-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B9m5RP6jppbbmOoeQ0jEe3ryHxUyfr6hZli2cCVXuTTK8lPzuhSwN4kbjkiKzzTo OVovwkmraaAHn+VhsGv+VA== 0000950149-00-000709.txt : 20000331 0000950149-00-000709.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950149-00-000709 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRANITE CONSTRUCTION INC CENTRAL INDEX KEY: 0000861459 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 770239383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12911 FILM NUMBER: 586756 BUSINESS ADDRESS: STREET 1: 585 WEST BEACH ST CITY: WATSONVILLE STATE: CA ZIP: 95076 BUSINESS PHONE: 4087241011 MAIL ADDRESS: STREET 1: 585 WEST BEACH ST CITY: WATSONVILLE STATE: CA ZIP: 95076 10-K 1 GRANITE CONSTRUCTION 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________ to__________ Commission file number 1-12911 GRANITE CONSTRUCTION INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 77-0239383 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 525 WEST BEACH STREET, WATSONVILLE, CALIFORNIA 95076 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 724-1011 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $0.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant was approximately $571,121,912 as of March 20, 2000 based upon the average of the high and low sales prices per share of the registrant's Common Stock as reported on the New York Stock Exchange on such date. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. At March 20, 2000, 27,024,205 shares of Common Stock, par value $0.01 of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Stockholders of the Company to be held May 22, 2000, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999. This report, including all exhibits and attachments, contains 161 pages. The exhibit index is on pages 29-30. 1 2 TABLE OF CONTENTS
Page No. ---- PART I...............................................................................3 Item 1. BUSINESS................................................................3 Item 2. PROPERTIES.............................................................10 Item 3. LEGAL PROCEEDINGS......................................................10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................10 PART II.............................................................................12 Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS....................................................12 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA...................................12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................14 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............22 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............23 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES..............................................24 PART III............................................................................25 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................25 Item 11. EXECUTIVE COMPENSATION.................................................25 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........25 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................25 PART IV.............................................................................26 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........26
2 3 PART I ITEM 1. BUSINESS FORWARD LOOKING DISCLOSURE This report contains forward-looking statements; such as statements related to the impact of government regulations on the Company's operations, the adequacy of the Company's aggregate reserves, 1999 backlog expected to be completed in 2000, the existence of bidding opportunities and the impact of legislation, availability of highway funds and economic conditions on the Company's future results. Additionally, forward-looking statements include statements that can be identified by the use of forward-looking terminology such as "outlook," "believes," "expects," "appears," "may," "will," "should," or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. All such forward looking statements are subject to risks and uncertainties that could cause actual results of operations and financial condition and other events to differ materially from those expressed or implied in such forward-looking statements. Specific risk factors include, without limitation, changes in the composition of applicable federal and state legislation appropriation committees; federal and state appropriation changes for infrastructure spending; the general state of the economy; weather conditions; competition and pricing pressures; and state referendums and initiatives. Forward-looking statements related to the Company's aggregate reserves and completion of backlog carry risk factors which include, without limitation, changes in estimates of existing reserves and estimates of the Company's need for those reserves and delays in the progress of work in the 1999 backlog. INTRODUCTION Granite Construction Incorporated (the "Company" or "Granite") was incorporated in Delaware in January 1990 as the holding company for Granite Construction Company, which was incorporated in California in 1922. Therefore, references herein to the "Company" or "Granite" in the context of operations should be read to mean Granite Construction Company and Granite Construction Incorporated's other subsidiaries. The Company is one of the largest heavy civil construction contractors in the United States and operates nationwide. Its focus is primarily in the West, Southwest, and Southeast serving both public and private sector clients. Within the public sector, the Company concentrates on infrastructure projects; including the construction of roads, highways, bridges, dams, tunnels, canals, mass transit facilities and airports. Within the private sector, the Company performs site preparation services for buildings, plants, subdivisions and other facilities. Granite's participation in both the public and private sectors and its diverse mix of project types and sizes have contributed to the Company's revenue growth and profitability in various economic environments. The Company owns and leases substantial aggregate reserves and owns 93 construction materials processing plants. The Company also owns one of the largest heavy construction contractor equipment fleets in the United States. The Company believes that the ownership of these assets enables it to compete more effectively by ensuring availability of these resources at a favorable cost. OPERATING STRUCTURE The principal operating company, Granite Construction Company, is organized into two business segments, the Branch Division and the Heavy Construction Division. The Branch Division is comprised of branch offices which serve local markets, while the Heavy Construction Division pursues major infrastructure projects throughout the nation. The Heavy Construction Division ("HCD") generally builds large heavy civil projects with contract amounts in excess of $15 million and contract durations greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. The two divisions complement each other in a variety of ways. The Heavy Construction Division is a major user of large construction equipment and employs sophisticated techniques on complex projects. The branches draw on these resources which are generally not available to smaller, local competitors. Conversely, the Branch Division has greater knowledge of local markets and provides the Heavy Construction Division with valuable information regarding larger projects in the branches' areas. The two divisions sometimes jointly perform projects when a project in a particular region exceeds the local branch's capabilities. As decentralized profit centers, the branch offices and the Heavy Construction Division independently estimate, bid and complete contracts. Both divisions are supported by centralized functions, including finance, accounting, tax, human resources, labor 3 4 relations, safety, legal, insurance, surety and management information services. The Company believes that centralized support for decentralized profit centers results in a more market responsive business with effective controls and reduced overhead. In addition to cost and profitability estimates, Granite considers the availability of estimating and project building personnel as key factors when determining whether to bid on a project. Other factors considered include the client, the geographic location, Granite's competitive advantages and disadvantages relative to likely competitors for the project, current and projected workload, and the likelihood of follow-up work. Both operating divisions use a proprietary computer-based project estimating system that reflects Granite's significant accumulated experience. Granite believes that an exhaustive, detailed approach to a project's estimate and bid is important in order to best identify the project's risks and opportunities. The Company's estimates are comprehensive in nature, sometimes totaling hundreds of pages of analysis. Each project is broken into phases and line items, for which separate labor, equipment and material estimates are made. Once a project begins, the estimate provides Granite with a budget against which actual project cost is regularly measured, enabling Granite to manage its projects more effectively. Information about the Company's business segments for the years ended December 31, 1999, 1998 and 1997 is incorporated in Note 14 of the "Notes to the Consolidated Financial Statements," located on page F-20 of this Annual Report on Form 10K. The Branch Division. In 1999, Branch Division contract revenue and sales of aggregate products were $976.5 million (73.5% of Company revenue) as compared with $945.9 million (77.1% of Company revenue) in 1998. The Branch Division has both public and private sector clients. Public sector activities include both new construction and improvement of streets, roads, highways and bridges. For example, the branches widen and re-pave roads and modify and replace bridges. Major private sector contracts include site preparation for housing, including excavation; grading and street paving; and installation of curbs, gutters, sidewalks and underground utilities. The Company currently has 11 branch offices with 15 satellite operations. The Company's branch offices in California are located in Bakersfield, Hanford (Central Valley), Monterey Bay Area, Palm Springs (Southern California), Sacramento, San Jose, Santa Barbara and Stockton. The Company's branch offices outside of California are located in Arizona, Nevada and Utah. Each branch effectively operates as a local or regional construction company and its management is encouraged to participate actively in the local community. While individual branch revenues vary from year to year, in 1999 these revenues ranged from $33 million to $211 million. As part of the Company's strategy, many of Granite's branches mine aggregates and operate plants which process aggregates into construction materials for internal use and for sale to others. These activities provide both a source of profits and a competitive advantage to the Company's construction business. Close to half of the aggregate products produced in these branch operations are used in the Company's construction projects. The remainder is sold to unaffiliated parties and accounted for $159.0 million of revenue in 1999, representing 12.0% of the Company's total 1999 revenue. The Company has significant aggregate reserves which it has acquired by ownership in fee or through long-term leases. Heavy Construction Division. In 1999, revenue from HCD was $352.3 million (26.5% of Company revenue) as compared with $280.2 million (22.9% of Company revenue) in 1998. HCD projects are usually larger and more complex than those performed by the Branch Division. The Division has completed projects throughout the nation; including mass transit projects in the metropolitan areas of Atlanta, Baltimore, Los Angeles, San Francisco and Washington, D.C., and major dam and tunnel projects in twelve states. HCD builds infrastructure projects; including major highways, large dams, mass transit facilities, bridges, pipelines, canals, tunnels, waterway locks and dams and airport runways, and has engaged in contract mine stripping and reclamation and large site preparation. It also performs activities such as demolition, clearing, excavation, de-watering, drainage, embankment fill, structural concrete, concrete and asphalt paving, and tunneling. 4 5 The Division markets, estimates, bids and provides management overview of its projects from its Watsonville, California headquarters and satellite estimating offices in Texas, Georgia, and Florida. Project staff located at job sites have the managerial, technical, and clerical capacity to meet on-site project management requirements. HCD has the ability, if appropriate, to process locally sourced aggregates into construction materials using its own portable crushing, concrete and asphalt processing plants. HCD participates in joint ventures with other large construction companies from time to time. Joint ventures are used for large, technically complex projects, including design/build projects, where it is desirable to share risk and resources. Joint ventures provide independently prepared estimates, and shared financing, equipment and expertise. Design/build projects have emerged as an expanding market for HCD. Unlike traditional projects where owners first hire a design firm and then put the plans out to bid to find a contractor, design/build projects provide the owner with a single point of responsibility and a single contact. Past design/build projects have included two projects in California - the SR-91 Tollway which was completed in 1995 and the San Joaquin Hills Transportation Corridor which was completed in 1996. Ongoing projects include the I-15 rebuild in Salt Lake City, Utah, the Atlantic City/Brigantine Connector in New Jersey, the I-17 rebuild project in Phoenix, Arizona, and a tollway in Laredo, Texas. Design/build projects have historically been bid with the Company as part of a joint venture team. While design/build is being used considerably more in the private sector, the public sector is expanding its use. INVESTMENT IN T.I.C. HOLDINGS, INC. The Company currently holds a 30% minority interest in T.I.C. Holdings, Inc. ("TIC"). In February 2000, the Company reached an agreement in principle with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement in principle, TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. A definitive agreement has not yet been finalized. This will allow TIC to retain its independence while allowing both companies to maintain their strategic alliance. The proposed agreement will also allow the Company to intensify its focus on its core business in heavy civil construction. INVESTMENT IN WILDER CONSTRUCTION COMPANY In January 2000, the Company purchased 30% of the common stock of Wilder Construction Company ("Wilder") for a purchase price of $13.1 million. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. Founded in 1911, Wilder is a heavy civil construction company with regional offices located in Washington, Oregon and Alaska. Wilder has annual revenues of approximately $150 million and employs approximately 650 people throughout the Northwest and Alaska. BUSINESS STRATEGY Granite's fundamental objective is to increase long-term shareholder value by focusing on consistent profitability from managed revenue growth. Shareholder value is measured by the appreciation of the value of Granite stock over a period of years, and to some degree, a return from dividends. Further, it is a specific measure of the Company's financial success to achieve a Return on Net Assets ("RONA") greater than the cost of capital, creating "Granite Value Added." To accomplish these objectives, Granite employs the following strategies: Heavy/Highway Construction Focus - Granite concentrates its core competencies on this segment of the construction industry which includes the building of roads, highways, bridges, dams and tunnels, mass transit facilities, underground utilities and site preparation. This focus emphasizes the Company's specialized strengths which include grading, paving and concrete structures. Vertical Integration of Aggregate Materials into Construction - Granite owns aggregate reserves and processing plants and thus, by ensuring availability of these resources at favorable cost, it believes it has significant bidding advantages in many of its markets. Selective Bidding - Once Granite selects a job that meets its bidding criteria, the project is estimated using a highly detailed method with a proprietary estimating system which details anticipated cost to construct and margin to achieve the appropriate bid price for the risk assumed. 5 6 Diversification - To mitigate the risks inherent in construction and general economic factors, Granite pursues projects (i) in both the public and private sectors; (ii) for a wide range of customers within each sector (from the federal government to small municipalities and from large corporations to individual homeowners); (iii) in diverse geographic markets; and (iv) of various sizes, durations and complexity. Decentralized Profit Centers - Granite approaches each selected market with a local focus through its decentralized structure. Each of Granite's branches and the Heavy Construction Division are individual profit centers. Management Incentives - The Company compensates its profit center managers with lower-than-market fixed salaries coupled with a substantial variable cash and restricted stock incentive element based on the annual profit performance of their respective profit centers. Ownership of Construction Equipment - By owning and carefully maintaining a large fleet of heavy construction equipment, Granite competes more effectively by ensuring availability of these resources at favorable cost. Controlled Expansion - The Company intends to continue its expansion by selectively adding branches in the western United States, pursuing major infrastructure projects throughout the nation, expanding into other construction market segments through acquisitions, and by leveraging its financial capacity for projects that will utilize Granite for construction work and provide an acceptable return on the Company's investment. Accident Prevention - Granite believes that the prevention of accidents is both a moral obligation and good business. By identifying and concentrating resources to address jobsite hazards the Company continues to significantly reduce its incident rates and the costs associated with accidents. Environmental Affairs - Granite believes it benefits everyone to maintain environmentally responsible operations. The Company is committed to effective air quality control measures and reclamation at its plant sites and to waste reduction and recycling of the potentially environmentally sensitive products used in its operations. Quality and High Ethical Standards - Granite emphasizes the importance of performing high quality work and maintaining high ethical standards through an established code of conduct and an effective corporate compliance program. CUSTOMERS The Company has customers in both the public and private sectors. The Branch Division's principal customers are State Departments of Transportation in California, Nevada, Utah, and Arizona. In 1999, contracts with the California Department of Transportation represented 10.2% of the Company's revenue. Other Branch Division clients include county and city public works departments and developers and owners of industrial, commercial and residential sites. The principal clients of the Heavy Construction Division are in the public sector and currently include the State Departments of Transportation in Texas, Utah, Florida, New Jersey, and Arizona. (See Note 2 of Notes to Consolidated Financial Statements). A breakdown of the Company's revenues for the last three years by geographic area and market sector is as follows (in thousands):
1999 1998 1997 ---- ---- ---- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------- ------- ---------- ------- ---------- ------- California ........................ $ 574,618 43.2% $ 585,983 47.8% $ 505,768 49.2% West (excluding California) ....... 510,953 38.5 468,094 38.2 388,715 37.8 South/East ........................ 243,203 18.3 172,023 14.0 133,722 13.0 ---------- ------- ---------- ------- ---------- ------- Total ............................. $1,328,774 100.0% $1,226,100 100.0% $1,028,205 100.0% ========== ======= ========== ======= ========== =======
6 7
1999 1998 1997 ---- ---- ---- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------- ------- ---------- ------- ---------- ------- Contract revenues: Federal agencies ............... $ 31,641 2.4% $ 44,844 3.7% $ 38,789 3.8% State agencies ................. 567,366 42.7 516,485 42.1 449,727 43.6 Local public agencies .......... 257,392 19.4 274,657 22.4 238,141 23.2 Private sector ................. 313,356 23.5 248,447 20.2 174,479 17.0 Construction materials sales ...... 159,019 12.0 141,667 11.6 127,069 12.4 ---------- ------- ---------- ------- ---------- ------- Total ............................. $1,328,774 100.0% $1,226,100 100.0% $1,028,205 100.0% ========== ======= ========== ======= ========== =======
BACKLOG The Company's backlog (anticipated revenue from uncompleted portions of existing contracts) was $793.3 million at December 31, 1999, down from $901.6 million at December 31, 1998, and was $909.8 million at December 31, 1997. Approximately $120 million of the December 31, 1999 backlog is expected to remain at December 31, 2000. The Company includes a construction project in its backlog at such time as a contract is awarded or a firm letter of commitment is obtained, and funding is in place. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations.") The Company believes its backlog figures are firm, subject only to the cancellation and modification provisions contained in various contracts. Substantially all of the contracts in the backlog may be canceled or modified at the election of the client. However, the Company has not been materially adversely affected by contract cancellations or modifications in the past. (See "Business-Contract Provisions and Subcontracting.") A sizeable percentage of the Company's anticipated revenue in any year is not reflected in its backlog at the start of the year due to the short duration of smaller Branch Division projects that are initiated and completed during such year ("Turn Business"). The following is a breakdown of backlog as of December 31, 1999, 1998 and 1997 (in millions):
1999 1998 1997 ---- ---- ---- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- -------- ------- -------- ------- By Geographic Area: California ............................ $ 245.9 31.0% $ 192.1 21.3% $ 214.4 23.6% West (excluding California) ........... 205.5 25.9 312.0 34.7 379.5 41.7 South/East ............................ 341.9 43.1 397.5 44.0 315.9 34.7 ------- ------- ------- ------- ------- ------- $ 793.3 100.0% $ 901.6 100.0% $ 909.8 100.0% ======= ======= ======= ======= ======= ======= By Market Sector: Federal agencies ...................... $ 18.1 2.3% $ 22.6 2.5% $ 29.7 3.3% State agencies ........................ 469.0 59.1 635.8 70.5 674.9 74.2 Local public agencies ................. 124.3 15.7 133.1 14.8 144.9 15.9 Private sector ........................ 181.9 22.9 110.1 12.2 60.3 6.6 ------- ------- ------- ------- ------- ------- $ 793.3 100.0% $ 901.6 100.0% $ 909.8 100.0% ======= ======= ======= ======= ======= =======
7 8 EQUIPMENT The Company purchases and maintains many pieces of equipment; including cranes, bulldozers, scrapers, graders, loaders, trucks, pavers, rollers, and construction materials processing plants. In 1999 and 1998, the Company spent approximately $51.3 million and $35.7 million, respectively, for construction equipment, plants and vehicles. The breakdown of the Company's construction equipment, plants and vehicles at December 31, 1999 is as follows: Heavy construction equipment............................. 2,135 units Trucks, truck-tractors and trailers and vehicles......... 3,144 units Aggregate crushing plants................................ 32 plants Asphalt concrete plants.................................. 36 plants Portland cement concrete batch plants.................... 14 plants Thermal soil remediation plants.......................... 1 plants Asphalt rubber plants.................................... 3 plants Lime slurry plants....................................... 7 plants
The Company believes that ownership of equipment is preferable to leasing because ownership ensures the equipment is available as needed and normally results in lower equipment costs. The Company attempts to keep its equipment as fully utilized as possible by pooling equipment for use by both the Branch Division and the Heavy Construction Division. From time to time, the Company leases or rents equipment on a short-term basis. EMPLOYEES On December 31, 1999, Granite employed 1,250 salaried employees, who work in management, estimating and clerical capacities, and 2,848 hourly employees. The total number of hourly personnel employed by the Company is subject to the volume of construction in progress. During 1999, the number of hourly employees ranged from 2,551 to 4,419 and averaged approximately 3,589. The Company's wholly owned subsidiary, Granite Construction Company, is a party to craft collective bargaining agreements in many areas in which it is working. The Company believes its employees are its most valuable resource and that its workforce possesses a strong dedication to and pride in the Company. Among salaried and non-union hourly employees, this dedication is reinforced by 31.9% equity ownership through the Employee Stock Ownership Plan ("ESOP"), the Profit Sharing and 401k Plan and performance-based incentive compensation arrangements. The Company's 388 managerial and supervisory personnel have an average of 11 years of service with Granite. COMPETITION Factors influencing the Company's competitiveness are price, reputation for quality, the availability of aggregate materials, machinery and equipment, financial strength, knowledge of local markets and conditions, and estimating abilities. The Company believes that it competes favorably on the basis of the foregoing factors. Branch Division competitors range from small local construction companies to large regional and national construction companies. While the market areas of these competitors overlap with several of the markets served by the Company's branches, few, if any, compete in all of the Company's market areas. The Heavy Construction Division normally competes with large regional and national construction companies. Although the construction business is highly competitive, particularly for competitively bid projects in the public sector, the Company believes it is well positioned to compete effectively. CONTRACT PROVISIONS AND SUBCONTRACTING The Company's revenue is substantially derived from contracts that are "fixed unit price" contracts under which the Company is committed to provide materials or services required by a project at fixed unit prices (for example, dollars per cubic yard of concrete or cubic yards of earth excavated). While the fixed unit price contract shifts the risk of estimating the quantity of units required for a particular project to the customer; any increase in the Company's unit cost over the unit price bid, whether due to inflation, inefficiency, faulty estimates or other factors, is borne by the Company unless otherwise provided in the contract. The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local government agencies and private parties. There are a number of factors that can create variability in contract performance and results as compared to a project's original bid. The most significant of these include, without limitation, site conditions that differ from those assumed in the original 8 9 bid, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, inclement weather and timing and coordination issues inherent in design/build projects. All of these factors can impose inefficiencies on contract performance and therefore have a direct impact on contract productivity (i.e. drive up contract costs) which in turn can have a direct impact on contract results. All federal government contracts and many of the Company's other contracts provide for termination of the contract for the convenience of the party contracting with the Company. In addition, many of the Company's contracts are subject to certain completion schedule requirements with liquidated damages in the event schedules are not met. The Company has not been materially adversely affected by these provisions in the past. The Company acts as prime contractor on most of the construction projects it undertakes. The Company accomplishes the majority of its projects with its own resources and subcontracts specialized activities such as electrical and mechanical work. As prime contractor the Company is responsible for the performance of the entire contract, including subcontract work. Thus, the Company is subject to increased costs associated with the failure of one or more subcontractors to perform as anticipated. The Company's subcontractors generally furnish bonds if the Company believes it is necessary to provide an additional measure of security of their performance. Disadvantaged business enterprise regulations require the Company to use its best efforts to subcontract a specified portion of contract work done for governmental agencies to certain types of subcontractors. Some of these subcontractors may not be able to obtain surety bonds. The Company has not incurred any material loss or liability on work performed by subcontractors to date. INSURANCE AND BONDING The Company maintains general and excess liability, construction equipment, and workers' compensation insurance; all in amounts consistent with industry practices. Management believes its insurance programs are adequate. In connection with its business, the Company generally is required to provide various types of surety bonds which provide an additional measure of security of its performance under certain public and private sector contracts. The Company's ability to obtain surety bonds depends upon its capitalization, working capital, past performance, management expertise and other factors. Surety companies consider such factors in light of the amount of surety bonds then outstanding for the Company and their current underwriting standards, which may change from time to time. The Company has been bonded by the same surety for more than 60 years and has never been refused a bond. GOVERNMENT REGULATIONS The Company's operations are subject to compliance with regulatory requirements of federal, state, and municipal agencies and authorities; including regulations concerning labor relations, affirmative action and the protection of the environment. While compliance with applicable regulatory requirements has not adversely affected the Company's operations in the past relative to its competitive position within its industry sector, there can be no assurance that these requirements will not change and that compliance will not adversely affect the Company's operations. In addition, the aggregate materials operations of the Company require operating permits granted by governmental agencies. The Company believes that tighter regulations for the protection of the environment and other factors will make it increasingly difficult to obtain new permits and renewal of existing permits may be subject to more restrictive conditions than currently exist. 9 10 ITEM 2. PROPERTIES The Company owns and leases real property for use in its construction and aggregate mining and processing activities. The Company owns approximately 367,054 square feet of office and shop space and leases, pursuant to leases expiring between January 2000 and April 2003, an additional 59,761 square feet of office and shop space. The Company owns approximately 11,114 acres of land of which 1,500 acres are un-permitted reserves available for future use and leases approximately 4,302 additional acres of land at sites in California, Nevada, Arizona and Utah. A majority of the land owned or leased by the Company is intended to serve as aggregate reserves. There are no significant encumbrances against owned property. The Company's leases for aggregate reserves generally limit the Company's interest in the reserves to the right to mine the reserves. These leases range from month-to-month leases to leases with expiration dates ranging from January 2000 to June 2016. The Company considers its available and future aggregate reserves adequate to meet its expected operating needs. The Company pursues a plan of acquiring new sources of aggregate reserves to replenish those depleted and to assure future growth. ITEM 3. LEGAL PROCEEDINGS The Company is a party to a number of legal proceedings. The Company believes that the nature and number of these proceedings are typical for a construction firm of its size and scope and that none of these proceedings is material to the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders during the fourth quarter of the year ended December 31, 1999. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Company are as follows:
Age Position --- -------- David H. Watts 61 Chairman of the Board, President, Chief Executive Officer and Director William G. Dorey 55 Executive Vice President and Chief Operating Officer William E. Barton 55 Senior Vice President and Chief Financial Officer Patrick M. Costanzo 61 Senior Vice President and Manager, Heavy Construction Division Mark E. Boitano 51 Senior Vice President and Manager, Branch Division
Granite Construction Incorporated was incorporated in Delaware in January 1990 as the holding company for Granite Construction Company, which was incorporated in California in 1922. All dates of service for the executive officers of the registrant also include the periods in which they served for Granite Construction Company. Mr. Watts joined the Company in 1987 as President and Chief Executive Officer and has served as a director since 1988, and Chairman of the Board since 1999. In May 1997, Mr. Watts became a director of TIC Holdings, Inc. and in January 2000 he also became a director of Wilder Construction Company in which Granite Construction Incorporated owns a 30% interest. From 1984 until 1987, Mr. Watts served as President, Chief Executive Officer and a director of Ford, Bacon & Davis, Inc., an industrial engineering and construction firm. From 1965 until 1984, Mr. Watts was employed by an underwater services and construction firm in various capacities, including as President and Chief Operating Officer. He received a B.A. degree in Economics from Cornell University in 1960. Mr. Watts is the current Chair of the California Chamber of Commerce. 10 11 Mr. Dorey has been an employee of the Company since 1968 and has served in various capacities, including Executive Vice President and Chief Operating Officer since 1998, Senior Vice President and Manager, Branch Division from 1987 to 1998, and as Vice President and Assistant Manager, Branch Division from 1983 to 1987. In 1997, Mr. Dorey became a director of TIC Holdings, Inc. and in January 2000 he also became a director of Wilder Construction Company in which Granite Construction Incorporated owns a 30% interest. He received a B.S. degree in Construction Engineering from Arizona State University in 1967. Mr. Barton has been an employee of the Company since 1980 and has served in various capacities, including Senior Vice President since 1999, Vice President and Chief Financial Officer from 1990 to 1999, Controller in 1989, Treasurer in 1988 and Cash Manager from 1980 until 1988. In 1997, Mr. Barton became a director of TIC Holdings, Inc. and in January 2000 he also became a director of Wilder Construction Company in which Granite Construction Incorporated owns a 30% interest. He received a B.S. degree in Accounting and Finance from San Jose State University in 1967 and an M.B.A. degree from the University of Santa Clara in 1973. Mr. Costanzo has been an employee of the Company since 1970 and has served in various capacities, including Senior Vice President and Manager, Heavy Construction Division, since 1990, Vice President and Assistant Manager, Heavy Construction Division, from 1988 to 1989, and an Area or Project Manager with the Heavy Construction Division from 1971 to 1987. In 1997, Mr. Costanzo became a director of TIC Holdings, Inc. He received a B.S. degree in civil engineering from the University of Connecticut in 1960 and a M.S. degree in Civil Engineering from Stanford University in 1961. Mr. Boitano has been an employee of the Company since 1977 and has served in various capacities, including Senior Vice President and Manager, Branch Division since 1998, Assistant Branch Division Manager from 1987 to 1998, Branch Manager, Arizona operations from 1983 to 1987, Assistant Manager, Arizona operations from 1980 to 1983, Assistant Manager, Salinas Branch in 1980, and Project Manager Estimator from 1977 to 1980. He received a B.S. degree in Civil Engineering from Santa Clara University in 1971 and an M.B.A. degree from California State University, Fresno in 1977. 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS On April 25, 1997, the Company commenced trading its common stock on the New York Stock Exchange under the ticker symbol GVA. The Company's move from NASDAQ Stock Market to the New York Stock Exchange was intended to improve trading efficiencies and liquidity in an effort to promote enhanced shareholder value. See Quarterly Results in Item 7 for a two-year summary of quarterly dividends and high and low sales prices of the Company's stock. The Company expects to pay a quarterly cash dividend of $0.10 plus a special dividend of $0.06 per share of common stock to stockholders of record as of March 31, 2000 payable on April 14, 2000 (See Note 15 of Notes to Consolidated Financial Statements). Declaration and payment of dividends is within the sole discretion of the Company's Board of Directors, subject to limitations imposed by Delaware law, and will depend on the Company's earnings, capital requirements, financial conditions and such other factors as the Board of Directors deems relevant. As of March 20, 2000 there were 27,024,205 shares of common stock outstanding held by approximately 367 stockholders of record. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated operations data for 1999, 1998 and 1997 and consolidated balance sheet data as of December 31, 1999 and 1998 set forth below have been derived from consolidated financial statements of the Company, and are qualified by reference to our consolidated financial statements audited by PricewaterhouseCoopers LLP, independent accountants included herein. The selected consolidated statement of income data for 1996 through 1989 and the consolidated balance sheet data as of December 31, 1997 through 1989 have been derived from our audited financial statements not included herein. These historical results are not necessarily indicative of the results of operations to be expected for any future period. 12 13 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING SUMMARY Revenue $1,328,774 $1,226,100 $1,028,205 $ 928,799 $ 894,796 $ 693,388 Gross profit 179,201 153,092 111,730 110,655 111,963 89,988 As a percent of revenue 13.5% 12.5% 10.9% 11.9% 12.5% 13.0% General and administrative expenses 94,939 83,834 73,593 71,587 69,610 62,795 As a percent of revenue 7.1% 6.8% 7.2% 7.7% 7.8% 9.1% Income before cumulative effect of change in accounting principle * 52,916 46,507 27,832 27,348 28,542 19,488 Net income 52,916 46,507 27,832 27,348 28,542 19,488 As a percent of revenue 4.0% 3.8% 2.7% 2.9% 3.2% 2.8% Income per share before cumulative effect of change in accounting principle: Basic $ 2.03 $ 1.75 $ 1.05 $ 1.04 $ 1.10 $ 0.75 Diluted 1.96 1.70 1.03 1.02 1.08 0.74 Net income per share: Basic 2.03 1.75 1.05 1.04 1.10 0.75 Diluted 1.96 1.70 1.03 1.02 1.08 0.74 Weighted average shares of common and common stock equivalents outstanding:** Basic 26,058 26,559 26,397 26,207 25,916 25,884 Diluted 26,963 27,339 26,942 26,748 26,474 26,289 - ----------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION SUMMARY Total assets $ 679,572 $ 626,571 $ 551,809 $ 473,045 $ 454,744 $ 349,098 Cash, cash equivalents and short-term investments 108,077 121,424 72,769 72,230 66,992 48,638 Working capital 143,657 142,448 103,910 92,542 77,179 65,537 Current maturities of long-term debt 5,985 10,787 12,921 10,186 13,948 10,070 Long-term debt 64,853 69,137 58,396 43,602 39,494 17,237 Stockholders' equity 327,732 301,282 257,434 233,605 209,905 182,692 Book value per share 12.14 10.90 9.40 8.59 7.82 6.91 Dividends per share $ 0.40 $ 0.30 $ 0.24 $ 0.25 $ 0.19 $ 0.09 Common shares outstanding 26,996 27,649 27,400 27,189 26,828 26,433 - ----------------------------------------------------------------------------------------------------------------------------------- BACKLOG $ 793,256 $ 901,592 $ 909,793 $ 597,876 $ 590,075 $ 550,166 - -----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------- OPERATING SUMMARY Revenue $ 570,379 $ 518,312 $ 564,060 $ 557,996 $ 504,084 Gross profit 50,743 50,578 69,502 70,646 60,837 As a percent of revenue 8.9% 9.8% 12.3% 12.7% 12.1% General and administrative expenses 47,107 46,906 46,541 44,466 41,915 As a percent of revenue 8.3% 9.0% 8.3% 8.0% 8.3% Income before cumulative effect of change in accounting principle * 3,492 3,924 17,622 18,811 14,211 Net income 4,492 3,924 17,622 18,811 14,211 As a percent of revenue 0.8% 0.8% 3.1% 3.4% 2.8% Income per share before cumulative effect of change in accounting principle: Basic $ 0.13 $ 0.15 $ 0.68 $ 0.76 $ 0.63 Diluted 0.13 0.15 0.67 0.75 0.63 Net income per share: Basic 0.17 0.15 0.68 0.76 0.63 Diluted 0.17 0.15 0.67 0.75 0.63 Weighted average shares of common and common stock equivalents outstanding:** Basic 25,875 25,875 25,875 24,863 22,500 Diluted 26,133 26,114 26,123 24,933 22,500 - --------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION SUMMARY Total assets $ 319,416 $ 316,978 $ 277,426 $ 260,426 $ 245,880 Cash, cash equivalents and short-term investments 48,810 54,139 54,973 50,451 46,306 Working capital 64,619 66,329 55,186 52,352 34,902 Current maturities of long-term debt 10,060 15,469 7,669 7,887 14,228 Long-term debt 28,585 38,618 14,816 19,084 39,707 Stockholders' equity 164,338 158,594 153,159 131,026 86,552 Book value per share 6.25 6.05 5.87 5.06 3.85 Dividends per share $ 0.09 $ 0.09 $ 0.09 $ 0.07 $ -- Common shares outstanding 26,301 26,216 26,078 25,875 22,500 - --------------------------------------------------------------------------------------------------------------------- BACKLOG $ 659,738 $ 245,234 $ 292,017 $ 368,384 $ 377,529 - ---------------------------------------------------------------------------------------------------------------------
* Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Granite is one of the largest heavy civil contractors in the United States and is engaged in the construction of highways, dams, airports, mass transit facilities and other infrastructure-related projects. The Company has offices in California, Texas, Georgia, Nevada, Arizona, Florida, and Utah. The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local agencies, and private parties. The Company's bidding activity is affected by such factors as backlog, current utilization of equipment and other resources, ability to obtain necessary surety bonds and competitive considerations. Bidding activity, backlog and revenue resulting from the award of new contracts to the Company may vary significantly from period to period. Revenue from construction contracts including construction joint ventures is recognized using the percentage-of-completion method of accounting, based upon costs incurred and projected costs. Revenue in an amount equal to cost incurred is recognized prior to contracts reaching 25% completion. The related earnings are not recognized until the period in which such percentage completion is attained. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs) and insurance costs. Depreciation is provided using accelerated methods for construction equipment. Contracts frequently extend over a period of more than one year and revisions in cost and profit estimates during construction are reflected in the accounting period in which the facts that require the revision become known. Losses on contracts, if any, are provided in total when determined, regardless of the degree of project completion. Claims for additional contract revenue are recognized in the period when it is probable that the claim will result in additional revenue and the amount can be reliably estimated. The foregoing as well as weather, stage of completion, and mix of contracts at different margins may cause fluctuations in gross profit between periods. The Company's compensation strategy for selected management personnel is to rely heavily on a variable cash and restricted stock performance-based incentive element. Thus, the Company may experience an increase in general and administrative expenses in a very profitable year and a decrease in less profitable years. The Company's profit sharing and pension contribution in excess of the 401K matching contributions is at the discretion of the Board of Directors based on the Company reaching certain levels of profitability each year. CURRENT YEAR
- --------------------------------------------------------------------------------------------- In Thousands 1999 1998 INCREASE % - --------------------------------------------------------------------------------------------- Revenue: Branch Division ................... $ 976.5 $ 945.9 $ 30.6 3.2 Heavy Construction Division ....... 352.3 280.2 72.1 25.7 - --------------------------------------------------------------------------------------------- $1,328.8 $1,226.1 $ 102.7 8.4 =============================================================================================
REVENUE AND BACKLOG. The increased revenue in 1999 was primarily attributable to increased revenue from private sector contracts which increased $65.0 million to $313.4 million or 23.5% of total revenue in 1999, from $248.4 million or 20.2% of total revenue in 1998. The Company's private sector work is primarily comprised of site preparation for both commercial and residential developments and privately funded transportation projects. The private sector revenue growth has been significantly influenced by the continued strong growth in residential and commercial building construction during 1999. In California, one of the Company's largest markets, new building construction increased 13.0% during 1999 to $42.6 billion from $37.7 billion in 1998, according to the Construction Industry Research Board. The Company's revenue from public sector contracts increased to $856.4 million in 1999 from $836.0 million in 1998 while decreasing to 64.5% of the Company's total revenue in 1999 from 68.2% in 1998. Although the level of funding for public sector projects remained strong in 1999 in most of the Company's markets, the increased TEA-21 funding has not yet significantly impacted the Company's revenue (see "Outlook"). The increase in Branch Division revenue during the year resulted from increases in revenue from private sector contracts and an increase in material sales - both of which are strongly correlated to increases in private sector construction and general economic conditions - partially offset by a slight decrease in public sector revenue. The increase in HCD revenue is attributable to significantly drier weather conditions; particularly in Texas and Florida, and included revenue from a larger number of both private and public sector projects which include a private sector railroad project in Texas which was awarded in mid 1998, a private sector design-build 14 15 tollroad project in Texas which was awarded in 1999 and a public sector design-build highway project in Arizona which was awarded in late 1998. The Company's backlog at December 31, 1999 was $793.3 million, down $108.3 million, or 12.0% from 1998. The decrease in backlog was due primarily to the absence of HCD awards in the fourth quarter. Management believes that approximately 85% of the work in the backlog at December 31, 1999 will be recognized as revenue during 2000. The Company believes its bidding opportunities in its major marketplaces remain strong (see "Outlook"). GROSS PROFIT. For the year ended December 31, 1999, gross profit reached $179.2 million, a $26.1 million increase from 1998. As a percentage of revenue, gross profit increased in 1999 to 13.5% from 12.5% in 1998. The increased gross profit margin was a result of the continued favorable market conditions in both the public and private sectors as described above, which tends to increase the Company's ability to win competitively bid projects at higher margins. Additionally, gross profit margin in 1999 was positively impacted by drier weather conditions, which allowed for more efficient utilization of resources, and the successful execution of several HCD projects that were added to backlog in mid to late 1998. Project to date revenue recognized for projects less than 25% complete was approximately $36.9 million and $24.4 million at December 31, 1999 and 1998, respectively. As described under "General" above, the Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. During 1999, the Company's gross profit margins were not significantly impacted by changes in the revenue from projects that were less than 25% complete. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs) and insurance costs. Although the composition of costs varies with each contract, the Company's gross profit margins were not significantly impacted by changes in any one of these costs during 1999. GENERAL AND ADMINISTRATIVE EXPENSES. For the years ended December 31, 1999 and 1998 general and administrative expenses comprised the following (in thousands):
- ----------------------------------------------------------------------------- In Thousands 1999 1998 - ----------------------------------------------------------------------------- Salaries and related expenses $ 43,552 $ 40,602 Incentive compensation, discretionary profit sharing and pension 22,264 18,894 Other general and administrative expenses 29,123 24,338 - ----------------------------------------------------------------------------- Total $ 94,939 $ 83,834 - ----------------------------------------------------------------------------- Percent of revenue 7.1% 6.8% =============================================================================
Salaries and related expenses increased in 1999 over 1998 due primarily to increased staffing to support the Company's current and expected growth. Incentive compensation and discretionary profit sharing and pension costs increased in 1999 over 1998 as a function of the Company's increased profitability. Other general and administrative expenses include various costs to support its operations, none of which exceeds 10% of total general and administrative expenses. The increase in other general and administrative expenses in 1999 primarily reflect the absence of the collection of a previously written-off bad debt that was recognized in 1998 and increases in other costs to support the Company's growth. OPERATING INCOME. The Heavy Construction Division's contribution to operating income in 1999 increased over the 1998 contribution due to increases in both the volume of work and the profit margins the Division was able to achieve. The Division's profit margins were positively impacted by the successful execution of new work that was added to backlog in mid to late 1998, including two design-build projects, as well as drier weather conditions and improved margins on projects nearing completion. The Branch Division's contribution to operating income in 1999 decreased slightly compared to 1998 due primarily to the absence of the collection of a previously written-off bad debt and increases in other costs to support the Company's growth. OTHER INCOME (EXPENSES). Other income decreased $4.0 million to $1.8 million in 1999. The decrease was due primarily to a loss experienced by TIC, in which the Company has a 30% equity investment. The Company's share of TIC's loss was approximately $2.8 million, a decrease of approximately $7.0 million from the Company's share of TIC income in 1998. This decrease was partially offset by a $2.8 million gain recorded on the sale of a depleted quarry property. PROVISION FOR INCOME TAXES. The Company's effective tax rate was 38.5% in 1999, an increase of 0.5% from 1998. The increase was primarily due to a lower impact of the Company's percentage depletion deduction due to higher pre-tax earnings. OUTLOOK. As Granite enters 2000 on the heels of a record-breaking year, the outlook for the Company's financial performance going forward continues to be very good. The drivers of our business, public sector funding of the infrastructure and the overall economy, appear to be very strong. The U.S. economy continues to grow, producing demand for residential and commercial 15 16 development and creating good overall demand for construction services including materials in many of the Company's geographic regions. Public sector funding has a very strong foundation supplied by the federal government, through the 1998 Transportation Equity Act for the 21st Century ("TEA-21"), and state and local governments have solid transportation capital and maintenance accounts due to the collection of higher gas and other transportation taxes produced by the strong economy. These drivers should provide the Company with increasing bid opportunities during the coming year. In October 1999, President Clinton signed into law legislation that appropriated $28.8 billion for the federal-aid highway programs for the 2000 fiscal year. This marks a 6% increase from the $27.2 billion budgeted in 1999 and is in-line with the authorized amounts set by TEA-21. The recently proposed 2001 budget also requests a record $30.5 billion in Federal Highway Administration obligations, up another 6% from 2000. These amounts reflect the 44% increase over TEA-21's predecessor, the Intermodal Surface Transportation Efficiency Act (ISTEA), along with the nation's commitment to improve roads and highways throughout the U.S. As was the case with ISTEA, there is typically a lag before companies like Granite feel the bill's effects on the bottom line. This lag is primarily a result of the length of time that it takes federal money to progress from planning to design to actual construction bids. It is also important to note that Granite does not recognize profits on a job until it is 25% complete and therefore does not anticipate any significant impact to earnings from the larger TEA-21 funded projects until later in 2000 and beyond. Our public sector business should also be bolstered from increased airport construction spending. Legislators have approved a three-year reauthorization of the Federal Aviation Administration and Airport Improvement Program (AIP). The bill guarantees that Aviation Trust Fund revenues and interest will be spent for capital improvements. AIP funding will be a minimum of $3.2 billion to $3.4 billion for each of the next three years - more than 60% increase over the $1.9 billion appropriated in 2000. Momentum in the private sector construction markets also appears to be carrying over into 2000. According to the U.S. Department of Commerce, construction spending in January 2000 has surged to an all-time high monthly level, led in part by spending on housing, commercial buildings and government projects. Despite rising interest rates, spending on residential projects rose 2.5% while spending on new single-family homes grew by 2.1%. Granite has witnessed the growth in the private sector market as illustrated by the 29% compounded average growth rate in its private sector revenue since 1994. In association with the strong economy, the Company has witnessed some upward pressure on costs associated with rising oil prices and tight labor markets. However, there has not been any significant impact on the Company in 1999. Due to the nature of Granite's turn business, we are able to adjust prices fairly quickly allowing a level of protection against these fluctuating, or currently rising, costs. In addition, certain costs such as diesel and asphalt oil are indexed in contracts for state funded projects in Nevada. Similarly in California, asphalt oil is indexed in contracts for the California Department of Transportation (Caltrans). However, there is no assurance that the Company will be able to mitigate 100% of the impact. The Heavy Construction Division (HCD) also has some excellent near-term bidding opportunities to add to its quality backlog. Many of the projects will be let as design/build contracts - a more innovative form of project delivery for which Granite has emerged as an industry leader. The current list of targeted projects includes various highway and transit/rail projects exceeding $3.5 billion. This list includes the Las Vegas Monorail project, the Legacy highway project in Utah, the $1.4 billion I-25 SE Corridor project in Colorado, light rail projects in Florida and California and several other large highway projects in Arizona, Texas, California, Utah, Florida and Massachusetts. In Florida, Governor Bush proposed his $4 billion Mobility 2000 Initiative. This plan would accelerate top-priority projects on the Florida Intrastate Highway System with no increase in taxes. Under Mobility 2000, projects that were originally planned over the next 20 years would be built within the next ten years or sooner. Funding for the Governor's plan would come from transportation-related revenues, TEA-21 and short-term bonds. The program is expected to speed up improvements to Interstates 4, 275 and 75. The Company's Branch Division also anticipates a healthy bidding environment and strong demand for its construction services including aggregate material products as a result of robust public and private sector markets. According to a press release by the Nevada Department of Transportation (DOT), state highway expenditures in their state are expected to reach a record $855.5 million in fiscal year 2000. In Texas and Florida, DOT officials report that lettings in 2000 will be approximately $3.0 billion and $1.3 billion respectively. Although Caltrans' advertising schedule for 2000 totals over $2.0 billion, officials estimate that it will let out to bid approximately $1.8 billion worth of work this year - in line with the approximate $1.8 billion let in 1999. On the political front, we will be heavily involved in supporting the contracting out initiative on the November 2000 ballot in California. Sponsored by the Consulting Engineers and Land Surveyors of California (CELSOC), the initiative, if passed, would change the constitution to give state and local entities more freedom to contract with private entities for engineering and architectural services on public works projects. It is our belief that current restrictions on these public agencies have created a significant bottleneck within the project pipeline thereby causing considerable delays on many projects, for which there is strong need and funding available. 16 17 Further in California, SCA 3 - a constitutional amendment which would have renewed expiring county half-cent sales taxes for transportation purposes with a simple majority - will not be placed on the ballot by the legislature in the near-term. A long-term fix for county and statewide transportation funding in California is very fluid at this point in time, with a number of proposals currently being debated in Sacramento. The attention on this issue by state politicians reflects the public's demand that solutions should be put in place to deal with state's traffic problems. The Company will have more to say on this issue once a definitive plan has been formulated. Going forward, we are very pleased with the success of our current operations and the substantial bidding opportunities ahead. We will continue to proactively work the M & A process in our industry to find those acquisition candidates that offer good value by which to grow the Company externally. At the same time, we will follow our strategic initiatives to create continued internal organic growth. We have set out aggressive growth goals for the 3 to 5 year period ahead because we believe that our strategic plans and favorable external market factors will provide better than normal opportunities in the continued effort to improve upon what has been a record financial performance in both divisions. PRIOR YEARS
- ------------------------------------------------------------------------------------------------------------ In Thousands 1998 1997 INCREASE % - ------------------------------------------------------------------------------------------------------------ Revenue: Branch Division .................................... $ 945.9 $ 831.9 $ 114.0 13.7 Heavy Construction Division ........................ 280.2 196.3 83.9 42.7 - ------------------------------------------------------------------------------------------------------------ $1,226.1 $1,028.2 $ 197.9 19.2 ============================================================================================================
REVENUE AND BACKLOG. Revenue from private sector contracts increased $73.9 million to $248.4 million or 20.2% of total revenue in 1998, from $174.5 million or 17.0% of total revenue in 1997. The majority of the growth in revenue from private sector contracts occurred in the Branch Division, where growth in residential and commercial construction created strong demand for site preparation projects. In California, one of the Company's largest markets, new building construction increased 23.6% during 1998 to $37.7 billion from $30.5 billion in 1997, according to the Construction Industry Research Board. This trend also had a positive impact on material sales which increased 11.5% during 1998. The Branch Division revenue was also positively impacted by contributions made from flood related emergency work caused by severe winter weather conditions. The Company's revenue from public sector contracts increased to $836.0 million in 1998 from $726.6 million in 1997 while decreasing to 68.2% of the Company's total revenue in 1998 from 70.6% in 1997. The growth in HCD revenue was primarily in the public sector and reflected increased revenue from HCD's portion of the Company's Interstate - 15 rebuild project in Utah and various projects added to backlog in 1998. The Company's backlog at December 31, 1998 was $901.6 million, down $8.2 million, or 0.9% from 1997. The relatively flat backlog in 1998 reflected new awards which offset a reduction due to a full year's work on the Company's 23% share of the I-15 Corridor Reconstruction project in Salt Lake City, Utah which was awarded in the first quarter of 1997. Work on our $313.0 million portion of the contract began during the second quarter of 1997 and was approximately 48% complete at the end of 1998. GROSS PROFIT. For the year ended December 31, 1998, gross profit reached $153.1 million, a $41.4 million increase from 1997. As a percentage of revenue, gross profit increased in 1998 to 12.5% from 10.9% in 1997. The increased gross profit margin was attributable to the continued favorable market conditions, particularly in the private sector as described above, which tends to increase the Company's ability to win competitively bid projects at higher margins. Project to date revenue recognized for projects less than 25% complete was approximately $24.4 million and $56.7 million at December 31, 1998 and 1997, respectively. As described under "General" above, the Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. During 1998, the Company's gross profit margins were positively impacted by the I-15 Corridor Reconstruction project which reached the 25% completion threshold in the second quarter. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs) and insurance costs. Although the composition of costs varies with each contract, the Company's gross profit margins were not significantly impacted by changes in any one of these costs during 1998. 17 18 GENERAL AND ADMINISTRATIVE EXPENSES. For the years ended December 31, 1998 and 1997 general and administrative expenses comprised the following (in thousands):
---------------------------------------------------------------------------- In Thousands 1998 1997 ---------------------------------------------------------------------------- Salaries and related expenses $ 40,602 $ 35,834 Incentive compensation, discretionary profit sharing and pension 18,894 13,223 Other general and administrative expenses 24,338 24,536 ---------------------------------------------------------------------------- Total $ 83,834 $ 73,593 ---------------------------------------------------------------------------- Percent of revenue 6.8% 7.2% ----------------------------------------------------------------------------
Salaries and related expenses increased in 1999 over 1998 due primarily to increased staffing to support the Company's current and expected growth . Incentive compensation and discretionary profit sharing and pension costs increased in 1999 over 1998 as a function of the Company's increased profitability. Other general and administrative expenses include various costs to support its operations, none of which exceeds 10% of total general and administrative expenses. The decrease in other general and administrative expenses in 1998 primarily reflected increases in other costs to support the Company's growth offset by the collection of a previously written-off bad debt. The decrease as a percent of revenue is due to the fixed nature of certain expenses and higher revenue from non-sponsored joint venture contracts which do not create a corresponding level of administrative expense. OPERATING INCOME. The Branch Division's contribution to operating income in 1998 increased over the 1997 contribution due primarily to improved market conditions which increased both the volume of work and the profit margins the Division was able to achieve. The Heavy Construction Division's contribution to operating income also increased in 1998, primarily due to the impact of the I-15 project reaching the 25% completion threshold for profit recognition as described above. OTHER INCOME (EXPENSES). Other income decreased $0.2 million to $5.8 million in 1998. The decrease was due to an increase in interest expense resulting from additional borrowings under long-term debt agreements and lower gain on sale of property and equipment which was partially offset by higher interest income due to higher short-term investments and cash and cash equivalents. PROVISION FOR INCOME TAXES. The Company's effective tax rate was 38.0% in 1998, an increase of 1.0% from 1997. The increase was primarily due to a lower impact of the Company's percentage depletion deduction due to higher pre-tax earnings. LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------- In Thousands 1999 1998 1997 - --------------------------------------------------------------------------------- Cash and cash equivalents $ 61,832 $ 62,470 $ 54,359 Net cash provided (used) by: Operating activities 99,987 96,030 63,798 Investing activities (54,204) (87,194) (49,207) Financing activities (46,421) (725) 1,105 Capital expenditures 82,035 52,462 48,448 Working Capital $ 143,657 $ 142,448 $ 103,910 - ---------------------------------------------------------------------------------
During 1999 the Company generated cash and cash equivalents from operating activities of $100.0 million which represented an increase of $4.0 million over 1998. This increase was due primarily to the Company's increase in net income of $6.4 million or 13.8%, as well as increases in noncash adjustments - - primarily depreciation and amortization and the adjustment to net income from the Company's equity in loss of affiliates. The increased depreciation and amortization is due to increases in property and equipment balances and the equity in loss of affiliates relates primarily to the Company's equity in TIC's loss. These increases were partially offset by a higher level of accounts receivable at December 31, 1999 which related to increased revenue, particularly in the fourth quarter. 18 19 Cash used by investing activities in 1999 decreased $33.0 million from 1998 due primarily to a net decrease in short-term investments which was partially offset by increased additions to property and equipment to support the Company's current and expected growth. Cash used by financing activities in 1999 increased $45.7 million from 1998 due to the lack of additions to long-term debt as well as the Company's repurchase of its shares and increased dividend payments. On March 17, 1999, the Board of Directors authorized the Company to repurchase, at management's discretion, up to $35 million of its common stock on the open market, exclusive of repurchases related to employee benefit plans. This authorization amends an authorization previously made in March of 1997. Through March 20, 2000 the Company has repurchased 984,150 shares for a total purchase price of $21.7 million. The remaining amount authorized of $13.3 million equates to 491,500 shares using the closing market price of $27.06 on March 20, 2000. The Company has budgeted $58.0 million for capital expenditures in 2000, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of land and aggregate reserves. The Company anticipates that cash generated internally and amounts available under its existing credit facilities will be sufficient to meet its capital and other requirements, including contributions to employee benefit plans, for the foreseeable future. The Company believes it has adequate capital resources to fund its operations at least through 2000. The Company's consolidated working capital position was $143.7 million at December 31, 1999 compared to $142.4 million at December 31, 1998. The Company currently has access to funds under its revolving credit agreement which allow it to borrow up to $75.0 million, of which $62.4 million was available at December 31, 1999. SUBSEQUENT EVENTS. On January 24, 2000, the Board of Directors declared a special dividend of $0.06 per share of common stock in addition to a $0.10 per share quarterly dividend, payable on April 14, 2000 to stockholders of record as of March 31, 2000. The quarterly dividend represents a $0.03 per share increase over the dividends paid in 1999 of $0.07 per share. In January 2000, the Company purchased 30% of the common stock of Wilder Construction Company ("Wilder") for a purchase price of $13.1 million. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. Founded in 1911, Wilder is a heavy-civil construction company with regional offices located in Washington, Oregon and Alaska. Wilder has annual revenues of approximately $150 million and employs approximately 650 people throughout the Northwest and Alaska. The Company currently holds a 30% minority interest in T.I.C. Holdings, Inc. ("TIC"). In February 2000, the Company reached an agreement in principle with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement in principle, TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. A definitive agreement has not yet been finalized. This will allow TIC to retain its independence while allowing both companies to maintain their strategic alliance. The proposed agreement will also allow the Company to intensify its focus on its core business in heavy civil construction. IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The issue arises if date-sensitive software recognizes a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. During 1999 the Company completed its process which addressed year 2000 readiness of its systems and completed its process of identifying and making inquiries of its significant suppliers and large public and private sector customers to determine the extent to which the Company is vulnerable to those third parties' failure to solve their own Year 2000 issues. The Company has not experienced any significant interruption in work or cash flow related to the date change to the year 2000, either from its own information systems or those of significant third parties with whom the Company does business. The Company believes that the risk of significant business interruption due to unanticipated problems with its own systems or the systems of significant third parties is low based on our experience to date. In the unlikely event that unforeseen Year 2000 related internal disruptions occur, the Company believes that its existing disaster recovery program, which includes the manual processing of certain key transactions, would significantly mitigate the impact. The Company's costs to address the Year 2000 issue were approximately $865,000, all of which were incurred during 1999. These costs included consulting fees and costs to remediate or replace hardware and software as well as non-incremental costs 19 20 resulting from redeployment of internal resources. The Company's Year 2000 efforts did not have a significant impact on other information technology projects. RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "SFAS 133", Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of accounting and reporting for derivative instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal quarters of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The Company believes that adoption of this pronouncement will have no material impact on the Company's financial position and results of operations. 20 21 QUARTERLY RESULTS The following table sets forth selected unaudited financial information for the Company for the eight quarters in the period ended December 31, 1999 This information has been prepared on the same basis as the audited financial statements and, in the opinion of management, contains all adjustments necessary for a fair presentation thereof. QUARTERLY FINANCIAL DATA (Unaudited - In Thousands, Except for Per Share Data)
- ------------------------------------------------------------------------------------------------------------ 1999 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - ------------------------------------------------------------------------------------------------------------ Revenue $ 365,975 $ 418,703 $ 329,292 $ 214,804 Gross profit 51,194 58,509 46,169 23,329 As a percent of revenue 14.0% 14.0% 14.0% 10.9% Net income 14,436 20,849 15,131 2,500 As a percent of revenue 3.9% 5.0% 4.6% 1.2% Net income per share: Basic $ 0.55 $ 0.80 $ 0.58 $ 0.09 Diluted $ 0.54 $ 0.77 $ 0.56 $ 0.09 - ------------------------------------------------------------------------------------------------------------ Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.19 Market price High $ 26.50 $ 29.81 $ 29.88 $ 37.75 Low $ 16.88 $ 22.69 $ 21.88 $ 19.63 - ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ 1998 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - ------------------------------------------------------------------------------------------------------------ Revenue $ 338,000 $ 411,986 $ 292,792 $ 183,322 Gross profit 37,335 54,203 42,380 19,174 As a percent of revenue 11.1% 13.2% 14.5% 10.5% Net income 10,059 20,521 14,545 1,382 As a percent of revenue 3.0% 5.0% 5.0% 0.8% Net income per share: Basic $ 0.38 $ 0.77 $ 0.55 $ 0.05 Diluted $ 0.36 $ 0.75 $ 0.54 $ 0.05 - ------------------------------------------------------------------------------------------------------------ Dividends per share $ 0.06 $ 0.06 $ 0.05 $ 0.13 Market price High $ 34.38 $ 33.50 $ 20.59 $ 19.68 Low $ 25.13 $ 19.68 $ 17.38 $ 14.26 - ------------------------------------------------------------------------------------------------------------
21 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to financial market risks due primarily to changes in interest rates which it manages primarily by managing the maturities in its investment portfolio. The Company does not use derivatives to alter the interest characteristics of its investment securities or its debt instruments. The Company has no holdings of derivative or commodity instruments and does not transact business in foreign currencies. The fair value of the Company's investment portfolio or related income would not be significantly impacted by changes in interest rates since the investment maturities are short and the interest rates are primarily fixed. The Company's senior notes payable of $60.0 million at December 31, 1999 carry a fixed interest rate of 6.54% per annum with principle payments due in nine equal annual installments beginning in 2002. The Company's notes payable to bank of $5.0 million carry a variable interest rate at the IBOR rate plus margin (6.19% and 1.0%, respectively at December 31, 1999) with principal payable semiannually through June 2000. The table below presents principal amounts and related weighted average interest rates by year for the Company's cash and cash equivalents, short-term investments and significant debt obligations:
- ------------------------------------------------------------------------------------------------------------------------------- In Thousands 2000 2001 2002 2003 2004 Thereafter Total - ------------------------------------------------------------------------------------------------------------------------------- Assets Cash, cash equivalents and short-term investments .................... $ 107,049 $ 1,028 $ -- $ -- $ -- $ -- $ 108,077 Weighted average interest rate ............ 5.5% 5.0% -- -- -- -- Liabilities Fixed rate debt Senior notes payable ................. $ -- $ -- $ 6,667 $ 6,667 $ 6,667 $ 39,999 $ 60,000 Weighted average interest rate ....... -- -- 6.54% 6.54% 6.54% 6.54% 6.54% Variable rate debt (IBOR plus margin) Notes payable to bank ................. $ 5,000 $ -- $ -- $ -- $ -- $ -- $ 5,000 - -------------------------------------------------------------------------------------------------------------------------------
The estimated fair value of the Company's cash, cash equivalents and short-term investments approximate the principal amounts reflected above based on the short maturities of these financial instruments. The estimated fair value of the Company's debt obligations approximates the principal amounts reflected above based on rates currently available for debt with similar terms and remaining maturities. 22 23 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and auditor's report are included in Item 8 and appear following Item 14: Report of Independent Accountants Consolidated Balance Sheets - At December 31, 1999 and 1998 Consolidated Statements of Income - Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Additionally, a two-year Summary of Quarterly Results is included in Item 7 under "Quarterly Results." 23 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. 24 25 PART III Certain information required by Part III is omitted from this Report in that the Company will file its definitive proxy statement for the Annual Meeting of Stockholders to be held on May 22, 2000 (the "Proxy Statement") pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to the directors of the Company is set forth under the caption "Information about Granite - Management, Directors" in the Proxy Statement. Such information is incorporated herein by reference. Information relating to the executive officers of the Company is set forth in Part I of this report under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation is set forth under the caption "Information about Granite - Compensation of Directors and Executive Officers" in the Proxy Statement. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to ownership of equity securities of the Company by certain beneficial owners and Management is set forth under the caption "Information about Granite - Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain relationships and related transactions is set forth under the caption "Information about Granite - Management, Certain Transactions with Management" in the Proxy Statement. Such information is incorporated herein by reference. 25 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K The following documents are filed as part of this Report: (a) 1. FINANCIAL STATEMENTS. The following consolidated financial statements are filed as part of this Report:
