION OF EXISTING BUSINESSES. In connection with the emphasis on the
information services business as a result of the Expansion Plan, the Diversified
Group has entered into the CalEnergy Agreement, pursuant to which it will sell
all of its energy assets, and may enter into other arrangements to sell or
dispose of businesses that are not compatible with the Expansion Plan.
Accordingly, the past performance of the Diversified Group will not be
indicative of its future prospects or future performance.
LIMITED PUBLIC MARKET FOR DIVERSIFIED HOLDINGS STOCK; NO ASSURANCE AS TO LISTING
There has been an extremely limited market for Class D Stock since its
initial issuance in 1992. Class D Stock is not currently listed for trading on
any stock exchange or market. Diversified Holdings does not expect to list
Diversified Holdings Stock for trading on a stock exchange or market at the
Effective Time. Diversified Holdings expects that it will not seek such a
listing until it raises capital through a public equity offering or desires to
have a listed equity security available for acquisitions. Any determination to
raise public equity capital will depend on a number of factors including,
without limitation, Diversified Holdings' capital needs, the availability and
attractiveness of alternative sources of capital, the performance of Diversified
Holdings and conditions in the public equity markets. Accordingly, no assurance
can be given that Diversified Holdings Stock will be listed for trading in the
future, or, if it is, when such listing will be accomplished or whether an
active trading market will develop or be sustained.
MODIFICATION OF REPURCHASE OBLIGATION
Under the PKS Certificate, PKS has an obligation to repurchase Class D Stock
on the terms described under "Comparison of Class D Stock and Diversified
Holdings Stock." The PKS Certificate provides that PKS may deliver promissory
notes with a two-year term to satisfy its repurchase obligation if more than 10%
of the shares of Class D Stock are tendered for repurchase in any calendar year.
Diversified Holdings' obligation to repurchase Diversified Holdings Stock will
be modified by the Certificate Amendments to provide that such promissory notes
will have such term to maturity, up to ten years, as the Diversified
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Holdings Board may determine. Thus, holders of Diversified Holdings Stock may,
under certain circumstances, have stock repurchased on less favorable terms than
would holders of Class D Stock.
The modification of the repurchase obligation with respect to Class D Stock
may cause lenders that have extended credit secured by Class D Stock to conclude
that the value of their collateral has been adversely affected and, as a result,
these lenders may require borrowers to provide additional collateral.
Furthermore, lenders may be less willing to extend credit secured by Diversified
Holdings Stock.
RISKS RELATING TO EXISTING BUSINESSES
DIVERSIFIED GROUP CASH FLOWS. The Diversified Group derives most of its
operating cash flow from its coal mining business. During 1996, for example, the
Diversified Group received $70 million, or substantially all, of its after-tax
net operating cash flow from its coal mining operations. Although that business
currently produces substantial cash flow, those cash flows will decline
substantially over the next few years. For example, after-tax net operating cash
flow from coal sales under long-term purchase contracts, which was approximately
$70 million in 1996, is expected to decline to approximately $55 million by 1998
and to approximately $13 million by 2002, and will decline further thereafter.
These decreases are primarily due to a decrease in quantities of coal required
to be purchased under those contracts.
LEVERAGE. Although KDG does not have substantial indebtedness, Commonwealth
Telephone Enterprises, Inc. and Cable Michigan, Inc., two of the C-TEC
Companies, have higher levels of indebtedness. Although debt financing may
increase the equity returns to those companies from their activities, it may
also increase the risk associated with those activities, and the abilities of
those companies to grow in the future.
COMPETITION. KCP, PKSIS and the C-TEC Companies are subject to substantial
competition in their respective businesses. For example, KCP is subject to
substantial competition from other producers of coal, and the expiration of
certain long-term coal purchase arrangements will substantially increase the
competitive pressures to which KCP is subject. PKSIS and the C-TEC Companies are
subject to increasing levels of competition in the rapidly changing and evolving
sectors of the industries in which they compete.
REGULATION. Each of KCP and the C-TEC Companies are subject to varying
degrees of federal, state, local and international regulation. KCP, for example,
is subject to strict environmental regulation in its coal mining operations. The
businesses of the C-TEC Companies are subject to extensive federal, state and
local regulations that have changed significantly in recent years and are likely
to continue to change in the future. There can be no assurances that the
Diversified Group's businesses will not be adversely impacted by the costs of
complying with current regulations or by future regulatory changes.
DIVIDEND POLICY
Diversified Holdings' dividend policy following the Transaction will be
determined by the Diversified Holdings Board. Under Delaware law and the
Diversified Holdings Certificate, the Diversified Holdings Board will not be
required to declare dividends on any class of Diversified Holdings capital stock
and will be free to adopt such dividend policy as it deems appropriate and to
change its dividend policies and practices from time to time. It is not
anticipated that Diversified Holdings will pay dividends to the holders of
Diversified Holdings Stock or Class R Stock in the foreseeable future. See
"Comparison of Class D Stock and Diversified Holdings Stock."
EFFECT OF SEPARATION OF THE BUSINESS GROUPS
The Diversified Group from time to time has been introduced to business
relationships or investment opportunities as a result of its affiliation with
the Construction Group. After the Transaction is consummated, those
relationships and opportunities might not be available to Diversified Holdings.
In addition, the Construction Group has performed and is currently performing
services for businesses of the Diversified Group. Although those service
arrangements are negotiated at arms length, the use of an
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affiliated contractor can have many benefits, including ease of contract
administration and efficient resolution of disputes. After the Transaction is
consummated, Diversified Holdings will no longer enjoy the benefits of using an
affiliated contractor.
CERTAIN LIMITATIONS ON CHANGES IN CONTROL OF DIVERSIFIED HOLDINGS
The Diversified Holdings Certificate and the By-laws of Diversified Holdings
as proposed to be in effect at the Effective Time (the "Diversified Holdings
By-laws") will contain certain provisions which could have the effect of
delaying, deferring or preventing a change in control of Diversified Holdings,
even if such a change would be favorable to the interests of the stockholders of
Diversified Holdings, and of limiting any opportunity to realize premiums over
prevailing market prices for Diversified Holdings Stock in connection therewith.
These provisions include, but are not limited to, provisions providing for the
classification of the Diversified Holdings Board, authorizing the issuance of
preferred stock without stockholder approval and upon such terms as the
Diversified Holdings Board may determine, prohibiting stockholder action by
written consent, and eliminating the ability of stockholders to call special
stockholder meetings and requiring stockholders to comply with certain
procedures in order to nominate persons for election as directors or to
introduce business to be considered at an annual or special meeting of
stockholders. Furthermore, it is anticipated that the Diversified Holdings Board
will adopt the Diversified Holdings Rights Plan, which could have the effect of
delaying, deferring or preventing a change in control and of limiting any
opportunity to realize premiums over prevailing market prices. In addition, as a
result of the Initial Certificate Amendments, Diversified Holdings will have a
substantial number of authorized but unissued shares of Class D Stock that could
be issued to a third party selected by management or used as the basis for the
Diversified Holdings Rights Plan, which could have the effect of deterring a
potential acquiror. See "The Initial Certificate Amendments", "The
Post-Transaction Certificate Amendments" and "Comparison of Class D Stock and
Diversified Holdings Stock."
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Proxy Statement/Joint Prospectus contains certain forward-looking
statements and information relating to Diversified Holdings that are based on
the beliefs of the management of PKS or of the Diversified Group as well as
assumptions made by and information currently available to PKS or such
managements. When used in this document, the words "anticipate", "believe",
"estimate" and "expect" and similar expressions, as they relate to PKS or
Diversified Holdings or the management of PKS or the Diversified Group, are
intended to identify forward-looking statements. Such statements reflect the
current views of the management of PKS or the Diversified Group with respect to
future events and are subject to certain risks, uncertainties and assumptions,
including the risk factors described in this Proxy Statement/Joint Prospectus.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated or expected. Neither
PKS nor Diversified Holdings intends to update these forward-looking statements.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on , 1997, at 10:00 a.m. local
time, at the Cloud Room, Kiewit Plaza, Omaha, Nebraska 68131.
PURPOSE OF THE SPECIAL MEETING
The Special Meeting is being held to consider and vote upon (i) ratification
of the Transaction, (ii) approval of the Certificate Amendments and (iii)
approval of the Restated Plan.
RECOMMENDATION OF THE PKS BOARD
The PKS Board has unanimously approved the Transaction, the Certificate
Amendments and the Restated Plan and recommends that PKS Stockholders ratify the
Transaction and approve the Certificate Amendments and the Restated Plan. For a
description of the reasons for the Transaction, see "The Transaction--Background
and Purposes of the Transaction." For a description of the reasons for the
Certificate Amendments and the amendment and restatement of the Original Plan as
the Restated Plan, see "The Initial Certificate Amendments", the
"Post-Transaction Certificate Amendments" and "The Restated Plan", respectively.
Each member of the PKS Board has indicated to PKS that he intends to vote all of
his shares of Class C Stock and Class D Stock to ratify the Transaction and to
approve the Certificate Amendments and the Restated Plan.
SPECIAL MEETING RECORD DATE
PKS Stockholders at the close of business on , 1997, the Special
Meeting Record Date, are entitled to notice of and to vote at the Special
Meeting.
APPRAISAL RIGHTS
PKS Stockholders will not be entitled to appraisal rights as a result of the
Transaction.
VOTING
Although stockholder action with respect to the Share Exchange is not
required under applicable law or the PKS Certificate, the PKS Board has
determined to seek stockholder ratification of the Transaction due to the
importance of the Transaction to PKS and the PKS Stockholders. Ratification of
the Transaction requires the affirmative vote of (i) a majority of the shares of
Class C Stock present and voting at the Special Meeting, voting separately as a
class, and (ii) a majority of the shares of Class D Stock present and voting at
the Special Meeting, voting separately as a class. Approval of the Certificate
Amendments under Delaware law and the PKS Certificate requires the affirmative
vote of (x) at least 80% of the outstanding shares of Class C Stock, voting
separately as a class, (y) a majority of the outstanding shares of Class D
Stock, voting separately as a class, and (z) a majority of the outstanding
shares of Class C Stock and Class D Stock, voting together. Approval of the
Restated Plan requires the affirmative vote of a majority of the shares of Class
C Stock and Class D Stock present and voting at the Special Meeting, voting
together.
Each share of PKS Stock outstanding at the close of business on the Special
Meeting Record Date is entitled to one vote at the Special Meeting. As of the
Special Meeting Record Date there were shares of Class C Stock and
shares of Class D Stock outstanding and entitled to vote at the Special
Meeting. The representation in person or by proxy of at least a majority of the
outstanding shares entitled to vote is necessary to provide a quorum at the
Special Meeting. Abstentions and "non-votes" are counted as present in
determining whether the quorum requirement is satisfied. A "non-vote" occurs
when a broker or other nominee holding shares for a beneficial owner votes on
one proposal, but does not vote
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on another proposal. Abstentions and "non-votes" will have the effect of votes
against the Certificate Amendments.
PROXIES
All shares of PKS Stock represented by properly executed proxies will,
unless such proxies have previously been revoked, be voted at the Special
Meeting in accordance with the directions on the proxies. If no direction is
indicated on a properly executed proxy, the shares will be voted in favor of the
proposals. If any other matters are properly presented at the Special Meeting
for action, which is not anticipated, the proxy holders will vote the proxies
(which confer authority to such holders to vote on such matters) in accordance
with their best judgment. Any PKS Stockholder returning a proxy may revoke it at
any time before it is voted by communicating such revocation in writing to the
Stock Registrar of PKS or by executing and delivering a later-dated proxy. In
addition, any person who has executed a proxy and is present at the Special
Meeting may vote in person instead of by proxy, thereby canceling any proxy
previously given, whether or not written revocation of such proxy has been
given. Any written notice revoking a proxy should be sent to Peter Kiewit Sons',
Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131, Attention: Stock Registrar.
If a quorum is not present at the time the Special Meeting is convened, or
if PKS believes that additional time should be allowed for the solicitation of
proxies or for any other reason, PKS may adjourn the Special Meeting from time
to time upon a vote of a majority of PKS Stockholders present at the Special
Meeting in person or by proxy. If PKS proposes any adjournment of the Special
Meeting by a vote of PKS Stockholders, the persons named in the enclosed form of
proxy will vote all shares of PKS Stock for which they have voting authority in
favor of such adjournment, including shares subject to proxies that direct such
shares to be voted against any or all of the proposals scheduled to be
considered at the Special Meeting.
Stockholder ratification of the Transaction and approval of the Certificate
Amendments would likely be raised as a defense in the event that any suit or
other legal action were brought opposing the Transaction or the Certificate
Amendments. Accordingly, although Delaware law is not entirely settled on such
matters, stockholder ratification of the Transaction and approval of the
Certificate Amendments could have the following consequences: (i) stockholders
who voted in favor of such actions could be precluded from participating in any
lawsuits filed on behalf of any or all stockholders with respect to such
actions; and (ii) the vote in favor of such matters by holders of the requisite
percentage of Class C Stock and Class D Stock could effectively preclude certain
lawsuits with respect to such actions and/or give the members of the PKS Board
the protection of the business judgment rule or a shifted burden of proof if
certain lawsuits were filed. There are no pending, or to the knowledge of PKS
threatened, legal proceedings against PKS or members of the PKS Board relating
to the Transaction.
SOLICITATION COSTS
PKS will bear the costs of this solicitation. In addition to solicitation by
mail, banks, brokers, and other custodians, nominees and fiduciaries will be
requested to supply proxy material to the beneficial owners of Class C Stock and
Class D Stock of whom they have knowledge, and will be reimbursed for their
expenses in so doing. Certain directors, officers and other employees of PKS,
not specially employed for the purpose, may solicit proxies, without additional
remuneration therefor, by personal interview, mail, telephone or telefax.
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THE TRANSACTION
GENERAL
PKS Stockholders are being asked to ratify the decision of the PKS Board to
effect the Transaction, which would separate the Construction Group and the
Diversified Group into two independent companies. The Transaction will be
consummated at the Effective Time, which will be a date to be determined by the
PKS Board after the satisfaction of the conditions of the Transaction. See
"--Conditions of the Transaction." The Transaction consists of the Share
Exchange and the Class R Stock Distribution. It is currently anticipated that
the Effective Time would occur during the second quarter of 1998. At the
Effective Time, by resolution of the PKS Board pursuant to existing provisions
of the PKS Certificate, the PKS Board will cause each outstanding share of Class
C Stock to be mandatorily exchanged, pursuant to the Share Exchange, for one
share of PKS Holdings Stock.
As a result of the Share Exchange: (i) PKS Holdings, a newly formed, direct,
wholly owned subsidiary of PKS, will become an independent company, in which PKS
no longer will have an ownership interest, conducting the business of the
Construction Group, and each share of Class C Stock outstanding at the Effective
Time will be mandatorily exchanged for one share of PKS Holdings Stock; and (ii)
PKS will become an independent company conducting the business of the
Diversified Group, and the shares of Class D Stock outstanding at the Effective
Time and the shares of Class R Stock distributed in the Class R Stock
Distribution will constitute the only outstanding shares of capital stock of
PKS. Immediately following the Share Exchange, PKS Holdings will be renamed
"Peter Kiewit Sons', Inc." and PKS will be renamed "Diversified Holdings, Inc."
Prior to the Effective Time, PKS will effect the Class R Stock Distribution by
declaring a dividend of eight-tenths of one share of newly created Class R Stock
with respect to each then-outstanding share of Class C Stock. The eight-tenths
of one share of Class R Stock initially will attach to the share of Class C
Stock with respect to which it is distributed and, at the Effective Time, will
attach to the share of PKS Holdings Stock which is exchanged for such share of
Class C Stock in the Share Exchange. Certificates representing the shares of
Class R Stock will not be distributed until after the Share Exchange is
consummated. See "--The Class R Stock Distribution." For an explanation of
certain factors to be considered with respect to the Transaction, see "Risk
Factors Regarding PKS Holdings After the Transaction and Ownership of Class R
Stock" and "Risk Factors Regarding Diversified Holdings After the Transaction."
BACKGROUND AND PURPOSES OF THE TRANSACTION
THE 1992 AMENDMENT. In January 1992, PKS Stockholders approved an amendment
to the PKS Certificate (the "1992 Amendment") pursuant to which each share of
PKS' then existing Class C stock was automatically exchanged for one share of
Class C Stock and one share of Class D Stock. The 1992 Amendment also provided
holders of Class C Stock with the right to convert Class C Stock into Class D
Stock, exercisable during the period from October 15 through December 15 of each
year and effective January 1 of the following year, on the basis of the ratio of
the Class C Per Share Price to the Class D Per Share Price in effect on such
January 1. The 1992 Amendment was intended to provide PKS Stockholders with
separate interests in the Business Groups without diminishing the benefits of
remaining a single corporation or restricting PKS future restructuring options,
and to remove potential demands on PKS' equity base presented by the repurchase
obligation as then set forth in the PKS Certificate. The conversion provision
achieved the latter goal by permitting holders of Class C Stock who were leaving
the employment of PKS to convert their Class C Stock, tax-free, into another PKS
equity security instead of selling Class C Stock back to PKS for cash on a
taxable basis.
The Consent Statement and Prospectus of PKS dated November 5, 1991 (the
"Consent Statement") distributed to the holders of the then existing Class C
Stock in connection with the 1992 Amendment acknowledged the possibility of
future public trading of Class D Stock, or of a permanent separation of the
Construction Group and the Diversified Group. In the Consent Statement, PKS
acknowledged that, in the
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future, it might facilitate the public trading of Class D Stock depending upon a
number of factors, including the desirability of reducing the Class D Stock
repurchase obligation, the need to raise capital by issuing Class D Stock in the
public and private capital markets and the maturation of the Diversified Group
businesses. The Consent Statement also noted that under the 1992 Amendment, PKS
could, upon a two-thirds vote of the PKS Board, require a mandatory exchange of
Class D Stock or Class C Stock for the stock of the related Diversified Group or
Construction Group subsidiary in order to "spin-off" the subsidiary.
DIVERSIFIED GROUP DEVELOPMENT. At the time of the 1992 Amendment, the
Diversified Group assets included substantial cash resources, coal mining
properties and several smaller investments in start-up or early growth stage
companies, such as PKSIS, MFS and CalEnergy. At the time, the Diversified
Group's cash resources had been derived primarily from the sale of the packaging
and other businesses that had comprised The Continental Group, Inc. Since the
1992 Amendment, the Diversified Group has invested substantial additional sums
in PKSIS, MFS and CalEnergy, and has made significant investments in new
businesses, such as the 1993 acquisition of C-TEC, a series of international
power generation projects with CalEnergy and the joint acquisition with
CalEnergy in 1996 of Northern Electric plc.
As the Diversified Group business has grown, the PKS Board has from time to
time considered proposals intended to address issues created by that growth,
including proposals for the listing of Class D Stock and proposals for the
separation of the Construction Group and the Diversified Group. In 1995, the PKS
Board considered proposals for the listing of Class D Stock and for the
separation of the Business Groups before approving a tax-free spin-off of the
Diversified Group's ownership interest in MFS as a way to provide MFS with the
maximum flexibility possible to raise capital in the public capital markets and
to grow through acquisitions and as a way to address the substantial disparity
at that time between the value of the Diversified Group business, on one hand,
and the Class D Formula Value and Class D Per Share Price, on the other.
MANAGEMENT STUDY OF ALTERNATIVES. Although the MFS spin-off dealt with some
of the issues facing PKS in 1995, PKS continued to be confronted by issues
created by the growth of the Diversified Group business and the operation of two
very different businesses under a single corporate umbrella. In October 1996,
the PKS Board directed PKS management to pursue a listing of Class D Stock as a
way to deal with certain of those issues and certain other issues created by
PKS' two-class capital stock structure, and shortly thereafter PKS management
began to examine the consequences of a listing of Class D Stock for PKS and the
Business Groups. During the course of its examination of the consequences of a
listing of Class D Stock, PKS management concluded that a listing of Class D
Stock would not adequately address those issues, particularly in light of the
Expansion Plan and the need to attract and retain senior management and
employees, and instead began to study a separation of the Construction Group and
the Diversified Group as a way to address those issues. At the regular meeting
of the PKS Board on July 23, 1997, PKS management submitted for consideration by
the PKS Board a proposal for separation of the Construction Group and the
Diversified Group on substantially the terms eventually approved by the PKS
Board. The PKS Board considered management's proposal at that meeting and at a
special meeting of the PKS Board on August 14, and approved the proposal at its
August 14 meeting. In connection with its approval of the CalEnergy Agreement on
September 10, 1997, the PKS Board considered the effect of the sale contemplated
by such agreement on the proposal, and concluded, based on the advice of
Gleacher NatWest, Inc. ("Gleacher NatWest"), financial advisor to PKS, that such
sale would not have a material effect on the proposal as approved on August 14.
At a meeting on October , 1997, the PKS Board approved modifications to the
proposal that substituted the Class R Stock Distribution for a previously
contemplated distribution to holders of Class C Stock of warrants to purchase
shares of Class D Stock at a discount to the trading value of the Class D Stock
(the "Warrants"). The PKS Board determined at that meeting, based upon the
advice of Gleacher NatWest, that the Class R Stock is substantially the economic
equivalent of the Warrants. See "--Opinion of Financial Advisor."
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PKS BOARD CONCLUSIONS. The PKS Board has concluded that, at some time in
the future, the Diversified Group will be required to access the public equity
capital markets in order to accommodate its growth and development, and in
particular to implement the Expansion Plan. Because Class D Stock is a
"targeted" or "tracking" stock (I.E., stock of a company the economic attributes
of which target or track the financial performance of a subsidiary of the
company), and because the PKS Certificate provides for substantial control by
the holders of Class C Stock over PKS in general and the Diversified Group in
particular, the PKS Board believes that public equity capital markets would
assess a substantial discount to the intrinsic value of Diversified Group's
businesses in determining a public trading price for Class D Stock. Accordingly,
the PKS Board believes that the price of Class D Stock, if publicly traded,
would not reflect the intrinsic value of the Diversified Group businesses and
assets, and that the price might substantially understate that intrinsic value.
The PKS Board has also concluded that substantial tracking stock and control
discounts would not be applied to common stock issued by the Diversified Group
as a stand-alone company and that the trading price of the common stock of a
stand-alone Diversified Group would more closely reflect the intrinsic value of
the Diversified Group's businesses and assets.
The PKS Board has determined that providing the Diversified Group with the
most cost-effective and efficient equity capital instrument will be a key
element in enabling the Diversified Group to continue to grow and develop its
businesses and in particular to design, implement and refine the Expansion Plan
for the following three reasons.
First, in order to continue the growth of the Diversified Group and to
implement the Expansion Plan, PKS will need to attract an experienced and
sophisticated senior management team, and a large group of technologically
sophisticated employees. The PKS Board believes that stock purchase and stock
option plans will be an important component of any compensation program designed
for the Diversified Group's management and employees, and that an efficient and
effective equity currency will be the cornerstone of any such plans.
Accordingly, the PKS Board also has approved and recommended to PKS Stockholders
the Restated Plan in order to increase the number of shares subject to the
Original Plan, to make certain other changes to the Original Plan intended to
make awards under the Original Plan more attractive to potential employees, and
to ensure that the Original Plan is consistent with the use of Diversified
Holdings Stock as an equity incentive. The decision to separate the Diversified
Group and the Construction Group, thus creating a stand-alone equity currency,
was an important factor in recruiting James Q. Crowe and R. Douglas Bradbury to
lead the Diversified Group's management team. For the reasons described above,
the PKS Board believes that Diversified Holdings Stock will better suit the
needs of such equity plans than would Class D Stock.
Second, the PKS Board believes that the Diversified Group will be required
to spend substantial sums of money over the next few years to continue the
growth of the Diversified Group businesses and implement the Expansion Plan. The
PKS Board has concluded that currently available cash and anticipated cash flow
from conversions of Class C Stock and from existing Diversified Group businesses
will not meet those cash needs, even with the receipt of the proceeds of the
sale of the Diversified Group's energy businesses pursuant to the CalEnergy
Agreement. As a result, the PKS Board believes that the Diversified Group will
have to raise significant amounts of capital in the public and private capital
markets, and that the Diversified Group will be able to raise capital on more
cost-effective terms if the Transaction is consummated and the Diversified Group
becomes an independent public company.
Third, the PKS Board believes that strategic investments and acquisitions
might be a key element in permitting the Diversified Group to acquire the assets
and human resources necessary to implement the Expansion Plan. In many
circumstances, publicly traded equity capital is a key to successful and cost-
effective completion of such transactions. The PKS Board, therefore, believes
that a separation of the Business Groups, which will enable the Diversified
Group to issue a stand-alone equity security, will facilitate accomplishment of
such transactions by the Diversified Group.
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In addition to the benefits of the Transaction derived from the issuance by
the Diversified Group of a stand-alone equity security, the PKS Board has
determined that a separation of the Diversified Group and the Construction Group
will allow the management of each Business Group to focus its attention and
financial resources on its respective business. The PKS Board is required to
devote considerable time and attention to each of the Business Groups. Because
of the significant differences between the business of the Construction Group
and the business of the Diversified Group, members of the PKS Board spend more
time on each business than would be required if the businesses were more
similar. The members of the Construction Group management serving on the PKS
Board, who control the PKS Board, have had little experience with a rapidly
growing information services business contemplated by the Expansion Plan, and
would have to spend even more time and attention on Diversified Group business
in order to fulfill their duties as directors. In addition, the PKS Board
believes that a board of directors with experience and a firm focus on the
information services business will be critical to the success of the Expansion
Plan. Accordingly, the PKS Board believes that the separation of the Business
Groups will permit the management of each Business Group to focus its efforts on
its own Business Group.
Except for the effect on Construction Group management described above, the
Transaction will affect primarily the business and operations of the Diversified
Group. In determining to approve the Transaction, the PKS Board considered
whether the Transaction would have other effects on the Construction Group.
Although, as discussed under "Risk Factors Regarding PKS Holdings After the
Transaction and Ownership of Class R Stock", it is possible that consummation of
the Transaction will result in the loss of certain business opportunities by the
Construction Group, the PKS Board has concluded that the Transaction would not
have a significant effect on the business or operations of the Construction
Group.
Based on the foregoing considerations and the advice of Gleacher NatWest,
the PKS Board concluded that a separation of the Construction Group and the
Diversified Group would address the problems presented by Diversified Group
growth and the implementation of the Expansion Plan better than would a listing
of Class D Stock. A separation of the Business Groups, however, will eliminate
the Conversion Right. Under the PKS Certificate, Class C Stock is converted into
Class D Stock based upon the ratio of the Class C Per Share Price to the Class D
Per Share Price. The PKS Board believes that the Conversion Right currently has
potential value. A separation of the Construction Group and the Diversified
Group and the resulting loss of the Conversion Right would eliminate that
potential value. In formulating the proposal submitted to the PKS Board,
therefore, PKS management, in consultation with Gleacher NatWest, devised first
the Warrants and then the Class R Stock that replaced the Warrants to recognize
the potential value. The terms of the Class R Stock were developed through
negotiations between the management of the Construction Group and the management
of the Diversified Group.
The PKS Board has concluded that the Class R Stock recognizes the potential
value of the Conversion Right, without burdening or diluting holders of Class D
Stock. In reaching this conclusion, the PKS Board considered a number of
factors, including: the terms of the Class R Stock; the PKS Board's assessment
of the potential value of the Conversion Right; estimates of the likely timing
of the exercise of the conversion right by current holders of Class C Stock; the
nominal and actual values of the Class R Stock to holders of Class C Stock;
estimates of the present value cost of, and resulting dilution from, the Class R
Stock to holders of Class D Stock; and estimates of the present value cost of,
and the dilution resulting to, holders of Class D Stock from estimated exercises
of the Conversion Right. The PKS Board also considered the advice and analyses
presented by Gleacher NatWest at meetings of the PKS Board on July 23, August
14, September 10 and October , as reflected in the fairness opinion attached
as Appendix C hereto.
OPINION OF FINANCIAL ADVISOR
In reaching a decision to recommend the Transaction, the PKS Board
considered the advice of PKS' financial advisor, Gleacher NatWest. Gleacher
NatWest was selected to act as financial advisor to PKS based on its
qualifications, expertise and reputation, as well as its investment banking
relationships and familiarity with PKS and its subsidiaries. At the August 14,
1997 meeting of the PKS Board, Gleacher
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NatWest delivered an oral opinion to the PKS Board, to be confirmed as of the
date of this Proxy Statement/Joint Prospectus, to the effect that, based upon
the matters set forth in such opinion, the Transaction is fair from a financial
point of view to the holders of Class C Stock and the holders of Class D Stock.
Gleacher NatWest advised the PKS Board at its September 10 meeting to consider
the CalEnergy Agreement that the sale contemplated by such agreement did not
affect Gleacher NatWest's opinion with respect to the Transaction. At the
October , 1997 meeting of the PKS Board, Gleacher NatWest advised the PKS
Board that the Class R Stock to be distributed in the Class R Stock Distribution
is substantially the economic equivalent of the previously contemplated Warrants
and, accordingly, Gleacher NatWest was of the opinion that, based on the matters
set forth in such opinion, the Transaction as so modified is fair from a
financial point of view to the holders of Class C Stock and the holders of Class
D Stock. Gleacher NatWest confirmed the opinion delivered on October ,
1997 in writing as of the date of this Proxy Statement/Joint Prospectus. As
noted in "--Background and Purposes of the Transaction", the opinion of Gleacher
NatWest was among many factors considered by the PKS Board in determining to
unanimously approve the Transaction.
A summary of the opinion rendered by Gleacher NatWest with respect to the
Transaction is set forth below. The full text of such opinion, dated as of the
date hereof, which sets forth certain assumptions made, matters considered and
limitations on the review undertaken as described below, is attached as Appendix
C hereto and is incorporated herein by reference. PKS Stockholders are urged to
read such opinion carefully and in its entirety. The summary of the opinion of
Gleacher NatWest set forth herein is qualified by reference to the full text of
such opinion. Gleacher NatWest's opinion is addressed to the PKS Board and does
not constitute a recommendation to any holder of Class C Stock or any holder of
Class D Stock as to how such holder should vote at the Special Meeting.
In arriving at its opinion, Gleacher NatWest, among other things: (i)
reviewed the financial terms of the Transaction as originally contemplated with
a distribution of Warrants and as later modified and as described in this Proxy
Statement/Joint Prospectus and the various agreements relating to the
Transaction referred to in this Proxy Statement/Joint Prospectus; (ii) conducted
discussions with members of management of PKS, the Construction Group and the
Diversified Group with respect to the historical and current businesses and the
future prospects of the Construction Group and the Diversified Group, the
anticipated effects of the Transaction on the capital structures, cash flows and
operations of the Construction Group and the Diversified Group; (iii) analyzed
certain historical and financial information relating to the Construction Group
and the Diversified Group; (iv) reviewed public information as filed with the
Commission relating to PKS, the Construction Group and the Diversified Group,
including audited financial statements; (v) reviewed the terms of the Consent
Statement, relating to the 1992 Amendment; and (vi) conducted such other
financial studies, analyses and investigations as it deemed appropriate.
In rendering its opinion, Gleacher NatWest assumed and relied upon, without
assuming responsibility for independent verification, the accuracy and
completeness of the information reviewed by it. Gleacher NatWest also assumed,
based upon the information which had been provided to it and without assuming
responsibility for independent verification thereof, that no material
undisclosed or contingent liability existed with respect to PKS, the
Construction Group or the Diversified Group. Gleacher NatWest did not make any
independent evaluation or appraisal of the assets or liabilities of the
Construction Group or the Diversified Group. Gleacher NatWest's opinion was
based necessarily on the economic, market and other conditions existing on the
date of its opinion and the information made available to it as of such date.
Gleacher NatWest has not committed to render any further opinion on the fairness
of the Transaction and is under no obligation to update the opinion rendered to
the PKS Board and the PKS Board does not presently intend to request any such
further opinion or update. Gleacher NatWest does not make a market in any of the
securities of PKS.
No limitations were imposed by PKS or the PKS Board upon Gleacher NatWest
with respect to the investigations made or the procedures followed by Gleacher
NatWest.
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The following is a summary of the analyses presented by Gleacher NatWest to
the PKS Board of Directors on August 14, 1997 in connection with rendering its
oral opinion. Upon the delivery of such opinion, the proposed Transaction
contemplated the distribution of Warrants rather than Class R Stock. Gleacher
NatWest later concluded and advised the PKS Board that the Class R Stock to be
distributed in the Class R Stock Distribution is substantially the economic
equivalent of the previously contemplated Warrants. Gleacher NatWest used
substantially the same types of financial analyses in preparing its oral opinion
for the PKS Board on October , 1997 as it used in providing its oral opinion
to the PKS Board on August 14, 1997.
TRANSACTION SUMMARY. Gleacher NatWest first reviewed the principal terms of
the Transaction and discussed the potential benefits to be derived from the
Transaction. In particular, Gleacher NatWest reviewed the terms of the Warrants,
the Share Exchange, the Conversion Cap and the Installment Note Program.
Gleacher NatWest also reviewed in detail the terms of the Warrants, including
the number of Warrants to be distributed per share of Class C Stock, the fixed
dollar discount at which the Warrants would be exercisable and the adjustments
thereto and the exercise and transfer conditions to the Warrants. In addition,
Gleacher NatWest reviewed the Conversion Right.
WARRANT TERMS. Gleacher NatWest reviewed the terms of the Warrants,
including that each holder of Class C Stock would receive eight-tenths of one
Warrant for each share of Class C Stock held as of the date of the distribution
of the Warrants. Gleacher NatWest explained that this eight-tenths ratio
represents the ratio of the estimated Class C Formula Value to the estimated
Class D Formula Value as of June 30, 1997. Gleacher NatWest also noted that the
Warrants would allow the holder thereof to acquire shares of Diversified
Holdings Stock at a fixed dollar discount to the appraised value or average
trading price per share of Diversified Holdings Stock at the time of exercise of
the Warrant, that such discount would be $25 per share if such appraised value
or average trading price per share of Diversified Holdings Stock is $82 or
greater, and that such discount would be adjusted downward by the amount by
which such appraised value or average trading price is less than $82, but in no
event would the discount be less than $15 per share. Gleacher NatWest explained
that each Warrant generally would be exercisable only upon the earlier of the
time (i) at which such PKS Holdings share to which it was attached would be sold
or exchanged; (ii) eight years from the date of the Transaction; or (iii) upon
the occurrence of a of control of Diversified Holdings; and that each Warrant
would have a term of 12 years from the date of the Transaction.
VALUATION OF DIVERSIFIED GROUP. Gleacher NatWest provided an analysis of
the assets owned by Diversified Group and a range of what it believed to be the
fully diluted potential trading value of Class D Stock were such shares to be
listed on a public exchange and if no tracking stock or control discounts were
to be applied to Class D Stock. Gleacher NatWest noted specifically that such
range did not represent an estimate of the actual trading prices of Class D
Stock, and that such actual trading prices of Class D Stock, in its current
form, could be substantially lower than such range due to the lack of an
established trading market for Class D Stock and the likely application of
tracking stock and control discounts to Class D Stock. Gleacher NatWest
estimated such range to be $77 to $87 per share of Class D Stock. This range was
determined by taking into account a variety of relevant factors, including
historical and current market values for CalEnergy and C-TEC, internal
valuations for PKSIS and other illiquid assets, anticipated cash flows (at
various discount rates) for energy projects, the potential dilution represented
by the Conversion Right, and estimates of embedded taxes. Based on this range,
Gleacher NatWest determined that the fully diluted potential trading value of
Class D Stock was $82 per share. Gleacher NatWest also noted that the Class D
Per Share Price was estimated to be $57 at June 30, 1997, and that the current
difference between the fully diluted potential trading value per share of Class
D Stock and the Class D Per Share Price was therefore $25. Gleacher NatWest
further noted that if the Transaction did not occur, this difference might
increase or decrease over time.
VALUE OF THE WARRANTS TO HOLDERS OF CLASS C STOCK. Based on a fixed dollar
discount of $25 per share of Class D Stock, Gleacher NatWest determined that the
aggregate nominal value of the Warrants to be
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issued to holders of Class C Stock would be between $150 million and $210
million, depending upon various estimates the number of shares of Class C Stock
that were expected to be converted into shares of Class D Stock during the 1997
Conversion Period. If no shares of Class C Stock were so converted, the
aggregate nominal value of the Warrants would be $210 million, based upon
10,512,717 shares of Class C Stock outstanding; if 3,000,000 shares of Class C
Stock were allowed to convert into Class D Stock during the 1997 Conversion
Period, the maximum number of shares of Class C Stock which would be allowed to
be convert pursuant to the Conversion Cap, the aggregate normal value of the
Warrants would be $150 million.
Gleacher NatWest noted that the present value of the Warrants would depend
upon the timing of exercise of the Warrants and assumptions regarding an
appropriate discount rate. Gleacher NatWest provided a table which indicated
that the aggregate present value of the Warrants, based on discount rates
ranging from 5% to 15% and conversions of shares of Class C Stock into shares of
Class D Stock during the 1997 Conversion Period ranging from no shares to
3,000,000 shares, is between $66 million and $155 million.
ECONOMIC DILUTION TO HOLDERS OF CLASS D STOCK. Gleacher NatWest provided an
analysis which estimated the economic dilution to holders of Class D Stock due
to the issuance of the Warrants. Gleacher NatWest defined economic dilution to
be the amount by which a share of Class D Stock is worth less because of the
Warrants. Gleacher NatWest made estimations regarding the timing of future
Warrant exercises and assumptions regarding the future growth in the value of
shares of Class D Stock, and provided a table indicating the economic dilution
under a range of these assumptions. Based on a range of annual growth rates for
eight years for shares of Class D Stock of 0% to 20%, and based on conversions
from shares of Class C Stock into shares of Class D Stock during the Conversion
Period ranging from no shares to 3,000,000 shares, Gleacher NatWest estimated
that the economic dilution to holders of Class D Stock would be between 2.2% and
8.6%.
Based upon the foregoing analyses and considerations, Gleacher NatWest
indicated to the PKS Board that it was Gleacher NatWest's opinion that the
Transaction is fair to both the holders of Class C Stock and the holders of
Class D Stock from a financial point of view.
Gleacher NatWest believes that its analyses must be considered as a whole
and that selecting portions of such analyses or any of the factors considered,
without considering all such analyses and factors, could create an incomplete
view of the process underlying its analyses and opinion. The preparation of a
fairness opinion is a complex process and is not susceptible to partial analysis
or summary description. Gleacher NatWest has not indicated that any of the
analyses which it performed had a greater significance than any other. In
performing its analyses, Gleacher NatWest made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of PKS. Such analyses were
prepared solely as a part of Gleacher NatWest's analyses of the fairness of the
Transaction to holders of Class C Stock and the holders of Class D Stock and
were provided to the PKS Board in connection with the delivery of Gleacher
NatWest's opinion. The analyses do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities might actually be sold,
which are inherently subject to uncertainty. Further, Gleacher NatWest's opinion
does not represent its opinion as to the value of the securities of PKS Holdings
or Diversified Holdings following the consummation of the Transaction, or as to
the prices at which such securities may trade, when issued in connection with
the Transaction or at any other time.
Gleacher NatWest is an internationally recognized investment banking and
advisory firm that regularly engages in the valuation of businesses and their
securities in connection with mergers, acquisitions and corporate
restructurings.
PKS retained Gleacher NatWest to provide a wide range of financial advisory
services to PKS and its subsidiaries during a one-year period beginning June 1,
1997 for an aggregate fee of $1.8 million. PKS has
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also agreed, among other things, to reimburse Gleacher NatWest for all
reasonable out-of-pocket expenses incurred in connection with the services
provided by Gleacher NatWest, and to indemnify and hold harmless Gleacher
NatWest and certain related parties from and against certain liabilities and
expenses, including certain liabilities under the federal securities laws, in
connection with its engagement.
Gleacher NatWest has acted from time to time as a financial advisor to PKS
and affiliates of PKS. During the past several years, Gleacher NatWest has
provided a wide range of financial advisory services and has received customary
fees in connection with such services. In the past, Gleacher NatWest has also
acted as a financial advisor to affiliates of PKS, including MFS. In September
1995, PKS distributed to holders of Class D Stock all of its interest in MFS.
Certain professionals of Gleacher NatWest hold an aggregate of 30,000 shares of
Class D Stock.
RECOMMENDATION OF THE PKS BOARD
Based on the foregoing, the PKS Board has determined that the Transaction,
the Certificate Amendments and the amendment and restatement of the Original
Plan as the Restated Plan are in the best interests of, and fair to, PKS and
each of the Business Groups, and, therefore, all PKS Stockholders. The PKS Board
has unanimously approved the Transaction, the Certificate Amendments and the
Restated Plan and recommends that PKS Stockholders ratify the Transaction and
approve the Certificate Amendments and the Restated Plan by executing and
returning the enclosed proxy.
EFFECTS OF THE TRANSACTION
CLASS C STOCK. Upon consummation of the Transaction, each outstanding share
of Class C Stock will be mandatorily exchanged for one fully paid and
nonassessable share of PKS Holdings Stock. Holders of Class C Stock will become
stockholders of PKS Holdings rather than of PKS. PKS Holdings Stock will not
have any preemptive or subscription rights. As stockholders of PKS Holdings,
such holders' rights will continue to be governed by Delaware law and will be
governed by the PKS Holdings Certificate and the By-laws of PKS Holdings as
proposed to be in effect at the Effective Time (the "PKS Holdings By-laws"). The
rights of, and restrictions upon, PKS Holdings Stock under the PKS Holdings
Certificate will be substantially similar to those of Class C Stock under the
PKS Certificate, except that there will be no rights or restrictions comparable
to those in the PKS Certificate relating to Class D Stock. See "Comparison of
Class C Stock and PKS Holdings Stock."
CLASS D STOCK. Upon consummation of the Transaction and the filing of the
Post-Transaction Certificate Amendments, each outstanding share of Class D Stock
will remain outstanding and be subject to the PKS Certificate, as amended by the
Certificate Amendments. The Post-Transaction Certificate Amendments will change
the name of PKS to "Diversified Holdings, Inc.", redesignate Class D Stock as
"Common Stock, par value $.01 per share", modify the repurchase rights to which
the holders of Class D Stock are entitled, delete the provisions regarding Class
C Stock, add certain corporate governance provisions and make certain other
changes described herein. See "The Post-Transaction Certificate Amendments."
Upon consummation of the Transaction, holders of Class D Stock will hold
Diversified Holdings Stock. As stockholders of Diversified Holdings, such
holders' rights will continue to be governed by Delaware law and will be
governed by the Diversified Holdings Certificate and the Diversified Holdings
By-laws. See "Comparison of Class D Stock and Diversified Holdings Stock."
MANAGEMENT OF PKS HOLDINGS AND DIVERSIFIED HOLDINGS
If the Transaction is consummated, it is anticipated that the current senior
management members of the Construction Group will serve in similar capacities at
PKS Holdings, and that the current senior management members of the Diversified
Group will serve in similar capacities at Diversified Holdings.
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THE CLASS R STOCK DISTRIBUTION
Prior to the Effective Time, PKS will effect the Class R Stock Distribution
by declaring a dividend of eight-tenths of one share of newly created Class R
Stock with respect to each then-outstanding share of Class C Stock. Each
eight-tenths of one share of Class R Stock distributed in the Class R Stock
Distribution initially will attach to the share of Class C Stock with respect to
which it is distributed and then, at the Effective Time, will attach to the
share of PKS Holdings Stock which is exchanged for such share of Class C Stock
in the Share Exchange, except as described in "--Conversion of Class C Stock
Prior to the Transaction" below. Persons issued shares of either Class C Stock
or PKS Holdings Stock following the record date for the Class R Stock
Distribution (which will be a date subsequent to January 1, 1998 to be
determined by the PKS Board) will not be entitled to receive Class R Stock with
respect to such shares.
Each share of Class R Stock will be convertible at the option of the holder
thereof into such number of shares of Diversified Holdings Stock as equals the
Conversion Ratio. The Conversion Ratio equals (i) a conversion value (the
"Conversion Value") varying from $15.00 to $25.00 based upon the appraised value
or average trading price per share of Diversified Holdings Stock (the "Trading
Price"), divided by (ii) such price per share of Diversified Holdings Stock. The
Conversion Value will equal $25.00 if such price per share of Diversified
Holdings Stock is greater than or equal to $82.00, subject to certain
adjustments. If such price per share of Diversified Holdings Stock is less than
$82.00, the conversion value will equal $25.00 minus the amount by which $82.00
exceeds such price per share, subject to certain adjustments; provided, however
that the conversion value shall in no event be less than $15.00. The Conversion
Ratio, Conversion Value and Trading Price are subject to certain adjustments.
See "Description of Class R Stock--Conversion Ratio" and "--Certain
Adjustments."
A particular share of Class R Stock (or fraction thereof) may be converted
into Diversified Holdings Stock only during a Conversion Period, and only if the
Conversion Condition has occurred with respect to such share of Class R Stock
(or fraction thereof). A Conversion Period occurs (x) if the Diversified
Holdings Stock is not publicly traded, for a 25-day period each year (subject to
extension in certain instances) following the preparation of a valuation used to
determine the Conversion Ratio of the Class R Stock, with the first such period
following December 31, 1999, and (y) if the Diversified Holdings Stock is
publicly traded, for a period of six business days each month, with the first
such period following 90 days (subject to extension to 180 days) after the
Diversified Holdings Stock becomes publicly traded. The Conversion Condition
with respect to a particular share of Class R Stock is the earlier to occur of:
(i) the repurchase or redemption by PKS Holdings of the share of PKS Holdings
Stock to which such share of Class R Stock (or fraction thereof) is attached;
(ii) the exchange of the share of PKS Holdings Stock to which such share of
Class R Stock (or fraction thereof) is attached into another class of stock or
securities of PKS Holdings intended to be issued primarily to persons leaving
employment of PKS Holdings; and (iii) April 15, 2006. Notwithstanding any of the
foregoing limitations, Class R Stock will be convertible after the occurrence of
a change of control of Diversified Holdings. See "Description of Class R Stock--
Conversion Period" and "--Conversion Condition."
Class R Stock may not be transferred prior to the Share Exchange. Following
the Share Exchange and prior to the Restricted Period Termination Date with
respect to a particular share of Class R Stock (or fraction thereof), such share
of Class R Stock (or fraction thereof) may only be transferred (a) to
Diversified Holdings or its designee, or (b) in a simultaneous transfer to the
same transferee with the share of PKS Holdings Stock to which such share of
Class R Stock (or fraction thereof) is attached provided that such transfer of
such share of PKS Holdings Stock is permitted by the PKS Holdings Certificate.
After the occurrence of (i) the Share Exchange and (ii) the Restricted Period
Termination Date with respect to a given share of Class R Stock (or fraction
thereof), such share of Class R Stock (or fraction thereof) will be freely
transferable. See "Description of Class R Stock--Restrictions on Transfer."
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Assuming the conversion into Class C Stock of all outstanding PKS
convertible debentures (other than any issued in 1997), the conversion of
1,500,000 shares of Class C Stock in the 1997 Conversion Period and a Trading
Price of $82.00, the Class R Stock issuable in the Class R Distribution would be
convertible into Diversified Holdings Stock representing approximately 8.57% of
the Class D Stock outstanding as of October 1, 1997. Assuming that 3,000,000
shares of Class C Stock are converted in the 1997 Conversion Period, such Class
R Stock would be convertible into approximately 6.85% of the Class D Stock
outstanding as of such date.
If the Share Exchange is not consummated by October 15, 1998 (subject to
extension by the PKS Board) the Class R Stock will be mandatorily redeemed by
PKS at a per share price equal to the par value of such of the Class R Stock
($.01 per share). See "Description of Class R Stock--Mandatory Redemption."
Prior to the Share Exchange, the Class R Stock holds no dividend,
liquidation or voting rights, except as required by law. After the Share
Exchange, holders of Class R Stock will be entitled to certain dividends and
possess certain voting and liquidation rights. See Description of Class R
Stock--Dividends", "-- Liquidation Rights" and "--Voting Rights."
See "Risk Factors Regarding PKS Holdings After the Transaction and Ownership
of the Class R Stock--Limitations on Value of the Class R Stock", "--Limitations
on Dividend, Liquidation and Voting Rights of Class R Stock", "--Limitations on
Conversion and Transfer of the Class R Stock" and "Description of Class R
Stock."
EXCHANGE OF CLASS C STOCK; DELIVERY OF CERTIFICATES FOR PKS HOLDINGS STOCK AND
CLASS R STOCK
By resolution of the PKS Board pursuant to its existing powers under the PKS
Certificate, at the Effective Time each issued and outstanding share of Class C
Stock will be mandatorily exchanged for one share of PKS Holdings Stock.
Accordingly, immediately after the Effective Time, (i) for all purposes of
determining the record holders of PKS Holdings Stock, the holders of Class C
Stock immediately prior to the Effective Time shall be deemed to be holders of
PKS Holdings Stock and (ii) subject to any permitted transfer of such stock,
such holders shall be entitled to receive all dividends payable on, and exercise
voting rights and all other rights and privileges with respect to, PKS Holdings
Stock. PKS will mail, as promptly as practicable, to each record holder of Class
C Stock as of the Effective Time, appropriate documentation for such holder to
use in surrendering the certificates which represented such holder's Class C
Stock in exchange for (x) a certificate representing the number of shares of PKS
Holdings Stock to which such holder is entitled and (y) certificates
representing the shares of Class R Stock attached to those shares of PKS
Holdings Stock. Holders of shares of Class C Stock will be instructed to mail
the certificates representing such shares to PKS accompanied by such
documentation. HOLDERS OF CLASS C STOCK SHOULD NOT RETURN SUCH CERTIFICATES WITH
THE PROXY CARD ENCLOSED WITH THIS PROXY STATEMENT/JOINT PROSPECTUS. Diversified
Holdings will mail, as promptly as practicable after the Effective Time to each
record holder of Class R Stock who is not at that time a record holder of Class
C Stock, certificates representing such holder's shares of Class R Stock.
CONDITIONS OF THE TRANSACTION
Consummation of the Transaction is subject to ratification of the
Transaction and approval of the Certificate Amendments by the PKS Stockholders
and satisfaction of the Tax Condition. Consummation of the Transaction is not
subject to the approval of the Restated Plan. The PKS Board will retain
discretion, even if stockholder ratification of the Transaction and approval of
the Certificate Amendments are obtained and the Tax Condition is satisfied, to
abandon, defer or modify the Transaction if the PKS Board believes that to do so
would be in the best interests of all PKS Stockholders. Unless the PKS Board
determines to extend the date, the PKS Board intends to abandon the Transaction
if it is not consummated by October 15, 1998. The PKS Board also has determined
that if the Transaction is not ratified or the
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Certificate Amendments are not approved or the Tax Condition is not satisfied,
the PKS Board will not proceed with the Transaction. The Initial Certificate
Amendments will be effected promptly following the Special Meeting, and the
Post-Transaction Certificate Amendments will be effected only if the Transaction
is consummated. The Restated Plan, if approved, will be implemented as soon as
possible after receipt of approval.
CONVERSION OF CLASS C STOCK PRIOR TO THE TRANSACTION
Holders of PKS Holdings Stock (I.E., the former holders of Class C Stock)
will have no rights comparable to the Conversion Right, which permits holders of
Class C Stock to convert shares of Class C Stock into Class D Stock.
Consequently, should the Transaction be consummated, the 1997 Conversion Period
would be the final opportunity to convert shares of Class C Stock into shares of
Class D Stock. Holders of Class C Stock who convert such shares during the 1997
Conversion Period will not receive shares of Class R Stock with respect to such
converted shares pursuant to the Class R Stock Distribution.
Under the PKS Certificate, PKS may elect to repurchase any shares of Class C
Stock tendered for conversion into Class D Stock during the 1997 Conversion
Period at the applicable Class C Per Share Price. A tendering holder of Class C
Stock who is an employee of PKS or a 20%-owned subsidiary of PKS may withdraw
the tender of any shares which PKS has elected to repurchase. Pursuant to this
grant of authority, the PKS Board has set the Conversion Cap, which limits to
3,000,000 shares the number of shares of Class C Stock that can be converted
during the 1997 Conversion Period. The PKS Board has imposed the Conversion Cap
in order to limit the potential dilution to holders of Class D Stock resulting
from conversions during the 1997 Conversion Period.
Holders of Class C Stock tendering shares of Class C Stock for conversion
during the 1997 Conversion Period will be required to indicate whether, if the
Conversion Cap applies: (i) such holder desires to receive cash in exchange for
any shares of Class C Stock such holder is unable to convert as a result of the
Conversion Cap; (ii) such holder desires to receive a short-term promissory note
(as described below) for such unconverted stock; or (iii) such holder desires to
have such unconverted stock returned to the holder.
PKS expects that holders of Class C Stock who intend to leave the employment
of PKS at year end 1997 or shortly thereafter will elect to receive cash or a
short-term promissory note for such unconverted stock and that all other holders
of Class C Stock will elect to have such unconverted stock returned to them. PKS
expects to pay cash and deliver promissory notes for unconverted Class C Stock
on or about March 1, 1998. Any such promissory note will be unsecured, will be
payable on January 15, 1999 and will bear interest at an annual rate of 6% from
the date of issuance, payable at maturity. The record date for the Class R Stock
Distribution will be subsequent to January 1, 1998 and prior to the payment of
cash or delivery of promissory notes for such unconverted stock. All tendering
holders of Class C Stock who are unable to convert shares of Class C Stock into
Class D Stock during the 1997 Conversion Period as a result of the Conversion
Cap will receive shares of Class R Stock in the Class R Stock Distribution with
respect to such unconverted shares of Class C Stock. If a holder of Class C
Stock elects to receive cash or a short-term promissory note for any such
unconverted Class C Stock, the related shares of Class R Stock will be delivered
to such holder following consummation of the Transaction, and will not be
attached to any Class C Stock or PKS Holdings Stock.
If the Transaction is not consummated, PKS intends to offer to sell Class D
Stock to tendering holders of Class C Stock who were unable to convert Class C
Stock as a result of the Conversion Cap and received cash or a short-term
promissory note for such unconverted Class C Stock. PKS intends to offer to each
such Class C holder a number of shares of Class D Stock equal to the number of
shares of Class D Stock into which such unconverted shares of Class C Stock
would have been convertible but for the application of the Conversion Cap, at a
price per share of Class D Stock equal to the Class D Per Share Price as of
January 1, 1998.
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Whenever Class C Stock is converted into Class D Stock, it has been PKS'
practice (although the terms of the PKS Certificate do not require that it do
so) to transfer funds from the Construction Group to the Diversified Group, in
an amount equal to the aggregate Class C Per Share Price of the Class C Stock so
converted, in order that the conversion will not have the effect of diluting the
Class D Formula Value. PKS will take the same action with respect to Class C
Stock converted into Class D Stock during the 1997 Conversion Period. Thus, the
more Class C Stock that is converted during the 1997 Conversion Period, the
greater the funds that will be transferred from the Construction Group to the
Diversified Group. For example, if 1,500,000 shares of Class C Stock were
converted into Class D Stock during the 1997 Conversion Period, PKS would
transfer $72,000,000 from the Construction Group to the Diversified Group; if
3,000,000 shares of Class C Stock were converted into Class D Stock during the
1997 Conversion Period, PKS would transfer $144,000,000 from the Construction
Group to the Diversified Group (calculated in each case assuming a year end 1997
Class C Per Share Price of $48.00). See "Risk Factors Regarding PKS Holdings
After the Transaction and Ownership of Class R Stock--Transfers from the
Construction Group."
INSTALLMENT NOTE PROGRAM
If the Transaction is consummated, PKS Holdings intends to institute the
Installment Note Program, to allow holders of PKS Holdings Stock to elect to
receive Installment Notes as an alternative to cash upon repurchase of PKS
Holdings Stock in accordance with the PKS Holdings Certificate. Under the PKS
Certificate and the PKS Holdings Certificate, holders of Class C Stock have, and
holders of PKS Holdings Stock will have, the right to sell Class C Stock or PKS
Holdings Stock to the issuer, at the Class C Per Share Price or PKS Holdings Per
Share Price, as applicable. Any such sales are for cash, which is required to be
paid to the selling holder, without interest, within 60 days of the tender of
the stock to the issuer.
Under the Installment Note Program, PKS Holdings intends to offer to holders
of PKS Holdings Stock who tender stock for sale to PKS Holdings, the option to
receive any or all of the purchase price for the PKS Holdings Stock in an
Installment Note. Installment Notes will have provisions, such as term to
maturity, interest rate, and interest and principal payment terms, as determined
by the PKS Holdings Board from time to time.
PKS Holdings expects that selling holders of PKS Holdings Stock who receive
Installment Notes will be required to recognize gain for U.S. federal income tax
purposes on the sale of the related stock only as principal payments are
received on the Installment Notes. As a result, the Installment Note Program
would permit holders of PKS Holdings Stock to defer taxes that would otherwise
be payable upon a cash sale of such stock to PKS Holdings, although such holders
would be also required to defer receipt of the related portion of the sales
price of such stock. To the extent that the Installment Notes received in any
year by a selling holder of PKS Holdings Stock exceed $5,000,000, such selling
holder will be required to pay interest each year, as additional tax, on part of
the deferred tax liability with respect to the sale of the PKS Holdings Stock
giving rise to the Installment Notes.
PKS intends to implement the Installment Note Program, in part, because the
Conversion Right will be eliminated as a result of the consummation of the
Transaction. The Installment Note Program is merely a tax deferral mechanism,
and is not intended to provide holders of Class C Stock with an investment
comparable to, or having the potential risks and rewards of, a conversion of
Class C Stock into Class D Stock as a result of the exercise of the Conversion
Right. PKS may modify or discontinue the Installation Note Program at any time
without notice to holders of PKS Holdings Stock.
ARRANGEMENTS FOR CANADIAN CLASS C HOLDERS
A holder of Class C Stock who is a resident of Canada for Canadian federal
income tax purposes will be subject to tax on receipt of shares of Class R Stock
in the Class R Stock Distribution and will realize a capital gain on receipt of
PKS Holdings Stock in the Share Exchange. See "--Certain Canadian Federal
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Income Tax Considerations." Consequently, such holders may decide to sell such
Class C Stock to PKS, pursuant to the PKS Certificate, after the Class R Stock
Distribution but prior to the Share Exchange. PKS Holdings currently intends to
provide such selling holders of Class C Stock with interest-free loans in
connection with purchases of PKS Holdings Stock subsequent to the Share
Exchange. The costs of the interest-free loan arrangements, which are not
expected to exceed $6 million, will be allocated between PKS and PKS Holdings in
accordance with the general cost allocation provisions of the separation
agreement between PKS and PKS Holdings (the "Separation Agreement").
CONVERSION OF THE DEBENTURES
Under the terms of the Debentures, which have been offered by PKS in the
past to certain of its senior management employees, holders may convert the
Debentures into Class C Stock during 1998 through 2001. If PKS Stockholders
ratify the Transaction, PKS will permit holders of the Debentures to convert
such Debentures into Class C Stock during a ten-day period subsequent to the
expiration of the 1997 Conversion Period and prior to the Class R Stock
Distribution. Accordingly, holders of Debentures who convert their Debentures
into shares of Class C Stock will receive shares of Class R Stock with respect
to such shares in the Class R Stock Distribution and have such shares exchanged
in the Share Exchange. As of August 23, 1997, approximately $9.6 million in
principal amount of Debentures was outstanding. A total of 388,237 shares of
Class C Stock would be issuable if all Debentures were so converted.
PKS is aware that holders of Debentures generally incur indebtedness to fund
the purchase of the Debentures and the Class C Stock into which such Debentures
are convertible. An early conversion of Debentures will cause a holder of
Debentures to pay interest to such holder's borrowings without the offsetting
benefit of interest income from the Debentures. PKS intends to provide holders
of Debentures who convert their Debentures with interest-free loans to repay
outstanding loans that were used by the holders to finance the purchase of the
Debentures. These interest-free loans would be in the principal amount of the
Debentures converted, would have maturity dates which conform to the original
conversion dates specified in the Debentures, and would become immediately due
upon a holder's termination of employment. The costs of such interest-free
loans, which are not expected to exceed $2 million, will be allocated between
PKS and PKS Holdings in accordance with the general cost allocation provisions
of the Separation Agreement. See "Certain Relationships and Related
Transactions."
TRADING OF PKS HOLDINGS COMMON STOCK
Shares of Class C Stock are not currently listed for trading on any stock
exchange or market. PKS Holdings Stock will not be listed for trading at the
Effective Time or thereafter.
TRADING OF DIVERSIFIED HOLDINGS STOCK
Shares of Class D Stock are not currently listed for trading on any stock
exchange or market. Diversified Holdings does not expect to list Diversified
Holdings Stock for trading on a stock exchange or market at the Effective Time.
Diversified Holdings expects that it will not seek such a listing until it
raises capital through a public equity offering or desires to have a listed
equity security available for acquisitions. Any determination to raise public
equity capital will depend on a number of factors including, without limitation,
Diversified Holdings' capital needs, the availability and attractiveness of
alternative sources of capital, the performance of Diversified Holdings and
conditions in the public equity markets. Accordingly, no assurance can be given
that Diversified Holdings Stock will be listed for trading in the future, or, if
it is, when such listing will be accomplished or whether an active trading
market will develop or be sustained.
REQUIRED VOTE FOR THE TRANSACTION
Although stockholder action with respect to the Share Exchange is not
required under applicable law or the PKS Certificate, the PKS Board has
determined to seek stockholder ratification of the Transaction
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due to the importance of the Transaction to PKS and the PKS Stockholders.
Ratification of the Transaction requires the affirmative vote of (i) a majority
of the shares of Class C Stock present and voting at the Special Meeting, voting
separately as a class, and (ii) a majority of the shares of Class D Stock
present and voting at the Special Meeting, voting separately as a class.
Approval of the Certificate Amendments under Delaware law and the PKS
Certificate requires the affirmative vote of (x) at least 80% of the outstanding
shares of Class C Stock, voting separately as a class, (y) a majority of the
outstanding shares of Class D Stock, voting separately as a class, and (z) a
majority of the outstanding shares of Class C Stock and Class D Stock, voting
together. Approval of the Restated Plan requires the affirmative vote of a
majority of the shares of Class C Stock and Class D Stock present and voting at
the Special Meeting, voting together.
If the Transaction is not ratified or the Certificate Amendments are not
approved by the stockholders, the PKS Board will assess other possible courses
of action in order to address the issues intended to be addressed by the
Transaction. These courses of action could include the possible restructuring of
the Transaction, the listing of Class D Stock for public trading or the
continuation of the existing capital stock structure. The PKS Board's choice of
a course of action will depend upon a number of factors that it will be able to
evaluate only at that time, including the perceived reasons for the failure of
the Transaction to receive approval, the status of the Expansion Plan, the
status of the Diversified Group businesses and the intentions of Mr. Crowe.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. Federal income tax
consequences of the Transaction. The discussion which follows is based on the
Code, Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date hereof, and
is subject to any changes in these or other laws occurring after such date,
possibly with retroactive effect. The discussion below is for general
information only and does not address the effects of any state, local or foreign
tax laws on the Transaction. A holder of Class D Stock will not receive shares
of Class R Stock or shares of PKS Holdings Stock in the Transaction and, as a
result, will recognize no income, gain or loss pursuant to the Transaction. The
tax treatment of a holder of Class C Stock may vary depending on his or her
particular situation, and certain stockholders (including "non-U.S. persons" (as
defined in the Code)) may be subject to special rules not discussed below.
EACH HOLDER OF CLASS C STOCK IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE TRANSACTION TO SUCH HOLDER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS AND
OF CHANGES IN APPLICABLE TAX LAWS.
Consummation of the Transaction is conditioned upon the receipt of the IRS
Rulings to the effect that (i) the exchange of Class C Stock for PKS Holdings
Stock in the Share Exchange will qualify as a transaction described in Sections
355(a) and 368(a)(1)(D) of the Code and (ii) the distribution of shares of Class
R Stock pursuant to the Class R Stock Distribution will be tax-free. However, at
any time before the IRS Rulings have been issued, PKS may elect to effect the
Transaction in reliance on the Tax Opinion generally to the effect that the tax
consequences described below should result. The PKS Board has determined that if
the Tax Condition is not satisfied, the PKS Board will not proceed with the
Transaction.
The IRS Rulings and the Tax Opinion (if any) will be based on current law
and on certain representations as to factual matters made by, among others, PKS
and PKS Holdings. Such representations, if incorrect in material respects, could
jeopardize the conclusions reached in the IRS Rulings or the Tax Opinion.
Neither PKS nor PKS Holdings is currently aware of any facts or circumstances
which would cause any such representations required to be made to the IRS or to
counsel to be untrue or incorrect in any material respect. Further, the Tax
Opinion of counsel is not binding on the IRS or any court.
Based on the IRS Rulings and Tax Opinion (if any) discussed above, the
material U.S. federal income tax consequences expected to result from the
Transaction are as follows:
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(i) Except as described below, no income, gain or loss will be
recognized by PKS or PKS Holdings upon the distribution of the Class R Stock
or the exchange of Class C Stock for PKS Holding Stock pursuant to the
Transaction.
(ii) A holder of Class C Stock will not recognize any income, gain or
loss as a result of (a) the receipt of the shares of Class R Stock pursuant
to the Class R Stock Distribution or (b) the exchange of Class C Stock for
PKS Holdings Stock pursuant to the Share Exchange.
(iii) A holder of Class C Stock will have, immediately after the
Transaction, a tax basis for the shares of Class R Stock and shares of PKS
Holdings Stock received in the Transaction that is equal to such holder's
tax basis in the Class C Stock immediately before the Transaction, allocated
in proportion to the relative fair market values of the Class R Stock and
Class C Stock at the time of the Class R Stock Distribution.
