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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check 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 (S) 240.14a-11(c) or (S) 240.14a-12
MORRISON KNUDSEN CORPORATION
A Delaware Corporation
Commission File Number 1-12054
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS--APRIL 14, 2000
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 14, 2000, 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 2001.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 1, 2000.
3. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 7, 2000, 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 10, 2000
BY ORDER OF THE BOARD OF DIRECTORS
Morrison Knudsen Corporation
Stephen G. Hanks
Executive Vice President, Chief Legal
Officer and Secretary
----------------
The Company's 1999 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>
MORRISON KNUDSEN PLAZA
720 PARK BOULEVARD
BOISE, IDAHO 83712
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 14, 2000
----------------
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 14, 2000, 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 10, 2000.
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 March 7, 2000 (the "Record Date"), are
entitled to vote such shares at the Annual Meeting. On the Record Date,
52,349,872 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 appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors and any other matter properly brought before
the Annual Meeting 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 and (ii)
FOR ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending December 1, 2000.
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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.
On March 22, 1999, the Company, teaming with British Nuclear Fuels plc
("BNFL"), acquired the Westinghouse Government and Environmental Services
Company and Energy Systems Business Unit from CBS Corporation (the
"Westinghouse Acquisition").
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. Eight directors are to be elected at the Annual Meeting.
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
2001, and until their successors are duly elected and qualified. Each of the
nominees 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 50 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., ICN Pharmaceuticals, Inc. and
Nuevo Energy Company.
Leonard R. Judd Retired. Formerly consultant for and 60 1993
Director, President and Chief Operating
Officer of Phelps Dodge Corporation (copper
mining and manufacturing), Phoenix,
Arizona. Mr. Judd also formerly served as
President of Phelps Dodge Mining Company.
Mr. Judd also serves as a Director of
Southwest Gas Corporation.
</TABLE>
2
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<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. Advisor to 58 1996
Aetna, Inc. (health benefits and
insurance and financial services),
Hartford, Connecticut. Mr. Miller
formerly served as President of Reliance
Group Holdings, Inc. (fire, marine and
casualty insurance), New York, New York;
Chairman and Chief Executive Officer of
Waste Management, Inc. (environmental
services), Houston, Texas; Acting Chief
Executive Officer of Federal-Mogul Corp.
(motor vehicle parts and accessories),
Detroit, Michigan; and Chairman of Old
MK. Mr. Miller also serves as a Director
of Federal-Mogul Corp., Pope & Talbot,
Inc., Symantec Corp. and Waste
Management, Inc.
Dorn Parkinson Vice Chairman of the Board. Chairman of 53 1993
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., 58 1993
Inc. (insurance and 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, President and Chief Executive 56 1996
Officer of Builders FirstSource (building
products) and BSL Holdings, Inc.
(building products), Dallas, Texas. Mr.
Roach formerly served as Chairman,
President and Chief Executive Officer of
Fibreboard Corporation (building
products), Dallas, Texas. Mr. Roach also
serves as a Director of PMI Group, Inc.
Dennis R. Washington Chairman, President and Chief Executive 65 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
and 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 51 1999
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>
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/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 nine meetings of the Company's Board of Directors held during the
Company's fiscal year ended December 3, 1999 ("fiscal year 1999"). 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 1999, with the exception of Mr. Parkinson who was unable to attend
certain Board and Committee Meetings.
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, auditors' 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 Directors or
the Audit Committee. Four meetings of the Audit Committee were held during
fiscal year 1999. The members of the Audit Committee are Messrs. Judd
(Chairman), Miller, Parkinson and Roach.
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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. Five meetings of the
Compensation Committee were held during fiscal year 1999. 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 performance-based compensation, as
defined in Section 162(m), and the performance goals related to such
compensation. The Subcommittee met three times during fiscal year 1999.
Members of the Subcommittee are Messrs. Judd and Roach.
Compensation Committee Interlocks and Insider Participation
From time to time, Batchelder & Partners, Inc., an investment advisory and
consulting firm ("BPI"), of which Mr. Batchelder is Chairman and Chief
Executive Officer, is engaged by the Company to act as financial advisor to
the Company with respect to potential acquisitions and divestitures pursuant
to written engagement agreements. Such agreements traditionally include
reimbursement of reasonable out-of-pocket expenses and payment by the Company
of a success fee based upon the transaction value, payable upon completion of
the transaction. Some engagement agreements for larger potential transactions
also may include payment of a retainer fee. The potential acquisitions and
divestitures, including the specific details of the engagement agreements
between the Company and BPI, generally are subject to strict confidentiality
agreements.