Form 10-K Pages ------------ Report of Independent Accountants................................................ F-1 Consolidated Balance Sheets at December 31, 1999 and 1998........................ F-2 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997.............................................. F-3 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997.................................. F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.............................................. F-5 Notes to the Consolidated Financial Statements................................... F-6 to F-21 2. FINANCIAL STATEMENT SCHEDULE. The following financial statement schedule of Granite Construction Incorporated for the years ended December 31, 1999, 1998 and 1997 is filed as part of this Report and should be read in conjunction with the consolidated financial statements of Granite Construction Incorporated. Form 10-K Pages ------------ Schedule Schedule II - Schedule of Valuation and Qualifying Accounts.................. S-1
Schedules not listed above have been omitted because the required information is not applicable or is shown in the financial statements or notes. 3. EXHIBITS. The Exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Report. (b) REPORTS ON FORM 8-K. The registrant was not required to file any reports on Form 8-K during the fourth quarter of fiscal 1999. 26 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and the stockholders of Granite Construction, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on Page 26 present fairly, in all material respects, the financial position of Granite Construction, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on Page 26 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California February 11, 2000 F-1 28 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - --------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 61,832 $ 62,470 Short-term investments 46,245 58,954 Accounts receivable 211,609 174,748 Costs and estimated earnings in excess of billings 14,105 14,677 Inventories 12,823 12,773 Deferred income taxes 14,885 15,397 Equity in construction joint ventures 30,611 20,020 Other current assets 10,211 11,769 ------------------------ Total current assets 402,321 370,808 - --------------------------------------------------------------------------------------------- Property and equipment 242,913 205,737 - --------------------------------------------------------------------------------------------- Other assets 34,338 50,026 - --------------------------------------------------------------------------------------------- $ 679,572 $ 626,571 ============================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 5,985 $ 10,787 Accounts payable 95,662 88,194 Billings in excess of costs and estimated earnings 66,342 50,619 Accrued expenses and other current liabilities 90,675 78,760 ------------------------ Total current liabilities 258,664 228,360 - --------------------------------------------------------------------------------------------- Long-term debt 64,853 69,137 - --------------------------------------------------------------------------------------------- Deferred income taxes 28,323 27,792 - --------------------------------------------------------------------------------------------- Commitments and contingencies -- -- - --------------------------------------------------------------------------------------------- Stockholders' equity Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding -- -- Common stock, $0.01 par value, authorized 50,000,000 shares; issued and outstanding 26,995,506 shares in 1999 and 27,648,961 in 1998 270 277 Additional paid-in capital 49,817 45,080 Retained earnings 285,832 262,517 ------------------------ 335,919 307,874 Unearned compensation (8,187) (6,592) ------------------------ 327,732 301,282 - --------------------------------------------------------------------------------------------- $ 679,572 $ 626,571 =============================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-2 29 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Revenue: Construction $ 1,169,755 $ 1,084,433 $ 901,136 Material sales 159,019 141,667 127,069 - --------------------------------------------------------------------------------------------------- Total revenue 1,328,774 1,226,100 1,028,205 - --------------------------------------------------------------------------------------------------- Cost of revenue: Construction 1,015,041 955,213 806,280 Material sales 134,532 117,795 110,195 - --------------------------------------------------------------------------------------------------- Total cost of revenue 1,149,573 1,073,008 916,475 - --------------------------------------------------------------------------------------------------- GROSS PROFIT 179,201 153,092 111,730 - --------------------------------------------------------------------------------------------------- General and administrative expenses 94,939 83,834 73,593 - --------------------------------------------------------------------------------------------------- OPERATING INCOME 84,262 69,258 38,137 - --------------------------------------------------------------------------------------------------- Other income (expense) Interest income 8,682 9,856 7,941 Interest expense (8,791) (9,551) (7,515) Gain on sales of property and equipment 4,544 1,819 2,463 Other, net (2,654) 3,629 3,152 - --------------------------------------------------------------------------------------------------- 1,781 5,753 6,041 - --------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 86,043 75,011 44,178 Provision for income taxes 33,127 28,504 16,346 - --------------------------------------------------------------------------------------------------- NET INCOME $ 52,916 $ 46,507 $ 27,832 =================================================================================================== Net income per share Basic $ 2.03 $ 1.75 $ 1.05 Diluted $ 1.96 $ 1.70 $ 1.03 Weighted average shares of common and common stock equivalents outstanding Basic 26,058 26,559 26,397 Diluted 26,963 27,339 26,942 Dividends per share $ 0.40 $ 0.30 $ 0.24 ===================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-3 30 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------------- ADDITIONAL COMMON PAID-IN RETAINED UNEARNED YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 STOCK CAPITAL EARNINGS COMPENSATION TOTAL - --------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1996 $ 273 $ 36,810 $ 201,663 $ (5,141) $ 233,605 Net income -- -- 27,832 -- 27,832 Restricted stock issued - 234,396 shares, net 1 3,240 -- (3,241) -- Amortized restricted stock -- -- -- 2,299 2,299 Employee stock options exercised and related tax benefit- 32,850 shares -- 350 -- -- 350 Repurchase of common stock - 251,163 shares -- (3,011) (126) -- (3,137) Common stock contributed to ESOP - 195,000 shares -- 2,356 -- -- 2,356 Cash dividends on common stock -- -- (6,578) -- (6,578) Tax benefit from ESOP dividends -- -- 707 -- 707 - --------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1997 274 39,745 223,498 (6,083) 257,434 Net income -- -- 46,507 -- 46,507 Restricted stock issued - 213,926 shares, net 2 3,793 -- (3,795) -- Amortized restricted stock -- -- -- 3,286 3,286 Employee stock options exercised and related tax benefit- 81,405 shares 1 1,402 -- -- 1,403 Repurchase of common stock - 107,733 shares -- (2,440) -- -- (2,440) Common stock contributed to ESOP - 61,800 shares -- 1,580 -- -- 1,580 Cash dividends on common stock -- -- (8,288) -- (8,288) Tax benefit from ESOP dividends and other -- 1,000 800 -- 1,800 - --------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1998 277 45,080 262,517 (6,592) 301,282 Net income -- -- 52,916 -- 52,916 Restricted stock issued - 236,578 shares, net 2 6,427 -- (6,429) -- Amortized restricted stock -- -- -- 4,834 4,834 Stock options and warrants exercised and related tax benefit- 130,940 shares 1 1,419 -- -- 1,420 Repurchase of common stock - 1,112,073 shares (10) (5,255) (19,764) -- (25,029) Common stock contributed to ESOP - 91,100 shares -- 2,146 -- -- 2,146 Cash dividends on common stock -- -- (10,876) -- (10,876) Tax benefit from ESOP dividends and other -- -- 1,039 -- 1,039 - --------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1999 $ 270 $ 49,817 $ 285,832 $ (8,187) $ 327,732 ===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-4 31 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 52,916 $ 46,507 $ 27,832 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 42,363 38,124 38,219 Gain on sales of property and equipment (4,544) (1,819) (2,463) Deferred income taxes 1,043 154 726 Decrease in unearned compensation 4,834 3,286 2,299 Common stock contributed to ESOP 2,146 1,580 2,356 Equity in (gain) loss of affiliates 5,292 (2,728) (733) Other (424) -- -- Changes in assets and liabilities: Accounts and notes receivable (34,106) (10,715) (43,072) Inventories (50) (522) 1,242 Equity in construction joint ventures (10,591) (7,069) (7,580) Other assets 1,327 189 864 Accounts payable 7,468 7,385 16,751 Billings in excess of costs and estimated earnings, net 18,285 6,954 13,130 Accrued expenses 14,028 14,704 14,227 --------------------------------------- Net cash provided by operating activities 99,987 96,030 63,798 - --------------------------------------------------------------------------------------------------------------- Investing Activities Purchases of short-term investments (98,082) (91,090) (27,351) Maturities of short-term investments 110,791 50,546 42,508 Additions to property and equipment (82,035) (52,462) (48,448) Proceeds from sales of property and equipment 9,130 5,357 4,688 Investment in affiliates 1,083 (385) (13,689) Development and sale of land and other investing activities 4,909 840 (6,915) --------------------------------------- Net cash used by investing activities (54,204) (87,194) (49,207) - --------------------------------------------------------------------------------------------------------------- Financing Activities Additions to long-term debt -- 60,000 27,046 Repayments of long-term debt (10,786) (51,392) (16,480) Employee stock options exercised 39 832 246 Repurchase of common stock (25,029) (2,440) (3,137) Dividends paid (10,645) (7,725) (6,570) --------------------------------------- Net cash provided (used) by financing activities (46,421) (725) 1,105 - --------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (638) 8,111 15,696 Cash and cash equivalents at beginning of year 62,470 54,359 38,663 --------------------------------------- Cash and cash equivalents at end of year $ 61,832 $ 62,470 $ 54,359 =============================================================================================================== Supplementary Information Cash paid during the year for: Interest $ 5,926 $ 4,857 $ 5,180 Income taxes 24,210 22,294 10,172 Noncash financing and investing activity: Restricted stock issued for services $ 6,429 $ 3,795 $ 3,241 Dividends accrued but not paid 1,890 1,659 1,096 Financed acquisition of property and equipment 1,700 -- 6,963 ===============================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-5 32 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS: The Company is a heavy civil contractor engaged in the construction of highways, dams, airports, mass transit facilities, real estate site development and other infrastructure related projects. The Company has offices in California, Texas, Georgia, Nevada, Arizona, Utah, and Florida. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated. The Company uses the equity method of accounting for affiliated companies where its ownership is between 20% and 50%. Additionally, the Company participates in joint ventures with other construction companies. The Company accounts for its share of the operations of these jointly controlled ventures on a pro rata basis in the consolidated statements of income and as a single line item in the consolidated balance sheets. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: Earnings on construction contracts including construction joint ventures are recognized on the percentage of completion method in the ratio of costs incurred to estimated final costs. Revenue in an amount equal to cost incurred is recognized prior to contracts reaching 25% completion. The related earnings are not recognized until the period in which such percentage completion is attained. It is the Company's judgment that until a project reaches 25% completion, there is insufficient information to determine with a reasonable level of comfort what the estimated profit on the project will be. Factors that can contribute to changes in estimates of contract profitability include, without limitation, site conditions that differ from those assumed in the original bid, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, inclement weather and timing and coordination issues inherent in design/build projects. Contract cost is recorded as incurred and revisions in contract revenue and cost estimates are reflected in the accounting period when known. The 25% threshold is applied to all percentage of completion projects without exception unless and until the Company projects a loss on the project, in which case the estimated loss is immediately recognized. Claims for additional contract revenue are recognized if it is probable that the claim will result in additional revenue and the amount can be reliably estimated. Revenue from contract change orders is recognized when the owner has agreed to the change order. Revenue from the sale of materials is recognized upon delivery. The Company's revenue is substantially derived from contracts that are "fixed unit price" contracts under which the Company is committed to provide materials or services required by a project at fixed unit prices (for example, dollars per cubic yard of concrete or cubic yards of earth excavated). The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local government agencies and private parties. All federal government contracts and many of the Company's other contracts provide for termination of the contract for the convenience of the party contracting with the Company. BALANCE SHEET CLASSIFICATIONS: The Company includes in current assets and liabilities amounts receivable and payable under construction contracts which may extend beyond one year. A one-year time period is used as the basis for classifying all other current assets and liabilities. CASH AND CASH EQUIVALENTS: Cash equivalents are securities held for cash management purposes having original maturities of three months or less from the date of purchase. SHORT-TERM INVESTMENTS: Short-term investments that are deemed by management to be held-to-maturity are reported at amortized cost. Short-term investments that are considered available-for-sale are carried at fair value. Unrealized gains and losses, if material, are reported net of tax as a separate component of stockholders' equity until realized. Realized gains and losses, if any, are determined using the specific identification method. F-6 33 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED FINANCIAL INSTRUMENTS: The carrying value of short-term investments approximates their fair value as determined by market quotes. All significant debt obligations carry variable interest rates or interest rates that approximate market and their carrying value is considered to approximate fair value. The carrying value of receivables and other amounts arising out of normal contract activities, including retentions, which may be settled beyond one year, is estimated to approximate fair value. INVENTORIES: Inventories consist primarily of quarry products valued at the lower of average cost or market. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation is provided using accelerated methods over lives ranging from three to ten years for construction equipment and the straight-line method over lives from three to twenty years for the remaining depreciable assets. The Company believes that accelerated methods best approximate the service provided by the construction equipment. Depletion of quarry property is based on the usage of depletable reserves. The cost and accumulated depreciation or depletion of property sold or retired is removed from the accounts and gains or losses, if any, are reflected in earnings for the period. During the year ended December 31, 1999 the Company capitalized interest costs related to certain self-constructed assets which reduced total interest expense of $9,368 by $577. LONG-LIVED ASSETS: Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There have been no such events or changes in circumstances to date. The Company holds for development and sale certain property acquired in foreclosure proceedings. Such assets are held in long-term other assets until such time as they are available to be sold and expected to be sold within a year, at which time they are carried in other current assets. Additionally, the Company frequently sells property and equipment that has reached the end of its useful life or no longer meets the Company's needs, including depleted quarry property. Such property is held in property and equipment until sold. During 1999, 1998 and 1997 there were no losses resulting from changes in the carrying amounts of these assets. INTANGIBLE ASSETS: Intangible assets consist primarily of covenants not to compete amortized on a straight-line basis over five years. INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. COMPUTATION OF EARNINGS PER SHARE: Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding, excluding restricted common stock. Diluted earnings per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options, warrants and upon the vesting of restricted common stock. RECLASSIFICATIONS: Certain financial statement items have been reclassified to conform to the current year's format. These reclassifications had no impact on previously reported net income. F-7 34 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "SFAS 133", Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of accounting and reporting for derivative instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal quarters of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The Company believes that adoption of this pronouncement will have no material impact on the Company's financial position and results of operations. 2. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES DISCLOSURE OF SIGNIFICANT ESTIMATES - REVENUE RECOGNITION: As outlined in the Summary of Significant Accounting Policies, the Company's construction revenue is recognized on the percentage of completion basis. Consequently, construction revenue and gross margin for each reporting period is determined on a contract by contract basis by reference to estimates by the Company's engineers of expected costs to be incurred to complete each project. These estimates include provisions for known and anticipated cost overruns, if any exist or are expected to occur. These estimates may be subject to revision in the normal course of business. DISCLOSURE OF SIGNIFICANT ESTIMATES - LITIGATION: The Company is a party to a number of legal proceedings and believes that the nature and number of these proceedings are typical for a construction firm of its size and scope and that none of these proceedings is material to the Company's financial position. The Company's litigation typically involves claims regarding public liability or contract related issues. CONCENTRATIONS: The Company maintains the majority of cash balances and all of its short-term investments with several financial institutions. The Company invests with high credit quality financial institutions, and, by policy, limits the amount of credit exposure to any financial institution. A significant portion of the Company's labor force is subject to collective bargaining agreements. Collective bargaining agreements covering 28.4% of the Company's unionized labor force at December 31, 1999 will expire during 2000. Revenue received from federal, state and local government agencies amounted to $856,399 (64.5%) in 1999, $835,986 (68.2%) in 1998, and $726,657 (70.6%) in 1997. California Department of Transportation represented $135,265 (10.2%) in 1999, $142,008 (11.6%) in 1998, and $139,300 (13.5%) in 1997 of total revenue. The Company performs ongoing credit evaluations of its customers and generally does not require collateral, although the law provides the Company the ability to file mechanics liens on real property improved for private customers in the event of non-payment by such customers. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company has no foreign operations. F-8 35 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. SHORT-TERM INVESTMENTS The carrying and market values of short-term investments are as follows at December 31, 1999 and 1998:
Held-To-Maturity Held-To-Maturity December 31, 1999 December 31, 1998 Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair Value Gains Losses Value Value Gains Losses Value ---------------------------------------------- ---------------------------------------------- U.S. Government and Agency Obligations $ 20,222 $ 4 $ -- $ 20,226 $ 19,271 $ 10 $ -- $ 19,281 Commercial Paper 12,917 16 -- 12,933 25,721 2 (4) 25,719 Municipal Bonds -- -- -- -- 5,022 12 -- 5,034 Domestic Banker's Acceptance 7,079 22 -- 7,101 4,921 -- (3) 4,918 ---------------------------------------------- ---------------------------------------------- 40,218 42 -- 40,260 54,935 24 (7) 54,952 ---------------------------------------------- ----------------------------------------------
Available-For-Sale Available-For-Sale December 31, 1999 December 31, 1998 Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair Value Gains Losses Value Value Gains Losses Value ---------------------------------------------- ---------------------------------------------- U.S. Government and Agency Obligations 2,999 -- (82) 2,917 2,991 7 -- 2,998 Municipal Bonds 3,028 -- (18) 3,010 1,028 4 -- 1,032 ---------------------------------------------- ---------------------------------------------- 6,027 -- (100) 5,927 4,019 11 -- 4,030 ---------------------------------------------- ---------------------------------------------- Total Short-Term Investments $ 46,245 $ 42 $ (100) $ 46,187 $ 58,954 $ 35 $ (7) $ 58,982 ============================================== ==============================================
There were no sales of investments classified as available-for-sale for the years ended December 31, 1999 and 1998. Unrealized gains and losses were considered immaterial for both 1999 and 1998 and, thus, not recorded as a separate item in stockholders' equity. At December 31, 1999, scheduled maturities of investments are as follows:
- ---------------------------------------------------------------------------- Held-To- Available- Maturity For-Sale Total - ---------------------------------------------------------------------------- Within one year $ 40,218 $ 4,999 $ 45,217 After one year through five years -- 1,028 1,028 - ---------------------------------------------------------------------------- $ 40,218 $ 6,027 $ 46,245 ============================================================================
For the years ended December 31, 1999 and 1998, purchases and maturities were as follows:
---------------------------------------- ---------------------------------------- December 31, 1999 December 31, 1998 Held-To- Available- Held-To- Available- Maturity For-Sale Total Maturity For-Sale Total ---------------------------------------- ---------------------------------------- Purchases $ 92,870 $ 5,212 $ 98,082 $ 83,968 $ 7,122 $ 91,090 Maturities 107,587 3,204 110,791 39,500 11,046 50,546 ---------------------------------------- ---------------------------------------- Net change $ (14,717) $ 2,008 $ (12,709) $ 44,468 $ (3,924) $ 40,544 ======================================== ========================================
F-9 36 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 4. ACCOUNTS RECEIVABLE
- -------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - -------------------------------------------------------------------------------- Construction Contracts Completed and in progress $127,544 $ 96,895 Retentions 61,055 56,774 - -------------------------------------------------------------------------------- 188,599 153,669 Construction material sales 19,421 19,554 Other 4,813 2,224 - -------------------------------------------------------------------------------- 212,833 175,447 Less allowance for doubtful accounts 1,224 699 - -------------------------------------------------------------------------------- $211,609 $174,748 ================================================================================
Accounts receivable includes amounts billed and billable for public and private contracts. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts generally become due upon completion of the contracts and acceptance by the owners. Retainage amounts at December 31, 1999 are expected to be collected as follows: $56,457 in 2000; $1,015 in 2001, $3,353 in 2002 and $230 in 2003. 5. EQUITY METHOD INVESTMENTS The Company participates in various construction joint venture partnerships. Generally, each construction joint venture is formed to accomplish a specific project and is dissolved upon completion of the project. The joint venture agreements typically provide that the interests of the Company in any profits and assets, and its respective shares in any losses and liabilities that may result from the performance of the contract are limited to the Company's stated percentage interest in the project. Although the venture's contract with the project owner typically requires joint and several liability, the Company's agreements with its joint venture partners provide that each party will assume and pay its full proportionate share of any losses resulting from a project. The Company has no significant commitments beyond completion of the contract. The Company's share of these ventures ranges from 15% - 55% the most significant of which include a 23% share of the I-15 Corridor reconstruction project in Salt Lake City, Utah, a 40% share of a highway and tunnel project in Atlantic City, New Jersey, a 25% share of a major dam project near Hemet, California, and a 55% share of an I-17 design build project in Maricopa County, Arizona. F-10 37 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 5. EQUITY METHOD INVESTMENTS, CONTINUED The combined assets, liabilities and net assets of these ventures are as follows:
- -------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - -------------------------------------------------------------------------------- Assets Total $260,275 $245,071 Less other venturers' interest 188,803 183,701 - -------------------------------------------------------------------------------- Company's interest 71,472 61,370 - -------------------------------------------------------------------------------- Liabilities Total 149,453 162,476 Less other venturers' interest 108,592 121,126 - -------------------------------------------------------------------------------- Company's interest 40,861 41,350 - -------------------------------------------------------------------------------- Company's interest in net assets $ 30,611 $ 20,020 ================================================================================
The revenue and costs of revenue of construction joint ventures are as follows:
- --------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1999 1998 1997 - --------------------------------------------------------------------------------------- Revenue Total $646,277 $649,042 $326,895 Less other venturers' interest 469,350 497,407 248,028 - --------------------------------------------------------------------------------------- Company's interest 176,927 151,635 78,867 - --------------------------------------------------------------------------------------- Cost of Revenue Total 575,432 578,608 287,705 Less other venturers' interest 418,628 443,123 220,497 - --------------------------------------------------------------------------------------- Company's interest 156,804 135,485 67,208 - --------------------------------------------------------------------------------------- $ 20,123 $ 16,150 $ 11,659 =======================================================================================
F-11 38 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 5. EQUITY METHOD INVESTMENTS, CONTINUED Additionally, the Company has investments in affiliates that are accounted for on the equity method. The most significant of these investments is a 30% interest in T.I.C. Holdings, Inc. and a 22.2% limited partnership interest in a partnership which constructed and operates a private toll road. At December 31, 1999 the Company had a commitment supported by a letter of credit of $2,044 related to its limited partnership interest. Differences between the carrying amount of the Company's investments and the underlying equity in net assets, which approximate $5,000 at December 31, 1999, are being amortized over an estimated useful life of 10 years. The summarized financial information below represents an aggregation of the Company's nonsubsidiary affiliates:
-------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1999 1998 1997 -------------------------------------------------------------------------------------- Balance sheet data Assets $ 347,721 $ 328,496 $ 275,685 Liabilities 305,542 267,397 216,512 Net assets 42,179 61,099 59,173 -------------------------------------------------------------------------------------- Company's equity investment in affiliates 23,139 29,515 25,008 -------------------------------------------------------------------------------------- Earnings data Revenue 767,754 561,568 434,389 Gross profit 33,628 50,452 41,137 Earnings (loss) before taxes and Continuing operations (12,426) 7,510 1,891 Earnings (loss) before taxes (18,655) 7,510 1,891 -------------------------------------------------------------------------------------- Company's equity in earnings (loss) $ (5,292) $ 2,728 $ 733 --------------------------------------------------------------------------------------
The Company's equity investment in affiliates in 1998 reflected above includes an investment of $1,394 made in a prior period. F-12 39 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 6. PROPERTY AND EQUIPMENT
- -------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - -------------------------------------------------------------------------------- Land $ 36,485 $ 33,742 Quarry property 46,891 38,390 Buildings and leasehold improvements 33,791 22,843 Equipment and vehicles 478,990 434,737 Office furniture and equipment 7,110 4,870 - -------------------------------------------------------------------------------- 603,267 534,582 Less accumulated depreciation, depletion and amortization 360,354 328,845 - -------------------------------------------------------------------------------- $242,913 $205,737 ================================================================================
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
- -------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - -------------------------------------------------------------------------------- Payroll and related employee benefits $ 40,375 $ 34,829 Accrued insurance 30,425 26,487 Income taxes 3,696 2,542 Other 16,179 14,902 - -------------------------------------------------------------------------------- $ 90,675 $ 78,760 ================================================================================
8. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
- -------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - -------------------------------------------------------------------------------- Senior notes payable $ 60,000 $ 60,000 Notes payable to bank 5,000 15,000 Other notes payable 5,838 4,924 - -------------------------------------------------------------------------------- 70,838 79,924 Less current maturities 5,985 10,787 - -------------------------------------------------------------------------------- $ 64,853 $ 69,137 ================================================================================
The aggregate minimum principal maturities of long-term debt for each of the five years following December 31, 1999 are as follows: 2000 - $5,985; 2001 - $2,707; 2002 - $7,686; 2003 - $6,863; 2004 - $6,876; and beyond 2004 - $40,721. The Company has a bank revolving line of credit of $75,000 which allows for unsecured borrowings for up to five years through June 29, 2001, with interest rate options. Outstanding borrowings under the revolving line of credit are at the IBOR interest rate plus margin (6.19% and 1.0%, respectively at December 31, 1999) with principal payable semiannually beginning December 2001 through June 2006 and interest payable quarterly. There were no amounts outstanding at December 31, 1999. The Company has standby letters of credit totaling approximately $14,603 outstanding at December 31, 1999 of which $12,559 reduces the amount available under the revolving line of credit and $2,044 supports the commitment by the Company related to its investment in a limited partnership. The unused and available portion of the line of credit at December 31, 1999 was approximately $62,441. F-13 40 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 8. LONG-TERM DEBT AND CREDIT ARRANGEMENTS, CONTINUED Senior Notes Payable in the amount of $60 million are due to a group of institutional holders. The notes are due in nine equal annual installments beginning in 2002 and bear interest at 6.54% per annum. The Company used $39 million of the proceeds of the notes to retire its bank revolving credit notes. Notes payable to bank are unsecured with principal payable semiannually and interest payable quarterly through June 2000 at the IBOR rate plus margin (6.19% and 1.0%, respectively at December 31, 1999). Restrictive covenants under the terms of debt agreements include the maintenance of certain levels of working capital and cash flow. Other covenants prohibit capital expenditures in excess of specified limits and require the maintenance of tangible net worth (as defined) of approximately $238,000. Other notes payable are comprised primarily of notes incurred in connection with the purchase of property and equipment, and other assets. These notes are collateralized by the assets purchased and bear interest at 6.5% to 8.8% per annum with principal and interest payable in installments through 2007. 9. EMPLOYEE BENEFIT PLANS EMPLOYEE STOCK OWNERSHIP PLAN: The Company's Employee Stock Ownership Plan ("ESOP") covers all employees not included in collective bargaining agreements. As of December 31, 1999, the ESOP owned 7,159,981 shares of the Company's common stock. Dividends on shares held by the ESOP are charged to retained earnings and all shares held by the ESOP are treated as outstanding in computing the Company's earnings per share. Contributions to the ESOP are at the discretion of the Board of Directors and comprise shares of the Company's stock that were purchased on the market and immediately contributed to the plan. Compensation cost is measured as the cost to purchase the shares (market value on the date of purchase and contribution). Contributions for the years ended December 31, 1999, 1998 and 1997 were approximately $1,769, $1,957 and $1,812, respectively. PROFIT SHARING AND 401k PLAN: The Profit Sharing and 401k Plan is a defined contribution plan covering all employees not included in collective bargaining agreements. Each employee can elect to have up to 10% of gross pay contributed to the plan on a before-tax basis. The plan allows for Company matching and additional contributions at the discretion of the Board of Directors. Company contributions to the Profit Sharing and 401k Plan for the years ended December 31, 1999, 1998 and 1997 were $3,414, $8,402 and $4,706, respectively. Included in the contributions were 401k matching contributions of $2,762, $1,990 and $1,807, respectively. OTHER: The Company`s wholly owned subsidiary, Granite Construction Company, also contributes to various multi-employer pension plans on behalf of union employees. Contributions to these plans for the years ended December 31, 1999, 1998 and 1997 were approximately $14,435, $13,498 and $11,972, respectively. F-14 41 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 10. STOCKHOLDERS' EQUITY 1999 EQUITY INCENTIVE PLAN: On May 24, 1999, the Company's stockholders approved the 1999 Equity Incentive Plan (the "Plan"), which replaces the Company's 1990 Omnibus Stock and Incentive Plan (the "1990 Plan"). The Plan provides for the grant of restricted common stock, incentive and nonqualified stock options, performance units and performance shares to employees and awards to the Company's board of directors in the form of stock units or stock options ("Director Options"). A total of 2,500,000 shares of the Company's common stock have been reserved for issuance under the Plan. The exercise price for incentive and nonqualified stock options granted under the Plan may not be less than 100% and 85%, respectively, of the fair market value at the date of the grant. Options granted will be exercisable at such times and be subject to such restrictions and conditions as determined by the compensation committee, but no option shall be exercisable later than ten years from the date of grant. Restricted common stock is issued for services to be rendered and may not be sold, transferred or pledged for such period as determined by the compensation committee. Restricted shares outstanding at December 31, 1999 were 804,412 shares. Restricted stock compensation cost is measured at the stock's fair value on the date of grant. The compensation cost is recognized ratably over the vesting period -- generally five years. An employee may not sell or otherwise transfer unvested shares and, in the event that an employee terminates his or her employment prior to the end of the vesting period, any unvested shares are surrendered to the Company. The Company has no obligation to repurchase restricted stock. Compensation expense related to restricted shares for the years ended December 31, 1999, 1998 and 1997 was $4,834, $3,286 and $2,299, respectively. Stock options granted under the 1990 Plan, all of which were granted in 1990, will expire in 2000. All options were granted, cancelled and exercised at $7.56 per share and are 100% vested at December 31, 1999. Stock option transactions under the 1990 Plan during 1999, 1998 and 1997 are summarized as follows:
- ------------------------------------------------------------------------------------- December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------- Options outstanding, beginning of year 70,625 157,125 189,975 Options exercised (17,250) (81,405) (32,850) Options forfeited -- (5,095) -- - ------------------------------------------------------------------------------------- Options outstanding, end of year 53,375 70,625 157,125 =====================================================================================
The Company granted Director Options to purchase 7,367 shares of the Company's stock under the Plan during 1999 at a weighted average exercise price of $10.35. The options are immediately exercisable and all remain outstanding at December 31, 1999. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). Accordingly, the compensation cost for the options granted in 1999 was recognized to the extent the fair market value exceeded the exercise price, as all of the options were granted at prices less than fair market value. F-15 42 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 10. STOCKHOLDERS' EQUITY, CONTINUED The fair value of each option grant was estimated at the grant date using a type of Black-Scholes option pricing model with the following assumptions used for grants: dividend yield of 1.53%-2.17%, volatility of 33.8%, risk free interest rates of 5.9%-6.45% and an expected life of eight years. Based on these assumptions, the aggregate fair value and weighted average fair value per share of options granted in 1999 was $90 (of which $78 was recognized as expense in 1999) and $12.28, respectively. Had compensation expense been determined based upon fair values at the grant date in accordance with SFAS 123, the Company's net earnings would have been reduced to the pro forma amount indicated below, however the Company's earnings per share would be unchanged.