(iv) The holding period to a holder of Class C Stock for the shares of
Class R Stock and shares of PKS Holdings Stock received in the Transaction
will include the period during which the holder held the Class C Stock with
respect to which such shares of Class R Stock and shares of PKS Holdings
Stock are distributed, provided that such Class C Stock is held as a capital
asset at that time.
Notwithstanding the foregoing, PKS will recognize gain on the exchange of
Class C Stock for PKS Holdings Stock pursuant to the Share Exchange to the
extent that shares of PKS Holdings Stock are received by holders of Class C
Stock who are not United States persons ("non-U.S. persons"), as defined in the
Code. The shares of PKS Holdings Stock expected to be distributed to non-U.S.
persons are estimated to represent not more than 6.1% of the total number of
shares of PKS Holdings Stock distributed in the Transaction. Moreover, PKS may
recognize additional gain on account of or with respect to certain aspects of
the Transaction, including certain restructuring transactions expected to be
consummated in connection with the Transaction. The aggregate amount of gain
recognized by PKS in connection with the Transaction is not expected to result
in a material amount of current tax liability.
If the exchange of Class C Stock for PKS Holdings Stock in the Share
Exchange does not qualify as a tax-free exchange under Section 355 of the Code,
then, among other consequences, (i) PKS would recognize gain equal to the amount
by which the fair market value of PKS Holdings Stock distributed to holders of
Class C Stock exceeds PKS' adjusted tax basis therein and (ii) each holder of
Class C Stock who receives shares of PKS Holdings Stock in exchange for such
holder's Class C Stock in the Share Exchange would be treated as having received
a taxable distribution, taxed, depending on such holder's particular
circumstances, either as a dividend to the extent of PKS' available current and
accumulated earnings and profits, or as a sale or exchange giving rise to
capital gain or loss. If the distribution of the shares of Class R Stock
pursuant to the Class R Stock Distribution does not qualify as either a tax-free
recapitalization under Section 368(a)(1)(E) of the Code or as a tax-free
distribution under Section 305(a) of the Code, then, among other consequences,
each holder of Class C Stock who receives shares of Class R Stock pursuant to
the Class R Stock Distribution will be treated as having received a taxable
distribution, taxed to such holder generally as described in the preceding
sentence. The incurrence of significant tax liabilities by PKS, in the event
that the exchange of Class C Stock for PKS Holdings Stock is not treated as a
tax-free exchange under Section 355, could have a material adverse effect on
PKS' business and financial condition.
Treasury regulations governing Section 355 of the Code require that each
stockholder of PKS who receives shares of PKS Holdings Stock pursuant to the
Share Exchange attach a statement to such holder's federal income tax return for
the taxable year in which such holder receives such stock, which statement
indicates the applicability of Section 355 of the Code to the Share Exchange.
PKS will provide each stockholder with the information necessary to comply with
this requirement.
TAX TREATMENT OF CLASS R STOCK. The following discussion assumes that a
holder will hold shares of Class R Stock (and the Diversified Holdings Stock
issuable upon the conversion of the Class R Stock) as capital assets. A holder
generally will not recognize gain or loss upon the conversion of a share of
Class R
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Stock, except with respect to the receipt of cash in lieu of a fractional share
of Diversified Holdings Stock. A holder who receives cash in lieu of a
fractional share of Diversified Holdings Stock will be treated as if such
fractional share had been issued and then immediately redeemed for cash. As a
result, the holder will recognize gain or loss equal to the difference between
the amount of such cash and the holder's tax basis in such fractional share. A
holder's tax basis in the shares of Diversified Holdings Stock received upon the
conversion of shares of Class R Stock (including any fractional share interest
therein) generally will equal the holder's tax basis in the shares of Class R
Stock immediately prior to conversion. A holder's holding period for shares of
Diversified Holdings Stock into which such shares of Class R Stock are converted
will include the period during which the holder held such shares of Class R
Stock.
Upon a sale or other taxable transfer of shares of Class R Stock to persons
other than Diversified Holdings, a holder generally will recognize a capital
gain or loss equal to the difference between the amount of cash and the fair
market value of any property received in exchange therefor and the holder's tax
basis in the shares of Class R Stock, which would be a long-term capital gain or
loss if the holder has held the shares of Class R Stock for more than one year.
Long-term capital gains recognized by individual taxpayers are taxed at a
maximum rate of 28%. Recently-enacted legislation generally reduces the maximum
capital gains rate to 20% for capital assets held for more than eighteen months.
An adjustment in the conversion price or the number of shares to be received
upon conversion of the shares of Class R Stock may, in certain circumstances,
result in constructive distributions to holders of shares of Class R Stock which
could be taxable as dividends. A holder's tax basis in shares of Class R Stock
generally would be increased by the amount of any such dividend.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER OF CLASS C
STOCK IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
TO SUCH HOLDER OF THE TRANSACTION, INCLUDING THE EFFECT OF U.S. FEDERAL, STATE
AND LOCAL, AND FOREIGN AND OTHER TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN
SUCH TAX LAWS.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable under the Canadian Act to a holder of Class
C Stock who receives shares of Class R Stock in the Class R Stock Distribution
and shares of PKS Holdings Stock in the Share Exchange and who, for purposes of
the Canadian Act, is a resident of Canada, holds Class C Stock, and will hold
the shares of Class R Stock and the Diversified Holdings Stock into which such
shares of Class R Stock are converted, as capital property, deals at arm's
length with PKS and is not affiliated with PKS within the meaning of the Tax
Proposals referred to below (a "Canadian C Holder").
This summary does not apply to a financial institution within the meaning of
section 142.2 of the Canadian Act or to a Canadian C Holder in respect of which
PKS is a foreign affiliate within the meaning of the Canadian Act.
This summary is based on the current provisions of the Canadian Act and the
regulations thereunder (the "Canadian Regulations") in force on the date hereof,
specific proposals (the "Tax Proposals") to amend the Canadian Act or the
Canadian Regulations publicly announced by the Minister of Finance prior to the
date hereof and an understanding of the current published administrative and
assessing practices of Revenue Canada, Customs, Excise and Taxation ("Revenue
Canada"). Except for the Tax Proposals, this summary does not take into account
or anticipate any proposed changes to the law or to Revenue Canada's
administrative and assessing practices, whether by legislative, governmental or
judicial actions.
THE FOLLOWING DISCUSSION IS INTENDED TO BE A GENERAL DESCRIPTION OF THE
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS GENERALLY APPLICABLE TO A CANADIAN C
HOLDER BY REASON OF THE TRANSACTION AND IS NOT INTENDED TO BE, NOR
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SHOULD IT BE CONSTRUED AS BEING, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER.
EACH CANADIAN C HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE TRANSACTION TO SUCH HOLDER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY PROVINCIAL, LOCAL OR FOREIGN LAWS AND OF CHANGES
IN APPLICABLE TAX LAWS.
TREATMENT OF THE CLASS R STOCK DISTRIBUTION. A Canadian C Holder will be
required to include in computing such holder's income an amount equal to the
fair market value of any shares of Class R Stock received by way of dividend in
the Class R Stock Distribution. The Class R Stock Distribution will not be
eligible for the gross-up and dividend tax credit generally applicable to
dividends received in respect of shares of taxable Canadian corporations nor
will any Canadian C Holder which is a corporation be entitled to a deduction in
computing taxable income in respect of such dividend. A Canadian C Holder will
generally be entitled to a deduction equal to any U.S. tax required to be
deducted or withheld in respect of such dividend in computing his or her tax
otherwise payable in respect of such dividend. The cost to a Canadian C Holder
of the shares of Class R Stock received in the Class R Stock Distribution will
be an amount equal to the fair market value of such shares of Class R Stock.
CONVERSION AND DISPOSITION OF SHARES OF CLASS R STOCK. The conversion of
shares of Class R Stock, whether at the option of the Canadian C Holder or PKS
or upon the automatic conversion, will not constitute a disposition of property
for purposes of the Canadian Act. Shares of Diversified Holdings Stock issued to
a Canadian C Holder upon the conversion of shares of Class R Stock will have a
cost equal to the adjusted cost base to such Canadian C Holder of the shares of
Class R Stock so converted. It is Revenue Canada's current administrative
practice that a Canadian C Holder who receives cash not exceeding Canadian
$200.00 in lieu of a fractional share will have the option of recognizing the
capital gain or capital loss arising on the disposition of the fractional share
in computing the Canadian C Holder's income for the taxation year in which the
conversion occurs or alternatively of reducing the adjusted cost base of the
Diversified Holdings Stock received upon the conversion by the amount of such
cash. A Canadian C Holder who disposes of shares of Class R Stock will realize a
capital gain (or a capital loss) to the extent that the proceeds of disposition
thereof, net of any reasonable costs of disposition exceed (or are exceeded by)
the Canadian C Holder's adjusted cost base of such shares of Class R Stock.
DIVIDENDS ON CLASS R STOCK. A Canadian C Holder will be required to include
the gross amount of any dividends paid on the shares of Class R Stock in
computing such holder's income. Any such dividends will be subject to the tax
treatment described in "--Treatment of the Class R Stock Distribution."
EXCHANGE OF CLASS C STOCK IN THE SHARE EXCHANGE. A Canadian C Holder who
receives shares of PKS Holdings Stock in the Share Exchange will generally
realize a capital gain (or a capital loss) to the extent that the fair market
value of the PKS Holdings Stock received in the Share Exchange exceeds (or is
exceeded by) the Canadian C Holder's adjusted cost for the Class C Stock.
The cost to a Canadian C Holder of the shares of PKS Holdings Stock received
in the Share Exchange should be equal to the fair market value of such PKS
Holdings Stock, determined at the time of such exchange.
FOREIGN CURRENCY TRANSLATION ISSUES. Generally speaking, all amounts
relevant to the computation of income under the Canadian Act which are paid,
received or expressed in foreign currency must be translated into Canadian
dollars using an appropriate exchange rate. A Canadian C Holder's cost of Class
C Stock, Class R Stock and PKS Holdings Stock will be translated into Canadian
dollars at the date of the acquisition thereof. The fair market value of the
shares of Class R Stock and the fair market value of the PKS Holdings Stock
received in the Share Exchange must be translated into Canadian dollars at the
date of acquisition thereof.
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NEBRASKA TAX RULING
PKS will apply to the State of Nebraska Department of Revenue for a ruling
to the effect that even though PKS and PKS Holdings will become independent
companies if the Transaction is consummated, PKS and PKS Holdings would continue
to be considered the same corporation for purposes of the Nebraska capital gain
exclusion provisions (the "Nebraska Ruling"). Accordingly, provided certain
requirements are met and an appropriate election is made, such Nebraska capital
gain exclusion would be available for the sale of PKS Holdings Stock by
residents of Nebraska. As of September 1, 1997, 239 holders of Class C Stock,
holding in the aggregate 3,719,284 shares of Class C Stock (including Messrs.
Scott, William Grewcock, Stinson, Toll, Bruce Grewcock and Johnson, who are
members of the PKS Board and hold in the aggregate 1,672,056 shares of Class C
Stock) are residents of the State of Nebraska. Because failure to receive such a
ruling could result in substantial additional tax cost of the Transaction to a
substantial number of Class C stockholders, if PKS does not receive the Nebraska
Ruling or an opinion of tax counsel generally to the same effect as the
requested Nebraska Ruling, by the date upon which the Tax Condition is
satisfied, the PKS Board may review the benefits of the Transaction in light of
the failure to receive the Nebraska Ruling or such opinion, and could determine
to abandon, defer or modify the Transaction if it determined that such action
would be in the best interests of all PKS Stockholders.
REGULATORY APPROVALS
PKS does not believe that any material federal or state regulatory approvals
will be necessary in connection with the Transaction.
APPRAISAL RIGHTS
PKS Stockholders will not be entitled to appraisal rights as a result of the
Transaction.
ACCOUNTING TREATMENT
Upon consummation of the Transaction, the historical consolidated financial
statements of PKS will be retroactively restated, where appropriate, to
disaggregate the historical basis financial information of the Construction
Group, and present the business of the Construction Group as discontinued
operations. PKS, which will be renamed "Diversified Holdings, Inc." following
the consummation of the Transaction, will account for the Share Exchange using
the historical cost basis of the Construction Group and following the
Transaction will continue to account for its results on an historical cost
basis. After the Transaction the business of the Construction Group will be
operated by PKS Holdings and will continue to be reflected in the separate
financial statements of PKS Holdings on an historical cost basis.
POST-TRANSACTION ARRANGEMENTS BETWEEN PKS HOLDINGS AND DIVERSIFIED HOLDINGS
PKS and PKS Holdings have entered into various agreements intended to
implement the Transaction, including the Separation Agreement and a tax
allocation agreement (the "Tax Allocation Agreement"). Set forth below are
descriptions of the material terms of the Separation Agreement and the Tax
Allocation Agreement, both of which are included as exhibits to the Registration
Statement of which this Proxy Statement/Joint Prospectus is a part. The
descriptions below are qualified by reference to those agreements.
SEPARATION AGREEMENT. The Separation Agreement provides for the principal
corporate transactions necessary to consummate the Transaction, the relationship
between PKS Holdings and Diversified Holdings after the Transaction, the
allocation of certain risks and responsibilities between PKS Holdings and
Diversified Holdings after the Transaction and certain other matters.
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The Separation Agreement provides for the Share Exchange, the Class R Stock
Distribution and certain internal corporate transactions necessary to consummate
the Transaction. The Separation Agreement provides that each of Diversified
Holdings and PKS Holdings will indemnify the other with respect to breaches of
the Separation Agreement and with respect to the activities of its subsidiary
business groups, except as specifically provided under the Tax Allocation
Agreement (as defined below). The cross-indemnities are intended to allocate
financial responsibility for liabilities arising out of the historical and
future business of the Construction Group to PKS Holdings, and financial
responsibility for liabilities arising out of the historical and future business
of the Diversified Group to Diversified Holdings. The Separation Agreement also
allocates between Diversified Holdings and PKS Holdings certain corporate-level
risk exposures not readily allocable to one or the other. The Separation
Agreement also provides for the allocation between Diversified Holdings and PKS
Holdings of costs and benefits under existing insurance policies and
arrangements.
The Separation Agreement provides for the division between the Construction
Group and the Diversified Group of any assets (other than corporate
subsidiaries) held directly by PKS immediately prior to the Share Exchange.
The Separation Agreement provides that PKS will change its name to
Diversified Holdings, Inc. not later than the date of the filing of the
Certificate Amendments in the State of Delaware, and that PKS and all of its
subsidiaries will assign to PKS Holdings any and all right, title and interest
in and to any corporate name, tradename or trademark using the initials "PKS" or
the names "Peter Kiewit Sons', Inc." or "Kiewit," and any other proprietary
right with respect to those names or related symbols, and will refrain from
using any such property right in connection with the future conduct of its
businesses. PKSIS, however, will be entitled to continue to use its current
corporate name for a period of two years after the Effective Time.
The Separation Agreement also sets forth certain covenants of Diversified
Holdings and PKS Holdings intended to ensure that certain transactions, such as
material asset acquisitions, material asset dispositions and repurchases of
capital stock do not occur after consummation of the Transaction unless adequate
assurance has been received that such transactions will not adversely affect the
intended tax consequences of the Transaction. Diversified Holdings and PKS
Holdings do not anticipate that these restrictions will have a material adverse
effect on their respective business, operations or growth opportunities.
The Separation Agreement provides that each of Diversified Holdings and PKS
Holdings will be granted access to certain records and information in the
possession of the other company, and requires that each of Diversified Holdings
and PKS Holdings retain all such information in its possession for a period of
ten years following the Transaction. Under the Separation Agreement, each
company is required to give the other company prior notice of any intention to
dispose of any such information.
The Separation Agreement provides that, except as otherwise set forth
therein or in any related agreement, costs and expenses in connection with the
Transaction will be paid 82.5% by Diversified Holdings and 17.5% by PKS
Holdings.
TAX ALLOCATION AGREEMENT. PKS and PKS Holdings have entered into the Tax
Allocation Agreement that defines each company's rights and obligations with
respect to deficiencies and refunds of federal, state and other taxes relating
to the Business Groups' operations for tax years (or portions thereof) ending
prior to the Transaction and with respect to certain tax attributes of
Diversified Holdings and PKS Holdings after the Transaction. In general, with
respect to periods (or portions thereof) ending on or before the Effective Time,
PKS Holdings will be responsible for preparing both consolidated federal tax
returns for the consolidated group, and state tax returns for the combined and
any subsidiary group. In general, under the Tax Allocation Agreement,
Diversified Holdings and PKS Holdings will be responsible for paying the taxes
relating to such returns (including any subsequent adjustments resulting from
the redetermination of such tax liabilities by the applicable taxing
authorities) that are allocable to the Diversified Group business
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and the Construction Group business, respectively. Diversified Holdings and PKS
Holdings will cooperate with each other and share information in preparing such
tax returns and in dealing with other tax matters.
EXISTING ARRANGEMENTS AND RELATIONSHIPS
Although PKS and PKS Holdings will become two independent companies if the
Transaction is consummated, it is anticipated that PKS and PKS Holdings will
continue certain existing business arrangements and relationships. Set forth
below is a description of the material terms of such arrangements and
relationships.
MINE MANAGEMENT AGREEMENT. The Construction Group and the Diversified Group
are parties to an agreement (the "Mine Management Agreement") pursuant to which
a Construction Group subsidiary, Kiewit Mining Group Inc., provides mine
management and related services for the Diversified Group's coal mining
properties. In consideration of the provision of such services, Kiewit Mining
Group Inc. receives a fee equal to thirty percent of the adjusted operating
income of the coal mining properties. The Mine Management Agreement also
provides for specified capital requirements in the event the parties mutually
agree to undertake a new mining venture. Disputes under the Mine Management
Agreement are resolved by the PKS Board. The term of the Mine Management
Agreement expires on January 1, 2016, subject to early termination by the PKS
Board. In contemplation of the consummation of the Transaction, the management
of the Construction Group and the management of the Diversified Group are
reviewing the possibility of modifications to the Mine Management Agreement, or
of a restructuring of the relationship of the Diversified Group and the
Construction Group with respect to the mining properties. The Business Groups,
however, have not yet reached any agreement on any such modification or
restructuring.
KIEWIT INVESTMENT MANAGEMENT. The Diversified Group owns 60% of, and the
Construction Group owns 40% of, the capital stock of Kiewit Investment
Management Corp., ("KIM") a registered investment adviser that manages the
Kiewit Mutual Fund. See "Appendix B--Business of Diversified Holdings-- Kiewit
Mutual Fund."
Substantially all of the cash and cash equivalents of the Business Groups,
and a substantial portion of the marketable securities of the Construction Group
and the Diversified Group, are comprised of investments in the Kiewit Mutual
Fund. The Diversified Group and the Construction Group are discussing a number
of possible arrangements regarding money management for the Business Groups,
with a view toward development of separate money management functions for each
Business Group at an appropriate time following consummation of the Transaction.
These discussions could result in a sale or disposition of one Business Group's
ownership interest in KIM to the other Business Group, the sale of KIM to a
third party or another restructuring related to the Kiewit Mutual Fund.
OTHER SERVICES. PKSIS currently provides certain information services to
the Construction Group, and the Construction Group currently provides certain
aircraft flight and maintenance services to the Diversified Group. The Business
Groups believe that such services are provided pursuant to terms which are at
least as favorable to each of the Business Groups as could have been negotiated
by such groups with unaffiliated third parties. The Business Groups expect that
such services will continue to be provided after the Transaction is consummated.
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THE INITIAL CERTIFICATE AMENDMENTS
The PKS Board has approved, and recommends that PKS Stockholders approve,
the Initial Certificate Amendments to become effective promptly following their
approval at the Special Meeting. The text of the Initial Certificate Amendments
is set forth as Appendix E-I hereto.
The Initial Certificate Amendments amend the PKS Certificate to: (i) create
the Class R Stock to be distributed in the Class R Stock Distribution pursuant
to the Transaction; (ii) increase from 50,000,000 to 500,000,000 the number of
shares of Class D Stock which PKS is authorized to issue; and (iii) designate 10
shares of Class D stock as Class D Stock, Non-Redeemable Series.
CLASS R STOCK
The Initial Certificate Amendments include a provision creating the Class R
Stock and authorizing 8,500,000 shares of Class R Stock for issuance. The Class
R Stock is being created in order to be distributed in the Class R Stock
Distribution pursuant to the Transaction and will be convertible into
Diversified Holdings Stock and have terms as described in "Description of Class
R Stock." For a description of the means of distribution of Class R Stock by PKS
pursuant to the Transaction, see "The Transaction--The Class R Stock
Distribution."
INCREASE IN AUTHORIZED SHARES OF CLASS D STOCK.
As a result of the Initial Certificate Amendments, the number of authorized
shares of Class D Stock will be increased from 50,000,000 to 500,000,000 shares.
The purpose of the increase is to provide PKS with the ability to engage in
financing and other acquisition transactions using the Class D Stock, to
distribute shares of Class D Stock as dividends on PKS Stock, to effect stock
splits with respect to the Class D Stock and to otherwise have sufficient shares
of Class D Stock available for issuance from time to time by the PKS Board upon
its determination that such issuance is appropriate and in the best interest of
PKS. The availability of additional shares of Class D Stock will provide PKS
with the flexibility necessary to respond to the business needs and
opportunities of PKS. It is anticipated that prior to the consummation of the
Share Exchange the PKS Board will determine to issue shares of Class D Stock as
a dividend with respect to the outstanding shares of Class D Stock in order to
effect a stock split with respect to the Class D Stock. As a result of the
Initial Certificate Amendments, Diversified Holdings will have a substantial
number authorized but unissued shares of Class D Stock that could be used by
Diversified Holdings to deter a potential acquiror. See "Risk Factors Relating
to Diversified Holdings After the Transaction--Certain Limitations on Changes in
Control of Diversified Holdings."
CLASS D STOCK, NON-REDEEMABLE SERIES
The Initial Certificate Amendments also include a provision designating 10
shares of Class D Stock as Class D Stock, Non-Redeemable Series. Pursuant to the
PKS Certificate, as amended by the Initial Certificate Amendments, shares of
Class D Stock, Non-Redeemable Series will have terms identical to those of other
shares of Class D Stock, with the following exceptions: (i) holders of Class D
Stock, Non-Redeemable will have no rights to cause PKS to repurchase their
shares; (ii) shares of Class D Stock, Non-Redeemable Series will not be
convertible into Class C Stock; and (iii) shares of Class D Stock, Non-
Redeemable Series will not be subject to mandatory exchange into Class C Stock
by PKS. See "Comparison of Class D Stock and Diversified Holdings
Stock--Repurchase Rights", "--Conversion Rights" and "--Mandatory Exchange." A
holder of Class D Stock, Non-Redeemable Series will share on a pro rata basis
with the other holders of Class D Stock in amounts available upon liquidation of
PKS and will receive dividends per share equal to those paid on other shares of
Class D Stock. A holder of Class D Stock, Non-Redeemable Series will be entitled
to vote together with the other holders of Class D Stock, as a single class, on
all matters upon which Class D Stock is entitled to vote, other than as required
by law. Further, upon Class D Stock's becoming publicly traded, all outstanding
shares of Class D Stock, Non-Redeemable Series shall cease being so designated
and shall have the same rights, preferences, privileges and limitations as other
shares of Class D Stock.
The Delaware General Corporation Law (the "DGCL") provides that at any time
a Delaware corporation redeems its stock it must have outstanding shares of at
least one class or series of stock with full voting powers which shall not be
subject to redemption. PKS is designating Class D Stock, Non-Redeemable Series
as a new series of non-redeemable stock to be outstanding at the time of
potential redemptions of its other capital stock.
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THE POST-TRANSACTION CERTIFICATE AMENDMENTS
GENERAL
The PKS Board has approved, and recommends that PKS Stockholders approve,
the Post-Transaction Certificate Amendments which will become effective only
upon the consummation of the Transaction. The Diversified Holdings Certificate,
which is a restatement of the PKS Certificate after giving effect to the Initial
Certificate Amendments and the Post-Transaction Certificate Amendments, is
attached as Appendix E-II hereto.
The Diversified Holdings Certificate incorporates into a single document the
Initial Certificate Amendments and the Post-Transaction Certificate Amendments.
The Post-Transaction Certificate Amendments will amend the PKS Certificate to:
(i) change the name of PKS from "Peter Kiewit Sons', Inc." to "Diversified
Holdings, Inc."; (ii) redesignate Class D Stock as "Common Stock, par value $.01
per share"; (iii) authorize the issuance of series of preferred stock, the terms
of which are to be determined by the Diversified Holdings Board; (iv) modify the
repurchase rights to which the holders of Class D Stock are entitled; (v) delete
the provisions regarding Class C Stock; (vi) classify the Diversified Holdings
Board; (vii) prohibit stockholder action by written consent; (viii) empower the
Diversified Holdings Board, exclusively, to call special meetings of the
stockholders; (ix) require a super-majority vote of stockholders to amend the
Diversified Holdings By-laws; and (x) modify certain other provisions of the PKS
Certificate. Certain other provisions of the Diversified Holdings Certificate,
such as those with respect to indemnification and limitation of liability of
directors, while amended by the Post-Transaction Certificate Amendments, will be
substantially the same as the corresponding provisions in the PKS Certificate.
CAPITAL STRUCTURE OF DIVERSIFIED HOLDINGS
As a result of the Transaction, Diversified Holdings will be an independent
company holding the assets of the Diversified Group, and holders of Class D
Stock will hold all of the outstanding shares of Common Stock, par value $.01
per share, of Diversified Holdings as a result of the redesignation of Class D
Stock. The following Post-Transaction Certificate Amendments are proposed in
connection with the new capital structure of Diversified Holdings following the
Transaction and certain corporate governance matters.
REDESIGNATION OF CLASS D STOCK. The Class D Stock will be redesignated as
"Common Stock, par value $.01 per share." For a comparison of Class D Stock and
Diversified Holdings Stock, see "Comparison of Class D Stock and Diversified
Holdings Stock." Holders of Class D Stock will hold all outstanding shares of
Diversified Holdings Stock.
DELETION OF CERTAIN PROVISIONS AND REFERENCES. Following the Share
Exchange, Class C Stock will have been mandatorily exchanged for PKS Holdings
Stock, and Diversified Holdings will no longer own the Construction Group. In
addition, as of January 1997 all outstanding shares of PKS Class B Construction
& Mining Group Nonvoting Restricted Redeemable Convertible Exchangeable Common
Stock, par value $.0625 per share ("Class B Stock"), were converted into shares
of Class D Stock. For these reasons, it will not be necessary for the
Diversified Holdings Certificate to provide the terms of, or otherwise make
reference to, either of Class C Stock or Class B Stock. Upon adoption of the
Post-Transaction Certificate Amendments, all such provisions and references to
Class C Stock or Class B Stock, including provisions related to the conversion,
voting and repurchase and other rights, will be deleted in their entirety from
the Diversified Holdings Certificate.
AUTHORIZATION OF PREFERRED STOCK. The Post-Transaction Certificate
Amendments include a provision authorizing 10,000,000 shares of preferred stock
and authorize the Diversified Holdings Board to issue such shares of preferred
stock in one or more series. Each such series may have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation privileges, as may be
determined by the Diversified Holdings Board. Under the PKS
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Certificate, the PKS Board is authorized to establish the terms and issue one or
more series of preferred stock; however, the terms of such preferred stock may
not include voting rights and may not provide for conversion of such preferred
stock into voting stock. Currently, there are no shares of PKS preferred stock
issued and outstanding. See "Risk Factors Regarding Diversified Holdings After
the Transaction--Certain Limitations on Changes in Control of Diversified
Holdings."
REMOVAL OF CERTAIN OTHER PROVISIONS. Certain provisions of the PKS
Certificate will be made unnecessary or otherwise ineffective by the
consummation of the Transaction, or are already provided as a matter of Delaware
law. Such provisions include, but are not limited to: (i) provisions for the
mandatory exchange of Class D Stock; (ii) provisions for the general duties of
officers; (iii) provisions allowing for the ratification of any contract,
transaction or act by a majority of a quorum of stockholders; and (iv) the
provision allowing for the holding of stockholder and board meetings and the
keeping of offices outside of the State of Delaware. The Diversified Holdings
Certificate will not contain such provisions. For a more detailed description of
the mandatory exchange provisions related to Class D Stock, see "Comparison of
Class D Stock and Diversified Holdings Stock."
BOARD OF DIRECTORS
As a result of the Post-Transaction Certificate Amendments, the Diversified
Holdings Board will be divided into three classes, designated Class I, Class II
and Class III, each class consisting, as nearly as may be possible, of one-third
of the total number of directors constituting the Diversified Holdings Board.
The term of the initial Class I directors will terminate on the date of the 1998
annual meeting of stockholders; the term of the initial Class II directors will
terminate on the date of the 1999 annual meeting of stockholders; and the term
of the initial Class III directors will terminate on the date of the 2000 annual
meeting of stockholders. At each annual meeting of stockholders beginning in
1998, successors to the class of directors whose term expires at that annual
meeting will be elected for three-year terms. Accordingly, approximately
one-third of the Diversified Holdings Board will be elected each year. See
"Diversified Holdings Directors and Executive Officers."
Notwithstanding any limitation in the Diversified Holdings Certificate on
the maximum number of directors, if holders of Diversified Holdings preferred
stock have the right to elect a specified number of directors, the election,
term of office, filling of vacancies and other features of such directorships
will be governed by the terms of such preferred stock.
If the number of directors is changed, any increase or decrease will be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
appointed to fill a vacancy resulting from an increase in the number of such
class will hold office for a term that will coincide with the remaining term of
that class, but in no case will a decrease in the number of directors shorten
the term of any incumbent director. In accordance with the Diversified Holdings
Certificate and Delaware law, directors may be removed only for cause because
the Diversified Holdings Board is classified. In addition, a director will hold
office until the annual meeting for the year in which his term expires and until
his successor will be elected, subject, however, to prior death, resignation,
retirement or removal from office. Any vacancy occurring in the Diversified
Holdings Board may be filled only by a vote of the majority of the directors
then in office, even if less than a quorum, or by a sole remaining director.
Board classification provision is advantageous to Diversified Holdings and
its stockholders because, by providing that directors will serve three-year
terms rather than one-year terms, it will enhance the likelihood of continuity
and stability in the composition of the Diversified Holdings Board and in the
policies formulated by it. This will in turn permit the Diversified Holdings
Board to represent more effectively the interests of all stockholders, including
the taking of action in response to demands or actions by a minority stockholder
or group. In addition, this provision ensures that a majority of the directors
at any given time will have had prior experience as directors of Diversified
Holdings.
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NUMBER OF DIRECTORS. The PKS Certificate provides for between nine and 15
directors, as determined by the By-laws of PKS (the "PKS By-laws"). Such
authorized number of directors may be increased no more than twice during any
twelve-month period. The Diversified Holdings Certificate will provide that the
number of directors will be fixed between six and 15, and vacancies on the
Diversified Holdings Board may only be filled by the Board. The effect of the
Diversified Holdings Certificate and By-laws is that the Diversified Holdings
Board could prevent any stockholder from obtaining majority representation on
the Diversified Holdings Board by expanding the size of the Diversified Holdings
Board, and filling the new directorships with its own nominees.
POWERS OF THE BOARD. The PKS Certificate specifically enumerates a number
of powers and limitations on powers of the PKS Board. The limitations typically
require approval of two-thirds of the directors and/ or a supermajority vote of
the stockholders (in most cases the holders of 80% of the Class C Stock
outstanding) in order for the PKS Board or PKS to take certain actions; these
limitations are primarily related, directly or indirectly, to the unique nature
of the PKS capital and management structure. As Diversified Holdings will
possess a more standard capital and management structure, such limitations are
not appropriate for Diversified Holdings. Therefore, such limitations are not
included in the Diversified Holdings Certificate, although all supermajority
voting rights will be maintained in the Diversified Holdings Certificate in
respect to the Diversified Holdings Stock. Under the Diversified Holdings
Certificate, although the powers of the Diversified Holdings Board will not be
specifically enumerated, the Diversified Holdings Board will have complete power
to manage the business and affairs of Diversified Holdings, as provided under
the DGCL.
See "--Reasons for the Corporate Governance Provisions" for additional
background discussion relating to these provisions.
STOCKHOLDER CONSENT
The Diversified Holdings Certificate will provide that stockholders of
Diversified Holdings may only take action at an annual or special meeting and
may not act by written consent. The PKS Certificate does not contain such a
general prohibition. Under the DGCL, unless otherwise provided in a
corporation's certificate of incorporation, any action which is required or
permitted to be taken at an annual or special meeting of stockholders may
instead be taken without a meeting, without prior notice and without a vote, if
a written consent setting forth the action to be taken is signed by the holders
of outstanding shares of stock having not less than the minimum number of votes
that would be necessary to authorize such action at a meeting of stockholders at
which all shares entitled to vote thereon were present and voting.
By prohibiting stockholders from acting by written consent, the Diversified
Holdings Certificate will limit the ability of any stockholder to take action
immediately and without prior notice to the Diversified Holdings Board, and
would allow stockholders to act only at an annual or special meeting. As a
result, the Diversified Holdings Certificate ensures that all stockholders will
have the opportunity to consider any matter that could affect their rights.
However, such a limitation on a majority stockholder's ability to act might
impact upon such person's or entity's decision to purchase voting securities of
Diversified Holdings.
See "--Reasons for the Corporate Governance Provisions" for additional
background discussion relating to this provision.
STOCKHOLDERS' MEETINGS
Under the DGCL, special meetings of stockholders of a corporation may be
called by the corporation's board of directors or by such persons as may be
authorized by a corporation's certificate of incorporation or by-laws.
The Diversified Holdings Certificate will provide that special meetings of
the stockholders may be called only by the Diversified Holdings Board, the
Chairman of the Board or the Chief Executive Officer
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and may not be called by any other person or persons. Accordingly, stockholders
of Diversified Holdings may not call a special meeting of stockholders. The PKS
Certificate is silent on this matter. The PKS By-laws provide that special
meetings of stockholders may be called by the Chairman of the Board or at the
request of a majority of the PKS Board or a majority of the outstanding voting
stock of PKS.
This provision of the Diversified Holdings Certificate is intended to ensure
that the election of directors and other matters for stockholder consideration
will be voted on only at Diversified Holdings' annual meeting and that
Diversified Holdings will not be forced to incur the expense and distraction of
a special meeting unless the Diversified Holdings Board, the Chairman of the
Board or the Chief Executive Officer considers such a meeting to be in the best
interests of the stockholders and calls such a meeting. The PKS Board believes
that the Diversified Holdings Board is in the best position to determine those
issues which are properly the subject of a special meeting of stockholders.
Although this provision has the effect of precluding stockholder consideration
of a proposal over the opposition of the Diversified Holdings Board, the
Chairman of the Board or the Chief Executive Officer, the PKS Board believes
that stockholders are provided a full opportunity to make proper proposals at
duly convened stockholder meetings and to request that any such proposal be
presented for consideration to other stockholders in the Diversified Holdings'
annual proxy statement.
See "--Reasons for the Corporate Governance Provisions" for additional
background discussion relating to this provision.
AMENDMENT OF BY-LAWS
The Diversified Holdings Certificate will provide that the stockholders of
Diversified Holdings may not adopt, repeal, alter, amend or rescind the
Diversified Holdings By-laws except upon the affirmative vote of at least
two-thirds of the votes entitled to be cast by the holders of outstanding shares
of stock of Diversified Holdings. The DGCL vests such power solely in the
stockholders of a corporation unless such power is conferred upon the board of
directors in the certificate of incorporation. The PKS Certificate currently
provides that the PKS By-laws may be amended by the affirmative vote of
two-thirds of the PKS Board, or both (i) two-thirds of the outstanding Class C
Stock and (ii) a majority of the outstanding voting stock of PKS.
The PKS Board believes that this provision will help to assure continuity
with respect to the management of the day-to-day operations of Diversified
Holdings. In addition, the provision will prevent a purchaser who acquires a
majority of the Diversified Holdings Stock from adopting by-laws which are not
in the best interest of all the stockholders or repealing by-laws which are in
such stockholders' interests.
See "--Reasons for the Corporate Governance Provisions" for additional
background discussion relating to this provision.
REPURCHASE RIGHTS
Currently, holders of Class D Stock may require PKS to purchase any or all
of the Class D Stock held by them by delivering the certificate or certificates
for such Class D Stock to PKS together with a written notice requesting
repurchase. PKS must pay for any repurchased Class D Stock within 60 days after
receipt of the certificates and written notice.
The PKS Board may limit the obligation of PKS to repurchase Class D Stock
for cash after PKS has in any fiscal year purchased shares of Class D Stock
tendered to PKS in an amount equal to 10% of the number of shares of Class D
Stock outstanding at the end of the prior fiscal year (the "10% Threshold").
During a given fiscal year, until the 10% Threshold is reached PKS must
repurchase all shares of Class D Stock tendered. If the 10% Threshold is
reached, the PKS Board may elect to repurchase Class D Stock by delivering a
promissory note instead of cash. In setting the proportion of shares to be
purchased for cash, the PKS Board may set the proportion so that the cumulative
shares sold during the fiscal year is equal to
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the 10% Threshold or the PKS Board may set some higher proportion. Under the PKS
Certificate, the promissory notes have a term to maturity not to exceed two
years.
The Diversified Holdings Certificate will provide repurchase rights similar
to those provided with respect to Class D Stock under the PKS Certificate. Under
the Diversified Holdings Certificate, however, promissory notes issued after the
10% Threshold is reached in a given fiscal year may have such term to maturity,
up to ten years, as the Diversified Holdings Board may determine. This extension
of the potential terms of repurchase promissory notes is intended to provide the
Diversified Holdings Board with greater flexibility in responding to a
substantial call on its capital by stockholders seeking redemption. See "Risk
Factors Regarding Diversified Holdings After the Transaction--Modification of
Repurchase Obligation."
REASONS FOR THE CORPORATE GOVERNANCE PROVISIONS
GENERAL. Although it is not anticipated that Class D Stock will be listed
for trading on a stock exchange or market at the Effective Time, it is
anticipated that such a listing will be sought at such time that Diversified
Holdings determines to raise capital through a public equity offering or denies
to have a listed equity security available for acquisitions. See "Risk Factors
Regarding Diversified Holdings After the Transaction--Certain Limitations on
Changes in Control of Diversified Holdings" and "Comparison of Class D Stock and
Diversified Holdings Stock--Listing." If the Diversified Holdings Stock becomes
publicly traded, the Diversified Holdings Certificate provisions described under
"--Board of Directors", "--Stockholder Consent", "--Stockholders' Meetings" and
"--Amendment of By-laws" above (together, the "Corporate Governance Provisions")
would reduce the vulnerability of Diversified Holdings to an unsolicited
takeover proposal not deemed by the Diversified Holdings Board to be in the best
interests of the stockholders. As a result of the Transaction, Diversified
Holdings will not have Class C Stock. Accordingly, Diversified Holdings would no
longer have a class of capital stock which could be held only by certain
persons, and, if Diversified Holdings Stock was sold by its current holders,
Diversified Holdings could be subject to coercive takeover tactics which might
impede its long-term business prospects. The Corporate Governance Provisions are
proposed with a view toward better enabling Diversified Holdings to (i) develop
its business and foster long-term growth through long-range planning, (ii)
attempt to avoid the necessity of sacrificing these plans for the sake of
short-term gains and the disruptions caused by any threat of a takeover not
deemed by the Diversified Holdings Board to be in the best interests of
Diversified Holdings and its stockholders and (iii) allow the Diversified
Holdings Board to make a reasoned and unpressured evaluation in the event of an
unsolicited takeover proposal.
In addition, these measures would discourage certain types of transactions,
which may involve an actual or threatened change of control of Diversified
Holdings. The measures are designed to make it more difficult and time-consuming
to change, among other things, majority control of the Diversified Holdings
Board and thus reduce the vulnerability of Diversified Holdings to an
unsolicited proposal for a takeover, particularly one that is made at an
inadequate price or does not contemplate the acquisition of all of the
Diversified Holdings capital stock, or an unsolicited proposal for the
restructuring or sale of all or part of Diversified Holdings. The PKS Board
believes that, as a general rule, such proposals would not be in the best
interest of Diversified Holdings and its stockholders. The Diversified Holdings
Board will always be bound by its fiduciary duties to act in the best interest
of Diversified Holdings and its stockholders.
Historically, the accumulation of substantial stock positions in public
companies by third parties is sometimes a prelude to proposing a takeover or a
restructuring or sale of all or part of such companies or other similar
extraordinary corporate action or simply as a means to put such companies "in
play." Such actions are often undertaken by the third party without advance
notice to, or consultation with, the management of such companies. In many
cases, the purchaser seeks representation on the particular company's board of
directors in order to increase the likelihood that its proposal will be
implemented by the company. If the company resists the efforts of the purchaser
to obtain representation on the particular company's board, the purchaser may
commence a proxy contest to have its nominee elected to the board in
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place of certain directors or the entire board. In a number of cases, the
purchaser may not truly be interested in taking over the company, but uses the
threat of a proxy fight and/or a bid to take over the company as a means of
forcing the company to repurchase the purchaser's equity position at a
substantial premium over the existing market price or as a means to put the
company into "play" solely to reap short-term gains from his recent accumulation
of stock.
The PKS Board believes that the imminent threat of removal of management in
such situations would severely curtail management's ability to negotiate
effectively with such purchasers. In addition, the PKS Board believes that the
ability of a third party to put Diversified Holdings "in play" would severely
curtail management's ability to negotiate effectively with any other third party
interested in acquiring Diversified Holdings. Diversified Holdings' management
would be deprived of the time and information necessary to evaluate the takeover
proposal, to study alternative proposals and to help ensure that the best price
is obtained in any transaction involving Diversified Holdings which may
ultimately be undertaken. If the real purpose of a takeover bid were to force
Diversified Holdings to repurchase an accumulated stock interest at a premium
price, management would face the risk that, if it did not repurchase the
purchaser's stock interest, the Company's business and management would be
disrupted, perhaps irreparably.
Given the unique capital structure of PKS and the closely held nature of
Class C Stock, the PKS Certificate does not contain provisions similar in
purpose and effect to the Corporate Governance Provisions. In the view of the
PKS Board, the relevant provisions of the Diversified Holdings Certificate which
PKS Stockholders are being asked to approve will help ensure that the
Diversified Holdings Board, if confronted by a proposal from a third party which
has acquired a block of Diversified Holdings' capital stock, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interests of its
stockholders.
AMENDMENTS TO THE PKS BY-LAWS. In addition to the Corporate Governance
Provisions, the PKS Board believes that certain amendments to the PKS By-laws
will further protect Diversified Holdings from an actual or threatened change of
control. In furtherance thereof, the PKS Board intends to approve the
Diversified Holdings By-laws, which will become effective upon the filing of the
Diversified Holdings Certificate with the Secretary of State of the State of
Delaware. The PKS By-laws can be amended by the PKS Board. As such, no action
need be taken by PKS Stockholders with respect to such amendments; the following
description of the amendments to the Diversified Holdings By-laws is being
furnished only to notify PKS Stockholders of the proposed adoption of such
amendments by the PKS Board.
The Diversified Holdings By-laws will provide that any stockholder of record
may nominate one or more persons for election as director or directors at an
annual meeting or at any special meeting of stockholders called for the purpose
of electing directors only if written notice of such stockholder's intent to
make such nomination contains certain specified information and has been given
to the Secretary of Diversified Holdings within a specified time prior to the
meeting. In the case of an annual meeting of stockholders, the notice must be
given not less than 60 days nor more than 90 days prior to the anniversary date
of the immediately preceding annual meeting of stockholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, notice by the stockholder
in order to be timely must be received no later than the close of business on
the tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs. In the case of a special meeting of
stockholders called for the purpose of electing directors, the notice must be
given not later than the close of business on the tenth day following the day on
which notice of the date of the special meeting was mailed or public disclosure
of the date of the special meeting was made, whichever first occurs.
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Such stockholder's notice will be required to set forth as to each person
whom the stockholder proposes to nominate for election as a director (i) the
name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or series and
number of shares of capital stock of Diversified Holdings which are owned
beneficially or of record by the person and (iv) any other information relating
to the person that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act, and the
rules and regulations promulgated thereunder. In addition, such stockholder's
notice must set forth, as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of Diversified Holdings which are owned beneficially or
of record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person (including his name and address) pursuant to which the nomination(s) are
to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act. Such notice must be
accompanied by a written consent of each proposed nominee to be named as a
nominee and to serve as a director if elected.
The chairman of a meeting of the Diversified Holdings stockholders may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedures. Although the nomination provision does not give the
Diversified Holdings Board any power to approve or disapprove of stockholder
nominations for the election of directors, this provision may have the effect of
precluding a nomination for the election of directors at a particular annual
meeting if the proper procedures are not followed, and may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of Diversified Holdings,
even if such attempt might be beneficial to Diversified Holdings and its
stockholders.
The Diversified Holdings By-laws also will provide that certain requirements
must be satisfied for business to be properly introduced by a stockholder of
record of Diversified Holdings at an annual meeting of stockholders where such
business is not specified in the notice of meeting or brought by or at the
direction of the Board of Directors. In addition to any other applicable
requirements, such business may be introduced by such stockholder at such
meeting only if written notice thereof is given by such stockholder to the
Secretary of Diversified Holdings not less than 60 nor more than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder in order to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs.
Such stockholder's notice will be required to set forth as to each matter
such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of such stockholder, (iii) the class or series and number of
shares of capital stock of Diversified Holdings which are owned beneficially or
of record by such stockholder, (iv) a description of all arrangements or
understandings between such stockholder and any other person (including his name
and address) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
The stockholder proposal provision of the Diversified Holdings By-laws will
not preclude discussion by any stockholder of any business properly brought
before any meeting of stockholders. Under this
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provision, the chairman of the annual meeting may, if the facts warrant,
determine and declare that any business was not properly brought before such
meeting and such business will not be transacted. Although this provision does
not give the Diversified Holdings Board or the chairman of the annual meeting
any powers to approve or disapprove such matters, the stockholder proposal
provision may have the effect of precluding the consideration of matters at a
particular annual meeting if the proper procedures are not followed, even if
approval of such matters may be deemed by some stockholders to be beneficial to
Diversified Holdings and its stockholders.
POTENTIAL CONSEQUENCES OF THE CORPORATE GOVERNANCE PROVISIONS
The Corporate Governance Provisions included in the Post-Transaction
Certificate Amendments and those to be included in the Diversified Holdings
By-laws could have the effect of delaying, deferring, or preventing a change in
control of Diversified Holdings, even if such a change would be favorable to the
interests of the stockholders of Diversified Holdings, and of limiting any
opportunity to realize premiums over prevailing market prices for Diversified
Holdings Stock in connection therewith. See "Risk Factors Regarding Diversified
Holdings After the Transaction--Certain Limitations on Changes in Control of
Diversified Holdings."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Diversified Holdings is a Delaware corporation and subject to Section 203 of
the DGCL. Generally, Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time such stockholder becomes an interested
stockholder, unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized by the affirmative vote of at
least 66% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes (a) any merger or consolidation
of the corporation with the interested stockholder, (b) any sale, lease,
exchange or other disposition, except proportionately as a stockholder of such
corporation, to or with the interested stockholder of assets of the corporation
having an aggregate market value equal to 10% or more of either the aggregate
market value of all the assets of the corporation or the aggregate market value
of all the outstanding stock of the corporation, (c) certain transactions
resulting in the issuance or transfer by the corporation of stock of the
corporation to the interested stockholder, (d) certain transactions involving
the corporation which have the effect of increasing the proportionate share of
the stock of any class or series of the corporation which is owned by the
interested stockholder or (e) certain transactions in which the interested
stockholder receives financial benefits provided by the corporation. An
"interested stockholder" generally is (i) any person that owns 15% or more of
the outstanding voting stock of the corporation, (ii) any person that is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period prior to the date on which it is sought to be determined
whether such person is an interested stockholder and (iii) the affiliates or
associates of any such person.
DIVERSIFIED HOLDINGS RIGHTS PLAN
It is anticipated that the Diversified Holdings Board will adopt the
Diversified Holdings Rights Plan at or following the consummation of the
Transaction and in connection therewith enter into the Diversified Holdings
Rights Agreement. The following description of the Diversified Holdings Rights
Plan is being
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furnished only to notify PKS Stockholders of the anticipated adoption of such
plan by the Diversified Holdings Board. The Diversified Holdings Rights Plan
will have certain anti-takeover effects. To implement the Diversified Holdings
Rights Plan, the Diversified Holdings Board will authorize the issuance of one
Diversified Holdings Right for each share of Diversified Holdings Stock
outstanding as of a certain date and issued thereafter until the Distribution
Date (as defined in the Diversified Holdings Rights Agreement). Each Diversified
Holdings Right will entitle the holder to purchase from Diversified Holdings one
one-thousandth of a share of a series of preferred stock to be designated by the
Diversified Holdings Board (the "Rights Plan Preferred Stock") at a specified
initial purchase price that will be subject to adjustment. The Diversified
Holdings Rights expire on the tenth anniversary of the adoption of the
Diversified Holdings Rights Plan, unless extended or earlier redeemed by
Diversified Holdings. The Diversified Holdings Rights will cause substantial
dilution to a person or group that attempts to acquire, or merge with,
Diversified Holdings without conditioning the offer on the Diversified Holdings
Rights being rendered inapplicable.
The Diversified Holdings Rights will separate from the Diversified Holdings
Stock and a Distribution Date will occur upon the earlier of ten days following
public disclosure that certain persons or groups of persons have become a
beneficial owner of 15% or more of the outstanding Diversified Holdings Stock
(an "Acquiring Person") or ten business days following the commencement of a
tender offer or exchange offer that would result in certain persons or groups
becoming an Acquiring Person. Upon the occurrence of a Distribution Date, each
holder of a Diversified Holdings Right will have the right to receive, upon
exercise of the right, Diversified Holdings Stock having a value equal to two
times the exercise price of the Diversified Holdings Right, except that all
Diversified Holdings Rights held by an Acquiring Person become null and void.
In the event that a person becomes an Acquiring Person and Diversified
Holdings is acquired in a merger or other business combination in which
Diversified Holdings is not the surviving corporation, or more than 50% of the
assets or earning power of Diversified Holdings' assets are sold or transferred,
each holder, except for Acquiring Persons, of a Diversified Holdings Right will
have the right to receive, upon exercise, common stock of the acquiring company
which has a value equal to two times the exercise price of a Diversified
Holdings Right.
The Rights Plan Preferred Stock will be nonredeemable, and subordinate to
all other series of Diversified Holdings preferred stock. The liquidation
preference of each share of Rights Plan Preferred Stock will be an amount equal
to (i) 1,000 times the aggregate amount to be distributed per share to holders
of Diversified Holdings Stock and (ii) after the payments set forth in (i), a
ratable and proportionate share with the holders of Diversified Holdings Stock
of the remaining assets to be distributed. Each share of Rights Plan Preferred
Stock will be entitled to receive, when, as and if declared, a quarterly
dividend at the rate equal to 1,000 times the aggregate per share amount of all
cash dividends and 1,000 times the aggregate per share amount of all non-cash
dividends or other distributions (payable in kind) (other than a dividend
payable in Diversified Holdings equity securities). Each share of Rights Plan
Preferred Stock will have 1,000 votes, subject to adjustment, voting together
with the Diversified Holdings Stock and not as a separate class. If Diversified
Holdings enters into any consolidation, merger, combination or other transaction
in which the shares of Diversified Holdings Stock are exchanged, each share of
Rights Plan Preferred Stock will be entitled to receive 1,000 times the amount
received per share of Diversified Holdings Stock. The right of the Rights Plan
Preferred Stock as to dividends, voting right and liquidation are protected by
antidilution provisions.
Diversified Holdings may redeem the Diversified Holdings Rights in whole,
but not in part, at any time until ten days following the date on which there
has been public disclosure that, or facts indicating that, a person has become
an Acquiring Person at a price (the "Redemption Price") of $.01 per Diversified
Holdings Right (or such other consideration deemed appropriate by the
Diversified Holdings Board) by resolution of the Diversified Holdings Board,
subject to certain exceptions. The redemption of the
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Diversified Holdings Rights may be made effective at such time on such basis
with such conditions as the Diversified Holdings Board in its sole discretion
may establish. The Diversified Holdings Rights will terminate immediately upon
the action of the Diversified Holdings Board ordering redemption of the
Diversified Holdings Rights and thereafter the holders of Diversified Holdings
Rights will only be able to receive the Redemption Price.
Other than provisions relating to the principal economic terms of the
Diversified Holdings Rights, the Diversified Holdings Rights Agreement may be
amended by resolution of the Diversified Holdings Board, subject to certain
exceptions, prior to the Distribution Date. After the Distribution Date, the
Diversified Holdings Rights Agreement may be amended by resolution of the
Diversified Holdings Board, subject to certain exceptions, in order to cure any
ambiguity, to make changes which do not adversely affect the interests of
holders of Diversified Holdings Rights (excluding the interests of any Acquiring
Person or its affiliates or associates), or to shorten or lengthen any time
period under the Diversified Holdings Rights Agreement; provided, however, that
no amendment to adjust the time period governing redemption may be made at such
time as the Diversified Holdings Rights are not redeemable.
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THE RESTATED PLAN
Effective September 25, 1995, the PKS Board adopted the Original Plan, under
which 1,000,000 shares of Class D Stock were reserved for issuance upon the
exercise of certain stock-based awards. In contemplation of the Transaction (but
not subject thereto), on October , 1997, the PKS Board amended and
restated the Original Plan in the form of the Restated Plan, subject to
stockholder approval, to (i) increase the number of shares of Class D Stock
reserved for issuance upon the exercise of stock-based awards from 1,000,000 to
, (ii) provide for the acceleration of vesting of such awards in the event
of a Change in Control of PKS (as defined in the Restated Plan), (iii) allow the
Compensation Committee of the PKS Board to provide for a tax gross-up in the
event that awards granted or vesting pursuant to the Restated Plan are deemed to
be "excess parachute payments" within the meaning of Section 280G of the Code,
and (iv) allow for the grant of stock-based awards to directors of PKS and KDG
who are not also employees of PKS or KDG ("Non-Employee Directors"). PKS is
seeking stockholder approval of the Restated Plan in order to comply with the
requirements of Sections 162(m) and 422 of the Code. The following summary of
the Restated Plan is qualified in its entirety by express reference to the text
of the Restated Plan which is filed as an exhibit to the Registration Statement
of which this Proxy Statement/Joint Prospectus is a part. The Restated Plan
permits the issuance of stock options (including "incentive stock options"
within the meaning of Section 422 of the Code ("Incentive Options") and options
not so qualified ("Nonqualified Options")), restricted stock, stock appreciation
rights, convertible debentures, and other stock-related awards ("Awards").
The Diversified Group believes that implementation of the Expansion Plan
will require it to hire a substantial number of computer and engineering
professionals, who are presently in high demand, and other employees. The
management of the Diversified Group believes that the amendments to the Original
Plan are a critical piece of a comprehensive compensation program that will be
necessary to attract, retain and motivate those employees and thus to accomplish
the Expansion Plan.
PURPOSE AND ELIGIBILITY
The primary purpose of the Restated Plan is to increase the value of Class D
Stock and the profitability of PKS and the Diversified Group (i) by enabling the
PKS and the Diversified Group to attract, retain, motivate and reward employees
of PKS and the Diversified Group and Non-Employee Directors, and (ii) by
aligning the interests of those individuals with the interests of PKS, the
Diversified Group and the holders of Class D Stock. The Original Plan did not
allow for the participation of Non-Employee Directors. Under the Restated Plan,
all employees of KDG and its subsidiaries, full-time employees of PKS who
perform substantial services for the Diversified Group, and Non-Employee
Directors are eligible to participate.
ADMINISTRATION
The Restated Plan is administered by the Compensation Committee of the PKS
Board (the "Committee"). The Committee, in its sole discretion, has the
authority to determine the terms of all Awards, the persons to whom Awards are
granted, the number of Awards granted, and the timing of grants, vesting,
exercise, and forfeiture.
LIMITS
The Restated Plan has a ten year term, ending September 25, 2005. Under the
Original Plan, the Committee could not grant (i) Awards with respect to more
than 1,000,000 shares of Class D Stock during the term of the Original Plan,
(ii) Awards with respect to more than 500,000 shares of Class D Stock in any two
year period, or (iii) Awards to any one participant with respect to more than
200,000 shares of Class D Stock during the term of the Original Plan. Under the
Restated Plan, the Committee cannot grant (i) Awards with respect to more than
shares of Class D Stock during the term of the Restated Plan,
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or (ii) stock options or stock appreciation rights to any one participant with
respect to more than shares of Class D Stock in any one year.
TERMS AND CONDITIONS OF OPTIONS
The Committee may from time to time grant stock options (including Incentive
Options) to an eligible person. The terms of options granted under the Restated
Plan will be set out in option agreements between PKS and participants which
will contain such provisions as the Committee from time to time deems
appropriate, including the exercise price, vesting conditions and the expiration
date of such options. The options must have an exercise price that is not less
than the fair market value of the Class D Stock on the date of the grant. If the
Class D Stock is not publicly traded, the fair market value of Class D Stock
will be considered to be the Class D Per Share Price. As of the date of this
Proxy Statement/Joint Prospectus, the Class D Per Share Price is $54.25 per
share.
In anticipation of the Transaction (but not subject thereto), it is
anticipated that the Committee will implement a program pursuant to which it
will periodically grant Awards to eligible executives based on the performance
of Class D Stock versus a broad market index, and an evaluation of each
executive's individual performance. It is further anticipated that the Awards
granted under this program will have an exercise or strike price equal to the
fair market value of Class D Stock at the time of grant, will vest ratably over
a period determined by the Committee and will have a term of no less than five
and no more than seven years. The exact terms of the program will be established
by the Committee, and the program may be adjusted or terminated by the Committee
at any time. As is the case with all Awards under the Restated Plan, the final
determination of the number of Awards granted to an executive under this program
is at the sole discretion of the Committee.
OTHER AWARDS
The Committee may grant any other Awards to a participant that the Committee
deems appropriate, including but not limited to restricted stock, convertible
debentures, stock appreciation rights, bargain stock, performance stock and
stock bonuses.
PAYMENT UPON EXERCISE
Payment in full for the number of shares of Class D Stock purchased under
any Award, including an option, must be made to PKS at the time of such
exercise. Payment for such shares must be made in cash, or with the consent of
the Committee, in Class D Stock, or any combination thereof, or in any other
manner approved by the Committee. No fees or commissions are applicable to the
purchase of Class D Stock under the Restated Plan.
WITHHOLDING
PKS will have the right to withhold any taxes required by law to be withheld
with respect to any payments or distributions made to participants, or the
exercise of any Awards, under the Restated Plan. The Committee, in its sole
discretion, may permit a participant to satisfy tax withholding obligations, in
whole or in part, either (i) by having PKS withhold from the Class D Stock to be
issued upon the exercise of an option or upon the receipt of another Award,
Class D Stock having a fair market value equal to the withholding amount or (ii)
by delivering to PKS sufficient Class D Stock to satisfy the withholding amount
due.
ADJUSTMENTS
If any change is made to the Class D Stock by reason of any merger,
consolidation, reorganization, recapitalization, stock dividend, split-up,
exchange of shares, change in corporate structure, or otherwise, appropriate
adjustments will be made by the Committee to the kind and number of Class D
Stock and
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price per share subject to each outstanding Award. It is anticipated that, upon
consummation of the Transaction, all Awards will become payable in or with
respect to, or exercisable for (as the case may be), Diversified Holdings Stock.
CHANGE IN CONTROL
The Restated Plan provides that upon a Change in Control of PKS (as defined
in the Restated Plan, but specifically excluding the Transaction), all Awards
shall become immediately vested. The Original Plan did not contain this
provision.
TAX GROSS-UP
The Restated Plan allows the Committee discretion to provide in any Award
agreement for a tax gross-up in the event that the granting of an Award or early
vesting upon a change in control is deemed to create "excess parachute payments"
for purposes of Section 280G of the Code. The Original Plan did not contain this
provision.
NON-TRANSFERABILITY
Except as provided by the Committee in an Award agreement, (i) no Award, nor
any right or interest therein, is assignable or transferable except by will or
the laws of descent and distribution, (ii) during the lifetime of an Award
holder, Awards are exercisable only by the grantee or his or her legal
representative and (iii) restricted stock granted to participants may not be
sold, transferred, pledged or otherwise encumbered during the restricted period.
TERMINATION OR AMENDMENT
The PKS Board may terminate the Restated Plan at any time, provided that no
such action shall deprive participants of their rights under outstanding Awards.
The Committee may amend the Restated Plan from time to time as it deems
appropriate, subject to approval of the PKS Board with respect to the number of
shares of Class D Stock available for grant and certain other provisions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief discussion of the federal income tax consequences
of transactions with respect to options granted under the Restated Plan.
INCENTIVE OPTIONS
No taxable income is realized by the optionee upon the grant or exercise of
an Incentive Option. If Class D Stock is issued to an optionee pursuant to the
exercise of an Incentive Option, and if no disqualifying disposition of such
shares is made by such optionee within two years after the date of grant or
within one year after the transfer of such shares to such optionee, then (i)
upon sale of such shares, any amount realized in excess of the option price will
be taxed to such optionee as long-term capital gain and any loss sustained will
be a long-term capital loss, and (ii) no deduction will be allowed to the
optionee's employer for federal income tax purposes. Under current tax law, the
long-term capital gains tax rate varies depending on how long the shares are
actually held following the exercise of the Incentive Option.
If the Class D Stock acquired upon the exercise of an Incentive Option is
disposed of within two years after the date of grant or within one year after
the transfer of such shares to the optionee, generally (i) the optionee will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of such shares at exercise (or, if
less, the amount realized on the disposition of such shares) over the option
price paid for such shares, and (ii) the optionee's employer will be entitled to
deduct such amount for federal income tax purposes if the amount represents an
ordinary and necessary
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business expense. Any further gain (or loss) realized by the optionee upon the
sale of the Class D Stock will be taxed as short-term or long-term capital gain
(or loss), depending on how long the shares have been held, and will not result
in any deduction by the employer.
Subject to certain exceptions for disability or death, if an Incentive
Option is exercised more than three months following termination of employment,
the exercise of the option will generally be taxed as the exercise of a
Nonqualified Option.
For purposes of determining whether an optionee is subject to any
alternative minimum tax liability, an optionee who exercises an Incentive Option
generally would be required to increase his or her alternative minimum taxable
income, and compute the tax basis in the stock so acquired, in the same manner
as if the optionee had exercised a Nonqualified Option. Each optionee is
potentially subject to the alternative minimum tax. In substance, a taxpayer is
required to pay the higher of his/her alternative minimum tax liability or
his/her "regular" income tax liability. As a result, an optionee who exercises
Incentive Options must determine his or her potential liability under the
alternative minimum tax.
NONQUALIFIED OPTIONS
With respect to Nonqualified Options: (i) no income is realized by the
optionee at the time the option is granted; (ii) generally, at exercise,
ordinary income is realized by the optionee in an amount equal to the difference
between the option price paid for the shares and the fair market value of the
shares, if unrestricted, on the date of exercise, and the optionee's employer is
generally entitled to a tax deduction in the same amount; and (iii) at sale,
appreciation (or depreciation) after the date of exercise is treated as either
short-term, mid-term or long- term capital gain (or loss) depending on how long
the shares have been held. Under current tax law, the applicable capital gains
tax rate varies depending on how long the shares are actually held following the
exercise of the Nonqualified Option.
Optionees are strongly advised to consult with their individual tax advisers
to determine their personal tax consequences resulting from the grant and/or
exercise of options under the Restated Plan.
NEW PLAN BENEFITS
The grant of awards under the Restated Plan is entirely within the
discretion of the Committee. PKS cannot forecast the nature or extent of Awards
that will be granted in the future, nor the nature or extent of Awards that
would have been granted in the last fiscal year had the Restated Plan, as
amended and restated, been in operation during such time. Therefore, PKS has
omitted the tabular disclosure of the benefits or amounts to be allocated under
the Restated Plan.
68
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC. AND THE CONSTRUCTION GROUP
The following selected historical and pro forma financial data of PKS and
the Construction Group should be read in conjunction with the PKS and the
Construction Group historical financial statements and the notes thereto and the
pro forma financial information and the notes thereto included elsewhere herein
or incorporated herein by reference.
The selected historical financial data for each of the years in the period
1992 to 1996 and as of the end of each such year have been derived from audited
financial statements. The selected historical financial data for the six months
ended June 30, 1996 and 1997, and as of June 30, 1997, have been derived from
unaudited financial statements. In the opinion of management, such unaudited
financial statements reflect all adjustments consisting only of normal recurring
accruals, necessary to present fairly the financial position of PKS and the
Construction Group at June 30, 1997 and the results of operations for the six
months ended June 30, 1996 and 1997. The results of operations for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the entire 1997 fiscal year.
The pro forma results of operations data for the six months ended June 30,
1997 of PKS and the Construction Group, respectively, assume that the
Transaction is consummated on December 29, 1996. The pro forma results of
operations data for the year ended December 28, 1996 of PKS and the Construction
Group, respectively, assume that the Transaction is consummated on December 31,
1995. The pro forma financial position data of PKS and the Construction Group as
of June 30, 1997 assume that such transactions were consummated as of such date.
The pro forma information assumes, in two separate scenarios, that 1,500,000
shares (Scenario 1) and 3,000,000 shares (Scenario 2) of Class C Stock will be
converted in the 1997 Conversion Period.
The pro forma financial information is not intended to reflect the results
of operations or the financial position of PKS and the Construction Group which
actually would have resulted had the Transaction been effective on the dates
indicated. Moreover, the pro forma information is not intended to be indicative
of future results of operations or financial position of PKS or the Construction
Group.
69
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC.