In 1998, BPI entered into an engagement agreement with the Company with
respect to the Westinghouse Acquisition, which was completed on March 22,
1999. Pursuant to the agreement, the Company paid BPI a success fee of
$474,740 in fiscal year 1999.
Pursuant to other engagement agreements entered into during fiscal year
1999, the Company paid BPI $50,000 in retainer fees and $42,752 for expenses
and agreed to amend certain Warrant Certificates with respect to 107,727
shares of the Company's Common Stock issued to certain principals of BPI
pursuant to a Warrant Agreement dated September 11, 1996, to extend the
exercise period to March 11, 2003. No success fee, other than the success fee
paid in connection with the Westinghouse Acquisition, was paid to BPI during
fiscal year 1999 with respect to any engagement agreement.
In fiscal year 2000, the Company has paid $50,000 to BPI in retainer fees,
and may pay BPI additional retainer fees, success fees and reimbursement of
expenses, under the terms of engagement agreements that are currently in
effect.
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 proposed by
stockholders for the 2001 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 the stockholder
proposes to nominate for election as a director: name, age, business address,
residence
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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 2001 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 2001 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 1999. The members of the
Nominating Committee are Messrs. Miller and Payne.
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
$22,000, plus $1,000 for each day of attendance at a Board of Directors
meeting and $750 for each standing committee meeting attended, except if such
committee meeting is held on the same day as a meeting of the full Board.
Committee chairmen receive an additional $4,000 per year.
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 1999. During fiscal year 1999, the following
amounts were earned by members of the Board of Directors: David H. Batchelder
- - $15,500 plus 11,084 stock options; Leonard R. Judd - $17,000 plus 11,084
stock options; Robert S. Miller, Jr. - $12,000 plus 11,084 stock options; Dorn
Parkinson - $9,500 plus 9,639 stock options; Terry W. Payne - $13,500 plus
9,639 stock options; John D. Roach - $13,000 plus 9,639 stock options; and
Dennis R. Washington - $2,000 plus 11,084 stock options. (Mr. Washington's
fees were paid and options granted prior to his election as an officer of the
Company.) William C. Langley, who retired from the Board in April 1999, earned
$1,000 plus 9,639 stock options during fiscal year 1999 as a director of the
Company. The exercise price on each of the above options is $8.30.
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 1999.
Mr. Washington, in his role as Chairman of the Board of Directors and before
his appointment as President and Chief Executive Officer of the Company, was
deeply involved in and 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 an option to
purchase
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250,000 shares of Common Stock of the Company. The grant became effective on
March 22, 1999, the date the Westinghouse Acquisition closed. The exercise
price per share of the options is $9.375, representing the fair market value
of a share of Common Stock on March 22, 1999. The options will vest in four
equal installments on the first four 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>
Dennis R. Washington/1/ Chairman, President and Chief Executive 65 1999
Officer
Anthony S. Cleberg/2/ Executive Vice President and Chief 47 1997
Financial Officer
Stephen G. Hanks/3/ Executive Vice President, Chief Legal 49 1996
Officer and Secretary
Roger J. Ludlam/4/ Executive Vice President and President 57 1999
and Chief Executive Officer of Morrison
Knudsen Contractors Group
Ambrose L. Schwallie/5/ Executive Vice President and President 52 1999
and Chief Executive Officer of MK
Government Services Group
Thomas H. Zarges/6/ Executive Vice President and President 51 1996
and Chief Executive Officer of MK
Engineers and Constructors Group
Reed N. Brimhall/7/ Vice President and Controller 46 1999
Frank S. Finlayson/8/ Vice President and Treasurer 39 1997
Alvia L. Henderson/9/ Vice President--Human Resources 50 1996
Leo A. Giacometto/10/ Vice President--Government Affairs 37 1999
</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. (space and aviation, residential and industrial control
systems), 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.
/4/ Mr. Ludlam formerly served as President and Chief Executive Officer of
Perini Corporation (general contractor), Park Construction Company (heavy
civil contractor) and S. J. Groves & Sons (heavy civil contractor).
/5/ Mr. Schwallie formerly served as President of Westinghouse Savannah River
Company (defense program contract services).
/6/ 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.
/7/ Mr. Brimhall formerly served as Vice President of Audit and Government
Accounting for the Company. He also formerly served as Secretary and
Controller of SCIENTECH, Inc. (energy and telecommunication consulting and
technical services) and served in various executive and management positions
at Stanford University (educational institution).
/8/ Mr. Finlayson formerly served the Company as Vice President of Project
Finance, and prior to the Merger Date, he served Old MK in various management
capacities.
