<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Complete the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 14a-11(c) or Rule 14a-12
MORRISON KNUDSEN CORPORATION
A Delaware Corporation
Commission File Number 1-12054
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies:
(2)Aggregate number of securities to which transaction applies:
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
(4)Proposed maximum aggregate value of transaction:
(5)Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:
(2)Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4)Date Filed:
<PAGE>
[LOGO OF MORRISON KNUDSEN CORPORATION APPEARS HERE]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS--APRIL 9, 1999
To the Stockholders of Morrison Knudsen Corporation:
The Annual Meeting of Stockholders of Morrison Knudsen Corporation, a
Delaware corporation (the "Company"), will be held at the Central Plaza
Building of the Company's World Headquarters Office located at 720 Park
Boulevard in Boise, Idaho, on Friday, April 9, 1999, at 10:00 a.m., local
time, for the following purposes:
1.To elect eight directors to terms expiring at the Annual Meeting of
Stockholders in 2000.
2.To approve the Morrison Knudsen Corporation Long-Term Incentive
Compensation Plan.
3.To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending November 30, 1999.
4.To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on February 26, 1999
are entitled to notice of and to vote at the meeting or any postponement or
adjournment thereof. In order to ensure your representation at the meeting,
please complete the enclosed proxy and return it promptly in the accompanying
envelope which requires no postage if mailed in the United States.
All stockholders are cordially invited to attend the Annual Meeting.
Dated: March 3, 1999
BY ORDER OF THE BOARD OF DIRECTORS
Morrison Knudsen Corporation
Stephen G. Hanks
Executive Vice President, Chief Legal
Officer
and Secretary
----------------
The Company's 1998 Annual Report is being mailed to stockholders and
accompanies these proxy materials. The Annual Report contains financial and
other information about the Company, but is not incorporated in the Proxy
Statement and is not to be deemed a part of the proxy soliciting materials.
<PAGE>
[LOGO OF MORRISON KNUDSEN CORPORATION APPEARS HERE]
MORRISON KNUDSEN PLAZA
720 PARK BOULEVARD
BOISE, IDAHO 83729
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 9, 1999
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Morrison Knudsen Corporation, a
Delaware corporation (the "Company"), for use at its Annual Meeting of
Stockholders to be held at the Central Plaza Building of the Company's World
Headquarters Office located at 720 Park Boulevard in Boise, Idaho, on Friday,
April 9, 1999, at 10:00 a.m., local time, and at any postponement or
adjournment thereof (the "Annual Meeting"). Any proxy delivered pursuant to
this solicitation may be revoked by the person giving it at any time prior to
the exercise thereof (i) by filing a duly executed revocation instrument with
the Secretary of the Company, (ii) by delivering a duly executed proxy bearing
a later date or (iii) by appearing at the Annual Meeting and voting in person.
This Proxy Statement and the related proxy are first being mailed to
stockholders commencing on or about March 3, 1999.
VOTING RIGHTS AND VOTE REQUIRED
The holders of record of shares of the Company's common stock (the "Common
Stock") at the close of business on February 26, 1999 (the "Record Date") are
entitled to vote such shares at the Annual Meeting. On the Record Date,
53,121,753 shares of Common Stock were outstanding and entitled to vote. The
holders of shares representing a majority of the voting power of the stock
issued and outstanding and entitled to vote, present in person or represented
by proxy, will constitute a quorum at the Annual Meeting. A quorum is
necessary in order to transact business at the Annual Meeting.
Each share of Common Stock is entitled to one vote on all matters properly
brought before the Annual Meeting. The nominees for election as directors
receiving the greatest number of votes cast at the Annual Meeting will be
elected whether or not any one of them receives a majority of the votes so
cast. Approval of the Morrison Knudsen Corporation Long-Term Incentive
Compensation Plan and appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors and any other matter properly brought before
the Annual Meeting each will require the affirmative vote of the holders of a
majority of the shares of voting stock represented at the Annual Meeting and
entitled to vote on such matters. Abstentions and broker nonvotes with respect
to any other matter brought to a vote at the Annual Meeting will be treated as
shares not represented and not entitled to vote with respect to such matter
and, therefore, will have no effect on the outcome of the vote on such matter.
VOTING OF PROXIES
The shares of voting stock represented by all duly executed proxies received
in time for the Annual Meeting will be voted in accordance with the directions
given by the stockholder executing the same. If no such directions are given,
the shares represented by such proxies will be voted (i) FOR each of the
nominees named herein, or their respective substitutes, as directors, (ii) FOR
approval of the Morrison Knudsen Corporation Long-Term Incentive Compensation
Plan and (iii) FOR ratification of the appointment of PricewaterhouseCoopers
LLP as the Company's independent auditors for the fiscal year ending November
30, 1999.
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The Company knows of no business to be brought before the Annual Meeting
other than the matters described in this Proxy Statement. However, if any
other matters of which the Company is not now aware are properly brought
before the Annual Meeting, the shares of voting stock represented by all duly
executed proxies will be voted on such matters in accordance with the
discretion of persons named as proxies therein.
Tabulation and Confidential Voting
Pursuant to the policies of the Company, representatives of Norwest Bank
Minnesota, N.A. have been appointed to serve as independent Inspectors of
Election to supervise the voting of shares at the Annual Meeting. The
Inspectors of Election will decide all questions regarding the qualification
of voters, the validity of proxies and the acceptance or rejection of votes.
None of the Inspectors of Election is an officer, employee or stockholder of
the Company. In addition, the Company has engaged Norwest Bank Minnesota, N.A.
to receive, inspect, tabulate and maintain the confidentiality of proxies. The
votes of stockholders will be held in confidence except (i) when disclosure is
mandated by law, (ii) in the case of a contested election or vote of
stockholders or (iii) when a stockholder expressly requests otherwise.
Historical Information
On September 11, 1996 (the "Merger Date"), the Company acquired the
engineering and construction business of Morrison Knudsen Corporation, a
Delaware corporation ("Old MK"), in a transaction structured as a merger of
Old MK with and into the Company (the "Merger" and "Restructuring"); and the
Company changed its name to Morrison Knudsen Corporation.
BUSINESS TO BE TRANSACTED
1. ELECTION OF DIRECTORS.
The directors of the Company are elected annually to serve until the next
annual meeting of the stockholders and until their respective successors are
elected. Following the recent retirement of Robert A. Tinstman, the Board of
Directors has exercised its discretion to reduce the number of directors to be
elected at the Annual Meeting to eight.
In accordance with the recommendation of the Nominating Committee, the Board
of Directors of the Company has nominated David H. Batchelder, Leonard R.
Judd, Robert S. Miller, Jr., Dorn Parkinson, Terry W. Payne, John D. Roach,
Dennis R. Washington and Thomas H. Zarges for election as directors for one-
year terms to expire at the annual meeting of the Company's stockholders in
2000, and until their successors are duly elected and qualified. Each of the
nominees other than Mr. Zarges currently serves as a director.
<TABLE>
<CAPTION>
Principal Occupation and Business
Experience Director
Name for Previous Five Years Age Since
------------------- ------------------------------------------- --- --------
<C> <S> <C> <C>
David H. Batchelder Chairman and Chief Executive Officer of 49 1993
Batchelder & Partners, Inc. (investment
advisory and consulting firm) and Managing
Member of Relational Investors LLC (general
partner of active investment fund), San
Diego, California. Mr. Batchelder also
serves as a director of Apria Healthcare
Group, Inc.
Leonard R. Judd Consultant for Phelps Dodge Corporation 59 1993
(copper mining and manufacturing), Phoenix,
Arizona. Mr. Judd formerly served as a
Director, President and Chief Operating
Officer of Phelps Dodge Corporation, as
well as President of Phelps Dodge Mining
Company. Mr. Judd also serves as a Director
of Southwest Gas Corporation.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE DIRECTOR
NAME FOR PREVIOUS FIVE YEARS AGE SINCE
--------------------- ----------------------------------------- --- --------
<C> <S> <C> <C>
Robert S. Miller, Jr. Vice Chairman of the Board. Chairman of 57 1996
Waste Management, Inc. and formerly Chief
Executive Officer of Waste Management,
Inc. (environmental services), Houston,
Texas. Mr. Miller formerly served as
Acting Chief Executive Officer of
Federal-Mogul Corp. (motor vehicle parts
and accessories), Detroit, Michigan; and
was formerly Chairman of the Board of Old
MK, as well as Senior Partner of James D.
Wolfensohn, Inc. (investment banking
firm) and Vice Chairman of Chrysler
Corporation. Mr. Miller currently serves
as a Director of Federal-Mogul Corp.,
Pope & Talbot, Inc. and Symantec Corp.
Dorn Parkinson Vice Chairman of the Board. Chairman of 52 1993
the Board and consultant to Washington
Corporations/1/ (interstate trucking and
repair and sale of machinery and
equipment), Missoula, Montana. Mr.
Parkinson formerly served as President of
Washington Corporations.
Terry W. Payne Chairman and owner of Terry Payne & Co., 57 1993
Inc. (insurance and construction
bonding), Missoula, Montana. Mr. Payne
also serves as a Director of Washington
Corporations and First Interstate Bank-
Montana, as well as a Director and
President of Hoiness LaBar Insurance Co.,
Inc.
