<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended
May 28, 1999
Commission File Number 1-12054
<LOGO> MORRISON KNUDSEN CORPORATION
A Delaware Corporation
IRS Employer Identification No. 33-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208 / 386-5000
At May 28, 1999, 52,663,906 shares of the registrant's $.01 par value common
stock were outstanding.
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
<PAGE>
MORRISON KNUDSEN CORPORATION
Quarterly Report Form 10-Q for the
Quarter Ended May 28, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Condensed Consolidated Financial Statements and Notes Thereto
Statements of Income for the Quarter and Six Months Ended
May 28, 1999 and May 31, 1998 I-1
Balance Sheets at May 28, 1999 and November 30, 1998 I-2
Statements of Cash Flows for the Six Months Ended
May 28, 1999 and May 31, 1998 I-4
Notes to Financial Statements I-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations I-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk I-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings II-1
Item 4. Submission of Matters to a Vote of Security Holders II-1
Item 6. Exhibits and Reports on Form 8-K II-2
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
QUARTER AND SIX MONTHS ENDED MAY 28, 1999 AND MAY 31, 1998
(In thousands except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
May 28, May 31, May 28, May 31,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 567,826 $ 436,069 $ 989,136 $ 821,110
Cost of revenue (543,466) (413,948) (943,991) (780,013)
- ----------------------------------------------------------------------------------------------------------------
Gross profit 24,360 22,121 45,145 41,097
General and administrative expenses (6,432) (6,063) (14,406) (11,469)
Goodwill amortization (3,529) (896) (4,295) (1,783)
- ----------------------------------------------------------------------------------------------------------------
Operating income 14,399 15,162 26,444 27,845
Investment income 1,063 1,175 2,155 3,463
Interest expense (2,822) (177) (2,989) (371)
Other income, net 9,583 148 11,810 144
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests
in income of consolidated subsidiaries 22,223 16,308 37,420 31,081
Income tax expense (7,960) (7,224) (14,266) (13,775)
Minority interests in income of consolidated
subsidiaries (472) - (472) -
- ----------------------------------------------------------------------------------------------------------------
Net income $ 13,791 $ 9,084 $ 22,682 $ 17,306
================================================================================================================
Income per share
Basic $.26 $.17 $.43 $.32
Diluted .26 .17 .43 .32
- ----------------------------------------------------------------------------------------------------------------
Common shares used to compute income per share
Basic 53,006,349 54,166,797 53,121,045 54,195,425
Diluted 53,163,273 54,448,303 53,265,410 54,408,912
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MAY 28, 1999 (UNAUDITED) AND NOVEMBER 30, 1998
(In thousands except share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- -------------------------------------------------------------------------------------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 34,806 $ 67,054
Accounts receivable, including retentions of $19,137 and $18,627 181,710 175,513
Unbilled receivables 135,602 74,552
Inventories, net of progress payments 12,093 -
Refundable income taxes 577 780
Investments in and advances to construction joint ventures 88,243 70,855
Deferred income taxes 48,159 26,489
Other 6,409 12,479
- -------------------------------------------------------------------------------------------
Total current assets 507,599 427,722
- -------------------------------------------------------------------------------------------
Investments and other assets
Securities available for sale, at fair value 43,044 45,985
Investments in mining ventures 63,150 67,967
Assets held for sale - 14,169
Cost in excess of net assets acquired, net of accumulated
amortization of $13,605 and $9,330 351,336 112,994
Deferred income taxes 56,027 30,965
Other 17,369 8,077
- -------------------------------------------------------------------------------------------
Total investments and other assets 530,926 280,157
- -------------------------------------------------------------------------------------------
Property and equipment, at cost
Construction equipment 164,743 179,337
Land and improvements 7,983 6,993
Buildings and improvements 14,780 6,341
Equipment and fixtures 78,423 63,534
- -------------------------------------------------------------------------------------------
Total property and equipment 265,929 256,205
Less accumulated depreciation (153,833) (175,933)
- -------------------------------------------------------------------------------------------
Property and equipment, net 112,096 80,272
- -------------------------------------------------------------------------------------------
Total assets $1,150,621 $ 788,151
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
I-2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Current liabilities
Accounts payable $ 76,384 $ 56,388
Subcontracts payable, including retentions of $22,823 and $22,843 53,351 59,857
Billings in excess of cost and estimated earnings on uncompleted contracts 53,128 40,959
Estimated costs to complete long-term contracts 63,494 49,228
Accrued salaries, wages and benefits 77,871 58,939
Income taxes payable 1,656 1,535
Other accrued liabilities 37,069 36,118
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 362,953 303,024
- ------------------------------------------------------------------------------------------------------------
Non-current liabilities
Long-term debt 100,000 -
Postretirement benefit obligation 81,206 53,456
Accrued workers' compensation 28,899 39,625
Pension and deferred compensation liabilities 102,990 16,390
Environmental remediation obligations 7,086 4,753
- ------------------------------------------------------------------------------------------------------------
Total non-current liabilities 320,181 114,224
- ------------------------------------------------------------------------------------------------------------
Contingencies and commitments (Note 5)
- ------------------------------------------------------------------------------------------------------------
Minority interests 85,601 -
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, 10,000,000 shares authorized - -
Common stock, par value $.01, authorized 100,000,000 shares;
issued 54,359,142 and 54,334,898 544 544
Capital in excess of par value 248,610 248,277
Stock purchase warrants 6,554 6,555
Retained earnings 154,093 131,411
Treasury stock, 1,695,236 and 982,488 shares, at cost (19,618) (12,960)
Accumulated other comprehensive income:
Cumulative translation adjustments, net of income tax benefit (8,032) (3,050)
Unrealized net gain on securities available for sale, net of income tax liability 405 796
Minimum pension liability adjustment, net of income tax benefit (670) (670)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 381,886 370,903
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,150,621 $788,151
============================================================================================================
</TABLE>
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<PAGE>
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 28, 1999 AND MAY 31, 1998
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 22,682 $ 17,306
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation of property and equipment 10,534 12,312
Amortization of goodwill 4,295 1,773
Deferred income taxes 3,268 9,474
Minority interest in net income of consolidated subsidiaries 472 -
Equity in net income of mining ventures less dividends received (2,333) (4,453)
Gain on sale of assets (9,176) -
Other investments and assets, net (8,970) (540)
Increase in net operating assets (32,967) (4,422)
- -----------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (12,195) 31,450
- -----------------------------------------------------------------------------------------
Investing activities
Property and equipment acquisitions (18,968) (12,489)
Property and equipment disposals 2,109 4,415
Purchases of securities available for sale (4,776) (10,377)
Sale and maturities of securities available for sale 7,081 5,098
Purchase of businesses, net of cash acquired (123,110) (3,663)
Proceeds from sales of businesses 25,914 2,758
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (111,750) (14,258)
- -----------------------------------------------------------------------------------------
Financing activities
Net proceeds from revolving line of credit 100,000 -
Purchase of treasury stock (6,657) (2,463)
Distributions to minority interests (1,867) -
Redemption of redeemable preferred stock, Series A - (18,000)
Other 221 352
- -----------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 91,697 (20,111)
- -----------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (32,248) (2,919)
Cash and cash equivalents at beginning of period 67,054 53,215
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 34,806 $ 50,296
=========================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 2,846 $ 371
Income tax paid (refunded), net 3,059 (4,035)
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
I-4
<PAGE>
MORRISON KNUDSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except share data)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements and
related notes of Morrison Knudsen Corporation and subsidiaries (the
"Corporation") should be read in conjunction with the audited consolidated
financial statements and related notes included in the Corporation's Annual
Report on Form 10-K for the year ended November 30, 1998. The comparative
consolidated balance sheet and related disclosures at November 30, 1998 have
been derived from the audited balance sheet and financial statement footnotes.
The accompanying condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, that in the opinion of
management are necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the quarter ended May 28, 1999 are not necessarily
indicative of the operating results to be expected for the full year.
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 dates and the reported amounts of revenue and cost during the
reporting periods. Actual results could differ in the near term from those
estimates. Due to uncertainties inherent in the process of estimating actual
amounts of revenue and costs on long-term contracts, results may vary from
estimates in the near term.
2. ADOPTION OF NEW FISCAL YEAR
The Corporation's fiscal year has historically ended on November 30.
Effective December 1, 1998, the Corporation adopted a 52/53 week fiscal year
ending on the Friday closest to November 30. The change in reporting period has
not materially affected comparability between the presented reporting periods.
3. COMPREHENSIVE INCOME
Effective December 1, 1998, the Corporation adopted Statement of
Financial Standards No. 130 Reporting Comprehensive Income which establishes
standards for the reporting and display of comprehensive income. Comprehensive
income for the quarter and six months ended May 28, 1999 and May 31, 1998 was as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Comprehensive income (Unaudited) (Unaudited)
Quarter ended May 28, 1999 May 31, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net income $13,791 $9,084
Other comprehensive income, before tax:
Foreign currency translation adjustments (2,517) (977)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the period (112) 59
Less: Reclassification adjustment for gains included in net income - -
Income tax benefit related to items of other comprehensive income 1,023 357
- ----------------------------------------------------------------------------------------------------
Comprehensive income $12,185 $8,523
====================================================================================================
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Comprehensive income (Unaudited) (Unaudited)
Six months ended May 28, 1999 May 31, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net income $22,682 $17,306
Other comprehensive income, before tax:
Foreign currency translation adjustments (4,982) (2,198)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the period (389) 157
Less: Reclassification adjustment for gains included in net income (2) -
Income tax benefit related to items of other comprehensive income 2,090 794
- ----------------------------------------------------------------------------------------------------
Comprehensive income $19,399 $16,059
====================================================================================================
</TABLE>
4. VENTURES
The Corporation's share of results of operations of construction joint
ventures and mining ventures presented below excludes any allocation of division
or group level indirect overhead cost. Such costs are included in cost of
revenue in the Corporation's consolidated statement of income.
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>
- --------------------------------------------------------------------------------------------------
(Unaudited)
Combined financial position of construction joint ventures May 28, 1999 November 30, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Current assets $ 357,914 $ 407,790
Property and equipment, net 46,443 52,698
Current liabilities (224,292) (269,813)
- --------------------------------------------------------------------------------------------------
Net assets $ 180,065 $ 190,675
==================================================================================================
- --------------------------------------------------------------------------------------------------
Combined results of operations of construction joint ventures (Unaudited) (Unaudited)
Six months ended May 28, 1999 May 31, 1998
- --------------------------------------------------------------------------------------------------
Revenue $ 568,346 $ 591,214
Cost of revenue (525,546) (500,394)
- --------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 42,800 $ 90,820
==================================================================================================
</TABLE>
I-6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Corporation's share of results of operations of
construction joint ventures (Unaudited) (Unaudited)
Six months ended May 28, 1999 May 31, 1998
<S> <C> <C>
- ------------------------------------------------------------------------------
Revenue $ 218,409 $ 209,073
Cost of revenue (202,997) (180,562)
- ------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 15,412 $ 28,511
==============================================================================
</TABLE>
Mining ventures:
At May 28, 1999, the Corporation had ownership interests in two
mining ventures, MIBRAG mbH (33%) and Westmoreland Resources, Inc. (20%). The
Corporation provides contract mining services to these ventures.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(Unaudited)
Combined financial position of mining ventures May 28, 1999 November 30, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Current assets $ 218,168 $ 313,607
Non-current assets 93,526 123,286
Property and equipment, net 615,171 594,916
Current liabilities (64,751) (87,824)
Long-term debt (326,575) (356,767)
Other non-current liabilities (331,549) (369,823)
- ----------------------------------------------------------------------------------------------------
Net assets $ 203,990 $ 217,395
====================================================================================================
- ----------------------------------------------------------------------------------------------------
Combined results of operations of mining ventures (Unaudited) (Unaudited)
Six months ended May 28, 1999 May 31, 1998
- ----------------------------------------------------------------------------------------------------
Revenue $ 179,382 $ 156,088
Cost of revenue (168,725) (139,665)
- ----------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 10,657 $ 16,423
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Corporation's share of results of operations of mining ventures (Unaudited) (Unaudited)
Six months ended May 28, 1999 May 31, 1998
- ----------------------------------------------------------------------------------------------------
Revenue $ 54,885 $ 48,705
Cost of revenue (51,780) (43,615)
- ----------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 3,105 $ 5,090
====================================================================================================
</TABLE>
The Corporation received dividend distributions of $772 and $632 from
mining ventures during the six months ended May 28, 1999 and May 31, 1998,
respectively.