------------------------------------------------------- PRO FORMA NET INCOME ------------------------------------------------------- Net Income as Reported $ 52,916 Pro forma Net Income $ 52,904 =======================================================
The options outstanding and exercisable by exercise price for the Plan at December 31, 1999 are as follows:
- -------------------------------------------------------------------------------- Weighted Options Average Weighted Outstanding Remaining Average and Contractual Exercise Exercise Prices Exercisable Life (years) Price - -------------------------------------------------------------------------------- $ 8.99 4,804 9.75 $ 8.99 $12.90 2,563 10.00 $12.90 - -------------------------------------------------------------------------------- 7,367 9.84 $10.35 ================================================================================
OTHER: The Company has issued warrants to purchase 450,000 shares of its common stock at an exercise price of $13.37 per share. The warrants expire on July 25, 2002. As of December 31, 1999 there were 215,300 warrants outstanding. F-16 43 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 11. EARNINGS PER SHARE In accordance with the disclosure requirements of SFAS 128, a reconciliation of the numerator and denominator of basic and diluted earnings per share is provided as follows (in thousands except per share data):
- ------------------------------------------------------------------------------------------ YEARS ENDED DECEMBER 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------ NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE Net income $ 52,916 $ 46,507 $ 27,832 ========================================================================================== DENOMINATOR - BASIC EARNINGS PER SHARE Common stock outstanding 27,159 27,570 27,375 Less restricted stock outstanding 1,101 1,011 978 - ------------------------------------------------------------------------------------------ TOTAL 26,058 26,559 26,397 - ------------------------------------------------------------------------------------------ Basic earnings per share $ 2.03 $ 1.75 $ 1.05 ========================================================================================== DENOMINATOR - DILUTED EARNINGS PER SHARE Denominator - Basic Earnings per Share 26,058 26,559 26,397 Effect of Dilutive Securities: Warrants 190 175 -- Common stock options 41 64 74 Restricted stock 674 541 471 - ------------------------------------------------------------------------------------------ TOTAL 26,963 27,339 26,942 - ------------------------------------------------------------------------------------------ Diluted earnings per share $ 1.96 $ 1.70 $ 1.03 ==========================================================================================
F-17 44 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 12. INCOME TAXES Provision for income taxes:
- -------------------------------------------------------------------------------------- Years Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------- Federal Current $ 26,823 $ 23,592 $ 12,964 Deferred 905 138 646 - -------------------------------------------------------------------------------------- 27,728 23,730 13,610 - -------------------------------------------------------------------------------------- State Current 5,260 4,758 2,656 Deferred 139 16 80 - -------------------------------------------------------------------------------------- 5,399 4,774 2,736 - -------------------------------------------------------------------------------------- $ 33,127 $ 28,504 $ 16,346 ======================================================================================
Reconciliation of statutory to effective tax rate:
- -------------------------------------------------------------------------------------- Years Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% State taxes, net of federal tax benefit 4.1 4.1 4.0 Percentage depletion deduction (1.5) (1.1) (2.0) Other 0.9 -- -- - -------------------------------------------------------------------------------------- 38.5% 38.0% 37.0% ======================================================================================
Deferred tax assets and liabilities:
- ------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 - ------------------------------------------------------------------------------- Deferred Tax Assets: Accounts receivable $ 1,222 $ 915 Inventory 1,349 1,556 Property and equipment 2,374 1,755 Insurance accruals 10,185 9,849 Deferred compensation 2,385 3,014 Other accrued liabilities 5,715 4,341 Other 329 936 - ------------------------------------------------------------------------------- 23,559 22,366 - ------------------------------------------------------------------------------- Deferred Tax Liabilities: Property and equipment 29,155 29,697 Contract recognition 3,867 1,532 TIC basis difference 2,694 3,053 Other 1,281 479 - ------------------------------------------------------------------------------- 36,997 34,761 - ------------------------------------------------------------------------------- $(13,438) $(12,395) ===============================================================================
The deferred tax asset for insurance accruals relates primarily to the self funded portion of the Company's workers compensation and public liability insurance which is deductible in future periods. The deferred tax asset for other accrued liabilities relates to various items including accrued vacation and accrued reclamation costs which are deductible in future periods. The deferred tax liability for the TIC basis difference represents the undistributed earnings of TIC for which income and the related tax provision have been recognized on the Company's records. F-18 45 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 13. LEASES Minimum rental commitments under all noncancellable operating leases, primarily quarry property and construction equipment, in effect at December 31, 1999 were:
Years Ending December 31, 2000 $ 4,362 2001 2,602 2002 2,092 2003 1,932 2004 1,561 Later years (through 2016) 3,764 ------------------------------------------------------ Total minimum rental commitment $16,313 ======================================================
Operating lease rental expense was $4,726 in 1999, $4,628 in 1998, and $4,414 in 1997. F-19 46 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 14. BUSINESS SEGMENT INFORMATION The Company has two reportable segments: the Branch Division and the Heavy Construction Division (HCD). The Branch Division is comprised of branch offices that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD generally has large heavy civil projects with contract amounts in excess of $15 million and contract durations greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in the Company's construction joint ventures. Substantially all of the revenue from these joint ventures is included in HCD's revenues from external customers (Note 5). The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1). The Company evaluates performance based on operating profit or loss which does not include income taxes, interest income, interest expense or other income (expense). INFORMATION ABOUT PROFIT AND ASSETS
- ---------------------------------------------------------------------------------------- HCD BRANCH TOTAL - ---------------------------------------------------------------------------------------- 1999 Revenues from external customers $ 373,876 $ 954,898 $1,328,774 Intersegment revenue transfer (21,566) 21,566 -- ------------------------------------------- Net revenue 352,310 976,464 1,328,774 Depreciation and amortization 8,068 30,080 38,148 Operating income 34,176 83,878 118,054 Property and equipment 28,759 194,919 223,678 - ---------------------------------------------------------------------------------------- 1998 Revenues from external customers $ 305,856 $ 920,244 $1,226,100 Intersegment revenue transfer (25,668) 25,668 -- ------------------------------------------- Net revenue 280,188 945,912 1,226,100 Depreciation and amortization 7,396 27,292 34,688 Operating income 12,139 86,688 98,827 Property and equipment 26,618 167,540 194,158 - ---------------------------------------------------------------------------------------- 1997 Revenues from external customers $ 208,094 $ 820,111 $1,028,205 Intersegment revenue transfer (11,831) 11,831 -- ------------------------------------------- Net revenue 196,263 831,942 1,028,205 Depreciation and amortization 7,364 27,513 34,877 Operating income 3,394 54,679 58,073 Property and equipment 26,995 159,057 186,052 - ----------------------------------------------------------------------------------------
F-20 47 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 14. BUSINESS SEGMENT INFORMATION, CONTINUED RECONCILIATION OF SEGMENT PROFIT AND ASSETS TO THE COMPANY'S CONSOLIDATED TOTALS:
- -------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------- Profit or Loss: Total profit or loss for reportable segments $ 118,054 $ 98,827 $ 58,073 Other income 1,781 5,753 6,041 Unallocated other corporate expenses (33,792) (29,569) (19,936) - -------------------------------------------------------------------------------------------- Income before provision for income taxes $ 86,043 $ 75,011 $ 44,178 ============================================================================================ Assets: Total assets for reportable segments $ 223,678 $ 194,158 Assets not allocated to segments: Cash and cash equivalents 61,832 62,470 Short-term investments 46,245 58,954 Deferred income taxes 14,885 15,397 Other current assets 279,359 233,987 Property and equipment 19,235 11,579 Other assets 34,338 50,026 - ---------------------------------------------------------------------------- Consolidated Total $ 679,572 $ 626,571 ============================================================================
15. SUBSEQUENT EVENTS (UNAUDITED) On January 24, 2000, the Board of Directors declared a special dividend of $0.06 per share of common stock in addition to a $0.10 per share quarterly dividend, payable on April 14, 2000 to stockholders of record as of March 31, 2000. The quarterly dividend represents a $0.03 per share increase over the dividends paid in 1999 of $0.07 per share. In January 2000, the Company purchased 30% of the common stock of Wilder Construction Company ("Wilder") for a purchase price of $13.1 million. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. Founded in 1911, Wilder is a heavy-civil construction company with regional offices located in Washington, Oregon and Alaska. Wilder has annual revenues of approximately $150 million and employs approximately 650 people throughout the Northwest and Alaska. The Company currently holds a 30% minority interest in T.I.C. Holdings, Inc. ("TIC"). In February 2000, the Company reached an agreement in principle with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement in principle, TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. A definitive agreement has not yet been finalized. This will allow TIC to retain its independence while allowing both companies to maintain their strategic alliance. The proposed agreement will also allow the Company to intensify its focus on its core business in heavy civil construction. F-21 48 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-36482 and 33-36485) of Granite Construction Incorporated of our report dated February 11, 2000 relating to the financial statements and financial statement schedule, which appears in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP San Jose, California March 30, 2000 27 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 20, 2000 GRANITE CONSTRUCTION INCORPORATED By: /s/ William E. Barton ----------------------------------------- [William E. Barton, Senior Vice President and Chief Financial Officer] Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 22, 2000, by the following persons in the capacities indicated. /s/ David H. Watts Chairman of the Board, - --------------------------------- President, Chief Executive Officer, [David H. Watts] and Director /s/ William E. Barton Senior Vice President and Chief Financial Officer - --------------------------------- Principal Accounting and Financial Officer [William E. Barton] /s/ Joseph J. Barclay Director - --------------------------------- [Joseph J. Barclay] /s/ Richard M. Brooks Director - --------------------------------- [Richard M. Brooks] /s/ Linda Griego Director - --------------------------------- [Linda Griego] /s/ Brian C. Kelly Director - --------------------------------- [Brian C. Kelly] /s/ Rebecca A. McDonald Director - --------------------------------- [Rebecca A. McDonald] /s/ Raymond E. Miles Director - --------------------------------- [Raymond E. Miles] /s/ J. Fernando Niebla Director - --------------------------------- [J. Fernando Niebla] /s/ George B. Searle Director - --------------------------------- [George B. Searle]
28 50 INDEX TO FORM 10-K EXHIBITS
Exhibit Page No. Description No. - --- ----------- ---- 3.1 Certificate of Incorporation of Granite Construction Incorporated [a] 3.1.a Amendment to the Certificate of Incorporation of Granite Construction Incorporated [f] 3.1.b Certificate of Incorporation of Granite Construction Incorporated as Amended and Restated (Effective May 22, 1998) [f] 3.2 Bylaws of Granite Construction Incorporated (as amended and restated effective February 27, 1991) [b] 10.1 Amendment to and Restatement of the Granite Construction Incorporated Employee Stock Ownership Plan adopted November 16, 1998 and effective January 1, 1998 [f] 10.1.a Granite Construction Incorporated Employee Stock Ownership Trust Agreement [b] 10.1.b Amendment 1 to the Granite Construction Incorporated Employee Stock Ownership Plan Trust Agreement adopted December 19, 1995, effective January 1, 1996 [c] 10.2 Granite Construction Profit Sharing and 401(k) Plan as Amended and Restated Effective January 1, 1999 __ 10.3 Credit Agreement dated and effective June 30, 1997 [e] 10.3.a First Amendment to the Credit Agreement entered into January 16, 1998 [e] 10.3.b Second Amendment to the Credit Agreement entered into June 30, 1998 [f] 10.3.c Third Amendment to the Credit Agreement entered into June 30, 1999 __ 10.4 Form of Director and Officer Indemnification Agreement [a] 10.5 Form of Executive Officer Employment Agreement [a] 10.6 Amendment to and Restatement of the Granite Construction Incorporated Key Management Deferred Compensation Plan adopted and effective January 1, 1998 [f] 10.6.a Amendment 1 to Granite Construction Incorporated Key Management Deferred Compensation Plan dated April 23, 1999 __ 10.7 Amendment to and Restatement of the Granite Construction Incorporated Key Management Deferred Incentive Compensation Plan adopted and effective January 1, 1998 [f] 10.7.a Amendment 1 to Granite Construction Incorporated Key Management Deferred Incentive Compensation Plan dated April 23, 1999 __ 10.8 Note Purchase Agreement between Granite Construction Incorporated and certain purchasers dated March 1, 1998 [f]
29 51 10.9 Subsidiary Guaranty Agreement from the Subsidiaries of Granite Construction Incorporated as Guarantors of the Guaranty of Notes and Note Agreement and the Guaranty of Payment and Performance dated March 1, 1998 [f] 10.10 Granite Construction Incorporated 1999 Equity Incentive Plan __ 21.1 List of Subsidiaries of Granite Construction Incorporated [d] 24.1 Consent of PricewaterhouseCoopers, LLP is contained on page 27 of this Report 27.1 Financial Data Schedule __
[a] Incorporated by reference to the exhibits filed with the Company's Registration Statement on Form S-1 (No. 33-33795). [b] Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1991. [c] Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1995. [d] Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1996. [e] Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1997. [f] Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1998. 30 52 SCHEDULE II GRANITE CONSTRUCTION INCORPORATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS -------------------------- BALANCE AT ADJUSTMENTS BALANCE AT BEGINNING BAD DEBT AND END OF DESCRIPTION OF YEAR EXPENSE COLLECTIONS DEDUCTIONS(1) PERIOD - ------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts ........ $ 699 $ 997 $ 1,516 $ (1,988) $ 1,224 ================================================================ Allowance for notes receivable ......... $ 68 $ -- $ -- $ -- $ 68 ================================================================ YEAR ENDED DECEMBER 31, 1998 Allowance for doubtful accounts ........ $ 691 $ (2,628) $ 3,538 $ (902) $ 699 ================================================================ Allowance for notes receivable ......... $ 68 $ -- $ -- $ -- $ 68 ================================================================ YEAR ENDED DECEMBER 31, 1997 Allowance for doubtful accounts ........ $ 693 $ 759 $ 1,162 $ (1,923) $ 691 ================================================================ Allowance for notes receivable ......... $ 68 $ -- $ -- $ -- $ 68 ================================================================
(1) Accounts deemed to be uncollectible S-1 EX-10.2 2 GRANITE CONTR. PROFIT-SHARING AND 401(K) PLAN 1 EXHIBIT 10.2 GRANITE CONSTRUCTION PROFIT SHARING AND 401(k) PLAN As Amended and Restated Effective as of January 1, 1999 2 TABLE OF CONTENTS
Section Page 1. Nature of the Plan 1 2. Definitions 2 3. Eligibility and Participation 8 4. Contributions 11 5. Investment of Trust Assets 19 6. Allocations to Participants' Accounts 21 7. Allocation Limitation 24 8. Frozen Gibbons Accounts 25 9. Disclosure to Participants 28 10. Vesting and Forfeitures 29 11. Years of Vesting Service and Break in Service 30 12. When Capital Accumulation Will Be Distributed 32 13. Hardship Withdrawals 34 14. How Capital Accumulation Will Be Distributed 37 15. No Assignment of Benefits 39 16. Administration 39 17. Claims Procedure 43 18. Limitation on Participants' Rights 44 19. Future of the Plan 45 20. "Top-Heavy" Contingency Provisions 46 21. Governing Law 48 22. Execution 48
3 GRANITE CONSTRUCTION PROFIT SHARING AND 401(k) PLAN As Amended and Restated Effective As of January 1, 1999 Section 1. Nature of the Plan. The purpose of this Plan is to enable participating Employees to save funds on a tax-favored basis and to provide Participants with an opportunity to accumulate capital for their future economic and retirement security. The Plan, which was originally adopted effective as of January 1, 1995, as an amendment and restatement of the Granite Construction Company Profit Sharing Plan Trust Agreement (originally effective January 1, 1976), is hereby amended and restated effective as of January 1, 1999. The Plan is a profit sharing plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), that contains a "cash or deferred arrangement" under Section 401(k) of the Code. In order to satisfy applicable requirements of the Code, as amended by the Small Business Job Protection Act of 1996, the second sentence in the first paragraph of Section 4(b)(5) and the third sentence in the first paragraph of Section 4(c)(3) are amended effective as of January 1, 1997. All Trust Assets held under the Plan will be administered, distributed, forfeited and otherwise governed by the provisions of this Plan and the related Trust Agreement. The Plan is administered by an Administrative Committee for the exclusive benefit of Participants (and their Beneficiaries). 4 Section 2. Definitions. In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine or neuter gender shall be deemed to include the other, the terms "he," "him" and "his" shall refer to a Participant, and the capitalized terms shall have the following meanings: Account One of several accounts maintained to record the interest of a Participant. See Section 6. Additional 401(k) Contributions Employer Contributions made pursuant to Participant elections under Section 4(b)(2). Affiliate Any corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which the Company is also a member or any trade or business (whether or not incorporated) which is under common control with the Company (within the meaning of Section 414(c) of the Code). Allocation Date December 31st of each year (the last day of each Plan Year). Beneficiary The person (or persons) entitled to receive any benefit under the Plan in the event of a Participant's death. See Section 14(b). Board of Directors The Board of Directors of the Company. Break in Service A Plan Year in which an Employee is not credited with more than 500 Hours of Service as a result of his termination of Service. See Section 11(b). Capital Accumulation A Participant's vested, nonforfeitable interest in his Accounts under the Plan. Each Participant's Capital Accumulation shall be determined in accordance
-2- 5 with the provisions of Section 10 and distributed as provided in Sections 12, 13 and 14. Code The Internal Revenue Code of 1986, as amended. Committee The Administrative Committee appointed by the Board of Directors to administer the Plan. See Section 16. Company Granite Construction Incorporated, a Delaware corporation. Compensation The Statutory Compensation paid to an Employee by his Employer, but excluding (1) reimbursements or other expense allowances (including travel expense allowances), (2) fringe benefits (cash and noncash), (3) moving expenses, (4) welfare benefits, (5) any amount in excess of $160,000 (as adjusted periodically after 1998 for increases in the cost of living pursuant to Section 401(a)(17) of the Code), and (6) any amount paid to an Employee pursuant to the terms of a collective bargaining agreement. Disability Any mental or physical incapacity of an Employee that, in the opinion of a licensed physician selected by the Company, renders the Employee totally and permanently incapable of performing his assigned duties with an Employer and results in his termination of Service. Employee Any individual who is treated by an Employer as a common law employee. A leased Employee, as described in Section 414(n) of the Code, is not an Employee for purposes of this Plan. Employer The Company and each Affiliate which is designated as an Employer by the Board of Directors and which adopts the Plan for the benefits of its Employees.
-3- 6 Employer Contributions Payments made to the Trust by an Employer (other than Rollover Contributions) as described in Sections 4(a), (b) and (c). ERISA The Employee Retirement Income Security Act of 1974, as amended. ESOP The Granite Construction Employee Stock Ownership Plan, an employee stock ownership plan under Section 4975(e)(7) of the Code. ESOP Diversification Account The Account which reflects a Participant's interest attributable to amounts transferred from the ESOP pursuant to the diversification election procedures of the ESOP. 401(k) Account The Account which reflects a Participant's interest under the Plan attributable to 401(k) Contributions. See Section 6. 401(k) Contributions Employer Contributions made pursuant to Participant elections under Section 4(b). Any reference made to 401(k) Contributions in the Plan shall generally include a Participant's Additional 401(k) Contributions, except for purposes of Sections 3(b) and 4(c) with respect to Matching Contributions. Forfeiture The portion of a Participant's Accounts which does not become a part of his Capital Accumulation and which is forfeited under Section 10(b). Frozen Elective Deferral Account The Account which reflects a Participant's interest in his "elective deferral account" under the Gibbons Plan that was transferred to the Plan on May 1, 1998. See Section 8(a). Frozen General Account The Account which reflects a Participant's interest in his "rollover account," "employer matching contribution account" and "employer profit-sharing
-4- 7 contribution account" under the Gibbons Plan that was transferred to this Plan on May 1, 1998. See Section 8(a). Gibbons Employee A Participant who became an Employee as a result of the Company's acquisition of G. G. & R., Inc. (formerly known as the Gibbons Company) and its affiliates on May 8, 1995. Gibbons Plan The Gibbons Company Profit Sharing and Retirement Plan, a qualified defined contribution that was terminated, effective as of March 31, 1998, (excluding the portion of the plan that was a "cash or deferred arrangement" under Section 401(k) of the Code). Amounts attributable to the portion of the plan that was a "cash or deferred arrangement" were transferred from the Gibbons Plan to this Plan on the behalf of Gibbons Employees on May 1, 1998. Highly Compensated Employee An Employee who (1) was a "5% owner" at any time during the Plan Year or preceding Plan Year, or (2) received Statutory Compensation in excess of $80,000 in the preceding Plan Year and was in the top-paid 20% group of Employees for such preceding Plan Year. The $80,000 amount shall be adjusted after 1998 for increases in the cost of living pursuant to Section 414(q)(1) of the Code. Hour of Service Each hour of Service for which an Employee is credited under the Plan, as described in Section 3(d). Matching Account The Account which reflects each Participant's interest attributable to Matching Contributions. See Section 6. Matching Contributions Employer Contributions made under the Plan in amounts related to the 401(k) Contributions on behalf of each Participant. See Section 4(c).
-5- 8 Participant Any Employee or former Employee who has met the applicable eligibility requirements of Section 3 and who has not yet received a complete distribution of his Capital Accumulation. Plan The Granite Construction Profit Sharing and 401(k) Plan, which includes this Plan and the Trust Agreement. Plan Year The 12-month period ending on each Allocation Date (and coinciding with each calendar year, which is the taxable year of the Company). Profit Sharing Account The Account which reflects a Participant's interest under the Plan attributable to Profit Sharing Contributions. See Section 6. Profit Sharing Contributions Employer Contributions made pursuant to Section 4(a). Retirement Termination of Service on or after attaining age 55 or, if later, the completion of ten Years of Vesting Service (but not later than the date he attains age 65 or, if later, the fifth anniversary of the date he became a Participant). Rollover Account The Account which reflects a Participant's interest under the Plan attributable to Rollover Contributions. See Section 6. Rollover Contributions Payments made to the Trust by a Participant under Section 4(e). Service Employment with the Company and or any Affiliate. For any corporation or other business entity which is designated as an Employer whose Employees are eligible to participate in the Plan and for the employees of any other business substantially all the assets of which are acquired by an Employer, the Board of Directors may grant the Employees of such entity credit for their years of
-6- 9 service with such entity (prior to the date that such entity became an Affiliate) for purposes of eligibility and vesting under the Plan. Such grant shall be evidenced by action of the Board of Directors and attached to and made a part of this Plan. Statutory Compensation The total remuneration paid to an Employee by an Employer during the Plan Year for personal services rendered, plus the amount of his 401(k) Contributions and any amounts that are contributed by an Employer on his behalf that are not included in gross income under Section 125 of the Code, but excluding employer contributions to a plan of deferred compensation, amounts realized in connection with stock options and amounts which receive special tax benefits. Stock Shares of common stock issued by the Company. Stock Fund The investment fund held by the Trust consisting of shares of Stock. Trust The Granite Construction Profit Sharing and 401(k) Plan Trust, created by the Trust Agreement entered into between the Company and the Trustee. Trust Agreement The Agreement between the Company and the Trustee establishing the Trust and specifying the duties of the Trustee. Trust Assets The Stock (and other assets) held in the Trust for the benefit of Participants. See Section 5. Trustee The Trustee (and any successor Trustee) appointed by the Board of Directors to hold the Trust Assets. Year of Vesting Service Each Plan Year in which an Employee is credited with at least 1000 Hours of Service. See Section 11(a).
-7- 10 Section 3. Eligibility and Participation. (a) Each Employee who was a Participant on December 31, 1998, shall continue as a Participant. Each other Employee shall become a Participant as of the Allocation Date of the Plan Year in which his Service began if he is credited with at least 1000 Hours of Service during that Plan Year and is still an Employee on the Allocation Date; provided, however, that an Employee who incurs a Disability during that Plan Year while an Employee shall become a Participant on the date of Disability and an Employee who dies during that Plan Year while an Employee shall become a Participant on the day prior to his date of death. Each other Employee who does not become a Participant pursuant to the preceding sentence shall become a Participant as of the June 30th or December 31st coinciding with or next following the date on which he is credited with at least 1000 Hours of Service over a period that does not exceed 12 consecutive months, provided that he is still an Employee on such June 30th or December 31st. For this purpose, the eligibility computation period for determining the 1,000 Hours of Service requirement in the preceding sentence shall initially be the period of 12 consecutive months beginning on the Employee's initial date of Service and thereafter shall be the period of 12 consecutive months beginning on the anniversary date of the Employee's initial date of Service. Employees whose terms of employment are covered by a collective bargaining agreement shall not be eligible to participate in the Plan unless the collective bargaining agreement specifically provides for such Employees to participate in the Plan. Employees who are nonresident aliens who receive no earned income from the Company or an Affiliate that constitutes income from sources within the United States shall not be eligible to participate in the Plan. An Employee who ceases to be ineligible to participate in the Plan shall become a -8- 11 Participant as of the later of the date he ceases to be ineligible or the date described in the preceding paragraph. (b) A Participant shall be entitled to share in the allocation of Matching Contributions for each Plan Year in which he elects to make 401(k) Contributions; provided, however, that a Participant shall not be entitled to share in the allocation of Matching Contributions with respect to any Additional 401(k) Contributions that are made to the Trust on his behalf. A Participant is entitled to share in the allocation of Profit Sharing Contributions and Forfeitures for each Plan Year in which he is credited with at least 1000 Hours of Service and in which he is an Employee on the Allocation Date. A Participant shall also entitled to share in the allocation of Profit Sharing Contributions and Forfeitures for the Plan Year of his Retirement, Disability or death. (c) A former Participant who is reemployed by an Employer shall become a Participant as of the date of his reemployment. A former Employee who is reemployed by an Employer and who previously satisfied the service requirement described in Section 3(a) shall become a Participant as of the later of the date of his reemployment or the date described in Section 3(a). Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. (d) Hours of Service - For purposes of determining the Hours of Service to be credited to an Employee under the Plan, the following rules shall be applied: (1) Hours of Service shall include each hour of Service for which an Employee is paid (or entitled to payment) for the performance of duties; -9- 12 each hour of Service for which an Employee is paid (or entitled to payment) for a period during which no duties are performed (irrespective of whether Service has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or paid leave of absence; and each additional hour of Service for which back pay is either awarded or agreed to (irrespective of mitigation of damages); provided, however, that not more than 501 Hours of Service shall be credited for a single continuous period during which an Employee does not perform any duties (whether or not such period occurs in a single Plan Year or 12 month period, with respect to an Employee's initial eligibility computation period). (2) The crediting of Hours of Service shall be determined in accordance with the rules set forth in paragraphs (b) and (c) of Section 2530.200b-2 of the regulations prescribed by the Department of Labor, which rules shall be consistently applied with respect to all Employees within the same job classification. (3) Hours of Service shall not be credited to an Employee for a period during which no duties are performed if payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, and Hours of Service shall not be credited on account of any payment made or due an Employee solely in reimbursement of medical or medically-related expenses. (4) Hours of Service that are credited for the performance of duties shall be determined from records maintained by the Employer; provided, however, that, in the case of an Employee whose Compensation is not determined on the basis of certain amounts for each hour worked and whose hours are not required to be counted and recorded by any Federal law (such as the Fair Labor Standards Act), such Employee's Hours of Service need not be determined from employment records, and such Employee shall be credited with ten Hours of Service for each day in which he would be credited with any Hours of Service. Hours of Service that are credited for periods during which no duties are performed or for back pay shall be credited on the basis of 40 Hours of Service for each week or eight Hours of Service for each day. -10- 13 Section 4. Contributions. (a) Profit Sharing Contributions - Profit Sharing Contributions may be paid to the Trustee for each Plan Year in such amounts (or under such formula) as may be determined by the Board of Directors. Profit Sharing Contributions shall be paid to the Trustee not later than the due date (including extensions) for filing the Company's Federal income tax return for that Plan Year. (b) 401(k) Contributions - (1) Each Participant may elect as of the first business day of each month (or as soon as administratively feasible) to have a whole percentage (up to 10% or such other percentage as may be determined by the Board of Directors) of his Compensation per pay period withheld by his Employer and contributed to the Trust as 401(k) Contributions in lieu of receiving such amount as Compensation. A Participant's 401(k) Contributions may not exceed $10,000 (as adjusted periodically after 1998 for increases in the cost of living pursuant to Section 402(g)(5) of the Code) for any Plan Year. (2) Additional 401(k) Contributions. Under rules established by the Committee, an eligible Participant may elect to have an additional portion of his Compensation withheld by his Employer and contributed to the Trust as Additional 401(k) Contributions equal to the full amount of the quarterly cash dividends that are paid to him under Section 13(a) of the ESOP. An Additional 401(k) Contribution may be made for a Participant under the preceding sentence with respect to a calendar quarter only if he is an Employee on the last day of such calendar quarter and if he is not a participant in a non-qualified deferred compensation plan maintained by an Employer for such calendar quarter. An eligible Participant who is not a -11- 14 participant in a non-qualified deferred compensation plan maintained by an Employer may also elect to have any portion of his Compensation contributed to the Plan as Additional 401(k) Contributions under the terms of the Employer's "cafeteria plan" under Section 125 of the Code. A Participant who is an Employee and is not a participant in a non-qualified deferred compensation plan maintained by an Employer may also elect to have up to 90% of his cash bonus (in 10% increments) under the Granite Construction Profit Sharing Cash Bonus Plan contributed to the Plan as Additional 401(k) Contributions, less such amounts as may be required to be withheld to satisfy tax withholding obligations. (3) A Participant may change the amount of 401(k) Contributions to be withheld or cease to have any 401(k) Contributions withheld as of the first business day of each month or as soon as administratively feasible. A Participant who elects to cease to have any 401(k) Contributions withheld may not make a new election to have 401(k) Contributions withheld until the beginning of the following Plan Year. Each such election (and any changes thereof) shall be made on the payroll deduction authorization form supplied by the Participant's Employer and in accordance with administrative rules and procedures established by the Committee. 