-----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, TBwd9FyjKomFewD23R5ojgDUya7I7L6SA7McZkpbBqJfDNT9JvzE0w/Zx48z3Zy5 biWT1gO4wQEwH3U1CM/r6w== 0000950149-02-000591.txt : 20020415 0000950149-02-000591.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950149-02-000591 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 1934 Act SEC FILE NUMBER: 001-12911 FILM NUMBER: 02595103 BUSINESS ADDRESS: STREET 1: 585 WEST BEACH ST CITY: WATSONVILLE STATE: CA ZIP: 95076 BUSINESS PHONE: 8317241011 MAIL ADDRESS: STREET 1: 585 WEST BEACH ST CITY: WATSONVILLE STATE: CA ZIP: 95076 10-K 1 f79324e10-k.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOGO 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, 2001 [ ] 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) 585 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 $800,536,786 as of March 19, 2002 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 19, 2002, 41,046,642 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 20, 2002, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE NO. ---- PART I Item 1. BUSINESS.................................................... 2 Item 2. PROPERTIES.................................................. 9 Item 3. LEGAL PROCEEDINGS........................................... 9 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS......................................... 10 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA........................ 11 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 12 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 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 24 Item 11. EXECUTIVE COMPENSATION...................................... 24 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 24 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 24 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................................... 25
1 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, 2001 backlog expected to be completed in 2002, 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; the availability and pricing of fuel and energy 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 2001 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, serving both public and private sector clients. Within the public sector, the Company primarily 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 diversification in both the public and private sectors and its 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 122 construction materials processing plants. The Company also has one of the largest contractor owned heavy construction 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 Company is organized into two operating segments, the Branch Division and the Heavy Construction Division. The Branch Division is comprised of branch offices that serve local markets, while the Heavy Construction Division ("HCD") is composed of regional offices and pursues major infrastructure projects throughout the nation. For reporting purposes, the activities of Intermountain Slurry Seal, Inc. and Granite Halmar Construction Company, Inc., both wholly owned subsidiaries of Granite Construction Incorporated, are included in the operating results of the Branch Division and HCD, respectively. HCD focuses on building larger heavy civil projects with contract durations that are frequently greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. 2 The two divisions complement each other in a variety of ways. HCD 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 HCD with valuable local 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 HCD independently estimate, bid and complete contracts. Both divisions are supported by centralized functions, including finance, accounting, tax, human resources, labor relations, safety, legal, insurance, surety, corporate development and information technology. 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 items of work, 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, 2001, 2000 and 1999 is incorporated in Note 15 of the "Notes to the Consolidated Financial Statements," located on page F-19 of this Annual Report on Form 10K. The Branch Division. In 2001, Branch Division contract revenue and sales of aggregate products were $1,083.7 million (70.0% of Company revenue) as compared with $1,010.9 million (75.0% of Company revenue) in 2000. 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 and commercial development, including excavation; grading and street paving; and installation of curbs, gutters, sidewalks and underground utilities. The Company currently has 11 branch offices with 16 satellite operations. The Company's branch offices in California are located in Bakersfield, Hanford (Central Valley), Watsonville (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 2001 these revenues ranged from $44 million to $170 million per branch. As part of the Company's strategy, substantially all 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. Approximately 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 $189.9 million of revenue in 2001, representing 12.3% of the Company's total 2001 revenue compared with $159.9 million or 11.9% of the Company's total 2000 revenue. The Company has significant aggregate reserves that it has acquired by ownership in fee or through long-term leases. Heavy Construction Division. In 2001, revenue from HCD was $464.3 million (30.0% of Company revenue) as compared with $337.4 million (25.0% of Company revenue) in 2000. HCD projects are usually 3 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, reclamation and large site preparation. It also performs activities such as demolition, clearing, excavation, de-watering, drainage, embankment fill, structural concrete and concrete and asphalt paving. The division markets, estimates, bids and provides management overview of its projects from its Watsonville, California headquarters and regional estimating offices in New York, 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 for construction, design/build projects provide the owner with a single point of responsibility and a single contact for both design and construction. Past design/build projects have included projects in California such as the SR-91 Tollway which was completed in 1995 and the San Joaquin Hills Transportation Corridor which was completed in 1996, the I-17 rebuild in Arizona and a tollway in Texas -- both of which were completed in 2000 and the I-15 rebuild in Salt Lake City, Utah and the Atlantic City/Brigantine Connector in New Jersey, which were completed in 2001. Ongoing projects include the Hathaway Bridge Replacement in Panama City, Florida, the Hiawatha Light Rail in Minnesota, and the Las Vegas Monorail in Nevada. The Company frequently bids design/build projects as part of a joint venture team. On July 1, 2001 the Company acquired 100% of the common stock of Halmar Builders of New York, Inc., a Mt. Vernon, New York heavy-civil construction company ("Halmar"). The new entity operates under the name Granite Halmar Construction Company, Inc. ("Granite Halmar") as a wholly owned subsidiary of Granite Construction Incorporated. Granite Halmar is one of the largest heavy civil construction companies operating in the metropolitan New York City area. Granite Halmar's major clients include the Port Authority of New York, the City of New York, the New York Department of Transportation and various transit authorities in the greater New York City area. INVESTMENT IN WILDER CONSTRUCTION COMPANY The Company entered into an agreement to purchase common stock of Wilder Construction Company ("Wilder") in 1999. Founded in 1911, Wilder is a heavy civil construction company with regional offices located in Washington, Oregon and Alaska. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in April 2002 and to 75% in 2004. The Company held a 39% minority interest in Wilder as of December 31, 2000 and increased its interest to 48% during the year ended December 31, 2001. INVESTMENT IN T.I.C. HOLDINGS, INC. The Company currently holds a 27% minority interest in T.I.C. Holdings, Inc. ("TIC"). In April 2000, the Company finalized an agreement with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement, TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. This will allow TIC to retain its independence while allowing both companies to maintain their strategic alliance. 4 BUSINESS STRATEGY Granite's fundamental objective is to increase long-term shareholder value by focusing on consistent profitability from controlled revenue growth. Shareholder value is measured by the appreciation of the value of Granite stock over a period of years as well as 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: Infrastructure 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. Employee Development -- Granite recognizes that its employees are the key to successful implementation of its business strategies. Significant resources are employed to attract, nurture and retain extraordinary talent and fully develop each employee's capabilities. Ownership of Aggregate Materials and Construction Equipment -- Granite owns aggregate reserves and processing plants which are vertically integrated into its construction operations and a large fleet of carefully maintained heavy construction equipment. By ensuring availability of these resources at favorable cost, it believes it has significant bidding advantages in many of its markets. Granite is continually evaluating other opportunities to develop, acquire or invest in businesses that are a part of the construction value chain. 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 to which margin is added to achieve the appropriate bid price for the risk assumed. 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 as well as the Heavy Construction Division is an individual profit center. 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. 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 related 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. 5 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 most significant customer is the California Department of Transportation. In 2001, contracts with the California Department of Transportation represented 14.4% 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 several states. (See Note 2 of Notes to Consolidated Financial Statements.) BACKLOG The Company's backlog (anticipated revenue from uncompleted portions of existing contracts) was $1,377.2 million at December 31, 2001, up from $1,120.5 million at December 31, 2000, and was $793.3 million at December 31, 1999. Approximately $500.0 million of the December 31, 2001 backlog is expected to remain at December 31, 2002. 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. 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 2001 and 2000, the Company spent approximately $57.6 million and $48.6 million, respectively, for construction equipment, plants and vehicles. The breakdown of the Company's construction equipment, plants and vehicles at December 31, 2001 is as follows: Heavy construction equipment................................ 2,189 units Trucks, truck-tractors and trailers and vehicles............ 3,859 units Aggregate crushing plants................................... 41 plants Asphalt concrete plants..................................... 45 plants Portland cement concrete batch plants....................... 23 plants Thermal soil remediation plants............................. 1 plant Asphalt rubber plants....................................... 4 plants Lime slurry plants.......................................... 8 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. The Company regularly leases or rents equipment on a short-term basis to supplement existing equipment and respond to construction activity peaks. 6 EMPLOYEES On December 31, 2001 Granite employed 1,467 salaried employees, who work in management, estimating and clerical capacities, and 3,317 hourly employees. The total number of hourly personnel employed by the Company is subject to the volume of construction in progress. During 2001, the number of hourly employees ranged from 2,394 to 5,117 and averaged approximately 3,900. The Company's wholly owned subsidiaries, Granite Construction Company and Granite Halmar Construction Company are parties to craft collective bargaining agreements in many areas in which they work. 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 26.2% equity ownership through the Employee Stock Ownership Plan ("ESOP"), the Profit Sharing and 401k Plan and performance-based incentive compensation arrangements at December 31, 2001. The Company's 601 managerial and supervisory personnel have an average of 10 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 project management 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 A significant portion of the Company's revenue is derived from contracts that are "fixed unit price" 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. Other contracts, including most design-build contracts, are priced on a lump-sum basis under which the Company bears the risk that it may not be able to perform all the work for the specified amount. The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local government agencies and private parties. Less frequently, contracts may be obtained through direct negotiation with private contract owners. 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 bid to the extent contract remedies are unavailable, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, the accuracy of the original bid and inclement weather. Design-build projects carry other risks such as design error risk, scope of work and quantities of materials. 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 most of the Company's other contracts provide for termination of the contract for the convenience of the party contracting with the Company, with provisions to pay the Company for work performed through the date of termination. 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. 7 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 that 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 external factors including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of the Company's backlog that is currently bonded and their current underwriting standards, which may change from time to time. The Company has been bonded by the same surety for more than 75 years and has never been refused a bond. The inability to obtain surety bonds would have a material adverse effect on the Company's business. GOVERNMENT AND ENVIRONMENTAL 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 and affirmative action. Additionally, the Company's aggregate mining and construction materials processing plants are subject to various federal, state and local laws and regulations relating to the environment, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Certain environmental laws impose substantial penalties for non-compliance and others, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances. The Company continually evaluates whether it must take additional steps at its locations to ensure compliance with environmental laws. While compliance with applicable regulatory requirements has not adversely affected the Company's operations in the past, 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. Since December 2001, three private citizens groups have served thousands of California businesses with 60-day notices of intent to sue under the California Safe Drinking Water and Toxic Enforcement Act ("Prop 65"). Granite was one of the many aggregate, hot mix asphalt and asphalt producers, suppliers and contractors that were served with Prop. 65 60-day notices. Prop 65 requires warnings to persons knowingly and intentionally exposed to certain chemicals designated by the State as causing cancer and/or reproductive toxicity. Although the 60-day notices that were served on Granite and many others listed various Prop 65 chemicals that are allegedly constituents of petroleum asphalt emissions and listed crystalline silica, the 60-day notices contained no factual basis to support the general allegations that Granite knowingly and intentionally exposed persons to Prop 65 listed-chemicals without 8 providing adequate Prop 65 warnings. And, while the statutory scheme underlying Prop 65 allows the State Attorney General or local city or district attorney to pursue actions against alleged violators of Prop 65's warning requirements, and allows private parties to pursue actions if the government fails to intervene, Granite is not currently the subject of any lawsuit alleging Prop 65 violations. Moreover, the Company has, through safety information sheets, posted Prop 65 warnings, and through other means, communicated what it believes to be appropriate warnings and cautions to employees and customers about the risks associated with excessive, prolonged inhalation of emissions generated by substances used by the Company and covered by Prop 65. 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 468,000 square feet of office and shop space and leases, pursuant to leases expiring between March 2002 and May 2006, an additional 94,000 square feet of office and shop space. The Company owns approximately 10,900 acres of land of which 1,500 acres are un-permitted reserves available for future use and leases approximately 4,500 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 December 2002 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, 2001. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- David H. Watts........................ 63 Chairman of the Board, President, Chief Executive Officer and Director William G. Dorey...................... 57 Executive Vice President and Chief Operating Officer William E. Barton..................... 57 Senior Vice President and Chief Financial Officer Patrick M. Costanzo................... 63 Senior Vice President and Manager, Heavy Construction Division Mark E. Boitano....................... 53 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. 9 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. He served as a director of Wilder Construction from January 2000 to May 2001. 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 a Past Chair of the California Chamber of Commerce and serves as a Director of this and several other non-profit organizations. 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. 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 and Chief Financial Officer 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. 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. In 2001 Mr. Boitano became a director of Wilder Construction Company. 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. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the New York Stock Exchange under the ticker symbol GVA. 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. 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 19, 2002 there were 41,046,642 shares of common stock outstanding held by approximately 825 stockholders of record. 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated operations data for 2001, 2000 and 1999 and consolidated balance sheet data as of December 31, 2001 and 2000 set forth below have been derived from consolidated financial statements of the Company, and are qualified by reference to our consolidated financial statements included herein audited by PricewaterhouseCoopers LLP, independent accountants. The selected consolidated statement of income data for 1991 through 1998 and the consolidated balance sheet data as of December 31, 1991 through 1999 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.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------ SELECTED CONSOLIDATED FINANCIAL DATA 2001 2000 1999 1998 1997 1996 1995 - ------------------------------------ ---------- ---------- ---------- ---------- ---------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING SUMMARY Revenue............................. $1,547,994 $1,348,325 $1,328,774 $1,226,100 $1,028,205 $928,799 $894,796 Gross profit........................ 183,616 190,618 179,201 153,092 111,730 110,655 111,963 As a percent of revenue............. 11.9% 14.1% 13.5% 12.5% 10.9% 11.9% 12.5% General and administrative expenses.......................... 119,282 105,043 94,939 83,834 73,593 71,587 69,610 As a percent of revenue............. 7.7% 7.8% 7.1% 6.8% 7.2% 7.7% 7.8% Income before cumulative effect of change in accounting principle*... 50,528 55,815 52,916 46,507 27,832 27,348 28,542 Net income.......................... 50,528 55,815 52,916 46,507 27,832 27,348 28,542 As a percent of revenue............. 3.3% 4.1% 4.0% 3.8% 2.7% 2.9% 3.2% Income per share before cumulative effect of change in accounting principle:** Basic............................... $ 1.27 $ 1.41 $ 1.35 $ 1.17 $ .70 $ .70 $ .73 Diluted............................. 1.24 1.38 1.31 1.13 .69 .68 .72 Net income per share: Basic............................... $ 1.27 $ 1.41 $ 1.35 $ 1.17 $ .70 $ .70 $ .73 Diluted............................. 1.24 1.38 1.31 1.13 .69 .68 .72 Weighted average shares of common and common stock equivalents outstanding: Basic............................... 39,794 39,584 39,087 39,839 39,596 39,311 38,874 Diluted............................. 40,711 40,409 40,445 41,009 40,413 40,122 39,711 ---------- ---------- ---------- ---------- ---------- -------- -------- Total assets........................ $ 929,684 $ 711,142 $ 679,572 $ 626,571 $ 551,809 $473,045 $454,744 Cash, cash equivalents and short-term investments............ 193,233 100,731 108,077 121,424 72,769 72,230 66,992 Working capital..................... 248,413 180,051 143,657 142,448 103,910 92,542 77,179 Current maturities of long-term debt.............................. 8,114 1,130 5,985 10,787 12,921 10,186 13,948 Long-term debt...................... 131,391 63,891 64,853 69,137 58,396 43,602 39,494 Stockholders' equity................ 418,502 377,764 327,732 301,282 257,434 233,605 209,905 Book value per share................ 10.19 9.24 8.09 7.26 6.26 5.73 5.22 Dividends per share................. 0.32 0.29 0.27 0.20 0.16 0.17 0.13 Common shares outstanding........... 41,089 40,882 40,494 41,474 41,100 40,784 40,242 ---------- ---------- ---------- ---------- ---------- -------- -------- BACKLOG............................. $1,377,172 $1,120,481 $ 793,256 $ 901,592 $ 909,793 $597,876 $590,075 ========== ========== ========== ========== ========== ======== ======== YEARS ENDED DECEMBER 31, ----------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA 1994 1993 1992 1991 - ------------------------------------ -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING SUMMARY Revenue............................. $693,388 $570,379 $518,312 $564,060 Gross profit........................ 89,988 50,743 50,578 69,502 As a percent of revenue............. 13.0% 8.9% 9.8% 12.3% General and administrative expenses.......................... 62,795 47,107 46,906 46,541 As a percent of revenue............. 9.1% 8.3% 9.0% 8.3% Income before cumulative effect of change in accounting principle*... 19,488 3,492 3,924 17,622 Net income.......................... 19,488 4,492 3,924 17,622 As a percent of revenue............. 2.8% 0.8% 0.8% 3.1% Income per share before cumulative effect of change in accounting principle:** Basic............................... $ 0.50 $ 0.09 $ 0.10 $ 0.45 Diluted............................. 0.49 0.09 0.10 0.45 Net income per share: Basic............................... $ 0.50 $ 0.12 $ 0.10 $ 0.45 Diluted............................. 0.49 0.11 0.10 0.45 Weighted average shares of common and common stock equivalents outstanding: Basic............................... 38,826 38,813 38,813 38,813 Diluted............................. 39,434 39,200 39,171 39,185 -------- -------- -------- -------- Total assets........................ $349,098 $319,416 $316,978 $277,426 Cash, cash equivalents and short-term investments............ 48,638 48,810 54,139 54,973 Working capital..................... 65,537 64,619 66,329 55,186 Current maturities of long-term debt.............................. 10,070 10,060 15,469 7,669 Long-term debt...................... 17,237 28,585 38,618 14,816 Stockholders' equity................ 182,692 164,338 158,594 153,159 Book value per share................ 4.61 4.17 4.03 3.92 Dividends per share................. 0.06 0.06 0.06 0.06 Common shares outstanding........... 39,650 39,452 39,324 39,117 -------- -------- -------- -------- BACKLOG............................. $550,166 $659,738 $245,234 $292,017 ======== ======== ======== ========
- --------------- * Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." ** On February 21, 2001, the Company announced a three-for-two stock split in the form of a 50% stock dividend on April 13, 2001. All share and per share amounts are calculated on a post split basis. 11 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, New York 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 and to a lesser extent through negotiation with 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. 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. Certain profit sharing amounts are at the discretion of the Board of Directors based on the Company reaching certain levels of profitability each year. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Our estimates, judgments and assumptions are continually evaluated based on available information and experience, however actual amounts could differ from those estimates. The Company's significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. Certain of our accounting policies require higher degrees of judgment than others in their application. These include the recognition of revenue and earnings from construction contracts, accounting for construction joint ventures, the valuation of long-term assets and the estimation of valuation allowances and accrued liabilities. Management evaluates all of its estimates and judgments on an on-going basis. Revenue Recognition: The Company uses the percentage of completion accounting method for construction contracts in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." Revenue and 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. Provisions are recognized in the statement of income for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue. 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 assurance 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 to the extent that contract remedies are unavailable, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, the accuracy of the original bid, inclement weather and timing and coordination issues inherent in all projects, including design/build. Contract cost consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs). Depreciation is provided using accelerated methods for construction equipment. 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 12 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. The foregoing as well as weather, stage of completion and mix of contracts at different margins may cause fluctuations in gross profit between periods and these fluctuations may be significant. A significant portion of the Company's revenue is derived from contracts that are "fixed unit price" 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). Other contracts, including most design-build contracts, are priced on a lump-sum basis under which the Company bears the risk that it may not be able to perform all the work for the specified amount. 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, with provisions to pay the Company for work performed through the date of termination. Construction Joint Ventures: As described under Note 5 to the Company's Consolidated Financial Statements, the Company participates in various construction joint venture partnerships. Generally, each construction joint venture is formed to accomplish a specific project, is jointly controlled by the joint venture partners and is dissolved upon completion of the project. The Company selects its joint venture partners based on its analysis of the prospective venturer's construction and financial capabilities, expertise in the type of work to be performed and past working relationships with the company, among other criteria. The joint venture agreements typically provide that the interests of the Company in any profits and assets, and its respective share 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. The venture's contract with the project owner typically requires joint and several liability, however, 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. Consistent with industry practice, 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. If we were to account for these interests using a one line item equity method presentation in the consolidated statements of income, revenue and contract costs would be materially lower, however, net income would not change. Alternatively, if we were to account for these interests using full consolidation, assets and liabilities in the consolidated balance sheet would be materially higher and revenue and contract costs in the consolidated statements of income would be materially higher, however, net income would not change. Valuation of Long-Term Assets: Long-lived assets, which include property, equipment and acquired identifiable intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management and this could have a material effect on our operating results and financial position. Additionally, the Company had approximately $19.5 million in goodwill at December 31, 2001, which must be reviewed for impairment at least annually in accordance with Statement of Financial Accounting Standards No. 142 ("SFAS 142"). The Company is required to complete its initial impairment review for its goodwill in the first half of 2002 and management does not expect to record an impairment charge. The impairment testing required by SFAS 142 requires considerable judgment and there can be no assurance that an impairment charge will not be required in the future. Valuation Allowances and Accrued Liabilities: The Company grants credit to customers that include general contractors, property owners and developers, governmental agencies and other companies in a variety of industries. Although the Company generally does not require collateral, the law provides the Company with the ability to file mechanics liens on real property improved for private customers in the event of non-payment. The Company is subject to potential credit risk related to changes in business and the general economy. Management analyzes specific customer accounts receivable including the age of specific accounts, customer payment history and general economic trends when evaluating the adequacy of the allowance for doubtful accounts. Additionally, certain accrued liabilities, including insurance reserves, are estimates that rely on an 13 analysis of past trends and the exercise of significant management judgment. There can be no assurance that the actual amounts of the Company's valuation allowances and estimated accrued liabilities will not change as better information becomes available and these changes could be significant. CURRENT YEAR Revenue and Backlog. The following is a breakdown of revenue for the years ended December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 -------------------- -------------------- -------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------- ------- ---------- ------- ---------- ------- Revenue By Division: Branch Division............. $1,083,726 70.0% $1,010,912 75.0% $ 976,464 73.5% Heavy Construction Division................. 464,268 30.0 337,413 25.0 352,310 26.5 ---------- ----- ---------- ----- ---------- ----- $1,547,994 100.0% $1,348,325 100.0% $1,328,774 100.0% ========== ===== ========== ===== ========== ===== Revenue By Geographic Area: California.................. $ 715,689 46.2% $ 627,616 46.5% $ 574,618 43.2% West (excluding California).............. 432,570 27.9 462,070 34.3 510,953 38.5 Midwest..................... 51,861 3.4 3,923 0.3 -- -- South and East.............. 347,874 22.5 254,716 18.9 243,203 18.3 ---------- ----- ---------- ----- ---------- ----- $1,547,994 100.0% $1,348,325 100.0% $1,328,774 100.0% ========== ===== ========== ===== ========== ===== Revenue By Market Sector: Federal agencies............ $ 77,143 5.0% $ 56,595 4.2% $ 31,641 2.4% State agencies.............. 631,217 40.8 540,688 40.1 567,366 42.7 Local public agencies....... 367,226 23.7 257,786 19.1 257,392 19.4 ---------- ----- ---------- ----- ---------- ----- Total public sector............ 1,075,586 69.5 855,069 63.4 856,399 64.5 ---------- ----- ---------- ----- ---------- ----- Private sector.............. 282,538 18.3 333,361 24.7 313,356 23.5 Material sales.............. 189,870 12.2 159,895 11.9 159,019 12.0 ---------- ----- ---------- ----- ---------- ----- $1,547,994 100.0% $1,348,325 100.0% $1,328,774 100.0% ========== ===== ========== ===== ========== =====
Total revenue in 2001 increased to $1,548.0 million from $1,348.3 million in 2000, which reflects increases in both divisions. Branch Division revenue increased 7.2% in 2001 due to increases in public sector revenue and revenue from material sales which were partially offset by a decrease in private sector revenue. The increased revenue from material sales was due to both higher sales volume and generally higher unit prices. The higher volume was largely due to increases in construction activity near certain of our plant locations. HCD revenue increased 37.6% in 2001 due primarily to revenue generated from contracts added to backlog in late 2000 through mid 2001 and revenue contributed by HCD's new Granite Halmar location in New York of approximately $65.0 million. On a market sector basis, revenue from private sector contracts decreased $50.8 million to $282.5 million or 18.3% of total revenue in 2001, from $333.4 million or 24.7% of total revenue in 2000. The Company's private sector work is primarily comprised of site preparation for both commercial and residential developments and privately funded transportation projects. Although the private construction market remains strong in many of the areas that the Company works, the Company remains cautious about the effect of the general economic slowdown on private sector work in 2002 (see "Outlook"). The Company's revenue from public sector contracts increased to $1,075.6 million or 69.5% of total revenue in 2001 from $855.1 million or 63.4% of total revenue in 2000. The level of funding for public sector projects remained strong through 2001 in most of the Company's geographic markets. 14 The following is a breakdown of backlog as of December 31, 2001 and 2000 (in thousands):
2001 2000 -------------------- -------------------- AMOUNT PERCENT AMOUNT PERCENT ---------- ------- ---------- ------- Backlog By Division: Branch Division................................ $ 367,657 26.7% $ 364,788 32.6% Heavy Construction Division.................... 1,009,515 73.3 755,693 67.4 ---------- ----- ---------- ----- $1,377,172 100.0% $1,120,481 100.0% ========== ===== ========== ===== Backlog By Geographic Area: California..................................... $ 293,325 21.3% $ 260,612 23.2% West (excluding California).................... 280,864 20.4 269,660 24.1 Midwest........................................ 152,386 11.1 204,038 18.2 South and East................................. 650,597 47.2 386,171 34.5 ---------- ----- ---------- ----- $1,377,172 100.0% $1,120,481 100.0% ========== ===== ========== ===== Backlog By Market Sector: Federal agencies............................... $ 42,512 3.1% $ 75,907 6.8% State agencies................................. 753,000 54.7 649,242 57.9 Local public agencies.......................... 460,582 33.4 313,467 28.0 ---------- ----- ---------- ----- Total public sector....................... 1,256,094 91.2 1,038,616 92.7 ---------- ----- ---------- ----- Private sector................................. 121,078 8.8 81,865 7.3 ---------- ----- ---------- ----- $1,377,172 100.0% $1,120,481 100.0% ========== ===== ========== =====
The Company's backlog at December 31, 2001 was $1,377.2 million, up $256.7 million, or 22.9% from December 31, 2000. The increase in backlog is primarily attributable to HCD as a result of backlog obtained as a result of the Halmar acquisition as well as awards in the latter half of 2001 which included the Company's $113.9 share of a subway reconstruction project in New York, the Company's $69.5 million share of a design/build rail reconstruction project in Florida and a $44.8 million highway project in North Carolina. Management believes that approximately 63.0% of the work in the backlog at December 31, 2001 will be recognized as revenue during 2002.