(To be renamed Diversified Holdings, Inc. following the consummation of the
Transaction)
<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA(1)(2)(3)
--------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL YEAR
SIX MONTHS ENDED
ENDED DECEMBER
FISCAL YEAR ENDED JUNE 30, 28, 1996
----------------------------------------------------- -------------------- -----------
<CAPTION>
SCENARIO
1992 1993 1994 1995 1996 1996 1997 1
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue (4)(5)................... $ 1,918 $ 2,050 $ 2,700 $ 2,867 $ 2,904 $ 1,363 $ 1,381 $ 285
Earnings before cumulative effect
of change in accounting
principle(6)................... 162 261 110 244 221 71 91 106
Net earnings(6).................. 181 261 110 244 221 71 91 106
FINANCIAL POSITION:
Total assets(4)(5)............... $ 2,549 $ 3,634 $ 4,504 $ 3,451 $ 3,548 $ 3,805
Current portion of long-term
debt(4)(5)(7).................. 3 15 33 42 57 14
Long-term debt, less current
portion(4)(5)(7)............... 30 462 908 370 332 393
Stockholders' equity(8).......... 1,458 1,671 1,736 1,607 1,819 1,926
PER COMMON SHARE:
Net Earnings:
Class C Stock:
Primary...................... $ 4.48 $ 4.63 $ 4.92 $ 7.78 $ 10.13 $ 3.46 $ 5.34
Fully diluted................ 4.46 4.59 4.86 7.62 9.82 3.36 5.13
Class D Stock:
Primary...................... 3.95 9.08 1.63 6.45 4.85 1.54 1.67 $ 3.68
Fully diluted................ 3.94 9.06 1.63 6.44 4.85 1.54 1.67 3.67
Dividends(9):
Class C Stock.................. 0.70 0.70 0.90 1.05 1.30 0.60 0.70
Class D Stock.................. 1.95 0.50 -- 0.50 0.50 -- --
Stock Price (4)(10):
Class C Stock.................. 18.70 22.35 25.55 32.40 40.70 31.80 40.00
Class D Stock.................. 50.65 59.40 60.25 49.50 54.25 49.50 54.25
Book Value:
Class C Stock.................. 23.31 27.43 31.39 42.90 51.02 45.34 55.38
Class D Stock.................. 50.75 59.52 60.36 49.49 54.23 54.22 55.62
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1997
------------------------
SCENARIO SCENARIO SCENARIO
2 1 2
- ----------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue (4)(5)................... $ 285 $ 161 $ 161
Earnings before cumulative effect
of change in accounting
principle(6)................... 108 30 31
Net earnings(6).................. 108 30 31
FINANCIAL POSITION:
Total assets(4)(5)............... $ 2,639 $ 2,699
Current portion of long-term
debt(4)(5)(7).................. 1 1
Long-term debt, less current
portion(4)(5)(7)............... 133 133
Stockholders' equity(8).......... 1,840 1,900
PER COMMON SHARE:
Net Earnings:
Class C Stock:
Primary......................
Fully diluted................
Class D Stock:
Primary...................... $ 3.65 $ .99 $ 1.00
Fully diluted................ 3.65 .99 1.00
Dividends(9):
Class C Stock..................
Class D Stock..................
Stock Price (4)(10):
Class C Stock..................
Class D Stock.................. 65.75 65.30
Book Value:
Class C Stock..................
Class D Stock.................. 65.76 65.32
</TABLE>
- ------------------------
(1) The pro forma results of operations data are computed assuming that the
Transaction is consummated on December 31, 1995 and December 29, 1996 for
the fiscal year ended December 28, 1996 and six months ended June 30, 1997,
respectively. The pro forma financial position data as of June 30, 1997
assumes that the Transaction was consummated as of such date. The pro forma
financial data of PKS should be read in conjunction with PKS' historical
consolidated financial statements and the notes thereto and the "Pro Forma
Financial Information" included elsewhere herein or incorporated by
reference.
(2) The pro forma information assumes, in two separate scenarios, that 1,500,000
shares (Scenario 1) and that 3,000,000 shares (Scenario 2) of Class C Stock
will be converted in the 1997 Conversion Period. The PKS Board has set the
Conversion Cap which limits to 3,000,000 the number of shares of Class C
Stock that can be converted during the 1997 Conversion Period.
(3) The PKS Board approved the Transaction at a special meeting held on August
14, 1997. The pro forma results of operations, financial position and per
common share data assume the earnings statement and balance sheet accounts
of the Construction Group have been removed as a result of the Transaction.
The operating results and financial position of C-TEC have been reflected as
an equity method investment in the pro forma data due to C-TEC's
restructuring which reduced PKS' voting interest below fifty percent in
three separate publicly traded entities. Due to the pending sale of PKS'
energy investments to CalEnergy, the net earnings attributable to these
investments have been removed from the results of operations. The pro forma
results of such sales have been reflected on the pro forma balance sheet.
70
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC.
(To be renamed Diversified Holdings, Inc. following the consummation of the
Transaction)
(4) In September 1995, PKS dividended its investment in MFS to Class D
Stockholders. MFS' results of operations have been classified as a single
line item on the statements of earnings through 1995. MFS is consolidated in
the 1992-1994 balance sheets.
(5) In October 1993, PKS acquired 35% of the outstanding shares of C-TEC that
had 57% of the available voting rights. At June 30, 1997, PKS owned 48.5% of
the outstanding shares and 63.6% of the voting rights.
(6) In 1993, through two public offerings, PKS sold 29% of MFS, resulting in a
$137 million after-tax gain. In 1994 and 1995, additional MFS stock
transactions resulted in $35 million and $2 million after-tax gains to PKS
and reduced its ownership in MFS to 67% and 66%.
(7) In January 1994, MFS issued $500 million of 9.375% Senior Discount Notes.
(8) The aggregate redemption value of the Class C Stock and Class D Stock at
June 30, 1997 was $404 million and $1,333 million, respectively.
(9) The 1992, 1993, 1994, 1995 and 1996 Class C Stock dividends include $.30,
$.40, $.45, $.60 and $.70 per share dividends declared in 1992, 1993, 1994,
1995 and 1996, respectively, but paid in January of the subsequent year. The
1992, 1995 and 1996 Class D Stock dividends include $.50 per share dividends
declared in 1992, 1995 and 1996 but paid in January of the subsequent year.
Pro forma dividends have not been presented as the amount of any dividends
that may have been declared if the Transaction had occurred as of the
beginning of the respective periods cannot be determined.
(10) Pursuant to the PKS Certificate, the stock price calculation of a share of
Class C Stock and Class D Stock is computed annually at the end of the
fiscal year, except that adjustments to the stock price to reflect dividends
are made at the time such dividends are declared.
71
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
THE CONSTRUCTION GROUP
(To be operated by PKS Holdings, Inc. which will be renamed "Peter Kiewit Sons',
Inc."
following the consummation of the Transaction)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)(2)
--------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED FISCAL YEAR ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 28, 1996
----------------------------------------------------- -------------------- ------------------------
<CAPTION>
SCENARIO SCENARIO
1992 1993 1994 1995 1996 1996 1997 1 2
--------- --------- --------- --------- --------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue................ $ 1,675 $ 1,783 $ 2,175 $ 2,330 $ 2,286 $ 1,072 $ 1,047 $ 2,286 $ 2,286
Earnings before
cumulative effect of
change in accounting
principle............ 69 80 77 104 108 36 50 107 105
Net earnings........... 82 80 77 104 108 36 50 107 105
FINANCIAL POSITION:
Total assets........... $ 862 $ 889 $ 963 $ 977 $ 1,036 $ 1,117
Current portion of
long-term debt....... 2 4 3 2 -- 2
Long-term debt, less
current portion...... 12 10 9 9 12 16
Stockholders'
equity(3).............. 437 480 505 467 562 559
PER COMMON SHARE:
Net Earnings:
Primary.............. $ 4.48 $ 4.63 $ 4.92 $ 7.78 $ 10.13 $ 3.46 $ 5.34 $ 11.21 $ 13.12
Fully diluted........ 4.46 4.59 4.86 7.62 9.82 3.36 5.13 11.21 13.12
Dividends(4)........... 0.70 0.70 0.90 1.05 1.30 0.60 0.70
Stock price(5)......... 18.70 22.35 25.55 32.40 40.70 31.80 40.00
Book value............. 23.31 27.43 31.39 42.90 51.02 45.34 55.38
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1997
------------------------
SCENARIO SCENARIO
1 2
----------- -----------
<S> <C> <C>
RESULTS OF OPERATIONS:
Revenue................ $ 1,047 $ 1,047
Earnings before
cumulative effect of
change in accounting
principle............ 49 48
Net earnings........... 49 48
FINANCIAL POSITION:
Total assets........... $ 1,056 $ 996
Current portion of
long-term debt....... 2 2
Long-term debt, less
current portion...... 6 6
Stockholders'
equity(3).............. 505 445
PER COMMON SHARE:
Net Earnings:
Primary.............. $ 5.92 $ 7.10
Fully diluted........ 5.92 7.10
Dividends(4)...........
Stock price(5)......... 42.50 43.00
Book value............. 55.92 59.09
</TABLE>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the
Transaction was consummated on December 31, 1995 and December 29, 1996 for
the fiscal year ended December 28, 1996 and six months ended June 30, 1997
respectively. The pro forma financial position data as of June 30, 1997
assume that the Transaction was consummated as of such date. The pro forma
financial data of the Construction Group should be read in conjunction with
the Construction Group's historical financial statements and the notes
thereto and the "Pro Forma Financial Information" included elsewhere herein.
(2) The pro forma information assumes, in two separate scenarios, that 1,500,000
shares (Scenario 1) and 3,000,000 shares (Scenario 2) of Class C Stock will
be converted in the 1997 Conversion Period. The PKS Board has set the
Conversion Cap which limits to 3,000,000 the number of shares of Class C
Stock that can be converted during the 1997 Conversion Period.
(3) Ownership of the Class C Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which restrict the
employees from transferring the stock. PKS is generally committed to
purchase all Class C Stock at the price determined, when put to PKS by a
stockholder, pursuant to the PKS Certificate. The aggregate redemption value
of the Class C Stock at June 30, 1997 was $404 million.
(4) The 1992, 1993, 1994, 1995 and 1996 Class C Stock dividends include $.30,
$.40, $.45, $.60 and $.70 per share dividends declared in 1992, 1993, 1994,
1995 and 1996, respectively, but paid in January of the subsequent year. Pro
forma dividends have not been presented as the amount of any dividends that
may have been declared if the Transaction occurred as of the beginning of
the respective periods cannot be determined.
(5) Pursuant to the PKS Certificate, the stock price calculation of a share of
Class C Stock is computed annually at the end of the fiscal year, except
that adjustments to the stock price to reflect dividends are made at the
time such dividends are declared.
72
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE CONSTRUCTION GROUP
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND
THE OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROXY STATEMENT/JOINT
PROSPECTUS.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996
CONSTRUCTION. The Construction Group's operations can be separated into two
components: construction and materials. The Construction Group's total revenue
for the six months ended June 30, 1997 decreased $25 million or 2% compared to
the same period in 1996. Revenue for the construction business decreased 4% to
$918 million compared to $961 million in 1996. This decrease was due to several
large projects being in the start-up phase and the substantial completion of the
San Joaquin toll road project at the end of 1996. Although construction revenue
was down, materials revenue increased 14% due to the strong demand for
aggregates in the Arizona market. A 20% increase in the average sales price of
aggregate, hot mix and ready mix is responsible for 60% of the total increase in
materials revenue. The remaining revenue growth is attributable to additional
materials sales.
Contract backlog at June 30, 1997 was $3.5 billion of which 4% is
attributable to foreign operations located in Canada and Indonesia. Domestic
projects are spread geographically throughout the United States. Included in
backlog is $755 million for the "I-15" project awarded in late March 1997.
Kiewit is the sponsoring partner on the design-build joint venture
reconstructing 16 miles of Interstate 15 through the Salt Lake City area. The
project is expected to be completed in 2001.
Margins on construction projects for the first six months of 1997 increased
to 10% compared to 8% for the same period in 1996. Claim settlements received in
the first quarter of 1997 and the recognition of additional revenue from the San
Joaquin toll road were the primary factors contributing to the increase.
Materials margins in the first six months of 1997, as a percentage of revenue,
were unchanged from the same period in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 8% in the first six months of 1997 compared to the same period of
1996. The increase was attributable to higher compensation, travel and
professional services expenses.
INTEREST EXPENSE, NET. The repayment of short term borrowings in the first
and second quarter of 1996 was responsible for the reduction of interest expense
in the first six months of 1997 compared to the same period of 1996.
OTHER, NET. The 21% increase in other income in the first six months of
1997 compared to the same period of 1996 was attributable to higher mine
management fee income and increased gains on the disposition of construction
equipment.
PROVISION FOR INCOME TAXES. The effective income tax rate for the first six
months of 1997 and 1996 was 40% and 39%, respectively. These differ from the
expected statutory rate of 35% primarily due to state income taxes.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 28, 1996 TO FISCAL YEAR ENDED DECEMBER
30, 1995
CONSTRUCTION. The Construction Group's operations can be separated into two
components; construction and materials. Revenue from construction decreased 2%
to $2,060 million in 1996. This resulted from the completion of several major
projects during the year, while many new contracts were still in the start-up
phase. The Construction Group's share of joint venture revenue remained at 30%
of total
73
<PAGE>
revenues in 1996. Contract backlog at December 28, 1996 was $2.3 billion, of
which 4% is attributable to foreign operations, principally in Canada and the
Philippines. Projects on the west coast of the United States account for 42% of
the total backlog. Revenue from materials increased by less than 1% in 1996. The
slight increase in materials revenue is attributable to a 15% increase in the
tonnage of aggregates, hot mix and ready mix sold during the year. This increase
in volume was partially offset by a 4% decline in the average sales price from
the prior year. The increased demand for aggregates in the Arizona market was
also offset by a decline in precious metal sales. The Construction Group sold
its gold and silver operations in Nevada to Kinross Gold Corporation ("Kinross")
and essentially liquidated its metals inventory in 1995.
Opportunities in the construction and materials industry continued to expand
along with the economy during 1996. Because of the increased opportunities, the
Construction Group was able to be selective in the construction projects it
pursued. Gross margins for construction increased from 8% in 1995 to 10% in
1996. This resulted from the completion of several large projects and increased
efficiencies in all aspects of the construction process. Gross margins for
materials declined from 13% in 1995 to 10% in 1996. The lack of higher margin
precious metals sales in 1996 combined with slightly lower construction
materials margins produced the reduction in operating margin.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 1% for 1996 compared to 1995. Increases in compensation and travel
expenses were partially offset by lower insurance, computer operations and other
administrative expenses.
INVESTMENT INCOME. Investment income increased 24% in 1996 compared to
1995. The increase was primarily due to ME Holding Inc.'s equity earnings
increasing from $2 million in 1995 to $4 million in 1996 and due to $2 million
of investment income from other equity investments. Partially offsetting this
increase was a slight decline in interest income, due to a decrease in the
average cash balance during the year.
INTEREST EXPENSE. The increase in interest expense of $2 million in 1996
compared with 1995 was primarily attributable to the short-term borrowings
outstanding during the year.
OTHER, NET. In 1995, the exchange of the Construction Group's gold and
silver operations in Nevada for 4,000,000 shares of common stock of Kinross led
to a $21 million gain for the Construction Group. The gain was the difference
between the Construction Group's book value in the gold and silver operations
and the market value of the Kinross shares at the time of the exchange. Other
income was also primarily comprised of mine management fees, of $37 million and
$30 million in 1996 and 1995, respectively, and gains on the disposition of
property, plant and equipment and other assets of $17 million and $12 million in
1996 and 1995, respectively.
PROVISION FOR INCOME TAXES. The effective income tax rate of 40% for 1996
differed from the statutory rate of 35% primarily because of adjustments to
prior year tax provisions and state income taxes. In 1995, the effective rate of
37% was higher than the 35% rate due primarily to state income taxes.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 30, 1995 TO FISCAL YEAR ENDED DECEMBER
31, 1994
CONSTRUCTION. Revenue for the Construction Group increased $155 million, or
7%, to $2,330 million in 1995 compared to 1994. Revenue for the construction and
materials components increased 6% and 21%, respectively, in 1995 compared to
1994. The improvement in the Construction Group's construction revenue was
attributable to a 32% increase in joint venture revenue, which comprised 30% of
the total revenue in 1995 compared to 24% in 1994. The San Joaquin Toll Road
Joint Venture ("San Joaquin") in southern California contributed $225 million
and $111 to revenue in 1995 and 1994. Contract backlog at December 30, 1995 was
$2 billion, of which 10% was attributable to foreign operations, principally in
Canada and the Philippines. Projects on the west coast of the United States
accounted for 36% of the total backlog, including San Joaquin backlog of $133
million. The inclusion of two additional months of materials revenue generated
by APAC-Arizona ("APAC") companies, which were acquired on February 28, 1994,
was the primary factor resulting in the increased materials revenue.
74
<PAGE>
Gross margins for the Construction Group increased 13% in 1995. The
construction and materials components each produced similar results.
Construction's increased revenue, primarily from joint ventures, increased
operational efficiencies and substantial claim settlements all contributed to
improved results. The materials segment benefited from the robust demand for
construction materials in Arizona and also from the operational efficiencies
generated by the merger of APAC with the Construction Group's existing materials
business in Arizona. Also contributing to the higher margins was the liquidation
of the Construction Group's precious metal inventory in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 4% in 1995 compared to 1994. Declines in payroll, computer operations
and depreciation expense were partially offset by higher insurance and
professional service fees.
INVESTMENT INCOME. Slight improvements in interest income, earnings from
equity investments and reduced losses on the sale of securities contributed to
the increase in investment income in 1995 compared to 1994.
OTHER, NET. In 1995, the exchange of the Construction Group's gold and
silver operations for Kinross common stock led to a $21 million gain for the
Construction Group. Other income was also primarily comprised of mine management
fees, $30 million and $29 million in 1995 and 1994, respectively, and gains on
the disposition of property, plant and equipment and other assets of $12 million
and $13 million in 1995 and 1994, respectively.
PROVISION FOR INCOME TAXES. The 37% effective income tax rate for 1995
differed from the statutory rate of 35% due primarily to state income taxes. In
1994, the effective rate of 34% was lower than the federal statutory rate due to
prior year tax adjustments.
LIQUIDITY AND CAPITAL RESOURCES
The Construction Group's working capital decreased $43 million or 12% during
the first six months of 1997. The decrease was primarily due to capital
expenditures of $62 million, investments and acquisitions of $18 million, the
exchange and repurchase of Class B Stock and Class C Stock totaling $73 million,
dividend payments of $13 million and $37 million of cash used in operating
activities. Partially offsetting these uses were the issuance of Class C Stock
totaling $34 million, net proceeds from the sale of marketable securities of $22
million, proceeds from the sale of property, plant and equipment and other
assets of $25 million and $2 million of debt borrowings.
The Construction Group typically anticipates investing between $40 and $75
million annually in its construction business, including opportunities to
acquire additional businesses. On July 1, 1997, the Construction Group paid $4
million to increase its ownership in ME Holding Inc. to 80%. Other long term
liquidity uses include the payment of income taxes, repurchases and conversions
of common stock and the payment of dividends. The Construction Group's current
financial condition and borrowing capacity together with anticipated cash flows
from operations should be sufficient for immediate cash requirements and future
investing activities.
The Construction Group will transfer funds to the Diversified Group in an
amount equal to the aggregate Class C Per Share Price of the Class C Stock
converted into Class D Stock during the 1997 Conversion Period. For example, if
1,500,000 shares of Class C Stock were converted into Class D Stock during the
1997 Conversion Period, PKS would transfer $72,000,000 from the Construction
Group to the Diversified Group; if 3,000,000 shares of Class C Stock were
converted into Class D Stock during the 1997 Conversion Period, PKS would
transfer $144,000,000 from the Construction Group to the Diversified Group
(calculated in each case assuming a year end 1997 Class C Per Share Price of
$48.00). The Construction Group will be required to borrow all or a portion of
the funds necessary to fund this transfer. The degree to which the Construction
Group is required to borrow such funds could, under certain circumstances, limit
its financial and operating flexibility.
75
<PAGE>
PKS HOLDINGS DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons currently anticipated to be the directors of PKS Holdings after
consummation of the Transaction, including his business experience during the
past five years (1992-1997) and current directorships in other public reporting
companies:
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE AGE
- ------------------------ --------------------------------------------------------------------------- -----
<S> <C> <C>
Walter Scott, Jr. Chairman of the Board and President, PKS (for more than the past five 66
years); also a director of Berkshire Hathaway Inc., Burlington Resources
Inc., CalEnergy, ConAgra, Inc., Commonwealth Telephone Enterprises, Inc.,
RCN Corporation, U.S. Bancorp and Valmont Industries, Inc.
Kenneth E. Stinson* Executive Vice President, PKS (for more than the past five years); Chairman 55
(since 1993) and CEO (since 1992), KCG; also a director of ConAgra, Inc.
and Valmont Industries, Inc.
Richard Geary* Executive Vice President, KCG; President of Kiewit Pacific Co., a KCG 62
construction subsidiary (for more than the past five years)
Bruce E. Grewcock* Executive Vice President, KCG (since 1996); Chairman (since 1996), 43
President (1992-1996) and Sr. Vice President of Kiewit Mining Group, Inc.
(1992); also a director of Kinross Gold Corporation
George B. Toll, Jr.* Executive Vice President, KCG (since 1994); Vice President, Kiewit Pacific 61
Co., a KCG construction subsidiary (1992-1994)
Richard W. Colf* Vice President, Kiewit Pacific Co., a KCG construction subsidiary (for more 54
than the past five years)
Tait P. Johnson* President, Gilbert Industrial Corporation, a KCG construction subsidiary 48
(for more than the past five years); President (1992-1996), Gilbert
Southern Corp., a KCG construction subsidiary (for more than the past five
years)
Allan K. Kirkwood* Vice President, Kiewit Pacific Co., a KCG construction subsidiary (for more 54
than the past five years)
Thomas C. Stortz* Vice President and General Counsel, KCG (for more than the past five years) 46
William L. Grewcock Vice Chairman, PKS (for more than the past five years) 72
James Q. Crowe President and Chief Executive Officer, KDG (since August 1, 1997); Chairman 48
of the Board, WorldCom, Inc., an international telecommunications company
(January 1997-July 1997); Chairman of the Board, MFS, an international
telecommunications company (1992-1996) (MFS was a KDG subsidiary until
1995); also a director of CalEnergy, Commonwealth Telephone Enterprises,
Inc., RCN Corporation, Qwest Communications International, Inc. and InaCom
Corp.
Peter Kiewit, Jr. Attorney, of counsel to the law firm of Gallagher & Kennedy of Phoenix, 71
Arizona (for more than the past five years)
</TABLE>
Identified by asterisks are the eight persons expected to be executive
officers of PKS Holdings after the consummation of the Transaction. Executive
officers are those directors who will be employed by PKS
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<PAGE>
Holdings or its subsidiaries. Each such person is expected to serve as an
executive officer of PKS Holdings in a capacity similar to that in which he
currently serves at KCG or a KCG subsidiary. Bruce E. Grewcock is the son of
William L. Grewcock.
The PKS Holdings Board will have an Audit Committee, a Compensation
Committee and an Executive Committee.
The Audit Committee members are expected to be Messrs. Johnson (Chairman),
Kirkwood and Kiewit. The functions of the Audit Committee will be to recommend
the selection of the independent auditors; review the results of the annual
audit; inquire into important internal control, accounting and financial
matters; and report and make recommendations to the full PKS Holdings Board.
The Compensation Committee members are expected to be Messrs. Crowe and
Kiewit, neither of whom is an employee of PKS Holdings. This committee will
review the compensation of PKS Holdings executive officers as well as the
compensation, securities ownership and benefits of PKS Holdings employees.
The Executive Committee members are expected to be Messrs. Stinson
(Chairman), Geary, Bruce Grewcock and Toll. The committee will exercise the
powers of the PKS Holdings Board between board meetings, except powers assigned
to other committees.
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DIVERSIFIED HOLDINGS DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons currently anticipated to be the directors of Diversified Holdings after
consummation of the Transaction, including business experience during the past
five years and current directorships in other public reporting companies:
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE AGE
- ----------------------------------- ---------------------------------------------------------------------- -----
<S> <C> <C>
Walter Scott, Jr.* Chairman of the Board and President, PKS (for more than the past five 66
years); also a director of Berkshire Hathaway Inc., Burlington
Resources Inc., CalEnergy, ConAgra, Inc., C-TEC, U.S. Bancorp and
Valmont Industries, Inc.
James Q. Crowe* President and Chief Executive Officer, KDG (since August 1, 1997); 48
Chairman of the Board, WorldCom, Inc., an international
telecommunications company (January 1997-July 1997); Chairman of the
Board, MFS, an international telecommunications company (1992-1996)
(MFS was a KDG subsidiary until 1995); also a director of CalEnergy,
C-TEC, Qwest Communications International, Inc. and InaCom Corp.
R. Douglas Bradbury* Executive Vice President, KDG (since August 1, 1997); Chief Financial 46
Officer (1992-1996), Executive Vice President (1995-1996), and Senior
Vice President (1992-1995) of MFS, an international telecommunications
company
William L. Grewcock Vice Chairman, PKS (for more than the past five years) 72
Richard R. Jaros Executive Vice President (1993-1997), PKS; Chief Financial Officer 45
(1995-1997); President of KDG (1996-1997); President and COO of
CalEnergy (1992-1993); also a director of CalEnergy, C-TEC and
WorldCom, Inc.
Robert E. Julian Chairman of the Board, PKSIS (since 1995); Executive Vice President 58
and Chief Financial Officer, PKS (1992-1995)
Kenneth E. Stinson Executive Vice President, PKS (for more than the past five years); 55
Chairman (since 1993) and CEO (since 1992) of KCG; also a director of
ConAgra, Inc. and Valmont Industries, Inc.
Robert B. Daugherty Director (and formerly Chairman of the Board and Chief Executive 75
Officer) of Valmont Industries, Inc. (for more than the past five
years)
Charles M. Harper Former Chairman of the Board and Chief Executive Officer of RJR 69
Nabisco Holdings Corp. Currently a director (and formerly Chairman of
Board and Chief Executive Officer) of ConAgra, Inc. and also a
director of E.I DuPont de Nemours and Company, Norwest Corporation and
Valmont Industries, Inc.
David C. McCourt Chairman and Chief Executive Officer, Commonwealth Enterprises, Inc., 40
Cable Michigan, Inc.. and RCN Corporation; Chairman of the Board and
Chief Executive Officer, C-TEC (1993-1997); also a director of Mercom,
Inc. and WorldCom, Inc.
Michael B. Yanney Chairman of the Board, President and Chief Executive Officer, America 63
First Companies L.L.C. (for more than the past five years); also a
director of Burlington Northern Santa Fe Corporation, RCN Corporation,
Forest Oil Corporation and Mid-America Apartment Communities, Inc.
</TABLE>
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<PAGE>
Identified by asterisks are the three persons expected to be executive
officers of Diversified Holdings after consummation of the Transaction. Walter
Scott, Jr. is expected to be Chairman of the Board of Diversified Holdings and
receive an annual salary of $200,000. Effective August 1, 1997, James Q. Crowe
became President and Chief Executive Officer of KDG, with an annual salary of
$350,000. Effective August 1, 1997, R. Douglas Bradbury became Executive Vice
President of KDG, with an annual salary of $215,000. Mr. Crowe and Mr. Bradbury
are expected to hold similar positions with Diversified Holdings. See "Certain
Relationships and Related Transactions."
As a result of the Post-Transaction Certificate Amendments, the Diversified
Holdings Board will be divided into three classes, designated Class I, Class II
and Class III, each class consisting, as nearly as may be possible, of one-third
of the total number of directors constituting the Diversified Holdings Board.
The initial Class I Directors will consist of Walter Scott, Jr., James Q. Crowe,
Robert B. Daugherty and Charles M. Harper; the initial Class II Directors will
consist of William L. Grewcock, Richard R. Jaros, Robert E. Julian and David C.
McCourt; and the initial Class III Directors will consist of R. Douglas
Bradbury, Kenneth E. Stinson and Michael B. Yanney. The term of the initial
Class I Directors will terminate on the date of the 1998 annual meeting of
stockholders; the term of the initial Class II Directors will terminate on the
date of the 1999 annual meeting of stockholders; and the term of the initial
Class III Directors will terminate on the date of the 2000 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 1998,
successors to the class of directors whose term expires at that annual meeting
will be elected for three-year terms. See "The Certificate Amendments--Board of
Directors."
The Diversified Holdings Board will have an Audit Committee, a Compensation
Committee and an Executive Committee.
The Audit Committee members are expected to be Messrs. Julian (Chairman),
Grewcock and McCourt. The functions of the Audit Committee will be to recommend
the selection of the independent auditors; review the results of the annual
audit; inquire into important internal control, accounting and financial
matters; and report and make recommendations to the full Diversified Holdings
Board.
The Compensation Committee members are expected to be Messrs. Yanney
(Chairman), Jaros and McCourt, none of whom are employees of Diversified
Holdings. This committee will review the compensation of Diversified Holdings
executive officers as well as the compensation, securities ownership and
benefits of Diversified Holdings employees.
The Executive Committee members are expected to be Messrs. Scott (Chairman),
Crowe, Bradbury, Stinson and Yanney. This committee will exercise the powers of
the Diversified Holdings Board between board meetings, except powers assigned to
other committees.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with his retention as Chief Executive Officer of KDG, Mr.
Crowe has entered into the Retention Agreement with PKS and KDG. Under the
Retention Agreement, KDG has acquired from Mr. Crowe, Mr. Bradbury and others,
Broadband Capital Group, L.L.C., a company formed to develop investment
opportunities, for a purchase price of $68,523, the cash investment in that
company. Pursuant to the Retention Agreement, PKS has sold 1,000,000 shares of
Class D Stock to Mr. Crowe and 250,000 shares of Class D Stock to Mr. Bradbury,
in each case at $54.25 per share, the current Class D Per Share Price. The
Retention Agreement also provides that PKS will make available for sale, from
time to time prior to the consummation of the Transaction, to certain
Diversified Group employees designated by Mr. Crowe in connection with the
implementation of the Expansion Plan ("Expansion Plan Employees"), up to an
aggregate of 1,050,000 shares of Class D Stock at a price per share equal to the
then applicable Class D Per Share Price.
The Retention Agreement also sets forth certain provisions that apply only
if the Transaction is abandoned. If the Transaction is abandoned and if, as
currently anticipated, Mr. Crowe resigns as Chief Executive Officer of KDG, (i)
PKS will have the right to repurchase all Class D Stock issued to Mr. Crowe and
Mr. Bradbury under the Retention Agreement at a price per share equal to the
then-applicable Class D Per Share Price, and (ii) Mr. Crowe will have the right
to purchase from the Diversified Group either the stock of subsidiaries formed
to implement the Expansion Plan (but not including PKSIS or any other subsidiary
of the Diversified Group in existence on August 1, 1997) ("Expansion Plan
Subsidiaries") or certain assets acquired by the Diversified Group in connection
with the implementation of the Expansion Plan, in each such case at the book
value of such stock or assets as reflected in the books and records of the
Diversified Group. The Diversified Group has not invested a significant amount
to date in the Expansion Plan. However, the Diversified Group anticipates that
Expansion Plan expenditures through mid-1998 could approach $150 million, and
that a substantial portion of those expenditures would be expensed for
accounting purposes, thus resulting in the book value for the Expansion Plan
assets being substantially lower than the Diversified Group's investment in such
assets. PKS will enter into agreements with each Expansion Plan Employee that
provide that PKS may repurchase any Class D Stock sold to the Expansion Plan
Employee if the Expansion Plan Employee ceases to be an employee of the
Diversified Group (whether through purchase by Mr. Crowe of the capital stock of
any Expansion Plan Subsidiary or assets or otherwise), at any time within the
12-month period after Mr. Crowe delivers any such resignation notice, at a price
per share equal to the then applicable Class D Per Share Price. See "Risk
Factors Regarding Diversified Holdings After the Transaction--Potential
Consequences of a Failure to Consummate the Transaction."
On August 5, 1997, KDG purchased a jet aircraft from a company controlled by
Mr. Crowe for $5.7 million, the price paid by the company for the aircraft in
June 1997. KDG and Mr. Crowe have entered into an aircraft operating lease,
under which Mr. Crowe may lease the aircraft for personal use at rates specified
by certain Federal Aviation Administration regulations. KDG anticipates that Mr.
Crowe will lease approximately 15% of the aircraft's annual flight time, and
will pay KDG approximately $70,000 per year at the current lease rate.
PKS is currently negotiating a sale of an interest in an aircraft to Mr.
Scott for his personal use. It is anticipated that Mr. Scott, or a company
controlled by him, will purchase a 40% interest in the aircraft prior to
consummation of the Transaction for a price equal to 40% of the fair market
value of the aircraft, and that KCG will acquire the remaining 60% interest in
the aircraft from PKS prior to consummation of the Transaction. Under this
arrangement, Mr. Scott would pay a proportional share of all expenses associated
with the plane.
PKS entered into a separation agreement with Mr. Jaros, a director of PKS,
in connection with the resignation of Mr. Jaros as President of the Diversified
Group effective July 31, 1997. Under the separation agreement, PKS paid Mr.
Jaros $1.8 million on July 31, and agreed to pay Mr. Jaros the balance
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<PAGE>
of his 1997 salary ($187,500) between August 1 and December 31, 1997 and a bonus
payment of $262,350 when PKS makes its customary executive bonus payments in
1998. PKS also agreed to amend the option agreements with Mr. Jaros with respect
to the options to purchase 150,000 shares of Class D Stock at $40.40 per share
(the then-applicable Class D Per Share Price) granted to Mr. Jaros in 1995, and
the options to purchase 50,000 shares of Class D Stock at $49.50 per share (the
then-applicable Class D Per Share Price) granted to Mr. Jaros in 1996, to
provide that those options would be fully vested on July 31, 1997, and would be
exercisable at any time during the ten-year term of the original option
agreements.
In December 1996, PKS agreed to sell 10,000 shares of Class D Stock to Mr.
Harper, 10,000 shares of Class D Stock to Mr. Daugherty and 8,000 shares of
Class D Stock to Mr. Kiewit, in each case at $49.50 per share (the
then-applicable Class D Per Share Price). Those stock purchase transactions were
consummated in March 1997.
In October, 1997, PKS sold 10,000 shares of Class D Stock to Mr. Yanney and
8,500 shares of Class D Stock to Mr. McCourt, in each case at $54.25 per share
(the then-applicable Class D Per Share Price).
Mr. Stinson has indicated that he will convert all his Debentures into Class
C Stock prior to the record date for the Class R Stock Distribution as a result
of PKS' permitting such early conversion of Debentures. Mr. Stinson will also be
eligible to obtain an interest-free loan to repay his outstanding loan used to
finance the purchase of his Debentures. The cost of such arrangement is not
expected to exceed $225,000. See "The Transaction--Conversion of the
Debentures."
INTEREST OF CERTAIN PERSONS IN THE POST-TRANSACTION AMENDMENTS
Certain of the Post-Transaction Certificate Amendments, including the
classification of the Diversified Holdings Board, the authorization of the
issuance of Diversified Holdings preferred stock without stockholder approval,
the prohibition of stockholder action by written consent, the elimination of the
ability of stockholders to call special stockholder meetings and the requirement
of a supermajority vote to amend the Diversified Holdings By-laws, could have
the effect of delaying, deferring or preventing a change in or removal of the
management of Diversified Holdings. Based on this potential effect of these
Post-Transaction Certificate Amendments, those directors and executive officers
of PKS who are expected to become directors and executive officers of
Diversified Holdings after the Transaction is consummated may have an interest
in approval of the Post-Transaction Certificate Amendments which differs from
that of other PKS Stockholders. See "The Post-Transaction Certificate
Amendments", "Diversified Holdings Directors and Executive Officers" and "Risk
Factors Regarding Diversified Holdings After the Transaction--Certain
Limitations on Changes in Control of Diversified Holdings."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of PKS consists of Messrs. Daugherty, Harper and
Kiewit, none of whom is an officer or employee of PKS. Each of Messrs.
Daugherty, Harper and Kiewit purchased Class D Stock from PKS in 1997. See
"Certain Relationships and Related Transactions."
The Compensation Committee of PKS Holdings is expected to consist of Messrs.
Crowe and Kiewit, none of whom is expected to be an officer or employee of PKS
Holdings. Mr. Crowe has purchased Class D Stock from PKS and has entered into
the Retention Agreement with PKS and KDG. On August 1, 1997, KDG purchased a jet
aircraft from a company controlled by Mr. Crowe for $5.7 million, the price paid
by the company for the aircraft in June 1997. Mr. Kiewit purchased Class D Stock
from PKS in 1997. See "Certain Relationships and Related Transactions."
The Compensation Committee of Diversified Holdings is expected to consist of
Messrs. Yanney, McCourt and Jaros, none of whom is expected to be an officer or
employee of PKS Holdings. Each of Messrs. Yanney and McCourt has purchased Class
D Stock from PKS. Mr. Jaros has entered into a separation agreement with PKS,
pursuant to which, among other things, he has received certain severance
payments. See "Certain Relationships and Related Transactions."
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<PAGE>
COMPARISON OF CLASS C STOCK AND PKS HOLDINGS STOCK
GENERAL
In the Share Exchange, each outstanding share of Class C Stock will be
mandatorily exchanged for one fully paid and nonassessable share of PKS Holdings
Stock. Thus, holders of Class C Stock will become stockholders of PKS Holdings
rather than of PKS. See "The Transaction." PKS Holdings Stock will not have any
preemptive or subscription rights. As stockholders of PKS Holdings, such
holders' rights will continue to be governed by Delaware law and will be
governed by the PKS Holdings Certificate and the PKS Holdings By-laws. The
rights of and restrictions on PKS Holdings Stock (including dividend rights,
repurchase rights and rights to distributions upon liquidation) under the PKS
Holdings Certificate and PKS Holdings By-laws will be substantially similar to
those of Class C Stock under the PKS Certificate and PKS By-laws, except that
there will be no rights or restrictions comparable to those in the PKS
Certificate and PKS By-laws relating to the Class D Stock. The terms of the PKS
Holdings Certificate will be approved by PKS, as the sole stockholder of PKS
Holdings, prior to the Share Exchange and, accordingly, PKS Stockholders will
not have an opportunity to approve such terms.
Holders of Class C Stock are stockholders of PKS, not of the Construction
Group, and have an interest in the equity and assets of PKS, including the
assets of the Construction Group, plus one-half of the unconsolidated
stockholders' equity (whether positive or negative) of PKS itself. PKS is a
Delaware corporation. The PKS Certificate authorizes 183,250,000 shares of
capital stock, of which 8,000,000 shares are Class B Stock, 125,000,000 shares
are Class C Stock, 50,000,000 shares are Class D Stock, and 250,000 shares are
PKS preferred stock. As of , 1997 there were no shares of Class B Stock,
shares of Class C Stock, shares of Class D Stock and no shares of
PKS preferred stock outstanding. After giving effect to the Initial Certificate
Amendments, the PKS Certificate will authorize 641,750,000 shares of capital
stock, of which 8,000,000 shares are Class B Stock, 125,000,000 shares are Class
C Stock, 500,000,000 shares are Class D Stock (with 10 of such shares being
designated as Class D Stock, Non-Redeemable Series), 8,500,000 shares are Class
R Stock and 250,000 shares are PKS preferred stock. See "The Initial Certificate
Amendments." PKS intends to issue 10 shares of Class D Stock, Non-Redeemable
Series promptly following the filing of the Initial Certificate Amendments and
expects to issue approximately shares of Class R Stock in the Class R
Stock Distribution.
Holders of PKS Holdings Stock will be stockholders of PKS Holdings, which
will not be a subsidiary of PKS and which will have an interest only in the
Construction Group. PKS Holdings is a Delaware corporation. The PKS Holdings
Certificate authorizes 125,250,000 shares of capital stock of PKS Holdings, of
which 125,000,000 shares are PKS Holdings Stock and 250,000 shares are PKS
Holdings preferred stock. As of October 1, 1997 there were 100 shares of PKS
Holdings Stock outstanding, all of which were held by PKS and no shares of PKS
Holdings Preferred Stock outstanding. After the consummation of the Transaction,
there will be an estimated shares of PKS Holdings Stock and no shares of
PKS Holdings preferred stock outstanding.
Reference is made to the more detailed provisions of, and the following
descriptions are qualified in their entirety by reference to, the PKS
Certificate, the PKS By-laws and the PKS Holdings By-laws, copies of which are
filed with the Commission as exhibits to the Registration Statement of which
this Proxy Statement/Joint Prospectus is a part, and the PKS Holdings
Certificate, a copy of which is attached as Appendix D.
The following discussion relating to PKS Holdings Stock, the PKS Holdings
Certificate and the PKS Holdings By-laws gives effect to the consummation of the
Transaction.
DIVIDEND POLICY
Under Delaware law and the PKS Certificate, after dividends have been
declared and set aside for payment or paid on PKS preferred stock (if any)
having a preference over Class C Stock, dividends on
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Class C Stock may be declared and paid out of the excess, if any, of the amount
legally available therefor over the Available Class D Dividend Amount, which is
equal to the lesser of (i) the amount legally available for payment of dividends
on common stock of PKS and (ii) an amount equal to (a) the Class D Formula Value
less (b) dividends on Class D Stock declared during the current year. The
current policy is to pay in each year 15% to 20% of the prior year's earnings of
the Construction Group as a cash dividend on Class C Stock.
Under Delaware law and the PKS Holdings Certificate, after dividends have
been declared and set aside for payment or paid on PKS Holdings preferred stock
(if any) having a preference over PKS Holdings Stock, dividends on PKS Holdings
Stock may be declared and paid out of PKS Holdings funds legally available
therefor. PKS Holdings intends to continue the current PKS policy of paying in
each year 15% to 20% of the prior year's earnings of the Construction Group as a
cash dividend on PKS Holdings Stock.
VOTING RIGHTS
Holders of Class C Stock are entitled to one vote per share on all matters
submitted to a vote of the common stockholders of PKS. Moreover, the holders of
Class C Stock are entitled, as a separate class, to elect two-thirds of the
directors, by cumulative voting, while the remaining directors are elected by
the holders of Class D Stock. The PKS Certificate provides that certain
fundamental corporate changes, such as changes in the capital structure of PKS,
are effective only upon the approval of at least 80% of the outstanding Class C
Stock, voting as a separate class, as well as a majority of the outstanding
voting power of PKS, while certain other actions require the approval of 66 2/3%
of Class C Stock, voting as a separate class, as well as a majority of the
voting power of PKS. The PKS Certificate further provides that, in the event
that the number of issued and outstanding shares of Class C Stock should at any
time be less than the number of issued and outstanding shares of Class D Stock,
the PKS Board may declare stock dividends on Class C Stock without declaring a
corresponding stock dividend on Class D Stock so that the number of outstanding
shares of Class C Stock and Class D Stock will be approximately equal.
Holders of PKS Holdings Stock will be entitled to one vote per share on all
matters submitted to a vote of the common stockholders of PKS Holdings. Holders
of PKS Holdings Stock are entitled to elect the entire PKS Holdings Board by
cumulative voting. The PKS Holdings Certificate provides that certain
fundamental corporate changes, such as changes in the capital structure of PKS
Holdings, are effective only upon the approval of at least 80% of PKS Holdings
Stock, while certain other actions require the approval of 66 2/3% of PKS
Holdings Stock. All of the supermajority voting requirements included in the PKS
Certificate with respect to Class C Stock are included in the PKS Holdings
Certificate with respect to PKS Holdings Stock.
REPURCHASE RIGHTS
During the first 15 days of any calendar month, PKS must repurchase shares
of Class C Stock upon the demand of a holder of such stock at the Class C Per
Share Price determined using the Class C Formula Value. The PKS Board may
suspend PKS' duties to repurchase Class C Stock upon the PKS Board's
determination that the Class C Formula Value to be determined at the end of the
current fiscal year is likely to be less than the Class C Formula Value
determined at the end of the prior year less dividends declared on Class C Stock
since the prior fiscal year end. The suspension may not exceed one year. No
voluntary tenders of stock of the affected class will be accepted during the
suspension period. Different suspension periods may be applied to Class C Stock
and Class D Stock. During a Class C Stock suspension period, required
repurchases (E.G., upon employment termination) may continue, but the repurchase
price will be determined as follows: if the suspension period ends during the
first half of the fiscal year (before July 1), the repurchase price will be the
Class C Per Share Price determined as of the end of the prior fiscal year (less
dividends per share declared on Class C Stock since the prior fiscal year end).
However, if the
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suspension period ends during the second half of a fiscal year (after June 30),
the repurchase price will be the Class C Per Share Price determined at the end
of the suspension period.
During the first 15 days of any calendar month, PKS Holdings will be
required to repurchase shares of PKS Holdings Stock upon demand of a holder of
such stock at the PKS Holdings Per Share Price determined using the PKS Holdings
Formula Value. The PKS Holdings Board may suspend PKS Holdings' duties to
repurchase PKS Holdings Stock upon the PKS Holdings Board's determination that
the PKS Holdings Formula Value to be determined at the end of the current fiscal
year is likely to be less than the PKS Holdings Formula Value determined at the
end of the prior year less dividends declared on PKS Holdings Stock since the
prior fiscal year end. The suspension may not exceed one year. No voluntary
tenders of stock of the affected class will be accepted during the suspension
period. During a PKS Holdings Stock suspension period, required repurchases
(E.G., upon employment termination) may continue, but the repurchase price will
be determined as follows: if the suspension period ends during the first half of
the fiscal year (before July 1), the repurchase price will be the PKS Holdings
Per Share Price determined as of the end of the prior fiscal year (less
dividends per share declared on PKS Holdings Stock since the prior fiscal year
end). However, if the suspension period ends during the second half of a fiscal
year (after June 30), the repurchase price will be the PKS Holdings Per Share
Price determined at the end of the suspension period.
LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of PKS, after the creditors
of PKS and the holders of PKS preferred stock (if any) receive the full
preferential amounts to which they are entitled, the PKS Board will establish
two accounts. The "D Liquidation Account" will be in an amount equal to the
value of the Diversified Group's assets, plus an amount equal to one-half of the
unconsolidated stockholders' equity of PKS itself. The "C Liquidation Account"
will be the value of the remaining assets. These values will be determined at
the time of liquidation. Holders of Class C Stock will receive an amount equal
to $1.00 per share out of the C Liquidation Account. After a payment of $2.00
per share to the holders of D Stock out of the D Liquidation Account (and the C
Liquidation Account, if the D Liquidation Account is insufficient to make such
payment), any assets remaining thereafter in the C Liquidation Account will be
distributed to the holders of Class C Stock.
Upon the liquidation, dissolution or winding up of PKS Holdings, after the
creditors of PKS Holdings and the holders of PKS Holdings preferred stock (if
any), receive the full preferential amounts to which they are entitled, holders
of PKS Holdings Stock will be entitled to receive any assets available for
distribution to stockholders of PKS Holdings.
CONVERSION RIGHTS
A holder of Class C Stock may convert shares of Class C Stock into Class D
Stock pursuant to the Conversion Right by providing written notice to PKS during
the period from and including October 15 through and including December 15 of
each year. Such conversions generally become effective on January 1 (the
"Conversion Date") of the following year. Shares of Class C Stock are
convertible into a number of shares of Class D Stock that bears the same ratio
to the number of shares surrendered for conversion as the Class C Per Share
Price at the Conversion Date bears to either (i) if Class D Stock is not
publicly traded, the Class D Per Share Price or (ii) if Class D Stock is
publicly traded, the average closing price of Class D Stock for twenty trading
days prior to such date. Instead of effecting the conversion described above,
PKS may repurchase any shares of Class C Stock tendered for such conversion at
the Class C Per Share Price at the Conversion Date by providing written notice
to the tendering stockholder of such election not later than the Conversion
Date. A holder of Class C Stock (but only if such holder is then an employee of
PKS or an entity of which PKS owns at least a 20% equity interest) may withdraw
the tender of shares at any time before, or within 10 days after, PKS provides
written notice that it has elected to repurchase the shares. Partial payment for
such tendered shares shall be made within 60 days after the
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Conversion Date, and the balance paid after PKS' financial statements are
certified. No conversions of Class C Stock into Class D Stock will become
effective if PKS' duty to repurchase Class C or Class D Stock is at the time
suspended, as provided in the PKS Certificate.
Holders of PKS Holdings Stock will not have the right to convert their
shares into any security of PKS Holdings or Diversified Holdings. In the event
that the Transaction is consummated, PKS Holdings intends to implement the
Installment Note Program to allow holders of PKS Holdings Stock to sell such
stock to PKS Holdings in exchange for Installment Notes on a tax-deferred
installment basis, as an alternative to a repurchase for cash. See "The
Transaction--Installment Note Program."
FORMULA VALUE
The Class C Formula Value is an amount equal to the stockholders' equity of
PKS less (i) the book value of certain property, plant and equipment, (ii) the
stockholders' equity attributable to outstanding PKS preferred stock (if any)
and (iii) the Class D Formula Value, based on the year-end audited financial
statements. The Class C Formula Value is the basis for the determination of the
Class C Per Share Price at which shares of Class D Stock must be repurchased by
PKS upon demand of the holder thereof, subject to certain exceptions. The Class
C Per Share Price is determined by increasing the Class C Formula Value by the
portion of the face amount of any outstanding debentures convertible into Class
C Stock and dividing the result by the sum of (i) the number of outstanding
shares of Class C Stock and (ii) the number of shares reserved for the
conversion of such debentures into Class C Stock. This quotient is rounded to
the nearest $.05 and reduced by the amount of any dividends per share declared
on Class C Stock since the prior year end to arrive at the Class C Per Share
Price.
The PKS Holdings Formula Value will be an amount equal to the stockholders'
equity of PKS Holdings less (i) the book value of certain property, plant and
equipment and (ii) the stockholders' equity attributable to outstanding PKS
Holdings preferred stock (if any), based on the year-end audited financial
statements. The PKS Holdings Formula Value will be the basis for the
determination of the PKS Holdings Per Share Price, at which shares of PKS
Holdings Stock must be repurchased by PKS upon demand of the holder thereof,
subject to certain exceptions. The PKS Holdings Per Share Price will be
determined by increasing the PKS Holdings Formula Value by the portion of the
face amount of any outstanding debentures convertible into PKS Holdings Stock
and dividing the result by the sum of (i) the number of outstanding shares of
PKS Holdings Stock and (ii) the number of shares reserved for the conversion of
such debentures into PKS Holdings Stock. This quotient will be rounded to the
nearest $.05 and reduced by the amount of any dividends per share declared on
PKS Holdings Stock since the prior year end to arrive at the PKS Holdings Per
Share Price.
MANDATORY EXCHANGE
If all the assets and liabilities of the Construction Group are held by a
wholly owned subsidiary of PKS (such as PKS Holdings), the PKS Board may, by a
two-thirds vote, require the exchange of all the outstanding Class C Stock for
the common stock of such subsidiary, on a pro rata basis; provided that such
subsidiary has a certificate of incorporation substantially similar to the PKS
Certificate. It is pursuant to this provision of the PKS Certificate that the
Share Exchange will be effected by the PKS Board.
Holders of PKS Holdings Stock will not be subject to mandatory exchange
provisions comparable to those to which Class C stockholders are subject.
OWNERSHIP AND TRANSFERABILITY RESTRICTIONS
Class C Stock may be owned only by employees of PKS and its subsidiaries
and, with prior PKS Board approval, by certain authorized transferees of such
employees (I.E., fiduciaries for the benefit of members of the immediate
families of employees, corporations wholly owned by employees or employees and
their spouses and/or children, fiduciaries for the benefit of such corporations,
charities, and fiduciaries for
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charities designated by any such persons). Under the PKS Certificate, an
employee of a subsidiary of which PKS owns at least a 20% equity interest (or
any joint venture in which PKS and/or such subsidiary owns at least a 20% equity
interest), is deemed to be an employee for purposes of Class C Stock ownership
and the attendant transfer restrictions. A director who is a former employee may
continue to own Class C Stock. No more than 10% of the total Class C Stock may
be owned by any one employee and certain transferees at any time.
PKS Holdings Stock may be owned only by employees of PKS Holdings and its
subsidiaries and, with prior PKS Holdings Board approval, by certain authorized
transferees of such employees (I.E., fiduciaries for the benefit of members of
the immediate families of employees, corporations wholly owned by employees or
employees and their spouses and/or children, fiduciaries for the benefit of such
corporations, charities, and fiduciaries for charities designated by any such
persons). Under the PKS Holdings Certificate, an employee of a subsidiary of
which PKS Holdings owns at least a 20% equity interest (or any joint venture in
which PKS Holdings and/or such subsidiary owns at least a 20% equity interest),
is deemed to be an employee for purposes of PKS Holdings Stock ownership and the
attendant transfer restrictions. A director who is a former employee may
continue to own PKS Holdings Stock. No more than 10% of the total PKS Holdings
Stock may be owned by any one employee and certain transferees at any time.
Each holder of Class C Stock is required to execute a repurchase agreement
which provides that a stockholder may offer to sell all or part of the Class C
Stock owned by such stockholder to PKS at any time at the class price determined
by formula and that PKS must accept any such offer, with payment to be made
within 60 days after the receipt of notice of the offer and of the stock
certificates offered by the holder. Upon the tender of a part of such holder's
shares of Class C Stock, PKS may, at its option, require the holder to sell
Class C Stock held by such holder back to PKS. Under the repurchase agreement,
the employee may not transfer the shares of Class C Stock held by such employee
except in a sale to PKS or a transfer to an authorized transferee (I.E., a
charity, etc.). Upon the death, termination or retirement of such employee, all
Class C Stock held by the employee and by such employee's authorized transferees
must be sold back to PKS.
Each holder of PKS Holdings Stock will be required to execute a repurchase
agreement which will provide that a stockholder may offer to sell all or part of
the PKS Holdings Stock owned by such stockholder to PKS Holdings at any time at
the class price determined by formula and that PKS Holdings must accept any such
offer, with payment to be made within 60 days after the receipt of notice of the
offer and of the stock certificates offered by the holder. Upon the tender of a
part of such holder's shares of PKS Holdings Stock, PKS Holdings will be
entitled, at its option, to require the holder to sell PKS Holdings Stock held
by such holder back to PKS Holdings. Under the repurchase agreement, the
employee will not be entitled to transfer the shares of PKS Holdings Stock held
by such employee except in a sale to PKS Holdings or a transfer to an authorized
transferee (I.E., a charity, etc.). Upon the death, termination or retirement of
such employee, all PKS Holdings Stock held by the employee and by such
employee's authorized transferees will be required to be sold back to PKS
Holdings. Each holder of PKS Holdings Stock will be required to execute a
repurchase agreement with PKS Holdings prior to receiving a stock certificate
for the PKS Holdings Stock received in the Share Exchange.
LISTING
The Class C Stock is not listed for trading on any stock exchange or market.
PKS Holdings Stock will not be listed for trading on a stock exchange or market
at the Effective Time or thereafter.
Class C Stock is currently registered as an equity security of PKS under the
Exchange Act. Since no shares of Class C Stock will be outstanding after the
consummation of the Transaction it is anticipated that Diversified Holdings will
apply to the Commission for termination of such registration. Upon effectiveness
of the Certificate Amendments, Class C Stock will be eliminated from the PKS
Certificate and will no longer be authorized capital stock of Diversified
Holdings.
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PKS Holdings Stock will be registered as an equity security under the
Exchange Act.
PREFERRED STOCK
The PKS Board is empowered, without approval of the stockholders, to cause
shares of PKS preferred stock to be issued in one or more series, with the
numbers of shares of each series and the powers, preferences, rights and
limitations of each series to be determined by it; except that no series of PKS
preferred stock may have any voting rights or be convertible into shares of
stock having voting rights.
The PKS Holdings Board is empowered, without approval of the stockholders,
to cause shares of PKS Holdings preferred stock to be issued in one or more
series, with the numbers of shares of each series and the powers, preferences,
rights and limitations of each series to be determined by it. Among the specific
matters that may be determined by the PKS Holdings Board are the rate of
dividends, if any; rights and terms of conversion or exchange, if any; the terms
of redemption, if any; the amount payable in the event of any voluntary
liquidation, dissolution or winding up of the affairs of PKS Holdings; the terms
of a sinking or purchase fund, if any. No series of PKS Holdings preferred stock
may have any voting rights or be convertible into shares of stock having voting
rights.
LIMITATION ON DIRECTORS' LIABILITY
The PKS Certificate provides, as authorized by Section 102(b)(7) of the
DGCL, that a director of PKS will not be personally liable to PKS or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to PKS
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The PKS Holdings Certificate will contain identical provisions with respect
to PKS Holdings and its directors.
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COMPARISON OF CLASS D STOCK AND DIVERSIFIED HOLDINGS STOCK
GENERAL
The Post-Transaction Certificate Amendments will change the name of PKS to
"Diversified Holdings, Inc.", redesignate Class D Stock as "Common Stock, par
value $.01 per share", of Diversified Holdings, modify the repurchase rights to
which the holders of Class D Stock are entitled, delete the provisions regarding
Class C Stock, add certain corporate governance provisions and make certain
other changes described herein. Upon consummation of the Transaction, holders of
Class D Stock will become holders of Diversified Holdings Stock. As stockholders
of Diversified Holdings, such holders' rights will continue to be governed by
Delaware law and will be governed by the Diversified Holdings Certificate and
the Diversified Holdings By-laws.
Holders of Class D Stock are stockholders of PKS, not of the Diversified
Group, and have an interest in the equity and assets of PKS, including the
assets of the Diversified Group plus one-half of the unconsolidated
stockholders' equity (whether positive or negative) of PKS itself. PKS is a
Delaware corporation. The PKS Certificate authorizes 183,250,000 shares of
capital stock, of which 8,000,000 shares are Class B Stock, 125,000,000 shares
are Class C Stock, 50,000,000 shares are Class D Stock and 250,000 shares are
PKS preferred stock. As of , 1997 there were no shares of Class B Stock,
shares of Class C Stock, shares of Class D Stock and no shares of
PKS preferred stock outstanding. After giving effect to the Initial Certificate
Amendments, the PKS Certificate will authorize 641,750,000 shares of capital
stock, of which 8,000,000 shares are Class B Stock, 125,000,000 shares are Class
C Stock, 500,000,000 shares are Class D Stock (with 10 of such shares being
designated as Class D Stock, Non-Redeemable Series), 8,500,000 shares are Class
R Stock and 250,000 shares are PKS preferred stock. See "The Initial Certificate
Amendments." PKS intends to issue 10 shares of Class D Stock, Non-Redeemable
Series promptly following the filing of the Initial Certificate Amendments and
expects to issue approximately shares of Class R Stock in the Class R
Stock Distribution.
Holders of Diversified Holdings Stock will continue to be stockholders of
the same Delaware corporation, renamed Diversified Holdings, Inc., which will
have an interest only in the Diversified Group. The Diversified Holdings
Certificate will authorize 518,500,000 shares of capital stock of Diversified
Holdings, of which 500,000,000 shares are Diversified Holdings Stock (with 10 of
such shares being designated as Diversified Holdings Stock, Non-Redeemable
Series), 8,500,000 shares are Class R Stock and 10,000,000 shares are
Diversified Holdings preferred stock. After the consummation of the Transaction,
there will be an estimated shares of Diversified Holdings Stock (of which 10
shares will be designated as Diversified Holdings Stock, Non-Redeemable Series),
shares of Class R Stock and no shares of Diversified Holdings
preferred stock outstanding.
Reference is made to the more detailed provisions of, and such descriptions
are qualified in their entirety by reference to, the PKS Certificate, the PKS
By-laws and the Diversified Holdings By-laws, copies of which are filed with the
Commission as exhibits to the Registration Statement of which this Proxy
Statement/Joint Prospectus is a part, and the Diversified Holdings Certificate,
a copy of which is attached as Appendix E-II.
The following discussion relating to Diversified Holdings Stock, the
Diversified Holdings Certificate and the Diversified Holdings By-laws gives
effect to the consummation of the Transaction.
DIVIDEND POLICY
Under Delaware law and the PKS Certificate, after dividends have been
declared and set aside for payment or paid on PKS preferred stock (if any)
having a preference over Class D Stock, dividends on Class D Stock may be
declared and paid out of the Available Class D Dividend Amount. Dividends of
$.50 per share were paid on Class D Stock in each of 1996 and 1997. Prior to the
time the Transaction is consummated or abandoned, PKS does not intend to declare
or pay any additional dividends on Class D Stock.
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Under Delaware law and the Diversified Holdings Certificate, after dividends
have been declared and set aside for payment or paid on Diversified Holdings
preferred stock (if any) having a preference over Diversified Holdings Stock,
dividends on Diversified Holdings Stock and Class R Stock may be declared and
paid out of Diversified Holdings funds legally available therefor. It is
currently anticipated that dividends will not be paid on Diversified Holdings
Stock or Class R Stock in the foreseeable future.
VOTING RIGHTS
In general, holders of Class D Stock are entitled to one vote per share on
all matters submitted to a vote of the common stockholders of PKS. Holders of
Class D Stock are entitled, as a separate class, to elect one-third of the PKS
Board. Class D Stock has no right to cumulative voting. In addition, the
affirmative vote of holders of 80% of the outstanding Class D Stock is required
to change the formula for determining the Class D Per Share Price or the Class D
Formula Value. The PKS Certificate further provides that in the event that the
number of issued and outstanding shares of Class C Stock is at any time less
than the number of issued and outstanding shares of Class D Stock, the PKS Board
may declare stock dividends on Class C Stock without declaring a corresponding
stock dividend on Class D Stock so that the number of outstanding shares of
Class C Stock and Class D Stock will be approximately equal.
Holders of Diversified Holdings Stock will be entitled to one vote per share
on all matters submitted to a vote of the common stockholders of Diversified
Holdings, and, together with holders of Class R Stock (who are entitled to vote
for the election of Diversified Holding Board on an as converted basis), will
elect the entire Diversified Holdings Board. The board of directors of
Diversified Holdings will be classified. Stockholders of Diversified Holdings
will have no right to cumulative voting. Amendment of the Diversified Holdings
By-laws by the Diversified Holdings stockholders will require the affirmative
vote of the holders of two-thirds of the outstanding Diversified Holdings Stock.
The affirmative vote of holders of 80% of Diversified Holdings Stock will be
required to amend the definitions of the Diversified Holdings Per Share Price or
Diversified Holdings Formula Value. Provisions of the Diversified Holdings
Certificate which provide for supermajority voting rights will require the same
supermajority to be amended. Stockholders of Diversified Holdings will not be
entitled to act by written consent.
REPURCHASE RIGHTS
Holders of Class D Stock may, during the first 15 days of any calendar
month, offer to sell Class D Stock to PKS at the Class D Per Share Price. Except
as described below, PKS must accept such offers and purchase Class D Stock for
cash. PKS' duty to repurchase Class D Stock ends if Class D Stock becomes
publicly traded. The PKS Board may suspend PKS' duties to repurchase Class D
Stock upon the PKS Board's determination that the stock formula value for Class
D Stock to be determined at the end of the current fiscal year is likely to be
less than the formula value determined at the end of the prior year less
dividends declared on Class D Stock since the prior fiscal year end. The
suspension period may not exceed one year. No voluntary tenders of Class D Stock
will be accepted during the suspension period. Different suspension periods may
be applied to Class C Stock and Class D Stock. The PKS Board may decide to
conserve PKS' cash by temporarily halting PKS' duty to repurchase Class D Stock
for cash. In such event, payment will be in the form of an interest-bearing
two-year promissory note. However, holders may withdraw tenders of shares that
would be paid for with notes. The PKS Board may choose to invoke this cash
repurchase limitation only after more than 10% of the outstanding shares of
Class D Stock have been tendered in any fiscal year.
Holders of Diversified Holdings Stock will have the right, during the first
15 days of any calendar month, to offer to sell Diversified Holdings Stock to
Diversified Holdings at the Diversified Holdings Per Share Price. Except as
described below, Diversified Holdings will be required to accept such offers and
purchase Diversified Holdings Stock for cash. Diversified Holdings' duty to
repurchase Diversified Holdings Stock will end if Diversified Holdings Stock
becomes publicly traded. The Diversified Holdings Board will have the right to
suspend Diversified Holdings' duties to repurchase Diversified Holdings Stock
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upon the Diversified Holdings Board's determination that the stock formula value
for Diversified Holdings Stock to be determined at the end of the current fiscal
year is likely to be less than the formula value determined at the end of the
prior year less dividends declared on Diversified Holdings Stock since the prior
fiscal year end. The suspension period may not exceed one year. No voluntary
tenders of Diversified Holdings Stock will be accepted during the suspension
period. The Diversified Holdings Board will have the right to decide to conserve
Diversified Holdings' cash by temporarily halting Diversified Holdings' duty to
repurchase Diversified Holdings Stock for cash. In such event, payment will be
in the form of interest-bearing promissory notes instead of cash. Such
promissory notes will have such term to maturity, up to ten years, as the
Diversified Holdings Board may determine. Holders may withdraw tenders of shares
that would be paid for with notes. The Diversified Holdings Board will have the
right to invoke this cash repurchase limitation only after more than 10% of the
outstanding shares of Diversified Holdings Stock have been tendered in any
fiscal year.
LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of PKS, after the creditors
of PKS and the holders of PKS preferred stock (if any) receive the full
preferential amounts to which they are entitled, the PKS Board will establish
two accounts. The "D Liquidation Account" will be in an amount equal to the
value of the Diversified Group's assets, plus an amount equal to one-half of the
unconsolidated stockholders' equity of PKS itself. The "C Liquidation Account"
will be the value of the remaining assets. These values will be determined at
the time of liquidation. Holders of Class D Stock will receive an amount equal
to $2.00 per share out of the D Liquidation Account (and the C Liquidation
Account, after the payment of $1.00 to holders of Class C Stock, if the D
Liquidation Account does not contain sufficient funds to make such payment). Any
assets remaining thereafter in the D Liquidation Account will be distributed to
the holders of Class D Stock.
