In re Willbros Group, Inc. Securities Litigation 14-CV-03084-Second Amended Consolidated Class

Case 4:14-cv-03084 Document 43 Filed in TXSD on 06/15/15 Page 1 of 204

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

In re WILLBROS GROUP, INC. SECURITIES LITIGATION

This Document Relates To:

ALL ACTIONS.

WAYNE COUNTY EMPLOYEES’ RETIREMENT SYSTEM and CITY OF ROSEVILLE EMPLOYEE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated,

Lead Plaintiffs,

vs.

WILLBROS GROUP, INC., RANDY R. HARL, VAN A. WELCH and JOHN T. MCNABB, II,

Defendants.

Master File No. 4:14-cv-03084-KPE

CLASS ACTION

DEMAND FOR JURY TRIAL

SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

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TABLE OF CONTENTS

Page

I. NATURE OF CLAIMS AND SOURCES OF ALLEGATIONS........................................1

II. JURISDICTION & VENUE ................................................................................................2

III. CLASS ACTION ALLEGATIONS ....................................................................................2

IV. PARTIES .............................................................................................................................5

V. INTRODUCTION ...............................................................................................................7

VI. FACTUAL BACKGROUND AND OVERVIEW OF THE FRAUD ..............................13

A. Description of WG’s Business and Operations .....................................................13

1. WG’s Core Business Is the Construction of Oil & Gas Pipelines .............14

2. WG Runs Its Business on Borrowed Funds ...............................................17

B. WG Falsely Claims It Has Fixed the Control Weaknesses that Led to a 2013 Business Decline ...........................................................................................21

1. WG Assures Investors that It Has Significantly Strengthened Its InternalControls ........................................................................................22

2. WG Failed to Maintain Effective Controls over Its Reported Revenues and Profits from Oil & Gas Pipeline Projects or Its Compliance with Its Debt Covenants During the Class Period .................24

3. The New Controls Were Still Being Developed and Had Not Been Implemented as Broadly or Consistently as WG Claimed at the Outset of the Class Period ..........................................................................26

4. WG Has Admitted that It Had Undisclosed Material Weaknesses in Its Controls During the Class Period .....................................................29

a. Internal Control Weaknesses in the Oil & Gas Segment ...............30

b. Internal Control Weaknesses Regarding Debt Covenants, Working Capital and Liquidity ......................................................33

C. WG Overstates Profits from Two of Its Largest and Most Significant Pipeline Projects During the Class Period .............................................................37

1. The Seaway Crude Oil Pipeline Project .....................................................38

2. WG Investigates Its Oil & Gas Operations ................................................42

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Page

3. The Allegheny Access Project ...................................................................43

a. WG Knew that Proper Controls Were Not Being Used by the Allegheny Access Project’s Management ................................46

b. From the Outset, the Allegheny Access Project Was Behind Budget and Losing Money .............................................................47

D. As the Company’s Financial Problems Mount, WG Fires CEO Harl and President Collins While Concealing the Reasons for Their Departures ................51

E. WG Restates Its 1Q14 and 2Q14 Oil & Gas Pipeline Profits ................................54

F. WG Falsely Claims that It Had Restructured Its Oil & Gas Business in a Manner that Had Corrected Its Control Problems and Restored Its Profitability............................................................................................................59

G. WG’s Repeated Debt Covenant Violations ...........................................................66

VII. FRAUDULENT STATEMENTS AND OMISSIONS DURING THE CLASS PERIOD.............................................................................................................................76

A. FY13 Earnings Release, Conference Call and 10-K Report ..................................78

1. Misrepresentations and Omissions ............................................................78

2. Reasons Why False or Misleading .............................................................82

3. Facts Supporting a Strong Inference of Scienter .......................................85

B. 1Q14 Earnings Release and Conference Call ........................................................87


2. Reasons Why False or Misleading .............................................................91

3. Facts Supporting a Strong Inference of Scienter .......................................95

C. 2Q14 Earnings Release and Conference Call ........................................................98


2. Reasons Why False or Misleading ...........................................................102

3. Facts Supporting a Strong Inference of Scienter .....................................106

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Page

D. September 4, 2014 Press Release and September 9, 2014 Investor Presentation..........................................................................................................110

1. Misrepresentations and Omissions ..........................................................110

2. Reasons Why False or Misleading ...........................................................112


E. November 20, 2014 Three Part Advisors LLC Southwest IDEAS Investor Conference...........................................................................................................117


2. Reasons Why False and Misleading ........................................................121


F. December 15, 2014 Press Releases, December 16, 2014 Conference Call, and January 6, 2015 Press Release ......................................................................123


2. Reasons Why False and Misleading ........................................................126


G. Sarbanes-Oxley Certifications .............................................................................128

1. 1Q14 and 2Q14 Reports on Form 10-Q ...................................................129

2. 1Q14 and 2Q14 Reports on Form 10-Q/A and 3Q14 Report on Form10-Q ................................................................................................133

VIII. ADDITIONAL GAAP ALLEGATIONS ........................................................................134

A. False Financial Statements ...................................................................................134

B. Material Weaknesses in Internal Controls ...........................................................142

C. Other GAAP Violations .......................................................................................149

IX. ADDITIONAL ALLEGATIONS OF RELIANCE, MATERIALITY, LOSS CAUSATION& DAMAGES..........................................................................................150

A. Presumption of Reliance (Fraud on the Market Allegations) ..............................150

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Page

B. Theory of Loss Causation & Damages ................................................................151

1. February 27-28, 2014 Inflationary Event .................................................153

2. May 5-6, 2014 Inflationary Event ............................................................154

3. August 5-6, 2014 Corrective and Inflationary Event ...............................155

4. October 21-22, 2014 Corrective Event ....................................................156

5. December 15-16, 2014 Inflationary Event ...............................................158

6. March 17-18, 2015 Corrective Event.......................................................159

7. Subsequent Price Declines and Other Corrective Events ........................161

X. ADDITIONAL ALLEGATIONS REGARDING MOTIVATION AND CONTROL.......................................................................................................................162

XI. CLAIMS FOR RELIEF ...................................................................................................168

XII. PRAYER FOR RELIEF ..................................................................................................172

XIII. JURY DEMAND .............................................................................................................173

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I. NATURE OF CLAIMS AND SOURCES OF ALLEGATIONS

1. Lead Plaintiffs Wayne County Employees’ Retirement System (“WCERS”) and City

of Roseville Employee Retirement System (“CRERS”) (collectively, “Lead Plaintiffs”) bring this

securities class action on behalf of the class of persons defined in ¶8 below (the “Class”) who

purchased the publicly-traded securities of Willbros Group, Inc. (“WG” or the “Company”) between

February 28, 2014 and March 17, 2015 (the “Class Period”) for violations of §§10(b) and 20(a) of

the Securities Exchange Act of 1934 (the “Exchange Act”) and U.S. Securities and Exchange

Commission (“SEC”) Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5. These violations

were committed during the Class Period by WG and certain of its officers and directors during the

Class Period: CEO (until October 21, 2014) Robert R. (Randy) Harl, CFO Van A. Welch, and

Chairman, Executive Chairman and (after August 29, 2014) CEO John T. McNabb, II. 1

2. The claims alleged herein are based upon materially false and misleading statements

and omissions made by WG, Harl, Welch and McNabb in WG’s press releases, SEC filings, and

investor conference calls and presentations during the Class Period, as identified below and

summarized in the chart attached as Exhibit 2 hereto.

3. Lead Plaintiffs’ allegations are based upon the investigation of Lead Plaintiffs’

counsel, including information contained in WG’s SEC filings and other regulatory filings and

reports, securities analysts’ reports and advisories about the Company, press releases, conference call

transcripts, investor presentations, and other public statements issued by the Company, including

information posted in the Investor Relations section of WG’s corporate website, reports of KeyBanc,

D.A. Davidson, Credit Suisse, UBS and other Wall Street analysts, media reports about the

Company, and other sources of publicly-available information about the Company or its operations.

1 Harl, Welch and McNabb are collectively referred to herein as the “Individual Defendants.”

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4. The allegations are also based upon information obtained by Lead Counsel or

investigators working on their behalf through interviews with certain former employees of WG. To

protect these witnesses from possible inconvenience, embarrassment, retaliation, intimidation, or

diminished employment prospects should their identities become known to defendants or the general

public, they are referred to herein as “Confidential Witnesses” or “CWs.” 2

II. JURISDICTION & VENUE

5. Jurisdiction is conferred by §27 of the Exchange Act, 15 U.S.C. §78aa. The claims

asserted herein arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §78j(b) and 78t(a), and

SEC Rule 10b-5, 17 C.F.R. §240.10b-5.

6. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C.

§1391(b). WG’s corporate headquarters are located in Houston, where the day-to-day operations of

the Company are directed and managed. Many of the false and misleading statements were made in

or issued from this District and many of the acts and practices complained of herein occurred or were

directed in substantial part in this District.

7. In connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to,

the mails, the internet, interstate telephone communications and the facilities of the national

securities markets.

III. CLASS ACTION ALLEGATIONS

8. Lead Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired WG’s

publicly-traded securities during the Class Period. Excluded from the Class are defendants and all

2 To protect their identities, all of the CWs are referred to herein using the pronouns “he” or “him,” regardless of their gender.

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other persons who served as executive officers or directors of the Company during the Class Period,

and all members of their immediate families, their legal representatives, their heirs, successors and

assigns, and any entity in which any of them have or had a controlling interest.

9. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits to

the parties and the Court. By the outset of the Class Period, WG had issued more than 49 million

shares of common stock owned by tens or hundreds of thousands of persons.

10. WG’s stock was publicly traded on the New York Stock Exchange (“NYSE”) under

the ticker symbol “WG.” During 2014, the average daily volume of all trades in WG’s stock on the

NYSE was 397,877 shares.

11. The market for WG securities is efficient, as alleged in §IX(A) below. Material

information regarding the Company that is broadly and credibly disseminated to the market is

incorporated into and reflected by the market price for WG securities.

12. Each of the misrepresentations and omissions alleged herein impacted the public

trading price of WG’s common stock by causing the price to increase or by maintaining the price at a

level higher than it would have traded at had information sufficient to correct the misleading

information been communicated with sufficient force and credibility to the market to affect the price.

The misrepresentations and omissions alleged herein impacted WG’s stock price by raising the

market price for WG’s stock, and/or by preventing, limiting the extent of, or delaying a decline in

the stock price.

13. Investors who purchased WG securities at the prices prevailing in the public market

during the Class Period presumptively did so in reliance upon each of the false and misleading

statements and omissions alleged herein.

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14. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) Whether the Exchange Act was violated by defendants;

(b) Whether defendants made false or misleading statements or misrepresented or omitted material facts;

(c) Whether defendants’ statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading;

(d) Whether defendants knew or deliberately disregarded that their statements were false and misleading, or acted with severe recklessness to the false and misleading character of the misrepresentations and omissions alleged herein;

(e) Whether and to what extent the price of WG securities was impacted by the alleged misrepresentations and omissions; and

(f) The extent of damage sustained by Class members and the appropriate measure of damages.

15. Lead Plaintiffs’ claims are typical of those of the Class because each sustained

damages from defendants’ wrongful conduct in the same manner as the Class by acquiring WG

securities at prevailing market prices in presumptive reliance on misleading statements and

omissions made by WG and its representatives, including the Individual Defendants.

16. Lead Plaintiffs will adequately protect the interests of the Class and has retained

counsel who are experienced in class action securities litigation to prosecute this action on behalf of

the Class.

17. Lead Plaintiffs do not have any interests which conflict with those of the Class.

18. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

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IV. PARTIES

19. Lead Plaintiff WCERS purchased 8,100 shares of WG common stock during the

Class Period as set forth in the certification attached hereto as Exhibit 1-A. WCERS is a public

employee retirement system that provides retirement and related benefits for approximately 10,000

active and retired employees of Wayne County, Michigan. As of September 30, 2013, WCERS had

assets in excess of $1 billion in net assets under management for the benefit of its participants.

20. Lead Plaintiff CRERS purchased 5,600 shares of WG common stock during the Class

Period as set forth in the certification attached hereto as Exhibit 1-B. CRERS is a public employee

retirement system that provides retirement and related benefits for employees of the City of

Roseville, Michigan and has more than 200 active participants and over 350 retirees and

beneficiaries. As of June 30, 2013, CRERS had more than $120 million in net assets under

management for the benefit of its participants.

21. Defendant WG is a Delaware corporation headquartered in Houston, Texas that

describes itself as “a specialty energy infrastructure contractor serving the oil, gas, refinery,

petrochemical and power industries.” The Company regularly communicated with investors through

periodic filings with the SEC and in press releases, conference calls, and investor and analyst

presentations. The Company has established and regularly publicizes the availability of a website at

www.willbros.com, on which it maintains an Investor Relations section where SEC filings, press

releases, conference call recordings, investor presentations, financial statements and information,

corporate governance policies, descriptions of its business, and other information about the

Company is made available to investors.

22. Defendant Harl was WG’s CEO and a director of the Company until October 21,

2014. Harl also served as WG’s President through June 30, 2014, when he was replaced by Earl R.

Collins. While he was the Company’s CEO, Harl had a duty to authorize or approve the

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information, and was regularly quoted in, WG’s press releases, regularly spoke on WG’s quarterly

conference calls to discuss financial results with Wall Street analysts and investors, regularly made

live presentations at analyst-sponsored investor conferences, and signed or authorized all of WG’s

reports filed with the SEC. Harl joined WG in 2006 after a 30-year career at Kellogg, Brown &

Root (“KBR”), and was appointed its CEO in 2007. Harl relinquished his duties as CEO on or

before August 29, 2014, resigned from or was fired by WG on or before October 21, 2014, and left

the Company on January 2, 2015. Plaintiffs do not seek to hold Harl individually liable for

misrepresentations made by or on behalf of WG after October 21, 2014, other than with respect to

misrepresentations he personally made or authorized after that date.

23. Defendant Welch is WG’s CFO, and held that position throughout the Class Period.

Welch had a duty to authorize and approve the information in WG’s press releases, regularly spoke

on WG’s quarterly conference calls to discuss financial results with Wall Street analysts and

investors, made live presentations at analyst-sponsored investor conferences, and signed or

authorized all of WG’s reports filed with the SEC. Welch joined WG in 2006 from KBR where,

according to WG’s 2013 Report on Form 10-K, he had over 30 years’ experience in project controls,

administrative and finance positions. He is a Certified Public Accountant, with an active license in

the State of Texas.

24. John T. McNabb, II was elected to WG’s Board of Directors in August 2006 and has

served as its Chairman since September 2007, including throughout the Class Period. He took over

day-to-day operations of WG from Harl and assumed his duties as the CEO on or before August 29,

2014, when he became WG’s Executive Chairman. The Company did not announce that McNabb

was acting as its CEO until October 21, 2014, when it formerly removed Harl as CEO. During the

Class Period, McNabb was quoted in and, after he became Executive Chairman, had a duty to

authorize and approve WG’s press releases, spoke on WG’s quarterly conference calls to discuss

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financial results with Wall Street analysts and investors, made live presentations at analyst-

sponsored investor conferences, and signed reports filed with the SEC. McNabb is an investment

banker who was the Vice Chairman, Corporate Finance of Duff & Phelps Securities LLC during the

Class Period, the founder and Chairman of Growth Capital Partners, LP, and a director of Premier

Natural Resources LLC, Continental Resources, Inc., and other companies. Plaintiffs do not seek to

hold McNabb individually liable for misrepresentations made by WG, Harl or Welch prior to the

date he first accepted or exercised day-to-day responsibility for WG’s operations, other than with

respect to misrepresentations he personally made or authorized.

V. INTRODUCTION

25. WG is a Houston-based construction and engineering firm that builds pipelines and

other projects for the oil and gas industry. WG’s construction activities are concentrated in its Oil &

Gas segment.

26. In 2013, the Company suffered a series of setbacks that it attributed to inadequate

oversight of construction projects in that segment. As a result of these setbacks, in August 2013 the

Company renegotiated borrowing agreements to obtain relief from the debt covenants restricting the

amount of its leverage and requiring its EBITDA (earnings before interest, taxes, deductions, and

amortization) to be maintained at certain levels in relation to its debt.

27. At the outset of 2014, Harl and other executives told investors that WG had

significantly strengthened its internal controls by implementing new company-wide policies and

procedures, improving back-office systems to provide management with more project oversight, and

bringing in more experienced managers to run the Oil & Gas business.

28. On February 28, 2014, the first day of the Class Period, WG reported its FY13

results, which showed a return to profitability of the Oil & Gas segment, which defendants attributed

to the strengthened controls. On May 5, 2014, the Company reported its 1Q14 results, attributing

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weak sales to weather-related project delays and again telling investors that its strengthened controls

were contributing to improved results.

29. In fact, WG had not improved its controls in the manner investors were led to believe.

At the outset of the Class Period, WG was still designing and had not yet implemented the new

controls. The weak controls led WG to overstate its revenues, understate its expenses and overstate

its profits from two of its largest on-going construction projects during the Class Period: a contract to

build a 117-mile section of the new Seaway 30” crude oil pipeline in Oklahoma, and a contract to

build 160 miles of the Allegheny Access 12” refined oil products pipeline in Ohio and Pennsylvania.

30. By the time it reported its 1Q14 financial results, WG had suffered, but failed to

report, significant losses on both projects. But defendants said on the earnings call that both projects

were going very well. The unreported losses caused WG to violate the debt covenants in its

borrowing agreements, a breach that was hidden from both its lenders and investors by the inflated

revenue and profitability report.

31. On August 4, 2014, the Company reported its 2Q14 results, belatedly reporting the

majority of the losses on the Seaway project, leading to lower-than-expected profits in the business.

On this news, WG’s stock price fell by 9.1%. However, defendants assured investors on the

quarterly earnings conference call that the losses on that project were not an indication of systemic

problems in the business. Defendants claimed the Company had investigated and fixed the problems

that led to the losses, reviewed its other ongoing projects, and determined that the problems that led

to the Seaway losses were unique to that project. Defendants did not reveal that the Seaway losses

had actually been suffered in 1Q14, and should have been reported months earlier. Nor did

defendants reveal that, at the time WG announced the losses from that project, the Company had also

suffered – but not yet reported – significant losses on the Allegheny Access project.

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32. The losses from both projects were well-known internally long before they were

publicly reported. The losses on the Seaway project arose from the need to repair construction

defects that were detected beginning in January 2014, when the line was first pigged. The losses on

the Allegheny Access project stemmed from massive cost overruns that were incurred starting in

January 2014. The problems on both projects were open and obvious, were known to senior

managers and executives in WG’s business, and either were known to the Individual Defendants, or

would have been known to them had WG’s improved controls actually been developed,

implemented and used in the manner they had claimed.

33. By July 2014, senior executives were reviewing all aspects of WG’s Oil & Gas

segment, including the excessive operating costs in the regional business and the significant losses

resulting from ineffective controls over its construction projects. By September 2014, or earlier,

management had determined that the regional business could not be fixed and were making plans to

exit or restructure the business. At the same time, senior executives at the Company were engaged

in an intense investigation into the losses on the Allegheny Access project.

34. As a result of the extensive problems in the Oil & Gas segment, Harl was forced to

relinquish his duties as CEO at the end of August, 2014, and the Company had backed off of its

plans to appoint Earl Collins, the recently-named President of WG, as his successor. On September

4, WG announced that Harl would voluntarily “retire” on January 2, 2015, but failed to reveal that he

had in fact been fired, or to alert investors to the significant problems and risks then facing the

business. At a September 9 investor conference, McNabb claimed Harl’s departure had been

expected and was nothing out of the ordinary, then falsely assured investors that the Company’s

controls were improved and its business on track with earlier projections.

35. On October 21, 2014, WG announced that it was delaying release of its 3Q14 results

and would need to restate its 2Q14 results to account for the losses from the Allegheny Access

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project that should have been reported that quarter. WG said that it was investigating its prior

financials to determine the full scope of the restatement, announced that its CEO, Harl, had moved

up his “retirement” date, and said that, as a result of the conditions in its Oil & Gas business, the

Company would need to sell off assets to reduce its debt and undertake a significant restructuring

that would lower its annual revenue stream by 20%. On this news, WG’s stock dropped by 35.9%.

McNabb falsely told investors on a conference call the next day that, despite the losses, WG was not

in violation of the debt covenants in its borrowing agreements. Weeks later, the Company

renegotiated its borrowing agreements to obtain a waiver of its covenant violations, and to relax the

covenants going forward.

36. On December 15, 2014, the Company restated its 1Q14 and 2Q14 results, issued its

3Q14 results, announced that it had refinanced and increased the amount of its term loan to

$270 million and obtained covenant relief under both that and its $150 million revolver, and revealed

details of its business restructuring plans that it claimed was underway. WG restated its 1Q14 results

to move the majority of the Seaway and some of the Allegheny Access losses to that quarter,

reducing its earnings by more than $18 million, resulting in a negative swing of $0.38 in EPS that

turned its reported $11 million operating profit into a $7 million loss for the quarter. WG restated its

2Q14 results to report the majority of the Allegheny Access and some of the Seaway losses, reducing

its quarterly earnings by nearly $12 million and turning its reported $0.14/share earnings from

continuing operations into an EPS loss of $0.10, a negative swing of $0.24 from the results it had

originally reported. The restatement in both quarters also included adjustments to reported revenues,

expenses and earnings from other projects that had not been properly or timely reported by the

Company.

37. WG admitted in its restatement that it had material weaknesses in its internal controls

over the reporting of revenues, costs and profits from its ongoing pipeline construction projects. WG

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admitted that contemporaneous internal information revealed the losses on the Seaway, Allegheny

Access and other projects at the time they had occurred. WG claimed that the information had been

overlooked because it lacked the proper systems to check the progress and results of those projects to

assure that information about them was being accurately reported. On the quarterly earnings

conference call on December 16, 2014, WG’s management acknowledged that it was apparent that

the Company’s Oil & Gas business was missing the type of controls needed to assure accurate

financial reports, claimed employees were not following required procedures, and said it was

implementing new training programs to remediate the weaknesses. WG and McNabb said that there

were no other control weaknesses in the business.

38. With the restatement completed, its debt refinanced, and its loan covenants relaxed,

WG told investors that its restructuring plans to create a smaller, less risky business were well

underway. In truth, however, WG did not have the ability to execute those plans without violating

its new, and less stringent, debt covenants. WG has since admitted that it had ignored information

about its historical results, the economic conditions it was facing, and current business conditions in

determining how much money it would need to borrow to run its business, and whether it could

generate sufficient cash flow to do so without violating its new debt covenants. WG has said it was

unable to comply with the new debt covenants because: (i) the regional offices in its Oil & Gas

segment were losing money due to high fixed costs and ineffective project management controls;

(ii) customers worried about WG’s financial problems were unwilling to hire it for their construction

projects; and (iii) falling oil prices had lowered demand for oil- and gas- construction services. All

of these risks had manifested by 4Q14. McNabb specifically denied at the November conference

and on the December call that customer concerns over the restatement and falling oil prices were

creating risks to WG’s business. After the Class Period ended, WG said its lack of effective internal

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controls had caused it to ignore internal information at the end of FY14 that showed it had

insufficient liquidity to fund its restructuring plans or comply with its new debt covenants.

39. On March 17, 2015, the last day of the Class Period, WG announced that it could not

fund its restructuring plans without violating its debt covenants, alerted investors that its 4Q14

results would be worse than forecast and its FY15 guidance would be reduced, and said it was

delaying issuance of its FY14 Report on Form 10-K. The Company warned that if lenders refused to

renegotiate the borrowing agreements its outstanding debt would become due within 12 months,

causing significant doubt over its ability to remain in business. On this news, WG’s stock price

collapsed, falling to an all-time low of $1.50 per share before closing at $2.69, a one day loss of

more than 50% in value.

40. On March 31, 2015, WG announced that it had again renegotiated its borrowing

agreements to waive violations of its debt covenants and excuse it from having to comply with those

covenants for the next year. To obtain this relief, WG paid substantial penalties, agreed to additional

restrictions on the operation of its business, and issued 10.1 million shares of stock to its lenders –

the maximum amount it could issue without triggering a shareholder vote. The Company announced

that it was exiting the regional business in its Oil & Gas segment, admitting that its regional offices

had been unprofitable, poorly managed, and lacking in proper controls for more than four years and,

as a result, had been continually at risk of one bad project wiping out the offices’ entire annual

profit.

41. Defendants’ misrepresentations and material omissions about WG’s financial results

and the existence and extent of the risks to its business inflated the price of WG’s common stock, or

prevented price declines that maintained WG’s share price at a level higher than it would have traded

at had accurate and complete information about its financial results, condition and prospects been

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timely revealed. Class members suffered significant economic losses when the true condition of the

Company was revealed, as illustrated by the chart below:

Wilibros Group

$14

$12

$10

$8

$6

$4

2127114-WG reports FYI results; Claims better controls returned ci & Gas segment to

5I5f14-WGreports 1 Q results, Conceals project problems and losses from faulty controls

10121/14-WG announces need to restate and restructure business due to control

3117/15 - WG issues gorg concern

reports 2014

weaa,esse, delays 30 report

covenants and fund restructuring plans 814114-WG

results,

/

waning over inability to meet debt

Seaway losses; Claims ro sstemc control problems

1211 5/14 - WG cesreatemenl, renegotiates I debt, and details I restructuring plans

.\ I, t .L

Class Period: February 28, 2014 - March 17, 2015 1

$2 i: I II II I I

0110212014 04/2312014 0811112014 1112612014 03/1912015

0212712014 06117/2014 1010312014 01/2312015

VI. FACTUAL BACKGROUND AND OVERVIEW OF THE FRAUD

A. Description of WG’s Business and Operations

42. In its 2013 Report on Form 10-K issued at the outset of the Class Period, WG

described itself as “a specialty energy infrastructure contractor serving the oil, gas, refinery,

petrochemical and power industries.” WG claimed in the report that its “long experience and

expertise in the planning and execution of projects differentiates us from our competitors and

provides us with competitive advantages in the markets we serve.”

43. During the Class Period, WG was organized into four segments: Oil & Gas,

Professional Services, Utility Transmission & Distribution, and Canada. WG’s pipeline construction

business was concentrated in its Oil & Gas segment. The Oil & Gas segment was organized into two

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primary businesses: its U.S. Construction arm focused on the construction of large diameter, long-

distance cross country pipelines, and its regional business, focused on midstream pipeline projects

for the regional delivery of oil and natural gas products, including shale oil and gas. The regional

business was comprised of companies WG had acquired as part of WG’s 2010 acquisition of

InfrastruX Group, Inc., and included offices in Texas, Louisiana, Oklahoma, Colorado, Wyoming,

North Dakota, Ohio, and Pennsylvania.

44. WG’s 2013 10-K stated that each of the Company’s segments

is managed as an operation with well established strategic directions and performance requirements. Management evaluates the performance of each operating segment based on operating income, strategic execution, cash management and various other measures. To support our segments we have a focused corporate operation led by our executive management team, which, in addition to oversight and leadership, provides general, administrative and financing functions for the organization.

45. At the outset of the Class Period, Collins was the President of the Oil & Gas segment.

On May 19, 2014, Collins was appointed president of WG, taking that role over from Harl, who

remained the Company’s CEO. Steven M. “Mike” Futch was appointed as the new President of the

Oil & Gas segment. WG announced other management changes at the same time, including the

appointment of Michael J. Fournier as WG’s new COO, replacing James L. Gibson, who continued

in his role as an executive vice president with responsibility over WG’s project control programs.

WG’s press release announcing the management changes stated they would all become effective as

of July 1, 2014.

1. WG’s Core Business Is the Construction of Oil & Gas Pipelines

46. Throughout its 106-year history, WG’s core business has been the construction of oil

and gas pipelines. As of the end of 2013, the Oil & Gas segment accounted for approximately 40%

of WG’s revenues and 42.5% of its employees. On a May 6, 2014 conference call with investors,

Harl said that 75% of the Oil & Gas segment’s revenue came from pipeline projects. At an - 14 -

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August 14, 2014 investor presentation Welch similarly said that 70% of the revenues in the Oil &

Gas segment are associated with pipeline construction, including both large-diameter long-haul

(“cross-country”) pipeline projects and smaller regional pipelines. The remainder of the segment’s

revenues also come primarily from pipeline-related facilities, such as pumping or compressing

stations and storage facilities.

47. Though WG had built a reputation for constructing large pipelines ( e.g. , “Willbros

focuses mainly on large diameter (24”+) pipeline,” as UBS described in a March 6, 2013 report), in

the year before the Class Period the Company had come to depend more on projects building smaller

pipes. On its March 7, 2013 earnings call, Harl noted that, with smaller pipelines, “it takes a lot

more of that to make the same revenue” and that competition for work was stiffer because “[t]here

are a lot more players in the smaller pipe market.” As Harl explained during the August 27, 2013

Midwest IDEAS Investor Conference: “When you get away from the very large projects, you have

to be local to participate.” WG was relying on its regional pipeline business to “be local” on those

projects.

48. Prior to and during the Class Period, WG told investors that it had significantly

improved its systems and management, and the Company now had the expertise to handle larger

local projects, in the tens of millions of dollars, where it could obtain better margins and had a

competitive advantage over smaller companies based in the locations where the work would be

performed. During a December 12, 2013 Capital One Southcoast December Energy Conference, for

example, Harl explained: “So our shift has been to not do so much of the small stuff, rationalize our

costs in those regional offices and bid on fewer things but on higher value things. [And w]e’ve been

pretty successful this year in winning work and getting visibility out there in the future on the larger

pipeline sizes.”

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49. On the FY13 earnings call at the outset of the Class Period, and at other conferences

thereafter, WG said that the control improvements would have the greatest impact in its regional

business, and were expected to boost annual revenues by $40 million or more.

50. On September 9, 2014, McNabb described the same strategy when he spoke at the

D.A. Davidson Engineering & Construction Conference:

So, what we decided to do here, in this business segment, in the drivers, is turn our business back into what we ought to be doing, and that’s projects. Because I do not want to compete with Old Bill and Mabel on a trailer with a backhoe. That’s not what we want to be doing. So, this is an interesting business. It’s a big turnaround for us right now, after having really gone out in a big way into the regions. And we haven’t performed very well, and that’s going to change. And it’s changing this year, with the performances really improving. We’re going to have a $40 million improvement in operating margin this year and operating operations.

51. WG obtained its pipeline construction contracts through a competitive bidding

process. In its 2013 10-K, the Company stated that it had sophisticated systems in place to evaluate

bid opportunities, and to track actual project performance against the assumptions underlying its bid:

In evaluating bid opportunities, we consider such factors as the clients and their geographic location, the difficulty of the work, current and projected workload, the likelihood of additional work, the project’s cost and profitability estimates, and our competitive advantage relative to other likely bidders. The bid estimate forms the basis of a project budget against which performance is tracked through a project control system, enabling management to monitor projects effectively.

52. The Company’s ability to accurately bid and track the performance of its construction

projects was critical to its financial condition and success. WG’s pipeline construction projects prior

to and during the Class Period were primarily fixed price contracts, providing for a single price for

the total amount of work. Under such contracts, increases in the scope of work could significantly

impact the profitability of a contract, unless the customer approved a change order prior to the

performance of the additional work. Change orders under WG’s construction contracts were

required to be documented in a writing signed by all parties to the agreement. WG told investors

that it did not recognize revenues or profits on change orders that had not been signed or approved.

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53. Larger projects required more capital and created bigger risks for the Company, given

that a significant portion of its revenues was generated by fixed price contracts. The revenue, cost

and gross profit realized on a fixed price contract may vary from the estimated amounts because of

changes in job conditions or variations in labor and equipment productivity over the term of the

contract. Such variations could have a significant effect on WG’s operating results for any quarter or

year, particularly on larger projects. Cost increases and delays in performing a contract can have

compounding effects by increasing costs of performing other parts of the contract.

54. Obtaining accurate and timely reports of profits and losses from ongoing projects was

therefore critically important to the Company, and its investors. WG told investors that it had

sophisticated controls over the reporting and estimating of revenues, costs and profits on its long-

term projects. WG said it recognized revenues from its construction contracts under the percentage-

of-completion method, based on the amount of the project that had been physically completed, and

taking into account changes in the expenses under or profitability of the contract. According to

WG’s 2013 10-K:

We recognize contract revenue using the percentage-of-completion method on long-term fixed price contracts. Under this method, estimated contract revenue is accrued based generally on the percentage that costs to date bear to total estimated costs, taking into consideration physical completion. Estimated contract losses are recognized in full when determined. Accordingly, contract revenue and total cost estimates are reviewed and revised periodically as the work progresses and as change orders are approved, and adjustments based upon the percentage-of-completion are reflected in contract revenue in the period when these estimates are revised. These estimates are based on management’s reasonable assumptions and our historical experience, and are only estimates. Variation of actual results from these assumptions or our historical experience could be material. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract revenue, we would recognize a credit or a charge against current earnings, which could be material.

2. WG Runs Its Business on Borrowed Funds

55. WG’s business required ready access to capital to fund construction projects. As Harl

explained at an April 25, 2014 investor conference: “Now, contractors need cash both to grow their - 17 -

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business, [and to provide] the working capital that we need, the equipment that we need to buy, cash

is important.”

56. To provide this capital, WG took on significant debt. On August 7, 2013, WG

negotiated new borrowing agreements, entering into a five-year $150 million asset-based senior

revolving credit facility (the “revolver”) and a six-year $250 million term loan facility (the “term

loan”). Proceeds from the term loan, which was drawn in full on the effective date, were used

primarily to pay off WG’s existing indebtedness and pay transaction costs on the new loans. Thus,

the $150 million revolver represented WG’s principal source of working capital to fund operations

during 2014 and beyond.