/9/ Prior to the Merger Date, Ms. Henderson served as Vice President of Human
Resources of Old MK.
/10/ Mr. Giacometto formerly served as Chief of Staff for U.S. Senator Burns
and as Director of the Montana Department of Agriculture.
6
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION FOR 1999
General Compensation Policy
The goals of the Company's compensation program are to align compensation
with business objectives and performance and with 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. 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 that expire at
the end of March 2000. 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 1999, 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.
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. Each year, the Company establishes
performance objectives upon which bonuses may be based and establishes target
bonus amounts assuming the Company meets those objectives. The percentage of
base salary targeted as a bonus amount varies in proportion to the level of
the individual executive officer's responsibility within the Company and takes
into account the comparative bonus data for that officer from the compensation
study described above. The Compensation Committee retains substantial
discretion to adjust individual bonus awards up or down from the targeted
amounts based upon the actual overall financial performance of the Company,
the financial performance of the operating group, if any, to which the
individual is assigned and the overall individual performance factors
described above. After the end of
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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 then determined by starting with
the target bonus amount for the Company's level of financial performance and
adjusting the amount up or down based upon the financial performance of the
operating group, if any, to which the individual is assigned and the overall
individual performance factors described above. Generally, if Corporate or
group level performance objectives are met, the adjusted bonus falls within a
range that runs from 50% to 150% of the target amount.
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. In 1999, the stockholders of the Company
approved a long-term incentive compensation plan under which cash bonus awards
may 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. 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.
In determining the size of an option award for an executive officer, the
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 Subcommittee uses 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 Subcommittee takes into account the comparative data from other publicly
traded companies concerning long-term incentive compensation for the given
executive position and the percentage of total compensation the Subcommittee
believes should be represented by the value of an option grant. In addition to
considering the grant value and the officer's performance, the Subcommittee
also may consider the number of outstanding unvested options the officer holds
and the size of previous option awards to that officer. The Subcommittee does
not assign specific weights to these items.
8
<PAGE>
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 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 1999 compensation.
Dennis R. Washington became President and CEO of the Company on February 3,
1999. The Compensation Committee has determined that Mr. Washington's
compensation should be exclusively equity-based so that his interests as CEO
are directly linked with the interests of the Company's other stockholders. In
determining the level of Mr. Washington's compensation, the Subcommittee used
the same compensation policy described above for all employees.
Salary. Mr. Tinstman's base salary reflected a consideration of both
competitive forces and the Company's performance. The Compensation Committee
did 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. In
recommending a salary for Mr. Tinstman, the Compensation Committee took into
account the comparative salary data from the compensation study for companies
with revenue equal to or exceeding those of the Company and Mr. Tinstman's
individual performance. Based upon this analysis and the leadership that Mr.
Tinstman demonstrated in meeting the Company's overall financial objectives in
1998, 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 1999.
Mr. Washington does not currently receive any salary for his services as
CEO. However, the Subcommittee did consider the comparative salary data
component of total CEO compensation, described above, in determining the level
of Mr. Washington's equity-based compensation.
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 calculated and approved within 75 days after the
end of the fiscal year.
As a result of the financial performance of the Company during fiscal year
1998, Mr. Tinstman was awarded a bonus of $258,213 in January 1999.
Because Mr. Washington's compensation is exclusively equity-based, he did
not receive any cash bonus for fiscal year 1999. However, the Subcommittee did
consider the comparative bonus data component of total CEO compensation in
determining the level of Mr. Washington's equity-based compensation.
Stock Options. The Company generally followed the same policy described
above to determine CEO 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.
9
<PAGE>
In January 1999, the Subcommittee approved, and the Compensation Committee
and Board of Directors ratified, the grant to Mr. Tinstman of an option to
purchase 75,000 shares of Common Stock with an exercise price per share equal
to the fair market value of a share 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. Upon
Mr. Tinstman's departure from the Company, this option expired without ever
becoming exercisable.
In January 1999, the Board of Directors voted to grant Mr. Washington an
option to purchase 250,000 shares of Common Stock, effective on the date of
closing of the Westinghouse Acquisition, with an exercise price per share
equal to the fair market value of a share of the Company's Common Stock on the
date of closing of the Westinghouse Acquisition ($9.375 per share). This
option, which vests in four equal installments on each of the first four
anniversaries of the date of grant, was granted in recognition of Mr.
Washington's deep involvement in the strategic development of the Westinghouse
Acquisition before he became CEO, including negotiation of the partnership
arrangement with BNFL, negotiations with CBS Corporation and the obtaining of
government regulatory approval of the transaction.