Upon the liquidation, dissolution or winding up of Diversified Holdings,
after the creditors of Diversified Holdings and the holders of Diversified
Holdings preferred stock (if any) receive the full preferential amounts to which
they are entitled, holders of Diversified Holdings Stock, together with holders
of Class R Stock, will be entitled to receive any assets available for
distribution to holders of Diversified Holdings Stock. Holders of Class R Stock
will share such assets with holders of Diversified Holdings Stock on an as
converted basis provided that each share of Class R Stock will receive no less
than one-fourth of the amount of assets to which one share of Diversified
Holdings Stock would be entitled.
CONVERSION RIGHTS
A holder of Class D Stock who is offered Class C Stock in connection with
PKS' annual offering of stock to employees may, in lieu of purchasing such
shares of Class C Stock, convert shares of Class D Stock into the number of
shares of Class C Stock (up to the number of shares of Class C Stock offered)
that bears the same ratio to the number of shares surrendered for conversion as
the Class D Per Share Price on the date PKS receives notice of the conversion
bears to the Class C Per Share Price. No conversions of Class D Stock into Class
C Stock are allowed after Class D Stock has become publicly traded or if PKS'
duty to repurchase Class D Stock is at the time suspended, as provided in the
PKS Certificate.
Holders of Diversified Holdings Stock will not have the right to convert
their Diversified Holdings Stock into any security of PKS Holdings or
Diversified Holdings.
FORMULA VALUE
The Class D Formula Value is an amount equal to (i) the stockholders' equity
of the entities comprising the Diversified Group plus (ii) one-half of the
stockholders' equity of PKS itself on an unconsolidated basis and without
considering PKS' investment in any subsidiaries. The Class D Formula Value is
the basis for the determination of the amount paid as dividends on Class D Stock
and, unless and until Class D Stock is publicly traded, the Class D Per Share
Price at which shares of Class D Stock must be
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repurchased by PKS upon the demand of the holders thereof. The Class D Per Share
Price is determined by increasing the Class D Formula Value by the portion of
the face amount of any outstanding debentures convertible into Class D Stock and
dividing the result by the sum of (i) the number of outstanding shares of Class
D Stock and (ii) the number of shares reserved for the conversion of such
debentures. This quotient is rounded to the nearest $.05 and reduced by the
amount of any dividends per share declared on Class D Stock since the prior year
end to arrive at the Class D Per Share Price.
The Diversified Holdings Formula Value is an amount equal to the
stockholders' equity of Diversified Holdings, less the stockholders' equity
attributable to outstanding Diversified Holdings preferred stock (if any). The
Diversified Holdings Formula Value is the basis for the determination of the
Diversified Holdings Per Share Price, the price at which, unless and until
Diversified Holdings Stock is publicly traded, shares of Diversified Holdings
Stock must be repurchased by Diversified Holdings upon the demand of the holders
thereof. The Diversified Holdings Per Share Price is determined by dividing (i)
the sum of (a) the Diversified Holdings Formula Value plus (b) the portion of
the face amount of any outstanding securities convertible into Diversified
Holdings Stock by (ii) the sum of (a) the number of outstanding shares of
Diversified Holdings Stock plus (b) the total number of shares reserved for
issuance upon the conversion of outstanding securities convertible into
Diversified Holdings Stock. This quotient is rounded to the nearest $.05 and
reduced by the amount of any dividends per share declared on the Diversified
Holdings Stock since the prior year end to arrive at the Diversified Holdings
Per Share Price. See "--Repurchase Rights." Neither the Diversified Holdings
Formula Value nor the Diversified Holdings Per Share Price will be used to
determine the amounts available for dividends on Diversified Holdings Stock. See
"--Dividend Policy."
MANDATORY EXCHANGE
Unless and until Class D Stock has become publicly traded, under the PKS
Certificate the PKS Board may, by a two-thirds vote, require an exchange of the
outstanding shares of Class D Stock for shares of Class C Stock. The number of
shares of Class C Stock to be issued in such exchange will be determined by the
ratio of the Class D Per Share Price to the Class C Per Share Price. The two
prices will be those two prices as of the date of the exchange. If the holder of
Class D Stock is not eligible to own Class C Stock, such holder will be paid
cash for his or her Class D Stock, at the Class D Per Share Price.
Holders of Diversified Holdings Stock will not be subject to mandatory
exchange provisions comparable to those to which holders of Class D Stock are
subject.
OWNERSHIP AND TRANSFERABILITY RESTRICTIONS
Under the PKS Certificate, there are no restrictions on the transfer or
ownership of Class D Stock. Under the Diversified Holdings Certificate, there
will be no restrictions on the transfer or ownership of Diversified Holdings
Stock.
LISTING
Class D Stock is not listed for trading on any stock exchange or market, and
Diversified Holdings does not expect to list Diversified Holdings Stock for
trading on a stock exchange or market at the Effective Time. Diversified
Holdings expects that it will not seek such a listing until it raises capital
through a public equity offering or desires to have a listed equity security
available for acquisitions. Any determination to raise public equity capital
will depend on a number of factors including, without limitation, Diversified
Holdings' capital needs, the availability and attractiveness of alternative
sources of capital, the performance of Diversified Holdings and conditions in
the public equity markets. Accordingly, no assurance can be given, that
Diversified Holdings Stock will be listed for trading in the future, or, if it
is, when such listing will be accomplished or whether an active trading market
will develop or be sustained.
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DIVERSIFIED HOLDINGS STOCK, NON-REDEEMABLE SERIES
The Initial Certificate Amendments include a provision designating 10 shares
of Class D Stock as Class D Stock, Non-Redeemable Series. Pursuant to the PKS
Certificate, as amended by the Initial Certificate Amendments, shares of Class D
Stock, Non-Redeemable Series will have terms identical to those of other shares
of Class D Stock, with the following exceptions: (i) holders of Class D Stock,
Non-Redeemable Series will have no rights to cause PKS to repurchase their
shares; (ii) shares of Class D Stock, Non-Redeemable Series will not be
convertible into Class C Stock, as is the Class D Stock under certain
circumstances; and (iii) shares of Class D Stock, Non-Redeemable Series will not
be subject to mandatory exchange into Class C Stock by PKS. See "The Initial
Certificate Amendments--Class D Stock, Non-Redeemable Series."
PREFERRED STOCK
The PKS Board is empowered, without approval of the stockholders, to cause
shares of PKS preferred stock to be issued in one or more series, with the
numbers of shares of each series and the powers, preferences, rights and
limitations of each series to be determined by it. Among the specific matters
that may be determined by the PKS Board are the rate of dividends, if any;
rights and terms of conversion or exchange, if any; the terms of redemption, if
any; the amount payable in the event of any voluntary liquidation, dissolution
or winding up of the affairs of PKS; the terms of a sinking or purchase fund, if
any. No series of PKS preferred stock may have any voting rights or be
convertible into shares of stock having voting rights.
The Diversified Holdings Board is empowered, without approval of the
stockholders, to cause shares of Diversified Holdings preferred stock to be
issued in one or more series, with the numbers of shares of each series and the
powers, preferences, rights and limitations of each series to be determined by
it. Among the specific matters that may be determined by the Diversified
Holdings Board are the rate of dividends, if any; rights and terms of conversion
or exchange, if any; the terms of redemption, if any; the amount payable in the
event of any voluntary liquidation, dissolution or winding up of the affairs of
Diversified Holdings; the terms of a sinking or purchase fund, if any. PKS
Holdings preferred stock may have any voting rights or be convertible into
shares of stock having voting rights.
It is anticipated that Diversified Holdings will adopt the Diversified
Holdings Rights Plan. Prior thereto, the Diversified Holdings Board will
establish the Rights Plan Preferred Stock, with such rights and privileges as
described in "The Certificate Amendments--Diversified Holdings Rights Plan."
LIMITATION ON DIRECTORS' LIABILITY
The PKS Certificate provides, as authorized by Section 102(b)(7) of the
DGCL, that a director of PKS will not be personally liable to PKS or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to PKS
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The Diversified Holdings Certificate will contain identical provisions with
respect to Diversified Holdings and its directors.
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CERTAIN PER SHARE INFORMATION
CLASS C DIVIDENDS AND PER SHARE VALUES
The following table sets forth dividends paid on Class C Stock during 1995,
1996 and 1997 and the Class C Per Share Price after each dividend payment.
<TABLE>
<CAPTION>
CLASS C
DIVIDEND PER STOCK
DATE PAID SHARE PRICE ADJUSTED PRICE
- ------------------------------------------------------------------------ ------------- --------------- ---------
<S> <C> <C> <C>
Jan. 5, 1995............................................................ $ 0.45 Dec. 31, 1994 $ 25.55
May 1, 1995............................................................. 0.45 May 1, 1995 25.10
Jan. 5, 1996............................................................ 0.60 Dec. 30, 1995 32.40
May 1, 1996............................................................. 0.60 May 1, 1996 31.80
Jan. 4, 1997............................................................ 0.70 Dec. 28, 1996 40.70
May 1, 1997............................................................. 0.70 May 1, 1997 40.00
</TABLE>
CLASS D DIVIDENDS AND PER SHARE VALUES
The following table sets forth dividends paid on Class D Stock during 1995,
1996 and 1997 and the Class D Per Share Price after each dividend payment.
<TABLE>
<CAPTION>
CLASS D
DIVIDEND PER STOCK
DATE PAID SHARE PRICE ADJUSTED PRICE
- ------------------------------------------------------------------------ ------------- --------------- -----------
<S> <C> <C> <C>
Sep. 30, 1995*.......................................................... $ 19.85 Sep. 30, 1995 $ 40.40
Jan. 5, 1996............................................................ 0.50 Dec. 30, 1995 49.50
Jan. 4, 1997............................................................ 0.50 Dec. 28, 1996 54.25
</TABLE>
- ------------------------
* Spin-off of investment in MFS.
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DESCRIPTION OF CLASS R STOCK
Included in the Initial Certificate Amendments will be the authorization of
8,500,000 shares of Class R Convertible Common Stock, par value $.01 per share.
Pursuant to the Class R Stock Distribution, PKS will issue eight-tenths of one
share of Class R Stock with respect to each share of Class C Stock outstanding
on the record date therefor.
Reference is made to the more detailed provisions of, and such descriptions
are qualified in their entirety by reference to, the terms of the Initial
Certificate Amendments attached as Appendix E-I, and the Diversified Holdings
Certificate, a copy of which is attached as Appendix E-II. The following
discussion relating to Class R Stock, the PKS Certificate and the Diversified
Holdings Certificate gives effect to the Certificate Amendments.
GENERAL
After giving effect to the Initial Certificate Amendments, the PKS
Certificate will authorize 641,750,000 shares of capital stock, of which
8,000,000 shares are Class B Stock, 125,000,000 shares are Class C Stock,
500,000,000 shares are Class D Stock (with 10 of such shares designated as Class
D Stock, Non-Redeemable Series), 8,500,000 shares are Class R Stock and 250,000
shares are PKS preferred stock. See "The Initial Certificate Amendments."
The Diversified Holdings Certificate will authorize 518,500,000 shares of
capital stock of Diversified Holdings, of which 500,000,000 shares are
Diversified Holdings Stock (with 10 of such shares designated as Diversified
Holdings Stock, Non-Redeemable Series), 8,500,000 shares are Class R Stock and
10,000,000 shares are Diversified Holdings preferred stock.
Prior to the Effective Time, PKS will effect the Class R Stock Distribution
by declaring a dividend of eight-tenths of one share of Class R Stock with
respect to each then-outstanding share of Class C Stock, at which time each
eight-tenths of one share of Class R Stock will attach to each share of Class C
Stock. Each share of Class R Stock (or fraction thereof) will be convertible
into Diversified Holdings Stock as described below. At the Effective Time, the
eight-tenths of one share of Class R Stock will attach to the share of PKS
Holdings Stock which will be exchanged for such share of Class C Stock, except
as described in "The Transaction--Conversion of Class C Stock Prior to the
Transaction" above. Certificates representing shares of Class R Stock (or
fractions thereof) will not be distributed until after the Share Exchange is
consummated. Diversified Holdings will not be required to issue any fractional
shares of Diversified Holdings Stock upon the conversion of Class R Stock, and
instead will pay cash in lieu of any such fractional shares. Diversified
Holdings may issue fractional shares of Class R Stock.
A share of Class R Stock (or fraction thereof) will detach from the share of
Class C Stock to which it is attached only upon the occurrence of (i) the
Conversion Condition with respect to such share of Class R Stock (or fraction
thereof), (ii) a Permitted Transfer of such share of Class R Stock (or fraction
thereof), or (iii) a mandatory redemption of the Class R Stock. If any holder
who, prior to the Share Exchange, had sold or transferred to PKS shares of Class
C Stock to which the Class R Stock was attached purchases or acquires Class C
Stock or PKS Holdings Stock within one year after Class R Stock Distribution,
all or a portion of the shares of Class R Stock held by such holder may become
subject to restrictions on transfer and conversion.
RANK
After the Share Exchange, the Class R Stock will, with respect to dividend
distributions and with respect to distributions of assets and rights upon the
liquidation, winding up and dissolution of the Corporation, rank on a parity
with Diversified Holdings Stock and junior to Diversified Holdings, preferred
stock.
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<PAGE>
DIVIDENDS
Prior to the Share Exchange, no dividends may be declared or paid with
respect to Class R Stock. After (i) the Share Exchange and (ii) dividends have
been declared and set aside on any Diversified Holdings preferred stock having a
preference over the Diversified Holdings Stock and Class R Stock with respect to
the payment of such dividends, holders of Class R Stock will only be entitled to
receive dividends, out of any assets or funds legally available therefor, in an
amount per share of Class R Stock as described below.
If and when a Regular Dividend is declared, holders of Class R Stock will be
entitled to receive dividends in an amount which is equal to (i) the Conversion
Ratio then in effect multiplied by (ii) the aggregate per share amount of such
Regular Dividend, declared on the Diversified Holdings Stock. If and when an
Extraordinary Dividend is declared, an amount which is equal to (a) the
Conversion Ratio then in effect multiplied by (b) one-fourth of (x) the
aggregate per share amount of all cash portions of such Extraordinary Dividend
plus (y) the aggregate per share amount of all non-cash portions of such
Extraordinary Dividend (based upon the fair market value of such non-cash
portion of such dividend at the time such dividend is declared or paid as
determined in good faith by the Diversified Holdings Board), in each case as
declared on the Diversified Holdings Stock.
A "Regular Dividend" means any dividend on the Diversified Holdings Stock
paid in cash in an amount less than % of the then current Trading Price of the
Diversified Holdings Stock.
An "Extraordinary Dividend" means any dividend on the Diversified Holdings
Stock (i) paid in property other than cash, shares of Diversified Holdings Stock
or securities convertible into or exercisable or exchangeable for Diversified
Holdings Stock or in a subdivision of the outstanding shares of Diversified
Holdings Stock (by reclassification or otherwise), or (ii) paid in cash in an
amount equal to or exceeding % of the Trading Price as of the date of
declaration of such Extraordinary Dividend.
No dividends may be declared on Class R Stock other than Regular Dividends
and Extraordinary Dividends in the amounts described above, and such dividends
shall be declared and paid contemporaneously with the declaration and payment of
the related dividend on the Diversified Holdings Stock.
LIQUIDATION RIGHTS
Prior to the Share Exchange, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of PKS (a "Liquidation"), the holders of
Class R Stock then outstanding will not be entitled to receive any assets or
funds of PKS available for distribution to its stockholders.
In the event of a Liquidation concurrent with or following the Share
Exchange, holders of Class R Stock then outstanding will be entitled to be paid
ratably out of the assets and funds of Diversified Holdings legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any Diversified
Holdings preferred stock upon Liquidation, an amount equal to (a) the Conversion
Ratio (or if Conversion Ratio is less than .25, .25, subject to certain
adjustments) multiplied by (b) the aggregate amount of all assets and funds
remaining available for distribution to holders of Diversified Holdings Stock
and Class R Stock.
VOTING RIGHTS
Prior to the Share Exchange, except as required by law, holders of Class R
Stock will not be entitled to vote on any matter.
After the Share Exchange, each issued and outstanding share of Class R Stock
will be entitled to vote only (i) for the election of directors, and (ii) as
required by law. On matters on which the holders of Class R Stock (or fraction
thereof) are entitled to vote, each issued and outstanding share of Class R
Stock will be entitled to the number of votes equal to the Conversion Ratio (or
fraction of the Conversion Ratio),
95
<PAGE>
such number to be determined as of the record date for determination of
shareholders entitled to vote on such matter. Except as provided by law, holders
of Class R Stock will vote together with the holders of Diversified Holdings
Stock as a single class on all matters on which holders of Class R Stock are
entitled to vote.
OPTIONAL CONVERSION
Subject to certain exceptions, each share of Class R Stock may be converted,
at the option of the holder thereof (an "Optional Conversion"), into the number
of fully paid and nonassessable shares of Diversified Holdings Stock equal to
the Conversion Ratio (as defined) then in effect. A particular share of Class R
Stock (or fraction thereof) may be converted into Diversified Holdings Stock
only during a Conversion Period, and only if the Conversion Condition has
occurred with respect to such share of Class R Stock (or fraction thereof).
Conversion of shares of Class R Stock, or a specified portion thereof, may
be effected by delivering certificates evidencing such shares, together with
proper written notice of conversion and if required by Diversified Holdings,
certificates surrendered for conversion shall be duly endorsed and accompanied
by documentation satisfactory to the Corporation evidencing that the Restricted
Period Termination Date has occurred with respect to such Class R Stock, to the
principal office of the transfer agent for the Class R Stock (or if no transfer
agent be at the time appointed, then Diversified Holdings at its principal
office).
CONVERSION PERIODS
If Diversified Holdings Stock is not publicly traded, each share of Class R
Stock (or fraction thereof) for which the Conversion Condition has been met may
be exercised after December 31, 1999 on any business day during the 25-day
period each year (the "Private Conversion Period") following the annual delivery
of a Private Conversion Ratio Certificate (as defined below) for such year;
provided, however, that in 2006 such period will extend through May 15, 2006. If
Diversified Holdings Stock is publicly traded, each share of Class R Stock (or
fraction thereof) for which the Conversion Condition has been met may be
exercised on any business day during each period from the first business day of
each calendar month through and including the sixth business day thereafter (the
"Public Conversion Period") following a period of 90 days after the date on
which Diversified Holdings Stock first becomes publicly traded, subject to
extension to up to 180 days if Diversified Holdings is so requested by the
underwriter of Diversified Holdings Stock in connection with an initial
underwritten public offering thereof. For purposes of the terms of the Class R
Stock, Diversified Holdings Stock will be deemed to be "publicly traded" if it
is listed on a national securities exchange or is listed on the Nasdaq National
Market or Nasdaq SmallCap Market, and has been so listed for at least 15
business days.
CONVERSION CONDITION
No share of Class R Stock (or fraction thereof) may be converted if the
Conversion Condition with respect to such share of Class R Stock (or fraction
thereof) has not yet been met. The Conversion Condition with respect to a
particular share of Class R Stock (or fraction thereof) will be deemed to have
been met upon the occurrence of the earliest of: (i) the repurchase or
redemption by PKS Holdings of the share of PKS Holdings Stock to which such
share of Class R Stock (or fraction thereof) is attached; (ii) the exchange of
the share of PKS Holdings Stock to which such share of Class R Stock (or
fraction thereof) is attached into another class of stock or securities of PKS
Holdings intended to be issued primarily to persons leaving employment of PKS
Holdings; (iii) April 15, 2006; and (iv) the occurrence of a Change of Control
(as defined in the Certificate Amendments) of Diversified Holdings.
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<PAGE>
CONVERSION RATIO
The Conversion Ratio, Conversion Value and Trading Price used for any
purpose, including with respect to the conversion of Class R Stock, are as set
forth in the most recent certificate provided by Diversified Holdings
("Conversion Ratio Certificate"), subject to certain adjustments; provided,
however, that prior to the delivery of the Initial Conversion Ratio Certificate,
the Conversion Ratio will be equal to $25.00 divided by $82.00, subject to
certain adjustments.
The "Conversion Ratio" set forth in a Conversion Ratio Certificate shall be
equal to (i) the Conversion Value set forth in such Conversion Ratio
Certificate, divided by (ii) the Trading Price set forth in such Conversion
Ratio Certificate.
The Conversion Value set forth in any Conversion Ratio Certificate shall be
equal to (i) in the event that the Trading Price is greater than or equal to the
$82.00 (subject to certain adjustments, the "Base Price"), $25.00; and (ii) in
the event that the Trading Price is less than the Base Price, an amount equal to
$25.00 minus the amount by which the Base Price exceeds the Trading Price,
subject to certain adjustments; provided, however, that in no event shall the
Conversion Value be less than $15.00. The Base Price and the base Conversion
Value were selected as a result of analyses performed by Gleacher NatWest in
connection with its August 14 opinion, which analyses determined the fully
diluted potential trading value of Class D Stock if it were listed on an
exchange and the difference between such value and the estimated Class D Price
Per Share at June 30, 1997. See "The Transaction--Opinion of Financial Advisor."
The terms used to calculate the Conversion Ratio and the Conversion Value
are subject to adjustment under certain circumstances. See "--Certain
Adjustments."
CONVERSION RATIO IF NOT PUBLICLY TRADED. Beginning with the fiscal year of
Diversified Holdings ended December 25, 1999, and for each fiscal year
thereafter, if, at the end of such fiscal year, the Diversified Holdings Stock
is not publicly traded, Diversified Holdings is required, before the February 28
immediately following the end of such fiscal year, to provide, to each office
designated for conversion of Class R Stock, a certificate setting forth the
Conversion Ratio, Conversion Value and Trading Price as of the close of business
of the last business day of such fiscal year (a "Private Conversion Ratio
Certificate"). The "Trading Price" set forth in a Private Conversion Ratio
Certificate will be the Appraised Value (as defined below) set forth in the most
recent Appraisal (as defined below) delivered to Diversified Holdings.
Prior to the delivery of each Private Conversion Ratio Certificate,
Diversified Holdings will cause to be conducted an appraisal (an "Appraisal") of
the per share value of the Diversified Holdings Stock as of the last day of the
fiscal year to which such Private Conversion Ratio Certificate relates by an
investment bank of national reputation selected by the Diversified Holdings
Board. This investment bank will determine the per share value of the
Diversified Holdings Stock as if the Diversified Holdings Stock was publicly
traded and then submit the per share value to the Diversified Holdings Board for
its approval. The value per share of the Diversified Holdings Stock set forth in
the Appraisal as approved by the Diversified Holdings Board will be the
"Appraised Value." In determining the Appraised Value, this investment bank will
place substantial, but not exclusive, emphasis on valuations of comparable
companies in the public equity markets, and will not take into account factors
(such as control premiums, minority discounts or illiquidity discounts) that
would not generally apply to such companies.
Promptly after such Private Conversion Ratio Certificate is made available,
Diversified Holdings will cause to be mailed to each registered holder of Class
R Stock a copy of such Private Conversion Ratio Certificate.
CONVERSION RATIO IF PUBLICLY TRADED. During any period in which the
Diversified Holdings Stock is Publicly Traded, Diversified Holdings is required,
on the last business day of each calendar month, to provide, to each office
designated for conversion of Class R Stock, a certificate setting forth the
Conversion Ratio, Conversion Value and Trading Price as of the close of business
of the last business day of such month (a "Public Conversion Ratio
Certificate").
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<PAGE>
The "Trading Price" set forth in a Public Conversion Ratio Certificate will
be the arithmetic mean of the daily Mean Reported Prices (as defined) of
Diversified Holdings Stock for the last 15 business days of the calendar month
prior to the date of such Public Conversion Ratio Certificate. "Mean Reported
Price" of Diversified Holdings Stock is the arithmetic mean between the highest
reported asked price and the lowest reported bid price for Diversified Holdings
Stock, as reported on the Composite Quotation System, on the principal national
securities exchange on which it is listed or admitted to trading, or as reported
by the Nasdaq National Market or Nasdaq SmallCap Market, as appropriate.
Adjustments will be made in such calculation if, during any period being used to
calculate such Trading Price, any of the terms used in such calculation are
required to be adjusted pursuant to the Diversified Holdings Certificate. See
"-- Certain Adjustments."
CERTAIN ADJUSTMENTS
The Base Price and certain other terms used to calculate the Conversion
Ratio are subject to adjustment upon the issuance by Diversified Holdings of any
dividend or distribution to holders of its capital stock (including Diversified
Holdings Stock) in shares of Diversified Holdings Stock, or any subdivision,
combination or reclassification of the Diversified Holdings Stock, as well as
upon the occurrence of certain other events.
If any capital reorganization or reclassification of the capital stock of
Diversified Holdings, or consolidation or merger of Diversified Holdings with
another corporation, or share exchange involving the outstanding shares of
Diversified Holding's capital stock or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that holders
of Diversified Holdings Stock shall be entitled to receive stock, securities,
cash or other property with respect to or in exchange for Diversified Holdings
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger, share exchange or sale, lawful and adequate provision
will be made whereby the holders of the Class R Stock shall have the right to
acquire and receive upon conversion of the Class R Stock (after and subject to
the rights of holders of preferred stock, if any), such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger, share exchange or sale)
with respect to or in exchange for such number of outstanding shares of
Diversified Holdings Stock as would have been received upon conversion of the
Class R Stock at the Conversion Ratio then in effect.
CONVERSION AT THE OPTION OF DIVERSIFIED HOLDINGS
In the event that the Diversified Holdings Board determines that Diversified
Holdings (i) take any action which would require a vote of the Class R Stock as
a separate class, or (ii) pay an Extraordinary Dividend, Diversified Holdings
may at its option, elect to cause all, but not less than all, shares of Class R
Stock (or fractions thereof) to be converted into Diversified Holdings Stock at
the Conversion Ratio then in effect; provided, however, that if the Conversion
Ratio then in effect was calculated using a Conversion Value of less than
$25.00, such Conversion Ratio shall be recalculated using a Conversion Value of
$25.00. Upon such election by Diversified Holdings, the Conversion Condition
shall be deemed to have occurred with respect to all shares of Class R Stock. If
Diversified Holdings elects to cause such a conversion of Class R Stock,
Diversified Holdings is required to send to the holders of the Class R Stock at
least 10 days prior written notice of the date when such conversion will take
place, and the Conversion Ratio therefor.
MANDATORY CONVERSION
Each share of Class R Stock outstanding as of April 15, 2010 (the "Mandatory
Conversion Date") will, automatically, and without further action by or on
behalf of Diversified Holdings, Diversified Holdings' transfer agent or the
holder of such share of Class R Stock (or fraction thereof), be converted (a
"Mandatory Conversion") into shares of Diversified Holdings Stock at the
Conversion Ratio then in effect as of such Mandatory Conversion Date.
Diversified Holdings is required to send to the holders of the
98
<PAGE>
Class R Stock written notice of the Conversion Ratio therefor at least 10 days
prior to such Mandatory Conversion Date.
RESTRICTIONS ON TRANSFER
No share of Class R Stock (or fraction thereof) may be transferred prior to
the Share Exchange other than pursuant to a mandatory redemption. Following the
Share Exchange and prior to the first day on which the Conversion Condition has
been met (the "Restricted Period Termination Date"), such share of Class R Stock
(or fraction thereof) may only be transferred pursuant to a Permitted Transfer
or an Attached Transfer; provided that such transfer of such share of PKS
Holdings Stock is permitted by the PKS Holdings Certificate. After the
occurrence of (i) the Share Exchange and (ii) the Restricted Period Termination
Date with respect to a particular share of Class R Stock (or fraction thereof),
such share of Class R Stock (or fraction thereof) will be freely transferable.
MANDATORY REDEMPTION
If the Share Exchange has not occurred by the close of business on October
15, 1998 (subject to extension by the PKS Board) (the "Mandatory Redemption
Date"), Diversified Holdings will redeem (to the extent funds are legally
available therefor), all outstanding Class R Stock for a per share price equal
to the par value for such shares of Class R Stock (or fractions thereof) (such
amount is hereinafter referred to as the "Redemption Price"). Such Redemption
Price shall be paid to each holder of Class R Stock as of the Mandatory
Redemption Date. If Diversified Holdings is unable at such date to redeem all
shares of Class R Stock because funds are not legally available therefor, then
Diversified Holdings will redeem such shares as soon thereafter as funds are
legally available for the redemption of such shares.
LISTING
PKS does not anticipate that Class R Stock will be listed on a stock
exchange or market upon the occurrence of the Class R Stock Distribution or
thereafter. Prior to the Class R Stock Distribution, the Class R Stock will be
registered under the Exchange Act.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
PKS, PKS HOLDINGS AND DIVERSIFIED HOLDINGS
PKS (BEFORE THE TRANSACTION)
The following table sets forth certain information with respect to the
beneficial ownership of Class C Stock and Class D Stock as of October 1, 1997 by
PKS' directors and executive officers (individually and as a group), and each
person known by PKS to beneficially own more than 5% of the outstanding Class C
Stock or Class D Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS C NUMBER OF SHARES OF PERCENT OF
NAME OF CLASS C STOCK STOCK CLASS D STOCK CLASS D STOCK
- --------------------------------------- ----------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Walter Scott, Jr.(1)................... 250,000 2.5% 3,409,609 12.8%
William L. Grewcock(2)................. 2,048 * 1,117,291 4.2
Kenneth E. Stinson(3).................. 639,988 6.3 32,216 *
Richard Geary(4)....................... 533,768 5.3 57,252 *
George B. Toll, Jr..................... 401,883 4.0 87,711 *
Richard W. Colf........................ 398,217 3.9 72,282 *
Tait P. Johnson(5)..................... 190,363 1.9 38,616 *
Bruce E. Grewcock(6)................... 194,561 1.9 77,987 *
Richard R. Jaros(7).................... 29,344 * 322,328 1.2
James Q. Crowe......................... -- -- 1,134,369 4.3
Robert B. Daugherty.................... -- -- 19,000 *
Charles M. Harper...................... -- -- 19,000 *
Peter Kiewit, Jr....................... -- -- 10,000 *
Allan K. Kirkwood...................... 272,959 2.7 61,991 *
Directors and Executive Officers as a
Group................................ 2,913,131 28.8 6,459,652 24.3
Donald L. Sturm(8)..................... -- -- 1,822,375 6.9
</TABLE>
- ------------------------
* Less than 1%
(1) Includes 16,275 shares of Class D Stock owned by a charitable foundation, of
which Mr. Scott shares voting and investment powers.
(2) Includes 35,213 shares of Class D Stock held in a charitable foundation, of
which Mr. William Grewcock shares voting and investment powers.
(3) Includes 3,572 shares of Class C Stock issuable upon conversion of 1992
Series Convertible Debentures on November 1, 1997.
(4) Includes 2,378 shares of Class D Stock held in a trust, for which Mr. Geary
is the trustee with sole voting and investment powers, and 18,514 shares of
Class D Stock held in trusts, for which Mr. Geary as a co-trustee shares
voting and investment powers.
(5) Includes 1,429 shares of Class C Stock issuable upon conversion of 1992
Series Convertible Debentures on November 1, 1997.
(6) Includes 1,786 shares of Class C Stock issuable upon conversion of 1992
Series Convertible Debentures on November 1, 1997, 25,716 shares of Class D
Stock held in a trust, for which Mr. Bruce Grewcock as a co-trustee shares
voting and investment powers, and 24 shares of Class D Stock held in trusts,
for which as the trustee he has sole voting and investment powers.
(7) Includes 3,572 shares of Class C Stock issuable upon conversion of 1992
Series Convertible Debentures on November 1, 1997, 1200 shares of Class D
Stock owned by Mr. Jaros' children who are minors, and 200,000 shares of
Class D Stock issuable under immediately exercisable options. See "Certain
Relationships and Related Transactions."
(8) Mr. Sturm's business address is 3033 East First Avenue, Denver, Colorado
80206. Table includes 261,863 shares held in trust and a family limited
partnership over which Mr. Sturm has sole voting and investment powers.
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<PAGE>
PKS HOLDINGS
The following table sets forth certain information with respect to the
expected beneficial ownership of PKS Holdings Stock immediately after
consummation of the Transaction, by the persons currently anticipated to be
executive officers or directors of PKS Holdings or beneficial owners of more
than 5% of the outstanding PKS Holdings Stock immediately after consummation of
the Transaction.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES PKS HOLDINGS STOCK(2)
PKS HOLDINGS ----------------------------
NAME STOCK(1) SCENARIO 1 SCENARIO 2
- ----------------------------------------------------------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Walter Scott, Jr....................................................... 250,000 2.8% 3.3%
Kenneth E. Stinson..................................................... 692,742 7.7 9.2
Richard Geary.......................................................... 538,335 6.0 7.2
Bruce E. Grewcock...................................................... 205,334 2.3 2.7
George B. Toll, Jr..................................................... 407,809 4.5 5.4
Richard W. Colf........................................................ 408,990 4.5 5.4
Tait P. Johnson........................................................ 195,772 2.2 2.6
Allan K. Kirkwood...................................................... 281,916 3.1 3.7
Thomas C. Stortz....................................................... 146,153 1.6 1.9
William L. Grewcock.................................................... 2,048 * *
James Q. Crowe......................................................... -- -- --
Peter Kiewit, Jr....................................................... -- -- --
Directors and Executive Officers
as a Group........................................................... 3,129,099 34.7 41.6
</TABLE>
- ------------------------
* Less than 1%.
(1) Based on the beneficial ownership of PKS securities by such persons as of
October 1, 1997. Assumes that (i) none of the shares of Class C Stock held
by any of the persons listed in the table is converted into Class D Stock
during the 1997 Conversion Period and (ii) any outstanding Debentures and
PKS Series 1992 Class C Convertible Debentures held by any of such persons
are converted into shares of Class C Stock prior to the record date for the
Warrant Distribution.
(2) Calculated assuming that 1,500,000 shares (Scenario 1) and 3,000,000 shares
(Scenario 2) of Class C Stock are converted into Class D Stock during the
1997 Conversion Period.
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<PAGE>
DIVERSIFIED HOLDINGS
The following table sets forth certain information with respect to the
expected beneficial ownership of Diversified Holdings Stock immediately after
consummation of the Transaction by the persons currently anticipated to be
executive officers or directors of Diversified Holdings or beneficial owners of
more than 5% of the outstanding Diversified Holdings Stock immediately after
consummation of the Transaction.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OF DIVERSIFIED HOLDINGS
NUMBER OF SHARES STOCK(2)
OF DIVERSIFIED ----------------------------
NAME HOLDINGS STOCK(1) SCENARIO 1 SCENARIO 2
- ----------------------------------------------------------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Walter Scott, Jr.(3)................................................... 3,409,609 12.1% 11.6%
James Q. Crowe......................................................... 1,134,369 4.0 3.9
R. Douglas Bradbury.................................................... 255,519 * *
William L. Grewcock(4)................................................. 1,117,291 4.0 3.8
Richard R. Jaros(5).................................................... 322,328 1.1 1.1
Robert E. Julian....................................................... 403,908 1.4 1.4
Kenneth E. Stinson..................................................... 32,216 * *
Robert B. Daugherty.................................................... 19,000 * *
Charles M. Harper...................................................... 19,000 * *
David C. McCourt....................................................... 10,000 * *
Michael B. Yanney...................................................... 10,000 * *
Directors and Executive Officers as a Group............................ 6,733,240 23.9 23.0
Donald L. Sturm(6)..................................................... 1,822,375 6.5 6.2
</TABLE>
- ------------------------
* Less than 1%.
(1) Based on the beneficial ownership of PKS securities by such persons as of
October 1, 1997. Assumes that none of the shares of Class C Stock held by
any of the persons listed in the table is converted into Class D Stock
during the 1997 Conversion Period.
(2) Calculated assuming that 1,500,000 shares (Scenario 1) and 3,000,000 shares
(Scenario 2) of Class C Stock are converted into Class D Stock during the
1997 Conversion Period.
(3) Includes 16,275 shares of Class D Stock owned by a charitable foundation, of
which Mr. Scott shares voting and investment powers.
(4) Includes 35,213 shares of Class D Stock held in a charitable foundation, of
which Mr. William Grewcock shares voting and investment powers.
(5) Includes 1,200 shares of Class D Stock owned by Mr. Jaros' children who are
minors and 200,000 shares of Class D Stock issuable under immediately
exercisable options. See "Certain Relationships and Related Transactions."
(6) Mr. Sturm's business address is 3033 East First Avenue, Denver, Colorado
80206. Table includes 261,863 shares held in trust and a family limited
partnership over which Mr. Sturm has sole voting and investment powers.
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<PAGE>
LEGAL MATTERS
The validity of the shares of PKS Holdings Stock to be distributed in the
Share Exchange and of the shares of Class R Stock and the shares of Diversified
Holdings Stock issuable upon conversion of such Class R Stock will be passed
upon by Willkie Farr & Gallagher. Certain matters relating to U.S. federal
income tax considerations will be passed upon by Skadden, Arps, Slate, Meagher &
Flom, L.L.P.
EXPERTS
The consolidated financial statements and financial statement schedule of
PKS included in PKS' Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 and incorporated by reference herein and the financial
statements and financial statement schedule of the Construction Group, a
business group of PKS as defined in Note 1 to those financial statements,
included in Exhibit 99.A to PKS' Annual Report on Form 10-K for the fiscal year
ended December 28, 1996 and included herein, have been incorporated and included
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
103
<PAGE>
THE CONSTRUCTION GROUP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Financial Statements as of December 28, 1996 and December 30, 1995 and for the three years ended December
30, 1996:
Statements of Earnings................................................................................... F-3
Balance Sheets........................................................................................... F-4
Statements of Cash Flows................................................................................. F-5
Statements of Changes in Stockholders' Equity............................................................ F-6
Notes to Financial Statements............................................................................ F-7
Financial Statement Schedule for the three years ended December 28, 1996................................... F-19
Condensed Financial Statements as of June 30, 1997 and for the six months ended June 30, 1997 and 1996:
Condensed Statements of Earnings......................................................................... F-20
Condensed Balance Sheet.................................................................................. F-21
Condensed Statements of Cash Flows....................................................................... F-22
Notes to Condensed Financial Statements.................................................................. F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial statement
schedule of Kiewit Construction & Mining Group, a business group of Peter Kiewit
Sons', Inc. (as defined in Note 1 to these financial statements) as listed in
the index on the preceding page. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when read in
conjunction with the consolidated financial statements of Peter Kiewit Sons',
Inc. and Subsidiaries, present fairly, in all material respects, the financial
position of Kiewit Construction & Mining Group as of December 28, 1996 and
December 30, 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 28, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 14, 1997, except for Note 15, as to
which the date is March 26, 1997.
F-2
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
STATEMENTS OF EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue....................................................................... $ 2,286 $ 2,330 $ 2,175
Cost of Revenue............................................................... (2,064) (2,127) (1,995)
--------- --------- ---------
222 203 180
General and Administrative Expenses........................................... (117) (116) (121)
--------- --------- ---------
Operating Earnings............................................................ 105 87 59
Other Income (Expense):
Investment Income........................................................... 21 17 13
Interest Expense............................................................ (4) (2) (2)
Other, net.................................................................. 58 62 46
--------- --------- ---------
75 77 57
--------- --------- ---------
Earnings Before Income Taxes.................................................. 180 164 116
Provision for Income Taxes.................................................... (72) (60) (39)
--------- --------- ---------
Net Earnings.................................................................. $ 108 $ 104 $ 77
--------- --------- ---------
--------- --------- ---------
Net Earnings Per Common and Common Equivalent Share........................... $ 10.13 $ 7.78 $ 4.92
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
BALANCE SHEETS
DECEMBER 28, 1996 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................................. $ 173 $ 94
Marketable securities...................................................................... 54 59
Receivables, less allowance of $17 and $10................................................. 289 319
Costs and earnings in excess of billings on uncompleted construction contracts............. 80 78
Investment in construction joint ventures.................................................. 91 73
Deferred income taxes...................................................................... 64 61
Other...................................................................................... 13 13
--------- ---------
Total Current Assets......................................................................... 764 697
Property, Plant and Equipment, at cost:
Land....................................................................................... 15 16
Buildings.................................................................................. 37 38
Equipment.................................................................................. 542 528
--------- ---------
594 582
Less accumulated depreciation and amortization............................................. (429) (421)
--------- ---------
Net Property, Plant and Equipment............................................................ 165 161
Other Assets................................................................................. 107 119
--------- ---------
$ 1,036 $ 977
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, including retainage of $33 and $42....................................... $ 164 $ 180
Short-term borrowings...................................................................... -- 45
Current portion of long-term debt.......................................................... -- 2
Accrued construction costs and billings in excess of revenue on uncompleted contracts...... 112 111
Accrued insurance costs.................................................................... 81 79
Other...................................................................................... 33 32
--------- ---------
Total Current Liabilities.................................................................... 390 449
Long-term Debt, less current portion......................................................... 12 9
Other Liabilities............................................................................ 72 52
Stockholders' Equity (Redeemable Common Stock, $456 million aggregate redemption value):
11,006,641 shares outstanding in 1996 and 10,880,369 shares outstanding in 1995
Common equity.............................................................................. 568 471
Foreign currency adjustment................................................................ (5) (5)
Unrealized holding (loss) gain............................................................. (1) 1
--------- ---------
Total Stockholders' Equity................................................................... 562 467
--------- ---------
$ 1,036 $ 977
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operations:
Net earnings.......................................................................... $ 108 $ 104 $ 77
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation and amortization....................................................... 61 56 52
Gain on sale of property, plant and equipment and other investments................. (17) (33) (11)
Equity earnings, net................................................................ (8) (3) (2)
Change in other noncurrent liabilities.............................................. 18 6 5
Deferred income taxes............................................................... (6) -- (3)
Change in working capital items:
Receivables....................................................................... 37 -- (25)
Costs and earnings in excess of billings on uncompleted construction contracts.... (1) 23 (26)
Investment in construction joint ventures......................................... (18) (4) 12
Other current assets.............................................................. 2 (3) (5)
Accounts payable.................................................................. (18) 3 19
Accrued construction costs and billings in excess of revenue on uncompleted
contracts....................................................................... 1 5 19
Other liabilities................................................................. 11 4 (3)
Other............................................................................... (7) (6) (17)
--------- --------- ---------
Net cash provided by operations......................................................... 163 152 92
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities........................... 160 82 176
Purchases of marketable securities.................................................... (157) (42) (151)
Proceeds from sale of property, plant and equipment................................... 25 15 26
Capital expenditures.................................................................. (72) (79) (76)
APAC-Arizona, Inc. acquisition........................................................ -- -- (47)
Sale of note receivable and other..................................................... 14 (2) (1)
--------- --------- ---------
Net cash used in investing activities................................................... $ (30) $ (26) $ (73)
Cash flows from financing activities:
Long-term debt borrowings............................................................. $ 3 $ 3 $ 2
Short-term debt borrowings, net....................................................... (45) 45 --
Payments on long-term debt, including current portion................................. (2) (4) (4)
Issuances of common stock............................................................. 27 24 20
Repurchases of common stock........................................................... (5) (3) (11)
Dividends paid........................................................................ (12) (13) (13)
Exchange of Class C Stock for Class D Stock, net...................................... (20) (155) (42)
Other................................................................................. -- -- 1
--------- --------- ---------
Net cash used in financing activities................................................... (54) (103) (47)
Effect of exchange rates on cash........................................................ -- 1 (1)
--------- --------- ---------
Net change in cash and cash equivalents................................................. 79 24 (29)
Cash and cash equivalents at beginning of year.......................................... 94 70 99
--------- --------- ---------
Cash and cash equivalents at end of year................................................ $ 173 $ 94 $ 70
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Taxes................................................................................. $ 78 $ 69 $ 49
Interest.............................................................................. 2 2 2
Noncash investing activity:
Disposition of gold operations in exchange for Kinross common stock, net.............. $ -- $ 21 $ --
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
Common equity:
Balance at beginning of year......................................................... $ 471 $ 513 $ 483
Issuances of stock................................................................. 27 24 20
Repurchases of stock............................................................... (5) (3) (11)
Exchange of Class C Stock for Class D Stock, net................................... (20) (155) (42)
Net earnings....................................................................... 108 104 77
Dividends (per share: $1.30 in 1996, $1.05 in 1995 and $.90 in 1994)(a)............ (13) (12) (14)
--------- --------- ---------
Balance at end of year............................................................... 568 471 513
Other equity adjustments:
Balance at beginning of year......................................................... (4) (8) (3)
Foreign currency adjustment........................................................ -- 2 (4)
Unrealized holding (loss) gain..................................................... (2) 2 (1)
--------- --------- ---------
Balance at end of year............................................................... (6) (4) (8)
--------- --------- ---------
Total stockholders' equity........................................................... $ 562 $ 467 $ 505
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) Dividends include $.70, $.60, and $.45 for dividends declared in 1996, 1995
and 1994 but paid in January of the subsequent year.
See accompanying notes to financial statements.
F-6
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Class C Stock and the Class D Stock are designed to provide stockholders
with separate securities reflecting the performance of Peter Kiewit Sons',
Inc.'s ("PKS") construction and materials businesses ("Construction & Mining
Group") and its other businesses ("Diversified Group"), respectively. Dividends
on the Class C Stock are limited to the legally available funds of PKS less the
Class D formula value which is to be reduced by any dividends on Class D Stock
declared during the current year. Subject to this limitation, the Board of
Directors intends to declare and pay dividends on the Class C Stock based
primarily on the Construction & Mining Group's separately reported financial
condition and results of operations.
The financial statements of the Construction & Mining Group include the
financial position, results of operations and cash flows for PKS' construction
and materials businesses held by its wholly-owned subsidiary, Kiewit
Construction Group Inc., and certain PKS corporate assets and liabilities and
related transactions. These financial statements have been prepared using the
historical amounts included in the PKS consolidated financial statements.
Although the financial statements of PKS' Construction & Mining Group and
Diversified Group separately report the assets, liabilities and stockholders'
equity of PKS attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by such attribution.
Holders of Class C Stock and Class D Stock are stockholders of PKS. Accordingly,
the PKS consolidated financial statements and related notes should be read in
conjunction with these financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF GROUP PRESENTATION
These financial statements include the accounts of the Construction & Mining
Group ("the Group"). The Group's and Diversified Group's financial statements,
taken together, comprise all the accounts included in the PKS consolidated
financial statements. All significant intercompany accounts and transactions,
except those directly between the Group and the Diversified Group, have been
eliminated. Investments in construction joint ventures and other companies in
which the Group exercises significant influence over operating and financial
policies are accounted for by the equity method. The Group accounts for its
share of the operations of the construction joint ventures on a pro rata basis
in the statements of earnings.
The Group invests in the portfolios of the Kiewit Mutual Fund, ("KMF"), a
registered investment company. KMF is not consolidated in the Group's financial
statements.
CONSTRUCTION CONTRACTS
The Group operates generally within the United States and Canada as a
general contractor and engages in various types of construction projects for
both public and private owners. Credit risk is minimal with public (government)
owners since the Group ascertains that funds have been appropriated by the
governmental project owner prior to commencing work on public projects. Most
public contracts are subject to termination at the election of the government.
In the event of termination, the Group is entitled to receive the contract price
on completed work and reimbursement of termination related costs. Credit risk
with private owners is minimized because of statutory mechanics liens, which
give the Group high priority in the event of lien foreclosures following
financial difficulties of private owners.
F-7
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The construction industry is highly competitive and lacks firms with
dominant market power. A substantial portion of the Group's business involves
construction contracts obtained through competitive bidding. The volume and
profitability of the Group's construction work depends to a significant extent
upon the general state of the economies in which it operates and the volume of
work available to contractors. The Group's construction operations could be
adversely affected by labor stoppages or shortages, adverse weather conditions,
shortages of supplies, or governmental action.
The Group recognizes revenue on long-term construction contracts and joint
ventures on the percentage-of-completion method based upon engineering estimates
of the work performed on individual contracts. Provisions for losses are
recognized on uncompleted contracts when they become known. Claims for
additional revenue are recognized in the period when allowed. It is at least
reasonably possible that engineering estimates of the work performed on
individual contracts will be revised in the near term.
Assets and liabilities arising from construction activities, the operating
cycle of which extends over several years, are classified as current in the
financial statements. A one-year time period is used as the basis for
classification of all other current assets and liabilities.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are recorded at cost. Depreciation and
amortization are computed on accelerated and straight-line methods.
FOREIGN CURRENCIES
The local currencies of foreign subsidiaries are the functional currencies
for financial reporting purposes. Assets and liabilities are translated into
U.S. dollars at year-end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year. Gains or losses
resulting from currency translation are recorded as adjustments to stockholders'
equity.
EARNINGS PER SHARE
Primary earnings per share of Class C Stock have been computed using the
weighted average number of shares outstanding during each year. The number of
shares used in computing primary earnings per share was 10,655,886 in 1996,
13,384,434 in 1995 and 15,697,724 in 1994. Fully diluted earnings per share have
not been presented because they are not significantly different from primary
earnings per share.
INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and tax basis of the Group's assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-8
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS
Where appropriate, items within the financial statements and notes thereto
have been reclassified from previous years to conform to current year
presentation.
FISCAL YEAR
The Group's fiscal year ends on the last Saturday in December. There were 52
weeks in fiscal years 1996 and 1995 and 53 weeks in fiscal 1994.
(3) CORPORATE ACTIVITIES
FINANCIAL STRUCTURE
PKS, in addition to specifically attributable items, has corporate assets,
liabilities and related income and expense which are not separately identified
with the ongoing operations of the Group or the Diversified Group. The items
attributable to the Group and the Group's 50% portion of PKS are as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
(DOLLARS IN MILLIONS)
Cash and cash equivalents........................................................................ $ 8 $ 4
Marketable securities............................................................................ 5 10
Property, plant and equipment, net............................................................... 5 5
Other assets..................................................................................... 1 2
--- ---
Total Assets................................................................................... $ 19 $ 21
--- ---
--- ---
Accounts payable................................................................................. $ 8 $ 8
Long-term debt, including current portion........................................................ 12 11
--- ---
Total Liabilities.............................................................................. $ 20 $ 19
--- ---
--- ---
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----
<S> <C> <C> <C>
Net investment income................................................................... $ -- $ -- $ 6
Other expense........................................................................... -- -- (1)
</TABLE>
CORPORATE GENERAL AND ADMINISTRATIVE COSTS
A portion of PKS' corporate general and administrative costs has been
allocated to the Group based upon certain measures of business activity, such as
employment, investments and sales, which management believes to be reasonable.
The allocations were $1 million in 1996 and 1995 and $21 million in 1994. Due to
a realignment of the corporate overhead departments at the beginning of 1995,
substantially all of the administrative functions and personnel previously
allocated to the Group are now located at the Group.
F-9
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) CORPORATE ACTIVITIES (CONTINUED)
INCOME TAXES
All domestic members of the PKS affiliated group are included in the
consolidated U.S. income tax return filed by PKS as allowed by the Internal
Revenue Code. Accordingly, the provision for income taxes and the related
payments or refunds of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax payments have been
reflected in the Group's and the Diversified Group's financial statements in
accordance with PKS' tax allocation policy for such groups. In general, such
policy provides that the consolidated tax provision and related cash flows and
balance sheet amounts are allocated between the Group and the Diversified Group,
for group financial statement purposes, based principally upon the financial
income, taxable income, credits, preferences and other amounts directly related
to the respective groups. The provision for estimated United States income taxes
for the Group does not differ materially from that which would have been
determined on a separate return basis.
(4) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to determine classification
and fair values of financial instruments:
CASH AND CASH EQUIVALENTS
Cash equivalents generally consist of funds invested in the Kiewit Mutual
Fund-Money Market Portfolio and highly liquid instruments purchased with an
original maturity of three months or less. The securities are stated at cost,
which approximates fair value.
MARKETABLE SECURITIES AND NON-CURRENT INVESTMENTS
The Group has classified all marketable securities and marketable
non-current investments not accounted for under the equity method as
available-for-sale. The amortized cost of the securities used in computing
unrealized and realized gains and losses is determined by specific
identification. Fair values are estimated based on quoted market prices for the
securities on hand or for similar investments. Net unrealized holding gains and
losses are reported as a separate component of stockholders' equity, net of tax.
F-10
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following summarizes the amortized cost, unrealized holding gains and
losses, and estimated fair values of marketable securities and marketable
non-current investments at December 28, 1996 and December 30, 1995.
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
----------- ------------- ------------- -----
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
1996
Kiewit Mutual Fund:
Short-term government............................................... $ 22 $ -- $ -- $ 22
Intermediate term bond.............................................. 10 -- -- 10
Tax exempt.......................................................... 9 -- -- 9
U.S. debt securities.................................................. 13 -- -- 13
----- --- --- ---
$ 54 $ -- $ -- $ 54
----- --- --- ---
----- --- --- ---
Non-current investments:
Equity securities................................................... $ 30 $ -- $ (2) $ 28
----- --- --- ---
----- --- --- ---
1995
Kiewit Mutual Fund:
Short-term government............................................... $ 22 $ -- $ -- $ 22
Intermediate term bond.............................................. 13 1 -- 14
Tax exempt.......................................................... 8 1 -- 9
U.S. debt securities.................................................. 13 -- -- 13
Municipal debt securities............................................. 1 -- -- 1
----- --- --- ---
$ 57 $ 2 $ -- $ 59
----- --- --- ---
----- --- --- ---
Non-current investments:
Equity securities................................................... $ 30 $ -- $ -- $ 30
----- --- --- ---
----- --- --- ---
</TABLE>
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable securities
were each less than $1 million in 1995 and 1996, and $1 million and $2 million
in 1994.
The contractual maturities of the debt securities are as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
----------------- -------------
<S> <C> <C>
U.S. debt securities:
less than 1 year.................................................................... $ 2 $ 2
1-5 years........................................................................... 11 11
--- ---
$ 13 $ 13
--- ---
--- ---
</TABLE>
Maturities for the mutual fund and equity securities have not been presented
as they do not have a single maturity date.
F-11
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT
The fair value of debt was estimated using the incremental borrowing rates
of the Group for debt of the same remaining maturities and approximates the
carrying amount.
(5) RETAINAGE ON CONSTRUCTION CONTRACTS
Receivables at December 28, 1996 and December 30, 1995 include approximately
$86 million and $50 million of retainage on uncompleted projects, the majority
of which is expected to be collected within one year. Included in the retainage
amounts are $53 million and $61 million of securities which are being held by
the owners of various construction projects in lieu of retainage. These
securities are carried at fair value which is determined based on quoted market
prices for the securities on hand or for similar investments. Net unrealized
holding gains and losses, if any, are reported as a separate component of
stockholders' equity, net of tax.
(6) INVESTMENT IN CONSTRUCTION JOINT VENTURES
The Group has entered into a number of construction joint venture
arrangements. Under these arrangements, if one venturer is financially unable to
bear its share of the costs, the other venturers will be required to pay those
costs.
Summary joint venture financial information follows:
<TABLE>
<CAPTION>
FINANCIAL POSITION 1996 1995
------------------ --------- ---------
<S> <C> <C>
(DOLLARS IN
MILLIONS)
Total Joint Ventures
Current assets............................................................................ $ 435 $ 655
Other assets (principally construction equipment)......................................... 47 52
--------- ---------
482 707
Current liabilities....................................................................... (347) (584)
--------- ---------
Net assets.............................................................................. $ 135 $ 123
--------- ---------
--------- ---------
Group's Share
Equity in net assets...................................................................... $ 73 $ 67
Receivable from joint ventures............................................................ 18 6
--------- ---------
Investment in construction joint ventures............................................... $ 91 $ 73
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) INVESTMENT IN CONSTRUCTION JOINT VENTURES (CONTINUED)
<TABLE>
<CAPTION>
OPERATIONS 1996 1995 1994
----------- --------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
Total Joint Ventures
Revenue....................................................................... $ 1,370 $ 1,211 $ 1,034
Costs......................................................................... 1,201 1,108 937
--------- --------- ---------
Operating income............................................................ $ 169 $ 103 $ 97
--------- --------- ---------
Group's Share
Revenue....................................................................... $ 689 $ 691 $ 523
Costs......................................................................... 621 625 473
--------- --------- ---------
Operating income............................................................ $ 68 $ 66 $ 50
--------- --------- ---------
--------- --------- ---------
</TABLE>
(7) OTHER ASSETS
Other assets consist of the following at December 28, 1996 and December 30,
1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(DOLLARS IN
MILLIONS)
ME Holding Inc................................................................................. $ 33 $ 29
Equity securities of Kinross Gold Corporation (Note 4)......................................... 28 30
Investment in partnership...................................................................... 15 12
APAC goodwill.................................................................................. 15 16
Notes receivable............................................................................... 1 24
Other.......................................................................................... 15 8
--------- ---------
$ 107 $ 119
--------- ---------
--------- ---------
</TABLE>
Other assets include marketable equity securities classified as non-current,
an equity method investment in a partnership which fabricates offshore oil
platforms and the net goodwill recognized in the APAC acquisition. The
investment in ME Holding Inc., accounted for on the equity method, totals $33
million, $2 million in excess of the Group's share of equity. The excess
investment is being amortized over 15 years. The contracting business is not
publicly traded and does not have a readily determinable market value. The Group
is committed to acquire 80% ownership in 1997. The Group's share of ME Holding's
income, net of goodwill amortization, was $4 million, $2 million and $1 million
in 1996, 1995 and 1994.
F-13
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS
(8) LONG-TERM DEBT
At December 28, 1996 and December 30, 1995, long-term debt consisting of a
portion of PKS' notes to former stockholders which have been allocated to the
Group and the Diversified Group and convertible debentures is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------------------ ----- -----
<S> <C> <C>
9.6%-11.1% Notes to former stockholders, 1999-2001........................................ $ 2 $ 3
6.25%-8.75% Convertible debentures, 2002-2006............................................. 10 8
--- ---
12 11
Less current portion...................................................................... -- (2)
--- ---
$ 12 $ 9
--- ---
--- ---
</TABLE>
The convertible debentures are convertible during October of the fifth year
preceding their maturity date. Each annual series may be redeemed in its
entirety prior to the due date except during the conversion period. Debentures
were converted into 59,935 and 12,594 shares of Class C Stock in 1995 and 1994,
respectively. As part of the exchange offer completed prior to the MFS Spin-off,
all holders of 1990 and 1991 debentures converted their debentures into Class C
Stock and Class D Stock. At December 28, 1996, 436,833 shares of Class C Stock
are reserved for future conversions.
Scheduled maturities of long-term debt through 2001 are as follows (in
millions): 1997--$-; 1998--$-; 1999--$1; 2000--$1 and $- in 2001.
(9) INCOME TAXES
An analysis of the (provision) benefit for income taxes relating to earnings
for the three years ended December 28, 1996 follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1996 1995 1994
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Current:
U.S. federal................................................................... $ (62) $ (58) $ (33)
Foreign........................................................................ (5) 4 (8)
State.......................................................................... (11) (6) (1)
--- --- ---
(78) (60) (42)
Deferred:
U.S. federal................................................................... 7 6 --
Foreign........................................................................ (3) (7) 1
State.......................................................................... 2 1 2
--- --- ---
6 -- 3
--- --- ---
$ (72) $ (60) $ (39)
--- --- ---
--- --- ---
</TABLE>
F-14
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES (CONTINUED)
The United States and foreign components of earnings, for tax reporting
purposes, before income taxes follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1996 1995 1994
- -------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
United States................................................................... $ 155 $ 159 $ 101
Foreign......................................................................... 25 5 15
--------- --------- ---------
$ 180 $ 164 $ 116
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the actual (provision) benefit for income taxes and the
tax computed by applying the U.S. federal rate (35%) to the earnings before
income taxes for the three years ended December 28, 1996 follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1996 1995 1994
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Computed tax at statutory rate................................................... $ (63) $ (57) $ (41)
State income taxes............................................................... (6) (8) (3)
Prior year tax adjustments....................................................... (4) 5 3
Other............................................................................ 1 -- 2
--- --- ---
$ (72) $ (60) $ (39)
--- --- ---
--- --- ---
</TABLE>
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries, are not expected to be material.
The components of the net deferred tax assets for the years ended December
28, 1996 and December 30, 1995 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------------------ ----- -----
<S> <C> <C>
Deferred tax assets:
Construction accounting................................................................. $ 15 $ 3
Investments in construction joint ventures.............................................. 30 28
Insurance claims........................................................................ 32 32
Compensation--retirement benefits....................................................... 6 4
Other................................................................................... 10 7
--- ---
Total deferred tax assets................................................................. 93 74
Deferred tax liabilities:
Investments in securities............................................................... 7 8
Other................................................................................... 20 7
--- ---
Total deferred tax liabilities............................................................ 27 15
--- ---
Net deferred tax assets................................................................... $ 66 $ 59
--- ---
--- ---
</TABLE>
No valuation allowance has been recorded relating to the deferred tax assets
because they are realizable under the tax sharing policy of PKS.
F-15
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) EMPLOYEE BENEFIT PLANS
The Group makes contributions, based on collective bargaining agreements
related to its construction operations, to several multi-employer union pension
plans. These contributions are included in the cost of revenue. Under federal
law, the Group may be liable for a portion of future plan deficiencies; however,
there are no known deficiencies.
The Group also had a long-term incentive plan, stock appreciation rights,
for certain employees. The plan concluded in 1994. The expense related to this
plan was $1 million in 1994. Substantially all employees of the Group are
covered under the Group's profit sharing plans. The expense related to these
plans was $3 million in 1996 and 1995 and $1 million in 1994.
(11) STOCKHOLDERS' EQUITY
Ownership of the Class C Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which restrict the
employees from transferring the stock. PKS is generally committed to purchase
all Class C Stock at the amount computed pursuant to the Certificate of
Incorporation. Issuances and repurchases of common shares, including
conversions, for the three years ended December 28, 1996 were as follows:
<TABLE>
<CAPTION>
CLASS C
STOCK
----------
<S> <C>
Shares issued in 1994...................................................................... 1,018,144
Shares repurchased in 1994................................................................. 2,427,186
Shares issued in 1995...................................................................... 1,021,875
Shares repurchased in 1995................................................................. 6,228,934
Shares issued in 1996...................................................................... 896,640
Shares repurchased in 1996................................................................. 770,368
</TABLE>
F-16
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(12) INDUSTRY AND GEOGRAPHIC DATA
The Group's operations are primarily conducted in one business segment;
construction contracting. The following is derived from geographic information
in the PKS consolidated financial statements as it relates to the Group.
<TABLE>
<CAPTION>
GEOGRAPHIC DATA (DOLLARS IN MILLIONS) 1996 1995 1994
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenue:
United States...................................................................... $ 2,000 $ 2,007 $ 1,915
Canada............................................................................. 175 237 214
Other.............................................................................. 111 86 46
--------- --------- ---------
$ 2,286 $ 2,330 $ 2,175
--------- --------- ---------
--------- --------- ---------
Operating earnings:
United States...................................................................... $ 84 $ 70 $ 45
Canada............................................................................. 7 7 14
Other.............................................................................. 14 10 --
--------- --------- ---------
$ 105 $ 87 $ 59
--------- --------- ---------
--------- --------- ---------
Identifiable assets:
United States...................................................................... $ 924 $ 867 $ 834
Canada............................................................................. 90 90 102
Other.............................................................................. 22 20 27
--------- --------- ---------
$ 1,036 $ 977 $ 963
--------- --------- ---------
--------- --------- ---------
</TABLE>
(13) RELATED PARTY TRANSACTION
The Group performs certain mine management services for the Diversified
Group. The income from these services was $37 million in 1996, $30 million in
1995 and $29 million in 1994 and is recorded in other income in the statements
of earnings.
(14) OTHER MATTERS
In October 1996, the PKS Board of Directors directed management to pursue a
listing of PKS Class D Stock on a major securities exchange or the Nasdaq
National Market as soon as practical during 1998. The Board does not foresee
circumstances under which PKS would list the Class D Stock prior to 1998. The
Board believes that a listing will provide PKS with a capital structure more
suitable for the further development of the Diversified Group's business plan.
It would also provide liquidity for Class D shareholders without impairing PKS'
capital base.
The Board's action does not ensure that a listing of Class D Stock will
occur in 1998, or any time. The Board could delay or abandon plans to list the
stock if it determined that such action would be in the best interests of all
PKS' shareholders. In addition, PKS' ability to list Class D Stock will be
subject to factors beyond its control, including the laws, regulations, and
listing eligibility criteria in effect at the time a listing is sought, as well
as stock market conditions at the time. Furthermore, the Board might decide to
couple the listing of Class D Stock with a public offering of newly issued Class
D shares in order to raise additional capital for the Diversified Group. Such an
offering could delay or alter the listing plan.
F-17
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(14) OTHER MATTERS (CONTINUED)
Class C shareholders are currently able to convert their shares into Class D
Stock pursuant to PKS' Certificate of Incorporation. If such a listing occurs,
Class C shareholders will continue to be able to convert their shares to Class D
Stock.
In June 1995, the Group exchanged its interest in a wholly owned subsidiary
involved in gold mining activities for 4,000,000 common shares of Kinross Gold
Corporation, a publicly traded corporation. The Group recognized a $21 million
pre-tax gain on the exchange based on the difference between the book value of
the subsidiary and the fair market value of the Kinross stock on the date of the
transaction.
In September 1995, the PKS Board of Directors approved a plan to make a
tax-free distribution of its entire ownership interest in MFS Communications
Company, Inc. to the Class D stockholders (the "Spin-off") effective September
30, 1995.
PKS completed an exchange offer prior to the Spin-off whereby 4,000,000
shares of Class C Stock were exchanged for 1,666,384 shares of Class D Stock on
terms similar to those upon which Class C Stock can be converted into Class D
Stock during the annual conversion period provided for in PKS' Certificate of
Incorporation. The conversion ratio used in the exchange was calculated using
final 1994 stock prices adjusted for 1995 dividends.
