10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)
(X)	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter ended June 30, 2004

(  ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                    

Commission File No. 1-12911

GRANITE CONSTRUCTION INCORPORATED

State of Incorporation:	I.R.S. Employer Identification Number:
Delaware	77-0239383

Corporate Administration:

585 W. Beach Street
Watsonville, California 95076
(831) 724-1011

Indicate by checkmark 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 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 checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes    (X)   No   (  )

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 28, 2004.

Class	Outstanding
Common Stock, $0.01 par value	41,609,521 shares

1

Index

EXHIBITS

 EXHIBIT 3.2

 EXHIBIT 10.1

 EXHIBIT 31.1

 EXHIBIT 31.2

 EXHIBIT 32.1

 EXHIBIT 32.2

2

PART I. FINANCIAL INFORMATION

3

Item 1. FINANCIAL STATEMENTS (unaudited)

Granite Construction Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited — in thousands, except share and per share data)

	June 30, 2004			December 31, 2003
Assets
Current assets
Cash and cash equivalents	$	112,555		$	69,919
Short-term marketable securities		62,535			90,869
Accounts receivable, net		389,479			288,210
Costs and estimated earnings in excess of billings		55,682			31,189
Inventories		33,222			29,878
Deferred income taxes		22,144			22,421
Equity in construction joint ventures		19,901			42,250
Other current assets		45,601			43,915
Total current assets		741,119			618,651
Property and equipment, net		356,377			344,734
Long-term marketable securities		32,949			41,197
Investments in affiliates		12,974			18,295
Other assets		47,091			37,533
	$	1,190,510		$	1,060,410
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities of long-term debt	$	10,482		$	8,182
Accounts payable		213,989			135,468
Billings in excess of costs and estimated earnings		128,257			99,337
Accrued expenses and other current liabilities		105,227			105,717
Total current liabilities		457,955			348,704
Long-term debt		131,592			126,708
Other long-term liabilities		27,550			24,938
Deferred income taxes		45,775			44,297
Commitments and contingencies
Minority interest in consolidated subsidiaries		25,905			10,872
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 41,609,521 shares in 2004 and 41,528,317 in 2003		416			415
Additional paid-in capital		75,812			73,651
Retained earnings		438,648			442,272
Accumulated other comprehensive income		604			76
		515,480			516,414
Unearned compensation		(13,747	)		(11,523	)
		501,733			504,891
	$	1,190,510		$	1,060,410

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Granite Construction Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited — in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenue:
Construction	$	487,718		$	403,399		$	785,070		$	665,865
Material sales		71,036			66,006			110,702			105,700
Total revenue		558,754			469,405			895,772			771,565
Cost of revenue:
Construction		443,079			362,456			734,549			596,700
Material sales		55,931			53,766			90,795			88,665
Total cost of revenue		499,010			416,222			825,344			685,365
Gross Profit		59,744			53,183			70,428			86,200
General and administrative expenses		35,914			36,395			72,458			72,945
Gain on sales of property and equipment		1,109			232			14,439			528
Operating income		24,939			17,020			12,409			13,783
Other income (expense):
Interest income		1,317			2,002			2,715			3,488
Interest expense		(1,859	)		(2,529	)		(3,599	)		(4,638	)
Equity in income of affiliates		2,766			110			2,873			18,125
Other, net		(7	)		1,951			95			2,278
		2,217			1,534			2,084			19,253
Income before provision for income taxes and minority interest		27,156			18,554			14,493			33,036
Provision for income taxes		9,239			6,718			4,855			11,959
Income before minority interest		17,917			11,836			9,638			21,077
Minority interest in consolidated subsidiaries		(4,111	)		(1,042	)		(4,941	)		(265	)
Net income	$	13,806		$	10,794		$	4,697		$	20,812
Net income per share
Basic	$	0.34		$	0.27		$	0.12		$	0.52
Diluted	$	0.34		$	0.26		$	0.11		$	0.51
Weighted average shares of common stock
Basic		40,417			40,212			40,341			40,130
Diluted		41,018			40,802			40,919			40,657
Dividends per share	$	0.10		$	0.10		$	0.20		$	0.20

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Granite Construction Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — in thousands)

Six Months Ended June 30,	2004			2003
Operating Activities
Net income	$	4,697		$	20,812
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		30,618			32,979
Gain on sales of property and equipment		(14,439	)		(528	)
Change in deferred income taxes		1,478			—
Amortization of unearned compensation		2,010			2,997
Common stock contributed to ESOP		3,989			—
Minority interest in income of consolidated subsidiaries		4,941			265
Equity in income of affiliates		(2,873	)		(18,125	)
Gain on sale of equity investment		—			(1,853	)
Changes in assets and liabilities, net of the effects of FIN 46 consolidation:
Accounts receivable		(59,339	)		(29,113	)
Inventories		(3,344	)		(2,714	)
Equity in construction joint ventures		786			(4,816	)
Other assets		7,844			3,627
Accounts payable		61,014			33,741
Billings in excess of costs and estimated earnings, net		(42,478	)		(17,126	)
Accrued expenses and other liabilities		(9,915	)		8,863
Net cash (used in) provided by operating activities		(15,011	)		29,009
Investing Activities
Purchases of marketable securities		(46,160	)		(80,289	)
Maturities of marketable securities		81,242			111,439
Additions to property and equipment		(37,525	)		(42,597	)
Proceeds from sales of property and equipment		9,191			2,060
Proceeds from sale of equity investment		—			6,033
Distributions from affiliates, net		8,193			13,699
Acquisition of minority interest		(9,219	)		—
Other investing activities		—			(1,628	)
Net cash provided by investing activities		5,722			8,717
Financing Activities
Additions to long-term debt		22,908			18,890
Repayments of long-term debt		(22,587	)		(23,455	)
Dividends paid		(8,313	)		(7,455	)
Repurchases of common stock		(6,260	)		(1,679	)
Contributions from minority partners		5,093			1,275
Distributions to minority partners		(8,904	)		—
Other financing activities		274			281
Net cash used in financing activities		(17,789	)		(12,143	)
(Decrease) increase in cash and cash equivalents		(27,078	)		25,583
Cash and cash equivalents added in FIN 46 consolidation		69,714			—
Cash and cash equivalents at beginning of period		69,919			52,032
Cash and cash equivalents at end of period	$	112,555		$	77,615
Supplementary Information
Cash paid during the period for:
Interest	$	3,773		$	4,590
Income taxes		3,093			5,317
Non-cash investing and financing activity:
Restricted stock issued for services	$	4,234		$	5,908
Dividends accrued but not paid		4,161			4,154
Financed acquisition of long-term asset		6,863			4,004
Notes received from sale of assets		8,893			—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Granite Construction Incorporated

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation:
	The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we”, “us”, “our” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although we believe the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2004 and the results of our operations and cash flows for the periods presented. The December 31, 2003 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
	Interim results are subject to significant seasonal variations and the results of operations for the three and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year.
2.	Newly Effective and Recently Issued Accounting Pronouncements:
	In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” which is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and requires that a variable interest entity (“VIE”) be consolidated by a company that is considered to be the primary beneficiary of that VIE. In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46”) to address certain implementation issues.
	We were required to adopt FIN 46 no later than the end of the first interim or annual reporting period ending after March 15, 2004 for all VIEs (other than Special Purpose Entities) created prior to February 1, 2003. As is common in the construction industry, we have entered into certain construction contracts with third parties through joint ventures and we have determined that certain of these joint ventures are VIEs. As a result of our adoption of FIN 46, we have consolidated all VIEs in which we are the primary beneficiary as of January 1, 2004 (See Note 7 to these condensed consolidated financial statements). We will continue to account for all other such joint ventures in accordance with Emerging Issues Task Force Issue 00-01, “Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures.”
3.	Change in Accounting Estimate:
	During the three months ended March 31, 2004, we recognized increased project costs of approximately $20.0 million. The cost increases were primarily due to changes in the estimates on eight projects being performed by our Heavy Construction Division. The amount attributable to any individual project ranged from approximately $0.5 million to $4.0 million. These forecast adjustments were made in response to unanticipated changes in project conditions occurring during the three months ended March 31, 2004, resulting in changes to the estimates of the cost to complete the projects. These changes to the estimates were due to a variety of factors, including

7

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	recognition of costs associated with added scope changes, extended overhead due to owner and weather delays, design problems on design/build projects, subcontractor performance issues, changes in productivity expectations and higher than anticipated liquidated damages on two projects.
	In the quarter ended June 30, 2004, additional cost of $5.4 million related to one of these projects was recognized, primarily due to a change in the estimate of the cost to complete the work related to a key project subcontract.
4.	Inventories:
	Inventories consist primarily of quarry products valued at the lower of average cost or market.
5.	Property and Equipment:

(in thousands)	June 30, 2004			December 31, 2003
Land	$	52,801		$	53,583
Quarry property		73,749			75,329
Buildings and leasehold improvements		77,399			64,276
Equipment and vehicles		698,505			693,657
Office furniture and equipment		15,107			13,926
		917,561			900,771
Less accumulated depreciation, depletion and amortization		(561,184	)		(556,037	)
	$	356,377		$	344,734

8

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.	Intangible Assets:
	The following intangible assets are included in other assets on our condensed consolidated balance sheets:

	June 30, 2004
	Gross		Accumulated			Net
(in thousands)	Value		Amortization			Value
Amortized intangible assets:
Covenants not to compete	$	1,124	$	(669	)	$	455
Permits		2,000		(428	)		1,572
Trade names		1,425		(259	)		1,166
Other		622		(229	)		393
Total amortized intangible assets		5,171		(1,585	)		3,586
Goodwill		22,100		—			22,100
	$	27,271	$	(1,585	)	$	25,686

	December 31, 2003
	Gross		Accumulated			Net
(in thousands)	Value		Amortization			Value
Amortized intangible assets:
Covenants not to compete	$	1,249	$	(674	)	$	575
Permits		2,000		(361	)		1,639
Trade names		1,602		(991	)		611
Acquired contracts		900		(900	)		—
Other		622		(188	)		434
Total amortized intangible assets		6,373		(3,114	)		3,259
Goodwill		19,067		—			19,067
	$	25,440	$	(3,114	)	$	22,326

	Amortization expense related to intangible assets was approximately $151,000 and $296,000 for the three months and six months ended June 30, 2004, respectively and approximately $358,000 and $715,000 for the three months and six months ended June 30, 2003, respectively. Amortization expense expected to be recorded in the future is as follows: $315,000 remaining in 2004, $646,000 in 2005, $485,000 in 2006, $391,000 in 2007, $379,000 in 2008 and $1,370,000 thereafter.
7.	Variable Interest Entities:
	We have determined that certain of the construction joint ventures in which we participate are variable interest entities as defined by FIN 46. Accordingly, we have consolidated those joint ventures where we have determined that we are the primary beneficiary. 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 our interests in any profits and assets, and our respective share in any losses and liabilities that may result from the performance of the contract are limited to our stated percentage interest in the project. Although the venture’s contract with the project owner typically requires joint and several liability, our agreements with our joint venture partners provide that each partner will assume and pay its full proportionate share of any losses resulting from a project. We have no significant commitments beyond completion of the contract.

9

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	The joint ventures we have consolidated are engaged in construction projects with total contract values ranging from $2.0 million to $329.7 million. Our proportionate share of the consolidated joint ventures ranges from 51.0% to 69.0%. As a result of our consolidation of these entities we have recorded assets (primarily current assets) of $91.0 million and current liabilities of $74.8 million as of January 1, 2004. There was no effect on our net income as a result of these consolidations for the three months and six months ended June 30, 2004.
	The joint ventures in which we hold a significant interest but are not the primary beneficiary are engaged in construction projects with total contract values ranging from $90.7 million to $221.4 million. Our proportionate share of these joint ventures ranges from 25.0% to 40.0%. Circumstances that could lead to a loss under these arrangements beyond our proportionate share include a partner’s inability to contribute additional funds to the venture in the event that the project incurred a loss or additional costs that we could incur should the partner fail to provide the services and resources toward project completion that had been committed to in the joint venture agreement. At June 30, 2004, approximately $290.2 million of work representing our partners’ share of proportionately consolidated joint venture contracts in progress had yet to be completed.
8.	Earnings Per Share:
	A reconciliation of shares used in calculating basic and diluted net income per share in the accompanying condensed consolidated statements of income is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2004		2003		2004		2003
Weighted average shares outstanding
Weighted average common stock outstanding		41,604		41,537		41,544		41,395
Less weighted average restricted stock outstanding		1,187		1,325		1,203		1,265
Total		40,417		40,212		40,341		40,130
Diluted weighted average shares outstanding
Basic weighted average shares outstanding		40,417		40,212		40,341		40,130
Effect of dilutive securities:
Common stock options and units		52		23		53		19
Restricted stock		549		567		525		508
Total		41,018		40,802		40,919		40,657

Restricted stock representing approximately 417,000 shares and 363,000 shares for the three months June 30, 2004 and 2003, respectively, and approximately 321,000 shares and 441,000 shares for the six months ended June 30, 2004 and 2003, respectively, have been excluded from the calculation of diluted net income per share because their effects are anti-dilutive.

10

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.	Comprehensive Income:
	The components of comprehensive income, net of tax, are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2004		2003		2004		2003
Net income	$	13,806	$	10,794	$	4,697	$	20,812
Other comprehensive income:
Changes in net unrealized gains (losses) on investments		92		781		528		614
Total comprehensive income	$	13,898	$	11,575	$	5,225	$	21,426

10.	Commitments and Contingencies:
	Our wholly-owned subsidiary, Granite Construction Company, as a member of a joint venture, Wasatch Constructors, is among a number of construction companies and the Utah Department of Transportation that were named in a lawsuit filed in the United States District Court for the District of Utah. The plaintiffs are two independent contractor truckers who filed the lawsuit on behalf of the United States under the federal False Claims Act seeking to recover damages and civil penalties in excess of $46.4 million.
	The original complaint was filed in January 1999 and the Third Amended Complaint was filed in February 2003. On May 30, 2003, Wasatch Constructors and the coordinated defendants filed their motion to dismiss the Third Amended Complaint. On December 23, 2003, the Court issued its order granting Wasatch Constructors’ and the coordinated defendants’ motion to dismiss the Third Amended Complaint but allowed the plaintiffs one last opportunity to amend their complaint. Plaintiffs’ Fourth Amended Complaint was filed on July 12, 2004.
	We are a party to a number of other legal proceedings and believe that the nature and number of these proceedings are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations for the period in which the ruling occurs.
11.	Business Segment Information:
	We have two reportable segments: the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division is comprised of branch offices, including our majority owned subsidiary, Wilder Construction Company (“Wilder”), that serve local markets, while HCD pursues major infrastructure projects throughout the nation. 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. HCD has been the primary participant in our construction joint ventures.

11

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in our 2003 Annual Report on Form 10-K. We evaluate performance based on operating profit or loss, which does not include gain on sales of property and equipment, income taxes, interest income, interest expense or other income (expense). Unallocated other corporate expenses principally comprise corporate general and administrative expenses.

Information about Profit (Loss) and Assets (in thousands):

	Three Months Ended June 30,
	HCD			Branch		Total
2004
Revenue from external customers	$	225,062		$	333,692	$	558,754
Inter-segment revenue transfer		(4,933	)		4,933		—
Net revenue		220,129			338,625		558,754
Depreciation, depletion and amortization		3,257			10,582		13,839
Operating profit		10,329			23,667		33,996
2003
Revenue from external customers	$	192,825		$	276,580	$	469,405
Inter-segment revenue transfer		(2,974	)		2,974		—
Net revenue		189,851			279,554		469,405
Depreciation, depletion and amortization		3,626			11,174		14,800
Operating profit		7,173			19,632		26,805

	Six Months Ended June 30,
	HCD			Branch		Total
2004
Revenue from external customers	$	400,499		$	495,273	$	895,772
Inter-segment revenue transfer		(10,290	)		10,290		—
Net revenue		390,209			505,563		895,772
Depreciation, depletion and amortization		6,836			21,414		28,250
Operating profit (loss)		(1,010	)		18,041		17,031
Property and equipment		48,959			279,049		328,008
Goodwill		18,011			4,089		22,100
2003
Revenue from external customers	$	325,370		$	446,195	$	771,565
Inter-segment revenue transfer		(5,434	)		5,434		—
Net revenue		319,936			451,629		771,565
Depreciation, depletion and amortization		7,888			23,470		31,358
Operating profit		14,037			16,373		30,410
Property and equipment		43,037			297,830		340,867
Goodwill		18,011			1,056		19,067

Reconciliation of Segment Profit to Consolidated Totals (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Total profit for reportable segments	$	33,996		$	26,805		$	17,031		$	30,410
Gain on sales of property and equipment		1,109			232			14,439			528
Other income (expense), net		2,217			1,534			2,084			19,253
Unallocated other corporate income (expense), net		(10,166	)		(10,017	)		(19,061	)		(17,155	)
Income before provision for income taxes and minority interest	$	27,156		$	18,554		$	14,493		$	33,036

12

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.	Investments in Affiliates:
	In June 2003, T.I.C. Holdings, Inc. (“TIC”) repurchased 0.3 million shares of the TIC shares held by us for a cash payment of $6.0 million. We account for our investment in TIC using the cost method. This transaction reduced our ownership interest from 15.5% to 10.6% and resulted in a gain of $1.9 million, which is included in other income (expense) for the three months and six months ended June 30, 2003.
	In January 2003, the California Private Transportation Company, LP (“CPTC”), of which we are a 22.2% limited partner, closed the sale of the State Route 91 Toll Road Franchise to the Orange County Transportation Authority for $72.5 million in cash and the assumption of $135.0 million in long-term debt. We completed construction of the $60.4 million project in 1995 and have maintained an equity interest in the partnership since its inception. Included in other income (expense) for the six months ended June 30, 2003 is $18.4 million related to this sale by CPTC.
13.	Acquisitions:
	In April 2004, we purchased an additional 643,348 shares of Wilder common stock for a cash payment of $9.2 million. As a result of this transaction, our interest in Wilder increased from 60.3% to 75.0%. The acquisition was accounted for in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”, and the excess purchase price over fair value of the net tangible and intangible assets acquired, $3.0 million, was allocated to goodwill.
14.	Sale of Assets:
	In March 2004, we sold certain assets related to our ready-mix concrete business in Utah for cash of $10.0 million and promissory notes with an estimated fair value of $8.9 million which are payable in installments through 2010. The sale transaction resulted in the recognition of a gain of approximately $10.0 million.
15.	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.