YEAR ENDED ------------------------------ GROSS PROFIT 2001 2000 1999 - ------------ -------- -------- -------- (IN THOUSANDS) Total Gross Profit................................... $183,616 $190,618 $179,201 % Of Revenue......................................... 11.9% 14.1% 13.5%
For the year ended December 31, 2001, gross profit was $183.6 million, a $7.0 million decrease from 2000. As a percentage of revenue, gross profit decreased in 2001 to 11.9% from 14.1% in 2000. The decreased gross profit margin reflected decreases in HCD that were partially offset by slightly increased profit margins in the Branch Division. Contributing to the decline in the HCD profit margin was a reduction in forecasted profitability of a non-sponsored joint venture project on the East Coast, a generally less profitable mix of HCD projects compared to a year ago and a higher level of revenue recognized for projects less than 25% complete. Year to date revenue recognized for projects less than 25% complete was approximately $70.2 million and $31.5 million at December 31, 2001 and 2000, respectively. As described under "Critical Accounting Policies" above, the Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. The reduction in forecasted profitability of an East Coast joint venture project partially related to the acceleration of work to complete the project on time to avoid paying liquidated damages. The Company recorded a pretax loss of approximately $7.6 million for its portion of the expected reduced profitability of the project in the year ended December 31, 2001. 15 Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs). 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 2001. The Company did experience upward pressure on costs associated with natural gas, fuel and asphalt prices early in 2001, but these had substantially reversed by the end of the year and the Company's gross profit margins were not materially impacted by these changes. General and Administrative Expenses. For the years ended December 31, 2001, 2000 and 1999 general and administrative expenses comprised the following (in thousands):
2001 2000 1999 -------- -------- ------- IN THOUSANDS Salaries and related expenses......................... $ 55,480 $ 46,897 $43,552 Incentive compensation, discretionary profit sharing and pension......................................... 22,656 24,153 22,264 Other general and administrative expenses............. 41,146 33,993 29,123 -------- -------- ------- Total............................................ $119,282 $105,043 $94,939 -------- -------- ------- Percent of revenue.................................... 7.7% 7.8% 7.1% ======== ======== =======
Salaries and related expenses increased in 2001 over 2000 due primarily to increased staffing to support the Company's current and expected growth including staff supporting the Company's new Granite Halmar location in New York. Incentive compensation and discretionary profit sharing and pension costs decreased in 2001 compared to 2000 primarily as a function of the Company's decreased profitability and the absence of additional expense recognized in 2000 related to the impact of certain members of Company management reaching age 62. Other general and administrative expenses include various costs to support the Company's operations, none of which exceeded 10% of total general and administrative expenses. The increase in other general and administrative expenses in 2001 primarily reflects the increases in facilities, information technology support, pre-bidding and other costs to support the Company's growth. Operating Income. For the years ended December 31, 2001, 2000 and 1999 operating income was as follows:
2001 2000 1999 -------- -------- -------- IN THOUSANDS Branch Division...................................... $106,316 $ 87,769 $ 83,878 HCD.................................................. (2,761) 33,775 34,176 Unallocated other corporate expenses................. (39,221) (35,969) (33,792) -------- -------- -------- Total........................................... $ 64,334 $ 85,575 $ 84,262 ======== ======== ========
HCD's contribution to operating income in 2001 decreased over the 2000 contribution due to the decreased gross profit margin as described in "gross profit" above. Additionally, HCD's general and administrative expenses increased during 2001 to support the higher level of revenue and backlog as well as increased costs to support a high level of bidding activity during the year. The Branch Division's contribution to operating income in 2001 increased compared to 2000 due primarily to increases in gross profit margin related to materials sales during the year. Other Income (Expense). Other income increased by $9.9 million to $17.2 million in 2001 from $7.3 million in 2000. The increase is attributable to gains recognized on the sale of excess and developed property of approximately $5.1 million and higher equity in earnings recognized from the Company's investments in TIC and Wilder. Although the Company had higher levels of cash equivalents and other investments during 2001, the effect of declining interest rates left interest income relatively flat as compared to 2000. 16 Provision for Income Taxes. The Company's effective tax rate was 38.0% in 2001 and 39.9% in 2000. The 1.9% decrease reflected the absence of additional tax expense recognized in 2000 related to the Company reaching an agreement with TIC to divest its 30% investment over a three and one-half year period. OUTLOOK Our Company is entering 2002 with a large backlog of work. As we begin to anticipate how the year ahead will unfold, we are closely monitoring a number of economic and political issues that may have an impact on our business this year. On March 5th, California voters approved Proposition 42 -- a state constitutional amendment that permanently transfers the sales tax on gasoline from the general fund to the state transportation fund. Proposition 42 requires that beginning July 1, 2003, all gasoline sales taxes will be earmarked for transportation improvements, adding a projected $1.2 to $1.5 billion annually to California's transportation budget. Starting in fiscal year 2003-2004, Proposition 42 would require that the state's share of gasoline sales taxes be used for projects designated under Governor Davis' Traffic Congestion Relief Plan. Starting in 2008-2009, revenue would be allocated by the following formula: 40 percent would go to major highway and transit construction projects around the state; 40 percent would go to cities and counties for street and highway maintenance, rehabilitation and reconstruction, and storm damage repair; and 20 percent for public transit. California is Granite's largest market, accounting for 46% of total revenues in 2001. Another current issue is the proposed $8.6 billion decrease in the fiscal year 2003 federal transportation budget, proposed by President Bush in February of this year. This figure includes a $4.4 billion shortfall from the financing adjustment formula created in the Transportation Act for the 21st Century (TEA-21). This adjustment is known as the Revenue Aligned Budget Authority, or RABA. Total appropriations, as determined by Congress and TEA-21 for fiscal year 2002 were $31.8 billion. This projected decline in 2003 spending relates to the economic slowdown, as fiscal 2001 user taxes were significantly lower than expected. In addition, fiscal year 2003 gas tax receipts are forecast to be lower than the baseline amounts guaranteed under TEA-21. To help resolve this issue, an agreement was reached in mid-March between House of Representatives budget and transportation leaders that would work toward raising the 2003 funding level for federal highways from the President's budget amount of $23.3 billion to $27.7 billion, the level stipulated under the TEA-21 authorization. The Company believes that significant political support for highway spending coupled with approximately $9.0 billion of unobligated funds in the Highway Trust Fund will result in funding levels at least on a par with the 2003 authorization of $27.6 billion. It is also important to note that although federal funding for 2003 could be less than was anticipated, the overall funding amounts under TEA-21 remain at record levels. Moreover, while federal funds do make up about 50% of U.S. highway spending, state and local funding represents the balance of the equation. While a few states have cut back on transportation funding, many of the larger states, such as California and Florida, continue to have strong transportation funding programs. This is because in those states, gasoline taxes, registration fees and other related revenues are dedicated exclusively to transportation, and do not compete with other state discretionary programs. Florida, for example, has instituted Mobility 2000, a long-term program that provides $6.0 billion in additional spending over a 10-year period. Texas also recently passed Proposition 15, which created the Texas Mobility Fund -- a revolving fund to finance highway construction and allow bonds to be sold to help finance transportation projects throughout the state. Texas has traditionally followed a pay-as-you-go approach to fund highways and other transportation projects with the exception of toll roads where the bonds are repaid from toll collections. Looking ahead, it is unclear at this point what impact the current economic marketplace will have on our Branch Division. With branches located in California, Arizona, Nevada and Utah, we are witnessing very different economic conditions in each of these states, and regions, in which we operate. Although Granite has begun to see some reduction in private sector work being put out to bid, some of our branches are expecting a strong private sector recovery in late 2002 and beyond. As we have witnessed in the past, a slow down in the 17 private sector economy tends to lead to a slow down in the private sector marketplace. When this happens, Granite's competitors in the private sector will typically shift over into the public sector bidding environment, thereby increasing competition and placing downward pressure on margins. Although it appears that the economy in the West is beginning to recover, the Branch Division is anticipating a reduction in revenue growth in 2002, however, this decline may be more than offset by a very strong year for HCD. HCD is witnessing a consistent stream of new large projects coming out to bid in both highway and transit construction. They are targeting bidding opportunities from coast to coast, totaling more than $8.0 billion over the next 12-18 months -- excluding the approximately $1.7 billion in projects that our Granite Halmar office in New York is targeting throughout that state. The division is currently bidding on approximately 10 large projects with an increasing number being design-build projects. As we have mentioned before, it is our opinion that Granite's experience in the design-build area provides us with a significant advantage over some of our competitors. In 2001, design-build projects made up approximately 50% of HCD's year-end backlog. Going forward, we are excited about the opportunities to grow the business in 2003, given the strength of our backlog and the substantial bidding opportunities ahead. We will continue to move forward on our strategy to grow the Company both internally and through acquisitions and to improve our financial performance in both divisions. PRIOR YEARS Revenue and Backlog. Total revenue in 2000 increased to $1,348.3 million from $1,328.8 million in 1999, which reflects a modest increase in revenue from the Branch Division partially offset by a decrease in HCD revenue. The HCD revenue decrease resulted from a lack of new awards during the period from late 1999 through mid 2000. Although HCD did receive significant new awards in late 2000, they were booked too late in the year to make a significant contribution to year 2000 revenue. On a market sector basis, revenue from private sector contracts increased $20.0 million to $333.4 million or 24.7% of total revenue in 2000, from $313.4 million or 23.5% of total revenue in 1999. The Company's private sector work is primarily comprised of site preparation for both commercial and residential developments and privately funded transportation projects. The Company's revenue from public sector contracts decreased slightly to $855.1 million or 63.4% of total revenue in 2000 from $856.4 million or 64.5% of total revenue in 1999. The level of funding for public sector projects remained strong through 2000 in most of the Company's geographic markets. The Company's backlog at December 31, 2000 was $1,120.5 million, up $327.2 million, or 41.3% from 1999. The increase in backlog was due primarily to multiple HCD awards in the latter part of 2000, which included the Las Vegas Monorail project in Nevada, the Company's portion of the Hiawatha light rail joint venture in Minnesota and a major bridge and interchange project in Florida. Gross Profit. For the year ended December 31, 2000, gross profit reached $190.6 million, an $11.4 million increase from 1999. As a percentage of revenue, gross profit increased in 2000 to 14.1% from 13.5% in 1999. The increased gross profit margin reflected increases in both Branch Division and HCD and was a result of favorable market conditions in both the public and private sectors and the overall successful execution of projects. Year to date revenue recognized for projects less than 25% complete was approximately $31.5 million and $36.9 million at December 31, 2000 and 1999, respectively. As described under "Critical Accounting Policies" above, the Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. During 2000, 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, subcontract costs, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs). 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 2000. The Company did experience upward pressure on costs associated with labor markets and oil prices; however, the Company's gross profit margins were not materially impacted by such changes during 2000. 18 General and Administrative Expenses. Salaries and related expenses increased in 2000 over 1999 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 2000 over 1999 as a function of the Company's increased profitability and the impact of certain members of Company management reaching age 62, at which time all the restricted stock grants become fully vested. 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 2000 primarily reflects the increases in facilities and other costs to support the Company's growth. Operating Income. The Heavy Construction Division's contribution to operating income in 2000 decreased slightly over the 1999 contribution due to a decreased volume of work performed as a result of HCD projects nearing completion. These HCD projects were replaced by several new awards in the latter half of 2000 (see "Revenue and Backlog" above). However, these significant new projects were awarded too late in the year to have a significant impact on revenue and operating income in 2000. The Branch Division's contribution to operating income in 2000 increased compared to 1999 due primarily to increases in construction revenue and gross margins as described in the "Gross Profit" section above. Other Income (Expense). Other income increased $5.5 million to $7.3 million in 2000. The increase was primarily due to higher interest income resulting from the combined factor of higher interest rates and higher invested balances and the absence of the Company's share of a 1999 loss of approximately $2.8 million experienced by TIC, partially offset by lower gains on the sale of property and equipment. Provision for Income Taxes. The Company's effective tax rate was 39.9% in 2000, an increase of 1.4% from 1999. The increase reflects additional tax expense recognized in the first quarter of 2000 related to the Company reaching an agreement with TIC to divest its 30% investment over a three and one-half year period. LIQUIDITY AND CAPITAL RESOURCES
2001 2000 1999 -------- -------- -------- IN THOUSANDS Cash and cash equivalents............................ $125,174 $ 57,759 $ 61,832 Net cash provided (used) by: Operating activities............................... 124,631 74,846 99,987 Investing activities............................... (97,123) (58,966) (54,204) Financing activities............................... 39,907 (19,953) (46,421) Capital expenditures............................... 65,265 52,454 82,035 Working Capital.................................... $248,413 $180,051 $143,657
During 2001 the Company generated cash and cash equivalents from operating activities of $124.6 million, which represented an increase of $49.8 million over 2000. Changes in cash from operating activities primarily reflect variations based on the amount and progress of work being performed. In particular, billings in excess of cost and estimated earnings, net, as of December 31, 2001 increased as compared to December 31, 2000 largely due to cash timing differences on several large projects in the early stages of construction. Cash used by investing activities in 2001 increased $38.2 million from 2000. Contributing to this increased use of cash was the $11.4 million net cash used to acquire Halmar, increased purchases of property and equipment and increased purchases of short-term investments. The Company generated $39.9 million in cash from financing activities in 2001 due to additions to long-term debt, which included $75.0 million received in May 2001 under a new senior credit facility with a group of institutional holders. The borrowing is due in nine equal annual installments beginning in 2005 and bears interest at 6.96% per annum. The funds from this borrowing will be used for general corporate purposes. 19 As more fully described in Note 9 and Note 14 to the Company's consolidated financial statements, the following table summarizes the Company's significant contractual obligations outstanding as of December 31, 2001:
TOTAL 2002 2003 2004 2005 2006 THEREAFTER -------- ------- ------- ------ ------- ------- ---------- (IN THOUSANDS) Senior notes payable...... $135,000 $ 6,667 $ 6,666 $6,667 $15,000 $15,000 $85,000 Other notes payable....... 4,505 1,447 2,130 210 234 239 245 Operating lease payments................ 14,969 4,474 3,503 2,155 1,534 1,077 2,226 -------- ------- ------- ------ ------- ------- ------- Total................ $154,474 $12,588 $12,299 $9,032 $16,768 $16,316 $87,471 ======== ======= ======= ====== ======= ======= =======
Additionally, in March 2002 the Company entered into agreements to purchase certain assets and assume certain liabilities and obligations of two materials and construction businesses in California. The agreements require cash payments of approximately $22.0 million plus the value of purchased inventory at the time of close, subject to adjustment as provided in the agreements. Both transactions are expected to close in the second quarter of 2002. As discussed in Note 6 to the Company's Consolidated Financial Statements, the Company entered into an agreement to purchase common stock of Wilder in 1999. The agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. The ultimate purchase price of additional Wilder common shares will be based largely on its financial results. The Company currently estimates that it will pay approximately $8.0 million for additional Wilder common shares in 2002. On January 30, 2002 the Company announced a quarterly cash dividend of $0.08 per common share on the Company's common stock. The dividend is payable April 15, 2002 to stockholders of record March 29, 2002. The Company has standby letters of credit totaling approximately $14.3 million outstanding at December 31, 2001, all of which expire during 2002. Additionally, the Company generally is required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At December 31, 2001 approximately $1.1 billion of the Company's backlog was bonded and performance bonds totaling approximately $3.0 billion were outstanding. Performance bonds do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. The Company's ability to obtain surety bonds depends upon its capitalization, working capital, past performance, management expertise and external factors including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of the Company's backlog that is currently bonded and their current underwriting standards, which may change from time to time. The Company has been bonded by the same surety for more than 75 years and has never been refused a bond. The inability to obtain surety bonds would have a material adverse effect on the Company's business. As described under "Critical Accounting Policies" above, the Company participates in various construction joint venture partnerships. The venture's contract with the project owner typically requires joint and several liability, however, 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 not experienced any losses resulting from a joint venture partner's unwillingness or inability to perform, however there can be no assurance that the non-performance of a joint venture partner will not occur in the future and such non-performance could have a material adverse effect on the Company's business. 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 $306.6 million. The Company was in compliance with these covenants at December 31, 2001. Failure to comply with these covenants could cause the amounts due under the debt agreements to become currently payable. The Company expects the principal use of funds for the foreseeable future will be for capital expenditures, working capital, acquisitions and other investments. The Company has budgeted $69.8 million 20 for capital expenditures in 2002, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of land and aggregate reserves. In addition to its working capital and cash generated from operations, the Company currently has access to funds under a $60 million bank revolving line of credit, of which $48.4 million was available at December 31, 2001. The line of credit expires in June 2004. The Company believes that its current cash and cash equivalents, short-term investments, cash generated from operations and amounts available under its existing credit facilities will be sufficient to meet its expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with its existing operations through at least the next 12 months. Recent Accounting Pronouncements. In July 2001, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under a single method -- the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption and on an annual basis going forward. The non-amortization provisions of SFAS 142 were effective for all business combinations completed after June 30, 2001 and will be fully adopted for fiscal years beginning after December 15, 2001. The Company's amortization expense related to goodwill was not significant in the years ended December 31, 2001, 2000 or 1999. The Company believes that SFAS 142 will not have a material effect on the financial position or results of operations of the Company. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires, among other things, that the retirement obligations be recognized when they are incurred and displayed as liabilities on the balance sheet. In addition, the asset's retirement costs are to be capitalized as part of the asset's carrying amount and subsequently allocated to expense over the asset's useful life. The Company is in the process of assessing the impact, if any, of SFAS 143 on the financial position or results of operations of the Company. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. SFAS 144 supersedes FASB statement No. 121 and APB 30; however, it retains the requirement of APB 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sales, by abandonment, or in a distribution to owners) or is classified as held for sale. SFAS 144 also addresses financial reporting for the impairment of certain long-lived assets to be disposed of. The Company is in the process of assessing the impact, if any, of SFAS 144 on the financial position or results of operations of the Company. 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, 2001. 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)
2001 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - ------------------- -------- -------- -------- -------- Revenue............................................ $426,965 $516,732 $376,682 $227,615 Gross profit....................................... 53,163 61,786 46,411 22,256 As a percent of revenue.......................... 12.5% 12.0% 12.3% 9.8% Net income......................................... 12,120 23,938 12,903 1,567 As a percent of revenue.......................... 2.8% 4.6% 3.4% 0.7% Net income per share: Basic............................................ $ 0.30 $ 0.60 $ 0.32 $ 0.04 Diluted.......................................... $ 0.30 $ 0.59 $ 0.32 $ 0.04 Dividends per share................................ $ 0.08 $ 0.08 $ 0.08 $ 0.08 Market price High............................................. $ 29.95 $ 27.30 $ 31.10 $ 23.66 Low.............................................. $ 23.00 $ 21.01 $ 21.32 $ 19.25
2000 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - ------------------- -------- -------- -------- -------- Revenue............................................ $346,427 $441,756 $343,712 $216,430 Gross profit....................................... 47,092 67,478 49,673 26,375 As a percent of revenue.......................... 13.6% 15.3% 14.5% 12.2% Net income......................................... 12,758 24,900 15,933 2,224 As a percent of revenue.......................... 3.7% 5.6% 4.6% 1.0% Net income per share: Basic............................................ $ 0.32 $ 0.63 $ 0.40 $ 0.06 Diluted.......................................... $ 0.32 $ 0.62 $ 0.39 $ 0.06 Dividends per share................................ $ 0.07 $ 0.07 $ 0.07 $ 0.11 Market price High............................................. $ 20.63 $ 18.08 $ 19.00 $ 18.33 Low.............................................. $ 14.37 $ 14.00 $ 15.25 $ 11.71
Net income per share calculations are based on the weighted average common shares outstanding for each period presented. Accordingly, the sum of the quarterly net income per share amounts may not equal the per share amount reported for the year. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to financial market risks due largely 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. 22 The fair value of the Company's held-to-maturity investment portfolio and 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 mutual fund portfolio of $8.2 million is exposed to equity price risks. The Company has Senior Notes Payable of $60.0 million at December 31, 2001 which carry a fixed interest rate of 6.54% per annum with principal payments due in nine equal annual installments beginning in 2002 and Senior Notes Payable of $75.0 million at December 31, 2001 which carry a fixed interest rate of 6.96% per annum with principal payments due in nine equal annual installments beginning in 2005. The table below presents principal amounts and related weighted average interest rates by year for the Company's cash and cash equivalents, held-to-maturity short-term investments and significant debt obligations:
2002 2003 2004 2005 2006 THEREAFTER TOTAL -------- ------ ------ ------- ------- ---------- -------- IN THOUSANDS Assets Cash, cash equivalents and held-to- maturity investments.............. $182,250 $2,781 $ -- $ -- $ -- $ -- $185,031 Weighted average interest rate...... 2.36% 5.75% -- -- -- -- 2.41% Liabilities Fixed rate debt Senior notes payable................ $ 6,667 $6,666 $6,667 $15,000 $15,000 $85,000 $135,000 Weighted average interest rate...... 6.54% 6.54% 6.54% 6.77% 6.77% 6.83% 6.77%
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. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Senior Notes Payable was approximately $132.7 million as of December 31, 2001 and $57.3 million as of December 31, 2000. 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, 2001 and 2000 Consolidated Statements of Income -- Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows -- Years Ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Additionally, a two-year Summary of Quarterly Results is included in Item 7 under "Quarterly Results." 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. 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 21, 2002 (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. 24 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, 2001 and 2000... F-2 Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999.......................... F-3 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999.............. F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.......................... F-5 Notes to the Consolidated Financial Statements.............. F-6 to F-22
2. Financial Statement Schedule. The following financial statement schedule of Granite Construction Incorporated for the years ended December 31, 2001, 2000 and 1999 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 SCHEDULE PAGES -------- --------- 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 2001. 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and the Stockholders of Granite Construction Incorporated: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 25 present fairly, in all material respects, the financial position of Granite Construction Incorporated and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 25 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 of America, 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 our opinion. PRICEWATERHOUSECOOPERS LLP San Jose, California February 15, 2002, except Note 17 (Asset Purchase Agreements) as to which the date is March 8, 2002 F-1 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED BALANCE SHEETS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
DECEMBER 31, ------------------- 2001 2000 -------- -------- ASSETS Current assets Cash and cash equivalents.............................. $125,174 $ 57,759 Short-term investments................................. 68,059 42,972 Accounts receivable.................................... 277,684 221,374 Costs and estimated earnings in excess of billings..... 49,121 19,473 Inventories............................................ 19,746 16,747 Deferred income taxes.................................. 13,185 15,857 Equity in construction joint ventures.................. 23,073 25,151 Other current assets................................... 10,874 12,295 -------- -------- Total current assets.............................. 586,916 411,628 -------- -------- Property and equipment...................................... 262,423 249,077 -------- -------- Investments in affiliates................................... 50,094 40,052 -------- -------- Other assets................................................ 30,251 10,385 -------- -------- $929,684 $711,142 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt................... $ 8,114 $ 1,130 Accounts payable....................................... 129,515 90,111 Billings in excess of costs and estimated earnings..... 114,991 57,412 Accrued expenses and other current liabilities......... 85,883 82,924 -------- -------- Total current liabilities......................... 338,503 231,577 -------- -------- Long-term debt.............................................. 131,391 63,891 -------- -------- Other long-term liabilities................................. 10,026 6,370 -------- -------- Deferred income taxes....................................... 31,262 31,540 -------- -------- 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 100,000,000 shares; issued and outstanding 41,089,487 shares in 2001 and 40,881,908 in 2000............................ 411 409 Additional paid-in capital................................ 62,380 56,381 Retained earnings......................................... 367,546 330,172 Accumulated other comprehensive loss...................... (440) -- -------- -------- 429,897 386,962 Unearned compensation..................................... (11,395) (9,198) -------- -------- 418,502 377,764 -------- -------- $929,684 $711,142 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-2 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, --------------------------------------- 2001 2000 1999 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue Construction........................................ $1,358,124 $1,188,430 $1,169,755 Material sales...................................... 189,870 159,895 159,019 ---------- ---------- ---------- Total revenue.......................................... 1,547,994 1,348,325 1,328,774 ---------- ---------- ---------- Cost of revenue Construction........................................ 1,209,968 1,020,317 1,015,041 Material sales...................................... 154,410 137,390 134,532 ---------- ---------- ---------- Total cost of revenue.................................. 1,364,378 1,157,707 1,149,573 ---------- ---------- ---------- GROSS PROFIT........................................ 183,616 190,618 179,201 ---------- ---------- ---------- General and administrative expenses...................... 119,282 105,043 94,939 ---------- ---------- ---------- OPERATING INCOME.................................... 64,334 85,575 84,262 ---------- ---------- ---------- Other income (expense) Interest income..................................... 10,806 11,646 8,682 Interest expense.................................... (8,829) (8,954) (8,791) Gain on sales of property and equipment............. 8,917 2,584 4,544 Other, net.......................................... 6,269 2,019 (2,654) ---------- ---------- ---------- 17,163 7,295 1,781 ---------- ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES............ 81,497 92,870 86,043 Provision for income taxes............................... 30,969 37,055 33,127 ---------- ---------- ---------- NET INCOME.......................................... $ 50,528 $ 55,815 $ 52,916 ========== ========== ========== Net income per share Basic............................................... $ 1.27 $ 1.41 $ 1.35 Diluted............................................. $ 1.24 $ 1.38 $ 1.31 Weighted average shares of common and common stock equivalents outstanding Basic............................................... 39,794 39,584 39,087 Diluted............................................. 40,711 40,409 40,445 Dividends per share...................................... $ 0.32 $ 0.29 $ 0.27