The Group is involved in various lawsuits and claims incidental to its
business. Management believes that any resulting liability, beyond that
provided, should not materially affect the Group's financial position, future
results of operations or future cash flows.
The Group leases various buildings and equipment under both operating and
capital leases. Minimum rental payments on buildings and equipment subject to
noncancellable operating leases during the next 24 years aggregate $10 million.
It is customary in the Group's industry to use various financial instruments
in the normal course of business. These instruments include items such as
letters of credit. Letters of credit are conditional commitments issued on
behalf of the Group in accordance with specified terms and conditions. The Group
has informal arrangements with a number of banks to provide such commitments. As
of December 28, 1996, the Group had outstanding letters of credit of
approximately $101 million.
(15) SUBSEQUENT EVENTS
In January 1997, approximately 1.7 million shares of Class C Stock, with a
redemption value of $71 million, were converted into approximately 1.3 million
shares of Class D Stock.
On March 26, 1997, a Group-sponsored joint venture was awarded a $1.3
billion contract to reconstruct Interstate I-15 through the Salt Lake City
region. The project is being undertaken in preparation for the 2002 Olympic
Games. The Group's share of this project is approximately $700 million.
F-18
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS AMOUNTS
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO END OF
(DOLLARS IN MILLIONS) OF PERIOD EXPENSES RESERVES OTHER PERIOD
- ------------------------------------------------------------- ------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1996
Allowance for doubtful trade accounts........................ $ 10 $ 12 $ (5) $ -- $ 17
Reserves:
Insurance claims........................................... 79 22 (20) -- 81
Year ended December 30, 1995
Allowance for doubtful trade accounts........................ $ 7 $ 5 $ (2) $ -- $ 10
Reserves:
Insurance claims........................................... 73 18 (14) 2 79
Year ended December 31, 1994
Allowance for doubtful trade accounts........................ $ 5 $ 4 $ (2) $ -- $ 7
Reserves:
Insurance claims........................................... 65 19 (11) -- 73
</TABLE>
F-19
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(UNAUDITED)
(DOLLARS IN
MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenue..................................................................................... $ 1,047 $ 1,072
Cost of Revenue............................................................................. (942) (989)
--------- ---------
105 83
General and Administrative Expenses......................................................... (64) (59)
--------- ---------
Operating Earnings.......................................................................... 41 24
Other Income (Expense):
Investment Income, net.................................................................... 8 8
Interest Expense, net..................................................................... (1) (2)
Other, net................................................................................ 35 29
--------- ---------
42 35
--------- ---------
Earnings Before Income Taxes................................................................ 83 59
Provision for Income Taxes.................................................................. (33) (23)
--------- ---------
Net Earnings................................................................................ $ 50 $ 36
--------- ---------
--------- ---------
Primary Earnings per Share.................................................................. $ 5.34 $ 3.46
--------- ---------
--------- ---------
Fully Diluted Earnings per Share............................................................ $ 5.13 $ 3.36
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
F-20
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------------------
<S> <C>
(UNAUDITED)
(DOLLARS IN MILLIONS)
ASSETS
Current Assets:
Cash and cash equivalents................................................................. $ 127
Marketable securities..................................................................... 33
Receivables, less allowance of $15........................................................ 336
Costs and earnings in excess of billings on uncompleted contracts......................... 95
Investment in construction joint ventures................................................. 113
Recoverable income taxes.................................................................. 18
Deferred income taxes..................................................................... 69
Other..................................................................................... 16
------
Total Current Assets...................................................................... 807
Property, Plant and Equipment, less accumulated depreciation and amortization of $426..... 201
Investments............................................................................... 87
Other Assets.............................................................................. 22
------
$ 1,117
------
------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, including retainage of $35.............................................. $ 173
Current portion of long-term debt......................................................... 2
Accrued construction costs and billings in excess of revenue on uncompleted contracts..... 180
Accrued insurance costs................................................................... 85
Other..................................................................................... 43
------
Total Current Liabilities................................................................. 483
Long-Term Debt, less current portion...................................................... 16
Other Liabilities......................................................................... 59
Stockholders' Equity (Redeemable common stock, $404 million aggregate redemption value):
Common equity............................................................................. 572
Net unrealized holding loss............................................................... (7)
Foreign currency adjustment............................................................... (6)
------
Total Stockholders' Equity................................................................ 559
------
$ 1,117
------
------
</TABLE>
See accompanying notes to condensed financial statements.
F-21
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
<S> <C> <C>
1997 1996
--------- -----
<CAPTION>
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash flows from operations:
Net cash provided by operations.............................................................. $ 37 $ 73
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities.................................. 44 67
Purchases of marketable securities........................................................... (22) (57)
Proceeds from sales of property, plant and equipment......................................... 25 16
Acquisitions and investments, net............................................................ (18) (3)
Capital expenditures......................................................................... (62) (36)
--------- ---
Net cash used in investing activities...................................................... (33) (13)
Cash flows from financing activities:
Proceeds from long-term debt borrowings...................................................... 2 --
Payments on long-term debt, including current portion........................................ -- (2)
Net change in short-term borrowings.......................................................... -- (45)
Issuance of common stock..................................................................... 34 27
Repurchases of common stock.................................................................. (1) (4)
Dividends paid............................................................................... (13) (12)
Exchange of Class B&C Stock for Class D Stock, net........................................... (72) (19)
--------- ---
Net cash used in financing activities...................................................... (50) (55)
--------- ---
Net change in cash and cash equivalents.................................................... (46) 5
Cash and cash equivalents at beginning of period............................................... 173 94
--------- ---
Cash and cash equivalents at end of period..................................................... $ 127 $ 99
--------- ---
--------- ---
</TABLE>
See accompanying notes to condensed financial statements.
F-22
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial statements contained herein are unaudited and have been
prepared using the historical amounts included in the Peter Kiewit Sons', Inc.
("PKS") consolidated condensed financial statements. The Group's accounting
policies and certain other disclosures are set forth in the notes to the
financial statements contained in PKS' Annual Report on Form 10-K as an exhibit
for the year ended December 28, 1996.
Although the financial statements of PKS' Construction & Mining Group and
Diversified Group separately report the assets, liabilities and stockholders'
equity of PKS attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by such attribution.
Holders of Class C Stock and Class D Stock are stockholders of PKS. Accordingly,
the PKS consolidated condensed financial statements and related notes as well as
those of the Kiewit Diversified Group should be read in conjunction with these
financial statements.
Receivables at June 30, 1997 include approximately $72 million of retainage
on uncompleted projects, the majority of which is expected to be collected
within one year. Included in the retainage amount is $32 million of securities
which are being held by owners of various construction projects in lieu of
retainage.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
Where appropriate, items within the condensed financial statements have been
reclassified from the previous periods to conform to current year presentation.
2. EARNINGS PER SHARE:
Primary earnings per share of common stock have been computed using the
weighted average number of shares outstanding during each period. In addition,
fully diluted earnings per share reflect the dilutive effect of convertible
debentures. The numbers of shares used in computing earnings per share were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
<S> <C> <C>
1997 1996
---------- ------------
Primary............................................................ 9,301,036 10,353,305
Fully Diluted...................................................... 9,737,869 10,712,305
</TABLE>
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share". The
statement establishes standards for computing and presenting earnings per share
and requires the restatement of prior period earnings per share data presented.
This statement is effective for financial statements issued for periods ending
after December 15, 1997 and earlier application is not permitted. Basic and
diluted earnings per share, as defined in SFAS No. 128, are not expected to vary
significantly from the primary and fully diluted earnings per share shown on the
statements of earnings.
F-23
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARIZED FINANCIAL INFORMATION:
The Group's 50% portion of PKS' corporate assets and liabilities and related
transactions, which are not separately identified with the ongoing operations of
the Construction & Mining Group or the Diversified Group, and items attributable
to the Group are as follows:
<TABLE>
<CAPTION>
JUNE 30,
(DOLLARS IN MILLIONS) 1997
- -------------------------------------------------------------------------- ---------------------
<S> <C>
Cash and marketable securities............................................ $ 11
Property, plant and equipment, net........................................ 5
Other assets.............................................................. 2
---
Total Assets............................................................ $ 18
---
---
Accounts payable.......................................................... $ 2
Long-term debt, including current portion................................. 11
---
Total Liabilities....................................................... $ 13
---
---
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
<S> <C> <C>
1997 1996
----- -----
Other expense, net........................................................... $ (1) $ (1)
</TABLE>
Corporate general and administrative costs have been allocated to the Group.
These allocations were less than $1 million for the six months ended June 30,
1997 and 1996.
Mine management income from the Diversified Group was $16 million and $15
million for the six months ended June 30, 1997 and 1996.
4. ACQUISITIONS:
On April 18, 1997, the Group and a partner each invested $15 million to
acquire a 96% interest in Oak Mountain Energy L.L.C. ("Oak Mountain"). Oak
Mountain then acquired the existing assets of an underground coal mine in
Alabama for approximately $18 million and assumed approximately $14 million of
related liabilities. Oak Mountain intends to use the remaining cash and $30
million of nonrecourse bank borrowings to retire the existing debt and further
develop and modernize the mine. Oak Mountain's results are consolidated with
those of the Group on a pro-rata basis since the date of acquisition. The coal
mine's results of operations prior to the acquisition were not significant
relative to the Group's results.
5. OTHER MATTERS:
In October 1996, the PKS Board of Directors (the "Board") directed
management to pursue a listing of Class D Stock as a way to address certain
issues created by the PKS' two-class capital stock structure and the need to
attract and retain the best management for the PKS' businesses. During the
course of its examination of the consequences of a listing of Class D Stock,
management concluded that a listing of Class D Stock would not adequately
address these issues, and instead began to study a separation of the
Construction and Mining Group and the Diversified Group. At the regular meeting
of the Board on July 23, 1997, management submitted to the Board for
consideration a proposal for separation of the
F-24
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER MATTERS: (CONTINUED)
Construction and Mining Group and the Diversified Group on substantially the
terms eventually approved by the Board. At a special meeting on August 14, 1997,
the Board approved management's proposal.
The separation of the Construction and Mining Group and the Diversified
Group would be contingent upon the ratification of the separation by a majority
of both Class C and Class D shareholders present at a shareholders meeting and
the receipt by PKS of an Internal Revenue Service ruling or other assurance
acceptable to the Board that the separation would be tax-free to U.S.
shareholders. The restructuring is currently anticipated to occur during the
second quarter of 1998. Under management's proposal, the Diversified Group will
not seek to list its stock for public trading on a national securities exchange
until it raises capital through a public equity offering or desires to have a
listed equity security available for acquisitions. The Board will retain the
right, even if the stockholders ratify the proposal and favorable tax treatment
is satisfied, to abandon, defer or modify the proposal if it believes that it
would be in the best interests of all stockholders.
The Group is involved in various lawsuits, claims and regulatory proceedings
incidential to its business. Management believes that any resulting liability,
beyond that provided, should not materially affect the Group's financial
position, future results of operations or future cash flows.
F-25
<PAGE>
INDEX TO PRO FORMA INFORMATION
<TABLE>
<S> <C>
Report of Independent Accountants for Peter Kiewit Sons', Inc. and Subsidiaries...... F-28
Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma Consolidated Condensed Statements
of Earnings........................................................................ F-29
Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma Consolidated Condensed Balance
Sheets............................................................................. F-31
Report of Independent Accountants for Kiewit Construction Group F-36
Kiewit Construction Group Pro Forma Condensed Statements of Earnings F-37
Kiewit Construction Group Pro Forma Condensed Balance Sheets......................... F-39
</TABLE>
F-26
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro forma financial information of Peter Kiewit Sons', Inc. ("PKS") to
be renamed Diversified Holdings, Inc. after the Transaction, and the
Construction Group, to be operated by PKS Holdings, Inc. after the Transaction,
respectively, has been prepared to give effect, as further described below, to
the Transaction. The pro forma financial information assumes, in two separate
scenarios, that 1.5 million (Scenario 1) and 3 million (Scenario 2) shares of
Class C Stock will be converted in the 1997 Conversion Period as described
herein. Scenario 1 reflects an estimate of the number of shares of Class C Stock
to be tendered in the Transaction. Scenario 2 is set forth to illustrate the
impact of the tender of Class C shares equal to the maximum number of shares PKS
will allow to be exchanged.
The pro forma condensed statements of earnings for the six months ended June
30, 1997 and for the year ended December 28, 1996 of PKS and the Construction
Group assume that the Transaction is consummated on December 29, 1996 and
December 31, 1995, respectively. The condensed balance sheets of PKS and the
Construction Group as of June 30, 1997 assume that the Transaction is
consummated as of such date.
The pro forma financial information is not intended to reflect results of
operations or the financial position of PKS and the Construction Group which
actually would have resulted had the Transaction been effected on the dates
indicated. Moreover, the pro forma information is not intended to be indicative
of future results of operations or financial position of PKS and the
Construction Group.
The pro forma financial information should be read in conjunction with PKS'
and the Construction Group's historical financial statements, and the notes
thereto, contained in PKS' Annual Report on Form 10-K for the year ended
December 28, 1996 and selected exhibits thereto and Quarterly Report on Form
10-Q for the quarter ended June 30, and selected exhibits thereto, all of which
are contained elsewhere herein or incorporated herein by reference.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have examined the pro forma adjustments reflecting the transactions
described in the accompanying notes and the application of those adjustments to
the historical amounts in the accompanying pro forma consolidated condensed
statements of earnings of Peter Kiewit Sons', Inc. and Subsidiaries for the year
ended December 28, 1996. The historical consolidated condensed statements of
earnings are derived from the historical financial statements of Peter Kiewit
Sons', Inc. and Subsidiaries, which were audited by us and incorporated by
reference herein. Such pro forma adjustments are based upon management's
assumptions described in the accompanying notes. Our examination was made in
accordance with standards established by the American Institute of Certified
Public Accountants and, accordingly, included such procedures as we considered
necessary in the circumstances.
In addition, we have reviewed the related pro forma adjustments and the
application of those adjustments to the historical amounts in the accompanying
pro forma consolidated condensed balance sheets of Peter Kiewit Sons', Inc. and
Subsidiaries as of June 30, 1997 and the pro forma consolidated condensed
statements of earnings for the six months then ended. The historical
consolidated condensed financial statements are derived from the historical
financial statements of Peter Kiewit Sons', Inc. and Subsidiaries, which were
reviewed by us, incorporated herein by reference. Such pro forma adjustments are
based upon management's assumptions described in the accompanying notes. Our
review was made in accordance with standards established by the American
Institute of Certified Public Accountants.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transactions occurred at an earlier date. However, the pro forma consolidated
condensed financial statements are not necessarily indicative of the results of
operations or related effects on financial position that would have been
attained had the above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the accompanying notes, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
columns reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma consolidated condensed statements
of earnings for the year ended December 28, 1996.
A review is substantially less in scope than an audit, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion on the pro forma
adjustments or the application of such adjustments to the pro forma consolidated
condensed balance sheets as of June 30, 1997, and the pro forma consolidated
condensed statements of earnings for the six months then ended. Based on our
review, however, nothing came to our attention that caused us to believe that
management's assumptions do not provide a reasonable basis for presenting the
significant effects directly attributable to the above-mentioned transactions
described in the accompanying notes, that the related pro forma adjustments do
not give appropriate effect to those assumptions, or that the pro forma columns
do not reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma consolidated condensed balance
sheets as of June 30, 1997 and the pro forma consolidated condensed statements
of earnings for the six months then ended.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
October 9, 1997
F-28
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED DECEMBER 28, 1996
AND SIX MONTHS ENDED JUNE 30, 1997
(SCENARIO 1 ASSUMING 1.5 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED JUNE
FISCAL YEAR ENDED DECEMBER 28, 1996 30, 1997
------------------------------------------------------------------------------------ ----------
SEPARATE DECONSOLIDATE DIVEST OTHER PRO
HISTORICAL PKS HOLDINGS C-TEC ENERGY ADJUSTMENTS FORMA HISTORICAL
---------- ------------- --------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenue........................ $ 2,904 $ (2,286) $ (367) $ -- $ 34(a) $ 285 $ 1,381
Cost of Revenue................ (2,412) 2,064 250 -- (36)(a) (134) (1,143)
---------- ------------- ----- ----- ----- ---------- ----------
492 (222) (117) -- (2) 151 238
General and Administrative
Expenses..................... (260) 117 86 1 (37)(a) (93) (153)
---------- ------------- ----- ----- ----- ---------- ----------
Operating Earnings............. 232 (105) (31) 1 (39) 58 85
Other Income (Expense):
Equity Earnings, net......... 12 (8) (4) (14) -- (14) 20
Investment Income, net....... 72 (13) (14) (2) 2(b) 45 27
Interest Expense, net........ (37) 4 28 -- (5) (20)
Other, net................... 26 (58) 5 (2) 39(a) 10 20
---------- ------------- ----- ----- ----- ---------- ----------
73 (75) 15 (18) 41 36 47
---------- ------------- ----- ----- ----- ---------- ----------
Earnings before Income Taxes
and Minority Interest in Net
Losses of Subsidiaries....... 305 (180) (16) (17) 2 94 132
Provision for Income Taxes..... (84) 72 14 9 (1)(c) 10 (50)
Minority Interest in Net Losses
of Subsidiaries.............. -- -- 2 -- 2 9
---------- ------------- ----- ----- ----- ---------- ----------
Net Earnings................... $ 221 $ (108) $ -- $ (8) $ 1 $ 106 $ 91
---------- ------------- ----- ----- ----- ---------- ----------
---------- ------------- ----- ----- ----- ---------- ----------
Earnings Attributable to:
Class C Stock $ 108 $ -- $ 50
---------- ---------- ----------
---------- ---------- ----------
Class D Stock................ $ 113 $ 106 $ 104
---------- ---------- ----------
---------- ---------- ----------
Earnings Per Share:
Class C Stock
Primary.................... $ 10.13 $ -- $ 5.34
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............. $ 9.82 $ -- $ 5.13
---------- ---------- ----------
---------- ---------- ----------
Class D Stock
Primary.................... $ 4.85 $ 3.68 $ 1.67
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............. $ 4.85 $ 3.67 $ 1.67
---------- ---------- ----------
---------- ---------- ----------
Weighted Average Shares
Outstanding:
Class C Stock
Primary.................... 10,655,886 -- 9,307,834
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............. 11,026,045 -- 9,744,667
---------- ---------- ----------
---------- ---------- ----------
Class D Stock
Primary.................... 23,263,688 28,929,498 24,544,153
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............. 23,273,775 28,939,585 24,544,153
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
SEPARATE DECONSOLIDATE DIVEST OTHER PRO
PKS HOLDINGS C-TEC ENERGY ADJUSTMENTS FORMA
------------- --------------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue........................ $ (1,047) $ (194) $ -- $ 21(a) $ 161
Cost of Revenue................ 942 139 -- (22)(a) (84)
------------- ----- --- --- ----------
(105) (55) -- (1) 77
General and Administrative
Expenses..................... 64 64 -- (16)(a) (41)
------------- ----- --- --- ----------
Operating Earnings............. (41) 9 -- (17) 36
Other Income (Expense):
Equity Earnings, net......... (2) (9) (21) -- (12)
Investment Income, net....... (6) (5) -- 2(b) 18
Interest Expense, net........ 1 12 -- -- (7)
Other, net................... (35) -- -- 17(a) 2
------------- ----- --- --- ----------
(42) (2) (21) 19 1
------------- ----- --- --- ----------
Earnings before Income Taxes
and Minority Interest in Net
Losses of Subsidiaries....... (83) 7 (21) 2 37
Provision for Income Taxes..... 33 -- 9 (1)(c) (9)
Minority Interest in Net Losses
of Subsidiaries.............. -- (7) -- -- 2
------------- ----- --- --- ----------
Net Earnings................... $ (50) $ -- $ (12) $ 1 $ 30
------------- ----- --- --- ----------
------------- ----- --- --- ----------
Earnings Attributable to:
Class C Stock $ --
----------
----------
Class D Stock................ $ 30
----------
----------
Earnings Per Share:
Class C Stock
Primary.................... $ --
----------
----------
Fully diluted.............. $ --
----------
----------
Class D Stock
Primary.................... $ .99
----------
----------
Fully diluted.............. $ .99
----------
----------
Weighted Average Shares
Outstanding:
Class C Stock
Primary.................... --
----------
----------
Fully diluted.............. --
----------
----------
Class D Stock
Primary.................... 30,403,638
----------
----------
Fully diluted.............. 30,403,638
----------
----------
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
condensed financial statements.
F-29
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED DECEMBER 28, 1996
AND SIX MONTHS ENDED JUNE 30, 1997
(SCENARIO 2 ASSUMING 3 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED JUNE
FISCAL YEAR ENDED DECEMBER 28, 1996 30, 1997
---------------------------------------------------------------------------------- ----------
SEPARATE
PKS DECONSOLIDATE DIVEST OTHER PRO
HISTORICAL HOLDINGS C-TEC ENERGY ADJUSTMENTS FORMA HISTORICAL
---------- ----------- --------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenue.......................... $ 2,904 $ (2,286) $ (367) $ -- $ 34(a) $ 285 $ 1,381
Cost of Revenue.................. (2,412) 2,064 250 -- (36 (a) (134) (1,143)
---------- ----------- ----- ----------- --- ---------- ----------
492 (222) (117) -- (2) 151 238
General and Administrative
Expenses....................... (260) 117 86 1 (37 (a) (93) (153)
---------- ----------- ----- ----------- --- ---------- ----------
Operating Earnings............... 232 (105) (31) 1 (39) 58 85
Other Income (Expense):
Equity Earnings, net........... 12 (8) (4) (14) -- (14) 20
Investment Income, net......... 72 (13) (14) (2) 5(b) 48 27
Interest Expense, net.......... (37) 4 28 -- -- (5) (20)
Other, net..................... 26 (58) 5 (2) 39(a) 10 20
---------- ----------- ----- ----------- --- ---------- ----------
73 (75) 15 (18) 44 39 47
---------- ----------- ----- ----------- --- ---------- ----------
Earnings before Income Taxes and
Minority Interest in Net Losses
of Subsidiaries................ 305 (180) (16) (17) 5 97 132
Provision for Income Taxes....... (84) 72 14 9 (2)(c) 9 (50)
Minority Interest in Net Losses
of Subsidiaries................ -- -- 2 -- -- 2 9
---------- ----------- ----- ----------- --- ---------- ----------
Net Earnings..................... $ 221 $ (108) $ -- $ (8) $ 3 $ 108 $ 91
---------- ----------- ----- ----------- --- ---------- ----------
---------- ----------- ----- ----------- --- ---------- ----------
Earnings Attributable to:
Class C Stock.................. $ 108 $ -- $ 50
---------- ---------- ----------
---------- ---------- ----------
Class D Stock.................. $ 113 $ 108 $ 41
---------- ---------- ----------
---------- ---------- ----------
Earnings Per Share:
Class C Stock
Primary...................... $ 10.13 $ -- $ 5.34
---------- ---------- ----------
---------- ---------- ----------
Fully diluted................ $ 9.82 $ -- $ 5.13
---------- ---------- ----------
---------- ---------- ----------
Class D Stock
Primary...................... $ 4.85 $ 3.65 $ 1.67
---------- ---------- ----------
---------- ---------- ----------
Fully diluted................ $ 4.85 $ 3.65 $ 1.67
---------- ---------- ----------
---------- ---------- ----------
Weighted Average Shares
Outstanding:
Class C Stock
Primary...................... 10,655,886 -- 9,307,834
---------- ---------- ----------
---------- ---------- ----------
Fully diluted................ 11,026,045 -- 9,744,667
---------- ---------- ----------
---------- ---------- ----------
Class D Stock
Primary...................... 23,263,688 29,553,645 24,544,153
---------- ---------- ----------
---------- ---------- ----------
Fully diluted................ 23,273,775 29,563,732 24,544,153
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
SEPARATE
PKS DECONSOLIDATE DIVEST OTHER PRO
HOLDINGS C-TEC ENERGY ADJUSTMENTS FORMA
----------- --------------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue.......................... $ (1,047) $ (194) $ -- $ 21(a) $ 161
Cost of Revenue.................. 942 139 -- (22 (a) (84)
----------- ----- ----------- --- ----------
(105) (55) -- (1) 77
General and Administrative
Expenses....................... 64 64 -- (16 (a) (41)
----------- ----- ----------- --- ----------
Operating Earnings............... (41) 9 -- (17) 36
Other Income (Expense):
Equity Earnings, net........... (2) (9) (21) -- (12)
Investment Income, net......... (6) (5) -- 3(b) 19
Interest Expense, net.......... 1 12 -- -- (7)
Other, net..................... (35) -- -- 17(a) 2
----------- ----- ----------- --- ----------
(42) (2) (21) 20 2
----------- ----- ----------- --- ----------
Earnings before Income Taxes and
Minority Interest in Net Losses
of Subsidiaries................ (83) 7 (21) 3 38
Provision for Income Taxes....... 33 -- .9 (1)(c) (9)
Minority Interest in Net Losses
of Subsidiaries................ -- (7) -- -- 2
----------- ----- ----------- --- ----------
Net Earnings..................... $ (50) $ -- $ (12) $ 2 $ 31
----------- ----- ----------- --- ----------
----------- ----- ----------- --- ----------
Earnings Attributable to:
Class C Stock.................. $ --
----------
----------
Class D Stock.................. $ 31
----------
----------
Earnings Per Share:
Class C Stock
Primary...................... $ --
----------
----------
Fully diluted................ $ --
----------
----------
Class D Stock
Primary...................... $ 1.00
----------
----------
Fully diluted................ $ 1.00
----------
----------
Weighted Average Shares
Outstanding:
Class C Stock
Primary...................... --
----------
----------
Fully diluted................ --
----------
----------
Class D Stock
Primary...................... 31,172,030
----------
----------
Fully diluted................ 31,172,030
----------
----------
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
condensed financial statements.
F-30
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
(SCENARIO 1 ASSUMING 1.5 MILLION SHARES OF CLASS C STOCK
CONVERTED INTO CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
<TABLE>
<CAPTION>
SEPARATE DECONSOLIDATE DIVEST OTHER
HISTORICAL PKS HOLDINGS C-TEC ENERGY ADJUSTMENTS
----------- --------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 388 $ (127) $ (58) $ 1,133 $ 60(a)
125(b)
Marketable securities.......................... 368 (33) (4) -- --
Restricted securities.......................... 24 -- -- (3) --
Receivables, net............................... 421 (336) (51) -- 12(c)
Costs and earnings in excess of billings on --
uncompleted contracts........................ 95 (95) -- --
Investment in construction joint ventures...... 113 (113) -- -- --
Deferred income taxes.......................... 65 (69) (10) -- 14(c)
Other.......................................... 50 (34) (12) -- 11(c)
----------- ------- ----- ----------- -----
Total Current Assets......................... 1,524 (807) (135) 1,130 222
Property, Plant and Equipment, net............... 872 (201) (495) -- --
Investments...................................... 946 (87) (82) (662) --
Intangible Assets, net........................... 393 (22) (348) -- (2)(c)
Net Assets of C-TEC.............................. -- -- 347 -- --
Other Assets..................................... 70 -- (26) -- 2(c)
----------- ------- ----- ----------- -----
$ 3,805 $ (1,117) $ (739) $ 468 $ 222
----------- ------- ----- ----------- -----
----------- ------- ----- ----------- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $ 227 $ (173) $ (36) $ -- $ 12(c)
10(d)
Current portion of long-term debt:
Telecommunications........................... 11 -- (11) -- --
Other........................................ 3 (2) -- -- --
Accrued costs and billings in excess of revenue --
on uncompleted contracts..................... 193 (180) (13) --
Accrued insurance costs........................ 85 (85) -- -- --
Income taxes payable........................... -- -- -- 190 11(c)
(4)(e)
Deferred income taxes.......................... -- -- -- -- 14(c)
10(f)
Other.......................................... 142 (43) (66) -- --
----------- ------- ----- ----------- -----
Total Current Liabilities.................... 661 (483) (126) 190 53
Long-term Debt, less current portion:
Telecommunications............................. 244 -- (244) -- --
Other.......................................... 149 (16) -- -- --
Deferred Income Taxes............................ 227 8 (99) (26) --
Retirement Benefits.............................. 47 -- (2) -- --
Accrued Reclamation Costs........................ 102 (1) -- -- --
Other Liabilities................................ 231 (66) (52) -- --
Minority Interest................................ 218 -- (216) -- --
Stockholders' Equity:
Preferred stock................................ -- -- -- -- --
Common stock
Class C shares outstanding; historical-- --
10,093,635 pro forma--0.................... 1 (1) -- --
Class D shares outstanding; historical-- --
24,575,825 pro forma--27,981,816........... 1 -- -- --
Class R shares outstanding; historical--0, --
pro forma--7,224,374....................... -- -- -- --
Additional paid-in capital..................... 273 (117) -- 60(a)
125(b)
101(g)
Foreign currency adjustment.................... (8) 6 -- -- --
Net unrealized holding gains................... 10 7 -- -- --
Retained earnings.............................. 1,649 (454) -- 304 (10)(d)
4(e)
(10)(f)
(101)(g)
----------- ------- ----- ----------- -----
Total Stockholders' Equity....................... 1,926 (559) -- 304 169
----------- ------- ----- ----------- -----
$ 3,805 $ (1,117) $ (739) $ 468 $ 222
----------- ------- ----- ----------- -----
----------- ------- ----- ----------- -----
<CAPTION>
PRO
FORMA
-----------
<S> <C>
Current Assets:
Cash and cash equivalents...................... $ 1,521
Marketable securities.......................... 331
Restricted securities.......................... 21
Receivables, net............................... 46
Costs and earnings in excess of billings on
uncompleted contracts........................ --
Investment in construction joint ventures...... --
Deferred income taxes.......................... --
Other.......................................... 15
-----------
Total Current Assets......................... 1,934
Property, Plant and Equipment, net............... 176
Investments...................................... 115
Intangible Assets, net........................... 21
Net Assets of C-TEC.............................. 347
Other Assets..................................... 46
-----------
$ 2,639
-----------
-----------
LIA
Current Liabilities:
Accounts payable............................... $ 40
Current portion of long-term debt:
Telecommunications........................... --
Other........................................ 1
Accrued costs and billings in excess of revenue
on uncompleted contracts..................... --
Accrued insurance costs........................ --
Income taxes payable........................... 197
Deferred income taxes.......................... 24
Other.......................................... 33
-----------
Total Current Liabilities.................... 295
Long-term Debt, less current portion:
Telecommunications............................. --
Other.......................................... 133
Deferred Income Taxes............................ 110
Retirement Benefits.............................. 45
Accrued Reclamation Costs........................ 101
Other Liabilities................................ 113
Minority Interest................................ 2
Stockholders' Equity:
Preferred stock................................ --
Common stock
Class C shares outstanding; historical--
10,093,635 pro forma--0.................... --
Class D shares outstanding; historical--
24,575,825 pro forma--27,981,816........... 1
Class R shares outstanding; historical--0,
pro forma--7,224,374....................... --
Additional paid-in capital..................... 442
Foreign currency adjustment.................... (2)
Net unrealized holding gains................... 17
Retained earnings.............................. 1,382
-----------
Total Stockholders' Equity....................... 1,840
-----------
$ 2,639
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
condensed financial statement.
F-31
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
(SCENARIO 2 ASSUMING 3 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
<TABLE>
<CAPTION>
SEPARATE DECONSOLIDATE DIVEST OTHER
HISTORICAL PKS HOLDINGS C-TEC ENERGY ADJUSTMENTS
----------- --------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 388 $ (127) $ (58) $ 1,133 $ 120(a)
125(b)
Marketable securities.......................... 368 (33) (4) --
Restricted securities.......................... 24 -- -- (3) --
Receivables, net............................... 421 (336) (51) -- 12(c)
Costs and earnings in excess of billings on
uncompleted contracts........................ 95 (95) -- -- --
Investment in construction joint ventures...... 113 (113) -- -- --
Deferred income taxes.......................... 65 (69) (10) -- 14(c)
Other.......................................... 50 (34) (12) -- 11(c)
----------- ------- ----- ----------- -----
Total Current Assets......................... 1,524 (807) (135) 1,130 282
Property, Plant and Equipment, net............... 872 (201) (495) -- --
Investments...................................... 946 (87) (82) (662) --
Intangible Assets, net........................... 393 (22) (348) -- (2)(c)
Net Assets of C-TEC.............................. -- -- 347 -- --
Other Assets..................................... 70 -- (26) -- 2(c)
----------- ------- ----- ----------- -----
$ 3,805 $ (1,117) $ (739) $ 468 $ 282
----------- ------- ----- ----------- -----
----------- ------- ----- ----------- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $ 227 $ (173) $ (36) $ -- $ 12(c)
10(d)
Current portion of long-term debt:
Telecommunications........................... 11 -- (11) -- --
Other........................................ 3 (2) -- -- --
Accrued costs and billings in excess of revenue
on uncompleted contracts..................... 193 (180) (13) -- --
Accrued insurance costs........................ 85 (85) -- -- --
Income taxes payable........................... -- -- -- 190 11(c)
(4)(e)
Deferred income taxes.......................... -- -- -- -- 14(c)
10(f)
Other.......................................... 142 (43) (66) -- --
----------- ------- ----- ----------- -----
Total Current Liabilities.................... 661 (483) (126) 190 53
Long-term Debt, less current portion:
Telecommunications............................. 244 -- (244) -- --
Other.......................................... 149 (16) -- -- --
Deferred Income Taxes............................ 227 8 (99) (26) --
Retirement Benefits.............................. 47 -- (2) -- --
Accrued Reclamation Costs........................ 102 (1) -- -- --
Other Liabilities................................ 231 (66) (52) -- --
Minority Interest................................ 218 -- (216) -- --
Stockholders' Equity:
Preferred stock................................ -- -- -- -- --
Common stock
Class C shares outstanding; historical--
10,093,635 pro forma--0.................... (1) (1) -- -- --
Class D shares outstanding; historical--
24,575,825 pro forma--29,087,807........... 1 (117) -- -- --
Class R shares outstanding; historical--0,
pro forma--6,024,374....................... -- -- -- -- --
Additional paid-in capital..................... 273 -- -- -- 120(a)
125(b)
84(g)
Foreign currency adjustment.................... (8) 6 -- -- --
Net unrealized holding gains................... 10 7 -- -- --
Retained earnings.............................. 1,649 (454) -- 304 (10)(d)
4(e)
(10)(f)
(84)(g)
----------- ------- ----- ----------- -----
Total Stockholders' Equity..................... 1,926 (559) -- 304 229
----------- ------- ----- ----------- -----
$ 3,805 $ (1,117) $ (739) $ 468 $ 282
----------- ------- ----- ----------- -----
----------- ------- ----- ----------- -----
<CAPTION>
PRO
FORMA
-----------
<S> <C>
Current Assets:
Cash and cash equivalents...................... $ 1,581
Marketable securities.......................... 331
Restricted securities.......................... 21
Receivables, net............................... 46
Costs and earnings in excess of billings on
uncompleted contracts........................ --
Investment in construction joint ventures...... --
Deferred income taxes.......................... --
Other.......................................... 15
-----------
Total Current Assets......................... 1,994
Property, Plant and Equipment, net............... 176
Investments...................................... 115
Intangible Assets, net........................... 21
Net Assets of C-TEC.............................. 347
Other Assets..................................... 46
-----------
$ 2,699
-----------
-----------
LIA
Current Liabilities:
Accounts payable............................... $ 40
Current portion of long-term debt:
Telecommunications........................... --
Other........................................ 1
Accrued costs and billings in excess of revenue
on uncompleted contracts..................... --
Accrued insurance costs........................ --
Income taxes payable........................... 197
Deferred income taxes.......................... 24
Other.......................................... 33
-----------
Total Current Liabilities.................... 295
Long-term Debt, less current portion:
Telecommunications............................. --
Other.......................................... 133
Deferred Income Taxes............................ 110
Retirement Benefits.............................. 45
Accrued Reclamation Costs........................ 101
Other Liabilities................................ 113
Minority Interest................................ 2
Stockholders' Equity:
Preferred stock................................ --
Common stock
Class C shares outstanding; historical--
10,093,635 pro forma--0.................... --
Class D shares outstanding; historical--
24,575,825 pro forma--29,087,807........... 1
Class R shares outstanding; historical--0,
pro forma--6,024,374....................... --
Additional paid-in capital..................... 485
Foreign currency adjustment.................... (2)
Net unrealized holding gains................... 17
Retained earnings.............................. 1,399
-----------
Total Stockholders' Equity..................... 1,900
-----------
$ 2,699
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
condensed financial statement.
F-32
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma consolidated condensed financial statements of
PKS ("the Company") are presented based upon the historical consolidated
financial statements and the notes thereto of PKS, as adjusted to remove the
earnings statement and the balance sheet accounts of PKS Holdings, Inc., to
reflect C-TEC Corporation ("C-TEC") as an equity method investment due to
C-TEC's restructuring which resulted in the Company owning less than 50% of the
voting rights in each of the three legal entities created, to reflect the
pending 1998 sale of PKS' energy investments to CalEnergy Company, Inc.
("CalEnergy"), and to give effect to certain other elements of the Transaction.
The proceeds from the CalEnergy transaction of $1.155 billion have been reduced
by $22 million for the assumed exercise of 1 million options and the funding of
energy joint venture costs through the date of the agreement. The pro forma
information assumes, in two separate scenarios, that 1.5 million (Scenario 1)
and 3 million (Scenario 2) shares of Class C Stock are converted into Class D
Stock in the 1997 Conversion Period. The PKS Board has limited to 3 million the
number of shares that can be converted during the 1997 Conversion Period. If the
number of shares of Class C Stock converted during the 1997 Conversion Period is
less than 1,500,000, the equity on the balance sheet of PKS would be less than
that described in Scenario 1. This difference would be determined by calculating
the product of (i) 1,500,000 less the number of shares converted and (ii) the
current Class C Stock price of $40.00 per share. In addition, PKS would also
have less cash in an amount equal to that described above and the earnings per
share of PKS would increase from that shown in Scenario 1 of the pro forma
presentation.
If the number of shares of Class C Stock converted during the 1997
Conversion Period is greater than 1,500,000 but less than the 3,000,000 share
Conversion Cap established by the PKS Board, the equity on the balance sheet
would be increased above that described in Scenario 1 but below that described
in Scenario 2. This increase in equity would be equal to the product of (i) the
number of shares converted less 1,500,000 and (ii) the current Class C Stock
price of $40.00 per share. In addition, PKS would also have more cash in an
amount equal to that described above and the earnings per share of the
Construction Group would decrease from that shown in Scenario 1 of the pro forma
presentation, but not above that reflected in Scenario 2 of the pro forma
presentation.
Such pro forma financial statements should be read in conjunction with the
separate historical consolidated financial statements and the notes thereto of
PKS, incorporated herein by reference. Such pro forma financial statements are
not necessarily indicative of the future results of operations or financial
position.
The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in PKS Holdings, Inc. to the Class
C Stockholders at a special meeting on August 14, 1997.
Completion of the Transaction has been assumed to be as of June 30, 1997 in
the pro forma consolidated condensed balance sheets and as of December 31, 1995
and December 29, 1996 in the pro forma consolidated condensed statements of
earnings for the year ended December 28, 1996 and the six months ended June 30,
1997, respectively.
The significant accounting policies followed by PKS, described in the notes
to its historical consolidated financial statements incorporated herein by
reference, have been used in preparing the accompanying pro forma consolidated
condensed financial statements.
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated condensed statements of
earnings for PKS have been adjusted to remove the earnings statement accounts of
PKS Holdings, Inc., to reflect C-TEC as an
F-33
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS (CONTINUED)
equity method investment, to remove the earnings statement accounts attributable
to PKS' investment in the energy assets due to the pending sale to CalEnergy and
to give effect to certain other elements of the Transaction. The adjustments
made in preparation of the PKS Pro Forma Consolidated Condensed Statements of
Earnings are described below:
(a) Adjustments made to reflect certain intercompany revenues and
expenses recognized between PKS Holdings, Inc. and PKS that had been
eliminated in the historical consolidated condensed statements of earnings.
The intercompany revenues and expenses primarily pertain to certain
construction work and coal mine management services performed by PKS
Holdings, Inc. for PKS eliminated in the consolidated results. This pro
forma presentation requires that these earnings statement items be
reestablished to properly reflect the separate operating results of PKS
Holdings, Inc. and PKS.
(b) Adjustments made to reflect an increase in interest income from the
cash and cash equivalents paid by PKS Holdings, Inc. upon conversion of 1.5
million shares of Class C Stock into Class D Stock in Scenario 1 and 3
million shares of Class C Stock into Class D Stock in Scenario 2. The
interest rate used to calculate the increase in interest income approximates
the average rate earned by the Company during the periods.
(c) Adjustments made to reflect the tax effect of the above adjustments.
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated balance sheet of PKS has
been adjusted to remove the balance sheet accounts of PKS Holdings, Inc., to
reflect C-TEC as an equity method investment, reflect the pro forma impact of
the pending sale of PKS' energy investments to CalEnergy and to give effect to
certain other elements of the Transaction. The adjustments made in preparation
of the PKS Pro Forma Consolidated Condensed Balance Sheets are described below:
(a) Adjustments made to reflect the increase in cash and cash equivalents as
the result of the conversion of 1.5 million (Scenario 1) and 3 million shares
(Scenario 2) of Class C Stock into Class D Stock at the June 30, 1997 Class C
Stock price of $40.00 per share.
(b) Adjustments made to reflect sale of Class D Stock to Messrs. Crowe and
Bradbury and the Expansion Plan Employees.
(c) Adjustments made to reflect certain reclassifications of account
balances when PKS Holdings, Inc. and C-TEC Corporation are removed from the
consolidated results of PKS and certain intercompany accounts between PKS
Holdings, Inc. and PKS that had been eliminated in the consolidated results.
(d) Adjustments made to record the accrual of certain estimated expenses,
including costs for the Canadian Class C shareholders of $5 million, the
modification of the conversion terms of the Debentures of $1 million, and legal
and other professional fees of $4 million, incurred as a result of the
Transaction. The majority of the legal and professional fees are expected to be
charged against earnings in 1997, with the remainder in 1998, as the services
are performed. The costs associated with arrangements for the Canadian
shareholders and the Debenture holders, which primarily include interest-free
loans, will be recorded in the periods in which the benefits of these
arrangements are provided.
(e) Adjustment to reflect the tax effect of the above adjustment.
(f) Adjustments made to record the accrual of certain estimated United
States Federal income taxes expected to be incurred as a result of the
Transaction.
F-34
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET PRO FORMA ADJUSTMENTS (CONTINUED)
(g) Adjustment made to record the estimated fair value of the right of the
Class R Common Stock to convert into Class D Stock at a fixed dollar discount to
the fair value of the Class D Stock. The maximum fixed dollar discount is $25.00
per share which assumes a fair value of the Class D Stock of $82.00 per share.
The fair value of the right of the Class R Common Stock to convert into Class D
Stock was estimated by calculating the present value, using a 10 percent
discount rate and an assumed fixed dollar discount of $25.00 per share, using
estimates of expected conversions in each of the next eight years when the
conversion conditions of the Class R Common Stock are met.
The Pro Forma shares outstanding at June 30, 1997 for Scenarios 1 and 2 are
calculated by multiplying the converted shares times the ratio of: the Class C
Stock Price divided by the Class D Stock Price at June 30, 1997 ($40.00/$54.25).
This product is then added to the historical shares outstanding and the shares
sold to Messrs. Crowe and Bradbury and the Expansion Plan Employees, aggregating
2,300,000 shares.
4. EARNINGS PER SHARE
Primary and fully diluted earnings per share of common stock have been
computed using the weighted average number of shares outstanding during each
period after giving effect to common stock equivalents and other dilutive
securities. For purposes of computing the weighted average number of shares
outstanding, it was assumed that the Class R Stock would be converted to Class D
Stock using a Conversion Value of $25 and a Trading Price of $82.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have examined the pro forma adjustments reflecting the transactions
described in the accompanying notes and the application of those adjustments to
the historical amounts in the accompanying pro forma condensed statements of
earnings of Kiewit Construction & Mining Group for the year ended December 28,
1996. The historical condensed statements of earnings are derived from the
historical financial statements of Kiewit Construction & Mining Group, which
were audited by us and included elsewhere herein. Such pro forma adjustments are
based upon management's assumptions described in the accompanying notes. Our
examination was made in accordance with standards established by the American
Institute of Certified Public Accountants and, accordingly, included such
procedures as we considered necessary in the circumstances.
In addition, we have reviewed the related pro forma adjustments and the
application of those adjustments to the historical amounts in the accompanying
pro forma condensed balance sheets of Kiewit Construction & Mining Group as of
June 30, 1997 and the pro forma condensed statements of earnings for the six
months then ended. The historical condensed financial statements are derived
from the historical financial statements of Kiewit Construction & Mining Group,
which were reviewed by us and included elsewhere herein. Such pro forma
adjustments are based upon management's assumptions described in the
accompanying notes. Our review was made in accordance with standards established
by the American Institute of Certified Public Accountants.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transactions occurred at an earlier date. However, the pro forma condensed
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the accompanying notes, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
columns reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma condensed statements of earnings
for the year ended December 28, 1996.
A review is substantially less in scope than an audit, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion on the pro forma
adjustments or the application of such adjustments to the pro forma condensed
balance sheet as of June 30, 1997 and the pro forma condensed statements of
earnings for the six months then ended. Based on our review, however, nothing
came to our attention that caused us to believe that management's assumptions do
not provide a reasonable basis for presenting the significant effects directly
attributable to the above-mentioned transactions described in the accompanying
notes, that the related pro forma adjustments do not give appropriate effect to
those assumptions, or that the pro forma columns do not reflect the proper
application of those adjustments to the historical financial statement amounts
in the pro forma condensed balance sheets as of June 30, 1997, and the pro forma
condensed statements of earnings for the six months then ended.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
October 9, 1997
F-36
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED DECEMBER 28, 1996
AND SIX MONTHS ENDED JUNE 30, 1997
(SCENARIO 1 ASSUMING 1.5 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
<TABLE>
<CAPTION>
(UNAUDITED)
FISCAL YEAR ENDED DECEMBER 28, 1996 SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER OTHER
ADJUSTMENTS PRO ADJUSTMENTS PRO
HISTORICAL (NOTE 2) FORMA HISTORICAL (NOTE 2) FORMA
------------- ------------- ------------ ------------ ------------- ------------
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $ 2,286 $ -- $ 2,286 $ 1,047 $ -- $ 1,047
Cost of Revenue................. (2,064) -- (2,064) (942) -- (942)
------------- ------ ------------ ------------ ------ ------------
222 -- 222 105 -- 105
General and Administrative
Expenses...................... (117) -- (117) (64) -- (64)
------------- ------ ------------ ------------ ------ ------------
Operating Earnings.............. 105 -- 105 41 -- 41
Other Income (Expense):
Investment Income............... 21 (2)(a) 19 8 (2)(a) 6
Interest Expense................ (4) -- (4) (1) -- (1)
Other, net...................... 58 -- 58 35 -- 35
------------- ------ ------------ ------------ ------ ------------
75 (2) 73 42 (2) 40
------------- ------ ------------ ------------ ------ ------------
Earnings before Income Taxes.... 180 (2) 178 83 (2) 81
(Provision) Benefit for Income
Taxes......................... (72) 1(b) (71) (33) 1(b) (32)
------------- ------ ------------ ------------ ------ ------------
Net Earnings.................... $ 108 $ (1) $ 107 $ 50 $ (1) $ 49
------------- ------ ------------ ------------ ------ ------------
------------- ------ ------------ ------------ ------ ------------
Primary Earnings Per Share...... $ 10.13 $ 11.21 $ 5.34 $ 5.92
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Fully Diluted Earnings Per
Share......................... $ 9.82 $ 11.21 $ 5.13 $ 5.92
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted Average Shares
Outstanding:
Primary......................... 10,655,886 9,526,045 9,307,834 8,244,667
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Fully Diluted................... 11,026,045 9,526,045 9,744,667 8,244,667
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
financial statements.
F-37
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED DECEMBER 28, 1996
AND SIX MONTHS ENDED JUNE 30, 1997
(SCENARIO 2 ASSUMING 3 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
<TABLE>
<CAPTION>
(UNAUDITED)
FISCAL YEAR ENDED DECEMBER 28, 1996 SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER OTHER
ADJUSTMENTS PRO ADJUSTMENTS PRO
HISTORICAL (NOTE 2) FORMA HISTORICAL (NOTE 2) FORMA
------------- ------------- ------------ ------------ ------------- ------------
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $ 2,286 $ -- $ 2,286 $ 1,047 $ -- $ 1,047
Cost of Revenue................. (2,064) -- (2,064) (942) -- (942)
------------- ------ ------------ ------------ ------ ------------
222 -- 222 105 -- 105
General and Administrative
Expenses...................... (117) -- (117) (64) -- (64)
------------- ------ ------------ ------------ ------ ------------
Operating Earnings.............. 105 -- 105 41 -- 41
Other Income (Expense):
Investment Income............... 21 (5)(a) 16 8 (3)(a) 5
Interest Expense................ (4) -- (4) (1) -- (1)
Other, net...................... 58 -- 58 35 -- 35
------------- ------ ------------ ------------ ------ ------------
75 (5) 70 42 (3) 39
------------- ------ ------------ ------------ ------ ------------
Earnings before Income Taxes.... 180 (5) 175 83 (3) 80
(Provision) Benefit for Income
Taxes......................... (72) 2(b) (70) (33) 1(b) (32)
------------- ------ ------------ ------------ ------ ------------
Net Earnings.................... $ 108 $ (3) $ 105 $ 50 $ (2) $ 48
------------- ------ ------------ ------------ ------ ------------
------------- ------ ------------ ------------ ------ ------------
Primary Earnings Per Share...... $ 10.13 $ 13.12 $ 5.34 $ 7.10
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Fully Diluted Earnings Per
Share......................... $ 9.82 $ 13.12 $ 5.13 $ 7.10
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted Average Shares
Outstanding:
Primary......................... 10,655,886 8,026,045 9,307,834 6,744,667
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Fully Diluted................... 11,026,045 8,026,045 9,744,667 6,744,667
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
financial statements.
F-38
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
(SCENARIO 1 ASSUMING 1.5 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL (NOTE 3) PRO FORMA
----------- --------------- -----------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
Current Assets:
Cash and cash equivalents........................................... $ 127 $ (60)(a) $ 67
Marketable securities............................................... 33 -- 33
Receivables, net.................................................... 336 -- 336
Costs and earnings in excess of billings on uncompleted contracts... 95 -- 95
Investment in construction joint ventures........................... 113 -- 113
Deferred income taxes............................................... 69 (2)(b) 67
Other............................................................... 34 1(c) 35
----------- --- -----------
Total Current Assets.............................................. 807 (61) 746
Property, Plant and Equipment, net.................................... 201 -- 201
Investments........................................................... 87 -- 87
Other Assets.......................................................... 22 -- 22
----------- --- -----------
$ 1,117 $ (61) $ 1,056
----------- --- -----------
----------- --- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 173 $ 3(d) $ 176
Accrued costs and billings in excess of revenue on uncompleted
contracts......................................................... 180 -- 180
Accrued insurance costs............................................. 85 -- 85
Other............................................................... 45 -- 45
----------- --- -----------
Total Current Liabilities......................................... 483 3 486
Long-term Debt, less current portion.................................. 16 (10)(e) 6
Other Liabilities..................................................... 59 -- 59
Stockholders' Equity:
(Class C shares outstanding; historical 10,093,635, pro forma
9,030,468)
Common equity....................................................... 572 (60)(a) 518
(2)(b)
1(c)
(3)(d)
10(e)
Foreign currency adjustment......................................... (6) -- (6)
Unrealized holding gain (loss)...................................... (7) -- (7)
----------- --- -----------
Total Stockholders' Equity........................................ 559 (54) 505
----------- --- -----------
$ 1,117 $ (61) $ 1,056
----------- --- -----------
----------- --- -----------
</TABLE>
The accompanying notes are an integral part of this pro forma condensed
financial statements.
F-39
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
(SCENARIO 2 ASSUMING 3 MILLION SHARES OF CLASS C STOCK CONVERTED INTO
CLASS D STOCK IN THE 1997 CONVERSION PERIOD)
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL (NOTE 3) PRO FORMA
----------- ------------- -------------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
Current Assets:
Cash and cash equivalents........................................... $ 127 $ (120)(a) $ 7
Marketable securities............................................... 33 -- 33
Receivables, net.................................................... 336 -- 336
Costs and earnings in excess of billings on uncompleted contracts... 95 -- 95
Investment in construction joint ventures........................... 113 -- 113
Deferred income taxes............................................... 69 (2)(b) 67
Other............................................................... 34 1(c) 35
----------- ----- -----
Total Current Assets.............................................. 807 (121) 686
Property, Plant and Equipment, net.................................... 201 -- 201
Investments........................................................... 87 -- 87
Other Assets.......................................................... 22 -- 22
----------- ----- -----
$ 1,117 $ (121) $ 996
----------- ----- -----
----------- ----- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 173 $ 3(d) $ 176
Accrued costs and billings in excess of revenue on uncompleted
contracts......................................................... 180 -- 180
Accrued insurance costs............................................. 85 -- 85
Other............................................................... 45 -- 45
----------- ----- -----
Total Current Liabilities......................................... 483 3 486
Long-term Debt, less current portion.................................. 16 (10)(e) 6
Other Liabilities..................................................... 59 -- 59
Stockholders' Equity:
Class C shares outstanding; historical 10,093,635; pro forma
7,530,468
Common equity....................................................... 572 (120)(a) 458
(2)(b)
1(c)
(3)(d)
10(e)
Foreign currency adjustment......................................... (6) -- (6)
Unrealized holding gain (loss)...................................... (7) -- (7)
----------- ----- -----
Total Stockholders' Equity........................................ 559 (114) 445
----------- ----- -----
$ 1,117 $ (121) $ 996
----------- ----- -----
----------- ----- -----
</TABLE>
The accompanying notes are an integral part of this pro forma condensed
financial statements.
F-40
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma condensed financial statements of Kiewit
Construction & Mining Group (the "Company") are presented based upon the
historical financial statements and the notes thereto of the Kiewit Construction
& Mining Group as adjusted to give effect to certain elements of the
Transaction. The pro forma information assumes, in two separate scenarios, that
1.5 million (Scenario 1) and 3 million (Scenario 2) shares of Class C Stock are
exchanged in the 1997 Conversion Period. The PKS Board has limited to 3 million
the number of shares that can be converted during the 1997 Conversion Period.
If the number of shares of Class C Stock converted during the 1997
Conversion Period is less than 1,500,000, the equity on the balance sheet of the
Construction Group would be greater than that described in Scenario 1. This
difference would be determined by calculating the product of (i) 1,500,000 less
the number of shares converted and (ii) the current Class C Stock price of
$40.00 per share. In addition, the Construction Group would also have some
combination of more cash and less debt in an amount equal to that described
above and the earnings per share of the Construction Group would decrease from
that shown in Scenario 1 of the pro forma presentation. The net impact of the
favorable combination of increased income and/or reduced interest expense
attributable to the smaller number of conversions would be more than offset by
the increased number of shares assumed to be outstanding in the pro forma
presentation.
If the number of shares of Class C Stock converted during the 1997
Conversion Period is greater than 1,500,000 but less than the 3,000,000 share
Conversion Cap established by the PKS Board, the equity on the balance sheet
would be reduced to a level below that described in Scenario 1 but above that
described in Scenario 2. This reduction in equity would be equal to the product
of (i) the number of shares converted less 1,500,000 and (ii) the current Class
C Stock price of $40.00 per share. In addition, the Construction Group would
also have some combination of less cash and additional debt in an amount equal
to that described above and the earnings per share of the Construction Group
would increase from that shown in Scenario 1 of the pro forma presentation, but
not above that reflected in Scenario 2 of the pro forma presentation. The net
impact of the unfavorable combination of decreased income and/or increased
interest expense attributable to the larger number of conversions would be more
than offset by the decreased number of shares assumed to be outstanding in the
pro forma presentation.
Such pro forma financial statements should be read in conjunction with the
separate historical financial statements and the notes thereto of Kiewit
Construction & Mining Group, included elsewhere herein. Such pro forma financial
statements are not necessarily indicative of the future results of operations or
financial position.
Completion of the Transaction has been assumed to be as of June 30, 1997 in
the pro forma condensed balance sheet and as of December 31, 1995 and December
29, 1996, in the pro forma condensed statements of earnings for the year ended
December 28, 1996 and the six months ended June 30, 1997, respectively.
The significant accounting policies followed by Kiewit Construction & Mining
Group, described in the notes to the historical financial statements included
elsewhere herein, have been used in preparing the accompanying pro forma
condensed financial statements.
F-41
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical statements of earnings for the
Company have been adjusted to give effect to certain elements of the
Transaction. The adjustments made in preparation of the Company's pro forma
statements of earnings are described below:
(a) Adjustments made to reflect the reduction in interest income from
the use of cash and cash equivalents paid to Peter Kiewit Sons', Inc. upon
exchange of 1.5 million shares of Class C Stock into Class D Stock in
Scenario 1 and 3 million shares of Class C Stock into Class D Stock in
Scenario 2. The interest rate used to calculate the reduction in interest
income approximates the average rate earned by the Company during the
periods.
As of December 30, 1995, December 29, 1996 and June 30, 1997 the
Construction Group had enough cash and cash equivalents, exclusive of
operating requirements, to fund the conversions. Therefore, the potential
borrowings have not been reflected in the Pro Forma Financial Statements.
The Construction Group has reflected a decrease in interest income from the
use of the funds to pay the conversions. The Group does not believe that the
difference between the decline in interest income and the interest expense
associated with potential borrowings would be material.
(b) Adjustments made to reflect tax effect of the above adjustments.
(c) No adjustment has been made for the decrease in interest expense due
to the assumed conversion of Class C Convertible Debentures into Class C
Stock as the adjustment is not significant.
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical balance sheet of the Company has been
adjusted to give effect to certain elements of the Transaction. The adjustments
made in preparation of the Company's pro forma condensed balance sheet are
described below:
(a) Adjustments made to reflect the decrease in cash and cash
equivalents as the result of the exchange of 1.5 million shares (Scenario 1)
and 3 million shares (Scenario 2) of Class C Stock at the June 30, 1997
Class C Stock Price of $40.00 per share.
(b) Adjustments to record the accrual of certain estimated United States
Federal income taxes expected to be incurred as a result of the Transaction.
(c) Adjustment to reflect the tax effect of adjustment (d) below.
(d) Adjustments made to record the accrual of certain estimated
expenses, including costs for the Canadian Class C Shareholders of $1
million, the modification of the conversion terms of the Debentures of $1
million, and legal and other professional fees of $1 million, incurred as a
result of the Transaction. The majority of the legal and professional fees
are expected to be charged against earnings in 1997, with the remainder in
1998, as the services are performed. The costs associated with arrangements
for the Canadian stockholders and the Debenture holders, which primarily
include interest-free loans, will be recorded in the periods in which the
benefits of these arrangements are provided.
(e) Adjustments made to reflect conversion of Class C Convertible
Debentures to Class C Stock.
F-42
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. EARNINGS PER SHARE
Primary and fully diluted earnings per share of common stock have been
computed using the weighted average number of shares outstanding during each
period after giving effect to common stock equivalents and other dilutive
securities.
F-43
<PAGE>
APPENDIX A
BUSINESS OF PKS HOLDINGS
CONSTRUCTION OPERATIONS
The Construction Group's business is conducted by operating subsidiaries of
KCG, which is a direct, wholly owned subsidiary of PKS. Prior to the Share
Exchange, PKS will contribute all of the capital stock of KCG to PKS Holdings,
and KCG will become a wholly owned subsidiary of PKS Holdings. Immediately
following the Transaction, PKS Holdings will be renamed "Peter Kiewit Sons',
Inc."
The Construction Group and its joint ventures perform construction services
for a broad range of public and private customers primarily in the United States
and Canada. PKS Holdings contract awards during 1996 were distributed among the
following construction markets: transportation (including highways, bridges,
airports, railroads, and mass transit)--45%, dams and reservoirs--17%,
commercial buildings--16%, sewage and waste disposal--12%, power, heat,
cooling--4%, water supply--2%, and mining-- 2%. Financial information about the
Construction Group's foreign and domestic operations is contained in Note 12 to
the Construction Group's financial statements.
The Construction Group primarily performs its services as a general
contractor. As a general contractor, the Construction Group is responsible for
the overall direction and management of construction projects and for completion
of each contract in accordance with terms, plans, and specifications. The
Construction Group plans and schedules the projects, procures materials, hires
workers as needed, and awards subcontracts. The Construction Group generally
requires performance and payment bonds or other assurances of operational
capability and financial capacity from its subcontractors.
CONTRACT TYPES. The Construction Group performs its construction work under
various types of contracts, including fixed unit or lump-sum price, guaranteed
maximum price, and cost-reimbursable contracts. Contracts are either
competitively bid and awarded or negotiated. The Construction Group's public
contracts generally provide for the payment of a fixed price for the work
performed. Profit on a fixed-price contract is realized on the difference
between the contract price and the actual cost of construction, and the
contractor bears the risk that it may not be able to perform all the work for
the specified amount. Construction contracts generally provide for progress
payments as work is completed, with a retainage to be paid when performance is
substantially complete. Construction contracts frequently contain penalties or
liquidated damages for late completion and infrequently provide bonuses for
early completion.
GOVERNMENT CONTRACTS. Public contracts accounted for 79% of the combined
prices of contracts awarded to the Construction Group during 1996. Most of these
contracts were awarded by government and quasi-government units under fixed
price contracts after competitive bidding. Most public contracts are subject to
termination at the election of the government. In the event of termination, the
contractor is entitled to receive the contract price on completed work and
payment of termination related costs.
BACKLOG. At the end of 1996, the Construction Group had backlog
(anticipated revenue from uncompleted contracts) of $2.3 billion, an increase
from $2.0 billion at the end of 1995. Of current backlog, $700 million is not
expected to be completed during 1997. In 1996 the Construction Group was low
bidder on 284 jobs with total contract prices of $1.8 billion, an average price
of $6.4 million per job. There were 15 new projects with contract prices over
$25 million, accounting for 45% of the successful bid volume.
COMPETITION. A contractor's competitive position is based primarily on its
prices for construction services and its reputation for quality, timeliness,
experience, and financial strength. The markets served by the Construction Group
are competitive and require substantial resources. The construction industry is
highly competitive and lacks firms with dominant market power. In 1996
ENGINEERING NEWS RECORD, a construction trade publication, ranked the
Construction Group as the 9th largest U.S. contractor in terms of 1995 revenue
and 11th largest in terms of 1995 contract awards. It ranked the Construction
Group first
A-1
<PAGE>
in the transportation market and first in the heavy construction category, in
terms of 1995 revenue. The U.S. Department of Commerce reports that the total
value of construction put in place in 1996 was $569 billion. The Construction
Group's U.S. revenues for the same period were $2.0 billion, or 0.4% of the
total domestic market.
JOINT VENTURES. The Construction Group frequently enters into joint
ventures to allocate efficiently expertise and resources among the venturers and
to spread risks associated with particular projects. In most joint ventures, if
one venturer is financially unable to bear its share of expenses, the other
venturers may be required to pay those costs. The Construction Group prefers to
act as the sponsor of its joint ventures. The sponsor generally provides the
project manager, the majority of venturer-provided personnel, and accounting and
other administrative support services. The joint venture generally reimburses
the sponsor for such personnel and services on a negotiated basis. The sponsor
is generally allocated a majority of the venture's profits and losses and
usually has a controlling vote in joint venture decision making. In 1996 the
Construction Group derived 75% of its joint venture revenue from sponsored joint
ventures and 25% from non-sponsored joint ventures. The Construction Group's
share of joint venture revenue accounted for 30% of its 1996 total revenue.
DEMAND. The volume and profitability of the Construction Group's
construction work depends to a significant extent upon the general state of the
economies of the United States and Canada, and the volume of work available to
contractors. Fluctuating demand cycles are typical of the industry, and such
cycles determine to a large extent the degree of competition for available
projects. The Construction Group's construction operations could be adversely
affected by labor stoppages or shortages, adverse weather conditions, shortages
of supplies, or governmental action. The volume of available government work is
affected by budgetary and political considerations. A significant decrease in
the amount of new government contracts, for whatever reasons, would have a
material adverse effect on the Construction Group.
LOCATIONS. The Construction Group structures its construction operations
around 19 principal operating offices located throughout the U.S. and Canada,
with headquarters in Omaha, Nebraska. Through its decentralized system of
management, the Construction Group has been able to quickly respond to changes
in the local markets. At the end of 1996, the Construction Group had current
projects in 32 states and 6 provinces. The Construction Group also participates
in the construction of geothermal power plants in the Philippines and Indonesia.
PROPERTIES. The Construction Group has 19 district offices, of which 15 are
in owned facilities and four are leased. The Construction Group owns or leases
numerous shops, equipment yards, storage facilities, warehouses, and
construction material quarries. Since construction projects are inherently
temporary and location-specific, the Construction Group owns approximately 800
portable offices, shops, and transport trailers. The Construction Group has a
large equipment fleet, including approximately 3,000 trucks, pickups, and
automobiles, and 1,500 heavy construction vehicles, such as graders, scrapers,
backhoes, and cranes.
MASS. ELECTRIC CONSTRUCTION CO. On July 1, 1997, Kiewit Construction
Company ("KCC") increased its ownership interest in ME Holding Inc. from 49% to
80%. ME Holding Inc. owns all of the outstanding shares of Mass. Electric
Construction Co., a national electric contracting firm. KCC purchased certain
shares from an individual shareholder for $4.6 million. In addition, ME Holding
Inc. paid $22.7 million in redemption of shares held by individuals, effectively
contracting the net worth of the company.