13

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Disclosure

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of Granite that are based on current expectations, estimates, forecasts, and projections as well as the beliefs and assumptions of Granite’s management. Words such as “outlook”, “believes”, “expects”, “appears”, “may”, “will”, “should”, “anticipates” or the negative thereof or comparable terminology, are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K under the section entitled “Risk Factors”. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Report. Granite undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

General

We are one of the largest heavy civil contractors in the United States and are engaged in the construction of highways, dams, airports, mass transit facilities and other infrastructure-related projects. We have offices in Alaska, Arizona, California, Florida, Minnesota, Nevada, New York, Oregon, Texas, Utah and Washington. Our business involves two operating segments: the Branch Division and the Heavy Construction Division (“HCD”).

Our 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. Our bidding activity is affected by such factors as backlog, current utilization of equipment and other resources, our ability to obtain necessary surety bonds and competitive considerations. Bidding activity, backlog and revenue resulting from the award of new contracts may vary significantly from period to period.

The two primary economic drivers of our business are (1) federal, state and local public funding levels and (2) the overall health of the economy, both nationally and locally. The level of demand for our services will have a direct correlation to these drivers. For example, a weak economy will generally result in a reduced demand for construction in the private sector. This reduced demand increases competition for fewer private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector. Greater competition can reduce revenue growth and/or increase pressure on gross profit margins. A weak economy also tends to produce less tax revenue, thereby decreasing the funds available for spending on public infrastructure improvements. There are funding sources that have been specifically earmarked for infrastructure spending, such as gasoline taxes, which are not necessarily directly impacted by a weak economy. However, even these funds can be temporarily at risk as state and local governments struggle to balance their budgets. Conversely, higher public funding and/or a robust economy will increase demand for our services and provide opportunities for revenue growth and margin improvement.

14

Our general and administrative costs include salaries and related expenses, incentive compensation, discretionary profit sharing and other variable compensation, as well as other overhead costs to support our overall business. In general, these costs will increase in response to the growth and the related increased complexity of our business. These costs may also vary depending on the number of projects in process in a particular area and the corresponding level of estimating activity. For example, as large projects are completed or if the level of work slows down in a particular area, we will often re-assign employees who had been working on those projects to estimating and bidding activities until another project is ready to start, which temporarily moves their salaries and other related costs from cost of revenue to general and administrative expense. Additionally, our compensation strategy for selected management personnel is to rely heavily on a variable cash and restricted stock performance-based incentive element. The cash portion of these incentives is expensed when earned while the restricted stock portion is expensed over the vesting period of the stock (generally five years). Depending on the mix of cash and restricted stock, these incentives can have the effect of increasing general and administrative expenses in very profitable years and decreasing expenses in less profitable years.

Results of Operations

	Three Months Ended June 30,										Six Months Ended June 30,
Revenue	2004					2003					2004					2003
(in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Revenue by Division:
Branch Division	$	338,625		60.6	%	$	279,554		59.6	%	$	505,563		56.4	%	$	451,629		58.5	%
Heavy Construction Division		220,129		39.4	%		189,851		40.4	%		390,209		43.6	%		319,936		41.5	%
	$	558,754		100.0	%	$	469,405		100.0	%	$	895,772		100.0	%	$	771,565		100.0	%
Revenue by Geographic Area:
California	$	188,737		33.8	%	$	151,702		32.3	%	$	303,054		33.9	%	$	262,704		34.1	%
West (excluding California)		173,713		31.1	%		166,621		35.5	%		248,166		27.7	%		262,655		34.0	%
Midwest		17,457		3.1	%		14,830		3.2	%		36,108		4.0	%		24,675		3.2	%
Northeast		80,243		14.4	%		42,139		9.0	%		133,558		14.9	%		70,326		9.1	%
South		98,604		17.6	%		94,113		20.0	%		174,886		19.5	%		151,205		19.6	%
	$	558,754		100.0	%	$	469,405		100.0	%	$	895,772		100.0	%	$	771,565		100.0	%
Revenue by Market Sector:
Federal Agencies	$	37,801		6.8	%	$	12,882		2.7	%	$	50,105		5.6	%	$	22,212		2.9	%
State Agencies		201,802		36.1	%		193,043		41.1	%		328,297		36.6	%		303,352		39.3	%
Local Public Agencies		171,594		30.7	%		142,557		30.4	%		279,798		31.2	%		238,948		31.0	%
Total Public Sector		411,197		73.6	%		348,482		74.2	%		658,200		73.4	%		564,512		73.2	%
Private Sector		76,521		13.7	%		54,917		11.7	%		126,870		14.2	%		101,353		13.1	%
Material Sales		71,036		12.7	%		66,006		14.1	%		110,702		12.4	%		105,700		13.7	%
	$	558,754		100.0	%	$	469,405		100.0	%	$	895,772		100.0	%	$	771,565		100.0	%

Revenue: Revenue from our Branch Division for the three and six month periods ended June 30, 2004 increased over the corresponding 2003 periods by $59.1 million, or 21.1% and $53.9 million, or 11.9%, respectively. The growth in revenue reflects increases during the quarter in both public and private sector revenue. The increased private sector revenue reflects an increased demand created by a continuing strong housing market in California and other Branch Division locations. Additionally, the Branch Division benefited from improved weather, especially in the first part of the second quarter, compared to the same period in 2003, when it experienced higher than normal rainfall in many of the areas in which it operates.

15

Revenue from our Heavy Construction Division for the three and six month periods ended June 30, 2004 increased over the corresponding 2003 periods by $30.3 million, or 15.9%, and $70.3 million, or 22.0%, respectively. Included in HCD revenue during the three and six month periods ending June 30, 2004 is $25.6 million and $48.7 million, respectively, resulting from the consolidation of our partners’ share of construction joint venture revenue under FIN 46, “Consolidation of Variable Interest Entities” (“FIN 46”) (see Note 7 to the Condensed Consolidated Financial Statements). The remaining increase was due primarily to increased volume from a higher backlog at the beginning of the respective periods.

	June 30					March 31					June 30
Backlog	2004					2004					2003
(in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Backlog by Division:
Heavy Construction Division	$	1,378,110		67.6	%	$	1,567,750		76.6	%	$	1,395,185		72.2	%
Branch Division		660,059		32.4	%		478,617		23.4	%		536,209		27.8	%
	$	2,038,169		100.0	%	$	2,046,367		100.0	%	$	1,931,394		100.0	%
Backlog by Geographic Area:
California	$	322,591		15.8	%	$	235,753		11.6	%	$	296,469		15.4	%
West (excluding California)		442,695		21.7	%		369,439		18.0	%		401,387		20.8	%
Midwest		32,507		1.6	%		41,743		2.0	%		65,186		3.3	%
Northeast		683,054		33.5	%		755,936		36.9	%		426,987		22.1	%
South		557,322		27.4	%		643,496		31.5	%		741,365		38.4	%
	$	2,038,169		100.0	%	$	2,046,367		100.0	%	$	1,931,394		100.0	%
Backlog by Market Sector:
Federal agencies	$	113,384		5.5	%	$	122,960		6.0	%	$	88,997		4.6	%
State agencies		711,242		34.9	%		780,550		38.1	%		847,726		43.9	%
Local public agencies		1,002,397		49.2	%		976,396		47.8	%		817,399		42.3	%
Total public sector		1,827,023		89.6	%		1,879,906		91.9	%		1,754,122		90.8	%
Private sector		211,146		10.4	%		166,461		8.1	%		177,272		9.2	%
	$	2,038,169		100.0	%	$	2,046,367		100.0	%	$	1,931,394		100.0	%

Backlog: Heavy Construction Division backlog of $1.4 billion at June 30, 2004 was $189.6 million, or 12.1%, lower than the HCD backlog at March 31, 2004 and $17.1 million, or 1.2%, lower than the HCD backlog at June 30, 2003. Included in the HCD backlog at June 30, 2004 and March 31, 2004 was $105.1 million and $122.9 million, respectively, resulting from the consolidation of our partners’ share of construction joint venture backlog under FIN 46 (see Note 7 to the Condensed Consolidated Financial Statements). The decrease in backlog over the prior periods was due primarily to a lack of new project awards in the quarter.

Branch Division backlog of $660.1 million at June 30, 2004 was $181.4 million, or 37.9%, higher than Branch Division backlog at March 31, 2004 and $123.9 million, or 23.1%, higher than Branch Division backlog at June 30, 2003. The increased backlog reflects increases in both private sector and public sector awards in the quarter ended June 30, 2004, including a $20.4 million airport expansion project in Utah, a $20.4 million pedestrian bridge project in Nevada, and a $35.7 million subdivision project in California. A sizeable percentage of Branch Division anticipated contract revenue in any year is not reflected in our backlog due to the short duration of smaller Branch Division projects that are initiated and completed during each year.

16

Gross Profit	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2004			2003			2004			2003
Branch Division	$	41,774		$	38,248		$	55,931		$	53,840
Percent of division revenue		12.3	%		13.7	%		11.1	%		11.9	%
Heavy Construction Division	$	18,354		$	14,606		$	14,831		$	29,452
Percent of division revenue		8.3	%		7.7	%		3.8	%		9.2	%
Other gross profit (loss)	$	(384	)	$	329		$	(334	)	$	2,908
Total gross profit	$	59,744		$	53,183		$	70,428		$	86,200
Percent of total revenue		10.7	%		11.3	%		7.9	%		11.2	%

Gross Profit: We recognize revenue only equal to cost, deferring profit recognition, until a project reaches 25% completion. Because we have a large number of projects at various stages of completion in our Branch Division, this policy generally has little impact on the Branch Division’s gross profit on a quarterly or annual basis. However, HCD has fewer projects in process at any given time and those projects tend to be much larger than Branch Division projects. As a result, HCD gross profit as a percent of revenue can vary significantly in periods where one or several very large projects reach 25% completion and the deferred profit is recognized or conversely, in periods where backlog is growing rapidly and a higher percentage of projects are in their early stages with no associated gross margin recognition.

Additionally, we do not recognize revenue from contract claims until we have a signed settlement agreement and payment is assured and we do not recognize revenue from contract change orders until the contract owner has agreed to the change order. However, we do recognize the costs related to any contract claims or pending change orders when they are incurred. As a result, our gross profit as a percent of revenue can vary during periods when a large volume of change orders or contract claims are pending resolution (reducing gross profit percent) or, conversely, during periods where large change orders or contract claims are agreed to or settled (increasing gross profit percent). Although this variability can occur in both our Branch Division and HCD, it can be much more pronounced in HCD because of the larger size and complexity of its projects.

Gross profit as a percent of revenue in the Branch Division was negatively impacted by a larger volume of work performed on jobs less than 25% complete which grew from $11.2 million to $25.3 million for the three months ended June 30, 2003 and 2004, respectively, and from $12.0 million to $26.1 million for the six months ended June 30, 2003 and 2004, respectively. Additionally, the Branch Division incurred costs in the first quarter of 2004 of approximately $1.4 million associated with the closing of certain ready-mix concrete plants in preparation for their subsequent sale during the quarter (see Note 14 to the Condensed Consolidated Financial Statements).

In the second quarter of 2004, HCD gross profit as a percent of revenue improved over the corresponding prior year period primarily due to profit recognized on three large projects that reached 25% complete during the quarter, partially offset by the recognition of approximately $5.4 million in additional costs attributable to unanticipated changes in project conditions at one project. On a year to date basis, HCD gross profit as a percent of revenue fell to 3.8% in 2004 from 9.2% in 2003 due to the recognition of increased costs of approximately $20.0 million in the first quarter of 2004 primarily related

17

to changes in our cost estimates for eight large projects. The amount attributable to each project ranged from approximately $0.5 million to $4.0 million. These forecast adjustments were made in response to unanticipated changes in project conditions occurring in the quarter, including costs associated with added scope changes, extended overhead due to owner and weather delays, design problems on design/build projects, subcontractor performance issues, changes in productivity expectations and higher than anticipated liquidated damages on two projects.

Cost of revenue consists of direct costs on contracts, including labor and materials, subcontractor costs, direct overhead costs and equipment expense (primarily depreciation, maintenance and repairs and fuel).

General and Administrative Expenses	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2004			2003			2004			2003
Salaries and related expenses	$	20,398		$	19,768		$	43,460		$	41,414
Incentive compensation, discretionary profit sharing and other variable compensation		3,470			4,604			5,870			9,036
Other general and administrative expenses		12,046			12,023			23,128			22,495
Total	$	35,914		$	36,395		$	72,458		$	72,945
Percent of revenue		6.4	%		7.8	%		8.1	%		9.5	%

General and Administrative Expenses: Salaries and related expenses in the three months and six months ended June 30, 2004 increased $0.6 million, or 3.2%, and $2.0 million, or 4.9%, respectively over the comparable periods in 2003 due primarily to a combination of higher payroll related benefits and normal salary increases. Incentive compensation, discretionary profit sharing and other variable compensation decreased in the six months ended June 30, 2004 compared with the comparable period in 2003 due primarily to lower profitability in the 2004 period. Other general and administrative costs include information technology, occupancy, office equipment and supplies, depreciation, travel and entertainment, outside services, advertising and marketing, training and other miscellaneous expenses, none of which individually exceeded 10% of total general and administrative expenses.

Gain on Sales of Property and Equipment	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2004		2003		2004		2003
	$	1,109	$	232	$	14,439	$	528

Gain on Sales of Property and Equipment: The increase in gain on sales of property and equipment in the six months ended June 30, 2004 as compared with the same period in 2003 was primarily due to a gain of approximately $10.0 million recognized on the sale of certain assets related to our ready-mix concrete business in Utah in the first quarter of 2004.

18

Other Income (Expense)	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2004			2003			2004			2003
Interest income	$	1,317		$	2,002		$	2,715		$	3,488
Interest expense		(1,859	)		(2,529	)		(3,599	)		(4,638	)
Equity in income of affiliates		2,766			110			2,873			18,125
Other, net		(7	)		1,951			95			2,278
Total	$	2,217		$	1,534		$	2,084		$	19,253

Other Income (Expense): The increase in equity in income of affiliates in the second quarter of 2004, compared with the second quarter of 2003 was due to the recognition of $2.1 million related to the gain on sale of certain assets by a partnership in which we hold a 9.0% interest. The decrease in equity in income of affiliates in the six months ended June 30, 2004, compared with the corresponding period in 2003 was due to $18.4 million in income recorded in the first quarter of 2003 related to the sale of the State Route 91 Tollroad Franchise by the California Private Transportation Corporation, of which we are a 22.2% limited partner.

Provision for Income Taxes	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2004			2003			2004			2003
Provision for income taxes	$	9,239		$	6,718		$	4,855		$	11,959
Effective tax rate		34.0	%		36.2	%		33.5	%		36.2	%

Provision for Income Tax: Our effective tax rate decreased to 33.5% in the six months ended June 30, 2004 from 36.2% in the six months ended June 30, 2003 due primarily to the effect of consolidating our partners’ share of construction joint venture income under FIN 46 (see Note 7 to the Condensed Consolidated Financial Statements). Generally, our construction joint ventures are not subject to income taxes on a stand-alone basis.

19

Outlook

As we progress through our construction season, we continue to be encouraged by the economic strength in many of our markets and the opportunities provided to us by both the private and public sectors. In addition, we are paying close attention to funding issues at both the state and federal levels that will likely have an impact on our business in the future.

As the forces that drive our Branch business improve, our outlook for this area of our business is becoming more optimistic. Despite the uncertainty of both state transportation funding and the Federal highway bill, all of our branch offices in the West are very busy bidding and building work. Although some locations are experiencing stronger markets than others, most of our branches expect that this improved level of activity is sustainable through the end of the construction season. While interest rates have risen slightly, the demand for residential and commercial site development work in the private sector continues to be a primary driver for a number of branches.

The pipeline of large projects available for bidding also remains full. Over the next six months, HCD’s potential bid list includes approximately $3.0 billion in highway, bridge and transit work across the U.S. and in Canada. Many of these opportunities would require our expertise in the design-build method of project delivery.

We continue to forecast that 2004 HCD operating income will be better than in 2003. Our ability to achieve this expectation is dependent on several factors, including reaching 25 percent completion on a large HCD project late this year. Although we are currently on schedule, and expect to stay on schedule, it is possible this project could reach 25 percent in early 2005 rather than late 2004.

On the political front, the most significant funding issue we are tracking relates to the reauthorization of the federal transportation bill. Before departing for their summer recess House and Senate negotiators failed to reach a compromise over the investment level for a multi-year federal transportation bill to replace the previous legislation (the 6-year $218 billion Transportation Equity Act for the 21st Century) that expired last September. Both houses are advocating bills that include funding levels for transportation that are significantly higher than the $256 billion proposed by the Bush Administration. Prior to the scheduled recess in late July, House Republican negotiators presented a version of the bill that would provide $284 billion in guaranteed funding, $5 billion less than the Senate’s proposal. Conferees were unable to agree on a final amount before the recess thereby resulting in a fifth extension measure that allows the federal highway and transit program to continue to operate under a temporary

20

authorization law. This fifth extension continues funding levels at the fiscal year 2004 levels through September 30, 2004. With the November Presidential election rapidly approaching, the upcoming challenge for Congress will be to pass legislation in the 20 legislative days that will be left when they return to work in September. For more information on the Federal Highway Bill, please visit the American Road and Transportation Builders Association website at www.artba.com.