The accompanying notes are an integral part of these consolidated financial statements. F-3 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED ADDITIONAL OTHER YEARS ENDED DECEMBER 31, COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED 1999, 2000 AND 2001 STOCK CAPITAL EARNINGS LOSS COMPENSATION TOTAL - ------------------------ ------ ---------- -------- ------------- ------------ -------- (IN THOUSANDS, EXCEPT SHARE DATA) Balances, December 31, 1998........... $416 $44,941 $262,517 $ -- $ (6,592) $301,282 Net income............................ -- -- 52,916 -- -- 52,916 Restricted stock issued -- 354,867 shares, net......................... 4 6,425 -- -- (6,429) -- Amortized restricted stock............ -- -- -- -- 4,834 4,834 Stock options exercised and related tax benefit -- 196,410 shares....... 2 1,418 -- -- -- 1,420 Repurchase of common stock -- 1,688,110 shares........... (17) (5,248) (19,764) -- -- (25,029) Common stock contributed to ESOP -- 136,650 shares...................... -- 2,146 -- -- -- 2,146 Cash dividends on common stock and other............................... -- -- (9,837) -- -- (9,837) ---- ------- -------- ----- -------- -------- Balances, December 31, 1999........... 405 49,682 285,832 -- (8,187) 327,732 Net income............................ -- -- 55,815 -- -- 55,815 Restricted stock issued-- 415,028 shares, net......................... 4 6,908 -- -- (6,912) -- Amortized restricted stock............ -- -- -- -- 5,901 5,901 Stock options and warrants exercised and Related tax benefit -- 84,154 shares.............................. 1 2,012 -- -- -- 2,013 Repurchase of common stock -- 155,534 shares.............................. (1) (2,853) -- -- -- (2,854) Common stock contributed to ESOP -- 45,000 shares....................... -- 632 -- -- -- 632 Cash dividends on common stock and other........................... -- -- (11,475) -- -- (11,475) ---- ------- -------- ----- -------- -------- Balances, December 31, 2000........... 409 56,381 330,172 -- (9,198) 377,764 Comprehensive income: Net income.......................... -- -- 50,528 -- -- Other comprehensive income: Changes in net unrealized losses on investments............... -- -- -- (440) -- Total comprehensive income.......... 50,088 Restricted stock issued -- 291,797 shares, net......................... 2 7,168 -- -- (7,170) -- Amortized restricted stock............ -- -- -- -- 4,973 4,973 Repurchase of common stock -- 84,218 shares.............................. -- (2,455) -- -- -- (2,455) Cash dividends on common stock........ -- -- (13,154) -- -- (13,154) Tax benefit from restricted stock and other........................... -- 1,286 -- -- -- 1,286 ---- ------- -------- ----- -------- -------- BALANCES, DECEMBER 31, 2001........... $411 $62,380 $367,546 $(440) $(11,395) $418,502 ==== ======= ======== ===== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 --------- -------- -------- (IN THOUSANDS) Operating Activities Net income................................................ $ 50,528 $ 55,815 $ 52,916 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization................ 50,017 44,624 42,363 Gain on sales of property and equipment................. (8,917) (2,584) (4,544) Deferred income taxes................................... 5,665 2,245 1,043 Gain on sale of investment.............................. -- (636) -- Amortization of unearned compensation................... 4,973 5,901 4,834 Common stock contributed to ESOP........................ -- 632 2,146 Equity in (income) loss of affiliates................... (5,289) (57) 5,292 Other................................................... -- 150 (424) Changes in assets and liabilities, net of business acquisitions: Accounts and notes receivable........................... (10,973) (11,287) (34,106) Inventories............................................. (2,999) (2,624) (50) Equity in construction joint ventures................... 2,078 5,460 (10,591) Other assets............................................ 1,929 (1,933) 1,327 Accounts payable........................................ (4,773) (5,551) 7,468 Billings in excess of costs and estimated earnings, net.................................................... 37,432 (15,598) 18,285 Accrued expenses and other liabilities.................. 4,960 289 14,028 --------- -------- -------- Net cash provided by operating activities............. 124,631 74,846 99,987 --------- -------- -------- Investing Activities Purchases of short-term investments....................... (139,092) (84,671) (98,082) Maturities of short-term investments...................... 113,295 87,944 110,791 Additions to property and equipment....................... (65,265) (52,454) (82,035) Proceeds from sales of property and equipment............. 14,790 4,691 9,130 Proceeds from sale of investment.......................... -- 5,000 -- Investment in affiliates.................................. (7,753) (21,220) 1,083 Advances to affiliates.................................... (9,475) -- -- Proceeds from repayment of advances to affiliates......... 6,375 -- -- Acquisition of Halmar Builders of New York Inc., net of cash received........................................... (11,400) -- -- Other investing activities................................ 1,402 1,744 4,909 --------- -------- -------- Net cash used by investing activities................. (97,123) (58,966) (54,204) --------- -------- -------- Financing Activities Proceeds from long-term debt.............................. 103,000 -- -- Repayments of long-term debt.............................. (48,048) (5,817) (10,786) Employee stock options exercised.......................... -- 431 39 Repurchase of common stock................................ (2,455) (2,854) (25,029) Dividends paid............................................ (12,590) (11,713) (10,645) --------- -------- -------- Net cash provided (used) by financing activities...... 39,907 (19,953) (46,421) --------- -------- -------- Increase (decrease) in cash and cash equivalents............ 67,415 (4,073) (638) Cash and cash equivalents at beginning of year.............. 57,759 61,832 62,470 --------- -------- -------- Cash and cash equivalents at end of year.................... $ 125,174 $ 57,759 $ 61,832 ========= ======== ======== Supplementary Information Cash paid during the year for: Interest................................................ $ 6,709 $ 6,387 $ 5,926 Income taxes............................................ 25,071 28,060 24,210 Noncash financing and investing activity: Restricted stock issued for services.................... $ 7,170 $ 6,912 $ 6,429 Dividends accrued but not paid.......................... 3,289 2,725 1,890 Financed acquisition of property and equipment.......... -- -- 1,700 ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 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: Granite Construction Incorporated (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, Florida and New York. 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 accounting principles generally accepted in the United States of America 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: Revenue and earnings on construction contracts including construction joint ventures are recognized on the percentage of completion method in the ratio of costs incurred to estimate 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 to the extent that contract remedies are unavailable, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, the accuracy of the original bid, inclement weather and timing and coordination issues inherent in all projects including design/build. Contract cost consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, fuel, maintenance and repairs) and insurance costs. Depreciation is provided using accelerated methods for construction equipment. 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. The foregoing as well as weather, stage of completion and mix of contracts at different margins may cause fluctuations in gross profit between periods and these fluctuations may be significant. Revenue from the sale of materials is recognized when delivery and risk of ownership passes to the customer. A significant portion of the Company's revenue is derived from contracts that are "fixed unit price" 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). Other contracts, including most design-build contracts, are priced on a lump-sum basis under which the Company bears the risk that it may not be able to perform all the work for the specified amount. The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local government agencies and F-6 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) private parties. Less frequently, contracts may be obtained through direct negotiation with private contract owners. 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, with provisions to pay the Company for work performed through the date of termination. Balance Sheet Classifications: The Company includes in current assets and liabilities amounts receivable and payable under construction contracts that 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 accumulated other comprehensive income until realized. Realized gains and losses, if any, are determined using the specific identification method. Financial Instruments: The carrying value of short-term investments approximates their fair value as determined by market quotes. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. 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. The Company capitalized interest costs related to certain self-constructed assets of $67 in 2001, $509 in 2000 and $577 in 1999. Maintenance and repairs are charged to operations as incurred. 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. An impairment loss is recorded when the assets' carrying value exceeds its estimated undiscounted future cash flows. There have been no significant events or changes in circumstances to date. 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. Intangible Assets: Included in other assets at December 31, 2001 is goodwill in the amount of $19.5 million and other intangible assets in the amount of $4.1 million. In accordance with Statement of Financial Accounting Standards No. 142 goodwill, primarily relating to the Company's acquisition of Halmar on July 1, 2001, is not amortized. Rather, the Company evaluates the recoverability of goodwill on an annual basis. Other intangible assets include covenants not to compete, permits, trademarks and acquired contract value which are being amortized on a straight-line basis over terms from 2 to 10 years. Income Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities F-7 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 are 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. Stock Split: On February 21, 2001, the Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend payable April 13, 2001 to stockholders of record as of March 31, 2001. All references in the financial statements to number of shares and per share amounts of the Company's common stock have been retroactively restated to reflect the increased number of shares outstanding. 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, financial position or cash flows. Recent Accounting Pronouncements: In July 2001, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under a single method-the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption and on an annual basis going forward. The non-amortization provisions of SFAS 142 were effective for all business combinations completed after June 30, 2001 and will be fully adopted for fiscal years beginning after December 15, 2001. The Company's amortization expense related to goodwill was not significant in the years ended December 31, 2001, 2000 or 1999. The Company believes that SFAS 142 will not have a material effect on the financial position or results of operations of the Company. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires, among other things, that the retirement obligations be recognized when they are incurred and displayed as liabilities on the balance sheet. In addition, the asset's retirement costs are to be capitalized as part of the asset's carrying amount and subsequently allocated to expense over the asset's useful life. The Company is in the process of assessing the impact, if any, of SFAS 143 on the financial position or results of operations of the Company. In October 2001, the FASB issued statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. SFAS 144 supersedes FASB statement No. 121 and APB 30; however, it retains the requirement of APB 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sales, by abandonment, or in a distribution to owners) or is classified as held for sale. SFAS 144 also addresses financial reporting for the impairment of certain long-lived assets to be disposed of. The Company is in the process of assessing the impact, if any, of SFAS 144 on the financial position or results of operations of the Company. F-8 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SIGNIFICANT RISKS AND UNCERTAINTIES 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. 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 will have a material impact on the Company's financial position, results of operations or cash flows. 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 approximately 22% of the Company's unionized labor force at December 31, 2001 will expire during 2002. Revenue received by both the Branch Division and the Heavy Construction Division from federal, state and local government agencies amounted to $1,075,586 (69.5%) in 2001, $855,069 (63.4%) in 2000, and $856,399 (64.5%) in 1999. California Department of Transportation represented $223,916 (14.4%) in 2001, $174,560 (12.9%) in 2000, and $135,265 (10.2%) in 1999 of total revenue. At December 31, 2001 and 2000, the Company had significant amounts receivable from these agencies. 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. 3. SHORT-TERM INVESTMENTS The carrying amounts of short-term investments are as follows at December 31, 2001 and 2000:
HELD-TO-MATURITY AVAILABLE-FOR-SALE TOTAL ----------------- ------------------- ----------------- 2001 2000 2001 2000 2001 2000 ------- ------- -------- -------- ------- ------- U.S. Government and Agency Obligations......................... $ 1,996 $11,922 $ -- $4,492 $ 1,996 $16,414 Commercial Paper...................... 31,335 16,865 -- -- 31,335 16,865 Municipal Bonds....................... 16,925 -- -- 2,513 16,925 2,513 Domestic Bankers' Acceptance.......... 9,601 7,180 -- -- 9,601 7,180 Mutual Funds.......................... -- -- 8,202 -- 8,202 -- ------- ------- ------ ------ ------- ------- $59,857 $35,967 $8,202 $7,005 $68,059 $42,972 ======= ======= ====== ====== ======= =======
Held-to-maturity investments are carried at amortized cost, which approximates fair value. Unrealized holding gains and losses for all debt securities were insignificant for the years ended December 31, 2001 and 2000. The Company recognized gross unrealized holding losses of $710 ($440 after tax) related to its available-for-sale investment in mutual funds as a component of other comprehensive income for the year ended December 31, 2001. F-9 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2001, scheduled maturities of held-to-maturity investments were as follows: Within one year............................................. $57,076 ------- After one year through five years........................... 2,781 ------- $59,857 =======
For the years ended December 31, 2001 and 2000, purchases and maturities were as follows:
DECEMBER 31, 2001 DECEMBER 31, 2000 ---------------------------------- -------------------------------- HELD-TO- AVAILABLE- HELD-TO- AVAILABLE- MATURITY FOR-SALE TOTAL MATURITY FOR-SALE TOTAL --------- ---------- --------- -------- ---------- -------- Purchases.................... $ 130,185 $ 8,907 $ 139,092 $ 81,640 $ 3,031 $ 84,671 Maturities................... (106,295) (7,000) (113,295) (85,891) (2,053) (87,944) Unrealized loss.............. -- (710) (710) -- -- -- --------- ------- --------- -------- ------- -------- Net Change................... $ 23,890 $ 1,197 $ 25,087 $ (4,251) $ 978 $ (3,273) ========= ======= ========= ======== ======= ========
4. ACCOUNTS RECEIVABLE AND COSTS AND ESTIMATED EARNING IN EXCESS OF BILLINGS The Company's accounts receivable comprised:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Construction Contracts: Completed and in progress................................. $163,703 $122,935 Retentions................................................ 87,080 72,883 -------- -------- 250,783 195,818 ======== ======== Construction material sales................................. 21,963 22,874 Other....................................................... 6,700 4,463 -------- -------- 279,446 223,155 Less allowance for doubtful accounts........................ 1,762 1,781 -------- -------- $277,684 $221,374 ======== ========
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, 2001 are expected to be collected as follows: $82,128 in 2002, $4,502 in 2003, $279 in 2004 and $171 in 2005 and thereafter. Included in the Company's costs and estimated earnings in excess of billings at December 31, 2001 is approximately $17.9 million related to claims and unexecuted change orders acquired from Halmar Builders of New York, Inc. (Note 16) that the Company believes are probable of collection during 2002. 5. EQUITY IN CONSTRUCTION JOINT VENTURES The Company participates in various construction joint venture partnerships. Generally, each construction joint venture is formed to accomplish a specific project, is jointly controlled by the joint venture partners 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 F-10 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 equity in these ventures ranges from 15% - 65% the most significant of which include a 65% share of a highway project in Tempe, Arizona, a 60% share in a rapid transit project in New York, New York, a 57% share of a light rail project in Minneapolis, Minnesota and a 60% share of a bridge construction project in Panama City, Florida. The combined assets, liabilities and net assets of these ventures are as follows:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Assets: Total..................................................... $218,282 $165,361 Less other venturers' interest............................ 119,189 116,988 -------- -------- Company's interest........................................ 99,093 48,373 -------- -------- Liabilities: Total..................................................... 148,386 80,788 Less other venturers' interest............................ 72,366 57,566 -------- -------- Company's interest........................................ 76,020 23,222 -------- -------- Company's interest in net assets............................ $ 23,073 $ 25,151 ======== ========
The revenue and costs of revenue of construction joint ventures are as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Revenue: Total.............................................. $302,899 $463,634 $646,277 Less other venturers' interest..................... 170,445 328,612 469,350 -------- -------- -------- Company's interest................................. 132,454 135,022 176,927 -------- -------- -------- Cost of Revenue: Total.............................................. 287,002 413,512 575,432 Less other venturers' interest..................... 158,045 294,304 418,628 -------- -------- -------- Company's interest................................. 128,957 119,208 156,804 -------- -------- -------- $ 3,497 $ 15,814 $ 20,123 ======== ======== ========
6. INVESTMENTS IN AFFILIATES The Company has investments in affiliates that are accounted for on the equity method. The most significant of these investments is a 48% interest in Wilder Construction Company ("Wilder"), a 27% interest in T.I.C. Holdings, Incorporated ("TIC"), a 50% interest in a limited liability company which owns and operates an asphalt terminal in Nevada and a 22.2% limited partnership interest in a partnership which constructed and operates a private toll road. During 2001 the Company made advances to the asphalt terminal limited liability company of which $3,100 remained outstanding at December 31, 2001. The Company had a F-11 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) commitment supported by a letter of credit of $2,755 at December 31, 2001 related to its limited partnership interest in the private toll road. During the years ended December 31, 2001 and 2000, the Company made investments of $4,554 and $14,841, respectively, in the common stock of Wilder. Wilder is a heavy-civil construction company with regional offices in Washington, Oregon and Alaska. 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. In April 2000, the Company finalized an agreement with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement, TIC will have the opportunity to repurchase shares earlier based on an agreed formula. On June 5, 2000, TIC repurchased 478,012 TIC common shares held by the Company. The Company received $5.0 million in proceeds from the transaction and recognized a gain of $600. At December 31, 2001 the Company held 2,093,248 shares of TIC common stock. Differences between the carrying amount of the Company's investments and the underlying equity in net assets, which approximate $9,600 at December 31, 2001 of which $7,200 is being amortized over an estimated useful life of 10 years. The summarized financial information below represents an aggregation of the Company's investments in affiliates:
YEARS ENDED DECEMBER 31, ---------------------------------- 2001 2000 1999 ---------- ---------- -------- Balance sheet data: Assets.......................................... $ 634,857 $ 470,239 $347,721 Liabilities..................................... 553,329 399,199 305,542 Net assets...................................... 81,528 71,040 42,179 ---------- ---------- -------- Company's equity investment in affiliates......... 50,094 40,052 23,139 ---------- ---------- -------- Earnings data: Revenue......................................... 1,311,001 1,173,716 767,754 Gross profit.................................... 108,398 77,874 33,628 Earnings (loss) before taxes.................... 30,428 10,110 (12,426) Net income (loss)............................... 11,910 1,214 (18,655) ---------- ---------- -------- Company's equity in earnings (loss)............... $ 5,289 $ 57 $ (5,292) ========== ========== ========
7. PROPERTY AND EQUIPMENT
DECEMBER 31, ------------------- 2001 2000 -------- -------- Land........................................................ $ 38,107 $ 38,113 Quarry property............................................. 44,177 45,080 Buildings and leasehold improvements........................ 44,039 38,753 Equipment and vehicles...................................... 550,423 508,976 Office furniture and equipment.............................. 9,180 8,597 -------- -------- 685,926 639,519 Less accumulated depreciation, depletion and amortization... 423,503 390,442 -------- -------- $262,423 $249,077 ======== ========
F-12 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
DECEMBER 31, ----------------- 2001 2000 ------- ------- Payroll and related employee benefits....................... $38,526 $41,069 Accrued insurance........................................... 26,302 24,200 Other....................................................... 21,055 17,655 ------- ------- $85,883 $82,924 ======= =======
9. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
DECEMBER 31, ------------------ 2001 2000 -------- ------- Senior notes payable........................................ $135,000 $60,000 Other notes payable......................................... 4,505 5,021 -------- ------- 139,505 65,021 Less current maturities..................................... 8,114 1,130 -------- ------- $131,391 $63,891 ======== =======
The aggregate minimum principal maturities of long-term debt for each of the five years following December 31, 2001 are as follows: 2002 - $8,114; 2003 - $8,796; 2004 - $6,877; 2005 - $15,234; 2006 - $15,239; and beyond 2006 - $85,245. The Company has a bank revolving line of credit of $60,000, which allows for unsecured borrowings for up to three years through June 29, 2004, with interest rate options. Outstanding borrowings under the revolving line of credit are at the LIBOR interest rate plus margin (1.87% and 1.38%, respectively at December 31, 2001) with principal payable semiannually beginning December 2001 through June 2006 and interest payable quarterly. There were no amounts outstanding at December 31, 2001. The Company has standby letters of credit totaling approximately $14,346 outstanding at December 31, 2001 of which $11,591 reduces the amount available under the revolving line of credit and $2,755 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, 2001 was $48,409. Senior Notes Payable in the amount of $60,000 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. Additional Senior Notes Payable in the amount of $75,000 are due to a group of institutional holders. The notes are due in nine equal annual installments beginning in 2005 and bear interest at 6.96% per annum. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Senior Notes Payable was approximately $132,700 as of December 31, 2001 and $57,300 as of December 31, 2000. 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 $306,643. The Company is in compliance with these covenants at December 31, 2001. 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. F-13 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. 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, 2001, the ESOP owned 9,111,344 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 discretionary 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). Contribution expense for the years ended December 31, 2001 2000 and 1999 was $1,989, $632 and $1,769, respectively. Profit Sharing and 401k Plan: The 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 401K 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, 2001, 2000 and 1999 were $5,005, $5,021 and $3,414, respectively. Included in the contributions were 401k matching contributions of $3,872, $2,990 and $2,762, respectively. Other: Two of the Company's wholly owned subsidiaries, Granite Construction Company and Granite Halmar Construction Company, Inc., also contribute to various multi-employer pension plans on behalf of union employees. Contributions to these plans for the years ended December 31, 2001, 2000 and 1999 were approximately $16,537, $14,532 and $14,435, respectively. 11. STOCKHOLDERS' EQUITY 1999 Equity Incentive Plan: On May 24, 1999, the Company's stockholders approved the 1999 Equity Incentive Plan (the "Plan"), which replaced 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 3,750,000 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, 2001 were 1,260,560 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 three to five years. Restricted shares generally become fully vested when a holder reaches age 62. 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 F-14 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expense related to restricted shares for the years ended December 31, 2001, 2000 and 1999 was $4,973, $5,901 and $4,834, respectively. Stock options granted under the 1990 Plan, all of which were granted in 1990 expired in 2000. All options were granted, cancelled and exercised at $5.04 per share. Stock option transactions under the 1990 Plan during 2000 and 1999 are summarized as follows:
DECEMBER 31, ----------------- 2000 1999 ------- ------- Options outstanding, beginning of year...................... 80,063 105,938 Options exercised........................................... (80,063) (25,875) Options forfeited........................................... -- -- ------- ------- Options outstanding, end of year............................ -- 80,063 ======= =======
The Company granted Director Options under the Plan to purchase shares of the Company's stock for the years ended December 31, 2001 and 2000 at a weighted average exercise price of $11.91 in 2001, $8.54 in 2000 and $6.90 in 1999. The options are immediately exercisable and 40,187 shares remain outstanding at December 31, 2001. Director's option transactions are summarized as follows:
DECEMBER 31, ------------------------ 2001 2000 1999 ------ ------ ------ Options outstanding, beginning of year..................... 24,438 11,051 -- Options granted............................................ 15,749 17,479 11,051 Options exercised.......................................... -- (4,092) -- ------ ------ ------ Options outstanding, end of year........................... 40,187 24,438 11,051 ====== ====== ======
The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). All of the options were granted at prices less than fair market value. Accordingly, compensation cost for the options granted in 2001, 2000 and 1999 was recognized to the extent the fair market value exceeded the exercise price. The fair value of each option grant was estimated at the grant date using a Black-Scholes option-pricing model with the following assumptions:
2001 2000 1999 ----------- ----------- ----------- Dividend yield............................. 1.25%-1.41% 1.59%-1.90% 1.53%-2.17% Volatility................................. 41.5% 39.0% 33.8% Risk free interest rates................... 4.6%-5.4% 5.1%-6.2% 5.9%-6.5% Expected life.............................. 10 years 10 years 10 years =========== =========== ===========
Based on these assumptions, the aggregate fair value and weighted average fair value per share of options granted in 2001, 2000 and 1999 was as follows:
2001 2000 1999 ------ ------ ----- Aggregate fair value........................................ $ 252 $ 185 $ 90 Weighted average fair value per share....................... $16.01 $10.60 $8.19 ====== ====== =====
The Company recognized $188, $150 and $78 of compensation expense related to grants of stock options in 2001, 2000 and 1999, 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 F-15 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reduced to the pro forma amount indicated below, however the Company's earnings per share would be unchanged.