57. At a conference call on August 9, 2013, just after the new revolver and term loan

were signed, Welch told investors that the agreements had “achieve[d] three important objectives,

increased liquidity, significantly extend[ed] the existing debt maturity profile and establish[ed] less

restrictive covenants.”

58. By the outset of the Class Period, WG had drawn down or pledged (via letters of

credit or otherwise) $60 million under the revolver, leaving it with $71 million in additional debt

available for operations.

59. WG’s borrowing ability was limited by a reserve for $36.5 million due to the West

African Gas Pipeline Company Ltd. (“WAPCo”) under the settlement of a lawsuit arising out of a

pipeline project in Nigeria undertaken by WG in which the Company was alleged to have defaulted

on its obligations and to have engaged in multiple schemes to bribe foreign officials. The settlement

required payments of $3.8 million at the end of 2Q14 and $32.7 million at the end of 4Q14. WG

said it hoped to fund that payment through cash flow from operations and by selling off parts of its

business. However, if the Company could not pay the obligation through those means, it would, as

stated in its 2013 Report on Form 10-K, fund the settlement through available borrowings under its

- 18 - 1038793_1


credit facility. WG booked a reserve for this obligation, which significantly lowered its borrowing

ability and liquidity. As of October 22, 2014, after the 2Q14 settlement payment was made, WG’s

reserve for the WAPCo obligation stood at $26 million.

60. WG’s borrowing agreements included debt covenants that required WG to maintain a

minimum Interest Coverage Ratio and a maximum Total Leverage Ratio. The Interest Coverage

Ratio is the ratio of Consolidated EBITDA to Consolidated Interest Expense. The Total Leverage

Ratio is the ratio of Consolidated Debt to Consolidated EBITDA. The terms Consolidated EBITDA,

Consolidated Interest, and Consolidated Debt are each defined in the borrowing agreements, and are

non-GAAP (generally accepted accounting principles) measures that include specified inclusions

and deductions, the amount of which cannot be determined from WG’s publicly-filed financial

statements.

61. The August 2013 borrowing agreement ratcheted the maximum leverage ratio up and

the minimum interest ratio down over the first 21 months of the agreement, requiring WG to

maintain compliance with increasingly stricter covenants at the end of each quarter:

Minimum Interest Maximum

Coverage Total Leverage 3Q13 3.00 to 1 4.00 to 1 4Q13 3.25 to 1 4.00 to 1 1Q14 3.50 to 1 3.50 to 1 2Q14 3.50 to 1 3.00 to 1 3Q14 3.50 to 1 3.00 to 1 4Q14 3.50 to 1 3.00 to 1 1Q15 3.50 to 1 2.75 to 1

62. Failure to maintain compliance with the debt covenants was an event of default under

the borrowing agreements that gave the lenders the right to accelerate WG’s repayment obligation or

seek other remedies, including payments of fees and penalties. At a minimum, such a breach would

have required WG to obtain waivers of the default and likely would have led to the renegotiation of

the agreements on less favorable terms, negatively affecting the Company’s credit ratings, borrowing

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ability and financial condition. Article 7.01(c) of the 2013 term loan agreement defined a debt

covenant breach as an event of default. Article 5.06(c) of the 2013 term loan agreement required

WG’s accountants to provide WG’s lenders with a quarterly certification stating that they had no

knowledge of any event of default. Likewise, Article 11.1.3 of the 2013 revolver agreement defined

a covenant breach as an event of default, and Article 12.4 required WG to provide written notice of

default, specifying the occurrence and nature thereof. The debt covenants were the same under both

sets of agreements.

63. The interest rates under WG’s borrowing agreements were established according to

its Fixed Charge Coverage Ratio, which represented the relationship between its income

(Consolidated EBITDA, less capital expenditures and cash tax payments) and certain fixed costs

(principal and interest payments and other defined items of expenses). A fixed charge coverage ratio

is an indicator of a firm’s solvency, because it shows the relationship between a firm’s income and

its fixed costs. The lower the ratio, the more at risk the Company was of defaulting on its

obligations, and the higher the interest rate it was charged under its borrowing agreements. The

highest rates were charged when the Company’s Fixed Charge Coverage Ratio fell below 1.15,

meaning that it had $1.15 in income available to pay every $1 in borrowing costs and other defined

fixed charges, leaving it with just 15-cents-per-dollar to pay the other expenses of its business other

than capital expenditures and taxes. In addition, if the Company’s borrowing availability (the

amount remaining to be drawn under its credit agreement) ever fell below $18.8 million (or below

$22.5 million for five consecutive days), the Company was required to maintain its fixed charge ratio

at a level of 1.15 or above. Its failure to do so would also be an event of default under the

agreements. As with the debt covenants, the calculation of the Fixed Charge Coverage Ratio was

specifically defined in WG’s borrowing agreements and could not be independently calculated by

investors or analysts.

- 20 - 1038793_1


64. The foregoing and other terms of WG’s borrowing agreements, together with its high

debt load and interest expense, put significant pressure on management to generate earnings

sufficient to avoid a default. In its 2013 Report on Form 10-K, WG acknowledged the significant

risks to its business arising from the foregoing debt covenants: “Our financial performance will need

to continue to improve over 2013 in order to remain in compliance with these increasingly stringent

financial covenants.” Unless WG generated additional free cash flow to either pay down its debt

balances or increase its EBITDA, it risked falling out of compliance with the debt covenants.

Because the debt covenant and fixed charge ratios were calculated by non-GAAP measures of

EBITDA, interest, debt, and other expenses, such that investors had no way to determine WG’s fixed

charge ratio on their own or to discern whether the Company was in compliance with the debt

covenants or how close it was to falling out of compliance. Investors therefore had to rely on

defendants’ disclosures during the Class Period to determine the magnitude and extent of the risks to

the Company of defaulting under its borrowing agreements.

B. WG Falsely Claims It Has Fixed the Control Weaknesses that Led to a 2013 Business Decline

65. In 2013, the Oil & Gas segment suffered a significant decline that WG blamed on

inadequate expertise in and oversight of the business and ineffective project management and

execution. WG’s 2013 10-K described the problems as follows:

Last year, we continued to deliver sequential operating improvement and three of our four segments generated positive operating performance. The rapid growth we experienced in our regional delivery services within our Oil & Gas segment outpaced our management capacity resulting in significant deterioration to our overall financial results. The regional market demands local presence, more front line management and back office support.

66. WG had told investors during 2013 that it was working to bring more discipline and

oversight to its Oil & Gas segment to improve the reliability and predictability of its earnings. By

the middle of the year, it appeared those efforts were bearing fruit. On July 22, 2013, the Company

- 21 - 1038793_1


announced a surprising positive revision to its 2Q13 operating profit forecast, based in part on

improving results in its Oil & Gas segment. When 2Q13 results came in even better than forecast,

WG’s stock jumped nearly 20%. As a KeyBanc analyst wrote at the time: “We view the results as

encouraging as it indicates WG’s visibility on earnings is improving and the restructuring of its

business operations could be beginning to take shape.”

1. WG Assures Investors that It Has Significantly Strengthened Its Internal Controls

67. By the outset of the Class Period, WG led investors to believe that the changes it had

implemented in 2013 had significantly strengthened its internal control and brought more rigor to its

oversight over the procurement and performance of construction contracts in its Oil & Gas segment,

particularly in its regional business.

68. On February 27, 2014, after the market closed, WG issued its 4Q13 and FY13 results,

reporting a return to profitability for the Oil & Gas segment. The news caused WG’s stock price to

jump 13% when trading opened February 28, the first day of the Class Period. Market analysts also

reacted favorably to the news, taking it as a sign that the promised improvements in the Company’s

internal controls had been made and were providing the Company with more effective oversight of

the Oil & Gas segment. See, e.g. , KeyBanc, “WG – Quick Alert: Initial Takeaways on 4Q13

Earnings and 2014 Outlook” (Feb. 27, 2014) (“Importantly, within the segment details, the oil & gas

segment returned back to profitability post several quarters, which is an important positive for WG’s

credibility and forward-looking estimates.”); UBS, “Has Willbros turned the corner?” (Feb. 27,

2014) (“Assuming that execution is fine, WG may finally be on a better path.”); Credit Suisse, “A

Step In The Right Direction” (March 11, 2014) (“Overall, WG appears to be turning around the ship

as Oil & Gas appears back on track and markets are starting to work, although we continue to take a

wait and see approach given historical execution issues.”).

- 22 - 1038793_1


69. WG sought to build on these positive sentiments by assuring investors that the

Company’s outlook for 2014 had been significantly improved as a result of the changes in business

processes and controls that had strengthened the Company’s oversight over both the bidding and

performance of contracts in the Oil & Gas business. In the 2013 10-K issued on February 28, 2014,

WG stated that one of the key elements of its strategy for 2014 was to:

Focus on Managing Risk

We have implemented a core set of business conduct practices and policies that have fundamentally improved our risk profile including diversifying our service offerings and end markets to reduce market specific exposure, and focusing on contract execution risk starting with our opportunity review process and ending at job completion.

70. The 2013 10-K went on to describe the improvements that had been made to prevent

a recurrence of the problems that had arisen in 2013, and that WG claimed had resulted in the

improved fourth quarter performance:

At the beginning of the year, we changed leadership within the Oil & Gas segment and added management talent to provide more oversight and training. Additionally, we improved the back office systems and tools required for these transaction-intensive locations. We have established clear performance standards and an assurance process to verify that these standards are being met. These actions are proving successful with quarter-over-quarter improvement, and we believe these issues have been adequately addressed.

71. Harl reiterated these assurances in WG’s FY13 earnings press release, telling

investors on February 27, 2014 that “we have addressed the issues that led to these losses” and that,

to prevent a recurrence, reiterated that the Company had “established clear performance standards

and an assurance process to verify that these standards are being met.” “Our culture of

accountability is driving our improved performance throughout the organization,” Harl said on the

quarterly earnings call the next day. “We have strengthened our processes and systems across the

Company,” he said.

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72. Thereafter, Harl continued to tout the improvements in WG’s operating systems and

controls in investor and analyst meetings, assuring participants that the risks that caused the negative

events of 2013 had been identified and addressed. Throughout the Class Period, Harl and Welch,

and later McNabb, gave presentations at investor conferences assuring investors of the change in

culture at the Company and the focus on processes and controls to improve both earnings and

reliability. Defendants circulated materials at these conferences that described WG’s “Strengthened

Processes & Systems,” including a “rigorous risk management process” that included weekly

meetings with Harl and Welch to review contract terms and discuss contingency plans, project

execution strategies and risks. The materials highlighted WG’s “project management skills and

controls” to “effectively execute our contracts and deliver As Bid or Better margins,” including

through detailed Project Execution Plans, a structured breakdown of the work and detailed schedule

for performance. WG said it had effective processes to identify and manage risks, verify progress on

projects, require written change orders, and provide for weekly and/or monthly reports on the

performance of ongoing projects.

73. During these investor conferences, Harl and Welch – as described in an April 6, 2014

KeyBanc analyst report – “talked in more depth about cultural and procedural changes introduced to

enable better execution” and “provided incremental color on execution/processing system changes

introduced to help bring in sustainable execution discipline.” The analyst report went on to say:

We view the changes introduced around senior project managers’ training and systems investments as perhaps key to addressing chronic issues of the past and look for proof in sustained operating profits from WG’s oil & gas segment in 2H14, as the Company ramps up post seasonal utilization lightness.

2. WG Failed to Maintain Effective Controls over Its Reported Revenues and Profits from Oil & Gas Pipeline Projects or Its Compliance with Its Debt Covenants During the Class Period

74. During the Class Period, WG did not have in place sufficient internal controls to

provide reasonable assurances of the accuracy of reported financial information to reliably check the - 24 -

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accuracy of financial information before it, or forecasts based on that information, was publicly

reported to investors. The lack of internal controls resulted in material errors in WG’s reported

financial statements for the first two quarters of 2014, caused a delay in the reporting of its third

quarter and full year results, concealed repeated violations of WG’s debt covenants, and led to a

major restructuring of WG’s operations that significantly reduced its revenue, profitability and

growth expectations.

75. WG therefore had not improved its processes and controls in the manner defendants

had led investors to believe. As a result, the control weaknesses that defendants claimed had been

eliminated still existed, posing significant risks to the Company, and causing substantial injuries to

Class Members when they manifested, resulting in unanticipated business losses that caused the

price of WG’s securities to decline precipitously.

76. Harl and Welch falsely certified in WG’s Reports on Form 10-Q for the first two

quarters of 2014 that WG had implemented and was maintaining an effective system of internal

controls over financial reporting, and that they had made a reasonable investigation of and reliably

confirmed the existence and efficacy of those controls during each quarter. McNabb and Welch

falsely certified in WG’s amended and restated Reports on Form 10-Q for the first two quarters of

2014 and in its Report on Form 10-Q for 3Q14 that there were no internal control weaknesses other

than the weaknesses disclosed in the December 15, 2014 restatement relating to the profitability of

contracts in the Oil & Gas segment.

77. At the time these certifications were signed, WG had material weaknesses in its

controls to assure the completeness and accuracy of reported revenues, costs and profits under its

construction contracts, to assess compliance with its debt covenants, and to determine its ability to

meet its liquidity and capital resource needs for a reasonable period of time. The weaknesses in

these controls all arose from the Company’s failure to accurately or timely reflect current business

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conditions in its financial reporting, forecasting, and public disclosure processes, including by failing

to conduct the oversight or perform the verifications that were required by their own policies,

procedures and control systems, which they had told investors had been significantly strengthened

by the outset of the Class Period.

78. The undisclosed weaknesses in WG’s internal controls caused it to overstate its 1Q14

earnings by $0.38 per share, overstate its 2Q14 earnings by $0.24 per share, and overstate its

preliminary year-to-date 3Q14 operating profit by more than 200%. The control weaknesses also

caused WG to falsely claim that it was in compliance with its debt covenants during 2014 and had

sufficient borrowing capacity and liquidity to fund its anticipated 2015 construction activities while

still maintaining compliance with the terms of its borrowing agreements.

3. The New Controls Were Still Being Developed and Had Not Been Implemented as Broadly or Consistently as WG Claimed at the Outset of the Class Period

79. At the time WG and Harl announced the purported improvements, the control

changes were still being developed and had not been implemented as widely and were not

functioning as effectively as defendants claimed. In fact, the corporate Project Management Office

(“PMO”) that was responsible for designing and implementing the new controls was still developing

them in February and March 2014. Even when new controls were developed, business units in the

Oil & Gas segment had refused or been unable to implement the new procedures. The PMO was

disbanded by Collins when he took over as WG’s President in July 2014, before the changes had

been fully implemented.

80. The PMO had been formed by Harl and WG’s COO, James Gibson, in 2013 to

improve the control deficiencies that had led to poor results in that year. CW-1, a project controls

director until the office was disbanded, said that the PMO was initiated by Harl to “ensure checks

and balances” were in place. CW-2, a former corporate project control executive, said the PMO was

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formed out of a recognition that the environment at WG was “more lax” when it came to project

controls than at other companies in the industry with mature practices. CW-2 said this was

particularly an issue in the regional offices of the Oil & Gas segment, which was “probably more

seat of the pants” when it came to project estimating and execution. CW-2 said that as the size and

scope of the projects being handled in that area of the business became greater, they could not be run

without changes in the processes for controlling change orders and managing project schedules and

budgets.

81. CW-2 said that the PMO was formed by Harl and Gibson to develop a standardized

set of systems and practices to apply industry best practices for project control that would be

implemented across all of WG’s business segments. At the time the PMO was formed, WG did not

have a company-wide set of policies and procedures, such that controls were determined

independently by each of its operating units. Even after the PMO was formed, CW-2 said the

decision whether to use them or not ( i.e., which practices to apply) rested with the individual

business units.

82. CW-1 said that the PMO group spent a year writing new project control processes and

procedures based on industry standards, including those set forth by the CII (Construction Industry

Institute), PMI (Project Management Institute) and AACE (American Association of Cost

Engineering, n/k/a, the Association for the Advancement of Cost Engineering International). CW-2

said that the new controls were designed to reflect industry best practices and make systems

improvements, including best practices relating to bid estimates, project costs, change order

management, scheduling, and estimating costs and profits at completion. CW-2 said that developing

and implementing new and standardized project controls was necessary because controls being used

by various WG operating units for small to mid-sized projects would be outgrown when it came to

- 27 - 1038793_1


working on larger projects. CW-1 also said that different controls were required as projects got

larger, and that knowledge of the requirements for large projects was lacking at WG.

83. At the time that WG assured investors that the new controls were in place and had led

to an improvement in 4Q results, they were still being developed and implemented. CW-1 said that

the new project cost controls were completed around March 2014, and the scheduling and planning

controls were completed around April 2014. CW-2 recalled that the best practices were completed

around 1Q14, and said they were compiled in a printed manual that was several inches thick.

84. CW-1 said members of the PMO office travelled to WG’s offices trying to get the

new policies and procedures implemented. As described below, these individuals reported that

operating units within WG’s regional business, including the unit responsible for the project that led

WG to announce its restatement, were resistant to, and failed or outright refused to, implement the

new controls or comply with the changes in procedures directed by corporate.

85. CW-1 said that the intention of the PMO had been to implement new policies and

procedures across the Company, but “this never happened because they didn’t want someone

policing them.” The prevalent attitude was that whatever processes were already in place had

“worked for us this long” and that changes were not needed. CW-1 said that groups within WG

were used to operating independently and “did not want interference” from the corporate office on

how to run operations.

86. CW-1, CW-3 and CW-2, all of whom worked in the Project Management Office, said

that WG shut down the PMO in July, 2014. CW-1 and CW-2 said that the PMO was disbanded in

July by Collins after he took control of the Company. CW-2 said that the best practices had not been

implemented across the Company at the time the PMO was disbanded. “We were just getting

started,” he said.

- 28 - 1038793_1


4. WG Has Admitted that It Had Undisclosed Material Weaknesses in Its Controls During the Class Period

87. WG has admitted that, during the Class Period, its internal controls were ineffective

and the financial information it reported was incorrect and unreliable. In its restated Reports on

Form 10-Q for 1Q14 and 2Q14, and again in its 2014 Report on Form 10-K, WG admitted that it

lacked adequate internal controls during the Class Period to assure that revenues, profits and losses

from its Oil & Gas segment were accurately reported:

Internal Control over Estimated Total Revenues, Costs and Profits at Completion for Construction Contracts Accounted for under the Percentage-of- Completion Method in the Oil & Gas segment

[O]ur Oil & Gas segment incorrectly estimated total revenues, costs and profits at completion for two significant pipeline construction projects accounted for under the percentage-of-completion method of accounting. As a result, we did not maintain effective controls over the completeness and accuracy of estimated total revenues, costs and profits at completion for construction contracts accounted for under the percentage-of-completion method of accounting by the aforementioned segment. Specifically, we did not adequately perform project oversight reviews and monitor compliance with the Company’s policies and procedures around estimating total revenues, costs and profits at completion for these pipeline construction projects. This material weakness could result in misstatement of the aforementioned accounts and disclosures that would result in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

88. WG’s 2014 Report on Form 10-K also admitted that the Company lacked adequate

internal controls during the Class Period to assure that current business conditions and risks were

taken into account in its forecasts of working capital and liquidity needs:

Internal Control over the Assessment of Significant Risks and Uncertainties Associated with Financial Covenant Compliance and Liquidity and Capital Resource Needs

We did not maintain effective internal controls over the assessment of significant risks and uncertainties associated with our ability to comply with financial covenants contained in our credit agreements and over the assessment of our ability to meet our liquidity and capital resource needs for a reasonable period of time primarily as a result of not reflecting certain business conditions timely and adequately in our forecast process. This material weakness could result in the failure to properly classify debt as a current liability, and the omission of material

- 29 - 1038793_1


disclosures regarding significant risks and uncertainties associated with future covenant compliance, liquidity and capital resources in the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

89. WG said it planned to remediate the foregoing weaknesses by completing additional

training for personnel in its Oil & Gas segment regarding the Company’s policies and procedures for

the oversight and monitoring of revenue, cost and profit reports, and to implement additional

controls and procedures to ensure that management considers historical performance, the

macroeconomic environment, and other Company-specific facts in assessing its working capital and

liquidity needs and its ability to comply with the terms of its borrowing agreements. WG’s 1Q15

Report on Form 10-Q admitted that, as of March 31, 2015, the foregoing control weaknesses still

existed and had not been remediated.

a. Internal Control Weaknesses in the Oil & Gas Segment

90. The internal control deficiencies in the Oil & Gas segment were open and obvious,

and WG has admitted that its regional operations had not been improved in the manner that

defendants claimed at the outset of the Class Period, because the Company had never been able to

institute proper controls over its regional business. On the FY14 earnings call, McNabb said that a

“very thorough investigation” by two law firms and its outside auditors into the root cause of the

problems on the Allegheny Access and Seaway projects confirmed the existence of weak and

ineffective controls:

So the findings were basically that we had poor operations, poor controls but we had great controls that weren’t utilized and we had some people that probably shouldn’t have been on those jobs and there was not – wasn’t enough oversight. That is sort of the bottom line from this. But there was no fraud, no wrongdoing, nothing egregious that would damage the Company or our shareholders from that perspective.

91. Even where WG had adopted new controls, its employees were ignoring them. At a

November 20, 2014 investor conference, McNabb acknowledged that employees had not been

adhering to many of the new controls that were put in place: “We just need to get all our people

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using them, frankly.” On the December 16, 2014 conference call, McNabb admitted there had been

a need to “dramatically improve our oil and gas operations” by “focus[ing] on our core

competencies, processes and people.”

92. At the outset of 2014, even as defendants were telling investors that WG’s controls

had been dramatically improved, the risks associated with its control weaknesses had already

manifested on both the Seaway and Allegheny Access projects, both of which were losing money

due to ineffective project management and oversight. Those problems were not difficult to detect.

As COO Fournier later admitted when discussing the Allegheny Access project on an October 22,

2014 conference call with investors: “It was apparent that the business unit did not have all of the

necessary project controls in place for proper cost control and change management to the work that

was being done.” On the same conference call, McNabb acknowledged that the project “was

probably not supported well enough in terms of the skill set to execute that type of work along with

the project management skill set.”

93. WG has admitted that the control weaknesses and risks existed throughout the Oil &

Gas business, and were not isolated to just the two projects that had been the primary cause of the

restatement. On the FY14 call, Fournier acknowledged that the lack of effective controls over the

regional offices was at the core of the Company’s continuing problems: “And so, where our regional

model we would go out and compete on $1.5 million, $2 million lump sum projects with very little

control and oversight or risk that because we are doing so many you could lose control over a single

project and create significant losses.” Fournier also acknowledged the severity of the risks to the

Company from lack of control over just a single project:

So we have demonstrated that when we work within our means with the right talent supported with the right technical and commercial management, we generally execute our work without incurring a lot of contingency cost and thus improve margin. But we have also seen that if we expand beyond what we can comfortably control one or two projects can wipe all that out in the period of a year .

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94. On the FY14 call, McNabb admitted that the control weaknesses in WG’s regional

offices had existed when the offices were acquired four years earlier, but had never been corrected:

[T]he InfrastruX acquisition in 2010 put us in the regional delivery business. We bought from InfrastruX small contractors with MSAs [Master Service Agreements], embedded equipment, people that didn’t have a lot of skill at some point and really there were very little controls of these small contracting businesses. What we did at Willbros inadvertently is turn that into our regional delivery business. The manifestation or the product of that is what you are seeing with these losses, $91 million worth of losses in two years in our regional delivery business.

95. On the 1Q15 earnings call on May 6, 2015, McNabb again acknowledged the lack of

effective controls WG had over its business during the Class Period. McNabb told investors that, as

a result of recent changes made by the Company, “project management [is] much tighter than its

been for a long, long time at Willbros.” Fournier then provided additional detail about the problems

that had plagued the Oil & Gas business throughout the Class Period:

Where we experienced problems in the past was in our regional construction businesses where they were multi-year MSAs, often unit rate. Often T&M [Time & Materials] but there was real struggle with utilization. And certainly where we did go off the rails is where we tried to use those business units that were set up for T&M work to do lump sum or unit rate work and without sufficient controls in place. And so our solution to that was shut down those businesses or in some cases get them diverted back to their legacy business of make reference to up in the Northeast we continue to run a business on, just small capital project work. So that I think is our solution for managing the risks around discrete lump sum unit rate projects.

96. WG’s decision to cease handling MSA work had a significant impact on cash flow.

WG’s FY14 10-K reported a 30% reduction in backlog due largely to loss of MSA work. The report

asserted that WG “determine[d] the amount of backlog for work under ongoing MSA maintenance

and construction contracts by using recurring historical trends inherent in the MSAs, factoring in

seasonal demand and projecting customer needs based upon ongoing communications with the

customer.”

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b. Internal Control Weaknesses Regarding Debt Covenants, Working Capital and Liquidity

97. WG did not disclose the weaknesses in its debt and liquidity controls at the time it

announced its restatement in October 2014 or when it completed the restatement in December. To

the contrary, WG assured investors that its internal control problems had been identified and were

already being addressed by the time it announced the restatement of its prior financial results on

October 21, 2014. When the restated results were issued two months later, on December 15, 2014,

WG assured investors that it had investigated and knew the full extent of its control weaknesses and

that all required corrective measures had been implemented. Yet, at the time of these

announcements, WG still had unreported material weaknesses in its internal controls which rendered

it incapable of determining whether it could remain in compliance with its debt covenants or had

sufficient liquidity to meet the working capital needs of its restructured business and remain a going

concern.

98. At the time WG announced the restatement in October, McNabb falsely told investors

that the Company had not violated any of its debt covenants. However, the restated results issued by

the Company on December 15, 2014 revealed that WG had not been in compliance with the debt

covenants when its 1Q14 results were released, was barely in compliance at 2Q14, and fell out of

compliance again in 3Q14. However, WG told investors that the risks arising from those breaches of

its borrowing agreements had been eliminated through the renegotiation of its revolver and the

refinancing of its term loan, wherein it had purportedly obtained significantly relaxed debt covenants

that provided the Company with sufficient flexibility in its financing arrangements and liquidity to

pay off the WAPCo settlement and fund its anticipated construction activities during 2015. This was

not true.

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99. On March 17, 2015, WG admitted that it could not maintain compliance with the

new, less stringent debt covenants and had no reliable basis to assert, at the end of 2014, that it could

do so. In a Report on Form 12b-25 filed with the SEC that day, WG stated:

The Company has determined that a material weakness existed at December 31, 2014, over the assessment of significant risks and uncertainties associated with its ability to comply with financial covenants contained in its credit agreements, and over the assessment of its ability to meet its liquidity and capital resource needs for a reasonable period of time primarily as a result of not reflecting certain business conditions timely and adequately in its forecast process.

100. WG also revealed that it was still testing and evaluating the impact of the internal

control weaknesses in its Oil & Gas segment, that it was once again asking lenders to relax the debt

covenants under its borrowing agreements, and that if the lenders did not do so the Company’s

ability to remain in business was in doubt:

Without a definitive waiver or amendment, all indebtedness under its credit agreements would become due in the next twelve months. If the debt under the Company’s credit agreements becomes accelerated and the lenders demand repayment, it is expected that the Company will not have sufficient forecasted liquidity to retire its existing debt obligations, which raises substantial doubt on the Company’s ability to continue as a going concern.

101. On March 31, 2015, WG announced that it had again entered into agreements with its

lenders to suspend the requirement to comply with the debt covenants in its credit agreements from

4Q14 through 1Q16. However, this time, the lenders were in no mood to believe the Company’s

representations about the extent of its problems or the sufficiency of its corrective measures, and

extracted an exorbitantly high price for the relief. In exchange for the waiver, WG provided

Kohlberg Kravis Roberts & Co. L.P. (“KKR”) with 10.1 million shares of newly-issued and

unrestricted common stock, increasing the number of outstanding shares by 19.9% and substantially

diluting the interests of WG’s existing shareholders. The transaction was specifically structured to

provide KKR with the maximum number of shares possible without subjecting the agreement to

shareholder approval, which would have been required under NYSE rules if the number of

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outstanding shares had been increased by 20% or more. The shares had a value of $33.5 million

based on WG’s share price on March 31, 2015.

102. Lenders also required the Company to pay off the outstanding balance on its revolver

and to pay down its term loan to $204 million. The Company incurred additional charges of

$2.4 million in connection with the transaction, primarily for fees and penalties incurred in paying

down the amount of its debt, as required by its lenders. To generate the cash needed to reduce its

loan balances, WG sold its interests in two businesses – UtilX Corporation and Premier Utility

Services, LLC in separate transactions for a combined $91 million. Those sales were insufficient to

address WG’s liquidity needs. On June 9, 2015, WG announced that it was attempting to sell its

professional services segment to bolster the Company’s balance sheet and reduce the risk in its

business model, further demonstrating the extent of its liquidity crisis and the magnitude of the risks

that had been concealed from investors during the Class Period.

103. WG’s actions sparked significant protests from its shareholders, who accused the

Company of paying too high a price for the relief and acting too quickly, without investigating other

potential avenues to addressing its problems. Amid charges of cronyism on a Board of Directors

tightly-controlled by McNabb, shareholders called for the elimination of WG’s staggered Board

terms and to require the annual election of directors. Shareholders charged that, under McNabb’s

leadership, the Company’s had a history of poor project control and risk management leading to

multiple earnings surprises that had caused WG’s performance to lag significantly behind its

competitors. An advisory vote calling for WG to de-stagger its Board passed at the Company’s

June 9, 2015 annual meeting, over strenuous opposition from the Company.

104. WG’s 2014 Report on Form 10-K, issued March 31, 2015, affirmed that the Company

“did not expect to remain in compliance with the Maximum Total Leverage Ratio and Minimum

Interest Coverage Ratio during [the period from December 31, 2014 through March 31, 2016].”

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FY14 10-K at 74. The FY14 10-K further revealed that the Company also was unable to maintain a

minimum Fixed Charge Coverage Ratio of 1.15 to 1, as would be required if its borrowing

availability dropped below $18.8 million (or $22.5 million for five consecutive days): “we would not

expect to be in compliance [with the covenant] over the next twelve months and would therefore be

in default under our credit agreements.”

105. The inability to draw the credit line below the limits that would trigger the minimum

fixed charge coverage ratio requirements further reduced WG’s liquidity, thereby negatively

impacting its ability to return its Oil & Gas business to profitability. In addition, the fixed charge

coverage ratio was also used to set the borrowing rates under WG’s revolver. WG’s inability to

maintain a fixed charge covenant ratio of at least 1.15 to 1 meant that it was required to pay the

highest possible interest rates under the agreements, at rates that were 50 basis points (0.5%) higher

than the minimum interest charges under the agreement. A 50 basis point increase in the rate would

increase WG’s annual interest expense by $50,000 for each $10 million it drew under the revolver,

increasing its capital requirements and decreasing its liquidity.

106. The disclosure stated only that the Company could not comply with the minimum

fixed charge coverage ratio at the end of FY14 if it had been required to do so. WG did not reveal

when that condition had arisen during the year. However, based on this disclosure and in light of

WG’s prior operating results, it is likely that the Company would have also had difficulty complying

with the minimum ratio if it had become applicable earlier in the year, including at the outset of and

throughout the Class Period. This would have further limited WG’s borrowing ability and increased

its interest expense during the Class Period, increasing pressure on management to generate

sufficient earnings to avoid a default of WG’s borrowing agreements.

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C. WG Overstates Profits from Two of Its Largest and Most Significant Pipeline Projects During the Class Period

107. The lack of proper internal controls caused WG to overstate the revenues and profits

and understate the expenses in its Oil & Gas segment during at least 1Q14 and 2Q14, which had a

material impact on WG’s overall financial condition and reported financial results.

108. The risks arising from WG’s ineffective controls manifested primarily with respect to

two of WG’s most important pipeline construction contracts during the Class Period: the “Seaway”

project in Oklahoma and the “Allegheny Access” project in Ohio. However, the risks caused by the

lack of effective controls were not unique to these two projects, but existed and could have

manifested in any of the construction projects being carried out by WG’s Oil & Gas segment during

the Class Period.

109. The Seaway and Allegheny Access projects were among the largest and most

significant ongoing construction projects in the Company at the outset of the Class Period.

According to CW-3 a former WG project controls manager and regional executive, both projects

were highly significant to the Company due to their size, and therefore would have been on its

internal “watch list,” meaning that the project would “have more eyes on it” and its progress would

be more highly scrutinized by management. This account is corroborated by materials WG used at

investor presentations during the Class Period, which claimed that the Company had comprehensive

reviews of execution strategies, contract terms, contingency plans and other aspects of projects that

were significant in terms of financial value, customers or unique construction activities. These

protocols included a standing weekly review by Harl and Welch with segment leadership and

members of the project and project controls teams.

110. WG’s restatement of its 1Q14 and 2Q14 financial results admits that the Seaway

losses reported in 2Q14 were required to be reported in 1Q14 and that unreported losses from the

Allegheny Access project were required to be reported in both 1Q14 and 2Q14. The restatement - 37 -

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also included adjustments in both periods for reporting errors on other projects in the Oil & Gas

segment caused by the same types of control deficiencies that led to the losses on the Seaway and

Allegheny Access projects.

1. The Seaway Crude Oil Pipeline Project

111. In 3Q13, WG obtained a significant contract to construct a portion of a “twin loop”

for the 30-inch Seaway crude oil pipeline that runs from Cushing, Oklahoma to Freeport, Texas.