In April 1999, the Subcommittee approved, and the Compensation Committee and
Board of Directors ratified, the grant to Mr. Washington of an option to
purchase 2,000,000 shares of Common Stock with an exercise price per share
equal to the fair market value of a share of the Company's Common Stock on the
date of grant, which was $10.25 on April 8, 1999. This option vests in its
entirety on the third anniversary of the date of grant. In approving the grant
of this option to Mr. Washington, the Subcommittee reviewed the grant value
guidelines described under "Equity-Based Compensation," considered the
desirability of linking Mr. Washington's entire compensation directly with the
interests of the Company's other stockholders and considered competitive data
from the compensation study showing total compensation for 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:
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG MORRISON KNUDSEN CORPORATION, PEER GROUP, INDEX AND S & P 500 INDEX
<CAPTION>
MORRISON
Measurement period KNUDSEN PEER
(Fiscal Year Covered) CORPORATION GROUP S & P 500
- --------------------- ----------- -------- ---------
<S> <C> <C> <C>
11/94 $ 100 $ 100 $ 100
11/95 $ 131 $ 138 $ 137
11/96 $ 206 $ 141 $ 175
11/97 $ 226 $ 103 $ 225
11/98 $ 220 $ 109 $ 278
11/99 $ 199 $ 89 $ 337
</TABLE>
Peer Group: Arch Coal, Inc.; Fluor Corporation; Foster Wheeler Corporation;
Granite Construction Incorporated; Harding Lawson Associates Group, Inc.; ICF
Kaiser International, Inc.; The IT Group, Inc.; Jacobs Engineering Group Inc.;
Michael Baker Corp.; Perini Corporation; Stone & Webster, Incorporated; 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, each of the Named Executives (all individuals who acted
as the chief executive officer during the last fiscal year and the other four
most highly compensated executive officers of the Company and its
subsidiaries) during the fiscal years indicated:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Awards
------------------- ------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary ($) Bonus ($) Compensation Options/SARs (#) Comp. ($)
- ------------------------ ---- ---------- --------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dennis R. Washington 1999 0/1/ 0 0 2,261,084/2/ 0
Chairman, President and 1998 -- -- -- 11,795/3/ 0
and Chief Executive Of-
ficer 1997 -- -- -- 37,778/4/ 0
Stephen G. Hanks 1999 322,692 200,000 21,873/5/ 50,000 10,290/6/
Executive Vice Presi-
dent and 1998 314,039 135,000 21,362/7/ 30,000 21,964
Chief Legal Officer and
Secretary 1997 308,077 130,000 21,304/8/ 60,000 24,532
Roger J. Ludlam 1999 310,099 575,000/9/ 18,249/10/ 200,000 44,988/11/
Executive Vice
President and 1998 -- -- -- -- --
President and Chief
Executive 1997 -- -- -- -- --
Officer of the Morrison
Knudsen
Contractors Group
Ambrose L. Schwallie 1999 203,822 284,375 10,250/12/ 50,000 3,941/13/
Executive Vice
President and 1998 -- -- -- -- --
President and Chief
Executive 1997 -- -- -- -- --
Officer of the MK Gov-
ernment
Services Group
Thomas H. Zarges 1999 374,616 200,000 15,012/14/ 75,000 29,074/15/
Executive Vice Presi-
dent and 1998 294,231 150,000 14,507/16/ 100,000 22,784
President and Chief Ex-
ecutive 1997 268,078 150,000 14,070/17/ 50,000 24,758
Officer of the MK Engi-
neers and
Constructors Group
Robert A. Tinstman 1999 178,751 0 0 75,000 1,386,064/18/
Former Chief Executive
Officer 1998 415,280 258,213 24,731/19/ 100,000 23,093
1997 402,840 255,000 24,631/20/ 200,000 25,340
</TABLE>
- --------
/1/ In lieu of salary, Mr. Washington was awarded an option as of April 8,
1999, to purchase 2,000,000 shares of the Company's Common Stock. The option
carries an exercise price of $10.25, which was the fair market value of the
stock on the date of award, and will vest in its entirety on April 8, 2002.
/2/ Includes 2,000,000 stock options awarded in lieu of cash compensation to
Mr. Washington on April 8, 1999, in consideration of his election to the
position of Chairman, President and Chief Executive Officer, 250,000 options
awarded on March 22, 1999, granted in recognition of his involvement in the
strategic development of the Westinghouse Acquisition and 11,084 options
awarded as of January 1, 1999, in lieu of director's retainer fees.