I-7
<PAGE>
5. CONTINGENCIES AND COMMITMENTS
Summitville environmental matters:
From July 1985 to June 1989, Industrial Constructors Corp., a
subsidiary of the Corporation ("ICC"), 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).
In 1996, the United States of America and the State of Colorado
commenced an action under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") against Robert Friedland, one of the PRPs, to
recover the remediation costs incurred and to be incurred at the Site. No other
parties were named as defendants in the original complaint in this action. On
April 30, 1999, Mr. Friedland filed a third-party complaint in this action
naming ICC and nine other PRPs as defendants alleging that such defendants are
jointly and severally liable for such costs and requesting that the same be
equitably allocated.
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
May 28, 1999.
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.
Contract-related matters:
In the fourth quarter of 1997, the Corporation assumed sponsorship of
a large, fixed-price joint-venture contract due to the bankruptcy of the
previous sponsor and recorded a $3,900 pretax loss due to uncertainties on the
project, including unpaid client-directed change orders and potential project
claims. Management believes that acceptable pricing will be achieved by further
negotiation with the client. The ultimate outcome cannot be currently determined
with certainty and may not occur in the near term.
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 May 28, 1999 and November 30, 1998, $40,986 and $37,157, respectively, in
face amount of such letters of credit were outstanding. The Corporation has
pledged securities available for sale as collateral for its reimbursement
obligations with respect to $3,000 in face amount of certain letters of credit
that were outstanding at May 28, 1999.
I-8
<PAGE>
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 has established a sinking fund of $5,354 for the
bonds. No loss on the guarantee is probable and, accordingly, no accrual has
been made by the Corporation.
Other:
In May 1998, Leucadia National Corporation filed an action against the
Corporation and certain officers and directors in The United States District
Court for the District of Utah, Civil Action Number 2:98CV-0327S. The complaint
alleges fraud in the sale of shares of MK Gold Corporation by Old MK to Leucadia
and seeks rescission of the sale and restitution of $22,500. Leucadia contends
that the Corporation knew or believed that a non-competition agreement between
the Corporation and MK Gold was unenforceable and failed to disclose that belief
to Leucadia. The non-competition agreement is the subject of separate litigation
between MK Gold and the Corporation. On January 5, 1999, the two cases were
consolidated for trial. A trial date has not been set.
Certain current and former officers, employees and directors of the
Corporation were named defendants in an action filed in the United States
District Court for the District of Idaho: John B. Blyler and Malcolm J. Corse v.
William J. Agee, et. al., Civil Action No. 97-0332-S-BLW. The complaint
alleges, among other things, that the defendants breached certain fiduciary
duties.
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.
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.
6. ACQUISITION OF GESCO BUSINESSES
On March 22, 1999, the Corporation and British Nuclear Fuels, Ltd.
("BNFL") acquired the Government and Environmental Services Division ("GESCO
Businesses") from CBS Corporation (formerly known as Westinghouse Electric
Corporation) pursuant to an Asset Purchase Agreement dated June 25, 1998 (the
"GESCO Acquisition"). The GESCO Businesses provide a wide range of products,
services and technologies in the government services and nuclear industries
throughout the world.
Concurrent with the GESCO Acquisition, the following two separate
companies were formed to acquire the operations of the GESCO Businesses:
1. Westinghouse Government Services Company, LLC ("WGS"), a limited liability
company that provides defense-related operations and management services
for the U.S. Departments of Energy and Defense, including the production of
tritium for national weapons programs and high-level waste solidification,
and employs over 11,200 employees.
2. Westinghouse Government Environmental Services Company, LLC ("WGES"), a
limited liability company that provides non-defense related governmental
and environmental services, including environmental remediation and waste
management services, and employs approximately 2,500 employees.
The respective rights and obligations of the Corporation and BNFL with
respect to WGS and WGES are set forth in the Amended and Restated Consortium
Agreement (the "Consortium Agreement") dated March 19, 1999 (a copy of which is
filed as Exhibit 10.3 to the Corporation's Quarterly Report on Form 10-Q for its
fiscal quarter ended
I-9
<PAGE>
February 26, 1999), and in certain other documents referred to therein. Pursuant
to the Consortium Agreement and such other documents, 60% of the profits, losses
and cash flows of WGS and WGES are allocated to the Corporation and 40% of the
profits, losses and cash flows are allocated to BNFL. WGS and WGES constitute
the Corporation's Westinghouse Government Services Group.
The estimated aggregate purchase price of the GESCO Businesses was
approximately $212,741 (subject to the resolution of certain adjustments
provided for in the Asset Purchase Agreement) consisting of cash paid to CBS of
$201,060 and acquisition costs of $11,681. The Corporation's share of the
estimated aggregate purchase price was $127,645 and was funded primarily through
borrowings from the Corporation's bank credit facilities. The acquisition of the
GESCO Businesses is being accounted for as a purchase business combination. The
Corporation's results of operations and financial position and cash flows
include the Westinghouse Government Services Group on a consolidated basis and
reflect BNFL's 40% minority interest of the Group and a third party's 35%
minority interest in Safe Sites of Colorado, LLC, a subsidiary of the Group.
The aggregate purchase price has been allocated to the net assets
acquired, with the remainder recorded as excess cost over net assets acquired on
the basis of preliminary estimates of fair values. These estimates of fair
values were determined by the Corporation's management based primarily on
information provided by CBS Corporation and the management of the GESCO
Businesses. The final allocation of the purchase price will be based on a
complete evaluation of the assets and liabilities of the GESCO Businesses.
Finalization of these matters could have a material effect on the purchase price
allocation and, with respect to certain employee benefit obligations, could take
more than a year to compute.
The following unaudited pro forma information presents the consolidated
results of operations of the Corporation as if the GESCO Acquisition had taken
place on December 1, 1997, and after giving effect to certain adjustments,
including amortization of goodwill, depreciation expense, interest expense,
amortization of new credit facility fees and related tax effects. These pro
forma results of operations have been prepared for comparative purposes only and
do not purport to be indicative of operating results that would have resulted
had the GESCO Acquisition occurred on the dates indicated, or of future
operating results.
- -------------------------------------------------------
(Unaudited) (Unaudited)
Six months ended May 28, 1999 May 31, 1998
- -------------------------------------------------------
Revenue $1,112,133 $1,024,756
Net income 28,935 14,341
Basic income per share .54 .26
Diluted income per share .54 .26
- -------------------------------------------------------
7. CREDIT FACILITIES
On March 19, 1999, the Corporation replaced its prior bank credit
facility with new uncollateralized revolving credit facilities providing an
aggregate amount of $250,000 of borrowing capacity available to acquire the
GESCO Businesses, for general corporate purposes, to support working capital
requirements and to support letters of credit and other potential acquisitions.
On April 26, 1999, the new credit facilities were increased to $325,000
consisting of a $195,000 five-year facility which provides for both revolving
borrowings and the issuance of letters of credit, and a $130,000 one-year
facility which provides for revolving borrowings which may be converted, at the
Corporation's option, to a term loan having a maturity of one year after the
then current expiration of such facility. The term of each facility may be
extended annually for an additional year by mutual agreement of the banks and
the Corporation. The facilities' covenants require the maintenance of financial
ratios, and place limitations on guarantees, liens, investments, dividends and
other matters.
The facilities provide for interest on loans, payable quarterly, at the
applicable LIBOR rate or the base rate, as
I-10
<PAGE>
defined, plus an additional margin. The additional margin ranges from 1.25% to
2.00% for the LIBOR rate and 0.25% to 1.00% for the base rate, based on the
ratio of earnings before interest, taxes, depreciation and amortization to the
Corporation's funded debt. The effective interest rate as of May 28, 1999 was
6.43%. On March 19, 1999, the Corporation paid $3,700 in underwriting fees to
the banks and is required to pay annual and quarterly commitment and letter of
credit fees.
8. SALES OF BUSINESSES
During the quarter ended May 28, 1999, the Corporation sold a foreign
non-core subsidiary of Old MK and a domestic concrete and aggregate business and
recognized pretax gains of $2,297 and $6,433, respectively. Proceeds from the
sales of both businesses totaled $25,914.
9. INCOME TAXES
As a result of the GESCO Acquisition and related projections of
additional future annual income, management evaluated the likelihood of the
future realization of the tax benefits of deductible temporary differences and
net operating losses relating to Old MK. During the second quarter of 1999, this
evaluation resulted in a $50,000 increase in deferred tax assets by way of a
reduction in the related valuation allowance, and a $50,000 decrease in recorded
goodwill relating to Old MK. The Corporation realized a reduction in the
effective income tax rate for the second quarter of 1999 which may continue for
the remainder of 1999 as a result of the GESCO Acquisition and the resulting (1)
reduction of non-deductible goodwill amortization expense relating to the
acquisition of Old MK, (2) eligibility of foreign tax credits from prior years
and (3) additional pretax income expected from the GESCO Businesses, resulting
in a lower proportion of non-deductible expenses to pretax income.
10. SUPPLEMENTAL BALANCE SHEET INFORMATION - INVENTORIES
- ------------------------------------------------------
May 28, 1999
- ------------------------------------------------------
Raw materials $ 2,786
Work in process 35,799
Finished goods 3,990
- ------------------------------------------------------
42,575
Progress payments (30,482)
- ------------------------------------------------------
Inventories, net of progress payments $ 12,093
======================================================
I-11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q and other reports and statements filed by
Morrison Knudsen 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 "may," "will," "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan," "could," "should,"
"potential" or "continue" or the negative or other variations thereof, as well
as other statements regarding matters that are not historical fact, are or may
constitute 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.
RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED MAY 28, 1999 COMPARED TO
THE QUARTER AND SIX MONTHS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
May 28, May 31, May 28, May 31,
(In millions) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Revenue $567.8 $436.1 $989.1 $821.1
Gross profit 24.4 22.1 45.1 41.1
General and administrative expenses (6.4) (6.1) (14.4) (11.5)
Goodwill amortization (3.5) (.9) (4.3) (1.8)
Investment income 1.1 1.2 2.2 3.5
Interest expense (2.8) (.2) (3.0) (.4)
Other income 9.6 .1 11.8 .1
Income before income tax and minority interests 22.2 16.3 37.4 31.1
Income tax (8.0) (7.2) (14.3) (13.8)
Minority interests (.5) - (.5) -
Net income 13.8 9.1 22.7 17.3
===============================================================================================
</TABLE>
Revenue and gross profit:
Revenue for the quarter and six months ended May 28, 1999 increased 30%
and 20%, respectively, over the comparable periods of 1998 principally due to
the GESCO Acquisition and the resulting consolidation of the Westinghouse
Government Services Group's results of operations during the quarter. Revenue
and volume of executed work also increased in the Industrial Process and Energy
Divisions of the MK Engineers and Constructors Group and in both the Heavy Civil
and Mining Divisions of the MK Contractors Group.
Gross profit for the quarter and six months ended May 28, 1999
increased $2.2 million and $4.0 million, respectively, over the same periods
reported in 1998. The Corporation's gross profit as a percent of revenue was
4.3% and 4.6% for the quarter and six months ended May 28, 1999 compared to 5.1%
and 5.0% for the comparable periods of 1998.
I-12
<PAGE>
The increase in gross profit was primarily due to the inclusion of the
earnings of the Westinghouse Government Services Group in the Corporation's
consolidated results of operations for the first time this quarter. Gross profit
was impacted by $3.2 million for the recognition of additional cost of revenue
associated with the recognition of a purchase accounting adjustment which
occurred at the acquisition date in connection with the write up of inventories
to fair value in connection with the GESCO Acquisition. Additional cost of
revenue of $1.0 million relating to this adjustment will be recognized in the
third quarter. Gross profit was also affected by $.9 million of costs incurred
on a significant contract proposal. Due to a relatively significant proportion
of performance-based incentive fees in its contracts, earnings expectations of
the Westinghouse Government Services Group are heavily weighted to the fourth
quarter. The Corporation recognizes performance-based incentive fees when
awarded by the client.