In late July, California state legislators and Governor Schwarzenegger reached an agreement on a $105 billion state budget. As the result of the Governor’s renegotiation of certain Indian gaming compacts (Assembly Bill 687), an additional early repayment of $1.2 billion owed to transportation accounts by the general fund may occur. This additional money would be generated by a bond issue to be financed through State proceeds from the casino accords. Before the bond offering can take place, two gaming initiatives on the November ballot must be defeated. Governor Schwarzenegger is actively opposing both measures. For more information on the budget or the bond issue, please visit the state of California’s website at www.ca.gov or the Legislative Analyst Office website at www.lao.ca.gov.

As we discussed last quarter, we are subject to oil price volatility as it relates to our use of liquid asphalt in our production of asphaltic concrete and diesel fuel for our rolling stock equipment. We manage our exposure to these price changes by monitoring these commodities and pricing them into our projects and contracts accordingly. Some of our contracts include clauses for liquid asphalt escalation and de-escalation that provide protection in the event that oil product prices change significantly. Although we are exposed to price spikes in projects that do not include such clauses, this can be mitigated when prices come down. In addition, we are exposed to steel price increases and delivery delays on some of our HCD projects that are currently under construction. While we do have some exposure in these areas of our business, we have not been materially impacted to date.

Looking forward, although our long-term visibility is affected by funding legislation at the state and federal levels that has yet to be resolved, we are encouraged by the bidding opportunities we are witnessing for both divisions. We will continue to implement our strategy to grow the Company both internally and through acquisitions and focus on execution to improve our financial performance in both divisions.

21

Liquidity and Capital Resources

	Six Months Ended June 30,
(in thousands)	2004			2003
Cash and cash equivalents	$	112,555		$	77,615
Net cash provided by (used in):
Operating activities		(15,011	)		29,009
Investing activities		5,722			8,717
Financing activities		(17,789	)		(12,143	)
Capital expenditures		(37,525	)		(42,597	)

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. We expect the principal use of funds for the foreseeable future will be for capital expenditures, working capital, debt service, acquisitions and other investments. We have budgeted $58.0 million for capital expenditures in 2004, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of land and aggregate reserves.

Our cash and cash equivalents and short-term and long-term marketable securities totaled $208.0 million at June 30, 2004, and include cash from our newly consolidated joint ventures (see Note 7 to the Condensed Consolidated Financial Statements). We believe that our current cash and cash equivalents, short-term investments, cash generated from operations and amounts available under our existing credit facilities will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations through the next twelve months and beyond. If we experience a significant change in our business such as the execution of a significant acquisition, we would likely need to acquire additional sources of financing.

Cash used in operating activities of $15.0 million for the six months ended June 30, 2004 represents a $44.0 million decrease from the amount provided by operating activities during the same period in 2003. The decrease was primarily due to lower net income in the first six months of 2004 compared to the same period in 2003, cash of approximately $10.0 million used to purchase and develop properties held for sale, and a decrease in billings in excess of cost, net in the first six months of 2004. Additionally, there was higher growth in accounts receivable that was substantially offset by higher growth in accounts payable due to higher revenue in the second quarter of 2004 compared with the second quarter of 2003.

Cash provided by investing activities of $5.7 million for the six months ended June 30, 2004 represents a $3.0 million decrease from the amount provided by investing activities during the same period in 2003. Investing activities in the first six months of 2004 included cash paid for the acquisition of additional interest in our majority-owned subsidiary, Wilder Construction Company (“Wilder”), and cash received from the sale of certain assets by one of our equity method investments. Investing activities in the first six months of 2003 included cash received from the sale of the State Route 91 toll road franchise by CPTC and proceeds from the partial sale of our investment in T. I. C. Holdings, Inc.

Cash used by financing activities was $17.8 million for the six months ended June 30, 2004, an increase of $5.6 million from the same period in 2003. The increase was mainly due to purchases of our common stock for contribution to the ESOP in 2004, and net distributions to minority partners in our consolidated

22

construction joint ventures in 2004, and was partially offset by net proceeds from borrowings under a line of credit at one of our consolidated subsidiaries in the 2004 period.

We had standby letters of credit totaling approximately $1.4 million outstanding at June 30, 2004, all of which expire during 2004.

In addition to our working capital and cash generated from operations, we currently have access to funds under a $100.0 million bank revolving line of credit, which allows for unsecured borrowings for up to three years through June 27, 2006. Outstanding borrowings under the revolving line of credit are at our choice of selected LIBOR rates plus a margin that is recalculated quarterly. The margin was 1.25% at June 30, 2004. The unused and available portion of this line of credit was $98.8 million at June 30, 2004. Additionally, our Wilder subsidiary has a bank revolving line of credit of $10.0 million that expires in June 2006. Approximately $6.3 million was outstanding under the Wilder line of credit at June 30, 2004.

Restrictive covenants under the terms of our debt agreements require the maintenance of certain financial ratios and the maintenance of tangible net worth (as defined) of approximately $397.7 million. We were in compliance with these covenants at June 30, 2004. Additionally, our Wilder subsidiary has restrictive covenants (on a Wilder stand-alone basis) under the terms of its debt agreements that include the maintenance of certain ratios of working capital, liabilities to net worth and tangible net worth and restrict Wilder capital expenditures in excess of specified limits. Wilder was in compliance with these covenants at June 30, 2004. Failure to comply with these covenants could cause the amounts due under the debt agreements to become currently payable.

Website Access

Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The information on our website is not incorporated into, and is not part of, this report.

23

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There was no significant change in our exposure to market risk during the six months ended June 30, 2004.

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of June 30, 2004. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There was no change in our internal control over financial reporting during the quarter ended June 30, 2004 that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

24

PART II. OTHER INFORMATION

25

Item 1. LEGAL PROCEEDINGS

Our wholly-owned subsidiary, Granite Construction Company, as a member of a joint venture, Wasatch Constructors, is among a number of construction companies and the Utah Department of Transportation that were named in a lawsuit filed in the United States District Court for the District of Utah. The plaintiffs are two independent contractor truckers who filed the lawsuit on behalf of the United States under the federal False Claims Act seeking to recover damages and civil penalties in excess of $46.4 million.

The original complaint was filed in January 1999 and the Third Amended Complaint was filed in February 2003. On May 30, 2003, Wasatch Constructors and the coordinated defendants filed their motion to dismiss the Third Amended Complaint. On December 23, 2003, the Court issued its order granting Wasatch Constructors’ and the coordinated defendants’ motion to dismiss the Third Amended Complaint but allowed the plaintiffs one last opportunity to amend their complaint. Plaintiffs’ Fourth Amended Complaint was filed on July 12, 2004.

We are a party to a number of other legal proceedings and believe that the nature and number of these proceedings are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes, after consultation with counsel, that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations for the period in which the ruling occurs.

26

Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended June 30, 2004:

					Total number of		Approximate dollar
					shares purchased		value of shares that
					as part of publicly		may yet be
	Total number of		Average price		announced plans		purchased under the
Period	shares purchased1		paid per share		or programs2		plans or programs2
April 1, 2004 through April 30, 2004		584	$	23.92		—	$	22,787,537
May 1, 2004 through May 31, 2004		12,600	$	18.04		—	$	22,787,537
June 1, 2004 through June 30, 2004		93,800	$	18.89		—	$	22,787,537
Total		106,984	$	18.82		—

1	The total number of shares purchased includes: (i) shares purchased for contribution to our Employee Stock Ownership Plan; and (ii) shares purchased in connection with employee tax withholding for shares granted under our 1990 Equity Incentive Plan and our 1999 Equity Incentive Plan.
2	On October 16, 2002, we publicly announced that our Board of Directors had authorized us to repurchase up to $25.0 million worth of shares of our Company’s common stock at management’s discretion.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

27

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our annual meeting of stockholders held on May 24, 2004, the following members were elected to three-year terms to the Board of Directors:

	Affirmative Votes		Withhold
Rebecca A. McDonald		37,765,318		903,716
Geroge B. Searle		28,458,469		10,210,565
William G. Dorey		38,444,477		224,557

Directors continuing in office are Joseph J. Barclay, Linda Griego, David H. Kelsey, Raymond E. Miles, J. Fernando Niebla, and David H. Watts. The following additional proposals were voted upon and approved at the annual meeting:

	Affirmative Votes		Against		Abstain		Broker Non-Votes
Proposal to approve the Granite’s 1999 Equity Incentive Plan, as amended and restated, in order to (1) extend the term of the Plan for an additional ten years ending May 24, 2014; (2) increase by 500,000 the number of shares of Common Stock authorized for issuance under the Plan; (3) authorize the issuance of restricted stock units and (4) modify the material terms of performance goals in order to preserve Granite’s ability to deduct in full certain performance-based awards under Section 162(m) of the Internal Revenue Code.		28,677,019		6,224,784		294,542		3,472,689

	Affirmative Votes		Against		Abstain		Broker Non-Votes
Proposal to ratify the appointment by the Audit/Compliance Committee of PricewaterhouseCoopers LLP as the independent auditor of Granite for the fiscal year ending December 31, 2004.		37,684,260		942,884		41,890		—

The following stockholder proposal was voted upon at the annual meeting and not approved:

	Affirmative Votes		Against		Abstain		Broker Non-Votes
Proposal to require an independent director who has not served as Chief Executive Officer of Granite to serve as Granite’s Chairman of the Board.		7,469,908		27,936,246		137,147		3,125,733

28

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

3.2	Granite Construction Incorporated Amended Bylaws dated May 24, 2004
10.1	Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-15(e)
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-15(e)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b) Reports on Form 8-K

May 4, 2004 Item 4. Changes in Registrant’s Certifying Accountant (for the Granite Construction Profit Sharing and 401(k) Plan)

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GRANITE CONSTRUCTION INCORPORATED
Date: August 6, 2004	By:	/s/ William E. Barton
		William E. Barton
		Senior Vice President and Chief Financial Officer

30

EX-3.2

                                                                     Exhibit 3.2

                        GRANITE CONSTRUCTION INCORPORATED
                             A DELAWARE CORPORATION

                                 AMENDED BYLAWS
                               AS OF MAY 24, 2004

                                    ARTICLE I

                                     OFFICES

SECTION 1. PRINCIPAL EXECUTIVE OFFICE.

      The principal executive office of the Corporation designated in these
Bylaws is located at:

                              585 West Beach Street
                              Watsonville, CA 95076

      The Board of Directors is hereby granted full power and authority to fix
or change the location of the principal executive and business offices without
amendment to these Bylaws.

SECTION 2. OTHER OFFICES.

      Branch or subordinate offices may at any time be established by the Board
of Directors at any place or places where the Corporation is qualified to do
business.

                                   ARTICLE II

                                  STOCKHOLDERS

SECTION 1. ANNUAL MEETING.

      An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.

SECTION 2. SPECIAL MEETINGS.

      Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called only (1) by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption) or (2) by the holders of not less than ten percent (10%) of
all of the shares entitled to cast votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors shall fix.
Business transacted at special meetings shall be confined to the purpose or
purposes stated in the notice.



                                                                      ARTICLE II

SECTION 3. NOTICE OF MEETINGS.

      Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).

      When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.

SECTION 4. QUORUM.

      At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law.

      If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.

SECTION 5. CONDUCT OF THE STOCKHOLDERS' MEETING.

      At every meeting of the stockholders, the President of the Corporation or
the Chairman of the Board (if the Board by resolution so designates) shall act
as Chairman. Provided, however, if the President and the Chairman are absent,
that the Vice President designated by the President, or in the absence of such
designation any Vice President, or in the absence of the President or the
Chairman of the Board or any Vice President a chairman chosen by the majority of
the voting shares represented in person or by proxy, shall act as Chairman. The
Secretary of the Corporation or a person designated by the Chairman shall act as
Secretary of the meeting. Unless otherwise approved by the Chairman, attendance
at the Stockholders' Meeting is restricted to stockholders of record, persons
authorized in accordance with Section 8 of these Bylaws to act by proxy, and
officers of the Corporation.

SECTION 6. CONDUCT OF BUSINESS.

      The Chairman shall call the meeting to order, establish the agenda, and
conduct the business of the meeting in accordance therewith or, at the
Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the stockholders in attendance.

      The Chairman shall announce the date and time of the opening and closing
of the polls for each matter upon which the stockholders will vote at the
meeting.

      The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman- may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in

                                       2



                                                                      ARTICLE II

the Bylaws to the contrary, no business shall be conducted at a stockholders
meeting except in accordance with the procedures set forth in this Section 6 and
Section 7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 6 and
Section 7, and if he should so determine, he shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.

SECTION 7. NOTICE OF STOCKHOLDER BUSINESS.

      At an annual or special meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) properly brought before the meeting by or at the direction of
the Board of Directors, or (c) if an annual meeting, properly brought before the
meeting by a stockholder and (d) if a special meeting, if, and only if, the
notice of a special meeting provides for business to be brought before the
meeting by stockholders and such business is properly brought before the meeting
by a stockholder.

      For business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder proposal to be presented at an
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a special meeting, notice by the stockholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.

      A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Stockholder resolutions shall be no more than five
hundred (500) words in length.

      No resolution shall be put before the stockholders:

            a. which is not a proper subject for action by stockholders under
      Delaware law;

            b. which is obstructive, frivolous, dilatory or repugnant to good
      taste;

            c. which contains any false or misleading statements;

            d. which relates to the redress of a personal claim or grievance
      against the Corporation or any other person, or if it is designated to
      result in a benefit or interest that is not shared by the stockholders at
      large;

                                       3



                                                                      ARTICLE II

            e. which relates to operations which account for less than five
      percent of the Corporation's total assets at the end of its most recent
      fiscal year, and for less than five percent of its net earnings and gross
      sales for its most recent fiscal year, and is not otherwise significantly
      related to the Corporation's business;

            f. which deals with a matter beyond the Corporation's power to
      effectuate;

            g. which deals with a matter relating to conduct of the ordinary
      business operations of the Corporation;

            h. which is counter to or substantially duplicative of a proposal to
      be submitted by the Corporation at the meeting;

            i. if the proposal deals with substantially the same subject matter
      as a prior proposal submitted to stockholders in the Corporation's proxy
      statement and a form of proxy related to any annual or special meeting of
      stockholders held within the preceding five calendar years, it may be
      omitted from the agenda of any meeting of stockholders held within three
      calendar years after the latest such submission, provided that:

                  (i) if the proposal was submitted at only one meeting during
            such preceding period, it received less than five percent of the
            total number of votes cast in regard thereto; or

                  (ii) if the proposal was submitted at only two meetings during
            such preceding period, it received at the time of its second
            submission less than eight percent of the total number of votes cast
            in regard thereto; or

                  (iii) if the prior proposal was submitted at three or more
            meetings during such preceding period, it received at the time of
            its latest submission less than ten percent of the total number of
            votes cast in regard thereto.

SECTION 8. PROXIES AND VOTING.

      At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. No stockholder may authorize more than one proxy for his
shares. Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this paragraph may be
substituted or used in lieu of the original writing or transmission for any and
all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile transmission or other reproduction shall be a
complete reproduction of the entire original writing or transmission.

      All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote, or his proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. Every vote
taken by ballots shall be counted by an inspector or inspectors appointed by the
Chairman of the meeting. The Corporation may, and to the extent required by law,
shall, in advance of any meeting of stockholders, appoint one or more inspectors
to act at the meeting and make a

                                       4



                                                                      ARTICLE II

written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting may, and to the extent required by law, shall, appoint one or
more inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.

      All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively. Each stockholder shall
have one vote for every share of stock entitled to vote which is registered in
his or her name on the record date for the meeting, except as otherwise provided
herein or required by law.

SECTION 9. STOCK LIST.

      A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, at the principal place of business
of the Corporation, and may also during that period, be kept at the place where
the meeting is to be held.

      The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.

                                       5



                                                                     ARTICLE III

                                   ARTICLE III

                               BOARD OF DIRECTORS

SECTION 1. NUMBER AND TERM OF OFFICE.

      The number of directors shall initially be three (3) and, thereafter,
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). The directors shall be divided into three classes, as nearly equal in
number as reasonably possible, with the term of office of the first class to
expire at the 1991 annual meeting of stockholders, the term of office of the
second class to expire at the 1992 annual meeting of stockholders and the term
of office of the third class to expire at the 1993 annual meeting of
stockholders. At each annual meeting of stockholders following such initial
classification and election, directors shall be elected to succeed those
directors whose terms expire for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. All directors
shall hold office until the expiration of the term for which elected and until
their successors are elected, except in the case of the death, resignation or
removal of any director.

SECTION 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.

      Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, removal from office,
disqualification or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires.
No decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.

SECTION 3. REMOVAL.

      Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any directors, or the entire Board of Directors, may be removed
from office at any time, but only for cause, and only by the affirmative vote of
the holders of at least a majority of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.

SECTION 4. REGULAR MEETINGS.

      Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.

SECTION 5. SPECIAL MEETINGS.

      Special meetings of the Board of Directors may be called by one-third of
the directors then in office (rounded up to the nearest whole number) or by the
chief executive officer and shall be held at such place, on such date, and at
such time as they or he or she shall fix. Notice of the place, date, and time of
each such special meeting shall be given each director by whom

                                       6



                                                                     ARTICLE III

it is not waived by mailing written notice not fewer than five (5) days before
the meeting or by telexing, telecopying or personally delivering the same not
fewer than twenty-four (24) hours before the meeting. Unless otherwise indicated
in the notice thereof, any and all business may be transacted at a special
meeting.

SECTION 6. QUORUM.

      At any meeting of the Board of Directors, a majority of the total number
of authorized directors shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.

SECTION 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.

      Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.