/3/ These shares were granted to Mr. Washington as of January 1, 1998, in lieu
of director's retainer fees for his service as a Non-Employee Director of the
Company.
/4/ Consists of 12,778 options granted as of January 10, 1997, in lieu of
director's retainer fees for service as a Non-Employee Director of the Company
and 25,000 options granted as of January 10, 1997, under the Morrison Knudsen
Corporation 1997 Stock Option and Incentive Plan for Non-Employee Directors.
12
<PAGE>
/5/ Consists of disability insurance premium of $10,712, imputed income of
$520 in connection with an executive term life insurance policy, and tax
gross-up of $10,641 on the foregoing disability insurance premium and the
value of the term life insurance premium.
/6/ Consists of $8,000 matching contributions to Mr. Hanks' 401(k) account and
$2,290 for service recognition.
/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 in the last column of this table.
/8/ 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.
/9/ Includes annual cash bonus of $175,000 and signing bonus of $400,000 in
consideration of Mr. Ludlam's agreement to accept employment with the Company.
/10/ Consists of disability insurance premium of $8,388, imputed income of
$983 in connection with an executive term life insurance policy and tax gross-
up of $8,878 on the foregoing disability insurance premium and the value of
the term life insurance premium.
/11/ Consists of $8,000 matching contributions to Mr. Ludlam's 401(k) account
and $36,988 representing Mr. Ludlam's interest in his executive life insurance
policy's cash surrender value as projected on an actuarial basis attributable
to the 1999 premium.
/12/ Consists of perquisite allowance of $8,000 and $2,250 for personal
financial planning services.
/13/ Consists of $3,000 matching contributions to Mr. Schwallie's 401(k)
account, imputed income of $661 in connection with executive life insurance,
and flex credits of $280 to offset Mr. Schwallie's contribution to the medical
plan of his former employer.
/14/ Consists of disability insurance premium of $7,153, imputed income of
$720 in connection with an executive term life insurance policy and tax gross-
up of $7,139 on the foregoing disability insurance premium and the value of
the term life insurance premium.
/15/ Consists of $8,000 matching contributions to Mr. Zarges' 401(k) account
and $21,074 representing Mr. Zarges' interest in his executive life insurance
policy's cash surrender value as projected on an actuarial basis attributable
to the 1999 premium.
/16/ 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 in the last column of this table.
/17/ 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.
/18/ Consists of $8,000 matching contributions to Mr. Tinstman's 401(k)
account, $1,316,978 payable under the terms of Mr. Tinstman's Retirement
Agreement, $928,000 of which is being paid out in 24 monthly installments of
$38,700 each from May 1999 to May 2001 and $388,178 of which is being paid out
in two annual installments of $194,088.67 each in 2000 and 2001 and $61,086
which had accumulated to Mr. Tinstman's benefit under the Company's Paid Time
Off Plan.
/19/ 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 in the last column of this table.
/20/ Consists of disability insurance premium of $12,243 and tax gross-up of
$12,388 on the foregoing disability insurance premium and the value of the
term life insurance premium reported in the last column of this table.
13
<PAGE>
Option Grants
The following table summarizes pertinent information concerning individual
grants of options to purchase Common Stock during fiscal year 1999, including
a theoretical grant date present value for each such grant:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent
of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base Market
SARs in Fiscal Price Price Expiration
Name Granted(#) Year ($/Share) ($/Share) Date 0%($) 5%($) 10%($)
- -------------------- ------------ ---------- -------- -------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dennis R. Washington 11,084/1/ N/A 8.3000 10.3750 01/01/2009 22.99 95,320 206,274
250,000/2/ 8.4 9.3750 9.3750 03/22/2009 0 1,473,972 3,735,334
2,000,000/3/ 67.3 10.2500 10.2500 04/08/2004 0 5,663,772 12,515,455
Stephen G. Hanks 50,000/2/ 1.7 10.5000 10.5000 01/20/2009 0 330,170 836,715
Roger J. Ludlam 200,000/2/ 6.7 10.8125 10.8125 02/01/2009 0 1,359,985 3,446,468
Ambrose L. Schwallie 50,000/2/ 1.7 10.4375 10.4375 10/05/2009 0 328,204 831,734
Thomas H. Zarges 75,000/2/ 2.5 10.5000 10.5000 01/20/2009 0 495,255 1,255,072
Robert A. Tinstman 75,000/4/ 2.5 10.5000 10.5000 05/02/2000 0 50,838 102,365
</TABLE>
- --------
/1/ These options were awarded to Mr. Washington as a Non-Employee Director of
the Company prior to his election to the position of Chairman, President and
Chief Executive Officer, pursuant to his election to receive stock options in
lieu of cash in payment of his annual director's retainer fee. The options
vested in four equal increments on January 29, 1999, February 28, 1999, May
31, 1999 and August 31, 1999, respectively.
