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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended
NOVEMBER 30, 1997
Commission File Number 1-12054
MORRISON KNUDSEN CORPORATION
A Delaware Corporation
IRS Employer Identification No. 33-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208 / 386-5000
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SECURITIES REGISTERED AND NUMBER OF REGISTRANT'S COMMON SHARES OUTSTANDING
At January 16, 1998, 54,241,507 shares of the registrant's $.01 par value common
stock were outstanding. Such common stock and warrants to purchase an aggregate
of 2,760,225 shares of such common stock are listed on the New York Stock
Exchange and registered pursuant to Section 12(b) of the Securities Exchange
Act. The registrant has no securities registered under Section 12(g) of the
Securities Exchange Act.
COMPLIANCE WITH REPORTING REQUIREMENTS
The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
DISCLOSURE PURSUANT TO ITEM 405 OF REGULATION S-K
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X] Yes [ ] No
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES
At January 16, 1998, the aggregate market value of the registrant's common stock
held by nonaffiliates of the registrant, based on the New York Stock Exchange
closing price on January 16, 1998, was approximately $341,938,914, excluding
$203,866,250 market value of 20,260,000 shares which are assumed to be held by
affiliates of the registrant for the purposes of this calculation.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual meeting
of stockholders to be held on April 8, 1998, which is expected to be filed with
the Securities and Exchange Commission not later than March 31, 1998, are
incorporated by reference into Part III of this Annual Report on Form 10-K. In
the event such proxy statement is not so filed by March 31, 1998, the required
information will be filed as an amendment to this Annual Report on Form 10-K no
later than such date.
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MORRISON KNUDSEN CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
PART I
Item 1. Business I-1
Item 2. Properties I-4
Item 3. Legal Proceedings I-4
Item 4. Submission of Matters to a Vote of Security Holders I-4
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters II-1
Item 6. Selected Financial Data II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations II-3
Item 7A. Quantitative and Qualitative Disclosure About Market
Risk II-8
Item 8. Financial Statements and Supplementary Data II-9
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure II-34
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-1
Item 12. Security Ownership of Certain Beneficial Owners and
Management III-1
Item 13. Certain Relationships and Related Transactions III-1
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K IV-1
SIGNATURES
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This Annual Report on Form 10-K and other reports and statements filed by
Morrison Knudsen Corporation (the "Corporation") from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain forward-looking statements. When used in SEC Filings, the words
"anticipate," "believe," "estimate," "expect" "future," "intend," "plan,"
"should" and similar expressions identify such forward-looking statements. Such
forward-looking statements are necessarily based on various assumptions and
estimates and are inherently subject to various risks and uncertainties,
including, in addition to any risks and uncertainties disclosed in the text
surrounding such statements or elsewhere in the SEC Filings, risks and
uncertainties relating to the possible invalidity of the underlying assumptions
and estimates and possible changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions
and actions taken or omitted to be taken by third parties, including the
Corporation's customers, suppliers, business partners and competitors and
legislative, regulatory, judicial and other governmental authorities and
officials. Should the Corporation's assumptions or estimates prove to be
incorrect, or should one or more of these risks or uncertainties materialize,
actual amounts, results, events and circumstances may vary significantly from
those reflected in such forward-looking statements.
PART I
ITEM 1. BUSINESS
(In thousands of dollars except per share data)
Unless the context otherwise requires, references to 1997, 1996 and 1995 are
references to the Corporation's fiscal years ended November 30, 1997, 1996 and
1995, respectively.
GENERAL
The Corporation is an international provider of (i) engineering and construction
management services to industrial companies, electric utilities and public
agencies, (ii) comprehensive environmental and hazardous substance remediation
services to governmental and private-sector clients, (iii) diverse heavy
construction services for the highway, airport, water resource, railway and
commercial building industries, and (iv) mine planning, engineering and contract
mining services for diverse customers. In providing such services, the
Corporation enters into three basic types of contracts: fixed-price or lump-sum
contracts providing for a single price for the total amount of work to be
performed and unit-price contracts providing for a fixed price for each unit of
work performed, under each of which both risk and anticipated income are the
highest; and cost-type contracts providing for reimbursement of costs plus a fee
under which risk is minimal and anticipated income is earned through the fee.
Engineering, construction management and environmental and hazardous substance
remediation contracts are typically awarded on a cost-plus-fee basis.
The Corporation also participates in construction joint ventures, often as
sponsor and manager of projects, which are formed for the sole purpose of
bidding, negotiating and completing specific projects. In addition, the
Corporation participates in the following mining ventures: Westmoreland
Resources, Inc., a coal mining company in Montana, and MIBRAG mbH, a company
that operates lignite coal mines and power plants in Germany. See Note 6.
"Ventures" of Notes to Consolidated Financial Statements in Part II of this
Annual Report on Form 10-K ("Notes to Consolidated Financial Statements").
The Corporation was originally formed in Delaware on April 28, 1993 under the
name Kasler Holding Company to become the parent company of WCG Holdings, Inc.
("WCG") and Kasler Corporation ("Kasler"), companies active in the
infrastructure, contract mining, environmental remediation, commercial
construction and construction materials markets. In April 1996, the name of the
Corporation was changed from Kasler Holding Company to Washington Construction
Group, Inc.
On September 11, 1996, the Corporation acquired the net assets and the
engineering and construction operations of Morrison Knudsen Corporation, a
Delaware corporation ("Old MK"), in a transaction structured as a merger of Old
MK with and into the Corporation, and changed its name to Morrison Knudsen
Corporation. The acquisition of Old MK was an integral part of the
reorganization of Old MK pursuant to a plan of reorganization (the "Plan") filed
by Old MK in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court"), which Plan was
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confirmed by the Bankruptcy Court on August 26, 1996, and became effective
concurrently with the Merger on September 11, 1996 (the "Effective Date").
On the Effective Date, all of Old MK's senior debt obligations were discharged
and all of Old MK's outstanding common stock was canceled. In exchange thereof,
the following distributions, among others, were made pursuant to the Plan to or
for the benefit of certain creditors and for stockholders of Old MK: (i) $47,930
in cash (including $13,300 of cash of the Corporation); (ii) 24,161,421 newly
issued shares of the Corporation's common stock; (iii) 1,800,000 newly issued
shares of preferred stock of the Corporation entitling the holders thereof to
receive up to $18,000 (subject to adjustment) of certain tax refunds when
received by the Corporation as successor to Old MK; and (iv) warrants
exercisable with a term of six and one-half years which allow holders to
purchase from the Corporation an aggregate of 2,765,000 shares of the
Corporation's common stock at an exercise price of $12.00 per share (subject to
adjustment). See Note 15 "Redeemable Preferred Stock" of Notes to Consolidated
Financial Statements.
The Corporation's executive offices are located at Morrison Knudsen Plaza,
Boise, Idaho 83729, and its telephone number is (208) 386-5000.
PROJECT RISKS
The Corporation's engineering and construction operations are exposed to
significant risks and uncertainties in the performance of fixed-price or unit
price contracts over extended periods of time. Inherent in fixed-price or unit
price contracts is the risk of loss, resulting from uncertainties inherent in
the estimation of contract completion costs, changed conditions during
construction, contract modifications by customers, failure of subcontractors and
joint-venture partners to perform and unforseen events and conditions. The
realization of any such risk could result in losses on a particular contract or
contracts, and could have a material adverse effect on the Corporation's
financial position, results of operations and cash flows.
Because of the size and complexity of major infrastructure and environmental
remediation projects, a relatively small number of projects may provide a
significant percentage of the Corporation's revenues in a given year.
ENVIRONMENTAL MATTERS
The Corporation's environmental and hazardous substance remediation and contract
mining services involve risks of liability under federal, state and local
environmental laws and regulations, including the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"). The Corporation performs
environmental remediation at Superfund sites as a response action contractor for
the United States Environmental Protection Agency (the "EPA") and, in such
capacity, is exempt from liability under any federal law, including CERCLA,
unless its conduct was negligent; moreover, the Corporation may be entitled to
indemnification from the United States against liability arising out of
negligent performance of work in such capacity. A determination that the
Corporation is liable under environmental laws and regulations for the cost of
environmental remediation due to its performance of contract mining or
environmental remediation could have a material adverse effect on the financial
position, results of operations and cash flows of the Corporation. Amendments
to, or more stringent implementation of, current environmental laws and
regulations also could have such adverse effects.
See information regarding environmental matters set forth under the captions
"Summitville environmental matters" and "Other environmental matters" in Note 13
"Contingencies and Commitments" of Notes to Consolidated Financial Statements.
RAW MATERIALS
Raw materials and components necessary for the rendering of construction,
environmental and hazardous substance remediation and contract mining services
are generally available from numerous sources. The Corporation does not foresee
any unavailability of raw materials and components which would have a material
adverse effect on its business in the near term.
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FOREIGN OPERATIONS
(In thousands of dollars)
The Corporation operates outside the United States through foreign and domestic
subsidiaries and with foreign venture partners. Foreign operations are subject
to uncertain political and economic environments, evolving legal and
environmental regulatory climates, potential incompatibility between venture
partners, foreign currency controls and fluctuations, civil disturbances and
labor strikes, as well as other uncertainties.
The Corporation recorded revenue from foreign operations of $202,470 in 1997.
See Note 12. "Geographic and Customer Information" of Notes to Consolidated
Financial Statements.
BACKLOG
(In thousands of dollars)
Backlog consists of uncompleted portions of engineering and construction
contracts including the Corporation's proportionate share of construction joint-
venture contracts and its share of revenues from mining service contracts and
ventures for the next five years. Backlog of all uncompleted contracts at
November 30, 1997 totaled $3,704,300 compared with backlog of $3,519,700 at
November 30, 1996. Approximately $1,613,200 or 44% of the backlog at November
30, 1997 was comprised of U.S. government contracts which are subject to
termination by the government; $1,148,300 of such contracts has not been funded.
However, the Corporation has not been materially adversely affected by
government contract cancellations or modifications in the past. Terminations for
convenience of the government generally provide for recovery of contract costs
and related earnings. Approximately $1,312,900 or 35% of 1997 year-end backlog
is expected to be recognized as revenue in 1998. There can be no assurance that
contract cancellations or modifications will not reduce the backlog and future
revenues.
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<CAPTION>
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COMPOSITION OF YEAR END BACKLOG
(IN THOUSANDS OF DOLLARS)
YEAR ENDED NOVEMBER 30, 1997 % 1996 %
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<S> <C> <C> <C> <C>
Fee-type contracts $2,063,000 56% $2,034,500 58%
Fixed-price and unit-price contracts 1,641,300 44% 1,485,200 42%
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Total backlog $3,704,300 100% $3,519,700 100%
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GOVERNMENT CONTRACTS
Government contracts are a significant part of the Corporation's business. The
Corporation has a number of cost reimbursement contracts with various agencies
of the U.S. government, the allowable costs of which are subject to audit by the
U.S. government. As a result of such audits, U.S. government auditors assert
from time to time that certain costs claimed as reimbursable under government
contracts either were not allowable costs or were not allocable in accordance
with federal government regulations. The resolution of these audits may result
in various sanctions, including repayments of amounts previously paid by the
U.S. government to the Corporation. Some audits have resulted in cost
disallowances and claims for reimbursement by the government. See "Backlog"
above for the relative significance of U.S. government contracts included in
year-end 1997 backlog. See Note 13. "Contingencies and Commitments -- Contract
related matters" of Notes to Consolidated Financial Statements.
COMPETITION
Engineering and construction is a highly competitive business, particularly for
contracts obtained by competitive
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bidding. The Corporation competes based primarily on price, reputation and
reliability with other general and specialty contractors, both foreign and
domestic. Some of the Corporation's competitors may have greater financial and
other resources than the Corporation. Success or failure in the engineering and
construction industry is, in large measure, based upon the ability to compete
successfully for contracts and to provide the engineering, planning,
procurement, management and project financing skills required to complete them
in a timely and cost-efficient manner.
EMPLOYEES
The Corporation's total worldwide employment varies widely with the volume, type
and scope of operations under way at any given time and other factors.
At November 30, 1997, the Corporation employed a total of approximately 8,900
employees -- including 6,200 salaried and project direct-hire craft employees
and 2,700 employees covered by collective bargaining agreements.
ITEM 2. PROPERTIES
(In thousands of dollars)
At November 30, 1997, the Corporation owned more than 4,600 units of heavy and
light mobile construction, environmental remediation and contract mining
equipment.
The Corporation does not own significant real property for operations other
than certain land and improvements in Petaluma, California. At November 30,
1997, the Corporation had real estate held for sale in California and Nevada.
The two principal administrative office facilities in Boise, Idaho, and
Cleveland, Ohio, of approximately 143,800 square feet and 246,700 square feet,
respectively, are leased under long-term, noncancelable leases expiring in 2003
and 2010, respectively. The Corporation's long-term rental obligations for the
Boise and Cleveland facilities under these noncancelable leases for each of the
next five years approximate $5,968, $5,968, $6,036, $6,588 and $6,588,
respectively. Additionally, 61,100 square feet at the Boise, Idaho, facility are
being leased under leases expiring in January 1999 and April 1999 with annual
rental obligations of $445 and $168, respectively.
Annual rental payments on real estate and equipment leased by the Corporation
during the year ended November 30, 1997 aggregated $36,575. See Note 13.
"Contingencies and Commitments -- Long-term leases" of Notes to Consolidated
Financial Statements.
Construction, environmental remediation and mining equipment and leased
administrative and engineering facilities are considered by the Corporation to
be well maintained and suitable for current operations.
ITEM 3. LEGAL PROCEEDINGS
SECURITIES AND EXCHANGE COMMISSION ("SEC") INVESTIGATION: The Corporation, as
successor to Old MK (Commission File No. 1-8889), is subject to a formal
investigation by the Pacific Regional Office of the SEC regarding the management
and operations of Old MK, primarily its former Transit business, prior to
September 12, 1996. The Corporation continues to provide documents in response
to discovery requests and otherwise cooperate with the Commission's staff in
connection with this investigation.
OTHER: Other information regarding legal proceedings set forth under the caption
"Other" in Note 13 "Contingencies and Commitments" of Notes to Consolidated
Financial Statements is incorporated by reference in response to this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation did not submit any matters to a vote of security holders during
the fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION: The Corporation's voting common stock is traded on the New
York Stock Exchange under the symbol "MK." At the close of business on January
16, 1998, the Corporation had 54,241,507 shares of common stock issued and
outstanding.
The New York Stock Exchange composite high and low sales prices of the
Corporation's common stock traded on the New York Stock Exchange for each
quarterly period within the two most recent fiscal years are set forth under the
caption "Quarterly Financial Data" in Part II of this Annual Report on Form 10-K
and are incorporated by reference in response to this Item 5.
HOLDERS: The number of record holders of the Corporation's voting common stock
at January 16, 1998 was approximately 1,559 and does not include beneficial
owners of the Corporation's common stock held in the name of nominees.
DIVIDENDS: The Corporation has not paid a cash dividend since the first quarter
of fiscal 1994 and does not anticipate payment of dividends in the near term.
The Corporation is not restricted from paying dividends unless an event of
default exists under its credit facility. See Note 8. "Credit Facilities" of
Notes to Consolidated Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data)
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<CAPTION>
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OPERATIONS SUMMARY 1997 1996(a) 1995 1994 1993(b)
<S> <C> <C> <C> <C> <C>
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Revenue $1,677,301 $659,100 $228,537 $258,739 $210,184
Gross profit 79,315 33,344 24,113 19,849 20,121
Operating income (loss) 52,827 (8,594) 7,926 1,724 9,702
Net income (loss) 32,031 (4,780) 8,165 657 6,937
Income (loss) per common share .59 (.14) .28 .02 .39
Shares used to compute income (loss) per
common share 54,046 34,821 29,478 29,435 17,815
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FINANCIAL POSITION SUMMARY
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Current assets $ 405,014 $459,249 $ 85,721 $111,184 $118,340
Total assets 770,244 839,637 185,301 182,618 185,761
Current liabilities 299,895 400,604 42,188 47,005 52,538
Stockholders' equity 343,131 312,004 128,951 119,956 120,390
Stockholders' equity per common share 6.33 5.80 4.37 4.08 4.09
Dividends declared per share -- -- -- .05 .05
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(a) On September 11, 1996, the Corporation acquired Old MK in a transaction
accounted for as a purchase. The Corporation's results of operations include Old
MK's results for the period September 12 to November 30, 1996. See Item 1.
Business -- "General" in Part I of this Annual Report on Form 10-K and Note 2.
"Business Combination" of Notes to Consolidated Financial Statements.
(b) On July 12, 1993, the Corporation became the parent company of WCG Holdings,
Inc. ("WCG") and Kasler Corporation ("Kasler") in a transaction accounted for as
a purchase by WCG of Kasler. See Item 1. Business -- "General" in Part I of this
Annual Report on Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE QUARTER AND YEAR ENDED NOVEMBER
30, 1996 INCLUDE THE RESULTS OF OLD MK FOR THE PERIOD SEPTEMBER 12 TO NOVEMBER
30, 1996.
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<CAPTION>
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QUARTER ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
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(In millions) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenue $439.3 $416.7 $1,677.3 $659.1
Gross profit 21.3 19.0 79.3 33.3
General and administrative expenses (6.0) (8.4) (22.9) (22.6)
Impairment loss on long-lived assets -- -- -- (18.2)
Goodwill amortization (.9) (.8) (3.6) (1.2)
Investment income 3.8 1.5 9.1 3.7
Interest expense (.2) (.4) (.9) (1.0)
Other income (expense), net -- .6 (1.1) .6
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</TABLE>
REVENUE AND GROSS PROFIT: Revenue and gross profit for the year ended November
30, 1997 increased $1,018.2 and $46.0 respectively, compared to 1996 primarily
due to the acquisition of Old MK on September 11, 1996, which was accounted for
as a purchase. Gross profit, as a percent of revenue for the year was 4.7% in
1997 compared to 5.1% for 1996, improving slightly in the fourth quarter of 1997
to 4.8% as compared to the 4.6% for the fourth quarter of 1996.
Due to inherent risks and rewards in fixed-price contracting, the
Corporation's operating margins often differ from expectations and the
Corporation experiences unexpected gains or losses on contracts. Through
geographic, customer and risk diversification, the Corporation strives to offset
the risks inherent in its contracts. During 1997, the Corporation's gross profit
benefitted from strong performances on several contracts which more than offset
the losses incurred on certain fixed price contracts. In the fourth quarter of
1997, the Corporation assumed sponsorship of a large, fixed-price joint venture
due to the bankruptcy of the previous sponsor and recorded a $3.9 million pretax
loss because of the uncertainties on the project, including change orders and
potential project claims.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the fourth quarter and year ended November 30, 1997 decreased $2.4 million and
increased $.3 million, respectively, compared to the comparable periods of 1996.
The Corporation incurred approximately $1 million in expenses related to an
enterprise-wide implementation of new computer information systems for
financial, human resource and payroll systems which is scheduled to be completed
in various stages over a three-year period. Training, reengineering and the
amortization costs related to such implementation are expected to increase
general and administrative expenses by approximately $2 million for each of the
next seven years. The Corporation expects the implementation to ultimately
improve the efficiency and cost of its financial systems.
IMPAIRMENT OF LONG-LIVED ASSETS: In 1996, the Corporation recognized impairment
losses of $18.2 million on certain real property held for sale and operating
assets of a subsidiary held for sale.
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COST IN EXCESS OF NET ASSETS ACQUIRED ("GOODWILL"): Goodwill amortization for
the quarter and year ended November 30, 1997 increased to $.9 million and $3.6
million, respectively, from $.8 million and $1.2 million in the comparable
periods of 1996, respectively, reflecting the $124.1 million of goodwill
recorded in connection with the acquisition of Old MK, which is being amortized
under the straight-line method over 40 years. The Corporation allocated the
purchase price of Old MK to the assets acquired and liabilities assumed,
including preacquisition contingencies, on the basis of estimated fair values at
September 11, 1996. Resolution and revaluation of certain preacquisition
contingencies and the recent tax law change extending the net operating loss
("NOL") carryforward period from 15 to 20 years, resulted in a net decrease in
goodwill of $1.0 million in the third quarter of 1997. The extension of the NOL
carryforward period resulted in a decrease to goodwill of $19.7 million after
adjusting the valuation allowance related to the deferred tax asset (see Note 9
"Taxes on Income" of Notes to Consolidated Financial Statements). This decrease
was offset by an accrual for preacquisition contingencies of $18.7 million,
primarily for legal proceedings. Goodwill amortization for 1998 is estimated to
be $3.5 million.
INVESTMENT INCOME: Investment income is comprised of (i) earnings from cash
equivalents, securities jointly held with customers as contract retentions and
securities available for sale, and (ii) interest on a note receivable collected
in the fourth quarter of 1997 and U.S. federal income tax refund receivables.
Investment income for the fourth quarter and year ended November 30, 1997
increased $2.3 million and $5.4 million, respectively, from the comparable
periods of 1996, principally due to interest recognized on U.S. federal income
tax refunds and earnings from securities available for sale. A reduction in
investment income from the approximately $4.5 million of interest earned on U.S.
federal income tax refunds recognized in 1997 is expected in 1998 because U.S.
federal income tax refunds of $25 million, including interest, were received in
January 1998. The Corporation will utilize $18 million of the refunds to redeem
the Series A preferred stock on April 15, 1998.
INTEREST EXPENSE: Interest expense for the fourth quarter and year ended
November 30, 1997 decreased $.2 million and $.1 million, respectively, compared
to the comparable periods of 1996. Interest expense for 1997 consists primarily
of periodic amortization of prepaid underwriting fees and quarterly commitment
fees in connection with the Corporation's five-year, $200 million revolving loan
and letter of credit facility obtained in the fourth quarter of 1996.
OTHER INCOME (EXPENSE), NET: Other expense for the quarter ended November 30,
1997 includes (i) $1.7 million adjustment of the accrued pension benefit
obligation reflecting the ultimate termination benefits to be settled with cash
proceeds from liquidation of plan assets and (ii) $1.9 million of expensed
acquisition costs associated with the Corporation's proposed acquisition of
Montana Resources, Inc., a partner in a copper mine in Butte, Montana, for which
the Corporation and the seller were unable to finalize the terms of a definitive
purchase agreement and have terminated negotiations. In addition, for the year
ended November 30, 1997, the Corporation recognized an $.8 million loss on the
sale of an equity investment in a foreign bank and a $.6 million gain on
adjustment of insurance premiums paid in prior periods.
INCOME TAX EXPENSE: The effective tax rates for the fourth quarter and year
ended November 30, 1997 were 48% and 47%, respectively. These effective rates
were greater than the U.S. federal statutory rate of 35%, primarily due to the
impact of state and foreign income taxes and non-deductible goodwill
amortization. For the year ended November 30, 1996, the Corporation recognized
an income tax benefit of $.5 million which reflects recoverable federal income
taxes, net of foreign and state income tax expense.
1996 COMPARED TO 1995
REVENUE AND GROSS PROFIT: Revenue and gross profit for the year ended November
30, 1996 increased significantly, principally due to the acquisition of Old MK.
Gross profit, as a percent of revenue, was 5.1% for 1996 and 10.6% for 1995.
Before the acquisition of Old MK, the Corporation was engaged almost exclusively
in fixed-price work. After the acquisition of Old MK, the Corporation derived
approximately 37% of its revenue from fee-type/cost plus engineering,
construction management and environmental response services which typically
involve less risk and
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therefor receive lower margins than fixed-price work.
At November 30, 1996, backlog of $3,519.7 million was comprised of $2,034.5
million (58%) revenue from fee-type contracts and $1,485.2 million (42%) revenue
from fixed-price contracts and share of revenue from mining ventures. At
November 30, 1995, backlog of $286.3 million included $282.6 million revenue
from fixed-price contracts and $3.7 million revenue from fee-type contracts.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the year ended November 30, 1996 increased $6.8 million compared to 1995, due
principally to the acquisition of Old MK. In addition, the Corporation recorded
$1.5 million of expenses in the first quarter of 1996 for termination and other
costs related to the reorganization and consolidation of certain corporate
functions from Montana to California and $.9 million of expenses in the fourth
quarter of 1996 related to nonrecurring executive severance pay. As a result of
the acquisition of Old MK, the Corporation expanded its engineering,
construction, mining and environmental response services both domestically and
internationally. The Corporation retained the administrative support functions
of Old MK, and relocated the corporate headquarters to Boise, Idaho.
COST IN EXCESS OF NET ASSETS ACQUIRED ("GOODWILL"): Goodwill amortization for
the year ended November 30, 1996 increased to $1.2 million from $.4 million in
1995, reflecting the $124.1 million of goodwill recorded in connection with the
acquisition of Old MK, which is being amortized under the straight-line method
over 40 years.
OTHER INCOME AND EXPENSE: For the year ended November 30, 1996, investment
income decreased to $3.7 million from $4.1 million in 1995 due to reduced
interest-bearing cash and equivalents and notes receivable. Interest expense for
the year ended November 30, 1996 increased to $1.0 million from $.2 million in
1995, reflecting the cessation of interest capitalization upon completion of
construction in progress in 1995 and an increase in costs and fees associated
with the Corporation's revolving credit facilities in 1996. Other income for the
year ended November 30, 1996 includes $.6 million of gain on adjustment of
insurance premiums paid in prior periods.
INCOME TAXES: The income tax benefit of $.5 million for 1996 reflects estimated
recoverable federal income taxes net of foreign and state income tax expense.
The income tax expense of $4.0 million for 1995 is net of a $1.0 million benefit
arising from a change in prior year estimate.
FINANCIAL CONDITION
The Corporation has three principal sources of near-term liquidity: (i) existing
cash and cash equivalents; (ii) cash generated by its operations, and (iii)
revolving loan borrowings under its credit facility. Management believes the
Corporation's liquidity and capital resources should be sufficient to meet its
reasonably foreseeable working capital, capital expenditure and other
anticipated cash requirements. Cash and equivalents at November 30, 1997 were
$53.2 million, a $4.9 million increase over the prior year-end balance. Working
capital was million at the end of 1997 compared to $58.6 million at the end of
1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES NOVEMBER 30,
(IN THOUSANDS) 1997 1996
<S> <C> <C>
- -----------------------------------------------------------
Cash and cash equivalents
Beginning of period $48,310 $ 30,035
End of period 53,215 48,310
- -----------------------------------------------------------
YEAR ENDED
NOVEMBER 30,
1997 1996
- -----------------------------------------------------------
Net cash provided (used) by:
Operating activities $ 9,290 $ 13,212
Investing activities (7,487) 45,237
Financing activities 3,102 (40,174)
- -----------------------------------------------------------
</TABLE>
II-5
<PAGE>
Net cash provided from operating activities in 1997 of $9.3 million was
principally generated from income and collections of receivables and unbilled
receivables, net of decreases in accounts payable, subcontracts payable,
billings in excess of cost and estimated earnings, and estimated costs to
complete long-term contracts, and reflects the completion of several major
contracts.