SECTION 8. CONDUCT OF BUSINESS.

      At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.

SECTION 9. PRESIDING DIRECTOR.

      The Presiding Director shall preside over all executive sessions of the
Board of Directors and over all meetings at which the Chairman of the Board is
not present. In addition, the Presiding Director shall serve as liaison between
the Chairman and the Board of Directors, shall discuss and approve the structure
and content of the Board agenda, and exercise and perform such other powers and
duties as may be from time to time assigned to him by the Board of Directors or
prescribed by these Bylaws. The Presiding Director position shall rotate on an
annual basis among the various independent members of the Board of Directors.

SECTION 10. POWERS.

      The Board of Directors may, except as otherwise required by jaw, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:

      1. To declare dividends from time to time in accordance with law;

      2. To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;

      3. To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-negotiable,
secured or unsecured, and to do all things necessary in connection therewith;

      4. To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;

      5. To confer upon any officer of the Corporation the power to appoint,
remove and

                                       7



                                                                     ARTICLE III

suspend subordinate officers, employees and agents;

      6. To adopt from time to time such stock, option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;

      7. To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and

      8. To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.

SECTION 11. COMPENSATION OF DIRECTORS.

      Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.

SECTION 12. NOMINATION OF DIRECTOR CANDIDATES.

      Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of Directors may be made by the Board of Directors
or a committee appointed for that purpose by the Board of Directors or by any
stockholder entitled to vote in the election of Directors generally. However,
any stockholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
timely notice of such stockholder's intent to make such nomination or
nominations has been given in writing to the Secretary of the Corporation.

      To be timely, a stockholder nomination for a director to be elected at an
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a nomination for a director to be elected at a special
meeting, notice by the stockholder to be timely must be received not later than
the close of business on the tenth day following the day on which such notice of
the date of the special meeting was mailed or such public disclosure was made.

      Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote for the election of Directors on the
date of such notice and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.

                                       8



                                                                     ARTICLE III

      In the event that a person is validly designated as a nominee in
accordance with this Section 11 and shall thereafter become unable or unwilling
to stand for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section had such substitute nominee been initially proposed as a nominee. Such
notice shall include a signed consent to serve as a Director of the Corporation,
if elected, of each such substitute nominee.

      If the Chairman of a meeting where stockholders are to vote for the
election of Directors determines that a nomination of any candidate for election
as a Director at such meeting was not made in accordance with the applicable
provisions of this Section 11, such nomination shall be void; provided, however,
that nothing in this Section 11 shall be deemed to limit any voting rights upon
the occurrence of dividend arrearages provided to holders of Preferred Stock
pursuant to the Preferred Stock designation for any series of Preferred Stock.

                                       9



                                                                      ARTICLE IV

                                   ARTICLE IV

                                   COMMITTEES

SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.

      The Board of Directors, pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption), may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power and
authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member.

SECTION 2. CONDUCT OF BUSINESS.

      Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third of the authorized members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.

                                       10



                                                                       ARTICLE V

                                    ARTICLE V

                                    OFFICERS

SECTION 1. GENERALLY.

      The officers of the Corporation shall consist of a President, one or more
Vice Presidents, a Secretary, and a Chief Financial Officer and/or a Treasurer.
At the discretion of the Board of Directors, the Corporation shall have a
Chairman of the Board, one or more Assistant Treasurers, and one or more
Assistant Secretaries. The Corporation may also have such other officers as the
Board of Directors may appoint, and such other officers as the President may
appoint in accordance with the provisions of Section 10 of this Article V. The
Board of Directors shall consider the election of officers at its first meeting
after every annual meeting of stockholders. Each officer shall hold office until
his or her successor is elected and qualified or until his or her earlier
resignation or removal. Any number of offices may be held by the same person.

SECTION 2. CHAIRMAN OF THE BOARD.

      The Chairman of the Board, if there is a person holding that position,
shall, if present, preside at all meetings of the Board of Directors, and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by these Bylaws.

SECTION 3. PRESIDENT.

      Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board, if there is a person holding that
position, the president shall be the chief executive officer of the Corporation
and shall, subject to the control of the Board of Directors, have general
supervision, direction, and control of the business and the officers 'of the
Corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these Bylaws.

SECTION 4. VICE PRESIDENTS.

      Each Vice President shall have such powers and duties as may be delegated
to him or her by the Board of Directors. One Vice President shall be designated
by the Board to perform the duties and exercise the powers of the President in
the event of the President's absence or disability.

SECTION 5. CHIEF FINANCIAL OFFICER.

      The Chief Financial Officer shall keep and maintain or cause to be kept
and maintained adequate and correct books and records of account of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.

      The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the Corporation with such depositaries as may
be designated by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his transactions as
Chief Financial Officer and of the financial condition of the Corporation,

                                       11



                                                                       ARTICLE V

and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by these Bylaws.

SECTION 6. SECRETARY.

      The Secretary shall keep, or cause to be kept, a book of minutes in
written form of the proceedings of the Board of Directors, committees of the
Board of Directors, and stockholders. Such minutes shall include all waivers of
notice, consents to the holdings of meetings, or approvals of the minutes of
meetings executed pursuant to these Bylaws or the General Delaware Corporation
Law. The Secretary shall keep, or cause to be kept at the principal executive
office or at the office of the Corporation's transfer agent or registrar, a
record of its stockholders, giving the names and addresses of all stockholders
and the number and class of shares held by each.

      The Secretary shall give or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation, if one be adopted,
in safe custody, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.

SECTION 7. DELEGATION OF AUTHORITY.

      The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.

SECTION 8. REMOVAL.

      Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.

SECTION 9. COMPENSATION.

      The compensation of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by reason of the fact that he is also a director of the
Corporation.

SECTION 10. SUBORDINATE OFFICERS.

      The President may appoint such vice presidents and other subordinate
officers as the business of the Corporation may require, each of whom shall have
such duties and such tenure as the President decides. Officers appointed by the
President under this Section 10 shall not be considered corporate level or
executive officers.

SECTION 11. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.

      Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.

                                       12



                                                                      ARTICLE VI

                                   ARTICLE VI

                                      STOCK

SECTION 1. CERTIFICATES OF STOCK.

      Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any of or all the
signatures on the certificate may be facsimile.

SECTION 2. TRANSFERS OF STOCK.

      Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article VI of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.

SECTION 3. RECORD DATE.

      The Board of Directors may fix a record date, which shall not be more than
sixty nor fewer than ten days before the date of any meeting of stockholders,
nor more than sixty days prior to the time for the other action hereinafter
described, as of which there shall be determined the stockholders who are
entitled: to notice of or to vote at any meeting of stockholders or any
adjournment thereof; to express consent to corporate action in writing without a
meeting; to receive payment of any dividend or other distribution or allotment
of any rights; or to exercise any rights with respect to any change, conversion
or exchange of stock or with respect to any other lawful action.

SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES.

      In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.

SECTION 5. REGULATIONS.

      The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.

                                       13



                                                                     ARTICLE VII

                                   ARTICLE VII

                                     NOTICES

SECTION 1. NOTICES.

      Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice shall be deemed to be given shall be
the time such notice is received by such stockholder, director, officer,
employee or agent, or by any person accepting such notice on behalf of such
person, if hand delivered, or dispatched, if delivered through the mails or by
telegram or mailgram.

SECTION 2. WAIVERS.

      A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.

                                       14



                                                                    ARTICLE VIII

                                  ARTICLE VIII

                                  MISCELLANEOUS

SECTION 1. FACSIMILE SIGNATURES.

      In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.

SECTION 2. CORPORATE SEAL.

      The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.

SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.

      Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
other records of the Corporation, including reports made to the Corporation by
any of its officers, by an independent certified public accountant, or by an
appraiser selected with reasonable care.

SECTION 4. FISCAL YEAR.

      The fiscal year of the Corporation shall be as fixed by the Board of
Directors.

SECTION 5. TIME PERIODS.

      In applying any provision of these Bylaws which require that an act be
done or not done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.

                                       15



                                                                      ARTICLE IX

                                   ARTICLE IX

                    INDEMNIFICATION OF DIRECTORS AND OFFICERS

SECTION 1. RIGHT TO INDEMNIFICATION.

      Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative, is or was a
director, officer or employee of the Corporation or is or was serving at the
request of the Corporation as a director, officer or employee of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director, officer
or employee or in any other capacity while serving as a director, officer or
employee, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties, amounts paid or to be paid in settlement and amounts
expended in seeking indemnification granted to such person under applicable law,
this Bylaw or any agreement with the Corporation) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however that except as provided in Section 2 of this Article IX, the
Corporation shall indemnify any such person seeking indemnity in connection with
an action, suit or proceeding (or part thereof) initiated by such person only if
such action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. Such right shall be a contract right and shall
include the right to be paid by the Corporation expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however that,
if the Delaware General Corporation Law then so requires, the payment of such
expenses incurred by a director or officer of the Corporation in his or her
capacity as a director or officer, including, without limitation, service to an
employee benefit plan, in advance of the final disposition of such proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Section 1 or otherwise.

SECTION 2.    RIGHT OF CLAIMANT TO BRING SUIT.

      If a claim under Section 1 of this Article IX is not paid in full by the
Corporation within twenty (20) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if such suit is not
frivolous or brought in bad faith, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to this Corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Delaware General Corporation Law for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal

                                       16



                                                                      ARTICLE IX

counsel, or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.

SECTION 3. NON-EXCLUSIVITY OF RIGHTS.

      The rights conferred on any person in Sections 1 and 2 shall not be
exclusive of any other right which such persons may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.

SECTION 4. INDEMNIFICATION CONTRACTS.

      The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to or, if the Board of Directors so determines, greater than, those
provided for in this Article IX.

SECTION 5. INSURANCE.

      The Corporation shall maintain insurance to the extent reasonably
available, at its expense, to protect itself and any such director, officer,
employee or agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.

SECTION 6. EFFECT OF AMENDMENT.

      Any amendment, repeal or modification of any provision of this Article IX
by the stockholders and the directors of the Corporation shall not adversely
affect any right or protection of a director or officer of the Corporation
existing at the time of such amendment, repeal or modification.

                                       17



                                                                       ARTICLE X

                                    ARTICLE X

                                   AMENDMENTS

      The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board). The
stockholders shall also have power to adopt, amend or repeal the Bylaws of the
Corporation. In addition to any vote of the holders of any class or series of
stock of this Corporation required by law or by these Bylaws, the affirmative
vote of the holders of at least 66 2/3 percent of the combined voting power of
the outstanding shares of stock of all classes and series of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to adopt, amend or repeal any provisions of the
Bylaws of the Corporation.

                                       18



                            CERTIFICATE OF SECRETARY

I hereby certify;

That I am the duly elected and acting Secretary of Granite Construction
Incorporated, a Delaware corporation; and

That the foregoing Amended Bylaws, comprising nineteen (19) pages, constitute
the amended and restated Bylaws of said corporation as duly adopted by the
directors of the corporation at a duly held meeting of the Board of Directors on
February 19, 1991.

IN WITNESS WHEREOF, I have hereunder subscribed my name and affixed the seal of
said corporation this 24th day of May 2004.

/s/ Michael Futch
- ------------------------
Michael Futch
Secretary

                                       19

EX-10.1

                                                                   EXHIBIT 10.1








                        GRANITE CONSTRUCTION INCORPORATED
                              AMENDED AND RESTATED
                           1999 EQUITY INCENTIVE PLAN

                       (AS ADOPTED EFFECTIVE MAY 24, 2004)



                                TABLE OF CONTENTS


                                                                                                                Page
                                                                                                                ----
                                                                                                             
SECTION 1.  ESTABLISHMENT, PURPOSE, AND TERM OF PLAN..........................................................     1
         1.1      Establishment...............................................................................     1
         1.2      Purpose.....................................................................................     1
         1.3      Term of Plan................................................................................     1

SECTION 2.  DEFINITIONS AND CONSTRUCTION......................................................................     1
         2.1      Definitions.................................................................................     1
         2.2      Construction................................................................................     5

SECTION 3.  ELIGIBILITY AND AWARD LIMITATIONS.................................................................     5
         3.1      Persons Eligible for Incentive Stock Options................................................     5
         3.2      Persons Eligible for Other Awards...........................................................     6
         3.3      Section 162(m) Award Limits.................................................................     6
         3.4      Maximum Number of Shares Issuable Pursuant to Incentive Stock Options.......................     6
         3.5      Aggregate Limit on Restricted Stock, Restricted Stock Unit,
                  Performance Share and Performance Unit
                  Awards Not Providing for Certain Minimum Vesting............................................     7

SECTION 4.  ADMINISTRATION....................................................................................     7
         4.1      Administration by the Committee.............................................................     7
         4.2      Authority of Officers.......................................................................     7
         4.3      Administration with Respect to Insiders.....................................................     7
         4.4      Committee Complying with Section 162(m).....................................................     7
         4.5      Powers of the Committee.....................................................................     7
         4.6      Option Repricing............................................................................     8

SECTION 5.  STOCK SUBJECT TO PLAN.............................................................................     9
         5.1      Maximum Number of Shares Issuable...........................................................     9
         5.2      Share Accounting............................................................................     9
         5.3      Adjustment in Capitalization................................................................     9

SECTION 6.  STOCK OPTIONS.....................................................................................     9
         6.1      Grant of Options............................................................................     9
         6.2      Exercise Price..............................................................................    10
         6.3      Exercise Period.............................................................................    10
         6.4      Payment of Exercise Price...................................................................    10
         6.5      Effect of Termination of Service............................................................    11
         6.6      Transferability of Options..................................................................    12

SECTION 7.  RESTRICTED STOCK..................................................................................    12
         7.1      Grant of Restricted Stock...................................................................    12
         7.2      Purchase Price..............................................................................    13


                                       -i-


                                TABLE OF CONTENTS
                                   (continued)


                                                                                                                Page
                                                                                                                ----
                                                                                                             
         7.3      Vesting and Restrictions on Transfer........................................................    13
         7.4      Other Restrictions..........................................................................    13
         7.5      Voting Rights; Dividends and Distributions..................................................    13
         7.6      Dividends and Other Distribution............................................................    14
         7.7      Effect of Termination of Service............................................................    14

SECTION 8.  RESTRICTED STOCK UNITS............................................................................    14
         8.1      Grant of Restricted Stock Units.............................................................    14
         8.2      Purchase Price..............................................................................    15
         8.3      Vesting.....................................................................................    15
         8.4      Voting, Dividend Equivalent Rights and Distributions........................................    15
         8.5      Effect of Termination of Service............................................................    15
         8.6      Settlement of Awards........................................................................    15
         8.7      Nontransferability of Restricted Stock Unit Awards..........................................    16

SECTION 9.  PERFORMANCE SHARES AND PERFORMANCE UNITS..........................................................    16
         9.1      Grant of Performance Shares or Performance Units............................................    16
         9.2      Value of Performance Shares and Performance Units...........................................    16
         9.3      Establishment of Performance Goals and Performance Period...................................    16
         9.4      Measurement of Performance Goals............................................................    17
         9.5      Determination of Value of Performance Shares and Performance Units..........................    17
         9.6      Dividend Equivalents........................................................................    18
         9.7      Form and Timing of Payment..................................................................    18
         9.8      Restrictions Applicable to Payment in Shares................................................    18
         9.9      Effect of Termination of Service............................................................    18
         9.10     Nontransferability..........................................................................    19

SECTION 10.  DIRECTOR FEE AWARDS..............................................................................    19
         10.1     Effective Date and Duration of this Section.................................................    19
         10.2     Mandatory and Elective Director Fee Awards..................................................    19
         10.3     Time and Manner of Election.................................................................    20
         10.4     Automatic Grant of Director Fee Awards......................................................    20
         10.5     Option Payment..............................................................................    21
         10.6     Stock Units Payment.........................................................................    22
         10.7     Fractional Shares...........................................................................    24

SECTION 11.  CHANGE IN CONTROL................................................................................    24
         11.1     Effect of Change in Control.................................................................    24
         11.2     Termination of Service After a Change in Control............................................    25
         11.3     Definition..................................................................................    25

SECTION 12.  REQUIREMENTS OF LAW..............................................................................    26
         12.1     Compliance with Securities Law..............................................................    26


                                      -ii-


                                TABLE OF CONTENTS
                                  (continued)


                                                                                                                Page
                                                                                                                ----
                                                                                                             
         12.2     Governing Law...............................................................................   26

SECTION 13.  TAX WITHHOLDING..................................................................................   26
         13.1     Tax Withholding In General..................................................................   26
         13.2     Withholding of Shares.......................................................................   26
SECTION 14.  AMENDMENT AND TERMINATION OF PLAN................................................................   26
         14.1     Amendment and Termination of Plan...........................................................   26
         14.2     Effect of Amendment or Termination..........................................................   27

SECTION 15.  MISCELLANEOUS PROVISIONS.........................................................................   27
         15.1     Beneficiary Designation.....................................................................   27
         15.2     Rights as an Employee or Director...........................................................   27
         15.3     Rights as a Stockholder.....................................................................   27
         15.4     Provision of Information....................................................................   27
         15.5     Unfunded Obligation.........................................................................   27
         15.6     Indemnification.............................................................................   28


                                     -iii-


                        GRANITE CONSTRUCTION INCORPORATED
                              AMENDED AND RESTATED
                           1999 EQUITY INCENTIVE PLAN
                       (AS ADOPTED EFFECTIVE MAY 24, 2004)

               SECTION 1. ESTABLISHMENT, PURPOSE, AND TERM OF PLAN

      1.1   ESTABLISHMENT. The Granite Construction Incorporated 1999 Equity
Incentive Plan was initially established effective May 24, 1999 (the "INITIAL
PLAN"). The Initial Plan is hereby amended and restated in its entirety as the
Granite Construction Incorporated Amended and Restated 1999 Equity Incentive
Plan (the "PLAN") effective as of May 24, 2004, the date of its approval by the
stockholders of the Company (the "EFFECTIVE DATE").