WG’s contract for the project was with Enterprise Product Partners, L.P., the operator and part

owner of the pipeline. The contract was through WG’s U.S. Construction business, a division of the

Oil & Gas segment also referred to externally as its “cross country pipeline” business. CW-4, the

project superintendent at its outset, said that WG’s contract was to build a 117-mile section of the

line between Cushing, Oklahoma and the Red River at the Texas border.

112. The award of the Seaway contract was a significant event for WG, and reinforced

defendants’ assurances that the process and control changes made in response to the project losses in

late 2012 and 2013 had corrected the problems in the Oil & Gas segment. As a KeyBanc analyst

wrote on August 18, 2013: “we view WG’s recent win of the Seaway pipeline project from a key

midstream sponsor as an indicator that WG’s execution and financial structure appear to now be

sufficiently sound to attract large pipeline orders again, as the market tightens.”

113. On May 5, 2014, WG reported its 1Q14 financial results, including an $11 million

operating profit that represented a $12.5 million year-over-year improvement in results. Although

the Company reported a $0.13 EPS loss for the quarter, defendants said that earnings had been held

back by weather-related project delays that had pushed expected revenues from those contracts into

the next quarter. “Despite difficult conditions, WG put up a pretty good quarter,” a Credit Suisse

analyst wrote in a May 6, 2014 report.

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114. In fact, the reported 1Q14 results overstated WG’s operating profit by $18 million.

When corrected, the overstatement turned the reported $11 million operating profit into a $7 million

loss for the quarter and widened the EPS loss by an astounding $0.38/share, resulting in an overall

loss of $0.52 for the quarter. WG would later admit that the overstatement was caused primarily by

a lack of effective control over reporting the revenues and expenses from the Seaway project – i.e. ,

by a failure to implement or use, on one of the Company’s most significant contracts, the very

control improvements that defendants had told investors had been instituted to prevent

overstatements of this nature from occurring.

115. The losses from the Seaway project were belatedly included with WG’s 2Q14

financial statements, reported on August 5, 2014. After accounting for the loss, the results led to a

disappointing 2Q14 operating profit of $18.5 million, which was approximately 25% below pre-

release expectations. For the quarter, WG reported a profit of $0.14/share from continuing

operations.

116. The disclosure of the losses from the Seaway project and its impact on WG’s overall

profitability caused WG’s stock price to fall more than 9% to close at $10.63/share, a one-day drop

of $1.06 in the share price, representing a loss of more than $53 million in market capitalization.

Had the Seaway loss been reported in 1Q14, as it was required to be, this stock drop would have

occurred at that time.

117. At a November investor conference, McNabb stated that the Seaway project had run

into problems after encountering rock during construction. “And we do not handle the rock very

well,” he said. McNabb said that a smart pig run through the line had detected anomalies in its

construction, which required portions of the line, which had already been buried, to be dug up and

replaced. On the October 22, 2014 WG conference call, McNabb similarly said that the issue on

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Seaway “had to do with necessary reworkings related to challenges of constructing in rocky terrain

and field quality control and assurance.”

118. A “smart pig” is a device for checking the integrity of a pipeline after it is constructed

or as part of regular inspection and maintenance. The device is a large piece of machinery that is run

through the pipeline using highly tuned sensors to detect and pinpoint the location of gouges, dents,

corrosion, anomalous weld seams, longitudinal cracks and grooves, and other defects that can

jeopardize the integrity and safety of the pipeline. When such defects are discovered after

construction, the affected portion of the line must be dug up, taken out and replaced, which can

significantly increase the cost associated with the project. The process of running a smart pig

through a pipeline is commonly referred to as “pigging” the line.

119. The fact that WG restated its 1Q14 financial results to report the cost increases arising

from the defects discovered by the smart pig is strong evidence that the pig was run through the line

and the defects discovered before the end of that quarter. The restatement also is an admission that

the substantial increase in project costs arising from the defects detected by the pig was known

before the end of 1Q14. Harl’s statement on the February 28, 2014 FY13 earnings call that the

project was 88% complete illustrates his (and investors) focus on and attention to the project, and the

extent of completion he reported also strongly indicates that the smart pig was run through the line

and the defects discovered before the quarter ended more than four weeks later, and well before the

1Q14 results were reported on May 5.

120. Interviews with former WG employees who worked on or investigated the problems

with the project have confirmed that the pig was run and the problems detected long before 1Q14

results were reported at the outset of the Class Period.

121. CW-4 said that a smart pig was run through the first 20-25 miles of the pipeline in the

second half of January, 2014, and detected 21 anomalies. He said a smart pig run through the second

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20-25 mile segment in the first or second week of February detected 17 anomalies. CW-4 said that

was an unusually high number of anomalies. CW-4 said he was told that the report found buckles,

ovalities and other anomalies in the bottom areas of the pipe.

122. CW-4, who had just been replaced as the project superintendent at the time the first

smart pig was run, learned of the results of the first test immediately after it was completed from

U.S. Construction general superintendent Jimmy Wagstaff, as well as from foremen and from

workers responsible for running the pig or addressing the anomalies it found. He learned of the

results of the second test when it was completed from project foremen and others still working on the

project. CW-4 said he was also interviewed by a member of WG’s human resources department

who was conducting an internal investigation of the losses on the project in July 2014, and shown a

report of the anomalies on the project. CW-4 said the report falsely identified the causes of the

anomalies he knew of, attributing it to backfilling, which could not have caused deformities to the

bottom of the pipe.

123. CW-4 said that he was contacted about the first two tests because they pertained to

the section of the pipeline that had been completed while he was superintendent. At the time he was

replaced, CW-4 said WG had cleared approximately 80 miles of the project right of way, strung

about 70 miles of pipe, welded about 65 miles, and completed and buried 35 to 40 miles, where the

first two pigging runs he was told about occurred.

124. CW-4 said that he was told that the results of the smart pig test were brought to the

office on the job site so workers could match the anomalies to the alignment sheet to determine

where repairs were needed. CW-4 said that, based on his experience in the Company, the test report

would have been sent to Oil & Gas COO Scott Timpone and CEO Harl when it was received. CW-4

said that Harl had visited the job site at least twice, including in the 2013 holiday season.

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125. CW-4 was told that the anomalies all occurred in “tie-in” areas: stream and road

crossings and other areas with more difficult construction where sections of the pipeline had to be

built later and then tied into the main line. CW-4 said that the tie-ins were handled by a separate

crew that was inexperienced with large diameter pipe, and exposed it to damage by failing to lay

sufficient bedding down to protect the pipe or because they were “in a hurry” to complete the work.

CW-4 said he later was told by workers on the project that there had also been a significant number

of “coating anomalies,” or damage to the exterior of the pipe, in areas of rocky terrain in the

Arbuckle Mountains.

126. CW-2 also said that he learned from controls personnel on the Seaway project that the

problems arose because WG had not put sufficient bedding in the pipeline trench to prevent damage

at the tie-in areas. CW-2 said that he was told that the costs of repairing the anomalies at the tie-ins

exceeded the project budget and was what caused the financial problems for the project.

127. CW-5, a project manager in WG’s cross country pipeline business when the Seaway

project was bid and under construction, said that the problems in the Seaway project were openly

discussed beginning in 1Q14 at WG’s weekly Operations Project Meetings. The meetings were held

every Tuesday in a conference room in Houston (and including others attending by teleconference)

to discuss the status of and issues with all ongoing construction projects, and included Oil & Gas

COO Scott Timpone and sometimes Collins. CW-5 said that Matt Segert, the project manager for

the Seaway pipeline project, openly discussed the problems in the Seaway project at those meetings

starting in 1Q14 and there appeared to be a lot of “dysfunction” on the project.

2. WG Investigates Its Oil & Gas Operations

128. In connection with the losses on the Seaway project, WG’s new COO Fournier and

other executives immediately began an intensive review of the Oil & Gas segment. In an

October 22, 2014 conference call with investors and analysts, Fournier acknowledged that the

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investigation of the reliability of WG’s business operations leading to the restatement had been

ongoing “[s]ince my appointment as COO in July.” On WG’s December 16, 2014 conference call,

McNabb acknowledged that: “There were some business units when I stepped in, in July, that I

curtailed the bidding activity until we had an opportunity to vet the management and supervision. . . .

[T]here certainly was a conscious decision in late June and July, where we slowed down in a couple

of areas.” On the October 22 conference call, McNabb said he had “initiated this assessment of the

Company’s overall performance” after the “problem on one pipeline project in the oil and gas

segment, which resulted in a loss for that segment in the second quarter.”

129. On August 5, 2014, WG hosted its 2Q14 earnings conference call with analysts and

investors. On the call, Harl told investors that the losses on the Seaway project had reduced WG’s

operating profit by $8 million, but did not reveal the weaknesses in the Company’s internal controls

or the problems on Allegheny Access and other projects. To the contrary, Harl assured investors that

the things that happened on that project [Seaway], fortunately, weren’t systemic to the business; are things that we can and have fixed. And we have done a very thorough assessment of the other projects similar to that and determined that it was really a one-time kind of thing that happened . . . .

130. The foregoing statement and similar reassurances stemmed a further decline in WG’s

stock price. While analysts and investors were disappointed in the lowered profitability that resulted

from the lack of execution on the Seaway project, they continued to believe that WG’s results were

accurately reported, and that the improved processes and controls were driving an improvement in

the Company’s operations. For example, in an August 5, 2014, research report, a UBS analyst wrote

that “Willbros continues to make progress on its turnaround, with improved overall profitability this

quarter.”

3. The Allegheny Access Project

131. By the time of the 2Q14 call WG had suffered, but failed to report, a significant loss

on the Allegheny Access project. Like Seaway, the loss of profitability on Allegheny Access was - 43 -

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also caused by the failure to implement or use the purported improvements that had been made to

WG’s internal controls.

132. The unreported losses from the Allegheny Access project, as well as continuing losses

on the Seaway project and other contracts, caused WG to overstate its 2Q14 operating profit by

nearly $12 million. After accounting for the Allegheny Access losses WG’s $0.14 EPS profit from

continuing operations turned into a $0.10 EPS loss, representing a staggering $0.24/share

overstatement in earnings.

133. The $70-$100 million Allegheny Access contract, awarded to WG by Sunoco

Logistics, called for the construction of 160 miles of 12-inch underground pipeline to transport

refined oil products from the Midwest to eastern Ohio and the Pittsburgh region. WG’s work on the

Allegheny Access project was performed through Lineal Industries, a business unit based in

Pittsburgh that it had acquired in 2010 as part of its $480 million acquisition of InfrastruX. WG

referred to Lineal as its “Northeast” regional business. WG’s 2013 Report on Form 10-K noted that

the Allegheny Access project was one of two significant projects driving the Company’s reported

$75 million in year-end backlog, representing the full term value of uncompleted work on

construction projects.

134. WG has admitted that the overstatement of revenues from the Allegheny Access

project resulted from the Company booking profits that it knew at the time would not be achieved

due to the “financial impact from the delays and other project issues that were evident at the end of

June.” The “other project issues” included undocumented change orders that Sunoco refused to pay,

as Welch acknowledged on a December 16, 2014 conference call.

135. On an October 22, 2014 conference call, WG’s new President and COO Fournier

described the problems with the Allegheny Access project as follows:

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While reviewing this project, we assessed the progress measurement and cost forecasting procedures. We discovered errors in estimating our remaining costs and progress reporting. We determined that cost was understated as of June 30. In addition, the financial impact from the delays and other project issues that were evident at the end of June were omitted in forecasting remaining costs on the project. It was apparent that the business unit did not have all of the necessary project controls in place for proper cost control and change management to the work that was being done. The revised forecast is now complete on this project, Van [Welch] will speak later to the resulting restatement.

136. Welch than stated:

To further elaborate on Mike [Fournier]’s comments, we have identified approximately $22 million to $24 million in deterioration of a significant pipeline construction project within our oil and gas segment. This deterioration consists of the reversal of approximately $8 million in pre-tax income previously recognized and the recognition of approximately $14 million to $16 million in estimated pre-tax losses at project completion. Although some of the project deterioration related to the third quarter of 2014, the Company has determined that a majority of these estimated charges should have been recognized in the second quarter of 2014. As a result, we expect to restate our second quarter of 2014 results to properly reflect the results of this project.

137. When the restatement was announced on October 21, 2014, WG told investors that it

expected to report a year-to-date operating profit of $26 to $28 million through the end of 3Q14.

When WG issued its restated results, it reported an annual operating profit of $12.3 million through

3Q14, less than half of what WG had claimed in October.

138. On the December 16, 2014 conference call, Welch said the difference was due to

additional contract losses on the Allegheny Access project “primarily related to contractual disputes

and subsequent increases in the estimated cost to complete,” adding that the Company was “pursuing

resolution of change orders and recovery on claims with the client.” Welch indicated on the call that

the additional losses from the Allegheny Access project had all been recognized in restated financial

results reported for 2Q14: “The way the accounting rules work, Dan, whenever you open the books

up associated around a restatement, you would push all adjustments associated around that to where

that error occurred. In this case, they would have all been pushed back into Q2.”

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a. WG Knew that Proper Controls Were Not Being Used by the Allegheny Access Project’s Management

139. Although Welch claimed on the December 16 call that the losses caused by the

change orders on the Allegheny Access project were not known in October, the facts below establish

that the project losses, and Lineal’s refusal to follow the Company’s control procedures, including

policies governing the use of change orders, were well known long before the restatement was

announced.

140. CW-6, who began working as an internal auditor at WG in 2012, said he learned

during internal audits of the Northeast region’s Pittsburgh office, where Lineal was based, that

Lineal had relied on “gentlemen’s agreements” and “handshake agreements” rather than documented

contracts to recover on significant changes to the work performed under its contracts. CW-6 said

that the amounts of the undocumented change orders were “not small.” CW-6 said he had brought

the matter to the attention of personnel in the Pittsburgh office and also reported it in audit work

papers that were sent to WG’s internal audit director. Based on the content of that report, CW-6 said

it should have been brought to the attention of WG’s Audit Committee, but he was never told that it

had been and does not know whether it was. CW-6 resigned in January 2014 over concerns with the

Company’s lack of proper project management controls.

141. Lineal was also one of the business units in WG’s regional business that refused to

implement the new project controls that defendants had touted at the outset of the Class Period.

CW-3, the former project controls manager, was sent to Lineal by the PMO in the fall of 2013 to

introduce some of the new best practice controls for project forecasting and calculating percentage of

completion on long-term construction contracts. CW-3 said that Lineal’s General Manager, Scott

Hunsberger, refused to implement the new tools and said Lineal would continue to use its existing

tools. CW-3 said that he reported Hunsberger’s refusal and his concerns to the Director of Project

Controls (who reported directly to Collins) before the end of 2013. - 46 -

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142. CW-1, a project controls director until shortly after the PMO was disbanded, also

stated that Lineal was among the business units that had resisted implementation of the new controls.

CW-2, the project controls executive, said that Lineal was known to be “off limits” to members of

the PMO, and had developed a reputation throughout WG as being unwilling to adjust to corporate

requirements and desirous of operating autonomously. Lineal had a reputation for being “anti-

Houston, anti-corporate,” he said.

b. From the Outset, the Allegheny Access Project Was Behind Budget and Losing Money

143. CW-7, a senior manager at Lineal, said that welders for the Allegheny Access project

were hired in December 2013, at a cost of $5,000 - $10,000 per day, despite the fact that there was

no work for them to do. At the time, CW-7 said Lineal was still in the process of obtaining right of

way permits for the project. CW-7 said that WG continued to pay the welders, even though they did

not actually start substantive work on the project until March 2014. CW-7 said that in January 2014

he had personally advised Lineal’s General Manager, Scott Hunsberger, that the project was

incurring excessive labor and equipment costs without any actual progress on the project being

accomplished.

144. CW-7 said he had an hour-long meeting with Hunsberger in January 2014 where he

told Hunsberger about the impact of the excessive equipment costs and payments to idle workers on

the project budget, but Hunsberger refused to stop the payments. CW-7 said his concerns with the

project budget became greater when he went to the job site later in the month and found more

workers on site than were listed on the time sheet. CW-7 said when he brought that to Hunsberger’s

attention, Hunsberger told him to “stop worrying.” CW-7 said he knew “something was up” when

Hunsberger excluded CW-7 and all the other usual participants – except two of his close associates,

controller Harry Murphy and project manager Bill Placzek – from the January 2014 month-end

closing meeting, which was held to determine how much had been spent on a project, how much had - 47 -

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been completed, and to determine whether the project was on schedule and on track to hit its

projected margins. CW-7 said there was no reason to exclude him from that meeting.

145. In February 2014, vendors for the Allegheny Access project contacted CW-7 to

receive assurances that they would be paid, telling him “you won’t believe what they’re ordering”

and warning that more control was clearly needed over the project. CW-7 said vendors told him

they were hauling “truckloads of tools” to the job site. CW-7 said he brought these issues to

Hunsberger’s attention in February 2014, and Hunsberger told him to “stay out” of the Allegheny

Access project. CW-7 said that, even before the Allegheny Access project was bid, he warned

Hunsberger and others that Lineal did not have the personnel or expertise to carry out a project of

that size and scope.

146. CW-7 said that the payments to the welders and other start-up costs far exceeded the

mobilization payment WG had received for the project. Lineal therefore submitted an AFE, or

authorization for expenditure, for corporate approval to incur the excess cost. CW-7 said that he

spoke directly with Welch about AFEs for equipment expenditures. CW-7 said that, given their size,

the AFEs on the project were likely in excess of an amount that would trigger a review by WG’s

Board of Directors or executive management. CW-7 said that anyone who knows about pipeline

construction knows that once 20% of the work on a project has been completed it will be clear

whether the project can be completed within the amount that was bid.

147. After being told by Hunsberger to stay away from the project, CW-7 kept in touch

with others working on the project, including a project controls employee who told him three times

that the project was “going terrible” and said “we’ve got to be bleeding red everywhere.” In April

2014, CW-7 learned that vendors were no longer allowed to ship even $15 tools to the job site

without Hunsberger’s express authorization, which CW-7 said was “a great indication of money

problems” on the project.

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148. CW-7 said that Collins, while he was still president of the Oil & Gas segment, visited

the project site with Hunsberger in January, March, April and possibly May of 2014. By the time of

these visits, it would have been obvious that work on the project was progressing slower than

expected, due to the lack of physical progress on the project, as described below.

149. After Collins became WG’s President on July 1, 2014, the new President of the Oil &

Gas segment, Futch, began reviewing the Allegheny Access project. In an interview with an

investigator hired by Lead Plaintiffs’ counsel and later communications, Futch acknowledged that he

had visited portions of the 80-mile long project site and said he was confident that he learned of the

problems on the project by August 2014. Futch said that when “things begin to deteriorate” on a

project “you get signals . . . someone will tell you, so you dig deeper” to include investigating

firsthand and coordinating with other personnel to “figure out how to mitigate” the situation.

150. Futch said that as soon as he became president of the Oil & Gas segment, he

determined that Lineal’s construction project reporting processes were inadequate for a project like

Allegheny Access. Futch said that the problems with the Allegheny Access project could have been

detected sooner if WG had “the right people in place” or “if Hunsberger had been more transparent.”

Futch said one of the problems was that WG had high turnover so that, even when WG ostensibly

had “a system in place” to validate how a project was doing, “no one knows how to use it.” Futch

later added that “high turnover in the organization had diluted uniform project reporting from one

business unit to another.”

151. Futch said that lengthy projects like Allegheny Access required different execution

strategies than smaller projects like those Lineal had historically undertaken. Futch said a project

like Allegheny Access was similar to a military operation, requiring detailed logistical planning

including supply chain considerations and assigning work crews to work unsupervised in remote

locations. Futch said that Hunsberger obviously lacked the experience to carry out such a project.

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152. Futch said that in early August, Sunoco’s project manager informed him that, based

on Sunoco’s research, “not all was well and good” with the project. Futch said he immediately

informed both Fournier and Collins of potential problems on the project and that a team had been

dispatched to perform a quantity survey on the project. CW-8 said that he recalled that Sunoco

contacted WG to ask it to expedite the project schedule in mid-to late-July.

153. Futch said that, after reporting the problems to his superiors, he and a team of WG

employees, including construction manager Billy Lambeth, immediately went to the project site in

early August and spent a week investigating the project. Futch said that it was “very easy to

determine” that the project was behind schedule, and that Lambeth had done so by performing the

quantity survey, which simply involved travelling along the total length of the pipeline route to

determine what had and had not actually been done. Futch said Lambeth’s findings confirmed that

there was a “disconnect” between the actual remaining work to be completed and what had been

reported by Lineal as having been done. He said that the amount of work remaining to be completed

was “significant.” At the conclusion of the quantity survey, Futch immediately informed Fournier

and Collins that the remaining work exceeded what had been previously reported. Futch said he had

“no doubt” that they would have reported any findings arising from the quantity survey and

associated financial impacts to Harl and Jim Gibson (WG’s former COO who was responsible for

project controls). Futch said that “the findings of the quantity survey were one component of the

project reporting process that led to an estimate of financial impact and ultimately resulted in a

restatement.”

154. CW-8 said he and Futch had a number of meetings with Hunsberger and with the

customer in August to try to understand the problems on the project and respond to Sunoco’s

concerns. CW-8 said that Hunsberger produced paperwork during those meetings that he claimed

documented millions of dollars in change orders on the project. CW-8 said there were a series of

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instances in which Hunsberger provided explanations for issues raised by Sunoco that, after follow-

up discussions with the customer, proved to be untrue. Over the course of the month, CW-8 said, it

“became very apparent” that information provided by Hunsberger to explain the status of and delays

in the project was not credible. “It became a process of the customer educating us about Scott’s

lies,” he said. Futch said that Hunsberger “either didn’t understand” his responsibilities or “failed to

communicate accurately” what was going on with the project.

155. As the Company became increasingly skeptical of the information being provided by

Hunsberger, the Company ramped up efforts to understand the scope of the problems with the

project. CW-8 said that there were “three fronts in the war” WG was waging over the project:

(1) teams of people were sent to Lineal “to dissect what was going on and to understand our

exposure”; (2) others were involved in responding to Sunoco and addressing its concerns; and

(3) corporate finance was requesting information and investigating the financial exposure from the

project. CW-8 said that these efforts were well underway by early September 2014.

156. Futch said that the decision to restate was made following a meeting involving

Fournier and WG’s outside auditor, PricewaterhouseCoopers LLP.

D. As the Company’s Financial Problems Mount, WG Fires CEO Harl and President Collins While Concealing the Reasons for Their Departures

157. On September 4, 2014, WG announced that Harl would retire effective January 2,

2015, and that McNabb would immediately assume the role of Executive Chairman and begin to

assume Harl’s responsibilities. Although the losses in the Allegheny Access project were well

known by this time, they had yet to be publicly announced. Rather, in WG’s press release, and at an

investor conference five days later, WG and McNabb made it appear that Harl’s retirement was

nothing other than the orderly transition of leadership at the Company. Later disclosures and

- 51 - 1038793_1


circumstances strongly suggest that Harl was forced out due to the magnitude of the recurring, and as

yet unreported, control problems at the Company.

158. WG’s FY14 Report on Form 10-K acknowledged that McNabb’s replacement of Harl

as CEO, as well as Fournier’s earlier appointment as COO, had resulted from the on-going problems

in the Oil & Gas segment:

Our Oil & Gas segment performance was unacceptable, and we have made significant structural and management changes to reduce operational risk in the model and bring more experience and capability to the management team. Additionally, in July 2014, we appointed a new Chief Operating Officer and in October, we appointed a new Chief Executive Officer. The short term objective of the new management team is to rationalize our Oil & Gas segment, bolster it with more experienced and capable management and leadership and to strengthen the balance sheet through asset sales and more reliable and predictable operating performance.

159. The terms of Harl’s separation agreement further illustrate the involuntary nature of

his departure. An August 29, 2014 letter agreement signed by Harl and McNabb provided that Harl

would immediately cease “act[ing] on behalf of, or exercis[ing] any management responsibilities

with respect to, WG[] or any of its subsidiaries unless specifically requested by [McNabb].” The

agreement provided that Harl would receive an unearned $1 million “succession award” for

identifying his successor but forfeit his right to receive approximately the same amount (one year’s

annual salary, or $900,000) he would be due upon the early involuntary termination of his contract,

while also giving up his own right to terminate the agreement if there was a material diminution in

his authority, duties or responsibilities or his reporting relationship to WG’s Board of Directors. The

foregoing terms of the letter reflect that it was deliberately structured to make Harl’s involuntary

separation appear to be voluntary. There would have been no reason for the letter agreement if

Harl’s resignation was truly voluntary or if he had truly identified his successor, as the parties’

respective rights on the happening of those events were already unambiguously documented by the

terms of his employment contract. The letter was not disclosed until December 16, 2014.

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160. On October 21, 2014, the same day it announced the restatement of its prior financial

results, WG announced that Harl had “relinquished his CEO and Director positions ahead of his

planned retirement” and said it was embarking on a significant reorganization of its business to

correct the problems caused by the conditions that had been concealed by its lack of effective

controls. The circumstances accompanying Harl’s abrupt departure on the eve of WG’s conference

call and several months before his announced “retirement” date, together with the report that he had

“relinquished” his role, strongly suggest that Harl did not voluntarily resign but was instead forced

out as a result of his role in the fraud alleged herein.

161. A letter agreement signed by Harl and McNabb on October 21, 2014 but not disclosed

until December 16, 2014 reaffirmed the terms of his departure under the August 29 letter agreement,

including Harl’s right to receive the $1 million succession award (to which he was not entitled) in

exchange for his agreement not to contend that his departure was involuntary (which it was). The

agreement also provided that Harl would not be required to provide any certifications in connection

with any subsequent SEC filings by the Company, and that any stock transferred to him under his

employment agreements would be free from restrictive legends which were otherwise required to be

imposed. Taken as a whole, the terms of the agreement – which would not have been required at all

if the facts were as publicly represented – reflect that Harl’s departure was the negotiated resolution

of a significant employment dispute, and not the orderly transition of power upon the planned-for

resignation of the chief executive that it was publicly represented to be.

162. WG also ousted Company President Collins as a result of the problems in the Oil &

Gas segment. On October 20, 2014 – the day before the restatement was publicly announced –

Collins and McNabb signed a Waiver and Release Agreement providing that Collins would

terminate his employment and forfeit $250,000 of the lump sum cash severance benefits he was

entitled to receive. The agreement further provided that vesting restrictions on 52,576 shares of

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stock he had received would be removed, and that Collins would be required to cooperate with WG

in pending litigation and other investigations and proceedings and be paid $300 per hour for doing

so. None of these agreements would have been made or been required if Collins had voluntarily

resigned his employment. As with Harl, the reasons for Collins’ departure were also sought to be

concealed by WG and McNabb. In an October 27, 2014 Report on Form 8-K, WG announced that

Collins had “resigned” on October 21, 2014 “to pursue other opportunities” and was being replaced

by Fournier. As with Harl, the circumstances of Collins’ abrupt departure strongly suggest that he

was forced out, and did not voluntarily resign his position. Collins’ separation agreement reflecting

the involuntary nature of his departure was not disclosed until March 31, 2015.

E. WG Restates Its 1Q14 and 2Q14 Oil & Gas Pipeline Profits

163. On October 21, 2014, WG announced that its prior financial statements were

unreliable due to a lack of effective controls over the reporting of profits and losses from pipeline

construction contracts in its Oil & Gas business. WG stated its intention to restate at least its 2Q14

financial results and said it was reviewing its business to determine the need for further restatements.

The October 21 Earnings Release stated, in part:

The Company has identified approximately $22.0 to $24.0 million in deterioration of a significant pipeline construction project in the Company’s Northeast regional business within the Oil & Gas segment. This deterioration consists of the reversal of approximately $8.0 million in pre-tax income previously recognized and the recognition of approximately $14.0 to $16.0 million in estimated pre-tax losses at project completion. Although some of the project deterioration related to the third quarter of 2014, the Company has determined that a majority of these estimated charges should have been recognized in the second quarter of 2014. As a result, the Company expects to restate its second quarter of 2014 results and such results should no longer be relied upon. Additional information relating to the restatement is being disclosed in a Form 8-K being filed with the SEC. The Company now expects to report operating income of approximately $26.0 to $28.0 million for the nine months ended September 30, 2014, subject to the completion of its quarterly close procedures.

In addition, management, with oversight from the Company’s Audit Committee, is evaluating any impact on its prior conclusions of the adequacy of internal control over financial reporting and disclosure controls and procedures. The

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Company will amend, as necessary, any disclosures pertaining to its evaluation of such controls and procedures.

The Company’s Audit Committee is also overseeing an additional evaluation of this deterioration to determine its root cause and any impact on prior conclusions.

164. For the first two quarters of 2014, WG had already reported operating income of

$31 million – $3 to $5 million more than the $26 to $28 million that the October 21 press release

said the Company now expected to report after including income from the yet-to-be-reported third

quarter. When the restated results were finally reported, WG admitted that its actual operating profit

for the first three quarters of the year was just $12.7 million – barely 40% of what it had told

investors it had earned in the first half of the year alone.

165. Analysts and investors, who had been led to believe that WG has improved its

controls in a way that made the risks of such a misstatement remote, were shocked by the October 21

revelation, which caused WG’s stock price to drop 35% on exceptional volume of 3.7 million shares,

nearly ten times its daily average for the year, representing a one-day loss of nearly $140 million in

market capitalization.

166. In an October 22, 2014 research report, a UBS analyst wrote: “Following an ongoing

series of project challenges and profit disappointments, we expect WG to trade at a discount to

historical levels and peers until it executes with a consistent track record. We believe the new mgmt.

and the strategic changes currently being made are the first steps in the process.”

167. On October 22, 2014, the Company submitted a Report on Form 8-K to the SEC that

included the October 21 press release and stated, in part:

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review .

In connection with a review of the Company’s Northeast regional business within the Oil & Gas segment, the Company identified an error in the estimation process of a significant pipeline construction project. The correction of the error would result in the reversal of approximately $8.0 million in pre-tax income recognized in the quarterly period ended June 30, 2014 and the recognition of

- 55 - 1038793_1


approximately $14.0 to $16.0 million in estimated pre-tax losses at completion. The Company’s review of this matter is ongoing and therefore these amounts are subject to change. The Company is currently evaluating other contracts within its portfolio, as well as other previously reported financial information, to assess whether any other adjustments are required.

As a result of the error described above, on October 21, 2014, the Audit Committee of the Board of Directors of Willbros Group, Inc. after consultation with and based on the recommendation of management, determined that the Company’s unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2014, which were included in the Company’s Form 10-Q for such period, should no longer be relied upon. As soon as practicable, the Company will amend its Form 10-Q for such period to restate the unaudited condensed consolidated financial statements to correct the error identified herein.

Given the ongoing nature of this review, the forecasted filing date for the amended Form 10-Q for the quarterly period ended June 30, 2014 is uncertain. Management is continuing to review these matters to ensure it has fully determined the causes of the error and will continue to consider the impact of the error on its prior conclusions of the adequacy of internal controls over financial reporting and disclosure controls and procedures. The Company will amend, as necessary, any disclosures pertaining to its evaluation of such controls and procedures in connection with its amended Form 10-Q for the quarterly period ended June 30, 2014.

168. On November 12, 2014, WG filed a Report on Form 12b-25 announcing a further

delay in the filing of its 3Q14 financial results, saying it was “in the process of performing additional

reviews over the appropriateness of the accounting entries resulting from [the] material weakness” in

internal controls that caused the restatement. Following this announcement, WG’s stock dropped

13.1%, $0.69/share, on November 13, 2014 on volume of more than 1.2 million shares, more than

three times its average during the year.

169. On December 4, 2014, WG filed another Report on Form 8-K with the SEC stating

that its 1Q14 financial results would be restated to correct the overstatement of financial results

caused by the delay the reporting of the losses associate with the Seaway project until 2Q14. The

Report on Form 8-K stated, in part:

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review .

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On October 21, 2014, Willbros Group, Inc. (the “Company”) announced its intention to restate its unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2014 as a result of an error in the estimation process of a significant pipeline construction project located in the Company’s Northeast regional business within the Oil & Gas segment. In connection with its review of the pipeline business within the Oil & Gas segment, the Company identified an error in the timing of previously recognized pre-tax losses associated with another pipeline construction project. Specifically, the Company did not adequately perform project oversight reviews and monitor compliance with the Company’s policies and procedures around estimating total revenues, costs and profits at completion for this pipeline construction project. This project was completed during the quarterly period ended September 30, 2014. The amount of the adjustment necessary to correct the error will be estimated giving consideration to all material information relevant to the project through the date the Company’s financial statements are available to be reissued. Based on the Company’s current estimates, the accounting for the correction of the error, giving consideration to all project information to date, would result in the earlier recognition of an approximate $18.9 million charge to reduce contract profitability for the quarterly period ended March 31, 2014, of which $17.9 million was previously recognized during the quarterly period ended June 30, 2014. The Company’s review of this matter is ongoing and therefore these amounts are subject to change.

As a result of the error described above and after consultation with and based on the recommendation of management, on December 2, 2014, the Audit Committee of the Board of Directors of the Company determined that the Company’s unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2014, which were included in the Company’s Form 10-Q for such period, should no longer be relied upon. As such, the Company will amend its Form 10-Q for such period to restate the unaudited condensed consolidated financial statements and to correct the error identified herein.

The Company has concluded that the control deficiency that failed to detect the error constitutes a material weakness in internal control over financial reporting for the quarterly period ended March 31, 2014. As such, the Company will include amendments to any disclosures pertaining to its evaluation of the adequacy of internal control over financial reporting and disclosure controls and procedures in connection with its amended Form 10-Q for the quarterly period ended March 31, 2014.