Net cash used for investing activities in 1997 of $7.5 million reflects $19.7
million of property and equipment acquisitions and the net purchase of $8.8
million of securities available for sale in connection with the Corporation's
self-insured risk management program. These uses of cash were partially offset
by proceeds of property and equipment disposals, collections of notes receivable
and other investing activities, principally the proceeds received from the sale
of the Corporation's interest in a foreign bank. Net cash provided by investing
activities in 1996 included $52.6 million of cash acquired in the acquisition of
Old MK.
Cash provided from financing activities in 1997 resulted from the exercise of
stock options. Net cash used for financing activities in 1996 of $40.2 million
included payments on credit agreements and long-term borrowings. The Corporation
had no outstanding debt during 1997.
The Corporation anticipates capital expenditures for major construction
equipment of approximately $30 million during 1998 for normal replacement and to
meet equipment requirements of its expanded backlog.
The Corporation has a five-year, $200.0 million revolving loan and letter of
credit facility from the Bank of Montreal. Under the credit facility,
outstanding revolving loan borrowings are limited to $125.0 million. At November
30, 1997, the Corporation had no outstanding borrowings under the facility and
was in compliance with its covenants, the most restrictive of which is fixed
charge coverage.
The Corporation is subject to foreign currency translation and exchange
issues, primarily with regard to its mining venture, MIBRAG mbH, in Germany. At
November 30, 1997, the cumulative adjustments for translation losses net of
related income tax benefits was $5.5 million. The Corporation realized a pretax
gain on foreign currency exchange transactions of $17 thousand for the year
ended November 30, 1997. The Corporation endeavors to enter into contracts with
foreign customers with repayment terms in U.S. currency as a protection from
foreign exchange risk.
As discussed in Note 13 "Contingencies and Commitments -- Contract related
matters" of Notes to Consolidated Financial Statements, in connection with a
fixed-price contract for the construction of a solvent extraction facility and
treatment of contaminated soil at a Superfund site in Texas, the Texas Natural
Resource Conservation Commission may seek to recover up to $13.6 million of
advances by drawing on an outstanding letter of credit under which the
Corporation would have an obligation to reimburse the issuer for any amounts
drawn.
In January 1998, the Corporation received $25 million of U.S. federal income
tax refunds, including accrued interest. The Corporation will utilize $18
million of the refunds to fully redeem Series A preferred stock on April 15,
1998 to holders of record of shares at the close of business on March 31, 1998.
In addition, in January 1998, the Board of Directors authorized the purchase,
from time to time, of up to 2 million shares of the Corporation's common stock,
to counteract the dilutive effect of the issuance of stock under its stock
option plans, and up to 2.765 million of its warrants to purchase common stock.
Such purchases may be made in the open market, through block trades or
otherwise. Subject to market conditions and other factors, such purchases may be
commenced, discontinued and resumed from time to time without prior notice. It
is anticipated that such purchases will be funded from available cash and
equivalents and operating cash flows. Depending upon conditions in the capital
markets and other factors, the Corporation may from time to time consider the
possible issuance of long-term debt or other securities or other capital markets
transactions.
The Corporation may pursue opportunities to complement existing operations
through business combinations and participation in ventures, which may require
additional financing and utilization of the Corporation's capital resources.
II-6
<PAGE>
THE YEAR 2000 ISSUE
The Year 2000 issue results from computer programs that do not differentiate
between the year 1900 and the year 2000 because they are written using two
digits rather than four to define the applicable year. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. This Year 2000 issue is believed to affect virtually all companies and
organizations, including the Corporation.
The Corporation has not yet fully completed its assessment of compliance
issues for the Corporation's in-house or vendor supplied computer systems, the
computer systems of the Corporation's construction joint ventures and mining
ventures, and the computer systems of other entities with which the Corporation
does business such as subcontractors, suppliers, customers and creditors.
However, the Corporation has begun enterprise-wide implementation of new or
upgraded financial, human resource and payroll systems which are expected to be
Year 2000 compliant upon completion in the year 2000. The implementation will
utilize internal and external resources at a cost of approximately $15 million
over the next three years and is expected to be funded through operating cash
flow. Approximately $13 million of the total cost of this implementation is
expected to be capitalized, with the remaining $2 million of training and
reengineering costs expensed as incurred. The total cost and estimated
completion of the assessment, planning, testing, implementation or modifications
necessary to assure Year 2000 compliance is unknown. It is possible that the
direct or indirect effects of the Year 2000 issue could materially affect future
financial results, or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition.
ENVIRONMENTAL CONTINGENCY
From July 1985 to June 1989, a subsidiary of the Corporation performed certain
contract mining services at the Summitville mine near Del Norte, Colorado. The
United States Environmental Protection Agency (the "EPA") has notified the
Corporation and approximately 20 other parties that each is a potentially
responsible party ("PRP") with regard to hazardous substances generated or
disposed of at the Summitville Mine Superfund Site (the "Site"). The EPA has not
commenced any litigation or other proceedings against the Corporation. The
Corporation has had only preliminary discussions with the EPA but has been
informally advised that the EPA does not consider the Corporation eligible for a
de minimis settlement (the basis for settlement by several PRPs considered to
have contributed less than 3% volume and toxicity of the hazardous substances at
the Site).
According to a report published in August 1996, the EPA estimated that the
total remediation costs incurred and to be incurred at the Site will be
$120,000. The Corporation is not a party to any agreement regarding an
allocation of responsibility, and the EPA has not made an allocation of
responsibility among the PRPs. The Corporation's share, if any, of the
aggregate environmental liability associated with the Site is not presently
determinable and depends upon, among other things, the manner in which liability
may be allocated to or among the Corporation or other PRPs associated with the
Site, the efficacy of any defenses that the Corporation or such other PRPs may
have to any assertion of liability, the willingness and ability of such other
PRPs to discharge such liability as may be allocated to them and the outcome of
any negotiations or settlement discussions between the Corporation and the EPA
and/or such other PRPs. Accordingly, no remediation costs have been accrued at
November 30, 1997. Management believes that the ultimate resolution of this
matter could have a material adverse effect on the Corporation's financial
position and could materially and adversely effect its results of operations and
cash flows in one or more periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statements No. 128 Earnings
Per Share, No. 129 Disclosure of Information about Capital Structure, No. 130
Reporting Comprehensive Income and No. 131 Disclosures about Segments of an
Enterprise and Related Information. See Note 4 "Recently Issued Accounting
Standards" of Notes to Consolidated Financial Statements for the impact, if any,
that recently issued accounting standards are expected to have on the
Corporation's financial statements when adopted.
II-7
<PAGE>
QUARTERLY FINANCIAL DATA
(In thousands except per share data)
- --------------------------------------------------------------------------------
Selected quarterly financial data for the two years ended November 30, 1997 are
presented below. Income (loss) per share is computed separately for each
quarterly and annual period presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 QUARTERS ENDED FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
Revenue $389,530 $414,225 $434,288 $439,258
Gross profit 18,104 19,206 20,742 21,263
Net income 7,004 7,419 8,235 9,373
Income per share .13 .14 .15 .17
- --------------------------------------------------------------------------
Market price
High $ 10.50 $ 12.75 $ 14.63 $ 13.88
Low 8.63 9.75 11.38 9.75
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
1996 QUARTERS ENDED FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
- --------------------------------------------------------------------------
Revenue $ 62,006 $ 82,693 $ 97,750 $416,651
Gross profit 3,462 5,796 5,052 19,034
Net income (loss) (788) 1,614 (11,222) 5,616
Income (loss) per share (.03) .06 (.38) .11
- --------------------------------------------------------------------------
Market price
High $ 8.13 $ 11.00 $ 10.88 $ 10.00
Low 5.38 7.88 8.13 8.38
- --------------------------------------------------------------------------
</TABLE>
FIRST QUARTER 1996: Includes $1,500 in pre-tax expenses related to the
reorganization and consolidation of corporate functions.
THIRD QUARTER 1996: Includes $18,200 of pre-tax impairment loss on long-lived
assets.
FOURTH QUARTER 1996: Includes the operating results of Old MK for the period
September 12 to November 30, 1996.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
II-8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements as of November 30, 1997 and 1996, and for
each of the three years in the period ended November 30, 1997
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Report of Independent Accountants II-10
Report of Independent Auditors II-11
Consolidated Statements of Operations II-12
Consolidated Balance Sheets II-13, II-14
Consolidated Statements of Cash Flows II-15
Consolidated Statements of Stockholders' Equity II-16
Notes to Consolidated Financial Statements II-17 to II-34
</TABLE>
II-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Morrison Knudsen Corporation
We have audited the accompanying consolidated balance sheets of Morrison Knudsen
Corporation and subsidiaries (the "Corporation") as of November 30, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended November 30, 1997
and the financial statement schedule listed in the Table of Contents at Item 14.
These financial statements and the financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on the 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 present fairly, in
all material respects, the consolidated financial position of Morrison Knudsen
Corporation and subsidiaries as of November 30, 1997 and 1996, and their
consolidated results of operations and cash flows for each of the two years in
the period ended November 30, 1997 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
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 3 to the consolidated financial statements, the Corporation
changed its method of accounting for impairment of long-lived assets in 1996 to
conform with Statement of Financial Accounting Standards No. 121.
As discussed in Note 13 to the consolidated financial statements, the
Corporation has been named as a potentially responsible party at the Summitville
Mine Superfund Site. The Corporation's share, if any, of the ultimate
environmental liability at the site is not presently determinable and,
accordingly, no remediation costs have been accrued in the accompanying
financial statements.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boise, Idaho
February 2, 1998
II-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and the Board of Directors
of Kasler Holding Company
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Kasler Holding Company and subsidiaries
for the year ended November 30, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Kasler Holding Company and subsidiaries for the year ended November 30, 1995,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Los Angeles, California
January 12, 1996
II-11
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 1,677,301 $ 659,100 $ 228,537
Cost of revenue (1,597,986) (625,756) (204,424)
- --------------------------------------------------------------------------------------------
Gross profit 79,315 33,344 24,113
General and administrative expenses (22,910) (22,574) (15,767)
Impairment loss on long-lived assets -- (18,200) --
Goodwill amortization (3,578) (1,164) (420)
- --------------------------------------------------------------------------------------------
Operating income (loss) 52,827 (8,594) 7,926
Investment income 9,075 3,679 4,061
Interest expense (890) (993) (189)
Other income (expense), net (1,116) 634 389
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes 59,896 (5,274) 12,187
Income tax (expense) benefit (27,865) 494 (4,022)
- --------------------------------------------------------------------------------------------
Net income (loss) $ 32,031 $ (4,780) $ 8,165
============================================================================================
Income (loss) per share $.59 $(.14) $.28
- --------------------------------------------------------------------------------------------
Common shares used to compute income (loss) per share 54,046 34,821 29,478
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-12
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NOVEMBER 30, 1997 1996
- ---------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 53,215 $ 48,310
Accounts receivable, including retentions of $26,970 and $28,348 187,311 222,341
Unbilled receivables 74,514 101,564
Refundable income taxes 14,331 10,806
Current portion of notes receivable -- 3,000
Investments in and advances to construction joint ventures 29,270 24,538
Deferred income taxes 30,173 31,291
Other 16,200 17,399
- ---------------------------------------------------------------------------------------------------
Total current assets 405,014 459,249
- ---------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 39,314 30,494
Investments in mining ventures 57,439 56,210
Assets held for sale 13,301 18,853
Cost in excess of net assets acquired, net of accumulated amortization of
$5,755 and $2,177 136,150 140,677
Long-term notes receivable, net of current portion -- 5,087
Deferred income taxes 31,183 31,555
Other 7,594 12,178
- ---------------------------------------------------------------------------------------------------
Total investments and other assets 284,981 295,054
- ---------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST
Construction equipment 172,154 179,483
Land and improvements 6,993 7,110
Buildings and improvements 6,276 4,924
Equipment and fixtures 53,483 50,526
- ---------------------------------------------------------------------------------------------------
Total property and equipment 238,906 242,043
LESS ACCUMULATED DEPRECIATION (158,657) (156,709)
- ---------------------------------------------------------------------------------------------------
Property and equipment, net 80,249 85,334
- ---------------------------------------------------------------------------------------------------
Total assets $ 770,244 $ 839,637
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NOVEMBER 30, 1997 1996
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 53,448 $ 68,926
Subcontracts payable, including retentions of $20,266 and $27,006 42,513 75,036
Billings in excess of cost and estimated earnings on uncompleted contracts 25,176 49,626
Advances from customers 8,987 11,280
Estimated costs to complete long-term contracts 73,103 100,832
Accrued salaries, wages and benefits 52,618 49,136
Income taxes payable 1,371 8,255
Other accrued liabilities 42,679 37,513
- ------------------------------------------------------------------------------------------------
Total current liabilities 299,895 400,604
- ------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Postretirement benefit obligation 53,689 53,433
Accrued workers' compensation 34,088 26,061
Pension and deferred compensation liabilities 15,334 20,563
Environmental remediation obligations 6,107 8,972
- ------------------------------------------------------------------------------------------------
Total non-current liabilities 109,218 109,029
- ------------------------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Note 13)
- ------------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK, issued 1,800,000 shares of Series A 18,000 18,000
- ------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized; 1,800,000
redeemable shares of Series A issued and outstanding
Common stock, par value $.01, authorized 100,000,000 shares;
issued 54,299,160 and 53,808,748 shares 543 538
Capital in excess of par value 247,820 242,669
Stock purchase warrants 6,557 6,564
Retained earnings 93,858 61,827
Treasury stock, 57,806 shares, at cost (685) --
Unearned compensation - restricted stock -- (19)
Cumulative translation adjustments, net of income tax benefit (5,512) (154)
Unrealized gain on securities available for sale, net 550 579
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 343,131 312,004
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $770,244 $839,637
================================================================================================
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- -------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 32,031 $ (4,780) $ 8,165
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Provision for impairment of long-lived assets -- 18,200 --
Depreciation of property and equipment 22,808 11,773 8,477
Amortization of goodwill 3,577 1,164 420
Provision for losses on uncompleted contracts, net (11,516) 5,724 --
Deferred income taxes 20,974 703 --
Equity in net income of mining ventures less dividends received (9,502) (2,636) --
Accrued workers' compensation 6,799 1,966 --
Gain on sale of assets, net (1,602) (694) (1,236)
Other (4,849) (2,860) 204
Changes in other assets and liabilities, net of effects of business
combination:
Receivables and unbilled receivables 63,580 (3,541) 454
Investment in and advances to construction joint ventures (9,388) (9,522) (1,876)
Other assets 1,199 (43) (349)
Accounts payable, accrued salaries, other accrued liabilities,
subcontracts payable and customer advances (65,201) (6,925) (259)
Billings in excess of costs and estimated earnings (24,450) 4,599 (4,143)
Estimated cost to complete long-term contracts (8,054) 3,136 --
Income taxes (7,116) (3,052) 1,291
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,290 13,212 11,148
- -------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment acquisitions (19,700) (26,172) (22,255)
Property and equipment disposals 6,675 11,013 2,625
Purchase of securities available for sale (22,191) (1,096) --
Sale and maturities of securities available for sale 13,387 -- --
Collection of notes receivable 8,087 7,595 --
Other investing activities 6,255 1,257 (37)
Cash acquired in business combination -- 52,640 --
- -------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (7,487) 45,237 (19,667)
- -------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowing under credit agreement -- 30,000 --
Repayments under credit agreement -- (63,839) --
Payments of long-term borrowings -- (5,042) (7,562)
Other 3,102 (1,293) (4)
- -------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 3,102 (40,174) (7,566)
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 4,905 18,275 (16,085)
Cash and cash equivalents at beginning of period 48,310 30,035 46,120
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 53,215 $ 48,310 $ 30,035
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-15
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL IN STOCK UNEARNED CUMULATIVE
COMMON EXCESS OF PURCHASE RETAINED TREASURY COMPENSATION - TRANSLATION
STOCK PAR VALUE WARRANTS EARNINGS STOCK RESTRICTED STOCK ADJUSTMENTS OTHER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1994 $294 $ 61,649 $58,442 $(429)
Net income 8,165
Shares issued under stock
award plan 1 485 344
- ------------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1995 295 62,134 66,607 (85)
Net loss (4,780)
Shares issued under stock
award plan 1 413 66
Shares and warrants
issued for business
combination 242 180,122 $6,564
Foreign currency
translation adjustments $(154)
Change in unrealized gain on
securities available for
sale, net $ 579
- ------------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1996 538 242,669 6,564 61,827 (19) (154) 579
Net income 32,031
Shares issued under
(acquired for) stock
award plan 5 4,725 $(685) 19
Stock purchase warrants
converted to shares of
common stock 32 (7)
Compensation related to
stock option plans 394
Foreign currency
translation adjustments,
net (5,358)
Change in unrealized gain on
securities available for
sale, net (29)
- ------------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1997 $543 $247,820 $6,557 $93,858 $(685) $ -- $(5,512) $ 550
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-16
<PAGE>
MORRISON KNUDSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
The term "Corporation" as used in this Annual Report includes Morrison Knudsen
Corporation and its consolidated subsidiaries unless otherwise indicated.
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: The Corporation is a provider of (i) engineering and construction
management services to industrial companies, electric utilities and public
agencies, (ii) comprehensive environmental and hazardous substance remediation
services to governmental and private-sector clients, (iii) diverse heavy
construction services for the highway, airport, water resource, railway and
commercial building industries, and (iv) mine planning, engineering and contract
mining services for diverse customers. In providing such services, the
Corporation enters into three basic types of contracts: fixed-price or lump-sum
contracts providing for a single price for the total amount of work to be
performed and unit-price contracts providing for a fixed price for each unit of
work performed, under each of which both risk and anticipated income are the
highest; and cost-type contracts providing for reimbursement of costs plus a fee
under which risk is minimal and anticipated income is earned through the fee.
Engineering, construction management and environmental and hazardous substance
remediation contracts are typically awarded on a cost-plus-fee basis.
The Corporation also participates in construction joint ventures, often as
sponsor and manager of projects, which are formed for the sole purpose of
bidding, negotiating and completing specific projects. In addition, the
Corporation participates in the following mining ventures: Westmoreland
Resources, Inc., a coal mining company in Montana, and MIBRAG mbH, a company
that operates lignite coal mines and power plants in Germany.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Corporation and all of its majority-owned subsidiaries.
Investments in mining ventures and all joint ventures are accounted for by the
equity method. The Corporation's proportionate share of construction joint
venture and mining venture revenue, cost of revenue and gross profit (loss) is
included in the consolidated statements of operations. Intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION: Revenue is generally recognized on a percentage-of-
completion method. Completion is generally measured for engineering and
construction contracts based on the proportion of costs incurred to total
estimated contract costs. For certain long-term contracts involving mining,
environmental and hazardous substance remediation, completion is measured on
estimated physical completion or units of production.
Revenue recognition on certain fixed price construction contracts begins when
progress is sufficient to estimate the probable outcome or on the completed
contract method if the probable outcome cannot be reasonably estimated. The
cumulative effect of revisions to contract revenue and completion costs is
recorded in the accounting period in which the amounts are known and can be
reasonably estimated, including incentive awards, penalties, change orders and
anticipated losses. Such revisions could occur in the near term, and the effects
could be material. Claims for additional revenue are generally recognized at
settlement.
The Corporation has a substantial history of making reasonably dependable
estimates of the extent of progress towards completion, contract revenue and
contract completion costs on its long-term construction contracts. However, due
to uncertainties inherent in the estimation process, it is at least reasonably
possible that actual completion costs may vary from estimates in the near term.
USE OF ESTIMATES: The preparation of the Corporation's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily 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 balance sheet date and the reported amounts of
revenue and costs during the reporting periods. Actual results could differ in
the near term from those estimates.
II-17
<PAGE>
UNBILLED RECEIVABLES: Unbilled receivables at November 30, 1997 arise from the
use of the percentage-of-completion method of accounting, cost reimbursement-
type contracts and the timing of billings. Substantially all of the unbilled
receivables at November 30, 1997 are expected to be billed and collected within
one year.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES: The Corporation includes in
current assets and liabilities amounts realizable and payable under engineering
and construction contracts that extend beyond one year. Accounts receivable at
November 30, 1997 include approximately $11,600 of contract retentions which are
not expected to be collected within one year. At November 30, 1997, accounts
receivable include $5,950 of short-term marketable securities jointly held with
customers as contract retentions, the market value of which approximated the
carrying amounts. The Corporation recognizes interest income from marketable
securities as earned. Advances from customers are non-interest bearing.
CASH EQUIVALENTS: Cash equivalents consist of liquid securities with original
maturities of three months or less.
CREDIT RISK CONCENTRATION: The Corporation, by policy, limits the amount of
credit exposure to any one financial institution and places investments with
financial institutions evaluated as highly creditworthy. Concentrations of
credit risk with respect to accounts receivable and unbilled receivables are
believed to be limited due to the number, diversification and character of the
obligors and the Corporation's credit evaluation process. Typically, the
Corporation has not required collateral for such obligations, but can place
liens against property, plant or equipment constructed if a default occurs.
Historically, the Corporation has not incurred any significant credit-related
losses.
COST IN EXCESS OF NET ASSETS ACQUIRED: Cost in excess of net assets acquired in
business combinations ("goodwill") is amortized using the straight-line method
over 40 years. The carrying value of goodwill is reviewed for impairment on a
quarterly basis. If impairment is indicated by the facts and circumstances, an
impairment loss will be recognized based on a comparison of the carrying value
of the long-lived assets and associated goodwill with the undiscounted cash flow
of such assets. The carrying amount of the goodwill identifiable with such
assets will be eliminated before recognition of impairment of the related long-
lived assets and identifiable intangibles.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Major renewals
and improvements are capitalized, while maintenance and repairs are expensed
when incurred. Depreciation of construction equipment is provided on straight-
line and accelerated methods, after an allowance for estimated salvage value,
over estimated lives of two to ten years. Depreciation of buildings is provided
on the straight-line method over 10 years, and improvements are amortized over
the shorter of the asset life or lease term. Depreciation of equipment,
principally systems, is provided under the straight-line method generally over
three to five years. Upon disposition, cost and related accumulated depreciation
of property and equipment are removed from the accounts and the gain or loss is
reflected in results of operations.
FOREIGN CURRENCY TRANSLATION: The functional currency for foreign operations is
generally the local currency. Translation of assets and liabilities to U.S.
dollars is based on exchange rates at the balance sheet date. Translation of
revenue and expenses to U.S. dollars is based on a weighted average exchange
rate during the period. Translation gains or losses, net of income tax effects,
are reported as a component of stockholders' equity for foreign subsidiaries.
Because of the short-term duration of construction and engineering projects,
related translation gains or losses are recognized currently. Gains or losses
from foreign currency transactions are included in the results of operations of
the period in which the transaction is completed.
ENVIRONMENTAL LIABILITIES: Accruals for estimated costs of response actions for
environmental matters are recorded when it is probable that a liability has been
incurred and the amount of the liability can be reasonably estimated. On a
quarterly basis, the Corporation reviews estimates of costs of response actions
at various sites, including sites in respect of which government agencies have
designated the Corporation as a potentially responsible party. Accrued
liabilities may be discounted and are exclusive of claims for recovery, if any.
However, due to uncertainties inherent in the estimation process, it is at least
reasonably possible that actual results may vary from estimates in the near
term.
II-18
<PAGE>
INCOME TAXES: Deferred income tax assets and liabilities are recognized for the
effects of temporary differences between the carrying amounts and the income tax
basis of assets and liabilities using enacted tax rates. A valuation allowance
is established when it is more likely than not that net deferred tax assets will
not be realized. Tax credits are recognized in the year they arise.
INCOME (LOSS) PER SHARE: Income (loss) per share is based on the weighted
average number of outstanding common and equivalent shares outstanding during
the applicable period. Income (loss) per share is computed separately for each
quarterly and annual period presented.
RECLASSIFICATIONS: Certain reclassifications have been made in prior period
financial statements to conform to the 1997 presentation.
2. BUSINESS COMBINATION
On September 11, 1996, the Corporation (which was then known as Washington
Construction Group, Inc., and which had formerly been known as Kasler Holding
Company) acquired the net assets and the engineering and construction operations
of Morrison Knudsen Corporation ("Old MK") for $221,736, and changed its name to
Morrison Knudsen Corporation.
The purchase price consisted of (i) $13,300 of cash, (ii) 24,161,421 newly
issued shares of common stock of the Corporation valued at $180,364 in the
aggregate, or $7.465 per share, (iii) 1,800,000 newly issued shares of preferred
stock valued at $18,000, (iv) warrants to purchase 2,952,848 shares of the
Corporation's common stock at $12.00 per share valued at $6,564, and (v) $3,508
of acquisition costs. The acquisition of Old MK was structured as a merger of
Old MK with and into the Corporation and was accounted for using the purchase
method of accounting. The purchase price was allocated to the assets acquired
and liabilities assumed based on estimated fair values at September 11, 1996.
The consolidated results of operations for periods subsequent to September 11,
1996 reflect the merged operations. The cost in excess of the net assets
acquired of $124,115 is being amortized under the straight-line method over 40
years.
<TABLE>
<CAPTION>
- ---------------------------------------------------
PURCHASE PRICE ALLOCATION
<S> <C>
- ---------------------------------------------------
Net working capital $ 22,880
Investments and other assets 155,800
Cost in excess of net assets acquired 124,115
Property and equipment 28,730
Non-current liabilities (109,789)
- ---------------------------------------------------
Purchase price $ 221,736
- ---------------------------------------------------
- ---------------------------------------------------
</TABLE>
The following unaudited pro forma information presents the Corporation's
consolidated results of operations as if the acquisition of Old MK had occurred
on December 1, 1994 and after giving effect to certain adjustments, including
amortization of goodwill, depreciation expense, reduction in investment income
and related tax effects. The unaudited pro forma results of operations for 1996
and 1995 include Old MK's results of operations for the eleven months ended
November 30, 1996 and the year ended December 31, 1995, respectively. The pro
forma results of operations for 1996 reflect certain adjustments made in 1997 to
reflect revenue on mining ventures consistent with the 1997 presentation and to
eliminate certain after tax losses on disposal of assets and professional fees.
Such pro forma information does not purport to be indicative of operating
results that would have been reported had the acquisition of Old MK occurred on
December 1, 1994 or of future operating results.
II-19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
PERIOD ENDED NOVEMBER 30, 1996 1995
<S> <C> <C>
- ------------------------------------------------------------
Revenue $1,751,389 $1,780,685
Income from continuing operations 22,597 2,491
Income per common share .43 .05
- ------------------------------------------------------------
</TABLE>
3. ADOPTION OF ACCOUNTING PRINCIPLE
In the third quarter of 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of ("SFAS No. 121") which requires that
long-lived assets and certain identifiable intangible assets be reviewed for
impairment which is measured by a comparison of the carrying amount to the fair
value. The impairment loss on long-lived assets aggregating $18,200 in 1996 was
comprised of the following:
(i) The Corporation's Board of Directors approved a plan to offer for sale
certain assets of a non-core subsidiary with a carrying amount of $17,486 at
August 31, 1996. The Corporation recognized an estimated impairment loss of
$6,500 to reduce the carrying amount of the assets to estimated fair value.