401(k) Contributions shall be paid by a Participant's Employer to the Trustee as soon as practicable but in no event later than the 15th business day of the month following the month in which such amounts are withheld from the Participant's Compensation. (4) 401(k) Contributions made under this Section 4(b) shall be treated as automatically satisfying the nondiscrimination requirements of Section 401(k)(3)(A)(ii) of the Code for any Plan Year in which Matching Contributions are made at the rates described in Section 4(c)(1), in accordance with Section 401(k)(12)(B)(iii) of the Code. For this purpose, the -12- 15 Committee shall provide each eligible Employee with a written notice informing such Employee of the amount he will be entitled to receive as a Matching Contribution under Section 4(c)(l) for the subsequent Plan Year (if he elects to make 401(k) Contributions to the Plan during such subsequent Plan Year), including a description of the Employee's rights and obligations under the Plan, as described in Internal Revenue Service Notice 98-52. For Employees who have satisfied the requirements of Section 3(a) prior to the beginning of a Plan Year (other than those Employees who terminate Service as a result of Disability or death), such notice shall be provided to such Employees at least 30 days (and no more than 90 days) prior to the first day of each Plan Year for which the Board has determined to make Matching Contributions at rates described in Section 4(c)(1). For Employees (other than those Employees who terminate Service as a result of Disability or death) who satisfy the requirements of Section 3(a) and (c) during a Plan Year in which the Board has determined to make Matching Contributions at rates described in Section 4(c)(1), the written notice shall be provided no more than 90 days prior to the date that such Employees will become eligible under Section 3(a) (and no later than the date that such Employees become eligible). (5) 401(k) Contributions for Highly Compensated Employees shall be limited for any Plan Year in which no Matching Contributions are made to the Plan to the extent necessary to satisfy one of the deferral percentage tests described in Section 401(k)(3) of the Code and Section 1.401(k)-1(b) of the regulations thereunder. Such deferral percentage requirements shall be satisfied based upon the "current Plan Year testing method," as described in Internal Revenue Service Notice 98-1. -13- 16 The Committee may take any of the following corrective actions to satisfy the deferral percentage tests: (i) Prospectively limit the amount of 401(k) Contributions for some or all Highly Compensated Employees for such Plan Year, provided, however, that the Committee shall first limit the amount of Additional 401(k) Contributions for some or all Highly Compensated Employees for such Plan Year before limiting the amount of such Highly Compensated Employees' 401(k) Contributions; or (ii) Distribute all or a portion of the 401(k) Contributions made on behalf of a Highly Compensated Employee (together with any income attributable thereto) to him which are determined to be "excess contributions" within the meaning of Section 1.401(k)-1(g)(7) of the regulations. Such "excess contributions" are determined by reducing 401(k) Contributions made on behalf of Highly Compensated Employees in order of the actual deferral percentages beginning with the highest of such percentages. The actual deferral percentage of the Highly Compensated Employee with the highest such percentage shall be reduced until it equals that of the Highly Compensated Employee with the next highest percentage. This process shall be repeated until one of the tests described in Section 40l(k)(3) of the Code and Section 1.40l(k)-l(b) is passed. The amount of excess contributions to be distributed to Highly Compensated Employees under this Section 4(b)(5)(ii) shall be deemed attributable first to those Highly Compensated Employees who have the greatest dollar amount of 401(k) Contributions. Such excess contributions shall be reduced by any excess deferrals previously distributed under Section 4(b)(6) for the calendar year ending with the Plan Year. The amount of -14- 17 excess contributions to be distributed to an affected Highly Compensated Employee shall be taken first from the affected Highly Compensated Employee's Additional 401(k) Contributions, if any. To the extent practicable, the Committee shall take such corrective action by March 15th of the following Plan Year; but in no event shall such action be taken later than the Allocation Date of the following Plan Year. (6) If during a Plan Year a Participant participates in more than one qualified cash or deferred arrangement described in Section 401(k) of the Code and the Participant notifies the Committee no later than the March 1st following any calendar year that all or a specified portion of the 401(k) Contributions made on the Participant's behalf for that calendar year should be paid to the Participant (together with any income attributable thereto) because such 401(k) Contributions constitute "excess deferrals," as described in Section 402(g)(2)(A) of the Code, distribution of such amounts to the Participant shall occur no later than the April 15th following the calendar year in which the "excess deferral" occurred. (7) Any determination and distribution of income attributable to 401(k) Contributions under Sections 4(b)(5)(ii) and (6) shall be made in accordance with Section 1.401(k)-1(f) of the regulations under the Code. (c) Matching Contributions - (1) Matching Contributions shall be paid by an Employer to the Trust together with the payment of the 401(k) Contributions to which the Matching Contributions relate. With respect to each Participant, the rate of Matching Contribution shall be equal to (1) 2% for 1% of Compensation deferred as 401(k) Contributions, (2) 2.5% for 2% of Compensation deferred as 401(k) Contributions, (3) 3% for 3% of Compensation deferred as -15- 18 401(k) Contributions, (4) 3.5% for 4% of Compensation deferred as 401(k) Contributions, or (5) 4% for 5% of Compensation deferred as 401(k) Contributions. No Matching Contribution shall be made with respect to any Additional 401(k) Contributions or for amounts contributed as 401(k) Contributions by a Participant during any Plan Year in an amount that exceeds 5% of such Participant's Compensation. (2) Matching Contributions made under Section 4(c)(1) shall be treated as automatically satisfying the nondiscrimination requirements of Section 401(m)(2) of the Code in accordance with Section 40l(k)(12)(B)(iii) of the Code. For this purpose, the Committee shall provide each Employee who has satisfied the requirements of Section 3(a) with a written notice in the manner described in Section 4(b)(4). (3) Matching Contributions shall be subject to the nondiscrimination testing requirements described in this Section 4(c)(3) if the rate of Matching Contributions is changed for any Plan Year to be a rate that does not satisfy Section 40l(m)(11) of the Code. For this purpose, Matching Contributions for Highly Compensated Employees shall be limited to the extent necessary to satisfy one of the contribution percentage requirements described in Section 401(m)(2) of the Code and Section 1.40l(m)-1(b) of the regulations thereunder. Such contribution percentage requirements shall be satisfied based upon the "current Plan Year testing method," as described in Internal Revenue Service Notice 98-1. The Committee may take any of the following corrective actions to satisfy one of the contribution percentage tests: -16- 19 (i) Prospectively limit the amount of Matching Contributions for some or all Highly Compensated Employees for such Plan Year; or (ii) Forfeit all or a portion of the Matching Contributions made on behalf of a Highly Compensated Employee attributable to 401(k) Contributions that are distributed under Section 4(b)(5)(ii) above. (iii) Distribute all or a portion of the Matching Contributions made on behalf of a Highly Compensated Employee (together with any income attributable thereto) to him which are determined to be "excess aggregate contributions" within the meaning of Section 1.401(m)-1(f)(8) of the regulations. Such "excess aggregate contributions" are determined by reducing Matching Contributions made on behalf of Highly Compensated Employees in order of the actual contribution percentages beginning with the highest of such percentages. The actual contribution percentage of the Highly Compensated Employee with the highest such percentage shall be reduced until it equals that of the Highly Compensated Employee with the next highest percentage. This process shall be repeated until one of the tests described in Section 401(m)(2) of the Code and Section l.401(m)-l(b) of the regulations is passed. The amount of excess aggregate contributions to be distributed to Highly Compensated Employees under this Section 4(c)(3)(iii) shall be deemed attributable first to those Highly Compensated Employees who have the greatest dollar amount of Matching Contributions. -17- 20 To the extent practicable, the Committee shall take such corrective action by March 15th of the following Plan Year; but in no event shall such action be taken later than the Allocation Date of the following Plan Year. (d) Additional Provisions - Employer Contributions shall not be made for any Plan Year in amounts which can be allocated to no Participant's Accounts by reason of the allocation limitation described in Section 7 or in amounts which are not deductible under Section 404(a) of the Code. Any Employer Contributions which are not deductible under Section 404(a) of the Code may be returned to the Employer by the Trustee (upon the direction of the Company) within one year after the deduction is disallowed or after it is determined that the deduction is not available. In the event that Employer Contributions are paid to the Trust by reason of a mistake of fact, such Employer Contributions may be returned to the Employer by the Trustee (upon the direction of the Company) within one year after the payment to the Trust. The Employer shall pay any amounts attributable to 401(k) Contributions which are not deductible under Section 404(a) of the Code to the affected Participants as Compensation. In the event that 401(k) Contributions are paid to the Trust by reason of a mistake of fact, such 401(k) Contributions shall be returned to the Employer by the Trustee (upon the direction of the Company) within one year after the payment to the Trust. The Employer shall pay any amounts attributable to 401(k) Contributions which are paid to the Trust by reason of a mistake of fact to the affected Participants as Compensation. (e) Rollover Contributions - Subject to such terms and conditions as may be established from time to time by the Committee, an Employee who is in the class of Employees that is eligible to participate in the Plan in accordance with Section 3(a) may make a Rollover -18- 21 Contribution to the Trust by delivering such contribution in cash to the Trustee, together with a written certification, satisfactory to the Committee, that the contribution qualifies as a Rollover Contribution under Section 402(c)(4) of the Code. Such Employee's Rollover Contributions shall be allocated to his Rollover Account. (f) Participant Contributions - Except as provided in Sections 4(b) and 4(e), no Participant shall be required or permitted to make contributions to the Trust. Section 5. Investment of Trust Assets. (a) Each Participant shall direct the investment of his Accounts among such investment funds as the Committee shall from time to time cause to be made available, including the Stock Fund. The Stock Fund shall be made available only if the offering of such fund complies with the registration and/or qualification requirements of applicable Federal or state securities laws. The Stock Fund shall be invested in shares of Stock purchased by the Trustee from time to time in accordance with the provisions of the Trust Agreement. All dividends (whether cash or stock) with respect to the Stock in the Stock Fund shall be reinvested in the fund. (b) Investment elections by Participants shall be made in such increments and at such times as the Committee shall permit, in accordance with administrative rules and procedures established from time to time by the Committee, and shall be subject to such reasonable guidelines and limitations as the Committee shall deem to be appropriate for the efficient administration of the Plan. Each Participant shall bear the sole responsibility for the investment of such Accounts, and the Committee shall not have any responsibility or liability for any losses -19- 22 that may occur in connection with such investment. No Participant who is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 may invest in the Stock Fund. In addition, no portion of a Participant's ESOP Diversification Account may be invested in the Stock Fund. (c) Each Participant (or Beneficiary) shall be entitled to direct the Trustee as to the manner in which shares of Stock then allocated to his Accounts will be voted. Each Participant (or Beneficiary) who is entitled to direct the Trustee as to the manner in which shares of Stock will be voted shall be provided with the proxy statement and other materials provided to Company shareholders in connection with each shareholder meeting, together with a form or forms upon which the Participant (or Beneficiary) shall have the right to give confidential voting instructions to the Trustee. A Participant (or Beneficiary) who does not give instructions to the Trustee shall be treated as having authorized the Committee to direct the Trustee as to the voting of his shares of Stock. In the event that there should be a tender or exchange offer for Stock, each Participant (or Beneficiary) will be entitled to direct the Trustee as to the manner in which to respond to such offer with respect to shares of Stock then allocated to his Accounts. Each Participant (or Beneficiary) who is entitled to direct the Trustee as to the manner in which the Trustee will respond to any such offer shall be provided with the tender offer materials and the Participant (or Beneficiary) shall have the right to provide confidential instructions to the Trustee as to the manner in which to respond to such offer with respect to the shares of Stock then allocated to his Accounts. A Participant (or Beneficiary) who does not give instructions to the Trustee shall be treated as having directed the Trustee not to tender. -20- 23 Each Participant (or Beneficiary) shall be a named fiduciary of the Plan for the purpose of providing directions as to the voting or tendering of the shares of Stock allocated to his Accounts. Section 6. Allocations to Participants' Accounts. Profit Sharing Account - A Profit Sharing Account shall be maintained to reflect the interest of each Participant who is eligible to receive Profit Sharing Contributions or who had a prior profit sharing account under the Plan. The Profit Sharing Account maintained for a Participant shall be credited annually with his share of any Profit Sharing Contributions and Forfeitures. The Profit Sharing Account shall be credited throughout each Plan Year with its share of the net income (or loss) of the Trust. Subaccounts of a Participant's Profit Sharing Account may be maintained to reflect the portion of the Profit Sharing Account that is invested in each investment fund. 401(k) Account - A 401(k) Account shall be maintained to reflect the interest of each Participant under the Plan who makes 401(k) Contributions. The 401(k) Account maintained for a Participant shall be credited throughout each Plan Year with his 401(k) Contributions and with its share of the net income (or loss) of the Trust. Subaccounts of a Participant's 401(k) Account may be maintained to reflect Additional 401(k) Contributions and the portion of the 401(k) Account that is invested in each investment fund. Matching Account - A Matching Account shall be maintained to reflect the interest of each Participant who is eligible to receive Matching Contributions. The Matching Account maintained for a Participant shall be credited throughout each Plan Year with his share of any -21- 24 Matching Contributions. The Matching Account maintained for a Participant shall be credited throughout each Plan Year with its share of the net income (or loss) of the Trust. Subaccounts of a Participant's Matching Account may be maintained to reflect the portion of the Matching Account that is invested in each investment fund. Rollover Account - A Rollover Account shall be maintained to reflect the interest of each Employee who makes Rollover Contributions. The Rollover Account maintained for an Employee shall be credited throughout each Plan Year with the Employee's Rollover Contributions and with its share of the net income (or loss) of the Trust. Subaccounts of a Participant's Rollover Account may be maintained to reflect the portion of the Rollover Account that is invested in each investment fund. ESOP Diversification Account - An ESOP Diversification Account shall be maintained to reflect the interest of each Participant who elects have a portion of his "stock account" under the ESOP transferred to the Plan in order to satisfy the diversification election requirements of Section 401(a)(28)(B) of the Code. The ESOP Diversification Account maintained for a Participant shall be credited annually with any amounts that are so transferred on behalf of a Participant. The ESOP Diversification Account shall be credited throughout each Plan Year with its share of the net income (or loss) of the Trust. Subaccounts of a Participant's ESOP Diversification Account may be maintained to reflect the portion of the ESOP Diversification Account that is invested in each investment fund. No portion of a Participant's ESOP Diversification Account may be invested in the Stock Fund. -22- 25 The allocations to Participants' Accounts for each Plan Year shall be made as follows: (a) Profit Sharing Contributions and Forfeitures - Profit Sharing Contributions under Section 4(a) and Forfeitures under Section 10(b) for each Plan Year shall be allocated as of the Allocation Date among the Profit Sharing Accounts of Participants so entitled under Section 3(b) in the ratio that the Compensation of each such Participant bears to the total Compensation of all such Participants, subject to the allocation limitations described in Section 7. (b) 401(k) Contributions - 401(k) Contributions under Section 4(b) for each Plan Year shall be allocated to the 401(k) Accounts of the Participants on whose behalf they were made, subject to the allocation limitations described in Section 7. (c) Matching Contributions - Matching Contributions under Section 4(c) for each Plan Year shall be allocated to the Matching Accounts of the Participants on whose behalf they were made, subject to the allocation limitations described in Section 7. (d) Rollover Contributions and ESOP Diversification Transfers - Rollover Contributions and transfers from the ESOP (pursuant to the ESOP's diversification election provisions) for each Plan Year shall be allocated to the Rollover Accounts and ESOP Diversification Accounts, respectively, of those Employees or Participants who made them. (e) Net Income (or Loss) of the Trust - The net income (or loss) of the Trust for each Plan Year attributable to Participants' Accounts shall be determined separately on a daily basis for each investment fund and allocated among such Accounts in proportion to the respective balances of such Accounts invested in such funds. -23- 26 (f) Accounting for Allocations - The Committee shall establish accounting procedures for the purpose of making the allocations to Participants' Accounts provided for in this Section 6. From time to time, the Committee may modify the accounting procedures for the purposes of achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan, the provisions of this Section 6 and the requirements of the Code and ERISA. Section 7. Allocation Limitation. The Annual Additions for each Plan Year with respect to any Participant may not exceed the lesser of: (1) 25% of the Participant's Statutory Compensation; or (2) $30,000, as may be adjusted for increases in the cost of living pursuant to Section 415(d)(1)(C) of the Code. For this purpose, "Annual Additions" shall be the total of the Employer Contributions and Forfeitures (including any income attributable to Forfeitures) allocated to the Accounts of a Participant for the Plan Year, plus the allocations of employer contributions and forfeitures made on his behalf under the ESOP. Annual Additions shall include 401(k) Contributions distributed to a Participant pursuant to Sections 4(b)(5)(ii) or 4(b)(6), but shall exclude any amounts paid to a Participant pursuant to the next paragraph of this Section 7. If the aggregate amount that would be allocated to the accounts of a Participant under this Plan and the ESOP in the absence of this limitation would exceed the amount set forth in this -24- 27 limitation, then, to the extent necessary, the Participant's Annual Additions for the Plan Year shall be reduced and reallocated to the Accounts of Participants not affected by this limitation for the Plan Year in the following order: (1) any Profit Sharing Contributions made on the Participant's behalf for the Plan Year shall be reduced, (2) any Additional 401(k) Contributions made on the Participant's behalf for the Plan Year shall be returned to the Participant as Compensation (together with any income attributable thereto), (3) any 401(k) Contributions made on the Participant's behalf for the Plan Year shall be returned to the Participant as Compensation (together with any income attributable thereto), (4) any Matching Contributions made on the Participant's behalf for the Plan Year shall be reduced and (5) any employer contributions under the ESOP made on the Participant's behalf for the Plan Year shall be reduced. If, after such reductions, there are any Forfeitures which can be allocated to no Participant's Accounts by reason of this limitation, such Forfeitures shall be credited to a "Forfeiture Suspense Account" and allocated as Forfeitures under Section 6(a) for the next succeeding Plan Year (prior to the allocation of Employer Contributions for such succeeding Plan Year). Section 8. Frozen Gibbons Accounts. (a) Allocations to Gibbons Employee's Frozen Gibbons Accounts. Frozen Elective Deferral Account - A Frozen Elective Deferral Account shall be maintained to reflect the interest of each Gibbons Employee in his "elective deferral account" under the Gibbons Plan that was transferred to this Plan on May 1, 1998. The Frozen Elective -25- 28 Deferral Account maintained for a Participant shall be credited throughout each Plan Year with its share of the net income (or loss) of the Trust. Subaccounts of a Participant's Frozen Elective Deferral Account may be maintained to reflect the portion of the Frozen Elective Deferral Account that is invested in each investment fund. Frozen General Account - A Frozen General Account shall be maintained to reflect the interest of each Gibbons Employee in his "rollover account," "employer profit-sharing contribution account" and "employer matching contribution account" that was transferred to the Plan on May 1, 1998. The Frozen General Account maintained for a Gibbons Employee shall be credited throughout each Plan Year with its share of the net income (or loss) of the Trust. Subaccounts of a Gibbons Employee's Frozen General Account may be maintained to reflect the portion of the Frozen General Account that is invested in each investment fund. (b) Distributions From Frozen Accounts. All distributions from a Gibbons Employee's Frozen Elective Deferral Account and Frozen General Account (collectively referred to as "Frozen Accounts") shall be subject to the provisions of Section 12, except as otherwise provided in this Section 8(b). For purposes of Section 12(c), distribution to a Gibbons Employee from his Frozen Accounts shall commence no later than the date provided in the first sentence in Section 12(c), unless a Gibbons Employee elects to maintain his Frozen Accounts in the Plan until they are required to be distributed under the second and third sentences of Section 12(c). For this purpose, failure to submit a claim for a distribution shall be deemed such an election. A Gibbons Employee may elect to receive his Frozen Accounts in one or a combination of the following forms: -26- 29 (i) A single lump sum cash payment. (ii) Substantially equal monthly, quarterly or annual cash installments over a period not exceeding the life expectancy of the Gibbons Employee and the Gibbons Employee's spouse. The minimum installment amount, regardless of the periodic method chosen, must be at least $100.00. If a Gibbons Employee fails to elect to a form of payment, payment shall be made as a single lump sum cash payment. (c) In-Service Distributions - (1) Frozen Elective Deferral Account. Each Gibbons Employee may request a withdrawal of all or a portion of his Frozen Elective Deferral Account at any time after he attains age 59 1/2 in accordance with such rules as may be prescribed by the Committee. A Gibbons Employee is entitled to make only one such withdrawal from his Frozen Elective Deferral Account in any Plan Year. Such withdrawals shall be distributed in the manner described in Section 8(b). (2) Frozen General Account. Each Gibbons Employee may request a withdrawal of all or a portion of his Frozen General Account at any time in accordance with such rules as may be prescribed by the Committee. A Gibbons Employee is entitled to make only one such withdrawal from his Frozen General Account in any Plan Year. Such withdrawals shall be distributed in the manner described in Section 8(b). -27- 30 Section 9. Disclosure to Participants. (a) Summary Plan Description - Each Participant shall be furnished with a summary plan description of the Plan required by Sections 102(a)(l) and 104(b)(1) of ERISA. Such summary plan description shall be updated from time to time as required under ERISA and Department of Labor regulations thereunder. (b) Summary Annual Report - Within two months after the due date for filing the annual return/report (Form 5500) for the Plan with the Internal Revenue Service, each Participant shall be furnished with the summary annual report of the Plan required by Section 104(b)(3) of ERISA, in the form prescribed in regulations of the U.S. Department of Labor. (c) Quarterly Statement - Each Participant shall be furnished with a statement reflecting the following information: (1) The balances (if any) in the Participant's Accounts as of the beginning of the period. (2) The amount of each type of Employer Contributions, Rollover Contributions and ESOP Diversification transfers allocated to each of the Participant's Accounts for the period. (3) The adjustments to the Participant's Accounts to reflect the Participant's share of the net income (or loss) of the Trust for that period. (4) The new balances in the Participant's Accounts as of the end of the period. (5) His number of Years of Vesting Service and his vested percentage in his Account balances (under Sections 10 and 11). -28- 31 (d) Additional Disclosure - The Company shall make available for examination by any Participant copies of the Plan, the Trust Agreement and the latest annual report of the Plan filed (on Form 5500) with the Internal Revenue Service. Upon written request of any Participant, the Company shall furnish copies of such documents and may make a reasonable charge to cover the cost of furnishing such copies, as provided in regulations of the U. S. Department of Labor. Section 10. Vesting and Forfeitures. (a) Vesting - (1) A Participant's interest in his 401(k) Account, Rollover Account, Frozen Elective Deferral Account, Frozen General Account and ESOP Diversification Account shall be 100% vested and nonforfeitable at all times. Any Participant who is credited with an Hour of Service after December 31, 1998, shall become 100% vested in his Matching Account. (2) A Participant's interest in his Profit Sharing Account shall become 100% vested and nonforfeitable if he (A) is eligible for Retirement (whether or not he actually terminates Service), (B) terminates Service by reason of Disability, (C) dies while employed by the Company or an Affiliate or (D) completes five Years of Vesting Service. (b) Forfeitures - Any portion of the final balances in a Participant's Profit Sharing Account which is not vested (and does not become part of his Capital Accumulation) shall become a Forfeiture as of the Allocation Date of the Plan Year in which he incurs a five-consecutive-year Break in Service (or in which he dies, if earlier). All Forfeitures will be reallocated to the Profit Sharing Account of remaining Participants, as provided in Section 6, as -29- 32 of the Allocation Date of the Plan Year in which a five-consecutive-year Break in Service occurs (or in which the Participant dies, if earlier). Section 11. Years of Vesting Service and Break in Service. (a) Years of Vesting Service - An Employee's Years of Vesting Service shall be the number of Plan Years in which he is credited with at least 1000 Hours of Service. Years of Vesting Service shall include such Service with the Company or any Affiliate. (b) Break in Service - A one-year Break in Service shall occur in a Plan Year in which an Employee is not credited with more than 500 Hours of Service as a result of his termination of Service. A five-consecutive-year Break in Service shall be five consecutive one-year Breaks in Service. For purposes of determining whether a Break in Service has occurred, if an Employee begins a maternity/paternity absence described in Section 41l(a)(6)(E)(i) of the Code or a leave covered under the Family and Medical Leave Act of 1993, the computation of his Hours of Service shall include the Hours of Service that would have been credited if he had not been so absent (or eight Hours of Service for each normal work day of such absence if the actual Hours of Service cannot be determined). For purposes of this Section 11(b), a "maternity/paternity absence" means an Employee's absence (A) by reason of (i) the pregnancy of the Employee, (ii) birth of a child of the Employee or (iii) placement of a child with the Employee in connection with the adoption of such child by such Employee, or (B) for purposes of caring for a child described in clause (A) for a period beginning immediately following such birth or placement. An Employee shall be credited for such Hours of Service (up to a maximum of 501 Hours of -30- 33 Service) in the Plan Year in which such absence begins (if such crediting will prevent him from incurring a Break in Service in such Plan Year) or in the next following Plan Year. In addition, if an Employee is eligible for and is granted leave pursuant to the Company's family care leave plan, a Break in Service shall not occur if the Employee returns to Service with an Employer, without any intervening employment with another employer, immediately following the expiration of such leave and remains employed for a period of 90 days thereafter. The Employee shall be credited with the Hours of Service that would have been credited if he had not been so absent (or eight Hours of Service for each normal work day of such absence if the actual Hours of Service cannot be determined) up to a maximum of 501 Hours of Service for each Plan Year during the period of such absence (if such crediting will prevent him from incurring a Break in Service for any such Plan Year). (c) Reemployment - If a former Employee is reemployed after a one-year Break in Service, the following special rules shall apply in determining his Years of Vesting Service: (1) New Accounts may be established to reflect his interest in the Plan attributable to Service after the Break in Service. (2) If he is reemployed after the occurrence of a five-consecutive-year Break in Service, Years of Vesting Service after the Break in Service will not increase his vested interest in his Accounts attributable to Service prior to the Break in Service. (3) After he completes one Year of Vesting Service following reemployment, his Years of Vesting Service will include his Years of Vesting Service accumulated prior to the Break in Service. -31- 34 Section 12. When Capital Accumulation Will Be Distributed. (a) Except as otherwise provided in Sections 8(b), 8(c), 12(c) and 13, a Participant's Capital Accumulation shall be distributed following his termination of Service. If the value of a Participant's Capital Accumulation at the time distribution would otherwise commence under this Section 12 exceeds $5,000, no portion of his Capital Accumulation may be distributed to him before he attains age 65 without his written consent. (b) Timing of Distributions - (1) If the value of a Participant's Capital Accumulation is $5,000 or less, his Capital Accumulation shall be distributed as soon as practicable after the date his Service terminates, upon the completion and processing of the applicable distribution forms. A Participant whose Service has terminated but who does not have any nonforfeitable interest in his Accounts shall be deemed to have received a distribution of zero dollars ($0). (2) If the value of a Participant's Capital Accumulation exceeds $5,000 and the Participant terminates Service (whether or not on account of Retirement or Disability), the Participant may elect to receive a distribution of his Capital Accumulation as soon as practicable after the date his Service terminates, upon the completion and processing of the applicable distribution forms. (3) In the event of the Participant's death, his Capital Accumulation shall be distributed to his Beneficiary as soon as practicable following his death, upon the completion and processing of the applicable distribution forms. (4) For purposes of determining the amount of any distribution, the value of the Participant's Accounts shall be determined at the time his distribution forms are processed. -32- 35 (c) Distribution of a Participant's Capital Accumulation shall commence not later than 60 days after the Allocation Date coinciding with or next following the latest of (1) the date of his 65th birthday, (2) the 10th anniversary of the date he became a Participant or (3) the date he terminates Service. The distribution of the Capital Accumulation of any Participant who attains age 70 1/2 in a calendar year and either has (1) terminated Service or (2) is a "5% owner" (as defined in Section 4l6(i)(l)(B)(i) of the Code) must occur not later than April 1st of the next calendar year and must be made in accordance with the regulations under Section 401(a)(9) of the Code, including Section 1.401(a)(9)-2. Distributions shall be offered to any other Participant who attains age 70 1/2 before January 1, 1999, to the extent required under Sections 401(a)(9) and 411(d)(6) of the Code and the regulations issued thereunder. If the amount of a Participant's Capital Accumulation cannot be determined (by the Committee) by the date on which a distribution is to occur, or if the Participant cannot be located, distribution of his Capital Accumulation shall occur within 60 days after the date on which his Capital Accumulation can be determined or after the date on which the Committee locates the Participant. (d) If a Participant's Capital Accumulation is retained in the Trust after his Service ends, his Accounts shall continue to be treated as described in Section 6 and he shall continue to be able to direct the investment of his Accounts (other than the nonvested portion of his Profit Sharing Account) in accordance with Section 5. However, except as otherwise provided in Section 3(b), his Profit Sharing Account shall not be credited with any additional Employer Contributions and Forfeitures. If a Participant's Service terminates and he does not have any vested and nonforfeitable interest in his Profit Sharing Account, the Participant shall continue to direct the Trustee as to the investment of such Account until the date such Participant becomes -33- 36 eligible to receive a Plan distribution in accordance with Sections 12(b)(1) or (2). After such date, the Committee shall direct the Trustee as to the investment of such Account. (e) Notwithstanding any other provision of this Plan, all or a portion of a Participant's Capital Accumulation may be distributed at any time to the Participant's former spouse or other alternate payee, even prior to the Participant's "earliest retirement age" (as defined in Section 414(p) of the Code), if such distribution is made pursuant to and in accordance with the terms of a "qualified domestic relations order" ("QDRO"), (including QDROs which were received prior to January 1, 1999). Such distribution will occur in a single lump sum in cash as soon as practicable following the date that the Committee determines that the order constitutes a QDRO. If the value of a Participant's Capital Accumulation exceeds $5,000 (at the time a distribution to the Participant's former spouse or other alternate payee would otherwise be available under this Section 12(e)), no portion of such Capital Accumulation may be distributed to his former spouse or other alternate payee, without the written consent of such former spouse or other alternate payee. Section 13. Hardship Withdrawals. (a) A Participant who is an Employee shall be entitled to request a hardship withdrawal of a portion of his Capital Accumulation attributable to his Profit Sharing Account, 401(k) Account, Matching Account, Rollover Account and ESOP Diversification Account (less the amount of any income attributable to his 401(k) Contributions and Matching Account), with the value available for withdrawal determined at the time his hardship request is processed. Any withdrawal attributable to the Participant's 401(k) Contributions and Matching Contributions -34- 37 (less the amount of any income attributable to his 401(k) Contributions and Matching Account) shall be available only if necessary in light of immediate and heavy financial needs of the Participant, as determined by the Committee in accordance with nondiscriminatory standards and pursuant to Section 1.401(k)-1(d)(2) of the regulations under the Code. A hardship withdrawal shall be available only to be used for the following: (1) costs related directly to the purchase of a principal residence for the Participant (excluding mortgage payments); (2) reimbursement of tuition and related educational fees, including room and board and the costs of textbooks, for post-secondary education of the Participant, his spouse, his children or his dependents (as defined in Section 152 of the Code); provided that, a withdrawal of a Participant's 401(k) Contributions and Matching Contributions shall not be permitted for the costs of textbooks and shall be limited to tuition, fees, and room and board for the 12 month-period following the withdrawal; or (3) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on that residence. (b) A withdrawal of less than $1,000 shall not be permitted, and no more than two withdrawals shall be permitted in each Plan Year. The determination of the amount of funds needed by the Participant may include any amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal. The maximum aggregate amount that may be withdrawn under this Section 13 shall be the lesser of 40% of (1) the Participant's vested Profit Sharing Account, Matching Account, ESOP Diversification Account and Rollover Account plus the Participant's 401(k) Contributions, determined at the time the hardship request is processed, or (2) $200,000 (reduced by any amount withdrawn as a -35- 38 hardship withdrawal from the ESOP), and the Committee may establish such rules as it deems appropriate in order to compute the amount that may be withdrawn by a Participant. (c) Prior to allowing a withdrawal of the Participant's 401(k) Contributions and Matching Contributions (less the amount of any income attributable to his 401(k) Contributions and Matching Account), the Committee shall make the following findings: (1) The distribution requested by the Participant is not in excess of the amount of the immediate and heavy financial need of the Participant. (2) The Participant has obtained all distributions (including hardship distributions under the ESOP and from the Participant's other Accounts under the Plan) and all nontaxable loans under all qualified plans of the Company. (3) The Participant has agreed that no 401(k) Contributions will be made on his behalf under Section 4(b) (or under any other qualified or nonqualified plan of deferred compensation maintained by an Employer) during the 12-month period commencing upon his receipt of a hardship withdrawal. (4) 401(k) Contributions to be made on behalf of the Participant for the Plan Year immediately following the Plan Year of the hardship withdrawal shall not exceed the applicable limit under Section 402(g) of the Code for such succeeding Plan Year, less the amount of the Participant's 401(k) Contributions for the Plan Year of the hardship withdrawal. (d) A hardship withdrawal shall be disbursed first from the Participant's Profit Sharing Account, Matching Account, Rollover Account and ESOP Diversification Account and then from the Participant's 401(k) Account. The amount withdrawn shall be taken prorata from the investment funds in which the Account is invested at the time of the withdrawal. -36- 39 Section 14. How Capital Accumulation Will Be Distributed. (a) All distributions shall be made in a single lump sum in cash, except as provided in Section 8(b). (b) Distribution of a Participant's Capital Accumulation will be made to the Participant if he is living, and if not, to his Beneficiary. In the event of a Participant's death, the Participant's Beneficiary shall be the Participant's surviving spouse, or if none, his estate. A Participant (with the written consent of his spouse, if any, acknowledging the effect of the consent and witnessed by a notary public or Plan representative) may designate a different Beneficiary (and contingent Beneficiaries) from time to time by filing a written designation with the Committee. A deceased Participant's entire Capital Accumulation shall be distributed to his Beneficiary on or before the December 31st of the calendar year that includes the fifth anniversary of his death, except to the extent that distribution has previously commenced in accordance with Section 8(b), as applicable. (c) The Company shall furnish the recipient of a distribution with the tax consequences explanation required by Section 402(f) of the Code and shall comply with the withholding requirements of Section 3405 of the Code and of any applicable state law with respect to distributions from the Trust. If the Committee so elects for a Plan Year, distributions to Participants may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the regulations under the Code is given; provided, however, that no such distribution to a Participant shall be made unless (1) the Participant is informed that he has the right for a period of at least 30 days after receiving the notice to consider whether or not to -37- 40 consent to a distribution (or a particular distribution option), and (2) the Participant affirmatively elects to receive a distribution after receiving the notice. (d) If a distribution of a Participant's Capital Accumulation is not the minimum amount required to be distributed pursuant to the second and third sentences of Section 12(c), the Committee shall notify the Participant (or any spouse or former spouse who is his alternate payee under a "qualified domestic relations order" (as defined in Section 414(p) of the Code)) of his right to elect to have the "eligible rollover distribution" paid directly to an "eligible retirement plan" (within the meaning of Section 401(a)(31) of the Code) that is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, a qualified trust described in Section 401(a) of the Code or a qualified annuity plan described in Section 403(a) of the Code that accepts "eligible rollover distributions." If such an "eligible rollover distribution" is to be made to the Participant's surviving spouse, the Committee shall notify the surviving spouse of his right to elect to have the distribution paid directly to an "eligible retirement plan" that is either an individual retirement account described in Section 408(a) of the Code or an individual retirement annuity described in Section 408(b) of the Code. Any election under this Section 14(d) shall be made and effected in accordance with such rules and procedures as may be established from time to time by the Committee in order to comply with Section 401(a)(31) of the Code. -38- 41 Section 15. No Assignment of Benefits. A Participant's interest in the Plan may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process, except in accordance with a "qualified domestic relations order" (as defined in Section 414(p) of the Code). Section 16. Administration. (a) Administrative Committee - The Plan will be administered by an Administrative Committee composed of not fewer than three individuals appointed by the Board of Directors to serve at its pleasure and without compensation. The members of the Committee shall be the named fiduciaries with authority to control and manage the operation and administration of the Plan. Members of the Committee need not be Employees or Participants. Any Committee member may resign by giving notice, in writing, to the Board of Directors. (b) Committee Action - Committee action will be by vote of a majority of the members at a meeting or in writing by all the members without a meeting. A Committee member who is a Participant shall not vote on any question relating specifically to himself. The Committee shall choose from its members a Chairman and a Secretary. The Chairman or the Secretary of the Committee shall be authorized to execute any certificate or other written direction on behalf of the Committee. The Secretary shall keep a record of the Committee's proceedings and of all dates, records and documents pertaining to the administration of the Plan. -39- 42 (c) Powers and Duties of the Committee - The Committee shall have all powers necessary to enable it to administer the Plan and the Trust Agreement in accordance with their provisions, including without limitation the following: (1) resolving all questions relating to the eligibility of Employees to become Participants; (2) determining the appropriate allocations to Participants' Accounts pursuant to Section 6; (3) determining the amount of benefits payable to a Participant (or Beneficiary), and the time and manner in which such benefits are to be paid; (4) selecting the investment funds to be offered to Participants for investment of their Accounts; (5) authorizing and directing all disbursements of Trust Assets by the Trustee; (6) establishing procedures in accordance with Section 414(p) of the Code to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders; (7) engaging any administrative, legal, accounting, clerical or other services that it may deem appropriate; (8) construing and interpreting the Plan and the Trust Agreement and adopting rules for administration of the Plan that are consistent with the terms of the Plan documents and of ERISA and the Code; (9) compiling and maintaining all records it determines to be necessary, appropriate or convenient in connection with the administration of the Plan; (10) reviewing the performance of the Trustee with respect to the Trustee's administrative duties, responsibilities and obligations under the Plan and Trust Agreement; and -40- 43 (11) executing agreements and other documents on behalf of the Plan and Trust. The Committee shall perform its duties under the Plan and the Trust Agreement solely in the interests of the Participants (and their Beneficiaries). Any discretion granted to the Committee under any of the provisions of the Plan or the Trust Agreement shall be exercised only in accordance with rules and policies established by the Committee which shall be applicable on a nondiscriminatory basis. The Committee shall have the full and exclusive discretion to interpret and administer the Plan. All actions, interpretations and decisions of the Committee are conclusive and binding on all persons, and shall be given the maximum possible deference allowed by law. (d) Expenses - All reasonable expenses of administering the Plan and Trust may be charged to and paid out of the Trust Assets. A Participant's Accounts may be charged with any expenses that are incurred by the Participant in connection with any investment transaction with respect to the Participant's Accounts. The Company may, however, pay all or any portion of such expenses of the Plan and Trust directly, and payment of expenses by the Company shall not be deemed to be Employer Contributions. (e) Information to be Submitted to the Committee - To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters as the Committee may require, and shall maintain such other records as the Committee may determine are necessary or appropriate in order to determine the benefits due or which may become due to