170. WG filed amended Reports on Form 10-Q for 1Q14 and 2Q14 on December 15,

2014. The restated reports lowered the revenues and reduced the profits for both quarters, and

admitted that the lack of proper internal controls had rendered WG’s prior financial statements

unreliable and had given rise to contemporaneous material risks to the Company’s business that had

not been properly disclosed to investors.

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171. WG’s 3Q14 results revealed that the Oil & Gas segment had suffered an operating

loss of $42.5 million during the first nine months of the year, which defendants said was primarily a

result of the losses on the projects that had led to the restatement. McNabb said on the December 16,

2014 earnings call that WG’s business had not been impacted by falling oil prices: “[A]t the end of

the day, [WG’s customers have] got to keep these plants up and running,” he said. “I haven’t seen

the reaction that I saw, for example, in 2008, where people are shutting down projects .... We still

see strong activity in the shale oil, shale gas plays.”

172. The lack of project oversight reviews and compliance monitoring over the pipeline

construction projects in the Oil & Gas Division caused WG to overstate its contract revenues and

earnings and understate its contract costs in the following amounts, as further alleged in §VIII

below:

Summary of Restatements* Operating

Revenue Expense Income EPS

Overstatement Understatement Overstatement Overstatement 1Q14 $ 16,846 $ 2,4682 $ 18,049 $ 0.38 2Q14 $ 3,767 $ 10,861 $ 11,946 $ 0.24 Total $ 20,613 $ 13,323 $ 29,995 $ 0.62

*$000’s except EPS

173. The impact of the fraud complained of herein is greater than indicated by the

Company’s restatement. On March 17, 2015, the Company delayed reporting its 2014 Report on

Form 10-K, telling the SEC and investors that it had yet to calculate the full impact of its internal

control weaknesses in its Oil & Gas segment. In a March 17, 2015 Report on Form 12b-25, WG

explained the delay in filing its annual report: 3

As a result of the previously reported material weakness over the completeness and accuracy of estimated total revenues, costs and profits at completion for construction contracts accounted for under the percentage-of-completion method of accounting within its Oil & Gas segment, the Company

3 The delay also arose from the investigation into the material weaknesses in WG’s assessment of its debt obligations, as discussed in §VI(G) below.

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undertook additional testing and review around the contract estimate process and is still finalizing its estimates related to certain long-term construction contracts.

174. When WG issued its FY14 Report on Form 10-K, it revealed that the losses

associated with those projects had continued to impact the Company’s results in 4Q14, resulting in

an annual operating loss in the Oil & Gas segment of $54.4 million, even worse than the

$42.8 million loss that the segment had reported in FY13. The 10-K’s report on WG’s Oil & Gas

segment results stated: “Operating loss increased $11.7 million primarily related to increased losses

related to two significant pipeline construction projects in 2014” – i.e. , in the Seaway and Allegheny

Access projects.

175. Overall, the Company reported a $34.3 million sequential decline in operating income

for 2014. Welch said on the FY14 earnings call that the overall decline was also “primarily related

to the substantial losses on two significant projects in [the] oil and gas” segment. See also 2014

Report on Form 10-K at 39 (“Operating income decreased $34.3 million in 2014 primarily driven by

the deterioration of two significant pipeline construction projects within our Oil & Gas segment,

F. WG Falsely Claims that It Had Restructured Its Oil & Gas Business in a Manner that Had Corrected Its Control Problems and Restored Its Profitability

176. In the October 21, 2014 press release and on the next day’s conference call, WG

announced a significant restructuring of its Oil & Gas segment in response to the business conditions

revealed by the restatement. The Company said that it would reduce the number of business units,

exit some lines of business, and retrench others back to simpler projects with lower execution risks

and more corporate oversight.

177. McNabb would later admit that the decision to shut down the regional business had

been made well before it was announced. On WG’s 1Q15 earnings call on May 6, 2015, McNabb

said that: “we made a decision basically when I became CEO to get out of that business and vastly - 59 -

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change how we do business in the regions.” McNabb took over responsibilities as WG’s CEO on

August 29, 2014, more than two months before the restructuring was announced.

178. WG’s October 21 press release, stated, in part:

“The disappointing performance in the Oil & Gas segment is unacceptable. The senior management team, with active support from the Board, is taking immediate and decisive action. In addition to simplifying the structure of the Oil & Gas segment, we are bringing in new operations management and executive oversight with industry experience specific to the projects we currently have booked and the opportunities we are targeting. Our objective is to establish a stronger correlation between our work commitments and our execution resources in order to generate operating margins at or above our peer group.”

179. On the October 22, 2014 conference call, McNabb gave an example of the changes

being made, stating that Lineal, the business unit responsible for the Allegheny Access project,

which also had three other ongoing projects in the $8-$13 million range, would be “reverting back to

a small $1 million to $2 million gas distribution pipeline type scopes [of work].”

180. “The poor performance in oil and gas with eight business units is I believe a system

of too much growth to manage effectively as needed,” McNabb said in his prepared remarks at the

outset of the October 22 call, later adding:

And so for each of these business units, we’ve come out with a guideline in terms of how many projects we believe that can run concurrently without overextending themselves, that in part speaks to the point of the revenue reduction and Van’s comment that you’re going to see revenues in general come down a little bit across all those business units. But the objective here is [to] generate peer group margins on a [small pool] of revenue and a surplus that’s much further ahead than when we’re taking risks and overspending our business unit.

181. Fournier echoed McNabb’s comments, stating on the October 22 conference call:

“We’ve concluded that the oil and gas segment management team is spread too thin to support eight

business units. We’re taking action to address this.” Fournier said that WG needed to “increase the

amount of industry-specific talents in our pipeline construction business to ensure predictable

superior results,” “restructure[] the regional delivery of our services to [,we] want to more

effectively manage these businesses to ensure reliable reporting” and to “increase[] collaboration - 60 -

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between sales, business development, and operations to ensure that we capture and go to the field

with the correct skill set for those commitments supported with the correct project management

personnel and systems, receiving oversight from industry veterans with relevant experience for the

scopes of work we must deliver.”

182. At a November 20, 2014 analyst presentation, McNabb said that the regional business

had “created most of the problems for us and oil and gas in general” and that the problems had been

identified and had been or were in the process of being fixed:

Well, on the quality side of things, we fixed that and that’s been rectified. And on the other energy transfer side, Sunoco is getting the perfectly good pipeline that we just lost money on. See, the thing is that typically, we haven’t had quality problems ever at Willbros. And the reason our customers like us is that we produce good product for them. In other words they own things that we built that work. Instead our problem lately [is] that we actually lost shareholder money on poor performance, but it’s not this, it’s the execution. And so it’s obvious to me with three businesses to work that this can be fixed. It’s not an epidemic problem all around our business with the enterprise.

183. During the November conference McNabb said that the Company had been asked by

customers if, as a result of the restatement, WG was strong enough financially to carry out large

construction projects, and that the Company was responding to such questions but “it hasn’t deterred

us and it won’t.” After the Class Period ended, however, WG revealed that customer pushback had

had a much greater financial impact than previously disclosed. On WG’s 1Q15 conference call on

May 6, 2015, Fournier admitted that many customers had taken their business elsewhere so “they

really just don’t have to deal with that complication” of doing business with WG:

The question and solution we have come up with our clients is regaining their confidence on awarding us the larger pieces of work and that’s my focus . . . . That’s where we’re spending our time is trying to understand what it will take and when does the pendulum come back our way with respect to demand for services are significant enough that they’re saying, yeah, we want to sit and work through this issue with you.

184. McNabb also provided investors with more color on the restructuring plans at the

November conference, telling participants that WG was going to shrink the regional business, down - 61 -

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to three business lines from eight and focus primarily on projects to build large 36- and 42-inch gas

pipelines.

So we’ve totally changed the way we’re looking at our regional delivery practice. We’re not doing field service, we’re not doing call-out work, we’re not going to have trucks and people sitting around drinking coffee, waiting on a call. So we’ve turned that back – turned all of that business back into a project business. We know how to do that. And we’re not going to do what we’ve been doing in the past. People should be happy with that, and hopefully, in 2015, you’ll see the manifestation of that.

185. The nature and impact of the restructuring changes, together with the explanations of

why they were needed, were a tacit admission that defendants’ prior representations about the

competency of the segment, the strengthening of its controls, and its ability to capitalize on increased

opportunities for growth were false. A KeyBanc analyst characterized the restructuring in an

October 27, 2014 report as giving its Oil & Gas business “a narrower band of managerial ownership”

with increased corporate oversight, to retrench the business “back to legacy core operational

profile[s] for units with execution/estimation issues,” and to sell off assets to create a “Smaller, but

Less Risky Company.”

186. On the October call and again at the November investor conference, defendants said

that the Company’s restructuring efforts, including the reduction in the size of its regional business

and the sale of assets to pay down the Company’s debt, would result in a reduction of annualized

revenues to $1.6-$1.7 billion, approximately 23% below its prior forecast. On the December 16,

2014 earnings call, McNabb touted the benefits of the reorganization, assuring investors that while

revenues would be lower so would its costs, and the business had been refocused on projects that the

segment had the experience and financial ability to handle.

187. In addition, Fournier told investors that WG had added additional controls to the Oil

& Gas segment to prevent a recurrence of the problems that had led to its poor performance during

the year: “We have also created additional positions to bolster oversight and operational control. We

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are transitioning to an enhanced project review cycle to ensure more in-depth reviews can be

accommodated and improve the timeliness of communication.” Fournier also told investors that WG

had “made an evaluation of the remaining regional businesses and put in place in-term solutions

where we found potential risks” and intended to “implement recommendations for permanent

solutions in the first quarter of 2015.”

188. These assertions were not true. At the end of 1Q15, WG shut down the regional

business, admitting that its control weaknesses had never been corrected. An example of the

uncorrected problems is provided by CW-9, who joined WG’s regional office in Evans, Colorado, on

December 4, 2014, and was the only project controls employee for the entire office. CW-9, who had

formerly worked in a similar role for 23 years at Bechtel, said that the office did not have the

controls and procedures necessary to track the progress of its projects. CW-9 said that he received

no training when he was hired, and was never provided with any training or control materials, told

what procedures the Company wanted him to follow in assessing the progress or profitability of its

projects, or directed to any oversight, operational control or project review procedures that WG had

implemented to ensure that any controls it had adopted were followed. When CW-9 showed up for

work, he was told simply “here’s your office, here’s your computer.”

189. CW-9 said he later attempted to find WG’s control policies and procedures by

searching WG’s computer server – which was generally available Company-wide – and found

scattered references to controls but no comprehensive set of policies and procedures. CW-9 said

that, despite extensive searches on the server and requests to other WG employees for guidance, he

was never able to locate the controls needed to effectively track the progress of projects, such as

procedures for calculating earned man-hour units. Man-hours is a standard unit of measurement in

the industry to convert various project components to a single metric that can be used to track project

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progress and costs. CW-9 said that WG’s project managers were unable to accurately calculate or

consistently report earned man-hours without a standard procedure for doing so.

190. CW-9 said that on January 28, 2015, WG unexpectedly fired half of the Evans office.

No reason was given for the action. The office was disbanded in March 2015, and CW-9’s

employment was terminated.

191. During his time at the Evans office, CW-9 was primarily responsible for tracking two

projects: the ZAP Rocky Turbine project in Colorado and the Turnkey Centennial project in

Wyoming. CW-9 said that the project managers (Brett Riemenschneider on ZAP Rocky and Will

Aronstin on Turnkey Centennial) repeatedly refused or delayed responding to requests for the plans

and data necessary to track the projects, including earned man-hours, “take-offs,” project plans with

mark ups ( i.e. , identifying the completed portions of the project on a drawing on of the entire

project), and other data. CW-9 described a number of other problems on those projects, including

lost equipment and double orders of material and equipment. CW-9 said the ZAP Rocky Turbine

project was about 400% over budget and finished two months behind schedule. CW-9 said neither

he or the acting manager of the Evans office in January 2015 (Melvin Rogers) were able to compel

the project managers to make accurate or complete reports, and that there were no systems in place

or efforts made outside of the Evans office to assess or compel compliance by Riemenschneider and

Aronstin with project controls.

192. After the end of the Class Period, WG admitted that the costs of running the regional

business were too excessive to generate a profit, leading it to shut down the business altogether. WG

told investors that the high cost of running the regional business was the reason for the financial

problems that continued to plague the Company after the restatement and restructuring of operations

was announced. “The problem [is] within our regional delivery model. Fix that and we fix

Willbros,” McNabb said at the outset of WG’s FY14 conference call on April 1, 2015. Welch

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acknowledged later on the call that the regional business had been “a continuous drag on the

company . . . in 2013 and 2014.” WG’s FY14 Report on Form 10-K stated that the decision to exit

the regional business was based on its “high indirect and support costs.” On the 1Q15 earnings call,

McNabb again explained the reasons for the decision to exit the regional business: “ It wasn’t

managed well, wasn’t profitable and we’ve basically eliminated that business.”

193. Fournier admitted on the FY14 earnings call on April 1, 2015 that the high costs

resulting from WG’s ineffective project controls and said the operation of its regional business had

been negatively impacting WG’s overall performance since 2013:

Operationally I am confident we have taken the necessary actions to eliminate large losses at the project level. These changes along with the elimination of the operational risk of the highly decentralized management structure of the regional delivery model address the basic causes for the failures of the Oil & Gas segment and the impact to the Company’s overall results for the past two years.

194. Fournier said on the call that the regional business had lost $49 million during the

year. WG closed its regional offices in the Permian and Northern Plains areas serving the shale oil

and shale gas industry, telling investors the offices had lost money on revenues of approximately

$250 million during the year. WG ceased doing MSA and call out work due to the high cost of

providing those services, which it said was a primary contributor to its $617.9 million decline in

backlog. Significant staffing cuts and other cost-saving measures were initiated on the parts of the

regional business that remained, including at Lineal, which was refocused on the traditional small

projects and maintenance work that it had the expertise to handle, and stopped competing for

projects like Allegheny Access that it could not.

195. In describing its reorganization plans in its 2014 Report on Form 10-K, WG tacitly

acknowledged that the claims about the success of its prior efforts to improve project management

and internal controls in the Oil & Gas segment were false, and promised – yet again – to bring

proper oversight to the business:

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Changes in leadership and operating philosophy in 2014 in our Oil & Gas segment were intended to improve its regional delivery services and bring stability to its remaining operations. However, the losses incurred, coupled with failures in management oversight and poor project execution, in 2014 have resulted in a reorganization in this segment. . . . This reorganization is designed to flatten the organization and bring more experienced and capable project execution teams and top-line leadership on board. The regional strategy has been replaced with a model to address these markets as project opportunities. Projects will be conducted with management and oversight from segment management, and with project execution by teams and resources established to focus on each discrete project commitment.

G. WG’s Repeated Debt Covenant Violations

196. WG’s restructured operations still relied on significant debt to fund ongoing

construction projects and meet other working capital requirements, particularly for the large gas

pipeline projects it wanted the regional business to focus on. After the restatement was announced,

defendants repeatedly, and falsely, asserted that WG would have sufficient liquidity – i.e. , cash flow

and borrowing availability – to fund its restructured business when, in fact, it did not.

197. In the October 21, 2014 press release announcing the restatement, WG told investors

that it “intend[ed] to generate between $100.0 million and $125.0 million, primarily for debt

reduction, from the sale of assets.”

198. On the October 22, 2014 conference call, McNabb said that the Company was “not in

any defaults on any of our covenants.” Upon further questioning from analysts, McNabb reiterated:

“as of Q3, we’re within all of our covenant requirements for leverage ratio as well as the interest on

this ratio” This was not true. At the time McNabb made that statement, WG’s interest coverage

ratio was 3.19:1, lower than the 3.50:1 minimum required by debt covenants in both the revolver and

term loan, placing WG in breach of both agreements and giving the lenders the right to immediately

call the debt.

199. On November 17, 2014, WG filed a Report on Form 8-K with the SEC announcing

that, as a result of the restatement, it had requested and obtained amendment to its $150 million

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revolver to relax the debt covenants and make them easier to meet. The amended and prior

covenants were as follows:

November 12, 2014 Amendment to Credit Agreement Minimum Interest

As of Coverage Maximum Total Leverage end of: Original Amended Original Amended 3Q14 3.50:1 2.75:1 3.00:1 3.00:1 4Q14 3.50:1 2.00:1 3.00:1 4.50:1 1Q15 3.50:1 2.00:1 2.75:1 4.50:1 2Q15 3.50:1 2.00:1 2.75:1 4.50:1 3Q15 3.50:1 2.50:1 2.75:1 4.00:1 4Q15 3.50:1 2.50:1 2.75:1 3.50:1 1Q16 3.50:1 2.75:1 2.75:1 3.25:1 2Q16 3.50:1 3.00:1 2.75:1 3.00:1 3Q16 3.50:1 3.50:1 2.75:1 2.75:1

200. WG’s restated financial results, issued on December 15, 2014, revealed that it had

failed to maintain its minimum Interest Coverage Ratio in 1Q14, was barely above the minimum at

2Q14 leaving it without sufficient liquidity to fund its operations (or the upcoming WAPCo

settlement), and would have fallen out of compliance again in 3Q14, had its borrowers not agreed to

renegotiate the agreements following the announcement of the restatement:

(a) For 1Q14, WG had reported that it had an Interest Coverage Ratio of 3.92:1, above the required ratio of 3:50:1. WG’s restated 1Q14 financial statements show that its Interest Coverage Ratio was actually 3.34:1, below the minimum requirement of its borrowing agreements, resulting in an event of default;

(b) For 2Q14, WG had reported that its Interest Coverage Ratio had climbed to 4.17:1, apparently providing it with an added cushion to obtain liquidity needed to run its business while preserving its ability to fund the WAPCo settlement due at the end of the year. WG’s restated 2Q14 financial results show that its Interest Coverage Ratio actually stood at just 3.57:1, only 0.07 above the minimum threshold, meaning WG did not then have sufficient access to the additional capital needed to continue running its business; and

(c) WG did not timely report its 3Q14 financial results. WG’s 3Q14 Report on Form 10-Q shows that WG’s Interest Coverage Ratio at the end of the quarter stood at just 3.19:1, again well below the minimum threshold required by the revolver prior to its November amendment, and still below the threshold required by the term loan, which had yet to be refinanced.

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201. The market reaction to these disclosures was limited and counteracted by defendants’

contemporaneous assurances that the negative consequences of the violations had been avoided

through the refinancing and renegotiation of WG’s borrowing agreements to waive the defaults and

relax the debt covenants going forward. Thus, the continuing risks to WG ability to comply with the

terms of its borrowing agreements – and thus to its profitability, liquidity and solvency – continued

to be concealed from investors.

202. On November 20, 2014, McNabb spoke at the Three Part Advisors LLC Southwest

IDEAS Investor Conference, an annual event in Dallas “focused on bringing together influential

professional investors with under followed/under appreciated public companies.” During his

presentation, McNabb repeatedly assured participants that, despite the recently-announced

restatement, WG had made and was continuing to make management changes and control changes to

address the issues that had led to the overstatement of revenues and profits. “[W]hat I want to focus

on is we are a compliant company,” McNabb said.

203. During his presentation, McNabb reiterated WG’s plans to restructure its balance

sheet, using a presentation slide that described WG’s plans to sell $100-$125 million in assets to

reduce its debt and overhead, and highlighted the amendments that had been made to the revolver to

relax the minimum interest coverage and maximum leverage covenants. The final slide in

McNabb’s presentation was titled “Why Invest in WG?” and suggested that WG was undervalued

because investors had not accurately factored in the purported strengths of the changes made to the

Company’s balance sheet and its Oil & Gas operations.

204. On December 15, 2014, contemporaneously with the release of its restated and 3Q

financial results, WG announced that it had negotiated a new five-year term loan with a private

lender to pay off its existing $250 million term loan. The minimum interest and maximum leverage

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ratios under the new term loan were the same as those in the revolver, as set forth in the chart above.

The loan closed on December 16, 2014.

205. The new term loan was for $270 million, approximately $50 million more than the

balance under the old term loan as reported on the October 22 conference call. The excess funds

were used to pay the $32.5 million WAPCo settlement obligation because WG did not have

sufficient free cash flow to pay the settlement from operating profits. An additional $6.6 million was

used to pay a penalty on the early payoff of the prior term loan.

206. The new term loan was arranged by KKR, acting through various partnerships and

affiliated entities. At the time the loan was negotiated, KKR and McNabb were joint partners in an

oil and gas exploration business, unrelated to WG. The negotiations with KKR commenced and

were largely concluded more than a month before the term loan was announced. At a November 20,

2014 investor conference, McNabb said in his prepared remarks that the Company had a term loan

with “big lenders KKR and Redwood” who were “currently lenders of ours,” but then evaded or

refused to answer any further questions about the new borrowing agreement.

207. In WG’s December 15, 2014 press release announcing the refinancing, McNabb said

the new agreement would free up the revolver to address working capital needs, adding: “‘We also

have greater flexibility with respect to our loan covenants and maintain the ability to reduce the debt

with proceeds from the asset sales we expect to accomplish as we move into 2015.’” WG’s

January 6, 2015 press release announcing that the final WAPCo payment had been made similarly

touted the increased flexibility and borrowing capacity WG purportedly had under its new credit

agreements.

208. With the restructuring plan firmly in place, the WAPCo obligation fulfilled, and the

management changes and restatement behind the Company, WG’s problems appeared to be receding

into the past. The Company’s assurances that, with the relaxed debt covenants and refinanced term

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loan in place, it now had the liquidity and financial flexibility to execute that plan, further reassured

investors that WG was on its way to executing its new business model to create a smaller but more

reliable business platform unencumbered by the control weaknesses and losses of the past.

209. This positive outlook outweighed the negative information reported in the

restatement, causing WG’s stock price to rise by a net $0.99/share on December 16, 2014, a one-day

increase of nearly 25% in value on volume of more than 2 million shares, five times its daily average

during the year.

210. On December 22, 2014, Moody’s Investor Service changed WG’s outlook to stable

from positive. The actions that WG had taken to renegotiate its debt and restructure its balance

sheet, and its assertions that it had sufficient liquidity to fund its restructuring plans, were

instrumental in avoiding a bigger downgrade. Moody’s announcement of the ratings actions stated,

in part:

The restatement of Willbros financial statements and the resulting delay in the filing of its third quarter financial statements put the company in violation of certain covenants and required a waiver from its credit facility lenders, which was received in December 2014. Willbros also amended its term loan facility in November 2014 to obtain covenant relief since it would have breached the minimum interest coverage covenant. Willbros then established a new $270 million term loan with KKR Credit Advisors and repaid its previous term loan B, which had an outstanding balance of $214 million as of September 30, 2014. The new term loan increases the company’s liquidity and provides it with additional financial flexibility, but it also increases its leverage and interest costs.

Willbros operating results are likely to improve in 2015 as it benefits from cost reduction initiatives and reduced losses in its Oil & Gas division due to more conservative bidding and improved execution as it refocuses on its core competencies. . . . Willbros is likely to produce relatively stable credit metrics in 2015 with its leverage ratio (Debt/EBITDA) remaining at about 4.3x and its interest coverage relatively flat at around 1.2x due to increased borrowings and higher interest costs. These ratios could improve if Willbros is successful in its attempt to sell non-core assets. . . .

Willbros speculative grade liquidity rating of SGL-3 reflects its adequate liquidity. The company had $102 million of liquidity on September 30, 2014 consisting of about $49 million in cash and $53 million of borrowing availability. Willbros’ liquidity increased to about $148 million in mid-December including

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approximately $95 million in cash and around $53 million of borrowing availability. The increase in liquidity was attributable to the company establishing a new term loan facility. The company is expected to maintain adequate liquidity over the next 12 to 18 months as it utilizes the proceeds from its upsized term loan and free cash flow to fund the remaining $32.7 million WAPCo legal settlement and modestly reduce its term loan debt.

Willbros stable outlook assumes its management is able to improve the oversight of project bidding and execution and substantially reduce the number of unforeseen negative issues that have arisen periodically on projects in the past. The outlook also reflects the expectation that its operating results and credit metrics will improve over the next 12 to 18 months.

* * *

Downward rating pressure could develop if Willbros sustained its adjusted leverage above 5.5x or its interest coverage below 1.0x. Downward rating action could also occur if its margins deteriorate substantially, its liquidity is significantly reduced or the company does not maintain compliance with its bank covenants.

211. On the news that WG’s outlook remained stable despite recent events, WG’s stock

price rose by 8.8% on December 23, 2014 on volume of 619,600 shares, approximately 1.5 times its

average daily volume during the year.

212. In fact, the Company did not have the financial flexibility or borrowing capacity to

carry out its new business plan, or generate the business growth necessary to comply even with the

significantly relaxed debt covenants in its new borrowing agreements.

213. On March 17, 2015, WG delayed the release of its 2014 Report on Form 10-K,

announcing that it would be unable to maintain compliance with the less stringent minimum interest

and the maximum leverage requirements under its new and amended borrowing agreements. WG

told investors that it would need to again renegotiate those agreements or its ability to continue as a

going concern would be in doubt:

The Company does not expect to be in compliance with its Maximum Leverage Ratio and Minimum Interest Coverage Ratio for the period from March 31, 2015 through March 31, 2016. As a result, the Company is in discussions with its lenders regarding amendments and waivers to its credit agreements. Without a definitive waiver or amendment, all indebtedness under its credit agreements would become due in the next twelve months. If the debt under the Company’s credit

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agreements becomes accelerated and the lenders demand repayment, it is expected that the Company will not have sufficient forecasted liquidity to retire its existing debt obligations, which raises substantial doubt on the Company’s ability to continue as a going concern. The Company is engaged in discussions with its lenders with regard to any necessary waivers and amendments but gives no assurance that any such waivers and amendments will be finalized. As a result, the Company is unable to accurately evaluate and disclose the impact of significant risks and uncertainties associated with the Company, including its potential non-compliance with certain financial covenants.

214. On this news, WG’s stock price collapsed, falling to an all-time low of $1.50/share

before closing at $2.69 per share, a one day net drop of 50% in value that caused a loss of more than

$141 million in market capitalization.

215. On March 18, 2015, the Wall Street Journal reported:

In a research note, Stifel Nicolaus said Willbros management sounded optimistic that the company could obtain the needed waivers from its lenders by the end of the month. Stifel also said that if the company isn’t able to obtain such waivers, there is a risk of a possible “fire sale” of its assets. Though Stifel sees little liquidation value in Willbros, the investment bank estimated the equity value of its shares between $3 and $5 each if its businesses were sold off separately.

A Willbros spokesman wasn’t available to comment.

If the waivers or amendments aren’t received, all of the company’s debt under its credit agreements would come due over the next 12 months, leading to a liquidity crunch and raising significant doubts about its ability to continue as a going concern.

216. The Report on Form 12b-25 admitted that at the end of 2014 WG had known about

the conditions that would cause it to violate the debt covenants, yet failed to take those matters into

account in forecasting compliance with the renegotiated covenants or telling investors that the

changes to its borrowing agreements had provided it with the flexibility needed to address its

working capital needs. The 12b-25 report stated:

The Company has determined that a material weakness existed at December 31, 2014, over the assessment of significant risks and uncertainties associated with its ability to comply with financial covenants contained in its credit agreements, and over the assessment of its ability to meet its liquidity and capital resource needs for a reasonable period of time primarily as a result of not reflecting certain business conditions timely and adequately in its forecast process.

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217. In a March 17, 2015 press release announcing the delay in filing the 2014 10-K

report, McNabb asserted that:

“The downturn in energy prices is clearly affecting our industry and we have re-evaluated our outlook for 2015. We believe the actions we have taken to reduce overall costs and reformulate our Oil & Gas segment should result in a leaner and more reliable business model. Our fourth quarter 2014 and first quarter 2015 results will be impacted by challenging conditions and the impact of the internal actions we are taking to reduce the size of our Oil & Gas segment. We are planning for a year of intense competition and remain focused on completion of the previously planned asset sales, cost discipline and preservation of liquidity.”

218. WG’s 2014 10-K, issued March 31, 2015, confirmed that the errors in the Company’s

forecasts of its liquidity, working capital needs, and debt covenant compliance occurred “primarily

as a result of not reflecting certain business conditions timely and adequately in our forecast

process.” The report went on to state that to remediate the weaknesses in its internal controls over

debt and liquidity requirements WG would:

Implement additional controls and procedures to ensure the necessary steps are taken such that Management considers historical performance, the macro-economic environment in which the Company operates and other Company-specific facts and circumstances in developing appropriate Company-wide forecasts to assess future compliance with financial covenants and liquidity and capital resource needs.

219. WG’s disclosures confirm that historical performance, macroeconomic factors, and

Company-specific facts had not been taken into account at the end of 2014 in telling investors that

the Company would have sufficient liquidity to operate its restructured Oil & Gas business while

maintaining compliance with the debt covenants and other terms of its borrowing agreements.

Defendants were severely reckless in making such statements without taking such basic information

into account, and knew that in the absence of considering such information their projections were

unreliable and would be misleading to investors.

220. Reduced revenues or demand for services substantially increased the risk of a debt

covenant violation. See WG FY14 Report on Form 10-K at 18 (“If our results of operations do not

improve, we may not have sufficient cash on hand to prepay sufficient credit agreement indebtedness - 73 -

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in order to avoid a financial covenant default following the completion of the Covenant Suspension

Period and fund our working capital requirements”); see also id. at 46 (“Cash flow from operations

is primarily influenced by demand for our services, operating margins and the type of services we

provide”). Defendants therefore knew that historical results, macroeconomic trends, and Company-

specific facts that had or could potentially have a material impact on its revenues were highly

important to the reliability of its forecasts of capital resource needs, liquidity, and debt covenant

compliance.

221. WG has yet to specifically or directly identify the “certain business conditions” and

“Company-specific facts and circumstances” that weren’t taken into account in telling investors that

it had sufficient liquidity to run its business. After the end of the Class Period, however, WG

asserted that its inability to comply with its debt covenants had resulted from: (i) the high costs of

running its regional business; (ii) the loss of business from customers unwilling to send work to the

Company due to its financial problems; and (iii) the falling price of oil. All three of those conditions

existed by the time of the November investor conference and the mid-December release of WG’s

restated and 3Q earnings, when defendants falsely told investors that none of them were negatively

impacting or posed a risk to WG’s business.

222. Any impact that falling oil prices had on WG’s business was limited, and not a

significant contributor to its liquidity problems or its inability to comply with the terms of its

borrowing agreements. On WG’s December 16 conference call – after oil prices had already

declined significantly – analysts asked about the impact on WG’s business and McNabb and Welch

asserted that WG’s business was largely insulated from such market factors: “[W]e see some deferral

slowdown of maintenance spend. But at the end of the day, they’ve got to keep these plants up and

running. And so they can defer some maintenance 3 to 6 months, but ultimately our experience is

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that, that work remains. I haven’t seen the reaction that I saw, for example, in 2008, where people

are shutting down projects . . . .”

223. WG’s post-Class Period statements reflect that the primary cause of WG’s lowered

revenues was the ongoing poor performance in its regional Oil & Gas business and the loss of

business from customers unwilling to risk WG’s inability to perform due to the financial instability

caused by its restatement and the repeated breaches of its borrowing agreements. Any reduction in

demand due to the falling price of oil would result from a contraction of the overall size of the

market. However, as reflected by Fournier’s statements on the 1Q15 call, that impact was felt

disproportionately by WG – not because WG was more at risk of lost business due to falling oil

prices, but because customers had no need to take on the risks of hiring the financially-troubled

Company to carry out its projects. Thus, Fournier said, business for WG was not expected to pick up

until market demand increased sufficiently so that its competitors were too busy to handle additional

work. Supra ¶183 (“when does the pendulum come back our way with respect to demand for

services are significant enough that [customers are] saying, yeah, we want to sit and work through

this issue with you”).

224. Taken as a whole, WG’s disclosures reflect that: (1) the inability to maintain

compliance with the debt covenants was in substantial part due to the actions taken to restructure the

Oil & Gas business in response to the problems revealed by the restatement and to re-assess the

profitability of its long term construction contracts and its regional business operations; (2) the

impact, if any, of the downturn in oil prices on WG’s business was not a recent development but had

been known to the Company, and ignored in forecasting compliance with its debt covenants, at the

end of 2014; and (3) WG did not have sufficient liquidity to operate its business for the coming year,

even under the significantly relaxed requirements of its borrowing agreements.

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VII. FRAUDULENT STATEMENTS AND OMISSIONS DURING THE CLASS PERIOD

225. During the Class Period, WG, Harl, Welch and McNabb, acting with scienter, each

made, authorized, or had ultimate authority over statements that were materially false and misleading

to investors or omitted material facts necessary to make them not misleading under the

circumstances, as detailed below and summarized in the chart attached hereto as Exhibit 2.

226. The statements alleged herein were misleading both individually and collectively.

The false and misleading information in each statement corroborated and bolstered the false and

misleading information in each of the other statements, such that the capacity of each individual

statement to mislead was greater than it would have been in the absence of the other false and

misleading statements and material omissions alleged herein and the context in which each of those

statements was made.

227. Each of the defendants had contemporaneous knowledge that the statements alleged

herein were materially false or would be materially misleading under the circumstances in which

they were made, including because material facts about the subject matter of those statements had

not been disclosed. Defendants knowledge or severe recklessness to the false or misleading

character of the statements is based on the facts alleged herein, including information that was made

known to each defendant at the time of the misrepresentations herein alleged and information which

was available to them or which would have been discovered upon a reasonable investigation of the

circumstances existing at the time the statements were made. WG’s knowledge of the facts and

circumstances alleged herein is imputed from the knowledge of its senior managers and executives

overseeing the two projects, and from the knowledge of its senior executives, including Harl and

Welch, who either had contemporaneous knowledge of the matters concealed from investors as a

result of their positions of responsibility in the Company and the improved project controls they

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claimed existed at that time, or they were severely reckless in not knowing and in falsely stating and

certifying to investors that such controls did in fact exist at the time.