(ii) Land previously held primarily for lease with a carrying amount of
$8,266 at August 31, 1996 was reclassified to land held for sale. The
Corporation recognized an estimated impairment loss of $5,600 and established a
new carrying amount of $2,666 at August 31, 1996, based upon an appraisal of the
current fair value net of the estimated improvement and disposal costs required
for a near-term bulk sale of the land.
(iii) As of August 31, 1996, the Corporation recognized an estimated
impairment loss of $6,100 on the land and buildings in Highland, California,
which comprised the Corporation's headquarters prior to relocation of the
headquarters to Boise, Idaho. The loss reflects the change in use and the
impairment of the $7,016 carrying amount of the Highland property. The
impairment loss was estimated based on an appraisal of the current fair value of
the Highland property.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 128 Earnings
per Share ("SFAS No. 128"). The Corporation will implement the provisions of
SFAS No. 128 in the quarter ending February 28, 1998. This Statement simplifies
standards for computing and presenting earnings per share (EPS) and makes them
comparable to international EPS standards. SFAS No. 128 requires presentation of
two EPS amounts: Basic EPS, which excludes dilution, and Diluted EPS, which
reflects the potential dilution that could occur if the exercise of options or
warrants or conversion of convertible securities resulted in the issuance of
common stock. Basic and diluted EPS pursuant to the requirements of SFAS No. 128
would be as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996
<S> <C> <C>
- --------------------------------------------------
Basic earnings (loss) per share $ .59 $(.14)
Diluted earnings (loss) per share $ .59 $(.14)
- --------------------------------------------------
</TABLE>
II-20
<PAGE>
The Financial Accounting Standards Board has issued Statement No. 129
Disclosure of Information about Capital Structure. The Statement continues the
requirements to disclose certain information about an enterprise's capital
structure prescribed by previous accounting standards. The Corporation's current
disclosures are in compliance with the requirements of the Statement.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and display of comprehensive income but does not
effect the current principles of measurement of revenue. The adoption of SFAS
No. 130 is effective for the Corporation in the quarter ending February 28,
1999.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 Disclosures about Segments of an Enterprise and Related Information ("SFAS
No. 131"). SFAS No. 131 requires publicly-held companies to report segment and
other financial information which is utilized by the chief operation decision
maker and to reconcile the segment information to financial statement amounts.
SFAS No. 131 is effective for the Corporation for the year ending November 30,
1999.
5. SECURITIES AVAILABLE FOR SALE
Securities available for sale are reported at fair value and consisted primarily
of debt securities at November 30, 1997. Gross unrealized gains were $732 and
losses were $182 at November 30, 1997. Unrealized gains and losses, net of
income tax effects, are reported as a component of stockholders' equity.
Securities available for sale are held in a captive insurance subsidiary which
insures workers' compensation risks of the Corporation. Securities available for
sale having a fair value of $6,106 at November 30, 1997 are pledged as
collateral for the Corporation's guarantees of third-party letters of credit.
Maturity, fair value and cost of securities held for sale were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------
MATURITIES OF SECURITIES FAIR VALUE COST
<S> <C> <C>
- -------------------------------------------------
1998 $ 8,317 $ 8,306
1999 - 2000 16,050 15,860
2001 - 2005 14,947 14,598
- -------------------------------------------------
Total at November 30, 1997 $39,314 $38,764
- -------------------------------------------------
- -------------------------------------------------
Total at November 30, 1996 $30,494 $29,915
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
6. VENTURES
CONSTRUCTION JOINT VENTURES: The Corporation participates in joint ventures,
generally as sponsor and manager of the projects, which are formed to bid,
negotiate and complete specific projects. The size, scope and duration of joint-
venture projects vary among periods.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION OF CONSTRUCTION JOINT VENTURES
NOVEMBER 30, 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Current assets $ 364,752 $ 247,869
Property and equipment, net 33,223 5,684
Current liabilities (324,092) (216,763)
- ---------------------------------------------------------------------------------------------------
Net assets $ 73,883 $ 36,790
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
COMBINED RESULTS OF OPERATIONS OF CONSTRUCTION JOINT VENTURES
YEAR ENDED NOVEMBER 30, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Revenue $ 793,555 $ 246,636 $ 12,729
Cost of revenue (715,492) (229,836) (11,580)
- ---------------------------------------------------------------------------------------------------
Gross profit $ 78,063 $ 16,800 $ 1,149
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
II-21
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CORPORATION'S SHARE OF RESULTS OF OPERATIONS OF CONSTRUCTION JOINT VENTURES
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Revenue $ 331,940 $103,709 $ 5,327
Cost of revenue (299,701) (95,953) (4,886)
- --------------------------------------------------------------------------------------------------------------
Gross profit $ 32,239 $ 7,756 $ 441
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Combined financial position and results of operations of joint ventures
subsequent to September 11, 1996 reflect merged ownership interests including
operating results of joint ventures acquired as a result of the acquisition of
Old MK.
MINING VENTURES: At November 30, 1997, the Corporation had ownership interests
in two mining ventures, MIBRAG mbH (33%) and Westmoreland Resources, Inc.
("Westmoreland Resources") (20%). On September 30, 1996, the Corporation sold a
4% ownership interest in Westmoreland Resources to Westmoreland Coal Company
("Westmoreland Coal") thereby reducing its ownership interest to 20%. The
Corporation provides contract mining services to these ventures.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION OF MINING VENTURES
NOVEMBER 30, 1997 1996
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Current assets $ 302,237 $ 352,586
Non-current assets 117,447 114,835
Property and equipment, net 498,310 509,919
Current liabilities (101,241) (128,435)
Long-term debt (267,026) (259,084)
Other non-current liabilities (365,058) (411,432)
- -----------------------------------------------------------------------------------------
Net assets $ 184,669 $ 178,389
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
COMBINED RESULTS OF OPERATIONS OF MINING VENTURES
YEAR ENDED NOVEMBER 30, 1997 1996
- -----------------------------------------------------------------------------------------
Revenue $ 364,425 $ 102,701
Cost of revenue (331,502) (92,071)
- -----------------------------------------------------------------------------------------
Gross profit $ 32,923 $ 10,630
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
II-22
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CORPORATION'S SHARE OF RESULTS OF OPERATIONS OF MINING VENTURES
YEAR ENDED NOVEMBER 30, 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 115,412 $ 32,786
Cost of revenue (105,108) (29,385)
- -----------------------------------------------------------------------------------------
Gross profit $ 10,304 $ 3,401
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
On December 23, 1996, Westmoreland Coal and four subsidiaries, including
Westmoreland Resources, filed for protection under Chapter 11 of the United
States Bankruptcy Code. At November 30, 1997, the carrying amount of the
Corporation's ownership interest in Westmoreland Resources was $6,191. The
Corporation cannot presently predict with any certainty to what extent, if any,
the ownership interest in Westmoreland Resources, or the Corporation's contract
mining for Westmoreland Resources, will ultimately be impaired, but any loss is
not expected to have a material adverse effect on the Corporation's financial
position, results of operations or cash flows.
7. ASSETS HELD FOR SALE
At November 30, 1997, assets held for sale are stated at the lower of cost or
fair value less cost of disposal and are comprised of the net assets of a
subsidiary and real estate. The Corporation is unable to predict disposal dates.
Operations of the subsidiary resulted in revenue of $5,300 and $5,400, and net
operating losses of $937 and $1,700 for 1997 and 1996, respectively. During
1997, a 29.5% stock ownership interest in a foreign bank which had a carrying
amount of $5,244 at November 30, 1996 was sold at a loss of $833. In 1996, the
Corporation recognized aggregate impairment losses of $12,100 on assets held for
sale and $6,100 on assets held for use.
8. CREDIT FACILITIES
On October 31, 1996, the Corporation obtained from the Bank of Montreal a five-
year, $200,000 revolving loan and letter of credit facility (the "Facility").
Revolving loan borrowings under the Facility are limited to $125,000. On October
8, 1997, the Facility was extended for an additional year to October 2002.
Annually thereafter, the Facility may be extended by an additional year upon
mutual approval of the bank and the Corporation. In 1996, the Corporation paid a
$1,100 underwriting fee to the bank and is required to pay commitment and
letters of credit fees.
Substantially all of the assets of the Corporation and certain of its material
domestic subsidiaries are pledged as collateral. The Facility covenants require
the maintenance of financial ratios, the most restrictive of which is fixed
charge coverage and minimum levels of net worth and place limitations
principally on additional indebtedness, investments and loan guarantees. At
November 30, 1997, the Corporation had no outstanding borrowings under the
Facility and was in compliance with the covenants. The Corporation is not
restricted from paying dividends unless an event of default exists.
The Facility provides for loans bearing interest, payable quarterly, at the
applicable LIBOR rate or the base rate, as defined, plus an additional margin.
The additional margin ranges from 3/4% to 1 1/8% for the LIBOR rate and zero to
1/4% for the base rate, based on the ratio of earnings before interest, taxes,
depreciation and amortization to the Corporation's funded debt.
II-23
<PAGE>
9. TAXES ON INCOME
The components of the U.S. federal, state and foreign income tax expense
(benefit) were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------
Currently payable
U.S. federal $(2,699) $ (10) $2,217
State 871 108 723
Foreign 3,535 1,019 --
- ----------------------------------------------------------
Current 1,707 1,117 2,940
- ----------------------------------------------------------
Deferred
U.S. federal 22,585 (1,459) 844
State 3,043 (361) 238
Foreign 530 209 --
- ----------------------------------------------------------
Deferred 26,158 (1,611) 1,082
- ----------------------------------------------------------
Income tax expense (benefit) $27,865 $ (494) $4,022
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
II-24
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
DEFERRED TAX ASSETS AND LIABILITIES
NOVEMBER 30, 1997 1996
<S> <C> <C>
- -------------------------------------------------------------
Deferred tax assets
Employee benefit plans $ 31,926 $ 35,087
Estimated loss accruals 54,429 66,948
Revenue recognition 2,585 5,659
Alternative minimum tax 14,507 13,902
Joint ventures 3,633 4,293
Self-insurance accruals 31,643 22,963
Loss carryforwards 88,326 83,336
Valuation allowance (111,987) (126,878)
- -------------------------------------------------------------
Total deferred tax assets 115,062 $ 105,310
- -------------------------------------------------------------
Deferred tax liabilities
Depreciation (10,217) (6,587)
Basis difference in affiliates (16,686) (11,016)
Other, net (26,803) (24,861)
- -------------------------------------------------------------
Total deferred tax liabilities (53,706) (42,464)
- -------------------------------------------------------------
Total deferred tax assets, net $ 61,356 $ 62,846
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
At November 30, 1997, the Corporation had consolidated regular tax net
operating loss carryforwards for federal, state and foreign tax purposes of
approximately $220,145, $165,902 and $3,775, respectively, which expire in the
years 2000 through 2012. In addition, the Corporation had federal alternative
minimum tax credits of $14,507 at November 30, 1997 which carry forward
indefinitely. The $111,987 valuation allowance reduces these net operating loss
carryforwards and other deferred tax assets to a level which management believes
will, more likely than not, be realized based on estimated future taxable
income. The net decrease of $14,891 in the valuation allowance at November 30,
1997 resulted from the extension of the federal net operating loss carryforward
period and by changes to the deferred taxes related to the acquisition of Old MK
for preacquisition contingencies. A reduction in the valuation allowance related
to tax assets acquired at September 11, 1996 will result in a reduction of
goodwill. The valuation allowance may be increased based on the occurrence of
future events, and any such increase could be material. Years prior to 1994 are
closed to examination for federal tax purposes. Management believes that
adequate provision has been made for probable tax assessments.
Income tax expense (benefit) differed from income taxes at the U.S. federal
statutory tax rate of 35% as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Tax expense (benefit) at 35% U.S. federal statutory rate $20,964 $(1,846) $ 4,266
State income tax, net of federal benefit 2,544 (165) 624
Foreign income tax, net of federal benefit 2,642 799 --
Nondeductible expenses (nontaxable income), net 1,643 447 (1,024)
Other 72 271 156
- ---------------------------------------------------------------------------------------
Income tax expense (benefit) $27,865 $ (494) $ 4,022
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
Nondeductible expenses (nontaxable income), net was comprised principally of
goodwill amortization and in 1995, a benefit from a change in estimate.
Income (loss) before income taxes was comprised of a domestic source income of
$23,290 and foreign source income of $36,606 in 1997, a domestic source loss of
$(11,786) and foreign source income of $6,512 in 1996 and domestic source income
in 1995.
10. BENEFIT PLANS
PENSION PLAN: The Corporation succeeded Old MK as sponsor of a defined benefit
pension plan under which benefits have been frozen and no further benefits have
been accrued since 1991. Management has terminated the plan and is effecting a
settlement of the plan's accumulated benefit obligation through lump-sum cash
payments and the purchase of nonparticipating annuities. Accordingly, the
accumulated benefit obligation at November 30, 1997 reflects estimated ultimate
termination benefits. Pending such settlement, the plan continues to hold
assets, pay benefits and, if required, receive additional employer
contributions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FUNDED STATUS OF THE PLAN
NOVEMBER 30, 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Accumulated vested termination benefit obligation $(63,028) $(57,492)
Plan assets at fair value 60,034 54,266
- --------------------------------------------------------------------------------------------------
Accumulated vested termination benefit obligation in excess of plan assets (2,994) (3,226)
Unrecognized net gain (167) (1,635)
- --------------------------------------------------------------------------------------------------
Accrued pension benefit obligation $ (3,161) $ (4,861)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
At November 30, 1997, approximately 46% of plan assets were invested in fixed-
income (corporate and U.S. government) securities and 54% in cash equivalents.
The discount rate used in determining the actuarial present value of the
accumulated vested termination benefit obligation was 6.15% for anticipated
annuity settlements, 7.09% for anticipated lump-sum payments and 6.11% for
certain grandfathered small-amount cash outs. The expected rate of return on
plan assets was 8%.
MULTIEMPLOYER PENSION PLANS: The Corporation participates in and makes
contributions to numerous construction-industry multiemployer pension plans.
Generally, the plans provide defined benefits to substantially all employees
covered by collective bargaining agreements. The Corporation's cost of the plans
was $16,098 in 1997, $4,972 in 1996 and $2,460 in 1995. Under the Employee
Retirement Income Security Act, a contributor to a multiemployer plan is liable,
upon termination or withdrawal from a plan, for its proportionate share of a
plan's unfunded vested liability. The Corporation currently has no intention of
withdrawing from any of the multiemployer pension plans in which it
participates.
II-26
<PAGE>
ACCRUED PENSION LIABILITIES: The Corporation has assumed the pension
liabilities to former employees and former non-employee directors of Old MK as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
STATUS OF THE UNFUNDED PENSION PLANS
NOVEMBER 30, 1997 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Accumulated vested benefit obligation, discounted at 7.0% and 7.25% $(14,549) $(14,612)
Unrecognized net loss 960 703
- -------------------------------------------------------------------------------------------
Accrued pension liabilities $(13,589) $(13,909)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
POSTRETIREMENT HEALTH CARE PLAN: The Corporation succeeded Old MK as sponsor of
an unfunded plan to provide certain health care benefits for employees of Old MK
who retired before July 1, 1993 including their surviving spouses and dependent
children. Employees who retired after July 1, 1993 are not eligible for
postretirement health care benefits. Prior to November 30, 1996, the Corporation
changed its postretirement health care plan to increase retirees' required cash
contributions, effective January 1, 1997, and the effect of such change was
reflected in the accumulated postretirement benefit obligation ("APBO") at
November 30, 1996. The plan was amended in past years, and the Corporation
reserves the right to amend or terminate the postretirement health care benefits
currently provided under the plan and may increase retirees' cash contributions
at any time. The interest expense on the unfunded APBO for the year ended
November 30, 1997 was $3,522 and for the period September 12 to November 30,
1996 was $803.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT OBLIGATION
NOVEMBER 30, 1997 1996
<S> <C> <C>
- -----------------------------------------------------------------
Accumulated benefit obligation $(43,250) $(50,265)
Unrecognized prior service credit (4,593) (4,976)
Unrecognized actuarial net (gain) loss (5,846) 1,808
- -----------------------------------------------------------------
Accrued postretirement benefit obligation $(53,689) $(53,433)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
The unrecognized prior service credit is being amortized to periodic health
care expense over the 13-year average future expected lifetime of retirees and
their surviving spouses beginning in fiscal 1997.
The APBO was determined using the projected unit credit method and an assumed
discount rate of 7%. In addition, an annual rate increase of 9% in the per
capita cost of health care benefits was assumed, gradually declining to 5% in
the year 2006 and continuing thereafter at that rate over the projected payout
period of the benefits. The health care cost trend rate assumption has a
significant effect on the APBO. For example, a 1% increase in the health care
cost trend rate would increase the APBO of $4,199 at November 30, 1997 and
increase the 1997 expense by approximately $360.
OTHER RETIREMENT PLANS: The Corporation also sponsors a number of defined
contribution retirement plans. Participation in these plans is available to
substantially all salaried employees and to certain groups of hourly
II-27
<PAGE>
employees. The Corporation's cash contributions to these plans are based on
either a percentage of employee contributions or on a specified amount per hour
based on the provisions of each plan.
The cost of these plans was $30,846 in 1997, $9,174 in 1996 and $3,090 in 1995.
11. TRANSACTIONS WITH AFFILIATES
The Corporation purchased goods and services from and participated in joint
ventures with affiliates of a principal stockholder and Chairman of the Board of
Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Capital expenditures $1,444 $1,063 $1,545
Lease and maintenance of corporate aircraft 931 -- --
Parts, rentals, overhauls and repairs 4,565 7,709 5,901
Administrative support services 1,066 1,688 2,446
Revenue recognized from joint ventures 4,798 2,103 1,800
Profit recognition from joint ventures 1,522 393 382
Corporation's investment in joint ventures 1,648 1,080 582
- ---------------------------------------------------------------------
</TABLE>
II-28
<PAGE>
The Corporation performed construction services, rented equipment and realized
gains on sales of equipment to affiliates of a principal stockholder and
Chairman of the Board of Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------
Construction services $ 29 $4,696 $ 848
Equipment rental -- 346 194
Gain (loss) on sales of equipment, net (63) 466 586
- ---------------------------------------------------------------
</TABLE>
The Corporation purchased insurance, surety bonds and financial advisory
services from firms owned by or affiliated with current members of the Board of
Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Insurance premiums paid $10,614 $11,508 $3,901
Commissions earned 1,280 875 430
Financial advisory services regarding purchase of Old MK -- 992 --
Fair value of stock purchase warrants issued for service in
connection with the purchase of Old MK -- 543 --
Financial advisory services 154 -- --
- ---------------------------------------------------------------------------------------
</TABLE>
In January 1998, the Corporation and a brokerage firm owned by a member of the
Board of Directors approved a new agreement for insurance brokering services
supplied to the Corporation effective January 1, 1998 and expiring December 31,
2000, with automatic renewal annually for 12-month terms thereafter, unless
canceled by either party prior to the annual date. Pursuant to the new
agreement, the brokerage firm receives an annual fixed fee of $1,150, which will
be paid in equal quarterly installments with all insurance commissions earned to
be credited 100% against the fee.
Negotiations of the proposed acquisition of an interest in a copper mine
between the Corporation and a principal stockholder and the Chairman of the
Board of Directors were terminated in January, 1998.
II-29
<PAGE>
12. GEOGRAPHIC AND CUSTOMER INFORMATION
The Corporation operates in the engineering and construction industry in the
following geographic areas:
<TABLE>
<CAPTION>
- ------------------------------------------------
GEOGRAPHIC DATA
YEAR ENDED NOVEMBER 30, 1997 1996
<S> <C> <C>
- ------------------------------------------------
Revenue
United States $1,474,831 $589,930
International 202,470 69,170
- ------------------------------------------------
Total revenue $1,677,301 $659,100
- ------------------------------------------------
- ------------------------------------------------
Operating income (loss)
United States $ 18,260 $(11,787)
International 34,567 3,193
- ------------------------------------------------
Operating income (loss) $ 52,827 $ (8,594)
- ------------------------------------------------
- ------------------------------------------------
Identifiable assets
United States $ 357,424 $405,123
International 111,182 154,083
Corporate assets 301,638 280,431
- ------------------------------------------------
Total assets $ 770,244 $839,637
- ------------------------------------------------
- ------------------------------------------------
</TABLE>
Corporate assets include cash and equivalents, refundable income taxes,
deferred tax assets, securities available for sale, assets held for sale and
cost in excess of net assets acquired. Revenue from international operations and
identifiable assets of international operations in 1997 and 1996 was in numerous
geographic areas without significant concentration, and in 1995 was less than
10% of consolidated revenue and assets, respectively.
Ten percent or more of the Corporation's revenues for the three years in the
period ended November 30, 1997 were derived from contracts and subcontracts with
the following customers:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------
California Department of Transportation $125,136 $147,598 $109,033
United States Department of Energy 289,288 69,614 2,226
Other U.S. government agencies 71,684 36,439 20,537
- -----------------------------------------------------------------------
</TABLE>
13. CONTINGENCIES AND COMMITMENTS
SUMMITVILLE ENVIRONMENTAL MATTERS: From July 1985 to June 1989, a subsidiary of
the Corporation performed certain contract mining services at the Summitville
mine near Del Norte, Colorado. The United States Environmental
II-30
<PAGE>
Protection Agency (the "EPA") has notified the Corporation and approximately 20
other parties that each is a potentially responsible party ("PRP") with regard
to hazardous substances generated or disposed of at the Summitville Mine
Superfund Site (the "Site"). The EPA has not commenced any litigation or other
proceedings against the Corporation. The Corporation has had only preliminary
discussions with the EPA but has been informally advised that the EPA does not
consider the Corporation eligible for a de minimis settlement (the basis for
settlement by several PRPs considered to have contributed less than 3% volume
and toxicity of the hazardous substances at the Site).
According to a report published in August 1996, the EPA estimated that the
total remediation costs incurred and to be incurred at the Site will be
$120,000. The Corporation is not a party to any agreement regarding an
allocation of responsibility, and the EPA has not made an allocation of
responsibility among the PRPs. The Corporation's share, if any, of the
aggregate environmental liability associated with the Site is not presently
determinable and depends upon, among other things, the manner in which liability
may be allocated to or among the Corporation or other PRPs associated with the
Site, the efficacy of any defenses that the Corporation or such other PRPs may
have to any assertion of liability, the willingness and ability of such other
PRPs to discharge such liability as may be allocated to them and the outcome of
any negotiations or settlement discussions between the Corporation and the EPA
and/or such other PRPs. Accordingly, no remediation costs have been accrued at
November 30, 1997.
Management believes that the ultimate resolution of this matter could have a
material adverse effect on the Corporation's financial position and could
materially and adversely effect its results of operations and cash flows in one
or more periods.
OTHER ENVIRONMENTAL MATTERS: The Corporation assumed a liability of Old MK of
$4,000 for the estimated costs of monitoring and treatment of ground water
contamination at or adjacent to previously owned rail facilities in Boise,
Idaho. In December 1996, the current owner qualified for assumption of related
monitoring and treatment obligations for such facilities. Accordingly, the
Corporation eliminated the assumed liability associated with the site.
The Corporation has been identified as a PRP and is contingently liable for
remediation liabilities in connection with Old MK's former Transit business. The
Corporation agreed to indemnify the buyer of the Transit business for
remediation costs and has therefore accrued $3,000. While the Corporation's
range of loss cannot be estimated, management believes that the ultimate outcome
of the matter will not have a material adverse effect on the Corporation's
financial position.
The Corporation has assumed an undiscounted liability of Old MK which at
November 30, 1997 was $3,107 for environmental cleanup activities at four other
sites. The Corporation estimates that such costs could range from $1,800 to
$6,800 in the aggregate.
CONTRACT RELATED MATTERS: In 1995, Old MK entered into a fixed-price contract
with the Texas Natural Resource Conservation Commission ("TNRCC") for
construction of a solvent-extraction facility and treatment of contaminated soil
at a Superfund site in Texas. In 1997, the Corporation and the staff of TNRCC
entered into a modified agreement that resolved the contract disputes which had
previously arisen. The modified agreement was not approved by the TNRCC and the
TNRCC notified the Corporation in early February 1998 that it was terminating
its contract with the Corporation. The Corporation anticipates additional
negotiations with the TNRCC over demobilization and claim issues. The TNRCC may
seek to recover up to $13,619 of advances by drawing on an outstanding letter of
credit issued at the request of the Corporation (and under which the Corporation
would have an obligation to reimburse the issuer for any amounts so drawn), and
if the TNRCC does so act the Corporation will assert its claims for additional
revenue for customer-caused delays, changed conditions and other excess costs.
At August 31, 1997, the Corporation provided for the estimated costs to complete
the contract, assuming the letter of credit was not drawn. However, the ultimate
outcome of this matter cannot be determined with certainty.
The Corporation has a number of cost reimbursable contracts with the U.S.
government, the allowable costs of which are subject to adjustments upon audit
and negotiation by various agencies of the U.S. government. Audits and
negotiations of the Corporation's allocation of periodic costs of insurance
programs are complete through 1997, resulting in a $4,300 credit refund by the
Corporation to certain U.S. government contracts over two years. Audits and
negotiations of indirect costs are substantially complete through 1995 without
significant adjustments, and audits of 1996 indirect costs are in progress.
II-31
<PAGE>
LETTERS OF CREDIT: In the normal course of business, the Corporation causes
letters of credit to be issued in connection with contract performance
obligations which are not reflected in the balance sheet. The Corporation is
obligated to reimburse the issuer of such letters of credit for any payments
made thereunder. At November 30, 1997, $41,297 in face amount of such letters of
credit were outstanding, including a $13,619 letter of credit issued in
connection with the contract performance obligation to TNRCC discussed above. At
November 30, 1996, $33,669 in face amount of such letters of credit were
outstanding. The Corporation has pledged securities available for sale as
collateral for its reimbursement obligations in respect of $6,106 in face amount
of certain letters of credit at November 30, 1997.
In connection with a 1989 sale of Old MK's ownership interest of a
shipbuilding subsidiary, the Corporation assumed a guarantee of port facility
bonds of $21,000 through 2002. The former subsidiary has collateralized the
bonds with certain assets and have established a sinking fund of $5,027 for the
bonds. No loss on the guarantee is probable and, accordingly, no accrual has
been made by the Corporation.
II-32
<PAGE>
EMPLOYMENT AGREEMENTS AND SEVERANCE PAY PLANS: The Corporation has employment
agreements with several key employees which generally provide for salary
continuation and certain benefits in the event of termination of employment
without cause (as defined) following a change of control in the Corporation (as
defined). If all employees subject to such agreements at November 30, 1997 were
to be terminated under circumstances giving rise to such salary continuation and
benefits, the Corporation's aggregate liability would be approximately $4,149.