      1.2   PURPOSE. The purpose of the Plan is to advance the interests of the
Company, by encouraging and providing for the acquisition of an equity interest
in the success of the Company by Employee and Directors, by providing additional
incentives and motivation toward superior performance of the Company, and by
enabling the Company to attract and retain the services of Employees and
Directors upon whose judgment, interest, and special effort the successful
conduct of its operations is largely dependent. The Plan seeks to achieve this
purpose by providing for Awards in the form of Options, Restricted Stock,
Restricted Stock Units, Performance Shares and Performance Units, by providing
Nonemployee Directors with the opportunity to receive Options or Stock Units in
lieu of compensation otherwise payable in cash, and by providing for payments in
the form of shares of Stock or cash.

      1.3   TERM OF PLAN. The Plan shall remain in effect until the earlier of
(a) its termination by the Committee pursuant to Section 14 or (b) the date on
which all of the shares of Stock available for issuance under the Plan have been
issued and all restrictions on such shares under the terms of the Plan and the
agreements evidencing Awards granted under the Plan have lapsed. However, all
Awards shall be granted, if at all, within ten (10) years from the Effective
Date.

                     SECTION 2. DEFINITIONS AND CONSTRUCTION

      2.1   DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:

            (a)   "AWARD" means any Option, Restricted Stock, Restricted Stock
Unit, Performance Share, Performance Unit or Director Fee Award granted under
the Plan.

            (b)   "AWARD AGREEMENT" means a written agreement between the
Company and a Participant setting forth the terms, conditions and restrictions
of the Award granted to the Participant. An Award Agreement may be an "Option
Agreement," a "Restricted Stock Agreement," a "Restricted Stock Units
Agreement," a "Performance Share Agreement," a "Performance Unit Agreement," a
"Nonemployee Director Option Agreement," or a "Stock Units Agreement."

                                       1


            (c)   "BOARD" means the Board of Directors of the Company.

            (d)   "CAUSE" means, unless otherwise defined by the Participant's
Award Agreement or contract of employment or service, any of the following: (i)
the Participant's theft, dishonesty, or falsification of any Participating
Company documents or records; (ii) the Participant's repeated failure to report
to work during normal hours, other than for customarily excused absences for
personal illness or other reasonable cause; (iii) the Participant's conviction
(including any plea of guilty or nolo contendere) of theft or felony; (iv) the
Participant's wrongful disclosure of a Participating Company's trade secrets or
other proprietary information; (v) any other dishonest or intentional action by
the Participant which has a detrimental effect on a Participating Company; or
(vi) the Participant's habitual and repeated nonperformance of the Participant's
duties.

            (e)   "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.

            (f)   "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. If no committee of the Board has been
appointed to administer the Plan, the Board shall exercise all of the powers of
the Committee granted herein, and, in any event, the Board may in its discretion
exercise any or all of such powers.

            (g)   "COMPANY" means Granite Construction Incorporated, a Delaware
corporation, or any successor corporation thereto.

            (h)   "DIRECTOR" means a member of the Board.

            (i)   "DIRECTOR FEE AWARD" means any Nonemployee Director Option or
Stock Unit granted pursuant to Section 9.

            (j)   "DISABILITY" means a permanent and total disability as defined
under the Company's Long Term Disability Plan or any successor plan, regardless
of whether the Participant is covered by such Long Term Disability Plan.

            (k)   "DIVIDEND EQUIVALENT" means a credit, made at the discretion
of the Committee or as otherwise provided by the Plan, to the account of a
Participant in an amount equal to the cash dividends paid on one share of Stock
for each share of Stock represented by an Award held by such Participant.

            (l)   "EMPLOYEE" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating Company and, with respect to any Incentive Stock Option granted to
such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan. The Company shall determine in good faith and in the exercise of its
discretion whether an individual has become or has ceased to be an Employee and
the effective date of such individual's employment or termination of employment,
as the case may be. For purposes of an individual's rights, if any, under the
Plan as of the time of the Company's determination, all such

                                       2


determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any court of law or governmental agency
subsequently makes a contrary determination.

            (m)   "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

            (n)   "FAIR MARKET VALUE" means, as of any relevant date, the
closing sale price of a share of Stock (or the mean of the closing bid and asked
prices if the Stock is so quoted instead) on the relevant date on the New York
Stock Exchange or such other national or regional securities exchange or market
system constituting the primary market for the Stock, as reported in The Wall
Street Journal or such other source as the Company deems reliable. If the
relevant date does not fall on a day on which the Stock has traded on such
securities exchange or market system, the date on which the Fair Market Value
shall be established shall be the last day on which the Stock was so traded
prior to the relevant date, or such other appropriate day as shall be determined
by the Committee, in its discretion. If, on such date, there is no public market
for the Stock, the Fair Market Value of a share of Stock shall be as determined
by the Committee.

            (o)   "INCENTIVE STOCK OPTION" means an Option intended to be (as
set forth in the Award Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.

            (p)   "INSIDER" means an officer, a Director or any other person
whose transactions in Stock are subject to Section 16 of the Exchange Act.

            (q)   "NONEMPLOYEE DIRECTOR" means a Director who is not an
Employee.

            (r)   "NONEMPLOYEE DIRECTOR OPTION" means a Director Fee Award in
the form of Nonstatutory Stock Option granted pursuant to the terms and
conditions of Section 10.

            (s)   "NONSTATUTORY STOCK OPTION" means an Option not intended to be
(as set forth in the Award Agreement) or which does not qualify as an Incentive
Stock Option.

            (t)   "OPTION" means the right to purchase Stock at a stated price
for a specified period of time pursuant to the terms and conditions of the Plan.
An Option may be either an Incentive Stock Option or a Nonstatutory Stock
Option.

            (u)   "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.

            (v)   "PARTICIPANT" means any eligible person who has been granted
one or more Awards.

            (w)   "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.

            (x)   "PARTICIPATING COMPANY GROUP" means, at any point in time, all
corporations collectively which are then Participating Companies.

                                       3


            (y)   "PERFORMANCE GOAL" means a performance goal established by the
Committee pursuant to Section 9.3.

            (z)   "PERFORMANCE PERIOD" means a period established by the
Committee pursuant to Section 9.3 at the end of which one or more Performance
Goals are to be measured.

            (aa)  "PERFORMANCE SHARE" means a bookkeeping entry representing a
right granted to a Participant pursuant to the terms and conditions of Section 8
to receive a payment equal to the value of a Performance Share, as determined by
the Committee, based on performance.

            (bb)  "PERFORMANCE UNIT" means a bookkeeping entry representing a
right granted to a Participant pursuant to the terms and conditions of Section 9
to receive a payment equal to the value of a Performance Unit, as determined by
the Committee, based upon performance.

            (cc)  "RESTRICTED STOCK" means Stock granted to a Participant
pursuant to the terms and conditions of Section 7.

            (dd)  "RESTRICTED STOCK UNIT" means a bookkeeping entry representing
a right granted to a Participant pursuant to Section 8 to receive a share of
Stock on a date determined in accordance with the provisions of Section 8 and
the Participant's Award Agreement.

            (ee)  "RESTRICTION PERIOD" means the period established in
accordance with Section 7.3 of the Plan during which shares subject to a
Restricted Stock Award are subject to Vesting Conditions.

            (ff)  "RETIREMENT" means (i) with respect to an Employee,
termination of employment for retirement under the terms of the Company's
defined contribution plans, and (ii) with respect to a Nonemployee Director,
resignation from Service on the Board after attaining the age of 55 and after at
least ten years of Service on the Board.

            (gg)  "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.

            (hh)  "SECTION 162(m)" means Section 162(m) of the Code.

            (ii)  "SECURITIES ACT" means the Securities Act of 1933, as amended.

            (jj)  "SERVICE" means a Participant's employment or service with the
Participating Company Group, whether in the capacity of an Employee or a
Director. A Participant's Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant renders such
Service or a change in the Participating Company for which the Participant
renders such Service, provided that there is no interruption or termination of
the Participant's Service. Furthermore, a Participant's Service shall not be
deemed to have terminated if the Participant takes any military leave, sick
leave, or other bona fide leave of absence approved by the Company; provided,
however, that if any such leave exceeds ninety (90) days, on the one hundred
eighty-first (181st) day following the

                                       4


commencement of such leave any Incentive Stock Option held by the Participant
shall cease to be treated as an Incentive Stock Option and instead shall be
treated thereafter as a Nonstatutory Stock Option unless the Participant's right
to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Participant's Award
Agreement. A Participant's Service shall be deemed to have terminated either
upon an actual termination of Service or upon the corporation for which the
Participant performs Service ceasing to be a Participating Company. Subject to
the foregoing, the Company, in its discretion, shall determine whether a
Participant's Service has terminated and the effective date of such termination.

            (kk)  "STOCK" means the Common Stock of the Company, as adjusted
from time to time in accordance with Section 5.3.

            (ll)  "STOCK UNIT" means a Director Fee Award in the form of a
bookkeeping entry representing a right granted to a Participant pursuant to the
terms and conditions of Section 10 to receive payment of one (1) share of Stock.

            (mm)  "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

            (nn)  "TEN PERCENT OWNER" means a Participant who, at the time an
Option is granted to the Participant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.

            (oo)  "VESTING CONDITIONS" mean those conditions established in
accordance with Section 7.3 or Section 8.3 of the Plan prior to the satisfaction
of which shares subject to a Restricted Stock Award or Restricted Stock Unit
Award, respectively, remain subject to forfeiture or a repurchase option in
favor of the Company upon the Participant's termination of Service.

      2.2   CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, words in
the masculine gender, when used in the Plan shall include the feminine gender,
the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.

                  SECTION 3. ELIGIBILITY AND AWARD LIMITATIONS

      3.1   PERSONS ELIGIBLE FOR INCENTIVE STOCK OPTIONS. Incentive Stock
Options may be granted only to Employees. For purposes of the foregoing
sentence, the term "Employees" shall include prospective Employees to whom
Options are granted in connection with written offers of employment with the
Participating Company Group, provided that any such Option shall be deemed
granted effective on the date that the Participant commences Service as an
Employee, with an exercise price determined as of such date in accordance with
Section 6.2.

                                       5


      3.2   PERSONS ELIGIBLE FOR OTHER AWARDS. Awards other than Incentive Stock
Options may be granted only to Employees and Directors. For purposes of the
foregoing sentence, the terms "Employees" and "Directors" shall include
prospective Employees and prospective Directors to whom Awards are granted in
connection with written offers of employment or service as a Director with the
Participating Company Group, provided that no Stock subject to any such Award
shall vest, become exercisable or be issued prior to the date on which the
Participant commences Service. A Director Fee Award may be granted only to a
person who, at the time of grant, is a Nonemployee Director. Eligible persons
may be granted more than one (1) Award.

      3.3   SECTION 162(m) AWARD LIMITS. The following limitations shall apply
to the grant of any Award if, at the time of grant, the Company is a "publicly
held corporation" within the meaning of Section 162(m).

            (a)   STOCK OPTIONS. Subject to adjustment as provided in Section
5.3, no Employee shall be granted one or more Options within any fiscal year of
the Company which in the aggregate are for the purchase of more than one hundred
thousand (100,000) shares; provided, however, that the Company may make an
additional one-time grant to any newly-hired Employee of an Option for the
purchase of up to two hundred fifty thousand (250,000) shares. An Option which
is canceled in the same fiscal year of the Company in which it was granted shall
continue to be counted against the limits described in this subsection for such
period.

            (b)   RESTRICTED STOCK. Subject to adjustment as provided in Section
5.3, no Employee may be granted within any fiscal year of the Company more than
one hundred thousand (100,000) shares of Restricted Stock, provided that such
limit shall apply only to Awards of Restricted Stock which are granted or
subject to Vesting Conditions based upon the attainment of Performance Goals.

            (c)   RESTRICTED STOCK UNITS. Subject to adjustment as provided in
Section 5.3, no Employee shall be granted within any fiscal year of the Company
more than one hundred thousand (100,000) Restricted Stock Units, provided that
such limit shall apply only to Awards of Restricted Stock Units which are
granted or subject to Vesting Conditions based upon the attainment of
Performance Goals.

            (d)   PERFORMANCE SHARES AND PERFORMANCE UNITS. Subject to
adjustment as provided in Section 5.3, no Employee may be granted (i)
Performance Shares which could result in such Employee receiving more than one
hundred thousand (100,000) shares of Stock for each full fiscal year of the
Company contained in the Performance Period for such Award, or (ii) Performance
Units which could result in such Employee receiving more than one million five
hundred thousand dollars ($1,500,000) for each full fiscal year of the Company
contained in the Performance Period for such Award. No Participant may be
granted more than one Performance Share Award or one Performance Unit Award (but
not both such Awards) for the same Performance Period.

      3.4   MAXIMUM NUMBER OF SHARES ISSUABLE PURSUANT TO INCENTIVE STOCK
OPTIONS. Subject to adjustment as provided in Section 5.3, the maximum aggregate
number of shares of Stock that may be issued under the Plan pursuant to the
exercise of Incentive Stock Options shall

                                       6


not exceed four million two hundred fifty thousand (4,250,000) shares. The
maximum aggregate number of shares of Stock that may be issued under the Plan
pursuant to all Awards other than Incentive Stock Options shall be the number of
shares determined in accordance with Section 5.1, subject to adjustment as
provided in Section 5.2 and Section 5.3.

      3.5   AGGREGATE LIMIT ON RESTRICTED STOCK, RESTRICTED STOCK UNIT,
PERFORMANCE SHARE AND PERFORMANCE UNIT AWARDS NOT PROVIDING FOR CERTAIN MINIMUM
VESTING. Notwithstanding any provision of the Plan to the contrary, no more than
five percent (5%) of the maximum aggregate number of shares of Stock that may be
issued under the Plan determined in accordance with Section 5.1 (as adjusted
from time to time pursuant to Sections 5.2 and 5.3) shall be issued pursuant to
(a) Restricted Stock or Restricted Stock Unit Awards having Vesting Conditions
which (i) if based upon a Service requirement, provide for vesting more rapid
than annual pro rata vesting over a period three (3) years or (ii) if based upon
the attainment of one or more Performance Goals, provide for a Performance
Period of less than twelve (12) months, or (b) Performance Share or Performance
Unit Awards having a Performance Period of less than twelve (12) months.

                            SECTION 4. ADMINISTRATION

      4.1   ADMINISTRATION BY THE COMMITTEE. The Plan shall be administered by
the Committee. All questions of interpretation of the Plan or of any Award shall
be determined by the Committee, and such determinations shall be final, binding
and conclusive for all purposes and upon all persons whomsoever.

      4.2   AUTHORITY OF OFFICERS. Any officer of a Participating Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, determination or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.

      4.3   ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.

      4.4   COMMITTEE COMPLYING WITH SECTION 162(m). If the Company is a
"publicly held corporation" within the meaning of Section 162(m), the Board may
establish a Committee of "outside directors" within the meaning of Section
162(m) to approve the grant of any Award which might reasonably be anticipated
to result in the payment of employee remuneration that would otherwise exceed
the limit on employee remuneration deductible for income tax purposes pursuant
to Section 162(m).

      4.5   POWERS OF THE COMMITTEE. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Committee shall have
the full and final power and authority, in its discretion:

                                       7


            (a)   to determine the persons to whom, and the time or times at
which, Awards shall be granted and the number of shares of Stock or units to be
subject to each Award and the value of a unit;

            (b)   to determine the type of Award granted and to designate
Options as Incentive Stock Options or Nonstatutory Stock Options;

            (c)   to determine the Fair Market Value of shares of Stock or other
property;

            (d)   to determine the terms, conditions and restrictions applicable
to each Award (which need not be identical) and any shares acquired pursuant
thereto, including, without limitation, (i) the exercise price of any Option,
(ii) the method of payment for shares purchased upon the exercise of any Option,
(iii) the method for satisfaction of any tax withholding obligation arising in
connection with any Award, including by the withholding or delivery of shares of
stock, (iv) the timing, terms and conditions of the exercisability or vesting of
any Award or any shares acquired pursuant thereto, (v) the Performance Goals
applicable to any Award and the extent to which such Performance Goals have been
attained, (vi) the time of the expiration of any Award, (vii) the effect of the
Participant's termination of Service on any of the foregoing, and (viii) all
other terms, conditions and restrictions applicable to the Award or shares
acquired pursuant thereto not inconsistent with the terms of the Plan;

            (e)   to determine whether an Award of Performance Shares or
Performance Units will be settled in shares of Stock, cash, or in any
combination thereof;

            (f)   to approve one or more forms of Award Agreement;

            (g)   to amend, modify, extend, cancel or renew any Award or to
waive any restrictions or conditions applicable to any Award or any shares
acquired pursuant thereto;

            (h)   to accelerate, continue, extend or defer the exercisability or
vesting of any Award or any shares acquired pursuant thereto, including with
respect to the period following a Participant's termination of Service;

            (i)   to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt sub-plans or supplements to, or alternative
versions of, the Plan, including, without limitation, as the Committee deems
necessary or desirable to comply with the laws or regulations of, or to
accommodate the tax policy, accounting principles or custom of, foreign
jurisdictions whose citizens may be granted Awards; and

            (j)   to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award Agreement and to make all other
determinations and take such other actions with respect to the Plan or any Award
as the Committee may deem advisable to the extent not inconsistent with the
provisions of the Plan or applicable law.

      4.6   OPTION REPRICING. Without the affirmative vote of holders of a
majority of the shares of Stock cast in person or by proxy at a meeting of the
stockholders of the Company at which a quorum representing a majority of all
outstanding shares of Stock is present or represented by proxy, the Board shall
not approve a program providing for either (a) the

                                       8


cancellation of outstanding Options and the grant in substitution therefore of
new Options having a lower exercise price or (b) the amendment of outstanding
Options to reduce the exercise price thereof. This paragraph shall not be
construed to apply to "issuing or assuming a stock option in a transaction to
which section 424(a) applies," within the meaning of Section 424 of the Code.