228. The statements alleged to be misleading herein were made in press releases issued by

WG, reports filed by WG with the SEC, on investor and analyst conference calls hosted by WG, and

at investor presentations at which WG’s management appeared and spoke on its behalf.

229. WG’s press releases were initially distributed to media outlets and the market by PR

Newswire Association LLC and disseminated further thereafter by other news organizations,

financial analysts, investor websites, and other sources of information for investors. The contents of

press releases issued by WG were authorized, reviewed or approved by Harl, Welch and McNabb, or

they had a duty to do so, during the time that they were officers or executives of the Company or

acting as such.

230. Analysts representing Avondale Partners, KeyBanc, D.A. Davidson, Stifel Nicolaus,

Credit Suisse, UBS, CLSA and other major Wall Street brokerage houses participated in and asked

questions during the conference calls hosted by WG during the Class Period. WG publicized its

conference calls in advance, and an audio archive of each call was maintained on the Investor

Relations portion of WG’s website, www.willbros.com , where it could be listened to by investors.

Written transcripts of the calls were also published and disseminated by Thomson Reuters and other

services.

231. Copies of WG’s quarterly earnings releases and transcripts of its conference calls

were submitted as Exhibits 99.1 and 99.2 to Reports on Form 8-K filed by WG with the SEC on

March 5, 2014 (for FY13), May 9, 2014 (for 1Q14) and August 8, 2014 (for 2Q14). WG’s press

releases, conference call transcripts and recordings, investor presentations and financial information

were also posted on the Investor Relations portion of WG’s website. Recordings or written

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transcripts of most of WG’s investor presentations were also available to investors on Bloomberg or

through links on the conference sponsor’s website.

232. The information discussed in WG’s press releases, on its conference calls, at its

investor presentations, and in its SEC reports was reported by news organizations and discussed in

analyst reports and on the Internet and, as a result, the information communicated in those

documents and on those calls became widely available to investors and reflected in the market price

for WG securities.

A. FY13 Earnings Release, Conference Call and 10-K Report

233. Defendants told investors at the outset of the Class Period that WG had significantly

improved and strengthened the Company’s internal policies, procedures and controls to bring more

discipline to contract procurement and performance, particularly in its Oil & Gas segment, and that

the effectiveness of these new controls were reflected in WG’s purported improvement in operating

results. Defendants knew that each of the statements – alleged below and summarized in Ex. 2 (##1-

5) – was materially false or would be misleading to investors under the circumstances, or they were

severely reckless to the false and misleading nature of the statements.

1. Misrepresentations and Omissions

234. During late 2012 and continuing into 2013, significant losses in WG’s regional

pipeline business had negatively impacted the Company’s overall financial results, as described

above. WG’s 2013 10-K told investors that the control weaknesses that had led to these losses had

been identified and corrected:

We have implemented a core set of business conduct practices and policies that have fundamentally improved our risk profile including diversifying our service offerings and end markets to reduce market specific exposure, and focusing on contract execution risk starting with our opportunity review process and ending at job completion.

* * *

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Positive operating performance in our pipeline and facilities services was more than offset by project issues in our regional delivery services within our Oil & Gas segment, which began in the fourth quarter of 2012. As such, we concentrated our management efforts on improving these operations which has resulted in sequential improvement each quarter in 2013. We believe that the changes in our Oil & Gas segment leadership, specifically our regional delivery services, coupled with improvements made in our estimating process and project management , will continue to positively impact our performance into 2014.

235. The 2013 10-K Report continued:

Last year, we continued to deliver sequential operating improvement and three of our four segments generated positive operating performance. The rapid growth we experienced in our regional delivery services within our Oil & Gas segment outpaced our management capacity resulting in significant deterioration to our overall financial results. The regional market demands local presence, more front line management and back office support. At the beginning of the year, we changed leadership within the Oil & Gas segment and added management talent to provide more oversight and training . Additionally, we improved the back office systems and tools required for these transaction-intensive locations. We have established clear performance standards and an assurance process to verify that these standards are being met . These actions are proving successful with quarter-over-quarter improvement, and we believe these issues have been adequately addressed.

236. The importance to investors of these representations and assurances, particularly the

assurances about process improvements and the design and effectiveness of WG’s internal controls,

was heightened by the Company’s history of past internal control violations which had negatively

impacted its financial condition. The 2013 10-K noted that the Company had identified material

weaknesses in its internal controls over financial reporting in 2004 through 2007 and at the end of

2010 and 2011, but told investors that “ all of these material weaknesses have been successfully

remediated .”

237. In WG’s FY13 Earnings Release issued after the market closed on February 27, 2014,

Harl was quoted as follows:

“In the Oil & Gas segment, operations improved and we have addressed the issues that led to the losses generated by our regional delivery services . Our actions are proving successful, with three consecutive quarter-on-quarter improvements. We have also established clear performance standards and an assurance process to verify that these standards are being met .”

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238. Harl reiterated these assurances during the FY13 earnings conference call held on

February 28, 2014, the first day of the Class Period, when he told investors that “ Our culture of

accountability is driving our improved performance throughout the organization .” Harl went on

to state:

I believe we are positioned for a very positive, consolidated performance in 2014. We can deliver and here’s why. With our improved DSO and operating performance, our liquidity is substantially greater and is sufficient to operate our business and reduce debt. We have strengthened our processes and systems across the Company. The greatest impact from these improvements will be in our regional service lines, which we expect to improve by at least $40 million at the operating line in 2014 .

239. At the outset of the FY13 call, Harl told investors:

[T]he 2013 operating losses in our Oil & Gas segment’s regional delivery service line were very disappointing. We have addressed the issues that led to these losses and in the fourth quarter, the regional service lines generated a third consecutive quarter of improved operating results, with two of the three regional operations generating positive results.

In the quarter, the Oil & Gas segment generated operating income of $1.9 million, a $10.9 million sequential improvement. This positive change was driven by good performance on the Seaway project, and the return to near break-even in the regions. Our facilities and downstream businesses were impacted by weather, which hurt productivity and delayed delivery of materials. For the year, revenue generated by the Oil & Gas segment decreased $111.6 million over 2012, as a result of lower utilization of our cross-country pipeline resources.

In the first half of the year, we exercised patience and discipline with respect to the acquisition of new work. We began work on Seaway late in the third quarter. That project is now 88% complete. Upon completion of Seaway, we will redeploy resources to the NET project, maintaining utilization continuity.

240. Later in the call, Credit Suisse analyst Andrew Buscaglia asked Harl to “drill down a

little bit more on what you expect in [the Oil & Gas] segment in terms of maintaining profitability,”

and Harl responded as follows:

Andrew, we were pleased with the performance of a lot of pieces of the business. And so I think if you kind of go back to the script that we just went through, Pipeline Construction business has always been the centerpiece of our business. We were cautious in how we pursued the market early in the year, got held back, made sure we got the margins that we needed, the contract current

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terms that we needed in that business. And I think that what you saw in the fourth quarter with – starting with the Seaway project, is that strategy beginning to pay off for us .

* * *

So outlook for Oil & Gas, I think, is we’re back, and we’re back on the basis of a good backlog, changes in management and process and system . And I think we’re looking forward for a great year – to a great year, Andrew.

241. On the FY13 call defendants also assured investors that WG had the processes in

place to manage and reduce its debt, so as to provide it with the flexibility to meet its working capital

requirements and other obligations. Harl told investors on the call that: “With our improved DSO

and operating performance, our liquidity is substantially greater and is sufficient to operate our

business and reduce debt.” Welch stated on the call:

Our liquidity continues to improve along with our financial performance. . . . We believe that our financial results, combined with our current liquidity, and availability under our credit facility will provide sufficient funds to enable us to meet our working capital requirements and our planned capital expenditures, as well as facilitate our ability to grow in the foreseeable future.

242. Welch also said on the call that WG had the financial strength to pay off its WAPCo

obligation from operating cash flow, and also to significantly reduce the amount of outstanding debt:

We expect to reduce our term loan debt by approximately $30 million to $50 million, and fund the final payments due under the WAPCo settlement by the end of the year through cash flow from operations, and proceeds from potential asset sales.

*

One thing you need to keep in mind, and as we mentioned, the $30 million to $50 million is the term loan. We also have the liability associated with around – with WAPCo. That WAPCo liability is around $36.5 million. We’re going to pay both of those in the $30 million to $50 million, $30 million to $50 million. Let me back up, that $30 million to $50 million is strictly term loan pay down. So I’ve – in the past, I think we’ve said total debt, I’m guiding you towards $30 million to $50 million term loan debt reduction, as well as the payment of the $36.5 million on the WAPCo liability, all of that coming from operating cash flow and, as you mentioned, proceeds from asset sales.

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2. Reasons Why False or Misleading

243. The statements in the FY13 press release and conference call quoted above were

materially false and misleading to investors because: (i) WG had not improved operations in and

oversight of its Oil & Gas segment in the manner described or finished designing and implementing

new control policies and procedures, such that the business continued to have undisclosed material

weaknesses in its internal controls; (ii) WG omitted to disclose the losses from and risks associated

with the Seaway and Allegheny Access projects which rendered their other statements misleading

under the circumstances; (iii) WG omitted to disclose the risks associated with its liquidity and debt

covenant compliance forecasts, including its lack of effective controls to assure that current

information about the business was considered; and (iv) as a result of the foregoing, WG had no

reasonable basis to project that the Oil & Gas segment would be profitable or that the Company had

sufficient liquidity to operate its business in compliance with the terms of its borrowing agreements.

See Ex. 2 (##1-5).

244. Defendants’ statements about the purported improvements in WG’s controls over its

Oil & Gas business (Ex. 2, ##1-3) were materially false and misleading because, as defendants have

now admitted, the material weaknesses in the internal controls over the Oil & Gas segment had not

been remediated, and still existed at the outset of and throughout the Class Period. In particular, and

as alleged in more detail above, at the time the foregoing statements were made:

(a) The improved policies and procedures and other control changes were still being developed, and had not been implemented as broadly as defendants asserted. In addition, WG has admitted, and former employees have confirmed, that any new controls that were implemented were not being followed by its employees;

(b) WG had permitted its business units, including Lineal, to decide whether or not to adopt new control procedures, and to continue using existing controls that were outmoded or inadequate for the types of construction projects being performed;

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(c) WG has admitted that its regional operations: (i) had “poor operations, poor controls [and] great controls that weren’t [being] utilized”; (ii) lacked the management, skill and experience to handle its work, including management unqualified to oversee the type of work being performed; and (iii) was taking on more projects than it could handle, performing those projects with “very little control and oversight” and risking that the loss of “control over a single project [would] create significant losses” that would wipe out its profits;

(d) WG had unreported material weaknesses in its controls over the reporting of revenues, costs and profits from ongoing projects in the Oil & Gas segment and its other disclosures about the performance of that business, and over its reporting and forecasts about its debt, liquidity needs, and ability to maintain compliance with its debt covenants and other terms of its borrowing agreements;

(e) WG has admitted that the missing and ineffective internal controls included a failure to conduct project performance reviews or monitor compliance with policies and procedures regarding the reporting of profits and losses or accurately account for the percentage of completion of its construction contracts. WG has also admitted that control procedures that had been implemented were not being followed by management and employees in the Oil & Gas segment. Therefore, it was not true that WG had adopted a uniform set of improved controls over its Oil & Gas segment, “established clear performance standards and an assurance process to verify that these standards are being met,” or made meaningful “improvements . . . in our estimating process and project management” in the Oil & Gas segment; and

(f) The Company therefore had not “addressed the issues that led to the losses generated by our regional delivery services,” established “a culture of accountability,” or “strengthened [its] processes and systems across the Company, particularly in the regional service lines.” Neither was it true that there were “changes in management and process and system” that had materially improved the outlook for the Oil & Gas segment by the time of the call or that WG had materially improved its back office systems and tools so that the material weaknesses in its internal controls had “been successfully remediated.”

245. Defendants’ representations about the actual and anticipated performance on the Oil

& Gas segment (Ex. 2, #4) were materially false and misleading because defendants omitted to

disclose the deficiencies in controls over and other problems that had arisen on the Seaway and

Allegheny Access contracts and other ongoing construction projects, resulting in significant losses

materially impacting WG’s expected financial performance. In particular, and as alleged in more

detail above, at the time the foregoing statements were made:

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(a) WG had suffered, but not yet reported, significant losses on the Seaway project as a result of the defects in its construction revealed by the smart pig run through the line in January and February;

(b) WG had also experienced significant delays and cost increases during the start up of the Allegheny Access project. Lineal was making substantial payments to idle workers as a result of the project delays, vendors had begun questioning purchase orders that appeared to be in excess of reasonable needs for construction of the project, and cost overruns were the subject of significant attention by its management;

(c) In the absence of a disclosure of these circumstances, it was misleading to state that there had been a “positive change . . . driven by good performance on the Seaway project,” or that the reported results of the Seaway project were a reliable indicator of expected future performance or demonstrated the improvement in WG’s contract procurement and oversight procedures or that those efforts were “beginning to pay off for us”;

(d) As defendants have admitted, WG’s Oil & Gas segment, particularly its regional business lacked the skill, experience, controls, and project oversight to properly perform and manage the types of projects it was constructing. In addition, as defendants have also admitted, the costs of running that business were too high for it to be profitable on the margins under the MSAs and bid contracts governing its work. Thus, the Company had not been cautious in pursuing new work or held back to obtain the margins that would allow it to earn a profit; and

(e) Given the uncorrected control problems, the unreported problems affecting the regional operations, and the performance issues on the significant Seaway and Allegheny Access contracts, there was no reasonable basis for defendants to contend that the purportedly positive performance of the Seaway project or the reported 4Q operating results demonstrated the improvement in WG’s operations or was a reliable indicator of the anticipated future performance of its Oil & Gas business.

246. Defendants’ representations about WG’s liquidity and its ability to comply with its

debt covenants (Ex. 2, #5) were materially false and misleading in the absence of disclosures of the

control weaknesses and other risks to WG’s business, and because there was no reasonable basis for

those statements. In particular, and as alleged in more detail above, at the time the statements were

made:

(a) WG omitted to disclose the material weaknesses in its internal controls over its debt and liquidity forecasts;

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(b) WG omitted to disclose the control weaknesses and other problems in its Oil & Gas segment described in the preceding paragraphs;

(c) In light of the material weaknesses in its controls, WG had no reasonable basis to forecast its liquidity or working capital needs;

(d) It may be inferred from the material weaknesses in WG’s controls and the material omissions described above, that the same risks and circumstances that WG failed to disclose to investors about operations in its Oil & Gas segment had not been taken into account in forecasting WG’s borrowing availability, working capital needs, and debt covenant compliance; and

(e) As a result of the foregoing, it was misleading to assert that WG had sufficient liquidity and operating cash flow to reduce its debt and meet its working capital needs, or to assert that WG’s liquidity position was continuing to improve as a result of its financial performance.

3. Facts Supporting a Strong Inference of Scienter

247. The facts alleged herein, including those summarized below and alleged in more

detail above, strongly support the inference that, at the time of WG’s FY13 Earnings Release and

conference call, WG, Harl and Welch either knew or were severely reckless to the fact that the

foregoing statements and omissions were materially false and would be misleading to investors.

248. Defendants knew or deliberately ignored that their statements about the purported

improvement in WG’s controls would be materially false and misleading to investors because:

(a) At the time the statements were made, WG had not yet completed drafting the new controls or issued its best practices manual. Therefore, there was no possible basis for WG or Harl to claim, in the 10-K or on the earnings call, that, by February 28, 2014, the Company had already strengthened its controls, trained its employees, and implemented new performance standards and verified that those standards were being met;

(b) Prior to the outset of the Class Period, corporate audit reports and communications to the COO of the Oil & Gas segment had put WG on notice that Lineal had refused to adopt or adhere to the new Company-wide controls designed to provide accuracy and reliability in reporting the progress, revenues and expenses of projects like Allegheny Access, that its existing processes, controls and management were inadequate to govern a project of that size and scope. And that Lineal was not adhering to requirements that change orders be documented in writing and other procedures applicable to its business;

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(c) The efforts to improve WG’s controls were a core focus of WG’s business activities during the Class Period, and had been personally initiated by Harl in response to the significant losses suffered by the Oil & Gas segment in 2013, and thus was a matter of significant corporate focus and attention; and

(d) Harl’s and Welch’s positions in the Company, including their responsibility over internal controls, their repeated statements to investors about the existence and effectiveness and improvements to those controls, and their claims to have conducted an investigation of those controls in the preceding quarter, also lend further support for an inference of scienter.

249. The pervasiveness of the open and obvious problems in the Oil & Gas segment,

including the widespread lack of proper controls, oversight or experience in the regional business

and the high costs of running its operations, as described above, lend further support for an inference

of scienter with respect to defendants’ statements about the actual and anticipated improvement in

financial performance:

(a) Operating losses due to ineffective project management and oversight and other control weaknesses had already arisen on two of WG’s most significant on-going projects: Seaway and Allegheny Access. Both projects had been designated for additional corporate oversight and review due to their size, customers, and/or the nature of the work being performed;

(b) At the time of the foregoing statements, WG knew, from the results of the pigging that had been completed in January and February, 2014, that significant expenses were or would be incurred lowering the profitability of the Seaway project. Prior to the FY13 call, pigging reports reflecting at least 38 anomalies on the project had been completed and would have been sent to Harl and executives of the Oil & Gas segment (CEO Collins and COO Timpone), and the problems with the project were being openly discussed on weekly operations meetings attended by Collins and Timpone; and

(c) By the time of these statements, the Allegheny Access project was significantly behind schedule and over-budget, resulting in payments to idle workers that significantly exceeded the project’s start-up budget and required corporate authorization to incur. Collins had visited the project site in January and therefore knew of the start-up costs and delays, and construction work still had not commenced by the time of the FY13 earnings call.

250. Monitoring WG’s debt and working capital needs and maintaining compliance with

WG’s borrowing agreements was also a core focus of its operations during the Class Period,

supporting an inference that defendants knew or were severely reckless to the false and misleading

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nature of their statements about WG’s liquidity and capital resources, including its ability to satisfy

the WAPCo obligation out of operating cash flow:

(a) WG’s need for borrowing availability to fund its working capital requirements required significant management attention. WG’s need to renegotiate its borrowing agreements in 3Q13 due to its inability to maintain compliance with the debt covenants had heightened management attention on these issues heading into the Class Period, as had the borrowing constraints imposed by the required payments to fund the WAPCo settlement;

(b) Welch and Harl frequently told investors that they were working to reduce WG’s leverage to provide more flexibility in its operations, and knew that liquidity forecasts would be closely scrutinized by analysts and investors;

(c) The magnitude of WG’s debt, its need to access the revolver to fund its working capital requirements, and the substantial financial consequences that would result from WG’s violation of its debt covenants provided defendants with a substantial motive to misrepresent WG’s financial condition, including by delaying the reporting of losses from ongoing construction projects;

(d) The impact that missed earnings targets would have on bonuses, stock compensation, and opportunities for advancement of the Individual Defendants and other members of WG’s management provided additional motive for the concealment of the true financial results and operating conditions in the Oil & Gas segment; and

(e) As a result of the foregoing, it can be strongly inferred that defendants were provided with WG’s debt, liquidity, working capital, and covenant compliance forecasts, understood the manner in which those forecasts had been completed, and knew the specific historical information, market conditions and business-specific circumstances that had, and had not been, considered in developing those forecasts. Defendants therefore either knew of or were severely reckless to the inaccuracies in those forecasts, including inaccuracies caused by the failure to take into account the negative conditions then impacting the Oil & Gas segment that had not been disclosed to investors.

B. 1Q14 Earnings Release and Conference Call

251. When WG issued its 1Q14 financial results on May 5, 2014, defendants told investors

that WG’s Oil & Gas segment had earned an $11 million operating profit due to the purportedly

strong performance by the Seaway project and by Lineal and the improvements made to its project

management and controls. WG’s reported financial results represented a significant improvement

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over 1Q13. In fact, due to the losses suffered but not reported on the Seaway and Allegheny Access

projects, the segment was not profitable, its performance had declined significantly year-over-year,

and its earnings were overstated by a staggering $18.4 million and $0.38/share respectively.

Defendants knew that each of these statements – alleged below and summarized in Ex. 2 (##6-12) –

was materially false or would be misleading to investors under the circumstances, or they were

severely reckless to the false and misleading nature of the statements.


252. During late 2012, WG issued its 1Q14 financial statements on May 5, 2014. The

1Q14 financial statements materially overstated WG’s Contract Revenue, Operating Income and

Earnings per Share for 1Q14 and materially understated WG’s Contract Operating Expenses for the

quarter.

253. WG’s 1Q14 Earnings Release, issued on May 5, 2014, stated, in part:

Willbros Group, Inc. (NYSE: WG) announced today results from continuing operations for the first quarter of 2014. The Company reported net income from continuing operations of $10 thousand, or $0.00 per diluted share, on revenue of $517.7 million, compared to a net loss from continuing operations in the first quarter of 2013 of $11.6 million, or $0.24 per share, on revenue of $487.4 million. The Company reported operating income from continuing operations of $11.0 million, a $12.6 million improvement in operating income, compared to an operating loss of $1.6 million in the first quarter of 2013.

Randy Harl, President and Chief Executive Officer, commented . . . .

“The $11.0 million improvement in the Oil & Gas segment’s operating results was due to solid execution in cross-country pipeline construction as well as a $12.5 million improvement in our regional delivery service line. In our regional delivery services, positive operating performance in the Northeast was offset by weather related costs incurred in the Northern Plains and Southern regions and under-absorption of indirect costs associated with lower than planned revenue levels. . . .”

Segment Operating Results

Oil & Gas

For the first quarter of 2014, the Oil & Gas segment reported contract revenue of $218.4 million, an increase of $33.4 million compared to the first quarter of 2013.

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The operating loss of $3.6 million was an improvement of $11.0 million from the first quarter of 2013. Positive performance in cross-country pipeline construction, which benefited from higher utilization of resources , was more than offset by losses associated with regional delivery and downstream services. Additionally, timing on the resolution of change orders in the Company’s facilities service line also negatively impacted operating income. The Company continues to expect strong performance going forward from its cross-country pipeline construction services and for the regional service lines to be breakeven or better for the full year 2014 . Additionally, the Company anticipates stronger performance from its remaining downstream services which have significant growth opportunities.

254. WG’s 1Q14 financial results were repeated and reaffirmed during the May 6, 2014

1Q14 conference call, including by Welch, who stated:

In the first quarter, we improved our financial results quarter-over-quarter as follows – First quarter 2014 revenue of $517.7 million is an improvement of $30.4 million from first quarter of 2013. We delivered operating income of $11 million, $12.6 million higher than last year’s first quarter operating loss of $1.6 million. Net income from continuing operations was $10,000, reflecting an increase of $11.6 million from the prior year’s first quarter. And our adjusted EBITDA of $22.5 million is an improvement of $12.9 million from first quarter 2013. We expect the quarter-over-quarter improvement to continue in the second quarter and throughout the year.

255. At the outset of WG’s 1Q14 conference call, Harl also repeated and reaffirmed the

results, stating:

In our press release yesterday, we reported net income from continuing operations of $10,000 or essentially breakeven, on revenue of $517.7 million. Our operating income for the first quarter of 2014 was $11 million. That’s a $12.6 million improvement when compared to an operating loss of $1.6 million in the first quarter of last year. Our strategy to build a more diversified model with broader end-market exposure is supported by process and management systems. This is to improve our operating performance and produce more predictable results .

We delivered another quarter of year-over-year improvement, led by a very strong performance in Canada. Operating margins in the Professional Services segment also improved in what is historically a weak quarter, due to growing demand for our engineering and integrity-related field services. Even though the results for the Oil & Gas and Utility T&D segments were impacted by adverse weather, the diversification in our model is working, and we are delivering improved and more predictable results. The Oil & Gas segment generated an $11 million operating improvement compared to the first quarter of 2013. These results were due to the solid execution by our cross-country Pipeline Construction business, as well as a $12.5 million improvement in our regional delivery business .

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Our cross-country Pipeline Construction business met our expectations and generated an operating profit in the first quarter .

256. Later in the call, CLSA Analyst Tate Sullivan asked defendants for more information

“about the transition from the Seaway project to the NET project” and Harl responded that “we are

expecting good results” on the NET project because:

We had very good results on Seaway . We expect that to continue. Our team has stayed together. The transition between the two probably couldn’t have been more seamless. So the kind of the end of Seaway played into the front end and start of the NET project. So we had very little absorption of indirect costs that weren’t deployed. And so that went extremely well .

257. During the 1Q14 conference call, an analyst asked defendants to walk through the Oil

& Gas segment and provide more detail on results within each of the subsegments of that business,

including the long-haul cross country and regional pipeline business units. Welch responded first,

stating: “In terms of the pipeline business, as we talked about in the prepared remarks, we were very

happy with the results that we achieved in the mainline pipeline operation. That was – that did meet

our expectations and was profitable.” Welch also said that “the Northeast region was profitable” in

the regional business. Harl then added that the Company “had some things happen there that won’t

recur as we go forward. I think with regards to the regional business, the Northeast did do very well

for us, but we did have a slip in that Sunoco project, which we do expect to come back very strong as

we head into Q2. And we expect that regional business to turn around as we head into Q2. It was

just a slip out with that Sunoco project.”

258. On the 1Q14 call, Welch reaffirmed that the Company had sufficient operating cash

flow to pay off the WAPCo obligation and also significantly reduce the Company’s leverage:

We expect to reduce our term loan debt by approximately $30 million to $50 million, and fund the final payments due under the WAPCO settlement by the end of the year through cash flow from operations and/or proceeds from potential asset sales.

* * *

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We believe we’ll continue to be able to pay down that term loan debt further, as well as, as we mentioned in the Q4 call, to pay down the WAPCO liability of $36.5 million before the end of the year.


259. The foregoing statements were materially false and misleading to investors because:

(a) WG’s financial results were materially overstated in violation of GAAP and WG’s stated

accounting policies; (b) the progress and reasonably expected results of the Seaway and Allegheny

Access projects, and of the Oil & Gas segment as a whole, were misrepresented; and (c) WG lacked

an effective system of internal controls to track the progress of its on-going construction contracts or

reliably report the revenues, costs and profits from those contracts or their impact on WG’s overall

financial condition and results, including its compliance with the covenants in its borrowing

agreements. The financial information reported in the 1Q14 Earnings Release and discussed on the

1Q14 conference call (see Ex. 2, #6), including the financial statements attached to the release and

the narrative information in the passages quoted above that repeat those results ( see also id. , ##8-9,

was materially false and misleading because WG’s financial statements overstated WG’s revenues

and profits, and understated its expenses, concealed a violation of the debt covenants in its

borrowing agreements, and were not prepared or reported in compliance with GAAP or WG’s stated

accounting policies ( id. , #7). In particular, WG violated the Financial Accounting Standards Board

(“FASB”) Accounting Standards Codification (“ASC”) 250-10-20 and WG’s stated policies on

recognition of revenues and expenses associated with its ongoing construction projects. See §VIII,

infra.

260. WG’s originally-reported 1Q14 financial statements failed to properly account for or

report losses that had been incurred in its Oil & Gas segment, including significant losses that had

been incurred on both the Seaway and Allegheny Access projects. The originally reported and

restated financial results are summarized in the following chart. The “As Reported” numbers were

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included in the 1Q14 Earnings Release and were false at the time they were reported. The “As

Restated” numbers are the results that should have been reported. The “Restatement Adjustment” is

the difference between the two numbers and represents the amounts by which the original financial

statements were overstated or understated:

1Q14 Restatement*

Restatement As Reported Adjustment4 As Restated

Contract Revenue $ 517,745 $ (16,846) $ 500,899

Contract Operating Expenses $ 463,662 $ 2,462 $ 466,124

Operating Income (loss) $ 11,024 $ (18,049) $ (7,025)

Earnings per Share (loss) $ (0.14) $ (0.38) $ (0.52) *$000’s except EPS

261. WG’s amended 1Q14 Report on Form 10-Q, stated that the additional $18 million in

pre-tax charges resulted from:

A reduction in contract revenue of $16.8 million which consists of a $16.2 million reduction in previously recognized contract revenue for a significant pipeline construction project, a $0.3 million reduction in previously recognized contract revenue for another significant pipeline construction project and a $0.3 million reduction related to the erroneous recognition of an unapproved change order.

A $1.2 million increase in operating expenses primarily due to the recognition of $2.6 million in reserve for losses on a significant pipeline construction project and $0.3 million in rent expense, partially offset by the reversal of $1.7 million in previously accrued bonuses, which will no longer be paid in accordance with the Company’s bonus plans, due to the additional losses incurred.


& Gas segment (Ex. 2, ##7-8) were materially false and misleading because defendants omitted to

4 For purposes of this pleading only, Lead Plaintiffs accept here and elsewhere that the Restatement Adjustment accurately reflects the overstatement or understatement of WG’s originally-reported financial results. Lead Plaintiffs reserve their right, upon discovery, to test and, if necessary, challenge the accuracy of these representations by showing that the actual overstatements or understatements were greater than the amounts admitted to by defendants, or that adjustments to items or periods other than those admitted to by defendants were required to be made.

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disclose the losses, control deficiencies, and other problems that had arisen on the Seaway,

Allegheny Access and other ongoing construction projects, resulting in significant losses materially

impacting WG’s expected financial performance. In particular, and as alleged in more detail above,

at the time the foregoing statements were made:

(a) The Oil & Gas segment had not been profitable during the quarter, nor were defendants’ statements about the purported year-over-year improvements accurate, as described above;

(b) At the time of the 1Q14 earnings call, neither the Seaway nor the Allegheny Access projects were meeting their budgets or reasonably expected to achieve their expected profit margins, as previously alleged. It was therefore not true that Seaway “had very good results” or that results on that project had caused or contributed to “positive performance” and “solid execution” in the cross-country pipeline business. Neither was it true that the “cross-country Pipeline Construction business met our expectations and generated and operating profit in the first quarter” or that here had been “positive operating performance in the Northeast” regional pipeline business;

(c) The “slip” on the Allegheny Access (Sunoco) project was not a minor event as portrayed on the 1Q14 earnings call. Instead, the project was significantly behind schedule due to the lack of effective control or management over the project, leading to significant and undisclosed losses that rendered the project unprofitable. By the time of the 1Q14 call, Lineal’s management had initiated stringent and unusual measures to reduce project spending due to the excessive start up costs that had been incurred earlier in the project;

(d) WG had not disclosed the negative issues affecting its regional business (including its lack of skill and oversight and the high costs in relation to the margins attainable under its MSAs and other construction contracts) that had materially increased the risks of project losses like those being incurred on the Allegheny Access project; and

(e) Given the nature and extent of the problems with the Seaway and Allegheny Access projects and the lack of effective controls over those and other projects in the Oil & Gas segment, there could be no reasonable basis for the assertion that investors should “expect strong performance going forward from [WG’s] cross-country pipeline construction services” or to expect “the regional service lines to be breakeven or better for the full year 2014.”

263. Defendants’ representations about WG’s liquidity and its ability to reduce its debt and

satisfy the WAPCo liability out of operating cash flow (Ex. 2, #10) were materially false and

misleading in the absence of disclosures of its debt covenant violations, control weaknesses and

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other risks to WG’s business, and because there was no reasonable basis for those statements. In

particular, and as alleged in more detail above, at the time the statements were made:

(a) WG was in violation of the debt covenants under its borrowing agreements as a result of the concealed losses in its Oil & Gas segment;

(b) WG omitted to disclose the material weaknesses in its internal controls over its debt and liquidity forecasts;

(c) WG omitted to disclose the control weaknesses and other problems in its Oil & Gas segment described in the preceding paragraphs; and

(d) In light of the material weaknesses in its controls its ongoing losses in the Oil & Gas segment, and its violations of its borrowing agreements, WG had no reasonable basis to forecast that it would be able to pay off the WAPCo obligation and reduce its overall debt with its operating cash flow and proceeds from planned asset sales.