John D. Roach Chairman of the Board, President and 55 1996
Chief Executive Officer of Stonegate
Resources LLC and BSL Holdings, Inc.
(building products), Dallas, Texas. Mr.
Roach formerly served as Chairman of the
Board, President and Chief Executive
Officer of Fibreboard Corporation
(building products), Dallas, Texas. Mr.
Roach also serves as a Director of PMI
Group, Inc. and was formerly a Director
of Magma Power Co., Thompson PBE and the
American Stock Exchange.
Dennis R. Washington Chairman, President and Chief Executive 64 1996
Officer of the Company. Mr. Washington is
also founder and principal shareholder of
Washington Corporations/1/ (interstate
trucking and repair and sale of machinery
equipment), Missoula, Montana; and is
founder and/or principal stockholder or
partner in entities, the principal
businesses of which include rail
transportation, shipping, barging and
ship assist, mining, heavy construction,
environmental remediation and real estate
development. Mr. Washington's principal
business is to make, manage and hold
investments in operating entities.
Thomas H. Zarges Executive Vice President of the Company 50 --
and President and Chief Executive Officer
of MK Engineers and Constructors Group.
Mr. Zarges was formerly Senior Vice
President and President of the Company's
Engineering and Construction Group and
formerly Senior Vice President of
Operations of Old MK.
</TABLE>
- --------
/1/ Washington Corporations and other entities controlled by Dennis R.
Washington may be deemed to be affiliates of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF ALL THE NOMINEES NAMED ABOVE.
There were six meetings of the Company's Board of Directors held during the
Company's fiscal year ended November 30, 1998 ("fiscal year 1998"). All
directors attended at least 75% of the aggregate of the meetings of the Board
of Directors and the committees on which such persons served during fiscal year
1998.
AUDIT COMMITTEE
The Audit Committee of the Company's Board of Directors recommends to the
Board of Directors the independent auditors to serve the Company and reviews
with the auditors and management and approves the scope and results of audits
and the adequacy of the Company's system of internal controls. The Audit
Committee also reviews and approves the annual report, auditor's fees and non-
audit services to be provided by the independent auditors. The Audit Committee
meets at such times as may be deemed necessary by the Board of
3
<PAGE>
Directors or the Audit Committee. Three meetings of the Audit Committee were
held during fiscal year 1998. During 1998, the members of the Audit Committee
were William C. Langley and Messrs. Batchelder, Judd (Chairman) and Miller.
Mr. Langley's term as a director will expire at the 1999 Annual Meeting, and
he will not stand for election for another term. At its meeting on February
12, 1999, the Board of Directors resolved to reorganize the Audit Committee,
effective at the expiration of Mr. Langley's term, to include Messrs. Judd
(Chairman), Miller, Parkinson and Roach, if they are all elected to the Board
of Directors at the Annual Meeting.
Compensation Committee
The Compensation Committee of the Company's Board of Directors reviews and
recommends to the full Board of Directors the compensation of the principal
officers and approves compensation for key executives of the Company. Although
the Board of Directors administers the Company's executive compensation and
benefit plans, the Compensation Committee reviews such compensation and makes
recommendations to the Board of Directors with respect thereto. The
Compensation Committee meets at such times as may be deemed necessary by the
Board of Directors or the Compensation Committee. Three meetings of the
Compensation Committee were held during fiscal year 1998. Members of the
Compensation Committee are Messrs. Batchelder (Chairman), Judd, Parkinson and
Roach.
Compensation Subcommittee
In 1997, the Compensation Committee established a subcommittee (the
"Subcommittee") of outside directors, as defined in Section 162(m) of the
Internal Revenue Code, as amended ("Section 162(m)"), to allow for the tax
deductibility of performance-based compensation awarded to the Chief Executive
Officer and the four most highly compensated executive officers of the Company
who are serving at the end of each fiscal year (the "Covered Employees"). The
Subcommittee establishes and administers the compensation of Covered Employees
and the performance goals related to such compensation. The Subcommittee met
once during fiscal year 1998. Members of the Subcommittee are Messrs. Judd and
Roach.
Compensation Committee Interlocks and Insider Participation
Batchelder & Partners, Inc., an investment advisory and consulting firm
("BPI"), of which Mr. Batchelder is Chairman and Chief Executive Officer, was
engaged by the Company to act as financial advisor to the Company with respect
to a possible acquisition by the Company, teaming with British Nuclear Fuels
plc ("BNFL"), of the Westinghouse Government and Environmental Services
Company and Energy Systems Business Unit from CBS Corporation (the
"Westinghouse Acquisition"). Pursuant to an engagement agreement dated April
6, 1998, the Company agreed to pay BPI an aggregate retainer fee of $50,000
per month, commencing April 1, 1998, for investment advisory and consulting
services in connection with the Westinghouse Acquisition and all other
engagements involving the Company during calendar year 1998; provided,
however, that the maximum monthly and aggregate retainer fees payable to BPI
pursuant to the engagement letter and to all other fee arrangements in effect
during calendar year 1998 between the Company and BPI, shall not exceed
$50,000, or $250,000, respectively, for calendar year 1998. In addition, any
retainer fee payable under the agreement or any other agreement entered into
during 1998 between BPI and the Company shall be creditable against any
success fee paid to BPI (as defined in the agreement). The success fee for the
Westinghouse Acquisition is estimated to be approximately $720,000 less
$250,000 in retainer fees paid in 1998. No success fee was payable to BPI in
fiscal year 1998.
During fiscal year 1998, the Company paid $250,000 in retainer fees and
$51,000 in related expenses to BPI in connection with the Westinghouse
Acquisition and all other 1998 engagements involving the Company.
Nominating Committee
The Nominating Committee of the Company's Board of Directors recommends
nominees for election to the Board of Directors. The Nominating Committee will
consider nominees for election to the Board of Directors
4
<PAGE>
proposed by stockholders for the 2000 annual meeting of stockholders if the
following information concerning each nominee is timely submitted by means of
a written notice to the Secretary of the Company: (i) as to each person who
the stockholder proposes to nominate for election as a director: name, age,
business address, residence address, principal occupation or employment, class
and number of shares of capital stock of the Company beneficially owned by
such person and such other information relating to such person as is required
to be disclosed in solicitations for proxies for election of directors
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC") under Section 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and (ii) as to the stockholder
proposing such nominee: such stockholder's name and address and the class and
number of shares of capital stock of the Company beneficially owned by such
stockholder. To be timely, any such notice must be delivered to or mailed and
received at the Company's principal executive offices not less than 50 days
nor more than 75 days prior to the 2000 annual meeting of stockholders;
provided, however, that in the event that less than 65 days notice or prior
public disclosure of the date of such meeting is given or made to
stockholders, any such notice must be received not later than the close of
business on the 15th day following the day on which the notice of the 1999
annual meeting of stockholders is mailed or such public disclosure is made,
whichever first occurs. One meeting of the Nominating Committee was held
during fiscal year 1998. The members of the Nominating Committee are Messrs.
Miller, Payne and Washington (Chairman).
Special Committees
On February 20, 1997, the Board of Directors established a Special Committee
composed of independent directors to review, analyze and evaluate the possible
acquisition by the Company of Mr. Washington's interest in a copper mine in
Butte, Montana. On January 15, 1998, discussions between the Company and Mr.
Washington relating to the possible acquisition were terminated. One meeting
of the Special Committee was held during fiscal year 1998. Members of the
Special Committee were Messrs. Langley, Miller (Chairman) and Roach.
In 1998, the Board of Directors also established two additional special
committees to evaluate potential acquisitions by the Company. Members of these
two special committees included Messrs. Batchelder, Tinstman and Washington.
Director Compensation
Directors of the Company who are not also officers or employees of the
Company (the "Non-Employee Directors") are paid an annual retainer fee of
$20,000, plus $1,000 for each day of attendance at a Board of Directors
meeting and $500 for each standing committee meeting attended. Committee
chairmen receive an additional $3,000 per year. Effective February 20, 1997,
the Compensation Committee approved a fee schedule specific to the Special
Committee related to the proposed copper mine acquisition pursuant to which
each member of such Special Committee received $1,000 for each day of
attendance at Special Committee meetings. Members of the other special
committees received $500 for each special committee meeting attended.
Non-Employee Directors are permitted, under the Morrison Knudsen Corporation
Amended and Restated Stock Option Plan (the "Stock Option Plan"), to elect to
forgo cash payment of all or a portion of their annual retainer and
chairmanship fees and receive stock option grants in lieu thereof. Such
election is made annually prior to the commencement of the next fiscal year.
The options received by an electing director in lieu of such fees have an
exercise price per share equal to 80% of the fair market value of a share of
Common Stock on December 1 of the calendar year prior to the scheduled payment
of such directors' fees, and the number of shares of Common Stock subject to
such option is the number of shares (rounded to the nearest whole share)
determined by multiplying the fair market value of a share of Common Stock on
such December 1 by .20 and dividing the product into the amount of the
directors' fees forgone.