MINING AND MATERIALS OPERATIONS
Several of the Construction Group subsidiaries, primarily in Arizona and
Oregon, produce construction materials, including ready-mix concrete, asphalt,
sand and gravel. The Construction Group also has quarrying operations in New
Mexico and Wyoming, which produce landscaping materials and railroad
A-2
<PAGE>
ballast. Kiewit Mining Group, Inc., a subsidiary within the Construction Group,
provides mine management services to Kiewit Coal Properties, Inc., a subsidiary
within the Diversified Group.
OAK MOUNTAIN ENERGY L.L.C. Effective February 18, 1997, Kiewit Alabama
Mining Company (a wholly owned subsidiary of Kiewit Mining Group Inc.) ("Kiewit
Alabama") and Simba Group, Inc. (a subsidiary of Anker Coal Group, Inc.)
("Simba") formed Shelby Energy Group, L.L.C. ("Shelby"). Kiewit Alabama
contributed $10 million for its interest in Shelby. Kiewit Alabama and Simba
hold equal interests in Shelby, which in turn holds a 94% interest in Oak
Mountain Energy L.L.C. ("Oak Mountain"). Oak Mountain owns and operates an
underground coal mine near Pelham, Alabama, which principally serves Alabama
Power Company.
EMPLOYEES
As of December 31, 1996, the Construction Group employed approximately
11,700 employees.
PROPERTIES
The Construction Group considers its properties to be adequate for its
present and foreseeable requirements.
LEGAL PROCEEDINGS OF THE CONSTRUCTION GROUP
The Construction Group is party to many pending legal proceedings. It is not
believed that any resulting liabilities for legal proceedings, beyond amounts
reserved, will materially affect the financial condition, future results of
operations, or future cash flows of the Construction Group.
A-3
<PAGE>
APPENDIX B
BUSINESS OF DIVERSIFIED HOLDINGS
The Diversified Group engages in the information services,
telecommunications, coal mining and energy businesses, through ownership of
operating subsidiaries, joint venture investments and ownership of substantial
positions in public companies. The Diversified Group's information business is
conducted through PKSIS and its other businesses are conducted through
subsidiaries of KDG. For the 1996 fiscal year, the Diversified Group had
revenues of $652 million. Of those revenues, 6% were attributable to its
information services business, 56% were attributable to its telecommunications
business (giving effect to the consolidation of C-TEC's revenues) and 36% were
attributable to its coal mining business. In 1996, the Diversified Group did not
have significant revenues attributable to its energy business because revenues
from CalEnergy ($576 million in 1996), the Joint Venture Energy Projects and
Northern Electric plc are not consolidated with those of the Diversified Group.
Financial information about the Diversified Group's foreign and domestic
operations and industry segments is contained in Note 16 to the Diversified
Group's financial statements, which are part of Exhibit 99.B to Form 10-K of
Peter Kiewit Sons', Inc. which is incorporated by reference herein.
COAL MINING
KDG is engaged in coal mining through its subsidiary, KCP. KCP has a 50%
interest in three mines, which are operated by KCP. Decker Coal Company
("Decker") is a joint venture with Western Minerals, Inc., a subsidiary of The
RTZ Corporation PLC. Black Butte Coal Company ("Black Butte") is a joint venture
with Bitter Creek Coal Company, a subsidiary of Union Pacific Resources Group
Inc. Walnut Creek Mining Company ("Walnut Creek") is a general partnership with
Phillips Coal Company, a subsidiary of Phillips Petroleum Company. The Decker
Mine is located in southeastern Montana, the Black Butte Mine is in southwestern
Wyoming, and the Walnut Creek Mine is in east-central Texas.
PRODUCTION AND DISTRIBUTION. The coal mines use the surface mining method.
During surface mining operations, topsoil is removed and stored for later use in
land reclamation. After removal of topsoil, overburden in varying thicknesses is
stripped from above coal seams. Stripping operations are usually conducted by
means of large, earth-moving machines called draglines, or by fleets of trucks,
scrapers and power shovels. The exposed coal is fractured by blasting and is
loaded into haul trucks or onto overland conveyors for transportation to
processing and loading facilities. Coal delivered by rail from Decker originates
on the Burlington Northern Railroad. Coal delivered by rail from Black Butte
originates on the Union Pacific Railroad. Coal is also hauled by trucks from
Black Butte to the nearby Jim Bridger Power Plant. Coal is delivered by trucks
from Walnut Creek to the adjacent facilities of the Texas-New Mexico Power
Company.
CUSTOMERS. The coal is sold primarily to electric utilities, which burn
coal in order to produce steam to generate electricity. Approximately 92% of
sales are made under long-term contracts, and the remainder are made on the spot
market. Approximately 80%, 80%, and 71% of KCP's revenues in 1996, 1995, and
1994, respectively, were derived from long-term contracts with Commonwealth
Edison Company (with Decker and Black Butte) and The Detroit Edison Company
(with Decker). The primary customer of Walnut Creek is the Texas-New Mexico
Power Company.
CONTRACTS. Customers enter into long-term contracts for coal primarily to
secure a reliable source of supply at a predictable price. KCP's major long-term
contracts have remaining terms ranging from 1 to 31 years. A majority of KCP's
long-term contracts provide for periodic price adjustments. The price is
typically adjusted through the use of various indices for items such as
materials, supplies, and labor. Other portions of the price are adjusted for
changes in production taxes, royalties, and changes in cost due to new
legislation or regulation, and in most cases, such cost items are directly
passed through to the customer as incurred. In most cases the price is also
adjusted based on the heating content of the coal. These long-term contracts are
not subject to early termination or cancellation by customers without cause.
Decker has a sales contract with Detroit Edison Company which provides for
the delivery of a minimum of 42 million tons of low sulphur coal during the
period 1997 through 2005, with annual shipments ranging from 5.2 million tons in
1997 to 1.7 million tons in 2005.
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KCP and its mining ventures have entered into various agreements with
Commonwealth Edison Company ("Commonwealth") which stipulate delivery and
payment terms for the sale of coal. The agreements as amended provide for
delivery of 100 million tons during the period 1997 through 2014, with annual
shipments ranging from 1.8 million tons to 13.1 million tons. These deliveries
include 20 million tons of coal reserves previously sold to Commonwealth. Since
1993, the amended contract between Commonwealth and Black Butte provides that
Commonwealth's delivery commitments will be satisfied, not with coal produced
from the Black Butte mine, but with coal purchased from three unaffiliated mines
in the Powder River Basin of Wyoming. The contract amendment allows Black Butte
to purchase alternate source coal at a price below its production costs, and to
pass the cost savings through to Commonwealth while maintaining the profit
margins available under the original contract.
The contract between Walnut Creek and Texas-New Mexico Power Company
provides for delivery of between 42 and 90 million tons of coal during the
period 1989 through 2027. The actual tons provided will depend on the number of
power units constructed and operated by TNP. The maximum amount KCP is expecting
to ship in any one year is between 1.6 and 3.2 million tons.
KCP also has other sales commitments, including those with Sierra Pacific,
Idaho Power, Solvay Minerals, Pacific Power & Light, Minnesota Power, and
Mississippi Power, that provide for the delivery of approximately 18 million
tons through 2005.
COAL PRODUCTION. Coal production began at the Decker, Black Butte, and
Walnut Creek mines in 1972, 1979, and 1989, respectively. KCP's share of coal
mined in 1996 at the Decker, Black Butte, and Walnut Creek mines was 5.5, 0.9,
and 1.0 million tons, respectively.
REVENUE. KCP's total revenue in 1996 was $234 million. Revenue attributable
to the Decker, Black Butte, and Walnut Creek entities was $113 million, $101
million, and $18 million, respectively.
Under a 1992 mine management agreement, KCP pays a Construction Group
subsidiary an annual fee equal to 30% of KCP's adjusted operating income. The
fee in 1996 was $37 million.
BACKLOG. At the end of 1996, the backlog of coal to be sold under KCP's
long-term contracts was approximately $1.6 billion, based on December 1996
market prices. Of this amount, $206 million is expected to be sold in 1997.
RESERVES. At the end of 1996, KCP's share of assigned coal reserves at
Decker, Black Butte, and Walnut Creek was 118, 40, and 32 million tons,
respectively. Of these amounts, KCP's share of the committed reserves of Decker,
Black Butte, and Walnut Creek was 51.9, 3.6, and 23.8 million tons,
respectively. Assigned reserves represent coal which can be mined using KCP's
current mining practices. Committed reserves (excluding alternate source coal)
represent KCP's maximum contractual amounts. These coal reserve estimates
represent total proved and probable reserves.
LEASES. The coal reserves and deposits of the mines are held pursuant to
leases with the federal government through the Bureau of Land Management, with
two state governments (Montana and Wyoming), and with numerous private parties.
COMPETITION. The coal industry is highly competitive. KCP competes not only
with other domestic and foreign coal suppliers, some of whom are larger and have
greater capital resources than KCP, but also with alternative methods of
generating electricity and alternative energy sources. In 1995, KCP's production
represented 1.4% of total U.S. coal production. Demand for KCP's coal is
affected by economic, political and regulatory factors. For example, recent
"clean air" laws may stimulate demand for low sulphur coal. KCP's western coal
reserves generally have a low sulphur content (less than 1%) and are currently
useful principally as fuel for coal-fired steam-electric generating units.
KCP's sales of its western coal, like sales by other western coal producers,
typically provide for delivery to customers at the mine. A significant portion
of the customer's delivered cost of coal is attributable to transportation
costs. Most of the coal sold from KCP's western mines is currently shipped by
rail to utilities outside Montana and Wyoming. The Decker and Black Butte mines
are each served by a
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single railroad. Many of their western coal competitors are served by two
railroads and such competitors' customers often benefit from lower
transportation costs because of competition between railroads for coal hauling
business. Other western coal producers, particularly those in the Powder River
Basin of Wyoming, have lower stripping ratios (I.E., the amount of overburden
that must be removed in proportion to the amount of minable coal) than the Black
Butte and Decker mines, often resulting in lower comparative costs of
production. As a result, KCP's production costs per ton of coal at the Black
Butte and Decker mines can be as much as four and five times greater than
production costs of certain competitors. KCP's production cost disadvantage has
contributed to its agreement to amend its long-term contract with Commonwealth
Edison Company to provide for delivery of coal from alternate source mines
rather than from Black Butte. Because of these cost disadvantages, KCP does not
expect that it will be able to enter into long-term coal purchase contracts for
Black Butte and Decker production as the current long-term contracts expire. In
addition, these cost disadvantages may adversely affect KCP's ability to compete
for spot sales in the future.
ENVIRONMENTAL REGULATION. PKS is required to comply with various federal,
state and local laws and regulations concerning protection of the environment.
KCP's share of land reclamation expenses in 1996 was $5 million. KCP's share of
accrued estimated reclamation costs was $99 million at the end of 1996. PKS does
not expect to make significant capital expenditures for environmental compliance
in 1997. PKS believes its compliance with environmental protection and land
restoration laws will not affect its competitive position since its competitors
in the mining industry are similarly affected by such laws.
CALENERGY COMPANY, INC.
CalEnergy develops, owns, and operates electric power production facilities,
particularly those using geothermal resources, in the United States, the
Philippines, and Indonesia. In December 1996, CalEnergy and KDG acquired
Northern Electric plc, an English electric utility company. CalEnergy is a
Delaware corporation formed in 1971 and has its headquarters in Omaha, Nebraska.
CalEnergy common stock is traded on the New York, Pacific, and London Stock
Exchanges. In 1996, CalEnergy had revenue of $576 million and net income of $92
million. At the end of 1996, CalEnergy had total assets of $5.7 billion, debt of
$3.0 billion, and stockholders' equity of $881 million.
KIEWIT'S SHARE. At the end of 1996, KDG owned approximately 30% of the
common stock of CalEnergy. Under generally accepted accounting principles, an
investor owning between 20% and 50% of a company's equity, generally uses the
equity method. Under the equity method, KDG reports its proportionate share of
CalEnergy's earnings, even though it has received no dividends from CalEnergy.
KDG keeps track of the carrying value of its CalEnergy investment. "Carrying
value" is the purchase price of the investment, plus the investor's
proportionate share of the investee's earnings, less the amortized portion of
goodwill, less any dividends paid. KDG purchased most of its CalEnergy shares at
a premium over the book value of CalEnergy's underlying net assets. This premium
will be amortized over a period of 20 years. The current carrying value of KDG's
CalEnergy shares is $292 million.
AGREEMENT TO SELL CALENERGY INVESTMENT AND INTERESTS IN JOINT VENTURE ENERGY
PROJECTS. On September 10, 1997, KDG entered into the CalEnergy Agreement with
CalEnergy. Under the CalEnergy Agreement, CalEnergy agreed to acquire KDG's
entire ownership interest in the Joint Venture Energy Projects and to repurchase
KDG's entire ownership interest in CalEnergy's common stock.
KDG's current ownership interest in CalEnergy comprises 20,231,065 shares of
common stock (including KDG's options to acquire 1,000,000 shares of common
stock) which represent approximately 30% of CalEnergy's outstanding common
stock. The Joint Venture Energy Projects are comprised of the following
interests in each of the projects which KDG jointly owns with CalEnergy: the 45%
interest in the Mahanagdong project, the 35% interest in the Casecnan project,
the 47% interest in the Dieng project, the 44% interest in the Patuha project,
the 30% interest in the Bali project and the 30% interest in CE Electric UK plc
(the parent of Northern Electric plc). In addition, KDG has agreed to transfer
its 50% interests in
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all of the other power project opportunities developed under the international
joint venture agreement with CalEnergy.
The CalEnergy Agreement provides that CalEnergy will pay $1,155,000,000 for
KDG's ownership interests in the Joint Venture Energy Projects and the CalEnergy
common stock (subject to certain upward or downward adjustments not to exceed
$20 million). The CalEnergy Agreement also provides that KDG will generally have
no funding obligations with respect to the Joint Venture Energy Projects after
August 1, 1997. The acquisition has an outside closing date of February 20, 1998
and the CalEnergy Agreement contains no express closing conditions, although
CalEnergy has the right to terminate the CalEnergy Agreement upon the occurrence
of certain market events. If either party terminates the CalEnergy Agreement as
a result of a breach by the other party of its representations, warranties,
covenants or agreements under the CalEnergy Agreement, then the breaching party
must pay the other party a termination fee of $50 million.
Concurrently with the execution of the CalEnergy Agreement, CalEnergy and
KDG executed a Confidentiality, Standstill, and Noncompetition Agreement (the
"CSN Agreement") which will terminate if the CalEnergy Agreement were to be
terminated. The CSN Agreement provides that for the period commencing on the
date of the CalEnergy Agreement and ending three years from the date of the
Closing of the Acquisition, subject to exceptions provided therein, neither KDG
nor an affiliate of KDG shall, through subsidiaries or affiliates, participate
in the ownership, management, operation or control of any business that engages
in the operation, development, supply or distribution of electrical power
anywhere in the world, or engages in any business or activity that, through
subsidiaries or affiliates, competes with any business or activity presently
engaged in by CalEnergy. In addition, for the period commencing on the date of
the CalEnergy Agreement and ending five years from the date of the closing of
the acquisition, KDG shall not, and shall cause its affiliates not to, among
other things, unless and until KDG receives the prior written invitation or
approval of a majority of directors of CalEnergy, directly or indirectly (i)
acquire, agree to acquire or make any proposal to acquire any securities of
CalEnergy or any of its subsidiaries, (ii) seek or propose, or, as to any of the
following occurring prior to the closing under the CalEnergy Agreement, unless
approved by a majority of the current directors of CalEngery (excluding KDG's
designees), vote in favor of, any merger, consolidation, business combination,
tender or exchange offer, sale or purchase of assets or securities, dissolution,
liquidation, restructuring, recapitalization or similar transactions of or
involving CalEnergy or any of its subsidiaries, or (iii) otherwise act, alone or
in concert with others, to seek to control or influence, in any manner, the
management, board of directors or policies of CalEnergy or any of its
subsidiaries.
ACQUISITIONS. In the last two years, CalEnergy has made three significant
acquisitions, in addition to the recent $1.3 billion acquisition of Northern
Electric plc (described below). In January 1995, CalEnergy acquired Magma Power
Company ("Magma"), a publicly traded United States independent power producer,
for approximately $958 million. The Magma acquisition, combined with CalEnergy's
previously existing assets, made CalEnergy the largest independent geothermal
power producer in the world today (based on CalEnergy's estimate of electric
generating capacity in operation and under construction). In April 1996,
CalEnergy completed the buy-out for approximately $70 million of its partner's
interests in four electric generating plants in Southern California. In August
1996, CalEnergy acquired Falcon Seaboard Resources, Inc. for approximately $226
million, thereby acquiring significant ownership in three natural gas-fired
electric cogeneration facilities located in New York, Texas and Pennsylvania and
a related gas transmission pipeline.
POWER GENERATION PROJECTS. Power generation facilities are measured in
terms of megawatts (MW) of net electric generating capacity. Most of CalEnergy's
facilities are co-owned and CalEnergy's fractional ownership interest can be
expressed in terms of MWs. CalEnergy has projects in three stages: operational
(and managed by CalEnergy), under construction (and financed), and developmental
(with executed and awarded power sales contracts). CalEnergy owns (i) 1,527 MW
in 21 operating facilities with 3,510 MW of
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capacity, (ii) 131 MW in 4 projects under construction, with 335 MW of capacity
and (iii) 676 MW in 8 development stage projects, with 1,630 MW of capacity.
OPERATIONS--U.S. GEOTHERMAL PLANTS. CalEnergy operates several geothermal
power plants in Southern California, three in the Coso area and eight in the
Imperial Valley. CalEnergy has ownership interests of 46%, 48%, and 50% in the
three Coso plants. Following the 1996 acquisition of the remaining 50% interests
in four Imperial Valley projects for $70 million, CalEnergy is now the full
owner of the eight Imperial Valley projects. Operations of the Salton Sea Unit
IV in the Imperial Valley began in 1996, following completion of construction.
These twelve geothermal plants have certain common features. CalEnergy is
the operator of each plant. Each plant has a long-term contract to supply
electric power to Southern California Edison Company ("Edison"). The agreements
provide for both capacity payments and energy payments for a term of between 20
and 30 years. During the first ten years, energy payments are based on a pre-set
schedule. Thereafter, while the basis for the capacity payment remains the same,
the required energy payment is Edison's then-current published "avoided cost of
energy" as determined by the California Public Utility Commission. The initial
ten-year periods expire beginning in 1996 for the first unit of the first plant.
CalEnergy cannot predict the likely level of Edison's avoided cost of energy
prices at the expiration of the fixed-price periods, but it is currently
substantially below the current energy prices under CalEnergy's contracts.
CalEnergy also owns and operates two geothermal operating plants, one each
in Utah and Nevada.
OPERATIONS--U.S. GAS-FIRED PLANTS. In August 1996 CalEnergy completed the
acquisition of Falcon Seaboard Resources, Inc., including its ownership interest
in three operating gas-fired cogeneration plants located in New York, Texas and
Pennsylvania and a related natural gas pipeline, also located in New York, for a
cash purchase price of $226 million. The three cogeneration facilities total 520
MW in capacity and sell power under long-term power purchase agreements.
CalEnergy also owns and operates a 50 MW gas-fired cogeneration facility in
Yuma, Arizona.
OPERATIONS--PHILIPPINES GEOTHERMAL.
UPPER MAHIAO. Construction of the Upper Mahiao Project was completed in
June 1996. The project operating company is receiving full capacity payments
under the "take or pay" provisions of the contract pending completion by the
national power company of a full transmission line.
In 1994, construction began on the Upper Mahiao Project, a 119 gross MW
geothermal project on the Philippine island of Leyte. The project was built by
and is owned and operated by CE Cebu Geothermal Power Company, Inc. ("CE Cebu"),
a Philippine corporation owned by CalEnergy. The project will sell 100% of its
capacity on a "take-or-pay" basis to PNOC-Energy Development Corporation
("PNOC"), which will in turn sell the power to the National Power Corporation of
the Philippines ("NPC"), for distribution to the island of Cebu, located 40
miles west of Leyte. NPC is the government-owned and controlled corporation that
is the primary supplier of electricity in the Philippines. The project was
started by Magma, prior to its acquisition by CalEnergy. KDG has no separate
ownership interest in this project and the Construction Group was not involved
in construction.
The total project cost was $218 million. A consortium of international banks
provided approximately $162 million in project-financed construction loans,
supported by political risk insurance from the Export-Import Bank of the United
States ("Ex-Im Bank"). The construction loan is expected to be converted to a
term loan promptly after NPC completes the full capacity transmission line,
which is expected to occur in late 1997. The largest portion of the term loan
for the project will also be provided by Ex-Im Bank. CalEnergy's equity
contribution to the project is $56 million. Subject to the pledge of the project
company's stock to the lenders, CalEnergy has arranged for political risk
insurance of its equity investment through Overseas Private Investment
Corporation ("OPIC"). The financing is collateralized by all the assets of the
project.
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Under the terms of an energy conversion agreement (the "ECA"), executed in
September 1993, CE Cebu will own and operate the project for ten years, after
which the facility will be transferred to PNOC at no cost. The project is
located on land provided by PNOC at no cost. CE Cebu will take geothermal steam
and fluid, also provided by PNOC at no cost, and convert its thermal energy into
electrical energy to be sold to PNOC on a "take-or-pay" basis. Specifically,
PNOC will be obligated to pay for the electric capacity, even if PNOC is unable
to accept delivery of the electricity. PNOC will pay to CE Cebu a capacity fee
(which, at the plant's design capacity, is approximately 95% of total contract
revenues) and an energy fee based on the electricity actually delivered to PNOC
(approximately 5% of total contract revenues). The capacity fee serves to
recover the capital costs of the project, to recover fixed operating costs, and
to cover return on investment. The energy fee is designed to cover all variable
operating and maintenance costs of the power plant. Payments under the ECA will
be denominated in U.S. dollars, or computed in U.S. dollars and paid in
Philippine pesos at the then-current exchange rate, except for the energy fee,
which will be used to pay Philippine peso-denominated expenses. Significant
portions of the fees will be indexed to U.S. and Philippine inflation rates.
PNOC's obligations are supported by the Philippine government through a
performance undertaking.
MALITBOG. In 1994, CalEnergy started construction of the Malitbog Project,
a 216 net MW geothermal project consisting of three 72 net MW units, located on
the island of Leyte. The project is being built, and will be owned and operated
by Visayas Geothermal Power Company ("VGPC"), which is wholly owned by
CalEnergy. Unit I of the Malitbog facility was "deemed complete" by PNOC in July
1996, meaning that construction of the first 72 net MW unit was completed on
time but the required transmission line was not completed and provided to VGPC.
During deemed completion, PNOC is required to pay, and in fact has been paying,
capacity fees under the "take or pay" provisions of the contract. VGPC is
selling 100% of its capacity on substantially the same basis as described above
for the Upper Mahiao Project to PNOC, which will in turn sell the power to NPC.
This project was started by Magma, prior to its acquisition by CalEnergy. KDG
has no separate ownership interest in this project and the Construction Group
has not participated in construction.
The Malitbog Project has a total project cost of approximately $280 million,
including interest during construction and project contingency costs. A
consortium of international banks and OPIC have provided a total of $210 million
of construction and term loan facilities, the $135 million international bank
portion of which is supported by political risk insurance from OPIC. CalEnergy's
equity contribution to VGPC was $70 million. CalEnergy's equity participation is
covered by political risk insurance from OPIC.
Units II and III of the Malitbog Project are being constructed by Sumitomo
Corporation, of Japan, pursuant to a fixed-price, date-certain, turnkey supply
and construction contract. Commercial operation of Units II and III are
scheduled to commence in July 1997. The Malitbog ECA is similar to the Upper
Mahiao ECA described above. All facilities (Units I, II, and III) will be
transferred to PNOC ten years after commercial operations begin on Unit III.
OPERATIONS--ENGLAND.
See discussion under heading "International Energy--Northern Electric
Acquisition" below.
CONSTRUCTION--PHILIPPINES AND INDONESIA.
See discussion of the Mahanagdong, Casecnan, and Dieng projects under the
heading "International Energy" below.
GEOTHERMAL POWER PRODUCTION PROCESS. Until 1996, the majority of
CalEnergy's projects were geothermal projects. The following is a summary of the
geothermal power production process. First, the developer locates suitable
geothermal resources, drills test wells, secures permits, negotiates long-term
power contracts with an electric utility, and arranges financing. Second, the
project is constructed. Third, the facility is operated and maintained. Project
revenues from the sale of electricity are applied to operating costs, rent or
royalties, and principal and interest payments on debt incurred for acquisition
and
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construction costs. Geothermal resources suitable for commercial extraction
require an underground water reservoir heated to high temperatures. Production
wells are drilled to release the heated fluid under high pressure. Wells are
usually located within one or two miles of the power plant. From well heads,
fluid flows through pipelines to a series of separators where it is separated
into water, brine, and steam. The steam is passed through a turbine which drives
a generator to generate electricity. Once the steam has passed through the
turbine, it is then cooled and condensed back into water which is reinjected
through wells back into the geothermal reservoir. Under proper conditions, the
geothermal power is a renewable energy source, with minimal emissions compared
to fossil fuel power plants. The utilization of geothermal power is preferred by
certain governments in order to minimize the import (E.G., the Philippines), or
maximize the export (E.G., Indonesia) of hydrocarbons. Geothermal power
facilities presently enjoy federal tax benefits and favorable utility regulatory
treatment in the United States.
INTERNATIONAL ENERGY
KDG is an investor with CalEnergy in power projects in the Philippines and
Indonesia and in an electric utility company in England. In each case, KDG has a
direct equity interest and also benefits indirectly as a 30% stockholder in
CalEnergy.
KDG and CalEnergy have a joint venture agreement regarding international
energy projects. If both KDG and CalEnergy agree to participate in a project,
they will share equally development costs and equity required for financing the
project. On a project by project basis, CalEnergy will be the development
manager, managing partner and/or project operator. The agreement expires in
2001.
On September 10, 1997, KDG entered into the CalEnergy Agreement pursuant to
which KDG has agreed to sell to CalEnergy all of its interests in CalEnergy, the
Joint Venture Energy Projects, Northern Electric plc and the Joint Venture. See
"--CalEnergy Company, Inc."
MAHANAGDONG. In 1994 construction began on the Mahanagdong Project, a 165
gross MW geothermal project on the Philippine island of Leyte. The project will
be built, owned and operated by CE Luzon Geothermal Power Company, Inc. ("CE
Luzon"), a Philippine corporation that during construction is owned 50% by
CalEnergy and 50% by KDG. After construction, another industrial company has an
option to buy up to a 10% financial interest in CE Luzon. The project will sell
100% of its capacity on a "take-or-pay" basis to PNOC, which will in turn sell
the power to NPC, for distribution to the island of Leyte.
The total project cost is $320 million, including interest during
construction, project contingency costs and a debt service reserve fund. The
capital structure consists of a project financing construction and term loan of
$240 million provided by OPIC, Ex-Im Bank, and a consortium of international
banks, and approximately $80 million in equity contributions. KDG and CalEnergy
must make equity contributions of $40 million each. KDG and CalEnergy have
arranged for political risk insurance on their equity investments through OPIC.
Political risk insurance from Ex-Im Bank has been obtained for the commercial
lenders. The financing is collateralized by all of the assets of the project.
The project was constructed by the Construction Group under fixed-price,
date-certain, turnkey supply and construction contracts. Construction was
completed during the first half of 1997 and during "deemed completion" the
project is being paid capacity payments under the "take or pay" provisions of
its contract.
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The terms of an energy conversion agreement (the "ECA") are substantially
similar to those of the Upper Mahiao ECA, described above. The ECA provides for
an approximately three-year construction period and a ten-year operations
period. At the end of the operations period, the facility will be transferred to
PNOC at no cost. All of PNOC's obligations under the Mahanagdong ECA are
supported by the Philippine government through a performance undertaking. The
capacity fees are expected to be approximately 97% of total revenues at the
design capacity levels and the energy fees are expected to be approximately 3%
of total revenues.
CASECNAN. In November 1995, CE Casecnan Water and Energy Company, Inc., a
Philippine corporation ("CE Casecnan") started construction on a combined
irrigation and 150 gross MW hydroelectric power generation project (the
"Casecnan Project") located in the central part of the Philippine island of
Luzon. The project will include diversion structures in the Casecnan and Denip
Rivers that will divert water into a 14 mile long tunnel. The tunnel will
transfer the water from the Casecnan and Denip Rivers into the Pantabangan
Reservoir for irrigation and hydroelectric use in the Central Luzon area. An
underground powerhouse at the end of the water tunnel will house a power plant
with 150 MW capacity. A two mile long tailrace tunnel will deliver water from
the water tunnel and the new powerhouse to the Pantabangan Reservoir.
The project is being developed under a project agreement between CE Casecnan
and the National Irrigation Administration ("NIA"). CalEnergy and KDG have
minimum and maximum ownership interests in CE Casecnan of 35% to 50% each. Two
other Stockholders, who have no financial commitments and will not participate
in construction or operations, may receive interests of as much as 15% each,
depending on projected returns from the project.
In connection with financing the project, CE Casecnan issued bonds in the
aggregate amount of $371 million and received equity contributions of $62
million each from KDG and CalEnergy. KDG also holds $20 million of the project
bonds. Under the project agreement, CE Casecnan developed, financed, and is
constructing the project over an originally estimated approximate four-year
construction period, and will thereafter own and operate the project for a
20-year operations period. During the operating period, NIA is obligated to
accept all deliveries of water and energy, and NIA will pay the CE Casecnan a
guaranteed fee for the delivery of water and a guaranteed fee for the delivery
of electricity, regardless of the amount of water or electricity actually
delivered. In addition, NIA will pay a fee for all electricity delivered in
excess of a threshold amount. NIA will sell the electric energy it purchases to
NPC. All fees to be paid by NIA to CE Casecnan are payable in U.S. dollars. The
guaranteed fees for the delivery of water and energy are expected to provide
approximately 70% of CE Casecnan's revenues. At the end of the 20-year period,
the project will be transferred to NIA and NPC for no additional consideration
on an "as is" basis. The Philippine government has provided a performance
undertaking under which NIA's obligations under the project agreement are
guaranteed by the full faith and credit of the Philippine government.
The Casecnan Project was being constructed pursuant to a fixed-price,
date-certain, turnkey construction contract (the "Hanbo Contract") on a joint
and several basis by Hanbo Corporation ("Hanbo") and Hanbo Engineering and
Construction Co., Ltd. ("HECC"), both of which are South Korean corporations. As
of May 7, 1997, CE Casecnan terminated the Hanbo Contract due to defaults by
Hanbo and HECC including the insolvency of each such company. CE Casecnan
entered into a new turnkey engineering, procurement and construction contract to
complete the construction of the Casecnan project (the "Replacement Contract").
The work under the Replacement Contract will be conducted by a consortium of
contractors and subcontractors including Siemens A.G., Sulzer Hydro Ltd., Black
& Veatch and Colenco Power Engineering Ltd. and will be headed by Cooperativa
Muratori Cementisi CMC di Ravenna and Impressa Pizzarottie & C. Spa,
(collectively, the "Replacement Contractor").
In connection with the Hanbo Contract termination CE Casecnan tendered a
certificate of drawing to Korea First Bank ("KFB") under the irrevocable standby
letter of credit issued by KFB as security under the Hanbo Contract to pay for
certain transition costs and other presently ascertainable damages under the
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Hanbo Contract. As a result of KFB's dishonor of the draw request, CE Casecnan
filed an action in New York State Court. That Court granted CE Casecnan's
request for a temporary restraining order requiring KFB to deposit $79,329,000
the amount of the requested draw, in an interest bearing account with an
independent financial institution in the United States. KFB appealed this order,
but the appellate court denied KFB's appeal and on May 19, 1997, KFB transferred
funds in the amount of $79,329,000 to a segregated New York bank account
pursuant to the Court order. In August, the Court granted summary judgment in CE
Casecnan's favor, ruling that KFB had wrongfully dishonored the draw but KFB has
appealed this ruling.
On August 6, 1997, CE Casecnan announced that it has issued a notice to
proceed to the Replacement Contractor. The Replacement Contractor was already on
site and is expected to immediately fully mobilize and commence engineering,
procurement and construction work on the Casecnan Project. The receipt of the
letter of credit funds from KFB remains essential and CE Casecnan will continue
to press KFB to honor its clear obligations under the letter of credit and to
pursue Hanbo and KDB for any additional damages arising out of their actions to
date.
DIENG, PATUHA AND BALI. The Dieng, Patuha and Bali projects in Indonesia
represent ongoing, phased-in development and construction programs through the
year 2000 of 1,200 MW under contract, to be brought into commercial operation on
a modular basis as the steam fields are concurrently drilled and developed. On
June 12, 1997, CalEnergy announced that its special-purpose subsidiary, CE
Indonesia Funding Corp., entered into a $400 million revolving credit facility
(which is nonrecourse to the Company) to finance the development and
construction of the geothermal power facilities at the Dieng, Patuha and Bali
sites in Indonesia.
DIENG. Pursuant to the Dieng Joint Operating Contract and Energy Sales
Contract, CalEnergy and KDG intend to proceed on a modular basis with
construction of additional units to follow Dieng Unit I, resulting in an
aggregate first phase net capacity at this site of 215 MW. It is estimated that
the total project cost of these units will be approximately $450 million. The
next phase is expected to expand the total capacity to 400 MW. The cost of the
full Dieng Project is estimated to approximate $1 billion.
PATUHA. CalEnergy and KDG are also co-developing a geothermal power plant
in the Patuha geothermal field in Java, Indonesia (the "Patuha Project")
pursuant to a joint operation contract and an energy sales contract, each of
which contains terms substantially similar to those described above for the
Dieng Project. Patuha Power Ltd. intends to proceed on a modular basis similar
to the Dieng Project, with an aggregate capacity of up to 400 MW. The total cost
of the Patuha Project is estimated to be approximately $1 billion.
BALI. CalEnergy, KDG and PT Panutan Group, an Indonesian consortium of
energy, oil, gas and mining companies, have formed a joint venture to pursue the
development of geothermal resources in Bali (the"Bali Project"). The PT Panutan
Group is entitled to contribute up to 40% of the total equity and obtain up to
40% of the net profit of the Bali Project. The project company developing the
Bali Project has executed both a joint operation contract and an energy sales
contract with terms similar to those at Dieng and Patuha. Bali Energy Ltd.
intends to proceed on a modular basis similar to the Dieng Project, with an
aggregate capacity of up to 400 MW. It is estimated that the total cost of the
Bali Project will be approximately $1 billion.
IJEN. The Ijen Project is a new 400 MW development project with the same
ownership structure as the Bali Project. The joint operation contract, energy
sales contract and major permits currently are being negotiated.
RECENT INDONESIAN GOVERNMENTAL ANNOUNCEMENT REGARDING POWER PROJECTS IN
INDONESIA. On September 20, 1997, a Presidential Decree was issued in
Indonesia, providing for government action to the effect that, in order to
address certain recent fluctuations in the value of the Indonesian currency, the
start-up
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dates for a number of private power projects would be: (i) continued according
to their initial schedule (because construction process was underway), (ii)
postponed as to their start-up dates (because they are not yet in progress)
until economic conditions have recovered, or (iii) reviewed with a view to being
continued, postponed or rescheduled, depending on the status of those projects.
In the Decree, Dieng Units 1, 2 and 3 are approved to continue according to
their initial schedule; Patuha Unit 1 and Bali Units 1 and 2 are to receive
further review to determine whether or not they should be continued in
accordance with their initial schedule; and Bali Units 3 and 4, Patuha Units 2,
3 and 4 and Dieng Unit 4 are to be postponed for an unspecified period. In this
regard, it should be noted that contracts and government undertakings for the
Dieng, Patuha and Bali projects do not by their terms permit such delays by the
government and that political risk insurance coverage for its Indonesian
projects has been obtained. Moreover, since the Decree was issued, officials in
the Government of Indonesia have confirmed that the Indonesian government
intends to fully honor its contractual obligations and does not intend to impact
the schedule of any projects for which financing has already been arranged or on
which construction related or well drilling work has already commenced, and
since Patuha Unit 2 and all projects in the "future review category" meet one or
both of those standards, CalEnergy and KDG believe that the schedule for these
projects should not be delayed. CalEnergy and KDG do not believe that any delay
in the "postponed" category of projects will have a material adverse effect on
its planned operations in Indonesia, since all but one of these units were not
scheduled to commence construction until after 1998. CalEnergy and KDG believe
that, given Indonesia's demonstrated need for power and its emphasis on
diversifying fuel sources and maintaining sufficient amounts of oil for export,
projects are significantly advantaged by their indigenous geothermal fuel source
and will all proceed. However, until further information is made available by
the Indonesian government with respect to the projects that are under review or
postponed, no assurance can be given that such will be the case.
NORTHERN ELECTRIC ACQUISITION. In the fall of 1996, CalEnergy and KDG took
the first steps toward expanding their international power businesses beyond the
power generation business through a tender offer for Northern Electric plc by CE
Electric UK plc, which is 70% owned by CalEnergy and 30% owned by KDG. In
December, CE Electric acquired majority ownership of Northern Electric. The
total amount expected to be paid for all Northern Electric's shares is
approximately $1.32 billion. CE Electric expects to acquire all the shares by
the end of March 1997. As of March 1997, CalEnergy and KDG have made equity
contributions to CE Electric of $410 million and $176 million, respectively. The
remaining funds necessary to complete the acquisition will be provided under a
term loan and revolving credit facility.
Northern Electric is one of the twelve regional electricity companies
created by the privatization of the electricity industry in the United Kingdom
in 1990. Since the regional electric companies were privatized, all but one has
been acquired by companies, primarily from the United States, attracted both by
the regional electricity business and the strategic opportunity to participate
in a deregulated electricity market in advance of the coming deregulation of the
electricity distribution markets in the United States and worldwide. Northern
Electric is primarily engaged in the distribution and supply of electricity in
its authorized franchise area in northeast England. The area covers 5,560 square
miles with a population of 3.2 million people. The head office is at Newcastle
upon Tyne. For its fiscal year ended March 1996, Northern Electric had net
assets of $432 million (L276 million) and operating revenue of $1.4 billion
(L902 million).
As noted above, CalEnergy and KDG expect to learn much through Northern
Electric about deregulated power markets. Northern Electric provides expertise
in supply, distribution, and marketing in such markets. These capabilities may
provide CalEnergy and KDG with an early competitive advantage in preparing for
electricity deregulation in the United States and foreign markets. The
acquisition further diversifies CalEnergy and KDG's energy businesses in terms
of location, type, risks, and earnings streams.
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C-TEC CORPORATION
C-TEC is a diversified international telecommunications and high technology
company with interests in local telephone, long-distance telephone, cable
television, and engineering and communications services. C-TEC is a Pennsylvania
corporation and has its headquarters in Princeton, New Jersey. C-TEC common
stock is traded on the Nasdaq National Market and the Class B Stock is quoted on
Nasdaq and traded over the counter. In 1996 C-TEC had revenue of $367 million,
EBITDA (earnings before, interest, taxes, depreciation and amortization) of $134
million, and net income of $8 million. At year-end 1996, C-TEC had total assets
of $917 million, long-term debt of $205 million, and common stockholders' equity
of $377 million. The five operating divisions of C-TEC and their 1996 revenues
are: C-TEC Cable Systems ($160 million), Commonwealth Telephone Company ($139
million), Commonwealth Long Distance ($35 million), Commonwealth Communications
($29 million), and RCN Telecom Services ($4 million). On September 30, 1997,
C-TEC completed a tax-free restructuring that divided C-TEC into three public
companies. See "--C-TEC Restructuring."
KIEWIT'S SHARE. In 1993 KDG purchased a controlling interest in C-TEC.
Through a subsidiary, KDG owns 42% of the outstanding shares of C-TEC common
stock and 66% of the C-TEC Class B common stock. Holders of common stock are
entitled to one vote per share; holders of Class B stock are entitled to 15
votes per share. KDG thus owns 48% of the outstanding shares, but is entitled to
62% of the available votes. Since KDG has voting control, KDG must consolidate
C-TEC within its financial statements. On KDG's balance sheet, each asset and
liability of C-TEC is added to the similar items for the rest of KDG. The 52% of
C-TEC that it does not own is subtracted as a single item ("minority interest")
on KDG's balance sheet. KDG keeps track of the carrying value of its C-TEC
investment. "Carrying value" is the purchase price of shares plus the investor's
proportionate share of the investee's earnings less the amortized portion of
goodwill less any dividends paid. KDG's investment in C-TEC has a carrying value
of $355 million. The 1996 year-end public market value of KDG's 13.3 million
shares of C-TEC (at $23 5/8 per share of common and Class B stock) was $315
million.
C-TEC CABLE SYSTEMS. C-TEC Cable Systems is a cable television operator
with cable television systems located in New York, New Jersey, Michigan, and
Pennsylvania. The company owns and operates cable television systems serving
338,000 customers and is the majority owner and manager of cable television
systems with an additional 40,000 customers, ranking it among the top 25
multiple system operators in the United States. The company must periodically
seek renewal of franchise agreements from local government authorities. To date,
all of Cable Systems' franchises have been renewed or extended, generally at or
prior to their stated expirations and on acceptable terms. Competition for the
Cable Systems' services traditionally has come from providers of broadcast
television, video rentals, and direct broadcast satellite received on home
dishes. Future competition is expected from telephone companies.
COMMONWEALTH TELEPHONE COMPANY. Commonwealth Telephone Company is a
Pennsylvania public utility providing local telephone service to a 19 county,
5,067 square mile service territory in Pennsylvania. The telephone company
services 240,000 main access lines, an increase of 5.7% over 1995. The company
also provides network access, long distance, and billing and collection services
to interexchange carriers. The telephone company's business customer base is
diverse in size as well as industry, with very little concentration. The ten
largest business customers combined account for only 2.3% of revenue, with the
largest single customer accounting for only about 0.5%. The telephone company
sought and was granted status as a rural telephone company with respect to the
provisions of the Telecommunications Act of 1996. This status will afford
limited protection to the company's primarily rural customer base from a rapid
transition to local exchange competition. In January 1997, the Pennsylvania
Public Telephone Commission approved the company's "Petition for Alternative
Regulation and Network Modernization Plan," which will allow the company to move
from traditional rate of return regulation to a price cap formula in return for
a commitment to network modernization.
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COMMONWEALTH LONG DISTANCE. Commonwealth Long Distance operates principally
in Pennsylvania. The company began operations in 1990 by servicing the local
service area of the Commonwealth Telephone Company. In 1992 and 1993, sales
offices were opened in other areas of Pennsylvania. During 1996, the company
continued statewide certification and is certified now in 47 states. The company
provides switched services, is a reseller of several types of services, and
employs the networks of several long distance providers on a wholesale basis.
COMMONWEALTH COMMUNICATIONS. Commonwealth Communications Inc. provides
telecommunications engineering and facilities management services to large
corporate clients, hospitals and universities throughout the Northeastern United
States and sells, installs and maintains PBX systems in Pennsylvania and New
Jersey. Commonwealth Communications also provides cable and data network
engineering and project management of network construction. This group is being
combined with Commonwealth Telephone Company and will focus on the Eastern
Pennsylvania market.
RCN TELECOM SERVICES. RCN Telecom Services provides local and long distance
telephone service, video programming and internet access to households located
in New York City and Boston. RCN currently has 417 signed building access
agreements which represent 82,733 households located in high density housing
such as co-ops, condominiums and apartment complexes in the Boston and New York
markets. RCN has 36,545 video programming customers, 2,968 telephone customers
and 58 Internet customers in these two markets. RCN also has 4,474 video
programming customers at the University of Delaware.
RCN's New York system operates two cable programming delivery systems: one
that is fiber-based and one that uses a microwave network acquired from Liberty
Cable in New York in March 1996. The fiber-based customers are served by
facilities of MFS. Telephone service in New York is provisioned on the
fiber-based network and through the resale of the NYNEX network.
RCN's Boston system operates primarily on a fiber-based network obtained
from MFS and provides both telephone and cable programming over this network. In
December, RCN signed an agreement forming a joint venture with Boston Edison
under which the joint venture will use and expand upon Boston Edison's 200 mile
fiber optic network to reach a market of approximately 650,000 customers
throughout the Greater Boston area. The joint venture will offer bundled
telecommunications services.
RCN New York and the RCN Joint Venture with Boston Edison were granted Open
Video Systems certification from the Federal Communications Commission ("FCC")
in February 1997. This certification allows RCN to deliver video services in New
York City and Boston based on the Telecommunications Act of 1996. Prior to this
certification, RCN offered video services using MFS' network. RCN's telephone
service is regulated by the States of New York and Massachusetts and the FCC. In
New York, RCN is certified to provide competitive local exchange services and to
resell long distance services. In Massachusetts, RCN is registered to offer
local exchange carrier services and to resell long distance. RCN also has
authority from the FCC to offer international service.
RCN is a competitor to the incumbent telephone and cable television
companies, primarily NYNEX, Time Warner Cable and Cablevision Systems.
C-TEC INTERNATIONAL. In January 1995, C-TEC purchased a 40% equity position
in Megacable, S.A. de C.V., Mexico's second largest cable television operator,
currently serving 174,000 subscribers in 12 cities.
REGULATION. The Federal Telecommunications Act of 1996 (the "1996 Act")
established a framework for deregulation of the communications industry. The
1996 Act should stimulate growth and competition in virtually every component of
the communications industry. The FCC and state regulators must work out the
specific implementation process. Companies are permitted to combine historically
separate lines of business into one, and provide combined services in markets of
their own choice. In addition, there will be relief from the earnings
restrictions and price controls that have governed the local telephone business
for
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many years and were imposed on the cable industry in 1992 by the Federal Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Act"). The
rate regulation provisions of the 1992 Act have not had a materially adverse
effect on C-TEC's financial condition and results of operations. With the
passage of the 1996 Act, all cable systems rates are deregulated as effective
competition enters the franchise area, or by March 31, 1999, whichever comes
sooner. C-TEC anticipates that certain provisions of the 1992 Act that do not
relate to rate regulation, such as the provisions relating to retransmission
consent and customer service standards, will reduce future operating margins.
C-TEC RESTRUCTURING. On September 30, 1997, C-TEC completed a tax-free
restructuring that divided C-TEC into three public companies: C-TEC, which
changed its name to "Commonwealth Telephone Enterprises, Inc.," RCN Corporation,
Inc. ("RCN") and Cable Michigan, Inc.
Commonwealth Telephone Enterprises, Inc. owns the following businesses:
Commonwealth Telephone Company (the rural local exchange carrier business);
Commonwealth Communications (the communications engineering business); the
Pennsylvania competitive local exchange carrier business; and long distance
operations in certain areas of Pennsylvania. RCN Corporation, Inc. ("RCN") owns
the following businesses: its competitive telecommunications services operations
in New York City and Boston; its cable television operations in New York, New
Jersey and Pennsylvania; its 40% interest in Megacable S.A. de C.V., Mexico's
second largest cable operator; and its long distance operations (other than the
operations in certain areas of Pennsylvania). Cable Michigan, Inc. owns and
operates cable television systems in the State of Michigan and owns a 62%
interest in Mercom, Inc., a publicly held Michigan cable television operator.
In connection with the restructuring, on August 29, 1997, the Diversified
Group converted 3,000,000 shares of C-TEC Class B Stock into 3,000,000 shares of
C-TEC Common Stock, pursuant to the Articles of Incorporation of C-TEC, as
amended. As a result of such conversion, the Diversified Group owned 11,226,262
shares of C-TEC Common Stock, representing 48.44% of the outstanding C-TEC
Common Stock, and 2,094,223 shares of C-TEC Class B Stock, representing 48.60%
of the outstanding C-TEC Class B Stock. C-TEC Common Stock has one vote per
share and the C-TEC Class B Stock has 15 votes per share.
To effect the restructuring, C-TEC made a distribution (the "Distribution")
on September 30, 1997 of all issued and outstanding shares of common stock of
RCN ("RCN Common Stock"), and all issued and outstanding shares of common stock
of Cable Michigan ("CM Common Stock"), to holders of record of C-TEC Common
Stock and C-TEC Class B Stock as of the close of business on September 19, 1997
(the "Record Date") on the basis of one share of RCN Common Stock for every
share of C-TEC Common Stock or C-TEC Class B Stock held of record on the Record
Date and one share of CM Common Stock for every four shares of C-TEC Common
Stock or C-TEC Class B Stock held of record on the Record Date. By vote of its
shareholders on October 1, 1997, C-TEC approved a reverse stock split, whereby
every three shares of C-TEC Common Stock, and every three shares of C-TEC Common
Stock issued and outstanding shall be combined into validly issued, fully paid
and nonassessable shares of C-TEC Common Stock and every three shares Class B
Stock issued and outstanding shall be combined into two validly issued, fully
paid and nonassessable shares of C-TEC Class B Stock. On that date, C-TEC
shareholders approved the amendment of its Articles of Incorporation for the
purpose of changing its name to "Commonwealth Telephone Enterprise, Inc."
As a result of these transactions, the Diversified Group now holds
13,320,485 shares of RCN Common Stock, 3,330,121 shares of CM Common Stock, and
8,880,323 shares of Commonwealth Telephone Enterprises Common Stock. In each
case, its ownership represents approximately 48.5% of the company's outstanding
common stock.
The board of directors of C-TEC concluded that the distributions were in the
best interests of the shareholders because the distributions will, among other
things, (i) permit C-TEC to raise financing to fund the development of the RCN
business on more advantageous economic terms than the other
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alternatives available, (ii) facilitate possible future acquisitions and joint
venture investments by RCN and Cable Michigan and possible future offerings by
RCN, (iii) allow the management of each company to focus attention and financial
resources on its respective business and permit each company to offer employees
incentives that are more directly linked to the performance of its respective
business, (iv) facilitate the ability of each company to grow in both size and
profitability, and (v) permit investors and the financial markets to better
understand and evaluate C-TEC's various businesses.
PKS INFORMATION SERVICES, INC.
PKS Information Services, Inc. ("PKSIS"), is a full service information
technology company which provides computer operations outsourcing and systems
integration services in the U.S. and abroad. PKSIS offers custom-tailored
computer outsourcing services. PKSIS' technology expertise encompasses all
computing environments from mainframes to client/server platforms. PKSIS also
provides network and systems integration and network management services for
various computers platforms. In addition, PKSIS develops, implements and
supports applications software. PKSIS' strategy is to focus on assisting its
customers in migrating from closed computing and networking environments to
TCP/IP network platforms accessed using Web browsers.
PKSIS provides its outsourcing services to clients that desire to focus
their resources on core businesses, rather than expending capital and incurring
overhead costs to operate their own computing environment. PKSIS believes that
it is able to utilize its expertise and experience, as well as operating
efficiencies, to provide its outsourcing customers with levels of service equal
to or better than those achievable by the customer itself, while at the same
time reducing the customer's cost for such services. This service is
particularly useful for those customers moving from older computing platforms to
more modern TCP/IP-based client/server networks.
PKSIS' systems integration services help customers define, develop and
implement cost-effective information services. In addition, through its Systems
Integration Group, PKSIS develops, implements and supports application software
and assists customers in converting source code to modern computing platforms,
particularly TCP/IP-enabled networking.
PKSIS, through its Suite 2000-SM- line of services, provides customers with
a multi-phased service for converting programs and application so that
date-related information is accurately processed and stored before and after the
year 2000. Through the process of converting a customer's legacy software for
year 2000 compliance, PKSIS is able to provide further insight and advice to
further stream-line and improve the customer's information systems.
PKSIS has established a software engineering facility at the National
Technology Park in Limerick, Ireland, to undertake large scale development
projects, system conversions, and code restructuring and software
re-engineering. PKSIS has also established relationships with domestic and
international partners to provide such activities.
PKSIS' subsidiary, LexiBridge Corporation of Shelton, Connecticut, provides
customers with a combination of workbench tools and methodology which provide a
complete strategy for converting mainframe-based application systems to
client/server architecture, while ensuring year 2000 compliance. In 1996, 91% of
PKSIS' revenue was from external customers and the remainder was from
affiliates.
SR91 TOLLROAD
KDG has invested $12 million for a 65% interest in California Private
Transportation Company, L.P. which developed, financed, and currently operates
the 91 Express Lanes, a ten mile, four lane tollroad in Orange County,
California. The fully automated highway uses an electronic toll collection
system and variable pricing to adjust tolls to demand. Capital costs at
completion were $130 million, $110 million of which was funded with limited
recourse debt. Revenue collected over the 35-year franchise period is used
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for operating expenses, debt repayment, and profit distributions. The tollroad
opened in December 1995 and achieved operating break-even in 1996. Over 80,000
customers have registered to use the tollroad and weekday volumes exceed 26,000
vehicles per weekday.
UNITED INFRASTRUCTURE COMPANY
UIC is an equal partnership between Kiewit Infrastructure Corp., a wholly
owned subsidiary of KDG, and Bechtel Infrastructure Enterprises, Inc. UIC was
formed in 1993 to develop North American infrastructure projects. During 1996,
UIC began to focus primarily on water infrastructure projects, principally
through U.S. Water, a partnership formed with United Utilities PLC, a U.K.
company. U.S. Water has acquired the concession to operate facilities at North
Brunswick, New Jersey, and is actively pursuing similar concessions nationwide.
KDG has invested $8 million through UIC in U.S. Water. KDG has also invested $3
million through UIC in Airport Group International Inc. to develop airport
privatization projects.
KIEWIT MUTUAL FUND
Kiewit Mutual Fund, a registered investment company, was formed in 1994.
Initially formed to manage PKS' internal investments, shares in Kiewit Mutual
Fund are now available for purchase by the general public. The Fund's investors
currently include individuals and unrelated companies, as well as
Kiewit-affiliated joint ventures, pension plans, and subsidiaries. Kiewit Mutual
Fund has six series: Money Market Portfolio, Government Money Market Portfolio,
Short-Term Government Portfolio, Intermediate-Term Bond Portfolio, Tax-Exempt
Portfolio, and the Equity Portfolio. In February 1997, the Fund adopted a
master-feeder structure. Each of the Portfolios invests in a corresponding
series of the Kiewit Investment Trust, which now manages the underlying
securities holdings. The structure will allow smaller mutual funds and
institutional investors to pool their assets with Kiewit Investment Trust,
providing lower expense ratios for all participants. The registered investment
adviser of Kiewit Investment Trust is Kiewit Investment Management Corp., a
subsidiary of KDG (60%) and the Construction Group (40%). At the end of 1996,
Kiewit Mutual Fund had net assets of $883 million.
OTHER
In February 1997, KDG purchased an office building in Aurora, Colorado for
$21 million. By investing in real estate, KDG defers taxes on a portion of the
$40 million of taxable gain otherwise recognizable with respect to the Whitney
Benefits litigation settlement in 1995. KDG may make additional real estate
investments in 1997 with a view toward deferring the balance of that taxable
gain. KDG has also made investments in several development-stage companies, but
does not expect earnings from these companies in 1997.
GENERAL INFORMATION
ENVIRONMENTAL PROTECTION. Compliance with federal, state, and local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not and is not
expected to have a material effect upon the capital expenditures, earnings, or
competitive position of PKS and its subsidiaries.
EMPLOYEES. As of December 31, 1996, the Diversified Group employed
approximately 370 employees.
PROPERTIES
Properties relating to KDG coal mining segment are described as part of the
general business description of the coal mining business. The properties of the
energy generation and distribution segment are described as part of the general
business description of the CalEnergy and International Energy
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projects. The properties of the telecommunications segment include those of
C-TEC's Commonwealth Telephone Company (switching centers, cables and wires
connecting the telephone company to its customers, and other telephone
instruments and equipment), C-TEC Cable Systems (head-end, distribution and
subscriber equipment), and various office and storage buildings. PKS considers
its properties to be adequate for the present and foreseeable requirements of
Diversified Holdings.
LEGAL PROCEEDINGS
GENERAL. PKS and its subsidiaries are parties to many pending legal
proceedings. Management believes that any resulting liabilities for legal
proceedings, beyond amounts reserved, will not materially affect the financial
condition, future results of operations, or future cash flows of Diversified
Holdings.
ENVIRONMENTAL PROCEEDINGS. In a large number of proceedings, PKS, its
subsidiaries, or their predecessors are among numerous defendants who may be
"potentially responsible parties" liable for the cleanup of hazardous substances
deposited in landfills or other sites. Management believes that any resulting
liabilities for environmental legal proceedings, beyond amounts reserved, will
not materially affect the financial condition, future results of operations, or
future cash flows of Diversified Holdings.
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APPENDIX C
[Date of Proxy Statement/Joint Prospectus]
The Board of Directors
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, NE 68131
Dear Gentlemen:
We have acted as financial advisor to Peter Kiewit Sons', Inc. ("PKS") in
connection with the proposed plan of reorganization (the "Reorganization") under
which: (i) the Board of Directors of PKS will require, subject to the
satisfaction of certain conditions, all holders of its Class C Construction &
Mining Group Restricted Redeemable Convertible Exchangeable Common Stock, par
value $.0625 per share ("Class C Stock"), to exchange (the "Share Exchange")
such shares for shares of Common Stock, par value $.01 per share (the "Exchanged
Shares"), of PKS Holdings, Inc., a newly formed, direct, wholly owned subsidiary
of PKS which will indirectly hold all of the assets and liabilities of the
construction business of PKS; and (ii) prior to the Share Exchange, PKS will
declare a dividend of eight-tenths of one share of a new class of Class R
Convertible Common Stock, par value $.01 per share (the "Class R Common Stock"),
with respect to each then-outstanding share of Class C Stock. The Class R Stock
will be converted into shares of Class D Diversified Group Convertible
Exchangeable Common Stock, par value $.0625 per share ("Class D Stock")
according to the terms set forth in the Proxy Statement (as defined below). The
eight-tenths of a share of Class R Common Stock will attach to the Exchanged
Share which will be exchanged for such share of Class C Stock in the Share
Exchange. In that connection, you have requested us to provide you our opinion,
from a financial point of view, as to the fairness of the Reorganization to the
stockholders of PKS, including both the Class C Stockholders and the Class D
Stockholders. The Reorganization is described in detail in the proxy
statement/joint prospectus which will be sent to Class C Stockholders and Class
D Stockholders in connection with the Reorganization (the "Proxy Statement").
In arriving at our opinion, we have:
(i) reviewed the financial terms of the Reorganization as described in
the Proxy Statement and the various agreements relating to the
Reorganization referred to in the Proxy Statement;
(ii) analyzed certain historical business and financial information
relating to Kiewit Construction Group ("KCG") and Kiewit Diversified Group
("KDG"), including that contained in the Proxy Statement;
(iii) conducted discussions with members of management of PKS, KCG and
KDG with respect to the historical and current businesses and the future
prospects of KCG and KDG, the anticipated effects of the Reorganization on
the capital structures, cash flows and operations of KCG and KDG
(iv) reviewed public information as filed with the Securities and
Exchange Commission relating to PKS, KCG and KDG, including audited
financial statements;
(v) analyzed the PKS Consent Statement and Prospectus dated November 5,
1991; and
(vi) conducted such other financial studies, analyses and investigations
as we deemed appropriate.
In connection with our review, we have assumed and relied upon, without
assuming responsibility for independent verification, the accuracy and
completeness of all information reviewed by us. We have also assumed, based upon
the information which had been provided to us and without assuming
responsibility for independent verification thereof, that no material
undisclosed or contingent liability existed with respect to PKS, KCG, or KDG.
<PAGE>
In addition, we have not made an independent evaluation or appraisal of the
assets of KCG or KDG. Further, our opinion is based on economic, market and
other conditions existing on the date of this opinion.
Gleacher NatWest does not make a market, and does not presently intend to
make a market, in any of the securities to be issued in the Reorganization. This
opinion does not represent our opinion as to the value of the securities of KCG
or KDG following the consummation of the Reorganization, or as to the prices at
which such securities may trade, when issued in connection with the
Reorganization or at any other time.
We have assumed that the Reorganization will have the tax consequences as
described in the Proxy Statement.
Certain Gleacher NatWest professionals own in aggregate 30,000 shares of
Class D Stock.
We are acting as financial advisor to PKS and will receive a fee for our
services.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the Reorganization is fair to both Class C Stockholders and Class D
Stockholders from a financial point of view. Our conclusions are based solely on
information available to us on the date of this letter.
Very truly yours,
GLEACHER NATWEST INC.
By:
------------------------------------------------------------------
James Goodwin
Managing Director
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APPENDIX D
FORM OF RESTATED CERTIFICATE OF INCORPORATION
PKS Holdings, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is PKS Holdings, Inc. The original
Certificate of Incorporation of PKS Holdings, Inc. was filed with the Secretary
of State of Delaware on August , 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation has been duly
authorized and adopted and restates and amends the provisions of the Certificate
of Incorporation of this Corporation.
3. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as follows:
ARTICLE FIRST
NAME
The name of the Corporation (which is hereinafter referred to as the
"Corporation"), is:
PKS HOLDINGS, INC.
ARTICLE SECOND
DELAWARE OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of Delaware is to be
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent therein is The Corporation Trust Company, and
the address of said registered agent is 1209 Orange Street in said City, County
and State.
ARTICLE THIRD
PURPOSES
The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
ARTICLE FOURTH
CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 125,250,000 shares; of which 250,000 shares
shall be Preferred Stock, with no par value per share, and of which 125,000,000
shares shall be Common Stock, with a par value of $0.01 per share (the "Common
Stock").
A description of the different classes of stock and a statement of the
designations, powers, preferences, rights, qualifications, limitations and
restrictions of each of said classes of stock are as follows:
I. PREFERRED STOCK
Subject to the limitations prescribed by Delaware law and this Certificate
of Incorporation, the Board of Directors of the Corporation is authorized to
issue the Preferred Stock from time to time in one or more series, each of such
series to have such powers, designations, preferences and relative,
participating, optional or other rights, and such qualifications, limitations or
restrictions thereof, as shall be determined by the Board of Directors in a
resolution or resolutions providing for the issuance of such Preferred Stock;
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provided, however, that no series of the Preferred Stock shall have any voting
rights or be convertible into shares of stock having any voting rights.
II. COMMON STOCK
(A) Dividends. After any dividend has been declared and set aside for
payment or paid on any series of Preferred Stock having a preference over the
Common Stock with respect to the payment of dividends, the holders of the Common
Stock shall be entitled to receive out of the funds legally available therefor,
when, as and if declared by the Board of Directors. The payment of dividends on
the Common Stock shall be at the sole discretion of the Board of Directors.
(B) Liquidation. Upon the liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after there shall
have been paid or set apart for the holders of any series of Preferred Stock
having a preference over the Common Stock with respect to distributions upon
liquidation the full amount to which they are entitled, the remaining assets
available for distribution to the Corporation's stockholders shall be
distributed to the Common stockholders pro rata on the basis of the numbers of
Common shares held by such stockholders.
III. VOTING RIGHTS AND CHANGES IN CAPITAL STRUCTURE
(A) Voting Rights. Except as may otherwise be provided by statute, the
holders of the Common Stock shall exclusively possess voting power for the
election of directors and for other purposes, the holders of record of each
share being entitled to one vote for each share, and the holders of the
Preferred Stock shall have no voting rights nor shall they be entitled to notice
of meetings of stockholders.
(B) Changes in Capital Structure. The Corporation reserves the right to
create new classes of stock, to eliminate classes of stock, to increase or
decrease the amount of authorized stock of any class or classes, and to
otherwise change the powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions of any class or classes of stock by the affirmative vote of the
holders of four-fifths of the Common Stock issued and outstanding
ARTICLE FIFTH
DIRECTORS AND OFFICERS
(A)(1) Number, Quorum, Required Votes. The number of directors of the
Corporation which shall constitute the whole Board of Directors shall at all
times be not less than ten (10) nor more than fifteen (15). Subject to such
minimum and maximum limitations, the number of directors shall be fixed by, or
in the manner provided in, the by-laws. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of business. Unless this
Certificate of Incorporation shall specifically require a vote of a greater
number, the affirmative vote of a majority of the whole Board of Directors shall
be required to constitute the act of the Board of Directors.
(2) Qualifications of Directors.
(a) No more than three (3) directors may be non-inside directors, and the
balance must be inside directors, as defined in this subparagraph (A)(2).
(b) An "inside director" is a director who is either a current inside
director or a former inside director, as each of such terms is defined in this
subparagraph (A)(2).
(c) A "current inside director" is a director who (i) is a current Common
stockholder of the Corporation; (ii) is currently an officer of either (A) the
Corporation or (B) a Subsidiary which is engaged primarily in the construction,
mining or materials businesses; and (iii) was continuously employed by the
Corporation, its predecessor, former parent corporation or such a Subsidiary for
at least eight (8) years before becoming a director.
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(d) If a current inside director ceases to be a current inside director,
such director may continue to serve as a director so long as there is a
sufficient number of other inside directors so that the limitation on non-inside
directors required by subparagraph (A)(2)(a) is satisfied. However, if as a
result of the change in such director's status such non-inside director
limitation would be exceeded, then such director shall automatically be deemed
to have resigned as and shall cease to be a director. The remaining directors
shall thereupon act promptly to fill the vacancy created by such resignation.
Such a vacancy may be filled with a former inside director, as defined in
subparagraph (A)(2)(e) below. If the director whose resignation created such
vacancy qualifies as a former inside director pursuant to subparagraph
(A)(2)(e), such director may be appointed to fill such vacancy.
(e) A "former inside director" is a person who: (i) was at one time a
current inside director; (ii) served as an inside director for at least eight
(8) years; and (iii) is declared to be a former inside director by a majority
vote of the directors holding office at the time of such declaration.
(3) Nomination Procedures. The incumbent directors shall nominate a slate of
directors for election at each annual meeting of the stockholders of the
Corporation. In nominating such election slates, the directors shall give due
consideration to selecting nominees from each of the principal business segments
represented by the activities of the Corporation and its Subsidiaries.