264. Defendants’ statements about the effectiveness of WG’s internal controls, including

Harl’s and Welch’s certifications pursuant to the Sarbanes-Oxley Act (Ex. 2, ##11-12; see also infra

§VII(G)), were materially false and misleading because:

(a) At the time of WG’s 1Q14 Earnings Release, the Company lacked an effective system of internal controls over financial reporting of profits and losses from its Oil & Gas segment or over the determination of its liquidity, capital resource needs and debt covenant compliance;

(b) WG has admitted that its regional operations had “poor operations, poor controls [and] great controls that weren’t [being] utilized” resulting in losses that had been “a continuous drag on the company” in 2013 and 2014. WG has also admitted that the regions lacked the management, skill and experience to handle its work, including management unqualified to oversee the type of work being performed. Defendants have admitted that the regions were working on so many “$1.5 million, $2 million lump sum projects with very little control and oversight” that they “could lose control over a single project and create significant losses” that would wipe out any positive performance on its other projects;

(c) WG has admitted that its overstatement of 1Q14 revenues earnings resulted from the undisclosed weaknesses in its internal controls over the Seaway and Allegheny Access projects and other parts of the Oil & Gas segment. Lineal had refused to adopt WG’s new controls, had ineffective controls to manage Allegheny Access, was failing to obtain written agreements on change orders, and was losing money on the project due to payments in excess of its budget for idle workers. WG has admitted that it incurred excessive operating costs

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due to paying idle workers who had no work to perform, in part because it was using businesses set up for time and materials contracts to perform lump sum contracts “without sufficient controls in place” to assure they would be run profitably;

(d) As a result of the foregoing conditions, it was not true that the Company’s strategy to diversify its business was “supported by process and management systems” that were designed or effective to “improve our operating performance and produce more predictable results”;

(e) WG has admitted that current business conditions impacting its liquidity and increasing the risk of insufficient capital resources to operate its business (including historical performance, the macroeconomic environment, and other Company-specific facts) were not timely or adequately reflected in its forecasts of liquidity, capital needs, and debt covenant compliance;

(f) WG’s controls were therefore not properly designed, functioning, or effective to reasonably prevent the misreporting of financial information or the material omission of information about the performance of WG’s business;

(g) Harl and Welch had not made a reasonable examination of the design and effectiveness of WG’s internal controls and procedures during 1Q14, or omitted to disclose the material control and procedure deficiencies that would have been revealed by a reasonable examination; and

(h) The omissions about WG’s lack of effective internal controls and the unreported losses in its Oil & Gas segment also rendered WG’s reported financial results and each of the other statements quoted above materially misleading to investors.



detail elsewhere herein, strongly support the inference that, at the time of WG’s 1Q14 Earnings

Release and conference call, WG, Harl and Welch either knew or were severely reckless to the fact

that the foregoing statements and omissions about WG’s financial results, internal controls, and

liquidity were materially false and would be misleading to investors. In particular, as alleged in

more detail elsewhere herein, the losses suffered and expected to be suffered on the Seaway and

Allegheny Access projects, and the causes for those losses, were open and obvious and were either

known to Harl, Welch and other senior executives of WG and its Oil & Gas segment, or would have

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been uncovered by any reasonable or diligent investigation undertaken before publicly issuing or

discussing WG’s financial results. Defendants therefore either knew that the statements they made

about WG’s 1Q14 financial results, operational performance, and liquidity were false or would be

materially misleading to investors under the circumstances, or were severely reckless in making

statements to investors without first making reasonable efforts to discover the true condition of the

Oil & Gas business before speaking to investors on those topics.

266. The circumstances surrounding WG’s restatement of its 1Q14 financial results,

together with the uncorrected material weaknesses throughout WG’s business and the ongoing lack

of profitability of the regional offices and lack of experience and oversight of construction projects

in the Oil & Gas segment, strongly support an inference that WG, Harl and Welch knew or were

severely reckless to the falsity of their statements about WG’s 1Q14 financial results and the

reliability of its internal controls (Ex. 2, ##6-7, 11-12) at the time they were issued:

(a) WG’s restatement turned a reported operating profit into a loss and overstated WG’s earnings per share by $0.38 by understating its expenses by $18.4 million (278%). The restatement arose from the misreporting of multiple quarters based on the same or similar issues and did not result from complicated or disputed questions of accounting;

(b) By the time of the 1Q14 call the operational problems in the Seaway and Allegheny Access projects had gone on longer, the losses had become even more certain, and the efforts to address them had intensified, strengthening the inference that the problems and their financial impact were known to or recklessly disregarded by Harl, Welch and other members of WG’s management. Collins had visited the project again in April, 2014, at which time the lack of progress and the ineffectiveness of its management and controls were apparent;

(c) Just after the 1Q14 call, Collins was appointed to run the Oil & Gas segment, and immediately put a halt to efforts to improve WG’s controls. It can be inferred from the timing of this appointment that efforts to backtrack on needed control improvements had been communicated or were underway by the time of WG’s 1Q14 earnings call, strengthening the inference that WG and its management knew that the control improvements purportedly adopted at the outset of the year had been ineffective, were not being followed, and had not improved Oil & Gas operations in the manner intended;

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(d) As indicated by its post-Class Period disclosures, WG was unable to maintain a fixed charge coverage ratio above 1.15 by the time its 1Q14 financial statements were issued. WG’s low coverage ratio increased the Company’s borrowing costs, put it at increased risk of insolvency, and rendered it incapable of meeting the minimum coverage ratio requirements in its borrowing agreements if they were triggered. These conditions, individually and collectively, put increased pressure on management to report revenues and earnings that would not trigger the minimum requirement, or result in a violation of the debt covenants in WG’s borrowing agreements, including by delaying recognition of increased project costs; and

(e) The nature and extent of WG’s control weaknesses and the other negative conditions in its Oil & Gas segment lend further support for an inference of scienter. Harl and Welch were responsible for internal controls, regularly made statements to investors about the existence and effectiveness of those controls, and claimed to have conducted an investigation of those controls in the preceding quarter. The failure of the improvements to WG’s controls to provide the management, oversight, or tools to permit the regional offices to be operated at a profit in light of their high operating costs was apparent and widespread.

267. The same facts that support scienter with respect to the misrepresentations made in

connection with the FY13 Earnings Release, as alleged above, also support a strong inference that, at

the time WG’s 1Q14 financial results were published, Harl and Welch either knew or were severely

reckless to the fact that the reported results and the statements they made about the performance of

the Oil & Gas segment (Ex. 2, ##8-9) and the sufficiency of its liquidity ( id. , #10) were materially

false and would be misleading to investors scienter with respect to the misrepresentations defendants

made in 2Q14. These facts include the following:

(a) The importance of the Oil & Gas segment generally and the Seaway and Allegheny Access projects specifically, to WG’s financial success;

(b) Defendants’ motivation to avoid the substantial financial consequences that would result from WG’s violation of its debt covenants, and the impact that that would have on bonuses, stock compensation, and opportunities for advancement of the Individual Defendants and other members of WG’s management;

(c) WG has admitted that current business conditions impacting its liquidity and increasing the risk of insufficient capital resources to operate its business (including historical performance, the macroeconomic environment, and

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other Company-specific facts) were not timely or adequately reflected in its forecasts of liquidity, capital needs, and debt covenant compliance;

(d) The extent and continuing nature of the problems in the regional business, together with the magnitude of the losses suffered, demonstrates that the problems were systemic to the business and therefore open and obvious, such that they were either known to or deliberately ignored by defendants in discussing the actual and anticipated performance of the Oil & Gas segment with investors; and

(e) The open and obvious nature of the problems leading to the losses on the projects, including the lack of physical progress on Allegheny Access, the knowledge of senior managers and executives in the Oil & Gas segment with responsibility for those projects, the results of the pigging of the Seaway pipeline and the regular discussions of its problems during weekly operations meetings, Lineal’s refusal to improve its controls even after audit reports and other investigations revealed the inadequacy of the controls at Lineal to handle a project like Allegheny Access, the significant delays and increased expenses in the Allegheny Access project, and the fact that lack of profitability on construction contracts was typically known by the time 20% of the project was complete.

C. 2Q14 Earnings Release and Conference Call

268. On August 4, 2014, WG issued its 2Q14 financial results, which materially inflated

its reported profits by failing to account for the losses on the Allegheny Access project. Although

WG disclosed losses incurred on the Seaway project, they omitted to disclose that the losses had

been incurred in 1Q14 and were required to be reported at that time, or to disclose the true reasons

for the loss. In addition, defendants misled investors as to the extent, status, and findings of their

internal investigation into the losses, falsely asserted that the risks that had caused the Seaway losses

were isolated to that project, and did not jeopardize the performance on any other ongoing projects in

the Oil & Gas segment, and told investors that the WAPCo liability could be paid from operating

cash flow without increasing WG’s debt. Defendants knew that each of these statements – alleged

below and summarized in Ex. 2 (##13-18) – was materially false or would be misleading to investors

under the circumstances, or they were severely reckless to the false and misleading nature of the

statements.

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269. WG issued its 2Q14 financial statements on August 4, 2014. The 2Q14 financial

statements materially overstated WG’s Contract Revenue, Operating Income and Earnings Per Share

for 1Q14 and materially understated WG’s Contract Operating Expenses for the quarter.

270. WG’s 2Q14 Earnings Release, issued on August 4, 2014, stated, in part:

Willbros Group, Inc. (NYSE: WG) announced today results from continuing operations for the second quarter of 2014. The Company reported net income from continuing operations of $7.0 million, or $0.14 per diluted share, on revenue of $543.6 million, compared to a net loss from continuing operations in the second quarter of 2013 of $2.6 million, or $0.05 per share, on revenue of $435.8 million. Second quarter results included a non-cash debt extinguishment charge of $948 thousand, or $0.02 per share. The Company reported operating income of $18.5 million, a $12.2 million improvement compared to operating income of $6.3 million in the second quarter of 2013. Adjusted EBITDA(1) of $28.3 million for the second quarter of 2014 was a $9.8 million improvement from the same period last year.

Randy Harl, Chief Executive Officer, commented, “ We continue to deliver more stable and predictable results and our second quarter performance reflects the benefit of having a diversified business model, with broad end-market exposure. Our operating results again improved quarter-over-quarter and exceeded any quarter in the last four years . Three of our four segments continue to generate strong operating performance. Canada delivered record second quarter results with operating margins of 11.0 percent, even with the Spring breakup.

“ We had a $14.0 million operating income improvement in the Oil & Gas segment over the second quarter of 2013. As we anticipated, our regional delivery services business became profitable for the first time since 2012 .”

Segment Operating Results

Oil & Gas

For the second quarter of 2014, the Oil & Gas segment reported contract revenue of $237.8 million, an increase of $103.4 million compared to the second quarter of 2013. The operating loss of $7.8 million was an improvement of $14.0 million from the second quarter of 2013. This improvement was primarily driven by the return to profitability in the regional service lines, reflecting the Company’s focus on larger midstream opportunities and right-sizing the regional offices to align resources with the markets where it can be successful . However, cost increases on one project in Oil & Gas led to a loss for the segment .

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271. Harl repeated and reaffirmed the information in the 2Q14 Earnings Release during the

August 5, 2014 2Q14 conference call, including when he stated:

In our press release yesterday we reported net income from continuing operations of $7 million or $0.14 per diluted share on revenue of $543.6 million. Our operating income for the second quarter of 2014 was $18.5 million. That’s a $12.2 million improvement when compared to the second quarter of last year and an almost 50% increase sequentially. As we anticipated, our operating results exceeded any quarter last year. It’s also the best quarter we’ve had since the second quarter of 2010 . Our adjusted EBITDA for the second quarter of 2014 was $28.3 million. That’s a $9.8 million improvement from the second quarter of 2013. Our adjusted EBITDA for the first six months of 2014 was $51.4 million, and that’s a $24 million improvement year over year.

272. During the 2Q14 conference call, Welch also reaffirmed the accuracy of the 2Q14

results, including when he falsely stated:

Contract revenue of $543.6 million is an improvement of $50.2 million from the first quarter of 2014 and an improvement of $107.7 million from the second quarter of 2013 . We generated operating income of $18.5 million, which is $6.1 million higher than last quarter and $12.2 million, or nearly 3 times, higher than last year’s second-quarter operating results. Our adjusted EBITDA of $28.3 million continues to increase, with a $5.2 million improvement from the first quarter of 2014 and a $9.8 million improvement from the second quarter of 2013.

273. In his prepared remarks on the 2Q14 conference call, Harl addressed the impact of the

Seaway project on the Company’s quarterly results as follows:

Finally, in our oil and gas segment we saw a $14 million improvement in operating income in the second quarter compared to last year. As anticipated, our regional delivery services business became profitable for the first time since 2012 . Year to date the regions have generated a nearly $30 million improvement in operating income compared to the first half of 2013. This should enable us to achieve the $40 million of operating income improvement we expected for this year.

We are currently executing four cross-country pipeline construction projects. One of those projects incurred substantial cost increases during the completion phase. We have assessed the other three projects and are confident the contributing factors are confined to this one project. Primarily as a result of losses incurred on this one project, the oil and gas segment reported an operating loss of $7.9 million for the quarter.

I have asked Mike Fournier, our newly appointed COO and, most recently, President of Willbros Canada, to focus on the oil and gas segment in order to

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improve its operational reliability. Mike’s performance in Canada has been exceptional.

274. During the 2Q14 conference call, Johnson Rice & Company analyst Martin Malloy

asked defendants to provide more information about the losses reported for the Seaway project (“the

problem project”) and Harl responded:

I think, Marty, that – I think the key thing is that the things that happened on that project, fortunately, weren’t systemic to the business; are things that we can and have fixed. And we have done a very thorough assessment of the other projects similar to that and determined that it was really a one-time kind of thing that happened, and that we were very near completion, right at the end. I don’t want to say a lot more about that. We are still working with our customer to finish the project and move on. And we will give more color on that as it’s appropriate.

275. In response to another analyst question during the 2Q14 conference call, Welch told

investors that the Allegheny Access project was performing well and contributing to the profitability

of the Oil & Gas segment:

the Northeast is just doing very, very well. Highly – very well utilized. Revenues are going up. They are working on a pipeline project up there that performance has been very, very good at . So all in all, I think as Randy mentioned in his comments from the regional delivery side, we have seen the improvement that we were hoping that we were going to see. And I think we will see continued improvement going forward.

276. Welch told investors on the 2Q14 call that, even with the losses on the Seaway

project, “[w]e expect to reduce our term loan debt for fiscal year 2014 by approximately $30 million

to $40 million and fund the final payment due under the WAPCo settlement by the end of the year

through cash flow from operations.” When analysts requested more detail, Welch reiterated that the

Company had sufficient cash flow, liquidity and flexibility under its borrowing agreements to fund

its operations for the foreseeable future:

[ANALYST]: So just wanted to dig in a little bit into the liquidity position here. First, I was curious if you can give us an update on where you are currently in terms of your liquidity position versus the end of the quarter. And then, Van, just trying to dig into this a little bit – you talked about these kind of conflicting drivers in the third quarter in terms of cash flow, where you will have the DSO issue being resolved to some extent but also investing in revenue growth. So at this point do you

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think it will be a cash-consumptive quarter? Or do you think you could see generation? And then just – again, so looking at this WAPCo settlement payment coming up in the fourth quarter – so it looks like you are – you said you were expecting to pay that out of free cash flow. So is that out of cash you are generating in the fourth quarter? Is that how we should think about that?

[WELCH]: Yes. I think, Noelle, that is exactly what I am talking about. We are expecting that the DSO is going to decline at year end. We are expecting that revenues are going to increase from Q2 to Q3. They are going to be using some working capital associated with that revenue growth. But as I mentioned, we are also expecting that we are going to have some of these issues that I talked about in Q2 that are going to be resolved; that’s going to provide some cash. If you look at – you know, I gave guidance on the term loan debt reduction, and I think that this is maybe an appropriate time to talk about that. We are going to do $30 million to $40 million term loan debt reduction. That’s our plan. But our priority is that we are going to be looking at having enough working capital as we end the year to fund the growth in 2015 and beyond. Randy talked about the market that we are playing in. So we want to end the year with that growth picture in mind. What that means – we would like to pay down the revolver when we get to 2015. We will also pay down the WAPCo settlement, which is $32 million or so. And we are also going to pay down an additional bit on the term loan debt and, for the year, . . . .


277. The foregoing statements were materially false and misleading to investors because:

(a) WG’s financial results were materially overstated in violation of GAAP; (b) the progress and

reasonably expected results of the Seaway and Allegheny Access projects, and the Oil & Gas

segment, were misrepresented; and (c) WG lacked an effective system of internal controls to track

the progress of its on-going construction contracts or reliably report the revenues, costs and profits

from those contracts or their impact on WG’s overall financial condition and results including is

compliance with the covenants in its borrowing agreements.

278. The financial information reported in the 1Q14 Earnings Release and discussed on the

2Q14 conference call, including the financial statements attached to the release and the narrative

information in the passages quoted above that repeats those results (Ex. 2, ##13-14), was materially

false and misleading because WG’s financial statements overstated WG’s revenues and profits and

understated its expenses and were not prepared or reported in compliance with GAAP or WG’s own

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accounting policies. In particular, WG violated ASC 250-10-20 and its stated policies on revenue

and expense recognition.

279. The original results that were falsely reported in the 2Q14 Earnings Release and the

restated amounts that should have been reported are summarized in the following chart, along with

the differences between the two numbers:

2Q14 Restatement*

Restatement As Reported Adjustment As Restated

Contract Revenue $ 543,557 $ (3,767) $ 539,790

Contract Operating Expenses $ 482,559 $ 10,861 $ 493,420

Operating Income (loss) $ 18,506 $ (11,946) $ 6,560

EPS (loss) from Continuing Operations $ 0.14 $ (0.24) $ (0.10) *$000’s except EPS

280. Including a loss from discontinued operations, the Company’s total loss for the

quarter was ($0.32) per share as compared with the combined loss of ($0.08) that was reported when

the 2Q14 financial statements were originally issued.

281. WG’s 2Q14 Report on amended Form 10-Q, stated that the additional $11.9 million

in pre-tax charges resulted from:

A net reduction in previously recognized contract revenue of $3.8 million for two significant pipeline construction projects; and

An $8.2 million increase in operating expenses primarily due to the recognition of a net $11.7 million in reserve for losses on two significant pipeline construction projects, partially offset by the reversal of $3.5 million in previously accrued bonuses, which will no longer be paid in accordance with the Company’s bonus plan, due to the additional losses incurred.


& Gas segment (Ex. 2, ##15-16) were materially false and misleading because defendants omitted to

disclose that the losses reported from the Seaway project had arisen in 1Q not 2Q, misrepresented

the extent of their investigation and overstated the accuracy of their conclusions about the purported

lack of similar problems on other projects, and omitted to disclose that the Oil & Gas segment had

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material weaknesses in its internal controls and other conditions presenting significant undisclosed

risks to WG’s financial performance, that those weaknesses and conditions were than causing

significant losses on another major construction project that were not reflected in WG’s financial

statements, and that, as a result, actual and anticipated performance in the segment as a whole and its

regional operations in particular was much worse than represented. In particular, and as alleged in

more detail above, at the time the foregoing statements were made:

(a) It was not true that the losses on the Seaway project resulted from factors that “weren’t systemic to the business” or “things that we can and have fixed.” To the contrary, the problems on that project resulted from systemic internal control failures that still existed, had not been fixed, and had already manifested on the Allegheny Access project. Thus, the problems on that project were not “really a one-time kind of thing” that did not present risks to WG’s other significant pipeline projects;

(b) The Seaway losses had arisen in January, and WG’s investigation into the causes of the losses on that project, and the problems in the Oil & Gas segment as a whole, had not been completed by the time of the 2Q14 call. Defendants’ statements therefore misrepresented both the timing of the problems and the completeness of WG’s investigation, and the risks to other on-going construction projects;

(c) By August 4, 2014, the Allegheny Access project was significantly behind schedule such that there was no reasonable expectation that it would achieve its expected margins, as alleged above. Thus, it was not true that the “performance ha[d] been very, very good” on the Allegheny Access project, nor was there any other significant project in the Northeast that could have supported such an assertion. Neither was it true that the performance in the Northeast demonstrated “the improvement that we were hoping that we were going to see” or provide any reasonable basis for the assertion that “we will see continued improvement going forward”;

(d) WG has admitted that its regional operations had not been improved in the manner stated, lacked proper controls, and had fixed costs that were too high to permit it to operate at a profit;

(e) The regional offices therefore had not been “right sized” nor were they focused on product lines where that business could be successful. Nor was it true that there had been a “return to profitability in the regional service lines” resulting from “the Company’s focus on larger midstream opportunities” like the Allegheny Access project, that the “regional delivery services business became profitable for the first time since 2012” or that the 2Q14 operating results “exceeded any quarter in the last four years”;

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(f) WG omitted to disclose that, at the time of these statements, it was making plans to downsize or exit the regional business; and

(g) By the time of the 2Q14 call, WG had disbanded the PMO and Collins was taking action to reverse the Company’s prior efforts to improve the Oil & Gas segment’s controls, which had never been fully adopted or implemented. Thus, it was not true that WG had improved its internal processes and controls in a manner that had permitted it to deliver “more stable and predictable results” or that the purported results of 2Q14 operations reflected such an improvement. At the time of WG’s 2Q14 Earnings Release, the Company lacked an effective system of internal controls over financial reporting of profits and losses from its Oil & Gas segment, leading to the overstatement of revenues and profits from the Seaway and Allegheny Access projects and other parts of the Oil & Gas segment.

283. Defendants’ representations about WG’s liquidity and its ability to reduce its debt and

satisfy the WAPCo liability out of operating cash flow (Ex. 2, #17) were materially false and

misleading in the absence of disclosures about its control weaknesses and other risks to WG’s

business, including its 1Q14 debt covenant violation, the risks and lack of profitability in its regional

operations, and the unreported losses from ongoing construction projects, as alleged previously. As

a result of the material weaknesses in its controls, its ongoing losses in the Oil & Gas segment, and

its violations of its borrowing agreements, WG had no reasonable basis to forecast that it would be

able to pay off the WAPCo obligation and reduce its overall debt with its operating cash flow and

proceeds from planned asset sales.

284. Harl’s and Welch’s certifications pursuant to the Sarbanes-Oxley Act (Ex. 2, #18);

see also infra §VII(G), were materially false and misleading because:

(a) At the time of WG’s 2Q14 Earnings Release, the Company lacked an effective system of internal controls over financial reporting of profits and losses from its Oil & Gas segment or over the determination of its liquidity, capital resource needs and debt covenant compliance;

(b) WG omitted to disclose that the efforts to improve controls in the Oil & Gas business described extensively in recent prior communications with investors had been abandoned, and that the PMO office had been abandoned;

(c) WG has admitted that its regional operations had poorly designed and ineffective controls, poor operations and unqualified management, had taken

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on projects it was not equipped to handle and taken on more projects than it could manage, and was at continual risk of a single project wiping out its profits due to lack of proper management or control over its work;

(d) WG had failed to disclose the internal control weaknesses that led to the overstatement of 2Q14 revenues and earnings, including the lack of effective controls over the Seaway and Allegheny Access projects, as previously alleged;

(e) WG has admitted that current business conditions impacting its liquidity and increasing the risk of insufficient capital resources to operate its business (including historical performance, the macroeconomic environment, and other Company-specific facts) were not timely or adequately reflected in its forecasts of liquidity, capital needs, and debt covenant compliance;

(f) WG’s controls were therefore not properly designed, functioning, or effective to reasonably prevent the misreporting of financial information or the material omission of information about the performance of WG’s business;

(g) Harl and Welch had not made a reasonable examination of the design and effectiveness of WG’s internal controls and procedures during 2Q14, or omitted to disclose the material control and procedure deficiencies that would have been revealed by a reasonable examination; and

(h) The omissions about WG’s lack of effective internal controls and the unreported losses in its Oil & Gas segment also rendered WG’s reported financial results and each of the other statements quoted above materially misleading to investors.



detail elsewhere herein, strongly support the inference that, at the time of WG’s 2Q14 Earnings

Release and conference call, WG, Harl and Welch either knew or were severely reckless to the fact

that the foregoing statements and omissions about WG’s financial results, internal controls, and

liquidity were materially false and would be misleading to investors. In particular, as alleged in

more detail elsewhere herein, defendants knew or recklessly disregarded that the Seaway loss had

arisen much sooner and its cause was more significant than represented on the call, that their

investigation into those losses was less extensive and less complete than represented, that WG had

incurred similar losses arising from similar control weaknesses on other ongoing projects, and that,

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as a result, WG’s financial results and the condition of its Oil & Gas segment was materially worse

than represented. The undisclosed circumstances were open and obvious and therefore were either

known to Harl, Welch and other senior executives of WG and its Oil & Gas segment, or would have

been uncovered by any reasonable or diligent investigation undertaken before publicly making the

statements at issue herein.

286. The same facts that support scienter with respect to the misrepresentations made in

connection with the FY13 and 1Q14 Earnings Releases, as alleged above, also support a strong

inference that, at the time WG’s 2Q14 financial results were published, Harl and Welch either knew

or were severely reckless to the fact that the reported results and the statements they made about the

performance of the Oil & Gas segment and the adequacy of WG’s liquidity were materially false and

would be misleading to investors scienter with respect to the misrepresentations defendants made in

2Q14:

(a) The importance of the Oil & Gas segment generally and the Seaway and Allegheny Access projects specifically, to WG’s financial success lend additional support for an inference of scienter against WG, Harl and Welch, as does their individual financial motivation to avoid the substantial financial consequences that would result from WG’s violation of its debt covenants, and the impact that that would have on bonuses, stock compensation, and opportunities for advancement of the Individual Defendants and other members of WG’s management;

(b) The open and obvious nature of the control problems, including the lack of physical progress on the Allegheny Access project and the failure of Lineal to adopt or adhere to the Company’s controls or to use controls appropriate to the size and scale of the Allegheny Access project, provide further grounds to support a strong inference of scienter on the part of WG, Harl and Welch;

(c) The extent and continuing nature of the problems in the regional business, together with the magnitude of the losses suffered, demonstrates that the problems were systemic to the business and therefore open and obvious, such that they were either known to or deliberately ignored by defendants in discussing the actual and anticipated performance of the Oil & Gas segment with investors;

(d) The improvements to WG’s controls purportedly implemented at the outset of the year had not provided the management, oversight, or tools to permit

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the regional offices to be operated at a profit in light of their high operating costs;

(e) Harl’s and Welch’s responsibility over internal controls, their statements to investors about the existence and effectiveness of those controls, and their claims to have conducted an investigation of those controls in the preceding quarter, further support an inference of scienter, as does the size of WG’s restatement and the continuing nature of its inability to accurately report financial information;

(f) The magnitude of WG’s debt, its need to access the revolver to fund its working capital requirements, its inability to maintain a fixed charge coverage ratio above 1.15, and the substantial financial consequences that would result from WG’s violation of its debt covenants provided defendants with a substantial motive to misrepresent WG’s financial condition, including by delaying the reporting of losses from ongoing construction projects; and

(g) The impact that missed earnings targets would have on bonuses, stock compensation, and opportunities for advancement of the Individual Defendants and other members of WG’s management provided additional motive for the concealment of the true financial results and operating conditions in the Oil & Gas segment.

287. Scienter is also supported by the nature and circumstances of WG’s restatement of

2Q14 results. WG’s restatement turned a reported profit into a loss by overstating WG’s earnings by

more than 300% ($11.9 million / $0.24 per share), and involved misreporting of multiple quarters

based on the same or similar issues that did not result from complicated or disputed questions of

accounting. Infra §VIII. These circumstances, together with the uncorrected material weaknesses

throughout WG’s business and the ongoing lack of profitability of the regional offices and lack of

experience and oversight of construction projects in the Oil & Gas segment, strongly support an

inference that WG, Harl and Welch knew or were severely reckless to the falsity of WG’s 1Q14

financial statements at the time they were issued.

288. In addition, by the time of the 2Q14 call, WG’s control weaknesses had not been

corrected, the problems and losses on the Allegheny Access project had continue to grow, new

management in the Oil & Gas segment had stopped implementation of the new controls and

disbanded the PMO even while they were investigating the full extent of the problems in the

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segment and embarking on plans to exit the regional business. These circumstances, together with

WG’s delayed reporting of and misrepresentations about the timing and cause of the Seaway losses,

further strengthen the inferences of scienter at the time of the 2Q14 statements.

289. Defendants knew that the assertion that the Seaway losses were an isolated incident

not expected to be repeated was and would be materially misleading to investors, and knew that

there had not been a return to profitability in the regional service lines, or were severely reckless in

not taking reasonable efforts to discover the true reasons for the Seaway losses and the true condition

of the Oil & Gas business before speaking to investors on those topics:

(a) The lack of progress on the Allegheny Access project was so apparent by the time of the 2Q14 call that Sunoco had begun complaining to senior management, who quickly determined – and could have easily determined sooner if the controls WG claimed were in place actually existed – that the project was in deep trouble. Even before Sunoco complained, the lack of physical progress alone made it easy to determine that the project was significantly behind schedule;

(b) Lineal’s failure to implement or use controls that were appropriate to a project of that size and scale were also open and obvious, had been expressly pointed out in WG’s internal audit reports, and were known to the President of the Oil & Gas segment before the 2Q14 call. Thus, defendants knew that the Company’s financial results were overstated by failing to account for the losses under the Allegheny Access project, or were severely reckless in reporting those results without making a reasonable inquiry into their reliability in light of the known control weaknesses, including by performing a physical inspection of its progress;

(c) By the time of the 2Q14 call, senior executives in the Oil & Gas segment were conducting a detailed review of the Oil & Gas segment in the wake of the losses reported on the Seaway project. Thus defendants either knew from these activities that the Seaway losses had arisen in 1Q14, and the losses in the Oil & Gas segment were greater and the control weaknesses broader than represented on the call, or were severely reckless in speaking without first making a reasonable inquiry into the state of the business;

(d) The pigging on the Seaway pipeline that had resulted in the increased costs to complete the pipeline that rendered that contract unprofitable had been completed more than six months prior to the 2Q14 call and been the subject of a detailed investigation by the Company, such that by the time of the call it may be presumed that WG knew both the timing and the cause of the losses on the project and thus knew, or were severely reckless in disregarding, that

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the losses resulted from a lack of proper management and control over the project and should have been reported in 1Q14; and

(e) Thus, defendants knew that their assertion that the Seaway losses occurred “right at the end” of the project, were a “one-time” event that did not reflect broader or systemic problems in the business, and their contention that the Company had made a “thorough assessment of the other projects similar to that,” to identify and fix the problems that caused those losses, were or would be materially misleading to investors in light of their omission to disclose the true cause and timing of those problems or the ongoing problems on the Allegheny Access project, or were severely reckless in making such assertions before their investigations into the cause of the Seaway problems, the state of the Oil & Gas business, or the reasons for the delays in the Allegheny Access project were complete.

D. September 4, 2014 Press Release and September 9, 2014 Investor Presentation

290. WG announced Harl’s retirement as CEO in a press release issued on September 4,

2014 and an 8-K Report filed the next day, both touting the strength of the Company he would leave

behind. The following week, McNabb took Harl’s place at an investor conference where he was

scheduled to appear, telling investors Harl’s resignation was part of his planned retirement and

asserting that performance had improved in the Oil & Gas segment. These statements were

materially false and misleading to investors because Harl had in fact been fired or forced out as a

result of the extensive problems in the Oil & Gas segment described herein and the risks those

circumstances posed to WG’s financial health and performance, all of which then remained

concealed from investors. Defendants knew that each of these statements, alleged below and

summarized in Ex. 2 (##19-23), was materially false or would be misleading to investors under the

circumstances, or they were severely reckless to the false and misleading nature of the statements.


291. On September 4, 2014, WG issued a press release announcing that Harl “is retiring as

CEO and director when his current employment agreement expires on January 2, 2015.” McNabb

was quoted in the press release as saying:

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“Under [Harl’s] leadership, we have assembled a strong team with complementary skill sets and experience to move the Company to the next level of operational performance. I am confident that this team has the industry experience, operational track-record and technological expertise to provide valuable solutions for our customers and increase value for all our stakeholders.”

292. On September 5, 2014, WG filed a Report on Form 8-K including the press release

and also stating that Harl “is retiring” as CEO. The 8-K stated that McNabb had been elected as

Executive Chairman of the Board, that Harl would immediately begin reporting to him, and that

Harl’s duties as CEO would be transferred to McNabb and other members of WG’s executive

management.

293. The 8-K also stated:

On August 29, 2014, John T. McNabb, II, non-executive Chairman of the Board of the Company, was elected by the Board as Executive Chairman of the Board on an interim basis. Mr. Harl will report to Mr. McNabb until his retirement. It is also anticipated that, during the period until Mr. Harl’s retirement, various duties of Mr. Harl will be transitioned to Mr. McNabb and other members of executive management of the Company until Mr. Harl’s successor has been selected and is in place in order to ensure a smooth transition in the event a successor has not been named at the time of his retirement. Additionally, on August 29, 2014, the Board elected S. Miller Williams as Lead Independent Director.

294. On September 9, 2014, McNabb took Harl’s place at the D.A. Davidson Engineering

& Construction Conference, speaking on behalf of WG. During his presentation, McNabb explained

his presence and Harl’s absence as follows:

What’s happened is, our CEO retired. He was going to retire on January 2, Randy Harl, a very good friend of mine, personally and professionally, a really good guy, ran KBR. And we have a handful of excellent candidates to become the new CEO of the company. But we weren’t ready, we didn’t feel as a board, and Randy, we just didn’t feel like we were ready to select one through this process by the time Randy was going to retire on January 2, which he’ll do. He’s still CEO, obviously, most of his responsibilities as Executive Chair. But we really are deep. And so, that’s the reason for this bridge. It’s really just a process that we’re involved in at this point. So, that should answer all questions about why I’m here and why Randy retired.

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295. At the September 9 conference, McNabb also provided conference participants with a

strongly bullish description of WG’s business, including its Oil & Gas segment. During his

presentation, McNabb said that, in the Oil & Gas segment:

It’s a big turnaround for us right now, after having really gone out in a big way into the regions. And we haven’t performed very well, and that’s going to change. And it’s changing this year, with the performances really improving. We’re going to have a $40 million improvement in operating margin this year and operating operations . So, Oil & Gas segment, cross country still good.


296. The foregoing statements were designed to, and did, conceal the fact that Harl had

been forced out of the Company. In addition, the foregoing statements continued to misrepresent the

operating and financial condition of WG by concealing the problems in the business that had led to

Harl’s departure.

297. The statements in the September 4, 2014 press release and at the September 9, 2014

investor conference regarding the reasons for Harl’s departure and the condition in which he had left

the Company were materially false and misleading to investors. The statements misled investors by:

(i) asserting that Harl had voluntarily retired; (ii) asserting that Harl was still involved in the

management of the Company; (iii) omitting to disclose that WG was starting its CEO search over,

after having previously decided to appoint Collins as Harl’s successor; (iv) omitting to disclose the

true financial and operating condition of the business, or the true reasons for Harl’s “retirement”; and

(v) omitting to disclose the unreported or late-reported losses on the Seaway and Allegheny Access

projects, as WG’s need to restate its prior financial statements.