As a result of the acquisition of Old MK, several employees were terminated,
resulting in cash payments of $407 during 1997 and an accrued liability of $270
at November 30, 1997.
LONG-TERM LEASES: Total rental payments for real estate and equipment under
lease charged to operations in 1997, 1996 and 1995 were $36,575, $11,780 and
$4,514, respectively. Future minimum rental payments under operating leases,
some of which contain renewal or escalation clauses, with remaining
noncancelable terms in excess of one year at November 30, 1997 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
REAL ESTATE EQUIPMENT TOTAL
<S> <C> <C> <C>
- ----------------------------------------------------------------------
YEAR ENDING NOVEMBER 30,
1998 $ 9,984 $ 12,573 $22,557
1999 8,152 7,343 15,495
2000 8,353 1,012 9,365
2001 6,653 282 6,935
2002 6,589 86 6,675
2003 and after 42,366 -- 42,366
- ----------------------------------------------------------------------
Totals $82,097 $21,296 $103,393
- ----------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
Administrative and engineering facilities in Boise, Idaho, and Cleveland,
Ohio, are leased under long-term, non-cancelable leases expiring in 2003 and
2010, respectively, with aggregate lease obligations of $10,039 and $63,476 for
the Boise facility and Cleveland facility, respectively.
OTHER: The Corporation and certain current and former officers and directors are
named defendants in two legal actions: John B. Blyler and Malcolm J. Corse v.
William J. Agee, et. al., Civil Action No. 97-0332-S-BLW; and Martin Radwell v.
Dennis R. Washington, et. al., Civil Action No. 15934. The complaints allege,
among other things, that the defendants breached certain fiduciary duties.
Additionally, former shareholders (the plaintiffs) of TMS, Inc. ("TMS"), which
was acquired by Old MK in December 1992, filed an action in 1995 alleging they
were induced to enter into an agreement to exchange TMS shares for common stock
of Old MK (the defendant) and also enter into noncompete agreements by the
defendants' allegedly false statements. Although the ultimate outcome of these
matters cannot be predicted with certainty, management believes that the outcome
of these actions, individually or collectively, will not have a material adverse
impact on the Corporation's financial position, results of operations or cash
flows. The Corporation, as successor to Old MK (Commission File No. 1-8889), is
subject to a formal investigation by the Pacific Regional Office of the SEC
regarding the management and operations of Old MK, primarily its former Transit
business, prior to September 12, 1996. The Corporation continues to provide
documents in response to discovery requests and otherwise cooperate with the
Commission's staff in connection with this investigation.
In addition to the foregoing, there are other claims, lawsuits, disputes with
third parties, investigations and administrative proceedings against the
Corporation and its subsidiaries relating to matters in the ordinary course of
its business activities that are not expected to have a material adverse effect
on the Corporation's financial position, results of operations or cash flows.
II-33
<PAGE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Supplemental cash flow information
Interest paid $ 890 $ 993 $ 189
Income taxes paid 12,796 1,877 3,861
- ----------------------------------------------------------------------------------------
Supplemental noncash investing activities
Property and equipment classified as assets held for sale 25,485
Other current assets classified as assets held for sale 224
Investment in mining ventures adjusted for cumulative
translation adjustments, net of income tax benefit (5,512)
- ----------------------------------------------------------------------------------------
Business combination:
Fair value of assets (15,538) 701,188
Liabilities assumed 15,538 (479,452)
Redeemable preferred stock issued (18,000)
Equity securities issued (186,928)
- ----------------------------------------------------------------------------------------
Total cash paid, including acquisition cost of $3,508 $ -- $ 16,808
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
15. REDEEMABLE PREFERRED STOCK
On September 11, 1996, the Corporation issued 1,800,000 shares of Series A
preferred stock in connection with the acquisition of Old MK. Redemption of the
Series A preferred stock, not to exceed $18,000 in the aggregate, will occur on
April 15, 1998 utilizing federal income tax refunds received by the Corporation
in January 1998. Such refunds are reflected in the Corporation's November 30,
1997 balance sheet.
Holders of Series A preferred stock are entitled to vote together with holders
of common stock as a single class on all matters with respect to which the
holders of common stock are entitled to vote. Each share of Series A preferred
stock has 1/10,000 of a vote. Upon redemption, all Series A preferred stock will
be canceled and all rights of the holders will cease.
16. CAPITAL STOCK, STOCK PURCHASE WARRANTS AND STOCK COMPENSATION PLAN
CAPITAL STOCK: Pursuant to its Certificate of Incorporation, the Corporation has
the authority to issue 100,000,000 shares of common stock and 10,000,000 shares
of preferred stock. Preferred stock may be issued at any time or from time to
time in one or more series with such designations, powers, preferences and
rights, qualifications, limitations or restriction thereof as determined by the
Board of Directors of the Corporation.
STOCK PURCHASE WARRANTS: At November 30, 1997, the Corporation had outstanding
stock purchase warrants to acquire 2,948,239 shares of the Corporation's common
stock at an exercise price of $12.00 per share. Of such warrants 2,760,391
expire in March 2003, and 187,848 expire in September 2001.
II-34
<PAGE>
STOCK REPURCHASE PROGRAM: In January 1998, the Board of Directors authorized the
purchase, from time to time, of up to 2 million shares of the Corporation's
common stock and up to 2.760 million of its stock purchase warrants.
STOCK COMPENSATION PLAN: The Corporation has a Stock compensation Plan for
employees and non-employee directors as amended (the "1994 plan") which provides
for grants by the Board of Directors in the form of nonqualified stock options
or incentive stock options ("ISOs") and restricted stock awards. Additional
shares of common stock available each year for grants under the 1994 plan are
equal to 3% of the outstanding shares as of December 1. Grant prices per share
for nonqualified stock options are determined by the Board. Grant prices per
share for ISOs are at the fair market value of the Corporation's common stock at
the date of grant. Stock options extend for and vest over periods of up to ten
years as determined by the Board. The Board may accelerate the vesting period
after award of an option. The number of shares available for grant of ISOs may
not exceed 2,900,000 shares, and no individual shall be granted stock options or
restricted stock awards for more than 5,000,000 shares over any three-year
period.
Non-employee directors may elect to forego receipt in cash of certain fees
earned during any year in return for an option with a grant price equal to 80%
of the fair market value of the Corporation's common stock, a term and vesting
period of up to ten years as determined by the Board. Non-employee directors
elected options for 95,556, 50,461 and 55,386 shares in lieu of fees earned in
1997, 1996 and 1995, respectively.
On April 11, 1997, the Corporation's stockholders adopted the 1997 Stock
Option and Incentive Plan for Non-employee Directors (the "1997 plan") which
provides for grants in the form of nonqualified stock options and restricted
stock awards. Grant prices per share for stock options are at fair market value
at the date of grant. The number of shares available for grant as options and
restricted stock awards is 500,000, of which no more than 100,000 may be awarded
as restricted. Grants of nonqualified stock options and restricted stock awards
to the non-employee directors under the 1997 plan do not preclude grants under
the 1994 plan. Options are subject to terms and conditions determined by the
Board of Directors and have a term not exceeding 10 years from the date of
grant. Option activity under the Corporation's stock plans is summarized as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995
- -----------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF OPTIONS OPTION PRICE OF OPTIONS OPTION PRICE OF OPTIONS OPTION PRICE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,107,905 6.33 940,986 5.56 641,900 6.01
Granted 1,398,056 10.02 360,461 7.98 340,386 5.25
Canceled (86,756) 8.96 (26,875) 8.14 (41,300) 10.00
Exercised (643,532) 6.30 (166,667) 5.25 -- --
--------- ------ ---------- ----- --------- ------
Outstanding at end
of year 1,775,673 9.12 1,107,905 6.33 940,986 5.56
========= ========== =========
Exercisable at end
of year 370,178 6.41 718,782 6.22 232,770 5.88
Shares available for
grant 1,767,738 -- 1,375,948 -- 1,709,534 --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Shares available for grant includes shares which may be granted as either
stock options or restricted stock awards, as determined by the Board.
II-35
<PAGE>
The terms and conditions of restricted stock awards issued to key employees
are determined by the Board. Upon termination of employment, shares that remain
subject to restriction are forfeited. At November 30, 1997, there were 1,530
restricted shares outstanding with restrictions lapsing in January 1998. No
restricted stock awards were made in 1997, 1996 and 1995.
STOCK-BASED COMPENSATION: The Corporation has adopted the disclosure-only
provisions of the Financial Accounting Standards Board Statement No. 123
Accounting for Stock-Based Compensation ("SFAS No. 123") issued in October 1995.
Accordingly, compensation cost has been recorded based on the intrinsic value of
the option only. The Corporation recognized $477 and $702 of compensation cost
in 1997 and 1996, respectively, for stock-based employee compensation awards.
If the Corporation had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
income and earnings per share would have been reduced to the proforma amounts as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------
NOVEMBER 30, 1997 1996
<S> <C> <C>
- ------------------------------------------------
Net income (loss)
As reported $32,031 $(4,780)
Pro forma 30,925 (4,620)
Net income (loss) per share
As reported .59 (.14)
Pro forma .57 (.13)
- ------------------------------------------------
</TABLE>
The Black-Scholes option valuation model was used to estimate the fair value
of the options. The assumptions used in such option valuation are highly
subjective, particularly as to stock price volatility of the underlying stock
and can materially affect the fair value estimate. In management's opinion, the
model does not provide a reliable single measure of the fair value of the
employee stock options.
The above pro forma amounts reflect the portion of the estimated fair value of
awards earned in 1997 and 1996 based on the vesting period of the options. The
pro forma effects disclosed above are not likely to be representative of the pro
forma disclosures of future years because SFAS No. 123 is applicable only to
options granted subsequent to November 30, 1995, the effect of which will not be
fully reflected until 1999.
The following assumptions were used in the valuation , and no dividends were
assumed:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1997 1996
<S> <C> <C>
- ------------------------------------------------------------------
Average expected life (years) 5 5
Expected volatility 30.7% 38.0%
Risk-free interest rate 6.4% 6.4%
Weighted average fair value:
Exercise price equal to market price at grant $10.23 $7.98
Exercise price less than market price at grant $ 7.20 --
- ------------------------------------------------------------------
</TABLE>
II-36
<PAGE>
The following table summarizes information about options outstanding at
November 30, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------
Weighted-average
Number Weighted-average remaining Number Weighted-average
Price Range (000's) exercise price contractual life (000's) exercise price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Below $7.20 354 $ 5.70 7.3 292 $ 5.88
$7.50 - $9.88 1,214 $ 9.60 8.8 51 $ 7.50
Above $10.00 208 $12.10 8.9 27 $10.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
17. FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at November 30, 1997 have
been determined by the Corporation, using available market information and
valuation methodologies believed to be appropriate. However, judgment is
necessary in interpreting market data to develop the estimates of fair values.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Corporation could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of certain financial
instruments at November 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
NOVEMBER 30, 1997 1996
- ----------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Customer retentions $26,970 $26,175 $28,348 $27,444
Notes receivable -- -- 8,087 9,101
FINANCIAL LIABILITIES
Subcontract retentions 20,266 19,668 27,006 26,145
Advances from customers 8,987 8,722 11,280 10,920
- ----------------------------------------------------------------
</TABLE>
The fair value of other financial instruments comprised of (i) cash and cash
equivalents, accounts receivable excluding customer retentions, unbilled
receivables and accounts and subcontracts payable excluding retentions
approximate cost because of the immediate or short-term maturity of these, (ii)
securities available for sale based on quoted market prices of the securities at
the balance sheet date and (iii) notes receivable, customer retentions,
subcontract retentions and customer advances is estimated by discounting
expected cash flows at rates currently available to the Corporation for
instruments with similar risks and maturities.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
II-37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item is set forth under the captions
"Directors" and "Executive Officers" in the Corporation's definitive proxy
statement for its annual meeting of stockholders to be filed not later than
March 31, 1998 and incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is set forth under the caption "Report
of the Compensation Committee on Executive Compensation for 1997" in the
Corporation's definitive proxy statement for its annual meeting of stockholders
to be filed not later than March 31, 1998, and incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is set forth under the caption "Voting
Securities and Principal Holders Thereof" in the Corporation's definitive proxy
statement for its annual meeting of stockholders to be filed not later than
March 31, 1998, and incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is set forth under the caption "Certain
Relationships and Related Transactions" in the Corporation's definitive proxy
statement for its annual meeting of stockholders to be filed not later than
March 31, 1998, and incorporated herein by this reference.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
1. The Consolidated Financial Statements, together with the reports thereon
of Coopers & Lybrand L.L.P. dated February 2, 1998, and KPMG Peat
Marwick LLP dated January 12, 1996 are included in Part II, Item 8 of
this Annual Report on Form 10-K
Report of Independent Accountants II-10
Report of Independent Auditors II-11
Consolidated Statements of Operations for each of
the three years in the period ended November 30, 1997 II-12
Consolidated Balance Sheets at November 30, 1997
and 1996 II-13, II-14
Consolidated Statements of Cash Flows for each of
the three years in the period ended November 30, 1997 II-15
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended November 30, 1997 II-16
Notes to Consolidated Financial Statements II-17 to II-34
2. Financial Statement Schedule as of November 30, 1997
Part IV of this Annual Report on Form 10-K IV-1
</TABLE>
Valuation and Qualifying and Reserve Accounts
Financial statement schedules not listed above are omitted because they
are not required or are not applicable, or the required information is
given in the financial statements including the notes thereto. Captions
and column headings have been omitted where not applicable.
3. Exhibits
The exhibits to this Annual Report on Form 10-K are listed in the Exhibit
Index contained elsewhere in this Annual Report.
(b) Reports on Form 8-K.
The registrant filed a Current Report on Form 8-K dated September 23, 1997
to notify the holders of the Corporation's Series A Preferred stock that
the Corporation had received written notification from the Internal Revenue
Service ("IRS") that refund claims consisting primarily of claims related
to foreign tax credits have received approval by the Joint Committee on
Taxation. The Corporation also reported that it was in the process of
scheduling meetings with the IRS to discuss this situation and to obtain
payment of these refunds. The outcome of those meetings was uncertain and
thus it was not possible to predict when these refunds would be paid by the
IRS.
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on
February 9, 1998.
Morrison Knudsen Corporation
By /s/ R.A. Tinstman
------------------------------------------------------
R. A. Tinstman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below on February 9, 1998 by the following persons on
behalf of the Corporation in the capacities indicated.
President and Chief Executive Officer and
Director
/s/ R.A. Tinstman (Principal Executive Officer)
- ---------------------------------
Executive Vice President and Chief
Financial Officer
/s/ A.S. Cleberg (Principal Financial Officer)
- ---------------------------------
Vice President and Controller
/s/ D.L. Brigham (Principal Accounting Officer)
- ---------------------------------
/s/ D.H. Batchelder* Director
- ---------------------------------
/s/ L.R. Judd* Director
- ---------------------------------
/s/ W.C. Langley* Director
- ---------------------------------
/s/ R.S. Miller* Director
- ---------------------------------
/s/ D. Parkinson* Director
- ---------------------------------
/s/ T.W. Payne* Director
- ---------------------------------
/s/ J.D. Roach* Director
- ---------------------------------
/s/ D.R. Washington* Director
- ---------------------------------
* A.S. Cleberg, by signing his name hereto, does hereby sign this Annual Report
on Form 10-K on behalf of each of the above-named officers and directors of
Morrison Knudsen Corporation, pursuant to powers of attorney executed on behalf
of each such officer and director.
*By /s/ A.S. Cleberg
- ---------------------------------
A.S. Cleberg, Attorney-in-fact
<PAGE>
MORRISON KNUDSEN CORPORATION
SCHEDULE II. VALUATION AND QUALIFYING AND RESERVE ACCOUNTS
FOR THE YEAR ENDED NOVEMBER 30, 1997
(In thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES DEDUCTED IN THE BALANCE SHEET FROM
ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Period
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
November 30, 1996 $ -- $(275) $(8,210)(1) $ 600 $(7,885)
November 30, 1997 (7,885) (978) -- 4,124 (4,739)
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE DEDUCTED IN THE BALANCE SHEET
FROM DEFERRED INCOME TAX ASSET
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Period
- -------------------------------------------------------------------------------------------
November 30, 1996 $ -- $ -- $(126,878)(1) $ -- $(126,878)
November 30, 1997 (126,878) -- (4,797)(2) 19,688(3) (111,987)
ESTIMATED COSTS TO COMPLETE LONG-TERM CONTRACTS REFLECTED IN THE BALANCE SHEET
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Period
- ----------------------------------------------------------------------------------------------
November 30, 1996 $ (3,184) $(23,283) $(86,450)(1) $ 12,085 $(100,832)
November 30, 1997 (100,832) (56,861) -- 84,590 (73,103)
</TABLE>
- ---------------------------------
(1) Assumed in connection with the acquisition of Old MK.
(2) Adjustment due to change in deferred taxes for preacquisition
contingencies.
(3) Adjustment due to extension of federal net operating loss carryforward
period.
<PAGE>
EXHIBIT INDEX
COPIES OF EXHIBITS WILL BE SUPPLIED UPON REQUEST. EXHIBITS WILL BE PROVIDED AT
A FEE OF $.25 PER PAGE REQUESTED.
Exhibits marked with an asterisk are filed herewith, the remainder of the
exhibits have heretofore been filed with the Commission and are incorporated by
reference.
EXHIBIT
NUMBER EXHIBITS
2.1 First Amended Plan of Reorganization confirmed on August 26, 1996 under
Chapter 11 of the United States Bankruptcy Code for the District of
Delaware, Case No. 96-1006(PJW) as filed by Morrison Knudsen Corporation
(Commission File No. 1-8889 - "Old MK") prior to its merger on September
11, 1996 with and into Washington Construction Group, Inc. (the
"registrant") with the registrant being the surviving corporation in the
merger and being renamed "Morrison Knudsen Corporation" (filed as Exhibit
2.1 to Old MK's Form 10-Q Quarterly Report for the quarter ended June 30,
1996 and incorporated herein by reference).
2.2 Restructuring and Merger Agreement dated May 28, 1996 by and between the
registrant and Old MK (filed as Exhibit 1 to the registrant's Proxy
Statement dated September 11, 1996 and incorporated herein by reference).
3.1 The registrant's Restated and Amended Certificate of Incorporation,
including all amendments thereto (filed as Exhibit 3.1 to the
registrant's Form 10-Q Quarterly Report for quarter ended August 31, 1996
and incorporated herein by reference).
3.2 The registrant's Restated and Amended Bylaws, including all amendments
thereto (filed as Exhibit 3.2 to the registrant's Form 10-Q Quarterly
Report for quarter ended August 31, 1996 and incorporated herein by
reference).
4.1 Specimen certificate for the registrant's Common Stock (filed as Exhibit
4.1 to the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference).
4.2 Specimen certificate for the registrant's Warrants to expire on March 11,
2003 (filed as Exhibit 4.2 to the registrant's Form 10-Q Quarterly
Report for quarter ended August 31, 1996 and incorporated herein by
reference).
4.3 Specimen certificate for the registrant's Series A Preferred Stock
(filed as Exhibit 4.3 to the registrant's Form 10-Q Quarterly Report for
quarter ended August 31, 1996 and incorporated herein by reference).
<PAGE>
4.4 Warrant Agreement dated September 11, 1996 by and between the registrant
and Norwest Bank Minnesota, N.A. (filed as Exhibit 4.4 to the
registrant's Form 10-Q Quarterly Report for quarter ended August 31, 1996
and incorporated herein by reference).
4.5 Warrant Agreement dated September 11, 1996 among the registrant,
Batchelder & Partners, Inc. and Schroder Wertheim & Co. Incorporated,
including the form of certificate attached thereto as Exhibit A for
certain registrant Warrants to expire on September 11, 2001 (filed as
Exhibit 4.6 to the registrant's Form 10-Q Quarterly Report for quarter
ended August 31, 1996 and incorporated herein by reference).
4.6 Registration Rights Agreement dated September 11, 1996 among the
registrant, Batchelder & Partners, Inc. and Schroder Wertheim & Co.
Incorporated (filed as Exhibit 4.7 to the registrant's Form 10-Q
Quarterly Report for quarter ended August 31, 1996 and incorporated
herein by reference).
10.1 * Credit Agreement dated October 8, 1996 among the registrant, Bank of
Montreal, individually and as Agent, and the Banks which are parties
thereto ("Credit Agreement") (filed as Exhibit 10.2 to the registrant's
Form 10-Q Quarterly Report for quarter ended August 31, 1996 and
incorporated herein by reference), the First Amendment thereto dated
January 31, 1997 (filed as Exhibit 10.1 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference) and the Second Amendment thereto dated October 6,
1997 (filed herewith).
10.2 * The registrant's engagement agreement with Batchelder & Partners, Inc.
dated August 27, 1997 relating to the possible acquisition by the Company
of Guy F. Atkinson Company of California.
10.3 * The registrant's Professional Services Agreement dated January 19, 1998
with Terry Payne & Co., Inc.
10.4 General and Administrative Services Agreement dated as of August 1, 1993
between the registrant and Washington Corporations (filed as Exhibit 10.3
to the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference).
10.5 The registrant's Environmental Indemnification Agreement with Washington
Corporations dated July 8, 1993 (filed as Exhibit 10.5 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.6 * Shareholders Agreement dated December 18, 1993 among Morrison Knudsen BV,
a wholly owned subsidiary of the registrant, Lambique Beheer BV and Ergon
Overseas Holdings Limited.
<PAGE>
10.7 Form of Guaranty by Old MK, as Guarantor, in favor of Morgan Guaranty
Trust Company of New York, as Trustee (filed as Exhibit 4.2 to Amendment
No. 1 to Old MK's Form S-3 Registration Statement No. 33-50046 filed on
October 30, 1992 and incorporated herein by reference).
10.8 Form of Indenture of Trust between the City of San Diego and Morgan
Guaranty Trust Company of New York, as Trustee (filed as Exhibit 4.3 to
Amendment No. 1 to Old MK's Form S-3 Registration Statement No. 33-50046
filed on October 30, 1992 and incorporated herein by reference).
10.9 Form of Loan Agreement between the City of San Diego and National Steel
and Shipbuilding Company (filed as Exhibit 4.4 to Amendment No. 1 to Old
MK's Form S-3 Registration Statement No. 33-50046 filed on October 30,
1992 and incorporated herein by reference).
MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT WHICH IS SEPARATELY
IDENTIFIED IN ACCORDANCE WITH ITEM 14(a)(3) OF FORM 10-K.
10.10 The registrant's Amended and Restated Stock Option Plan (filed as
Exhibit 10.10 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference).
10.11 The registrant's 1997 Stock Option and Incentive Plan for Non-Employee
Directors (filed as Exhibit 10.11 to the registrant's Form 10-K Annual
Report for fiscal year ended November 30, 1996 and incorporated herein
by reference).
10.12 * The registrant's Deferred Compensation Plan.
10.13 * A description of the registrant's Cash Bonus Program.
10.14 Old MK's Stock Compensation Plan, as amended (filed as Appendix I to Old
MK's Proxy Statement dated April 4, 1994 and incorporated herein by
reference).
10.15 The registrant's Long-Term Incentive Plan for Corporate Executives
(filed as Exhibit 10.3 to Old MK's Form 10-Q Quarterly Report for
quarter ended March 31, 1994 and incorporated herein by reference.)
10.16 The registrant's Long-Term Incentive Plan for the Mining Group (filed as
Exhibit 10.50 to Old MK's Form 10-K Annual Report for year ended
December 31, 1995 and incorporated herein by reference.)
10.17 The registrant's Key Executive Disability Insurance Plan (filed as
Exhibit 10.12 to Old MK's Form 10-K Annual Report for year ended
December 31, 1992 and incorporated herein by reference.)
10.18 The registrant's Key Executive Life Insurance Plan (filed as Exhibit
10.13 to Old MK's Form 10-K Annual Report for year ended December 31,
1992 and incorporated herein by reference).
<PAGE>
10.19 * Form of registrant's Indemnification Agreement (filed as Exhibit 10.20
to the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference). [A schedule
listing the individuals with whom the registrant has entered into such
agreements is filed herewith]
10.20 The registrant's employment agreement with Robert A. Tinstman dated as
of January 1, 1993, and Amendment thereto dated April 22, 1996 (filed as
Exhibit 10.21 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference).
10.21 The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 10, 1997 (filed as Exhibit 10.22 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.22 * The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 14, 1998.
10.23 The registrant's Supplemental Retirement Benefit Agreement with Robert
A. Tinstman dated as of August 3, 1990 (filed as Exhibit 10.23 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.24 The registrant's employment agreement with Stephen G. Hanks dated as of
January 1, 1993 and Amendments thereto dated as of August 9, 1993 and
April 22, 1996 (filed as Exhibit 10.24 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
10.25 The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 10, 1997 (filed as Exhibit 10.25 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.26 * The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 14, 1998.
10.27 The registrant's employment agreement with Thomas H. Zarges dated as of
January 1, 1994 (filed as Exhibit 10.26 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
10.28 The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 10, 1997 (filed as Exhibit 10.27 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.29 * The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 14, 1998.
10.30 The registrant's employment agreement with Douglas L. Brigham dated as
of April 26, 1996 (filed as Exhibit 10.28 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
<PAGE>
10.31 The registrant's employment agreement with Alvia L. Henderson dated as
of April 26, 1996 (filed as Exhibit 10.29 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
10.32 The registrant's employment agreement with C. Stephen Allred dated as of
April 26, 1996 (filed as Exhibit 10.2 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 31, 1997 and incorporated herein
by reference).
10.33 The registrant's employment agreement with Steven Y. Chi dated as of
April 26, 1996 (filed as Exhibit 10.3 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 31, 1997 and incorporated herein
by reference).
10.34 The registrant's employment agreement with A. S. Cleberg dated as of
April 11, 1997 (filed as Exhibit 10.1 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 31, 1997 and incorporated herein
by reference).
21. * Subsidiaries of the registrant.
23.1 * Consent of Coopers & Lybrand L.L.P.
23.2 * Consent of KPMG Peat Marwick LLP.
24. * Powers of Attorney.
27. * Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
SECOND AMENDMENT TO CREDIT AGREEMENT
To Each of the Banks Signatory Hereto
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
October 8, 1996 (the Credit Agreement, as the same has been amended prior to the
date hereof, being referred to herein as the "Credit Agreement"), between the
undersigned, Morrison Knudsen Corporation, a Delaware corporation (the
"Company"), Bank of Montreal, as agent for the Banks (the "Agent"), and you (the
"Banks"). All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
The Company has requested that the Banks extend the Termination Date of the
Credit Agreement and make certain other amendments to the Credit Agreement, and
the Banks are willing to do so on the terms and conditions set forth in this
agreement (herein, the "Amendment").