(B) Cumulative Voting. At any election for directors every holder of Common
Stock entitled to vote at such election shall have the right to vote, in person
or by proxy, the number of shares owned by him for as many persons as there are
directors to be elected and for whose election he has a right to vote, or to
cumulate his votes by giving one candidate as many votes as the number of such
directors multiplied by the number of his shares shall equal, or by distributing
such votes on the same principle among any number of such candidates.
(C) Officers. The Corporation shall have such officers as the by-laws may
provide, except, however, that the Corporation shall have an officer or officers
who shall be empowered to sign instruments and stock certificates of the
Corporation and shall have an officer who shall have the duty to record the
proceedings of stockholders' meetings and meetings of the Board of Directors.
Officers shall be chosen in such manner and shall hold their offices for such
terms as the by-laws may prescribe or as shall be determined by the Board of
Directors.
ARTICLE SIXTH
POWERS OF THE CORPORATION AND OF THE
DIRECTORS AND STOCKHOLDERS
The following provisions are inserted for the management of the business and
for the conduct of the affairs of the Corporation, and in further creation,
definition, limitation and regulation of the powers of the Corporation, its
directors and stockholders:
(A) Indemnification.
(1) Fullest Extent Permitted by Law. The Corporation shall indemnify each
person who is or was a director, officer or Employee of the Corporation
(including the heirs, executors, administrators or estate of such person) or is
or was serving at the request of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise to the fullest extent permitted under subsections 145(a), (b), (c)
and (e) of the Delaware General Corporation Law or any successor statute.
(2) Non-Exclusivity of Rights. The indemnification provided by this
paragraph (A) of ARTICLE SIXTH shall not be deemed exclusive of any other rights
to which any of those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity
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while holding such office, and shall continue as to a person who has ceased to
be a director, officer, Employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(3) Repeal or Modification. Any repeal or modification of paragraph (A) of
this ARTICLE SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director, officer or Employee of the
Corporation existing at the time of such repeal or modification.
(B) Powers of Board. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
(1) By-Laws. To make, alter and repeal the by-laws of the Corporation by
affirmative vote of two-thirds of the whole Board of Directors;
(2) Mortgages, Liens, and Pledges. To authorize and cause to be executed
mortgages and liens on the real and personal property and pledges of personal
property of the Corporation without the assent or vote of the stockholders;
(3) Payments. In its discretion to pay for any property or rights acquired
by the Corporation, either wholly or partly in money, stock, bonds, debentures
or other securities of the Corporation;
(4) Determination of Amount Constituting Capital. To fix and determine from
time to time what part of the consideration received by the Corporation on any
issue of stock without par value shall constitute capital;
(5) Bonds, Debentures, and Other Obligations. Without the assent or vote of
the stockholders, to issue bonds, debentures, or other obligations of the
Corporation from time to time, without limit as to amount, for any of the
objects or purposes of the Corporation and if desired, to secure the same or any
part thereof by mortgage, pledge, deed of trust or otherwise on any part or all
of its property and to cause the Corporation to guarantee bonds, debentures,
notes, indebtedness or other obligations of persons, firms and/or other
corporations;
(6) Convertible Obligations. To create and issue obligations of the
Corporation that shall confer upon the holders or owners thereof the right to
convert the same into shares of stock of the Corporation, and to fix the rate at
which such obligations may be so converted and the period or periods of time
during which any such right of conversion shall exist, and any shares of stock
issued upon the conversion of any such obligations shall be conclusively deemed
to be fully paid stock and not liable to any further call or assessment, and the
holder thereof shall not be liable for any further payment in respect thereof;
(7) Performance-Based Obligations. To create and issue obligations of the
Corporation that shall confer upon the holders or owners thereof the right to
receive interests based in whole or in part upon the financial performance of
the Corporation or any part, division or subsidiary thereof, and to fix the
term, conditions for sale and repurchase, applicable performance standards,
interest rate and such other conditions, rights and restrictions for such
obligations as it shall determine;
(8) Inspections by Stockholders. To determine from time to time whether and
to what extent and at what times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of them, shall be
open to inspection of the stockholders; and no stockholder shall have any right
to inspect any account or book or document of the Corporation, except as
expressly conferred by the laws of the State of Delaware, unless and until
authorized so to do by resolution of the Board of Directors, or by resolution of
the Common stockholders;
(9) Committees. By resolution or resolutions, passed by an affirmative vote
of two-thirds of the whole Board of Directors, to designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation, which, to the extent provided in said resolution or resolutions, or
in the by-laws of the Corporation, shall, to the extent permitted by Delaware
Corporation Law, have and may
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exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation, except the powers to amend the by-laws, to
declare dividends and to act contrary to any action previously undertaken by the
Board of Directors, and may have power to authorize the seal of the Corporation
to be affixed to all papers which may require it, said committee or committees
to have such name or names as may be stated in the by-laws of the Corporation or
as may be determined from time to time by resolution adopted by the Board of
Directors; and
(10) Additional Powers. The Corporation may in its by-laws confer powers
upon its Board of Directors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon it by statute.
(C) Limitations on Powers of Board. In limitation of those powers conferred
by statute regarding the matters described in this paragraph (C), the Board of
Directors is authorized to act as follows:
(1) Substantial Acquisitions. To acquire for the Corporation any property,
rights or privileges at such price and for such consideration and generally upon
such terms and conditions as it thinks fit; provided, however, an affirmative
vote of two-thirds of the whole Board of Directors shall be required for the
Corporation to make a substantial acquisition not in the primary, ordinary and
regular course of its business activities; and provided further that for the
purposes of this subparagraph (1) "substantial acquisition" shall mean an
acquisition (or a series of acquisitions which, in light of the period of time
over which they are effected and the intentions of the Board of Directors in
making them, should be characterized for the purposes of this subparagraph (1)
as a single acquisition) with a price (excluding the amount of any assumed
obligation and any amount paid out of the proceeds of a loan under the terms of
either of which the lender has recourse only against the asset or assets being
acquired) in excess of ten (10%) percent of the total stockholders' equity of
the Corporation, determined on a consolidated basis as of the fiscal year end
immediately preceding such acquisition;
(2) Substantial Dispositions. To dispose of for the Corporation any
property, rights or privileges at such price and for such consideration and
generally upon such terms and conditions as it thinks fit; provided, however, an
affirmative vote of two-thirds of the whole Board of Directors shall be required
for the Corporation to make a substantial disposition not in the primary,
ordinary and regular course of its business activities; and provided that for
the purpose of this subparagraph (2) "substantial disposition" shall mean a
disposition (or a series of dispositions which, in light of the period of time
over which they are effected and the intentions of the Board of Directors in
making them, should be characterized for the purposes of this subparagraph (2)
as a single disposition) with a price in excess of ten (10%) percent of the
total stockholders' equity of the Corporation, determined on a consolidated
basis as of the fiscal year end immediately preceding such disposition; provided
further, however, such sale or disposition shall not constitute a sale or
disposition of all or substantially all of the Corporation's property and
assets, the approval for which is hereinafter provided;
(3) Sale of All or Substantially All Assets. To sell, lease or exchange all
or substantially all of the Corporation's property and assets, including its
good will and its corporate franchises, upon such terms and conditions and for
such considerations, which may be in whole or in part shares of stock in, and/or
other securities of, any other corporation or corporations, as said Board of
Directors shall deem expedient and in the best interests of the Corporation,
only when and as authorized by the affirmative vote of the holders of
four-fifths of the Common Stock issued and outstanding;
(4) Offers of Common Stock to Non-Employees. To offer to sell the Common
Stock of the Corporation to persons other than Employees of the Corporation, in
any manner, including but not limited to a "public offering" within the meaning
of the United States Securities Act of 1933, as it may be amended from time to
time, only when and as authorized by the affirmative vote of the holders of
four-fifths of the Common Stock issued and outstanding;
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(5) Change In Stock Price Formula. To change the formula for determining the
Formula Value or the Common Share Price, only when and as authorized by the
affirmative vote of the holders of four-fifths of the Common Stock issued and
outstanding;
(6) Mergers and Consolidations. To merge or consolidate the Corporation with
a corporation other than a Subsidiary, only when and as authorized by the
affirmative vote of the holders of four-fifths of the Common Stock issued and
outstanding; and
(7) Dissolution. To dissolve the Corporation, only when and as authorized by
the affirmative vote of the holders of four-fifths of the Common Stock issued
and outstanding.
(D) Stock Ownership and Transfer Restrictions. The following restrictions on
the ownership and transfer of the Common Stock of the Corporation are hereby
imposed:
(1) Ownership Restrictions. All shares of Common Stock sold by the
Corporation shall be subject to a repurchase agreement, the terms of which shall
be determined by the Board of Directors. With the prior approval of the Board of
Directors and subject to paragraph (D)(3), Employees, fiduciaries for the
benefit of the Employee's spouse and/or children, corporations one hundred
(100%) percent owned by Employees or Employees and their spouse and/or children,
and fiduciaries for the benefit of such corporations, charities and fiduciaries
for charities designated by any such persons shall be eligible to own Common
Stock of the Corporation.
(2) Transfers to Charitable Organizations. The holders of the Common Stock
may transfer such stock to tax-exempt charitable organizations approved as such
by the Internal Revenue Service; provided, that any such transfer shall be
subject to a repurchase agreement which provides, in part, that said charitable
owners shall agree not to transfer, assign, pledge, hypothecate, or otherwise
dispose of such stock except in a sale to the Corporation, and said charitable
owners shall at any time upon five (5) days' written notice and demand by the
Corporation sell such stock to the Corporation. The Corporation shall be
obligated to accept any offer made by the charitable owners to sell such stock
to the Corporation. The purchase price for the Common Stock shall be the Share
Price. Payment of the purchase price shall be made by the Corporation within
sixty (60) days of its acquiring of any such stock, without interest.
(3) Transfer Restrictions On Common Stock.
(a) Sales to Corporation. The holders of Common Stock shall not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of such stock except
in a sale to the Corporation or in a transfer to an authorized transferee
approved by the Board of Directors pursuant to subparagraph (D)(1) above or a
transfer in accordance with subparagraph (D)(2) above. Holders of Common Stock
may, at any time on or prior to the 15th day of any calendar month, offer to
sell part or all of their Common Stock to the Corporation by delivering the
certificate or certificates representing such stock to the Corporation along
with a written notice offering such stock to the Corporation. Such offer must be
accepted by the Corporation, and payment shall be made for such stock within
sixty (60) days after the receipt of such stock and such written notice by the
Corporation, without interest. The rights of redemption provided for in this
subparagraph (D)(3)(a), and each other right of redemption of Common Stock
provided for in this Certificate of Incorporation, shall be subject to the
requirement that no shares of any class shall be redeemed, either at the option
of the holder thereof or of the Corporation, unless after giving effect to such
redemption there remain outstanding at least 1,000 shares of stock of the
Corporation having full voting power.
(b) Termination. Upon the termination of the employment of any Employee with
the Corporation for any reason other than death, the Employee or his authorized
transferee shall sell and deliver the Common Stock held by such Employee or his
authorized transferee to the Corporation within ten (10) days after the date of
a written notice from the Corporation to sell and deliver such stock (a
"Repurchase Notice"). The Corporation shall give such Repurchase Notice within
the period commencing on the day of termination
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and ending on the 90th day after such termination. Payment for such stock shall
be made within sixty (60) days after the date of such Repurchase Notice, without
interest.
(c) Death. Upon the death of any Employee, the estate, successor or personal
representative of such Employee or the authorized transferee of such Employee
shall sell and deliver the Common Stock previously held by such Employee or held
by his authorized transferee to the Corporation within ten (10) days after the
date of a written notice from the Corporation to sell and deliver such stock.
The Corporation shall give the notice to sell and deliver within the period
commencing on the day of death of such Employee and ending on the 180th day
after said death. Payment for such stock shall be made within sixty (60) days
after the date of said notice, without interest. Upon the death of an Employee
holding stock of the Corporation on the day of his death, the Employee's estate,
successor or personal representative and any authorized transferee of such
deceased Employee shall have the option to defer the purchase by the Corporation
of its Common Stock to a date or dates later than that provided for in this
subparagraph (D)(3) but prior to the January 10th next succeeding the fiscal
year during which the Employee's death occurred.
(d) Ownership of Excessive Amount. Upon a determination by the Board of
Directors that the amount of Common Stock held by an Employee and/or his
authorized transferee is excessive in view of the Corporation's policy that the
level of an Employee's stock ownership should reflect certain factors, including
but not limited to (i) the relative contribution of that Employee to the
economic performance of the Corporation, (ii) the effort being put forth by such
Employee, and/or (iii) the level of responsibility of such Employee, the
Corporation shall have the option to purchase from such Employee and/or his
authorized transferee an amount of Common Stock sufficient to decrease the
amount of such stock owned by such Employee or his authorized transferee to an
amount that the Board of Directors, in its sole discretion, believes is
appropriate. In the event that the Corporation elects to exercise this option,
it shall give the Employee and/or his authorized transferee written notice to
that effect and the Employee and/or his authorized transferee shall sell and
deliver the amount of stock specified in such notice to the Corporation within
ten (10) days after the date of the notice, with payment to be made for such
stock within sixty (60) days after the date of said notice, without interest.
(e) Pledges. Notwithstanding anything contained in this subparagraph (D)(3)
to the contrary, an Employee may pledge Common Stock for loans in connection
with the ownership of the Corporation's stock.
(f) Authorized Transferee. For purposes of this subparagraph (D)(3), the
term "authorized transferee" shall mean any stockholder permitted to own stock
of the Corporation pursuant to paragraph (D)(1) above.
(g) Failures to Meet Time Limits. No failure by the Corporation, a
stockholder, an authorized transferee, or the estate, successor, or personal
representative of a stockholder to take any action within any time period
prescribed by this subparagraph (D)(3) shall render the Common Stock of the
Corporation transferable other than in conformance with the provisions of this
subparagraph (D)(3) or preclude the Corporation from exercising its right to
purchase any such stock.
(4) Stock Price. The Corporation shall purchase or sell any share of Common
Stock for a price equal to the Common Share Price. The consideration paid for
such Common Stock shall be in cash or such other form as mutually agreed upon by
the Corporation and the Common stockholder.
(5) Limitations On Amount of Ownership. No more than ten (10%) percent of
the shares of the Common Stock issued and outstanding shall at any time be owned
of record, or voted, by or for the account of any one Employee as hereinbefore
described. For purposes of calculation of said ten (10%) percent limitations
Common Stock of the Corporation owned by an Employee's spouse, children,
grandchildren, parents, grandparents and spouses of such persons (collectively,
an Employee's "family members"), fiduciaries for the benefit of an Employee or
his family members, fiduciaries for charities
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designated by an Employee or his family members, and any entity which an
Employee or his family members have created or control, directly or indirectly,
or in which an Employee or his family members have a beneficial or reversionary
interest, shall be counted as being owned by the Employee. All calculations
regarding the ten (10%) percent limitation (including both the numerator and
denominator of the calculations) shall be on a fully diluted basis (i.e., all
stock that in the future will be issued upon the conversion of any then-issued
and outstanding Convertible Debentures of the Corporation shall be included in
the calculations). The ten (10%) percent limitations shall be calculated as of
the 1st day of January of each year, and any stockholder who owns more Common
Stock than the ten (10%) percent limitation permits shall be so notified by the
Corporation and shall, at the stockholder's option, be permitted to hold the
excess stock until the next succeeding January 1, and on or before said January
1, the stockholder shall take the action described in subparagraph (D)(6) below
.
(6) Sales of Excess Stock. In the event that any stockholder through his own
action or the action of others becomes an owner of more than ten (10%) percent,
as defined in subparagraph (D)(5) above, of the Common Stock, he shall offer to
the Corporation, and the Corporation shall purchase within sixty (60) days of
such offer, at the price defined in subparagraph (D)(4) above, such amount of
his stock that is in excess of said ten (10%) percent limitation. In the event
that a stockholder shall fail to offer such stock to the Corporation within the
period described in subparagraph (D)(5) above, the Corporation shall, within
sixty (60) days following the end of such period, purchase such excess stock
holdings.
(7) Termination of Certain Owners. Any stockholder-Employee of the
Corporation who owns two (2%) percent or more of the Common Stock issued and
outstanding shall not be terminated from employment of the Corporation except by
an affirmative vote of two-thirds of the whole Board of Directors. The Board of
Directors shall have the right to reduce said two (2%) percent requirement in
the by-laws of the Corporation to a lower percentage requirement by an
affirmative vote of two-thirds of the whole Board of Directors. For purposes of
calculation of this percentage requirement, the attribution rules specified in
paragraph (D)(5) above regarding the ten (10%) percent limitation on ownership
shall apply.
(8) Suspension of Repurchase Duties. Notwithstanding anything in this
ARTICLE SIXTH to the contrary, in the event that the Board of Directors
determines that the Formula Value to be determined at the end of the fiscal year
during which such determination is made is likely to be less than (i) the
Formula Value determined at the end of the prior fiscal year less (ii) the
aggregate amount of dividends declared on the Common Stock since the end of the
prior fiscal year, the Board may suspend the Corporation's duty to repurchase
shares of Common Stock in accordance with this paragraph (D)(8). Any such
suspension shall not extend for a period longer than three hundred sixty-five
(365) days from the date of the Board's declaration of suspension. During any
such suspension period, the Corporation shall not repurchase any shares of
Common Stock tendered or required to be tendered for repurchase pursuant to the
second sentence of subparagraph (D)(3)(a). During any such suspension period,
the Corporation shall continue to repurchase Common Stock tendered to the
Corporation pursuant to any other provision of this Certificate of
Incorporation, but (a) payment for such repurchases shall not be required until
sixty (60) days after the end of the suspension period, (b) such payment shall
be made without interest, and (c) the repurchase price shall be the Common Share
Price determined as of (i) the end of the prior fiscal year, in the case of a
suspension period that ends before July 1 of the fiscal year, (provided that
such computation of the Share Price shall be reduced by the amount of dividends
per share declared on the Common Stock since the end of the prior fiscal year),
or (ii) in the case of a suspension period that ends after June 30 of a fiscal
year, the end of the fiscal year during which the suspension period ends.
(E) Payments Where Stock Price Not Yet Computed. If the price at which the
Corporation is to purchase stock pursuant to any provision in this Certificate
of Incorporation has not been computed within the time period prescribed for
payment for such stock because the preparation of the audited Consolidated
Financial Statements of the Corporation and Consolidated Subsidiaries has not
yet been completed, the Corporation shall, within the time period prescribed for
payment for such stock, make an initial payment in
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an amount equal to the price that would have been paid for such stock if it had
been purchased by the Corporation during the next preceding fiscal year. The
balance shall be paid within ten (10) days after the date on which the price at
which the Corporation is to purchase such stock has been computed. In the event
that the price at which the Corporation is to purchase such stock is less than
the amount paid by the Corporation, in the "initial payment" provided for in
this paragraph (E), the Corporation shall be entitled to recover the difference
between the two amounts. Such difference shall be paid by the person or entity
to whom the Corporation made the "initial payment" within ten (10) days of the
date of a written notice from the Corporation to pay such amount, without
interest.
(F) Ratification By Stockholders. Any contract, transaction or act of the
Corporation or of the directors, which shall be ratified by a majority of a
quorum of the stockholders then entitled to vote at any annual meeting or at any
special meeting called for such purpose, shall, so far as permitted by law and
by this Certificate of Incorporation, be as valid and as binding as though
ratified by every stockholder entitled to vote at such meeting.
(G) Meetings, Offices, and Books Outside State of Delaware. The stockholders
and the Board of Directors may hold their meetings and the Corporation may have
one or more offices outside of the State of Delaware, and subject to the
provisions of the laws of said state, may keep the books of the Corporation
outside of said state and at such places as may be from time to time designated
by the Board of Directors.
(H) Removal of Directors. At any meeting of the holders of the Common Stock
called for the purpose, any one or more of the directors may, by a majority vote
of the holders of the Common Stock at the time, be removed from office, with or
without cause, and another director or other directors be elected by such
majority vote of said holders of the Common Stock in the place or places of the
person or persons so removed, to serve for the remainder of his or their term or
terms, as the case may be; provided, however, that if less than all the
directors are to be removed, no individual director shall be removed without
cause when the votes cast against his removal would be sufficient to elect him
if then cumulatively voted at an annual election of all the directors.
(I) By-Law Provisions for Conduct of Business. The Corporation may in its
by-laws make any other provisions or requirements for the conduct of the
business of the Corporation, provided the same be not inconsistent with the
provisions of this Certificate of Incorporation, or contrary to the laws of the
State of Delaware. The by-laws may be amended by affirmative vote of two-thirds
of the whole Board of Directors or by affirmative vote of the holders of
two-thirds of the Common Stock issued and outstanding
(J) Requirements of Votes Greater Than Required By-Law. Whenever this
Certificate of Incorporation contains provisions requiring for any corporate
action the vote of a larger portion of the stock or a larger portion of the
directors than is required by the General Corporation Law of the State of
Delaware, the provisions of this Certificate of Incorporation shall govern and
control.
(K) Amendments of Certificate. Subject to any limitations herein contained,
the Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, or in any amendment
thereto by an affirmative vote of the holders of two-thirds of the Common Stock
issued and outstanding,, and all rights conferred upon stockholders in said
Certificate of Incorporation or any amendment thereto, are granted subject to
this reservation; provided, however, that the provisions of this Certificate of
Incorporation requiring for action by the stockholders a vote greater than such
two-thirds vote shall not be amended except by such greater vote; and provided
further that this Paragraph (K) shall not be amended except by an affirmative
vote of the holders of four-fifths of the Common Stock issued and outstanding.
D-9
<PAGE>
ARTICLE SEVENTH
LIMITATION OF LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this ARTICLE SEVENTH to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law as so
amended. Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE EIGHTH
DEFINITIONS
As used in this Certificate of Incorporation, the following meanings (with
terms defined in the singular having comparable meaning when used in the plural
and vice versa), unless another definition is provided or the context otherwise
requires:
"Formula Value" means the sum of:
(a) the total stockholders' equity as shown on the consolidated balance
sheet contained in the Consolidated Financial Statements of the Corporation and
Consolidated Subsidiaries, prepared in conformity with generally accepted
accounting principles applied on a consistent basis for the Corporation and its
consolidated Subsidiaries as of the fiscal year end immediately preceding the
date of determination (the "prior year end") and audited and certified by an
independent firm of certified public accountants selected and engaged by the
Board of Directors; minus
(b) the sum of: (i) the book value of Property, Plant and Equipment as of
the prior year end; plus (ii) the total stockholders' equity attributable to any
issued and outstanding Preferred Stock, as reflected on the consolidated balance
sheet, plus the amount of any accrued, accumulated and undeclared dividends
thereon, all as of the date of determination.
"Common Share Price" with respect to any share of Common Stock, means the
amount determined by dividing:
(a) the sum of (i) the Formula Value plus (ii) the face amount of any
outstanding Convertible Debentures convertible into Common Stock , determined as
of the fiscal year end immediately preceding the date of determination (the
"prior year end"); by
(b) the sum of (i) the total number of issued and outstanding shares of
Common Stock, plus (ii) the total number of shares of Common Stock reserved for
the conversion of outstanding Convertible Debentures convertible into Class C
Stock, in each case determined as of the prior year end;
and deducting from the quotient (rounded to the nearest $0.05) the amount of any
dividends per share declared on Common Stock subsequent to the prior year end.
"Convertible Debenture" means any debenture or other instrument evidencing
indebtedness of the Corporation convertible at any time into shares of the
Common Stock.
D-10
<PAGE>
"Employee" means an individual employed by the Corporation, any Subsidiary
or Twenty Percent Subsidiary or any joint venture in which the Corporation
and/or any Subsidiary or Twenty Percent Subsidiary has a twenty percent or more
interest. An Employee shall also include any person serving on the Board of
Directors of the Corporation or of any Subsidiary; provided, however, that this
provision shall be applicable only if such person shall have previously owned
stock of the Corporation as an employee; and, provided further, that such person
shall not be eligible to purchase additional stock of the Corporation.
"Property, Plant and Equipment" means those assets included within such
classification as reflected on the consolidated balance sheets contained as a
part of the Consolidated Financial Statements of the Corporation and
Consolidated Subsidiaries, that are utilized in or associated with the
Corporation's ordinary and regular course of construction activities.
"Subsidiary" means a corporation, partnership or other entity with respect
to which the Corporation holds, directly or indirectly, at least a majority of
the issued and outstanding capital stock or other equity interests, measured in
terms of total dollar value if such entity has outstanding more than one class
of capital stock or other equity interests.
"Twenty Percent Subsidiary" means a corporation, partnership, or other
entity with respect to which the Corporation owns, directly or indirectly,
twenty percent or more of the issued and outstanding capital stock or other
equity interests, measured in terms of total dollar value if such corporation,
partnership or other entity has outstanding more than one class of capital stock
or other equity interests.
IN WITNESS WHEREOF, PKS Holdings, Inc. has caused this Restated Certificate
of Incorporation, to be signed and attested by its duly authorized officers as
of the day of , 1997.
PKS HOLDINGS, INC.
By:
- --------------------------------------------------------------------------------
Kenneth E. Stinson, President
ATTEST:
By:
- --------------------------------------
Thomas C. Stortz, Secretary
D-11
<PAGE>
APPENDIX E-I
FORM OF CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PETER KIEWIT SONS', INC.
Peter Kiewit Sons', Inc. (the "Corporation"), a corporation organized under
the laws of the State of Delaware, hereby certifies that the following
amendments to the Corporation's Restated Certificate of Incorporation were duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware:
FIRST: ARTICLE FOURTH of the Corporation's Restated Certificate of
Incorporation is amended by deleting the first three paragraphs thereof, and
replacing them with the following:
CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 641,750,000 shares; of which 250,000 shares
shall be Preferred Stock, with no par value per share; of which 8,000,000
shares shall be Class B Construction & Mining Group Nonvoting Restricted
Redeemable Convertible Exchangeable Common Stock, par value $0.0625 per
share (the "Class B Stock"); of which 125,000,000 shares shall be Class C
Construction & Mining Group Restricted Redeemable Convertible Exchangeable
Common Stock, par value $0.0625 per share (the "Class C Stock"); of which
500,000,000 shares shall be Class D Diversified Group Convertible
Exchangeable Common Stock, par value $0.0625 per share, issuable in two
series (the "Class D Stock"); and of which 8,500,000 shares shall be Class R
Convertible Common Stock, par value $0.01 per share (the "Class R Stock").
Ten shares of the authorized but unissued shares of Class D Stock as of
the date of the filing of this Certificate of Amendment of the Corporation's
Restated Certificate of Incorporation are hereby designated as Class D
Stock, Non-Redeemable Series. The rights, powers, preferences, privileges
and limitations of Class D Stock, Non-Redeemable Series shall be identical
to those of all other shares of Class D Stock, except as described in
ARTICLE NINTH hereof.
Shares of Class R Stock shall have such rights, powers, preferences,
privileges and limitations as are set forth in ARTICLE TENTH hereof, and all
of the rights, powers, preferences, qualifications and limitations of the
other classes of capital stock of the Corporation shall be subject to such
powers, preferences, rights, qualifications, limitations and restrictions of
the Class R Stock.
Certain terms used herein, each of which is capitalized, are defined in
ARTICLE EIGHTH.
A description of certain of the different classes of stock and a
statement of the designations, powers, preferences, rights, qualifications,
limitations and restrictions of each of said classes of stock are as
follows:
SECOND: ARTICLE EIGHTH of the Corporation's Restated Certificate of
Incorporation is amended by deleting the definition of "Effective Time" in its
entirety.
THIRD: The Corporation's Restated Certificate of Incorporation is amended to
insert a new ARTICLE NINTH to read as follows:
ARTICLE NINTH
SERIES OF CLASS D STOCK
Notwithstanding any other provision hereof with respect to the Class D
Stock, other than the next paragraph of this ARTICLE NINTH, in no event
shall (i) any holder of Class D Stock, Non-Redeemable Series have any right
to require the Corporation to repurchase such holder's shares of
<PAGE>
Class D Stock, Non-Redeemable Series; (ii) Class D Stock, Non-Redeemable
Series be convertible into Class C Stock; (iii) Class D Stock,
Non-Redeemable Series be subject to exchange for Class C Stock by the
Corporation; or (iv) Class D Stock, Non-Redeemable Series be subject to any
redemption.
In the event that the Class D Stock is Publicly Traded, (i) each share
of Class D Stock, Non-Redeemable Series shall automatically, and without
further action by or on behalf of the Corporation, the Corporation's
transfer agent or the holder of any share of Class D Stock, Non-Redeemable
Series, be converted into an equal number of shares of Class D Stock which
are not Class D Stock, Non-Redeemable Series, and the rights, powers,
preferences, privileges and limitations of such shares so converted shall be
identical to those of all other shares of Class D Stock in all respects, and
(ii) Class D Stock, Non-Redeemable Series shall no longer be designated as a
separate series of Class D Stock.
FOURTH: The Corporation's Restated Certificate of Incorporation is amended
to insert a new ARTICLE TENTH to read as follows:
ARTICLE TENTH
CLASS R STOCK
A. Certain Definitions.
"Attached Class R Stock" shall mean Class R Stock which is attached to
Construction Stock pursuant to the terms hereof.
"Attached Transfer" shall mean the simultaneous transfer to the same
transferee of a share of Class R Stock (or fraction thereof) and the share
of Construction Stock to which such share of Class R Stock is attached;
provided that such transfer of such share of Construction Stock is permitted
by the Certificate of Incorporation of the Corporation or PKS Holdings, as
applicable.
"Base Conversion Value" shall mean $25.00.
"Base Price" shall mean $82.00 per share, subject to adjustment as
provided in paragraph F. hereof.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York, the city in which the
Corporation's transfer agent maintains its principle office or a place of
payment are authorized by law, regulation or executive order to remain
closed.
"Change of Control" shall mean the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Corporation
and its subsidiaries taken as a whole, to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act); (ii) the adoption of a plan
relating to the liquidation or dissolution of the Corporation; (iii) the
consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined
above), becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
more than 50% of the total outstanding voting power of the Corporation; (iv)
the first day on which a majority of the members of the board of directors
of the Corporation are not Continuing Directors; or (v) the adoption by the
Board of Directors of a plan for the distribution of all or substantially
all of the assets of the Corporation and its subsidiaries taken as a whole,
to stockholders of the Corporation; PROVIDED, HOWEVER, that the Class C
Exchange shall not be considered a Change of Control.
"Class C Exchange" shall mean the exchange by the Corporation, pursuant
to the Separation Agreement, of one share of PKS Holdings Stock for each
outstanding share of Class C Stock.
E-I-2
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"Construction Stock" shall mean (i) prior to the Class C Exchange, Class
C Stock, and (ii) after the Class C Exchange, PKS Holdings Stock and any
other capital stock to which Class R Stock may be attached as provided in
paragraph B. hereof.
"Continuing Director" shall mean, as of any date of determination, any
member of the board of directors of the Corporation who (i) was a member of
such board of directors immediately following the consummation of the Class
C Exchange or (ii) was nominated for election or elected to such board of
directors with the approval of a majority of the Continuing Directors who
were members of such board of directors at the time of such nomination or
election.
"Conversion Condition" shall mean, with respect to a given share of
Class R Stock (or fraction thereof), the occurrence of the earliest of: (i)
the repurchase or redemption by the Corporation or PKS Holdings of the share
of Construction Stock to which it is attached; (ii) the exchange of the
share of Construction Stock to which such share of Class R Stock (or
fraction thereof) is attached into another class of stock or securities of
PKS Holdings intended to be issued primarily to persons leaving employment
of PKS Holdings; (iii) April 15, 2006; and (iv) a Change of Control of the
Corporation; PROVIDED, HOWEVER, that the Conversion Condition shall not be
deemed to have occurred as a result of the Class C Exchange.
"Conversion Ratio" shall have the meaning given to it in paragraph E.
"Conversion Ratio Certificate" shall mean either a Private Conversion
Ratio Certificate or a Public Conversion Ratio Certificate.
"Conversion Value" shall mean, as of any given date, the Conversion
Value set forth in the most recent Conversion Ratio Certificate delivered
pursuant to paragraph E. hereof on or prior to such date, subject to any
adjustment required by paragraph F. hereof. The Conversion Value set forth
in any such Conversion Ratio Certificate shall be equal to (i) in the event
that the Trading Price is greater than or equal to the Base Price, the Base
Conversion Value; (ii) in the event that the Trading Price is less than the
Base Price, an amount equal to (a) the Base Conversion Value minus (b) an
amount equal to (x) the Excess Amount Factor, multiplied by (y)the amount by
which the Base Price exceeds the Trading Price; PROVIDED, HOWEVER, that in
no event shall the Conversion Value be less than the Minimum Value.
"Current Trading Value" of any Publicly Traded security on a given date
shall mean the arithmetic mean of the daily Mean Reported Prices of such
security for each Business Day during the period commencing on the
fourteenth Business Day preceding such date and ending on and including such
date.
"Excess Amount Factor" shall mean 1.0, subject to adjustment as provided
in paragraph F. hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Extraordinary Dividend" shall mean any dividend on the Class D Stock
(i) paid in property other than cash, shares of Class D Stock or Convertible
Securities or in a subdivision of the outstanding shares of Class D Stock
(by reclassification or otherwise), or (ii) paid in cash in an amount equal
to or exceeding % of the then current Trading Price of the Class D Stock.
"Fixed Conversion Value" shall mean $25.00, as adjusted pursuant to
paragraph F. hereof.
"Fixed Terms" shall mean each of the Fixed Conversion Value and the Base
Price, each as adjusted pursuant to paragraph F. hereof.
"Inverse Fixed Terms" shall mean each of Excess Amount Factor and the
Minimum Liquidation Ratio, each as adjusted pursuant to paragraph F. hereof.
"Investment Bank" shall mean any investment bank of national reputation
selected by the Board of Directors of the Corporation.
E-I-3
<PAGE>
"Liquidation Ratio" shall mean, as of any date, the Conversion Ratio as
of such date; PROVIDED, HOWEVER, that in no event shall the Liquidation
Ratio be less than the Minimum Liquidation Ratio.
"Mandatory Conversion Date" shall mean April 15, 2010.
"Mandatory Redemption Date" shall mean October 15, 1998, or such later
date as shall be determined by the Board of Directors.
"Mean Reported Price" shall mean on a given day with respect to any
Publicly Traded security, the arithmetic mean between the highest reported
asked price and the lowest reported bid price, in each case regular way, for
such security, as reported on the Composite Quotation System, or, if such
security is not reported on the Composite Quotation System, on the principal
national securities exchange on which such security is listed or admitted to
trading, or if such security is not listed or admitted to trading on any
national securities exchange, reported by the Nasdaq National Market or
Nasdaq SmallCap Market, as appropriate, or a similar organization if Nasdaq
is no longer reporting such information.
"Minimum Liquidation Ratio" shall mean 0.25, as adjusted pursuant to
paragraph F. hereof.
"Minimum Value" shall mean $15.00.
"Permitted Transfer" shall mean any transfer of Class R Stock to the
Corporation or any designee of the Corporation.
"PKS Holdings" shall mean PKS Holdings, Inc., together with its
successors and assigns.
"PKS Holdings Stock" shall mean common stock, par value $.01 per share,
of PKS Holdings.
"Private Conversion Period" shall mean the 25-day period commencing on
the first day following the Corporation's mailing to the registered holders
of Class R Stock of a Private Conversion Ratio Certificate; PROVIDED,
HOWEVER, that in 2006 such term shall run through May 15, 2006.
"Public Conversion Period" shall mean the period from and including the
first Business Day of each calendar month, through and including the Fifth
Business Day thereafter, except for the calendar month of April 2010, in
which the Public Conversion Period shall mean the period from and including
the first Business Day of such month, through and including April 15, 2010.
"Regular Dividend" shall mean any dividend on the Class D Stock paid in
cash in an amount less than % of the then current Trading Price of the
Class D Stock.
"Restricted Period Termination Date" shall mean, with respect to a given
share of Class R Stock (or fraction thereof), the date on which the
Conversion Condition with respect to such share of Class R Stock (or
fraction thereof) has been satisfied.
"Separation Agreement" shall mean that certain Separation Agreement
dated as of , 1997 among the Corporation, PKS Holdings, Kiewit
Diversified Group, Inc. and Kiewit Construction Group, Inc.
"Trading Price" shall mean, as of any date, the Trading Price set forth
in the most recent Conversion Ratio Certificate, as described in paragraphs
E.3. and E.4.
B. Issuance and Attachment.
1. When issued, each share of Class R Stock (or fraction thereof) shall
attach to the share of Class C Stock with respect to which it was
distributed. In no event shall the terms of this paragraph B. be deemed to
restrict the transfer of Class C Stock.
2. Upon the occurrence of the Class C Exchange, each share of Class R
Stock (or fraction thereof) attached to a share of Class C Stock shall,
automatically, and without further action by or on behalf of the
Corporation, PKS Holdings, the Corporation's transfer agent or the holder of
such share
E-I-4
<PAGE>
of Class R Stock, Class C Stock or PKS Holdings Stock, attach to the share
of PKS Holdings Stock for which such share of Class C Stock was exchanged.
3. In the event that the Corporation or PKS Holdings shall (i) pay a
dividend on Construction Stock in shares of Construction Stock, (ii)
subdivide its outstanding shares of Construction Stock, (iii) combine its
outstanding shares of Construction Stock into a smaller number of shares of
Construction Stock or (iv) issue any shares of capital stock in a
reclassification of the Construction Stock (including any such
reclassification in connection with a consolidation or merger), shares of
Class R Stock (or fractions thereof) which were attached to Construction
Stock immediately prior to the occurrence of any such event shall, upon the
effectiveness of any such event, attach on a pro rata basis to (x) the
Construction Stock held by such holder to which such shares of Class R Stock
(or fractions thereof) were attached; and/or (y) the capital stock having
ownership restrictions comparable to the Class C Stock issuable to such
holder as a result of holding the Construction Stock to which such shares of
Class R Stock (or fractions thereof) were attached at such time, as
appropriate.
Except as described in paragraph B.2., a share of Class R Stock (or
fraction thereof) shall detach from the share of Construction Stock to which
it is attached only upon the occurrence of (i) the Conversion Condition with
respect to such share of Class R Stock (or fraction thereof), (ii) a
Permitted Transfer, or (iii) the Mandatory Redemption. If, within one year
after the Class C Exchange, any holder who has sold or transferred to the
Corporation prior to the Class C Exchange shares of Class C Stock to which
Class R Stock was attached, purchases or acquires Construction Stock, the
number of shares of Class R Stock held by such holder which are not attached
to Construction Stock multiplied by the Reattachment Ratio shall immediately
attach to such newly purchased or acquired shares of Construction Stock on a
pro rata basis.
"Reattachment Ratio" shall mean the lesser of (i) 1.0 or (ii) a
fraction, the numerator of which equals the purchase price paid to the
Corporation or PKS Holdings, as applicable, for such newly purchased or
acquired shares of Class C Stock or PKS Holdings Stock; and the denominator
of which equals the purchase price paid for such shares of Class C Stock or
PKS Holdings Stock, as applicable, sold or transferred to the Corporation
PKS Holdings, as applicable.
C. Transfer Restrictions.
1. No share of Class R Stock may be transferred prior to the Class C
Exchange, other than pursuant to the Mandatory Redemption. Following the
Class C Exchange and Prior to the occurrence of the Restricted Period
Termination Date for a given share of Class R Stock (or fraction thereof),
any attempted transfer of such share of Class R Stock (or fraction thereof),
except an Attached Transfer, a Permitted Transfer or pursuant to the
Mandatory Redemption, shall be void and of no effect. Neither the
Corporation nor its transfer agent shall register any attempted transfer of
any certificate representing a share of Class R Stock (or fraction thereof)
prior to the occurrence of the Restricted Period Termination Date for such
share of Class R Stock (or fraction thereof), except an Attached Transfer or
a Permitted Transfer. For purposes hereof, neither the Class C Exchange nor
the attachment nor the reattachment of Class R Stock to PKS Holdings Stock
upon the occurrence of the Class C Exchange shall be considered a transfer
of Class R Stock.
2. Following the occurrence of (i) the Class C Exchange and (ii) the
Restricted Period Termination Date for a given share of Class R Stock (or
fraction thereof), and until the close of business on the Mandatory
Conversion Date, such share of Class R Stock (or fraction thereof) shall
separate from the share of PKS Holdings Stock to which it was attached and
be freely transferable, and the Corporation or its transfer agent shall from
time to time register the transfer of the certificate representing such
share of Class R Stock (or fraction thereof) upon the books of the
Corporation, upon surrender of such certificate, duly endorsed, accompanied
by documentation satisfactory to the Corporation evidencing that the
Restricted Period Termination Date has occurred with respect to such Class R
Stock (or fraction thereof).
E-I-5
<PAGE>
3. In the event of an Attached Transfer or a Permitted Transfer of a
share of Class R Stock (or fraction thereof) following the Class C Exchange
and prior to the Restricted Period Termination Date of such share of Class R
Stock (or fraction thereof), the Corporation, or its transfer agent, shall
from time to time register such Attached Transfer or Permitted Transfer of
the certificate representing such Class R Stock upon the books of the
Corporation, upon surrender of such certificate, duly endorsed, accompanied
by documentation satisfactory to the Corporation evidencing the Attached
Transfer or Permitted Transfer, as the case may be, of such Class R Stock.
D. Optional Conversion.
1. Subject to the provisions hereof, each share of Class R Stock (or
fraction thereof) may be converted, at the option of the holder thereof (an
"Optional Conversion"), into the number of fully paid and nonassessable
shares of Class D Stock equal to the Conversion Ratio then in effect. No
share of Class R Stock (or fraction thereof) may be converted into Class D
Stock prior to the occurrence of the Conversion Condition with respect to
such share of Class R Stock (or fraction thereof).
2. Other than as set forth in paragraphs L. and M. hereof, Class R Stock
may not be converted into Class D Stock except as follows:
a) In the event that the Class D Stock is not Publicly Traded, each
share of Class R Stock (or fraction thereof) for which the Conversion
Condition has been met may be converted into Class D Stock on any
Business Day during any Private Conversion Period following the earlier
of (i) December 31, 1999, or (ii) a Change of Control; and
b) In the event that the Class D Stock is Publicly Traded, each
share of Class R Stock (or fraction thereof) for which the Conversion
Condition has been met may be converted into Class D Stock on any
Business Day during any Public Conversion Period after the Blackout
Period. The "Blackout Period" shall mean the 90-day period commencing on
the first day on which the Class D Stock is Publicly Traded; PROVIDED,
HOWEVER, that the Corporation may extend the Blackout Period to a total
of up to 180 days from the first day on which the Class D Stock is
Publicly Traded if so requested by an underwriter of Class D Stock in
connection with an initial public underwritten offering thereof.
3. On any redemption or Mandatory Conversion of Class R Stock or any
liquidation of the Corporation, the right of Optional Conversion shall
terminate at the close of business on the full Business Day next preceding
the date fixed for such redemption or Mandatory Conversion or for the
payment of any amounts distributable on liquidation to the holders of Class
R Stock.
4. The Corporation may issue fractions of shares of Class R Stock. The
Corporation shall not issue fractions of shares of Class D Stock or scrip in
lieu thereof upon conversion of Class R Stock. If any fraction of a share of
Class D Stock would, except for the provisions of this paragraph D.4., be
issuable upon conversion of any Class R Stock, the Corporation shall in lieu
thereof pay to the person entitled thereto an amount in cash equal to the
Trading Price then in effect multiplied by the fraction represented by such
fraction of a share of Class D Stock.
5. In order to exercise the Optional Conversion privilege, the holder of
any Class R Stock to be converted shall surrender his, hers or its
certificate or certificates therefor to the principal office of the transfer
agent for the Class R Stock (or if no transfer agent be at the time
appointed, then the Corporation at its principal office), and shall give
written notice to the Corporation at such office that the holder elects to
convert the Class R Stock represented by such certificates, or any number
thereof. Such notice shall also state the name or names (with address) in
which the certificate or certificates for shares of Class D Stock which
shall be issuable on such conversion, and for any shares of Class R Stock
(or fractions thereof) represented by the certificate or certificates so
surrendered which are not to be converted, shall be issued, subject to any
restrictions on transfer relating to shares of Class D Stock issuable upon
such conversion or such shares of the Class R Stock (or fractions thereof).
If so
E-I-6
<PAGE>
required by the Corporation, certificates surrendered for conversion shall
be duly endorsed and accompanied by documentation satisfactory to the
Corporation evidencing that the Restricted Period Termination Date has
occurred with respect to such Class R Stock.
6. Certificates representing Attached Class R Stock shall contain such
legends as the Corporation shall deem appropriate.
7. As soon as practicable after receipt during a Conversion Period of
such notice and documentation and the surrender of the certificate or
certificates for Class R Stock for which the Conversion Condition has been
met, as aforesaid, the Corporation shall cause to be issued and delivered at
such office to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Class D Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
paragraph D.4. hereof in respect of any fraction of a share of Class D Stock
otherwise issuable upon such conversion.
8. The Corporation shall at all times when the Class R Stock shall be
outstanding reserve and keep available out of its authorized but unissued
Class D Stock, for the purposes of effecting the conversion of the Class R
Stock, such number of its duly authorized shares of Class D Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
Class R Stock. Before taking any action which would cause an adjustment
reducing the Conversion Value below the then par value of the shares of
Class D Stock issuable upon conversion of the Class R Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of such Class D Stock at such adjusted
Conversion Value.
9. All shares of Class R Stock which shall have been surrendered for
conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall forthwith cease and terminate except only
the right of the holder thereof to receive shares of Class D Stock in
exchange therefor and payment of any accrued and unpaid dividends thereon.
Any shares of Class R Stock so converted shall be retired and canceled and
shall not be reissued, and the Corporation shall from time to time take such
appropriate action as may be necessary to reduce the authorized Class R
Stock accordingly.
E. Determination of Conversion Ratio; Obligation of the Corporation to
Provide Conversion Ratio Certificates and Appraisals.
1. The Conversion Ratio, Conversion Value and Trading Price used for any
purpose, including with respect to the conversion of Class R Stock, shall be
as set forth in the most recent Conversion Ratio Certificate, and shall in
any case be as adjusted pursuant to paragraph F. hereof; PROVIDED, HOWEVER,
that prior to the delivery of the first Conversion Ratio Certificate, the
Conversion Value shall be equal to the Fixed Conversion Value, the Trading
Price shall be equal to the Base Price and the Conversion Ratio shall be
equal to the Fixed Conversion Value divided by the Base Price.
2. The "Conversion Ratio" set forth in a Conversion Ratio Certificate
shall be equal to (i) the Conversion Value set forth in such Conversion
Ratio Certificate, divided by (ii) the Trading Price set forth in such
Conversion Ratio Certificate.
3. Beginning with the fiscal year ended December 25, 1999, if, at the
end of any fiscal year of the Corporation the Class D Stock is not Publicly
Traded, the Corporation shall, no earlier than the January 15 nor later than
February 28 immediately following the end of such fiscal year, cause to be
provided to each office designated for conversion of Class R Stock, a copy
of a certificate (the "Private Conversion Ratio Certificate") signed by two
officers of the Corporation setting forth the Conversion Ratio, Conversion
Value and Trading Price as of the end of such fiscal year, calculated in
each case pursuant to this paragraph E. In addition, if a Change of Control
occurs when the Class D Stock is not Publicly Traded, the Corporation shall
within 60 days following such Change of Control,
E-I-7
<PAGE>
cause to be provided to each office designated for conversion of Class R
Stock, such a Private Conversion Ratio Certificate.
The "Trading Price" set forth in such Private Conversion Ratio
Certificate shall be the Appraised Value set forth in the most recent
Appraisal delivered to the Corporation and approved by the Board of
Directors.
Beginning with the fiscal year ended December 25, 1999, if, at the end
of any fiscal year of the Corporation the Class D Stock is not Publicly
Traded, the Corporation shall cause to be prepared and delivered to the
Board of Directors and approved by the Board of Directors, prior to the
February 28 immediately following the end of such fiscal year, an appraisal
(an "Appraisal") of the per share value of the Class D Stock as of the last
day of such fiscal year by an Investment Bank. If a Change of Control occurs
after December 31, 1999 and the Class D Stock is not Publicly Traded, the
Corporation shall cause to be prepared and delivered to the Board of
Directors and approved by the Board of Directors, within 60 days following
such Change of Control, an Appraisal of the per share value of the Class D
Stock as of the date of such Change of Control. Such Investment Bank shall
determine the per share value of the Class D Stock as if the Class D Stock
was Publicly Traded and shall submit such per share value to the Board of
Directors for its approval. The value per share of the Class D Stock as set
forth in the Appraisal and approved by the Board of Directors shall be the
"Appraised Value." In determining the Appraised Value, the Investment Bank
shall place substantial, but not exclusive, emphasis on valuations of
comparable companies in the public equity markets, and shall not take into
account factors such as control premiums, minority discounts or illiquidity
discounts that would not generally apply to such companies.
As promptly as practicable following its delivery of any Private
Conversion Ratio Certificate, the Corporation shall cause to be given to
each of the registered holders of Class R Stock at such holder's address
appearing upon the books of the Corporation a copy of such Private
Conversion Ratio Certificate by first class mail, postage prepaid.
4. During any period in which the Class D Stock is Publicly Traded, the
Corporation shall, on the last Business Day of each calendar month, cause to
be provided to each office designated for conversion of Class R Stock, a
copy of a certificate (the "Public Conversion Ratio Certificate"), signed by
two officers of the Corporation, setting forth the Conversion Ratio,
Conversion Value and Trading Price as of the close of business on such
Business Day, calculated in each case pursuant to this paragraph E.
The "Trading Price" set forth in such Public Conversion Ratio
Certificate shall be equal to the Current Trading Value of one share of
Class D Stock as of the close of business on the last Business Day of such
calendar month. Notwithstanding anything herein to the contrary, if, during
any period being used to calculate such Current Trading Value (the
"Calculation Period"), any event has occurred to cause the Conversion Ratio
and/or the Conversion Value to be adjusted pursuant to paragraph F. hereof
(an "Adjustment Event"), the Corporation shall in good faith determine such
Conversion Ratio and/or the Conversion Value, as appropriate, so as to give
pro forma effect to the Adjustment Event immediately prior to the
Calculation Period.
The Corporation shall provide any holder of Class R Stock with a copy of
any Public Conversion Ratio Certificate upon request. Beginning on the day
on which the first Public Conversion Ratio Certificate is provided pursuant
to this paragraph E.4., the Corporation shall maintain a reasonable means to
allow holders to access the Conversion Ratio as set forth in the most recent
Public Conversion Ratio Certificate on an immediate basis during business
hours on each Business Day on which Class R Stock is issued and outstanding.
5. All calculations and determinations required to be made by the
Corporation pursuant hereto shall be made by the Corporation in good faith.
All such calculations and determinations shall be conclusive unless
otherwise specifically provided hereby.
E-I-8
<PAGE>
6. Conversion Ratio Certificates may, at the Corporation's discretion,
be prepared by an agent of the Corporation. In such case each such
Conversion Ratio Certificate shall be signed by an authorized signatory of
such agent and countersigned by two officers of the Corporation.
7. Upon any conversion of Class R Stock into Class D Stock, in no event
shall any such Class R Stock be converted into Class D Stock, Non-redeemable
Series.
F. Anti-dilution Provisions.
1. If the Corporation shall (a) pay a dividend on any of its shares of
capital stock (including Class D Stock) in shares of Class D Stock, (b)
subdivide its outstanding shares of Class D Stock, (c) combine its
outstanding shares of Class D Stock into a smaller number of shares of Class
D Stock or (d) issue any shares of its capital stock in a reclassification
of the Class D Stock (including any such reclassification in connection with
a consolidation or merger in which the Corporation is the continuing
corporation) (each, a "Conversion Term Adjustment Event"):
a) Each of the Fixed Terms shall be adjusted to such value
determined by multiplying (x) such Fixed Term immediately prior to such
Conversion Term Adjustment Event, by (y) a fraction, the numerator of
which is the number of shares of Class D Stock outstanding immediately
prior to such Conversion Term Adjustment Event, and the denominator of
which is the number of shares of Class D Stock outstanding immediately
after such Conversion Term Adjustment Event; and
b) Each of the Inverse Fixed Terms shall be adjusted to such value
determined by multiplying (x) such Inverse Fixed Term immediately prior
to such Conversion Term Adjustment Event, by (y) a fraction, the
numerator of which is the number of shares of Class D Stock outstanding
immediately after such Conversion Term Adjustment Event, and the
denominator of which is the number of shares of Class D Stock outstanding
immediately prior to such Conversion Term Adjustment Event.
2. [Other adjustments to be added]
3. If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation with
another corporation, or share exchange involving the outstanding shares of
the Corporation's capital stock or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Class D Stock shall be entitled to receive stock, securities,
cash or other property with respect to or in exchange for Class D Stock,
then, as a condition of such reorganization, reclassification,
consolidation, merger, share exchange or sale, lawful and adequate provision
shall be made whereby the holders of the Class R Stock shall have the right
to acquire and receive upon conversion of the Class R Stock (after and
subject to the rights of holders of Preferred Stock, if any), such shares of
stock, securities, cash or other property issuable or payable (as part of
the reorganization, reclassification, consolidation, merger, share exchange
or sale) with respect to or in exchange for such number of outstanding
shares of Class D Stock as would have been received upon conversion of the
Class R Stock at the Conversion Ratio then in effect. The Corporation shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument mailed or
delivered to the holders of the Class R Stock at the last address of each
such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to
purchase.
4. The provisions of this subsection F shall not apply to any Class D
Stock issued, issuable or deemed outstanding pursuant hereto: (x) to any
person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees of the Corporation or its
subsidiaries in
E-I-9
<PAGE>
effect on the Initial Issuance Date or thereafter adopted by the Board of
Directors of the Corporation, (y) pursuant to options, warrants and
conversion rights in existence on the Initial Issuance Date, or (z) on
conversion of the Class R Stock.
5. In the event that:
a) the Corporation shall declare any dividend upon its Class D
Stock payable in stock or make any special dividend or other distribution
to the holders of its Class D Stock, or
b) the Corporation shall offer for subscription pro rata to the
holders of its Class D Stock any additional shares of stock of any class
or other rights, or
c) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, including any subdivision or
combination of its outstanding shares of Class D Stock, or consolidation
or merger of the Corporation with, or sale of all or substantially all of
its assets to, another corporation, or
d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the
holders of the Class R Stock:
(1) at least twenty (20) days prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(2) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Class D Stock shall
be entitled thereto, and such notice in accordance with the foregoing
clause shall also specify the date on which the holders of Class D Stock
shall be entitled to exchange their Class D Stock for securities or other
property deliverable upon such reorganization, reclassification
consolidation, merger, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class
mail, postage prepaid, addressed to the holders of the Class R Stock at
the address of each such holder as shown on the books of the Corporation.
6. If any event occurs as to which, in the opinion of the Board of
Directors of the Corporation, the provisions of this paragraph F. are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Class R Stock in accordance with the essential
intent and principles of such provisions, then the Board of Directors shall
make an adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such rights as
aforesaid[, but in no event shall any adjustment have the effect of
increasing the Base Price or reducing the Fixed Term as otherwise determined
pursuant to any of the provisions of this paragraph F., except in the case
of a combination of shares of a type contemplated in paragraph F.2., and
then in no event shall the Base Price be adjusted to an amount larger than
the Base Price as adjusted pursuant to paragraph F.2.
[7. Notwithstanding any other provision of this paragraph F., no
adjustments shall be made to the Fixed Terms or the Inverse Fixed Terms
pursuant to this paragraph F. as a result of any dividend to which holders
of Class R Stock are entitled to receive pursuant to paragraph H. hereof.]
E-I-10
<PAGE>
G. Rank.
After the Class C Exchange, the Class R Stock shall, with respect to
dividend distributions and with respect to distributions of assets and
rights upon the liquidation, winding up and dissolution of the Corporation,
rank on a parity with Class D Stock and junior to Preferred Stock.
H. Dividends.
1. Prior to the Class C Exchange, no dividends may be declared or paid
with respect to Class R Stock. After (i) the Class C Exchange and (ii)
dividends have been declared and set aside on any Preferred Stock having a
preference over the Class D Stock and Class R Stock with respect to the
payment of such dividends, holders of Class R Stock shall only be entitled
to receive dividends, out of any assets or funds legally available therefor,
in an amount per share of Class R Stock as set forth below:
a) If and when a Regular Dividend is declared, an amount which is
equal to (i) the Conversion Ratio then in effect multiplied by (ii) the
aggregate per share amount of such Regular Dividend, declared on the
Class D Stock of the Corporation; and
b) If and when an Extraordinary Dividend is declared, an amount
which is equal to (i) the Conversion Ratio then in effect multiplied by
(ii) one-fourth of (A) the aggregate per share amount of all cash
portions of such Extraordinary Dividend plus (B) the aggregate per share
amount (based upon the fair market value of the non-cash portion of such
Extraordinary Dividend at the time such Extraordinary Dividend is
declared or paid as determined in good faith by the Board of Directors of
the Corporation) of all non-cash portions of such Extraordinary Dividend,
in each case as declared on the Class D Stock of the Corporation.
Such dividends shall be declared and paid contemporaneously with the
declaration and payment of the related dividend on the Class D Stock; and
the foregoing are the only times when a dividends shall be declared and paid
with respect to the Class R Stock.
2. All dividends paid with respect to shares of Class R Stock pursuant
to this paragraph H. shall be paid pro rata and in like manner to all of the
holders entitled thereto.
3. No Regular or Extraordinary Dividends shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation on Class D Stock unless, contemporaneously therewith, a like
ratable dividend calculated in accordance with this paragraph H. is declared
and paid, or declared and a sum set apart sufficient for such payment, on
the Class R Stock, payable as set forth herein.
I. Liquidation Rights.
1. Prior to the Class C Exchange, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
("Liquidation") the holders of Class R Stock then outstanding shall not be
entitled to receive any assets or funds of the Corporation available for
distribution to its stockholders.
2. In the event of a Liquidation concurrent with or following the Class
C Exchange, holders of Class R Stock then outstanding shall be entitled to
be paid ratably out of the assets and funds of the Corporation legally
available for distribution to its stockholders, after and subject to the
payment in full of all amounts required to be distributed to the holders of
any Preferred Stock upon Liquidation, an amount equal to (a) the Liquidation
Ratio then in effect multiplied by (b) the aggregate per share amount of all
assets and funds remaining available for distribution to holders of Class D
Stock and Class R Stock.
E-I-11
<PAGE>
J. Voting.
1. Prior to the Class C Exchange, except as required by law, holders of
Class R Stock shall not be entitled to vote on any matter.
2. After the Class C Exchange, each issued and outstanding share of
Class R Stock shall be entitled to vote only (i) for the election of
directors, and (ii) as required by law. On matters on which the holders of
Class R Stock are entitled to vote, each issued and outstanding share of
Class R Stock (or fraction thereof) shall be entitled to the number of votes
equal to the Conversion Ratio, such number to be determined as of the record
date for determination of shareholders entitled to vote on such matter.
Except as required by law, holders of Class R Stock shall vote together with
the holders of Class D Stock as a single class on all matters on which
holders of Class R Stock are entitled to vote.
K. Conversion at the Option of the Corporation.
1. In the event that the Board of Directors of the Corporation
determines that the Corporation (i) take any action which would require a
vote of the Class R Stock as a separate class, or (ii) pay an Extraordinary
Dividend, the Corporation may at its option, elect to cause all, but not
less than all, shares of Class R Stock (or fractions thereof) to be
converted into Class D Stock at the Conversion Ratio in effect on the date
the Board of Directors determines to cause such a conversion; PROVIDED,
HOWEVER, that if the Conversion Ratio in effect as of such date was
calculated using a Conversion Value of less than $25.00, such Conversion
Ratio shall be recalculated using a Conversion Value of $25.00. Upon such
election by the Corporation, the Conversion Condition shall be deemed to
have occurred with respect to all shares of Class R Stock.
2. All holders of record of shares of Class R Stock will be given at
least ten (10) days prior written notice of the date fixed and the place
designated for such conversion of Class R Stock pursuant to this paragraph
K. Such notice shall be sent by mail, first class, postage prepaid, to each
record holder of shares of Class R Stock at such holder's address appearing
on the stock register. On or before the date fixed for conversion each
holder of shares of Class R Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated
in such notice, and shall thereafter receive certificates for the number of
shares of Class D Stock to which such holder is entitled pursuant to this
paragraph K. On the date fixed for conversion, all rights with respect to
the Class R Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Class D Stock
into which such Class R Stock has been converted and payment of any accrued
and unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his attorneys duly
authorized in writing. All certificates evidencing shares of Class R Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date fixed for conversion, be
deemed to have been retired and canceled and the shares of Class R Stock
represented thereby converted into Class D Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender
such certificates on or prior to such date. As soon as practicable after the
date of such conversion and the surrender of the certificate or certificates
for Class R Stock as aforesaid, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Class D Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
paragraph D.4. hereof in respect of any fraction of a share of Class D Stock
otherwise issuable upon such conversion.
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<PAGE>
L. Mandatory Conversion.
1. Each share of Class R Stock outstanding as of the Mandatory
Conversion Date shall, automatically, and without further action by or on
behalf of the Corporation, the Corporation's transfer agent or the holder of
such share of Class R Stock, be converted (a "Mandatory Conversion") into
shares of Class D Stock at the Conversion Ratio then in effect as of such
Mandatory Conversion Date.
2. All holders of record of shares of Class R Stock will be given
written notice at least ten (10) days prior to the Mandatory Conversion Date
stating the place designated for mandatory conversion of all of such shares
of Class R Stock pursuant to this paragraph L. Such notice shall be sent by
mail, first class, postage prepaid, to each record holder of shares of Class
R Stock at such holder's address appearing on the stock register. On or
before the Mandatory Conversion Date, each holder of Class R Stock shall
surrender his or its certificate or certificates for all such shares to the
Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Class D Stock to which such
holder is entitled pursuant to this paragraph L.2. On the date fixed for
conversion, all rights with respect to the Class R Stock so converted will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Class D Stock into which such Class R Stock has been
converted and payment of any accrued and unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall
be endorsed or accompanied by written instrument or instruments of transfer,
in form satisfactory to the Corporation, duly executed by the registered
holder or by his attorneys duly authorized in writing. All certificates
evidencing shares of Class R Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after
the date fixed for conversion, be deemed to have been retired and canceled
and the shares of Class R Stock represented thereby converted into Class D
Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. As soon as
practicable after the date of such Mandatory Conversion and the surrender of
the certificate or certificates for Class R Stock as aforesaid, the
Corporation shall cause to be issued and delivered to such holder, or on his
or its written order, a certificate or certificates for the number of full
shares of Class D Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in paragraph D.4. hereof in respect
of any fraction of a share of Class D Stock otherwise issuable upon such
conversion.
M. Mandatory Redemption. If the Class C Exchange has not occurred by the
close of business on the Mandatory Redemption Date, the Corporation shall redeem
(to the extent funds are legally available therefor), all shares of Class R
Stock then outstanding for a per share price equal to the par value of such
shares of Class R Stock (or fractions thereof) (such amount is hereinafter
referred to as the "Redemption Price"). Such Redemption Price shall be paid to
each record holder of Class R Stock as of the Mandatory Redemption Date,
promptly after such date, by certified or Bank cashier's check, sent by mail,
first class, postage prepaid, to each record holder of shares of Class R Stock
at such holder's address appearing on the stock register. If the Corporation is
unable at such date to redeem all shares of Class R Stock (and fractions
thereof) because funds are not legally available therefor, then the Corporation
shall redeem such shares as soon thereafter as funds are legally available for
redemption of such shares.
In witness whereof, Peter Kiewit Sons', Inc. has caused this Certificate of
Amendment to be signed by , its this day of
, 199 .
PETER KIEWIT SONS', INC.
By:
____________________________________
Name:
Title:
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<PAGE>
APPENDIX E-II
FORM OF
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
PETER KIEWIT SONS', INC.
Pursuant to Section 245
of the Delaware General Corporation Law
Peter Kiewit Sons', Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Peter Kiewit Sons', Inc. which is the
name under which the Corporation was originally incorporated.
2. The original Certificate of Incorporation of the Corporation was
filed in the office of the Secretary of State of the State of Delaware on
July 1, 1941 and the Restated Certificate of Incorporation of the
Corporation was filed in such office on January 5, 1992.
3. This Second Restated Certificate of Incorporation, which was duly
adopted pursuant to Sections 242 and 245 of the Delaware General Corporation
Law, restates and integrates and further amends the provisions of the
Restated Certificate of Incorporation of the Corporation.
4. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in
its entirety as follows:
ARTICLE I
NAME
The name of the Corporation (the "Corporation") is: Diversified Holdings,
Inc.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware (the
"DGCL").
<PAGE>
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall have
the authority to issue is 518,500,000 shares, consisting of 500,000,000 shares
of Common Stock, par value $.01 per share (the "Common Stock"), 8,500,000 shares
shall be Class R Convertible Common Stock, par value $0.01 per share (the "Class
R Stock") and 10,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock").
Ten shares of the Common Stock are hereby designated as Common Stock,
Non-Redeemable Series. The rights, powers, preferences, privileges and
limitations of Common Stock, Non-Redeemable Series shall be identical to those
of all other shares of Common Stock, except as described in Article V hereof.
Upon the filing of this Second Restated Certificate of Incorporation with
the office of the Secretary of the State of Delaware (the "Effective Time"), (i)
each share of the Corporation's Class D Diversified Group Convertible
Exchangeable Common Stock, par value of $.0625 per share ("Class D Stock"), that
is issued and outstanding, reserved for issuance or held in the Corporation's
treasury at the Effective Time, shall be automatically redesignated and
reclassified, without any action on the part of the respective holders thereof,
as Common Stock, and (ii) each share of Class D Stock that is designated as
Class D Stock, Non-Redeemable Series and that is issued and outstanding,
reserved for issuance or held in the Corporation's treasury at the Effective
Time, shall be automatically redesignated and reclassified, without any action
on the part of the respective holders thereof, as Common Stock, Non-Redeemable
Series.