All Non-Employee Directors made the election to forgo their retainer and
chairmanship fees for fiscal year 1998. During fiscal year 1998, the following
amounts were earned by members of the Board of Directors: David H. Batchelder
- - $13,000 plus 11,795 stock options; Leonard R. Judd - $11,500 plus 11,795
stock options;
5
<PAGE>
William C. Langley - $12,500 plus 10,256 stock options; Robert S. Miller, Jr.
- - $12,000 plus 11,795 stock options; Dorn Parkinson - $11,500 plus 10,256
stock options; Terry W. Payne - $10,500 plus 10,256 stock options; John D.
Roach - $13,000 plus 10,256 stock options; and Dennis R. Washington - $10,500
plus 11,795 stock options. The exercise price on each of the above options is
$7.80.
In addition, under the 1997 Stock Option and Incentive Plan for Non-Employee
Directors, the Board of Directors may, from time to time, grant (i) options to
purchase Common Stock and/or (ii) restricted Common Stock. The aggregate
amount of all such awards may not exceed 500,000 shares of Common Stock (no
more than 100,000 shares of which may be restricted stock) during the term of
the plan. No awards were made under the 1997 Stock Option and Incentive Plan
for Non-Employee Directors in fiscal year 1998.
Mr. Washington, in his role as Chairman of the Board of Directors of the
Company, has been deeply involved in and has devoted significant time to the
strategic development of the Westinghouse Acquisition, including negotiation
of the partnership arrangement with BNFL, negotiations with CBS Corporation
and the obtaining of government regulatory approval of the transaction. In
recognition of these efforts, the Board voted in January 1999 to grant Mr.
Washington options to purchase 250,000 shares of Common Stock of the Company.
The grant will become effective on the date the Westinghouse Acquisition is
closed. The exercise price per share of the options will be the fair market
value of a share of Common Stock on the date the Westinghouse Acquisition is
closed, and the options will vest in four equal installments on each of the
first, second, third and fourth anniversaries of the date of grant.
The Company's Retirement Policy provides that a Non-Employee Director may
continue to serve as a director until the end of the calendar year in which
the director reaches his or her 70th birthday.
EXECUTIVE OFFICERS
Certain information with respect to the executive officers of the Company,
including all positions held by them with the Company, is set forth below.
Executive officers of the Company are elected by the Board of Directors for
terms of one year and until their successors are elected and qualified.
<TABLE>
<CAPTION>
Position with Company and
Business Experience for Previous Five Officer
Name Years Age Since
----------------------- --------------------------------------- --- -------
<C> <S> <C> <C>
Chairman, President and Chief Executive
Dennis R. Washington/1/ Officer 64 1999
Executive Vice President and Chief
Anthony S. Cleberg/2/ Financial Officer 46 1997
Executive Vice President, Chief Legal
Stephen G. Hanks/3/ Officer and Secretary 48 1996
Roger J. Ludlam/4/ Executive Vice President and President
and Chief Executive Officer of Morrison
Knudsen 56 1999
Contractors Group
Thomas H. Zarges/5/ Executive Vice President and President
and Chief Executive Officer of MK
Engineers and 50 1996
Constructors Group
Douglas L. Brigham/6/ Vice President and Controller 33 1996
Frank S. Finlayson/7/ Vice President and Treasurer 38 1997
Alvia L. Henderson/8/ Vice President--Human Resources 49 1996
Vice President--Government and Public
Charles W. Simpson/8/ Affairs 62 1996
</TABLE>
- --------
/1/ For certain biographical information regarding Mr. Washington, see
"Election of Directors."
/2/ Mr. Cleberg formerly served in various management positions with
Honeywell, Inc., (commercial and residential automatic environment controls)
including Corporate Vice President of Taxes and Vice President of Finance for
Space and Aviation Control.
/3/ Prior to the Merger Date, Mr. Hanks was Executive Vice President, Chief
Legal Officer and Secretary of Old MK and served in various other executive
and management capacities for Old MK.
6
<PAGE>
/4/ Mr. Ludlam formerly served as President and Chief Executive Officer of
Perini Corporation, Park Construction Company and S. J. Groves & Sons (general
construction companies).
/5/ Mr. Zarges formerly served the Company as Senior Vice President and
President of the Company's Engineering and Construction Group and, prior to
the Merger Date, served as President of Old MK's Engineering and Construction
Group.
/6/ Mr. Brigham formerly served the Company as Vice President and Treasurer
and, prior to the Merger Date, served Old MK in various management capacities.
/7/ Mr. Finlayson formerly served the Company as Vice President of Project
Finance and served the Company's Heavy Civil Construction Group as Vice
President of Finance and Vice President of Project Development. Prior to the
Merger Date, he served Old MK in various management capacities.
/8/ Prior to the Merger Date, Ms. Henderson and Mr. Simpson served Old MK in
various executive and management capacities.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION FOR 1998
General Compensation Policy
The goals of the Company's compensation program are to align compensation
with business objectives and performance and Company values, and to enable the
Company to attract, retain and reward executive officers whose contributions
are essential to the long-term success of the Company. The Company's
compensation program for executive officers is based upon the following
principles:
. Considerable emphasis is placed upon Company financial results and stock
price performance to provide incentives to executives to increase
shareholder value. This emphasis increases in proportion to an executive's
level of responsibility within the Company.
. Total compensation will be competitive and sufficiently flexible to retain
and attract the caliber of talent needed to enhance the Company's financial
and market performance.
. Total compensation also will reflect individual performance, contribution,
innovation and long-term potential.
The Company regularly participates in an executive compensation study to
compare its pay practices with those of other companies in the engineering and
construction industry. The study uses executive compensation data from
approximately 30 engineering and construction companies in a comparative
analysis of each component of compensation (i.e., base salary, bonus, long-
term incentives and total compensation) for executive officers in companies of
various sizes. Three primary factors are used in analyzing compensation for
each executive operations position: revenue of the Company or business unit,
organizational levels from the chief executive officer ("CEO") of the Company
and autonomy (i.e., the freedom to act or ability to influence the outcome of
major decisions) within the Company. Of these three factors, revenue carries
the most weight.
Cash-Based Compensation
Base Salaries. The Company generally targets base salaries to be competitive
in the market. In setting the actual base salary for an individual executive
officer, the Company takes into account the comparative base salary data for
the officer's position from the compensation study described above and the
officer's overall individual performance. Overall individual performance is
measured by financial results, compliance with Company policies, adherence to
professional ethical standards, degree of responsibility within the Company
and level of individual experience. In both setting goals and measuring an
executive officer's performance against those goals, the Company takes into
account the performance of its competitors and general economic and market
conditions.
Two of the four most highly compensated executive officers of the Company,
other than the CEO, have employment agreements with the Company. The
agreements entitle those officers to minimum annual base salaries of $250,000
each. The base salaries for these highly compensated officers for fiscal year
1998, established using the factors described in the preceding paragraph,
exceeded the contractual minimums. Therefore, the employment agreements were
not a factor in determining the base salaries of those officers.
7
<PAGE>
Bonuses. The Company has an annual cash bonus plan designed to motivate
eligible employees to achieve specific annual growth levels in the Company's
net after-tax earnings per share. The bonus plan is simple in design and is
tied to pre-defined measurable results. Currently, the Compensation Committee
exercises substantial discretion with respect to the award of bonuses. Each
year, the Company establishes performance objectives upon which bonuses may be
based. After the end of the Company's fiscal year, the Compensation Committee
establishes a bonus pool equal to a specified level of the Company's pre-tax
profits if the Company's earnings per share fall within a certain range. The
bonus pool may increase to a higher percentage of the Company's pre-tax
profits if the Company's earnings per share fall within a higher range. The
allocation of a specific bonus amount to an individual executive officer is
determined by taking into account the comparative bonus data for that officer
from the compensation study described above, the overall financial performance
of the Company and the overall individual performance factors described above.
In addition, the financial performance of the operating group to which an
individual is assigned is taken into account for officers and key employees
who are assigned to operating groups.
On occasion, the Company may pay a signing bonus to a newly hired executive
officer if the Compensation Committee determines that such a bonus is
necessary and appropriate to attract the caliber of officer needed to
accomplish the Company's financial and market goals.
Long-Term Incentive Awards. The Board of Directors of the Company has
approved, and recommended to stockholders for their approval, a long-term
incentive compensation plan under which cash bonus awards would be paid to key
executive officers of the Company if the earnings per share of Company stock
exceed certain targeted levels over the two-year period from December 1, 1998
through November 30, 2000. The plan is designed to provide incentives to
participating executives to significantly increase stockholder value. Bonuses
will be paid only if cumulative earnings per share of the Company's stock
exceed $1.77 over the two-year period. The amount of any award is calculated
as a percentage of the participant's average annual base salary. The
percentage increases on a graduated scale from 0% at cumulative earnings per
share of $1.77 to a maximum of 100% at cumulative earnings per share of $2.02.
Any award that becomes payable under the plan will be paid in early 2001. The
plan is designed to qualify any awards payable under the plan as performance-
based compensation that would be excepted from the limitation on deductibility
found in Section 162(m). See "Corporate Tax Deduction on Compensation in
Excess of $1 Million a Year" below.