Gross profit decreased slightly for the MK Engineers and Constructors
Group due to a lower proportion of earnings from generally more profitable
fixed-price work executed during the first six months of 1999 compared to the
same period in 1998, combined with significant contract proposal costs incurred
of $1.5 million. Gross profit of the MK Contractors Group decreased for the
quarter ended May 28, 1999 from the same period in 1998 principally due to
additional costs incurred in estimating and pursuing design-build projects and a
change in the estimate to complete a large profitable fixed-price project. The
decrease was partially offset by the recognition of a loss in the second quarter
of 1998 related to startup difficulties associated with a fixed-price
construction contract. This Group's gross profit for the six months ended May
28, 1999 was also lower than the comparable period in 1998 due to the milestone
achievement for initial profit recognition on the project under the
Corporation's accounting policies in the first quarter of 1998.
Diversification of the Corporation's business may cause operating
margins to vary between periods because of changes in mix and timing of cost-
plus and fixed-price contracts and the inherent risks and rewards in fixed-price
contracting. Operating margins often differ from expectations, and the
Corporation may experience unexpected gains or losses on contracts. Through
geographic, customer and risk diversification, the Corporation strives to manage
the level of risks associated with its contracts.
At May 28, 1999, backlog of $3,063 million was comprised of $1,404
million (46%) from fee-type contracts and $1,659 million (54%) from fixed-price
contracts and the Corporation's share from mining ventures.
General and administrative expenses:
General and administrative expenses of $14.4 million for the six months
ended May 28, 1999 increased $2.9 million from the comparable period of 1998,
principally due to additional compensation expense of $1.7 million related to a
key executive retirement, a key executive recruitment and increased information
systems ("IS") costs related to implementation of new computer systems.
Goodwill:
Amortization of cost in excess of net assets acquired ("goodwill") for
the quarter and six months ended May 28, 1999 increased $2.6 million and $2.5
million, respectively, from the comparable periods of 1998 due to the
amortization of goodwill related to the GESCO Acquisition (the "GESCO goodwill")
which is being amortized over a period of twenty years. Annual amortization of
the GESCO goodwill is currently estimated at $14.6 million, subject to possible
adjustments to the recorded amount of GESCO goodwill in connection with the
finalization of the allocation of the purchase price to the fair value of the
net assets acquired. As a result of the GESCO Acquisition and related
projections of additional future income, management evaluated the likelihood of
the future realization of the tax benefits of deductible temporary differences
and net operating losses relating to Old MK. During the quarter, this evaluation
resulted in a $50 million increase in deferred tax assets by way of a reduction
in the related valuation allowance, a decrease in recorded goodwill relating to
Old MK and a related $.3 million reduction in goodwill amortization during the
quarter ended May 28, 1999. These reductions will also result in a reduction in
future annual goodwill amortization of $1.3 million.
I-13
<PAGE>
Investment income:
Investment income of $2.2 million for the six months ended May 28, 1999
declined $1.3 million from the comparable period in 1998, principally due to
interest recognized on claims for U.S. federal income tax refunds received in
January of 1998 and a reduction in available corporate cash invested in a short-
term asset management account.
Interest expense:
Interest expense for the quarter and six months ended May 28, 1999
increased $2.6 million over the comparable periods of 1998 due to $1.7 million
of interest incurred and amortization of prepaid bank fees associated with the
Corporation's revolving credit facilities and $1.0 million from the write off of
prepaid fees associated with the Corporation's previous credit facility.
Other income (expense):
Other income of $9.6 million and $11.8 million, respectively, for the
quarter and six months ended May 28, 1999 increased from $.1 million recognized
in the comparable periods in 1998. During the second quarter of 1999, the
Corporation sold a foreign non-core subsidiary of Old MK and a domestic concrete
and aggregate business and recognized respective pre-tax gains of $2.3 million
and $6.4 million. During the first quarter of 1999, the Corporation recognized a
$2.2 million gain resulting from the favorable resolution of certain
contingencies relating to the sale of a former subsidiary of Old MK.
Income tax expense:
The effective tax rate for the quarter and six months ended May 28,
1999 was 35.8% and 38.1%, respectively, compared to 44.3% in the comparable
periods of 1998, principally due to the eligibility of foreign tax credits (as
opposed to deductions) for use against U.S. federal income taxes and a lower
proportion of non-deductible expenses to pretax income. The effective tax rate
is higher than the U.S. federal statutory rate of 35% because of state income
taxes and non-deductible expenses.
The Corporation realized a reduction in the effective income tax rate
for the second quarter of 1999 which may continue for the remainder of 1999 as a
result of the GESCO Acquisition and the resulting (1) reduction of non-
deductible goodwill amortization expense relating to the acquisition of Old MK,
(2) eligibility of foreign tax credits from prior years and (3) additional
pretax income expected from the GESCO Businesses, resulting in a lower
proportion of non-deductible expenses to pretax income. The anticipated
effective tax rate for the remainder of 1999 is subject to, among other things,
the Corporation's ability to meet or exceed estimated pretax earnings levels for
1999.
Minority interests:
Minority interests in the income of consolidated subsidiaries of $.5
million for the quarter and six months ended May 28, 1999 consist of BNFL's 40%
minority interest in the earnings of the GESCO Businesses and a 35% minority
interest in the earnings of Safe Sites of Colorado, LLC, a subsidiary of the
GESCO Businesses. The GESCO Businesses were acquired March 22, 1999.
FINANCIAL CONDITION
The Corporation has three principal sources of near-term liquidity: (1)
existing cash and cash equivalents; (2) cash generated by its operations; and
(3) revolving loan borrowings under its bank credit facilities. 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.
I-14
<PAGE>
- ----------------------------------------------------------------
Liquidity and capital resources (in thousands)
- ----------------------------------------------------------------
May 28, 1999 May 31, 1998
- ----------------------------------------------------------------
Cash and cash equivalents:
Beginning of period $ 67,054 $ 53,215
End of period 34,806 50,296
- ----------------------------------------------------------------
Six months ended
May 28, 1999 May 31, 1998
- ----------------------------------------------------------------
Net cash provided (used) in:
Operating activities $ (12,195) $ 31,450
Investing activities (111,750) (14,258)
Financing activities 91,697 (20,111)
- ----------------------------------------------------------------
Cash and cash equivalents decreased $32.2 million to $34.8 million at
May 28, 1999 from $67.0 million at November 30, 1998. Operating activities used
$12.2 million in cash during the six months ended May 28, 1999 for additional
joint-venture investments, incentive and bonus plan payments and working capital
requirements relating to construction and engineering contracts which the
Corporation expects to recover within the next quarter. Cash provided by
operating activities during the comparable period of 1998 included $25.2 million
of income tax refunds and interest thereon. Cash provided from or used in
operating activities from period to period is affected by the mix, stage of
completion and commercial terms of engineering and construction contracts which
are reflected in changes in net operating assets and liabilities. Cash flow for
the six months ended May 28, 1999 also reflects $123.1 million of cash
consideration paid to CBS Corporation and other acquisition costs paid in
connection with the GESCO Acquisition, net of cash acquired, $16.9 million of
net purchases of property and equipment, $2.3 million of cash received for the
net sales and maturities of securities available for sale and $25.9 million
received from the sales of two businesses. Financing activities included $100.0
million of net borrowings under the Corporation's credit facilities, $6.7
million used for the repurchase of 712,700 shares of the Corporation's common
stock for treasury and $1.9 million of distributions paid on account of minority
interests in the operations of the Westinghouse Government Services Group.
The Corporation received authorization in January 1998 to repurchase,
in open market transaction, block trades or otherwise up to 2 million shares of
the Corporation's outstanding common stock designed 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. Since program inception,
1,685,800 shares of common stock have been repurchased. Subject to market
conditions and other factors, these purchases may be continued, discontinued and
resumed from time to time without prior notice. It is anticipated that future
purchases will be funded from available cash and cash equivalents and operating
cash flows.
The Corporation anticipates net capital expenditures for major
construction equipment of approximately $18 million during the remainder of 1999
for normal replacement and to meet near-term equipment requirements for new
work.
As discussed in Note 7. "Credit Facilities" of Notes to Condensed
Consolidated Financial Statements and as previously disclosed, on March 19,
1999, the Corporation replaced its prior $200 million bank credit facility with
new uncollateralized revolving credit facilities providing an aggregate amount
of $250 million of borrowing capacity used to acquire the GESCO Businesses. On
April 26, 1999, the new credit facilities were increased to $325 million
consisting of a $195 million five-year facility which provides for both
revolving borrowings and the issuance of letters of credit, and a $130 million
one-year facility which provides for revolving borrowings which may be
converted, at the Corporation's option, into a term loan maturing one year after
the then current expiration date of
I-15
<PAGE>
such facility. Depending on conditions in capital markets and other factors, the
Corporation may consider the possible issuance of other long-term debt or other
securities.
The Corporation may, from time to time, 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.
BACKLOG
Backlog of all uncompleted contracts at May 28, 1999 was $3,063 million,
compared with $2,680 million at November 30, 1998. New work awarded in the
quarter and six months ended May 28, 1999 totaled $312 million and $738 million
compared with $439 million and $943 million for the quarter and six months ended
May 31, 1998.
THE YEAR 2000 ISSUE
The Year 2000 issue results from the development of computer programs
and electronic circuitry that use two digits rather than four to define calendar
years. These programs may fail to differentiate between calendar years in the
twenty-first century and calendar years in the twentieth century (e.g., they may
recognize a date using "00" as the year 1900 rather than the year 2000). If not
corrected, the Year 2000 issue could result in complete system failures or
miscalculations causing significant disruption of normal business activities.
The Year 2000 issue affects virtually all companies and organizations, including
the Corporation.
The Corporation employs a number of information technology ("IT")
systems in its operations including, without limitation, computer networking
systems, financial systems and other similar systems. Throughout its operations,
the Corporation also employs numerous non-IT devices such as building security
and safety devices and other devices containing embedded electronic circuits.
Both IT systems and non-IT devices are subject to potential failure or error due
to the Year 2000 issue.
The Corporation has developed and implemented a strategic plan (the
"Year 2000 Project") to achieve Year 2000 readiness. The Year 2000 Project's
activities are intended to remediate the Year 2000 issue in all major categories
of systems and electronic devices in use by the Corporation, including IT
systems, non-IT devices and supply chain relationships so that the Corporation
may continue its operations without interruption or with minimal disruption. It
also includes communication with critical third parties such as clients,
vendors, subcontractors and other business partners to determine the expected
degree of Year 2000 compliance of those parties, and to monitor their progress
towards Year 2000 readiness. The Year 2000 Project includes the following
phases: (1) awareness, (2) inventory, (3) assessment, (4) remediation, (5)
testing/validation and (6) return to production. Progress reports on the Year
2000 Project are presented regularly to the Corporation's senior management and
periodically to the Audit Committee of the Board of Directors.
Because of the scope of its operations, the Corporation believes it is
impractical to seek to eliminate all potential Year 2000 problems before they
arise. As a result, the Corporation expects that its Year 2000 assessments and
corrections will include ongoing remedial efforts into the year 2000. The
Corporation is using a risk-based analysis of its operations to identify those
items that are critical to the Corporation and at risk. Critical items are being
identified through the "inventory" phase of the Year 2000 Project.
The Corporation has substantially completed the "awareness" and
"inventory" phases of the Year 2000 Project. The Corporation is in various
"assessment," "remediation" and "testing/validation" phases with regard to its
IT systems and non-IT devices. As part of the Year 2000 Project regarding IT
systems, the Corporation continues implementing new or upgraded Year 2000
compliant systems for financial information, human resources and payroll. These
systems are expected to be completed in July 1999, with the exception of the
earnings records system, which is scheduled for completion in October 1999.
I-16
<PAGE>
The Corporation is corresponding with its major clients and joint-
venture and other business partners, and with all vendors and subcontractors
that have been determined, through practical risk assessment techniques, to be
critical to the Corporation, in order to determine the Year 2000 readiness or
progress of those entities and to assess any related risk to the Corporation.
As part of the Year 2000 Project, the Corporation is developing
contingency plans to address potential Year 2000 disruptions to the
Corporation's core business processes. Such plans have not yet been fully
developed, and the Corporation will continue to develop them as necessary to
address Year 2000 risks from internal, external and infrastructure sources.