Participants (or Beneficiaries) under the Plan. -41- 44 (f) Delegation of Fiduciary Responsibility - The Committee from time to time may allocate to one or more of its members and/or may delegate to any other persons or organizations any of its rights, powers, duties and responsibilities with respect to the operation and administration of the Plan that are permitted to be so delegated under ERISA. Any such allocation or delegation shall be made in writing, shall be reviewed periodically by the Committee and shall be terminable upon such notice as the Committee in its discretion deems reasonable and proper under the circumstances. (g) Bonding, Insurance and Indemnity - To the extent required under Section 412 of ERISA, the Company shall secure fidelity bonding for the fiduciaries of the Plan. The Company (in its discretion) or the Trustee (as directed by the Committee) may obtain a policy or policies of insurance for the Committee (and other fiduciaries of the Plan) to cover liability or loss occurring by reason of the act or omission of a fiduciary. If such insurance is purchased with Trust Assets, the policy must permit recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation by such fiduciary. The Company hereby agrees, to the maximum extent permitted by law, to indemnify and hold harmless the Committee and each of its designees under Section 16(f), who is an officer, director or employee of any Employer, against any and all claims, loss, damages, liability, expenses, including legal fees, costs, judgments, fines, settlements and other amounts actually and reasonably incurred, including in connection with any proceeding, arising by reason of the fact that such person is or was acting in such capacity. (h) Notices, Statements and Reports - The Company shall be the "Plan Administrator" (as defined in Section 3(16)(A) of ERISA and Section 414(g) of the Code) for -42- 45 purposes of the reporting and disclosure requirements of ERISA and the Code. The Committee shall assist the Company, as requested, in complying with such reporting and disclosure requirements. The Company shall be the designated agent of the Plan for the service of legal process. Section 17. Claims Procedure. A Participant (or Beneficiary) who does not receive a distribution of benefits to which he believes he is entitled may present a claim to the Committee. The claim for benefits must be in writing and addressed to the Committee or to the Company. If the claim for benefits is denied, the Committee shall notify the Participant (or Beneficiary) in writing within 90 days after the Committee initially received the benefit claim. If there are special circumstances which require an extension of time for processing the claim for benefits, the Committee's decision shall be rendered not later than 180 days after receipt of a claim. Any notice of a denial of benefits shall advise the Participant (or Beneficiary) of the basis for the denial, any additional material or information necessary for the Participant (or Beneficiary) to perfect his claim and the steps which the Participant (or Beneficiary) must take to have his claim for benefits reviewed. Each Participant (or Beneficiary) whose claim for benefits has been denied may file a written request for a review of his claim by the Committee. The request for review must be filed by the Participant (or Beneficiary) within 60 days after he receives the written notice denying his claim. The decision of the Committee will be made within 60 days after receipt of a request for review and shall be communicated in writing to the claimant. Such written notice shall set forth the basis for the Committee's decision. If there are special circumstances (such as the need to -43- 46 hold a hearing) which require an extension of time for completing the review, the Committee's decision shall be rendered not later than 120 days after receipt of a request for review. All decisions and interpretations of the Committee under this Section 17 shall be conclusive and binding upon all persons with an interest in the Plan and shall be given the greatest deference permitted by law. Section 18. Limitation on Participants' Rights. A Participant's Capital Accumulation will be based solely upon his vested interest in his Accounts and will be paid only from the Trust Assets. An Employer, the Committee or the Trustee shall not have any duty or liability to furnish the Trust with any funds, securities or other assets, except as expressly provided in the Plan. The adoption and maintenance of the Plan shall not be deemed to constitute a contract of employment or otherwise between an Employer and any Employee, or to be a consideration for, or an inducement or condition of, any employment. Nothing contained in this Plan shall be deemed to give an Employee the right to be retained in the Service of an Employer or to interfere with the right of an Employer to discharge, with or without cause, any Employee at any time. -44- 47 Section 19. Future of the Plan. The Company reserves the right to amend or terminate the Plan (in whole or in part) and the Trust Agreement at any time, by action of the Board of Directors. Neither amendment nor termination of the Plan shall retroactively reduce the vested rights of Participants or permit any part of the Trust Assets to be diverted to or used for any purpose other than for the exclusive benefit of the Participants (and their Beneficiaries). The Company specifically reserves the right to amend the Plan and the Trust Agreement retroactively in order to satisfy any applicable requirements of the Code and ERISA. If the Plan is terminated (or partially terminated), participation of Participants affected by the termination will end. If Employer Contributions are not replaced by contributions to a comparable plan which satisfies the requirements of Section 401(a) of the Code, the Accounts of only those Participants who are Employees on the effective date of termination will become nonforfeitable as of that date. A complete discontinuance of Employer Contributions shall be deemed to be a termination of the Plan for this purpose. The Capital Accumulation of those Participants whose Service terminated prior to the effective date of Plan termination shall continue to be determined pursuant to Section 10; and, to the extent that such Participants are not vested, the nonvested balances in their Accounts will become Forfeitures to be reallocated as of the effective date of Plan termination (even if they have not incurred a five-consecutive-year Break in Service). After termination of the Plan, the Trust will be maintained until the Capital Accumulations of all Participants have been distributed. Capital Accumulations shall be distributed as soon as practicable following termination of the Plan. -45- 48 In the event of the merger or consolidation of this Plan with another plan, or the transfer of Trust assets (or liabilities) to another plan, the Account balances of each Participant immediately after such merger, consolidation or transfer must be at least as great as immediately before such merger, consolidation or transfer (as if the Plan had then terminated). Section 20. "Top-Heavy" Contingency Provisions. (a) The provisions of this Section 20 are included in the Plan pursuant to Section 40l(a)(10)(B)(ii) of the Code and shall become applicable only if the Plan becomes a "top-heavy plan" under Section 416(g) of the Code for any Plan Year. (b) The determination as to whether the Plan becomes "top-heavy" for any Plan Year shall be made as of the Allocation Date of the immediately preceding Plan Year by considering the Plan together with the ESOP and any other tax-qualified plan maintained by an Employer in which a "key employee" participates. The Plan and the ESOP (and any other plan required to be aggregated with the Plan) shall be "top-heavy" only if the total of the account balances under the Plan and the ESOP and such other plan for "key employees" as of the determination date exceeds 60% of the total of the account balances for all Participants. For such purpose, account balances shall be computed and adjusted pursuant to Section 4l6(g) of the Code. "Key employees" shall be certain Participants (who are officers or shareholders of the Company) and Beneficiaries described in Section 416(i)(1) or (5) of the Code. (c) For any Plan Year in which the Plan is "top-heavy," each Participant who is an Employee on the Allocation Date (and who is not a "key employee") shall receive a minimum allocation of Employer Contributions and Forfeitures which is equal to the lesser of: -46- 49 (1) 3% of his Statutory Compensation; or (2) the same percentage of his Statutory Compensation as the allocation to the "key employee" for whom the percentage is the highest for that Plan Year. 401(k) Contributions made by key employees during a Plan Year shall be included in determining the "key employee" with the highest percentage for such Plan Year. For this purpose, Statutory Compensation of each Employee shall not take into account any amount in excess of $160,000 (as adjusted periodically after 1998 for increases in the cost of living). (d) As of the first day of any Plan Year in which the Plan has become "top-heavy," the vesting provision in Section 10(a)(2) shall be amended (with respect to any Employee who is credited with at least one Hour of Service after the Plan has become "top-heavy") to provide for vesting upon completion of at least three Years of Vesting Service. If the Plan ceases to be "top-heavy," the Capital Accumulation of a Participant who, at that time, has less than three years of Service shall thereafter be determined under the vesting provision in Section 10(a)(2), instead of under this Section 20(d), except that his nonforfeitable percentage shall not be reduced below the nonforfeitable percentage that he had at the time the Plan ceased to be "top-heavy." If the Plan ceases to be "top-heavy," the Capital Accumulation of a Participant who, at that time, has three or more years of Service shall continue to be determined under this Section 20(d). -47- 50 Section 21. Governing Law. The provisions of this Plan and the Trust Agreement shall be construed, administered and enforced in accordance with the laws of the State of California, to the extent such laws are not superseded by ERISA. Section 22. Execution. To record the amendment and restatement of the Plan, the Company has caused this document to be executed on this _____ day of_____________, 199____. GRANITE CONSTRUCTION INCORPORATED By ---------------------------------- Its -------------------------------- By ---------------------------------- Its -------------------------------- -48- EX-10.3.C 3 THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.3.C THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of June 30, 1999, is entered into by and among GRANITE CONSTRUCTION INCORPORATED, a Delaware corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank, and as agent for itself and the Banks (in such capacity, the "Agent"), and the several financial institutions party to the Credit Agreement (collectively, the "Banks"). RECITALS A. The Company, the Banks, the Issuing Bank and the Agent are parties to a Credit Agreement dated as of June 30, 1997, as amended by a First Amendment to the Credit Agreement dated as of January 16, 1998, and a Second Amendment to Credit Agreement dated as of June 30, 1998 (as so amended, the "Prior Credit Agreement"). The Prior Credit Agreement, as amended by this Amendment, is herein referred to as the "Credit Agreement". B. Pursuant to the Prior Credit Agreement, the Banks have extended and are continuing to extend certain credit facilities to the Company. C. The Company has requested that the Banks agree to certain amendments of the Prior Credit Agreement. D. The Banks are willing to amend the Prior Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Prior Credit Agreement. 2. Amendments to Prior Credit Agreement. (a) Section 1.01 of the Prior Credit Agreement shall be amended by amending and restating the defined term "Aggregate L/C Commitment" in its entirety to read as follows: "Aggregate L/C Commitment" means the combined L/C Commitments of the Banks, in the initial amount of $50,000,000, as such amount may be reduced from time to time pursuant to this Agreement. (b) Section 1.01 of the Prior Credit Agreement shall be amended by amending and restating the defined term "Applicable Margin" in its entirety to read as follows: 1 2 "Applicable Margin" means the per annum rates of interest specified in the chart below:
Revolving Commitment -------------------- Term Revolving Term Commitment Period Period Reference Rate Loans +0% +0% +0% Eurodollar Rate Loans +1.000% +1.000% +1.000% CD Rate Loans +1.125% +1.125% +1.125%
Where: "Revolving Period" means the period from the Closing Date to the Revolving Termination Date; and "Term Period" means the period from the Revolving Termination Date to the date of the final semi-annual payment under Section 2.07(b). (c) Section 1.01 of the Prior Credit Agreement shall be amended by amending and restating the defined term "Letter of Credit" in its entirety to read as follows: "Letter of Credit" means any standby letter of credit Issued by the Issuing Bank pursuant to Article III, which shall include the Existing Letters of Credit. (d) Section 1.01 of the Prior Credit Agreement shall be amended by amending and restating the defined term "Revolving Termination Date" in its entirety to read as follows: "Revolving Termination Date" means the earlier to occur of: (a) June 29, 2001; and (b) The date on which the Commitments shall terminate in accordance with the provisions of this Agreement. Subject to clause (b) of this definition, the term "Revolving Termination Date" shall be deemed to refer to any such Revolving Termination Date as extended from time to time pursuant to, and subject to the conditions of, Section 2.15. 2 3 (e) Section 1.01 of the Prior Credit Agreement shall be amended by deleting the defined term "Retention Letter of Credit" and adding the following defined term in appropriate alphabetical order: "Third Amendment Effective Date" means the "Effective Date" under and as defined in the Third Amendment to Credit Agreement dated as of June 30, 1999 among the Company, the Banks party thereto, the Issuing Bank and the Agent. (f) Subsection 2.07(b) of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: (b) The Revolving Credit. The Company agrees to repay the principal amount outstanding as of the Revolving Termination Date of the Revolving Loans in ten equal semi-annual installments (i) beginning on the last Business Day in December, 2001 (as such date may be extended pursuant to the terms of and subject to the conditions of subsection 2.15(b)), and (ii) thereafter on the last Business Day of June and December of each year thereafter, through and including the last Business Day of June, 2006 (as such date may be extended pursuant to the terms of and subject to the conditions of subsection 2.15(b)). (g) Subsection 2.09(b) of the Prior Credit Agreement shall be amended by deleting the amount "0.1875%" in the first sentence and inserting instead the amount "0.20%." (h) Subsection 2.15(a) of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: (a) Not earlier than April 28, 2000 and not later than April 30, 2001 and, if the Revolving Termination Date has previously been extended pursuant to this Section 2.15, not earlier than the April 30 of the year immediately prior to the year in which the Revolving Termination Date then occurs, and not later than the April 30 of the year in which the Revolving Termination Date then occurs, the Company may, at its option, request that all the Banks extend the Revolving Termination Date by one year by means of a letter, addressed to the Agent and each Bank, substantially in the form of Exhibit I; provided, however, that notwithstanding the foregoing, the Revolving Termination Date shall occur on the date that the Commitments terminate pursuant to Section 9.02 or the Revolving Commitments are terminated pursuant to Section 2.05. The Revolving Termination Date shall be extended by one year if all of the Banks consent (in each Bank's sole and absolute discretion) to such extension, such consent to be given by executing and delivering to the Agent, no later than 15 Business Days after its receipt of such letter, a counterpart of such letter; provided, that, if, one or more Banks decline to consent to the extension of the Revolving Termination Date, any Bank's consent to such extension shall be nullified, and the Revolving Termination Date shall not be extended. If any Bank fails to execute and deliver 3 4 such letter on or before the expiration of the aforesaid 15 Business Day period, such Bank shall be deemed to have declined to consent to extend the Revolving Termination Date, and the Revolving Termination Date shall not be extended. (i) Clause (iii) of subsection 3.01(b) of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: (iii) the expiry date of any requested Letter of Credit is (x) more than one year after the date of issuance, unless the Issuing Bank and the Majority Banks have approved such expiry date in writing, or (y) after the Revolving Termination Date, unless all the Banks have approved such expiry date in writing; (j) Clause (v) of subsection 3.01(b) of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: (v) such Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person, or the Issuance of such Letter of Credit shall violate any other applicable policies of the Issuing Bank; (k) Clause (vi) of subsection 3.01(b) of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: (vi) Intentionally Omitted. (l) Section 3.02 of the Prior Credit Agreement shall be amended by (i) deleting the parenthetical proviso at the end of clause (ii) of subsection (a) thereof; and (ii) deleting the parenthetical "(other than a Retention Letter of Credit)" in each case where it appears in subsection (f) thereof. (m) Section 3.07 of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: 3.07 Cash Collateral Pledge. Upon the request of the Agent, if (i) the Issuing Bank has honored any full or partial drawing request on any Letter of Credit, or (ii) as of the Revolving Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, the Company shall immediately pay over, pledge and deliver, pursuant to a security agreement in form and substance acceptable to the Agent, cash in an amount equal to the maximum amount available for drawing under any outstanding Letters of Credit, to the Agent for the benefit of the Banks as collateral. (n) The first sentence of Section 3.08 of the Prior Credit Agreement shall be amended and restated in its entirety to read as follows: 4 5 The Company shall pay to the Agent for the benefit of the Banks letter of credit fees equal to (i) 1.00% per annum, in each case of the face amount of outstanding financial Letters of Credit, and (ii) 0.875% per annum, in each case of the face amount of outstanding performance Letters of Credit. (o) Subsections 6.11(c), 8.06(b) and 8.18(b) of the Prior Credit Agreement shall each be amended by deleting the words "Closing Date" and inserting instead the words "Third Amendment Effective Date." (p) Article VI of the Prior Credit Agreement shall be amended by adding the following Section 6.22 at the end thereof: 6.22 Year 2000. The Company has (a) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by customers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications and devices containing imbedded computer chips used by the Company or any of its Subsidiaries (or their respective customers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (b) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (c) to date, implemented that plan in accordance with that timetable. Based on the foregoing, the Company believes that all computer applications and devices containing imbedded computer chips (including those of its and its Subsidiaries' customers and vendors) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (q) Subsections 8.01(i), 8.06(e), 8.18(c) and 8.18(e) of the Prior Credit Agreement shall each be amended by deleting the amount "$12,000,000" and inserting instead the amount "$25,000,000." (r) Section 8.04 of the Prior Credit Agreement shall be amended by relettering clause (e) to clause (f) and by adding the following new clause (e) after clause (d): (e) investments in the Company's stock pursuant to repurchases thereof permitted under Section 8.09; (s) Section 8.09 of the Prior Credit Agreement shall be amended by (i) deleting the amount "$35,000,000" in clause (c) thereof and inserting instead the amount "$50,000,000;" (ii) deleting the first proviso at the end of Section 8.09; and (iii) deleting the words "and provided, further" from the second proviso at the end of Section 8.09 and inserting instead the word "provided." 5 6 (t) Schedules 6.11(c) [Leases, Dividends and Letters of Credit], 6.12 [Environmental Matters], 6.18 [Subsidiaries and Equity Investments], 8.04 [Investment Policy], 8.06 [Contingent Obligations] and 8.18 [Indebtedness] shall each be amended and restated in their entirety to read as set forth in such Schedules attached hereto. 3. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Banks as follows: (a) Both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment and by the Guarantors of their acknowledgment and consent to this Amendment have been duly authorized by all necessary corporate, partnership and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Approvals) in order to be effective and enforceable. Each of the Prior Credit Agreement as amended by this Amendment, the Guaranty and the other Loan Documents to which the Company or any of its Subsidiaries is a party constitutes and continues to constitute the legal, valid and binding obligations of the Company and such Subsidiary party thereto, enforceable against the Company and such Subsidiaries in accordance with their respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Prior Credit Agreement, after giving effect to the amendments to certain Schedules as set forth herein, are true and correct and will be true and correct on the Effective Date. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. 4. Effective Date. This Amendment will become effective the date first above written (the "Effective Date"), provided that each of the following conditions precedent is satisfied: (a) The Agent has received in sufficient number for each Bank, duly executed originals (or, if elected by the Agent, an executed facsimile copy): (i) of this Amendment, executed by the Company and each of the Banks; and (ii) of the Guarantors' Acknowledgment and Consent in the form attached hereto, executed by each Guarantor; and (b) The Agent has received from the Company and each Guarantor a copy of a resolution passed by the board of directors (or similar governing body) of each such Person or its general partner, certified by the Secretary or an Assistant Secretary of such corporation as being in full force and effect on the date hereof, authorizing the execution, delivery and 6 7 performance of this Amendment or the Guarantors' Acknowledgment and Consent, as applicable. 5. Reservation of Rights. The Company acknowledges and agrees that the execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Prior Credit Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to such Credit Agreement shall henceforth refer to the Prior Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. This Amendment is one of the Loan Documents. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by delivery of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company or any Guarantor shall bind such Bank, the Company, or such Guarantor, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. (e) This Amendment, together with the Prior Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 11.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Prior Credit Agreement, respectively. 7 8 (g) Each of the provisions set forth in Article XI of the Prior Credit Agreement is incorporated herein by this reference and made applicable to this Amendment. (h) The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. GRANITE CONSTRUCTION INCORPORATED By: /s/ William E. Barton Title: ------------------------------------ William E. Barton ------------------------------------ Sr. Vice President By: /s/ R.C. Allbritton Title: ------------------------------------ R.C. Allbritton ------------------------------------ Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ---------------------------------------- Title: Managing Director ------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and as Issuing Bank By: ---------------------------------------- Title: Managing Director ------------------------------------- BANQUE NATIONALE DE PARIS By: ---------------------------------------- Title: ------------------------------------- By: ---------------------------------------- Title: ------------------------------------- 8 9 (g) Each of the provisions set forth in Article XI of the Prior Credit Agreement is incorporated herein by this reference and made applicable to this Amendment. (h) The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. GRANITE CONSTRUCTION INCORPORATED By: ---------------------------------------- Title: ------------------------------------- By: ---------------------------------------- Title: ------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ signature ---------------------------------------- Title: Managing Director ------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and as Issuing Bank By: /s/ signature --------------------------------------- Title: Managing Director ------------------------------------ BANQUE NATIONALE DE PARIS By: --------------------------------------- Title: ------------------------------------ By: --------------------------------------- Title: ------------------------------------ 8 10 (g) Each of the provisions set forth in Article XI of the Prior Credit Agreement is incorporated herein by this reference and made applicable to this Amendment. (h) The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. GRANITE CONSTRUCTION INCORPORATED By: ---------------------------------------- Title: ------------------------------------- By: ---------------------------------------- Title: ------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ---------------------------------------- Title: ------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and as Issuing Bank By: --------------------------------------- Title: ------------------------------------ BANQUE NATIONALE DE PARIS By: /s/ Debra Wright --------------------------------------- Title: Debra Wright ------------------------------------ Vice President By: /s/ Katherine Wolfe --------------------------------------- Title: Katherine Wolfe ------------------------------------ Vice President 8 11 UNION BANK OF CALIFORNIA, N.A. By: /s/ signature --------------------------------------- Title: Vice President ----------------------------------- 9 12 GUARANTORS' ACKNOWLEDGMENT AND CONSENT Each of the undersigned Guarantors hereby acknowledges the foregoing Third Amendment to Credit Agreement (the "Amendment"), consents (without implying the need for any such acknowledgment or consent) to its terms, and represents and warrants to the Agent and the Banks that, both before and after giving effect to the Amendment, its Guaranty remains in full force and effect as an enforceable obligation of the Guarantor, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affected the enforceability of creditor rights. Each Guarantor further represents that the execution, delivery and performance by such Guarantor of this Acknowledgment and Consent have been duly authorized by all necessary corporate, partnership and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Approvals) in order to be effective and enforceable. Each Guarantor remakes as of the Effective Date (as defined in the Amendment) all of the representations and warranties made by it pursuant to the Guaranty. Capitalized terms used herein and not otherwise defined have the respective meanings defined in the Credit Agreement (as defined in the Amendment). IN WITNESS WHEREOF, each Guarantor has executed this Acknowledgment and Consent by its duly authorized officers as of this 30th day of June, 1999. GRANITE CONSTRUCTION COMPANY DESERT AGGREGATES, INC. By: /s/ William E. Barton By: /s/ David J. Brunton -------------------------------- --------------------------------- Name: William E. Barton Name: David J. Brunton ------------------------------ ------------------------------- Title: Senior Vice President & CFO Title: CFO & Assistant Secretary ----------------------------- ------------------------------ By: /s/ R.C. Allbritton By: /s/ Kathleen Kenan -------------------------------- --------------------------------- Name: R.C. Allbritton Name: Kathleen Kenan ------------------------------ ------------------------------- Title: Vice President and Treasurer Title: Assistant Secretary ----------------------------- ------------------------------ GRANITE SR91 CORPORATION GG&R, INC. By: /s/ David H. Watts By: /s/ David H. Watts -------------------------------- --------------------------------- Name: David H. Watts Name: David H. Watts ------------------------------ ------------------------------- Title: President & CEO Title: President & CEO ----------------------------- ------------------------------ By: /s/ William E. Barton By: /s/ William E. Barton -------------------------------- --------------------------------- Name: William E. Barton Name: William E. Barton ------------------------------ ------------------------------- Title: Senior Vice President & CFO Title: Senior Vice President & CFO ----------------------------- ------------------------------ 10 13 WILCOTT CORPORATION INTERMOUNTMN SLURRY SEAL, INC. By: /s/ David H. Watts By: /s/ David J. Brunton ----------------------------- ----------------------------------- Name: David H. Watts Name: David J. Brunton --------------------------- --------------------------------- Title: President and CEO Title: CFO & Assistant Secretary -------------------------- -------------------------------- By: /s/ William E. Barton By: /s/ Kathleen Kenan ----------------------------- ----------------------------------- Name: William E. Barton Name: Kathleen Kenan --------------------------- --------------------------------- Title: Vice President and CFO Title: Assistant Secretary -------------------------- -------------------------------- BEAR RIVER CONTRACTORS GILC, L.P. By: GILC, INCORPORATED, sole general partner By: /s/ David J. Brunton By: /s/ William E. Barton ----------------------------- ----------------------------------- Name: David J. Brunton Name: William E. Barton --------------------------- --------------------------------- Title: Chief Financial Officer Title: President and CEO -------------------------- -------------------------------- By: /s/ Kathleen Kenan By: /s/ R.C. Allbritton ----------------------------- ----------------------------------- Name: Kathleen Kenan Name: R.C. Allbritton --------------------------- --------------------------------- Title: Assistant Secretary Title: Vice President and CFO -------------------------- -------------------------------- POZZOLAN PRODUCTS COMPANY GRANITE SR9l, L.P. (P.P.C.) By: GRANITE SR91 CORPORATION, sole general partner By: /s/ David J. Brunton By: /s/ David H. Watts ----------------------------- ----------------------------------- Name: David J. Brunton Name: David H. Watts --------------------------- --------------------------------- Title: CFO and Assistant Secretary Title: President and CEO -------------------------- -------------------------------- By: /s/ Kathleen Kenan By: /s/ William E. Barton ----------------------------- ----------------------------------- Name: Kathleen Kenan Name: William E. Barton --------------------------- --------------------------------- Title: Assistant Secretary Title: Vice President and CFO -------------------------- -------------------------------- GILC INCORPORATED GTC, INC By: /s/ William E. Barton By: /s/ William E. Barton ----------------------------- ----------------------------------- Name: William E. Barton Name: William E. Barton --------------------------- --------------------------------- Title: President & CEO Title: President & Treasurer -------------------------- -------------------------------- By: /s/ R.C. Allbritton By: /s/ R.C. Allbritton ----------------------------- ----------------------------------- Name: R.C. Allbritton Name: R.C. Allbritton --------------------------- --------------------------------- Title: Vice President & CFO Title: Vice President & Assistant Secretary -------------------------- -------------------------------- 11 14 Incorporated: 1/24/90 - Delaware GRANITE CONSTRUCTION INCORPORATED EIN: 77-0239383 (and wholly-owned subsidiaries) P.O. Box 50085, Watsonville, CA 95077-5085
Officers: *W.E. Barton, Sr. V.P. & CFO Directors: B.C. Kelly D.H. Watts, Pres. & CEO *+R.C.Allbritton, V.P. & Treas. D.H. Watts, Chairman R.A. McDonald *W.G. Dorey, Exec. V.P. & COO M. Futch, V.P. & Sect'y J.J. Barclay R.E. Miles *P.M. Costanzo, Sr.V.P. & Mgr. HCD *G.M. Higdem, V.P. & Asst. HCD Mgr. R.M. Brooks G.B. Searle *M.E. Boitano, Sr. V.P. & Branch Div. Mgr. *J.H. Roberts, V.P. & Asst. Branch Div. Mgr. *M.L. Thomas, V.P. & Dir. Human Resources *D.R. Grazian, Dir. Of Corp. Taxation *M. McCann-Jenni, Controller *Assistant Secretary +Assistant Financial Officer
GRANITE DESERT SR91 GILC INCORPORATED CONSTRUCTION AGGREGATES, INC. CORPORATION P.O. Box 50085 COMPANY P.O. Box 11478 P.O. Box 50085 Watsonville, CA 95077 P.O. Box 50085 Palm Desert, CA 92255 Watsonville, CA 95077 Watsonville, CA 95077 Equipment Leasing Material Sales & Property Heavy/Highway Heavy/Highway Const. & Development Construction Incorporated: 5/22/95 Material Sales EIN: 77-0406448 Incorporated: 1/4/22 Incorporated: 4/28/93 Incorporated: 6/23/93 EIN: 77-0337518 EIN: 77-0342750 Director: Acquired: 2/5/90 D.H. Watts, Chairman Directors: Directors: EIN: 94-0519552 R. Kremer, Chairman D.H. Watts, Chairman Officers: M.L. Thomas P.M. Costanzo W.E. Barton, Pres. & CEO D.J. Brunton W.E. Barton R.C. Allbritton, V.P. & CFO M. Futch, V.P. & Sect'y Directors: Officers: Officers: *D.R. Grazian, V.P. D.H. Watts, Chairman R. Kremer, Chairman, Pres. & D.H. Watts, Pres. & CEO J.J. Barclay CEO P.M. Costanzo, Sr. V.P. R.M. Brooks M.L. Thomas, V.P. & Sect'y W.E. Barton, Sr. V.P. & B.C. Kelly D.J. Brunton, CFO, Treas. & CFO R.A. McDonald Asst. Sect'y M. Futch, V.P. & Sect'y R.E. Miles K. Kenan, Asst. Sect'y G.B. Searle Officers: D.H. Watts, President & CEO *W.G. Dorey, Exec. V.P. *P.M. Costanzo, Sr. V.P. *M.E. Boitano, Sr. V.P. *W.E. Barton, Sr. V.P. & CFO *+R.C. Allbritton, V.P. & Treas. M Futch, V.P. & Sect'y *G.M. Higdem, V.P. *J.H. Roberts, V.P. *D.R. Grazian, Dir. of Corp. Tax. *M. McCann-Jenni, Controller *M. Donnino, Regional Mgr. *H. Heilbron, Area Mgr. *K. Smith, HCD Counsel *Asst. Sect'y +Asst. Financial Officer
GG&R, INC. P.O. Box 30429 Salt Lake City, UT 84130 Holding Company Incorporated: 1/7/76 Acquired: 5/8/95 EIN: 87-0317516 Director: D.H. Watts, Chairman Officers: D.H. Watts, President & CEO W.E. Barton, Sr. V.P. & CFO M. Futch, V.P. & Secretary BEAR RIVER CONTRACTORS 4130 South 1630 East St. George, UT 84790 Heavy/Highway Construction - Non-Union Crusher/Asphalt Plant Incorporated: 4/23/82 Acquired: 5/8/95 EIN: 87-0307259 Directors: M. Thomas, Chairman D. Brunton & K. Kenan Officers: M.L. Thomas, President & CEO D. Brunton, V.P., Sect'y, CFO & Treas. K. Kenan, Asst. Secretary S. Gogol, Asst. Secretary INTERMOUNTAIN SLURRY SEAL, INC. POZZOLAN PRODUCTS COMPANY (PPC) 100 North Warm Springs Road dba GARCO TESTING Salt Lake City, UT 84130 532 West 3560 South Highway Construction - Non Union Salt Lake City, UT 84115 Utah and Surrounding States Material Testing - Non-Union Incorporated: 8/14/48 Incorporated: 1/2/76 Acquired: 5/8/95 EIN: 87-0207591 Acquired: 5/8/95 EIN: 87-0332091 Directors Directors: M. Thomas, Chairman M. Thomas, Chairman D. Brunton & K. Kenan D. Brunton & K. Kenan Officers Officers: M. Thomas, President & CEO M. Thomas, President & CEO D. Watson, VP, Secretary & General Mgr. R. Cahoon, V.P., Sect'y & General Mgr. D. Brunton, Asst. Sect'y, Treas. & CFO D. Brunton, Asst. Sect'y & CFO K. Kenan, Asst. Secretary K. Kenan, Asst. Secretary S. Gogol, Asst. Secretary S. Gogol, Asst. Secretary
GTC, INC. WILCOTT GRANITE P.O. Box 50085 CORPORATION CONSTRUCTION Watsonville, CA 95077 P.O. Box 628 INTERNATIONAL Watsonville, CA 95077 P.O. Box 50085 Waters Ridge II Ltd. Watsonville, CA 95077 Project Development Heavy/Highway Construction Heavy/Highway Incorporated: 10/28/96 Incorporated: 2/6/81 Construction EIN: 77-0446298 Acquired: 2/5/90 non-domestic EIN: 94-2717069 Director: Incorporated: 7/31/97 D.H. Watts, Chairman Directors: EIN: 77-0466093 D.H. Watts, Chairman Officers: W.G. Dorey Directors: W.E. Barton, Pres. & Treas. W.E. Barton D.H. Watts, Chairman M. Futch, V.P. & Sect'y W.E. Barton R.C. Allbritton, V.P., Asst. Officers: W.G. Dorey Sect'y & Asst. Treas. D.H. Watts, Pres. & CEO P.M. Costanzo M.F. Donnino, V.P. W.G. Dorey, Exec. V.P. S.D. Wolcott, V.P. W.E. Barton, Sr. V.P. & Officers: CFO D.H. Watts, Pres. & CEO M. Futch, V.P. & Sect'y *W.G. Dorey, Exec. V.P. *P.M. Costanzo, Sr. V.P. *M.E. Boitano, Sr. V.P. *W.E. Barton, Sr. V.P. & CFO *R.C. Allbritton, V.P. & Treas. M. Futch, V.P. & Sect'y *G.M. Higdem, V.P. *D.R. Grazian, Dir. of Corp. Tax *Asst. Sect'y
15 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 6.11(c)
LEASES: (GCC AS LESSEE) - --------------------------------- Annual Lessor Description Maturity Payments - -------------------------------------------------------------------------------------------------------- Arizona State Labor Department Pit 01/31/00 21,318 Associates Construction Equipment 04/30/99 15,921 Associates Construction Equipment 04/30/99 276,500 Associates Construction Equipment 12/31/00 343,243 Associates Construction Equipment 04/30/00 141,504 Associates Construction Equipment 06/30/00 28,188 Associates Construction Equipment 09/30/00 145,152 Associates Construction Equipment 03/31/00 29,028 Associates Construction Equipment 12/31/00 203,310 Associates Construction Equipment 07/31/00 27,076 Associates Construction Equipment 09/30/01 24,356 Associates Construction Equipment 01/31/02 91,980 Associates Construction Equipment 04/30/00 112,574 Centerpoint Plaza Office Building 05/30/99 25,000 Chemical Lime Company of Arizona Plant Property 10/31/07 633,333 Chevron USA Inc. Pit Monthly 2,400 Crawford Pit 12/31/99 40,000 French, Warren R., and Mabel L. Office Building 04/30/03 5,760 GE Capital Modular Space Office Building 11/30/01 7,260 Gibbons Realty Company Building 05/08/05 30,000 Granite Rock Company Office & Yard 12/31/00 177,440 Hansen, Clarence & Sinnott Quarry Property 07/31/99 29,167 Harper Contracting Inc. Quarry Property 04/06/03 144,000 IBM Credit Corporation Computer Hardware 01/01/00 241,740 I. Christensen & Bruno Benna Office Building 03/31/99 3,750 Jackling Aggregate Limited Pit 12/31/05 72,000 Julia C. Matthews Pit Monthly 24,000 Komatsu Equipment Co. Construction Equipment 04/30/00 261,008 Kern Front Oil Company Pit Monthly 1,200 Little Rock Sand & Gravel Pit 04/30/01 173,472 L.R. Peterson and E.W. McGah Pit 01/02/06 75,000 Maria Bazzi Pit 12/31/00 62,783 Meredit, Parker, Key, Bath Pit 12/31/03 283,755 M.L. Hillcock & B.C. Hillcock Pit 01/31/01 14,188 Parc Center Office Building 11/30/00 271,969 Pebble Beach Corporation Pit 12/31/00 22,000 Rae Barker Trust Pit 12/31/01 2,000 R. Jay Deserpa Company Yard 12/31/08 12,000 Recupido, Fredrick Office Building 11/30/03 20,000 Sister Margaret Patricia McCarran Plant Property 12/31/00 10,000 Sopori Land & Cattle Company Quarry Property 08/31/01 13,500 Standard Hill Mining Company Pit 02/28/03 18,000 Tejon Ranch Company Plant Property 10/31/99 20,000 Topo Ranch (Singleton Group) Pit 06/30/07 22,500 Walker Development Pit 12/31/09 75,000 Wells Family Members Pit 12/31/01 25,000 Westem Pacific Railroad Co. Pit 06/01/01 50,000 Woodland - Reiff Pit 05/31/03 2,000 Woodland - Schneegas Pit 05/31/03 750 - ------------------------------------------------------------------------------------------------------ $4,332,125
16 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 6.11(c)
LEASES: (DESERT AGGREGATES AS LESSEE) - ---------------------------------------------------------------------------------------------------- Raymond J. Fanchon/L. Muller Pit 03/07/16 24,000 William Barry Shannon Pit 02/29/96 7,200 - ---------------------------------------------------------------------------------------------------- $31,200
LEASES: (BRC AS LESSEE) - ---------------------------------------------------------------------------------------------------- SCACH, Inc. Office Building 03/01/02 32,136 Associate Leasing Construction Equipment 09/30/99 30,640 - ---------------------------------------------------------------------------------------------------- $62,776
LEASES: (PPC AS LESSEE) - ---------------------------------------------------------------------------------------------------- S W Souvall Company Office Building 6/30/99 5,871 - ---------------------------------------------------------------------------------------------------- $5,871
DIVIDENDS: (GCI OBLIGATION) MATURITY AMOUNT - ---------------------------------------------------------------------------------------------------- Second Quarter 1999 $.07 dividend declared for holders of record as of June 30,1999 (approximately) 07/16/99 $1,902,950 - ----------------------------------------------------------------------------------------------------
LETTERS OF CREDIT: - ---------------------------------------------------------------------------------------------------- BENEFICIARY TYPE SECURED LENDER MATURITY AMOUNT - ---------------------------------------------------------------------------------------------------- Chase Bank of Texas (Camino Columbia) Performance N B of A 05/26/00 10,016,400 Worker=s Compensation (GCC) Performance N B of A OPEN 2,334,343 Granite SR91 L.P. (SR91 Corp. & GCI) Performance N B of A 07/14/00 2,044,461 - ---------------------------------------------------------------------------------------------------- $14,395,204 ----------- $20,730,126 -----------
17 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 6.12 ENVIRONMENTAL MATTERS Granite Construction in the normal course of business utilizes petroleum (hydrocarbon) products which may be considered hazardous materials when encountered at regulatory levels established by the Federal EPA or the Regional State EPA. The utilization of these asphalt products, diesel, and gasoline over the years of operations have the potential of creating exposure to environmental clean up requirements. All underground tanks meet current requirements. There is no pending government ordered clean up requirements. However, the following represents estimates based on construction industry housekeeping practices as encountered during our normal course of business. Except as indicated with an "*", these costs do not represent actual identified exposures.