                        SECTION 5. STOCK SUBJECT TO PLAN

      5.1   MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided
in Section 5.3, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be four million two hundred fifty thousand
(4,250,000) and shall consist of authorized but unissued or reacquired shares of
Stock not reserved for any other purpose, or any combination thereof.

      5.2   SHARE ACCOUNTING. If an outstanding Award for any reason expires or
is terminated or canceled without having been exercised or settled in full, or
if shares of Stock acquired pursuant to an Award subject to forfeiture or
repurchase are forfeited or repurchased by the Company at the Participant's
purchase price, the shares of Stock allocable to the terminated portion of such
Award or such forfeited or repurchased shares of Stock shall again be available
for issuance under the Plan. Shares of Stock shall not be deemed to have been
issued pursuant to the Plan (a) with respect to any portion of an Award that is
settled in cash or (b) to the extent such shares are withheld in satisfaction of
tax withholding obligations pursuant to Section 13.2. If the exercise price of
an Option is paid by tender to the Company, or attestation to the ownership, of
shares of Stock owned by the Participant, the number of shares available for
issuance under the Plan shall be reduced by the net number of shares for which
the Option is exercised.

      5.3   ADJUSTMENT IN CAPITALIZATION. In the event of any stock dividend,
stock split, reverse stock split, recapitalization, merger, combination,
exchange of shares, reclassification or similar change in the capital structure
of the Company, appropriate adjustments shall be made in the number and class of
shares subject to the Plan and to any outstanding Awards, in the award limits
set forth in Sections 3.3 and 3.4, and in the exercise price per share of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Awards are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Change in Control, as
defined in Section 11.3) shares of another corporation (the "NEW SHARES"), the
Committee may unilaterally amend the outstanding Awards to provide that such
Awards are for New Shares. In the event of any such amendment, the number of
shares subject to outstanding Awards and the exercise price per share of
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Committee, in its discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 5.3
shall be rounded down to the nearest whole number, and in no event may the
exercise price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option. The adjustments determined by the
Committee pursuant to this Section 5.3 shall be final, binding and conclusive.

                            SECTION 6. STOCK OPTIONS

      6.1   GRANT OF OPTIONS. Subject to the provisions of Sections 1.3, 3 and
5, Options (other than pursuant to a Director Fee Award) may be granted to
Participants at any time and

                                       9


from time to time as shall be determined by the Committee. Each Option shall be
evidenced by an Award Agreement that shall specify the type of Option granted,
the exercise price, the duration of the Option, the number of shares of Stock to
which the Option pertains, and such other provisions as the Committee shall
determine. No Option or purported Option shall be a valid and binding obligation
of the Company unless evidenced by a fully executed Award Agreement. Award
Agreements evidencing Options may incorporate all or any of the terms of the
Plan by reference and, except as otherwise set forth in Section 10 with respect
to a Nonemployee Director Option, shall comply with and be subject to the terms
and conditions set forth in Sections 6.2 through 6.6 below.

      6.2   EXERCISE PRICE. The exercise price for each Option shall be
established in the discretion of the Committee; provided, however, that (a) the
exercise price per share shall be not less than the Fair Market Value of a share
of Stock on the effective date of grant of the Option and (b) no Incentive Stock
Option granted to a Ten Percent Owner shall have an exercise price per share
less than one hundred ten percent (110%) of the Fair Market Value of a share of
Stock on the effective date of grant of the Option. Notwithstanding the
foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock
Option) may be granted with an exercise price lower than the minimum exercise
price set forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions of
Section 424(a) of the Code.

      6.3   EXERCISE PERIOD. Options shall be exercisable at such time or times,
or upon such event or events, and subject to such terms, conditions, performance
criteria and restrictions as shall be determined by the Committee and set forth
in the Award Agreement evidencing such Option; provided, however, that (a) no
Option shall be exercisable after the expiration of ten (10) years after the
effective date of grant of such Option, (b) no Incentive Stock Option granted to
a Ten Percent Owner shall be exercisable after the expiration of five (5) years
after the effective date of grant of such Option, and (c) no Option granted to a
prospective Employee or prospective Director may become exercisable prior to the
date on which such person commences Service. Subject to the foregoing, unless
otherwise specified by the Committee in the grant of an Option, any Option
granted hereunder shall have a term of ten (10) years from the effective date of
grant of the Option, unless earlier terminated in accordance with its
provisions.

      6.4   PAYMENT OF EXERCISE PRICE. The purchase price of Stock upon exercise
of any Option shall be paid in full by such methods as shall be permitted by the
Committee or as provided in a Participant's Award Agreement, which need not be
the same for all Participants, and subject to the following:

            (a)   FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company, or attestation to the ownership,
of shares of Stock owned by the Participant having a Fair Market Value not less
than the exercise price, (iii) by delivery of a properly executed notice of
exercise together with irrevocable instructions to a broker providing for the
assignment to the Company of the proceeds of a sale or loan with respect to some
or all of the shares being acquired upon the exercise of the Option (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of

                                       10


Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by such
other consideration as may be approved by the Committee from time to time to the
extent permitted by applicable law, or (v) by any combination thereof. The
Committee may at any time or from time to time grant Options which do not permit
all of the foregoing forms of consideration to be used in payment of the
exercise price or which otherwise restrict one or more forms of consideration.
The proceeds from payment of the Option exercise prices shall be added to the
general funds of the Company and shall be used for general corporate purposes.

            (b)   LIMITATIONS ON FORMS OF CONSIDERATION.

                  (i)   TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock. Unless otherwise provided by
the Committee, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Participant for more than six (6) months (and not used for
another Option exercise by attestation during such period) or were not acquired,
directly or indirectly, from the Company.

                  (ii)  CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise, including with respect to one or more
Participants specified by the Company notwithstanding that such program or
procedures may be available to other Participants.

      6.5   EFFECT OF TERMINATION OF SERVICE.

            (a)   OPTION EXERCISABILITY. Subject to earlier termination of the
Option as otherwise provided herein and unless otherwise provided by the
Committee in the grant of an Option and set forth in the Award Agreement, an
Option shall be exercisable after a Participant's termination of Service only
during the applicable time period determined in accordance with this Section and
thereafter shall terminate:

                  (i)   DEATH OR DISABILITY. If the Participant's Service is
terminated by reason of the death or Disability of the Participant, the Option,
to the extent unexercised and exercisable on the date on which the Participant's
Service terminated, may be exercised by the Participant (or the Participant's
guardian or legal representative or other person who acquired the right to
exercise the Option by reason of the Participant's death) at any time prior to
the expiration of six (6) months (or such longer period of time as determined by
the Committee, in its discretion) after the date on which the Participant's
Service terminated, but in any event no later than the date of expiration of the
Option's term as set forth in the Award Agreement evidencing such Option (the
"OPTION EXPIRATION DATE"). If an Option intended to be an Incentive Stock Option
is exercised by a Participant more than three (3) months following the
Participant's termination of Service by reason of a Disability which is not a
"permanent and total disability" as defined in Section 22(e)(3) of the Code,
such exercise will be treated as the exercise of a Nonstatutory Stock Option to
the extent required by Section 422 of the Code. The

                                       11


Participant's Service shall be deemed to have terminated on account of death if
the Participant dies within three (3) months after the Participant's termination
of Service.

                  (ii)  RETIREMENT. If the Participant's Service is terminated
by reason of the Retirement of the Participant, the Option may be exercised at
such time (but in any event no later than the Option Expiration Date) and in
such amounts as shall be determined by the Committee at the time of grant of the
Option and set forth in the Award Agreement.

                  (iii) TERMINATION FOR CAUSE. Notwithstanding any other
provision of the Plan to the contrary, if the Participant's Service is
terminated for Cause, the Option shall terminate and cease to be exercisable
immediately upon such termination of Service.

                  (iv)  OTHER TERMINATION OF SERVICE. If the Participant's
Service terminates for any reason, except death, Disability, Retirement or
Cause, the Option, to the extent unexercised and exercisable by the Participant
on the date on which the Participant's Service terminated, may be exercised by
the Participant within thirty (30) days (or such longer period of time as
determined by the Committee, in its discretion) after the date on which the
Participant's Service terminated, but in any event no later than the Option
Expiration Date.

            (b)   EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, other than termination of Service for Cause, if the exercise of an
Option within the applicable time periods set forth in Section 6.5(a) is
prevented by the provisions of Section 12.1 below regarding compliance with
securities laws, the Option shall remain exercisable until thirty (30) days
after the date the Participant is notified by the Company that the Option is
exercisable, but in any event no later than the Option Expiration Date.

            (c)   EXTENSION IF PARTICIPANT SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, other than termination of Service for Cause, if a
sale within the applicable time periods set forth in Section 6.5(a) of shares
acquired upon the exercise of the Option would subject the Participant to suit
under Section 16(b) of the Exchange Act, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which a sale of such shares by the Participant would no longer be subject to
such suit, (ii) the one hundred and ninetieth (190th) day after the
Participant's termination of Service, or (iii) the Option Expiration Date.

      6.6   TRANSFERABILITY OF OPTIONS. During the lifetime of the Participant,
an Option shall be exercisable only by the Participant or the Participant's
guardian or legal representative. No Option shall be assignable or transferable
by the Participant, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Committee, in its
discretion, and set forth in the Award Agreement evidencing such Option, a
Nonstatutory Stock Option shall be assignable or transferable subject to the
applicable limitations, if any, described in the General Instructions to Form
S-8 Registration Statement under the Securities Act.

                           SECTION 7. RESTRICTED STOCK

      7.1   GRANT OF RESTRICTED STOCK. Subject to the provisions of Sections
1.3, 3 and 5, Awards of Restricted Stock may be granted to Participants at any
time and from time to time as

                                       12


shall be determined by the Committee, including, without limitation, upon the
attainment of one or more Performance Goals as described in Section 9.4. If
either the grant of Restricted Stock or the lapsing of the Restriction Period is
to be contingent upon the attainment of one or more Performance Goals, the
Committee shall follow procedures substantially equivalent to those set forth in
Sections 9.3 through 9.5. Each grant of Restricted Stock shall be evidenced by
an Award Agreement that shall specify the number of shares of Stock subject to
and the other terms, conditions and restrictions of such Award as the Committee
shall determine. No Restricted Stock Award or purported Restricted Stock Award
shall be a valid and binding obligation of the Company unless evidenced by a
fully executed Award Agreement. Award Agreements evidencing Restricted Stock
Awards may incorporate all or any of the terms of the Plan by reference and
shall comply with and be subject to the terms and conditions set forth in
Sections 7.2 through 7.7 below.

      7.2   PURCHASE PRICE. No monetary payment (other than applicable tax
withholding) shall be required as a condition of receiving shares of Restricted
Stock, the consideration for which shall be services actually rendered to a
Participating Company or for its benefit. Notwithstanding the foregoing, the
Participant shall furnish consideration in the form of cash or past services
rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock subject to such Restricted Stock
Award.

      7.3   VESTING AND RESTRICTIONS ON TRANSFER. Shares issued pursuant to any
Restricted Stock Award may or may not be made subject to Vesting Conditions
based upon the satisfaction of such Service requirements, conditions,
restrictions or performance criteria, including, without limitation, Performance
Goals as described in Section 9.4, as shall be established by the Committee and
set forth in the Award Agreement evidencing such Award. During any Restriction
Period in which shares acquired pursuant to a Restricted Stock Award remain
subject to Vesting Conditions, such shares may not be sold, exchanged,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than pursuant to an Ownership Change Event, as defined in Section 14.1. Upon
request by the Company, each Participant shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions. All rights with
respect to Restricted Stock granted to a Participant hereunder shall be
exercisable during his or her lifetime only by such Participant.

      7.4   OTHER RESTRICTIONS. The Committee may impose such other restrictions
on any shares of Restricted Stock granted hereunder as it may deem advisable,
including, without limitation, restrictions under applicable Federal securities
law and under any blue sky or state securities laws applicable to such shares,
and may legend the certificates representing the Restricted Stock to give
appropriate notice of such restrictions.

      7.5   VOTING RIGHTS; DIVIDENDS AND DISTRIBUTIONS. Except as provided in
this Section, Section 7.4 and any Award Agreement, during the Restriction Period
applicable to shares subject to a Restricted Stock Award, the Participant shall
have all of the rights of a stockholder of the Company holding shares of Stock,
including the right to vote such shares and to receive all dividends and other
distributions paid with respect to such shares. However, in the event of a
dividend or distribution paid in shares of Stock or any other adjustment made
upon a

                                       13


change in the capital structure of the Company as described in Section 5.3, then
any and all new, substituted or additional securities or other property (other
than normal cash dividends) to which the Participant is entitled by reason of
the Participant's Restricted Stock Award shall be immediately subject to the
same Vesting Conditions as the shares subject to the Restricted Stock Award with
respect to which such dividends or distributions were paid or adjustments were
made.

      7.6   DIVIDENDS AND OTHER DISTRIBUTION. During the Restriction Period,
Participants holding shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those shares while they are so held. If any such dividends or distributions are
paid in shares of stock, the shares shall be subject to the same restrictions on
transferability pursuant to Section 7.3 as the shares of Restricted Stock with
respect to which they were paid.

      7.7   EFFECT OF TERMINATION OF SERVICE. Unless otherwise provided by the
Committee in the grant of a Restricted Stock Award and set forth in the Award
Agreement, the effect of a Participant's termination of Service on his or her
Restricted Stock Award shall be as follows:

            (a)   DEATH OR DISABILITY. If the Participant's Service is
terminated by reason of the death or Disability of the Participant during the
Restriction Period, the restrictions applicable to the shares of Restricted
Stock pursuant to Section 7.3 shall terminate automatically with respect to all
such shares.

            (b)   OTHER TERMINATION OF SERVICE. If the Participant's Service
terminates during the Restriction Period for any reason except death or
Disability, any shares of Restricted Stock still subject to restrictions
pursuant to Section 7.3 at the date of such termination shall be forfeited and
automatically reacquired by the Company; provided, however, that, in the event
of an involuntary termination of the Participant's Service, the Committee, in
its sole discretion, may waive the automatic forfeiture of any or all such
shares and/or add such new restrictions to such shares of Restricted Stock as it
deems appropriate.

                        SECTION 8. RESTRICTED STOCK UNITS

      8.1   GRANT OF RESTRICTED STOCK UNITS. Subject to the provisions of
Sections 1.3, 3 and 5, Awards of Restricted Stock Units may be granted to
Participants at any time and from time to time as shall be determined by the
Committee, including, without limitation, upon the attainment of one or more
Performance Goals as described in Section 9.4. If either the grant of a
Restricted Stock Unit Award or the Vesting Conditions with respect to such Award
is to be contingent upon the attainment of one or more Performance Goals, the
Committee shall follow procedures substantially equivalent to those set forth in
Sections 9.3 through 9.5(a). Restricted Stock Unit Awards shall be evidenced by
Award Agreements specifying the number of Restricted Stock Units subject to the
Award, in such form as the Committee shall from time to time establish. No
Restricted Stock Unit Award or purported Restricted Stock Unit Award shall be a
valid and binding obligation of the Company unless evidenced by a fully executed
Award Agreement. Award Agreements evidencing Restricted Stock Units may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the terms and conditions set forth in Sections 8.2
through 8.7 below.

                                       14


      8.2   PURCHASE PRICE. No monetary payment (other than applicable tax
withholding, if any) shall be required as a condition of receiving a Restricted
Stock Unit Award, the consideration for which shall be services actually
rendered to a Participating Company or for its benefit.

      8.3   VESTING. Restricted Stock Units may or may not be made subject to
Vesting Conditions based upon the satisfaction of such Service requirements,
conditions, restrictions or performance criteria, including, without limitation,
Performance Goals as described in Section 9.4, as shall be established by the
Committee and set forth in the Award Agreement evidencing such Award.

      8.4   VOTING, DIVIDEND EQUIVALENT RIGHTS AND DISTRIBUTIONS. Participants
shall have no voting rights with respect to shares of Stock represented by
Restricted Stock Units until the date of the issuance of such shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). However, the Committee, in its
discretion, may provide in a Participant's Award Agreement that the Participant
shall be entitled to receive Dividend Equivalents with respect to the payment of
cash dividends on Stock having a record date prior to date on which Restricted
Stock Units held by such Participants are settled. Such Dividend Equivalents, if
any, shall be paid by crediting the Participant with additional whole Restricted
Stock Units as of the date of payment of such cash dividends on Stock. The
number of additional Restricted Stock Units (rounded to the nearest whole
number) to be so credited shall be determined by dividing (a) the amount of cash
dividends paid on such date with respect to the number of shares of Stock
represented by the Restricted Stock Units previously credited to the Participant
by (b) the Fair Market Value per share of Stock on such date. Such additional
Restricted Stock Units shall be subject to the same terms and conditions and
shall be settled in the same manner and at the same time (or as soon thereafter
as practicable) as the Restricted Stock Units originally subject to the
Restricted Stock Unit Award. In the event of a dividend or distribution paid in
shares of Stock or any other adjustment made upon a change in the capital
structure of the Company as described in Section 5.3, appropriate adjustments
shall be made in the Participant's Restricted Stock Unit Award so that it
represents the right to receive upon settlement any and all new, substituted or
additional securities or other property (other than normal cash dividends) to
which the Participant would entitled by reason of the shares of Stock issuable
upon settlement of the Award, and all such new, substituted or additional
securities or other property shall be immediately subject to the same Vesting
Conditions as are applicable to the Award.