/2/ Mr. Washington's options were granted on March 22, 1999, and become
exercisable in four equal increments on the first four anniversaries of the
date of grant. The options awarded to Messrs. Hanks and Zarges were awarded on
January 20, 1999, and become exercisable on each of the first four
anniversaries of the date of grant. The options granted to Messrs. Ludlam and
Schwallie were awarded on February 1, 1999, and October 5, 1999, respectively,
and become exercisable on each of the first four anniversaries of the date of
grant. All of the options are 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
optionee, with the exception of Non-Employee Directors, 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.
/3/ These options were awarded to Mr. Washington on April 8, 1999, in lieu of
salary when he assumed the position of Chairman, President and Chief Executive
Officer of the Company. The options will vest in their entirety on April 8,
2002, and will expire five years from the date of grant.
/4/ Mr. Tinstman's options were granted on January 10, 1999, and were to
become exercisable in four equal increments on the first four anniversaries of
the date of grant. Mr. Tinstman left the Company on February 3, 1999;
therefore, none of these options are exercisable.
14
<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 1999 by each of
the Named Executives and the fiscal year-end value of unexercised options:
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised,
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value Fiscal Year End (#) Fiscal Year End ($)
on Exercise Realized --------------------------- -------------------------
Name (#) ($) Exercisable/Unexercisable/1/ Exercisable/Unexercisable
- -------------------- ----------- -------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Dennis R. Washington 0 -- 48,157/2,262,500 22,628/0
Stephen G. Hanks 0 -- 39,611/102,500 0/0
Roger J. Ludlam 0 -- 0/200,000 0/0
Ambrose L. Schwallie 0 -- 0/50,000 0/0
Thomas H. Zarges 0 -- 50,480/175,000 0/0
Robert A. Tinstman 0 -- 127,173/0 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. At the time of Mr. Tinstman's termination of employment with the
Company, he had 125,000 exercisable options, which shall remain exercisable
through May 2, 2000, pursuant to the terms of his Retirement Agreement, and
2,173 exercisable warrants.
Pension
Messrs. Tinstman and Hanks are entitled to pension benefits payable under
the terms of group annuity contracts purchased upon the termination of the
Morrison Knudsen Corporation Retirement Plan of 1970 and the Morrison Knudsen
Corporation Retirement Plan of 1988 (the "1988 Retirement Plan"). These plans
were terminated December 12, 1987, and October 31, 1997, respectively. Mr.
Tinstman also is entitled to benefits under the terms of a supplemental
retirement benefit agreement ("SRBA"). The SRBA provides Mr. Tinstman with a
retirement benefit equal to the difference between (a) the retirement benefit
that would be payable to him under the 1988 Retirement Plan if it were not for
certain limits imposed under the Internal Revenue Code and (b) his 1988
Retirement Plan actual benefit. This SRBA benefit will not increase due to
compensation paid or services rendered after December 31,1991. Assuming a
five-year certain and life annuity upon normal retirement, Mr. Tinstman's
total annual benefit at age 65, including his SRBA benefit, would be $37,071,
and Mr. Hanks' total annual benefit at age 65 would be $7,142. For purposes of
these benefits, Messrs. Tinstman and Hanks have 10 and 12 years of credited
service with the Company, respectively. Under the terms of Mr. Tinstman's
Retirement Agreement, he was credited with two years of additional vesting
service for purposes of determining eligibility for early retirement.
15
<PAGE>
Mr. Schwallie is eligible for retirement benefits under the Westinghouse
Government Services Group Pension Plan (the "WGS Plan"), the Westinghouse
Savannah River Company/Bechtel Savannah River, Inc. Pension Plan (the "WSRC
Plan") and the Westinghouse Government Services Group Executive Pension Plan
(the "WGS Executive Pension Plan") (collectively, the "Westinghouse Pension
Plans"). The following table indicates the approximate amounts of annual
retirement income that would be payable at the present time to employees who
participate in the Westinghouse Pension Plans:
<TABLE>
<CAPTION>
Years of Service
---------------------------------------
Remuneration 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
200,000 40,836 54,448 68,059 81,671 95,283
225,000 45,940 61,254 76,567 91,880 107,194
250,000 51,045 68,059 85,074 102,089 119,104
300,000 61,254 81,671 102,089 122,507 142,925
400,000 81,671 108,895 136,119 163,343 190,566
450,000 91,880 122,507 153,134 183,761 214,387
500,000 102,089 136,119 170,149 204,178 238,208
600,000 122,507 163,343 204,178 245,014 285,850
700,000 142,925 190,566 238,208 285,850 333,491
800,000 163,343 217,790 272,238 326,685 381,133
</TABLE>
The WGS Plan and the WSRC Plan are contributory, defined benefit plans
designed to provide retirement income related to an employee's salary and
years of active service. All Company contributions are actuarially determined.