Completion of the Year 2000 Project, including the development of contingency
plans, is expected by September 30, 1999, except for completion of the earnings
records system, which is expected to be completed in October 1999.
The Corporation's Year 2000 Project utilizes both internal and external
resources. The total cost of the Corporation's activities to achieve Year 2000
readiness is currently estimated at approximately $20 million. As of May 28,
1999, the direct costs incurred by the Corporation to remediate Year 2000 issues
were approximately $14.8 million.
The Westinghouse Government Services Group continues implementing its
preacquisition Year 2000 Program, which addresses IT and non-IT systems and
supplier relationships. The program includes the following phases: (1)
inventory, (2) assessment, (3) planning, (4) renovation, (5) validation, (6)
implementation and (7) contingency planning. All mission critical IT and non-IT
systems are expected to be Year 2000 ready by July 1999, with all non-mission
critical systems expected to be completed by October 1999. The total cost for
the Westinghouse Government Services Group to become Year 2000 ready is
currently estimated at approximately $48.1 million, and is substantially funded
by the federal government.
Although the Corporation believes that its Year 2000 readiness efforts
are designed to appropriately identify and address those Year 2000 issues that
are within the Corporation's control, there can be no assurance that the
Corporation's efforts will be fully effective. The newness and complexity of the
issues presented and the Corporation's dependence on the technical skills and
preparedness of third parties are among the factors that could cause the
Corporation's efforts to be less than fully effective. Moreover, Year 2000
issues present many risks that are simply beyond the Corporation's control, such
as the potential effects of Year 2000 issues on the economy in general and on
the Corporation's business partners, vendors, subcontractors and customers in
particular.
While the Corporation believes that the impact of any individual Year
2000 failure will most likely be localized and limited to specific facilities or
operations, the Corporation is not yet able to assess the likelihood of
significant business interruptions occurring in one or more of its operations
around the world. Such interruptions could prevent the Corporation, at least
temporarily, from delivering contractual services. Furthermore, it has been
widely reported that significant litigation is expected to occur related to
business interruptions caused by Year 2000 failures. It is uncertain whether, or
to what extent, the Corporation will be affected by such litigation. The failure
of the Corporation, its clients (including U.S. government agencies), vendors,
joint-venture partners or others upon whom the Corporation relies to achieve
Year 2000 readiness could adversely affect the Corporation's business
operations, which could have a material adverse effect on the Corporation's
business, financial condition and results of operations.
The foregoing disclosure is based upon the Corporation's current
expectations, estimates and projections, which could ultimately be found to be
inaccurate. Because of uncertainties and circumstances beyond the Corporation's
control, the actual effects of Year 2000 issues on the Corporation may be
different than the foregoing assessment. See "Note Regarding Forward-Looking
Information."
I-17
<PAGE>
ENVIRONMENTAL CONTINGENCY
The United States Environmental Protection Agency has notified the
Corporation and approximately 20 other parties that each is a potentially
responsible party with regard to hazardous substances generated or disposed of
at the Summitville Mine Superfund Site. See Note 5. "Contingencies and
Commitments -- Summitville environmental matters" of Notes to Condensed
Consolidated Financial Statements.
I-18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(In thousands)
The Corporation's exposure to market risk for changes in interest rates
relates primarily to the Corporation's short- and long-term investment portfolio
and debt obligations. The Corporation's short-term investment portfolio consists
primarily of highly liquid instruments with maturities of one month or less. The
Corporation's long-term investment portfolio consists primarily of high-quality
debt instruments with maturities under 10 years and an average maturity of 3.5
years. These long-term instruments are held to fund potential workers
compensation obligations of the Corporation. The Corporation seeks to match the
maturities of these instruments as closely as possible with its anticipated
workers compensation obligations and to hold these instruments to maturity in
order to minimize market risk exposure. As of May 28, 1999, the Corporation had
$18,187 of short-term investments classified as cash equivalents and $43,044 in
its long-term investment portfolio.
The Corporation may, from time to time, effect borrowings under its bank
credit facility for general corporate purposes, including working capital
requirements, capital expenditures and acquisitions. Borrowings under the bank
credit facility bear interest at the applicable LIBOR or base rate and,
therefore, the Corporation is subject to fluctuations in interest rates.
I-19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information regarding legal proceedings set forth under the caption "Other"
in Note 5. "Contingencies and Commitments" of Notes to Condensed Consolidated
Financial Statements is incorporated by reference in response to this Item 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the Corporation's stockholders was held on April 9,
1999 at Boise, Idaho.
(b) At the annual meeting, stockholders of record on February 26, 1999 were
entitled to vote 53,121,753 shares of common stock. A total of 51,146,805
shares were represented at the meeting. The results of voting at the
annual meeting are summarized below:
(1) The election of eight directors duly nominated to terms expiring at
the annual meeting of stockholders in 2000:
For Withheld
David H. Batchelder 50,923,053 223,752
Leonard R. Judd 50,924,492 222,313
Robert S. Miller 50,919,178 227,627
Dorn Parkinson 50,912,772 234,033
Terry W. Payne 50,924,073 222,732
John D. Roach 50,925,419 221,386
Dennis R. Washington 50,921,042 225,763
Thomas H. Zarges 50,920,353 226,452
(2) Approval of the Morrison Knudsen Corporation Long-Term Incentive
Compensation Plan:
For 48,216,625
Against 465,526
Abstain 2,464,654
(3) Ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Corporation for the fiscal year ending
November 30, 1999:
For 50,973,417
Against 38,749
Abstain 134,639
II-1
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Filed in Part I
None
Filed in Part II
The Exhibits to this Quarterly Report on Form 10-Q are listed in the
Exhibit Index contained elsewhere in this Quarterly Report.
(b) Reports on Form 8-K
On April 6, 1999, the Corporation filed a current report on Form 8-K to
disclose that on March 22, 1999, the Corporation and British Nuclear
Fuels, Ltd. formed two separate limited liability companies, Westinghouse
Government Services Company LLC, and Westinghouse Government
Environmental Services LLC, which acquired certain governmental and
nuclear services businesses from CBS Corporation (formerly known as
Westinghouse Electric Corporation). It was also disclosed that the
Corporation financed its portion of the purchase price under new credit
facilities consisting of a $150,000,000 five-year facility which provides
for both revolving borrowings and the issuance of letters of credit and a
$100,000,000 one-year facility which provides for revolving borrowings.
The Corporation filed a current report on Form 8-K on April 21, 1999 to
disclose that on April 19,1999, Reed N. Brimhall was named Vice President
and Controller of the Corporation and that Douglas L. Brigham, formerly
Vice President and Controller, was appointed Senior Vice President and
Chief Financial Officer of the MK Engineers and Constructors Group based
in Cleveland, Ohio.
All other items required under Part II are omitted because they are not
applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORRISON KNUDSEN CORPORATION
/s/ Anthony S. Cleberg
-----------------------------------------------------
Executive Vice President and Chief Financial Officer,
in his respective capacities as such
Date: July 9, 1999
II-2
<PAGE>
MORRISON KNUDSEN CORPORATION
EXHIBIT INDEX
Copies of exhibits will be supplied upon request. Exhibits will be provided at
a fee of $.25 per page requested.
Exhibit
Number Exhibits
- ------- --------
10.1* First Amendment dated as of May 5, 1999 to the registrant's Five-
Year Credit Agreement and 364-Day Credit Agreement each dated as of
March 19, 1999, among the registrant, Bank of Montreal and
NationsBanc Montgomery Securities, Inc., Bank of America National
Trust and Savings Association and the Lenders which are or may
become parties thereto.
10.2* Amendment No. 2 to the registrant's Amended and Restated Stock
Option Plan.**
10.3* The registrant's Long-Term Incentive Compensation Plan.**
10.4* The registrant's Nonqualified Stock Option Plan Agreement with
Dennis R. Washington dated as of March 22, 1999.**
10.5* The registrant's Nonqualified Stock Option Plan Agreement with
Dennis R. Washington dated as of April 8, 1999.**
10.6* The registrant's Severance Agreement with Robert A. Tinstman.**
10.7* A description of the amendment to the registrant's employment
agreements with Stephen G. Hanks and Thomas H. Zarges.**
27.* Financial Data Schedule.
- ------------------------
* Filed herewith.
** Management contract or compensatory plan or arrangement which is
separately identified.
E-1
<PAGE>
EXHIBIT 10.1
MORRISON KNUDSEN CORPORATION
FIRST AMENDMENT TO CREDIT AGREEMENTS
This First Amendment to Credit Agreements (herein, the "Amendment") is
entered into as of May 5, 1999, among Morrison Knudsen Corporation, a Delaware
corporation, the Guarantors party hereto, the Lenders party hereto, and Bank of
Montreal, as Administrative Agent for the Lenders, Bank of America National
Trust and Savings Association, as Documentation Agent and Bank of Montreal and
NationsBank Montgomery Securities LLC (to become known as Banc of America
Securities LLC), as Lead Arrangers, Book Managers and Syndication Agents. All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the hereinafter defined Credit Agreements.
PRELIMINARY STATEMENTS
A. The Company, the Guarantors, the Lenders, the Administrative Agent,
the Documentation Agent and the Lead Arrangers, Book Managers and Syndication
Agents entered into a certain Five-Year Credit Agreement dated as of March 19,
1999 (herein, the "Five-Year Credit Agreement") and a certain 364-Day Credit
Agreement dated as of March 19, 1999 (the "364-Day Credit Agreement" and
together with the Five-Year Credit Agreement, the "Credit Agreements").
B. The Company has requested that the aggregate amount of credit made
available under the Credit Agreements be increased to $325,000,000, that certain
parties be added as Lenders, that certain Lenders be designated as Co-Agents
pursuant to Section 10 of each Credit Agreement, and that certain other
amendments be made to the Credit Agreements, and the Lenders are willing to do
so under the terms and conditions set forth in the Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. ADDITION OF NEW LENDERS.
On May 21, 1999, subject to the satisfaction of the conditions
precedent set forth in Section 3 below, the Credit Agreements shall be and
hereby are amended to add certain parties as Lenders thereunder as follows:
1.1. Those certain new lenders which have executed this
Amendment (collectively, the "New Lenders" and each individually, a
"New Lender") shall each be deemed a Lender signatory to each Credit
Agreement and shall have all the rights, benefits, duties and
obligations of a Lender under each Credit Agreement and the Loan
Documents. Accordingly, all references in each Credit Agreement and the
Loan Documents to the terms "Lender" and "Lenders" shall be deemed to
include, and be a reference to, the New Lenders. Any New Lender
designated as a Co-Agent on its
<PAGE>
signature page hereto shall be deemed a "Co-Agent" appointed pursuant
to the terms of Section 10.7 of the Five-Year Credit Agreement and
Section 10.6 of the 364-Day Credit Agreement, it being understood that
such designation shall have no substantive effect and such Lender shall
have no additional powers, duties or responsibilities as a result
thereof other than its powers, duties and responsibilities as a Lender
under each Credit Agreement. Each New Lender agrees that it will
perform all of the duties and obligations which by the terms of each
Credit Agreement and the Loan Documents are required to be performed by
it as a Lender with a Commitment under each Credit Agreement as set
forth in Exhibits A-1 and A-2 attached hereto.
1.2 The address and lending office that appears on each New
Lender's signature page hereto shall be deemed to appear on such New
Lender's signature page to each Credit Agreement.
SECTION 2. AMENDMENTS.
On May 21, 1999, subject to the satisfaction of the conditions
precedent set forth in Section 3 below, the Credit Agreements shall be and
hereby are amended as follows:
2.1 The definition of "Commitments" in Section 1.1 of the
Five-Year Credit Agreement shall be amended and restated in its
entirety to read as follows:
"Commitments" means $195,000,000, as such amount may be
reduced from time to time pursuant hereto. The Commitment of
each Lender shall be the amount specified therefor on Exhibit
A attached hereto and made part hereof (as the same shall be
deemed amended after giving effect to the Assignment
Agreements referred to in Section 12.12 hereof), as reduced
from time to time pursuant hereto.
2.2 The definition of "Commitments" in Section 1.1 of the
364-Day Credit Agreement shall be amended and restated in its entirety
to read as follows:
"Commitments" means $130,000,000, as such amount may be
reduced from time to time pursuant hereto. The Commitment of
each Lender shall be the amount specified therefor on Exhibit
A attached hereto and made part hereof (as the same shall be
deemed amended after giving effect to the Assignment
Agreements referred to in Section 12.12 hereof), as reduced
from time to time pursuant hereto.