PRO FORMA NET INCOME 2001 2000 1999 - -------------------- ------- ------- ------- Net income as reported.................................. $50,528 $55,815 $52,916 Pro forma net income.................................... $50,464 $55,780 $52,904
The options outstanding and exercisable by exercise price under the Plan at December 31, 2001 are as follows:
WEIGHTED AVERAGE OPTIONS REMAINING OUTSTANDING CONTRACTUAL AND LIFE RANGE OF EXERCISE PRICES EXERCISABLE (YEARS) - ------------------------ ----------- ----------- $5.00-$7.00................................................. 5,209 7.72 $7.01-$9.00................................................. 15,633 8.27 $9.01-$11.00................................................ 6,613 9.11 $11.01-$13.00............................................... 12,732 9.74 ------ ---- 40,187 8.81 ====== ====
Dividend Reinvestment and Stock Purchase Plan: During 2001 the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the "DRP Plan") under which 4,500,000 shares of common stock are authorized for purchase. The DRP Plan offers participation to record holders of common stock or other interested investors. Under the DRP Plan, participants may buy additional shares of common stock by automatically reinvesting all or a portion of the cash dividends paid on their shares of common stock or by making optional cash investments. Other: The Company has issued warrants to purchase 675,000 shares of its common stock at an exercise price of $8.91 per share. The warrants expire on July 25, 2002. As of December 31, 2001 there were 322,950 warrants outstanding. F-16 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. EARNINGS PER SHARE 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, --------------------------- 2001 2000 1999 ------- ------- ------- NUMERATOR -- BASIC AND DILUTED EARNINGS PER SHARE Net income............................................. $50,528 $55,815 $52,916 ======= ======= ======= DENOMINATOR -- BASIC EARNINGS PER SHARE Common stock outstanding............................... 41,041 40,932 40,739 Less restricted stock outstanding...................... 1,247 1,348 1,652 ------- ------- ------- TOTAL.................................................. 39,794 39,584 39,087 ------- ------- ------- Basic earnings per share.................................... $ 1.27 $ 1.41 $ 1.35 ======= ======= ======= DENOMINATOR -- DILUTED EARNINGS PER SHARE Denominator -- Basic earnings per share................ 39,794 39,584 39,087 Effect of dilutive securities: Warrants............................................. 205 147 285 Common stock options................................. 18 12 62 Restricted stock..................................... 694 666 1,011 ------- ------- ------- TOTAL.................................................. 40,711 40,409 40,445 ------- ------- ------- Diluted earnings per share.................................. $ 1.24 $ 1.38 $ 1.31 ======= ======= =======
13. INCOME TAXES Provision for income taxes:
YEARS ENDED DECEMBER 31, --------------------------- 2001 2000 1999 ------- ------- ------- Federal: Current................................................... $20,762 $28,998 $26,823 Deferred.................................................. 4,890 1,989 905 ------- ------- ------- 25,652 30,987 27,728 ------- ------- ------- State: Current................................................... 4,542 5,812 5,260 Deferred.................................................. 775 256 139 ------- ------- ------- 5,317 6,068 5,399 ------- ------- ------- $30,969 $37,055 $33,127 ======= ======= =======
F-17 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of statutory to effective tax rate:
YEARS ENDED DECEMBER 31, ------------------------- 2001 2000 1999 ----- ----- ----- Federal statutory tax rate.................................. 35.0% 35.0% 35.0% State taxes, net of federal tax benefit..................... 4.2 4.2 4.1 Percentage depletion deduction.............................. (2.6) (1.7) (1.5) Other....................................................... 1.4 2.4 0.9 ---- ---- ---- 38.0% 39.9% 38.5% ==== ==== ====
DEFERRED TAX ASSETS AND LIABILITIES:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Deferred tax assets: Accounts receivable....................................... $ 1,802 $ 1,606 Inventory................................................. 2,430 2,149 Property and equipment.................................... 2,249 2,243 Insurance accruals........................................ 8,308 8,674 Deferred compensation..................................... 3,587 2,699 Other accrued liabilities................................. 5,417 5,517 Other..................................................... 280 172 -------- -------- 24,073 23,060 -------- -------- Deferred tax liabilities: Property and equipment.................................... 30,681 30,957 Contract recognition...................................... 5,331 2,348 TIC basis difference...................................... 2,968 4,107 Other..................................................... 3,170 1,331 -------- -------- 42,150 38,743 -------- -------- $(18,077) $(15,683) ======== ========
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 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. LEASES Minimum rental commitments under all noncancellable operating leases, primarily quarry property and construction equipment, in effect at December 31, 2001 were:
YEARS ENDING DECEMBER 31, - ------------------------- 2002........................................................ $ 4,474 2003........................................................ 3,503 2004........................................................ 2,155 2005........................................................ 1,534 2006........................................................ 1,077 Later years (through 2016).................................. 2,226 ------- Total minimum rental commitment............................. $14,969 =======
Operating lease rental expense was $4,964 in 2001, $5,455 in 2000, and $4,726 in 1999. 15. 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 focuses on building larger heavy civil projects with 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). F-19 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 ----------------------------------- -------- ---------- ---------- 2001 Revenues from external customers..................... $479,105 $1,068,889 $1,547,994 Intersegment revenue transfer........................ (14,837) 14,837 -- -------- ---------- ---------- Net revenue.......................................... 464,268 1,083,726 1,547,994 Depreciation and amortization........................ 10,445 33,754 44,199 Operating income..................................... (2,761) 106,316 103,555 Property and equipment............................... 45,539 198,803 244,342 2000 Revenues from external customers..................... $352,825 $ 995,500 $1,348,325 Intersegment revenue transfer........................ (15,412) 15,412 -- -------- ---------- ---------- Net revenue.......................................... 337,413 1,010,912 1,348,325 Depreciation and amortization........................ 7,670 31,885 39,555 Operating income..................................... 33,775 87,769 121,544 Property and equipment............................... 33,830 194,810 228,640 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
F-20 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF SEGMENT PROFIT AND ASSETS TO THE COMPANY'S CONSOLIDATED TOTALS: --------------------------------------------------------------------------------- 2001 2000 1999 -------- -------- -------- Profit or Loss: Total profit or loss for reportable segments................ $103,555 $121,544 $118,054 Other income................................................ 17,163 7,295 1,781 Unallocated other corporate expenses........................ (39,221) (35,969) (33,792) -------- -------- -------- Income before provision for income taxes.................. $ 81,497 $ 92,870 $ 86,043 ======== ======== ======== Assets: Total assets for reportable segments........................ $244,342 $228,640 Assets not allocated to segments: Cash and cash equivalents.............................. 125,174 57,759 Short-term investments................................. 68,059 42,972 Deferred income taxes.................................. 13,185 15,857 Other current assets................................... 380,498 295,040 Property and equipment................................. 18,081 20,437 Other assets........................................... 80,345 50,437 -------- -------- Consolidated total........................................ $929,684 $711,142 ======== ========
16. ACQUISITION OF HALMAR BUILDERS OF NEW YORK, INC. On July 1, 2001 the Company acquired 100% of the common stock of Halmar Builders of New York, Inc., a Mt. Vernon, New York heavy-civil construction company ("Halmar") for a cash purchase price of approximately $13.0 million ($11.4 million net of cash acquired) and assumption of net liabilities of approximately $7.0 million. The new entity operates under the name Granite Halmar Construction Company, Inc. ("Granite Halmar") as a wholly owned subsidiary of Granite Construction Incorporated. If Granite Halmar achieves certain predetermined financial results over a two-year period, the Company will pay the former Halmar shareholders up to an additional $2.0 million which will be recorded as an adjustment to purchase price by the Company at the time the predetermined financial results have been achieved. The acquisition was accounted for in accordance with SFAS 141, "Business Combinations." The results of operations of Granite Halmar are included in these consolidated financial statements as of July 1, 2001. Included in the Company's other assets is approximately $18.0 million of goodwill and approximately $2.0 million of other intangible assets related to this transaction. Additionally, included in the Company's costs and estimated earnings in excess of billings at December 31, 2001 is approximately $17.9 million related to claims and unexecuted change orders acquired from Halmar that the Company believes are probable of collection during 2002. The acquisition is not considered material, therefore, certain disclosures otherwise required have been omitted. F-21 GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. SUBSEQUENT EVENTS Dividend: On January 30, 2002 the Company announced a quarterly cash dividend of $0.08 per common share on the Company's common stock. The dividend is payable April 15, 2002 to stockholders of record on March 29, 2002 Asset Purchase Agreements: In March 2002 the Company entered into agreements to purchase certain assets and assume certain liabilities and obligations of two materials and construction businesses in California. The agreements require cash payments of approximately $22.0 million plus the value of purchased inventory at the time of close, subject to adjustment as provided in the agreements. Both transactions are expected to close in the second quarter of 2002. F-22 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 33-36482 and 33-36485) and Form S-3 (File No. 333-43422) of Granite Construction Incorporated of our report dated February 15, 2002, except Note 17 (Asset Purchase Agreements) as to which the date is March 8, 2002, relating to the financial statements and financial statement schedule, which appears in this Annual Report on Form 10-K. We also consent to the reference to us under the heading "Selected Consolidated Financial Data" in such Annual Report. PRICEWATERHOUSECOOPERS LLP San Jose, California March 28, 2002 26 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. GRANITE CONSTRUCTION INCORPORATED By: /s/ WILLIAM E. BARTON ------------------------------------ [William E. Barton, Senior Vice President and Chief Financial Officer] Date: March 28, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 28, 2002 by the following persons in the capacities indicated. /s/ DAVID H. WATTS Chairman of the Board, President, Chief - -------------------------------------------------------- Executive Officer and Director [David H. Watts] /s/ WILLIAM E. BARTON Senior Vice President and Chief Financial - -------------------------------------------------------- Officer, Principal Accounting and Financial [William E. Barton] Officer /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]
27 INDEX TO FORM 10-K EXHIBITS
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 3.1 Certificate of Incorporation of Granite Construction (a) Incorporated 3.1.a Amendment to the Certificate of Incorporation of Granite (f) Construction Incorporated 3.1.b Amendment to the Certificate of Incorporation of Granite (h) Construction Incorporated 3.1.c Certificate of Correction of Certificate of Incorporation of (h) Granite Construction Incorporated (Effective January 31, 2001) 3.1.d Certificate of Correction of Certificate of Amendment of (h) Granite Construction Incorporated, filed May 23, 2000 (Effective January 31, 2001) 3.1.e Certificate of Correction of Certificate of Incorporation of (h) Granite Construction Incorporated, filed Mary 23, 2000 (Effective January 31, 2001) 3.1.f Amendment to the Certificate of Incorporation of Granite (i) Construction Incorporated (Effective May 25, 2001) 3.1.g Certificate of Incorporation of Granite Construction (i) Incorporated as Amended (Effective May 25, 2001) 3.2 Bylaws of Granite Construction Incorporated (as amended and (b) restated, effective February 27, 1991) 10.1 Amendment to and Restatement of the Granite Construction (f) Incorporated Employee Stock Ownership Plan adopted November 16, 1998 and effective January 1, 1998 10.1.a Amendment 1 to the Granite Construction Incorporated -- Employee Stock Ownership Plan dated February 11, 2002 10.1.b Granite Construction Incorporated Employee Stock Ownership (b) Trust Agreement 10.1.c Amendment 1 to the Granite Construction Incorporated (c) Employee Stock Ownership Plan Trust Agreement adopted December 19, 1995, effective January 1, 1996 10.2 Granite Construction Profit Sharing and 401(k) Plan as -- Amended and Restated Effective January 1, 2001 10.3 Credit Agreement dated and effective June 30, 1997 (e) 10.3.a First Amendment to the Credit Agreement entered into January (e) 16, 1998 10.3.b Second Amendment to the Credit Agreement entered into June (f) 30, 1998 10.3.c Third Amendment to the Credit Agreement entered into June (g) 30, 1999 10.4 Credit Agreement dated and effective June 29, 2001 (i) 10.5 Continuing Guaranty Agreement from the Subsidiaries of (i) Granite Construction Incorporated as Guarantors of financial accommodations pursuant to the terms of the Credit Agreement dated June 29, 2001 10.6 Form of Director and Officer Indemnification Agreement (a) 10.7 Form of Executive Officer Employment Agreement (a) 10.8 Amendment to and Restatement of the Granite Construction (f) Incorporated Key Management Deferred Compensation Plan adopted and effective January 1, 1998 10.8.a Amendment 1 to Granite Construction Incorporated Key (g) Management Deferred Compensation Plan dated April 23, 1999 10.9 Amendment to and Restatement of the Granite Construction (f) Incorporated Key Management Deferred Incentive Compensation Plan adopted and effective January 1, 1998 10.9.a Amendment 1 to Granite Construction Incorporated Key (g) Management Deferred Incentive Compensation Plan dated April 23, 1999 10.9.b Amendment 2 to Granite Construction Incorporated Key -- Management Deferred Incentive Compensation Plan dated November 1, 2001 10.10 Note Purchase Agreement between Granite Construction (i) Incorporated and certain purchasers dated May 1, 2001
28
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 10.11 Subsidiary Guaranty Agreement from the Subsidiaries of (i) Granite Construction Incorporated as Guarantors of the Guaranty of Notes and Note Agreement and the Guaranty of Payment and Performance dated May 1, 2001 10.12 Amended and Restated Note Purchase Agreement between Granite -- Construction Incorporated and certain purchasers dated November 1, 2001 10.13 Subsidiary Guaranty Agreement from the Subsidiaries of (f) Granite Construction Incorporated as Guarantors of the Guaranty of Notes and Note Agreement and the Guaranty of Payment and Performance dated March 1, 1998 10.13.a Subsidiary Guaranty Supplement November 15, 2001 -- 10.14 Granite Construction Incorporated 1999 Equity Incentive Plan (g) 21.1 List of Subsidiaries of Granite Construction Incorporated (g) 24.1 Consent of PricewaterhouseCoopers LLP is contained on page 26 of this Report.
- --------------- (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 10-K for the year ended December 31, 1995. (d) Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1996. (e) Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1997. (f) Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1998. (g) Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1999. (h) Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 2000. (i) Incorporated by reference to the exhibits filed with the Company's 10-Q for the quarter ended June 30, 2001. 29 SCHEDULE II GRANITE CONSTRUCTION INCORPORATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT ---------------------- ADJUSTMENTS BEGINNING BAD DEBT AND BALANCE AT DESCRIPTION OF YEAR EXPENSE COLLECTIONS DEDUCTIONS(1) END OF YEAR - ----------- ---------- -------- ----------- ------------- ----------- (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2001 Allowance for doubtful accounts..... $1,781 $1,654 $2,195 $(3,868) $1,762 ====== ====== ====== ======= ====== Allowance for notes receivable...... $ 68 $ -- $ -- $ -- $ 68 ====== ====== ====== ======= ====== YEAR ENDED DECEMBER 31, 2000 Allowance for doubtful accounts..... $1,224 $1,165 $1,617 $(2,225) $1,781 ====== ====== ====== ======= ====== Allowance for notes receivable...... $ 68 $ -- $ -- $ -- $ 68 ====== ====== ====== ======= ====== YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts..... $ 699 $ 997 $1,516 $(1,988) $1,224 ====== ====== ====== ======= ====== Allowance for notes receivable...... $ 68 $ -- $ -- $ -- $ 68 ====== ====== ====== ======= ======
- --------------- (1) Accounts deemed to be uncollectible S-1 EX-10.1.A 3 f79324ex10-1_a.txt EXHIBIT 10.1.A Exhibit 10.1.a GRANITE CONSTRUCTION EMPLOYEE STOCK OWNERSHIP PLAN Amendment No. 1 to Amended and Restated Plan WHEREAS, Granite Construction Incorporated (the "Company") maintains the Granite Construction Employee Stock Ownership Plan (the "Plan") for the benefit of eligible Employees; and WHEREAS, it is desirable to clarify certain Plan provisions to reflect the requirements of the Internal Revenue Code of 1986, as amended by the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, and the Economic Growth and Tax Relief Reconciliation Act of 2001. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 2 is amended by restating the definition of "Compensation" to read as follows, effective as of January 1, 2002: 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 $200,000 (as adjusted periodically after 2002 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. 2. Section 2 is further amended by restating the definition of "Employee" to read as follows, effective as of January 1, 1997: Employee ................................. Any individual who is treated by an Employer as a common-law employee; provided, however, that an independent contractor (or other individual) who is reclassified as a common-law employee on a retroactive basis shall not be treated as having been an Employee for purposes of the Plan for any period prior to the date that he is so reclassified. A leased employee is not an Employee for purposes of the Plan. For this purpose, a "leased employee," as described in Section 414(n) of the Code, is any individual who is not treated as a common-law employee by the Company or an Affiliate and who provides services to the Company or an Affiliate if (A) such services are provided pursuant to an agreement between the Company or an Affiliate and a leasing organization, (B) such individual has performed services for the Company or an Affiliate on a substantially full-time basis for a period of at least one year, and (C) such services are performed under the primary direction or control of the Company or an Affiliate.
-2- 3. Section 7 is amended by restating the first paragraph thereof to read as follows, effective as of January 1, 2002: The Annual Additions for each Plan Year with respect to any Participant may not exceed the lesser of: (1) 100% of his Statutory Compensation; or (2) $40,000, as may be adjusted for increases in the cost of living pursuant to Section 415(d)(l)(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, excluding any Employer Contributions which are used by the Trust (not later than the due date, including extensions, for filing the Company's Federal income tax return for that Plan Year) to pay interest on a Loan and any Financed Shares which are allocated as Forfeitures, plus any employer contributions (including 401(k) contributions) and forfeitures allocated to him under the Profit Sharing Plan for the Plan Year. In determining such Annual Additions, Forfeitures of Stock shall be included at the Fair Market Value as of the Allocation Date and Employer Contributions in the form of Stock shall be included at the Fair Market Value as of the date such shares are issued to the Trust. -3- 4. Section 9(b) is restated to read as follows, effective as of January 1, 1999: (b) Summary Annual Report - Within two months after the due date for filing the annual return/report (Form 5500) for the Plan with the U.S. Department of Labor, 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. 5. Section 9(d) is amended by restating the first sentence thereof to read as follows, effective as of January 1, 1999: The Company shall make available for examination by any Participant copies of the Plan, the Trust Agreement and the latest annual return/report of the Plan filed (on Form 5500) with the U.S. Department of Labor. 6. Section 11(b) is amended by deleting the third paragraph thereof in its entirety, effective as of January 1, 1998. -4- 7. Section 12(a) is amended by restating the second sentence thereof to read as follows, effective as of January 1, 1998: If the value of a Participant's Capital Accumulation exceeds $5,000, no portion of his Capital Accumulation may be distributed to him before he attains age 65 without his written consent. 8. Section 12(e) is amended by restating the third sentence thereof to read as follows, effective as of January 1, 1998: If the value of a Participant's Capital Accumulation exceeds $5,000, 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. 9. Section 14(e) is restated to read as follows, effective as of January 1, 1999: (e) If a distribution of a Participant's Capital Accumulation is neither the minimum amount required to be distributed pursuant to the second and third sentences of Section 12(c) nor a hardship distribution (including withdrawals described in Section 13(c) and, prior to January 1, 2002, a hardship distribution of "elective deferrals" as described in Section 401(k)(2)(IV) of the Code only), 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" -5- (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 (and for transfers or distributions after December 31, 2001, an annuity contract described in Section 403(b) or an eligible plan described in 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state) that accepts "eligible rollover distributions." For distributions made prior to January 1, 2002, 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 only 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(e) 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. 10. Section 15 is restated to read as follows, effective for judgments, orders, and decrees issued, and settlement agreements entered into, on or after August 5, 1997: A Participant's Capital Accumulation 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 (i) a "qualified domestic relations order" (as defined in Section 414(p) of the Code); (ii) a federal tax levy or -6- collection by the Internal Revenue Service on a judgment resulting from an unpaid tax assessment; or (iii) a judgment or settlement described in Section 401(a)(13)(C) of the Code. To record the adoption of this Amendment No. 1 to the Plan, the Company has caused it to be executed this 11th day of February, 2002. GRANITE CONSTRUCTION INCORPORATED By /s/ WILLIAM G. DOREY ----------------------------------- William G. Dorey Its Executive Vice President, Chief Operating Officer By /s/ MICHAEL FUTCH ----------------------------------- Michael Futch Its Vice President, Secretary -7- EX-10.2 4 f79324ex10-2.txt EXHIBIT 10.2 Exhibit 10.2 GRANITE CONSTRUCTION PROFIT SHARING AND 401(k) PLAN As Amended and Restated Effective as of January 1, 2001 TABLE OF CONTENTS
Section Page - ------- ---- 1. Nature of the Plan......................................................................1 2. Definitions.............................................................................1 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................................................................26 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.........................................31 13. Hardship Withdrawals..................................................................34 14. How Capital Accumulation Will Be Distributed..........................................36 15. No Assignment of Benefits.............................................................38 16. Administration........................................................................38 17. Claims Procedure......................................................................42 18. Limitation on Participants' Rights....................................................43 19. Future of the Plan....................................................................44 20. "Top-Heavy" Contingency Provisions....................................................45 21. Governing Law.........................................................................47 22. Execution.............................................................................47
GRANITE CONSTRUCTION PROFIT SHARING AND 401(k) PLAN As Amended and Restated Effective As of January 1, 2001 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), and amended and restated as of January 1, 1999, is hereby amended and restated effective as of January 1, 2001. 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. 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). 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) Employer Contributions made pursuant to Contributions............................. 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) or an affiliated service group (within the meaning of Section 414(m) 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 with the provisions of Section 10 and distributed as provided in Sections 12, 13 and 14. Catch Up Contributions.................... Employer Contributions made pursuant to Participant elections under Section 4(b)(3).
-2- 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 $200,000 ($170,000 for the Plan Year ending December 31, 2001), as adjusted periodically after 2002 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 as a common-law employee by an Employer; provided, however, that an independent contractor (or other individual) who is reclassified as a common-law employee on a retroactive basis shall not be treated as having been an Employee for purposes of the Plan for any period prior to the date that he is so reclassified. A leased employee is not an Employee for purposes of the Plan. For this purpose, a "leased employee," as described in Section 414(n)(2) of the Code, is any individual who is not treated as a common-law
-3- employee by the Company or an Affiliate and who provides services to the Company or an Affiliate if (A) such services are provided pursuant to an agreement between the Company or an Affiliate and a leasing organization, (B) such individual has performed services for the Company or an Affiliate on a substantially full-time basis for a period of at least one year, and (C) such services are performed under the primary direction or control of the Company or an Affiliate. 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. 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 and Catch Up Contributions. See Section 6. 401(k) Compensation........................ The Compensation paid to an Employee by his Employer, excluding any amounts that are contributed by an Employer on his behalf that are not included in gross income under Section 125 of the Code. For this purpose, 401(k) Compensation shall only include 401(k) Compensation that is paid to the Employee for
-4- the portion of a Plan Year during which he is eligible to participate in the Plan. 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. 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 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 plan 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
-5- Plan Year, or (2) received Statutory Compensation in excess of $85,000 in the preceding Plan Year and was in the top-paid 20% group of Employees for such preceding Plan Year. The $85,000 amount shall be adjusted after 2001 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). 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
-6- 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 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 Catch Up 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.