      8.5   EFFECT OF TERMINATION OF SERVICE. Unless otherwise provided by the
Committee in the grant of a Restricted Stock Unit Award and set forth in the
Award Agreement, if a Participant's Service terminates for any reason, whether
voluntary or involuntary (including the Participant's death or disability), then
the Participant shall forfeit to the Company any Restricted Stock Units pursuant
to the Award which remain subject to Vesting Conditions as of the date of the
Participant's termination of Service.

      8.6   SETTLEMENT OF AWARDS. The Company shall issue to a Participant on
the date on which Restricted Stock Units subject to the Participant's Restricted
Stock Unit Award vest or on such other date determined by the Committee, in its
discretion, and set forth in the Award Agreement one (1) share of Stock (and/or
any other new, substituted or additional securities or

                                       15


other property pursuant to an adjustment described in Section 8.4) for each
Restricted Stock Unit then becoming vested or otherwise to be settled on such
date, subject to the withholding of applicable taxes. Notwithstanding the
foregoing, if permitted by the Committee and set forth in the Award Agreement,
the Participant may elect in accordance with terms specified in the Award
Agreement to defer receipt of all or any portion of the shares of Stock or other
property otherwise issuable to the Participant pursuant to this Section.

      8.7   NONTRANSFERABILITY OF RESTRICTED STOCK UNIT AWARDS. Prior to the
issuance of shares of Stock in settlement of a Restricted Stock Unit Award, the
Award shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or garnishment by creditors of the
Participant or the Participant's beneficiary, except transfer by will or by the
laws of descent and distribution.

               SECTION 9. PERFORMANCE SHARES AND PERFORMANCE UNITS

      9.1   GRANT OF PERFORMANCE SHARES OR PERFORMANCE UNITS. Subject to the
provisions of Sections 1.3, 3 and 5, the Committee, at any time and from time to
time, may grant Awards of Performance Shares or Performance Units to such
Participants and in such amounts as it shall determine. Each grant of a
Performance Share or Performance Unit Award shall be evidenced by an Award
Agreement that shall specify the number of Performance Shares or Performance
Units subject thereto, the value of each Performance Share or Performance Unit,
the Performance Goals and Performance Period applicable to the Award, and the
other terms, conditions and restrictions of the Award as the Committee shall
determine. No Performance Share or Performance Unit Award or purported Award
shall be a valid and binding obligation of the Company unless evidenced by a
fully executed Award Agreement. Award Agreements evidencing Performance Share or
Performance Unit Awards may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the terms and conditions set
forth in Sections 9.2 through 9.10 below.

      9.2   VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS. Unless otherwise
provided by the Committee in granting an Award, each Performance Share shall
have an initial value equal to the Fair Market Value of one (1) share of Stock,
subject to adjustment as provided in Section 5.3, on the effective date of grant
of the Performance Share, and each Performance Unit shall have an initial value
of one hundred dollars ($100). The final payable to the Participant in
settlement of a Performance Share or Performance Unit will depend on the extent
to which Performance Goals established by the Committee are attained within the
applicable Performance Period established by the Committee.

      9.3   ESTABLISHMENT OF PERFORMANCE GOALS AND PERFORMANCE PERIOD. The
Committee, in its discretion, shall establish in writing the Performance Period
and Performance Goal(s) applicable to each Performance Share or Performance Unit
Award. Unless otherwise permitted in compliance with the requirements under
Section 162(m) with respect to "performance-based compensation," the Committee
shall establish the Performance Goal(s) applicable to each Award no later than
the earlier of (a) the date ninety (90) days after the commencement of the
applicable Performance Period or (b) the date on which 25% of the Performance
Period has elapsed, and, in any event, at a time when the outcome of the
Performance Goals remains substantially uncertain. Such Performance Goal(s),
when measured

                                       16


at the end of the Performance Period, shall determine the ultimate value of the
Award to be paid to the Participant. Once established, the Performance Goals
shall not be changed during the Performance Period. The Company shall notify
each Participant granted a Performance Share or Performance Unit Award of the
terms of such Award, including the Performance Period and applicable Performance
Goal(s).

      9.4   MEASUREMENT OF PERFORMANCE GOALS. Performance Goals shall be
established by the Committee on the basis of targets to be attained
("PERFORMANCE TARGETS") with respect one or more measures of business or
financial performance (each, a "PERFORMANCE MEASURE"). Performance Measures
shall have the same meanings as used in the Company's financial statements, or
if such terms are not used in the Company's financial statements, they shall
have the meaning applied pursuant to generally accepted accounting principles,
or as used generally in the Company's industry. Performance Targets may include
a minimum, maximum, target level and intermediate levels of performance, with
the ultimate value of a Performance Share or Performance Unit Award determined
by the level attained during the applicable Performance Period. A Performance
Target may be stated as an absolute value or as a value determined relative to a
standard selected by the Committee. Performance Measures shall be calculated
with respect to the Company and each Subsidiary Corporation consolidated
therewith for financial reporting purposes or such division or other business
unit thereof as may be selected by the Committee. For purposes of the Plan, the
Performance Measures applicable to an Award shall be calculated in accordance
with generally accepted accounting principles, but prior to the accrual or
payment of any Performance Share or Performance Unit Award for the same
Performance period and excluding the effect (whether positive or negative) of
any change in accounting standards or any extraordinary, unusual or nonrecurring
item, as determined by the Committee, occurring after the establishment of the
Performance Goals applicable to the Award. Performance Measures may be one or
more of the following as determined by the Committee: (a) revenue, (b) operating
income, (c) pre-tax profit, (d) net income, (e) gross margin, (f) operating
margin, (g) earnings per share, (h) return on stockholder equity, (i) return on
capital, (j) return on net assets, (k) economic value added and (l) cash flow.

      9.5   DETERMINATION OF VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS.
As soon as practicable following the completion of the Performance Period for
each Performance Share and Performance Unit Award, the Committee shall certify
in writing the extent to which the applicable Performance Goals have been
attained and the resulting final value of the Award earned by the Participant
and to be paid upon its settlement in accordance with the terms of the Award
Agreement. The Committee shall have no discretion to increase the value of an
Award payable upon its settlement in excess of the amount called for by the
terms of the Award Agreement on the basis of the degree of attainment of the
Performance Goals as certified by the Committee. However, notwithstanding the
attainment of any Performance Goal, if permitted under a Participant's Award
Agreement evidencing a Performance Share or Performance Unit Award, the
Committee shall have the discretion, on the basis of such criteria as may be
established by the Committee, to reduce some or all of the value of an Award
that would otherwise be paid upon its settlement. No such reduction may result
in an increase in the amount payable upon settlement of another Participant's
Award. As soon as practicable following the Committee's certification, the
Company shall notify the Participant of the determination of the Committee.

                                       17


      9.6   DIVIDEND EQUIVALENTS. The Committee may, in its discretion, provide
that any Performance Share shall include a right to Dividend Equivalents with
respect to cash dividends paid on Stock for which the record date is prior to
the date on which the Performance Share is settled or forfeited. Dividend
Equivalents may be paid currently or may be accumulated and paid to the extent
that Performance Shares become nonforfeitable, as determined by the Committee.
Settlement of Dividend Equivalents may be in cash, shares of Stock, or a
combination thereof as determined by the Committee, and may be paid on the same
basis as settlement of the related Performance Share as provided in Section 9.7.
Dividend Equivalents shall not be paid with respect to Performance Units.

      9.7   FORM AND TIMING OF PAYMENT. Payment of the ultimate value of a
Performance Share or Performance Unit Award earned by a Participant as
determined following the completion of the applicable Performance Period
pursuant to Sections 9.5 and 9.6 may be made in cash, shares of Stock, or a
combination thereof as determined by the Committee. Payments in shares of Stock
shall be determined by the Fair Market Value of a share of Stock on the last day
of such Performance Period. Payment may be made in a lump sum or installments as
prescribed by the Committee. If any payment is to be made on a deferred basis,
the Committee may, but shall not be obligated to, provide for the payment of
Dividend Equivalents or interest during the deferral period.

      9.8   RESTRICTIONS APPLICABLE TO PAYMENT IN SHARES. Shares of Stock issued
in payment of any Performance Share or Performance Unit Award may be fully
vested and freely transferable shares or may be shares of Restricted Stock
subject to Vesting Conditions as provided in Section 7.3. Any such shares of
Restricted Stock shall be evidenced by an Award Agreement and shall be subject
to the terms and conditions set forth in Sections 7.3 through 7.7 above.

      9.9   EFFECT OF TERMINATION OF SERVICE. Unless otherwise provided by the
Committee in the grant of a Performance Share or Performance Unit Award and set
forth in the Award Agreement, the effect of a Participant's termination of
Service on his or her Performance Share or Performance Unit Award shall be as
follows:

            (a)   DEATH, DISABILITY OR RETIREMENT. If the Participant's Service
is terminated by reason of the death, Disability or Retirement of the
Participant while he or she is the holder of a Performance Share or Performance
Unit Award but before the completion of the applicable Performance Period, the
value of the Participant's Award shall be determined by the extent to which the
applicable Performance Goals have been attained with respect to the entire
Performance Period and shall be prorated based on the number of months of the
Participant's Service during the Performance Period. Payment shall be made
following the end of the Performance Period in any manner permitted by Section
9.7.

            (b)   OTHER TERMINATION OF SERVICE. If the Participant's Service
terminates for any reason except death, Disability or Retirement before the
completion of the Performance Period applicable to a Performance Share or
Performance Unit Award held by such Participant, such Award shall be forfeited
in its entirety; provided, however, that in the event of an involuntary
termination of the Participant's Service, the Committee, in its sole discretion,
may waive the automatic forfeiture of all or any portion of any such Award and
provide for payment

                                       18


of such Award or portion thereof on the same basis as if the Participant's
Service had terminated by reason of Retirement.

      9.10  NONTRANSFERABILITY. Prior to settlement in accordance with the
provisions of the Plan, no Performance Shares or Performance Units may be
subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant's beneficiary, except transfer by will or by the laws of
descent and distribution. All rights with respect to a Performance Share or
Performance Unit Award granted to a Participant hereunder shall be exercisable
during his or her lifetime only by such Participant or the Participant's
guardian or legal representative.

                         SECTION 10. DIRECTOR FEE AWARDS

      10.1  EFFECTIVE DATE AND DURATION OF THIS SECTION. This Section 10 shall
become effective on the first day (the "SECTION 10 EFFECTIVE DATE") of the first
calendar quarter beginning after the Effective Date, provided that elections
pursuant to Section 10.2 may be made prior to the Section 10 Effective Date.
Notwithstanding the foregoing, Director Fee Awards shall be granted pursuant to
this Section with respect to elections made by Participants under the Initial
Plan for the Plan Year quarter which ends on or after the Effective Date of the
Plan. This Section 10 shall continue in effect for the remainder of the calendar
year commencing on the Section 10 Effective Date (the "INITIAL PLAN YEAR") and
for each subsequent calendar year commencing during the term (as provided in
Section 1.3) of the Plan (a "PLAN YEAR"). Notwithstanding any Participant's
prior election pursuant to Section 10.2, no Director Fee Award shall be granted
after termination of the Plan, and all Director Fees (as defined below) with
respect to which Director Fee Awards have not been granted prior to termination
of the Plan shall thereafter be paid in cash in accordance with the Company's
normal Director Fee payment procedures. However, subject to compliance with
applicable law as provided in Section 12, all Director Fee Awards granted prior
to termination of the Plan shall continue to be governed by and may be exercised
or settled in accordance with the terms of the Plan and the Award Agreement
evidencing such Director Fee Award.

      10.2  MANDATORY AND ELECTIVE DIRECTOR FEE AWARDS. Except as otherwise
provided below, each Nonemployee Director shall be granted one or more Director
Fee Awards in lieu of payment in cash of fifty percent (50%) of such
Participant's annual retainer fee, meeting fees and other compensation payable
with respect to such Participant's service as a Director ("DIRECTOR FEES")
during the Initial Plan Year and each subsequent Plan Year (or the portion of
such Plan Year following an individual's initial appointment or election as a
Nonemployee Director). In addition, each Participant may elect to receive
Director Fee Awards in lieu of payment in cash of all or any portion of the
remaining fifty percent (50%) of such Participant's Director Fees for the
Initial Plan Year and each subsequent Plan Year or applicable portion thereof.
For the Initial Plan Year and each subsequent Plan Year or applicable portion
thereof, a Participant shall be entitled to elect one of the following
alternative forms of payment of the value of the Participant's Director Fees:

            (a)   OPTION PAYMENT. A minimum of fifty percent (50%), together
with such additional portion, if any, elected by the Participant up to a maximum
of one hundred percent (100%), of the Participant's Director Fees will be paid
in the form of a Nonemployee Director

                                       19


Option (an "OPTION PAYMENT") and the balance will be paid in cash in accordance
with the Company's normal Director Fee payment procedures.

            (b)   STOCK UNITS PAYMENT. A minimum of fifty percent (50%),
together with such additional portion, if any, elected by the Participant up to
a maximum of one hundred percent (100%), of the Participant's Director Fees will
be paid in the form of Stock Units (a "STOCK UNITS PAYMENT") and the balance
will be paid in cash in accordance with the Company's normal Director Fee
payment procedures. In connection with an election to receive a Stock Units
Payment, the Participant may elect an "Early Settlement Date" (as defined below)
upon which the Stock Units will be settled in accordance with Section 10.6(d);
provided, however, that upon termination of the Participant's Service as a
Director prior to the Early Settlement Date, settlement shall be made as
provided in Section 10.6(d). Any "EARLY SETTLEMENT DATE" elected by the
Participant shall become irrevocable as provided in Section 10.3(b) and shall be
December 1 of the third Plan Year following the Plan Year of the Stock Units
Payment or December 1 of any subsequent Plan Year.

      10.3  TIME AND MANNER OF ELECTION.

            (a)   TIME OF ELECTION. Each Nonemployee Director shall make an
election pursuant to Section 10.2:

                  (i)   for the Initial Plan Year: prior to the earlier of (1)
the date thirty (30) days following the Effective Date or (2) the Section 10
Effective Date;

                  (ii)  for each subsequent Plan Year: prior to the first day of
such Plan Year; and

                  (iii) in the case of a newly appointed or elected Nonemployee
Director: on the date of such appointment or election for the remainder of the
Initial Plan Year or subsequent Plan Year of appointment or election, as the
case may be.

            (b)   ELECTION IRREVOCABLE. An election pursuant to Section 10.2
shall become irrevocable as of the commencement of the Plan Year or portion
thereof to which it applies.

            (c)   FAILURE TO TIMELY ELECT. Any Nonemployee Director who fails to
make an election in accordance with this Section for any Plan Year (or the
Initial Plan Year, as the case may be) shall be deemed to have elected pursuant
to Section 10.2 to receive Option Payments for fifty (50%) of the value of such
Participant's Director Fees earned during such Plan Year (or Initial Plan Year)
and to receive the balance of such Participant's Director Fees in cash in
accordance with the Company's normal Director Fee payment procedures.

            (d)   MANNER OF ELECTION. Each election in accordance with this
Section shall be made on a form prescribed by the Company for this purpose and
filed with the Chief Financial Officer of the Company.

      10.4  AUTOMATIC GRANT OF DIRECTOR FEE AWARDS. Subject to the provisions of
Sections 1.3, 3 and 5, effective as of the last day of each quarter during any
Plan Year (or the Initial Plan Year, as the case may be), each Nonemployee
Director shall be granted automatically

                                       20


and without further action of the Committee a Director Fee Award in lieu of that
portion of the Director Fees earned by the Participant during such quarter and
specified by the Participant's election under Section 10.2 for such Plan Year
(or Initial Plan Year) and any fractional share amount carried over from the
prior quarter as provided in Section 10.7 (the "QUARTERLY DIRECTOR FEES"). In
accordance with the Participant's election under Section 10.2 for the Plan Year
(or Initial Plan Year), the Director Fee Award shall be either in the form of an
Option Payment pursuant to Section 10.5 or a Stock Units Payment pursuant to
Section 10.6.

      10.5  OPTION PAYMENT. Each Option Payment shall be in the form of a
Nonemployee Director Option and shall be evidenced by an Award Agreement that
shall specify the exercise price, the duration of the Nonemployee Director
Option, the number of shares of Stock to which the Nonemployee Director Option
pertains, and such other provisions as the Committee shall determine. No such
Nonemployee Director Option or purported Nonemployee Director Option shall be a
valid and binding obligation of the Company unless evidenced by a fully executed
Award Agreement. Such Award Agreements may incorporate all or any of the terms
of the Plan by reference and shall comply with and be subject to the terms and
conditions of Section 6 to the extent not inconsistent with this Section and the
terms and conditions set forth in Sections 10.5(a) through 10.5(d) below:

            (a)   EXERCISE PRICE. The exercise price per share for each
Nonemployee Director Option shall be fifty percent (50%) of the average of the
Fair Market Values of a share of Stock for the ten (10) trading days preceding
the effective date of grant of the Nonemployee Director Option.

            (b)   NUMBER OF SHARES SUBJECT TO NONEMPLOYEE DIRECTOR OPTION. The
number of shares of Stock subject to a Nonemployee Director Option shall be
determined by the following formula (with any resulting fractional share being
disregarded):

                       X = A / (B x 50%)

            where,

                  "X" is the number of shares subject to the Nonemployee
                  Director Option;

                  "A" is the amount of Quarterly Director Fees in lieu of which
                  the Option Payment is made; and

                  "B" is the average of the Fair Market Values of a share of
                  Stock for the ten (10) trading days preceding the effective
                  date of grant of the Nonemployee Director Option.

            (c)   EXERCISE PERIOD. Each Nonemployee Director Option shall be
vested and exercisable on and after the date of grant of the Nonemployee
Director Option and shall terminate and cease to be exercisable on the date ten
(10) years after the date of grant of the Nonemployee Director Option, unless
earlier terminated pursuant to the terms of the Plan or the Award Agreement.