Equity-Based Compensation
The Company maintains a stock option plan designed to provide additional
long-term incentives to employees to work to increase stockholder value. The
Company also recognizes that a stock incentive program is an important element
of a competitive compensation package for its executive officers. The program
utilizes vesting periods to encourage key employees to continue in the employ
of the Company and thereby acts as a retention device for key employees. The
Company believes that the program encourages employees to maintain a long-term
perspective. The Company grants fixed price stock options to a small group of
employees. For the CEO and the other most highly compensated executive
officers, the size of option awards is determined by the Subcommittee,
described under "Corporate Tax Deduction on Compensation in Excess of $1
Million a Year" below, and ratified by the entire Compensation Committee and
the Board of Directors. For other eligible executive officers, the size of
option awards is based upon recommendations of the Compensation Committee and
approval of the entire Board of Directors.
In determining the size of an option award for an executive officer, the
Compensation Committee's and Subcommittee's primary considerations are the
grant value of the award and the performance of the officer measured against
the same performance criteria described above under "Cash-Based Compensation."
In determining the grant value guidelines for option awards, the Compensation
Committee and Subcommittee use the same compensation study described above,
which employs the Black-Scholes pricing model for assigning prospective values
to stock options on the date of grant. The Compensation Committee and
Subcommittee take into account the comparative data from other publicly traded
companies concerning long-term incentive
8
<PAGE>
compensation for the given executive position and the percentage of total
compensation the Compensation Committee and Subcommittee believe should be
represented by the value of an option grant. In addition to considering the
grant value and the officer's performance, the Compensation Committee and
Subcommittee also may consider the number of outstanding unvested options the
officer holds and the size of previous option awards to that officer. The
Compensation Committee and Subcommittee do not assign specific weights to
these items.
Corporate Tax Deduction on Compensation in Excess of $1 Million a Year.
Section 162(m), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the Company's CEO or any of
the four other most highly compensated executive officers. Certain
performance-
based compensation, however, is specifically exempt from the deduction limit.
The Compensation Committee's policy is to qualify incentive-based compensation
to executive officers for deductibility under Section 162(m) to the extent
that the Compensation Committee deems such qualification to be in the best
interests of the Company. Accordingly, the Board of Directors has established
a Subcommittee of the Compensation Committee, comprised solely of independent
outside directors, to approve incentive-based compensation awarded to the CEO
and the other most highly compensated executive officers of the Company.
CEO Compensation
Robert A. Tinstman was President and CEO of the Company from September 11,
1996 to February 3, 1999. The Compensation Committee used the same
compensation policy described above for all employees to determine Mr.
Tinstman's fiscal year 1998 compensation.
Dennis R. Washington became President and CEO of the Company on February 3,
1999. The Compensation Committee has not yet determined the level of Mr.
Washington's compensation, although it is likely to be primarily or
exclusively equity-based.
Salary. Mr. Tinstman's base salary reflected a consideration of both
competitive forces and the Company's performance. The Compensation Committee
does not assign specific weights to these categories. As described under
"Cash-Based Compensation" above, the Company participates in a compensation
study that compares the various components of compensation for chief executive
officers at companies with revenue at the level achieved by the Company. When
recommending a salary for the CEO, the Compensation Committee takes into
account the comparative salary data from the compensation study for companies
with revenue equal to or exceeding that of the Company. Based upon this
analysis, and the leadership that Mr. Tinstman demonstrated in meeting the
Company's overall financial objectives in 1997, the Compensation Committee
recommended, and the Board of Directors approved, that Mr. Tinstman's salary
be set at the level that appears in the Summary Compensation Table for 1998.
The Compensation Committee has not yet determined a salary for Mr.
Washington; however, it is likely that his compensation will be primarily or
exclusively equity-based.
Bonus. The Company followed the same policy described above to determine Mr.
Tinstman's bonus as it does for other executive officers. The Company
establishes specific earnings objectives against which actual financial
performance may be measured to determine the size of the bonus pool, if any,
that will be available for bonus awards. The allocation of a specific bonus
amount to an individual officer takes into account individual performance
factors and comparative bonus data from the compensation study. Bonuses for a
particular fiscal year are paid within 75 days after the end of the fiscal
year.
As a result of the financial performance of the Company during fiscal year
1997, Mr. Tinstman was awarded a bonus of $255,000 in January 1998.
After considering the Company's financial results for fiscal year 1998 as
compared to fiscal year 1997, the progress the Company has made towards
achieving its business objectives and competitive data showing compensation
for other comparable chief executive officers, the Compensation Committee
recommended, and the Board of Directors approved, that Mr. Tinstman be awarded
a bonus of $258,213 in January 1999.
9
<PAGE>
Stock Options. The Company followed the same policy described above to
determine Mr. Tinstman's stock option awards as it does for other executive
officers. Stock options are granted to encourage and facilitate personal stock
ownership by the executive officers and thus strengthen both their personal
commitment to the Company and a longer-term perspective in their managerial
responsibilities. This component of an executive officer's compensation
directly links the officer's interests with those of the Company's other
stockholders.
In January 1998, the Subcommittee approved, and the Compensation Committee
and Board of Directors ratified, the grant to Mr. Tinstman of an option to
purchase 100,000 shares of Common Stock with an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant. In
approving the grant of the option to Mr. Tinstman, the Subcommittee reviewed
the grant value guidelines described under "Equity-Based Compensation,"
evaluated his performance against the criteria described above and considered
competitive data from the compensation study showing total compensation for
Mr. Tinstman and comparable chief executive officers.
David H. Batchelder, Chairman
Leonard R. Judd
Dorn Parkinson
John D. Roach
10
<PAGE>
COMPANY STOCK PERFORMANCE GRAPH
Rules adopted by the SEC require that the Company include in this Proxy
Statement a line-graph presentation comparing cumulative five-year stockholder
returns on an indexed basis with the Standard & Poor's ("S&P") 500 Stock Index
and either a nationally recognized industry standard or an index of peer
companies selected by the Company. A list of the companies selected by the
Company as a peer group index follows the graph below:
Comparison of Five-Year Cumulative Total Return
Among Morrison Knudson Corporation, the S&P 500 Index and a Peer Group
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11/93 11/94 11/95 11/96 11/97 11/98
Morrison Knudsen Corporation 100.00 60.66 79.73 124.79 136.92 133.46
Peer Group 100.00 95.40 131.64 136.68 103.46 111.05
S & P 500 100.00 101.05 138.41 176.99 227.45 281.27
</TABLE>
Peer Group: Ashland Coal Inc.; Zeigler Coal Holding; Granite Construction
Inc.; Perini Corporation; The Turner Corporation; Fluor Corporation; Foster
Wheeler Corporation; Jacobs Engineering Group Inc.; Stone & Webster,
Incorporated; Michael Baker Corp.; Dames & Moore Inc.; OHM Corp.; Harding
Lawson Associates Group Inc.; ICF Kaiser International Inc.; International
Technology Corp.; Roy F. Weston Inc.
11
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes all plan and non-plan compensation awarded or
paid to, or earned by, the Chief Executive Officer and the four most highly
compensated executive officers of the Company (the "Named Executives") during
the fiscal years indicated:
Summary Compensation Table
For Fiscal Years Ended 1996, 1997 and 1998
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Anuual Compensation Awards Payouts
------------------- ------ -------
Securities
Other Annual Underlying LTIP All Other
Name and Principal Position Year Salary /1/($) Bonus ($) Compensation ($) Options/SARs (#) Payouts ($) Comp. ($)
- ------------------------------ ---- ------------- --------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Tinstman 1998 415,280 258,213 24,731/2/ 100,000 0 23,093/3/
Former President and 1997 402,840 255,000 24,631/4/ 200,000 0 25,340
Chief Executive Officer 1996 73,462 0 24,388/5/ 0 1,618,000/6/ 19,035
Stephen G. Hanks 1998 314,039 135,000 21,362/7/ 30,000 0 21,964/8/
Executive Vice President and 1997 308,077 130,000 21,304/9/ 60,000 0 24,532
Chief Legal Officer 1996 65,769 0 20,711/10/ 0 0 15,059
Anthony S. Cleberg 1998 258,077 130,000 11,291/11/ 30,000 0 26,270/12/
Executive Vice President and 1997 144,231 305,000 21,489/13/ 150,000 0 20,965
Chief Financial Officer 1996 -- -- -- -- -- --
Thomas H. Zarges 1998 294,231 150,000 14,507/14/ 100,000 0 22,784/15/
Executive Vice President and 1997 268,078 150,000 14,070/16/ 50,000 0 24,758
President and Chief Executive 1996 57,001 0 13,699/17/ 0 0 18,339
Officer of MK Engineers and
Constructors Group
Steven Y. Chi 1998 234,000 100,000 0 0 0 9,179/18/
Former President-- 1997 234,000 85,000 0 45,000 0 9,370
Mining Group 1996 54,000 0 0 0 0 9,007
</TABLE>
- --------
/1/ Prior to the Merger, Messrs. Tinstman, Hanks, Zarges and Chi were
compensated by Old MK. The 1996 compensation included in this table represents
amounts earned by such individuals from the Merger Date through November 30,
1996. As of November 30, 1996, the base salaries of Messrs. Tinstman, Hanks,
Zarges and Chi were $400,000, $300,000, $260,000 and $234,000, respectively.