- ------------------------------------------------------------------------------------------------------- LOCATIONS DESCRIPTION AMOUNT - ------------------------------------------------------------------------------------------------------- Arvin, CA Asphalt Batch Plant 100,000 Arvin, CA Surface Spills 50,000 Bakersfield, CA Surface Spills 100,000 Bakersfield, CA Diesel Aboveground Storage Tanks 25,000 Bakersfield, CA Asphalt Batch Plant 100,000 Coalinga, CA Asphalt Batch Plant 50,000 Felton, Ca Asphalt Batch plant 200,000 French Camp, CA Diesel/Gasoline Underground Storage Tanks 10,000 Gardnerville, NV Surface Spills 25,000 Gardnerville, NV Asphalt Batch Plant 50,000 lndio, CA Massey Shop/Smitty's Garage Cleanup 50,000 Palmdale, CA Surface Spills 10,000 Palmdale, CA Asphalt Batch Plant 50,000 Patrick, NV Asphalt Batch Plant 75,000 Patrick, NV Surface Spills 50,000 Sacramento, CA Diesel/Gasoline Underground Storage Tanks 50,000 Sacramento, CA Asphalt Batch Plant 300,000 Sacramento, CA Surface Spills 200,000 Sacramento, CA Diesel Aboveground Storage Tanks 50,000 Sacramento, CA Shop Area Cleanup 50,000 Salinas, CA Surface Spills 250,000 Santa Barbara, CA Surface Spills 200,000 Santa Barbara, CA Asphalt Batch Plant 50,000 Santa Cruz, CA Santa Cruz Yard Cleanup 250,000 Sparks, NV Diesel/Gasoline Underground Storage Tanks 100,000 Tracy, CA Asphalt Batch Plant 75,000 Tracy, CA Surface Spills 25,000 Tucson, AZ Surface Spills 25,000 Watsonville, CA Surface Spills 50,000 Webb, UT * Asphalt Batch Plant 1,400,000 Whitehall, UT * Asphalt Batch Plant 55,000 Salt Lake City, UT * Concrete Batch Plant 250,000 Salt Lake County, UT * Surface Spills 30,000 Weber County, UT (Ogden) * Surface Spills 100,000 Salt Lake County, UT (CPC) * Aggregate and smelter site 1,250,000 Cahoon, UT * Surface Spills 100,000 Fireclay Battery, UT * Surface Spills 25,000 - ------------------------------------------------------------------------------------------------------- $5,830,000 - -------------------------------------------------------------------------------------------------------
18 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 6.18 SUBSIDIARIES AND EQUITY INVESTMENTS
- ------------------------------------------------------------------------------------------------------- COMPANY DESCRIPTIONS QUANTITY INVESTMENT MARKET VALUE 05/31/99 - ------------------------------------------------------------------------------------------------------- Perini Corporation Common Stock 100 shares 2,879 Calmat Company Common Stock 100 shares 2,384 Cascade Corporation Common Stock 100 shares 2,812 TIC Holdings Minority Interest 257,126 Shares 27,986,746 CPTC L.P./SR9l L.P. Joint Venture 326,332 Waters Ridge II LLP 1,344,803 Waters Ridge (Phase II) LLP 5,048,533 Granite Regional Park LLP 1,611,066 Kiewit/Granite (TCA) Joint Venture 365,611 Kiewit/Granite (KG Leasing) Joint Venture 3,040,899 Kiewit/Granite/MK (Wasatch) Joint Venture 2,249,343 Kiewit/Granite/MK (KGW Leasing) Joint Venture 7,887,973 Kiewit/Granite (E. Dam) Joint Venture 2,034,448 Yonkers/Granite(Atlantic City) Joint Venture 5,549,834 Western Summit/TIC/Granite (UTOY) Joint Venture 291,582 WS/TICGranite (UTOY Leasing) Joint Venture 326,405 Granite/Kiewit(Tongue River) Joint Venture 66,967 Granite/Sundt(ADOT) Joint Venture 23,679 Kiewit/Granite/MK(UTA) Joint Venture 115,000 - ------------------------------------------------------------------------------------------------------- $58,277,296 - -------------------------------------------------------------------------------------------------------
19 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 8.04 INVESTMENT POLICY 20 GRANITE CONSTRUCTION INCORPORATED INVESTMENT POLICY GUIDELINES EFFECTIVE: JANUARY 1, 1999 Revised: June 30, 1999 PURPOSE Within the spectrum of activities of this Corporation, it is necessary to provide a framework for the regular and continuous management of its investment funds. Short term and intermediate term investments provide earnings on excess cash while maintaining liquidity and working funds for the present and future operations. INVESTMENT OBJECTIVES In order to provide control of all investments and cash, the Corporation has established the following objectives regarding its investment policy: - - Safety - the primary objective of the investment activities of the Corporation is protection of capital. Each investment transaction shall seek to first ensure that capital losses are avoided, whether they are from securities defaults or erosion of market value. - - Liquidity - the investment portfolio must be structured in a manner that will provide sufficient liquidity to pay the obligations of the Corporation. Any excess cash above the aforementioned requirements may be invested in instruments with longer maturity. - - Diversification - the investment activity must ensure diversification of investments that minimizes risk exposure to any one security and/or issuer. - - Investment Return - the Corporation seeks to maximize the return on all investments within the constraints of safety and liquidity. DURATION The duration of the portfolio including escrows and deposits shall be consistent with the cash needs as determined by the cash forecast. Cash investments are restricted to the average duration of one (1) year from date of settlement. Any investments with longer maturity than one year must be invested in instruments issued by, guaranteed by, or insured by the U.S. Government or any of its agencies. The average portfolio duration of escrows and deposit agreements shall not exceed five (5) years. Short-term investments shall be defined as instruments maturing in ninety-one (91) days or more. MARKETABILITY Holdings should be of sufficient size and held in issues which are traded actively (except time deposits, loan participation, and master notes) to facilitate transactions at a minimum cost and accurate market valuations. TRADING The following individuals are authorized traders: Roxane C. Allbritton, Vice President/Treasurer Jigisha Desai, Cash Manager Mary McCann-Jenni, Controller Page 1 of 3 21 Any individual transaction conforming to the policy set forth herein or, any transaction of an Investment Manager not conforming to the respective Investment Manager's policy shall be approved by one of the following officers or, any transaction not conforming to the policy set forth herein must be approved by any two of the following officers: D.H. Watts W.E. Barton W.G. Dorey M.E. Boitano
DEALERS AND BANKS FOR TRADING The following institutions are authorized dealers: BA Securities ING Baring Furman Selz Lehman Brothers Merrill Lynch Salomon Smith Barney All purchased investments will be delivered to Bank of New York for safekeeping and paid for upon receipt. SAFEKEEPING The banks designated as safekeeping depositories in order of choice are: Bank of America, Glendale, CA (Wentworth, Hauser & Violich) Bank of New York (BNY Western Trust Company) Each financial institution must provide timely confirmation/safekeeping receipts on all investment transactions and provide monthly transaction reports. ESCROW Escrows in lieu of retention are allowed at the following: Bank of America (formerly Nations Bank, Texas)* Bank One, Arizona* Merrill Lynch Trust Company Nevada Highway Fund (State of Nevada Treasury)* SunTrust Bank, Georgia* Union Bank of California US Trust of California Zions Bank, Utah* *Required by Owner The types of investments will be guided by the terms of the escrow, but in all cases the investment will be governed by the investment policy. *Required by Owner. Banks not listed, but required by escrow agreement, will also be acceptable. REPORTING - - Daily - An investment transaction sheet, sequentially numbered will be processed for approval by an authorized offer. - - Weekly and Monthly - A portfolio will be provided to the President, Chief Financial Officer and all traders. - - For FASB 115 purposes, the Corporation classifies all fixed income investments as "Held to Maturity." Page 2 of 3 22 GRANITE CONSTRUCTION INCORPORATED INVESTMENT POLICY GUIDELINES EFFECTIVE: JANUARY 1,1999
- ----------------------------------------------------------------------------------------------------------------------------------- ELIGIBLE INVESTMENTS MINIMUM CREDIT QUALITY CONCENTRATION CONCENTRATION BY BY ISSUER PORTFOLIO - ----------------------------------------------------------------------------------------------------------------------------------- Obligations issued by U.S. Government N/A No Maximum No Maximum limited to: U. S. Treasury Bills/Bonds/Notes - -------------------------------------------------------------------------------------------------------------------------------- Obligations of agencies of the U.S. $1,000,000 or 10% of total 25% Government limited to: N/A portfolio (whichever is Federal Farm Credit Bank greater) Federal Home Loan Bank Federal Home Loan Mortgage Corp. Federal National Mortgage Association Student Loan Marketing Association - -------------------------------------------------------------------------------------------------------------------------------- Obligations collateralized by U.S. Fully collateralized by U.S. $1,000,000 or 10% of total 25% Government securities limited to: Gov't and Agency securities portfolio (whichever is Repurchase Agreements included in these guidelines. greater) Reverse Repurchase Agreements Collateral value plus accrued interest must exceed and be maintained at level exceeding value of agreement. - -------------------------------------------------------------------------------------------------------------------------------- Obligations issued by U.S. owned Limited to Top 25 U.S. Banks by $1,000,000 or 10% of total 50% domestic commercial banks limited to: deposit and assets. Short-Term portfolio (whichever is Banker's Acceptance rating of A-1/P-1, or Long-Term greater) Certificate of Deposit rating of AAA/NR or AA/Aa (at the time of purchase) - -------------------------------------------------------------------------------------------------------------------------------- Obligations issued by U.S. bank Limited to Top 25 U.S. Banks by $1,000,000 or 10% of total 40% subsidiaries of Non U.S. Bank limited to: deposit and assets. Short-Term portfolio (whichever is Yankee Banker's Acceptance rating of A-1/P-1, or Long-Term greater) Yankee Certificates of Deposit rating of AAA/NR or AA/Aa (at (all securities U. S. dollar denominated) the time of purchase) - -------------------------------------------------------------------------------------------------------------------------------- Obligations of major U.S. corporations Any TWO of three rating $1,000,000 or 10% of total 50% and U.S. holding companies limited to: services: A-1/P-1/D-1 S&P, portfolio (whichever is Commercial Paper Moody's, Duff & Phelps (at the greater) time of purchase) - -------------------------------------------------------------------------------------------------------------------------------- Loan Participation Same as commercial paper credit $1,000,000 or 10% of total 25% Master Notes quality requirements portfolio (whichever is greater) - -------------------------------------------------------------------------------------------------------------------------------- Money Market Funds Any TWO of three rating $1,000,000 or 10% of total 50% services: AAAm/Aaa/AAA S&P, portfolio (whichever is Moody's, Duff & Phelps (at the greater) time of purchase) - -------------------------------------------------------------------------------------------------------------------------------- Taxexempt investments limited to: S&P: A-1, AA or better, Sp-1 $1,000,000 or 10% of total 25% Commercial Paper AND Moody's: P-1, Aa or better, portfolio (whichever is Floating Rate Put Bonds VMIG-1 greater) Floating Rate Put Notes Municipal Notes Municipal Bonds - --------------------------------------------------------------------------------------------------------------------------------
Page 3 of 3 23 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 8.06 CONTINGENT OBLIGATIONS Granite Construction Company has a $50.1MM design-build contract to construct the Camino Columbia Toll Road near Laredo, Texas. (GCl as a Guarantor) 24 GRANITE CONSTRUCTION INCORPORATED SCHEDULE 8.18 INDEBTEDNESS
- ------------------------------------------------------------------------------------------------------- LENDER TYPE SECURED INTEREST MATURITY BALANCE Y/N RATE 05/31/99 - ------------------------------------------------------------------------------------------------------- Raymond Flaschbarth (GOC) Land Acquisition N 8.00% 06/30/00 260,000 C.B. Concrete Company, Inc. (GCC) Acquisition N 6.50% 04/14/02 2,055,564 Rosemary's Mountain (GCC) Land Acquisition N 8.82% Open 1,700,000 Glendale Property (GCC) Land Acquisition N 6.50% 12/31/07 1,732.736 Scach, Inc (BRC) Acquisition N 6.50% 04/14/02 178,833 - ------------------------------------------------------------------------------------------------------- $5,927,133 ==========
NOTE: PLEASE SEE SCHEDULE 6.11(c) FOR CAPITALIZED LEASES. EX-10.6.A 4 GRANITE KEY MANAGEMENT DEFERRED COMP. PLAN AM.#1 1 EXHIBIT 10.6.a GRANITE CONSTRUCTION INCORPORATED KEY MANAGEMENT DEFERRED COMPENSATION PLAN Amendment No. 1 - -------------------------------------------------------------------------------- WHEREAS, Granite Construction Incorporated (the "Company") maintains the Granite Construction Incorporated Key Management Deferred Compensation Plan (the "Plan") for the benefit of its eligible employees; and WHEREAS, the Company desires to modify the Plan's distribution provisions. NOW THEREFORE, effective as of January 1, 1999, the Plan is hereby amended as follows: 1. The first sentence of Section 6(a) is amended to read as follows: The deferral form must be signed and dated by the Participant, and must specify the payment date and method for distribution of the Participant's Account. 2. Section 7(c) is amended to read as follows: (c) Timing Of Distributions. Subject to Sections 7(d), 7(g) and 10, the distribution of the balance of a Participant's Account will be made or begin as soon as practicable following the earliest of the following events: 2 - The Participant's disability, as determined under the Company's Long Term Disability Plan. - The Participant's "retirement" under the Company's tax-qualified retirement plans; provided, however, that a Participant may elect to have his or her distribution be made or begin not later than five years after such "retirement." - The Participant's death. To record the adoption of this Amendment No. 1 to the Plan, the Company has caused it to be executed this 23 day of April, 1999. GRANITE CONSTRUCTION INCORPORATED By /s/ David H. Watts -------------------------------------- DAVID H. WATTS, PRESIDENT & CEO By /s/ Michael Futch -------------------------------------- MICHAEL FUTCH, SECRETARY -2- EX-10.7.A 5 GRANITE KEY MANAGEMENT DEFERRED INCENT. PLAN AM.#1 1 EXHIBIT 10.7.a GRANITE CONSTRUCTION INCORPORATED KEY MANAGEMENT DEFERRED INCENTIVE COMPENSATION PLAN Amendment No. 1 - -------------------------------------------------------------------------------- WHEREAS, Granite Construction Incorporated (the "Company") maintains the Granite Construction Incorporated Key Management Deferred Incentive Compensation Plan (the "Plan") for the benefit of its eligible employees; and WHEREAS, the Company desires to modify the Plan's distribution provisions. NOW, THEREFORE, Section 7(c) of the Plan is hereby amended as follows, effective as of January 1, 1999: (c) Timing Of Distributions. Subject to Sections 7(d), 7(g) and 10, the distribution of the balance of a Participant's Account will be made or begin as soon as practicable following the earliest of the following events: - Occurrence of the date set forth in the Participant's deferral form. - The Participant's disability, as determined under the Company's Long Term Disability Plan. - The Participant's "retirement" under the Company's tax-qualified retirement plans; provided, however, that a Participant may elect to have his or her distribution be made or begin not later than five years after such retirement." - The Participant's death. 2 To record the adoption of this Amendment No. 1 to the Plan, the Company has caused it to be executed this 23 day of April 1999. GRANITE CONSTRUCTION INCORPORATED By /s/ David H. Watts ----------------------------------- DAVID H. WATTS, PRESIDENT & CEO By /s/ Michael Futch ----------------------------------- MICHAEL FUTCH, SECRETARY -2- EX-10.10 6 GRANITE CONSTRUCTION 1999 EQUITY INCENTIVE PLAN 1 EXHIBIT 10.10 GRANITE CONSTRUCTION INCORPORATED 1999 EQUITY INCENTIVE PLAN 2 TABLE OF CONTENTS -----------------
Page ---- SECTION 1. ESTABLISHMENT, PURPOSE, AND TERM OF PLAN 1 1.1 Establishment 1 1.2 Purpose 1 1.3 Term of Plan SECTION 2. DEFINITIONS AND CONSTRUCTION 1 2.1 Definitions 1 2.2 Construction 5 SECTION 3. ELIGIBILITY AND AWARD LIMITATIONS 5 3.1 Persons Eligible for Incentive Stock Options 5 3.2 Persons Eligible for Other Awards 5 3.3 Section 162(m) Award Limits 5 SECTION 4. ADMINISTRATION 6 4.1 Administration by Committee 6 4.2 Authority of Officers 6 4.3 Administration with Respect to Insiders 6 4.4 Committee Complying with Section 162(m) 6 4.5 Powers of the Committee 6 SECTION 5. STOCK SUBJECT TO PLAN 8 5.1 Maximum Number of Shares Issuable 8 5.2 Lapsed Awards 8 5.3 Adjustment in Capitalization 8 SECTION 6. STOCK OPTIONS 8 6.1 Grant of Options 8 6.2 Exercise Price 9 6.3 Exercise Period 9 6.4 Payment of Exercise Price 9 6.5 Effect of Termination of Service 10 6.6 Transferability of Options 12 SECTION 7. RESTRICTED STOCK 12 7.1 Grant of Restricted Stock 12 7.2 Nontransferability During Period of Restriction 12 7.3 Other Restrictions 12 7.4 Voting Rights 13 7.5 Dividends and Other Distribution 13 7.6 Effect of Termination of Service 13
i 3 TABLE OF CONTENTS (continued)
Page ---- SECTION 8. PERFORMANCE SHARES AND PERFORMANCE UNITS 13 8.1 Grant of Performance Shares or Performance Units 13 8.2 Value of Performance Shares and Performance Units 14 8.3 Establishment of Performance Goals and Performance Period 14 8.4 Measurement of Performance Goals 14 8.5 Determination of Value of Performance Shares and Performance Units 15 8.6 Dividend Equivalents 15 8.7 Form and Timing of Payment 15 8.8 Restrictions Applicable to Payment in Shares 15 8.9 Effect of Termination of Service 16 8.10 Nontransferability 16 SECTION 9. DIRECTOR FEE AWARDS 16 9.1 Effective Date and Duration of this Section 16 9.2 Mandatory and Elective Director Fee Awards 17 9.3 Time and Manner of Election 17 9.4 Automatic Grant of Director Fee Awards 18 9.5 Option Payment 18 9.6 Stock Units Payment 20 9.7 Fractional Shares 21 SECTION 10. CHANGE IN CONTROL 22 10.1 Effect of Change in Control 22 10.2 Termination of Service After a Change in Control 22 10.3 Definition 23 SECTION 11. REQUIREMENTS OF LAW 23 11.1 Compliance with Securities Law 23 11.2 Governing Law 24 SECTION 12. TAX WITHHOLDING 24 12.1 Tax Withholding In General 24 12.2 Withholding of Shares 24 SECTION 13. AMENDMENT AND TERMINATION OF PLAN 24 13.1 Amendment and Termination of Plan 24 13.2 Effect of Amendment or Termination 24
ii 4 TABLE OF CONTENTS (continued)
Page ---- SECTION 14. MISCELLANEOUS PROVISIONS 24 14.1 Beneficiary Designation 24 14.2 Rights as an Employee or Director 25 14.3 Rights as a Stockholder 25 14.4 Provision of Information 25 14.5 Unfunded Obligation 25 14.6 Indemnification 25
iii 5 PLAN HISTORY May 17, 1999 Board adopts Plan, with an initial reserve of 2,500,000 shares. May 24, 1999 Stockholders approve Plan, with an initial reserve of 2,500,000 shares. [ May 24, 2004 In compliance with Treas. Reg. Section 1.162-27(e)(4)(vi), the stockholders reapprove the material terms of the "performance goals" for purposes of Section 162(m) at the annual stockholders meeting occurring in the fifth year following the year in which the stockholders previously approved the performance goals.]
6 GRANITE CONSTRUCTION INCORPORATED 1999 EQUITY INCENTIVE PLAN SECTION 1. ESTABLISHMENT, PURPOSE, AND TERM OF PLAN 1.1 ESTABLISHMENT. Granite Construction Incorporated, a Delaware corporation, hereby establishes the Granite Construction Incorporated 1999 Equity Incentive Plan (the "PLAN") effective as of the date of its approval by the stockholders of the Company (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Company, by encouraging and providing for the acquisition of an equity interest in the success of the Company by Employee and Directors, by providing additional incentives and motivation toward superior performance of the Company, and by enabling the Company to attract and retain the services of Employees and Directors upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent. The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Restricted Stock, Performance Units and Performance Shares, by providing Nonemployee Directors with the opportunity to receive Options or Stock Units in lieu of compensation otherwise payable in cash, and by providing for payments in the form of shares of Stock or cash. 1.3 TERM OF PLAN. The Plan shall remain in effect until the earlier of (i) its termination by the Committee pursuant to Section 13 or (ii) the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted under the Plan have lapsed. However, all Awards shall be granted, if at all, within five (5) years from the Effective Date. SECTION 2. DEFINITIONS AND CONSTRUCTION 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "AWARD" means any Option, Restricted Stock, Performance Unit, Performance Share or Director Fee Award granted under the Plan. (b) "AWARD AGREEMENT" means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant. An Award Agreement may be an "Option Agreement," a "Restricted Stock Agreement," a "Performance Share Agreement," a "Performance Unit Agreement," a "Nonemployee Director Option Agreement," or a "Stock Units Agreement." (c) "BOARD" means the Board of Directors of the Company. 1 7 (d) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (e) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. If no committee of the Board has been appointed to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers. (f) "COMPANY" means Granite Construction Incorporated, a Delaware corporation, or any successor corporation thereto. (g) "DIRECTOR" means a member of the Board. (h) "DIRECTOR FEE AWARD" means any Nonemployee Director Option or Stock Unit granted pursuant to Section 9. (i) "DISABILITY" means a permanent and total disability as defined under the Company's Long Term Disability Plan or any successor plan, regardless of whether the Participant is covered by such Long Term Disability Plan. (j) "DIVIDEND EQUIVALENT" means a credit, made at the discretion of the Committee or as otherwise provided by the Plan, to the account of a Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award of Performance Shares or Stock Units held by such Participant. (k) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any relevant date, the closing sale price of a share of Stock (or the mean of the closing bid and asked prices if the Stock is so quoted instead) on the relevant date on the New York Stock Exchange or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion. If on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Committee. 2 8 (n) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (o) "INSIDER" means an officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (p) "NONEMPLOYEE DIRECTOR" means a Director of the Company who is not an Employee. (q) "NON EMPLOYEE DIRECTOR OPTION" means a Director Fee Award in the form of Nonstatutory Stock Option granted pursuant to the terms and conditions of Section 9. (r) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option. (s) "OPTION" means the right to purchase Stock at a stated price for a specified period of time pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (t) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (u) "PARTICIPANT" means any eligible person who has been granted one or more Awards. (v) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (w) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (x) "PERFORMANCE GOAL" means a performance goal established by the Committee pursuant to Section 8.3. (y) "PERFORMANCE PERIOD" means a period established by the Committee pursuant to Section 8.3 at the end of which one or more Performance Goals are to be measured. (z) "PERFORMANCE SHARE" means a bookkeeping entry representing a right granted to a Participant pursuant to the terms and conditions of Section 8 to receive a payment equal to the value of a Performance Share, as determined by the Committee, based on performance. (aa) "PERFORMANCE UNIT" means a bookkeeping entry representing a right granted to a Participant pursuant to the terms and conditions of Section 8 to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon performance. 3 9 (bb) "PERIOD OF RESTRICTION" means the period during which shares of Restricted Stock are subject to restriction as set forth in Section 7.2. (cc) "RESTRICTED STOCK" means Stock granted to a Participant pursuant to the terms and conditions of Section 7. (dd) "RETIREMENT" means (i) with respect to an Employee, termination of employment for retirement under the terms of the Company's defined contribution plans, and (ii) with respect to a Nonemployee Director, resignation from Service on the Board after attaining the age of 55 and after at least ten years of Service on the Board. (ee) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (ff) "SECTION 162(m)" means Section 162(m) of the Code. (gg) "SECURITIES ACT " means the Securities Act of 1933, as amended. (hh) "SERVICE" means a Participant's employment or service with the Participating Company Group, whether in the capacity of an Employee or a Director. A Participant's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service to the Participating Company Group or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant's Service. Furthermore, a Participant's Service with the Participating Company Group shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the one hundred eighty-first (181st) day following the commencement of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Participant's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant's Award Agreement. A Participant's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether a Participant's Service has terminated and the effective date of such termination. (ii) "STOCK" means the Common Stock of the Company, as adjusted from time to time in accordance with Section 5.3. (jj) "STOCK UNIT" means a Director Fee Award in the form of a bookkeeping entry representing a right granted to a Participant pursuant to the terms and conditions of Section 9 to receive payment of one (1) share of Stock. 4 10 (kk) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in section 424(f) of the Code. (ll) "TEN PERCENT OWNER" means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, words in the masculine gender, when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. SECTION 3. ELIGIBILITY AND AWARD LIMITATIONS 3.1 PERSONS ELIGIBLE FOR INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted only to Employees. For purposes of the foregoing sentence, the term "Employees" shall include prospective Employees to whom Options are granted in connection with written offers of employment with the Participating Company Group, provided that any such Option shall be deemed granted effective on the date that the Participant commences Service as an Employee, with an exercise price determined as of such date in accordance with Section 6.2. 3.2 PERSONS ELIGIBLE FOR OTHER AWARDS. Awards other than Incentive Stock Options may be granted only to Employees and Directors. For purposes of the foregoing sentence, the terms "Employees" and "Directors" shall include prospective Employees and prospective Directors to whom Awards are granted in connection with written offers of employment or service as a Director with the Participating Company Group, provided that no Stock subject to any such Award shall vest, become exercisable or be issued prior to the date on which the Participant commences Service. A Director Fee Award may be granted only to a person who, at the time of grant, is a Nonemployee Director. Eligible persons may be granted more than one (1) Award. 3.3 SECTION 162(m) AWARD LIMITS. The following limitations (the "SECTION 162(m) AWARD LIMITS") shall apply to the grant of any Award if, at the time of grant, the Company is a "publicly held corporation" within the meaning of Section 162(m). (a) STOCK OPTIONS. Subject to adjustment as provided in Section 5.3, no Employee shall be granted one or more Options within any fiscal year of the Company which in the aggregate are for the purchase of more than one hundred thousand (100,000) shares; provided, however, that the Company may make an additional one-time grant to any newly-hired Employee of an Option for the purchase of up to two hundred fifty thousand (250,000) shares. An Option which is canceled in the same fiscal year of the Company in which it was granted shall continue to be counted against the limits described in this subsection for such period. 5 11 (b) RESTRICTED STOCK. Subject to adjustment as provided in Section 5.3, no Employee may be granted within any fiscal year of the Company more than one hundred thousand (100,000) shares of Restricted Stock, provided that such limit shall apply only to Awards of Restricted Stock which are granted or with respect to which the Period of Restriction lapses contingent upon the attainment of Performance Goals. (c) PERFORMANCE SHARES AND PERFORMANCE UNITS. Subject to adjustment as provided in Section 5.3, no Employee may be granted (i) Performance Shares which could result in such Employee receiving more than one hundred thousand (100,000) shares of Stock for each full fiscal year of the Company contained in the Performance Period for such Award, or (ii) Performance Units which could result in such Employee receiving more than one million five hundred thousand dollars ($1,500,000) for each full fiscal year of the Company contained in the Performance Period for such Award. No Participant may be granted more than one Performance Share Award or one Performance Unit Award (but not both such Awards) for the same Performance Period. SECTION 4. ADMINISTRATION 4.1 ADMINISTRATION BY COMMITTEE. The Plan shall be administered by the Committee. All questions of interpretation of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive for all purposes and upon all persons whomsoever. 4.2 AUTHORITY OF OFFICERS. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 4.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. 4.4 COMMITTEE COMPLYING WITH SECTION 162(m). If the Company is a "publicly held corporation" within the meaning of Section 162(m), the Board may establish a Committee of "outside directors" within the meaning of Section 162(m) to approve the grant of any Award which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m). 4.5 POWERS OF THE COMMITTEE. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion: 6 12 (a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock or units to be subject to each Award and the value of a unit; (b) to determine the type of Award granted and to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise price of any Option, (ii) the method of payment for shares purchased upon the exercise of any Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with any Award, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participant's termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to the Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan; (e) to determine whether an Award of Performance Shares or Performance Units will be settled in shares of Stock, cash, or in any combination thereof; (f) to approve one or more forms of Award Agreement; (g) to amend, modify, extend, cancel, renew, or grant a new Award in substitution for, any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto; (h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participant's termination of Service; (i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Awards; and (j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent consistent with the Plan and applicable law. 7 13 SECTION 5. STOCK SUBJECT TO PLAN 5.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 5.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be two million five hundred thousand (2,500,000) and shall consist of authorized but unissued or reacquired shares of Stock not reserved for any other purpose, or any combination thereof. 5.2 LAPSED AWARDS. If any Award granted under the Plan terminates, expires or lapses for any reason without having been exercised or settled in full, or if shares are reacquired pursuant to withholding, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company, any shares reacquired or subject to such lapsed Award again shall be available for issuance under the Plan. 5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any stock dividend, stock split, reverse stock split, recapitalization, merger, combination, exchange of shares, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, in the Section 162(m) Award Limits set forth in Section 3.3, and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to a Change in Control, as defined in Section 10.3) shares of another corporation (the "NEW SHARES"), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to outstanding Awards and the exercise price per share of outstanding Options shall be adjusted in a fair and equitable manner as determined by the Committee, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 5.3 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Committee pursuant to this Section 5.3 shall be final, binding and conclusive. SECTION 6. STOCK OPTIONS 6.1 GRANT OF OPTIONS. Subject to the provisions of Sections 1.3 and 5, Options (other than pursuant to a Director Fee Award) may be granted to Participants at any time and from time to time as shall be determined by the Committee. Each Option shall be evidenced by an Option Agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, and such other provisions as the Committee shall determine. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements may incorporate all or any of the terms of the Plan by reference and, except as otherwise set forth in Section 9 with respect to a Nonemployee Director Option, shall comply with and be subject to the terms and conditions set forth in Sections 6.2 through 6.6 below. 8 14 6.2 EXERCISE PRICE. The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share for an Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, (b) the exercise price per share for a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option, and (c) no Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 6.3 EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee or prospective Director may become exercisable prior to the date on which such person commences Service. Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option. 6.4 PAYMENT OF EXERCISE PRICE. The purchase price of Stock upon exercise of any Option shall be paid in full by such methods as shall be permitted by the Committee or as provided in a Participant's Option Agreement, which need not be the same for all Participants, and subject to the following: (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) provided that the Participant is an Employee, by cash for a portion of the aggregate exercise price not less than the par value of the shares being acquired and the Participant's promissory note in a form approved by the Company for the balance of the aggregate exercise price, (v) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Committee may at any time or from time to time grant 9 15 Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. The proceeds from payment of the Option exercise prices shall be added to the general funds of the Company and shall be used for general corporate purposes. (b) LIMITATIONS ON FORMS OF CONSIDERATION. (i) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Committee, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (ii) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (iii) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Committee shall determine at the time the Option is granted. The Committee shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Committee, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.5 EFFECT OF TERMINATION OF SERVICE. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee in the grant of an Option and set forth in the Option Agreement, an Option shall be exercisable after a Participant's termination of Service as follows: (i) DEATH OR DISABILITY. If the Participant's Service is terminated by reason of the death or Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant's Service terminated, may be exercised by the Participant (or the Participant's guardian or legal representative or other person who acquired the right to exercise the Option by reason of the Participant's death) at any time prior to the 10 16 expiration of six (6) months (or such longer period of time as determined by the Committee, in its discretion) after the date on which the Participant's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE"). If an Option intended to be an Incentive Stock Option is exercised by a Participant more than three (3) months following the Participant's termination of Service by reason of a Disability which is not a "permanent and total disability" as defined in Section 22(e)(3) of the Code, such exercise will be treated as the exercise of a Nonstatutory Stock Option to the extent required by Section 422 of the Code. The Participant's Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant's termination of Service. (ii) RETIREMENT. If the Participant's Service is terminated by reason of the Retirement of the Participant, the Option may be exercised at such time (but in any event no later than the Option Expiration Date) and in such amounts as shall be determined by the Committee at the time of grant of the Option and set forth in the Option Agreement. (iii) TERMINATION FOR CAUSE. Notwithstanding any other provision of the Plan to the contrary, if the Participant's Service is terminated for Cause, as defined below, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. For purposes of this subsection, "CAUSE" shall mean any of the following: (1) the Participant's theft, dishonesty, or falsification of any Participating Company documents or records; (2) the Participant's repeated failure to report to work during normal hours, other than for customarily excused absences for personal illness or other reasonable cause; (3) the Participant's conviction (including any plea of guilty or nolo contendere) of theft or felony; (4) the Participant's wrongful disclosure of a Participating Company's trade secrets or other proprietary information; (5) any other dishonest or intentional action by the Participant which has a detrimental effect on a Participating Company; or (6) the Participant's habitual and repeated nonperformance of the Participant's duties. (iv) OTHER TERMINATION OF SERVICE. If the Participant's Service terminates for any reason, except death, Disability, Retirement or termination for Cause, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant's Service terminated, may be exercised by the Participant within thirty (30) days (or such longer period of time as determined by the Committee, in its discretion) after the date on which the Participant's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing (except Section 6.5(a)(iii)), if the exercise of an Option within the applicable time periods set forth in Section 6.5(a) is prevented by the provisions of Section 11.1 below regarding compliance with securities laws, the Option shall remain exercisable until thirty (30) days after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 11 17 (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing (except Section 6.5(a)(iii)), if a sale within the applicable time periods set forth in Section 6.5(a) of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant's termination of Service, or (iii) the Option Expiration Date. 6.6 TRANSFERABILITY OF OPTIONS. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant's guardian or legal representative. No Option shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable or transferable to the extent permitted by the Committee and set forth in the Option Agreement evidencing such Option. SECTION 7. RESTRICTED STOCK 7.1 GRANT OF RESTRICTED STOCK. Subject to the provisions of Sections 1.3 and 5, Awards of Restricted Stock may be granted to Participants at any time and from time to time as shall be determined by the Committee, including, without limitation, upon the attainment of one or more Performance Goals as described in Section 8.4. If either the grant of Restricted Stock or the lapsing of the Period of Restriction is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 8.3 through 8.5. Shares of Restricted Stock shall be issued for no consideration other than services rendered. Each grant of Restricted Stock shall be evidenced by a Restricted Stock Agreement that shall specify the number of shares of Stock subject to and the other terms, conditions and restrictions of such Award as the Committee shall determine. No Restricted Stock Award or purported Restricted Stock Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Restricted Stock Agreement. Restricted Stock Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions set forth in Sections 7.2 through 7.6 below. 7.2 NONTRANSFERABILITY DURING PERIOD OF RESTRICTION. During such period beginning on the date of grant of a Restricted Stock Award as may be established by the Committee (the "PERIOD OF RESTRICTION"), no shares of such Restricted Stock may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, except by will or the laws or descent and distribution. The Committee, in its discretion, may provide for the lapse of the Period of Restriction, in full or in installments, at such time or times, upon such event or events, or upon satisfaction of such conditions or performance criteria (including, without limitation, Performance Goals as described in Section 8.4) as the Committee may establish and set forth in the Restricted Stock Agreement evidencing the Award. All rights with respect to Restricted Stock granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant. 7.3 OTHER RESTRICTIONS. The Committee may impose such other restrictions on any shares of Restricted Stock granted hereunder as it may deem advisable, including, without 12 18 limitation, restrictions under applicable Federal securities law and under any blue sky or state securities laws applicable to such shares, and may legend the certificates representing the Restricted Stock to give appropriate notice of such restrictions. 7.4 VOTING RIGHTS. During the Period of Restriction, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares. 7.5 DIVIDENDS AND OTHER DISTRIBUTION. During the Period of Restriction, Participants holding shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares while they are so held. If any such dividends or distributions are paid in shares of stock, the shares shall be subject to the same restrictions on transferability pursuant to Section 7.2 as the shares of Restricted Stock with respect to which they were paid. 7.6 EFFECT OF TERMINATION OF SERVICE. Unless otherwise provided by the Committee in the grant of a Restricted Stock Award and set forth in the Restricted Stock Agreement, the effect of a Participant's termination of Service on his or her Restricted Stock Award shall be as follows: (a) DEATH OR DISABILITY. If the Participant's Service is terminated by reason of the death or Disability of the Participant during the Period of Restriction, the restrictions applicable to the shares of Restricted Stock pursuant to Section 7.2 shall terminate automatically with respect to all such shares. (b) RETIREMENT. If the Participant's Service is terminated by reason of the Retirement of the Participant during the Period of Restriction, then the restrictions applicable to the shares of Restricted Stock pursuant to Section 7.2 shall terminate automatically with respect to that number of shares (rounded to the nearest whole number) equal to (i) the number of shares of Restricted Stock granted to the Participant multiplied by (ii) the number of full months which have elapsed since the effective date of grant of the Award divided by the maximum number of full months of the Period of Restriction. All remaining shares of Restricted Stock shall be forfeited and automatically reacquired by the Company. (c) OTHER TERMINATION OF SERVICE. If the Participant's Service terminates during the Period of Restriction for any reason except death, Disability or Retirement, any shares of Restricted Stock still subject to restrictions pursuant to Section 7.2 at the date of such termination shall be forfeited and automatically reacquired by the Company; provided, however, that, in the event of an involuntary termination of the Participant's Service, the Committee, in its sole discretion, may waive the automatic forfeiture of any or all such shares and/or add such new restrictions to such shares of Restricted Stock as it deems appropriate. SECTION 8. PERFORMANCE SHARES AND PERFORMANCE UNITS 8.1 GRANT OF PERFORMANCE SHARES OR PERFORMANCE UNITS. Subject to the provisions of Sections 1.3 and 5, the Committee, at any time and from time to time, may grant Awards of Performance Shares or Performance Units to such Participants and in such amounts as it shall 13 19 determine. Each grant of a Performance Share or Performance Unit Award shall be evidenced by a Performance Share Agreement or a Performance Unit Agreement that shall specify the number of Performance Shares or Performance Units subject thereto, the value of each Performance Share or Performance Unit, the Performance Goals and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award as the Committee shall determine. No Performance Share or Performance Unit Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Performance Share and Performance Unit Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions set forth in Sections 8.2 through 8.10 below. 8.2 VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS. Unless otherwise provided by the Committee in granting an Award, each Performance Share shall have an initial value equal to the Fair Market Value of a share of Stock on the effective date of grant of the Performance Share and each Performance Unit shall have an initial value of one hundred dollars ($100). The ultimate value of a Performance Share or Performance Unit to the Participant will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee. 8.3 ESTABLISHMENT OF PERFORMANCE GOALS AND PERFORMANCE PERIOD. The Committee, in its discretion, shall establish the Performance Period applicable to each Performance Share or Performance Unit Award. Prior to the commencement of the applicable Performance Period, or such later date as may be permitted with respect to "performance-based compensation" under Section 162(m), the Committee shall establish one or more Performance Goals which, when measured at the end of the Performance Period, shall determine the ultimate value of the Award to be paid to the Participant. Once established, the Performance Goals shall not be changed during the Performance Period. 8.4 MEASUREMENT OF PERFORMANCE GOALS. Performance Goals shall be established by the Committee on the basis of targets to be attained ("PERFORMANCE TARGETS") with respect one or more measures of business or financial performance (each, a "PERFORMANCE MEASURE"). Performance Measures shall have the same meanings as used in the Company's financial statements, or if such terms are not used in the Company's financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company's industry. Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the ultimate value of a Performance Share or Performance Unit Award determined by the level attained. Performance Targets may be absolute or relative to a standard selected by the Committee. Performance Measures shall be calculated with respect to the Company and each Parent Corporation and Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit thereof as may be selected by the Committee. For purposes of the Plan, the Performance Measures applicable to an Award shall be calculated before the effect of changes in accounting standards, restructuring charges and similar extraordinary items, determined according to criteria established by the Committee, occurring after the establishment of the Performance Goals applicable to an Award. Performance Measures may be one or more of the following as 14 20 determined by the Committee: (a) revenue, (b) operating income, (c) pre-tax profit, (d) net income, (e) gross margin, (f) operating margin, (g) earnings per share, (h) return on stockholder equity, (i) return on capital, (j) return on net assets, (k) economic value added and (1) cash flow. 8.5 DETERMINATION OF VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS. As soon as practicable following the completion of the Performance Period for each Performance Share and Performance Unit Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting value of the Award earned by the Participant and to be paid upon its settlement in accordance with the terms of the Award Agreement. The Committee shall have no discretion to increase the value of an Award payable upon its settlement in excess of the amount called for by the terms of the Award Agreement on the basis of the degree of attainment of the Performance Goals as certified by the Committee. However, notwithstanding the attainment of any Performance Goal, if permitted under a Participant's Award Agreement evidencing a Performance Share or Performance Unit Award, the Committee shall have the discretion, on the basis of such criteria as may be established by the Committee, to reduce some or all of the value of an Award that would otherwise be paid upon its settlement. No such reduction may result in an increase in the amount payable upon settlement of another Participant's Award. As soon as practicable following the Committee's certification, the Company shall notify the Participant of the determination of the Committee. 8.6 DIVIDEND EQUIVALENTS. The Committee may, in its discretion, provide that any Performance Share shall include a right to Dividend Equivalents with respect to cash dividends paid on Stock for which the record date is prior to the date on which the Performance Share is settled or forfeited. Dividend Equivalents may be paid currently or may be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee. Settlement of Dividend Equivalents may be in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 8.7. Dividend Equivalents shall not be paid with respect to Performance Units. 8.7 FORM AND TIMING OF PAYMENT. Payment of the ultimate value of a Performance Share or Performance Unit Award earned by a Participant as determined following the completion of the applicable Performance Period pursuant to Sections 8.5 and 8.6 may be made in cash, shares of Stock, or a combination thereof as determined by the Committee. Payments in shares of Stock shall be determined by the Fair Market Value of a share of Stock on the last day of such Performance Period. Payment may be made in a lump sum or installments as prescribed by the Committee. If any payment is to be made on a deferred basis, the Committee may, but shall not be obligated to, provide for the payment of Dividend Equivalents or interest during the deferral period. 8.8 RESTRICTIONS APPLICABLE TO PAYMENT IN SHARES. Shares of Stock issued in payment of any Performance Share or Performance Unit Award may be fully vested and freely transferable shares or may be shares of Restricted Stock subject to a Period of Restriction as provided in Section 7.2. Any such shares of Restricted Stock shall be evidenced by a Restricted 15 21 Stock Agreement and shall be subject to the terms and conditions set forth in Sections 7.2 through 7.6 above. 8.9 EFFECT OF TERMINATION OF SERVICE. Unless otherwise provided by the Committee in the grant of a Performance Share or Performance Unit Award and set forth in the Award Agreement, the effect of a Participant's termination of Service on his or her Performance Share or Performance Unit Award shall be as follows: (a) DEATH, DISABILITY OR RETIREMENT. If the Participant's Service is terminated by reason of the death, Disability or Retirement of the Participant while he or she is the holder of a Performance Share or Performance Unit Award but before the completion of the applicable Performance Period, the value of the Participant's Award shall be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and shall be prorated based on the number of months of the Participant's Service during the Performance Period. Payment shall be made following the end of the Performance Period in any manner permitted by Section 8.7. (b) OTHER TERMINATION OF SERVICE. If the Participant's Service terminates for any reason except death, Disability or Retirement before the completion of the Performance Period applicable to a Performance Share or Performance Unit Award held by such Participant, such Award shall be forfeited in its entirety; provided, however, that in the event of an involuntary termination of the Participant's Service, the Committee, in its sole discretion, may waive the automatic forfeiture of all or any portion of any such Award and provide for payment of such Award or portion thereof on the same basis as if the Participant's Service had terminated by reason of Retirement. 8.10 NONTRANSFERABILITY. No Performance Shares or Performance Units may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Shares and Performance Units granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant. SECTION 9. DIRECTOR FEE AWARDS 9.1 EFFECTIVE DATE AND DURATION OF THIS SECTION. This Section 9 shall become effective on the first day (the "SECTION 9 EFFECTIVE DATE") of the first calendar quarter beginning after the Effective Date, provided that elections pursuant to Section 9.2 may be made prior to the Section 9 Effective Date. This Section 9 shall continue in effect for the remainder of the calendar year commencing on the Section 9 Effective Date (the "INITIAL PLAN YEAR") and for each subsequent calendar year commencing during the term (as provided in Section 1.3) of the Plan (a "PLAN YEAR"). Notwithstanding any Participant's prior election pursuant to Section 9.2, no Director Fee Award shall be granted after termination of the Plan, and all Director Fees (as defined below) with respect to which Director Fee Awards have not been granted prior to termination of the Plan shall thereafter be paid in cash in accordance with the Company's normal Director Fee payment procedures. However, subject to compliance with applicable law as provided in Section 11, all Director Fee Awards granted prior to termination of the Plan shall 16 22 continue to be governed by and may be exercised or settled in accordance with the terms of the Plan and the Award Agreement evidencing such Director Fee Award. 9.2 MANDATORY AND ELECTIVE DIRECTOR FEE AWARDS. Except as otherwise provided below, each Nonemployee Director shall be granted one or more Director Fee Awards in lieu of payment in cash of fifty percent (50%) of such Participant's annual retainer fee, meeting fees and other compensation payable with respect to such Participant's service as a Director ("DIRECTOR FEES") during the Initial Plan Year and each subsequent Plan Year (or the portion of such Plan Year following an individual's initial appointment or election as a Nonemployee Director). In addition, each Participant may elect to receive Director Fee Awards in lieu of payment in cash of all or any portion of the remaining fifty percent (50%) of such Participant's Director Fees for the Initial Plan Year and each subsequent Plan Year or applicable portion thereof. For the Initial Plan Year and each subsequent Plan Year or applicable portion thereof, a Participant shall be entitled to elect one of the following alternative forms of payment of the value of the Participant's Director Fees: (a) OPTION PAYMENT. A minimum of fifty percent (50%), together with such additional portion, if any, elected by the Participant up to a maximum of one hundred percent (100%), of the Participant's Director Fees will be paid in the form of a Nonemployee Director Option (an "OPTION PAYMENT") and the balance will be paid in cash in accordance with the Company's normal Director Fee payment procedures. (b) STOCK UNITS PAYMENT. A minimum of fifty percent (50%), together with such additional portion, if any, elected by the Participant up to a maximum of one hundred percent (100%), of the Participant's Director Fees will be paid in the form of Stock Units (a "STOCK UNITS PAYMENT") and the balance will be paid in cash in accordance with the Company's normal Director Fee payment procedures. In connection with an election to receive a Stock Units Payment, the Participant may elect an "Early Settlement Date" (as defined below) upon which the Stock Units will be settled in accordance with Section 9.6(d); provided, however, that upon termination of the Participant's Service as a Director prior to the Early Settlement Date, settlement shall be made as provided in Section 9.6(d). Any "EARLY SETTLEMENT DATE" elected by the Participant shall become irrevocable as provided in Section 9.3(b) and shall be December 1 of the third Plan Year following the Plan Year of the Stock Units Payment or December 1 of any subsequent Plan Year. 9.3 TIME AND MANNER OF ELECTION. (a) TIME OF ELECTION. Each Nonemployee Director shall make an election pursuant to Section 9.2: (i) for the Initial Plan Year: prior to the earlier of (1) the date thirty (30) days following the Effective Date or (2) the Section 9 Effective Date; (ii) for each subsequent Plan Year: prior to the first day of such Plan Year; and 17 23 (iii) in the case of a newly appointed or elected Nonemployee Director: on the date of such appointment or election for the remainder of the Initial Plan Year or subsequent Plan Year of appointment or election, as the case may be. (b) ELECTION IRREVOCABLE. An election pursuant to Section 9.2 shall become irrevocable as of the commencement of the Plan Year or portion thereof to which it applies. (c) FAILURE TO TIMELY ELECT. Any Nonemployee Director who fails to make an election in accordance with this Section for any Plan Year (or the Initial Plan Year, as the case may be) shall be deemed to have elected pursuant to Section 9.2 to receive Option Payments for fifty (50%) of the value of such Participant's Director Fees earned during such Plan Year (or Initial Plan Year) and to receive the balance of such Participant's Director Fees in cash in accordance with the Company's normal Director Fee payment procedures. (d) MANNER OF ELECTION. Each election in accordance with this Section shall be made on a form prescribed by the Company for this purpose and filed with the Chief Financial Officer of the Company. 9.4 AUTOMATIC GRANT OF DIRECTOR FEE AWARDS. Subject to the provisions of Sections 1.3 and 5, effective as of the last day of each quarter during any Plan Year (or the Initial Plan Year, as the case may be), each Nonemployee Director shall be granted automatically and without further action of the Committee a Director Fee Award in lieu of that portion of the Director Fees earned by the Participant during such quarter and specified by the Participant's election under Section 9.2 for such Plan Year (or Initial Plan Year) and any fractional share amount carried over from the prior quarter as provided in Section 9.7 (the "QUARTERLY DIRECTOR FEES"). In accordance with the Participant's election under Section 9.2 for the Plan Year (or Initial Plan Year), the Director Fee Award shall be either in the form of an Option Payment pursuant to Section 9.5 or a Stock Units Payment pursuant to Section 9.6. 9.5 OPTION PAYMENT. Each Option Payment shall be in the form of a Nonemployee Director Option and shall be evidenced by a Nonemployee Director Option Agreement that shall specify the exercise price, the duration of the Nonemployee Director Option, the number of shares of Stock to which the Nonemployee Director Option pertains, and such other provisions as the Committee shall determine. No such Nonemployee Director Option or purported Nonemployee Director Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Nonemployee Director Option Agreement. Nonemployee Director Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions of Section 6 to the extent not inconsistent with this Section and the terms and conditions set forth in Sections 9.5(a) through 9.5(d) below: (a) EXERCISE PRICE. The exercise price per share for each Nonemployee Director Option shall be fifty percent (50%) of the average of the Fair Market Values of a share of Stock for the ten (10) trading days preceding the effective date of grant of the Nonemployee Director Option. 18 24 (b) NUMBER OF SHARES SUBJECT TO NONEMPLOYEE DIRECTOR OPTION. The number of shares of Stock subject to a Nonemployee Director Option shall be determined by the following formula (with any resulting fractional share being disregarded): X = A / (B x 50%) where, X is the number of shares subject to the Nonemployee Director Option; A is the amount of Quarterly Director Fees in lieu of which the Option Payment is made; and B is the average of the Fair Market Values of a share of Stock for the ten (10) trading days preceding the effective date of grant of the Nonemployee Director Option. (c) EXERCISE PERIOD. Each Nonemployee Director Option shall be vested and exercisable on and after the date of grant of the Nonemployee Director Option and shall terminate and cease to be exercisable on the date ten (10) years after the date of grant of the Nonemployee Director Option, unless earlier terminated pursuant to the terms of the Plan or the Nonemployee Director Option Agreement. (d) EFFECT OF TERMINATION OF SERVICE. (i) NONEMPLOYEE DIRECTOR OPTION GRANT. No Participant shall be granted a Nonemployee Director Option following the date on which such Participant's Service as a Director terminates for any reason. All of such Participant's Director Fees with respect to which Director Fee Awards have not been granted prior to the Participant's termination of Service as a Director shall be paid in cash in accordance with the Company's normal Director Fee payment procedures. (ii) NONEMPLOYEE DIRECTOR OPTION EXERCISABILITY. Subject to earlier termination as otherwise provided herein, a Nonemployee Director Option shall remain exercisable after a Participant's termination of Service at any time prior to the expiration of twelve (12) months after the date on which the Participant's Service terminated, but in any event no later than the Option Expiration Date. (iii) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of a Nonemployee Director Option within the applicable time period set forth in Section 9.5(d)(ii) is prevented by the provisions of Section 11.1 below, the Nonemployee Director Option shall remain exercisable until thirty (30) days after the date the Participant is notified by the Company that the Nonemployee Director Option is exercisable, but in any event no later than the Option Expiration Date. 19 25 (iv) EXTENSION IF PARTICIPANT SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time period set forth in Section 9.5(d)(ii) of shares acquired upon the exercise of the Nonemployee Director Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant's termination of Service, or (iii) the Option Expiration Date. 9.6 STOCK UNITS PAYMENT. Each Stock Units Payment shall be evidenced by a Stock Units Agreement that shall specify the number of Stock Units to which such agreement pertains, the form and time of settlement of such Stock Units and such other provisions as the Committee shall determine. No such Stock Units Award or purported Stock Units Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Stock Units Agreement. Stock Units Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions set forth in Sections 9.6(a) through 9.6(f) below: (a) PAYMENT. No additional cash consideration shall be required upon settlement of a Stock Units Award. (b) NUMBER OF STOCK UNITS SUBJECT TO STOCK UNITS AWARD. The number of Stock Units subject to a Stock Units Award shall be determined by the following formula (with any resulting fractional Stock Unit being disregarded): X = A / B where, X is the number of Stock Units subject to the Stock Units Award; A is the amount of Quarterly Director Fees in lieu of which the Stock Units Payment is made; and B is the average of the Fair Market Values of a share of Stock for the ten (10) trading days preceding the effective date of grant of the Stock Units Award. (c) VOTING AND DIVIDEND EQUIVALENT RIGHTS. Participants shall have no voting rights with respect to shares of Stock represented by Stock Units until the date of the issuance of a certificate for such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). Prior to settlement of a Stock Units Award, such Award shall include the right to Dividend Equivalents, pursuant to which the Participant shall be credited with additional whole and/or fractional Stock Units as of the record date of any payment of cash dividends with respect to the Stock occurring prior to such settlement date. Such additional Stock Units shall be subject to the same terms and 20 26 conditions and shall be settled in the same manner and at the same time as the Stock Units originally subject to the Stock Units Award. The number of such whole and/or fractional Stock Units to be credited with respect to any Stock Units Award on the record date of any cash dividend paid on the Stock shall be determined by the following formula: X = (A x B) / C where, X is the number of whole and/or fractional Stock Units to be credited with respect to the Stock Units Award; A is the amount of cash dividends paid on one share of Stock; B is the number of whole and fractional Stock Units subject to the Stock Units Award as of the cash dividend record date; and C is the Fair Market Value of a share of Stock on the cash dividend record date. (d) SETTLEMENT OF STOCK UNITS. Subject to the provisions of Section 11.1 below, the Company shall issue to the Participant, within thirty (30) days following the earlier of (i) the Early Settlement Date elected by the Participant with respect to the Stock Units Award or (ii) the date of termination of the Participant's Service as a Director, a number of whole shares of Stock equal to the number of whole Stock Units subject to the Stock Units Award. Such shares of Stock shall not be subject to any restriction on transfer other than any such restriction as may be required pursuant to Section 11.1 or any applicable law, rule or regulation. On the same settlement date, the Company shall pay to the Participant cash in lieu of any fractional Stock Unit subject to the Stock Units Award in an amount equal to the Fair Market Value on the settlement date of such fractional share of Stock. (e) EFFECT OF TERMINATION OF SERVICE. No Participant shall be granted a Stock Units Award following the date on which such Participant's Service as a Director terminates for any reason. All of such Participant's Director Fees with respect to which Director Fee Awards have not been granted prior to the Participant's termination of Service as a Director shall be paid in cash in accordance with the Company's normal Director Fee payment procedures. (f) NONTRANSFERABILITY OF STOCK UNITS. Prior to their settlement pursuant to Section 9.6(d), no Stock Units granted to a Participant shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant's beneficiary, except by will or by the laws of descent and distribution. 9.7 FRACTIONAL SHARES. No fractional shares of Stock shall be issued upon the exercise of any Nonemployee Director Option or settlement of any Stock Units. Any portion of 21 27 a Participant's Quarterly Director Fees subject to the Participant's election under Section 9.2 representing a fractional share amount that would otherwise be paid in the form of an Option Payment or a Stock Units Payment shall instead be carried over and combined with the Quarterly Director Fees for the following quarter of the Plan Year (or Initial Plan year, as the case may be) or the subsequent Plan Year. Any such fractional share amount remaining upon termination of a Participant's Service as a Director shall be paid to the Participant in cash, without interest. SECTION 10. CHANGE IN CONTROL 10.1 EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control of the Company as defined in Section 10.3 below, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall either assume all outstanding Awards or substitute new Awards having an equivalent value for such outstanding Awards. In the event the Acquiring Corporation elects not to assume or substitute for such outstanding Awards, and provided that the Participant's Service has not terminated prior to the effective date of the Change in Control (unless, with respect to Performance Shares or Performance Units, the Participant's Service terminated by reason of the death, Disability or Retirement of the Participant), all unexercisable, unvested or unpaid portions of such outstanding Awards shall become immediately exercisable, immediately payable and vested in full immediately prior to the effective date of the Change in Control. For purposes of the preceding sentence: (a) the value of Performance Shares and Performance Units shall be determined and paid based upon the greater of (i) the extent to which the applicable Performance Goals have been attained during the Performance Period up to the effective date of the Change in Control or (ii) the pre-established 100% of target level with respect to each Performance Target comprising the applicable Performance Goals; (b) any outstanding Stock Units Award not assumed or substituted for by the Acquiring Corporation shall be settled in accordance with Section 9.6(d) immediately prior to the effective date of the Change in Control; and (c) any Director Fees with respect to which the Company has not made either an Option Payment or a Stock Units Payment pursuant to Section 9 prior to the effective date of the Change in Control shall be paid in cash immediately prior to such effective date. Any Options which are neither assumed or substituted for by the Acquiring Corporation nor exercised as of the date of the Change in Control shall terminate as of the effective date of the Change in Control. 10.2 TERMINATION OF SERVICE AFTER A CHANGE IN CONTROL. The Committee may, in its discretion, provide in any Award Agreement that if the Participant's Service is terminated within twelve (12) months (or such other period specified by the Committee) following a Change in Control by reason of (a) the involuntary termination by the Participating Company Group of the Participant's Service for any reason other than "Cause" (as such term is defined in the Award Agreement) or the Participant's death or Disability, or (b) the Participant's resignation for "Good 22 28 Reason" (as such term is defined in the Award Agreement) from all capacities in which the Participant is then rendering Service to the Participating Company Group, then (i) the exercisability, vesting and payment of the outstanding Award held by such Participant shall be accelerated effective as of the date on which the Participant's Service terminated to such extent, if any, as shall have been specified by the Committee and set forth in the Award Agreement, and (ii) the outstanding Option held by such Participant, to the extent unexercised and exercisable on the date on which the Participant's Service terminated, may be exercised by the Participant (or the Participant's guardian or legal representative) at any time prior to the expiration of six (6) months (or such other period of time specified by the Committee) after the date on which the Participant's Service terminated, but in any event no later than the Option Expiration Date. 10.3 DEFINITION. A "CHANGE IN CONTROL" shall be deemed to have occurred in the event of: (a) an acquisition, consolidation, or merger of the Company with or into any other corporation or corporations, unless the stockholders of the Company retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the surviving or acquiring corporation or corporations; or (b) the sale, exchange, or transfer of all or substantially all of the assets of the Company to a transferee other than a corporation or partnership controlled by the Company or the stockholders of the Company; or (c) a transaction or series of related transactions in which stock of the Company representing more than thirty percent (30%) of the outstanding voting power of the Company is sold, exchanged, or transferred to any single person or affiliated persons leading to a change of a majority of the members of the Board. The Board shall have final authority to determine whether multiple transactions are related and the exact date on which a Change in Control has been deemed to have occurred under subsections (a), (b), and (c) above. SECTION 11. REQUIREMENTS OF LAW 11.1 COMPLIANCE WITH SECURITIES LAW. The granting of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable laws, rules, and regulations, and to such approvals by any governmental agencies, securities exchanges or market systems as may be required. In addition, no Option may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not 23 29 have been obtained. As a condition to the issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 11.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of California. SECTION 12. TAX WITHHOLDING 12.1 TAX WITHHOLDING IN GENERAL. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy the Federal, state, local and foreign tax withholding obligations, if any, of any Participating Company with respect to any Award. The Company shall have no obligation to deliver shares of Stock or make any payment of cash under the Plan until such tax withholding obligations have been satisfied. 12.2 WITHHOLDING OF SHARES. To the extent permissible under applicable tax, securities, and other laws, the Company may, in its sole discretion, permit a Participant to satisfy all or a part of his or her tax withholding requirement by directing the Company to apply shares of Stock to which the Participant is entitled as a result of the exercise of an Option or the lapse of a Period of Restriction with respect to a Restricted Stock Award (including, for this purpose, the filing of an election under section 83(b) of the Code), or which would otherwise be issued to the Participant pursuant to an Award, to satisfy such requirement. Shares of Stock so applied shall be valued at their Fair Market Value on the date when the taxes otherwise would be withheld in cash. SECTION 13. AMENDMENT AND TERMINATION OF PLAN 13.1 AMENDMENT AND TERMINATION OF PLAN. The Committee at any time may terminate, and from time to time, may amend, the Plan; provided, however, that no such amendment may be made without approval of the stockholders of the Company to the extent that the Committee deems such stockholder approval to be necessary or advisable for compliance with applicable tax and securities laws or other regulatory requirements, including the requirements of any stock exchange or market system on which the Stock is then listed. 13.2 EFFECT OF AMENDMENT OR TERMINATION. No termination or amendment of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. In any event, no termination or amendment of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the consent of the Participant, unless such termination or amendment is necessary to comply with any applicable law, regulation or rule. SECTION 14. MISCELLANEOUS PROVISIONS 14.1 BENEFICIARY DESIGNATION. Each Participant may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of such Participant's death before he or she receives 24 30 any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to his or her estate. 14.2 RIGHTS AS AN EMPLOYEE OR DIRECTOR. No individual, even though eligible pursuant to Section 3, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee or Director, or interfere with or limit in any way the right of a Participating Company to terminate the Participant's Service at any time. 14.3 RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of a certificate for such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 5.3 or another provision of the Plan. 14.4 PROVISION OF INFORMATION. Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 14.5 UNFUNDED OBLIGATION. Any amounts payable to Participants pursuant to the Plan shall be unfunded obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant's creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan. 14.6 INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Committee or officers or employees of the Participating Company Group, members of the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted 25 31 hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing Granite Construction Incorporated 1999 Equity Incentive Plan was duly adopted by the Board on May 17, 1999. GRANITE CONSTRUCTION INCORPORATED /s/ Michael Futch ------------------------------------ Michael Futch, Secretary 26 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF INCOME, AND NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K, DECEMBER 31, 1999. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 61,832 46,245 212,833 1,224 12,823 402,321 603,267 360,354 679,572 258,664 64,853 0 0 270 327,462 679,572 1,328,774 1,328,774 1,149,573 1,149,573 0 0 8,791 86,043 33,127 52,916 0 0 0 52,916 2.03 1.96
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