2.3 A definition of "Total Consideration" shall be added to
Section 1.1 of both Credit Agreements to read as follows:
"Total Consideration" means the total amount (but without
duplication) of (a) cash paid in connection with any
Acquisition,
-2-
<PAGE>
plus (b) indebtedness payable to the seller in connection
with such Acquisition, plus (c) the fair market value of any
equity securities, including any warrants or options
therefor, delivered in connection with any Acquisition, plus
(d) the amount of indebtedness assumed in connection with
such Acquisition.
2.4 Section 4.11 of the Five-Year Credit Agreement and
Section 4.10 of the 364-Day Credit Agreement shall be deleted in their
entirety and each shall be replaced with the following: "Intentionally
omitted"; and the parenthetical in clause (ii) of Section 12.13 of each
Credit Agreement referencing such Section shall be deleted in its
entirety.
2.5 The definition of "Agreement" in the 364-Day Credit
Agreement shall be amended by (i) deleting the word "Five-Year" and
(ii) inserting in lieu thereof the word "364-Day".
2.6 The definition of "Base Rate" in Section 1.1 of both
Credit Agreements shall be amended by (i) deleting the words "publicly
announced" from the first and second lines thereof and (ii) inserting
in lieu thereof the word "established".
2.7 Section 2.2 of each Credit Agreement shall be amended by
(i) inserting "in U.S. Dollars" after the phrase "form of loans" in the
first sentence thereof, and (ii) adding at the end thereof the
following:
"In the event that any Note held by any Lender is lost,
stolen, destroyed or mutilated, the Company hereby agrees to
execute and deliver a new Note payable to such Lender as a
replacement therefor in the same principal amount and
otherwise of like tenor upon receipt by the Company of (i) in
the case of any loss, theft, or destruction, an affidavit
executed by such Lender stating under oath that such Note has
been lost, stolen, or destroyed, as the case may be, and an
indemnity indemnifying the Company and the Administrative
Agent for any losses as a result thereof (in form and
substance satisfactory to the Company and the Administrative
Agent), or (ii) such mutilated Note."
2.8 Section 2.3(a) of the Five-Year Credit Agreement shall be
amended by (i) adding "in U.S. Dollars or any Available Foreign
Currency" after the phrase "Affiliates of the Company" in the first
sentence thereof, (ii) deleting the proviso in the first sentence
thereof and inserting in lieu thereof the following: "provided that the
U.S. Dollar Equivalent of all Letters of Credit issued in any Available
Foreign Currency, when taken together with the amount of all
outstanding Loans and U.S. Dollar-denominated Letters of Credit, shall
not exceed the Commitments then in effect" and (iii) adding a new
sentence at the end thereof to read as follows:
-3-
<PAGE>
"In the event that collections are received by the Issuing
Bank in connection with any such Letter of Credit, such
collections shall be applied ratably between the Issuing Bank
in its individual capacity and the Lenders hereunder based
upon the percentages established under clause (ii) above."
2.9 Section 2.3(d) of the Five-Year Credit Agreement shall be
amended by deleting clause (ii) from the last sentence thereof, and
inserting in lieu thereof the following: "(ii) the date which is 30
days prior to the date it notifies the Company of the imposition giving
rise to the request for compensation if the Company is notified of such
imposition within 30 days of the effective date of such imposition."
2.10 Section 3.9 of both Credit Agreements shall be amended by
deleting clause (ii) from the last sentence thereof, and inserting in
lieu thereof the following: "(ii) the date which is 30 days prior to
the date it notifies the Company of the adoption or change giving rise
to the request for compensation if the Company is notified of such
adoption or change within 30 days of the effective date of such
adoption or change."
2.11 Section 4.9 of the Five-Year Credit Agreement and Section
4.8 of the 364-Day Credit Agreement shall be amended by deleting clause
(ii) from the penultimate sentence thereof, and inserting in lieu
thereof the following: "(ii) the date which 30 days prior to the date
such Lender notifies the Company of the Change giving rise to the
request for compensation if the Company is notified of such Change
within 30 days of the effective date of such Change."
2.12 Sections 8.9(a)(i) and 8.9(b)(i) of the Five-Year Credit
Agreement shall be amended and restated in their entirety as follows:
"any and all indebtedness owing to (A) the Issuing Banks and
the Lenders under the Loan Documents and (B) the Lenders
under the Loan Documents (as such terms are defined in the
364-Day Credit Agreement);".
2.13 Sections 8.9(a)(i) and 8.9(b)(i) of the 364-Day Credit
Agreement shall be amended and restated in their entirety to read as
follows:
"any and all indebtedness owing to (A) the Lenders under the
Loan Documents and (B) the Lenders and Issuing Banks under
the Loan Documents (as such terms are defined in the Five-
Year Credit Agreement);".
2.14 Section 8.10(f)(ii) of each Credit Agreement shall be
amended by deleting the word "or" appearing between clauses (i) and
(ii) thereof and inserting the word "and" in lieu thereof.
-4-
<PAGE>
2.15 Section 8.10(m) of each Credit Agreement shall be amended
by adding at the end thereof the following parenthetical phrase:
"(investments permitted under clause (m)(i) above shall be included in
computing compliance with this clause (m)(ii))".
2.16 Sections 9.1(j) and (k) of both Credit Agreements shall
be amended by adding ", any Guarantor" after the words "the Company" in
the first line of each subsection and in the fourth and seventh lines
of subsection (j).
2.17 Section 12.10 of each Credit Agreement shall be amended
by inserting at the end of the parenthetical phrase appearing in the
second sentence thereof the following: "and including all reasonable
costs and expenses arising out of or incurred in connection with any
bankruptcy or insolvency proceeding of the Company or any of its
Subsidiaries".
2.18 Section 12.12(a) of the Five-Year Credit Agreement shall
be amended by adding at the end of clause (iii) thereof the following:
"provided, however, that if any assigning Lender makes a simultaneous
assignment under the 364-Day Credit Agreement to the same assignee,
then such assigning Lender must pay an aggregate fee of $3,500 under
this Agreement and the 364-Day Credit Agreement."
2.19 Section 12.12(a) of the 364-Day Credit Agreement shall be
amended by adding at the end of clause (iii) thereof the following:
"provided, however, that if any assigning Lender makes a simultaneous
assignment under the Five-Year Credit Agreement to the same assignee,
then such assigning Lender must pay an aggregate fee of $3,500 under
this Agreement and the Five-Year Credit Agreement."
2.20 Exhibit A to the Five-Year Credit Agreement shall be
deleted and a new Exhibit A shall be inserted in the form of Exhibit
A-1 attached hereto.
2.21 Exhibit A to the 364-Day Credit Agreement shall be
deleted and a new Exhibit A shall be inserted in the form of Exhibit
A-2 attached hereto.
2.22 Section 6 of Exhibit D to both Credit Agreements shall be
amended by adding at the end thereof the following:
"; provided that the Assignor shall retain the benefit of all
indemnities of the Company under the terms of, and subject to
the limitations set forth in, the Loan Documents with respect
to matters arising prior to the Effective Date."
-5-
<PAGE>
SECTION 3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
3.1. The Company, the Guarantors, the Administrative Agent,
the Documentation Agent, the Lead Arrangers, Book Managers and
Syndication Agents and each of the Lenders shall have executed and
delivered this Amendment.
3.2. The Administrative Agent shall have received for each of
the Lenders replacement Notes evidencing the Loans made or to be made
by such Lenders in the amounts set forth on Exhibits A-1 and A-2
attached hereto.
3.3. The Administrative Agent shall have received for each
Lender the favorable written opinion of counsel to the Company and its
Guarantors, in form and substance reasonably satisfactory to the
Administrative Agent and Documentation Agent and their counsel.
3.4. Legal matters incident to the execution and delivery of
this Amendment shall be satisfactory to the Administrative Agent and
Documentation Agent and their counsel.
SECTION 4. EQUALIZATION OF OUTSTANDING LOANS.
On May 21, 1999, the Borrower shall be deemed to have irrevocably
requested a Borrowing of Loans under each Credit Agreement from the Lenders in
an amount equal to the Loans then outstanding under such Credit Agreements, and
each Lender hereby irrevocably agrees to fund to the Administrative Agent its
ratable share of the outstanding Loans on such date, whether or not the
conditions of Section 7 of the relevant Credit Agreement have been satisfied. If
notwithstanding the foregoing any Lender is unable to make its Loans to the
Borrower on May 21, 1999, such Lender hereby irrevocably agrees that it shall,
by the time and in the manner such Loan was to have been funded to the
Administrative Agent, purchase ratably from Bank of Montreal and Bank of America
National Trust and Savings Association an undivided participating interest in
its ratable share of the outstanding Loans. Each Lender that so purchases a
participation in the Loans shall thereafter be entitled to receive its ratable
share of each payment of principal received on such Loans and of interest
received thereon accruing from the date such Lender funded to the Administrative
Agent its participation in such Loans. The obligation of the Lenders to Bank of
Montreal and Bank of America National Trust and Savings Association shall be
absolute and unconditional and shall not be affected or impaired by any Default
or Event of Default which may be occurring under any Credit Agreement. For the
purposes of this paragraph, a Lender's "ratable share" shall be based upon the
Commitment amounts under the relevant Credit Agreements as set forth on Exhibits
A-1 and A-2 hereto.
-6-
<PAGE>
SECTION 5. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Company hereby represents to the Lenders and the Administrative Agent,
Documentation Agent, Lead Arrangers, Book Managers, and Syndication Agents that
as of the date hereof the representations and warranties set forth in Section 6
of each 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 Lenders)
and the Company and its Subsidiaries are in compliance with the terms and
conditions of the Credit Agreements and the other Loan Documents and no Default
or Event of Default has occurred and is continuing or shall result after giving
effect to this Amendment.
SECTION 6. MISCELLANEOUS.
6.1 Except as specifically amended herein, each 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 any 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 any Credit Agreement, any reference in any of such items to a
Credit Agreement being sufficient to refer to such Credit Agreement as amended
hereby.
6.2 By signing below, each Lender hereby (i) confirms that it has
received a copy of each Credit Agreement, together with copies of the most
recent financial statements delivered to the Lenders pursuant to the terms
thereof and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Amendment; (ii)
agrees that it will, independently and without reliance upon the Administrative
Agent Documentation Agent, Lead Arrangers, Book Managers or Syndication Agents
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under each Credit Agreement; (iii) appoints and authorizes the
Administrative Agent to take such action as Administrative Agent on its behalf
and to exercise such powers under each Credit Agreement and the other Loan
Documents as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; and (iv) agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of the Credit Agreement and the other Loan Documents are required
to be performed by it as a Lender.
6.3 The Company agrees to pay on demand all costs and expenses of or
incurred by the Administrative Agent in connection with the negotiation,
preparation, execution, and delivery of this Amendment and the other instruments
and documents to be executed and delivered in connection herewith, including the
fees and expenses of counsel for the Administrative Agent.
-7-
<PAGE>
6.4 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.
[SIGNATURE PAGES TO FOLLOW]
-8-
<PAGE>
This First Amendment to Credit Agreement is dated as of the date and
year first above written.
"COMPANY"
MORRISON KNUDSEN CORPORATION, a
Delaware corporation
By /s/
-------------------------------
Name
---------------------------
Title
--------------------------
"GUARANTORS"
MORRISON KNUDSEN CORPORATION, an
Ohio corporation
By /s/
-------------------------------
Name
---------------------------
Title
--------------------------
WASHINGTON CONTRACTORS GROUP, INC.,
a Montana corporation
By /s/
-------------------------------
Name
---------------------------
Title
--------------------------
Accepted and agreed to as of the day and year first above written.
BANK OF MONTREAL, individually as a
Lender and as Administrative
Agent and as a Lead Arranger,
Book Manager and Syndication
Agent
By /s/
-------------------------------
Name
---------------------------
Title
--------------------------
S-1
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, individually
as a Lender and as Documentation
Agent
By /s/
---------------------------------
Robert W. Troutman
Managing Director
S-2
<PAGE>
NATIONSBANC MONTGOMERY SECURITIES
LLC (to become known AS BANC OF
AMERICA SECURITIES LLC), as a Lead
Arranger, Book Manager and
Syndication Agent
By /s/
---------------------------------
William M. Lau
Managing Director
S-3
<PAGE>
ARAB BANKING CORPORATION (B.S.C.)