Under applicable rules and regulations of the SEC, information regarding the
compensation of such individuals prior to the Merger Date is not required to
be disclosed.
/2/ Consists of disability insurance premium of $12,243 and tax gross-up of
$12,488 on the foregoing disability insurance premium and the value of the
term life insurance premium reported under footnote 3 to this table.
/3/ Consists of $8,000 matching contributions to Mr. Tinstman's 401(k) account
and $15,093 attributable to a life insurance policy on Mr. Tinstman's life
under the Key Executive Life Insurance Plan, of which $938 represents the
dollar value of the term life insurance premium and $14,155 represents Mr.
Tinstman's interest in the policy's cash surrender value as projected on an
actuarial basis attributable to the 1998 premium.
/4/ Consists of disability insurance premium of $12,243 and tax gross-up of
$12,388 on the foregoing disability insurance premium and the value of the
term life insurance premium reported in the last column of this table.
/5/ Consists of disability insurance premium of $12,243 and tax gross-up of
$12,145 on the foregoing disability insurance premium and the value of the
term life insurance premium included for such year in the last column of this
table.
/6/ Mr. Tinstman's benefit under the Old MK Long-Term Incentive Plan for the
Mining Group (to which the Company has succeeded) could have been accelerated
and become payable during 1996 due to the restructuring of Old MK. During
1996, Mr. Tinstman and the Old MK Board of Directors agreed that such plan
would be amended to provide that the Restructuring would not constitute a
"change of control" under the plan, and Mr. Tinstman's accrued benefit of
$1,618,000 was frozen. In connection with such arrangement, Mr. Tinstman
waived payment of such benefit until after the completion of the performance
period under such plan, which occurred December 31, 1997.
12
<PAGE>
/7/ Consists of disability insurance premium of $10,712 and tax gross-up of
$10,650 on the foregoing disability insurance premium and the value of the
term life insurance premium reported under footnote 8 to this table.
/8/ Consists of $8,000 matching contributions to Mr. Hanks' 401(k) account,
$1,556 for service recognition, and $12,408 attributable to a life insurance
policy on Mr. Hanks' life under the Key Executive Life Insurance Plan, of
which $529 represents the dollar value of the term life insurance premium and
$11,879 represents Mr. Hanks' interest in the policy's cash surrender value as
projected on an actuarial basis attributable to the 1998 premium.
/9/ Consists of disability insurance premium of $10,712 and tax gross-up of
$10,592 on the foregoing disability insurance premium and the value of the
term life insurance premium reported in the last column of this table.
/10/ Consists of disability insurance premium of $10,422 and tax gross-up of
$10,289 on the foregoing disability insurance premium and the value of the
term life insurance premium included for such year in the last column of this
table.
/11/ Consists of disability insurance premium of $5,613 and tax gross-up of
$5,678 on the foregoing disability insurance premium and the value of the term
life insurance premium reported under footnote 12 to this table.
/12/ Consists of $8,000 matching contributions to Mr. Cleberg's 401(k) account
and $18,270 attributable to a life insurance policy on Mr. Cleberg's life
under the Key Executive Life Insurance Plan, of which $380 represents the
dollar value of the term life insurance premium and $17,890 represents Mr.
Cleberg's interest in the policy's cash surrender value as projected on an
actuarial basis attributable to the 1998 premium
/13/ Consists of tax gross-up of $9,588 on relocation expenses, disability
insurance premium of $5,891 and tax gross-up of $6,010 on the foregoing
disability insurance premium and the value of the term life insurance premium
reported in the last column of this table.
/14/ Consists of disability insurance premium of $6,973 and tax gross-up of
$7,534 on the foregoing disability insurance premium and the value of the term
life insurance premium reported under footnote 15 to this table.
/15/ Consists of $8,000 matching contributions to Mr. Zarges' 401(k) account
and $14,784 attributable to a life insurance policy on Mr. Zarges' life under
the Key Executive Life Insurance Plan, of which $576 represents the dollar
value of the term life insurance premium and $14,208 represents Mr. Zarges'
interest in the policy's cash surrender value as projected on an actuarial
basis attributable to the 1998 premium.
/16/ Consists of disability insurance premium of $6,802 and tax gross-up of
$7,268 on the foregoing disability insurance premium and the value of the term
life insurance premium reported in the last column of this table.
/17/ Consists of disability insurance premium of $6,638 and tax gross-up of
$7,061 on the foregoing disability insurance premium and the value of the term
life insurance premium included for such year in the last column of this
table.
/18/ Consists of $8,000 matching contributions to Mr. Chi's 401(k) account and
$1,179 for service recognition.
Option Grants
The following table summarizes pertinent information concerning individual
grants of options to purchase Common Stock during fiscal year 1998, including
a theoretical grant date present value for each such grant:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants Option Term
- ------------------------------------------------------------------------ -----------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Expiration
Name Granted(#)/1/ Fiscal Year Price($/Share) Date 5%($) 10%($)
- ------------------ ------------- ------------ -------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Tinstman 100,000 23.1% $9.3750 1/14/2008 589,589 1,494,134
Stephen G. Hanks 30,000 6.9% $9.3750 1/14/2008 176,877 448,240
Anthony S. Cleberg 30,000 6.9% $9.3750 1/14/2008 176,877 448,240
Thomas H. Zarges 100,000 23.1% $9.3750 1/14/2008 589,589 1,494,134
Steven Y. Chi 0 -- -- -- -- --
</TABLE>
- --------
/1/ The options were granted on January 14, 1998 and become exercisable in
four equal increments on the first four anniversaries of the date of grant.
Each option is exercisable over a period of up to ten years from the date of
grant. The exercise price of the options is not less than 100% of the fair
market value (as defined in the Company's Amended and Restated Stock Option
Plan) of the shares on the date of grant. Shares purchased upon the exercise
of the options are to be paid for in cash or, at the discretion of the
Company's Board of Directors, through delivery of other shares of the
Company's Common Stock with value equal to the total exercise price, through
the surrender of shares of Common Stock then issuable upon exercise of the
option having a fair market value on the date of option exercise equal to the
aggregate exercise price or with a combination of the foregoing. The Company
is entitled to require payment in cash or deduction from other compensation
payable to the optionee of any sums required by federal, state or local tax
law to be withheld with respect to the issuance, vesting or exercise of the
above options. At the discretion of the Board, the optionees may elect to have
the Company withhold shares of Common Stock having a fair market value equal
to the sums required to be withheld for the payment of taxes.
13
<PAGE>
Aggregate Option Exercises and Fiscal Year-End Option Values
The following table summarizes pertinent information concerning the exercise
of stock options to purchase Common Stock during fiscal year 1998 by each of
the Named Executives and the fiscal year-end value of unexercised options:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised,
Underlying Unexercised In-the-Money
Options /SARs at Options/SARs at
Fiscal Year End (#) Fiscal Year End ($)
----------------------------- -------------------------
Shares Acquired Value
Name on Exercise Realized ($) Exerciseable/Unexercisable/1/ Exercisable/Unexercisable
- ------------------ --------------- ------------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert A. Tinstman 0 -- 52,173/250,000 0/25,000
Stephen G. Hanks 0 -- 17,111/75,000 0/7,500
Anthony S. Cleberg 0 -- 30,000/150,000 0/7,500
Thomas H. Zarges 0 -- 12,980/137,500 0/25,000
Steven Y. Chi 0 -- 11,517/33,750 0/0
</TABLE>
- --------
/1/ Pursuant to the restructuring of Old MK, in 1996 shares of previously
awarded restricted and unrestricted stock of Old MK held by Messrs. Tinstman,
Hanks and Zarges were converted to warrants exercisable to purchase Common
Stock. Mr. Chi owned shares of Old MK Common Stock which were converted to
warrants to purchase Common Stock as part of the restructuring. Securities
underlying such warrants at November 30, 1998 are included in the above
totals.
Individual Five-Year Plans
During 1993, Old MK awarded Messrs. Tinstman and Hanks participation in
long-term incentive plans that were tailored to each of their positions (the
"Individual 5-Year Plans"). Such plans, to which the Company has succeeded,
provided the participants with an opportunity for a cash award at the end of a
five-year performance period, which ended December 31, 1997. No shares of
Common Stock, performance units or other stock rights are involved.
Mr. Hanks' Individual 5-Year Plan measured annually (over the five-year
period January 1, 1993 to December 31, 1997) the Company's after-tax net
income as a percentage of its average total capital. In the case of Mr.
Tinstman, who was President of the Old MK Mining Group prior to his becoming
President and Chief Executive Officer of Old MK in 1995, the performance
formula was modified to measure over the same period the contribution to net
income at the Mining Group level over such group's average annual capital
employed ("ROTC").
A positive award pool was created each year during the performance period in
an amount equal to the Company's net income (in the case of Mr. Hanks) or
contribution to net income by each group (in the case of Mr. Tinstman) in
excess of the predetermined ROTC goal set by the Compensation Committee. The
award pool was not capped at any maximum amount. If net income or contribution
to net income fell below the ROTC goal in any given year, the amounts by which
the Company or Mining Group failed to meet its goal became a negative award
pool for such individual. The negative award pool was not capped at any
maximum amount.