-7- 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).
Section 3. Eligibility and Participation. (a) Each Employee who was a Participant on December 31, 2000, 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. -8- 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 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 Catch Up 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 -9- 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; 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 -10- 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. 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% (15% effective as of January 1, 2003) or such other percentage as may be determined by the Board of Directors) of his 401(k) 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. For a Plan Year, a Participant's 401(k) Contributions may not exceed $10,500 (for 2001); $11,000 (for 2002); $12,000 (for 2003); $13,000 (for 2004); $14,000 (for 2005); $15,000 (for 2006); and as adjusted periodically after 2006 for increases in the cost of living pursuant to Section 402(g)(5) of the Code. -11- (2) Additional 401(k) Contributions. Under rules established by the Committee, an eligible Participant may elect to have a portion of his 401(k) 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 participant in a non-qualified deferred compensation plan maintained by an Employer may also elect to have any portion of his 401(k) 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 85% of his cash bonus (in 5% 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) Catch Up Contributions. Effective as of January 1, 2002, and under rules established by the Committee, each Participant who is eligible to make Catch Up Contributions may elect to have a portion of his 401(k) Compensation withheld by his Employer and contributed to the Trust as a Catch Up Contribution in lieu of receiving such amount as Compensation. A Participant will be eligible to make Catch Up Contributions under this Section 4(b)(3) if he has attained (or will attain) age 50 before the close of the Plan Year. -12- For each Plan Year, a Participant's Catch Up Contributions may not exceed the lesser of (i) 100% of the Participant's 401(k) Compensation or (ii) $1,000 (for 2002); $2,000 (for 2003); $3,000 (for 2004); $4,000 (for 2005): and $5,000 (for 2006); and as adjusted periodically after 2006 for increases in the cost of living pursuant to Section 414(v) of the Code. Any Catch Up Contributions in excess of the limits described in the preceding sentence shall be treated as 401(k) Contributions. In addition, if an eligible Participant has not exceeded the maximum amount of 401(k) Contributions permitted in accordance with the provisions of the Plan, all or a portion of his Catch Up Contributions will be treated as 401(k) Contributions until he has reached such maximum amount. The portion (if any) of a Participant's Catch Up Contributions that will be treated as 401(k) Contributions will be determined as of each Allocation Date. Catch Up Contributions shall not be taken into account for purposes of the Plan implementing the required limitations of Section 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11) 401(k)(12), 410(b) or 416 of the Code, as applicable, by reason of the making of Catch Up Contributions. (4) A Participant may change the amount of 401(k) Contributions and/or Catch Up Contributions to be withheld or cease to have any 401(k) Contributions and/or Catch Up 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 and/or Catch Up Contributions withheld may not make a new election to have 401(k) Contributions and/or Catch Up 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 -13- rules and procedures established by the Committee. 401(k) Contributions and Catch Up 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 401(k) Compensation. (5) 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 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)(1) 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). -14- Catch Up Contributions made under this Section 4(b) shall be treated as automatically satisfying the nondiscrimination requirements of Section 401(k)(3)(A) of the Code. (6) 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. 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 401(k)(3) of the Code and Section 1.401(k)-1(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 excess contributions to -15- 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. (7) 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. (8) 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; provided, however, that Matching Contributions attributable to Catch Up Contributions that are treated as 401(k) Contributions in accordance with Section 4(b)(3) shall be paid by an Employer to the Trust not later than the due date (including extensions) for filing the Company's Federal income tax return for that Plan Year. With respect to each Participant, the rate of -16- Matching Contribution shall be equal to (1) 2% for 1% of 401(k) Compensation deferred as 401(k) Contributions, (2) 2.5% for 2% of 401(k) Compensation deferred as 401(k) Contributions, (3) 3% for 3% of 401(k) Compensation deferred as 401(k) Contributions, (4) 3.5% for 4% of 401(k) Compensation deferred as 401(k) Contributions, or (5) 4% for 5% of 401(k) Compensation deferred as 401(k) Contributions. No Matching Contribution shall be made with respect to any Catch Up Contributions. In addition, no Matching Contributions shall be made with respect to amounts contributed as 401(k) Contributions by a Participant during any Plan Year that exceeds 5% of such Participant's 401(k) 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 401(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 401(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 1.401(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: -17- (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 1.401(m)-1(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. 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 -18- 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 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. -19- 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 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 -20- 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. 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 -21- 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 and/or Catch Up Contributions. The 401(k) Account maintained for a Participant shall be credited throughout each Plan Year with his 401(k) Contributions and/or Catch Up 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, Catch Up 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 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. -22- ESOP Diversification Account - An ESOP Diversification Account shall be maintained to reflect the interest of each Participant who elects to 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. 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 and Catch Up Contributions - 401(k) Contributions and Catch Up 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. -23- (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. (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) 100% of the Participant's Statutory Compensation; or (2) $40,000, as may be adjusted for increases in the cost of living pursuant to Section 415(d)(1)(C) of the Code. Notwithstanding the foregoing, for the Plan Year ending December 31, 2001, the Annual Additions for such Plan Year with respect to any Participant may not exceed the lesser of: (1) -24- 25% of the Participant's Statutory Compensation or (2) $35,000. For purposes of this Section 7, "Annual Additions" shall be the total of the Employer Contributions (other than Catch Up 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 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 -25- 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 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 -26- 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: (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 -27- 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). 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 U.S. 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 U.S. Department of Labor, 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- (d) Additional Disclosure - The Company shall make available for examination by any Participant copies of the Plan, the Trust Agreement and the latest annual return/report of the Plan filed (on Form 5500) with the U.S. Department of Labor. 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- 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 411(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 -30- Hours of 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. (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. 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 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). -31- (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. (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 416(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. 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. -32- (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 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, 2001). 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. -33- 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. Effective as of January 1, 1999, a withdrawal of 401(k) Contributions made under this Section 13(a) shall not be considered an "eligible rollover distribution" (as described in Section 14(d) and defined in Section 402(c)(4) of the Code). Effective as of January 1, 2002, any withdrawal made under this Section 13(a) shall not be considered an "eligible rollover distribution" (as described in Section 14(d) and defined in Section 402(c)(4) of the Code). Any withdrawal attributable to the Participant's 401(k) Contributions and Matching Contributions (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 -34- (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 (1) 40% of the Participant's vested Profit Sharing Account, Matching Account, ESOP Diversification Account and Rollover Account plus the Participant's 401(k) Contributions and the amount of any prior withdrawals made under this Section 13(a), determined at the time the hardship request is processed, or (2) $200,000 (reduced by any amount withdrawn as a 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 six month period (for the 2001 Plan Year only, 12-month period) commencing upon his receipt of a hardship withdrawal. -35- (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. 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. -36- (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 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 neither one of a series of annual installments over a period of ten years (or more), a hardship withdrawal (for the 2001 Plan Year, a hardship withdrawal of amounts attributable to 401(k) Contributions only), nor the minimum amount required to be distributed pursuant to the second sentence of Section 12(c), (an "eligible rollover distribution"), the Committee shall notify the Participant (or his surviving spouse 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 or 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 (and for transfers after December 31, 2001, a transfer described in Sections 403(b)(8) or 457(d)(16) of the Code) that accepts "eligible rollover distributions." For -37- the 2001 Plan Year only, 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. 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 (i) a "qualified domestic relations order" (as defined in Section 414(p) of the Code); (ii) a federal tax levy or collection by the Internal Revenue Service on a judgment resulting from an unpaid tax assessment; or (iii) a judgment or settlement described in Section 401(a)(13)(C) 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 -38- 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. (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; -39- (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 (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. -40- 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. (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 -41- 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 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 -42- 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 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 -43- interfere with the right of an Employer to discharge, with or without cause, any Employee at any time. 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). -44- 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. 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 401(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 416(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. -45- (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: (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 $200,000 ($170,000 for the 2001 Plan Year), as adjusted periodically after 2002 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). -46- 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 _______________, 2001. GRANITE CONSTRUCTION INCORPORATED By -------------------------------- Its ------------------------------- -47- EX-10.9.B 5 f79324ex10-9_b.txt EXHIBIT 10.9.B Exhibit 10.9.b GRANITE CONSTRUCTION INCORPORATED KEY MANAGEMENT DEFERRED INCENTIVE COMPENSATION PLAN Amendment No. 2 ---------------------------------------------------------------------------- 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 manner in which certain deferrals are credited with earnings. NOW, THEREFORE, the Plan is hereby amended as follows, effective as of December 1, 1999: 1. Section 2 is amended to modify subsection (a) to read as follows: (a) "Account" means as to any Participant the separate account(s) established and maintained by the Company in order to reflect his or her interest in the Plan. Each Participant's Account or Accounts will reflect the allocations and earnings credited (or debited) thereto in accordance with Section 5. 2. Section 2 is amended to add new subsection (g) to follow existing subsection (f) and subsections (g) through (i) are modified accordingly: (g) "Excess Cash Incentive Compensation" means Compensation that exceeds a Participant's usual and customary Compensation (as determined by the Committee). 3. Section 5 is amended to read as follows: 5. Additions to Accounts. (a) Participant Compensation Deferrals. Each Participant may annually elect to defer the receipt of up to and including 100% of his or her Compensation. Each Participant may annually elect to defer the receipt of 100% of his or her Excess Cash Incentive Compensation. (b) Hypothetical Investment Experience. For each Plan Year, the balance of each Participant's Compensation Account will be credited quarterly with hypothetical earnings equal to one-quarter of the sum of the 30-day average of the Lehman Brothers long term bond index (as published in the Wall Street Journal) determined as of the December 1 of the prior Plan Year, plus 100 basis points, or as determined by the Committee. For each Plan Year, the balance of each Participant's Excess Cash Incentive Compensation Account will be credited quarterly with hypothetical earnings (or losses) equal to an amount determined by the Committee as though such Account had been invested in shares of Company stock for such period. 4. 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: - 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; -2- - Except for a Participant's Excess Cash Incentive Account, 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;" or - The Participant's death. To record the adoption of this Amendment No. 2 to the Plan, the Company has caused it to be executed this 6th day of February, 2001. GRANITE CONSTRUCTION INCORPORATED By /s/ DAVID H. WATTS ---------------------------------- David H. Watts, President & CEO By /s/ MICHAEL FUTCH ---------------------------------- Michael Futch, Secretary -3- EX-10.12 6 f79324ex10-12.txt EXHIBIT 10.12 Exhibit 10.12 ================================================================================ GRANITE CONSTRUCTION INCORPORATED $60,000,000 6.54% SENIOR NOTES DUE MARCH 15, 2010 ------------------------------------ AMENDED AND RESTATED NOTE PURCHASE AGREEMENT ------------------------------------ Dated as of November 1, 2001 ================================================================================ THE INFORMATION SET FORTH ON SCHEDULES 5.15, 5.16 AND 5.18 TO THIS NOTE PURCHASE AGREEMENT IS "CONFIDENTIAL INFORMATION" SUBJECT TO THE REQUIREMENTS OF SECTION 20 HEREOF. TABLE OF CONTENTS
SECTION HEADING PAGE - ------- ------- ---- SECTION 1. AMENDMENT AND RESTATEMENT............................................1 Section 1.1. Amendment and Restatement............................................1 Section 1.2. Agreement of Holders.................................................1 SECTION 2. SALE AND PURCHASE OF NOTES; GUARANTY.................................2 Section 2.1. Intentionally Omitted................................................2 Section 2.2. Guaranty of Notes....................................................2 Section 3. Intentionally Omitted................................................2 SECTION 4. CONDITIONS PRECEDENT.................................................2 Section 4.1. Representations and Warranties.......................................2 Section 4.2. Performance; No Default..............................................2 Section 4.3. Compliance Certificates..............................................2 Section 4.4. Guaranty Agreement...................................................2 Section 4.5. Payment of Special Counsel Fees......................................3 Section 4.6. Proceedings and Documents............................................3 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................3 Section 5.1. Organization; Power and Authority....................................3 Section 5.2. Authorization, Etc...................................................3 Section 5.3. Disclosure...........................................................3 Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.....4 Section 5.5. Financial Statements.................................................4 Section 5.6. Compliance with Laws, Other Instruments, Etc.........................4 Section 5.7. Governmental Authorizations, Etc.....................................5 Section 5.8. Litigation; Observance of Agreements, Statutes and Orders............5 Section 5.9. Taxes................................................................5 Section 5.10. Title to Property; Leases............................................5 Section 5.11. Licenses, Permits, Etc...............................................6 Section 5.12. Compliance with ERISA................................................6 Section 5.14. Intentionally Omitted................................................7 Section 5.14. Intentionally Omitted................................................7 Section 5.15. Existing Debt........................................................7 Section 5.16. Existing Investments.................................................7 Section 5.17. Status under Certain Statutes........................................7 Section 5.18. Environmental Matters................................................7 Section 5.19. Original Note Purchase Agreement Representations and Warranties......8 SECTION 6. REPRESENTATIONS OF THE PURCHASERS....................................8 Section 6.1. Purchase for Investment..............................................8 Section 6.2. Source of Funds......................................................8
-i- SECTION 7. INFORMATION AS TO COMPANY...........................................10 Section 7.1. Financial and Business Information..................................10 Section 7.2. Officer's Certificate...............................................12 Section 7.3. Inspection..........................................................13 SECTION 8. PREPAYMENT OF THE NOTES.............................................13 Section 8.1. Required Prepayments................................................13 Section 8.2. Optional Prepayments with Make-Whole Amount.........................14 Section 8.3. Allocation of Partial Prepayments...................................14 Section 8.4. Maturity; Surrender, Etc............................................14 Section 8.5. Purchase of Notes...................................................15 Section 8.6. Make-Whole Amount...................................................15 SECTION 9. AFFIRMATIVE COVENANTS...............................................16 Section 9.1. Compliance with Law.................................................16 Section 9.2. Insurance...........................................................17 Section 9.3. Maintenance of Properties...........................................17 Section 9.4. Payment of Taxes and Claims.........................................17 Section 9.5. Corporate Existence, Etc............................................17 Section 9.6. Guaranty Agreement..................................................17 SECTION 10. NEGATIVE COVENANTS..................................................19 Section 10.1. Nature of Business..................................................19 Section 10.2. Consolidated Net Worth..............................................19 Section 10.3. Incurrence of Debt..................................................19 Section 10.4. Subsidiary Debt.....................................................20 Section 10.5. Liens...............................................................20 Section 10.6. Restrictions on Dividends of Subsidiaries, Etc......................22 Section 10.7. Mergers, Consolidations, Etc........................................22 Section 10.8. Sale of Assets, Etc.................................................24 Section 10.9. Disposal of Ownership of a Subsidiary...............................24 Section 10.10. Sale-and-Leasebacks.................................................25 Section 10.11. Transactions with Affiliates........................................25 SECTION 11. EVENTS OF DEFAULT...................................................25 SECTION 12. REMEDIES ON DEFAULT, ETC............................................27 Section 12.1. Acceleration........................................................27 Section 12.2. Other Remedies......................................................28 Section 12.3. Rescission..........................................................28 Section 12.4. No Waivers or Election of Remedies, Expenses, Etc...................28 SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.......................29 Section 13.1. Registration of Notes...............................................29
-ii- Section 13.2. Transfer and Exchange of Notes......................................29 Section 13.3. Replacement of Notes................................................30 SECTION 14. PAYMENTS ON NOTES...................................................30 Section 14.1. Place of Payment....................................................30 Section 14.2. Home Office Payment.................................................30 SECTION 15. EXPENSES, ETC.......................................................31 Section 15.1. Transaction Expenses................................................31 Section 15.2. Survival............................................................31 SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT........31 SECTION 17. AMENDMENT AND WAIVER................................................32 Section 17.1. Requirements........................................................32 Section 17.2. Solicitation of Holders of Notes....................................32 Section 17.3. Binding Effect, Etc.................................................32 Section 17.4. Notes Held by Company, Etc..........................................33 SECTION 18. NOTICES.............................................................33 SECTION 19. REPRODUCTION OF DOCUMENTS...........................................33 SECTION 20. CONFIDENTIAL INFORMATION............................................34 SECTION 21. INTENTIONALLY OMITTED...............................................35 SECTION 22. MISCELLANEOUS.......................................................35 Section 22.1. Successors and Assigns..............................................35 Section 22.2. Payments Due on Non-Business Days...................................35 Section 22.3. Severability........................................................35 Section 22.4. Construction........................................................35 Section 22.5. Counterparts........................................................35 Section 22.6. Governing Law.......................................................36
-iii- ATTACHMENTS TO THE NOTE PURCHASE AGREEMENT: SCHEDULE A -- Information Relating to Holders SCHEDULE B -- Defined Terms SCHEDULE 4.9 -- Changes in Corporate Structure Schedule 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Certain Litigation SCHEDULE 5.11 -- Patents, Etc. SCHEDULe 5.15 -- Existing Debt SCHEDULE 5.16 -- Existing Investments SCHEDULE 5.18 -- Environmental Matters EXHIBIT 1 -- Form of 6.54% Senior Note due March 15, 2010 EXHIBIT 2 -- Form of Guaranty Agreement EXHIBIT 3 -- Investment Policy Guidelines
-iv- GRANITE CONSTRUCTION INCORPORATED 585 WEST BEACH STREET WATSONVILLE, CALIFORNIA 95076 6.54% Senior Notes due March 15, 2010 Dated as November 1, 2001 TO THE HOLDERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: Reference is hereby made to that certain Note Purchase Agreement dated as of March 1, 1998 (the "Original Note Purchase Agreement") between Granite Construction Incorporated, a Delaware corporation (the "Company"), and each of the institutional investors named in Schedule A attached thereto, under and pursuant to which the Company issued $60,000,000 aggregate principal amount of its 6.54% Senior Notes due March 15, 2010 (the "Notes", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement (as hereinafter defined)). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by each Holder (as hereinafter defined) and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. The Company agrees with the holders of Notes listed in Schedule A (the "Holders") as follows: SECTION 1. AMENDMENT AND RESTATEMENT. Section 1.1. Amendment and Restatement. The Company now desires to amend and restate the Original Note Purchase Agreement to be in the form of this Agreement. Section 1.2. Agreement of Holders. In consideration of the premises and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Holders have agreed to the amendment and restatement described in this Section 1. Accordingly, subject to the terms and conditions hereof and on the basis of the representations and warranties herein contained or incorporated herein by reference, the parties hereto hereby agree that, from and after the fulfillment of the conditions set forth in Section 4, the Original Note Purchase Agreement shall be deemed to be amended and restated in the form of this Agreement. SECTION 2. GUARANTY. Section 2.1. Intentionally Omitted. Section 2.2. Guaranty of Notes. The payment by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under this Agreement are fully and unconditionally guaranteed by Granite Construction Company, a California corporation, Granite Land Company, a California corporation, Intermountain Slurry Seal, Inc., a Wyoming corporation, Pozzolan Products Company, a Utah corporation, GILC, L.P., a California limited partnership, G.G.&R., Inc., a Utah corporation, and Granite Halmar Construction Company, Inc., a New York corporation, and each other from time to time Material Subsidiary (collectively, the "Guarantors") pursuant to that certain Subsidiary Guaranty Agreement dated as of March 1, 1998 (as amended and supplemented to the date hereof and as further amended and supplemented from time to time, the "Guaranty Agreement") from the Guarantors to each Purchaser and each other from time to time holder of Notes substantially in the form attached hereto as Exhibit 2. SECTION 3. INTENTIONALLY OMITTED. SECTION 4. CONDITIONS PRECEDENT. This Agreement and the amendment and restatement of the Original Note Purchase Agreement provided for herein shall only become effective at such time (the "Effective Date") as all of the following conditions precedent shall have been satisfied: Section 4.1. Representations and Warranties. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Effective Date. Section 4.2. Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or on the Effective Date, and no Default or Event of Default shall exist. Section 4.3. Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to each Holder an Officer's Certificate, dated the Effective Date, certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. (b) Intentionally Omitted. Section 4.4. Guaranty Agreement. The Guaranty Agreement shall be in full force and effect and each Guarantor shall have delivered to each Holder a certificate whereby such Guarantor reaffirms its obligations under the Guaranty Agreement. -2- Section 4.5. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Effective Date the fees, charges and disbursements of Schiff Hardin & Waite, the Holders' special counsel and the only counsel retained by the Holders in connection with the preparation, negotiation, execution and delivery of this Agreement, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Effective Date. Section 4.6. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to the Holders and the Holders' special counsel, and each Holder and the Holders' special counsel shall have received all such counterpart originals or certified or other copies of such documents as each Holder or the Holders' special counsel may reasonably request. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Holder that: Section 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and to perform the provisions hereof and of the Notes. Section 5.2. Authorization, Etc. This Agreement has been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and each Note continues to constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 5.3. Disclosure. This Agreement, the documents, certificates or other writings identified in Schedule 5.3 and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 2000, there has been no adverse Material change in the financial condition, operations, business, properties or prospects of the Company or any of its Subsidiaries, taken as a whole. -3- Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (1) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (2) of the Company's Affiliates, other than Subsidiaries and (3) of the Company's directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to, any legal restriction or any agreement or instrument (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that own outstanding shares of capital stock or similar equity interests of such Subsidiary. Section 5.5. Financial Statements.. The Company has delivered to each Holder copies of the consolidated financial statements of the Company listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such financial statements and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution and delivery by the Company of this Agreement and the performance by the Company of this Agreement and the Notes will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company -4- or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. Section 5.7. Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution or delivery by the Company of this Agreement or the performance by the Company of this Agreement or the Notes. Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including, without limitation, Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 5.9. Taxes. The Company and its Subsidiaries have filed all income tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable by them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service up to and including the fiscal year ended December 31, 1991 and the Federal income tax liabilities of the Company and its Subsidiaries have been paid for all fiscal years up to and including the fiscal year ended December 31, 1999. Section 5.10. Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date -5- (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. Section 5.11. Licenses, Permits, Etc. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all Material licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto; (b) to the best knowledge of the Company, no product of the Company or any Subsidiary infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right with respect thereto owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right with respect thereto owned or used by the Company or any of its Subsidiaries. Section 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws in all material respects. Neither the Company nor any ERISA Affiliate has incurred any Material liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such Material liability by the Company or any ERISA Affiliate, or in the imposition of any Material Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $5,000,000 in the aggregate for all Plans. The term "benefit liabilities" has the meaning specified in Section 4001 of ERISA and the terms "current value" and "present value" have the meanings specified in Section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred Material withdrawal liabilities (and are not subject to Material contingent withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer Plans. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting -6- Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of the Original Note Purchase Agreement and the issuance and sale of the Notes under the Original Note Purchase Agreement, did not, involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of each Purchaser's representation in Section 6.2 as to the source of the funds used to pay the purchase price of the Notes purchased by such Purchaser. Section 5.13. Intentionally Omitted. Section 5.14. Intentionally Omitted. Section 5.15. Existing Debt. Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company and its Subsidiaries as of August 1, 2001, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Section 5.16. Existing Investments. Schedule 5.16 sets forth a complete and correct list of all outstanding Investments of the Company and its Subsidiaries as of June 30, 2001, since which date there has been no Material change in the amounts of such Investments. Section 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, or is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended. Section 5.18. Environmental Matters. Neither the Company nor any Subsidiary has knowledge of any Material claim or has received any notice of any Material claim, and no proceeding has been instituted raising any Material claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws. Except as otherwise disclosed in Schedule 5.18: (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any Material claim, public or private, or Material violation of -7- Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use; (b) neither the Company nor any of its Subsidiaries (1) has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them or (2) has disposed of any Hazardous Materials in a manner contrary to any Environmental Laws; in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in material compliance with applicable Environmental Laws. Section 5.19. Original Note Purchase Agreement Representations and Warranties. Each of the representations and warranties of the Company contained in Section 5 of the Original Note Purchase Agreement was true and correct on and as of the date of Closing. SECTION 6. REPRESENTATIONS OF THE HOLDERS. Section 6.1. Purchase for Investment. Each Holder represents that on the date of the Closing (or, if such Holder is not a Purchaser, the date it acquired the Notes) it purchased the Notes presently held by it for its own account or for one or more separate accounts maintained by it or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Holder's or such pension or trust funds' property shall at all times be within such Holder or such pension or trust funds' control. Each Holder understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. Section 6.2. Source of Funds. Each Holder represents that at the time of its purchase of Notes presently held by it at least one of the following statements was an accurate representation as to each source of funds (a "Source") used by it to pay the purchase price of the Notes purchased by it: (a) the Source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and, as of the date of the Closing or as of the date of transfer, as applicable, there is no employee benefit plan, treating as a single plan, all plans maintained by the same employer or employee organization or affiliate thereof, with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such plan, exceeds 10% of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with such Holder's state of domicile; or -8- (b) the Source is either (1) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (2) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, as of the date of the Closing or as of the date of transfer, as applicable, except as such Holder has disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization or affiliate thereof beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a Person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (1) the identity of such QPAM and (2) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. If any subsequent transferee of the Notes indicates that such transferee is relying on any representation contained in paragraph (b), (c) or (e) above, the Company shall deliver on the date of transfer a certificate, which shall state whether (i) it is a party in interest or a "disqualified person" (as defined in Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended), with respect to any plan identified pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan, identified pursuant to paragraph (c) above, whether it or any "affiliate" (as defined in Section V(c) of the QPAM Exemption) has at such time, and during the immediately preceding one year, exercised the authority to appoint or terminate the QPAM as manager of any plan identified in writing pursuant to paragraph (c) above or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plan. -9- As used in this Section 6.2, the terms "employee benefit plan," "governmental plan," "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 7. INFORMATION AS TO COMPANY. Section 7.1. Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (1) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (2) consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements -- within 105 days after the end of each fiscal year of the Company, duplicate copies of, (1) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (2) consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (i) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial -10- statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(b), and (ii) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit); (c) SEC and Other Reports -- promptly upon their becoming available, one copy of (1) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public Securities holders generally, (2) each regular or periodic report, each registration statement that shall have become effective (without exhibits except as expressly requested by such holder), and each final prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and (3) all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default -- promptly, and in any event within five Business Days after a Responsible Officer becoming aware of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters -- promptly, and in any event within five Business Days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (1) with respect to any Plan, any reportable event, as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice -11- thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (2) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (3) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would exceed $5,000,000 in the aggregate; (f) Notices from Governmental Authority -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; (g) Rule 144A -- except at such times as the Company is a reporting company under Section 13 or 15(d) of the Exchange Act or has complied with the requirements for the exemption from registration under the Exchange Act set forth in Rule 12g3-2(b) under the Exchange Act, such financial or other information as any holder of Notes or any Person designated by such holder may reasonably determine is required to permit such holder to comply with the requirements of Rule 144A promulgated under the Exchange Act in connection with the resale by it of the Notes, in any such case promptly after the same is requested; and (h) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. Section 7.2. Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the -12- requirements of Section 10.2 through Section 10.5 hereof, inclusive, Section 10.8 and Section 10.10 during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. Section 7.3. Inspection. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and, with the consent of the Company (which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. SECTION 8. PREPAYMENT OF THE NOTES. Section 8.1. Required Prepayments. On March 15, 2002 and on each March 15 thereafter to and including March 15, 2009 the Company will prepay $6,666,666 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium, provided that upon any partial prepayment of the Notes pursuant to Section 8.2 or purchase of the Notes permitted by -13- Section 8.5 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase. Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, together with interest accrued thereon to the date of such prepayment, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Five Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer (the "Make-Whole Amount Calculation Certificate") specifying the method of computation and the calculation of such Make-Whole Amount in respect of such holder's Notes as of the specified prepayment date. The method of computation of the Make-Whole Amount in respect of the Notes set forth in the Make-Whole Amount Calculation Certificate shall be subject to the review and approval of the holders of the Notes and, in the case of any disagreement between the Required Holders and the Company with respect to such method of computation, the conclusion of the Required Holders shall, in the absence of manifest error, be deemed binding and conclusive. The calculation of the Make-Whole Amount in respect of the Note or Notes set forth in a Make-Whole Amount Calculation Certificate shall also be subject to the review and approval of the holder of such Note or Notes and, in the case of any disagreement between such holder and the Company with respect to such calculation, the conclusion of such holder shall, in the absence of manifest error, be deemed binding and conclusive. It is understood and agreed that the failure of any holder to respond to the Make-Whole Amount Calculation Certificate in respect of its Notes by the date fixed for prepayment shall be deemed to be a concurrence by such holder to the method of computation and the calculation of the Make-Whole Amount in respect of such Notes. Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and -14- payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. Section 8.5. Purchase of Notes. The Company will not, and will not permit any Affiliate to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 30 Business Days. If the holders of more than 10% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least 30 Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. Section 8.6. Make-Whole Amount. The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "Discounted Value" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" shall mean, with respect to the Called Principal of any Note, .50% over the yield to maturity implied by (a) the yields reported, as of 10:00 a.m. (New York City time) on the fifth Business Day preceding the Settlement Date with respect to such Called Principal, on the applicable "PX" page of the Bloomberg Financial Market Service's Screen (or such other page as may replace the applicable PX page of the Bloomberg Financial Market Service's Screen) for actively traded U.S. Treasury Securities having a maturity equal to the Remaining Average Life of such Called -15- Principal as of such Settlement Date, or (b) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the fifth Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury Securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield in clauses (a) and (b) above will be determined, if necessary, by (1) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (2) interpolating linearly between (i) the actively traded U.S. Treasury Security with the maturity closest to and greater than the Remaining Average Life and (ii) the actively traded U.S. Treasury Security with the maturity closest to and less than the Remaining Average Life. "Remaining Average Life" shall mean, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (1) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (2) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "Settlement Date" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. SECTION 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: Section 9.1. Compliance with Law. The Company will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with -16- such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 9.2. Insurance. The Company will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. Section 9.3. Maintenance of Properties. The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 9.4. Payment of Taxes and Claims. The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (a) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (b) the nonpayment of any such taxes or assessments could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 9.5. Corporate Existence, Etc. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.7, 10.8 and 10.9, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Wholly-Owned Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise would not, individually or in the aggregate, have a Material Adverse Effect. Section 9.6. Guaranty Agreement. (a) (1) The Company shall promptly, and in any event within three Business Days after (i) a Subsidiary becomes a Material Subsidiary, (ii) the formation or acquisition of a new Subsidiary that is a Material Subsidiary or (iii) the occurrence -17- of any other event creating a new Subsidiary that is a Material Subsidiary, cause such Material Subsidiary to execute and deliver a supplement to the Guaranty Agreement in the form of Exhibit A to the Guaranty Agreement. (2) Within ten Business Days of any Material Subsidiary being required to execute and deliver a supplement to the Guaranty Agreement pursuant to Section 9.6(a)(1), the Company shall cause such Material Subsidiary to deliver to each holder of Notes (i) such documents and evidence with respect to such Material Subsidiary as any holder may reasonably request in order to establish the existence and good standing of such Material Subsidiary and evidence that the Board of Directors of such Material Subsidiary has adopted resolutions authorizing the execution and delivery of a supplement to the Guaranty Agreement, (ii) evidence of compliance with such Material Subsidiary's outstanding debt instruments in the form of (A) a compliance certificate from such Material Subsidiary to the effect that such Material Subsidiary has complied with all terms and conditions of its outstanding debt instruments, (B) consents or approvals of the holder or holders of any evidence of Debt or Security, and/or (C) amendments of agreements pursuant to which any evidence of Debt or Security may have been issued, all as may be reasonably deemed necessary by the holders of Notes to permit the execution and delivery of a supplement to the Guaranty Agreement by such Material Subsidiary, (iii) an opinion of counsel to the effect that (A) such Material Subsidiary is a corporation or other business entity, duly organized, validly existing and in good standing, if applicable, under the laws of its jurisdiction of organization, has the power and the authority to execute and deliver a supplement to the Guaranty Agreement and to perform the Guaranty Agreement, (B) the execution and delivery of a supplement to the Guaranty Agreement and performance of the Guaranty Agreement has been duly authorized by all necessary action on the part of such Material Subsidiary, a supplement to the Guaranty Agreement has been duly executed and delivered by such Material Subsidiary and the Guaranty Agreement constitutes the legal, valid and binding contract of such Material Subsidiary enforceable against such Material Subsidiary in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law), (C) the execution and delivery of a supplement to the Guaranty Agreement and the performance by such Material Subsidiary of the Guaranty Agreement do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation of a Lien upon any of the property of such Material Subsidiary pursuant to the provisions of its charter documents or any agreement or other instrument known to such counsel to which such Material Subsidiary is a party to or by which such Material Subsidiary may be bound and (D) no approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the lawful execution and delivery of a supplement to the Guaranty Agreement by such Material Subsidiary or the performance of the Guaranty Agreement by such Material Subsidiary, which opinion may contain such assumptions and qualifications as are reasonably acceptable to the Required Holders, and (iv) all other documents and showings reasonably requested by the holders of Notes in connection with the execution and delivery of a supplement to the Guaranty Agreement, which documents shall be satisfactory in form and substance to such holders and their special counsel, and each holder of Notes shall have received a copy (executed or certified as may be appropriate) of all of the foregoing legal documents. -18- (b) If at any time, pursuant to the terms and conditions of the Bank Credit Agreement, any Guarantor is released from its liability under the Bank Guaranty and (1) such Guarantor is not a co-obligor under the Bank Credit Agreement, (2) such Guarantor does not qualify as a Material Subsidiary under clause (a) or (b) of the definition thereof and (3) the Company shall have delivered to each holder of Notes an Officer's Certificate certifying that (i) the conditions specified in clauses (1) and (2) above have been satisfied and (ii) immediately preceding the release of such Guarantor from the Guaranty Agreement and after giving effect thereto, no Default or Event of Default shall have existed or would exist, then, upon receipt by the holders of Notes of such Officer's Certificate, such Guarantor shall be discharged from its obligations under the Guaranty Agreement. SECTION 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: Section 10.1. Nature of Business. The Company will not, and will not permit any Subsidiary to, engage in any business if, as a result thereof, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of the Closing. Section 10.2. Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) $275,000,000, plus (b) an aggregate amount equal to 50% of its Consolidated Net Income (but, in each case, only if a positive number) for each completed fiscal quarter beginning with the fiscal quarter ended December 31, 2000. Section 10.3. Incurrence of Debt. The Company will not, and will not permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Debt, unless on the date the Company or such Subsidiary becomes liable with respect to any such Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, (a) no Default or Event of Default exists, and (b) Consolidated Total Debt does not exceed 55% of Consolidated Total Capitalization. For the purposes of this Section 10.3, any Person becoming a Subsidiary after the date of the Closing shall be deemed, at the time it becomes a Subsidiary, to have incurred all of its then outstanding Debt, and any Person extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. -19- Section 10.4. Subsidiary Debt. The Company will not at any time permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, have outstanding, or otherwise become or remain directly or indirectly liable with respect to, any Debt other than: (a) Debt of a Subsidiary (1) outstanding on the date of the Closing and disclosed in Schedule 5.15 to the Original Note Purchase Agreement, provided that such Debt may not be extended, renewed or refunded except as otherwise permitted by this Agreement and (2) outstanding pursuant to the Guaranty Agreement; (b) Debt of a Subsidiary owed to the Company or a Wholly-Owned Subsidiary; (c) Debt of a Subsidiary outstanding at the time such Subsidiary becomes a Subsidiary, provided that (1) such Debt shall not have been incurred in contemplation of such Subsidiary becoming a Subsidiary and (2) immediately after such Subsidiary becomes a Subsidiary no Default or Event of Default would exist, and provided, further, that such Debt may not be extended, renewed or refunded except as otherwise permitted by this Agreement; and (d) Debt of a Subsidiary in addition to that otherwise permitted by the foregoing provisions of this Section 10.4, provided that on the date the Subsidiary incurs or otherwise becomes liable with respect to any such additional Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, (1) no Default or Event of Default exists, and (2) Priority Debt does not exceed 20% of Consolidated Net Worth determined at such time. Section 10.5. Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except: (a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable; -20- (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (1) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (2) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (d) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (f) Liens on property or assets of the Company or any of its Subsidiaries securing Debt owing to the Company or to a Wholly-Owned Subsidiary; (g) Liens existing on the date of the Closing and securing the Debt of the Company and its Subsidiaries referred to on Schedule 5.15 to the Original Note Purchase Agreement; (h) any Lien created to secure all or any part of the purchase price, or to secure Debt incurred or assumed to pay all or any part of the purchase price or cost of construction, of property acquired or constructed by the Company or a Subsidiary after the date of the Closing, provided that (1) any such Lien shall extend solely to the item or items of such property so acquired or constructed, (2) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to the lesser of (i) the cost to the Company or such Subsidiary of the property so acquired or constructed and (ii) the Fair Market Value (as determined in good faith by the Board of Directors of the Company) of such property at the time of such acquisition or construction, (3) any such Lien shall be created contemporaneously with, or within 180 days after, the acquisition or construction of such property, and -21- (4) immediately after giving effect the creation of such Lien and giving effect thereto, (i) no Default or Event of Default would exist and (ii) the Company would be permitted by the provisions of Section 10.3(b) to incur at least $1.00 of additional Debt; (i) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Subsidiary, or any Lien existing on any property acquired by the Company or any Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (1) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such acquisition of property, (2) each such Lien shall extend solely to the item or items of property so acquired and (3) immediately after giving effect to the acquisition of the property subject to such Lien and giving effect thereto, (i) no Default or Event of Default would exist and (ii) the Company would be permitted by the provisions of Section 10.3(b) to incur at least $1.00 of additional Debt; (j) any Lien renewing, extending or refunding any Lien permitted by paragraphs (g), (h) or (i) of this Section 10.5, provided that (1) the principal amount of Debt secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (2) such Lien is not extended to any other property and (3) immediately after such extension, renewal or refunding no Default or Event of Default would exist; and (k) other Liens not otherwise permitted by paragraphs (a) through (i), provided that, after giving effect thereto and to the application of the proceeds of any Debt secured thereby, Priority Debt does not exceed 20% of Consolidated Net Worth determined at such time. For the purposes of this Section 10.5, any Person becoming a Subsidiary after the date of the Closing shall be deemed to have incurred all of its then outstanding Liens at the time it becomes a Subsidiary, and any Person extending, renewing or refunding any Debt secured by any Lien shall be deemed to have incurred such Lien at the time of such extension, renewal or refunding. Section 10.6. Restrictions on Dividends of Subsidiaries, Etc. The Company will not, and will not permit any of its Subsidiaries to, enter into any agreement which would restrict any Subsidiary's ability or right to pay dividends to, or make advances to or Investments in, the Company or, if such Subsidiary is not directly owned by the Company, the "parent" Subsidiary of such Subsidiary. Section 10.7. Mergers, Consolidations, Etc. The Company will not, and will not permit any Subsidiary to, consolidate with or merge with any other corporation or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person; provided that the foregoing restriction does not apply to: -22- (a) the consolidation or merger of a Subsidiary with, or the conveyance, transfer or lease of substantially all of the assets of a Subsidiary to, the Company or a Wholly-Owned Subsidiary; or (b) the consolidation or merger of a Subsidiary with any Person other than the Company or a Wholly-Owned Subsidiary; provided that such Subsidiary shall be the surviving Person and immediately after giving effect to such transaction (1) no Default or Event of the Default would exist, (2) the Company would be permitted by the provisions of Section 10.3(b) to incur at least $1.00 of additional Debt, (3) such Subsidiary would be permitted by the provisions of Section 10.4(d)(2) to incur at least $1.00 of additional Priority Debt and (4) the Company shall own the same percentage of the equity or voting interests in such Subsidiary as the Company owned in such Subsidiary immediately preceding such transaction; or (c) the conveyance, transfer or lease of all of the assets of a Subsidiary to a Person other than the Company or a Wholly-Owned Subsidiary in compliance with the provisions of Section 10.8 and Section 10.9; or (d) the consolidation or merger of the Company with, or the conveyance, transfer or lease of substantially all of the assets of the Company in a single transaction or series of transactions to, any Person so long as: (1) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be (the "Successor Corporation"), shall be a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; (2) if the Company is not the Successor Corporation, (i) such corporation shall have executed and delivered to each holder of the Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes (pursuant to such agreements and instruments as shall be reasonably satisfactory to the Required Holders), (ii) the Company shall have caused to be delivered to each holder of the Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof and (iii) each Guarantor shall have delivered to each holder of the Notes a certificate whereby such Guarantor shall have reaffirmed its obligations under the Guaranty Agreement; and (3) immediately after giving effect to such transaction (i) no Default or Event of Default would exist and (ii) the Successor Corporation would be -23- permitted by the provisions of Section 10.3(b) to incur at least $1.00 of additional Debt. No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any Successor Corporation from its liability under this Agreement or the Notes. Section 10.8. Sale of Assets, Etc. Except as permitted under Section 10.7, Section 10.9 and Section 10.10, the Company will not, and will not permit any Subsidiary to, make any Asset Disposition unless: (a) in the good faith opinion of the Company, the Asset Disposition is in exchange for consideration having a Fair Market Value at least equal to that of the property exchanged and is in the best interest of the Company or such Subsidiary; (b) immediately after giving effect to the Asset Disposition, no Default or Event of Default would exist; and (c) immediately after giving effect to the Asset Disposition, the Disposition Value of all property that was the subject of any Asset Disposition occurring during the immediately preceding 12 consecutive calendar month period would not exceed 15% of Consolidated Total Assets determined as of the end of the then most recently ended fiscal year of the Company. If the Net Proceeds Amount for any Transfer is applied to a Debt Prepayment Application or a Property Reinvestment Application within 180 days after such Transfer, then such Transfer, only for the purpose of determining compliance with subsection (c) of this Section 10.8 as of any date on or after the Net Proceeds Amount is so applied, shall be deemed not to be an Asset Disposition. Section 10.9. Disposal of Ownership of a Subsidiary. The Company will not, and will not permit any Subsidiary to, sell or otherwise dispose of any shares of Subsidiary Stock, nor will the Company permit any such Subsidiary to issue, sell or otherwise dispose of any shares of its own Subsidiary Stock, provided that the foregoing restrictions do not apply to: (a) the issue of directors' qualifying shares by any such Subsidiary; (b) any such Transfer of Subsidiary Stock constituting a Transfer described in clause (a) of the definition of "Asset Disposition"; and (c) the Transfer of all of the Subsidiary Stock of a Subsidiary owned by the Company and its other Subsidiaries if: (1) such Transfer satisfies the requirements of Section 10.8 hereof, -24- (2) in connection with such Transfer the entire Investment (whether represented by stock, Debt, claims or otherwise) of the Company and its other Subsidiaries in such Subsidiary is sold, transferred or otherwise disposed of to a Person other than (i) the Company, (ii) another Subsidiary not being simultaneously disposed of or (iii) an Affiliate, and (3) the Subsidiary being disposed of has no continuing Investment in any other Subsidiary of the Company not being simultaneously disposed of or in the Company. Section 10.10. Sale-and-Leasebacks. The Company will not, and will not permit any Subsidiary to, enter into any Sale-and-Leaseback Transaction unless, (a) the lease which is the subject of such Sale-and-Leaseback Transaction is not a Long-Term Lease or (b) immediately after giving effect to such Sale-and-Leaseback Transaction, the aggregate amount of Priority Debt does not exceed 20% of Consolidated Net Worth determined at such time. Section 10.11. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, enter into directly or indirectly any Material transaction or Material group of related transactions (including, without limitation, the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. SECTION 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Sections 10.1 through 10.4, inclusive, or Sections 10.6 through 10.11, inclusive; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (1) a Responsible Officer obtaining actual knowledge of such default and (2) the Company receiving written notice of such default from any holder of a Note (any such written -25- notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) any representation or warranty made in writing by or on behalf of the Company or any Guarantor or by any officer of the Company or any Guarantor in this Agreement or in the Guaranty Agreement, respectively, or in any writing furnished in connection with the transactions contemplated hereby or thereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (1) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $10,000,000 beyond any period of grace provided with respect thereto, or (2) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Debt in an aggregate outstanding principal amount of at least $10,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared due and payable before its stated maturity or before its regularly scheduled dates of payment or (3) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), (i) the Company or any Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $10,000,000 or (ii) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Debt; or (g) the Company or any Subsidiary (1) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (2) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (3) makes an assignment for the benefit of its creditors, (4) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (5) is adjudicated as insolvent or to be liquidated or (6) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within 60 days; or -26- (i) a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not fully covered by insurance or, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (j) If (1) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (2) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA Section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (3) the aggregate "amount of unfunded benefit liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $5,000,000, (4) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (5) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan or (6) the Company or any ERISA Affiliate establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any ERISA Affiliate thereunder; and any such event or events described in clauses (1) through (6) above, either individually or together with any other such event or events, would reasonably be expected to have a Material Adverse Effect; or (k) (1) default shall occur under the Guaranty Agreement and such default shall continue beyond the period of grace, if any, allowed with respect thereto or (2) the Guaranty Agreement shall cease to be in full force and effect for any reason whatsoever, including, without limitation, a determination by any Governmental Authority or court that such agreement is invalid, void or unenforceable or any Guarantor shall contest or deny in writing the validity or enforceability of any of its obligations under the Guaranty Agreement. As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 12. REMEDIES ON DEFAULT, ETC. Section 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (1) of paragraph (g) or described in clause (6) of paragraph (g) by virtue of the fact that such clause encompasses clause (1) of paragraph (g)) exists, all the Notes then outstanding shall automatically become immediately due and payable. -27- (b) If any other Event of Default exists, any holder or holders of more than 25% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 exists, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Note's becoming due and payable under this Section 12.1, whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (1) all accrued and unpaid interest thereon and (2) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. Section 12.2. Other Remedies. If any Event of Default exists, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. Section 12.3. Rescission. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 76% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17 and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or -28- remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. Section 13.1. Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $1,000,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $1,000,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2, provided, however, that, such transferee will not be deemed to have chosen the options set forth in Section 6.2(b), (c) or (e) unless such transferee shall have made the disclosures referred to therein at least five Business Days prior to its acceptance of such Note and shall have received prior to such acceptance of such Note the certificate provided for in the penultimate paragraph of Section 6.2 and such certificate shall contain the statement set forth in either Section 4.3(c)(1) or (2), as applicable; and provided, further, that, such transferee will not be deemed to have chosen an option set forth in Section 6.2(a), (b) or (d) unless the applicable Class Exemption referred to therein remains in -29- effect at that time or another similar Class Exemption is then available. The Company shall exercise reasonable due diligence as is necessary to respond to any such disclosure, provided that, if the Company shall not respond within five Business Days following receipt of any such disclosure, it shall be deemed to have made the statement set forth in either Section 4.3(c)(1) or (2), as applicable. Section 13.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory) or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. SECTION 14. PAYMENTS ON NOTES. Section 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Chicago, Illinois at the principal office of Bank of America in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. Section 14.2. Home Office Payment. So long as any Holder or such Holder's nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose for such Holder on Schedule A, or by such other method or at such other address as such Holder shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Holder shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by any Holder or such Holder's nominee such Holder will, at its election, either endorse thereon the amount of -30- principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by any Holder under this Agreement and that has made the same agreement relating to such Note as such Holder has made in this Section 14.2. SECTION 15. EXPENSES, ETC. Section 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by each Holder or other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Guaranty Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Guaranty Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Guaranty Agreement or the Notes, or by reason of being a holder of any Note or a beneficiary of the Guaranty Agreement, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby, by the Guaranty Agreement and by the Notes. The Company will pay, and will save each Holder and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by such Holder or holder). Section 15.2. Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Holder of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of such Holder or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between each Holder and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. -31- SECTION 17. AMENDMENT AND WAIVER. Section 17.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to any Holder unless consented to by such Purchaser in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (1) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (2) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver or (3) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. Section 17.2. Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. Section 17.3. Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. -32- Section 17.4. Notes Held by Company, Etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. SECTION 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (1) if to a Holder or such Holder's nominee, to such Holder or such Holder's nominee at the address specified for such communications in Schedule A, or at such other address as such Holder or such Holder's nominee shall have specified to the Company in writing, (2) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (3) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Chief Financial Officer, or at such other address as the Company shall have specified to the holder of each Note in writing. Notwithstanding the foregoing, in the case of communications required to be delivered pursuant to Section 7.1(c)(3), the Company may provide notice by electronic mail, provided that the recipient of such communication shall have previously provided the Company with an electronic mail address for such purpose. Notices under this Section 18 will be deemed given only when actually received. SECTION 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by each Purchaser at the Closing (except the Notes themselves) and (c) financial statements, certificates and other information previously or hereafter furnished to each Holder, may be reproduced by such Holder by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and such Holder may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or -33- administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Holder in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. SECTION 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to any Holder by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Holder as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Holder prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Holder or any Person acting on such Holder's behalf, (c) otherwise becomes known to such Holder other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to such Holder under Section 7.1 that are otherwise publicly available. Each Holder will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Holder in good faith to protect confidential information of third parties delivered to such Holder, provided that such Holder may deliver or disclose Confidential Information to (1) such Holder's directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by such Holder's Notes), (2) such Holder's financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (3) any other holder of any Note, (4) any Institutional Investor to which such Holder sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (5) any Person from which such Holder offers to purchase any Security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (6) any Federal or state regulatory authority having jurisdiction over such Holder, (7) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about such Holder's investment portfolio or (8) any other Person to which such delivery or disclosure may be necessary or appropriate (i) to effect compliance with any law, rule, regulation or order applicable to such Holder, (ii) in response to any subpoena or other legal process, (iii) in connection with any litigation to which such Holder is a party or (iv) if an Event of Default has occurred and is continuing, to the extent such Holder may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Holder's Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or -34- requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. SECTION 21. INTENTIONALLY OMITTED. SECTION 22. MISCELLANEOUS. Section 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. Section 22.2. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. Section 22.3. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. Section 22.4. Construction. (a) Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. (b) Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. Section 22.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. -35- Section 22.6. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * -36- The execution hereof by the Holders shall constitute a contract among the Company and the Holders for the uses and purposes hereinabove set forth. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. Very truly yours, GRANITE CONSTRUCTION INCORPORATED By /s/ R.C. Allbritton ---------------------------- Its R.C. Allbritton Vice President By /s/ James H. Roberts ---------------------------- Its James H. Roberts Vice President -37- Accepted as of the date first written above: ALLSTATE LIFE INSURANCE COMPANY By /s/ Rhonda L. Hopps ----------------------------- Name: RHONDA L. HOPPS By /s/ Patricia W. Wilson ----------------------------- Name: PATRICIA W. WILSON Authorized Signatories -38- Accepted as of the date first written above: UNITED OF OMAHA LIFE INSURANCE COMPANY By /s/ Edwin H. Garrison Jr. ------------------------------------- Its EDWIN H. GARRISON JR. FIRST VICE PRESIDENT -39- Accepted as of the date first written above: MUTUAL OF OMAHA INSURANCE COMPANY By /s/ Edwin H. Garrison Jr. ------------------------------------- Its EDWIN H. GARRISON JR. FIRST VICE PRESIDENT -40- Accepted as of the date first written above: COMPANION LIFE INSURANCE COMPANY By ---------------------------------- Its -41- Accepted as of the date first written above: LUTHERAN BROTHERHOOD By /s/ Keri L. Reich ---------------------------- Its Portfolio Manager -42- Accepted as of the date first written above: NATIONWIDE LIFE INSURANCE COMPANY By ------------------------------- Its -43- Accepted as of the date first written above: AMERICAN UNITED LIFE INSURANCE COMPANY By /s/ Christopher D. Parker ----------------------------- Its Vice President -44- PRINCIPAL AMOUNT OF NOTES HELD $10,000,000 NAMES OF HOLDER $ 7,000,000 $ 5,000,000 ALLSTATE LIFE INSURANCE COMPANY 3075 Sanders Road, STE G5D Northbrook, Illinois 60062-7127 Attention: Private Placements Department Telecopier Number: (847) 402-3092 Telephone Number: (847) 402-2769 Payments All payments on or in respect of the Notes to be made by Fedwire transfer of immediately available funds (identifying each payment with name of the Issuer, the Private Placement Number preceded by "DPP" and the payment as principal, interest or premium) in the exact format as follows: BBK = Harris Trust and Savings Bank ABA #071000288 BNF = Allstate Life Insurance Company Collection Account #168-117-0 ORG = Granite Construction Incorporated OBI = DPP - 387328 A* 8 -- Payment Due Date (MM/DD/YY) -- P ______ (enter "P" and the amount of principal being remitted, for example, P5000000.00) -- I ______ (enter "I" and the amount of interest being remitted, for example, I225000.00) Notices All notices of scheduled payments and written confirmation of each such payment, to be addressed: Allstate Insurance Company Investment Operations--Private Placements 3075 Sanders Road, STE G4A Northbrook, Illinois 60062-7127 Telephone: (847) 402-2769 Telecopy: (847) 326-5040 All financial reports, compliance certificates and all other written communications, including notice of prepayments to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36-2554642 SCHEDULE A (to Amended and Restated Note Purchase Agreement) PRINCIPAL AMOUNT OF NOTES HELD NAMES OF HOLDER $10,000,000 UNITED OF OMAHA LIFE INSURANCE COMPANY Mutual of Omaha Plaza Omaha, Nebraska 68175-1011 Attention: Investment Division/Securities Accounting Telecopier Number: (402) 351-2913 Telephone Number (402) 351-2504 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Granite Construction Incorporated, 6.54% Senior Notes due March 15, 2010") to: Chase Manhattan Bank ABA #021000021 Private Income Processing for credit to: United of Omaha Life Insurance Company Account Number 900-9000200 a/c: G07097 CUSIP/PPN: 387328 A* 8 Interest Amount: ___________ Principal Amount: __________ Notices All notices in respect of payment of principal and interest, corporate actions and reorganization notifications to: The Chase Manhattan Bank 4 New York Plaza - 13th Floor New York, New York 10004 Attn: Income Processing - J. Piperatto a/c: G07097 All other communications to: 4-Investment Loan Administration Mutual of Omaha Insurance Company Mutual of Omaha Plaza Omaha, Nebraska 68175-1011 A-2 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 47-0322111 A-3 PRINCIPAL AMOUNT OF NOTES HELD NAMES OF HOLDER $5,000,000 MUTUAL OF OMAHA INSURANCE COMPANY Mutual of Omaha Plaza Omaha, Nebraska 68175-1011 Attention: Investment Division/Securities Accounting Telecopier Number: (402) 351-2913 Telephone Number (402) 351-2504 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Granite Construction Incorporated, 6.54% Senior Notes due March 15, 2010") to: Chase Manhattan Bank ABA #021000021 Private Income Processing for credit to: Mutual of Omaha Insurance Company Account Number 900-9000200 a/c: G07096 CUSIP/PPN: 387328 A* 8 Interest Amount: ________________ Principal Amount: ______________ Notices All notices in respect of payment of principal and interest, corporate actions and reorganization notifications to: The Chase Manhattan Bank 4 New York Plaza - 13th Floor New York, New York 10004 Attn: Income Processing - J. Piperatto a/c: G07096 All other notices and communications to: 4 - Investment Loan Administration Mutual of Omaha Insurance Company Mutual of Omaha Plaza A-4 Omaha, Nebraska 68175-1011 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 47-0246511 A-5 PRINCIPAL AMOUNT OF NOTES HELD NAMES OF HOLDER $2,000,000 COMPANION LIFE INSURANCE COMPANY Mutual of Omaha Plaza Omaha, Nebraska 68175-1011 Attention: Investment Division/Securities Accounting Telecopier Number: (402) 351-2913 Telephone Number (402) 351-2504 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Granite Construction Incorporated, 6.54% Senior Notes due February 15, 2010") to: Companion Life Insurance Company c/o The Bank of New York ABA #021000018 Acct. No. 111566 Income Collection Attention: P&I Department For Payment on: Granite Construction Incorporated Interest Amount: _______________ Principal Amount: ______________ Payable Date: __________________ CLICO Notices All notices with respect to payments to: Companion Life Insurance Company Attention: Investment Securities Accounting Mutual of Omaha Plaza Omaha, Nebraska 68175 with duplicate notice to: Companion Life Insurance Company Attention: Financial Division 401 Theodore Fremd Avenue Rye, New York 10580-1493 A-6 All other notices and communications to: Companion Life Insurance Company Attention: Investment Division Mutual of Omaha Plaza Omaha, Nebraska 68175 with duplicate notice to: Companion Life Insurance Company Attention: Financial Division 401 Theodore Fremd Avenue Rye, New York 10580-1493 Name of Nominee in which Notes are to be issued: HARE & CO. Taxpayer I.D. Number: 13-6062916 A-7 PRINCIPAL AMOUNT OF NOTES HELD NAMES OF HOLDER $6,000,000 $2,000,000 NATIONWIDE LIFE INSURANCE COMPANY One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention: Corporate Fixed-Income Securities Payments All notices of payment on or in respect of the Notes and written confirmation of each such payment to: WIRING INSTRUCTIONS: The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Life Insurance Company Attention: P&I Department PPN #387328 A* 8 Security Description: ______________________ CHECK INSTRUCTIONS: Nationwide Life Insurance Company c/o The Bank of New York P.O. Box 19266 Newark, New Jersey 07195 Attention: P&I Department (Checks should be made payable to Nationwide Life Insurance Company and identified as to issuer, security, principal and interest) Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to: A-8 Nationwide Life Insurance Company c/o The Bank of New York P.O. Box 19266 Newark, New Jersey 07195 Attention: P&I Department With a copy to: Nationwide Life Insurance Company One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 Attention: Investment Accounting All notices and communications other than those in respect to payments to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 31-4156830 A-9 PRINCIPAL AMOUNT OF NOTES HELD NAMES OF HOLDER $5,000,000 AMERICAN UNITED LIFE INSURANCE COMPANY One American Square Post Office Box 368 Indianapolis, Indiana 46206-0368 Attention: Christopher D. Pahlke, Securities Department Overnight mailing address: One American Square Indianapolis, Indiana 46282 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Granite Construction Incorporated, 6.54% Senior Notes due March 15, 2010, PPN 387328 A* 8" and identifying the breakdown of principal and interest and the payment date) to: Bank of New York Attention: P&I Department One Wall Street, 3rd Floor Window A New York, New York 10286 ABA #021000018, BNF:IOC566 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 35-0145825 A-10 PRINCIPAL AMOUNT OF NOTES HELD NAMES OF HOLDER $8,000,000 LUTHERAN BROTHERHOOD 625 Fourth Avenue South, 10th Floor Minneapolis, Minnesota 55415 Attention: Investment Division Telecopier Number: (612) 340-5756 Telephone Number: (612) 340-5757 Payments All payments of principal, interest and premium on the account of the Notes shall be made by bank wire transfer (in immediately available funds) to: Norwest Bank Minnesota, N.A. ABA #091000019 For Credit to Trust Clearing Account #08-40-245 Attention: Sarah Corcoran For credit to: Lutheran Brotherhood Account Number 12651300 All payments must include the following information: A/C Lutheran Brotherhood Account No.: 12561300 Security Description PPN Number Reference Purpose of Payment Interest and/or Principal Breakdown Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 41-0385700 A-11 DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Affiliate" shall mean, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, (b) any other Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of such first Person or any other Person of which such first Person beneficially owns or holds, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests and (c) any officer or director of such first Person and any Person fulfilling an equivalent function of an officer or director; provided that "Affiliate," in relation to the Company, shall not include any Subsidiary. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting Securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "Asset Disposition" shall mean any Transfer except: (a) any (1) Transfer from a Subsidiary to the Company or to a Wholly-Owned Subsidiary; and (2) Transfer from the Company to a Wholly-Owned Subsidiary so long as immediately before and immediately after the consummation of any such Transfer and after giving effect thereto, no Default or Event of Default would exist; (b) any Transfer made in the ordinary course of business and involving only property that is either (1) inventory held for sale or (2) equipment, fixtures, supplies or materials no longer required in the operation of the business of the Company or any of its Subsidiaries or that is obsolete; and (c) any Transfer in one lot of all of the voting Securities of TIC, directly or indirectly, owned or held by the Company to TIC pursuant to that certain Stock Purchase Agreement dated as of December 23, 1996 between the Company and TIC, as amended, supplemented, restated or otherwise modified from time to time. "Attributable Debt" shall mean, as to any particular Long-Term Lease relating to a Sale-and-Leaseback Transaction, the present value of all Lease Rentals required to be paid by the Company or any Subsidiary under such lease during the remaining term thereof (determined in SCHEDULE B (to Amended and Restated Note Purchase Agreement accordance with generally accepted financial practice using a discount factor equal to the interest rate implicit in such lease if known or, if not known, of 12% per annum). "Bank Credit Agreement" shall mean that certain Credit Agreement dated as of June 29, 2001 among the Company, Bank of America, N.A., as Administrative Agent, as a Lender and as L/C Issuer and each of the other financial institutions party thereto, as the same may be amended, supplemented, restated or otherwise modified from time to time, and any credit agreement or other like agreement entered into by the Company which is substantially similar to or replaces the Credit Agreement. "Bank Guaranty" shall mean any Guaranty of the Debt outstanding under the Bank Credit Agreement by a Subsidiary. "Business Day" shall mean (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois or San Francisco, California are required or authorized to be closed. "Capital Lease" shall mean, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligation" shall mean, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person. "Closing" shall mean the sale of the Notes pursuant to the Original Note Purchase Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "Company" shall mean Granite Construction Incorporated, a Delaware corporation, and any Person who succeeds to all, or substantially all, of the assets and business of Granite Construction Incorporated. "Confidential Information" is defined in Section 20. "Consolidated Net Income" for any period shall mean the gross revenues of the Company and its Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: B-2 (a) any gains or losses on the sale or other disposition of Investments or fixed or capital assets (other than fixed or capital assets sold or disposed of in the ordinary course of business), and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by the Company or any Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Subsidiary) with which the Company or a Subsidiary shall have consolidated or which shall have merged into or with the Company or a Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Subsidiary or a joint venture) in which the Company or any Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions; (g) earnings resulting from any reappraisal, revaluation or write-up of assets; (h) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (i) any gain arising from the acquisition of any Securities of the Company or any Subsidiary; and (j) any other extraordinary gain or loss. "Consolidated Net Worth" shall mean, as of the date of any determination thereof, (a) the sum of (1) the par value (or value stated on the books of the corporation) of the capital stock (but excluding treasury stock and capital stock subscribed and unissued) of the Company and its Subsidiaries plus (2) the amount of the paid-in capital and retained earnings of the Company and its Subsidiaries, in each case as such amounts would be shown on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, minus (b) unearned compensation, minus B-3 (c) to the extent included in clause (a) above, all amounts properly attributable to Minority Interests, if any, in the stock and surplus of Subsidiaries, minus (d) the book value of all Restricted Investments of the Company and its Subsidiaries acquired after the date of the Closing in excess of an amount equal to 10% of the amount determined pursuant to clauses (a), (b) and (c) of this definition. "Consolidated Total Assets" shall mean, as of the date of any determination thereof, (a) the total assets of the Company and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to Minority Interests, if any, in the stock and surplus of Subsidiaries. "Consolidated Total Capitalization" shall mean, as the date of any determination thereof, the sum of (a) Consolidated Net Worth and (b) Consolidated Total Debt. "Consolidated Total Debt" shall mean, as of the date of any determination thereof, the total of all Debt of the Company and its Subsidiaries (including, without limitation, all Subsidiaries that are organized as joint ventures) outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Subsidiaries, and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP. "Debt" shall mean, with respect to any Person, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its Capitalized Lease Obligations; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; B-4 (g) its recourse obligations under Receivables Securitization Transactions; (h) in respect of the Company or any Subsidiary, its Attributable Debt; and (i) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (h) hereof in an amount equal to the amount guaranteed. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (i) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Debt Prepayment Application" shall mean, with respect to any Transfer of property, the application by the Company or its Subsidiaries of cash in an amount equal to the Net Proceeds Amount with respect to such Transfer to pay Senior Debt (other than Senior Debt owing to the Company, any of its Subsidiaries or any Affiliate). "Default" shall mean an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Default Rate" shall mean that rate of interest that is the greater of (a) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes and (b) 2% over the rate of interest publicly announced by Bank of America in San Francisco, California as its "reference" rate. "Disposition Value" shall mean, as of any date of determination, with respect to any property (a) in the case of property that does not constitute Subsidiary Stock, the Fair Market Value thereof, valued at the time of such disposition in good faith by the Company, and (b) in the case of property that constitutes Subsidiary Stock, an amount equal to that percentage of book value of the assets of the Subsidiary that issued such stock as is equal to the percentage that the book value of such Subsidiary Stock represents of the book value of all of the outstanding capital stock of such Subsidiary (assuming, in making such calculations, that all Securities convertible into such capital stock are so converted and giving full effect to all transactions that would occur or be required in connection with such conversion) determined at the time of the disposition thereof in good faith by the Company. "Environmental Laws" shall mean any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but B-5 not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code. "Event of Default" is defined in Section 11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall mean, as of any date of determination and with respect to any property, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell). "GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authority" shall mean (a) the government of (1) the United States of America or any State or other political subdivision thereof, or (2) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Guarantors" is defined in Section 2.2. "Guaranty Agreement" is defined in Section 2.2. "Guaranty" shall mean, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Debt, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: B-6 (a) to purchase such Debt or obligation or any property constituting security therefor; (b) to advance or supply funds (1) for the purchase or payment of such Debt or obligation, or (2) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Debt or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Debt or obligation of the ability of any other Person to make payment of the Debt or obligation; or (d) otherwise to assure the owner of such Debt or obligation against loss in respect thereof. In any computation of the Debt or other liabilities of the obligor under any Guaranty, the Debt or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Material" shall mean any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "holder" shall mean, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "Holder" is defined in the second paragraph of this Agreement. "Institutional Investor" shall mean (a) any original purchaser of a Note, (b) any holder of a Note holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "Investment" shall mean any investment, made in cash or by delivery of property, by the Company or any of its Subsidiaries (a) in any Person, whether by acquisition of stock, Debt or other obligation or Security, or by loan, Guaranty, advance, capital contribution or otherwise, or (b) in any property. "Lease Rentals" shall mean, with respect to any period, the sum of the rental and other obligations required to be paid during such period by the Company or any Subsidiary, as lessee, under all leases of real or personal property (other than Capital Leases), excluding any amount B-7 required to be paid by the lessee (whether or not therein designated as rental or additional rental) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, provided that, if at the date of determination, any such rental or other obligations (or portion thereof) are contingent or not otherwise definitely determinable by the terms of the related lease, the amount of such obligations (or such portion thereof) (1) shall be assumed to be equal to the amount of such obligations for the period of 12 consecutive calendar months immediately preceding the date of determination or (2) if the related lease was not in effect during such preceding 12-month period, shall be the amount estimated by a Senior Financial Officer of the Company on a reasonable basis and in good faith. "Lien" shall mean, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "Long-Term Lease" shall mean any lease of property having an original term, including any period for which the lease may be renewed or extended at the option of the lessee, of more than three years. "Make-Whole Amount" is defined in Section 8.6. "Make-Whole Amount Calculation Certificate" is defined in Section 8.2. "Material" shall mean material in relation to the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement, the Guaranty Agreement or the Notes. "Material Subsidiary" shall mean each Subsidiary identified as a Material Subsidiary on Schedule 5.4, each Subsidiary that is an obligor or guarantor of any Debt existing under the Bank Credit Agreement and each other Subsidiary which meets either of the following conditions: (a) such Subsidiary's total net revenues for the period of the immediately preceding four fiscal quarters is equal to or greater than 10% of the consolidated total net revenues of the Company and its Subsidiaries for such period determined in accordance with GAAP, in each case as reflected in the most recent annual or quarterly financial statements of the Company and its Subsidiaries; or B-8 (b) such Subsidiary's total assets, as of the last day of the immediately preceding fiscal quarter, is equal to or greater than 10% of consolidated total assets of the Company and its Subsidiaries as of such date determined in accordance with GAAP, in each case as reflected in the most recent annual or quarterly financial statements of the Company and its Subsidiaries. "Minority Interests" shall mean any shares of stock of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Company and/or one or more of its Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "Multiemployer Plan" shall mean any Plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). "Net Proceeds Amount" shall mean, with respect to any Transfer of any property by any Person, an amount equal to the difference of (a) the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such Transfer) allocated to such Person in respect of such Transfer, net of any applicable taxes incurred in connection with such Transfer, minus (b) all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such Transfer. "Notes" is defined in the first paragraph hereof. "Officer's Certificate" shall mean a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "Original Note Purchase Agreement" is defined in the first paragraph hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Person" shall mean an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. B-9 "Plan" shall mean an "employee benefit