1. Amendments.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement shall be and hereby is amended as follows:
(a) The definition of "Termination Date" appearing in Section 1.1 of
the Credit Agreement shall be amended and restated to read as follows:
"Termination Date" shall mean October 8, 2002, or such later date to
which the same may be extended pursuant to Section 11.17 hereof, or
such earlier date on which the Commitments are terminated in whole
pursuant to Section 4.5 or Section 9 hereof.
(b) Section 1.1 of the Credit Agreement shall be amended to add a
new definition which shall read as follows:
"Co-Agent" shall mean Bank of America National Trust and Savings
Association, and its successors as co-agent hereunder.
(c) Section 10 of the Credit Agreement shall be amended to include a
new Section 10.6 which shall read as follows:
"Section 10.6. Co-Agent. Each Bank acknowledges Bank of America
National Trust and Savings Association has been appointed Co-Agent
under this Agreement; provided, however, that the Co-Agent shall not
have any right, power, obligation or duty
<PAGE>
under the Credit Agreement or any other Loan Document other than
those applicable to it as a Bank.
(d) The Credit Agreement shall be further amended by restating
Exhibit A thereto with the form of Exhibit A attached hereto.
2. Conditions Precedent.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Company, the Agent and the Banks shall have executed and
delivered this Amendment.
(b) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Banks and their counsel.
(c) Each Material Subsidiary shall have executed and delivered to
the Banks its consent to this Amendment in the form set forth below.
3. Representations.
In order to induce the Banks to execute and deliver this Amendment, the
Company hereby represents to the Banks that as of the date hereof, the
representations and warranties set forth in Section 6 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 6.4 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Banks) and the Company is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
4. Miscellaneous.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Agent.
-2-
<PAGE>
(c) This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of October 6 , 1997.
-----
MORRISON KNUDSEN CORPORATION
By /s/
------------------------------
Its
-----------------------------
-3-
<PAGE>
Accepted and agreed to as of the date and year last above written.
BANK OF MONTREAL, INDIVIDUALLY THE FUJI BANK, LIMITED
AND AS AGENT
By /s/ By /s/
-------------------- -----------------------
Its Its
------------------- ----------------------
BANK OF AMERICA NATIONAL TRUST CAISSE NATIONALE DE CREDIT AGRICOLE
AND SAVINGS ASSOCIATION,
INDIVIDUALLY AND AS CO-AGENT
By /s/ By /s/
-------------------- -----------------------
Its Its
------------------- ----------------------
SOCIETE GENERALE, ACTING THROUGH TORONTO DOMINION (TEXAS), INC.
ITS LOS ANGELES BRANCH
By /s/ By /s/
-------------------- -----------------------
Its Its
------------------- ----------------------
THE SAKURA BANK, LIMITED, BANCA CRT, SPA
SAN FRANCISCO AGENCY
By /s/ By /s/
-------------------- -----------------------
Its Its
------------------- ----------------------
UNION BANK OF CALIFORNIA, N.A.
By /s/
--------------------
Its
-------------------
THE SUMITOMO BANK, LIMITED.,
ACTING THROUGH ITS LOS ANGELES
BRANCH
By /s/
--------------------
Its
-------------------
-4-
<PAGE>
EXHIBIT A
AGGREGATE COMMITMENTS
BANK COMMITMENT
---- ----------
Bank of Montreal $ 40,000,000
Bank of America National Trust and Savings $ 50,000,000
Association
The Sakura Bank, Limited, San Francisco Agency. $ 20,000,000
Societe Generale $ 20,000,000
Caisse Nationale de Credit Agricole $ 15,000,000
Toronto Dominion (Texas), Inc. $ 15,000,000
Banca CRT, SpA $ 10,000,000
The Fuji Bank, Limited $ 10,000,000
The Sumitomo Bank, Limited $ 10,000,000
Union Bank of California, N.A. $ 10,000,000
------------
$200,000,000
============
<PAGE>
EXHIBIT 10.2
BATCHELDER & PARTNERS, INC.
4330 La Jolla Village Drive, Suite 200
San Diego, California 92122
David H. Batchelder Telephone: (619) 456-6655
Chairman and Chief Executive Officer Telecopier:(619) 456-7969
August 27, 1997
Mr. Robert A. Tinstman
President and Chief Executive Officer
Morrison Knudsen Corporation
Morrison Knudsen Plaza
720 Park Boulevard
Boise, Idaho 83712
Dear Bob:
This is to confirm our understanding that Morrison Knudsen Corporation, its
successors and assignees (the "Company") has retained Batchelder & Partners,
Inc. ("B&P") as its non-exclusive financial advisor with respect to transactions
that the Company may pursue with the Guy F. Atkinson Company of California
("Atkinson"), including the merger, consolidation, combination, reorganization,
recapitalization or acquisition of all or a portion of the stock or assets of
Atkinson (individually or collectively a "Transaction"). "You," as used herein,
shall refer to the Company.
In connection with our engagement hereunder, the Company shall pay B&P a
retainer fee of $50,000 per month, payable in cash on the first business day of
each month commencing September 1, 1997. Provided, however, that the aggregate
retainer fee payable hereunder shall not exceed $250,000. Provided further that
any retainer fee paid to B&P hereunder shall be creditable against any Success
Fee (as hereinafter defined) paid to B&P pursuant to this agreement.
Further, if any Transaction or series of Transactions is consummated by You
and/or any entity substantially owned by You or any partnership, affiliate or
joint venture of which You are a member (singly or collectively, "Acquirer"),
the Company agrees to pay B&P a fee (the "Success Fee") equal to 1.0 percent
(.01) of the Total Transaction Value. "Total Transaction Value" shall mean the
aggregate Value (as hereinafter defined) of all cash, non-cash assets, equity
and debt issued or assumed in connection with a Transaction and shall include
the Value of equity and debt securities of any entity created as part of a
process to effect a Transaction. "Value" shall mean (i) with respect
<PAGE>
Mr. Robert Tinstman -2- August 27, 1997
to cash, the amount thereof; (ii) with respect to marketable securities, the
mean of the average of the bid and ask of such securities as quoted at the close
on their principal trading market on the tenth through the sixth consecutive
trading days ending on the trading day preceding the date of closing of the
Transaction or, if not quoted on such dates, the mean of the average of the bid
and ask of such securities as quoted at the close on their principal trading
market on the five (5) consecutive trading days beginning with the next such
trading day on which a bid/ask is so quoted; and (iii) with respect to non-cash
consideration other than marketable securities, the fair market value thereof as
mutually agreed by the Company and B&P. Any fee pursuant to this paragraph shall
be payable in cash upon closing or consummation of such Transaction or, in the
event that the determination of Value requires market information only available
after such closing, as soon as practicable thereafter but in no event later than
fifteen (15) days after closing or consummation of such Transaction. In the
event that a Transaction is not consummated but the Company receives a break fee
or similar compensation (a "Break Fee"), the Company shall pay to B&P ten (10)
percent of such Break Fee.
In addition to the foregoing compensation, You shall reimburse B&P for our
reasonable out-of-pocket expenses, which shall include the fees and
disbursements of our counsel. We shall not incur expenses in excess of $25,000
without your approval, which shall not be unreasonably withheld.
Since we will be acting on the Company's behalf, the Company is agreeing to
provide us with indemnification pursuant to the letter of even date herewith
from the Company to B&P. Further, nothing in this engagement is intended to
create an agency or other fiduciary relationship between the parties or any of
their affiliates, directors, officers, partners, agents or employees. The sole
obligation of B&P hereunder shall be the contractual obligations specifically
created by this agreement.
Our services hereunder may be terminated by the Company or by B&P upon
written notice and, in any event, shall terminate on December 31, 1998. If the
Company elects to terminate, no further retainer amounts shall accrue, any due
but unpaid retainer amounts shall be paid and any reimbursable expenses incurred
before the date of termination shall be paid. Provided, however, you
specifically acknowledge that our services hereunder will have continuing value
to the Company and therefore You agree that if You terminate our services and
within 12 months thereafter, an Acquirer effects a Transaction, then B&P shall
be entitled to compensation pursuant to the third paragraph hereof to the same
extent as if our services had not been terminated. If B&P elects to terminate,
no further retainer amounts shall accrue and any reimbursable expenses incurred
before the date of termination shall be paid. Notwithstanding the foregoing,
the provisions of the preceding paragraph shall survive any termination, whether
by the Company, by B&P, as a result of the passage of time or otherwise.
Except as required by law, any advise (written or oral) rendered by us
pursuant to this letter may not be disclosed publicly without our prior written
consent, which consent shall not be unreasonably withheld.
<PAGE>
Mr. Robert Tinstman -3- August 27, 1997
Please confirm that the foregoing is in accordance with the Company's
understanding by signing and returning the duplicate of this letter attached
hereto, which shall thereupon constitute a binding agreement.
Very truly yours,
BATCHELDER & PARTNERS, INC.
By: /s/ David H. Batchelder
-----------------------------------
Title: Partner
Confirmed:
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
-------------------------------------
Printed Name: Stephen G. Hanks
---------------------------
Title: Executive Vice President
--------------------------------
Date: October 13, 1997
--------------------------------
<PAGE>
August 27, 1997
Batchelder & Partners, Inc.
4330 La Jolla Village Drive, Suite 200
San Diego, California 92122
Gentlemen:
In connection with your engagement as financial advisor to Morrison Knudsen
Corporation, its successors and/or assignees (the "Undersigned") with respect to
the matters contemplated by the letter from you to the Undersigned of even date
herewith, the Undersigned hereby agrees to indemnify and hold harmless you and
your affiliates, the respective directors, officers, partners, agents, and
employees of you and your affiliates and each other person, if any, controlling
you or any of your affiliates, to the full extent lawful, from and against all
losses, claims, damages, liabilities and expenses incurred by you and such other
persons (including reasonable fees and disbursements of counsel) which (A) are
related to or arise out of (i) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by the
Undersigned, its associates or affiliates or (ii) actions taken or omitted to be
taken by an indemnified person with the consent of the Undersigned, its
associates or affiliates or in conformity with their actions or omissions or (B)
are otherwise related to or arise out of your activities on behalf of the
Undersigned, its associates or affiliates under your engagement, and the
Undersigned will reimburse you and any other person indemnified hereunder for
all expenses (including reasonable fees and disbursements of counsel) as they
are incurred by you or such other indemnified person in connection with
investigating, preparing or defending any such action or claim, whether or not
in connection with pending or threatened litigation in which you or any other
indemnified person is a party. The Undersigned will not be responsible,
however, for any losses, claims, damages, liabilities or expenses pursuant to
clause (B) of the preceding sentence which are finally judicially determined to
have resulted primarily from the willful misconduct, bad faith or gross
negligence of the person seeking indemnification hereunder (although it is
expressly intended that the Undersigned will be responsible for any thereof that
result from the negligence, other than gross negligence, of such person). The
Undersigned also agrees that neither you, nor any of your affiliates, nor any
director, officer, partner, agent or employee of you or any of your affiliates,
nor any person controlling you or any of your affiliates, shall have any
liability to the Undersigned for or in connection with such engagement except
for such liability for losses, claims, damages, liabilities or expenses incurred
by the Undersigned which is finally judicially determined to have resulted
primarily from your willful misconduct, bad faith or gross negligence as herein
described. The foregoing agreement shall be in addition to any rights that you
or any indemnified person may have at common law or otherwise, including, but
not limited to, any right to contribution.
<PAGE>
Batchelder & Partners, Inc. -2- August 27, 1997
It is understood that, in connection with your engagement, you may also be
engaged to act for the Undersigned, its associates or affiliates in one or more
additional capacities, and that the terms of the original engagement or any such
additional engagement may be embodied in one or more separate written
agreements. This indemnification shall apply to the original engagement, any
such additional engagement and any modification of the original engagement or
such additional engagement in connection with which this letter is expressly
referenced in writing and shall remain in full force and effect following the
completion or termination of such engagement(s).
Very truly yours,
MORRISON KNUDSEN CORPORATION
/s/Stephen G. Hanks
-------------------------------------------
Accepted:
BATCHELDER & PARTNERS, INC.
By: /s/David H. Batchelder
---------------------------------
Title: Chief Executive Officer
----------------------------
Date: September 10, 1997
----------------------------
<PAGE>
EXHIBIT 10.3
PROFESSIONAL SERVICE AGREEMENT
------------------------------
This Agreement is entered into by and between Morrison Knudsen Corporation (MK)
and Terry Payne & Co., Inc. (TPC). The purpose of this Agreement is to set
forth the duties of both parties with respect to the service and purchase of
insurance and bonds.
I. SCOPE OF SERVICES TO BE PERFORMED BY TERRY PAYNE & CO., INC.
------------------------------------------------------------
A. MARKETING
1. Market and place all insurance and all surety bonds with
underwriters, including negotiating term of coverage and costs,
all as requested by MK and all in accordance with MK's
instructions.
2. Prepare market analyses and forecasts prior to each insurance
renewal and insurance anniversary. Such analyses shall include
pricing and service trends, availability of markets, short-term
factors affecting the markets and projections of longer-term
direction in which the market is moving.
3. Provide unbiased information in relation to the most advantageous
world insurance and surety markets from the standpoint of cost,
security, service and coverage. This shall include, but not be
limited to, evaluating the stability of the companies. However,
TPC will not be responsible for any market's financial condition.
TPC's market information group will be available to meet with MK
on request to discuss practices and review with MK financial
information available to TPC regarding markets participating or
quoting on MK's programs.
4. Assist in the preparation of materials, specifications,
application and underwriting data required by insurers. Since
TPC must rely upon information provided by MK and MK's employees,
TPC cannot assume responsibility for the accuracy or completeness
of such information.
5. Present underwriters' proposals to MK, providing written
recommendations.
6. Verify accuracy and compliance with specifications of all
insurance and surety contracts, endorsements and/or invoices
prior to delivery.
7. Prepare a summary of each major line of coverage, showing
potential or actual uninsured or underinsured exposures.
8. Prepare semiannual statistical analysis of past claims experience
and make
<PAGE>
recommendations as to optimum levels of self-insured's retention.
9. Make prudent recommendations to MK concerning the use of self-
insurance and other risk financing techniques.
B. ADMINISTRATIVE
1. Respond to questions and requests from MK on a timely basis, and
be available to handle normal day-to-day activities associated
with the account.
2. Attend meetings with MK personnel as needed.
3. Transmit insurance company binders and issue other insurance
coverage verification documents as required.
4. Act as liaison with insurance and surety companies.
5. Keep generally abreast of MK's operations, subsidiaries, and
joint ventures in order to be familiar with MK's exposures.
6. Keep MK informed on new or changing markets, forms, products,
laws and government regulations as TPC becomes aware in its
normal practice as it relates to insurance and bonds, and any
other information that may affect the risk management function.
7. Review and advise MK on requirements, by state, on surplus lines
and self-procurement laws and regulations, and prepare necessary
filings.
8. Provide surety bond rate schedules and all other information on
bonds and the sureties being used by MK that is necessary for MK
to carry on its business.
C. CLAIMS AND LOSS CONTROL
1. Assist MK in the management of insured claims as needed. This
service may include processing of loss payable documents, the
monitoring of particularly severe claims so as to provide
assistance to MK's staff in negotiating settlements or
establishing a defense strategy.
2. Assist MK in obtaining settlement from the insurance carrier, as
needed, including pursuing MK's interest in any dispute which may
arise.
3. Review claim reports and/or suits provided by MK, making
recommendations as necessary.
4. On any claims that TPC is excluded from discussions and/or
<PAGE>
communications with the insurance carrier, TPC shall be deemed to
be released from any responsibility or liability for any
deficiency in payment or failure to collect on the claim.
D. CERTAIN OUT-SOURCED RISK MANAGEMENT SERVICES
1. To the extent that TPC performs, on behalf of and at the
direction of MK, direct consulting services, i.e., assistance
with such services as retention evaluations, non-insurance
contract review and negotiation, self-insured funding decisions,
and premium allocation program development, referred to here as
"Out-Sourced Services," which have in the past been provided by
internal MK personnel, it is agreed that MK will retain full
responsibility for the final decision, determination and program
selection involved with these type of services and that TPC is
acting solely as MK's agent with respect to providing advice and
resources in these Out-Sourced Services.
2. Except for the gross and willful negligence of TPC employees, MK
releases TPC from any and all liability associated with providing
Out-Sourced Services.
E. TPC WILL PROVIDE SERVICES PER AN ANNUALLY AGREED SCHEDULE.
1. Additionally TPC will be available to answer and provide day-to-
day consultative advice.
2. Any TPC project outside the scope of the above services will be
discussed and defined, and any additional remuneration will be
mutually agreed upon before commencing work.
II. MORRISON KNUDSEN CORPORATION'S RESPONSIBILITIES
-----------------------------------------------
A. Keep TPC informed of the organization of MK's Risk Management
Department in order to allow TPC to better provide the services TPC
agrees to provide.
B. Provide TPC with sufficient information to be generally aware of
changing risks, including copies of all annual reports, press releases
and appropriate internal publications.
C. Provide TPC with requested underwriting information on a timely basis.
D. Notify TPC as soon as practical regarding projects, acquisitions,
losses, claims or other issues which may require TPC's review and/or
risk management consideration.
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<PAGE>
E. Discuss with TPC's Account Manager, as needed, a review of the MK's
risk management program, its methods, objectives, and future goals.
F. Evaluate TPC's program on a regular basis, including performance
appraisals as deemed necessary. Should MK have any problem with TPC
personnel, TPC's senior management will be notified as soon as
practical.
G. Sign all applications by a designated employee.
H. Review all policies and endorsements delivered to MK by TPC, and
advise TPC of anything which MK believes is not in accordance with
MK's order or specifications within 30 days following receipt.
I. Whenever possible, remit to TPC all insurance premiums within 30 days
of the receipt of the invoice or the effective date of the coverage,
whichever is later.
III COMPENSATION
------------
A. A fee for the services to be performed by TPC pursuant to this
Agreement shall be on a fixed fee basis payable in equal quarterly
installments.
1. The fee includes the purchase of all Morrison Knudsen Corporation
insurance and surety bonds, except workers' compensation for coal
and/or other mining operations.
2. This fee shall include all retail services performed for MK by
TPC.
3. TPC shall submit invoices for the fee quarterly.
4. Each quarterly payment is due 30 days after MK receives from TPC
the reconciliation statement and invoice for the applicable
period.
B. The fixed fee shall be $1,150,000 each calendar year.
C. Commissions to be credited against the fee:
1. All insurance or other non-surety commissions received or earned
shall be credited 100% against the fee on a quarterly basis.
a. All premiums quoted by the insurance companies shall exclude
commissions.
b. Should a carrier not be willing to quote its premium
excluding
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<PAGE>
commission, TPC shall disclose such amount to MK and any
commission received will be reconciled on the next quarterly
installment or at the effective date of cancellation of the
Agreement.
2. All surety commissions received or earned shall be credited 100%
against the fee on a quarterly basis, up to a total of $250,000
in surety commissions for any given calendar year. Should surety
commissions exceed $250,000 in any given calendar year, then TPC
shall credit only 50% of all surety commissions above $250,000
for the remainder of said year.
D. Intermediaries
1. When in TPC's professional judgment it is necessary or
appropriate, TPC will utilize the services of intermediaries to
assist in the marketing of MK's insurance.
2. Such intermediaries may be affiliates of TPC or intermediaries
not related to TPC.
3. Such intermediaries will be compensated by the insurance company
through normal commissions. Accordingly, the intermediaries'
compensation is not addressed by this Agreement with MK.
E. In the event that MK's operation changes substantially by either the
addition or deletion of other operations or entities or there is
substantial change in the scope and nature of MK's insurance program,
MK and TPC will negotiate in good faith to revise the compensation
under this Agreement upward or downward as appropriate.
F. Special Services
1. Should MK request TPC to perform special consulting, special
assignments, audits or studies which fall outside the scope of
the defined services listed in the contract, TPC may request
additional compensation from MK.
2. A negotiated fee for their services must be agreed upon by both
parties prior to the project beginning.
3. Special consulting assignments, audits, etc., shall be defined by
a project requiring major commitment of additional resources
(personnel, travel, etc.) not otherwise contemplated in the
annual fee agreement. Managing a major contractor-controlled
wrap-up insurance program is an example.
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<PAGE>
IV. GENERAL CONDITIONS
------------------
A. This Agreement may be canceled by either party at any time upon 90
days' advance written notice to the other party.
1. In the event of such midstream cancellation by either party,
other than as a result of breach by TPC, TPC will receive
compensation for the 90 days on a pro rata basis to the effective
day of cancellation.
2. TPC's obligation to render services under this Agreement will
cease simultaneously with the effective date of cancellation of
this Agreement.
3. TPC shall give MK 90 days' advance written notice of any
termination of TPC's relationship with Aon (or any other broker
with whom TPC has a relationship relative to MK's account).
B. This contract shall be governed by the laws of the State of Idaho.
C. Term
1. The term of this Agreement is for 36 months beginning January 1,
1998, and ending December 31, 2000.
2. The agreement automatically will be renewed annually for 12-month
terms thereafter, unless it is canceled by either party prior to
the annual date.
D. TPC shall not assign any of its rights, duties and/or obligations
under this contract without the prior written approval of MK.
E. TPC shall maintain at its own expense, in full force and effect a
policy of professional liability insurance against professional
liability or errors and omissions in connection with the work to be
performed by TPC under this contract, and shall supply MK a sufficient
certificate of insurance relative thereto.
F. All pertinent records will become the property of MK at the
termination of this contract.
G. During the term of this Agreement and for a period of 12 months after
termination or expiration hereof, MK or MK's authorized representative
shall have the right to audit all records and accounts retained by TPC
directly related to this Agreement. MK will bear the expense of such
audit.
H. TPC will maintain records in accordance with its standard record
retention policy:
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<PAGE>
1. Maintain insurance policies indefinitely.
2. Retain surety bonds for five years after expiration, except that,
if TPC is in litigation, then TPC maintains materials until after
the issue is settled.
3. Retain all other correspondence for five years, except that, if
TPC is in litigation, then TPC maintains materials until after
the issue is settled.
I. This document contains the entire agreement between MK and TPC
concerning the provision of the services which are the subject hereof.
It may be amended only by an agreement in writing signed by both MK
and TPC or MK's and TPC's respective successors and assigns upon whom
this Agreement shall also be binding.
Date: January 19, 1998 MORRISON KNUDSEN CORPORATION
-----------------------------
By: /s/ Stephen G. Hanks
--------------------------------
Its: EVP
--------------------------------
Date: January 8, 1998 TERRY PAYNE & CO., INC.
-----------------------------
By: /s/ Terry Payne
--------------------------------
Its: Chairman/CEO
--------------------------------
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<PAGE>
EXHIBIT 10.6
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated December 18, 1993 ("Agreement"), by and among:
(1) Morrison Knudsen BV, a company incorporated in the Netherlands, whose
registered office is at Amsterdam ("MK");
(2) LAMBIQUE BEHEER BV, a company incorporated in the Netherlands, whose
registered office is at Amsterdam ("NRG"); and
(3) ERGON OVERSEAS HOLDINGS LIMITED, a company incorporated in England, whose
registered office is at London ("PowerGen").
RECITALS
A. MK, NRG and PowerGen each own one third (1/3) of all the issued shares of
MIBRAG BV, a company incorporated in the Netherlands (herein referred to as
either "MIBRAG BV" or the "Company"), which has agreed, pursuant to the Sale and
Purchase Agreement of even date herewith (Urkundennummer ______/1993 of the
notary Axel Rodert, Cologne) among the Company, the Treuhandanstalt ("THA"),
Mitteldeutsche Braunkohlengesellschaft mbH, a company incorporated under the
laws of the Federal Republic of Germany, whose registered office will be in
Bitterfeld ("MIBRAG GmbH"), and Mitteldeutsche Bergbau-Verwaltungsgesellschaft
mbH ("MBV") to acquire 99% of the shares of MIBRAG GmbH.
B. MK, NRG and PowerGen are entering into this Agreement in order to set out,
among other things, the terms governing their relationship as shareholders in
the Company, as well as the Company's exercise of its rights as a shareholder to
MIBRAG GmbH.
IT IS AGREED, therefore, as follows:
<PAGE>
INTERPRETATION
DEFINITIONS
1.1 In this Agreement, the following expressions shall (unless the context
requires otherwise) have the following meanings:
Articles of Association: the articles of association of the Company;
Audited Accounts: the audited consolidated balance sheet and consolidated
profit and loss account in respect of a particular Fiscal Year;
Aufsichtsrat: the Aufsichtsrat (or supervisory board) of MIBRAG GmbH;
Budget: the capital and operating budget for the MIBRAG Group and each of its
undertakings for a particular Fiscal Year as determined by the Geschaftsfuhrung
and agreed hereunder;
Business Day: a day (other than a Saturday) on which banks generally are open
in Amsterdam, Berlin, London and New York for a full range of business;
Business Plan: the rolling business plan for the MIBRAG Group for a particular
Fiscal Year and the four (4) succeeding Fiscal Years as determined from time to
time by the Geschaftsfuhrung of MIBRAG GmbH and agreed hereunder;
Business: the business to be carried on by the MIBRAG Group, as defined in
clause 4.1;
Company: MIBRAG BV and its successors and assigns;
Event of Default: the events set forth in clause 8.1;
<PAGE>
Fiscal Year: the financial period of the Company commencing (other than in the
case of the initial financial period) on January 1 and ending on December 31;
Geschaftsfuhrer: The Geschaftsfuhrer/managing director of MIBRAG GmbH;
Geschaftsfuhrung: the Geschaftsfuhrung (or management board) of MIBRAG GmbH;
Group: at the relevant time in relation to a Party, that Party and its
Subsidiaries, any undertaking (Holding Undertaking) of which that Party is a
Subsidiary (whether directly or indirectly) and any undertaking which is a
Subsidiary of such Holding Undertaking;
Joint Aufsichtsrat Members: the members of the Aufsichtsrat designated jointly
by the Parties;
Lippendorf Coal Contract(s): the two coal supply agreements, dated March 8,
1993, having identical terms, one among MIBRAG AG, Bayernwerk AG,
Energieversorgung Schwaben AG and Badenwerk AG and the second one between MIBRAG
AG and Vereinigte Energiewerke AG;
MIBRAG AG: MIBRAG Vereinigte Mitteldeutsche Braunkohlenwerke
Aktiengesellschaft, a stock corporation incorporated under the laws of the
Federal Republic of Germany;
MIBRAG Group: The Company and any undertakings in which the Company has an
interest after the Spaltungsplan has become effective;
Mining Services Agreement: the Agreement for the Provision of Mining
Consultancy Services to be executed between MIBRAG GmbH and MK GmbH for certain
services with respect to the operation and maintenance of the mining business of
the MIBRAG Group;
<PAGE>
MK Aufsichtsrat Member: The Aufsichtsrat Member designed by MK;
MK GmbH: Morrison Knudsen Deutschland GmbH, a company incorporated under the
laws of the Federal Republic of Germany, whose registered office is in
Frankfurt, Germany;
NRG Aufsichtsrat Member: The Aufsichtsrat Member designated by NRG;
Parties: Morrison Knudsen BV, Lambique Beheer BV and Ergon Overseas Holdings
Limited (and Party shall be construed accordingly);
Power Services Agreement: the Agreement for the Provision of Consultancy
Services to be executed between MIBRAG GmbH and SES for certain services with
respect to the operation and maintenance of the power stations of the MIBRAG
Group;
PowerGen Aufsichtsrat Member: The Aufsichtsrat Member designated by PowerGen;
Sale and Purchase Agreement: the agreement ("Kaufvertrag") of even date
herewith (Urkundennummer _____/1993 of the notary Axel Rodert, Cologne) among
the Company, THA, MIBRAG GmbH and MBV relating to the acquisition by the Company
of 99 % of the shares in MIBRAG GmbH and certain mining proprietary rights;
Satzung: the Satzung (or constitutional documents) of MIBRAG GmbH;
SES: Saale Energie GmbH Services i.G., a company incorporated under the laws of
the Federal Republic of Germany, whose registered office will be in Schkopau, an
indirect joint undertaking of the NRG Group and the PowerGen Group;
<PAGE>
Shareholders: such members of the MK Group, the NRG Group and the PowerGen
Group as are at the relevant time holders of shares of the Company (and
Shareholder shall be construed accordingly);
Shareholder Aufsichtsrat Members: the members of the Aufsichtsrat nominated by
the Shareholders, namely the MK Aufsichtsrat Member, the NRG Aufsichtsrat
Member, the PowerGen Aufsichtsrat Member and the Joint Aufsichtsrat Members;
Spaltungsplan: as such term is defined in the Sale and Purchase Agreement;
Subsidiary: in relation to a Party, any other undertaking in which the Party
(or persons acting on its or their behalf) for the time being directly or
indirectly holds or controls either:
(a) a majority of the voting rights exercisable at general meetings of the
members of that undertaking on all, or substantially all, matters; or
(b) the right to appoint or remove directors having a majority of the voting
rights exercisable at meetings of the board of directors of that
undertaking on all, or substantially all, matters,
and any undertaking which is a Subsidiary of another undertaking shall also be a
Subsidiary of any further undertaking of which that other is a Subsidiary;
undertaking: a body corporate or partnership or an unincorporated association
carrying on trade or a business with or without a view to profit;
Transition Agreement: the Transition Agreement dated December 18, 1993 between
the Company and THA relating to the period from the execution of the Sale and
Purchase Agreement to transfer of title to 99 % of the shares in MIBRAG GmbH to
the Company;
Vorsitzender: The Vorsitzender (or Chairman) of the Aufsichtsrat.