Each participant shared in the annual award pool (which could be positive or
negative based upon Company or group performance) applicable to his position
in accordance with a sharing percentage established by the Compensation
Committee. The participant's share of the award pool, which could be positive
or negative, was not paid to the executive. Rather, such amounts were tracked
throughout the five-year performance period by the Company and "netted" at the
end thereof. Assuming that the cumulative five-year award was positive, it
could be adjusted upward if the compound annual growth rate in the Company's
stock price exceeded targets established by the Compensation Committee. This
latter adjustment was applicable only to Mr. Hanks and not to Mr. Tinstman.
14
<PAGE>
Except in the case of death, disability or termination without cause, any
payments due to participants under the Individual 5-Year Plans would be made
within 120 days following December 31, 1997. In the event of a change in
control, as defined in the Individual 5-Year Plans, the participants' accrued
awards were immediately vested and payable.
Because of the losses incurred by Old MK before the Merger and
Restructuring, no benefit was payable to Mr. Hanks under the terms of his
Individual 5-Year Plan.
Mr. Tinstman's benefit under his Individual 5-Year Plan could have been
accelerated and become payable during 1996 due to the Restructuring of Old MK.
During 1996, Mr. Tinstman and the Old MK Board of Directors agreed that such
plan would be amended to provide that the Restructuring would not constitute a
"change of control" under such plan, and Mr. Tinstman's accrued benefit of
$1,618,000 was frozen. In connection with such arrangement, Mr. Tinstman
waived payment of such benefit until after the completion of the performance
period under such plan, which occurred on December 31, 1997.
Although Thomas H. Zarges was awarded participation in an Individual 5-Year
Plan during 1994 applicable to his position as President of the Engineering,
Construction and Environmental Group, no such plan was drafted.
Pension
Company retirement or actuarial benefits to the Named Executives are derived
principally from three sources: (i) an annuity originally issued by United
Pacific Life Insurance Company, which was subsequently purchased by GE Capital
Assurance, arising out of the termination of the Morrison Knudsen Corporation
Retirement Plan established January 1, 1970 (the "1970 Retirement Plan") and
terminated December 12, 1987 ("GE Capital Annuity"); (ii) an annuity issued by
John Hancock Mutual Life Insurance Company arising out of the termination of
the Morrison Knudsen Corporation Retirement Plan established January 1, 1988
(the "1988 Retirement Plan"), frozen December 31, 1991 and terminated October
31, 1997 ("John Hancock Annuity") and (iii) a retirement benefit from
supplemental retirement benefit agreements ("SRBAs") ("SRBA Benefit").
Benefits under the 1988 Retirement Plan are offset by benefits under the 1970
Retirement Plan. There are no offsets in benefits under the 1970 Retirement
Plan or the 1988 Retirement Plan for social security benefits. The details as
to the source and amount of each Named Executive's retirement benefits are
provided below.
The following table summarizes the estimated annual benefits payable in the
form of a five-year certain and life annuity upon normal retirement to each of
the Named Executives:
Pension Table
<TABLE>
<CAPTION>
Total
SRBA Annual
GE Capital John Hancock Benefit at Benefit at
Name Annuity/1/($) Annuity/2/($) Age 65($) Age 65($)
- ------------------ ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Robert A. Tinstman 9,201 17,510 10,360/3/ 37,071
Stephen G. Hanks 7,142 0 0 7,142
Anthony S. Cleberg 0 0 0 0
Thomas H. Zarges 0 0 0 0
Steven Y. Chi 14,007 0 0 14,007
</TABLE>
- --------
/1/ The amounts shown in this column are fixed amounts based upon the formula
contained in the 1970 Retirement Plan. Such amounts will not increase due to
compensation paid or service rendered by the Named Executive after December
12, 1987.
/2/ The amounts shown in this column are fixed amounts based upon the formula
contained in the 1988 Retirement Plan. Such amounts will not increase due to
compensation paid or service rendered by the Named Executive after December
31, 1991. The 1988 Retirement Plan was terminated effective as of October 31,
1997, and participants were allowed either to roll the actuarial equivalent of
their accrued benefit over into their respective 401(k) accounts, or to elect
to receive an annuity from the John Hancock Mutual Life Insurance Company upon
retirement. Mr. Tinstman elected to receive such an annuity, and upon
retirement at age 65, his annual benefit will be as indicated above. Messrs.
Hanks and Chi elected to roll their benefits over into their 401(k) accounts.
Had Mr. Hanks elected not to roll over his retirement
15
<PAGE>
benefit, his John Hancock Annuity would have been $13,486 for a total annual
benefit at age 65 of $20,628. Had Mr. Chi elected not to roll over his
retirement benefit, his John Hancock Annuity would have been $6,313, for a
total annual benefit at age 65 of $20,320. Messrs. Cleberg and Zarges have
accrued no benefits under any of the plans indicated above; therefore, no
amounts were rolled over, and no annuity will be payable to them upon
retirement. For purposes of the 1988 Retirement Plan, Messrs. Tinstman, Hanks
and Chi have 10, 12, and 11 years of credited service with the Company,
respectively.
/3/ The Company has entered into a nonqualified and unfunded SRBA to provide
retirement income to Mr. Tinstman. The SRBA provides Mr. Tinstman with a
retirement benefit equal to the difference between (i) the retirement benefit
that would be payable to him under the 1988 Retirement Plan, if it were not
for certain limits imposed on the Named Executive under the Internal Revenue
Code and (ii) his John Hancock Annuity. This difference is referred to
hereafter as the "Standard SRBA Benefit." The Standard SRBA Benefit will not
increase, absent any future amendments to his SRBA, due to compensation paid
or services rendered after December 31, 1991.
Employment Agreements and Change in Control Arrangements
Effective January 1, 1993, Old MK entered into employment agreements with
Messrs. Tinstman and Hanks, to which the Company succeeded in the Merger.
Effective January 1, 1994, Old MK entered into a similar employment agreement
with Mr. Zarges, to which the Company also succeeded in the Merger. The
agreements were for initial five-year terms (January 1, 1993 through December
31, 1997 for Messrs. Tinstman and Hanks and January 1, 1994 through December
31, 1998 for Mr. Zarges) with automatic continuing year-long extensions after
the end of the initial term.
Mr. Tinstman's decision to retire from the position of President and CEO of
the Company as of February 3, 1999 effectively terminated his employment
agreement. Mr. Tinstman has agreed to continue to provide services to the
Company in a consulting capacity for a period of three months, during which
time he will continue to receive salary at the rate in effect on February 3,
1999 and continue to receive benefits as an employee of the Company. In
recognition of his services to the Company, the Company also will pay Mr.
Tinstman compensation for a period of 24 months beginning at the end of the
three-month consulting period. This additional compensation will be equal to
the base salary at the rate in effect on February 3, 1999, the average annual
bonus amount paid for the Company's three most recently closed fiscal years
and continued participation in benefit plans.
Pursuant to the terms of their employment agreements, Messrs. Hanks and
Zarges each are entitled to receive a minimum annual base salary of $250,000,
and to participate in the Company's annual bonus plan applicable to their
corporate position or operating group position. They are also entitled to
participate in (i) an Individual 5-Year Plan tailored to their corporate
position or operating group position (for a description of such plans, see the
section herein titled "Individual 5-Year Plans"); (ii) the Key Executive Life
Insurance Plan (which provides pre-retirement life insurance of three times
base salary, inclusive of the Company's group plan, and which provides post-
retirement life insurance of one times base salary); (iii) the Key Executive
Disability Insurance Plan (which provides a disability benefit of 60% of base
salary and annual bonus, inclusive of all Company and government programs) and
(iv) all other health and welfare benefits generally available to executive
officers of the Company.
Under the employment agreements, Messrs. Hanks and Zarges are also entitled
to receive a severance benefit equal to twice their base compensation (which
includes such items as base salary in effect immediately preceding the
termination of employment, bonuses and participation in health and retirement
programs) if their employment is terminated for a reason other than death,
disability, cause, voluntary resignation under circumstances not constituting
constructive termination or the expiration of their employment agreements.
Under such circumstances, the Company will fully vest unvested stock options
and restricted stock awards granted before 1997 and fully vest and immediately
pay any accrued cash awards and bonuses. If any payments due under the
employment agreements will result in liability to Messrs. Hanks and Zarges for
an excise tax imposed by Section 4999 of the Internal Revenue Code, the
Company has agreed to pay to them an amount which (after deducting any
federal, state and local income taxes payable with respect to such amount) is
sufficient to fully satisfy such tax.
16
<PAGE>
On January 10, 1997, January 14, 1998 and January 20, 1999, the employment
agreements of Messrs. Hanks and Zarges were amended to provide that in the
event they are terminated for any reason, no portion of the stock options that
were granted to them on January 10, 1997, January 14, 1998 and January 20,
1999 and that are unvested as of the date of such termination would be
exercisable.