ARTICLE V
COMMON STOCK
A. Dividends. After dividends have been declared and set aside on any
Preferred Stock having a preference over the Common Stock with respect to
the payment of such dividends, the holders of Common Stock shall be entitled
to receive, together with holders of Class R Stock, when and as declared,
out of assets and funds legally available therefor, cash or non-cash
dividends payable as and when the Board of Directors in its sole business
judgment so declares. Any such dividend shall be payable ratably to all
record holders of Common Stock as of the record date fixed by the Board of
Directors in accordance with the By-laws of the Corporation for the payment
thereof.
B. Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation ("Liquidation"),
the holders of Common Stock, together with holders of Class R Stock, then
outstanding shall be entitled to be paid ratably out of the assets and funds
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to
the holders of any Preferred Stock upon Liquidation, an amount equal to
their share (including any declared but unpaid dividends on the Common
Stock, subject to proportionate adjustment in the event of any stock
dividend, stock split, stock distribution or combination with respect to
such shares) of such assets and funds.
C. Voting.
1. Except as required by law, or as otherwise provided herein or in
any amendment hereof, the entire voting power of the Corporation with
respect to all matters other than the election of directors shall be
vested in the holders of Common Stock voting together as a single class.
Except as required by law, or as otherwise provided herein or in any
amendment hereof, the entire voting power of the Corporation with respect
to the election of directors shall be vested in the holders of Common
Stock and Class R Stock voting together as a single class.
2. Each holder of Common Stock entitled to vote shall at every
meeting of the stockholders of the Corporation be entitled to one vote
for each share of Common Stock registered in his or her name on the
record of stockholders.
E-II-2
<PAGE>
D. Designation of Common Stock, Non-Redeemable Series.
In the event that the Common Stock is Publicly Traded, (i) each share of
Common Stock, Non-Redeemable Series shall automatically, and without further
action by or on behalf of the Corporation, the Corporation's transfer agent
or the holder of any share of Common Stock, Non-Redeemable Series, be
converted into an equal number of shares of Common Stock which are not
Common Stock, Non-Redeemable Series, and the rights, powers, preferences,
privileges and limitations of such shares so converted shall be identical to
those of all other shares of Common Stock in all respects, and (ii) Common
Stock, Non-Redeemable Series shall no longer be designated as a separate
series of Common Stock.
ARTICLE VI
CLASS R STOCK
A. Certain Definitions.
"Attached Class R Stock" shall mean Class R Stock which is attached
to PKS Holdings Stock pursuant to the terms hereof.
"Attached Transfer" shall mean the simultaneous transfer to the same
transferee of a share of Class R Stock (or fraction thereof) and the
share of PKS Holdings Stock to which such share of Class R Stock is
attached; provided that such transfer of such share of PKS Holdings Stock
is permitted by the Certificate of Incorporation of PKS Holdings.
"Base Conversion Value" shall mean $25.00.
"Base Price" shall mean $82.00 per share, subject to adjustment as
provided in paragraph F. hereof.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York, the city in which
the Corporation's transfer agent maintains its principle office or a
place of payment are authorized by law, regulation or executive order to
remain closed.
"Change of Control" shall mean the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of the
Corporation and its subsidiaries taken as a whole, to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act); (ii) the
adoption of a plan relating to the liquidation or dissolution of the
Corporation; (iii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is
that any "person" (as defined above), becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly, of more than 50% of the total outstanding
voting power of the Corporation; (iv) the first day on which a majority
of the members of the board of directors of the Corporation are not
Continuing Directors; or (v) the adoption by the Board of Directors of a
plan for the distribution of all or substantially all of the assets of
the Corporation and its subsidiaries taken as a whole, to stockholders of
the Corporation; PROVIDED, HOWEVER, that the Class C Exchange shall not
be considered a Change of Control.
"Class C Exchange" shall mean the exchange by the Corporation,
pursuant to the Separation Agreement, of one share of PKS Holdings Stock
for each outstanding share of Class C Stock.
"Class C Stock" shall mean the Class C Construction & Mining Group
Restricted Redeemable Convertible Exchangeable Common Stock, par value
$0.0625 per share, of the Corporation which was exchanged for PKS
Holdings Stock pursuant to the Class C Exchange.
"Continuing Director" shall mean, as of any date of determination,
any member of the board of directors of the Corporation who (i) was a
member of such board of directors immediately
E-II-3
<PAGE>
following the consummation of the Class C Exchange or (ii) was nominated
for election or elected to such board of directors with the approval of a
majority of the Continuing Directors who were members of such board of
directors at the time of such nomination or election.
"Conversion Condition" shall mean, with respect to a given share of
Class R Stock (or fraction thereof), the occurrence of the earliest of:
(i) the repurchase or redemption by PKS Holdings of the share of PKS
Holdings Stock to which it is attached; (ii) the exchange of the share of
PKS Holdings Stock to which such share of Class R Stock (or fraction
thereof) is attached into another class of stock or securities of PKS
Holdings intended to be issued primarily to persons leaving employment of
PKS Holdings; (iii) April 15, 2006; and (iv) a Change of Control of the
Corporation; PROVIDED, HOWEVER, that the Conversion Condition shall not
be deemed to have occurred as a result of the Class C Exchange.
"Conversion Ratio" shall have the meaning given to it in paragraph E.
"Conversion Ratio Certificate" shall mean either a Private Conversion
Ratio Certificate or a Public Conversion Ratio Certificate.
"Conversion Value" shall mean, as of any given date, the Conversion
Value set forth in the most recent Conversion Ratio Certificate delivered
pursuant to paragraph E. hereof on or prior to such date, subject to any
adjustment required by paragraph F. hereof. The Conversion Value set
forth in any such Conversion Ratio Certificate shall be equal to (i) in
the event that the Trading Price is greater than or equal to the Base
Price, the Base Conversion Value; (ii) in the event that the Trading
Price is less than the Base Price, an amount equal to (a) the Base
Conversion Value minus (b) an amount equal to (x) the Excess Amount
Factor, multiplied by (y)the amount by which the Base Price exceeds the
Trading Price; PROVIDED, HOWEVER, that in no event shall the Conversion
Value be less than the Minimum Value.
"Current Trading Value" of any Publicly Traded security on a given
date shall mean the arithmetic mean of the daily Mean Reported Prices of
such security for each Business Day during the period commencing on the
fourteenth Business Day preceding such date and ending on and including
such date.
"Excess Amount Factor" shall mean 1.0, subject to adjustment as
provided in paragraph F. hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Extraordinary Dividend" shall mean any dividend on the Common Stock
(i) paid in property other than cash, shares of Common Stock or
Convertible Securities or in a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), or (ii) paid in cash in
an amount equal to or exceeding % of the then current Trading Price of
the Common Stock.
"Fixed Conversion Value" shall mean $25.00, as adjusted pursuant to
paragraph F. hereof.
"Fixed Terms" shall mean each of the Fixed Conversion Value and the
Base Price, each as adjusted pursuant to paragraph F. hereof.
"Inverse Fixed Terms" shall mean each of Excess Amount Factor and the
Minimum Liquidation Ratio, each as adjusted pursuant to paragraph F.
hereof.
"Investment Bank" shall mean any investment bank of national
reputation selected by the Board of Directors of the Corporation.
"Liquidation Ratio" shall mean, as of any date, the Conversion Ratio
as of such date; PROVIDED, HOWEVER, that in no event shall the
Liquidation Ratio be less than the Minimum Liquidation Ratio.
"Mandatory Conversion Date" shall mean April 15, 2010.
"Mean Reported Price" shall mean on a given day with respect to any
Publicly Traded security, the arithmetic mean between the highest
reported asked price and the lowest reported
E-II-4
<PAGE>
bid price, in each case regular way, for such security, as reported on
the Composite Quotation System, or, if such security is not reported on
the Composite Quotation System, on the principal national securities
exchange on which such security is listed or admitted to trading, or if
such security is not listed or admitted to trading on any national
securities exchange, reported by the Nasdaq National Market or Nasdaq
SmallCap Market, as appropriate, or a similar organization if Nasdaq is
no longer reporting such information.
"Minimum Liquidation Ratio" shall mean 0.25, as adjusted pursuant to
paragraph F. hereof.
"Minimum Value" shall mean $15.00.
"Permitted Transfer" shall mean any transfer of Class R Stock to the
Corporation or any designee of the Corporation.
"PKS Holdings" shall mean PKS Holdings, Inc., together with its
successors and assigns.
"PKS Holdings Stock" shall mean common stock, par value $.01 per
share, of PKS Holdings.
"Private Conversion Period" shall mean the 25-day period commencing
on the first day following the Corporation's mailing to the registered
holders of Class R Stock of a Private Conversion Ratio Certificate;
PROVIDED, HOWEVER, that in 2006 such term shall run through May 15, 2006.
"Public Conversion Period" shall mean the period from and including
the first Business Day of each calendar month, through and including the
Fifth Business Day thereafter, except for the calendar month of April
2010, in which the Public Conversion Period shall mean the period from
and including the first Business Day of such month, through and including
April 15, 2010.
"Publicly Traded" shall mean, with respect to any security, that such
security is listed on a national securities exchange, or is traded on the
Nasdaq National Market System or the Nasdaq SmallCap Market, and has been
so listed or traded for at least 15 Business Days prior to the date in
question.
"Regular Dividend" shall mean any dividend on the Common Stock paid
in cash in an amount less than % of the then current Trading Price of
the Common Stock.
"Restricted Period Termination Date" shall mean, with respect to a
given share of Class R Stock (or fraction thereof), the date on which the
Conversion Condition with respect to such share of Class R Stock (or
fraction thereof) has been satisfied.
"Separation Agreement" shall mean that certain Separation Agreement
dated as of , 1997 among the Corporation, PKS Holdings, Kiewit
Diversified Group, Inc. and Kiewit Construction Group, Inc.
"Trading Price" shall mean, as of any date, the Trading Price set
forth in the most recent Conversion Ratio Certificate, as described in
paragraphs E.3. and E.4.
B. Issuance and Attachment.
1. When issued, each share of Class R Stock (or fraction thereof)
attached to the share of Class C Stock with respect to which it was
distributed.
2. Each share of Class R Stock (or fraction thereof) attached to a
share of Class C Stock shall, automatically, and without further action
by or on behalf of the Corporation, PKS Holdings, the Corporation's
transfer agent or the holder of such share of Class R Stock, Class C
Stock or PKS Holdings Stock, attach to the share of PKS Holdings Stock
for which such share of Class C Stock was exchanged.
3. In the event that PKS Holdings shall (i) pay a dividend on PKS
Holdings Stock in shares of PKS Holdings Stock, (ii) subdivide its
outstanding shares of PKS Holdings Stock, (iii) combine its outstanding
shares of PKS Holdings Stock into a smaller number of shares of PKS
Holdings Stock or (iv) issue any shares of capital stock in a
reclassification of the PKS Holdings Stock (including any such
reclassification in connection with a consolidation or merger), shares of
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<PAGE>
Class R Stock (or fractions thereof) which were attached to PKS Holdings
Stock immediately prior to the occurrence of any such event shall, upon
the effectiveness of any such event, attach on a pro rata basis to (x)
the PKS Holdings Stock held by such holder to which such shares of Class
R Stock (or fractions thereof) were attached; and/or (y) the capital
stock having ownership restrictions comparable to the PKS Holdings Stock
issuable to such holder as a result of holding the PKS Holdings Stock to
which such shares of Class R Stock (or fractions thereof) were attached
at such time, as appropriate.
Except as described in paragraph B.2., a share of Class R Stock (or
fraction thereof) shall detach from the share of PKS Holdings Stock to
which it is attached only upon the occurrence of (i) the Conversion
Condition with respect to such share of Class R Stock (or fraction
thereof), or (ii) a Permitted Transfer. If, within one year after the
Class C Exchange, any holder who has sold or transferred to the
Corporation prior to the Class C Exchange shares of Class C Stock to
which Class R Stock was attached, purchases or acquires PKS Holdings
Stock, the number of shares of Class R Stock held by such holder which
are not attached to PKS Holdings Stock multiplied by the Reattachment
Ratio shall immediately attach to such newly purchased or acquired shares
of PKS Holdings Stock on a pro rata basis.
"Reattachment Ratio" shall mean the lesser of (i) 1.0 or (ii) a
fraction, the numerator of which equals the purchase price paid to PKS
Holdings, for such newly purchased or acquired shares PKS Holdings Stock;
and the denominator of which equals the purchase price paid for such
shares of PKS Holdings Stock, sold or transferred to the PKS Holdings.
C. Transfer Restrictions.
1. Prior to the occurrence of the Restricted Period Termination Date
for a given share of Class R Stock (or fraction thereof), any attempted
transfer of such share of Class R Stock (or fraction thereof), except an
Attached Transfer, or a Permitted Transfer, shall be void and of no
effect. Neither the Corporation nor its transfer agent shall register any
attempted transfer of any certificate representing a share of Class R
Stock (or fraction thereof) prior to the occurrence of the Restricted
Period Termination Date for such share of Class R Stock (or fraction
thereof), except an Attached Transfer or a Permitted Transfer. For
purposes hereof, neither the Class C Exchange nor the attachment nor the
reattachment of Class R Stock to PKS Holdings Stock upon the occurrence
of the Class C Exchange shall be considered a transfer of Class R Stock.
2. Following the occurrence of (i) the Class C Exchange and (ii) the
Restricted Period Termination Date for a given share of Class R Stock (or
fraction thereof), and until the close of business on the Mandatory
Conversion Date, such share of Class R Stock (or fraction thereof) shall
separate from the share of PKS Holdings Stock to which it was attached
and be freely transferable, and the Corporation or its transfer agent
shall from time to time register the transfer of the certificate
representing such share of Class R Stock (or fraction thereof) upon the
books of the Corporation, upon surrender of such certificate, duly
endorsed, accompanied by documentation satisfactory to the Corporation
evidencing that the Restricted Period Termination Date has occurred with
respect to such Class R Stock (or fraction thereof).
3. In the event of an Attached Transfer or a Permitted Transfer of a
share of Class R Stock (or fraction thereof) following the Class C
Exchange and prior to the Restricted Period Termination Date of such
share of Class R Stock (or fraction thereof), the Corporation, or its
transfer agent, shall from time to time register such Attached Transfer
or Permitted Transfer of the certificate representing such Class R Stock
upon the books of the Corporation, upon surrender of such certificate,
duly endorsed, accompanied by documentation satisfactory to the
Corporation evidencing the Attached Transfer or Permitted Transfer, as
the case may be, of such Class R Stock.
D. Optional Conversion.
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<PAGE>
1. Subject to the provisions hereof, each share of Class R Stock (or
fraction thereof) may be converted, at the option of the holder thereof
(an "Optional Conversion"), into the number of fully paid and
nonassessable shares of Common Stock equal to the Conversion Ratio then
in effect. No share of Class R Stock (or fraction thereof) may be
converted into Common Stock prior to the occurrence of the Conversion
Condition with respect to such share of Class R Stock (or fraction
thereof).
2. Other than as set forth in paragraphs L. and M. hereof, Class R
Stock may not be converted into Common Stock except as follows:
a) In the event that the Common Stock is not Publicly Traded,
each share of Class R Stock (or fraction thereof) for which the
Conversion Condition has been met may be converted into Common Stock
on any Business Day during any Private Conversion Period following
the earlier of (i) December 31, 1999, or (ii) a Change of Control;
and
b) In the event that the Common Stock is Publicly Traded, each
share of Class R Stock (or fraction thereof) for which the Conversion
Condition has been met may be converted into Common Stock on any
Business Day during any Public Conversion Period after the Blackout
Period. The "Blackout Period" shall mean the 90-day period commencing
on the first day on which the Common Stock is Publicly Traded;
PROVIDED, HOWEVER, that the Corporation may extend the Blackout
Period to a total of up to 180 days from the first day on which the
Common Stock is Publicly Traded if so requested by an underwriter of
Common Stock in connection with an initial public underwritten
offering thereof.
3. On any redemption or Mandatory Conversion of Class R Stock or any
liquidation of the Corporation, the right of Optional Conversion shall
terminate at the close of business on the full Business Day next
preceding the date fixed for such redemption or Mandatory Conversion or
for the payment of any amounts distributable on liquidation to the
holders of Class R Stock.
4. The Corporation may issue fractions of shares of Class R Stock.
The Corporation shall not issue fractions of shares of Common Stock or
scrip in lieu thereof upon conversion of Class R Stock. If any fraction
of a share of Common Stock would, except for the provisions of this
paragraph D.4., be issuable upon conversion of any Class R Stock, the
Corporation shall in lieu thereof pay to the person entitled thereto an
amount in cash equal to the Trading Price then in effect multiplied by
the fraction represented by such fraction of a share of Common Stock.
5. In order to exercise the Optional Conversion privilege, the holder
of any Class R Stock to be converted shall surrender his, hers or its
certificate or certificates therefor to the principal office of the
transfer agent for the Class R Stock (or if no transfer agent be at the
time appointed, then the Corporation at its principal office), and shall
give written notice to the Corporation at such office that the holder
elects to convert the Class R Stock represented by such certificates, or
any number thereof. Such notice shall also state the name or names (with
address) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion, and for any shares of
Class R Stock (or fractions thereof) represented by the certificate or
certificates so surrendered which are not to be converted, shall be
issued, subject to any restrictions on transfer relating to shares of
Common Stock issuable upon such conversion or such shares of the Class R
Stock (or fractions thereof). If so required by the Corporation,
certificates surrendered for conversion shall be duly endorsed and
accompanied by documentation satisfactory to the Corporation evidencing
that the Restricted Period Termination Date has occurred with respect to
such Class R Stock.
6. Certificates representing Attached Class R Stock shall contain
such legends as the Corporation shall deem appropriate.
7. As soon as practicable after receipt during a Conversion Period of
such notice and documentation and the surrender of the certificate or
certificates for Class R Stock for which the Conversion Condition has
been met, as aforesaid, the Corporation shall cause to be issued and
E-II-7
<PAGE>
delivered at such office to such holder, or on his or its written order,
a certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in paragraph D.4. hereof in respect of any
fraction of a share of Common Stock otherwise issuable upon such
conversion.
8. The Corporation shall at all times when the Class R Stock shall be
outstanding reserve and keep available out of its authorized but unissued
Common Stock, for the purposes of effecting the conversion of the Class R
Stock, such number of its duly authorized shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
outstanding Class R Stock. Before taking any action which would cause an
adjustment reducing the Conversion Value below the then par value of the
shares of Common Stock issuable upon conversion of the Class R Stock, the
Corporation will take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Conversion Value.
9. All shares of Class R Stock which shall have been surrendered for
conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any,
to receive notices and to vote, shall forthwith cease and terminate
except only the right of the holder thereof to receive shares of Common
Stock in exchange therefor and payment of any accrued and unpaid
dividends thereon. Any shares of Class R Stock so converted shall be
retired and canceled and shall not be reissued, and the Corporation shall
from time to time take such appropriate action as may be necessary to
reduce the authorized Class R Stock accordingly.
E. Determination of Conversion Ratio; Obligation of the Corporation to
Provide Conversion Ratio Certificates and Appraisals.
1. The Conversion Ratio, Conversion Value and Trading Price used for
any purpose, including with respect to the conversion of Class R Stock,
shall be as set forth in the most recent Conversion Ratio Certificate,
and shall in any case be as adjusted pursuant to paragraph F. hereof;
PROVIDED, HOWEVER, that prior to the delivery of the first Conversion
Ratio Certificate, the Conversion Value shall be equal to the Fixed
Conversion Value, the Trading Price shall be equal to the Base Price and
the Conversion Ratio shall be equal to the Fixed Conversion Value divided
by the Base Price.
2. The "Conversion Ratio" set forth in a Conversion Ratio Certificate
shall be equal to (i) the Conversion Value set forth in such Conversion
Ratio Certificate, divided by (ii) the Trading Price set forth in such
Conversion Ratio Certificate.
3. Beginning with the fiscal year ended December 25, 1999, if, at the
end of any fiscal year of the Corporation the Common Stock is not
Publicly Traded, the Corporation shall, no earlier than the January 15
nor later than February 28 immediately following the end of such fiscal
year, cause to be provided to each office designated for conversion of
Class R Stock, a copy of a certificate (the "Private Conversion Ratio
Certificate") signed by two officers of the Corporation setting forth the
Conversion Ratio, Conversion Value and Trading Price as of the end of
such fiscal year, calculated in each case pursuant to this paragraph E.
In addition, if a Change of Control occurs when the Common Stock is not
Publicly Traded, the Corporation shall within 60 days following such
Change of Control, cause to be provided to each office designated for
conversion of Class R Stock, such a Private Conversion Ratio Certificate.
The "Trading Price" set forth in such Private Conversion Ratio
Certificate shall be the Appraised Value set forth in the most recent
Appraisal delivered to the Corporation and approved by the Board of
Directors.
Beginning with the fiscal year ended December 25, 1999, if, at the
end of any fiscal year of the Corporation the Common Stock is not
Publicly Traded, the Corporation shall cause to be prepared and delivered
to the Board of Directors and approved by the Board of Directors, prior
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<PAGE>
to the February 28 immediately following the end of such fiscal year, an
appraisal (an "Appraisal") of the per share value of the Common Stock as
of the last day of such fiscal year by an Investment Bank. If a Change of
Control occurs after December 31, 1999 and the Common Stock is not
Publicly Traded, the Corporation shall cause to be prepared and delivered
to the Board of Directors and approved by the Board of Directors, within
60 days following such Change of Control, an Appraisal of the per share
value of the Common Stock as of the date of such Change of Control. Such
Investment Bank shall determine the per share value of the Common Stock
as if the Common Stock was Publicly Traded and shall submit such per
share value to the Board of Directors for its approval. The value per
share of the Common Stock as set forth in the Appraisal and approved by
the Board of Directors shall be the "Appraised Value." In determining the
Appraised Value, the Investment Bank shall place substantial, but not
exclusive, emphasis on valuations of comparable companies in the public
equity markets, and shall not take into account factors such as control
premiums, minority discounts or illiquidity discounts that would not
generally apply to such companies.
As promptly as practicable following its delivery of any Private
Conversion Ratio Certificate, the Corporation shall cause to be given to
each of the registered holders of Class R Stock at such holder's address
appearing upon the books of the Corporation a copy of such Private
Conversion Ratio Certificate by first class mail, postage prepaid.
4. During any period in which the Common Stock is Publicly Traded,
the Corporation shall, on the last Business Day of each calendar month,
cause to be provided to each office designated for conversion of Class R
Stock, a copy of a certificate (the "Public Conversion Ratio
Certificate"), signed by two officers of the Corporation, setting forth
the Conversion Ratio, Conversion Value and Trading Price as of the close
of business on such Business Day, calculated in each case pursuant to
this paragraph E.
The "Trading Price" set forth in such Public Conversion Ratio
Certificate shall be equal to the Current Trading Value of one share of
Common Stock as of the close of business on the last Business Day of such
calendar month. Notwithstanding anything herein to the contrary, if,
during any period being used to calculate such Current Trading Value (the
"Calculation Period"), any event has occurred to cause the Conversion
Ratio and/or the Conversion Value to be adjusted pursuant to paragraph F.
hereof (an "Adjustment Event"), the Corporation shall in good faith
determine such Conversion Ratio and/or the Conversion Value, as
appropriate, so as to give pro forma effect to the Adjustment Event
immediately prior to the Calculation Period.
The Corporation shall provide any holder of Class R Stock with a copy
of any Public Conversion Ratio Certificate upon request. Beginning on the
day on which the first Public Conversion Ratio Certificate is provided
pursuant to this paragraph E.4., the Corporation shall maintain a
reasonable means to allow holders to access the Conversion Ratio as set
forth in the most recent Public Conversion Ratio Certificate on an
immediate basis during business hours on each Business Day on which Class
R Stock is issued and outstanding.
5. All calculations and determinations required to be made by the
Corporation pursuant hereto shall be made by the Corporation in good
faith. All such calculations and determinations shall be conclusive
unless otherwise specifically provided hereby.
6. Conversion Ratio Certificates may, at the Corporation's
discretion, be prepared by an agent of the Corporation. In such case each
such Conversion Ratio Certificate shall be signed by an authorized
signatory of such agent and countersigned by two officers of the
Corporation.
F. Anti-dilution Provisions.
1. If the Corporation shall (a) pay a dividend on any of its shares
of capital stock (including Common Stock) in shares of Common Stock, (b)
subdivide its outstanding shares of Common Stock, (c) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (d) issue any shares of its capital stock in a
reclassification of the Common
E-II-9
<PAGE>
Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing
corporation) (each, a "Conversion Term Adjustment Event"):
a) Each of the Fixed Terms shall be adjusted to such value
determined by multiplying (x) such Fixed Term immediately prior to
such Conversion Term Adjustment Event, by (y) a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately prior to such Conversion Term Adjustment
Event, and the denominator of which is the number of shares of Common
Stock outstanding immediately after such Conversion Term Adjustment
Event; and
b) Each of the Inverse Fixed Terms shall be adjusted to such
value determined by multiplying (x) such Inverse Fixed Term
immediately prior to such Conversion Term Adjustment Event, by (y) a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such Conversion Term Adjustment
Event, and the denominator of which is the number of shares of Common
Stock outstanding immediately prior to such Conversion Term
Adjustment Event.
2. [Other adjustments to be added]
3. If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation
with another corporation, or share exchange involving the outstanding
shares of the Corporation's capital stock or the sale of all or
substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive
stock, securities, cash or other property with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger, share exchange or sale, lawful
and adequate provision shall be made whereby the holders of the Class R
Stock shall have the right to acquire and receive upon conversion of the
Class R Stock (after and subject to the rights of holders of Preferred
Stock, if any), such shares of stock, securities, cash or other property
issuable or payable (as part of the reorganization, reclassification,
consolidation, merger, share exchange or sale) with respect to or in
exchange for such number of outstanding shares of Common Stock as would
have been received upon conversion of the Class R Stock at the Conversion
Ratio then in effect. The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof
the successor corporation (if other than the Corporation) resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume by written instrument mailed or delivered to the holders of
the Class R Stock at the last address of each such holder appearing on
the books of the Corporation, the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase.
4. The provisions of this subsection F shall not apply to any Common
Stock issued, issuable or deemed outstanding pursuant hereto: (x) to any
person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees of the Corporation or its
subsidiaries in effect on the Initial Issuance Date or thereafter adopted
by the Board of Directors of the Corporation, (y) pursuant to options,
warrants and conversion rights in existence on the Initial Issuance Date,
or (z) on conversion of the Class R Stock.
5. In the event that:
a) the Corporation shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock, or
b) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights, or
c) there shall be any capital reorganization or reclassification
of the capital stock of the Corporation, including any subdivision or
combination of its outstanding shares of Common Stock, or
consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation, or
E-II-10
<PAGE>
d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to
the holders of the Class R Stock:
(1) at least twenty (20) days prior written notice of the date on
which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up; and
(2) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
at least twenty (20) days prior written notice of the date when the
same shall take place. Such notice in accordance with the foregoing
clause shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of
Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause shall also specify the date on which the
holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each such
written notice shall be given by first class mail, postage prepaid,
addressed to the holders of the Class R Stock at the address of each
such holder as shown on the books of the Corporation.
6. If any event occurs as to which, in the opinion of the Board of
Directors of the Corporation, the provisions of this paragraph F. are not
strictly applicable or if strictly applicable would not fairly protect
the rights of the holders of the Class R Stock in accordance with the
essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions,
in accordance with such essential intent and principles, so as to protect
such rights as aforesaid[, but in no event shall any adjustment have the
effect of increasing the Base Price or reducing the Fixed Term as
otherwise determined pursuant to any of the provisions of this paragraph
F., except in the case of a combination of shares of a type contemplated
in paragraph F.2., and then in no event shall the Base Price be adjusted
to an amount larger than the Base Price as adjusted pursuant to paragraph
F.2.
[7. Notwithstanding any other provision of this paragraph F., no
adjustments shall be made to the Fixed Terms or the Inverse Fixed Terms
pursuant to this paragraph F. as a result of any dividend to which
holders of Class R Stock are entitled to receive pursuant to paragraph H.
hereof.]
G. Rank.
The Class R Stock shall, with respect to dividend distributions and
with respect to distributions of assets and rights upon the liquidation,
winding up and dissolution of the Corporation, rank on a parity with
Common Stock and junior to Preferred Stock.
H. Dividends.
1. After dividends have been declared and set aside on any Preferred
Stock having a preference over the Common Stock and Class R Stock with
respect to the payment of such dividends, holders of Class R Stock shall
only be entitled to receive dividends, out of any assets or funds legally
available therefor, in an amount per share of Class R Stock as set forth
below:
a) If and when a Regular Dividend is declared, an amount which is
equal to (i) the Conversion Ratio then in effect multiplied by (ii)
the aggregate per share amount of such Regular Dividend, declared on
the Common Stock of the Corporation; and
b) If and when an Extraordinary Dividend is declared, an amount
which is equal to (i) the Conversion Ratio then in effect multiplied
by (ii) one-fourth of (A) the aggregate per share amount of all cash
portions of such Extraordinary Dividend plus (B) the aggregate per
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<PAGE>
share amount (based upon the fair market value of the non-cash
portion of such Extraordinary Dividend at the time such Extraordinary
Dividend is declared or paid as determined in good faith by the Board
of Directors of the Corporation) of all non-cash portions of such
Extraordinary Dividend, in each case as declared on the Common Stock
of the Corporation.
Such dividends shall be declared and paid contemporaneously with the
declaration and payment of the related dividend on the Common Stock; and the
foregoing are the only times when a dividends shall be declared and paid
with respect to the Class R Stock.
2. All dividends paid with respect to shares of Class R Stock
pursuant to this paragraph H. shall be paid pro rata and in like manner
to all of the holders entitled thereto.
3. No Regular or Extraordinary Dividends shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by
the Corporation on Common Stock unless, contemporaneously therewith, a
like ratable dividend calculated in accordance with this paragraph H. is
declared and paid, or declared and a sum set apart sufficient for such
payment, on the Class R Stock, payable as set forth herein.
I. Liquidation Rights.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation ("Liquidation") the holders of Class R Stock
then outstanding shall be entitled to be paid ratably out of the assets and
funds of the Corporation legally available for distribution to its
stockholders, after and subject to the payment in full of all amounts
required to be distributed to the holders of any Preferred Stock upon
Liquidation, an amount equal to (a) the Liquidation Ratio then in effect
multiplied by (b) the aggregate per share amount of all assets and funds
remaining available for distribution to holders of Common Stock and Class R
Stock.
J. Voting.
Each issued and outstanding share of Class R Stock shall be entitled to
vote only (i) for the election of directors, and (ii) as required by law. On
matters on which the holders of Class R Stock are entitled to vote, each
issued and outstanding share of Class R Stock (or fraction thereof) shall be
entitled to the number of votes equal to the Conversion Ratio, such number
to be determined as of the record date for determination of shareholders
entitled to vote on such matter. Except as required by law, holders of Class
R Stock shall vote together with the holders of Common Stock as a single
class on all matters on which holders of Class R Stock are entitled to vote.
K. Conversion at the Option of the Corporation.
1. In the event that the Board of Directors of the Corporation
determines that the Corporation (i) take any action which would require a
vote of the Class R Stock as a separate class, or (ii) pay an
Extraordinary Dividend, the Corporation may at its option, elect to cause
all, but not less than all, shares of Class R Stock (or fractions
thereof) to be converted into Common Stock at the Conversion Ratio in
effect on the date the Board of Directors determines to cause such a
conversion; PROVIDED, HOWEVER, that if the Conversion Ratio in effect as
of such date was calculated using a Conversion Value of less than $25.00,
such Conversion Ratio shall be recalculated using a Conversion Value of
$25.00. Upon such election by the Corporation, the Conversion Condition
shall be deemed to have occurred with respect to all shares of Class R
Stock.
2. All holders of record of shares of Class R Stock will be given at
least ten (10) days prior written notice of the date fixed and the place
designated for such conversion of Class R Stock pursuant to this
paragraph K. Such notice shall be sent by mail, first class, postage
prepaid, to each record holder of shares of Class R Stock at such
holder's address appearing on the stock register. On or before the date
fixed for conversion each holder of shares of Class R Stock shall
surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of
E-II-12
<PAGE>
Common Stock to which such holder is entitled pursuant to this paragraph
K. On the date fixed for conversion, all rights with respect to the Class
R Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common
Stock into which such Class R Stock has been converted and payment of any
accrued and unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied
by written instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or by his
attorneys duly authorized in writing. All certificates evidencing shares
of Class R Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the date
fixed for conversion, be deemed to have been retired and canceled and the
shares of Class R Stock represented thereby converted into Common Stock
for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. As soon
as practicable after the date of such conversion and the surrender of the
certificate or certificates for Class R Stock as aforesaid, the
Corporation shall cause to be issued and delivered to such holder, or on
his or its written order, a certificate or certificates for the number of
full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in paragraph D. 4. hereof
in respect of any fraction of a share of Common Stock otherwise issuable
upon such conversion.
L. Mandatory Conversion.
1. Each share of Class R Stock outstanding as of the Mandatory
Conversion Date shall, automatically, and without further action by or on
behalf of the Corporation, the Corporation's transfer agent or the holder
of such share of Class R Stock, be converted (a "Mandatory Conversion")
into shares of Common Stock at the Conversion Ratio then in effect as of
such Mandatory Conversion Date.
2. All holders of record of shares of Class R Stock will be given
written notice at least ten (10) days prior to the Mandatory Conversion
Date stating the place designated for mandatory conversion of all of such
shares of Class R Stock pursuant to this paragraph L. Such notice shall
be sent by mail, first class, postage prepaid, to each record holder of
shares of Class R Stock at such holder's address appearing on the stock
register. On or before the Mandatory Conversion Date, each holder of
Class R Stock shall surrender his or its certificate or certificates for
all such shares to the Corporation at the place designated in such
notice, and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to this
paragraph L.2. On the date fixed for conversion, all rights with respect
to the Class R Stock so converted will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares
of Common Stock into which such Class R Stock has been converted and
payment of any accrued and unpaid dividends thereon. If so required by
the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer,
in
form satisfactory to the Corporation, duly executed by the registered
holder or by his attorneys duly authorized in writing. All certificates
evidencing shares of Class R Stock which are required to be surrendered
for conversion in accordance with the provisions hereof shall, from and
after the date fixed for conversion, be deemed to have been retired and
canceled and the shares of Class R Stock represented thereby converted
into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to
such date. As soon as practicable after the date of such Mandatory
Conversion and the surrender of the certificate or certificates for Class
R Stock as aforesaid, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate
or certificates for the number of full shares of Common Stock issuable on
such conversion in accordance with the provisions hereof and cash as
provided in paragraph D.4. hereof in respect of any fraction of a share
of Common Stock otherwise issuable upon such conversion.
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ARTICLE VII
PREFERRED STOCK
The Preferred Stock may be issued from time to time as herein provided in
one or more series. The designations, relative rights, preferences and
limitations of the Preferred Stock, and particularly of the shares of each
series thereof, may, to the extent permitted by law, be similar to or differ
from those of any other series. The Board of Directors is hereby expressly
granted authority, subject to the provisions of this Article VII, to fix, from
time to time before issuance thereof, the number of shares in each series and
all designations, relative rights, preferences and limitations of the shares in
each such series, including, but without limiting the generality of the
foregoing, the following:
A. the designation of the series and the number of shares to constitute
each series;
B. the dividend rate on the shares of each series, conditions on which
and times at which dividends are payable, whether dividends shall be
cumulative, and the preference or relation (if any) with respect to such
dividends (including preferences over dividends on the Common Stock or any
other class or classes);
C. whether the series will be redeemable (at the option of the
Corporation or the holders of such shares or both, or upon the happening of
a specified event) and, if so, the redemption prices and the conditions and
times upon which redemption may take place and whether for cash, property or
rights, including securities of the Corporation or another corporation;
D the terms and amount of any sinking, retirement or purchase fund;
E. the conversion or exchange rights (at the option of the Corporation
or the holders of such shares or both, or upon the happening of a specified
event), if any, including the conversion or exchange price and other terms
of conversion or exchange;
F. the voting rights, if any (other than any voting rights that the
Preferred Stock may have as a matter of law);
G. any restrictions on the issue or reissue or sale of additional
Preferred Stock;
H. the rights of the holders upon voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation (including
preferences over the Common Stock or any other class or classes or series of
stock); and
I. such other special rights and privileges, if any, for the benefit of
the holders of Preferred Stock, as shall not be inconsistent with provisions
of this Second Restated Certificate of Incorporation.
All shares of Preferred Stock of the same series shall be identical in all
respects, except that shares of any one series issued at different times may
differ as to dates, if any, from which dividends thereon may accumulate. All
shares of Preferred Stock of all series shall be of equal rank and shall be
identical in all respects except that any series may differ from any other
series with respect to any one or more of the designations, relative rights,
preferences and limitations described or referred to in subparagraphs A. to I.
inclusive above.
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<PAGE>
ARTICLE VIII
DIRECTORS
A. The Board of Directors shall consist of no fewer than six persons and
no more than fifteen persons, and such number shall be fixed by, or in the
manner provided in, the By-laws of the Corporation.
B. Upon the Effective Time, the Board of Directors shall be divided into
three classes to be designated as Class I, Class II and Class III. The Board
of Directors, by resolution, shall designate the class in which each of the
directors then in office shall serve upon such classification. The terms of
office of the classes of directors so designated by the Board of Directors
shall expire at the times of the annual meetings of the stockholders as
follows: Class I on the first annual meeting of stockholders following the
Effective Time, Class II on the second annual meeting following the
Effective Time and Class III on the third annual meeting following the
Effective Time, or thereafter in each case when their respective successors
are elected and qualified. At each subsequent annual election, the directors
chosen to succeed those whose terms are expiring shall be identified as
being of the same class as the directors whom they succeed, and shall be
elected for a term expiring at the time of the third succeeding annual
meeting of stockholders, or thereafter in each case when their respective
successors are elected and qualified. The number of directorships shall be
apportioned among the classes so as to maintain the classes as nearly equal
in number as possible.
C. A director may be removed from office only for cause and only by vote
of at least a majority of the outstanding stock entitled to vote in an
election of directors.
D. Any vacancy on the Board of Directors, however resulting, may be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Any director elected to fill a
vacancy shall hold office for a term that shall coincide with the term of
the class to which such director shall have been elected.
ARTICLE IX
DUTY OF THE CORPORATION TO REPURCHASE COMMON STOCK
A. Subject to the limitations set forth below in this Article IX, and
only until such time as the Common Stock has become Publicly Traded, holders
of Common Stock may at any time on or prior to the fifteenth day of any
calendar month offer to sell part or all of their shares of Common Stock to
the Corporation by delivering the certificate or certificates for such stock
with a written notice offering such stock to the Corporation. Any such offer
shall be accepted by the Corporation, and payment shall be made for such
stock within 60 days after receipt of such certificates and such written
notice by the corporation, without interest.
B. Suspension of Repurchase Duties.
If the Board of Directors determines that the Formula Value at the end
of the fiscal year during which such determination is made is likely to be
less than (i) the Formula Value at the end of the prior fiscal year less
(ii) the aggregate amount of dividends declared on the Common Stock since
the end of the prior fiscal year, the Board may suspend the Corporation's
duty to repurchase shares of Common Stock in accordance with this Article
IX. Any such suspension shall not extend for a period longer than 365 days
from the date of the Board's declaration of suspension. During any such
suspension period, the Corporation shall not repurchase any shares of Common
Stock tendered for repurchase pursuant to subparagraph A, of this Article
IX.
E-II-15
<PAGE>
C. Limitations on Cash Repurchase Duties.
1. For purposes of this paragraph C., the "10% Threshold" means a
number of shares of Common Stock equal to 10% of the aggregate number of
such shares outstanding as of the end of the fiscal year ending
immediately prior to the date of determination.
2. If, after taking into account the number of shares of Common Stock
tendered for repurchase by the Corporation during the first 15 days of
any calendar month (the "Tendered Shares"), the aggregate number of
shares of such stock that have been tendered for repurchase during the
fiscal year during which such month falls equals or exceeds the 10%
Threshold, the Board of Directors may declare that cash payments for the
repurchase of Common Stock are not in the best interests of the
Corporation. The Board of Directors shall make any such declaration prior
to the last day of the relevant calendar month and shall promptly provide
to the holders of Tendered Shares with respect to such calendar month a
notice specifying:
(a) the percentage (the "Specified Percentage") of the Tendered
Shares that will be purchased for cash (which may, in the discretion
of the Board of Directors, be a percentage calculated to limit the
aggregate number of shares purchased for cash during the relevant
fiscal year to the 10% Threshold or a greater percentage); and
(b) the terms (including interest rate and prepayment rights, if
any) of promissory notes maturing on a date to be determined by the
board of Directors, but not later than ten years after the date upon
which the holder of such note tendered the Tendered Shares, which
will be issued by the Corporation in payment for any Tendered Shares
that are not purchased for cash and the tender of which is not
withdrawn pursuant to subparagraph 3, below.
3. Upon receipt of the notice required by subparagraph 2, each holder
of Tendered Shares may elect to withdraw such holder's tender of a number
of shares of Common Stock not exceeding the number of shares in excess of
the number determined by multiplying the Specified Percentage by the
number of shares tendered by such holder. Notice of any such election
shall be provided to the Corporation not later than ten days after the
date upon which such holder receives the notice provided by the
Corporation pursuant to subparagraph 2, above.
4. After the date of any declaration by the Board of Directors
pursuant to subparagraph 2, the Corporation shall continue to be
obligated to purchase shares of Common Stock subsequently tendered for
repurchase during the relevant fiscal year, but payment for any such
shares shall be made in the form of a promissory note maturing on a date
to be determined by the Board of Directors, but not later than ten years
after the date upon which such shares are tendered. The terms of any such
notes shall be determined by the Board of Directors at the time at which
any of the Common Stock is tendered; PROVIDED, HOWEVER, that the
Corporation shall provide notice to any tendering stockholder of the
terms of such note not later than ten days after the date of tender, and
such stockholder shall be entitled to withdraw the tender of any or all
of such shares by providing written notice of such withdrawal to the
Corporation not later than ten days after the date upon which such holder
receives the notice of such terms from the Corporation.
D. Common Stock Per Share Price.
Subject to the limitations set forth in this Article IX, the Corporation
shall purchase any share of Common Stock pursuant to this Article IX for a
price equal to the Common Stock Per Share Price.
E. Definitions for purposes of Article IX.
1. "Common Stock Per Share Price" with respect to any share of Class
D Stock, means the amount determined by dividing:
(a) the sum of (i) the Formula Value PLUS (ii) the portion of the
face amount of any outstanding Convertible Debentures convertible
into Common Stock, determined as of the fiscal year end immediately
preceding the date of determination (the "prior year end"); by
E-II-16
<PAGE>
(b) the sum of (i) the total number of issued and outstanding
shares of Common Stock, PLUS (ii) the total number of shares reserved
for the conversion of outstanding Convertible Debentures convertible
into Common Stock, in each case determined as of the prior year end;
and
deducting from the quotient (rounded to the nearest $0.05) the amount
of any dividends per share declared on Common Stock subsequent to the
prior year end.
2. "Convertible Debenture" means any debenture or other instrument
evidencing indebtedness of the Corporation convertible at any time into
shares of Common Stock.
3."Formula Value" means:
(a) if such Formula Value is being determined as of the end of
the fiscal year ending December 27, 1997, the total stockholders'
equity of the Corporation and its consolidated Subsidiaries,
determined by independent certified public accountants in conformity
with generally accepted accounting principles applied on a consistent
basis as of [the Exchange Date], 1997 after giving effect to the
exchange on that date of the shares of the Corporation's then
outstanding Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock, par value $.0625 per share,
for shares of common stock of PKS Holdings, Inc.; or
(b) if such Formula Value is being determined as of the end of
any fiscal year ending after December 31, 1997, the total
stockholders' equity as shown on the consolidated balance sheet
contained in the Consolidated Financial Statements of the Corporation
and consolidated Subsidiaries, prepared in conformity with generally
accepted accounting principles applied on a consistent basis for the
Corporation and its consolidated Subsidiaries as of the fiscal year
end immediately preceding the date of determination (the "prior year
end") and audited and certified by an independent firm of certified
public accountants selected and engaged by the Board of Directors;
MINUS
(c) the sum of (x) such total stockholders' equity attributable
to any issued and outstanding Preferred Stock, plus (y) the amount of
any accrued, accumulated and undeclared dividends thereon, all as of
the date of determination.
4. "Publicly Traded" means as to the Common Stock, that (x) the stock
has been listed on a United States national or regional stock exchange,
(y) the stock is quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market or (z) the Board of Directors determines that the stock
has otherwise become publicly traded. In making such a determination, the
Board may consider the frequency and means of trading in the stock.
5. "Subsidiary" means a corporation, partnership or other entity with
respect to which the Corporation holds, directly or indirectly, at least
a majority of the issued and outstanding capital stock or other equity
interests, measured in terms of total dollar value if such entity has
outstanding more than one class of capital stock or other equity
interests.
F. Notwithstanding any other provision hereof with respect to the Common
Stock, other than as set forth in Article V, paragraph D., in no event shall (i)
any holder of Common Stock, Non-Redeemable Series have any right to require the
Corporation to repurchase such holder's shares of Common Stock, Non-Redeemable
Series; (ii) Common Stock, Non-Redeemable Series be convertible into Class C
Stock; (iii) Common Stock, Non-Redeemable Series be subject to exchange for
Class C Stock by the Corporation; or (iv) Common Stock, Non-Redeemable Series be
subject to any redemption.
E-II-17
<PAGE>
ARTICLE X
STOCKHOLDERS' VOTE
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the stockholders at
an annual or special meeting duly noticed and called, as provided in the By-laws
of the Corporation, and may not be taken by a written consent of the
stockholders.
ARTICLE XI
INDEMNIFICATION
The Corporation shall indemnify each person who is or was a director,
officer or employee of the Corporation (including the heirs, executors,
administrators or estate of such person) or is or was serving at the request of
the Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted under Subsections 145(a), (b), and (c) of the DGCL or any successor
statute.
The indemnification provided by this Article XI shall not be deemed
exclusive of any other rights to which any of those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE XII
LIMITATION OF LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended after approval by the stockholders of this Article XII to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL as so
amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
ARTICLE XIV
SPECIAL MEETINGS
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by the Board of Directors, the President, the
Chief Executive Officer or the Chairman of the Board of Directors. Special
meetings of the stockholders of the Corporation may not be called by any other
person or persons.
ARTICLE XV
RATIFICATION BY STOCKHOLDERS
Any contract, transaction or act of the Corporation or of the directors,
which shall be ratified by a majority of a quorum of the stockholders then
entitled to vote at any annual meeting or at any special meeting called for such
purpose, shall, so far as permitted by law and by this Certificate of
Incorporation, be as valid and as binding as though ratified by every
stockholder entitled to vote at such meeting.
E-II-18
<PAGE>
ARTICLE XVI
AMENDMENTS OF CERTIFICATE
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Second Restated Certificate of Incorporation or in
any amendment hereto by the affirmative vote of a majority of the outstanding
stock entitled to vote thereon; provided, however, that the provisions of this
Second Restated Certificate of Incorporation requiring for action by the
stockholders a vote of at least sixty-six and two-thirds percent (66 2/3%) shall
not be amended except by such vote; and PROVIDED FURTHER, that (A) the formulae
for determining Formula Value or Common Stock Per Share Price shall not be
amended except by the affirmative vote of at least eighty percent (80%) of the
outstanding stock entitled to vote thereon and (B) this Article XVI shall not be
amended except by the affirmative vote of at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding stock entitled to vote thereon.
ARTICLE XVII
CREDITORS
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof on the application of any
receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the DGCL, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE XVIII
BY-LAWS
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to adopt, repeal, alter, amend or
rescind the By-laws of the Corporation. In addition, the By-laws of the
Corporation may be adopted, repealed, altered, amended or rescinded by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the Corporation has caused this Second Restated
Certificate of Incorporation to be signed by , its President,
this day of , 1997.
<TABLE>
<S> <C> <C>
By: -----------------------------------------
PRESIDENT
</TABLE>
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<PAGE>
PETER KIEWIT SONS', INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS, , 1997
PROXY
The undersigned hereby appoints ,
and , or any of them or their substitutes, as proxies, each
with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
Peter Kiewit Sons', Inc. held of record by the undersigned at the close of
business on , 1997, at the Special Meeting of
Stockholders to be held , , 1997,
or any adjournment or postponement thereof. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted FOR
proposals 1 and 2.
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE URGED TO COMPLETE,
SIGN AND DATE THIS PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
and the Proxy Statement/Joint Prospectus, dated , 1997.
/X/ PLEASE MARK YOUR
VOTES AS IN THIS EXAMPLE.
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Ratification of the decision of the Board of / / / / / /
Directors of PKS (the "PKS Board") to separate the
construction business of PKS and the diversified
business of PKS into two independent companies. The
PKS Board would effect this separation by (i)
declaring a dividend of eight-tenths of one share of
newly created Class R Convertible Common Stock, par
value $.01 per share ("Class R Stock"), of PKS with
respect to each outstanding share of Class C
Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock, par value
$.0625 per share ("Class C Stock") of PKS, and (ii)
causing each outstanding share of Class C Stock to be
mandatorily exchanged by resolution of the PKS Board
pursuant to existing provisions of the PKS Restated
Certificate of Incorporation (the "PKS Certificate")
for one share of Common Stock, par value $.01 per
share, of PKS Holdings, Inc., a newly formed, direct,
wholly owned subsidiary of PKS, to which the Class R
Stock would attach (collectively, the "Transaction").
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Approval of amendments of the PKS Certificate, to / / / / / /
be implemented promptly following approval at the
Special Meeting, to (i) create the Class R Stock to
be distributed in the Class R Stock Distribution
pursuant to the Transaction, (ii) increase from
50,000,000 to 500,000,000 the number of shares of
Class D Stock which PKS is authorized to issue and
(iii) designate 10 shares of Class D Stock as "Class
D Stock, Non-Redeemable Series."
FOR AGAINST ABSTAIN
3. Approval of amendments of the PKS Certificate, to / / / / / /
be implemented only if the Transaction is
consummated, to (i) change the name of PKS from
"Peter Kiewit Sons', Inc." to "Diversified Holdings,
Inc."; (ii) redesignate Class D Stock as "Common
Stock, par value $.01 per share"; (iii) authorize the
issuance of series of preferred stock, the terms of
which are to be determined by the Diversified
Holdings Board; (iv) modify the repurchase rights to
which the holders of Class D Stock are entitled; (v)
delete the provisions regarding Class C Stock; (vi)
classify the Diversified Holdings Board; (vii)
prohibit stockholder action by written consent;
(viii) empower the Diversified Holdings Board,
exclusively, to call special meetings of the
stockholders; (ix) require a super-majority vote of
stockholders to amend the Diversified Holdings
by-laws; and (x) make certain other changes,
consistent with the implementation of the foregoing.
FOR AGAINST ABSTAIN
4. Approval of the amendment and restatement to the / / / / / /
Peter Kiewit Sons', Inc. 1995 Class D Stock Plan, as
the Restated Plan (i) increasing the number of shares
of Class D Stock reserved for issuance upon the
exercise of stock-based awards from 1,000,000 to
, (ii) providing for the acceleration of
vesting of such awards in the event of a Change
Control of PKS (as defined in the Restated Plan),
(iii) providing for a tax gross-up in the event that
options awards granted or vesting pursuant to the
Restated Plan are deemed to be "excess parachute
payments" within the meaning of Section 280G of the
Code and (iv) allowing for the grant of stock-based
awards to directors of PKS and KDG who are not also
employees of PKS or KDG.
</TABLE>
<TABLE>
<S> <C>
SIGNATURE(S) DATE
SIGNATURE(S) DATE
</TABLE>
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please indicate full title as such. Please mark, sign, date and return the
proxy promptly in the enclosed postage paid envelope.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertake to
repay such amount if it shall ultimately be determined that he or she in not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudicated to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses (including attorneys' fees) which he
or she actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
Section 145 of the DGCL empowers a Delaware corporation to purchase and
maintain insurance on behalf of its officers and directors against any liability
asserted against them incurred while acting in such capacities or arising out of
their status as such.
In accordance with Section 145 of the DGCL, Article Sixth of the PKS
Certificate and Section 51 of the PKS By-laws provide that PKS shall indemnify
each person who is or was a director, officer or employee of PKS (including the
heirs, executors, administrators or estate of such person) or is or was serving
at the request of PKS as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted under subsections 145(a), (b) and (c) of the DGCL or any successor
statute. The indemnification provided by the PKS Certificate and the PKS By-laws
shall not be deemed exclusive of any other rights to which any of those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. Article
[seventh] of the PKS Certificate provides that a director of PKS shall not be
personally liable to PKS or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to PKS or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended further eliminating or limiting the personal liability of
directors, then the liability of a director of PKS shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended.
II-1
<PAGE>
The PKS Holdings Certificate and PKS By-laws will contain provisions with
respect to the indemnification and limitation on liability of directors
indentical to those included in the PKS Certificate and PKS By-laws.
In accordance with Section 145 of the DGCL, pursuant to the Certificate
Amendments, Article VIII of the Diversified Holdings Certificate and Article
VIII the Diversified Holdings By-Laws will provide that Diversified Holdings
shall indemnify each person who is or was a director, officer or employee of
Diversified Holdings (including the heirs, executors, administrators or estate
of such person) or is or was serving at the request of Diversified Holdings as
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted under
subsections 145(a), (b), and (c) of the DGCL or any successor statute. The
indemnification to be provided by the Diversified Holdings Certificate and the
Diversified Holdings By-Laws shall not be deemed exclusive of any other rights
to which any of those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding upon
receipt of an undertaking by or on behalf of the indemnified person to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by Diversified Holdings. The Diversified Holdings Certificate
will further provide that a director of Diversified Holdings shall not be
personally liable to Diversified Holdings or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to Diversified Holdings or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of Diversified Holdings shall be eliminated or limited
to the fullest extent permitted by the DGCL as so amended.
The Diversified Holdings By-Laws will provide that Diversified Holdings may
purchase and maintain insurance on behalf of its directors, officers, employees
and agents against any liabilities asserted against such persons arising out of
such capacities.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------------- ----------------------------------------------------------------------------------- -----------------
<C> <S> <C>
2.1* Form of Separation Agreement between PKS Holdings and PKS
2.2** Form of Warrant Agreement
3.1** Restated Certificate of Incorporation of PKS (incorporated by reference to Exhibit
3.1 to the PKS Annual Report on Form 10-K for the fiscal year ended December 28,
1996 which incorporates by reference Exhibit 3.1 to the PKS Annual Report on Form
10-K for the fiscal year ended December 28, 1991)
3.2** Amended and Restated By-laws of PKS (incorporated by reference to Exhibit 3.4 to
the PKS Annual Report on Form 10-K for the fiscal year ended December 28, 1996
which incorporates by reference Exhibit 3.4 to the PKS Annual Report on Form 10-K
for the fiscal year ended December 26, 1992)
3.3** Form of Proposed Second Restated Certificate of Incorporation of PKS (renamed
Diversified Holdings, Inc.) (included as Appendix E to the Proxy Statement/Joint
Prospectus contained herein)
3.4* Form of Proposed Amended and Restated By-laws of PKS
3.5** Certificate of Incorporation of PKS Holdings
3.6** By-laws of PKS Holdings
3.7** Form of Proposed Restated Certificate of Incorporation of PKS Holdings (included as
Appendix D to the Proxy Statement/Joint Prospectus contained herein)
3.8* Form of Proposed Restated By-laws of PKS Holdings
5 * Opinion of Willkie Farr & Gallagher relating to legality of the PKS Holdings stock,
the Warrants and the Diversified Holdings Stock issuable upon exercise of the
Warrants
15 Letter of Coopers & Lybrand L.L.P. relating to unaudited pro forma financial
information of PKS and Kiewit Construction and Mining Group
23.1 Consent of Coopers & Lybrand L.L.P. relating to PKS and PKS Holdings financial
statements
23.2* Consent of Willkie Farr & Gallagher (included in its opinion filed as Exhibit 5)
23.3* Consent of Gleacher NatWest, Inc.
24 * Powers of Attorney (included on signature pages)
99.1* Tax Allocation Agreement between PKS and PKS Holdings
99.2* Executive Retention Agreement among James Q. Crowe, PKS and KDG
99.3** Consent of R. Douglas Bradbury
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------------- ----------------------------------------------------------------------------------- -----------------
<C> <S> <C>
99.4** Consent of Robert E. Julian
99.5** Consent of David C. McCourt
99.6** Consent of Michael B. Yanney
99.7* Opinion of Gleacher NatWest, Inc.
</TABLE>
- ------------------------
* To be Filed by Amendment
** Previously Filed
ITEM 22. UNDERTAKINGS
1. The undersigned registrants hereby undertake:
a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. Each of the undersigned registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of such
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of each of
the registrants pursuant to the foregoing provisions, or otherwise, each of the
registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by each of the
II-4
<PAGE>
registrants of expenses incurred or paid by a director, officer or controlling
person of such registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
4. Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the joint
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
5. Each of the undersigned registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
6. Each of the undersigned registrants hereby undertakes that:
a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by MFS pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of the Registration Statement
as of the time it was declared effective.
b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants has duly caused Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Omaha,
Nebraska on October , 1997.
<TABLE>
<S> <C> <C> <C>
PETER KIEWIT SONS', INC. PKS HOLDINGS, INC.
/s/ MATTHEW J. JOHNSON /s/ THOMAS C. STORTZ
By: By:
---------------------------------------- ----------------------------------------
Matthew J. Johnson Thomas C. Stortz
Vice President--Legal Vice President
</TABLE>
II-6
<PAGE>
PETER KIEWIT SONS', INC. DIRECTORS AND OFFICERS
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board and October , 1997
- ------------------------------ President
Walter Scott, Jr. (Principal Executive
Officer and
Principal Financial
Officer)
* Vice Chairman and Director October , 1997
- ------------------------------
William L. Grewcock
* Executive Vice President October , 1997
- ------------------------------ and Director
Kenneth E. Stinson
* Controller October , 1997
- ------------------------------ (Principal Accounting
Eric J. Mortensen Officer)
* Director October , 1997
- ------------------------------
Richard Geary
* Director October , 1997
- ------------------------------
Richard R. Jaros
* Director October , 1997
- ------------------------------
George B. Toll, Jr.
* Director October , 1997
- ------------------------------
Richard W. Colf
* Director October , 1997
- ------------------------------
Bruce E. Grewcock
* Director October , 1997
- ------------------------------
Tait P. Johnson
* Director October , 1997
- ------------------------------
Allen K. Kirkwood
* Director October , 1997
- ------------------------------
James Q. Crowe
* Director October , 1997
- ------------------------------
Robert B. Daugherty
II-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
* Director October , 1997
- ------------------------------
Charles M. Harper
* Director October , 1997
- ------------------------------
Peter Kiewit, Jr.
Thomas C. Stortz, by signing his name below, signs this document on behalf
of each of the above-named persons specified by an asterisk (*), pursuant to a
power of attorney duly executed by such persons, filed with the Securities and
Exchange Commission in Registrants' Registration Statement on August 29, 1997.
/s/ THOMAS C. STORTZ Attorney-in-fact
- ------------------------------
Thomas C. Stortz
II-8
</TABLE>
<PAGE>
PKS HOLDINGS, INC. DIRECTORS AND OFFICERS
Pursuant to the requirements of Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director October , 1997
Walter Scott, Jr.
* President (Principal
- ------------------------------ Executive Officer) and October , 1997
Kenneth E. Stinson Director
*
- ------------------------------ Executive Vice President October , 1997
Richard Geary and Director
*
- ------------------------------ Executive Vice President October , 1997
George B. Toll, Jr. and Director
*
- ------------------------------ Executive Vice President October , 1997
Bruce E. Grewcock and Director
/s/ THOMAS C. STORTZ
- ------------------------------ Vice President and October , 1997
Thomas C. Stortz Director
*
- ------------------------------ Director October , 1997
Richard W. Colf
*
- ------------------------------ Director October , 1997
Tait P. Johnson
II-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director October , 1997
Allan Keith Kirkwood
*
- ------------------------------ Director October , 1997
William L. Grewcock
*
- ------------------------------ Director October , 1997
James Q. Crowe
*
- ------------------------------ Director October , 1997
Peter Kiewit, Jr.
* Vice President and
- ------------------------------ Treasurer (Principal October , 1997
Kenneth Jantz Accounting Officer)
*
- ------------------------------ Vice President (Principal October , 1997
Stephen Sharpe Financial Officer)
</TABLE>
Matthew J. Johnson, by signing his name below, signs this document on behalf
of each of the above-named persons specified by an asterisk (*), pursuant to a
power of attorney duly executed by such persons, filed with the Securities and
Exchange Commission in Registrants' Registration Statement on August 29, 1997.
<TABLE>
<C> <S>
/s/ MATTHEW J. JOHNSON Attorney-in-fact
- --------------------------------------------
Matthew J. Johnson
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------------- ----------------------------------------------------------------------------------- -----------------
<C> <S> <C>
2.1* Form of Separation Agreement between PKS Holdings and PKS
2.2** Form of Warrant Agreement
3.1** Restated Certificate of Incorporation of PKS (incorporated by reference to Exhibit
3.1 to the PKS Annual Report on Form 10-K for the fiscal year ended December 28,
1996 which incorporates by reference to Exhibit 3.1 to the PKS Annual Report on
Form 10-K for the fiscal year ended December 28, 1991)
3.2** Amended and Restated By-laws of PKS (incorporated by reference to Exhibit 3.4 to
the PKS Annual Report on Form 10-K for the fiscal year ended December 28, 1996
which incorporates by reference to Exhibit 3.4 to the PKS Annual Report on Form
10-K for the fiscal year ended December 26, 1992)
3.3** Form of Proposed Second Restated Certificate of Incorporation of PKS (renamed
Diversified Holdings, Inc.) (included as Appendix E to the Proxy Statement/Joint
Prospectus contained herein)
3.4* Form of Proposed Amended and Restated By-laws of PKS
3.5** Certificate of Incorporation of PKS Holdings
3.6** By-laws of PKS Holdings
3.7** Form of Proposed Restated Certificate of Incorporation of PKS Holdings (included as
Appendix D to the Proxy Statement/Joint Prospectus contained herein)
3.8* Form of Proposed Restated By-laws of PKS Holdings
5 * Opinion of Willkie Farr & Gallagher relating to legality of the PKS Holdings stock,
the Warrants and the Diversified Holdings Stock issuable upon exercise of the
Warrants
15 Letter of Coopers & Lybrand L.L.P. relating to unaudited pro forma financial
information of PKS and Kiewit Construction and Mining Group
23.1 Consent of Coopers & Lybrand L.L.P. relating to PKS and PKS Holdings financial
statements
23.2* Consent of Willkie Farr & Gallagher (included in its opinion filed as Exhibit 5)
23.3* Consent of Gleacher NatWest, Inc.
24 * Powers of Attorney (included on signature pages)
99.1* Tax Allocation Agreement between PKS and PKS Holdings
99.2* Executive Retention Agreement among James Q. Crowe, PKS and KDG
99.3** Consent of R. Douglas Bradbury
99.4** Consent of Robert E. Julian
99.5** Consent of David C. McCourt
99.6** Consent of Michael B. Yanney
99.7* Opinion of Gleacher NatWest, Inc.
</TABLE>
- ------------------------
* To be Filed by Amendment
** Previously Filed
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Proxy Statement/Joint Prospectus
of
Peter Kiewit Sons', Inc. and
PKS Holdings, Inc. on Form S-4
We are aware that our reports dated October 9, 1997 on our review of the pro
forma consolidated balance sheet and statement of operations of Peter Kiewit
Sons', Inc., and the pro-forma condensed balance sheets and statements of
operations of Kiewit Construction and Mining Group, a business group of Peter
Kiewit Sons', Inc. as of June 30, 1997 and for the six months then ended are
included in the above-referenced proxy statement/joint prospectus on Form S-4.
Pursuant to Rule 436(c) under the Securities Act of 1933, these reports should
not be considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of that Act.
Coopers & Lybrand L.L.P.
Omaha, Nebraska
October 9, 1997
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the proxy statement/joint
prospectus of Peter Kiewit Sons', Inc. and PKS Holdings, Inc. on Form S-4 of our
report dated March 14, 1997, except for Note 20, as to which the date is March
26, 1997, of our audits of the consolidated financial statements and financial
statement schedule of Peter Kiewit Sons', Inc. as of December 28, 1996 and
December 30, 1995, and for the three years ended December 28, 1996, which report
is included in the Annual Report on Form 10-K of Peter Kiewit Sons', Inc. We
also consent to the inclusion in the aforementioned proxy statement/joint
prospectus of our report dated March 14, 1997 except for Note 15, as to which
the date is March 26, 1997, of our audits of the financial statements and
financial statement schedule of Kiewit Construction and Mining Group, a business
group of Peter Kiewit Sons', Inc. as of December 28, 1996 and December 30, 1995
and for the three years ended December 28, 1996. We further consent to the
inclusion in the aforementioned proxy statement/joint prospectus of our reports
dated October 9, 1997, of our examinations of the pro forma consolidated
condensed statement of operations of Peter Kiewit Sons', Inc. and Kiewit
Construction and Mining Group, a business group of Peter Kiewit Sons', Inc. for
the year ended December 28, 1996. We also consent to the reference to our Firm
under the caption "Experts."
Coopers & Lybrand L.L.P.
Omaha, Nebraska
October 9, 1997