<PAGE>
INTERPRETATION
1.2 For the purposes of this Agreement:
(a) clause and paragraph headings in this Agreement and the Appendices are
inserted for convenience only and shall not affect the construction of this
Agreement;
(b) any reference to an amount in Dutch Guilders or Deutsche Marks shall
include an equivalent amount at the relevant time in any other currency or
combination of currencies;
(c) any reference to an agreed draft is to the form of the relevant document as
agreed between the Parties and signed on their behalf for the purpose of
identification (with such amendments, if any, as may subsequently be agreed
in writing between the Parties).
EXERCISE OF POWERS OF CONTROL
1.3 Where any obligation in this Agreement is expressed to be undertaking or
assumed by any Party, such obligation shall be construed as requiring that Party
to exercise all rights and powers of control over the affairs of any other
person which that Party is able to exercise (whether directly or indirectly) in
order to secure performance of such obligation.
1.4 Each Party undertakes to exercise its rights and powers as a shareholder
and member of the management board of the Company, in furtherance of the
Company's objectives in accordance with the Articles of Association and the
provisions of Dutch law, to cause the Company to exercise all its rights and
powers available under the Satzung and the laws of the Federal Republic of
Germany (with respect to MIBRAG GmbH) to procure that to the greatest extent
possible effect is given to the matters agreed herein, in the Sale and Purchase
Agreement, the Transition Agreement, the Mining Services Agreement and the Power
Services Agreement.
<PAGE>
SCOPE OF BUSINESS AND MANAGEMENT OF THE COMPANY
BUSINESS OF THE COMPANY
2.1 Unless Unanimously agreed otherwise by the Parties, the sold business of
the Company shall be the holding of the shares in MIBRAG GmbH (and the exercise
of the related shareholder rights), the exercise of any rights or claims under
the Sale and Purchase Agreement accruing to the Company as the purchase
thereunder and the fulfillment of the Company's commitments and obligations
thereunder. The acquisition or disposition by the Company of any shares of, or
any other participation in, any undertakings shall require the unanimous consent
of the Parties.
CAPITALIZATION OF THE COMPANY
2.2 On or prior to the Legal Transfer Date (as defined in the Sale and Purchase
Agreement), each of the Parties shall contribute a minimum of DM 16, 700,000 to
the stated capital of the Company.
2.3 In addition, each Party shall ensure that, on or prior to the Legal
Transfer Date, a letter of credit or other guarantee in the amount of at least
DM 16,700,000 will be provided in favor of the Company to meet the requirements
under Article 30.1 of the Sale and Purchase Agreement. Commencing January 31,
1997, the amount of each of these guarantees shall be increased to DM 26,700,000
(Article 10.6 of the Sale and Purchase Agreement).
2.4 Each Party shall severally maintain the stated capital, guarantees and
other funding of the Company as required under the terms of the Sale and
Purchase Agreement in proportion to its shareholdings in the Company.
<PAGE>
SCHKOPAU INDEMNIFICATION
2.5 NRG and PowerGen shall severally indemnify the Company for any deduction
made from the full (100%) compensation payable by Treuhandanstalt pursuant to
clause 16.2.2 of the Sale and Purchase Agreement.
INDEMNIFICATION FOR REGULATORY COMPLIANCE
2.6 NRG shall indemnify MIBRAG GmbH for any and all costs and expenses which
MIBRAG GmbH may incur solely to comply with the provisions of the Public Utility
Holding Company Act (PUHCA).
MANAGEMENT OF THE COMPANY
2.7 The Company will be managed by a management board, which shall consist of
all of the Parties. The rights and obligations of the Parties as shareholders
and members of the management board of the Company are set forth in the Articles
of Association and in this Agreement.
2.8 The Parties agree that the Company shall not exercise any of its rights nor
take any other action regarding MIBRAG GmbH (including the exercise of its
voting rights or other rights, including those rights exercised through the
Shareholder Aufsichtsrat Members) unless such action shall have previously been
approved by the management board of the Company.
MEETINGS OF THE MANAGEMENT BOARD
2.9 The Parties shall appoint a Chairman and a Vice Chairman of the management
board. The Vice Chairman shall replace the Chairman in the event the Chairman
is prevented from performing his duties. The appointment of Chairman and Vice
Chairman shall be for a term of one year unless otherwise revoked by a decision
of the management board.
<PAGE>
2.10 Meetings of the management board shall be called by the Chairman of the
management board by giving seven days written notice (unless an immediate action
of the management board is required, in which case a meeting shall be called
upon 48 hours written notice setting forth the matter of urgency) to all Parties
and shall be held at the registered office of the Company or at such other place
outside of the Federal Republic of Germany as may be agreed between the Parties.
Upon request of a Party, the Chairman is obliged to call a meeting of the
management board.
2.11 The management board cannot take any decisions or other actions unless all
the Parties are represented, whether in person, by telephone or by proxy. The
Chairman shall ascertain whether a quorum is present. In the event that no
quorum is present, the Chairman shall call a new meeting concerning the same
agenda within 48 hours with a notice period of at least four days to and
exclusive of the new date of the meeting. The meeting of the management board
convened thereupon constitutes a quorum irrespective of the Parties represented.
2.12 The Chairman shall lead the meeting of the management board. There shall
be minutes of each meeting, which shall be kept at the registered office of the
Company. The minutes shall be signed by the Chairman and shall be immediately
passed on to the other members of the management board for approval.
<PAGE>
CHANGE IN CONTROL OVER A PARTY
OPTION TO PURCHASE
3.1 In the event of a change in control over any Party, each of the other
Parties shall be entitled to purchase any or all of the shares of such Party in
the Company (the "Option") proportionate to their shareholdings at a price to be
agreed or, if no agreement can be reached, at a fair market value price
established by an independent expert, who shall be designated by the appointed
auditor of the Company.
CHANGE IN CONTROL
3.2 A change in control shall be deemed to have occurred if 50% or more of any
kind of shareholder's rights with respect to any Party or any undertaking
directly or indirectly controlling the Party within the meaning of Article 24
(a) of Book 2 of the Dutch Civil Code shall transfer to a third party.
NOTIFICATION AND METHOD OF EXERCISE
3.3 Promptly, but in no case later than 10 days after any change in control,
each Party shall inform the other Parties in writing about such change in
control. Within a period of 60 days after receipt of such written notice or the
date on which the other Parties obtain knowledge of such change in control,
whichever is later, the other Parties can exercise their option by written
notice to the relevant Party. In the event that no all of the other Parties
exercise their option to purchase in full, all shares of the relevant Party may
be acquired proportionate to the shares held by the Parties exercising their
rights.
<PAGE>
THE COMPANY AS SHAREHOLDER OF MIBRAG GMBH
BUSINESS OF THE MIBRAG GROUP
4.1 The Parties agree that the business of the MIBRAG Group shall be to carry
on and develop the business of brown coal mining and electrical and thermal
energy production (as further described in the Satzung) on sound, commercial,
profit-making principles in accordance with the general principles of the
Business Plan and in accordance with the Budget. The Business Plan and the
Budget shall be reviewed by the Parties at the end of each quarter (or such
other period as the Parties may agree) and shall be updated annually.
GOOD FAITH
4.2 Each Party shall act in good faith towards the Company, the other Parties
and MIBRAG GmbH in order to promote the success of the Company and the MIBRAG
Group, and, to the extent it is within its power, it shall procure that the
other members of its Group do likewise.
SERVICES AGREEMENTS
4.3 The Parties shall use best efforts to procure that MIBRAG GmbH will (i)
execute, as soon as practicable after the execution of this Agreement, the
Mining Services Agreement in the form attached as EXHIBIT A hereto and the Power
Services Agreement in the form attached as EXHIBIT B hereto, (ii) make such
amendments as may be required pursuant to Article 29.2.3 of the Sale and
Purchase Agreement and (iii) continue to perform its obligations under these
Services Agreements. In the event any of these Services Agreements is invalid,
terminated (for reasons not set forth in such Services Agreement) or contested
pursuant to the Sale and Purchase Agreement, the Company shall use best efforts
to cause MIBRAG GmbH to execute as soon as possible an agreement with terms as
near as possible to those contemplated by such Services Agreement.
CAPITALIZATION OF MIBRAG GMBH
4.4 The Parties agree that the Company shall contribute to MIBRAG GmbH such
additional capital as is required under Article 29 of the Sale and Purchase
Agreement.
<PAGE>
ACTIONS OF THE COMPANY AS SHAREHOLDER AND PURCHASER OF MIBRAG GMBH
4.5 The following decisions and actions of the Company shall require a majority
vote of the management board unless otherwise specified herein or in the
Articles of Association:
(a) all decisions and actions of the Company as a shareholder of MIBRAG
GmbH; and
(b) the taking of any action of the Company permitted or required under the
Sale and Purchase Agreement (other than the actions set forth in clause
4.6 hereof) after the Legal Transfer Date, including, without
limitation, the rights and options under Articles 8, 21.6, 30.2 and
40.3 of the Share and Purchase Agreement.
UNANIMOUS CONSENT
4.6 In addition to the decisions and actions of the Company set forth in the
Articles of Association and in clauses 2.1, 5.1, 6.1 and 6.2 of this Agreement,
the following decisions and actions shall require the prior unanimous consent of
al Parties represented on the management board:
(a) the taking of any action of the Company permitted or required under
the Sale and Purchase Agreement prior to the Legal Transfer Date and
under the Transition Agreement, including the waiver of any conditions
set forth in Articles 38 and 39 of the Sale and Purchase Agreement;
<PAGE>
(b) the exercise of the Company's option (the "Lippendorf Option") to
require the repurchase by the THA of the Company's shares in MIBRAG
GmbH in the event that construction of units 1 and 2 of the Lippendorf
power plant has not begun by 1 January 1998 pursuant to Article 40.1
of the Sale and Purchase Agreement;
(c) the exercise of the Company's right (the "EC Rescission Right") to
rescind the Sale and Purchase Agreement or to exercise the right to
waive rescission pursuant to Article 38.3 thereof;
(d) the taking of any action of the Company permitted or required under
the Sale and Purchase Agreement after the Legal Transfer Date pursuant
to Articles 1.3 (Old Wahlitz), 4.1 (future coal fields), 5.1 (future
power plant sites) and 40.2 (MUEG) of the Sale and Purchase Agreement;
(e) the approval of, and any subsequent changes to, the business plan and
the budget of the Company; and
(f) the approval of, and any subsequent changes to, the Business Plan and
Budget of MIBRAG Group.
LIPPENDORF PUT
4.7 In the event that the management board does not decide that the Company
shall exercise the Lippendorf Option (within 3 months after the Lippendorf
Option has become exercisable), any Party that favored the exercise of the
Lippendorf Option, shall have
<PAGE>
the right to sell its shares in the Company to the other Party or Parties who
did not favor the exercise of the Lippendorf Option at a price which equals the
amount such Party would have received had the Company exercised the Lippendorf
Option and distributed the net proceeds to the Parties.
EC PUT
4.8 In the event that the management board does not decide that the Company
shall exercise the EC Rescission Right (within 3 months after the EC Rescission
Right has become exercisable), any Party that favored the exercise of the EC
Rescission Right, shall have the right to sell its shares in the Company to the
other Party or Parties who did not favor the exercise of the EC Rescission Right
at a price which equals the amount such Party would have received had the
Company exercised the EC Rescission Right and distributed the net proceeds to
the Parties.
OTHER ACTIONS OF THE COMPANY
4.9 The Parties shall cause the Company to use its rights and powers to
procure, so far as are legally possible (including by the exercise of its voting
rights and through the Shareholder Aufsichtsrat Members), that none of the
actions specified below shall be taken (whether such action is to be taken by
the Aufsichtsrat, the Geschatsfuhrung, MIBRAG GmbH or any of the officers or
managers of MIBRAG GmbH) unless the Company shall previously have approved such
action:
(a) the appointment and removal of the Vorsitzender of the Aufsichtsrat;
(b) the appointment and removal of the independent member
of the Aufsichtsrat; and
(c) the amendment, termination or any change in the terms and conditions
of the Mining Services Agreement or the Power Services Agreement.
<PAGE>
BUSINESS PLANS AND BUDGET
BUSINESS PLAN AND BUDGET OF THE MIBRAG GROUP
5.1 The Parties shall cause the Company to use its rights and powers to
procure, so far as legally possible, that the Geschaftsfuhrung of MIBRAG GmbH
shall submit to the Company by October 1 of each year for review, revision (if
necessary) and approval, a draft of the Business Plan and Budget for the next
Fiscal Year. The Parties shall use their best efforts to unanimously agree on
the draft Business Plan and Budget by December 15 in each year, to instruct the
Company to adopt the same at a shareholders' meeting as the Business Plan and
Budget of the Company and to procure that the MIBRAG Group shall conduct the
Business in accordance with the Business Plan and Budget. Any provisions in a
Business Plan or a Budget providing for a mandatory increase of the stated
capital of the Company or any other additional funding by the Parties shall
require the unanimous consent of all Parties as set forth in clause 6.2.
5.2 Each Party may propose at any time that the Business Plan and/or Budget be
amended (which amendment may take the form of a supplement), submit such
amendment to the Parties for approval and request that all corporate action of
the Company be initiated to implement such amendment.
5.3 If by December 15 no agreement has been reached by the Parties on the
Business Plan for the following Fiscal Year, the Parties shall cause the Company
to permit the MIBRAG Group to proceed with the matters agreed in respect of that
particular Fiscal Year in the then current Business Plan.
<PAGE>
5.4 If by December 31 in a relevant year no agreement has been reached on the
Budget, the Parties shall:
(a) cause the Company to permit the MIBRAG Group to proceed with those
matters and incur those costs and expenditures in respect of which
agreement had been reached;
(b) cause the Company to permit the MIBRAG Group to discharge liabilities
and obligations the non-performance of which would render the MIBRAG
Group or any member of it liable to court action (including, without
limitation, the payment of any rent or any other periodic payment);
(c) use all reasonable endeavors to reach agreement on the relevant Budget
as soon as possible thereafter.
5.5 If it appears to any Party that an undertaking of the MIBRAG Group may
exceed its budget, or the budgeted amount for any specific item with a budgeted
value in excess of DM 1,000,000, by more that 10 %, such Party may notify the
other Parties and require that a management meeting of the Company be convened
to consider the matter. Pending such meeting and until the budget for the
relevant item is increased (if it is increased), the Parties shall cause the
Company to use its reasonable endeavors to procure that, except for liabilities
and obligations referred to in paragraph (b) of clause 5.4, the MIBRAG Group
does not exceed the total budget or the amount provided in the budget for such
item, as the case may be, by more than 10 %.
DIVIDEND POLICY
5.6 Subject to the Articles of Association and the provisions of the Sale and
Purchase Agreement, the Parties shall, unless otherwise agreed between them
pursuant to Article 21 of the Articles of Association, cause the Company in
relation to any Fiscal Year and subject to (i) the restrictions in the Sale and
Purchase Agreement, if any, and (ii) the retention of sufficient funds to meet
the working capital needs of the Company (as determined by the Business Plan for
the relevant Fiscal Year), to take all steps to procure that there shall be
distributed in respect to each Fiscal Year all of the distributable profits of
the Company as shown by the Audited Accounts of the Company for that Fiscal
Year.
<PAGE>
BUSINESS PLAN, BUDGET AND DIVIDEND POLICY OF THE COMPANY
5.7 The business plan, budget and dividend policy of the Company shall be
discussed and implemented together with the Business Plan, the Budget and the
dividend policy of MIBRAG GmbH.
CAPITAL AND ADDITIONAL FUNDING
ISSUANCE OF NEW SHARES
6.1 The issued share capital of the Company may from time to time be increased
by such amount as shall be unanimously agreed between the Parties
proportionately to the number of shares they hold immediately prior to such
increase.
FUNDING SUPPORT BY THE PARTIES
6.2 It is the intention of the Parties that the Company and MIBRAG GmbH should
be self-financing and should obtain additional funds from third parties without
recourse to their respective shareholders. However, the Parties recognize the
need to support the Company in accordance with the Business Plan and Budget from
time to time and to provide additional funding as unanimously agreed by the
Parties to ensure the adequate funding of the Company and the MIBRAG Group and
to support their short and long term objectives. The Parties shall not
unreasonably withhold their consent to any additional funding required to
perform the obligations of the Company under the Sale and Purchase Agreement.
<PAGE>
AUFSICHTSRAT OF MIBRAG GMBH
MEMBERS
7.1 For as long as the Aufsichtsrat of MIBRAG GmbH shall comprise a maximum of
eleven (11) members, each Party shall:
(a) be entitled to designate one (1) Member of the Aufsichtsrat: and
(b) be entitled to designate jointly with the other Parties two (2) Members
to the Aufsichtsrat (the Joint Aufsichtsrat Members).
ELECTION AND REMOVAL
7.2 Each of the Parties agrees to cause the Company to vote in favor of the
election to the Aufsichtsrat of the persons designated by the Parties under
clause 7.1 above and in favor of any person designated pursuant to clause
7.1 to replace any such person.
7.3 Each of the Parties agrees to cause the Company to remove and replace the
Joint Aufsichtsrat Members in accordance with the provisions of the Satzung
and this Agreement.
7.4 The Parties shall cause the Company to procure that their respective
Aufsichtsrat Members and the Joint Aufsichtsrat Members vote jointly in the
election of the Vorsitzender.
DEFAULT
EVENTS OF DEFAULT
8.1 It shall be an Event of Default in relation to a Party if:
<PAGE>
(a) proceedings shall have been commenced or a resolution passed to wind up
a Party (other than for the purpose only of solvent amalgamation or
solvent reconstruction previously approved in writing by the other
Parties);
(b) any step is taken and not withdrawn within 90 (ninety) days to appoint
a manager, receiver in bankruptcy (curator), administrator,
administrative receiver, or any similar officer in respect of any
assets of that Party or in respect of the shares in that Party or any
undertaking of which that Party is a Subsidiary;
(c) any distress, execution, sequestration or other process is levied or
enforced (and not discharged within 7 (seven) days) against any
substantial part of the assets of that Party;
(d) that Party shall become insolvent, enter into suspension of payments
(surceance van betaling) or otherwise be unable to pay its debts as and
when they fall due as defined pursuant to Dutch or English law, as it
is applicable to that Party;
(e) that Party shall cease or threaten to cease to carry on a substantial
part of its business (other than for the purpose only of solvent
amalgamation or solvent reconstruction previously approved in writing
by the other Parties) and such cessation would adversely affect to a
substantial degree its ability to discharge its obligations under this
Agreement from time to time;
<PAGE>
(f) that Party convenes a meeting of its creditors or makes or proposes any
arrangement or composition with, or any assignment for the benefit of,
its creditors;
(g) the equivalent of any of (a) to (f) above occurs in respect of any
Party under the laws of England, the Netherlands or the United States;
(h) that Party fails to pay within 30 (thirty) Business Days of the due
date any amount payable by it under clause 6.2 of this Agreement in the
manner in which it is expressed to be payable in this Agreement or the
resolution authorizing such payment; or
(i) that Party commits a material breach of any provision of this Agreement
and fails to remedy the same within 30 (thirty) days of notice to do so
being given by the other Parties (and in which the other Parties
express their intention to exercise their rights under this clause);
and for the purposes of this clause 8, any reference to Party shall include any
member of that Party's Group.
<PAGE>
ACTIONS FOLLOWING AN EVENT OF DEFAULT
8.2 If an Event of Default applies in relation to a Party (the "Defaulting
Party"), then, without prejudice to any provision of Dutch law or contained in
the Articles of Association, until such Event of Default is cured or waived in
writing by the other Parties (the "Non-Defaulting Parties"):
(a) the Non-Defaulting Parties shall be entitled by notice in writing to
the Defaulting Party to require that any consent or approval required
of a Party pursuant to this Agreement shall not hereafter be required
of the Defaulting Party or any of its appointed representatives;
(b) the Defaulting Party shall be deemed to have nominated one of the Non-
Defaulting Parties' Aufsichtsrat Members as the alternate to the
Defaulting Party's Aufsichtsrat Member, to attend and vote meetings of
the Aufsichtsrat in his place (such alternate to act pursuant only to
the joint instructions of the Non-Defaulting Parties); and
(c) The Non-Defaulting Parties shall have the right to exercise an option
to purchase any or all of the shares of the Defaulting Party
proportionate to the ratio of their shareholdings at a fair market
value price (less adjustments for any failure of the Defaulting Party
to make payments duly authorized pursuant to clause 6.2) as established
by an independent expert who shall be designated by the appointed
auditor of the Company. The Non-Defaulting Parties must exercise their
option to purchase the shares of the Defaulting Party by written notice
to the Defaulting Party. Such notice shall include the price to be paid
for the shares. In the event that not all of the Non-Defaulting Parties
exercise their right to acquire in full, all shares of the Defaulting
Party may be acquired proportionately to the ratio of the shares held
by the Non-Defaulting Parties exercising their rights.
NON-COMPETITION
MIBRAG CUSTOMERS
9.1 Each of the Parties undertakes that, for so long as it or any member of its
Group is beneficially interested in any share in the capital of the Company and
for a period of one year thereafter, it shall procure (to the extent it is
legally able to do so) that neither it, nor any member of its Group (whether
alone or jointly with others, or whether as principal agent, shareholder or
otherwise and whether for its own benefit or that of others) entices away or
endeavors to entice away any material customer of the MIBRAG Group.
<PAGE>
CONFIDENTIALITY
CONFIDENCE INFORMATION
10.1 Each of the Parties undertakes that for so long as it or any member of its
Group is beneficially interested in any shares in the capital of the Company and
for a period of one year thereafter, it shall use (and to the extent it is
legally able shall ensure that each of the members of its Group shall use) all
reasonable endeavors to keep confidential (and to ensure that its and their
officers, employees, agents and professional and other advisers keep
confidential) any information:
(a) which it may have or acquire (whether before or after the date of this
Agreement) in relation to the customers, business, assets or affairs of
any member of the MIBRAG Group (including, without limitation, any
information provided pursuant to the Business Plan and Budget); or
(b) which, in consequence of the negotiations relating to this Agreement or
of being a shareholder of the Company or having appointees on the
Aufsichtsrat of MIBRAG GmbH or the exercise of its rights or
performance of its obligations hereunder, it may have or acquire
(whether before or after the date of this Agreement) in relations to
the customers, business, assets or affairs of another Party or any
member of another Party's Group; or
(c) which relates to the contents of this Agreement, the Mining Services
Agreement, the Power Services Agreement, or any agreement or
arrangement entered into pursuant to this Agreement.
None of the Parties shall use for its own business purposes or disclose to any
third party any such information (collectively, Confidential Information)
without the consent of the other Parties.
<PAGE>
EXCEPTIONS FROM CONFIDENTIALITY OBLIGATION
10.2 The obligation under clause 10.1 shall not apply to:
(a) the disclosure of information on a "need to know" basis to a company
which is another member of a Party's Group where such disclosure is for
a purpose reasonably incidental to this Agreement;
(b) information which is independently developed by the relevant Party or
acquired from a third party to the extent that it is acquired with the
right to disclose the same;
(c) the disclosure of information to the extent required to be disclosed by
law, any stock exchange regulation or any binding judgement, order or
requirement of any court or other competent authority;
(d) the disclosure of information to any tax authority to the extent
required by law for the purposes of the tax affairs of the Party
concerned or any member of its Group;
(e) the disclosure in confidence to a Party's professional advisers;
(f) information which is or becomes within the public domain (otherwise
than as a result of a breach of this clause 10); or
(g) any announcement made in accordance with the terms of clause 18.
10.3 For the purposes of this clause 10, any reference to Party shall include
any member of that Party's Group.
<PAGE>
EFFECTIVE DATE AND TERM
11.1 This Agreement shall have effect from the date of execution and shall
continue until (i) all but one (1) of the Parties have transferred all their
shares in the Company outside their Group or (ii) the Company has sold all its
shares in MIBRAG GmbH, whichever event occurs first.
11.2 The termination of this Agreement for any reason shall not:
(a) relieve any Party from any liability or obligation in respect of any
matters, undertaking or conditions which have not been done, observed
or performed by that Party prior to such determination; or
(b) affect the terms of any Agreement entered into between the Parties, or
any successor of them holding shares of the Company, to replace this
Agreement; or
(c) affect the terms of clause 10 of this Agreement.