298. Had WG or McNabb disclosed that Harl’s departure was not voluntary, or disclosed

the then-existing business conditions that had caused him to “retire,” investors would not have been

misled into believing that Harl’s departure was part of an orderly transition of the business, but

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rather had resulted from the significant and serious problems and increased risks then facing the

Company.

299. However, investors had no inkling of the true reasons for Harl’s sudden retirement

because the restatement had yet to be announced. The other contemporaneous statements defendants

made about the Company reinforced defendants’ repeated assertions that the Company had

strengthened its control environment and was delivering stronger and more predictable results. For

example, in a September 5, 2014 Report, a KeyBanc analyst wrote:

While WG’s stock performance and patchy execution performance may not convey it, our fairly extensive interactions with WG’s employees at recent company events and training programs, as well as at trade shows with customers, suggest that the Company may be structurally turning the corner. As such, while Mr. Harl’s task of transitioning a mainline pipeline pure-play into a more diversified and operationally consistent entity right at the beginning of a deep economic downturn has met with notable challenges, in our view, he will be leaving behind a more diversified E&C play that is well into implementing a more effective operational model and work culture.

300. At the time WG announced Harl was stepping down, the Company was fully aware of

the extent of the problems on the Allegheny Access project and their impact on its overall financial

results. Reports showing the lack of physical progress on the line had been provided to executives,

who were then occupied by intense discussions with the customer, with outside counsel, and with

outside auditors trying to contain the damage. It is no coincidence that Harl retired in the midst of

these undisclosed problems, or that WG changed its mind about appointing Collins – who had been

President of the Oil & Gas segment when the project was bid and construction commenced – as its

new CEO.

301. If Harl resigned for other than good reason or was terminated for cause he would have

forfeited his performance bonus. Not only did WG permit Harl to resign for good reason, it also

provided him with $1 million in restricted stock as a “succession award” if he identified a successor

to become the new CEO. When Harl prematurely “resigned” on the eve of the restatement

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announced, he was permitted to keep that succession award and be paid in either unrestricted stock

or cash, even though WG had not identified a successor and McNabb had stepped into the CEO role,

ostensibly on an interim basis. This further supports the inference that Harl was coerced to resign,

under circumstances that were designed to avoid embarrassment to him or the Company and ensure

his continued loyalty and cooperation.

302. The terms of Harl’s separation agreement further reflect that his departure was not

voluntary. A resignation letter that Harl and McNabb had signed on August 29, 2014 confirms that

Harl had been relieved of his duties, as it specifically provided that, after that date, Harl would not be

permitted to “act on behalf of, or exercise any management responsibilities with respect to, WGI or

any of its subsidiaries unless specifically requested by the Chairman of the Board of Directors of

WGI.” The other terms of Harl’s resignation agreements, as alleged in more detail above further

confirm the involuntary nature of his departure, including that he gave up substantial rights he could

exercise in the event of the involuntary termination of his agreement in exchange for an

approximately equal amount of compensation that would have been entitled to in such an event,

concealed as a bonus for finding WG’s new CEO, even though he had not, in fact, done so.

303. By the time of Harl’s “retirement,” WG had decided not to appoint Collins as his

successor, as reflected in the 8-K’s statement that WG was still looking for a new CEO. According

to CW-1 and other former employees, when Collins was promoted from President of the Oil & Gas

segment to President of the Company on May 19, 2014, it was understood internally that he was to

succeed Harl as the new CEO. That the decision to appoint Collins as the new CEO was reversed

less than two months after he was promoted, and that the Company was then-involved in an intense

investigation of the Allegheny Access project that would shortly thereafter lead to the announcement

of the restatement, reflects that the CEO search was being re-started due to the problems in the Oil &

Gas segment, and that Harl’s departure was also a result of those circumstances. The decision to re-

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start the CEO search also demonstrates that Harl had not earned the $1 million bonus for finding his

successor. That both Harl and Collins quickly departed the Company before the restatement was

announced bolsters the conclusion that Harl’s departure was involuntary, and resulted from the

negative operating conditions then-being concealed from investors.

304. The foregoing statements further misled investors by failing to disclose the problems

in the Oil & Gas segment that had led to Harl’s involuntary departure, including the lack of

management skills and controls needed to carry out the types of construction projects it was involved

in. By the time of these statements, the problems in the Allegheny Access project were known

throughout the Company and the subject of intense internal discussion as alleged above. Thus it was

not true that “performances [were] really improving” in the regional business nor was there any

reasonable basis to continue to expect that the Company would realize a $40 million improvement in

operating margin due to the purported control improvements that had been made in that business.

Neither was it true, at the time of these statements, that WG had “a strong team with complementary

skill sets and experience to move the Company to the next level of operational performance” or that

the team had “the industry experience, operational track-record and technological expertise” to carry

out its ongoing construction activities.


305. At the time he appeared at the conference, WG and McNabb knew or were severely

reckless to the fact that McNabb’s statements about the reasons for Harl’s departure, including that

he had “answer[ed] all questions” that it might spark, were materially false and misleading to

investors. McNabb’s signature on Harl’s August 29, 2014 resignation letter confirms that both he

and other executives of WG, including Wright, had knowledge of the reasons for his departure. The

terms of that agreement, which reflect careful thought and detailed negotiations in consultation with

legal counsel, confirm that defendants also knew that Harl’s “retirement” had not been voluntary.

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306. As WG’s Executive Chairman and Harl’s replacement as CEO, McNabb would have

had direct, personal and detailed knowledge of the reasons for Harl’s departure and the condition of

the business at the time of these statements. WG and McNabb knew that Harl’s “resignation” and

WG’s inability to name his replacement was not part of the orderly succession of leadership in the

business, but in fact was related to significant, undisclosed turmoil in the business, including the as-

yet-undisclosed internal control problems that had led to the (also undisclosed) losses in the

Allegheny Access project and were then the subject of intense, ongoing discussions and

investigations by senior management.

307. WG’s decision to re-start its CEO search just months after selecting Collins as Harl’s

successor reflects the Company’s knowledge of and concern over the conditions in the Oil & Gas

segment, which Collins had overseen as president prior to his promotion: The losses suffered by the

Allegheny Access project were then the subject of intense investigation and analysis by management

with the assistance of a team of outside counsel and WG’s outside auditor, further support the

inference that WG and McNabb knew the full extent of the problems facing the business at the time

of Harl’s resignation, and therefore knew or recklessly disregarded that their statements about the

reasons for Harl’s departure, his continuing role in the Company, and the condition in which he left

the business would be materially misleading to investors.

308. WG and McNabb knew or were severely reckless to the fact that, in the absence of a

disclosure of the problems with and lack of control over the Allegheny Access project, the foregoing

statement was and would be materially misleading to investors. At the time these statements were

made, WG was involved in an intense investigation with the assistance of outside counsel and

auditors into the scope of the problems on the project. Given the nature and significance of the

problems on that project, the proximity in time to WG’s announcement that the problems would

require it to restate its financial statements, and the impact of those problems upon WG’s core

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business and operations, WG and McNabb either knew about those problems, or were severely

reckless in speaking without first making a reasonable inquiry into the state of the business which

would have revealed both the magnitude of the problems and their impact on WG’s regional pipeline

business and its overall operations. Based on the content of McNabb’s statement about the regional

operations in the Oil & Gas segment at the investor conference (Ex. 2, #23), and its similarity to

statements made by Harl on prior earnings calls and at prior investment conferences ( e.g. , id. , ##3,

14), McNabb appears to have simply repeated the Company’s presentation script without making

any effort to determine whether it was still accurate in light of current conditions in the business, and

was thus at least severely reckless to the falsity of the information he conveyed.

309. The open and obvious nature of the control problems, including the lack of physical

progress on the Allegheny Access project, the failure of Lineal to adopt or adhere to the Company’s

controls or to use controls appropriate to the size and scale of the Allegheny Access project, and the

recognition before the call that Hunsberger had repeatedly misrepresented the status of the project all

provide further grounds to support a strong inference of scienter.

E. November 20, 2014 Three Part Advisors LLC Southwest IDEAS Investor Conference

310. On November 20, 2014, McNabb and Fournier spoke on behalf of WG at the Three

Part Advisors LLC Southwest IDEAS Investor Conference. At the time of the conference, WG had

announced, but not issued, its restatement. During the conference, McNabb told investors that WG

had reorganized its business to correct the problems in its Oil & Gas segment and renegotiated its

borrowing agreements to provide it with the liquidity it needed to restore its profitability. These

statements were materially false and misleading to investors because the problems had not been

corrected and the business could not be profitability operated within the terms of WG’s borrowing

agreements. McNabb knew that each of these statements, alleged below and summarized in Ex. 2

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(##24-25), was materially false or would be misleading to investors under the circumstances, or he

was severely reckless to the false and misleading nature of the statements.


311. At the outset of the conference, McNabb showed participants a slide about the

“mission and values” of the Company, telling participants that: “what I want to focus on is we are a

compliant company. We’re going to try to do things right. We want to report efficiently and

effectively and we want all of our colleagues and friends who we work with to be accountable. And

accountability is going to be important in our safety, in our interest, in our income generation, but

also in building a culture that we need rebuild at Willbros.”

312. McNabb told participants that the problems with the Allegheny Access project that

lead to the restatement “just popped up on the radar,” and assured participants, much as Harl had

done following the disclosure of the Seaway losses on the 2Q14 conference call, that the problems

did not extend beyond the losses on the two projects:

So again, looking at the businesses, we got four segments, three of them are profitable, three of them are actually producing margins for the first nine months of both 2013 and 2014 that are at least at or above the industry averages. And we have one business segment that’s had two big losses. So it’s not a systemic problem that the company has. We don’t have operating and execution problems all through the business.

313. McNabb then went on to describe the plans to restructure WG’s business in the wake

of the restatement, including plans to shrink the regional business and refocus it primarily on large

diameter gas pipeline projects. “We know how to do that. And we’re not going to do what we’ve

been doing in the past. People should be happy with that, and hopefully, in 2015, you’ll see the

manifestation of that,” McNabb said. McNabb told participants that Canada was “going to probably

get back in [the pipeline] business” as well, and also said investors: “can look for the Utility T&D

business to continue growing just like you can look at our professional services, engineering to keep

growing.” - 118 -

1038793_1


314. McNabb said WG had plans to sell $100 to $125 million in assets to pay down debt

and, along with layoffs that had already begun, would reduce overhead (G&A) expenses by

$30 million. McNabb then assured participants that WG had the financial strength to carry out its

restructuring plans:

You can – we’ve got some relaxation with waivers from our lenders and we have a revolver. We have an ABL facility and we have a Term B loan with two type primarily big lenders KKR and Redwood. And so you can look for us to do some of this. You can look for us to restructure our balance sheet. We’re not – we have no plans to sell equity, but it’s a solid plan that makes a lot of sense, I think, it’s very, very doable. And that’s one of the things I’ve done in the past with some of my background, my career and things I’ve done. So I think it’s very doable with the management team we have.

315. When a participant asked McNabb if the financial repercussions of the restatement

had affected WG’s business, McNabb said no:

<Q>: Has there been any repercussions from any of your customers – pipeline customers?

<A - John T. McNabb>: So what they’re – they look and say, oh, gosh, you have – are you strong enough financially to do these large jobs? And so that’s the question and the answer, we’re going through the answer with them right now. But it hasn’t deterred us that I know of, it hasn’t deterred us and it won’t. Again, some of this, I just can’t really – I don’t want to get into, because we really haven’t filed, but I think eventually things will become clear where we are. I mean, as I look at 2015, I look at a better capitalized business without the overhang of the past, where we can really start performing unfettered and it just would be up to us to perform.

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316. McNabb’s commentary was supported by the following presentation slide he showed

participants:

i'nii1M1 Recent Financial Commentary

•

Filing 1O-Q for Q3 as soon as practicable - Guided to asset sales of $100-125 million to be used for debt reduction • Expect G&A savings of $30 million on annual basis from these sales and

general overhead discipline - Revenue capacity after sales are ompet $L6 to $1.7 billion • Amiidd credit facility to relax minimum interest coverage and

maximum leverage covenants

317. At the time of these comments, WG had not yet announced the refinancing of the

term loan through KKR. When participants asked follow up questions to try to learn the details

behind the refinancing, McNabb confirmed that the Company had obtained waivers of the debt

covenant violations, that KKR was the new lender, and that the Company would not need to issue

new stock to refinance its loans or fund its operations.

318. McNabb completed his presentation by promoting WG as a good investment

opportunity due its “new management team,” “good growth prospects” and restructured company:

So what we’re going to work on is [showing] the marketplace that we can perform and we can be consistent in our performance. We have four or five things that are going to come off the table at the end of 2014, residual jobs that didn’t work. And I think that we’ve got kind of a nice flat surface to work from in 2015. I can’t comment on that right now, but I do think that we’re going to be a much different company in 2015 and a much more energized company.

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319. McNabb supported his commentary with the following presentation slide:

!II:1I Why Invest in WG'

•

Compelling end markets for all segments • New, energized management team w/ successful track record • Three of the four reporting segments are performing •

Valuation reflects uncertainty around Oil & Gs segment, leveraged balance sheet

• Oil & Gas segment has recent relevant experience with s uccessfu! execution of major projects

• Recent amendments to credit agreement provide covenant headroom • Planned asset sales would improve balance sheet substantially

2. Reasons Why False and Misleading

320. The foregoing statements were materially false and misleading because they

misrepresented the source and extent of the Company’s current problems, omitted to disclose the

significant remaining weaknesses in WG’s internal controls over debt and liquidity forecasts,

omitted to disclose the loss of business and lack of profitability in the Oil & Gas segment, omitted to

disclose WG’s inability to fund its restructuring plans even under the less-stringent covenants under

its new borrowing agreements, and omitted to disclose the business conditions increasing the risk

that WG would lack sufficient liquidity to operate its business in compliance with its borrowing

agreements. The statements were also false and misleading because they omitted to disclose that

WG was in violation of its debt covenants and that the Company’s planned asset sales were

insufficient to reduce its debt by the amount needed to provide it with the liquidity it needed.

321. It was not true that the losses on the Allegheny Access project had “just popped up”

or that the Company did not have “systemic problem[s]” in its business. Neither was it true that WG

had the flexibility under its amended or refinanced borrowing agreements to fund its reorganization

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plans. Neither was it true that the Company was undervalued in the marketplace, as McNabb’s

presentation slides and comments suggested.

322. McNabb’s response to the question about loss of customers was misleading because

he omitted to disclose that the Company’s customers were taking their business elsewhere due to

WG’s financial difficulties. On the 1Q15 earnings call on May 6, 2015, Fournier and McNabb

finally admitted that many of WG’s customers had taken their business elsewhere due to the

Company’s financial problems so they “don’t have to deal with that complication.”


323. The following facts, together with those previously alleged, strongly support the

inference that, WG and McNabb knew or were severely reckless to the false and misleading nature

of the foregoing misrepresentations at the time they were made:

(a) At the time of these statements, the investigations that WG later admitted had led to the discovery of the extent of the problems in the Oil & Gas segment and the causes of the Seaway and Allegheny Access losses and the extent of the Company’s control weaknesses had been substantially completed, plans for reorganizing the Oil & Gas segment were underway, and the new covenant terms and borrowing agreements had been negotiated. Thus, by the time of this conference, McNabb and other senior executives of WG had extensive knowledge of the business conditions, historical performance, and economic challenges facing the business;

(b) McNabb’s substantial experience as an investment banker, his prior relationships with WG’s lenders, his participation in and knowledge about the negotiations leading to the amendment of WG’s borrowing agreements, and his responsibilities for WG’s internal controls establishes that he either knew that material information had not been taken into account in WG’s debt forecasts, or was severely reckless in overlooking that such information was not considered;

(c) McNabb’s false statement on the October 22, 2014 call with investors that WG was in compliance with the debt covenants under its borrowing agreements reflects his willingness to speak falsely on such subjects, or to willingly make statements to investors before making any reasonable effort to determine the accuracy or reliability of the information about which he spoke;

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(d) The extent and continuing nature of the problems in the regional business, together with the magnitude of the losses suffered, demonstrates that the problems were systemic to the business and therefore open and obvious, such that they were either known to or deliberately ignored by defendants in discussing the actual and anticipated performance of the Oil & Gas segment with investors;

(e) Thus, WG and McNabb knew, or were severely reckless in not knowing, that the Company could not fund its reorganization plans within the constraints of its new borrowing agreements, or they knew, or were reckless in not knowing, that the Company lacked sufficient internal controls to provide a reliable basis for contentions that the Company had sufficient liquidity to carry out its plans; and

(f) McNabb’s and Welch’s responsibility over internal controls, their statements to investors about the existence and effectiveness of those controls, also support an inference of scienter. Defendants’ claims just weeks after this conference to have conducted a re-evaluation of those controls in the wake of the announced restatement and their certification that no additional undisclosed control violations existed all further support an inference that they knew that the Company had additional undisclosed weaknesses in its internal controls, or were severely reckless in asserting, in the absence of a reasonable investigation of the problems, that the Company had no other control weaknesses or systemic control problems in its business.

F. December 15, 2014 Press Releases, December 16, 2014 Conference Call, and January 6, 2015 Press Release

324. Following the issuance of WG’s restated financial results, defendants told investors

that the control weaknesses in its business had all been identified, its Oil & Gas segment had been

reorganized and strengthened, and that its borrowing agreements had been renegotiated to provide

the liquidity and flexibility needed to return the business to profitability. None of these statements

were true, because the operations had not been improved in the manner stated, and the Company had

ignored historical results, economic trends and current business information in forecasting its

liquidity needs and ability to comply with its debt covenants. As a result, the Company did not have

the ability to operate its restructured business in compliance with the terms of its borrowing

agreements. Defendants knew that each of these statements, alleged below and summarized in Ex. 2

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(##27-30), was materially false or would be misleading to investors under the circumstances, or they

were severely reckless to the false and misleading nature of the statements.


325. On December 15, 2014, WG issued an Earnings Release announcing its 3Q14

financial results. The Earnings Release stated, in part:

Liquidity

At September 30, 2014, the Company had $48.9 million of cash and cash equivalents. During the third quarter of 2014 the Company paid $3.8 million due for the WAPCo liability and expects to make the final $32.7 million settlement payment at year end. The Company also reduced its revolver borrowings to $15.0 million during the third quarter. Unused availability under its revolver at September 30, 2014 was $53.3 million, net of $19.7 million availability reserve for the WAPCo liability and $57.4 million outstanding letters of credit, on a borrowing base of $145.4 million. As of September 30, 2014, the Company was in compliance with all financial covenants under the 2013 Credit Facilities, as modified by the Third Amendment executed on November 12, 2014.

326. Also on December 15, 2014, WG issued a press release announcing the refinancing of

its term loan on terms that included the same debt covenants as those contained in the November

amendments to its revolver. The press release quoted McNabb as stating:

“The refinancing of our term loan debt gives us greater flexibility to meet near-term obligations and frees up our revolver to address working capital needs as we move into the 2015 construction season. We also have greater flexibility with respect to our loan covenants and maintain the ability to reduce the debt with proceeds from the asset sales we expect to accomplish as we move into 2015.”

327. On the December 16, 2014 3Q14 conference call, Welch specifically called attention

to the “much less restrictive” debt covenants in the new borrowing agreements, telling investors:

“We believe that this new term loan facility provides us with greater flexibility in meeting our future

operating needs and our planned capital expenditures.” Welch also told investors that WG’s:

“[c]urrent cash balance as of yesterday, December 15, 2014, was $58.4 million. Increases in cash

and cash equivalents coupled with increased availability under our revolver will contribute to our

improved liquidity position as we move into 2015.”

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328. Welch said on the conference call that WG had increased the size of the term loan to

$270 million so it could use the proceeds to make the WAPCo settlement payment at the end of the

year preserving liquidity for the upcoming construction season. McNabb reiterated that point in

response to follow up questions from analysts, including in the following exchange:

Dan Mannes – Avondale Partners – Analyst

Okay. And if I could follow up just lastly on the term loan. So the new term loan – I assume you’re going to draw down the entire $270 million, less fees, less the current revolver, less the current term loan. But that should be a net cash increase in the – what, $30 million, $40 million range? Plus, you’ll have full use of the revolver? It seems like you should have a pretty big cash boost, even beyond just availability on the revolver now.

John McNabb – Willbros Group Inc. – Chairman of the Board & CEO

Yes, I think, Dan, good question. We took on the term loan with the idea that we had that WAPCo liability. In some ways, even though the WAPCo liability is not considered debt, it’s debt-like. And we’re paying that off at the end of the year. By paying that off at the end of the year, we’re going to have that availability in our working capital line and our revolver, as I said, to get us ready for the work season that’s coming up in 2015. So I’m very pleased with where we ended up and where our liquidity is as we start into the construction season in 2015.

Dan Mannes – Avondale Partners – Analyst

But effectively, you’re converting the WAPCo from a debt-lite to a debt.

John McNabb – Willbros Group Inc. – Chairman of the Board & CEO

Somewhat. That’s a way to look at it. But also, I think it does push that availability under our revolver up. Under the previous – or under our revolver, we had to reserve for that WAPCo liability in terms of the use of it for the revolver. Now we pay that off, we’ve got cash to pay that off, and now we have a working capital line that’s unencumbered by it.

329. On the December 16, 2014 call, an analyst asked whether WG’s business was being

“impacted by the price of oil. Just curious what your customers are saying and the commentary they

have – if they’re hesitating or if you’re anticipating any delays or anything like that.” In response,

McNabb said that while there had been some deferral of maintenance work, there had not been a

significant impact on capital construction projects: “[A]t the end of the day, they’ve got to keep these

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plants up and running,” he said. “I haven’t seen the reaction that I saw, for example, in 2008, where

people are shutting down projects . . . . We still see strong activity in the shale oil, shale gas plays.”

330. On January 6, 2015, WG issued a press release announcing that the WAPCo

settlement payment had been made. McNabb was quoted in the press release again touting the

strength of the Company’s liquidity and financial position: “‘With this matter fully behind us, we

now have the flexibility in our credit facility to address the multiple opportunities in energy

infrastructure we see ahead of us.’”

2. Reasons Why False and Misleading

331. Each of the foregoing statements was materially false and misleading at the time it

was made, because, based on the current conditions in and prospects for its business, WG did not

then have a reasonable expectation that it could operate its business over the coming year within the

constraints of the debt covenants in its new borrowing agreements.

332. To the extent WG’s post-Class Period contention that the drop in oil prices had a

significant impact on its 4Q14 business is true, McNabb’s statement that there had not been such an

impact was also materially false and misleading to investors.

333. WG’s admission in its March 17, 2015 press release and its FY14 Report on

Form 10-K that “a material weakness existed at December 31, 2014, over the assessment of

significant risks and uncertainties associated with its ability to comply with financial covenants

contained in its credit agreements, and over the assessment of its ability to meet its liquidity and

capital resource needs for a reasonable period of time,” is an admission that it had no reasonable

basis to make statements like those quoted above asserting that the new borrowing agreements and

the relaxed debt covenants therein provided the Company with sufficient liquidity to fund its

anticipated operations. The further admission that these weaknesses were “primarily . . . a result of

not reflecting certain business conditions timely and adequately in its forecast process” establish that

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WG’s inability to operate within the constraints of its financial covenants was a product of

conditions that existed at the time the foregoing statements were made, and not a condition that had

arisen only at the time they were disclosed in the March 17 press releases. WG’s plan to correct the

material weaknesses by adopting processes to assure that “historical performance, the macro-

economic environment in which the Company operates and other Company-specific facts and

circumstances” are considered in its debt and capital resource forecasts is an admission that such

information was not considered before defendants told investors that it had sufficient liquidity to run

its reorganized business.


334. At the time of these statements, WG and McNabb knew that their statements about

WG’s increased borrowing capacity and its ability to carry out its new business strategy were false

or would be materially misleading to investors, or were severely reckless to the false and misleading

character of those statements.

335. At the time of these statements, WG and McNabb knew, or were severely reckless in

not knowing, that the Company could not fund its reorganization plans within the constraints of its

new borrowing agreements, or they knew, or were severely reckless in not knowing, that the

Company had failed to take such information into account in forecasting its borrowing needs and

covenant compliance or that it lacked sufficient internal controls to provide a reliable basis for

asserting that the Company had sufficient liquidity to carry out its plans:

(a) The information demonstrating the unreliability of WG’s debt forecasts was all available to the Company at the time of these statements. WG’s descriptions of the omitted information (“certain business conditions,” “historical performance,” “macroeconomic factors” and “other Company-specific facts and circumstances”) reflects that it is the type of basic information about a business that is regularly consulted and used by company management;

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(b) The vague and general nature of defendants’ descriptions of the omitted facts strengthen the inferences of scienter arising from the misconduct alleged herein, as they are indicative of an intent to conceal rather than inform;

(c) WG’s admission that the control weaknesses existed at December 31, 2014, is an admission that the factors that were not taken into account all existed at the time the foregoing misrepresentations were made;

(d) The facts WG later claimed prevented it from complying with the covenants all existed, and were known to management, at the time of the foregoing misrepresentations. Oil prices had already declined significantly. The lack of strong activity in shale oil and shale gas is reflected by WG’s announcement just months later that it would shut down its regional offices in the Permian basin handling that work. WG has admitted that the poor management, high costs, and lack of profitability in the regional business had been ongoing for more than two years. McNabb acknowledged in November 2014 that WG’s management was then spending significant time talking to customers concerned about WG’s ability to perform in light of the financial problems revealed by its restatement;

(e) As the CEO and CFO of the Company, both McNabb and Welch knew that further testing and analysis was being conducted or was required to determine the full extent of the financial impact on WG arising from material weaknesses in its Oil & Gas business and also knew that the financial impact on the business from the control weaknesses and operating problems in the Oil & Gas segment was much greater than had been revealed, as WG later admitted;

(f) McNabb’s and Welch’s responsibility over internal controls, their statements to investors about the existence and effectiveness of those controls, and their claims to have conducted a complete review of WG’s internal controls prior to release of the restatement further support an inference of scienter; and

(g) The importance to the Company of the new borrowing arrangements, McNabb’s background as an investment banker and his business relationships with the new lenders, further lend support for an inference that McNabb and WG either knew that their liquidity projections lacked a reliable basis, or were severely reckless in not knowing that the information they were relying on was inaccurate, unreliable or incomplete.

G. Sarbanes-Oxley Certifications

336. During the Class Period, WG issued Reports on Form 10-Q that omitted to disclose

the risks associated with, and falsely certified the effectiveness of, WG’s internal controls over

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financial reporting in its Oil & Gas segment. These statements, alleged below, were materially false

and misleading to WG’s Class Period investors.

1. 1Q14 and 2Q14 Reports on Form 10-Q

337. In WG’s 1Q14 Report on Form 10-Q filed with the SEC on May 6, 2014, and its

2Q14 Report on Form 10-Q filed with the SEC on August 5, 2014, Harl and Welch each certified

pursuant to §302 of the Sarbanes-Oxley Act of 2002 that:

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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 the registrant’s board of directors (or persons performing the equivalent functions):

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(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 control over financial reporting.

338. The §302 certifications made by Harl and Welch in WG’s 1Q14 and 2Q14 Reports on

Form 10-Q were materially false and misleading to investors because:

(a) WG’s disclosure controls were not designed to ensure that material information regarding WG’s Oil & Gas segment was made known to senior executives, or to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(b) WG had not disclosed in the Reports changes in the controls that materially affected or were reasonably likely to materially affect WG’s internal control over financial reporting; and

(c) WG had not disclosed all significant deficiencies and material weaknesses in the design or operation of WG’s internal control over financial reporting that were reasonably likely to adversely affect WG’s ability to record, process, summarize and report financial information.

339. In addition, WG’s 1Q14 and 2Q14 Reports on Form 10-Q stated: 5

As of [EOQ date], we have carried out an evaluation under the supervision of, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the design and operation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of [EOQ date].

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have

5 The statements are identical except for the end of quarter (“EOQ”) dates, which have been replaced by “[EOQ date]” in the quotation above. In the 1Q14 Report, the date appearing in the text was March 31, 2014. For 2Q14 it was June 30, 2014.

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materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended [EOQ date].

340. WG has admitted that the foregoing certifications and statements about its internal

controls were materially false and misleading at the time they were made.

341. In its 1Q14 Report on amended Form 10-Q, WG stated:

[I]n connection with the restatement discussed in Note 2 to the Condensed Consolidated Financial Statements included in this Form 10-Q/A, our management, including our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2014, and our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in internal control over financial reporting, as described below, our disclosure controls and procedures were not effective as of March 31, 2014.

Material Weakness in Internal Control Over Financial Reporting

During the quarterly period ended March 31, 2014, our Oil & Gas segment incorrectly estimated total revenues, costs and profits at completion for two significant pipeline construction projects accounted for under the percentage-of-completion method of accounting. As a result, we did not maintain effective controls over the completeness and accuracy of estimated total revenues, costs and profits at completion for construction contracts accounted for under the percentage-of-completion method of accounting by the aforementioned segment. Specifically, we did not adequately perform project oversight reviews and monitor compliance with the Company’s policies and procedures around estimating total revenues, costs and profits at completion for these pipeline construction projects. As discussed in Note 2, these control deficiencies resulted in the restatement of our Condensed Consolidated Financial Statements for the quarterly period ended March 31, 2014. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Additionally, these control deficiencies, if not corrected, could result in misstatement of the aforementioned accounts and disclosures that would result in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. Therefore, we have concluded that these control deficiencies constitute a material weakness in internal control over financial reporting.

Remediation Plans for Material Weakness in Internal Control Over Financial Reporting

In response to the identified material weakness described above, our management, with oversight from the Company’s Audit Committee, will complete training for all appropriate personnel within our Oil & Gas segment regarding the

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application of the Company’s policies and procedures for the oversight and monitoring of the determination of estimated total revenues, costs and profits at completion for construction contracts accounted for under the percentage-of-completion method of accounting.

Until the remediation step set forth above is fully implemented and concluded to be operating effectively, the material weakness described above will continue to exist.

342. Identical changes were made to the amended 2Q14 Report on Form 10-Q/A, except

that the date “March 31, 2014” was replaced with “June 30, 2014” wherever it appeared, and the first

sentence under “Material Weakness in Internal Control Over Financial Reporting” began: “During

the quarterly periods ended [March 31, 2014 or June 30, 2014], our Oil & Gas segment . . . .”

343. The certifications signed by Harl and Welch were materially false and misleading

given defendants’ later admissions about WG’s financial reports and internal controls. Defendants

failed to establish and maintain an adequate system of internal controls, failed to regularly evaluate

the status of those controls or the lack thereof; did not maintain effective entity-level control; and did

not maintain effective process and transaction level controls.

344. WG’s failure to strengthen its known inadequate internal controls rendered WG’s

financial reporting inherently unreliable and contributed to the Company’s inability to prepare

financial statements that complied with GAAP. Nonetheless, as detailed above, throughout the Class

Period, the Company regularly issued quarterly financial statements without ever disclosing the

known existence of the significant and material deficiencies in its internal accounting controls and

falsely asserted that its financial statements complied with GAAP.

345. The totality of the facts alleged above demonstrate that, at the time the Reports on

Form 10-Q were issued, Harl and Welch were severely reckless to the existence of the undisclosed

deficiencies in WG’s internal controls. The failures to conduct project reviews or monitor

compliance with the Company’s policies and procedures around the estimating total revenues, costs

and profits at completion for the pipeline construction contracts in its Oil & Gas business were open - 132 -

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and obvious, as was the failure to consider historical performance, macroeconomic factors or other

Company-specific facts before forecasting working capital needs, borrowing requirements, and debt

covenant compliance. As a result, any review or evaluation of WG’s internal control over financial

reporting would have uncovered the unreported material weaknesses in WG’s controls. Thus, Harl

and Welch either knew that their certifications to investors as to the purported absence of such

deficiencies would be misleading to investor in WG securities, or were severely reckless in not

knowing.

2. 1Q14 and 2Q14 Reports on Form 10-Q/A and 3Q14 Report on Form 10-Q

346. In WG’s Report on Form 10-Q for 3Q14 and its restated Reports on amended

Form 10-Q for 1Q14 and 2Q14, McNabb and Welch signed certifications identical to that alleged in

§VIIG(1) above. Each of these certifications was dated December 15, 2014.

347. Each of those reports described the material weaknesses in the Oil & Gas segment as

alleged above, then stated that:

Other than the identification of the material weakness identified above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarterly period ended [EOQ date].

348. The foregoing certifications and statements in the Reports on amended Form 10-Q

were materially false and misleading to investors because, as of the date the certifications were

signed and the reports were issued, WG had an unreported material weakness in its internal controls

over its forecasts of debt obligations and compliance with the debt covenants in its borrowing

agreements. The failure to disclose the existence of an additional material weakness in WG’s

controls was a material omission that caused the foregoing statements, and the other

contemporaneous statements defendants made about WG’s business as alleged herein, to be

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349. The totality of the facts alleged above, including the extent of WG’s restatement and

the investigation thereof, the importance of the renegotiation of the borrowing agreements to WG’s

ability to execute its restructuring plan, the duties and responsibilities of McNabb and Welch over

internal controls and their background and experience in investment banking and finance, strongly

support the inference that McNabb and Welch were at least severely reckless to the existence of the

control violations at the time these statements were made, and either investigated, learned of, and

failed to report the violations, or failed to perform required investigations into the adequacy of WG’s

controls over debt reporting and therefore knew or recklessly disregarded that they lacked a reliable

basis for signing the certifications or making and authorizing the statements quoted above.