On January 20, 1999 the Board of Directors approved the restructuring of the
employment arrangements of Messrs. Hanks and Zarges to make them "at will"
employees and eliminate the automatic extension provision and severance
payment provisions of their employment agreements. These changes will become
effective in February 2000.
Mr. Chi, who has served as President of the Mining Group of the Company, has
indicated his desire to reduce his time commitment to the Company from full-
time to part-time employment. The Company has entered into an agreement with
Mr. Chi, effective March 31, 1999, under which Mr. Chi will continue to
provide services for the Company's mining interests in Eastern Europe and the
Far East, including Indonesia, on a part-time basis. The term of the agreement
is two years, although either Mr. Chi or the Company may terminate the
agreement upon 120 days written notice. For his services under this agreement,
Mr. Chi will be paid salary at the rate of $120,000 per year and will continue
to be covered by the benefit plans generally available to regular full-time
employees.
Indebtedness of Management
On February 17, 1995, the Company loaned $250,000 (the "1995 Loan") to
Darrol N. Groven and his wife, which was secured by their Montana residence.
Mr. Groven formerly served as Senior Vice President of the Company and
President of the Company's Heavy Civil Construction Group and currently serves
in a management position with the Morrison Knudsen Contractors Group. With the
sale of the Montana residence, the non-interest bearing loan was reduced to
$114,453. The 1995 Loan was issued in connection with Mr. Groven's appointment
as President of Kasler Corporation, a subsidiary of the Company, and his
relocation to Kasler's headquarters in southern California at the request of
the Company. Also, on October 18, 1996, the Company loaned $200,000 (the "1996
Loan") to Mr. Groven and his wife, which was secured by their California
residence. In February of 1997, the Company loaned $50,000 (the "1997 Loan")
to Mr. Groven and his wife, which was secured by their Idaho residence. The
1996 and 1997 Loans were non-interest bearing and were made in connection with
Mr. Groven's relocation to Boise, Idaho, at the request of the Company. With
the sale of the California residence, the 1996 Loan and the 1997 Loan were
paid in full and $7,065 was credited against the 1995 Loan. Since the
beginning of fiscal year 1998, the largest aggregate amount due and owing to
the Company by Mr. Groven was $107,388, and he remains indebted to the Company
for that amount. Mr. Groven has executed a non-interest bearing promissory
note in favor of the Company, which becomes due and payable on June 7, 2001
for such outstanding amount which is secured by his Idaho residence.
No other director or executive officer of the Company has been indebted to
the Company at any time since the beginning of fiscal year 1998 in an amount
in excess of $60,000.
Certain Relationships and Related Transactions
Washington Corporations ("WC"), which is owned by Dennis R. Washington, has
historically provided various administrative and support services to the
Company and its subsidiaries pursuant to certain intercompany agreements.
During fiscal year 1998, the Company paid $1,128,000 to WC for administrative
and support services. In addition, during fiscal year 1998, the Company paid
$669,000 to WC for the lease and maintenance of two corporate aircraft from
WC.
Equipco, Inc. ("Equipco"), a wholly owned subsidiary of WC, provides repair
services for equipment owned by the Company. Services are provided at cost and
no warranty is made on work performed. The Company pays a proportionate share
of Equipco's fixed costs in return for Equipco maintaining its repair facility
conveniently located and readily available to the Company. During fiscal year
1998, services provided by Equipco to the Company totaled $575,000.
17
<PAGE>
Envirocon, Inc. ("Envirocon"), a corporation owned by Dennis R. Washington,
and Industrial Constructors Corp. ("ICC"), a wholly owned subsidiary of the
Company, formed ENV-ICC Joint Venture (50-50% joint venture with Envirocon as
sponsor) to provide environmental remediation services at the Cobolt mine in
northern Idaho, which work is substantially complete. During fiscal year 1998,
revenue earned by the joint venture totaled $5,440,000.
Envirocon also entered into the Sunland Remediators Joint Venture with
Morrison Knudsen Corporation, an Ohio corporation ("MK-Ohio"), a wholly owned
subsidiary of the Company, (70% Envirocon as sponsor and 30% MK-Ohio) to
perform environmental site remediation work. During fiscal year 1998, revenue
earned by the joint venture totaled $1,610,903.
Terry W. Payne, a director of the Company, is Chairman and owner of Terry
Payne & Co., Inc. ("TPC"), which provides insurance and bonding brokerage
services to the Company and its subsidiaries. In January 1998, the Board of
Directors of the Company approved a new Professional Services Agreement for
insurance brokerage services supplied by TPC to the Company effective January
1, 1998 and expiring December 31, 2000, with automatic renewal annually for
12-month terms thereafter, unless canceled by either party prior to the annual
date. Pursuant to the new agreement, TPC receives an annual fixed fee of
$1,150,000 to be paid in equal quarterly installments with all insurance
commissions earned by TPC to be credited 100% against the fee. Should surety
commissions exceed $250,000 in any given calendar year, then TPC shall credit
only 50% of all surety commissions above $250,000 for the remainder of the
year.
Also, see "Compensation Committee Interlocks and Insider Participation" in
this Proxy Statement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act and the rules thereunder require the
Company's officers and directors and persons who own more than 10% of the
outstanding Common Stock to file reports of ownership and changes in ownership
with, among others, the SEC and to furnish the Company with copies.
Based on its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that,
during fiscal year 1998, all directors, executive officers and beneficial
owners of greater than 10% of the outstanding Common Stock complied with the
filing requirements applicable to them.
18
<PAGE>
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table shows as of January 31, 1999, the persons (as the term is
used in Section 13(d)(3) of the Exchange Act) known to the Company to
beneficially own more than 5% of the Common Stock, and the shares of Common
Stock beneficially owned by all directors of the Company and nominees, the
Named Executives and all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL RIGHT TO ACQUIRE
NAME AND ADDRESS OWNERSHIP AS OF WITHIN 60 DAYS OF PERCENT OF
OF BENEFICIAL OWNER/1/ JANUARY 31, 1999/2/ JANUARY 31, 1999/3/ CLASS/4/
---------------------- -------------------- -------------------- --------------
<S> <C> <C> <C>
Dennis R. Washington 20,252,250/5/ 42,615 38.00
c/o Washington Corpora-
tions
101 International Way
Missoula, Montana 59802
Pioneering Investment
Management, Inc. 3,585,100/6/ 0 6.74
60 State Street
Boston, Massachusetts
02109
CS First Boston, Inc. 2,796,985/7/ 0 5.26
Eleven Madison Avenue
New York, New York
10010
<CAPTION>
Directors and Nominees:
David H. Batchelderl 120,774 110,774 *
Leonard R. Judd 58,884 53,884 *
William C. Langley 31,187 31,187 *
Robert S. Miller, Jr. 36,614 36,614 *
Dorn Parkinson 186,187/8/ 181,187 *
Terry W. Payne 77,033 57,033 *
John D. Roach 41,187 31,187 *
Robert A. Tinstman 127,173 127,173 *
<S> <C> <C> <C>
Dennis R. Washington 20,252,250/5/ 42,615 38.00
Thomas H. Zarges 50,480 50,480 *
Named Executives:
Steven Y. Chi 23,132 22,767 *
Anthony S. Cleberg 47,500/9/ 37,500 *
Stephen G. Hanks 39,611 39,611 *
Robert A. Tinstman 127,173 127,173 *
Thomas H. Zarges 50,480 50,480 *
All Directors and Execu- 21,179,954 909,954 39.15
tive Officers
as a Group (18 per-
sons)*
</TABLE>
- --------
*Indicates that the percentage of shares beneficially owned does not exceed 1%
of the class.
/1/ Except as otherwise indicated, the mailing address of each person shown is
c/o Morrison Knudsen Corporation, Morrison Knudsen Plaza, 720 Park Boulevard,
Boise, Idaho 83729.
/2/ For purposes of this table, shares are considered to be "beneficially"
owned if the person directly or indirectly has the sole or shared power to vote
or direct the voting of the securities or the sole or shared power to dispose
of or direct the disposition of the securities, and a person is considered to
be the beneficial owner of shares if that person has the right to acquire the
beneficial ownership of the shares within 60 days of January 31, 1999. Unless
otherwise noted, the beneficial owners have sole voting and dispositive power
over their shares listed in this column.
19
<PAGE>
/3/ Indicates shares included in the amounts shown to be beneficially owned as
of January 31, 1999 by reason of a right to acquire beneficial ownership
thereof within 60 days of January 31, 1999.
/4/ The percentages shown are calculated based upon the number of shares of
the Company's Common Stock shown in the second column of this table, which
include shares that the stockholder has the right to acquire beneficial
ownership of within 60 days of January 31, 1999.
/5/ Such shares include 828,000 shares held by D.W. Holdings, Inc., which is
wholly owned by Mr. Washington and as to which Mr. Washington may be deemed to
be the beneficial owner, and exclude 77,838 shares held by Mr. Washington's
wife as to which Mr. Washington disclaims beneficial ownership.
/6/ Pioneering Investment Management, Inc. ("PIMI") has filed an Amendment No.
2 to Schedule 13G dated January 11, 1999 with the SEC. Such Amendment states
that, as of such date, PIMI was the beneficial owner of 3,585,100 shares of
Common Stock and had sole voting and dispositive power as to such shares.