                                       21



      (d) EFFECT OF TERMINATION OF SERVICE.

            (i) NONEMPLOYEE DIRECTOR OPTION GRANT. No Participant shall be
granted a Nonemployee Director Option following the date on which such
Participant's Service as a Director terminates for any reason. All of such
Participant's Director Fees with respect to which Director Fee Awards have not
been granted prior to the Participant's termination of Service as a Director
shall be paid in cash in accordance with the Company's normal Director Fee
payment procedures.

            (ii) NONEMPLOYEE DIRECTOR OPTION EXERCISABILITY. Subject to earlier
termination as otherwise provided herein, a Nonemployee Director Option shall
remain exercisable after a Participant's termination of Service at any time
prior to the expiration of thirty-six (36) months after the date on which the
Participant's Service terminated, but in any event no later than the Option
Expiration Date.

            (iii) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of a Nonemployee Director Option within the
applicable time period set forth in Section 10.5(d)(ii) is prevented by the
provisions of Section 12.1 below, the Nonemployee Director Option shall remain
exercisable until thirty (30) days after the date the Participant is notified by
the Company that the Nonemployee Director Option is exercisable, but in any
event no later than the Option Expiration Date.

            (iv) EXTENSION IF PARTICIPANT SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time period set
forth in Section 10.5(d)(ii) of shares acquired upon the exercise of the
Nonemployee Director Option would subject the Participant to suit under Section
16(b) of the Exchange Act, the Option shall remain exercisable until the
earliest to occur of (i) the tenth (10th) day following the date on which a sale
of such shares by the Participant would no longer be subject to such suit, (ii)
the one hundred and ninetieth (190th) day after the Participant's termination of
Service, or (iii) the Option Expiration Date.

      10.6 STOCK UNITS PAYMENT. Each Stock Units Payment shall be evidenced by
an Award Agreement that shall specify the number of Stock Units to which such
agreement pertains, the form and time of settlement of such Stock Units and such
other provisions as the Committee shall determine. No such Stock Units Award or
purported Stock Units Award shall be a valid and binding obligation of the
Company unless evidenced by a fully executed Award Agreement. Such Award
Agreements may incorporate all or any of the terms of the Plan by reference and
shall comply with and be subject to the terms and conditions set forth in
Sections 10.6(a) through 10.6(f) below:

            (a)   PAYMENT. No additional cash consideration shall be required
upon settlement of a Stock Units Award.

            (b)   NUMBER OF STOCK UNITS SUBJECT TO STOCK UNITS AWARD. The number
of Stock Units subject to a Stock Units Award shall be determined by the
following formula (with any resulting fractional Stock Unit being disregarded):

                                       22


                  X = A / B

            where,

                  "X" is the number of Stock Units subject to the Stock Units
                  Award;

                  "A" is the amount of Quarterly Director Fees in lieu of which
                  the Stock Units Payment is made; and

                  "B" is the average of the Fair Market Values of a share of
                  Stock for the ten (10) trading days preceding the effective
                  date of grant of the Stock Units Award.

            (c)   VOTING AND DIVIDEND EQUIVALENT RIGHTS. Participants shall have
no voting rights with respect to shares of Stock represented by Stock Units
until the date of the issuance of a certificate for such shares (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). Prior to settlement of a Stock Units Award, such
Award shall include the right to Dividend Equivalents, pursuant to which the
Participant shall be credited with additional whole and/or fractional Stock
Units as of the record date of any payment of cash dividends with respect to the
Stock occurring prior to such settlement date. Such additional Stock Units shall
be subject to the same terms and conditions and shall be settled in the same
manner and at the same time as the Stock Units originally subject to the Stock
Units Award. The number of such whole and/or fractional Stock Units to be
credited with respect to any Stock Units Award on the record date of any cash
dividend paid on the Stock shall be determined by the following formula:

                  X = (A x B) / C

            where,

                  "X" is the number of whole and/or fractional Stock Units to be
                  credited with respect to the Stock Units Award;

                  "A" is the amount of cash dividends paid on one share of
                  Stock;

                  "B" is the number of whole and fractional Stock Units subject
                  to the Stock Units Award as of the cash dividend record date;
                  and

                  "C" is the Fair Market Value of a share of Stock on the cash
                  dividend record date.

            (d)   SETTLEMENT OF STOCK UNITS. Subject to the provisions of
Section 12.1 below, the Company shall issue to the Participant, within thirty
(30) days following the earlier of (i) the Early Settlement Date elected by the
Participant with respect to the Stock Units Award or (ii) the date of
termination of the Participant's Service as a Director, a number of whole shares
of Stock equal to the number of whole Stock Units subject to the Stock Units
Award. Such shares of Stock shall not be subject to any restriction on transfer
other than any such restriction as may

                                       23


be required pursuant to Section 12.1 or any applicable law, rule or regulation.
On the same settlement date, the Company shall pay to the Participant cash in
lieu of any fractional Stock Unit subject to the Stock Units Award in an amount
equal to the Fair Market Value on the settlement date of such fractional share
of Stock.

            (e)   EFFECT OF TERMINATION OF SERVICE. No Participant shall be
granted a Stock Units Award following the date on which such Participant's
Service as a Director terminates for any reason. All of such Participant's
Director Fees with respect to which Director Fee Awards have not been granted
prior to the Participant's termination of Service as a Director shall be paid in
cash in accordance with the Company's normal Director Fee payment procedures.

            (f) NONTRANSFERABILITY OF STOCK UNITS. Prior to their settlement
pursuant to Section 10.6(d), no Stock Units granted to a Participant shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant's beneficiary, except by will or by the laws of descent and
distribution.

      10.7 FRACTIONAL SHARES. No fractional shares of Stock shall be issued upon
the exercise of any Nonemployee Director Option or settlement of any Stock
Units. Any portion of a Participant's Quarterly Director Fees subject to the
Participant's election under Section 10.2 representing a fractional share amount
that would otherwise be paid in the form of an Option Payment or a Stock Units
Payment shall instead be carried over and combined with the Quarterly Director
Fees for the following quarter of the Plan Year (or Initial Plan year, as the
case may be) or the subsequent Plan Year. Any such fractional share amount
remaining upon termination of a Participant's Service as a Director shall be
paid to the Participant in cash, without interest.

                          SECTION 11. CHANGE IN CONTROL

      11.1 EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control of
the Company as defined in Section 11.3 below, the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "ACQUIRING CORPORATION"), shall either assume all outstanding Awards
or substitute new Awards having an equivalent value for such outstanding Awards.
In the event the Acquiring Corporation elects not to assume or substitute for
such outstanding Awards, and provided that the Participant's Service has not
terminated prior to the effective date of the Change in Control (unless, with
respect to Performance Shares or Performance Units, the Participant's Service
terminated by reason of the death, Disability or Retirement of the Participant),
all unexercisable, unvested or unpaid portions of such outstanding Awards shall
become immediately exercisable, immediately payable and vested in full
immediately prior to the effective date of the Change in Control. For purposes
of the preceding sentence:

            (a)   the value of Performance Shares and Performance Units shall be
determined and paid based upon the greater of (i) the extent to which the
applicable Performance Goals have been attained during the Performance Period up
to the effective date of the Change in Control or (ii) the pre-established 100%
of target level with respect to each Performance Target comprising the
applicable Performance Goals;

                                       24


            (b)   any outstanding Stock Units Award not assumed or substituted
for by the Acquiring Corporation shall be settled in accordance with Section
10.610.6(d) immediately prior to the effective date of the Change in Control;
and

            (c)   any Director Fees with respect to which the Company has not
made either an Option Payment or a Stock Units Payment pursuant to Section 10
prior to the effective date of the Change in Control shall be paid in cash
immediately prior to such effective date.

Any Options which are neither assumed or substituted for by the Acquiring
Corporation nor exercised as of the date of the Change in Control shall
terminate as of the effective date of the Change in Control.

      11.2 TERMINATION OF SERVICE AFTER A CHANGE IN CONTROL. The Committee may,
in its discretion, provide in any Award Agreement that if the Participant's
Service is terminated within twelve (12) months (or such other period specified
by the Committee) following a Change in Control by reason of (a) the involuntary
termination by the Participating Company Group of the Participant's Service for
any reason other than "Cause" (as such term is defined in the Award Agreement)
or the Participant's death or Disability, or (b) the Participant's resignation
for "Good Reason" (as such term is defined in the Award Agreement) from all
capacities in which the Participant is then rendering Service to the
Participating Company Group, then (i) the exercisability, vesting and payment of
the outstanding Award held by such Participant shall be accelerated effective as
of the date on which the Participant's Service terminated to such extent, if
any, as shall have been specified by the Committee and set forth in the Award
Agreement, and (ii) the outstanding Option held by such Participant, to the
extent unexercised and exercisable on the date on which the Participant's
Service terminated, may be exercised by the Participant (or the Participant's
guardian or legal representative) at any time prior to the expiration of six (6)
months (or such other period of time specified by the Committee) after the date
on which the Participant's Service terminated, but in any event no later than
the Option Expiration Date.

      11.3 DEFINITION. A "CHANGE IN CONTROL" shall be deemed to have occurred in
the event of:

            (a)   an acquisition, consolidation, or merger of the Company with
or into any other corporation or corporations, unless the stockholders of the
Company retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the surviving or acquiring corporation or
corporations; or

            (b)   the sale, exchange, or transfer of all or substantially all of
the assets of the Company to a transferee other than a corporation or
partnership controlled by the Company or the stockholders of the Company; or

            (c)   a transaction or series of related transactions in which stock
of the Company representing more than thirty percent (30%) of the outstanding
voting power of the Company is sold, exchanged, or transferred to any single
person or affiliated persons leading to a change of a majority of the members of
the Board.

                                       25


      The Board shall have final authority to determine whether multiple
transactions are related and the exact date on which a Change in Control has
been deemed to have occurred under subsections (a), (b), and (c) above.

                         SECTION 12. REQUIREMENTS OF LAW

      12.1 COMPLIANCE WITH SECURITIES LAW. The granting of Awards and the
issuance of shares of Stock pursuant to any Award shall be subject to compliance
with all applicable laws, rules, and regulations, and to such approvals by any
governmental agencies, securities exchanges or market systems as may be
required. In addition, no Option may be exercised unless (a) a registration
statement under the Securities Act shall at the time of exercise of the Option
be in effect with respect to the shares issuable upon exercise of the Option or
(b) in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the issuance of any Stock, the Company may require the Participant
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.

      12.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
California.

                           SECTION 13. TAX WITHHOLDING

      13.1 TAX WITHHOLDING IN GENERAL. The Company shall have the power to
withhold, or require a Participant to remit to the Company, an amount sufficient
to satisfy the Federal, state, local and foreign tax withholding obligations, if
any, of any Participating Company with respect to any Award. The Company shall
have no obligation to deliver shares of Stock or make any payment of cash under
the Plan until such tax withholding obligations have been satisfied.

      13.2 WITHHOLDING OF SHARES. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable to a Participant upon
the exercise or settlement of an Award, or to accept from the Participant the
tender of, a number of whole shares of Stock having a Fair Market Value, as
determined by the Company, equal to all or any part of the tax withholding
obligations of the Participating Company Group. The Fair Market Value of any
shares of Stock withheld or tendered to satisfy any such tax withholding
obligations shall not exceed the amount determined by the applicable minimum
statutory withholding rates.

                  SECTION 14. AMENDMENT AND TERMINATION OF PLAN

      14.1 AMENDMENT AND TERMINATION OF PLAN. The Committee at any time may
terminate, and from time to time, may amend, the Plan; provided, however, that
no such amendment may be made without approval of the stockholders of the
Company to the extent that the Committee deems such stockholder approval to be
necessary or advisable for compliance

                                       26


with applicable tax and securities laws or other regulatory requirements,
including the requirements of any stock exchange or market system on which the
Stock is then listed.

      14.2 EFFECT OF AMENDMENT OR TERMINATION. No termination or amendment of
the Plan shall affect any then outstanding Award unless expressly provided by
the Committee. In any event, no termination or amendment of the Plan shall in
any manner adversely affect any Award theretofore granted under the Plan,
without the consent of the Participant, unless such termination or amendment is
necessary to comply with any applicable law, regulation or rule.

                      SECTION 15. MISCELLANEOUS PROVISIONS

      15.1 BENEFICIARY DESIGNATION. Each Participant may name, from time to
time, any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case of such
Participant's death before he or she receives any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, shall be
in a form prescribed by the Company, and will be effective only when filed by
the Participant in writing with the Company during the Participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to his or her estate.

      15.2 RIGHTS AS AN EMPLOYEE OR DIRECTOR. No individual, even though
eligible pursuant to Section 3, shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
Nothing in the Plan or any Award granted under the Plan shall confer on any
Participant a right to remain an Employee or Director, or interfere with or
limit in any way the right of a Participating Company to terminate the
Participant's Service at any time.

      15.3 RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to any shares covered by an Award until the date of the
issuance of a certificate for such shares (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date such certificate is
issued, except as provided in Section 5.3 or another provision of the Plan.

      15.4 PROVISION OF INFORMATION. Each Participant shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.

      15.5 UNFUNDED OBLIGATION. Any amounts payable to Participants pursuant to
the Plan shall be unfunded obligations for all purposes, including, without
limitation, Title I of the Employee Retirement Income Security Act of 1974. No
Participating Company shall be required to segregate any monies from its general
funds, or to create any trusts, or establish any special accounts with respect
to such obligations. The Company shall retain at all times beneficial ownership
of any investments, including trust investments, which the Company may make to
fulfill its payment obligations hereunder. Any investments or the creation or
maintenance of any trust or any Participant account shall not create or
constitute a trust or fiduciary relationship between the Committee or any
Participating Company and a Participant, or otherwise create any vested or
beneficial interest in any Participant or the Participant's creditors in any
assets of any

                                       27


Participating Company. The Participants shall have no claim against any
Participating Company for any changes in the value of any assets which may be
invested or reinvested by the Company with respect to the Plan.

      15.6 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Committee or officers or employees of the
Participating Company Group, members of the Committee and any officers or
employees of the Participating Company Group to whom authority to act for the
Committee or the Company is delegated shall be indemnified by the Company
against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.

      IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing sets forth the Granite Construction Incorporated Amended and
Restated 1999 Equity Incentive Plan as duly adopted by the Board on March 11,
2004, to be effective as of May 24, 2004, the date of approval by the
stockholders of the Company.

                                      GRANITE CONSTRUCTION INCORPORATED

                                      /s/ Michael Futch
                                      -----------------------------------------
                                      Michael Futch, Secretary

                                       28

EX-31.1

                                                                    Exhibit 31.1

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, William G. Dorey, Chief Executive Officer, certify that:

      1. I have reviewed this report on Form 10-Q of Granite Construction
      Incorporated;

      2. Based on my knowledge, this report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this report;

      3. Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations, and cash flows of
      the registrant as of, and for, the periods presented in this report;

      4. The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

            b) Evaluated the effectiveness of the registrant's disclosure
            controls and procedures and presented in this report our conclusions
            about the effectiveness of the disclosure controls and procedures,
            as of the end of the period covered by this report based on such
            evaluation; and

            c) Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

      5. The registrant's other certifying officer and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of
      registrant's board of directors:

            a) All significant deficiencies and material weaknesses in the
            design or operation of internal control over financial reporting
            which are reasonably likely to adversely affect the registrant's
            ability to record, process, summarize and report financial
            information; and



            b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls over financial reporting.

Dated: August 6, 2004                      /s/ William G. Dorey
                                          -------------------------
                                          William G. Dorey
                                          President and Chief Executive Officer

EX-31.2

                                                                    Exhibit 31.2

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, William E. Barton, Senior Vice President and Chief Financial Officer, certify
that:

      1. I have reviewed this report on Form 10-Q of Granite Construction
      Incorporated;

      2. Based on my knowledge, this report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this report;

      3. Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations, and cash flows of
      the registrant as of, and for, the periods presented in this report;

      4. The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

            b) Evaluated the effectiveness of the registrant's disclosure
            controls and procedures and presented in this report our conclusions
            about the effectiveness of the disclosure controls and procedures,
            as of the end of the period covered by this report based on such
            evaluation; and

            c) Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

      5. The registrant's other certifying officer and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of
      registrant's board of directors:

            a) All significant deficiencies and material weaknesses in the
            design or operation of internal control over financial reporting
            which are reasonably likely to adversely affect the registrant's
            ability to record, process, summarize and report financial
            information; and


            b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls over financial reporting.

Dated: August 6, 2004                              /s/ William E. Barton
                                                 -------------------------------
                                                 William E. Barton
                                                 Senior Vice President
                                                 and Chief Financial Officer

EX-32.1

                                                                    Exhibit 32.1

              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the
undersigned officer of Granite Construction Incorporated (the "Company") does
hereby certify to such officer's knowledge that:

      The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 of
the Company fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, and that the information contained in the
Form 10-Q fairly presents in all material respects the financial condition and
results of operations of the Company.

Dated: August 6, 2004                         /s/ William G. Dorey
                                           ----------------------------------
                                           William G. Dorey
                                           President and Chief Executive Officer

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Granite Construction Incorporated
and will be retained by Granite Construction Incorporated and furnished to the
Securities and Exchange Commission or its staff upon request.

EX-32.2

                                                                    Exhibit 32.2

              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the
undersigned officer of Granite Construction Incorporated (the "Company") does
hereby certify to such officer's knowledge that:

      The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 of
the Company fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, and that the information contained in the
Form 10-Q fairly presents in all material respects the financial condition and
results of operations of the Company.

Dated: August 6, 2004                             /s/ William E. Barton
                                               ---------------------------------
                                               William E. Barton
                                               Senior Vice President
                                               and Chief Financial Officer

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Granite Construction Incorporated
and will be retained by Granite Construction Incorporated and furnished to the
Securities and Exchange Commission or its staff upon request.