By /s/
---------------------------------
Name
-----------------------------
Title
----------------------------
Mailing Address:
Arab Banking Corp.
555 South Flower Street, 46th Floor
Los Angeles, California 90017
Attention: Richard Whelan
Telephone: (213) 689-0121
Telecopy: (213) 689-1048
Lending Office:
Arab Banking Corp. (Grand Cayman)
277 Park Avenue, 32nd Floor
New York, New York
Attention: R. Hassan
Telephone: (212) 583-4770
Telecopy: (212) 583-0932
S-4
<PAGE>
BANKBOSTON N.A.
By /s/
-------------------------------
Victor Garcia
Director
Mailing Address:
BankBoston N.A.
100 Federal Street, 01-08-01
Boston, Massachusetts 02110
Attention: Victor Garcia
Telephone: (617) 434-3066
Telecopy: (617) 434-1955
Lending Office:
BankBoston N.A.
100 Federal Street, 01-08-01
Boston, Massachusetts 02110
Attention: John Olsen
Telephone: (617) 434-3947
Telecopy: (617) 434-9820
S-5
<PAGE>
BANQUE NATIONALE DE PARIS,
individually as a Lender and as
Co-Agent
By /s/
---------------------------
Name
----------------------
Title
----------------------
By /s/
---------------------------
Name
-----------------------
Title
----------------------
Mailing Address:
Banque Nationale de Paris
180 Montgomery Street, 3rd Floor
San Francisco, California 94104
Attention: Katherine Wolfe
Telephone: (415) 772-1330
Telecopy: (415) 296-8954
Lending Office:
Banque Nationale de Paris
180 Montgomery Street, 2nd Floor
San Francisco, California 94104
Attention: Donald A. Hart
Telephone: (415) 772-1370
Telecopy: (415) 989-9041
S-6
<PAGE>
COMERICA WEST INCORPORATED
By /s/
---------------------------
Eoin P. Collins
Account Officer
Mailing Address:
Comerica West Incorporated
3980 Howard Hughes Pkwy, Suite 350
Las Vegas, Nevada 89109
Attention: Eoin P. Collins
Telephone: (702) 791-4802
Telecopy: (702) 791-2371
Lending Office:
Comerica West Incorporated
3980 Howard Hughes Pkwy, Suite 350
Las Vegas, Nevada 89109
Attention: Regina C. McGuire
Telephone: (702) 791-4804
Telecopy: (702) 791-2371
S-7
<PAGE>
CREDIT AGRICOLE INDOSUEZ,
individually as a Lender and as
Co-Agent
By /s/
---------------------------
Name
-----------------------
Title
----------------------
Mailing Address:
Credit Agricole Indosuez
101 California Street #4390
San Francisco, California 94111
Attention: Karen Kokamc
Telephone: (415) 773-1281
Telecopy: (415) 986-4116
Lending Office:
Credit Agricole Indosuez
55 East Monroe
Chicago, Illinois 60603
Attention: Rebecca Hamburger
Telephone: (312) 917-7512
Telecopy: (312) 372-4421
S-8
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
individually as a Lender and as
Co-Agent
By /s/
---------------------------
Name
-----------------------
Title
----------------------
Mailing Address:
The First National Bank of Chicago
777 S. Figueroa, 4th Floor
Los Angeles, California 90017
Attention: Victoria Regan
Telephone: (213) 683-4926
Telecopy: (213) 683-4999
Lending Office:
The First National Bank of Chicago
One First National Plaza, 10th Floor
Chicago, Illinois 60670
Attention: LaTanya Driver
Telephone: (312) 732-1395
Telecopy: (312) 732-4840
S-9
<PAGE>
FIRST SECURITY BANK, N.A.,
individually as a Lender and as
Co-Agent
By /s/
---------------------------
Vicki V. Riga
Vice President
Mailing Address:
First Security Bank, N.A.
119 North 9th Street
Boise, Idaho 83702
Attention: Vicki V. Riga
Telephone: (208) 393-2163
Telecopy: (208) 393-2472
Lending Office:
First Security Bank, N.A.
119 North 9th Street
Boise, Idaho 83702
Attention: Arlene Solomon
Telephone: (208) 393-2102
Telecopy: (208) 393-2472
S-10
<PAGE>
FLEET NATIONAL BANK
By /s/
---------------------------
Name
Title
Mailing Address:
Fleet National Bank
1 Federal Street
Boston, Massachusetts 02110
Attention: Jeffrey C. Lynch
Telephone: (617) 346-5061
Telecopy: (617) 346-0145
Lending Office:
Fleet National Bank
1 Federal Street
Boston, Massachusetts 02110
Attention: Michael P. McCarron
Telephone: (617) 346-5635
Telecopy: (617) 346-0595
S-11
<PAGE>
THE FUJI BANK, LIMITED
By /s/
-----------------------------
Name
-------------------------
Title
------------------------
Mailing Address:
The Fuji Bank, Limited
333 South Hope Street, 39th Floor
Los Angeles, California 90071
Attention: Richard G. Bushman
Telephone: (213) 253-4182
Telecopy: (213) 253-4178
Lending Office:
The Fuji Bank, Limited
333 South Hope Street, 39th Floor
Los Angeles, California 90071
Attention: Jessie Chan
Telephone: (213) 253-4133
Telecopy: (213) 253-4178
S-12
<PAGE>
KBC BANK N.V.
By /s/
-----------------------------
Name
-------------------------
Title
------------------------
By /s/
-----------------------------
Name
-------------------------
Title
------------------------
Mailing Address:
KBC Bank N.V., Los Angeles
Representative Office
515 S. Figueroa Street, Suite 1920
Los Angeles, California 90071
Attention: Edward Eijlers
Telephone: (213) 996-7531
Telecopy: (213) 629-5801
Lending Office:
KBC Bank N.V.
125 West 55th Street, 10th Floor
New York, New York 10019
Attention: Claire Kowalski
Telephone: (212) 541-0678
Telecopy: (212) 956-5580
S-13
<PAGE>
NATEXIS BANQUE - BFCE
By /s/
-----------------------------
Name
-------------------------
Title
------------------------
Mailing Address:
Natexis Banque-BFCE
Los Angeles Representative Office
660 S. Figueroa, Suite 1400
Los Angeles, California 90017
Attention: Iain Whyte
Telephone: (213) 627-8677
Telecopy: (213) 627-2761
Lending Office:
NATEXIS Banque-BFCE
645 Fifth Avenue
New York, New York 10022
Attention:
---------------------
Telephone:
---------------------
Telecopy:
----------------------
S-14
<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/
-----------------------------
Name
-------------------------
Title
------------------------
Mailing Address:
The Sumitomo Bank, Limited
Seattle Representative Office
1201 Third Avenue, Suite 5320
Seattle, Washington 98101
Attention: Bob Granfelt
Telephone: (206) 625-1010
Telecopy: (206) 623-8551
Lending Office:
The Sumitomo Bank, Limited
277 Park Avenue
New York, New York 10172
Attention: Matthew Sullivan
Telephone: (212) 224-4120
Telecopy: (212) 224-5197
S-15
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
individually as a Lender and as
Co-Agent
By /s/
-----------------------------
Name
-------------------------
Title
------------------------
Mailing Address:
Union Bank of California, N.A.
445 South Figueroa Street, 18th
Floor
Los Angeles, California 90071
Attention: Scott Jessup
Telephone: (213) 236-4023
Telecopy: (213) 236-7814
Lending Office:
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, California 91755
Attention: Gohar Karapetyan
Telephone: (323) 720-2676
Telecopy: (323) 724-6198
S-16
<PAGE>
U.S. BANK NATIONAL ASSOCIATION,
individually as a Lender and as
Co-Agent
By /s/
------------------------------
James W. Henken
Vice President
Mailing Address:
U.S. Bank National Association
101 S. Capital, Suite 807
Boise, Idaho 83733
Attention: James W. Henken
Telephone: (208) 383-7823
Telecopy: (208) 383-7563
Lending Office:
U.S. Bank National Association
101 S. Capital, Suite 807
Boise, Idaho 83733
Attention: Kathy O'Grady
Telephone: (503) 275-6715
Telecopy: (503) 275-4600
S-17
<PAGE>
EXHIBIT A-1
FIVE-YEAR CREDIT AGREEMENT
AGGREGATE COMMITMENTS
NAME OF LENDER COMMITMENT
Bank of Montreal $ 24,000,000
Bank of America National Trust and Savings Association $ 24,000,000
Arab Banking Corporation (B.S.C.) $ 9,000,000
BankBoston N.A $ 9,000,000
Banque Nationale de Paris $ 13,200,000
Comerica West Incorporated $ 6,000,000
Credit Agricole Indosuez $ 13,200,000
The First National Bank of Chicago $ 13,200,000
First Security Bank, N.A $ 13,200,000
Fleet National Bank $ 10,800,000
The Fuji Bank, Limited $ 9,000,000
KBC Bank N.V $ 9,000,000
NATEXIS Banque - BFCE $ 6,000,000
The Sumitomo Bank, Limited $ 9,000,000
Union Bank of California, N.A $ 13,200,000
U.S. Bank National Association $ 13,200,000
TOTAL $195,000,000
<PAGE>
EXHIBIT A-2
364-DAY CREDIT AGREEMENT
AGGREGATE COMMITMENTS
NAME OF LENDER COMMITMENT
Bank of Montreal $ 16,000,000
Bank of America National Trust and Savings Association $ 16,000,000
Arab Banking Corporation (B.S.C.) $ 6,000,000
BankBoston N.A $ 6,000,000
Banque Nationale de Paris $ 8,800,000
Comerica West Incorporated $ 4,000,000
Credit Agricole Indosuez $ 8,800,000
The First National Bank of Chicago $ 8,800,000
First Security Bank, N.A $ 8,800,000
Fleet National Bank $ 7,200,000
The Fuji Bank, Limited $ 6,000,000
KBC Bank N.V $ 6,000,000
NATEXIS Banque - BFCE $ 4,000,000
The Sumitomo Bank, Limited $ 6,000,000
Union Bank of California, N.A $ 8,800,000
U.S. Bank National Association $ 8,800,000
TOTAL $130,000,000
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 2 TO THE
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
WHEREAS, the Board of Directors of Morrison Knudsen Corporation (the
"Company") has heretofore established the Morrison Knudsen Corporation Amended
and Restated Stock Option Plan (the "Plan"), for the benefit of its eligible
employees and directors; and
WHEREAS, the Board of Directors of the Company has the authority under
Section 9.2 of the Plan to amend the Plan.
WHEREAS, the Board of Directors desires to amend the Plan to give the Board
of Directors discretion to extend the period of time for an Optionee to exercise
a Non-Qualified Stock Option following the Optionee's termination of employment
or termination of directorship with the Company;
NOW, THEREFORE, the Plan shall be amended as follows:
1.
A new paragraph (c) is hereby added to Section 4.5 of the Plan to read as
follows:
(c) Notwithstanding the above, the Board may, in its sole discretion,
extend the period for exercising a Non-Qualified Stock Option
following an Optionee's Termination of Employment or Termination of
Directorship to a date not later than the earlier of (i) twelve (12)
months from the date of the Optionee's Termination of Employment or
Termination of Directorship and (ii) the Option's Expiration Date.
2.
Except as amended herein, the Plan shall continue in full force and effect.
IN WITNESS, WHEREOF, the Board of Directors has caused this Amendment to be
executed by an officer of the Company duly authorized on this 8th day of April,
1999.
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks .
-----------------------------
Stephen G. Hanks
Executive Vice President
1
<PAGE>
EXHIBIT 10.3
MORRISON KNUDSEN CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
Effective January 20, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I - PURPOSE.........................................................1
ARTICLE II - DEFINITIONS....................................................1
ARTICLE III - ELIGIBILITY TO PARTICIPATE....................................2
ARTICLE IV - AMOUNT OF AWARD ...............................................2
4.01 Service for Entire Performance Period.....................2
4.02 Service for Less Than Entire Performance Period...........3
4.03 Maximum Award.............................................3
ARTICLE V - PAYMENT OF AWARDS...............................................3
5.01 Timing of Payment.........................................3
5.02 Form of Payment...........................................3
ARTICLE VI - CONDITIONS UPON RECEIVING AN AWARD.............................3
6.01 Continued Employment......................................3
6.02 Termination of Employment.................................3
6.03 Discharge for Cause.......................................3
ARTICLE VII - PLAN ADMINISTRATION...........................................3
7.01 Administration............................................3
7.02 Designation of Beneficiaries..............................4
7.03 Amendment of Plan.........................................4
7.04 Termination of Plan.......................................4
ARTICLE VIII - MISCELLANEOUS PROVISIONS.....................................5
8.01 Unsecured Status of Award.................................5
8.02 Employment Not Guaranteed.................................5
8.03 Right of Offset...........................................5
8.04 Nonassignability..........................................5
8.05 Validity..................................................5
8.06 Applicable Law............................................5
8.07 Inurement of Rights and Obligations.......................5
8.08 Board and Stockholder Approval............................5
-i-
<PAGE>
ARTICLE I - PURPOSE
The purpose of the MORRISON KNUDSEN CORPORATION LONG-TERM INCENTIVE COMPENSATION
PLAN (the "Plan") is to provide long-term incentive compensation to key
executives of Morrison Knudsen Corporation and its subsidiaries (the "Company")
who are in a position to make important contributions toward the organization's
long-term growth and success. The Plan provides a means whereby such executives,
through the payment of cash bonuses, are given an opportunity to share
financially in the value they help to create for the Company and its
Stockholders.
ARTICLE II - DEFINITIONS
2.01 "Actual Cumulative Earnings Per Share" means the Company's cumulative net
earnings per share of outstanding common stock during the Performance Period.
2.02 "Administrative Committee" means the committee appointed to administer the
employee benefit plans of the Company.
2.03 "Award" means an amount earned by, and paid in the form of cash to, a
Participant under the terms and provisions of the Plan.
2.04 "Base Salary" means a Participant's average annual base salary in effect
during the Performance Period for which an Award is paid.
2.05 "Cause" means (i) willful and continued failure by a Participant to perform
his or her duties (except as a direct result of the Participant's incapacity due
to physical or mental illness) after receiving notification by the Chief
Executive Officer (or the Board in the case of the Chief Executive Officer)
identifying the manner in which the Participant has failed to perform his or her
duties, (ii) willfully engaging in conduct materially injurious to the Company,
or (iii) conviction of the Participant of any felony involving moral turpitude.
2.06 "Compensation Committee" means the Subcommittee of the Compensation
Committee of the Board of Directors of the Company, comprised solely of outside
directors, that has been established to approve incentive-based compensation
awarded to the Chief Executive Officer and the four other most highly
compensated executive officers of the Company.
2.07 "Disability" means any termination of Service with the Company as a result
of a physical or mental condition that prevents a Participant from performing
his or her normal duties of employment in accordance with the following rules:
If a Participant applies for disability benefits under the Company's long-term
disability program and qualifies for such benefits, the Participant shall be
disabled within the meaning of this Section 2.07. In the absence of a
Company-sponsored long-term disability program, a Participant will be considered
totally and permanently disabled under the Plan if, in the opinion of two
doctors, one retained by the Company and one retained by the Participant, the
Participant is considered unable to perform his or her normal duties of
employment as a result of a physical or mental condition.
-1-
<PAGE>
2.08 "Earnings Growth Factor" is calculated by subtracting the Target Cumulative
Earnings Per Share from the Actual Cumulative Earnings Per Share, then dividing
the resulting difference by the Target Cumulative Earnings Per Share, and then
dividing the resulting quotient by 20%. If the Actual Cumulative Earnings Per
Share is less than $1.77,the Earnings Growth Factor shall be zero.
2.09 "Participant" means a key employee of the Company who has been designated
to participate in the Plan.
2.10 "Performance Period" means the period beginning December 1, 1998, and
ending November 30, 2000, except as otherwise specified in this Plan.
2.11 "Plan" means the Morrison Knudsen Corporation Long-Term Incentive
Compensation Plan as described in this document.
2.12 "Retirement" means a termination of Service after attaining age 65,
attaining age 55 with ten (10) or more Years of Service, or attaining a combined
number of Years of Service and age that equal or exceed 70.
2.13 "Service" means continuous and substantially full-time employment with the
Company whereby the Participant actively reports to work on a daily basis.
2.14 "Target Cumulative Earnings Per Share" is $1.68.
2.15 "Year of Service" means a year of service with Company as defined in, and
accumulated under, the Morrison Knudsen Corporation 401(k) Retirement Savings
Plan (i.e. 1,000 or more paid hours in a calendar year).
ARTICLE III - ELIGIBILITY TO PARTICIPATE
Participation in the Plan shall be limited to the President and Chief Executive
Officer of the Company, the Executive Vice President and Chief Financial Officer
of the Company, the Executive Vice President and Chief Legal Officer of the
Company, the President of the Engineers and Constructors Group, the President of
the Mining/Heavy Civil Groups and such other key executives of the Company, if
any, designated by the Compensation Committee to participate in the Plan.
ARTICLE IV - AMOUNT OF AWARD
4.01 Service for Entire Performance Period. Subject to the limitation in Section
4.03 below, a Participant who is rendering Service to the Company as of the last
day of the Performance Period shall receive an Award for the Performance Period
equal to the product of:
(a) The Participant's Base Salary for the Performance Period; and
(b) The Earnings Growth Factor.
-2-
<PAGE>
4.02 Service for Less Than Entire Performance Period. In the event a Participant
terminates Service with the Company due to death, Disability or Retirement prior
to the end of the Performance Period, such Participant's Award shall be
calculated as set forth in Section 4.01, except that the Award shall be
multiplied by the quotient derived from n/24, where n equals the number of full
calendar months of Service rendered by the Participant during the Performance
Period prior to his termination of Service date.
4.03 Maximum Award. The maximum Award that may be paid to any Participant for
the Performance Period is one times the Participant's Base Salary for the
Performance Period.
ARTICLE V - PAYMENT OF AWARDS
5.01 Timing of Payment. A Participant who is entitled to receive an Award for
the Performance Period (or his designated beneficiary, if applicable) shall be
paid such Award approximately one week after the Company's public earnings
release for the fiscal year ending with the end of the Performance Period;
provided, however, that the Participant may elect to defer payment of all or a
portion of his Award under and subject to the terms of the Company's Deferred
Compensation Plan.
5.02 Form of Payment. All Awards shall be paid in cash. The Company shall
withhold from all Awards under the Plan an amount sufficient to satisfy any
applicable federal, state and local withholding and employment tax requirements.
ARTICLE VI - CONDITIONS FOR RECEIVING AN AWARD
6.01 Continued Employment. Except as set forth in Section 6.02 below, in order
to be entitled to receive an Award for the Performance Period, a Participant
must be rendering Service to the Company as of the last day of the Performance
Period.
6.02 Termination of Employment. A Participant who terminates Service with the
Company due to death, Disability or Retirement prior to the end of a Performance
Period shall be entitled to an Award calculated in accordance with Section 4.02.
6.03 Discharge for Cause. Plan provisions to the contrary notwithstanding, a
Participant who (a) is discharged for Cause, or (b) resigns or quits in lieu of
being discharged for Cause, shall forfeit any Award that remains unpaid at the
time of such discharge, resignation, or quit.
ARTICLE VII - PLAN ADMINISTRATION
7.01 Administration. The Administrative Committee shall administer the Plan
under the direction of the Compensation Committee and shall be responsible for
interpreting and applying the provisions of the Plan. In any dispute between the
Administrative Committee and any Participant (or beneficiary) concerning the
interpretation or application of any provision of the Plan, the Compensation
Committee shall be responsible for interpreting and applying the Plan provision
or
-3-
<PAGE>
provisions in question. Under the direction of the Compensation Committee, the
interpretation and application of these terms by the Compensation Committee
shall be binding and conclusive.
7.02 Designation of Beneficiaries. Each Participant shall have the right to
designate any person or persons as beneficiary(ies) to whom payments earned
under the Plan shall be made in the event of the Participant's death prior to
the distribution of all benefits due the Participant under the Plan. Each
beneficiary designation shall be effective only when filed in writing with the
Administrative Committee during the Participant's lifetime.
The filing of a new beneficiary designation form will cancel all designations
previously filed. Any finalized divorce or marriage (other than a common law
marriage) of a Participant subsequent to the date of filing of a beneficiary
designation form shall revoke such designation, unless:
. In the case of divorce, the previous spouse was not designated as
beneficiary, or
. In the case of marriage, the Participant's new spouse had previously
been designated as beneficiary.
The spouse of a married Participant must consent to any designation of a
beneficiary other than the spouse.
If a Participant fails to designate a beneficiary as provided for above, or if
the beneficiary designation is revoked by marriage, divorce or otherwise without
execution of a new designation, then the Administrative Committee shall direct
the distribution of such benefits to the Participant's estate.
7.03 Amendment of Plan. The Compensation Committee may amend or suspend the Plan
in whole or in part at any time. However, any amendment or suspension must be
prospective in that it may not increase any Awards and in that it may not reduce
or suspend any Awards that would have been earned by Participants through the
date of amendment or suspension if the date of amendment or suspension had been
the date of a termination of Service due to death, Disability or Retirement.
Upon such prospective reduction or suspension, the Awards earned to date shall
be calculated consistent with the provisions established in Section 4.02 for a
termination of Service due to death, Disability or Retirement. The date on which
such amendment is adopted by the Compensation Committee shall be treated as the
termination of Service date and the last day of the Performance Period for
purposes of the formula set forth in Section 4.01.
7.04 Termination of Plan. The Compensation Committee may terminate the Plan at
any time if, in its judgment, the continuation of the Plan is not in the best
interest of the Company. Upon such termination, each Participant shall be
entitled to an Award calculated consistent with the provisions established in
Section 4.02 for a termination of Service due to death, Disability or
Retirement. The date on which such termination is approved by the Compensation
Committee shall be treated as the termination of Service date and the last day
of the Performance Period for purposes of the formula set forth in Section 4.01.
Upon termination of the Plan, a Participant shall have no further rights under
the Plan other than to receive payments for an Award as provided for in this
Section 7.04.
-4-
<PAGE>
ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.01 Unsecured Status of Award. Participants and their beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests or
claims in any specific property or assets of the Company. No assets of the
Company shall be held under any trust for the benefit of Participants, their
beneficiaries, heirs, successors or assigns, or held in any way as collateral or
security for the fulfillment of the Company's obligations under the Plan.
Any and all of the Company's assets shall be, and shall remain, the general,
unpledged and unrestricted assets of the Company. When an Award is due, the
Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay monies.
8.02 Employment Not Guaranteed. Nothing contained in the Plan, nor any
Agreement, nor any action taken in the administration of the Plan shall be
construed as a contract of employment or as giving a Participant any right to be
retained in the Service of the Company.
8.03 Right of Offset. If a Participant becomes entitled to an Award under the
Plan, and if at such time the Participant has any outstanding debt, obligation
or other liability representing any amount owing to the Company, then the
Company may offset such amount against the Award otherwise due the Participant
under the Plan.
8.04 Nonassignability. No person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber, hypothecate or
convey in advance of actual receipt an Award payable under the Plan, or any part
thereof, or any interest therein. Such Award is expressly declared to be
unassignable and nontransferable. No portion 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 transferrable by operation of law in the event of the
Participant's or any other person's bankruptcy or insolvency.
8.05 Validity. In the event that any provision of the Plan or any related
Agreement is held to be invalid, void or unenforceable, the same shall not
affect, in any respect whatsoever, the validity of any other provision of the
Plan or any related Agreement.
8.06 Applicable Law. The Plan and any related Agreements shall be governed in
accordance with the laws of the state of Idaho.
8.07 Inurement of Rights and Obligations. The rights and obligations under the
Plan and any related Agreements shall inure to the benefit of, and shall be
binding upon the Company, its successors and assigns, and the Participants and
their beneficiaries.
8.08 Board and Stockholder Approval. The Plan shall be effective upon approval
by the Compensation Committee, subject to ratification by the Board of Directors
of the Company and approval by the Stockholders of the Company at the first
Annual Meeting of Stockholders subsequent to approval by the Compensation
Committee and ratification by the Board of Directors.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers duly authorized on this 12th day of April, 1999.