/7/ CS First Boston, Inc. ("CSFBI") has filed an Amendment No. 1 to Schedule
13G dated November 22, 1996 with the SEC. Such Amendment states that, as of
such date, CS First Boston Corporation ("CSFBC"), a wholly owned subsidiary of
CSFBI, was the beneficial owner of 2,796,985 shares of the Common Stock, of
which CSFBC had sole voting power as to no shares, shared voting power as to
2,796,985 shares, sole dispositive power as to no shares, and shared
dispositive power as to 2,796,985 shares, and that CSFBI may be deemed to be
the beneficial owner of such shares by virtue of its ownership of 100% of the
outstanding shares of CSFBC.
/8/ Such shares include 5,000 shares held in joint tenancy with Mr.
Parkinson's wife as to which Mr. Parkinson shares voting and dispositive power
and exclude 5,000 shares held by Mr. Parkinson's wife as to which Mr.
Parkinson disclaims beneficial ownership.
/9/ Such shares include 10,000 shares held in joint tenancy with Mr. Cleberg's
wife as to which Mr. Cleberg shares voting and dispositive power.
2. APPROVAL OF THE MORRISON KNUDSEN CORPORATION LONG-TERM INCENTIVE
COMPENSATION PLAN.
The Board of Directors has unanimously approved, and recommends to
stockholders that they consider and approve, a long-term incentive
compensation plan designed to provide additional financial incentive to key
senior executives of the Company to create value for the Company and its
stockholders beyond currently projected earnings levels.
Under the plan, participants may receive long-term cash bonuses if the
Company's cumulative earnings per share of Common Stock over the period from
December 1, 1998 to November 30, 2000 exceed $1.77. No long-term cash bonuses
will be paid if the Company's cumulative earnings per share do not exceed
$1.77 over that period. For the period beginning December 1, 1996 and ended
November 30, 1998, the Company's cumulative earnings per share was $1.29 per
share.
The amount of any long-term bonus awards under the plan is calculated as a
percentage of the participant's average annual base salary over the two-year
period during which performance is measured. The percentage increases on a
graduated scale from 0% at cumulative earnings per share of $1.77 to a maximum
of 100% at cumulative earnings per share of $2.02. No award may exceed one
times a participant's average annual base salary. The Subcommittee of the
Compensation Committee that administers the plan has discretion to reduce or
eliminate any award but may not increase an award above the amount determined
under the plan's formula.
Participation in the plan is limited to five key senior executive positions
in the Company and such other executives, if any, designated by the
Subcommittee to participate.
Section 162(m) generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Company's CEO or any of the four
other most highly compensated executive officers. However, certain
performance-based compensation is specifically exempt from the deduction
limit. To qualify for this exemption, the performance-based compensation must
be paid solely on account of the attainment of one or more pre-established
objective performance goals established by a committee comprised solely of
outside directors. In addition, the material terms of the performance goal
must be approved by the stockholders, and the committee must certify that the
goals are accomplished. The proposed Long-Term Incentive Compensation Plan has
been designed to satisfy these requirements so as to qualify any awards paid
under the plan as performance-based compensation under Section 162(m).
20
<PAGE>
A copy of the Morrison Knudsen Corporation Long-Term Incentive Compensation
Plan is attached as Attachment A.
The Board of Directors recommends that stockholders vote FOR
the approval of the Morrison Knudsen Corporation Long-Term Incentive
Compensation Plan.
3. RATIFICATION OF THE APPOINTMENT OF AUDITORS.
The Board of Directors, upon recommendation of the Audit Committee of the
Company, has appointed PricewaterhouseCoopers LLP ("PWC") as auditors to make
an examination of the consolidated financial statements of the Company and its
subsidiary corporations for the fiscal year ending November 30, 1999. PWC
served as the Company's independent auditors for the fiscal year ended
November 30, 1998. A proposal that the appointment of PWC be ratified will be
submitted to stockholders at the meeting, and the Board of Directors
recommends ratification of the appointment. Representatives of PWC will be
present at the Annual Meeting, will be given the opportunity to make a
statement if they wish and will be available to respond to appropriate
questions.
The Audit Committee of the Company's Board of Directors has approved a
policy which states that the Company's principal independent accountants may
be engaged to perform any service normally provided by accounting firms to
publicly held clients, provided that management is satisfied that the
independence requirements of the American Institute of Certified Public
Accountants and the SEC have been met. The Audit Committee, after reviewing
compliance with this policy, has approved all services rendered.
The Board of Directors recommends that stockholders vote FOR the
ratification of the appointment of PricewaterhouseCoopers LLP
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
In order for any proposal submitted by a stockholder for action at the
Company's 2000 annual meeting of stockholders to be considered for inclusion
in the Company's 2000 Proxy Statement, such proposal must be in writing and
received by the Secretary of the Company on or before November 3, 1999.
SOLICITATION OF PROXIES
Proxies are being solicited from the Company's stockholders on behalf of the
Board of Directors. The cost of such solicitation will be borne by the
Company. In addition to the use of the mails, proxies may be solicited by the
directors, officers and employees of the Company by personal interview,
telephone, facsimile or telegram. Such directors will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of the Common
Stock held of record by such persons, and the Company will reimburse such
brokerage houses, custodians, nominees and fiduciaries for reasonable out-of-
pocket expenses incurred in connection therewith. The Board of Directors
intends to utilize the services of Georgeson & Company Inc. of New York, New
York, an investor relations, counseling and proxy solicitation firm, in
connection with this solicitation of proxies. Although the exact cost of those
services is not known at this time, it is anticipated that the cost will be
approximately $9,000.
Dated: March 3, 1999BY ORDER OF THE BOARD OF DIRECTORS
Morrison Knudsen Corporation
Stephen G. Hanks
Executive Vice President, Chief
Legal Officer
and Secretary
21
<PAGE>
ATTACHMENT A
MORRISON KNUDSEN CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
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.
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 14.12%. If the Actual
Cumulative Earnings Per Share does not exceed $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.
22
<PAGE>
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 $1.77.
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 Contractors 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 limitations in
Sections 4.03 and 4.04 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.
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.
4.04 Reduction of Award. The Compensation Committee shall retain discretion
to reduce or eliminate an Award for any Participant or all Participants.
However, the reduction or elimination of an Award for one or more Participants
shall not result in an increase of any Award to any other Participant.
23
<PAGE>
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 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
24
<PAGE>
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.
ARTICLE VIII--MISCELLANEOUS PROVISIONS
8.01 Secured 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 transferable 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.
25
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MORRISON KNUDSEN CORPORATION
The undersigned hereby constitutes and appoints Anthony S. Cleberg and
Stephen G. Hanks, or either of them, with full power of substitution, as
attorneys and proxies to appear and vote all of the shares of stock designated
as "Common Stock" on the reverse side of this proxy card and which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Morrison Knudsen Corporation (the "Company") to be held at the Central Plaza
Building of the Company's World Headquarters Office located at 720 Park
Boulevard, Boise, Idaho, on Friday, April 9, 1999, at 10:00 a.m., local time,
and at any and all postponements or adjournments thereof, for the election of
the nominees listed on the reverse side of this proxy card, or their respective
substitutes, as directors; for the approval of the Morrison Knudsen Corporation
Long-Term Incentive Compensation Plan; and for the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors; and on any
other matters properly brought before the meeting or any postponements or
adjournments thereof; and as to such other matters the undersigned hereby
confers discretionary authority, with all the powers which the undersigned would
possess if personally present. The shares designated on the reverse side of this
proxy card and represented by this proxy will be voted as directed by the
stockholder. Where no direction is given when the duly-executed and dated proxy
is returned, such shares will be voted FOR each nominee listed in Item 1, FOR
Item 2 and FOR Item 3 at the meeting.
(Continued and to be signed on reverse side)
<PAGE>
THE BOARD RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3.
1. The election of eight directors duly nominated to terms expiring at the
annual meeting of stockholders in 2000: David H. Batchelder, Leonard R.
Judd, Robert S. Miller, Jr., Dorn Parkinson, Terry W. Payne, John D. Roach,
Dennis R. Washington and Thomas H. Zarges.
[_] FOR all nominees listed above. [_] WITHHOLD AUTHORITY to vote for all
nominees listed above. To withhold authority for any individual nominee,
strike a line through the nominee's name in the above list.
2. Approval of the Morrison Knudsen Corporation Long-Term Incentive
Compensation Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Company for the fiscal year ending November 30,
1999.
[_] FOR [_] AGAINST [_] ABSTAIN
All votes received by Norwest Bank Minnesota, N.A., will be kept confidential.
Please sign your name exactly as it appears printed hereon. Executors,
administrators, guardians, officers of corporations and others signing in a
fiduciary capacity should sign their full title as such. Each joint tenant
should sign.
Date:
_______________________________________
Receipt of the Proxy Statement for the
meeting is acknowledged.
--------------------------------------------
(Signature of stockholder)
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(Signature of other joint tenant, if held
jointly)
Whether or not you expect to attend the meeting, you are urged to date, execute
and return this proxy, which may be revoked at any time prior to its use.