NON-ASSIGNMENT
12.1 Each of the Parties may assign any or all of its shares in the Company in
accordance with the provisions set forth in the Articles of Association and in
this Agreement. A Party desiring to transfer its shares in the Company
undertakes to procure that any new shareholder shall agree in writing to be
bound by the terms of this Agreement before such transfer becomes effective.
12.2 The Parties agree that, in the event a Party desires to transfer its
shares in the Company and its rights hereunder within its group, the other
Parties shall not exercise any right of first refusal under the Articles of
Association or this Agreement.
<PAGE>
WAIVER OF RIGHTS
13. No waiver by a Party of a failure by another Party to perform any provision
of this Agreement shall operate or be construed as a waiver in respect of any
other failure whether of a like or different character.
AMENDMENTS
14. This Agreement may be amended only by an instrument in writing signed by
duly authorized representatives of each of the Parties.
INVALIDITY
15. If any of the provisions of this Agreement is or becomes invalid, illegal
or unenforceable, (a) the validity, legality or enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired, and
(b) the Parties shall negotiate in good faith in order to agree on terms of a
mutually satisfactory provision, achieving as closely as possible the same
commercial effect, to be substituted for the provision found to be void, illegal
or unenforceable.
NO PARTNERSHIP OR AGENCY
16.1 Nothing in this Agreement (or any of the arrangements contemplated hereby)
shall be deemed to constitute a partnership between the Parties for any matters
other than those set forth in this Agreement, no, save as may be expressly set
out herein, constitute any Party the agent of any other Party or Parties for any
purpose.
<PAGE>
16.2 In addition, unless otherwise agreed in writing between the Parties, none
of them shall enter into any contracts with third parties as agent for any
member of the MIBRAG Group or for any other Party no shall any Party describe
itself as such an agent or in any way hold itself out as being such an agent.
ARTICLES OF ASSOCIATION OF THE COMPANY AND OF MIBRAG GMBH
17.1 The Parties agree that as soon as practicable after the date of execution
of this Agreement, they will procure that (i) the Articles of Association of the
Company are amended in accordance with EXHIBIT C to this Agreement, and (ii) the
articles of association (Gesellschaftsvertrag) or MIBRAG GmbH are amended to
read substantially as set forth in EXHIBIT D to this Agreement.
17.2 In the event of any conflict between the provision of this Agreement and
the Articles of Association of the Company, the provision of the Articles of
Association shall prevail. The Parties shall exercise all voting and other
rights and powers available to them so as to give effect to the provisions of
this Agreement and shall procure to the extent within their power that any
amendment is made to the Articles of Association of the Company as may be
necessary for this purpose.
ANNOUNCEMENTS
18. No announcement in connection with the subject matter of this Agreement
shall be made or issued by or on behalf of nay Party (or any member of its
Group) without the prior written approval of all other Parties (such approval
not to be unreasonably withheld or delayed) except for any announcement required
by law, any stock exchange regulation or by any binding judgment, order or
requirement of any court or other competent authority. The relevant Party
shall, to the extent reasonable practicable, give the other Parties an
opportunity to comment on any such announcement before it is made or issued.
<PAGE>
COSTS
19. Each of the Parties shall pay its own costs, charges and expenses incurred
in connection with the preparation and implementation of this Agreement and the
transactions contemplated by it.
ENTIRE AGREEMENT
20.1 This Agreement together with the Articles of Association, the Sale and
Purchase Agreement (including exhibits), the Transition Agreement, the Mining
Services Agreement and the Power Services Agreement constitute the entire
agreement and understanding of the Parties with respect to the subject matter
hereof and none of the Parties has entered into this Agreement in reliance upon
any representation, warranty or undertaking by or on behalf of any Party which
is not expressly set out herein.
20.2 Without prejudice to the generality of clause 20.1, the Parties agree that
this Agreement superseded any or all prior agreements, understandings,
arrangements, promises, representations, warranties and/or contracts of any form
or nature whatsoever (whether oral or in writing and whether explicit or
implicit) which may have been entered into prior to the date hereof between the
Parties or on their behalf as to the subject matter of this Agreement including,
without limitation, the provisions of the Memorandum of Understanding dated 7/21
October 1992 between NRG Energy, Inc. and PowerGen plc., and the letter from
Morrison Knudsen Corporation to NRG Energy, Inc. of 4 June 1993 as amended on 11
June 1993, provided, however, that the execution of this Agreement shall not
--------
relieve any Party from any claims of another Party existing at the time of the
execution.
<PAGE>
NOTICES
ADDRESS FOR NOTICES
21.1 Any notice or other communication to be given under this Agreement shall
be sent by telefax or courier mail as follows:
if to MK: Morrison Knudsen B.V.
Weena 70
3012CM Rotterdam
Attention:
Robert A. Tinstman
if to NRG: Lambique Beheer B.V.
Vijzelstreet 32
1017 H1 Amsterdam
Attention:
David H. Peterson
if to Powergen: Ergon Overseas Holdings Limited
53 New Broad Street
London EC2M 1JJ
Attention:
David J. Jackson
CHANGES
21.2 A Party may change the address, fax number of the name of the person for
whose attention notices are to be addressed by serving a notice on the other in
accordance with the clause 21.
DEEMED SERVICE
21.3 All notices given in accordance with clause 21.1 shall be deemed to have
been served as follows:
<PAGE>
(a) if delivered by courier, at the time of receiving confirmation of
delivery by the courier; and
(b) if communicated by telefax, at the time of receiving confirmation by
the recipient.
SETTLEMENT OF DISPUTES
LEGAL DISPUTES
22.1 If any dispute arises between the Parties in connection with this
Agreement or any associated agreement entered into pursuant to this Agreement (a
Dispute), they shall use all reasonable endeavors to resolve the matter on an
amicable basis. If one Party serves formal written notice on the other that a
material Dispute of such a description has arisen and the Parties are unable to
resolve the Dispute within a period of thirty (30) days from the service of such
notice, then the Dispute shall be referred to the respective senior officers of
the Group of each Party. No recourse to arbitration under clause 22.2 by one
Party against the other under this Agreement shall take place unless and until
such procedure has been followed.
ARBITRATION
22.2 If the senior officers of the Group of each Party shall have been unable
to resolve a Dispute within 30 days after it has been referred to them under
clause 22.1, such Dispute shall be referred to and finally settled by
arbitration under and in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with those Rules. The place of arbitration shall be
Amsterdam. The language of the arbitration proceedings shall be English.
Reasonable expenses of the arbitration shall be payable by the Parties in such
proportions as shall be determined by the arbitrators.
<PAGE>
GOVERNING LAW
23. This Agreement shall be governed by and construed in accordance with the
laws of the Netherlands.
AS WITNESS this Agreement has been signed by the duly authorized representatives
of the Parties on the day and year first before written.
MORRISON KNUDSEN BV ERGON OVERSEAS HOLDINGS LIMITED
By: /s/ Terry K. Eller By: /s/ Roy Adair
---------------------- ------------------------
Terry K. Eller Roy Adair
(under a power-of-attorney (under a power-of attorney
attached as Exhibit E) attached as Exhibit F)
LAMBIQUE BEHEER BV
By: /s/ Carl A. Carreca
----------------------
Carl A. Carreca,
Managing Director
(bestuurder)
<PAGE>
SHAREHOLDERS AGREEMENT
EXHIBITS
[The Registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the Exhibits hereto.]
<PAGE>
EXHIBIT 10.12
MORRISON KNUDSEN CORPORATION
DEFERRED COMPENSATION PLAN
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
TABLE OF CONTENTS
ARTICLE I - PURPOSE AND BACKGROUND............................ 1
ARTICLE II - DEFINITIONS...................................... 1
2.1 Account............................................. 1
2.2 Account Accumulation Rate........................... 1
2.3 Administrative Committee............................ 1
2.4 Beneficiary......................................... 1
2.5 Board............................................... 2
2.6 Cause............................................... 2
2.7 Code................................................ 2
2.8 Compensation........................................ 2
2.9 Compensation Committee.............................. 2
2.10 Deferral Commitment................................. 2
2.11 Deferral Period..................................... 2
2.12 Elective Deferred Compensation...................... 3
2.13 Employee............................................ 3
2.14 Employer............................................ 3
2.15 Financial Hardship.................................. 3
2.16 Moody's Minus One Hundred Fifty (150) Basis Points.. 3
2.17 Moody's Plus Fifty (50) Basis Points................ 3
2.18 Participant......................................... 3
2.19 Participation Agreement............................. 3
2.20 Plan Benefit........................................ 3
2.22 Rule of 70.......................................... 4
2.22 Savings Plan........................................ 4
2.23 Year of Service..................................... 4
ARTICLE III - PARTICIPATION AND DEFERRAL COMMITMENTS.......... 4
3.1 Eligibility and Participation....................... 4
3.2 Form of Deferral.................................... 4
3.3 Limitations on Deferral Commitments................. 5
3.4 Modification of Deferral Commitment................. 5
ARTICLE IV - DEFERRED COMPENSATION ACCOUNTS................... 5
4.1 Accounts............................................ 5
4.2 Elective Deferred Compensation...................... 5
4.3 Interest on Accounts................................ 5
4.4 Matching Contributions.............................. 6
4.5 Statement of Accounts............................... 6
<PAGE>
ARTICLE V - PLAN BENEFITS..................................... 6
5.1 Distributions Prior to Termination of Employment....... 6
5.2 Distributions Following Termination of Employment...... 7
5.3 Form of Benefit Payment Following Termination
of Employment......................................... 7
5.4 Commencement of Deferral Payment....................... 7
5.5 Timing of Election..................................... 8
5.6 Death Benefit.......................................... 8
5.7 Accelerated Distribution............................... 8
5.8 Withholding for Taxes.................................. 8
5.9 Payment to Guardian.................................... 8
ARTICLE VI - BENEFICIARY DESIGNATION.......................... 9
6.1 Beneficiary Designation................................ 9
6.2 Changing Beneficiary................................... 9
6.3 Spousal Consent........................................ 9
6.4 No Beneficiary Designation............................. 10
ARTICLE VII - ADMINISTRATION.................................. 10
7.1 Committee; Duties...................................... 10
7.2 Agents................................................. 10
7.3 Binding Effect of Decisions............................ 10
7.4 Indemnity of Committee................................. 10
ARTICLE VIII - CLAIMS PROCEDURE............................... 11
8.1 Claim.................................................. 11
8.2 Review of Claim........................................ 11
8.3 Notice of Denial of Claim.............................. 11
8.4 Reconsideration of Denied Claim........................ 11
8.5 Employer to Supply Information......................... 12
ARTICLE IX - AMENDMENT AND TERMINATION OF PLAN................ 12
9.1 Amendment.............................................. 12
9.2 Employer's Right to Terminate.......................... 12
ARTICLE X - MISCELLANEOUS..................................... 13
10.1 Unfunded Plan.......................................... 13
10.2 Unsecured General Creditor............................. 13
10.3 Trust Fund............................................. 13
10.4 Nonassignability....................................... 13
10.5 Not a Contract of Employment........................... 13
10.6 Protective Provisions.................................. 13
10.7 Governing Law.......................................... 13
<PAGE>
10.8 Validity............................................... 14
10.9 Notice................................................. 14
10.10 Successors............................................. 14
<PAGE>
MORRISON KNUDSEN CORPORATION
DEFERRED COMPENSATION PLAN
ARTICLE I - PURPOSE AND BACKGROUND
The purpose of this Deferred Compensation Plan (the "Plan") is to provide
current tax planning opportunities for the retirement or death of employees of
Morrison Knudsen Corporation ("Company"). The Plan shall be in addition to
existing deferred compensation plans and arrangements maintained by the Company.
The Plan is intended to aid in retaining and attracting employees of exceptional
ability by providing them with these benefits. This Plan shall be effective as
of January 1, 1998 (the "Effective Date").
ARTICLE II - DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated, unless the context clearly indicates otherwise:
2.1 ACCOUNT. "Account" means the Account maintained by the Employer in
accordance with Article IV and which consists of (i) any deferral of
Compensation pursuant to this Plan; (ii) matching contributions made by the
Employer to this Plan; and (iii) earnings on all of the foregoing. A
Participant's Account shall be utilized solely as a device for the determination
and measurement of the amounts to be paid to the Participant pursuant to the
Plan. Separate subaccounts shall be maintained to properly reflect the
Participant's balance and earnings thereon. A Participant's Account shall not
constitute or be treated as a trust fund of any kind.
2.2 ACCOUNT ACCUMULATION RATE. "Account Accumulation Rate" means the rate of
imputed interest that shall be applied to a Participant's Account. This rate
shall be equal to Moody's Plus Fifty (50) Basis Points if the Participant,
before satisfying the Rule of 70, attaining age 65 or attaining age 55 with ten
(10) or more Years of Service, does not voluntarily terminate employment with
the Employer or receive an accelerated distribution pursuant
<PAGE>
to Section 5.7, and if the Participant is not involuntarily terminated for
Cause. If the Participant is terminated for Cause at any time or, before
satisfying the Rule of 70, attaining age 65 or attaining age 55 with ten (10) or
more Years of Service, either voluntarily terminates employment with the
Employer or receives an accelerated distribution pursuant to Section 5.7, this
rate shall be equal to Moody's Minus One Hundred Fifty (150) Basis Points. A
termination of employment on account of a Participant's death or disability is
not "voluntary" for purposes of this Plan.
2.3 ADMINISTRATIVE COMMITTEE. "Administrative Committee" means the committee
appointed to administer the employee benefit plans of the Company.
2.4 BENEFICIARY. "Beneficiary" means the person, persons or entity entitled
under Article VI to receive any Plan benefits payable after a Participant's
death.
2.5 BOARD. "Board" means the Board of Directors of the Company.
2.6 CAUSE. "Cause" means a Participant's:
(i) Conviction of any criminal violation involving dishonesty, fraud or
breach of trust;
(ii) Willful engagement in any misconduct in the performance of his duties
that materially injures Company, monetarily or otherwise;
(iii) Performance of any act which, if known to Company's customer, clients
or stockholders would materially and adversely affect Company's
business; or
(iv) Willful and substantial nonperformance of assigned duties (other than
any such failure resulting from Participant's incapacity due to
physical or mental illness) which has continued after the Board has
given written notice of such nonperformance to Participant, which
notice specifically identifies the manner in which the Board believes
that Participant has not substantially performed his duties and which
indicates the Board's intention to terminate Participant's employment
because of such nonperformance. For
<PAGE>
purposes of clauses (ii) and (iv) of this Sec tion, no act or
omission on Participant's part shall be deemed "willful" if committed
or omitted in good faith and with a reasonable belief that his action
was in the best interest of the Company.
2.7 CODE. "Code" means the Internal Revenue Code of 1986, as amended.
2.8 COMPENSATION. "Compensation" means the salary and bonuses payable to a
Participant during the calendar year and considered to be "wages" for purposes
of federal income tax with holding, before reduction for amounts deferred under
this Plan, salary reduction contributions under IRC Section 401(k), or any other
deferral arrangements. Compensation does not include expense reimbursements,
any form of noncash compensation or benefits, imputed income, living allowances,
tax allowances, other special allowances, overseas differentials, other project-
oriented differentials, relocation allowances, short term disability paid by a
third-party provider, administrator or insurer, group life insurance premiums,
or any other payments or benefits other than normal compensation.
2.9 COMPENSATION COMMITTEE. "Compensation Committee" means the Compensation
Committee of the Board of Directors of the Company.
2.10 DEFERRAL COMMITMENT. "Deferral Commitment" means an election to defer
Compensation made by a Participant pursuant to Article III and for which a
separate Participation Agreement has been submitted by the Participant to the
Administrative Committee.
2.11 DEFERRAL PERIOD. "Deferral Period" means the period over which a
Participant has elected to defer a portion of his Compensation. Each calendar
year shall be a separate Deferral Period, provided that the Deferral Period may
be modified pursuant to Section 3.4.
2.12 ELECTIVE DEFERRED COMPENSATION. "Elective Deferred Compensation" means the
amount of Compensation that a Participant elects to defer pursuant to a Deferral
Commitment.
2.13 EMPLOYEE. "Employee" means an individual who is a common
<PAGE>
law employee of the Employer and who, under the applicable facts and
circumstances, is either part of a select group of management or a highly
compensated employee of the Employer.
2.14 EMPLOYER. "Employer" means Morrison Knudsen Corporation or any successor to
the business thereof, and any affiliated or subsidiary corporations designated
by the Compensation Committee.
2.15 FINANCIAL HARDSHIP. "Financial Hardship" means an immediate, unanticipated,
heavy financial need of the Participant that the Participant cannot satisfy from
other financial resources, including proceeds of any loans. The Administrative
Committee shall determine whether a Financial Hardship exists on the basis of
information supplied by the Participant in accordance with such standards as
are, from time to time, established by the Administrative Committee. For
purposes of this Plan, the education of a child or the purchase of a home will
NOT constitute a Financial Hardship.
2.16 MOODY'S MINUS ONE HUNDRED FIFTY (150) BASIS POINTS. "Moody's Minus One
Hundred Fifty (150) Basis Points" means an annualized rate of interest equal to
Moody's Composite Average of Yields on Corporate Bonds as determined from
Moody's Bond Record published by Moody's Investor's Service, Inc. (or any
successor thereto) or, if such report is no longer published, a substantially
similar rate determined in a manner determined to be appropriate by the
Compensation Committee, minus one and one-half percentage points (1.5%). The
rate to be applied for purposes of this Plan, for any calendar year, shall be
based on the published rate for the month of August for the immediately
preceding calendar year.
2.17 MOODY'S PLUS FIFTY (50) BASIS POINTS. "Moody's Plus Fifty (50) Basis
Points" means an annualized rate of interest equal to Moody's Composite Average
of Yields on Corporate Bonds as determined from Moody's Bond Record published by
Moody's Investor's Service, Inc. (or any successor thereto) or, if such report
is no longer published, a substantially similar rate determined in a manner
determined to be appropriate by the Compensation Committee, plus one-half
percentage point (0.5%). The rate to be applied for purposes of this Plan, for
any calendar year, shall be based on the published rate for the month of August
for the immediately preceding calendar year.
<PAGE>
2.18 PARTICIPANT. "Participant" means any individual who is participating
or has participated in this Plan as provided in Article III.
2.19 PARTICIPATION AGREEMENT. "Participation Agreement" means the agreement
submitted by a Participant to the Administrative Committee prior to the
beginning of the Deferral Period, with respect to a Deferral Commitment made for
such Deferral Period.
2.20 PLAN BENEFIT. "Plan Benefit" means the benefit payable to a Participant as
calculated in Article V.
2.22 RULE OF 70. "Rule of 70" means the attainment by a Participant of a
number of Years of Service and age which, when added together, equal or exceed
70.
2.22 SAVINGS PLAN. "Savings Plan" means the Morrison Knudsen Corporation
Savings Plan, established January 1, 1986.
2.23 YEAR OF SERVICE. "Year of Service" means a year of service with the
Employer as defined in, and accumulated under, the Savings Plan (i.e. 1,000 or
more paid hours in a calendar year).
ARTICLE III - PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 ELIGIBILITY AND PARTICIPATION.
(a) Eligibility. Before the Effective Date, the Compensation Committee will
-----------
designate a group of Employees who will be eligible to defer Compensation
under this Plan. From time to time thereafter, the Compensation Committee,
in its discretion, may designate additional Employees as eligible to defer
Compensation under this Plan and may decide that certain Employees
previously eligible will no longer be eligible to defer Compensation under
this Plan. An Employee who has been designated as eligible to defer
Compensation under this Plan will continue to be eligible to defer
Compensation during subsequent Deferral Periods until (i) the Employee
terminates employment with the Employer, (ii) the Compensation Committee
decides that the Employer will no longer be eligible to defer Compensation
under this Plan or (iii) this Plan is terminated either partially or
<PAGE>
completely, whichever occurs first.
(b) Participation. Each eligible Employee who has elected to defer
-------------
Compensation under this Plan shall be a Participant in this Plan. An
eligible employee may elect to participate in the Plan with respect to a
Deferral Period by submitting a Participation Agreement to the
Administrative Committee by November 30 of the calendar year immediately
preceding that Deferral Period. With respect to amounts payable commencing
January 1 of any calendar year, the Administrative Committee, in its sole
discretion, may allow an eligible employee to submit a Participation
Agreement to the Administrative Committee by December 31 of the immediately
preceding calendar year.
(c) Part-Year Participation. In the event that an Employee first becomes
-----------------------
eligible to participate during a calendar year, a Participation Agreement
must be submitted to the Administrative Committee no later than thirty (30)
days following notification to the Employee of eligibility to participate,
and such Participation Agreement shall be effective only with regard to
Compensation payable following the submission of the Participation
Agreement to the Administrative Committee.
3.2 FORM OF DEFERRAL. A Participant may elect Deferral Commitments in the
Participation Agreement as follows:
(a) Salary Deferral Commitment. A salary Deferral Commitment shall be related
--------------------------
to the salary payable by the Employer to a Participant during the Deferral
Period. The amount to be deferred shall be stated as a percentage.
(b) Bonus Deferral Commitment. A bonus Deferral Commitment shall be related to
-------------------------
the bonus Compensation payable to the Participant during the Deferral
Period. The amount to be deferred shall be stated as a percentage.
3.3 LIMITATIONS ON DEFERRAL COMMITMENTS. The following limitations shall
apply to Deferral Commitments:
(a) Minimum. The minimum salary deferral amount shall be five percent (5%) of
-------
salary for each pay period. The minimum
<PAGE>
bonus deferral amount shall be five percent (5%) of bonus in a bonus
Deferral Commitment.
(b) Maximum. The maximum deferral amount shall be fifty percent (50%) of
-------
salary in a salary Deferral Commitment and one hundred percent (100%) of
bonus in a bonus Deferral Commitment.
(c) Changes in Minimum or Maximum. The Administrative Committee may change the
-----------------------------
minimum or maximum deferral amounts from time to time by giving written
notice to all Participants. No such change may affect a Deferral
Commitment made prior to the Administrative Committee's action.
3.4 MODIFICATION OF DEFERRAL COMMITMENT. A Deferral Commitment shall be
irrevocable except that the Administrative Committee may permit a Participant to
reduce the amount to be deferred, or waive the remainder of the Deferral
Commitment upon a finding that the Participant has suffered a Financial
Hardship.
ARTICLE IV - DEFERRED COMPENSATION ACCOUNTS
4.1 ACCOUNTS. For record keeping purposes only, an Account shall be
maintained for each Participant. Separate alternative subaccounts shall be
maintained to the extent necessary to properly reflect the crediting of
different Account Accumulation Rates to the Participant's Account.
4.2 ELECTIVE DEFERRED COMPENSATION. A Participant's Elective Deferred
Compensation shall be credited to the Participant's Account as the corresponding
nondeferred portion of the Compensation becomes or would have become payable.
Any withholding of taxes or other amounts with respect to deferred Compensation
which is required by state, federal or local law shall be withheld from the
Participant's nondeferred Compensation to the maximum extent possible with any
excess being withheld from the Participant's Account.
4.3 INTEREST ON ACCOUNTS. The Accounts shall be credited with interest at
the applicable Account Accumulation Rate specified in Section 2.2, compounded
daily. The applicable Account Accumulation Rate shall be adjusted annually
effective January 1
<PAGE>
of each year, based upon the published rate for the month of August of the
immediately preceding calendar year.
4.4 MATCHING CONTRIBUTIONS. Each calendar year, the Company shall credit a
matching contribution to the Plan on behalf of each Participant who is an active
Employee of the Employer on the last day of such year equal to one hundred
percent (100%) of such Participant's Compensation that was deferred in such
calendar year to either (A) the Plan as Elective Deferred Compensation or (B)
the Savings Plan as a "Salary Deferral" as defined thereunder. The matching
contribution required to be credited under this Section 4.4 for a given year
shall be credited as of the last day of the calendar year and shall be reduced
by the amounts, if any, the Employer contributes on behalf of the Participant as
a matching contribution under the Savings Plan. The foregoing to the contrary
notwithstanding, in no event shall the total of Employer Matching Contributions
for a Participant under the Savings Plan and matching contributions under this
Section 4.4 for a given year exceed five percent (5%) of such Participant's
Compensation for such year as limited by Code (S)401(a)(17).
4.5 STATEMENT OF ACCOUNTS. The Administrative Committee shall provide to
each Participant, within a reasonable time after the close of each calendar
quarter, and at such other time as determined by the Administrative Committee, a
statement setting forth the balance to the credit of the Account maintained for
the Participant.
ARTICLE V - PLAN BENEFITS
5.1 DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT. A Participant's
Account may be distributed to the Participant prior to termination of employment
as follows:
(a) Early Withdrawals. A Participant may elect in a Participation Agreement to
-----------------
withdraw all or any portion of the amount deferred by that Participation
Agreement, as of a date specified in the election. Such date shall not be
sooner than seven (7) years after the date the Deferral Period commences.
The amount withdrawn shall not exceed the amount of Compensation deferred,
without interest. Such
<PAGE>
election shall be made at the time the Deferral Commitment is made and
shall be irrevocable.
(b) Hardship Withdrawals. Upon a finding that a Participant has suffered a
--------------------
Financial Hardship, the Administrative Committee may, in its sole
discretion, make distributions from the Participant's Account. The amount
of such a withdrawal shall be limited to the amount reasonably necessary to
meet the Participant's needs resulting from the Financial Hardship. If
payment is made due to Financial Hardship under this Plan, the
Participant's deferrals under this Plan shall cease until the beginning of
a new Deferral Period. Any resumption of the Participant's deferrals
under the Plan after such period shall be made only at the election of the
Participant in accordance with Article III herein.
(c) Form of Payment and Time. Any distribution pursuant to Section 5.1(a) or
------------------------
5.1(b) shall be payable in a lump sum. The distribution shall be paid in
the case of a partial withdrawal, as provided in the Participation
Agreement, and in case of a Financial Hardship, within thirty (30) days
after the determination of a Financial Hardship.
5.2 DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT.
(a) If a Participant terminates employment with the Employer because of death
or disability or after satisfying the Rule of 70, attaining age 65 or
attaining age 55 with ten (10) or more Years of Service and the Participant
is not terminated for Cause, the Account Accumulation Rate on such
Participant's Account shall be a rate equal to Moody's Plus Fifty (50)
Basis Points. Such rate, as adjusted annually, shall apply from the date
the Participant first deferred any Compensation to all amounts in the
Participant's Account, except any amounts distributed to the Participant in
an accelerated distribution under Section 5.7.
(b) If a Participant voluntarily terminates employment with the Employer before
satisfying the Rule of 70, attaining age 65, or attaining age 55 with ten
(10) or more Years of Service, or if a Participant's employment with the
Employer is involuntarily terminated for Cause at any time, the Account
Accumulation Rate on such Participant's Account shall be adjusted,
effective as of the date the Participant first deferred any Compensation,
to a
<PAGE>
rate equal to Moody's Minus One Hundred Fifty (150) Basis Points. Such
rate, as adjusted annually, shall apply retroactively from the date the
Participant first deferred any Compensation to all amounts in the
Participant's Account, whether previously distributed or not. A termination
of employment on account of a Participant's death or disability is not
"voluntary" for purposes of this Plan.