The WGS Executive Pension Plan provides for supplemental pension payments,
provided certain eligibility requirements are met. Such payments, when added
to the pensions under the WGS Plan and the WSRC Plan, result in a total
average pension equal to 1.47% for each year of credited service multiplied by
the employee's average annual compensation as defined by the WGS Executive
Pension Plan. Average annual compensation is equal to the average of the five
highest annualized base salaries plus the average of the five highest annual
incentive awards, each in the last ten years of employment. In the event of
retirement prior to age 60, the total annual pension would be reduced by an
amount equal to the reduction in the benefits payable under the WGS Plan and
the WSRC Plan. In the event of a change in control of the Company,
participants in the WGS Executive Pension Plan become vested and benefits may
be paid on a present value or other basis.
The amounts presented in the above table are based on straight life annuity
amounts and are not subject to any reduction for Social Security benefits but
may be offset by amounts payable under certain other pension plans previously
sponsored by Westinghouse. As of December 3, 1999, Mr. Schwallie had 27 years
of credited service under the Westinghouse Pension Plans.
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 Chief
Executive Officer of the Company as of February 3, 1999, effectively
terminated his employment agreement. Mr. Tinstman continued to provide
services to the Company in a consulting capacity for a period of three months,
during which time he received a salary at the rate in effect on February 3,
1999, and received benefits as an employee of the Company. In recognition of
his services to the Company, the Company is paying Mr. Tinstman compensation
for a period of 24 months beginning at the end of the three-month consulting
period. This additional compensation is 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 fiscal years immediately preceding Mr. Tinstman's retirement
date and continued participation in benefit plans.
16
<PAGE>
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 to allow their written agreements to expire at the end of March
2000.
Pursuant to the terms of their written 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 or operating group position. They are also entitled to
participate in (i) 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), (ii) 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 (iii) 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.
On January 10, 1997, January 14, 1998, January 20, 1999 and January 31,
2000, 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 such dates and that are
unvested as of the date of such termination would be exercisable.
Certain Relationships and Related Transactions
Washington Corporations ("WC"), which is owned by Dennis R. Washington, has
historically provided various administrative support services to the Company
and its subsidiaries pursuant to certain intercompany agreements. During
fiscal year 1999, the Company paid $498,200 to WC for administrative and
support services. Such services were discontinued on April 8, 1999. In
addition, during fiscal year 1999, the Company paid WC $226,572 for an office
lease and support services related to the Morrison Knudsen Contractors Group
Northwest Area Office in Missoula, Montana.
The Company regularly leases corporate jets from WC and occasionally pays
for additional transportation services from WC for use by the Company's
directors and officers in connection with Company business, Board Meetings and
acquisitions. During fiscal year 1999, the Company paid to WC $4,402,250 for
all such services and related travel expenses.
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
1999, services provided by Equipco to the Company totaled $616,000.
Industrial Constructors Corp. ("ICC"), a wholly owned subsidiary of the
Company, and Envirocon, Inc. ("Envirocon"), a separate corporation owned by
Mr. Washington, formed a 50-50% joint venture to provide environmental
remediation services at a mine in Cobalt, Idaho, which work is substantially
complete. During fiscal year 1999, the joint venture earned revenue totaling
$420,000.
17
<PAGE>
The Company, as the pit mine operator at the Pipestone Mine Project in
Montana, sells ballast to Montana Rail Line, Inc. ("MRL"), a corporation owned
by Mr. Washington. During fiscal year 1999, the Company realized revenues
totaling $1,328,000 from ballast sales to MRL.
Terry W. Payne 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 Professional Services Agreement for insurance brokering 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 agreement, TPC
receives an annual fixed fee of $1,150,000 to be paid in equal quarterly
installments with all commissions earned on policies purchased for the Company
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. In 1999, the Board
of Directors of the Company approved an amendment to the agreement to increase
the annual fixed fee payable to TPC to $1,250,000 per calendar year, effective
as of January 1, 1999.