plan" (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "Preferred Stock" shall mean any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "Priority Debt" shall mean the sum of (a) all Debt of the Company secured by Liens permitted by Section 10.5(k), (b) all Debt of Subsidiaries permitted by Section 10.4(d), and (c) all Attributable Debt of the Company and its Subsidiaries permitted by Section 10.10(b). "property" or "properties" shall mean, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "Property Reinvestment Application" shall mean, with respect to any Transfer of property, the application of an amount equal to the Net Proceeds Amount with respect to such Transfer to the acquisition by the Company or any Subsidiary of operating assets of the Company or any Subsidiary to be used in the principal business of such Person. "PTE" is defined in Section 6.2(a). "Purchasers" shall mean the original purchasers of the Notes under the Original Note Purchase Agreement. "QPAM Exemption" shall mean Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "Receivables Securitization Transaction" shall mean any transaction pursuant to which (a) accounts receivables are sold or transferred and (b) the seller either (1) retains an interest in the receivables so sold or transferred or (2) assumes any liability in connection with such sale or transfer. "Required Holders" shall mean, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company, any of its Subsidiaries or any of its Affiliates). "Responsible Officer" shall mean any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement. "Restricted Investments" (a) shall mean all Investments except the following: B-10 (1) property to be used in the ordinary course of business of the Company and its Subsidiaries; (2) current assets arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries; (3) Investments in one or more Subsidiaries or any Person that concurrently with such Investment becomes a Subsidiary; (4) Investments existing on the date of the Closing and disclosed in Schedule 5.16 to the Original Note Purchase Agreement; (5) Investments permitted by the Company's "Investment Policy Guidelines" as in effect on the date hereof set forth on Exhibit 3 attached hereto and such additional Investments as may from time to time be permitted under the Company's investment policy guidelines; provided that the Required Holders shall have consented to such additional Investments; and (6) Investments in Wilder Construction, a Washington corporation, made after May 14, 2001 in an aggregate amount not to exceed $30,000,000. (b) As of any date of determination, each Restricted Investment shall be valued at the greater of: (1) the amount at which such Restricted Investment is shown on the books of the Company or any of its Subsidiaries (or zero if such Restricted Investment is not shown on any such books); and (2) either (i) in the case of any Guaranty of the obligation of any Person, the amount which the Company or any of its Subsidiaries has paid on account of such obligation less any recoupment by the Company or such Subsidiary of any such payments, or (ii) in the case of any other Restricted Investment, the excess of (A) the greater of (I) the amount originally entered on the books of the Company or any of its Subsidiaries with respect thereto and (II) the cost thereof to the Company or its Subsidiary over (B) any return of capital (after income taxes applicable thereto) upon such Restricted Investment through the sale or other liquidation thereof or part thereof or otherwise. (c) As used in this definition of "Restricted Investments": B-11 "Acceptable Bank" shall mean any bank or trust company (1) which is organized under the laws of the United States of America or any State thereof, (2) which has capital, surplus and undivided profits aggregating at least $250,000,000, and (3) whose long-term unsecured debt obligations (or the long-term unsecured debt obligations of the bank holding company owning all of the capital stock of such bank or trust company) are given one of the two highest ratings by Moody's or S&P or another credit rating agency of recognized national standing. "Moody's" shall mean Moody's Investors Service, Inc. "S&P" shall mean Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. "United States Governmental Security" shall mean any direct obligation of, or obligation guaranteed by, the United States of America, or any agency controlled or supervised by or acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, so long as such obligation or guarantee shall have the benefit of the full faith and credit of the United States of America which shall have been pledged pursuant to authority granted by the Congress of the United States of America. "Sale-and-Leaseback Transaction" shall mean a transaction or series of transactions pursuant to which the Company or any Subsidiary shall sell or transfer to any Person (other than the Company or a Subsidiary) any property, whether now owned or hereafter acquired, and, as part of the same transaction or series of transactions, the Company or any Subsidiary shall, within 180 days of such sale or transfer, rent or lease, as lessee, (other than pursuant to a Capital Lease), or similarly acquire the right to possession or use of, such property or one or more properties which it intends to use for the same purpose or purposes as such property. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Security" has the meaning set forth in Section 2(1) of the Securities Act of 1933, as amended. "Senior Debt" shall mean all Debt of the Company, other than Subordinated Debt. "Senior Financial Officer" shall mean the chief financial officer, principal accounting officer, treasurer or controller of the Company. "Subordinated Debt" shall mean any Debt of the Company that is in any manner subordinated in right of payment or security in any respect to the Debt evidenced by the Notes. "Source" is defined in Section 6.2. B-12 "Subsidiary" shall mean, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Subsidiary Stock" shall mean, with respect to any Person, the stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of any Subsidiary of such Person. "Successor Corporation" is defined in Section 10.7(d). "Swaps" shall mean, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. For purposes of this Agreement, any such interest rate swap, currency swap, or other similar obligation which is or will be entered into and is being or will be used by such Person in the ordinary course of its business to hedge an existing or future risk or exposure of such Person in respect of its liabilities or assets (and not for speculative purposes) shall not be deemed a "Swap" for purposes of this definition. "TIC" shall mean TIC Holdings, Inc., a Delaware corporation. "Transfer" shall mean, with respect to any Person, any transaction in which such Person sells, conveys, transfers or leases (as lessor) any of its property, including, without limitation, Subsidiary Stock. For purposes of determining the application of the Net Proceeds Amount in respect of any Transfer, the Company may designate any Transfer as one or more separate Transfers each yielding a separate Net Proceeds Amount. In any such case, (a) the Disposition Value of any property subject to each such separate Transfer and (b) the amount of Consolidated Total Assets attributable to any property subject to each such separate Transfer shall be determined by ratably allocating the aggregate Disposition Value of, and the aggregate Consolidated Total Assets attributable to, all property subject to all such separate Transfers to each such separate Transfer on a proportionate basis. B-13 "Wholly-Owned" when used in connection with any Subsidiary shall mean, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. B-14 CHANGES IN CORPORATE STRUCTURE NONE SCHEDULE 4.9 (to Amended and Restated Note Purchase Agreement) DISCLOSURE MATERIALS NONE SCHEDULE 5.3 (to Amended and Restated Note Purchase Agreement) SUBSIDIARIES OF THE COMPANY AND OWNERSHIP OF SUBSIDIARY STOCK* 1. Subsidiaries - Organization and Capital Structure
OWNERSHIP BY JURISDICTION OF COMPANY AND/OR NAME ORGANIZATION CAPITAL STRUCTURE SUBSIDIARIES ---- --------------- ----------------- -------------- Granite Construction Company* California Corporation 100% wholly owned subsidiary of GCI Wilcott Corporation Colorado Corporation 100% wholly owned subsidiary of GCI Granite Land Company* California Corporation 100% wholly owned subsidiary of GCI Granite SR 91 Corporation California Corporation 100% wholly owned subsidiary of GCI Granite SR 91, L.P. California Limited Partnership 99% limited partner of GCI and 1% general partner of Granite SR 91 Corporation GILC Incorporated California Corporation 100% wholly owned subsidiary of GCI GILC, L.P.* California Limited Partnership 99% limited partner of GCC and 1% general partner of GILC Incorporated G.G. & R., Inc.* Utah Corporation 100% wholly owned subsidiary of GCI Intermountain Slurry Seal, Wyoming Corporation 100% wholly owned subsidiary Inc.* of G.G. & R., Inc. Pozzolan Products Company* Utah Corporation 100% wholly owned subsidiary of G.G. & R., Inc. GTC, Inc. Texas Corporation 100% wholly owned subsidiary of GCI
- -------------- * Material Subsidiary SCHEDULE 5.4 (to Amended and Restated Note Purchase Agreement) Granite Construction California Corporation 100% wholly owned subsidiary International of GCI Granite Halmar Construction New York Corporation 100% wholly owned subsidiary Company, Inc.* of GCI Waters Ridge II Texas Limited Partnership 69% interest owned by GCI Granite Mandalay Finance California Limited Liability Company 70% interest owned by GLC Granite/Kiewit (Tongue River) Montana Joint Venture 76% partnership interest by GCC Granite/Sundt (I-17) Arizona Joint Venture 55% partnership interest by GCC Minn.Transit Constrs (Light Minnesota Joint Venture 56.5% partnership interest by Rail) GCC Granite Rizzani (Hathaway Florida Joint Venture 60% partnership interest by Bridge) GCC River Mountain Constructors Arkansas Joint Venture 60% partnership interest by GCC Granite2 Sundt (Supersition Arizona Joint Venture 65% partnership interest by Hwy) GCC Granite/PCL (I-4 St Johns Florida Joint Venture 64.6% partnership interest by River) GCC
S-5.4-2 2. Affiliates - Organization and Capital Structure
OWNERSHIP BY JURISDICTION OF COMPANY AND/OR NAME ORGANIZATION CAPITAL STRUCTURE SUBSIDIARIES ---- --------------- ---------------- -------------- Paramount-Nevada Asphalt California LLP 50% Interest owned by GCI Wilders Construction Company Washington Minority Interest 46% Interest owned by GCI TIC Holdings, Inc. Delaware Minority Interest 30% Interest owned by GCI Williamson Ranch Plaza California LP 25% Interest owned by GLC Oly Mandalay Bay California LLC 9% Interest owned by GLC Granite Regional Park California LP 25% partnership interest by GLC CPTC L.P. California LLP 22% Interest owned by GCI Kiewit/Granite (TCA) California Joint Venture 30% partnership interest by GCC KG Leasing (TCA) California Joint Venture 30% partnership interest by GCC Kiewit/Granite California Joint Venture 25% partnership interest by (East Dam) GCC Kiewit/Granite/ Utah Joint Venture 23% partnership interest by Washington(Wasatch) GCC KGW Leasing (Wasatch) Utah Joint Venture 23% partnership interest by GCC Yonkers/Granite (Atlantic City) New Jersey Joint Venture 40% partnership interest by GCC Western Summit/TIC/ Granite (UTOY) Georgia Joint Venture 15% partnership interest by GCC Sampson/Granite (Cabrillo College) California Joint Venture 40% partnership interest by GCC Washington Granite California Joint Venture 40% partnership interest by GCC Las Vegas Monorail (Light Rail) Nevada Joint Venture 44.8% partnership interest by GCC
S-5.4-3 3. The Company's Directors and Officers
DIRECTORS OFFICERS --------- -------- Watts, David H. Watts, David H. Barclay, Joseph J. Dorey, William G. Brooks, Richard M. Costanzo, Patrick M. Griego, Linda Barton, William E. Kelly, Brian C. Boitano, Mark E. McDonald, Rebecca Allbritton, R.C. Miles, Raymond E. Futch, Michael Niebla, J.F. Higdem, Garry M. Searle, George Roberts, James H. Thomas, Michael L. Grazian, David R. McCann-Jenni, Mary Cady, James
S-5.4-4 4. Agreements Restricting Dividend Payments NONE S-5.4-5 FINANCIAL STATEMENTS SEC Form 10-K for the fiscal years ended December 31, 1995 December 31, 1996 December 31, 1997 December 31, 1998 December 31, 1999 December 31, 2000 SEC Form 10-Q for the fiscal quarters ended September 30, 1999 September 30, 2000 SCHEDULE 5.5 (to Amended and Restated Note Purchase Agreement) CERTAIN LITIGATION NONE SCHEDULE 5.8 (to Amended and Restated Note Purchase Agreement) PATENTS, ETC. NONE SCHEDULE 5.11 (to Amended and Restated Note Purchase Agreement) EXISTING DEBT
BALANCE ITEM INTEREST AUGUST 1, NO. LENDER'S NAME DESCRIPTION RATE MATURITY 2001 - ---- ------------- ----------- ------- -------- ------------ 1. Benna Investments Aggregate property 6.50% 04/14/02 $ 1,013,088 2. Benna Investments Real Estate property 6.50% 12/01/07 1,381,679 3. Bank of New York Real Estate property 8.25% 08/01/02 766,653 4. Rosemary's Mountain Aggregate property 8.82% 06/01/02 1,700,000 5. Private Placement Due Refinance debt & 6.54% 03/15/10 60,000,000 03/15/10 general corporate purposes 6. Private Placement Due 05/01/13 general corporate 6.96% 05/01/13 75,000,000 purposes 7. Bank of America Letter of Self insured Worker's 137.5 bps 04/30/02 1,562,962 Credit Compensation 8. Bank of America Letter of SR91 L.P. 137.5 bps 05/25/02 3,299,861 Credit 9. Bank of America Letter of Camino Columbia Toll 137.5 bps 05/25/02 10,016,400 Credit Road (performance LC) 10. Syndicated Bank Facility For general corporate 5.50% 10/05/01 18,000,000 (Revolver) purposes Total $172,740,643
SCHEDULE 5.15 (to Amended and Restated Note Purchase Agreement) EXISTING INVESTMENTS
MARKET VALUE COMPANY DESCRIPTIONS JUNE 30, 2001 - ------- ------------ -------------- Perini Corporation Common Stock $ 2,878 Vulcan Materials Company Common Stock 2,813 Cascade Corporation Common Stock 2,384 Paramount-Nevada Asphalt LLP 6,285,888 Wilder Construction Company Minority Interest 18,073,190 TIC Holdings, Inc. Minority Interest 22,828,787 Williamson Ranch Plaza LP 749,059 Oly Mandalay Bay LLC 1,695,357 Granite Regional Park LP 504,707 CPTC L.P./SR91 L.P. Joint Venture 795,499 Granite/Groves Joint Venture 184,894 Kiewit/Granite (TCA) Joint Venture 377,512 Kiewit/Granite (KG Leasing) Joint Venture 1,622,586 Kiewit/Granite (E. Dam) Joint Venture 375,376 Kiewit/Granite (Wasatch) Joint Venture 2,556,051 Kiewit/Granite (KGW Leasing) Joint Venture 7,730,921 Yonkers/Granite (Atlantic City) Joint Venture 11,928,225 Western Summit/TIC/Granite Joint Venture 137,037 Sampson/Granite Joint Venture 163,206 Washington Granite Joint Venture 200,000 Total $76,216,370
SCHEDULE 5.16 (to Amended and Restated Note Purchase Agreement) 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 has the potential of creating exposure to environmental clean up requirements. All underground tanks meet current requirements. There is no pending governmental ordered clean up. 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 DESCRIPTIONS 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 100,000 Gardnerville, NV Surface Spills 25,000 Gardnerville, NV Asphalt Batch Plant 50,000 Indio, 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 Diesel/Gasoline Underground Storage Tanks 75,000 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 Tucson, AZ Diesel/Gasoline Underground Storage Tanks 50,000 Watsonville, CA Diesel/Gasoline Underground Storage Tanks 150,000 Watsonville, CA Surface Spills 50,000 Webb, UT *Asphalt Batch Plant 500,000 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
SCHEDULE 5.18 (to Amended and Restated Note Purchase Agreement)
LOCATIONS DESCRIPTIONS AMOUNT --------- ------------ ----------- Cahoon, UT *Surface Spills 100,000 Fireclay Battery, UT *Surface Spills 25,000 Total $5,295,000
S-5.18-2 FORM OF NOTE GRANITE CONSTRUCTION INCORPORATED 6.54% Senior Note due March 15, 2010 No. ________ ___________, 20__ $____________ PPN 387328 A* 8 For Value Received, the undersigned, Granite Construction Incorporated (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to _____________________ or registered assigns, the principal sum of ______________ Dollars on March 15, 2010 with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.54% per annum from the date hereof, payable semiannually, on the fifteenth day of March and September in each year, commencing with the March 15 or September 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.54% or (ii) 2% over the rate of interest publicly announced by Bank of America from time to time in San Francisco, California as its "reference" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to that certain Amended and Restated Note Purchase Agreement, dated as of November 1, 2001 (as from time to time amended, the "Note Purchase Agreement"), between the Company and each of the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement to the extent provided in Section 13.2 of the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the EXHIBIT 1 (to Amended and Restated Note Purchase Agreement) purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. This Note and the holders hereof are entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Guaranty Agreement (as such term is defined in the Note Purchase Agreement). Reference is hereby made to the Guaranty Agreement for a statement of the nature and extent of the benefits and security for the Notes afforded thereby and the rights of the holders of the Notes and the Company in respect thereof. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, exists, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois, excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. GRANITE CONSTRUCTION INCORPORATED By -------------------------------- Its By -------------------------------- Its E-1-2 GRANITE CONSTRUCTION INCORPORATED INVESTMENT POLICY GUIDELINES FOR WORKING CAPITAL PORTFOLIO EFFECTIVE: JANUARY 1, 2001 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. EXHIBIT 3 (to Amended and Restated Note Purchase Agreement) 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 minimum cost and accurate market valuations. TRADING The following individuals are authorized traders: Roxane C. Allbritton, Vice President/Treasurer Jigisha Desai, Cash Manager Michael D. Kevorkian, Treasury Analyst Mary McCann-Jenni, Controller 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 P.M. Costanzo W.G. Dorey M.E. Boitano DEALERS AND BANKS FOR TRADING The following institutions are authorized dealers: BA Securities 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: E-3-2 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* Comerica Bank* First Union Bank of North Carolina* 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 Operating Officer, Chief Financial Officer and all traders. - - Monthly -- The fixed income portfolio will be monitored against the performance of Merrill Lynch U.S. Domestic Master 1-3 years index. - - For FASB 115 purposes, the Corporation classifies all fixed income investments as "Held to Maturity." E-3-3 GRANITE CONSTRUCTION INCORPORATED INVESTMENT POLICY GUIDELINES FOR WORKING CAPITAL PORTFOLIO EFFECTIVE: JANUARY 1, 2001
- ---------------------------------------------------------------------------------------------------------------------- CONCENTRATION CONCENTRATION MINIMUM CREDIT BY BY ELIGIBLE INVESTMENTS QUALITY ISSUER PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------- Obligations issued by U.S. N/A No Maximum No Maximum Government limited to: U.S. Treasury Bills/Bonds/Notes - ---------------------------------------------------------------------------------------------------------------------- Obligations of agencies of the N/A $5,000,000 or 10% of 40% U.S. Government limited to: total portfolio (whichever is greater) Federal Farm Credit Bank 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. $5,000,000 or 10% of 25% Government securities limited to: Gov't and Agency securities total portfolio included in these guidelines. (whichever is greater) Repurchase Agreements Collateral value plus accrued Reverse Repurchase Agreements 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 $5,000,000 or 10% of 50% domestic commercial banks limited deposit and assets. total portfolio to: Short-Term rating of A-1/P-1, or (whichever is greater) Long-Term rating of AAA/NR or Banker's Acceptance AA/Aa Certificate of Deposit (at the time of purchase) - ---------------------------------------------------------------------------------------------------------------------- Obligations issued by U.S. bank Limited to Top 25 World Banks by $5,000,000 or 10% of 40% subsidiaries of Non U.S. Bank deposit and assets. total portfolio limited to: Short-Term rating of A-1/P-1, or (whichever is greater) Long-Term rating of AAA/NR or Yankee Banker's Acceptance AA/Aa Yankee Certificates of Deposit (at the time of purchase) (all securities U.S. dollar denominated) - ----------------------------------------------------------------------------------------------------------------------
E-3-4 GRANITE CONSTRUCTION INCORPORATED INVESTMENT POLICY GUIDELINES FOR WORKING CAPITAL PORTFOLIO EFFECTIVE: JANUARY 1, 2001
- ---------------------------------------------------------------------------------------------------------------------- CONCENTRATION CONCENTRATION MINIMUM CREDIT BY BY ELIGIBLE INVESTMENTS QUALITY ISSUER PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------- Obligations of major U.S. Any TWO of three rating services: $5,000,000 or 10% of 75% corporations and U.S. holding A-1/P-1/D-1 total portfolio companies limited to: S&P, Moody's, Duff & Phelps (whichever is greater) (at the time of purchase) Commercial Paper Any split-rated of three rating $5,000,000 or 10% of 30% of Overall services: A1/P2, A2/P1 Commercial Paper Commercial Paper S&P, Moody's, Duff & Phelps portfolio portfolio (at the time of purchase) (whichever is greater) or Must be publicly traded 22.5% of Total Corporation Portfolio Must have at least $20B in Market Capitalization (at the time of purchase) Any TWO of three rating services: $5,000,000 or 10% of 20% of Overall A-2/P-2/D-2 S&P, Moody's, Duff Commercial Paper Commercial Paper & Phelps portfolio portfolio Must be publicly traded (whichever is greater) or Corporation 15% of Total Must have at least $20B in Portfolio Market Capitalization (at the time of purchase) - ---------------------------------------------------------------------------------------------------------------------- Loan Participation Same as commercial paper credit $5,000,000 or 10% of 25% Master Notes quality requirements total portfolio (whichever is greater) - ---------------------------------------------------------------------------------------------------------------------- Money Market Funds Any TWO of three rating $5,000,000 or 10% of 50% services: AAAm/Aaa/AAA total portfolio S&P, Moody's, Duff & Phelps (whichever is greater) (at the time of purchase) - ---------------------------------------------------------------------------------------------------------------------- Tax-exempt investments limited to: S&P: A-1, AA or better, Sp-1 $5,000,000 or 10% of 25% AND total portfolio Commercial Paper Moody's: P-1, Aa or better, (whichever is greater) Floating Rate Put Bonds VMIG-1 Floating Rate Put Notes Municipal Notes Municipal Bonds - ----------------------------------------------------------------------------------------------------------------------
E-3-5 GRANITE CONSTRUCTION INCORPORATED INVESTMENT POLICY GUIDELINES FOR HIGH-YIELD PORTFOLIO EFFECTIVE: FEBRUARY 1, 2001 STATEMENT OF PURPOSE Cash is the major source of working capital for the present and future operations of Granite. Managing the cash to ensure the liquidity necessary to meet Granite's business needs is of paramount importance. Any cash balances above those necessary for day-to-day working capital requirements are available for longer-term investments. These investments can be held for a longer interval to enhance the portfolio yield, and add diversification, without loosing sight of capital preservation within this policy's guidelines. INVESTMENT OBJECTIVES The investment objective of this portfolio is to seek consistency of investment return with emphasis on capital appreciation and secondarily capital preservation with a goal of either equaling or exceeding the Composite Policy Index. The Composite Policy Index is defined, as an Index comprised of several indices corresponding to the various mutual funds being used in this portfolio as per the asset allocation study. Therefore, the investment objectives are: [ ] Investment Return: Optimize the investment returns within the constraints of this policy. [ ] Safety: Emphasize preservation of capital assets over economic business cycles. [ ] Diversification: - Provide investments in mutual fund companies that have sufficient number of funds with different investment characteristics. - Select funds from mutual fund companies that provide a balanced investment approach that can be diversified among the major assets classes and will provide sufficiently varied risk/return characteristics (see Exhibit A). PERFORMANCE MEASUREMENT GUIDELINES Normally, investment performance should be judged over a complete economic cycle (typically 3 to 5 years). Since short-term results are not usually meaningful, true investment success will be looked at as a long-term proposition. To accomplish this, the performance measurement guidelines are: [ ] To manage the concentration in any one class of mutual funds, the portfolio will be invested based on an asset allocation study prepared by an outside investment advisory firm and managed accordingly. Periodically, the Composite Policy Index will be modified to coincide to the most recent asset allocation study. E-3-6 [ ] To invest in funds that will have ratings from Morningstar of 3, 4, or 5 and will be comparable in performance to the respective indices, e.g. growth fund index, growth and income index, etc. (see Exhibit B) [ ] To determine if the investment guidelines are being followed, a review of fund performance will be prepared each quarter by an outside investment advisory firm. The review will take into consideration overall economic conditions as well as the risk and return objectives of these guidelines. MARKETABILITY Investments should be of sufficient size and be held in issues, which are traded actively to facilitate transactions at minimum cost and accurate market valuations. TRADING The following individuals are authorized traders: Roxane C. Allbritton, Vice President/Treasurer Jigisha Desai, Cash Manager Michael D. Kevorkian, Treasury Analyst Mary McCann-Jenni, Controller Any individual transaction conforming to the policy set forth herein 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 P.M. Costanzo W.G. Dorey M.E. Boitano MUTUAL FUNDS The following mutual funds are authorized: Franklin Small Cap Fund Loomis Sayles Pimco Bond Fund Putnam Mutual Funds E-3-7 All purchased investments will be delivered to the custodian bank for safekeeping and paid for upon receipt. SAFEKEEPING The institutions designated as a safekeeping depository are: Fleet Bank Merrill Lynch The custodian bank must provide timely confirmation/safekeeping receipts on all investment transactions and provide monthly transaction reports. REPORTING - Daily -- Upon a settlement of trade, an investment transaction sheet, sequentially numbered will be processed for approval by an authorized officer. - Monthly and quarterly -- Financial reporting requirements for GAAP. - Monthly -- The mutual fund portfolio will be evaluated based on a unit-based performance analysis and will be distributed to the President, Chief Operating Officer, Chief Financial Officer and all traders. - Quarterly -- A risk-adjusted performance analysis and a composite policy index analysis of funds will be prepared by an outside advisory firm. - Quarterly -- An asset allocation status, indicating out of balance funds rebalancing (if any) that is required. - An outside firm will do an asset allocation study every three (3) years. - For FASB 115 purposed, the Corporation classifies mutual fund investments as "Available for Sale." E-3-8 EX-10.13.A 7 f79324ex10-13_a.txt EXHIBIT 10.13.A EXHIBIT 10.13.a SUBSIDIARY GUARANTY SUPPLEMENT To the Holders of the 6.54% Senior Notes due March 15, 2010 of Granite Construction Incorporated (the "Company") Ladies and Gentlemen: WHEREAS, in order to refinance existing indebtedness and for general corporate purposes, the Company issued its 6.54% Senior Notes due March 15, 2010 in the aggregate principal amount of $60,000,000 (the "Notes") pursuant to that certain Note Purchase Agreement dated as of May 1, 2001 (as amended to the date hereof, the "Note Agreement") between the Company and each of the purchasers named on Schedule A attached to said Note Agreement (the "Initial Note Purchasers"). WHEREAS, as a condition precedent to their purchase of the Notes, the Initial Note Purchasers required that certain from time to time subsidiaries of the Company enter into a Subsidiary Guaranty Agreement as security for the Notes (the "Subsidiary Guaranty"). Pursuant to Section 9.6(a)(l) of the Note Agreement, the Company has agreed to cause the undersigned, Granite Halmar Construction Company, Inc., a corporation organized under the laws of New York (the "Additional Guarantor"), to join in the Subsidiary Guaranty. In accordance with the requirements of the Subsidiary Guaranty, the Additional Guarantor desires to amend the definition of Guarantor (as the same may have been heretofore amended) set forth in the Subsidiary Guaranty attached hereto so that at all times from and after the date hereof, the Additional Guarantor shall be jointly and severally liable as set forth in the Subsidiary Guaranty for the obligations of the Company under the Note Agreement and Notes to the extent and in the manner set forth in the Subsidiary Guaranty. The undersigned is the duly elected _Vice President______ of the Additional Guarantor, a subsidiary of the Company, and is duly authorized to execute and deliver this Guaranty Supplement to each of you. The execution by the undersigned of this Guaranty Supplement shall evidence its consent to and acknowledgment and approval of the terms set forth herein and in the Subsidiary Guaranty and by such execution the Additional Guarantor shall be deemed to have made in favor of the Holders the representations and warranties set forth in Section 5 of the Subsidiary Guaranty. Upon execution of this Subsidiary Guaranty Supplement, the Subsidiary Guaranty shall be deemed to be amended as set forth above. Except as amended herein, the terms and provisions of the Subsidiary Guaranty are hereby ratified, confirmed and approved in all respects. Any and all notices, requests, certificates and other instruments (including the Notes) may refer to the Subsidiary Guaranty without making specific reference to this Subsidiary Guaranty Supplement, but nevertheless all such references shall be deemed to include this Subsidiary Guaranty Supplement unless the context shall otherwise require. Dated: November 15__, 2001. GRANITE HALMAR CONSTRUCTION COMPANY, INC. By /s/ R.C. Allbritton --------------------------------- Its R.C. Allbritton Vice President /s/ James H. Roberts --------------------------------- Its James H. Roberts Vice President The undersigned Guarantors hereby acknowledge and agree to the foregoing and hereby ratify and re-affirm the Guaranty Agreement. GRANITE CONSTRUCTION COMPANY By /s/ R.C. Allbritton --------------------------------- Its R. C. Allbritton Vice President /s/ James H. Roberts --------------------------------- Its James H. Roberts Vice President GRANITE LAND COMPANY By /s/ R.C. Allbritton --------------------------------- Its R.C. Allbritton Vice President /s/ James H. Roberts --------------------------------- Its James H. Roberts Vice President INTERMOUNTAIN SLURRY SEAL, INC. By /s/ Michael L. Thomas --------------------------------- Its Michael L. Thomas President POZZOLAN PRODUCTS COMPANY By /s/ Michael L. Thomas --------------------------------- Its Michael L. Thomas President GILC, L.P. By: GILC Incorporated, its sole General Partner By /s/ R.C. Allbritton --------------------------------- Its R.C. Allbritton Vice President /s/ Michael Futch --------------------------------- Its Michael Futch Secretary G.G.&R., INC. By /s/ Michael Futch --------------------------------- Its Michael Futch Secretary --------------------------------- Its GRANITE HALMAR CONSTRUCTION COMPANY, INC. By /s/ R.C. Allbritton --------------------------------- Its R.C. Allbritton Vice President /s/ James H. Roberts --------------------------------- Its James H. Roberts Vice President EX-21 8 f79324ex21.txt EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES OF GRANITE CONSTRUCTION INCORPORATED
State of Name Under Which Subsidiary Incorporation Subsidiary Does Business - ---------- ------------- ------------------------ Granite Construction Company California Granite Construction Company GILC Incorporated California GILC Incorporated Granite Halmar Construction New York Granite Halmar Construction Company, Inc. Company, Inc.
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