(c) Upon a Participant's termination of employment with the Employer for any
reason for a period of at least five (5) days, the Employer shall pay the
Participant, or Participant's Beneficiary in the case of death, benefits
equal to the balance in the Participant's Account, after the adjustment
described in Section 5.2(b), if applicable.
5.3 FORM OF BENEFIT PAYMENT FOLLOWING TERMINATION OF EMPLOYMENT.
(a) Subject to Section 5.3(b), benefits shall be paid in the form selected by
the Participant at the time of the Deferral Commitment. Options include:
(i) A lump sum payment.
(ii) Equal annual installments of the Account and Interest amortized over a
period of five (5), ten (10), or fifteen (15) years.
(b) Small Account(s). Notwithstanding Section 5.3(a), if a Participant's
----------------
Account is under fifty thousand dollars ($50,000) on the date of his
termination of employment, the benefit shall be paid in a lump sum.
5.4 COMMENCEMENT OF DEFERRAL PAYMENT.
(a) Subject to 5.4(b), benefits shall commence as elected by the Participant.
Options are:
(i) Payments to commence as soon as practical after termination but in no
case more than sixty (60) days after termination.
(ii) Payment to commence as soon as practical in the calendar year
following termination but in no case more
<PAGE>
than ninety (90) days after the beginning of the calendar year.
(b) Notwithstanding 5.4(a), a Participant who is a "covered employee" as
defined in IRS Section 162(m)(3) shall receive his first benefit payment as
if the Participant had elected option 5.4(a)(ii) above.
5.5 TIMING OF ELECTION. As long as the election is made and filed with the
Administrative Committee at least twelve (12) full months prior to termination
of employment, a Participant may elect to change the form of benefit payment or
the timing of benefit commencement. In no case may a Participant change an
election in the 12 months preceding termination of employment.
5.6 DEATH BENEFIT. Upon the death of a Participant, the Employer shall pay
to the Participant's Beneficiary an amount equal to the remaining unpaid balance
of the Participant's Account in a lump sum.
5.7 ACCELERATED DISTRIBUTION. Notwithstanding any other provision of the
Plan, at any time a Participant shall be entitled to receive, upon written
request to the Committee, a lump sum distribution equal to ninety percent (90%)
of the Account balance as of the date on which the Committee receives the
written request. Provided, however, that if the Participant has not satisfied
the Rule of 70, attained age 65 or attained age 55 with ten (10) or more Years
of Service, the Account Accumulation Rate on such Participant's Account shall be
adjusted before the distribution, retroactively effective as of the date the
Participant first deferred any Compensation, to a rate equal to Moody's Minus
One Hundred Fifty (150) Basis Points. The remaining balance shall be forfeited
by the Participant. The amount payable under this section shall be paid in a
lump sum within thirty (30) days following the receipt of the notice by the
Committee from the Participant. Such Participant shall not be eligible to
participate until the beginning of a new Deferral Period beginning not less than
twelve (12) months after the date of the accelerated distribution.
5.8 WITHHOLDING FOR TAXES. To the extent required by the law in effect at
the time payments are made, the Employer shall withhold
<PAGE>
from the payments made hereunder any taxes required to be withheld by the
federal or any state or local government, including any amounts which the
Employer determines are reasonably necessary to pay any generation-skipping
transfer tax which is or may become due. A beneficiary, however, may elect not
to have withholding of federal income tax pursuant to Section 3405(a)(2) of the
Internal Revenue Code, or any successor provision thereto.
5.9 PAYMENT TO GUARDIAN. The Administrative Committee may direct payment to
the duly appointed guardian, conservator, or other similar legal representative
of a Participant or Beneficiary to whom payment is due. In the absence of such
a legal representative, the Committee may, in its sole and absolute discretion,
make payment to a person having the care and custody of a minor, incompetent or
person incapable of handling the disposition of property upon proof satisfactory
to the Administrative Committee of incompetency, minority, or incapacity. Such
distribution shall completely discharge the Administrative Committee from all
liability with respect to such benefit.
ARTICLE VI - BENEFICIARY DESIGNATION
6.1 BENEFICIARY DESIGNATION. Subject to Section 6.3, each Participant shall
have the right, at any time, to designate one (1) or more persons or an entity
as Beneficiary (both primary as well as secondary) to whom benefits under this
Plan shall be paid in the event of the Participant's death prior to complete
distribution of the Participant's Account. Each Beneficiary designation shall
be in a written form prescribed by the Administrative Committee and shall be
effective only when filed with the Administrative Committee during the
Participant's lifetime.
6.2 CHANGING BENEFICIARY. Subject to Section 6.3, any Beneficiary
designation may be changed by a Participant without the consent of the
previously named Beneficiary by the filing of a new designation with the
Committee. The filing of a new designation shall cancel all designations
previously filed.
6.3 SPOUSAL CONSENT. If the Participant is married, the
<PAGE>
following rules shall apply:
(a) Designation by a married Participant of a primary Beneficiary other than
the Participant's spouse shall not be effective unless the spouse executes
a written consent that acknowledges the effect of the designation, or it is
established the consent cannot be obtained because the spouse cannot be
located.
(b) A married Participant's primary Beneficiary designation may be changed by a
Participant with the consent of the Participant's spouse as provided for in
Section 6.3(a) by the filing of a new designation with the Committee.
(c) If the Participant's marital status changes after the Participant has
designated a Beneficiary, the following shall apply:
(i) If the Participant is married at the time of death but was unmarried
when the designation was made, the designation shall be void unless
the spouse has consented to it in the manner prescribed in Section
6.3(a).
(ii) If the Participant is unmarried at the time of death but was married
when the designation was made:
a) The designation shall be void if the spouse was named as
Beneficiary.
b) The designation shall remain valid if a nonspouse Beneficiary was
named.
(iii) If the Participant was married when the designation was made and is
married to a different spouse at death, the designation shall be void
unless the new spouse has consented to it in the manner prescribed
above.
6.4 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a
Beneficiary in the manner provided above, if the designation is void, or if the
Beneficiary designated by a deceased Participant dies before the Participant or
before complete
<PAGE>
distribution of the Participant's benefits, the Participant's Beneficiary shall
be the person in the first of the following classes in which there is a
survivor:
(a) The Participant's spouse;
(b) The Participant's children in equal shares, except that if any of the
children predeceases the Participant but leaves issue surviving, then such
issue shall take by right of represen tation the share the parent would
have taken if living;
(c) The Participant's estate.
ARTICLE VII - ADMINISTRATION
7.1 COMMITTEE; DUTIES. This Plan shall be administered by the Administrative
Committee. The Administrative Committee shall consist of at least three (3)
individuals appointed by the Compensation Committee. The Administrative
Committee shall have the authority to amend (but not terminate) the Plan,
(subject to Section 9.1 thereof), interpret and enforce all appropriate rules
and regulations for the administration of the Plan and decide or resolve any and
all questions, including interpretations of the Plan, as may arise in such
administration. A majority vote of the Administrative Committee members shall
control any decision. Members of the Administrative Committee may be
Participants under this Plan.
7.2 AGENTS. The Administrative Committee may, from time to time, employ
agents and delegate to them such administrative duties as it sees fit, and may
from time to time consult with counsel who may be counsel to the Company.
7.3 BINDING EFFECT OF DECISIONS. The decision or action of the
Administrative Committee with respect to any question arising out of or in
connection with the administration, interpretation and application of the Plan
and the rules and regulations promulgated hereunder shall be final, conclusive
and binding upon all persons having any interest in the Plan.
7.4 INDEMNITY OF COMMITTEE. The Company shall indemnify and
<PAGE>
hold harmless the members of the Administrative Committee against any and all
claims, loss, damage, expense or liability arising from any action or failure to
act with respect to this Plan on account of such person's service on the
Committee, except in the case of gross negligence or willful misconduct.
ARTICLE VIII - CLAIMS PROCEDURE
8.1 CLAIM. The Administrative Committee shall establish rules and procedures
to be followed by Participants and Beneficiaries in (a) filing claims for
benefits, and (b) for furnishing and verifying proofs necessary to establish the
right to benefits in accordance with the Plan, consistent with the remainder of
this Article. Such rules and procedures shall require that claims and proofs be
made in writing and directed to the Administrative Committee.
8.2 REVIEW OF CLAIM. The Administrative Committee shall review all claims
for benefits. Upon receipt by the Administrative Committee of such a claim, it
shall determine all facts which are necessary to establish the right of the
claimant to benefits under the provisions of the Plan and the amount thereof as
herein provided within ninety (90) days of receipt of such claim. If prior to
the expiration of the initial ninety (90) day period, the Administrative
Committee determines additional time is needed to come to a determination on the
claim, the Committee shall provide written notice to the Participant,
Beneficiary or other claimant of the need for the extension, not to exceed a
total of one hundred eighty (180) days from the date the application was
received.
8.3 NOTICE OF DENIAL OF CLAIM. In the event that any Participant,
Beneficiary or other claimant claims to be entitled to a benefit under the Plan,
and the Administrative Committee determines that such claim should be denied in
whole or in part, the Committee shall, in writing, notify such claimant that the
claim has been denied, in whole or in part, setting forth the specific reasons
for such denial. Such notification shall be written in a manner reasonably
expected to be understood by such claimant and shall refer to the specific
sections of the Plan relied on, shall describe any additional material or
information necessary for the claimant to perfect the claim and an explana-
<PAGE>
tion of why such material or information is necessary, and where appropriate,
shall include an explanation of how the claimant can obtain reconsideration of
such denial.
8.4 RECONSIDERATION OF DENIED CLAIM.
(a) Within sixty (60) days after receipt of the notice of the denial of a
claim, such claimant or duly authorized representative may request, by
mailing or delivery of such written notice to the Administrative Committee,
a reconsideration by the Administrative Committee of the decision denying
the claim. If the claimant or duly authorized representative fails to
request such a reconsideration within such sixty (60) day period, it shall
be conclusively determined for all purposes of this Plan that the denial of
such claim by the Administrative Committee is correct. If such claimant or
duly authorized representative requests a reconsideration within such sixty
(60) day period, the claimant or duly authorized represen tative shall
have thirty (30) days after filing a request for reconsideration to submit
additional written material in support of the claim, review pertinent
documents, and submit issues and comments in writing.
(b) After such reconsideration request, the Administrative Committee shall
determine within sixty (60) days of receipt of the claimant's request for
reconsideration whether such denial of the claim was correct and shall
notify such claimant in writing of its determination. The written notice
of decision shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant,
as well as specific references to the pertinent Plan provisions on which
the decision is based. In the event of special circumstances determined by
the Administrative Committee, the time for the Administrative Committee to
make a decision may be extended by an additional sixty (60) days upon
written notice to the claimant prior to the commencement of the extension.
8.5 EMPLOYER TO SUPPLY INFORMATION. To enable the Administrative Committee
to perform its functions, the Employer shall supply full and timely information
to the Administrative
<PAGE>
Committee of all matters relating to the retirement, death or other cause for
termination of employment of all Participants, and such other pertinent facts as
the Administrative Committee may require.
ARTICLE IX - AMENDMENT AND TERMINATION OF PLAN
9.1 AMENDMENT. The Administrative Committee may at any time amend the Plan
by written instrument, notice of which is given to all Participants and to any
Beneficiaries to whom a benefit is due, subject to the following:
(a) Preservation of Account Balance. No amendment shall reduce the amount
-------------------------------
accrued in any Account to the date such notice of the amendment is given.
(b) Changes in Earnings Rate. No amendment shall reduce the applicable Account
------------------------
Accumulation Rate to be credited after the date of the amendment to the
amount already accrued in any Account and any Deferred Compensation
credited to the Account under Deferral Commitments already in effect on
that date.
9.2 EMPLOYER'S RIGHT TO TERMINATE. The Compensation Committee may at any
time partially or completely terminate the Plan if, in its judgment, the tax,
accounting or other effects of the continuance of the Plan, or potential
payments thereunder would not be in the best interests of Employer.
(a) Partial Termination. The Compensation Committee may partially terminate
-------------------
the Plan by declaring a partial termination, by instructing the
Administrative Committee not to accept any additional Deferral Commitments,
and by terminating all ongoing Deferral Commitments. If such a partial
termination occurs, the Plan shall continue to operate and be effective
with regard to amounts deferred to Accounts prior to the effective date of
such partial termination.
(b) Complete Termination. The Compensation Committee may completely terminate
--------------------
the Plan by declaring a complete termination, by instructing the
Administrative Committee not
<PAGE>
to accept any additional Deferral Commitments, and by terminating all
ongoing Deferral Commitments. If such a complete termination occurs, the
Plan shall cease to operate and Employer shall pay out each Account in a
lump sum. Payments shall be made within sixty (60) days after the
Compensation Committee terminates the Plan and earnings shall continue to
be credited on the unpaid Account balance.
ARTICLE X - MISCELLANEOUS
10.1 UNFUNDED PLAN. This plan is an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301 and 401 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA.
10.2 UNSECURED GENERAL CREDITOR. Participants and Beneficiaries shall be
unsecured general creditors, with no secured or preferential right to any assets
of the Employer or any other party for payment of benefits under this Plan. Any
life insurance policies, annuity contracts or other property purchased by the
Employer in connection with this Plan shall remain its general, unpledged and
unrestricted assets. The Employer's obligation under the Plan shall be an
unfunded and unsecured promise to pay money in the future.
10.3 TRUST FUND. At its discretion, the Employer may establish one (1) or
more trusts, with such trustees as the Compensation Committee may approve, for
the purpose of providing for the payment of benefits owed under the Plan.
Although such a trust may be irrevocable, its assets shall be held for payment
of all the Company's general creditors in the event of insolvency or bankruptcy.
To the extent any benefits provided under the Plan are paid from any such trust,
the Employer shall have no further obligation to pay them. If not paid from a
trust, such benefits shall remain the obligation of the Employer.
10.4 NONASSIGNABILITY. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer,
<PAGE>
hypothecate or convey in advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are,
expressly declared to be unassignable and nontransferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
10.5 NOT A CONTRACT OF EMPLOYMENT. This Plan shall not constitute a
contract of employment between the Employer and the Participant. Nothing in
this Plan shall give a Participant the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discipline or
discharge a Participant at any time.
10.6 PROTECTIVE PROVISIONS. A Participant will cooperate with the Employer
by furnishing any and all information requested by the Employer in order to
facilitate the payment of benefits here under, and by taking such other action
as may be requested by the Employer.
10.7 GOVERNING LAW. The provisions of this Plan shall be construed and
interpreted according to the laws of the State of Idaho, except as preempted by
federal law.
10.8 VALIDITY. In case any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such
illegal and invalid provision had never been inserted herein.
10.9 NOTICE. Any notice required or permitted under the Plan shall be
sufficient if in writing and hand delivered or sent by registered or certified
mail. Such notice shall be deemed as given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification. Mailed notice to the Administrative
Committee shall be directed to the Company's address. Mailed notice to a
Participant or Beneficiary shall be directed to the individual's last known
address in the Employer's records.
10.10 SUCCESSORS. The provisions of this Plan shall bind and
<PAGE>
inure to the benefit of the Employer and its successors and assigns. The term
successors as used herein shall include any corporate or other business entity
which shall, whether by merger, consolidation, purchase or otherwise acquire all
or substantially all of the business and assets of the Employer, and successors
of any such corporation or other business entity.
<PAGE>
EXHIBIT 10.13
DESCRIPTION OF CASH BONUS PLAN
Morrison Knudsen Corporation has an annual cash bonus plan designed to
motivate eligible employees to achieve specific annual growth levels in the
Company's earnings. The Board of Directors of the Company has ultimate
responsibility for administering the bonus plan based upon recommendations from
the Compensation Committee of the Board. Each year, the Company establishes
company-wide performance targets, targets for each of its operating groups and
target bonus amounts for eligible employees at various levels within the
Company. In addition, the Company may establish performance targets for
individual long-term projects, which may be based upon multiple years of work.
After the end of the Company's fiscal year, the Compensation Committee
establishes a bonus pool equal to a predetermined percentage of the Company's
pre-tax profits if the Company's earnings have reached certain levels. For 1997,
the company-wide target was a certain amount of earnings per share ("EPS"). If
the Company's actual EPS fell within a range from 50% of the target to the 100%
of the target, a bonus pool would be created equal to a specified percentage of
the Company's pre-tax profits. If the Company's EPS exceeded 100 percent of the
target, the percentage of the Company's pre-tax profits in the bonus pool would
increase. The allocation of a specific bonus amount to an individual executive
officer or other eligible employee is determined taking into account comparative
bonus data from an annual compensation study, the overall financial performance
of the Company and individual performance factors such as compliance with
Company policies, adherence to professional ethical standards, degree of
responsibility within the Company and level of individual experience. In
addition, the financial performance of the operating group to which an
individual is assigned is taken into account for officers and key employees who
are assigned to operating groups. The Compensation Committee exercises
substantial discretion in allocating specific bonus amounts based upon these
overall individual performance factors.
For 1998, the Compensation Committee has recommended, and the Board has
approved, several changes in the bonus plan. First, the performance factors that
will be measured to determine whether a bonus pool is created and, if so, the
size of the pool will be pre-tax profit ("PTP") and return on invested capital
("ROIC") instead of EPS. Second, a bonus pool will be created only if the
Company's PTP is at least 70% of the target. Third, the size of the bonus pool
will increase if the Company's ROIC exceeds the target and will decrease if the
ROIC is less than the target. Fourth, project bonuses may be paid even if no
company-wide bonus pool is created. Project bonuses will be paid only at project
completion, but will be applied against the bonus pool in the years earned
(accrual type accounting). Finally, the allocation of bonus of amounts to
eligible employees assigned to operating groups will be weighted more heavily
upon group performance (as opposed to overall Company performance) than was done
in the past. In most other material respects, the bonus plan will continue to
operate as it has in the past.
<PAGE>
SCHEDULE TO EXHIBIT 10.19
MORRISON KNUDSEN CORPORATION
SCHEDULE OF INDEMNIFICATION AGREEMENTS
<TABLE>
<CAPTION>
Name Date of Agreement
---- -----------------
<S> <C>
David H. Batchelder September 12, 1996
Douglas L. Brigham September 12, 1996
Anthony S. Cleberg May 5, 1997
Frank S. Finlayson July 29, 1997
Darrol N. Groven September 12, 1996
Stephen G. Hanks September 12, 1996
Alvia L. Henderson September 12, 1996
Leonard R. Judd September 12, 1996
William C. Langley September 12, 1996
James E. McCallum October 1, 1996
Robert S. Miller, Jr. September 12, 1996
Dorn Parkinson September 12, 1996
Terry W. Payne September 12, 1996
John D. Roach September 12, 1996
Charles W. Simpson September 12, 1996
Robert A. Tinstman September 12, 1996
Dennis R. Washington September 12, 1996
Thomas H. Zarges September 12, 1996
</TABLE>
<PAGE>
EXHIBIT 10.22
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 14, 1998, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and ROBERT A. TINSTMAN, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 14, 1998, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean the Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 100,000 shares of its $.01 par value Common Stock upon the terms
and subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$9.3750 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that is
one year from the date the Option was awarded.
3
<PAGE>
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the
date that is two years from the date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the
date that is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the
date that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of
three (3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total
disability (within the meaning of Section 22(e) (3) of the Code) or
by reason of retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1993 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
4
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(d) Full payment to the Company (or other employer corporation) of all amounts
which
5
<PAGE>
under federal, state or local tax law, it is required to withhold upon
exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the Option. Shares of Common Stock so
withheld will be credited against this tax obligation at their Fair Market
Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares
shall be fully paid and non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of
6
<PAGE>
the Option unless and until certificates representing such shares shall have
been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has
7
<PAGE>
previously informed the Company of his status and address by written notice
under this Section 5.4. Any notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained by
the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall
be administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
-----------------------------
Stephen G. Hanks
Executive Vice President
OPTIONEE
/s/ Robert A. Tinstman
-------------------------------
Robert A. Tinstman
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
/s/ Shirley Tinstman
-----------------------------
Shirley Tinstman
Shirley Tinstman
-----------------------------
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.26
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 14, 1998, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and STEPHEN G. HANKS, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 14, 1998, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean the Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 30,000 shares of its $.01 par value Common Stock upon the terms and
subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$9.3750 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is one year from the date the Option was awarded.
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is two years from the
3
<PAGE>
date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of three
(3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total disability
(within the meaning of Section 22(e) (3) of the Code) or by reason of
retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1993 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
ARTICLE IV
EXERCISE OF OPTION
4
<PAGE>
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(d) Full payment to the Company (or other employer corporation) of all amounts
which under federal, state or local tax law, it is required to withhold
upon exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the
5
<PAGE>
Option. Shares of Common Stock so withheld will be credited against this
tax obligation at their Fair Market Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares
shall be fully paid and non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
6
<PAGE>
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
7
<PAGE>
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
/s/ Robert A. Tinstman
By: ____________________________________
Robert A. Tinstman
President and Chief Executive Officer
OPTIONEE
/s/ Stephen G. Hanks
___________________________________________
Stephen G. Hanks
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
/s/ D. Hanks
___________________________________________
D. Hanks
___________________________________________
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.29
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 14, 1998, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and THOMAS H. ZARGES, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 14, 1998, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean the Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 100,000 shares of its $.01 par value Common Stock upon the terms
and subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$9.3750 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is one year from the date the Option was awarded.
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is two years from the
3
<PAGE>
date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of three
(3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total disability
(within the meaning of Section 22(e) (3) of the Code) or by reason of
retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1994 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
ARTICLE IV
EXERCISE OF OPTION
4
<PAGE>
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(d) Full payment to the Company (or other employer corporation) of all amounts
which under federal, state or local tax law, it is required to withhold
upon exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the
5
<PAGE>
Option. Shares of Common Stock so withheld will be credited against this
tax obligation at their Fair Market Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares
shall be fully paid and non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
6
<PAGE>
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
7
<PAGE>
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
/s/ Stephen G. Hanks
By: ____________________________________
Stephen G. Hanks
Executive Vice President
OPTIONEE
/s/ Thomas H. Zarges
___________________________________________
Thomas H. Zarges
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
/s/ Janet C. Zarges
___________________________________________
Janet C. Zarges
___________________________________________
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 21
MORRISON KNUDSEN CORPORATION
(FORMERLY WASHINGTON CONSTRUCTION GROUP, INC.)
SUBSIDIARIES OF THE REGISTRANT
Consolidated subsidiaries of the registrant,
Morrison Knudsen Corporation (Delaware)
STATE OR COUNTRY OF INCORPORATION
---------------------------------
Atascosa Mining Co. Nevada
Blue Diamond Materials, Inc. Nevada
Centennial Engineering, Inc. Colorado
CF Systems Corporation Massachusetts
Conda Mining, Inc. Idaho
Industrial Contractors Corporation Montana
Kasler Corporation California
MK Ferguson of Oak Ridge Company Tennessee
Morrison Knudsen Corporation Ohio
Morrison Knudsen Deutschland GmbH Germany
National Projects, Inc. Nevada
Pomeroy Corporation California
Washington Construction Company Montana
Washington Contractors Group, Inc. Montana
The names of particular subsidiaries have been excluded because when considered
in the aggregate as a single subsidiary, as of November 30, 1997, they would not
constitute a significant subsidiary under Rule 1-02 of Regulation S-X.
<PAGE>
EXHIBIT 23.1
COOPERS COOPERS & LYBRAND L.L.P.
& LYBRAND
a professional service firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the registration statements of
Morrison Knudsen Corporation on Form S-8 (File Nos. 033-81038, 333-32511 and
333-39351) of our report, which includes an explanatory paragraph regarding a
change in method of accounting for impairment of long-lived assets in 1996 and
an emphasis of a matter paragraph regarding an environmental contingency, dated
February 2, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Morrison Knudsen Corporation as of November 30,
1997 and 1996, and for each of the two years in the period ended November 30,
1997, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boise, Idaho
February 4, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
The Board of Directors
Morrison Knudsen Corporation
We consent to incorporation by reference in Morrison Knudsen Corporation's
registration statement (No. 033-81038) on Form S-8 and Amendment No. 1 thereto
relating to the Company Amended and Restated Stock Option Plan, registration
statement (No. 333-32511) on Form S-8 relating to the registrant's 1997 Stock
Option and Incentive Plan for Non-Employee Directors, and registration statement
(No. 333-39351) relating to the registrant's Deferred Compensation Plan, of our
report dated January 12, 1996, relating to the consolidated statements of
operations, stockholders' equity and cash flows of Kasler Holding Company and
subsidiaries for the year ended November 30, 1995, which report appears in the
Morrison Knudsen Corporation's November 30, 1997 annual report on Form 10-K.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
February 4, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15 day of January, 1998.
----
/s/ Dennis R. Washington
______________________________________
Dennis R. Washington, Chairman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15 day of January, 1998.
-----
/s/ David H. Batchelder
______________________________________
David H. Batchelder
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15 day of January, 1998.
----
/s/ Leonard R. Judd
______________________________________
Leonard R. Judd
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 13 day of January, 1998.
----
/s/ William C. Langley
______________________________________
William C. Langley
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15 day of January, 1998.
-----
/s/ Robert S. Miller, Jr.
______________________________________
Robert S. Miller, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15 day of January, 1998.
----
/s/ Dorn Parkinson
______________________________________
Dorn Parkinson
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15 day of January, 1998.
-----
/s/ Terry W. Payne
______________________________________
Terry W. Payne
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1997, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 14 day of January, 1998.
----
/s/ John D. Roach
______________________________________
John D. Roach
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying consolidated financial statements and financial statement footnotes
of Morrison Knudsen Corporation at November 30, 1997 and for the year then
ended, and is qualified in its entirety by reference to such consolidated
financial statements and financial statement footnotes:
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-1-1996
<PERIOD-END> NOV-30-1997
<CASH> 53,215
<SECURITIES> 0
<RECEIVABLES> 187,311
<ALLOWANCES> (4,739)
<INVENTORY> 0
<CURRENT-ASSETS> 405,014
<PP&E> 238,906
<DEPRECIATION> (158,657)
<TOTAL-ASSETS> 770,244
<CURRENT-LIABILITIES> 299,895
<BONDS> 0
18,000
0
<COMMON> 543
<OTHER-SE> 342,588
<TOTAL-LIABILITY-AND-EQUITY> 770,244
<SALES> 22,655
<TOTAL-REVENUES> 1,677,301
<CGS> 22,110
<TOTAL-COSTS> (1,624,474)
<OTHER-EXPENSES> (7,959)
<LOSS-PROVISION> 3,146
<INTEREST-EXPENSE> (890)
<INCOME-PRETAX> 59,896
<INCOME-TAX> (27,865)
<INCOME-CONTINUING> 32,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,031
<EPS-PRIMARY> .59
<EPS-DILUTED> 0
</TABLE>