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 the Company's review of copies of such forms or written
representations from certain reporting persons, the Company believes that,
during fiscal year 1999, 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, 2000, 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 current directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
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, 2000/2/ January 31, 2000/3/ Class/4/
---------------------- -------------------- -------------------- ----------
<S> <C> <C> <C>
Five Percent Owners:
Dennis R. Washington 20,326,542/5/ 116,907 38.74
c/o Washington
Corporations
101 International Way
Missoula, Montana 59802
Royce & Associates, Inc. 2,840,7006 0 5.43
Royce Management Company
1414 Avenue of the
Americas
New York, NY 10019
Directors and Nominees:
David H. Batchelder 136,464 126,464 *
Leonard R. Judd 74,574 69,574 *
Robert S. Miller, Jr. 52,304 52,304 *
Dorn Parkinson 199,978/7/ 194,978 *
Terry W. Payne 90,824 70,824 *
John D. Roach 54,978 44,978 *
Dennis R. Washington 20,326,542/5/ 116,907 38.74
Thomas H. Zarges 106,730 106,730 *
Named Executives:
Stephen G. Hanks 74,611 74,611 *
Roger J. Ludlam 50,000 0 *
Ambrose L. Schwallie 0 0 *
Robert A. Tinstman 127,173 127,173 *
Dennis R. Washington 20,326,542/5/ 116,907 38.74
Thomas H. Zarges 106,730 106,730 *
All Directors and
Executive Officers as a
Group:
(16 persons)* 21,278,405/8/ 1,008,620 39.88
</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 83712.
/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, 2000. Unless otherwise noted, the beneficial owners have sole voting and
dispositive power over their shares listed in this column.
/3/ Indicates shares included in the amounts shown to be beneficially owned as
of January 31, 2000, by reason of a right to acquire beneficial ownership
thereof within 60 days of January 31, 2000.
/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
includes shares that the stockholder has the right to acquire beneficial
ownership of within 60 days of January 31, 2000.
/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/ Based on Schedule 13G dated February 9, 2000, as filed with the SEC by
Royce & Associates, Inc. ("Royce"), Royce Management Company ("RMC") and
Charles M. Royce ("Mr. Royce") as a group. Royce has sole voting and
dispositive power as to 2,718,100 shares, RMC has sole voting and dispositive
power as to 122,600 shares and Mr. Royce may be deemed to beneficially own the
shares beneficially owned by Royce and RMC. Mr. Royce disclaims beneficial
ownership of such shares.
/7/ 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.
/8/ Such shares include 10,000 shares held in joint tenancy by an officer with
his wife as to which such officer shares voting and dispositive power.
19
<PAGE>
2. 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 December 1, 2000. PwC
served as the Company's independent auditors for the fiscal year ended
December 3, 1999. 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 2001 ANNUAL MEETING OF STOCKHOLDERS
In order for any proposal submitted by a stockholder for action at the
Company's 2001 annual meeting of stockholders to be considered for inclusion
in the Company's 2001 Proxy Statement, such proposal must be in writing and
received by the Secretary of the Company on or before November 11, 2000.
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 Shareholder Communications 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 10, 2000 BY ORDER OF THE BOARD OF DIRECTORS
Morrison Knudsen Corporation
Stephen G. Hanks
Executive Vice President, Chief
Legal Officer
and Secretary
20
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MORRISON KNUDSEN CORPORATION
The undersigned hereby constitutes and appoints Dennis R. Washington,
Anthony S. Cleberg and Stephen G. Hanks, or any one 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 14, 2000, 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 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 and FOR Item 2 at
the meeting.
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. All votes received by Norwest Bank Minnesota, N.A., will be kept
confidential.
(Continued and to be signed on reverse side)
<PAGE>
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Morrison Knudsen Corporation, c/o Shareowner
Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.
Please detach here
THE BOARD RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
1. The election of eight directors duly nominated to terms to expire at the
annual meeting of stockholders in 2001:
<TABLE>
<S> <C> <C> <C> <C>
01 David H. Batchelder 04 Dorn Parkinson 06 John D. Roach [_] Vote FOR [_] Vote WITHHELD
02 Leonard R. Judd 05 Terry W. Payne 07 Dennis R. Washington all nominees for all nominees
03 Robert S. Miller, Jr. 08 Thomas H. Zarges (except as marked)
(Instructions: To withhold authority for any indicated nominee, [__________________________________________]
write the number(s) of the nominee(s) in the box provided to
the right.)
2. Ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors
of the Company for the fiscal year ending December 1, 2000. [_] For [_] Against [_] Abstain
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [_] Indicate Changes Below: Date:_____________________
[________________________]
Signature(s) in Box
Please sign your name 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.