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
-----------------------------------
Stephen G. Hanks
Executive Vice President
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<PAGE>
EXHIBIT 10.4
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of March 22, 1999, is made
by and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and Dennis R. Washington, 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 Covered Employee
Subcommittee of the Compensation Committee and ratified by the Board of
Directors of the Company on March 15, 1999, 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
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<PAGE>
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
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 1994 Stock Option and Incentive Plan for
Officers, Directors and Key Employees of Kasler Holding Company, 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 "Grant Date"),
the Company irrevocably awards to the Optionee the option to purchase any part
or all of an aggregate of 250,000 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 $9.375 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 Grant Date.
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<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 Grant Date.
(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 Grant Date.
(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 Grant Date.
(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 Grant Date; 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.
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;
5
<PAGE>
(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 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.
6
<PAGE>
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 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.
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<PAGE>
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:
--------------------------------------
Stephen G. Hanks
Executive Vice President
OPTIONEE
-------------------------------------------
Dennis R. Washington
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.
-------------------------------------------
-------------------------------------------
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.5
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of April 8, 1999, is made
by and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and Dennis R. Washington, 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 April 8, 1999, 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 Directorship
Section 1.10 - 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 1.11 - 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 1.12 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is
awarded under this Agreement and the Plan.
Section 1.13 - 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 2,000,000 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.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall
be $10.25 per share without commission or other charge.
2
<PAGE>
Section 2.3 - 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 its entirety on April 8, 2002,
provided the Optionee continues to serve as Chairman of the Company
from the date of this Agreement until the date of exercisability.
(b) No portion of the Option which is unexercisable at the later of the
Optionee's Termination of Directorship or Termination of Employment
from the Company shall thereafter become exercisable.
Section 3.2 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to occur
of the following events:
(a) The expiration of five (5) years from the date the Option was awarded;
or
(b) Except as set forth in 3.2(c), the expiration of three (3) months after
the later of the Optionee's Termination of Directorship or Termination
of Employment; or
(c) The expiration of twelve (12) months from the date of the later of the
Optionee's Termination of Directorship or Termination of Employment by
reason of permanent and total disability (within the meaning of Section
22(e) (3) of the Code) or retirement at or after age 65.
3
<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 3.2, 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
3.2; 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 3.2:
(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
4
<PAGE>
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 the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
5
<PAGE>
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 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.
6
<PAGE>
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.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
MORRISON KNUDSEN CORPORATION
By:
-----------------------------
Stephen G. Hanks
Executive Vice President
OPTIONEE
-------------------------------------------
Dennis R. Washington
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.
-------------------------------------------
-------------------------------------------
Printed Name
Exhibit A: Copy of the Plan
8
<PAGE>
EXHIBITS
The registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the Exhibits hereto.
9
<PAGE>
EXHIBIT 10.6
MORRISON KNUDSEN CORPORATION
May 13, 1999
Robert A. Tinstman
4433 West Quail Point
Boise, ID 83703
RE: Severance Arrangement
Dear Bob:
This letter explains in greater detail how Morrison Knudsen Corporation
(the "Company") interprets your severance rights and benefits as referenced in
David Batchelder's February 2, 1999 letter to you, in connection with your
retirement from employment as an officer and director of the Company. Please
note that the interpretation set forth in this letter is not intended to add to
or detract from any rights and benefits referenced in the letter of February 2,
1999.
As described in Mr. Batchelder's letter, you have remained employed by
the Company in a consulting capacity for a period of three months following the
effective date of your retirement as an officer and director. During that
three-month period, which ended May 2, 1999, your monthly pay and benefits
continued in effect at normal monthly rates. Beginning May 3, 1999, you will
receive the severance benefits set forth in Article 4 of your Employment
Agreement dated January 1, 1993, as amended from time to time ("Agreement"),
notwithstanding your voluntary resignation. Under the terms of the Agreement,
you will receive "Base Compensation" as defined in the Agreement for a period of
two years, measured from May 3, 1999.
Base Compensation
Base Compensation is defined in relevant part as follows:
(a) Base salary in effect immediately prior to
termination of employment,
(b) An average bonus,
(c) Continued participation in basic and supplemental
welfare benefit plans (e.g. life, accident,
disability, medical, dental, etc.), and
(d) Continuance of vesting and benefit accrual under any
Company-sponsored basic and supplemental retirement
programs in effect immediately prior to your
termination. To the extent continued participation or
vesting is not possible under the above plans, the
Company is to provide you with the monetary value of
such benefits.
<PAGE>
May 13, 1999
Page 2
1. Base Salary. Your annual base salary rate as of May 2, 1999, was
$425,000.00. You will receive a monthly payment of $35,416.67 ($425,000.00 /
12), less applicable taxes on the last business day of each month. The first
payment will be made at the end of May, 1999, and the last payment will be made
at the end of April, 2001.
In addition to your base salary, you are entitled to the monetary
value of the matching contribution you would have received under the Company's
401(k) plan, which is 5% of cash pay up to a maximum of $8,000.00. Therefore,
you will receive an additional monthly payment of $666.67 per month ($8,000.00 /
12).
2. Average Bonus. The Company has computed your average annual bonus to
be $194,088.67. This amount will be paid to you in 2000 and 2001 in a lump sum
as soon as practicable following the meeting of the Company's Board of Directors
at which bonuses generally are approved.
3. Welfare Benefit Plan. In lieu of your continuing to be covered under
the Company's Welfare Benefit Plans, the Company has agreed to pay your
out-of-pocket costs for coverage under the Idaho Power medical and dental plans
and to provide you with the monetary equivalent of continued coverage under the
disability and basic life insurance plans. This will allow you to purchase your
own coverages for these benefits from other sources. In addition, the Company
has agreed to add a "tax gross up" to this amount to leave you in the same
"out-of-pocket" position you would have been in as an employee of the Company.
The Company has computed the annual value of these benefits, including the tax
gross up, at $31,399.92. Accordingly, you will receive an additional monthly
payment of $2,616.66 ($31,399.92 / 12) to cover these benefits. These payments
will be included with the payments of base salary and 401(k) match substitute
beginning at the end of May 1999 and running through the end of April 2001.
As required by law, you will receive materials explaining your right to
purchase continued health coverage under COBRA. If you or your spouse elect to
receive continued health care coverage from the Company's plans under COBRA, you
will need to pay the premiums at the same rates paid by other former employees
similarly situated. You may use the welfare benefit payments described in the
preceding paragraph to pay the COBRA premiums if you wish.
As you know, under the Company's executive life insurance program, the
Company currently "advances" the premium for a universal life insurance policy
on your life issued by the Security Life of Denver Insurance Company. The
Company is entitled to recover costs from the cash value of this policy;
however, the policy was issued in your name and you may maintain the
<PAGE>
May 13, 1999
Page 3
policy if you desire. If you wish to maintain the policy, you will be
responsible for all future premiums. Roger Allen previously forwarded to you
illustrations from MCG Northwest relating to this policy, along with information
about the person you should contact at MCG to discuss your rights under the
policy.
4. Federal Income Withholding on Monthly Payments.
The gross amount of the aggregate monthly payment you will receive
beginning at the end of May 1999 is $38,700.00 ($35,416.67 base salary + $666.67
match equivalent + $2,616.66 welfare benefit equivalent). Your current status
for federal income tax withholding is listed as married with zero exemptions,
with additional withholding of $1,000 per pay period. Because you will receive
payments only once a month instead of biweekly, this will result in only $1,000
being withheld for federal income tax each month instead of $1,000 being
withheld every two weeks. If you wish to change the rate of withholding, you
should file a new Form W-4 with the payroll office.
5. Retirement Plans.
401(k) Plan. Continued participation in the Company's tax "qualified"
-----------
401(k) plan is not possible, pursuant to the terms of the plan and applicable
federal law. Accordingly, as described above, the Company will pay you the
monetary equivalent of the match you would have received had you continued to
participate in the 401(k) plan for an additional two years. Because you are
already 100% vested in your account balances under the plan, your retirement
will have no negative impact on your vesting. You will receive a packet from the
Benefits Department that will include instructions on how to "roll-over" amounts
from the 401(k) Plan into an IRA(s) or another employer plan, should you chose
to do so.
Retirement Plan Annuities. Under applicable federal law and the terms
-------------------------
of the annuities purchased to provide benefits previously accrued under Morrison
Knudsen Corporation Retirement Plan (MKRP), it is technically not possible for
you to continue to "participate" in the MKRP. Accordingly, the Company proposes
to give you credit for an additional two years of service for purposes of
calculating the supplemental retirement benefits that will be paid out of
general Company assets to supplement your retirement plan annuity when you elect
to begin receiving those payments. (In effect, this will make you eligible for
calculation of benefits under the "Rule of 80" described in the MKRP.) The
actual amount of the combined monthly payment you will receive from your
retirement annuity and supplemental pension will depend upon (1) your age at the
time you elect to begin receiving payments and (2) the form of benefit payment
you elect to receive. Attached to this letter are copies of a benefit statement
and schedule of payment calculations that illustrate what amount you might
expect to receive at various retirement ages for the specified forms of benefit
payment.
<PAGE>
May 13, 1999
Page 4
Deferred Compensation Plan. Your retirement will trigger the distribution
- --------------------------
provisions of your benefits under the Company's Deferred Compensation Plan.
Pursuant to your previous election concerning distribution from the Deferred
Compensation Plan, your benefits under that plan will be paid in fifteen (15)
equal annual installments beginning in the year 2000.
Stock Options.
Attached for your information is a table that reflects the current
status of your stock options, including number of shares granted, dates of
grant, exercise price, and status of exercisability.
In summary, as of May 2, 1999, you held options to purchase 375,000
shares of stock, of which options to purchase 125,000 shares are exercisable and
options to purchase 250,000 shares are not exercisable. Under the terms of the
---
plans and your option agreements, options that are not exercisable on the
---
effective date of your retirement will not become exercisable thereafter. The
---
Board of Directors of the Company has exercised its discretion to extend the
time period for you to exercise your currently exercisable options to twelve
months from May 3, 1999. Accordingly, your currently exercisable options to
purchase 125,000 shares of stock of the Company will remain exercisable through
May 2, 2000, but will expire if not exercised by that date.
I hope this letter is helpful in outlining the timing and amounts to be
paid to you under your severance arrangement. Should you have any questions
regarding any aspect of this letter, please let me know.
Sincerely,
/s/ Stephen G. Hanks
Stephen G. Hanks
SGH/zb
AGREED TO AND ACCEPTED:
/s/ Robert A. Tinstman
- --------------------------------------
Robert A. Tinstman
DATE: June 5, 1999
-------------------
<PAGE>
EXHIBIT 10.7
The Company has employment agreements with Stephen G. Hanks, dated as of
January 1, 1993, as amended, and with Thomas H. Zarges, dated as of January 1,
1994, as amended, (collectively the "Employment Agreements). On January 20,
1999, the Board of Directors of the Company gave notice to Messrs. Hanks and
Zarges that their written Employment Agreements will be allowed to expire one
year from the date of such notice.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying condensed consolidated financial statements and financial statement
footnotes of Morrison Knudsen Corporation for the six months ended May 28,
1999, and is qualified in its entirety by reference to such condensed
consolidated financial statements and financial statement footnotes:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1998
<PERIOD-END> MAY-28-1999
<CASH> 34,806
<SECURITIES> 0
<RECEIVABLES> 181,710
<ALLOWANCES> (6,113)
<INVENTORY> 12,093
<CURRENT-ASSETS> 507,599
<PP&E> 265,929
<DEPRECIATION> (153,833)
<TOTAL-ASSETS> 1,150,621
<CURRENT-LIABILITIES> 362,953
<BONDS> 0
0
0
<COMMON> 544
<OTHER-SE> 381,342
<TOTAL-LIABILITY-AND-EQUITY> 1,150,621
<SALES> 25,600
<TOTAL-REVENUES> 989,136
<CGS> (23,800)
<TOTAL-COSTS> (943,991)
<OTHER-EXPENSES> (18,701)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,989)
<INCOME-PRETAX> 37,420
<INCOME-TAX> (14,266)
<INCOME-CONTINUING> 22,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,682
<EPS-BASIC> .43
<EPS-DILUTED> .43
</TABLE>