VIII. ADDITIONAL GAAP ALLEGATIONS

350. During the Class Period, each of the defendants violated GAAP and SEC regulations

governing the reporting of WG’s revenues, costs and profits and the maintenance of an effective

system of internal controls over financial reporting and public disclosure. The nature, extent, and

continuation of WG’s misstatements of costs, revenues and profits, together with the persistent and

continuing nature of its control weaknesses and the other information alleged herein, give rise to a

strong inference that defendants knew, or disregarded with severe recklessness, that WG’s financial

reports and the other information contained herein were materially false or would be misleading to

WG’s investors.

A. False Financial Statements

351. Defendants caused the Company to falsely report its 1Q14 and 2Q14 financial results

filed with its Forms 10-Q and included in its press releases and other SEC filings throughout the

Class Period.

352. WG’s reported financial information for 1Q14 and 2Q14 was not prepared in

conformity with applicable GAAP literature and SEC requirements, nor was the financial

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information a fair presentation of the Company’s operations. WG’s 1Q14 and 2Q14 financial results

reported on May 5, 2014 and August 4, 2014 overstated revenue, operating income, and the asset

“contract cost and recognized income not yet billed,” and understated contract expenses, net losses,

losses per share and the liability “[c]ontract billings in excess of cost and recognized income.”

353. WG violated GAAP and the Committee of Sponsoring Organizations of the Treadway

Commission (“COSO”) Standards by reporting financial results that overestimated profits at

completion and revenue on the Seaway and Allegheny Access and other projects accounted for

under the percentage-of-completion method of accounting and by not adequately performing project

oversight reviews and monitoring compliance with the Company’s policies and procedures around

such estimates.

354. GAAP are those principles recognized by the accounting profession as the

conventions, rules and procedures necessary to define accepted accounting practice at a particular

time. SEC Regulation S-X (17 C.F.R. §210.4-01(a)(1)) states that financial statements filed with the

SEC which are not prepared in compliance with GAAP are presumed to be misleading and

inaccurate, despite footnote or other disclosure. Regulation S-X requires that interim financial

statements must also comply with GAAP. 17 C.F.R. §210.10-01(a). WG falsely disclosed in its

Forms 10-Q for 1Q14 and 2Q14 that the financial statements were “prepared pursuant to the rules

and regulations of the [SEC].” They were not.

355. WG has admitted that WG’s prior financial results were materially false due to “an

error in the estimation process” for not one, but two, “significant” pipeline construction projects. As

a result of the errors as alleged herein during the Class Period, WG was ultimately required to restate

its previously released financial statements for the first two quarters of fiscal 2014 to comply with

GAAP.

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356. WG’s restatement of its 1Q14 and 2Q14 financial results was material and had a

significant impact on revenue, operating income, net income (loss) and earnings (loss) per share, as

illustrated in the table below:

Quarter Ended March 31, 2014 (1Q14)

% Reported Amount Amount

Originally Overstated Overstated

Reported Restated (Understated) (Understated)

Contract Revenue $ 517,745 $ 500,899 $ 16,846 3%

Contract Operating Expenses $ 463,662 $ 466,124 $ (2,462) (1%)

Operating Income (Loss) $ 11,024 $ (7,025) $ 18,049 164%

Net Income (Loss) $ (6,607) $ (24,990) $ (18,383) (278%) Basic Income (Loss) Continuing Operations $ 0.00 $ (0.38) $ (0.38) (100%)

Basic Net Income (Loss) $ (0.14) $ (0.52) $ (0.38) (271%) Contract Cost & Recognized Income Not Yet Billed $ 98,588 $ 97,925 $ 663 1% Contract Billings in Excess of Cost & Recognized Income $ 33,019 $ 49,202 $ (16,183) (49%)

Quarter Ended June 30, 2014 (2Q14)

% Reported Amount Amount

Originally Overstated Overstated

Reported Restated (Understated) (Understated)

Contract Revenue $ 543,557 $ 539,790 $ 3,767 1%

Contract Operating Expenses $ 482,559 $ 493,420 $ (10,861) (2%)

Operating Income (Loss) $ 18,506 $ 6,560 $ 11,946 65%

Net Income (Loss) $ (3,652) $ (15,511) $ (11,859) (325%) Basic Income (Loss) Continuing Operations $ 0.14 $ (0.10) $ (0.24) 171%

Basic Net Income (Loss) $ (0.08) $ (0.32) $ (0.24) (300%) Contract Cost & Recognized Income Not Yet Billed $ 81,060 $ 65,965 $ 15,095 19% Contract Billings in Excess of Cost & Recognized Income $ 25,741 $ 31,259 $ (5,518) (21%)

*000’s except EPS

357. WG’s restatement of its previous financial statements is an admission that: (i) the

financial results originally issued during the Class Period and its public statements regarding those

results were materially false and misleading ; and (ii) the financial statements reported during the

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Class Period were incorrect based on information available to defendants at the time the results

were originally reported.

358. As noted by the SEC, “GAAP only allows a restatement of prior financial statements

based upon information ‘that existed at the time the financial statements were prepared,’” and

“restatements should not be used to make any adjustments to take into account subsequent

information that did not and could not have existed at the time the original financial statements were

prepared.”6 FASB, the governing body that promulgated the accounting rules regarding restatements

of prior financial statements has defined “[r]estatement” as “the process of revising previously issued

financial statements to reflect the correction of an error in those financial statements.” See ASC

250-10-20. FASB has also defined the “errors” that may be corrected through a restatement: “an

error in recognition, measurement, presentation, or disclosure in financial statements resulting from

mathematical mistakes, mistakes in the application of generally accepted accounting principles

(GAAP), or oversight or misuse of facts that existed at the time that the financial statements were

prepared.” Id.

359. The restatement at issue here was not due to a simple mathematical error, honest

misapplication of a standard or oversight. The restatement was due to accounting errors that resulted

from the misuse of the facts that were known to WG at the time the 1Q14 and 2Q14 financial

statements were originally issued.

360. WG’s improper accounting for construction revenue and expenses was both

qualitatively and quantitatively material within the meaning of Staff Accounting Bulletin (“SAB”)

114, Topic 1.M., Materiality. WG’s overstatement of profits and misstatement of expenses is a

6 In re Sunbeam Sec. Litig. , No. 98-8258-Civ.-Middlebrooks, Brief of the United States Securities and Exchange Commission as Amicus Curiae Regarding Defendants’ Motions In Limine to Exclude Evidence of the Restatement and Restatement Report (S.D. Fla. Jan. 31, 2002) (citation omitted).

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substantial likelihood that a reasonable person would consider material. The market reaction to and

volatility of the price of WG’s securities in response to the disclosures about its restatement and

control violations also demonstrate WG’s misstatements were material.

361. WG’s restatement was also material because, inter alia, it: changed income into a

loss; hid WG’s failure to meet analysts’ consensus expectations; had the effect of increasing

management’s compensation; concerned a segment of the business that has been identified as

playing a significant role in the operations or profitability; and affected compliance with WG’s loan

covenants.

362. The restatements at issue in this case contain at least the following indicators of

scienter:

(a) The type of restatement (misuse of the facts) – The restatement at issue was not due to simple mathematical error or honest misapplication of an accounting standard or oversight. It was due to misuse of the facts. As alleged herein, WG and its executives knew or were severely reckless in not knowing the following: (1) WG lacked an effective system of internal control over the reporting of costs, profits and revenues under the long-term construction contracts in its Oil & Gas segment; and (2) those weaknesses had created risks that manifested on both the Seaway and Allegheny Access projects, where profits and revenues were recognized before they were earned, and where the project was not as complete or as profitable as reflected in WG’s financial statements because of known but unrecorded losses due to defects in construction, additional work not subject to approved change orders, or other circumstances, as alleged herein. These weaknesses resulted in falsely overstated revenue and operating income, understated expenses, and falsely estimated total exercises at completion and net loss;

(b) The size of the restatement – The restated net loss figures indicate that net loss per share, as originally reported, was understated by 271% and 300% in 1Q14 and 2Q14, respectively. Contract revenue, contract expenses, operating income, contract cost and recognized income not yet billed, and contract billings in excess of cost and recognized income were also materially misstated; and

(c) The fact that the aggregate “errors” in each restated quarter overstate, not understate, operating income and understate, not inflate, net loss and net loss per share. In 1Q14, the improper accounting caused the Company to falsely report an operating profit instead of a loss, and in 2Q14 the improper

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accounting caused WG to report an EPS loss as an EPS profit from continuing operations.

363. Among other improprieties during the Class Period, WG overstated its estimated

contract revenue and profit for two large pipeline construction projects – Seaway and Allegheny

Access – resulting in inflated operating income and understated net losses. WG primarily

accomplished this by underestimating total expenses and thus overestimating the percentage

complete and total profit. Defendants have admitted in the amended SEC filings that in 1Q14 and

2Q14, WG improperly recorded millions of dollars of contract revenue, thus violating both GAAP

and its own stated revenue recognition policy.

364. WG disclosed in its SEC filings that it recorded revenue on its long-term construction

contracts using the percentage-of-completion method of accounting:

Revenue for fixed-price and cost plus fixed fee contracts is recognized using the percentage-of-completion method. Under this method, estimated contract income and resulting revenue is generally accrued based on costs incurred to date as a percentage of total estimated costs, taking into consideration physical completion . Total estimated costs, and thus contract income, are impacted by changes in productivity, scheduling, unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. Certain fixed-price and cost plus fixed fee contracts include, or are amended to include, incentive bonus amounts, contingent on accomplishing a stated milestone. Revenue attributable to incentive bonus amounts is recognized when the risk and uncertainty surrounding the achievement of the milestone have been removed. We do not recognize income on a fixed-price contract until the contract is approximately five to ten percent complete, depending upon the nature of the contract. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined.

. . . We recognize revenue equal to cost incurred on unapproved change orders when realization of price approval is probable and the amount is estimable . Revenue recognized on unapproved change orders is included in contract costs and recognized income not yet billed on the balance sheet.

365. The Company also assured investors that change orders to construction contracts were

in writing, and that added revenues from change orders were not recognized until an agreement with

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the customer was reached, and that profits on work subject to unapproved change orders was

included only where realization of the profit was probable and could be reliably estimated. As WG’s

2013 10-K stated:

Our accounting policy related to contract variations and claims requires recognition of all costs as incurred. Revenue from change orders, extra work and variations in the scope of work is recognized when an agreement is reached with the client as to the scope of work and when it is probable that the cost of such work will be recovered in a change in contract price. Profit on change orders, extra work and variations in the scope of work are recognized when realization is reasonably assured . Also included in contract costs and recognized income not yet billed on uncompleted contracts are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs (unapproved change orders). These amounts are recorded at their estimated net realizable value when realization is probable and can be reasonably estimated. Unapproved change orders and claims also involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded unapproved change orders may be made in the near term.

366. WG violated the foregoing publicly-stated accounting policies in recognizing the

revenues, understating the expenses, and overstating the profits on its long-term construction

contracts in the Oil & Gas segment. WG did not estimate contract income or profits at completion

by taking into account costs incurred to date, physical progress of the work and estimated costs at

completion, nor did it recognize revenues or profits on unapproved change orders only after an

agreement on the scope of work was reached with the client and realization of price approval was

probable or profitability reasonably assured. As alleged elsewhere herein, WG failed to account for

additional costs incurred on the Seaway project due to known defects in its construction, failed to

account for additional costs incurred on the Allegheny Access project in excess of the project

budget, recognized revenues and profits on the Allegheny Access project based on unapproved and

undocumented change orders that Sunoco had not agreed to pay and before realization was probable,

and did not take physical progress into account in recognizing revenues or profits on the Allegheny

Access project. - 140 -

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367. By underestimating contract expenses and overstating contract revenue and profit,

defendants violated GAAP which requires that information be relevant and reliable, and that there be

correspondence or agreement between a measure and the phenomenon it purports to represent. See

Statement of Financial Accounting Concepts (“SFAC”) No. 2, ¶¶58-59, 63.

368. WG’s improper accounting also violated ASC 605-35, Revenue Recognition [for]

Construction-Type and Production-Type Contracts. Specifically, ASC 605-35-25-56 states that the

use of the percentage-of-completion method for revenue recognition “depends on the ability to make

reasonably dependable estimates, which . . . relates to estimates of the extent of progress toward

completion, contract revenues, and contract costs.” 7 Total estimated gross profit on a contract, the

difference between total estimated contract revenue and total estimated contract cost, must be

determined before the amount earned on the contract for a period can be determined. ASC 605-35-

25-82. In computing estimated gross profit or providing for losses on contracts, it is required that

estimates of cost to complete reflect all of the types of costs included in contract costs. ASC 605-35-

25-37f. Additionally, GAAP requires that estimates of cost to complete should be reviewed

periodically and revised as appropriate to reflect new information. ASC 605-35-25-44e. A

provision for loss shall be recognized when the estimated cost for the contract exceeds estimated

revenue. ASC 605-35-45-1.

369. Additionally, GAAP requires that change orders that are unapproved in regard to

scope and price should be evaluated as claims, and recognition of amounts of additional contract

revenue from claims is only appropriate if the realization of such revenue is probable. ASC 605-35-

25-28 & ASC 605-35-25-31.

7 An entity using the percentage-of-completion method as its basic accounting policy shall use the completed-contract method for a single contract or a group of contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make estimates doubtful. ASC 605-35-25-61. Under the completed-contract method, no income is recognized until the project has been completed or substantially completed. ASC 605-35-25-88.

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370. As admitted in the restated SEC filings, the violation of these basic concepts resulted

in an overstatement of contract revenues of $16.8 million and $3.8 million in 1Q14 and 2Q14,

respectively, and an understatement of net losses of $18.4 million and $11.9 million in 1Q14 and

2Q14, respectively.

371. As part of the 1Q14 restatement, WG reduced contract profitability, primarily for the

Seaway project, by $18.8 million – $17.9 million of which had been belatedly recognized in 2Q14

when it should have been recognized in 1Q14 when defendants first became aware of the reduced

profitability in accordance with ASC 605-35. Of the $18.8 million profit reduction, $16.8 million

represented overstated revenue: $16.2 million in previously recognized contract revenue for the

Seaway project, $0.3 million in previously recognized revenue for “another significant pipeline

construction project” and $0.3 million in previously recognized revenue related to the “erroneous

recognition of an unapproved change order.” The restatement included a net increase of $1.2 million

in operating expenses primarily due to the recognition of $2.6 million in reserve for losses on the

Seaway project and $0.3 million in rent expense, partially offset by the reversal of $1.7 million of

previously accrued bonuses, which will no longer be paid in accordance with the Company’s bonus

plans due to the additional losses incurred.

372. As part of the 2Q14 restatement, WG reduced contract revenue by net $3.8 million

and increased operating expenses by net $9.4 million, including the partial offset of a reversal of

$3.5 million in bonuses previously accrued in 2Q14 that WG had determined not to pay due to the

additional losses incurred. WG stated that the 2Q14 restatement was primarily attributable to the

Allegheny Access project.

B. Material Weaknesses in Internal Controls

373. Internal control is a process designed by, or under the supervision of, the CEO and

CFO and carried out by a company’s board of directors, management and other personnel, to provide

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reasonable assurance that, among other things, the financial statements are reliable and accurate and

that a company complies with applicable laws and regulations.

374. As acknowledged by defendants in WG’s 2013 Report on Form 10-K, management is

responsible for establishing and maintaining adequate internal control over financial reporting as

defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

375. Section 13(b)(2) of the Exchange Act states, in pertinent part, that every reporting

company must: “(A) make and keep books, records, and accounts, which, in reasonable detail,

accurately and fairly reflect the transactions and dispositions of the assets of the issuer”; and

“(B) devise and maintain a system of internal accounting controls sufficient to provide reasonable

assurances that . . . transactions are recorded as necessary . . . to permit [the] preparation of financial

statements in conformity with [GAAP].” 15 U.S.C. §78m(b)(2). These provisions require an issuer

to employ and supervise reliable personnel, to maintain reasonable assurances that transactions are

executed as authorized, to properly record transactions on an issuer’s books and, at reasonable

intervals, to compare accounting records with physical assets. SEC v. World-Wide Coin Invs., Ltd. ,

567 F. Supp. 724, 750 (N.D. Ga. 1983).

376. In its 2013 10-K, WG stated that, in making its assessment of the effectiveness of the

Company’s internal control over financial reporting, management used the criteria established in a

1992 report of COSO titled “Internal Control – Integrated Framework.”

377. COSO has broadly defined “internal control” as “a process, effected by an entity’s

board of directors, management and other personnel, designed to provide reasonable assurance

regarding the achievement of objectives relating to operations, reporting, and compliance.” Under

this definition, internal control consists of five components: (i) the Control Environment ( i.e. ,

standards, processes and structures for carrying out internal control activities); (ii) Risk Assessment;

(iii) Control Activities ( i.e. , policies and procedures designed to mitigate risks); (iv) Information and

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Communication; and (v) Monitoring Activities. An “effective system of internal control” requires

that each of these components be present and functioning and work together in an integrated manner

so as to reduce to an acceptable level the risk of not achieving an objective. When a major

deficiency exists with respect to the presence or functioning of a component of internal control, or

with respect to the components operating together in an integrated manner, the organization cannot

conclude that it has met the requirements for an effective system of internal control.

378. Public Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5, An Audit

of Internal Control Over Financial Reporting that Is Integrated with an Audit of Financial

Statements (“AS 5”), Appendix A, ¶A5 similarly defines internal control as:

[A] process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that –

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with [GAAP], and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

379. Defendants Harl, Welch and McNabb, by virtue of their duties as WG’s senior

executives and at the time they were exercising those duties including by signing the certifications

pursuant to the Sarbanes-Oxley Act alleged above, each had a duty to, and did, know, or were

severely reckless in not knowing, that WG had material weaknesses in its internal controls governing

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the recognition of construction contract revenue and contract expenses and the forecasts of its

compliance with debt covenants.

380. In its restated and amended Reports on Form 10-Q for 1Q14 and 2Q14 and its

March 17, 2015 Report on Form 12b-25, WG admitted that there were significant control

deficiencies that constituted material weaknesses in the Company’s control environment related to

the completeness and accuracy of estimated total revenues, costs and profits at completion for

construction contracts accounted for under the percentage-of-completion method of accounting at

March 31 and June 30, 2014, and in its assessment of significant risks and uncertainties associated

with its ability to comply with financial covenants contained in its credit agreements, and over the

assessment of its ability to meet its liquidity and capital resource needs for a reasonable period of

time at December 31, 2014.

381. WG’s outside auditor, PricewaterhouseCoopers LLP, confirmed in WG’s 2014

Report on Form 10-K that the Company lacked effective internal controls during the Class Period:

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because material weaknesses in internal control over financial reporting related to (i) the completeness and accuracy of estimated total revenues, costs and profits at completion for construction contracts accounted for under the percentage-of-completion method in the Oil & Gas segment, and (ii) the assessment of significant risks and uncertainties associated with financial covenant compliance and liquidity and capital resource needs existed as of that date.

382. A material weakness is a “deficiency, or a combination of deficiencies, in internal

control over financial reporting, such that there is a reasonable possibility that a material

misstatement of the company’s annual or interim financial statements will not be prevented or

detected on a timely basis,” as defined by PCAOB Auditing Standard (“AS”) No. 5 §A7.

383. WG has admitted that it did not adequately perform project oversight reviews and

monitor compliance with its policies and procedures around estimating total revenues, costs and - 145 -

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profits at completion for the Allegheny Access and Seaway projects. These control activities were

critical to the performance of a functioning internal control system in accordance with the COSO

report which states:

Monitoring ensures that internal control continues to operate effectively. This process involves assessment by appropriate personnel of the design and operation of controls on a suitably timely basis, and the taking of necessary actions. . . . Activities that serve to monitor the effectiveness of internal control in the ordinary course of operations are manifold. They include regular management and supervisory activities, comparisons, reconciliations and other routine actions.

384. In its 1Q14 Form 10-Q/A and 2Q14 Form 10-Q/A Reports filed on December 15,

2014, WG said that it planned to remediate those weaknesses by instituting training programs to

ensure that its employees complied with its policies and procedures governing estimation of

revenues and profits at completion of construction contracts accounted for under the percentage of

completion method. This plan confirms that WG did not maintain an effective training program for

its employees involved in estimating activities during 2014, and also had no effective systems in

place to detect or prevent incidents of employees failing to follow policies and procedures governing

those activities.

385. In its FY14 Report on Form 10-K, WG stated that it would remediate the weaknesses

in its internal controls surrounding its ability to comply with the financial covenants in its debt

agreements or to assess its ability to meet its liquidity and capital resource needs for a reasonable

period by:

Implement[ing] additional controls and procedures to ensure the necessary steps are taken such that Management considers historical performance, the macro-economic environment in which the Company operates and other Company-specific facts and circumstances in developing appropriate Company-wide forecasts to assess future compliance with financial covenants and liquidity and capital resource needs.

386. WG’s remediation plan confirms that the Company lacked effective controls during

the Class Period to ensure that historical performance, macroeconomic factors, and other Company-

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specific facts and circumstances were taken into account in forecasting that the Company had

sufficient liquidity to carry out its modified business plan for the Oil & Gas segment.

387. WG violated §13(b)(2)(A) of the Exchange Act by failing to maintain accurate

records concerning its revenues, costs and net income. It overstated revenue and understated

expenses and net losses. Moreover, WG’s inaccurate and false records were not an isolated or

unique instance because they were improperly maintained for more than one project and multiple

reporting periods throughout fiscal 2014.

388. WG violated §13(b)(2)(B) of the Exchange Act by failing to implement procedures

reasonably designed to prevent accounting irregularities. WG failed to ensure that proper oversight,

review and checks were in place to ensure that it was properly valuing its pipeline construction

projects. It failed to ensure that the contracts were reported in accordance with its own policies and

with GAAP.

389. WG did not comply with the following requirements for internal control over

financial reporting: Rules 13a-15(f) and 15d-15(f) under the Exchange Act, §§302, 404 and 906 of

the Sarbanes-Oxley Act of 2002, and Item 308 of Regulation S-K.

390. Under §302 of the Sarbanes-Oxley Act of 2002, the principal officers of the company

are required to certify that: they are responsible for establishing, maintaining and regularly

evaluating the effectiveness of the issuer’s internal controls; they have made certain disclosures to

the issuer’s auditors and the audit committee of the board of directors about the issuer’s internal

controls; and they have included information in the issuer’s quarterly and annual reports about their

evaluation.

391. Under §906 of the Sarbanes-Oxley Act of 2002, the chief executive officer and the

chief financial officer must certify each periodic report containing financial statements filed by an

issuer with the SEC pursuant to §§13(a) or 15(d) of the Exchange Act, 15 U.S.C. §78m(a) or

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§78o(d), and that information contained in the periodic report fairly presents, in all material respects,

the financial condition and results of operations of the issuer.

392. Under Item 308, Internal Control Over Financial Reporting, of Regulation S-K,

management is required to provide a report of the registrant’s internal control over financial

reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) that contains:

(a) a statement of management’s responsibility for establishing and maintaining adequate internal

control over financial reporting for the registrant; (b) a statement identifying the framework used by

management to evaluate the effectiveness of the registrant’s internal control over financial reporting

as required by paragraph (c) of Rule 13a-15 or Rule 15d-15 under the Exchange Act;

(d) management’s assessment of the effectiveness of the registrant’s internal control over financial

reporting as of the end of the registrant’s most recent fiscal year, including a statement as to whether

or not internal control over financial reporting is effective – this discussion must include disclosure

of any material weakness in the registrant’s internal control over financial reporting identified by

management and management is not permitted to conclude that the registrant’s internal control over

financial reporting is effective if there are one or more material weaknesses in the registrant’s

internal control over financial reporting; and (e) a statement that the registered public accounting

firm that audited the financial statements included in the annual report containing the disclosure

required by this Item has issued an attestation report on management’s assessment of the registrant’s

internal control over financial reporting. 17 C.F.R. §229.308.

393. Defendants provided Management’s Report on Internal Control Over Financial

Reporting in its 2013 Form 10-K, filed February 28, 2014, the first day of the Class Period, which

stated that based on management’s assessment using the COSO criteria, they concluded that as of

December 31, 2013, WG’s internal control over financial reporting was effective. Defendants

provided statements in each of the Forms 10-Q for 1Q14, 2Q14 and 3Q14 that there were no changes

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in internal control over financial reporting, falsely indicating to investors that internal control was

effective throughout the Class Period, as alleged above.

C. Other GAAP Violations

394. In addition to the GAAP and SEC violations described above, the Company also

violated the following fundamental GAAP principles:

(a) The principle that interim financial reporting should be based upon the same accounting principles and practices used to prepare annual financial statements was violated (Accounting Principles Board Opinion No. 28, ¶10);

(b) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (SFAC No. 1, ¶34);

(c) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and effects of transactions, events and circumstances that change resources and claims to those resources was violated (SFAC No. 1, ¶40);

(d) The principle that financial reporting should provide information about an enterprise’s financial performance during a period because investors often use information about the past to help in assessing the prospects of an enterprise was violated (SFAC No. 1, ¶42);

(e) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (SFAC No. 1, ¶50);

(f) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (SFAC No. 2, ¶¶58-59);

(g) The principle of completeness, which means that nothing is left out of the information that may be necessary to insure that it validly represents underlying events and conditions was violated (SFAC No. 2, ¶79);

(h) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to

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investors is to try to ensure that what is reported represents what it purports to represent (SFAC No. 2, ¶¶95, 97); and

(i) The principle that revenues and gains should not be recognized until they are both earned and realizable was violated (SFAC No. 5, ¶83).

IX. ADDITIONAL ALLEGATIONS OF RELIANCE, MATERIALITY, LOSS CAUSATION & DAMAGES

A. Presumption of Reliance (Fraud on the Market Allegations)

395. Through the efficient operation of the markets in which WG common stock was

publicly traded, Lead Plaintiffs and the other members of the proposed Class may be presumed to

have relied upon each of the false and misleading statements alleged herein.

396. At all relevant times, the market for WG’s common stock was an efficient market for

the following reasons, among others:

(a) WG’s stock met the requirements for listing, and was listed and actively traded on the NYSE, a highly efficient and automated market;

(b) As a regulated issuer, WG filed periodic public reports with the SEC and the NYSE and was, at all times alleged herein, eligible to file a Form S-3 with the SEC;

(c) WG regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services, publications on its website and other Internet sites, and through other wide-ranging public disclosures, such as through conference calls, communications with the financial press and other similar reporting services;

(d) During the Class Period, WG was followed by securities analysts employed by major brokerage firms. Analysts employed by each of these firms regularly wrote reports based upon the publicly available information disseminated by defendants about WG. These reports were distributed to the sales force and certain customers of their respective brokerage firms;

(e) Institutions collectively owned more than 67% of WG’s outstanding shares during the Class Period. Each of these institutions regularly analyzed and reported on the publicly available information about WG and its operations; and

(f) During the Class Period, the average daily trading volume of WG common stock was greater than 425,000 shares.

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397. Through the foregoing mechanisms, the information publicly disseminated by

defendants about the Company and its operations, and the import thereof, became widely available

to and was acted upon by investors in the marketplace such that, as a result of their transactions in

WG stock, the information disseminated by defendants, including the false and misleading

statements described above, became incorporated into and were reflected by the market price of

WG’s common stock.

398. Under these circumstances, all purchasers of WG’s common stock during the Class

Period are presumed to have relied upon the false and misleading statements and material omissions

alleged herein.

B. Theory of Loss Causation & Damages

399. Each member of the proposed Class suffered economic losses as a direct and

proximate result of the fraud alleged herein. Each Class member suffered similar injury as a result

of: (i) their purchase of WG’s common stock at prices that were higher than they would have been

had defendants made truthful and complete disclosures of information about the Company as

necessary to prevent the statements, omissions and course of business alleged herein from being

materially false or misleading to investors; and (ii) their retention of those shares through the date of

one or more declines in the market price of those shares that was caused by the revelation of

business conditions and risks concealed from investors by defendants’ scheme to defraud, or the

financial consequences of their concealed actions.

400. The misrepresentations and omissions alleged herein impacted the public trading

price for WG’s common stock by causing it to trade at a price higher than it would have had the

facts, risks and conditions concealed by defendants’ fraud become known sooner than it did. The

impact on WG’s stock price occurred by increasing the trading price of WG stock at the time of the

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misrepresentation or by preventing a price decline that would have occurred at that time with the full

disclosure of the truth, or both.

401. The facts, risks and conditions concealed from investors by defendants’ scheme to

defraud reached the market through a series of partial disclosures. Though each of the disclosures

was incomplete, each revealed some of the business conditions concealed by defendants’ fraud

scheme and the concealed materialization of risks to its operations, leading to price declines that

partially corrected WG’s stock price by reducing the extent to which it had been inflated by

defendants’ fraud scheme, thereby injuring Lead Plaintiffs and other members of the Class who had

purchased WG securities during the Class Period at prices that had been artificially inflated by the

fraudulent course of business and misleading statements and omissions alleged herein.

402. The fraud-related events that impacted the price of WG’s common stock include

those identified in the chart below, which identifies each event, the change in WG’s stock price on

the day of the event, and, for purposes of comparison, the percentage change in XES, a State Street

SPDR ETF that tracks the S&P Oil & Gas Equipment & Services Select Industry Index during the

same time period:

WG ∆ XES ∆ Date Event8 $ % %

2/28/14 FY13 Earnings Report/Controls Fixed $1.14 13.0% 1.5% 5/6/14 1Q14 Earnings Report/Overstated ($0.19) (1.8%) 0.0% 8/5/14 2Q14 Earnings Report/Seaway loss ($1.06) (9.1%) (1.8%)

10/22/14 Unreliability of Controls/Financials ($2.75) (35.9%) (3.2%) 12/16/14 Purported Correction of Problems $0.99 24.7% 1.9% 3/18/15 Lack of Debt Controls, Violation of Covenants ($2.79) (50.9%) 3.7%

8 The list of events identified herein is necessarily preliminary, and based upon Lead Plaintiffs’ analysis and investigation to date. Upon further investigation and discovery and additional analysis, Lead Plaintiffs may change, alter or amend their theory of damages, including by identifying additional inflationary and corrective events that caused or contributed to the damages claimed in this action, or by using other industry indices or competitor stock price data to more precisely establish the magnitude of the Company-specific change arising from those events.

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1. February 27-28, 2014 Inflationary Event

403. On February 27, 2014, after the market closed, WG issued its FY13/4Q13 Earnings

Release. At 9:00 a.m. EST on February 28, 2014, WG initiated its FY13/4Q13 investor conference

call. WG’s FY13 Report on Form 10-K was filed with the SEC later the same day.

404. WG’s Earnings Release, conference call and 10-K all emphasized the improvement in

WG’s processes and controls that supported the expectation for an improvement in FY14 operating

results as compared to FY13, particularly in the Oil & Gas segment, as alleged above.

405. Defendants did not disclose the material weaknesses in WG’s internal controls that

existed at the time of the FY13 earnings announcement or the problems leading to lowered revenue

and profitability in its Oil & Gas segment.

406. WG’s stock price increased more than 13% on February 28, 2014, on heightened

volume of 908,900 shares, nearly 10 times its average daily volume during the year.

407. A significant portion of the February 28, 2014 increase in WG’s stock price resulted

from defendants’ statements about the purported improvement in WG’s internal controls leading to

profitability of its Oil & Gas segment.

408. Had defendants not made the false assurances about WG’s controls, or disclosed the

material weaknesses that then existed in the controls, WG’s stock price would have declined on

February 28, 2014 or the extent of the price increase that day would have been significantly smaller

than it was.

409. WG’s false assurances about the improvements to and reliability of its internal

controls and its failure to disclose the material weaknesses that then existed in its internal controls

caused WG’s stock price to trade at a higher price on and after February 28, 2014 than it otherwise

would have, thereby creating or maintaining fraud-related inflation in WG’s stock price.

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2. May 5-6, 2014 Inflationary Event

410. On May 5, 2014, after the market closed, WG issued its 1Q14 Earnings Release. At

9:00 a.m. EDT on May 6, 2014, WG initiated its 1Q14 investor conference call. WG’s 1Q14 Report

on Form 10-Q was filed with the SEC later the same day.

411. WG’s 1Q14 financial results were materially inflated by the failure to report the

losses suffered on the Seaway project and other losses in the Oil & Gas segment resulting from the

undisclosed weaknesses in WG’s internal controls, as alleged above.

412. Defendants did not disclose the material weaknesses in WG’s internal controls that

existed at the time of the 1Q14 earnings announcement or the losses that had been suffered on the

Seaway and Allegheny Access projects.

413. WG’s stock price dropped only $0.19 on May 6, 2014, on modest volume of 560,400

shares, about 40% higher than its average daily volume during the year.

414. The reaction to WG’s 1Q14 earnings announcement reflected the mixed results

reported by the Company that day, including weather-related contract delays that held back earnings

in the Oil & Gas segment.

415. Had the expenses and reduced profitability associated with the Seaway and Allegheny

Access projects been booked in 1Q14 as GAAP required, the impact of the negative performance

under that contract on the Oil & Gas segment’s financial results and on WG’s overall financial

condition and results would have caused a decline in the price of WG’s common stock at that time.

416. WG’s failure to accurately report the 1Q14 losses in its Oil & Gas segment or to

disclose the material weaknesses in its internal controls caused WG’s stock price to trade at a higher

price on and after May 6, 2014 than it otherwise would have, thereby creating or maintaining fraud-

related inflation in WG’s stock price.

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3. August 5-6, 2014 Corrective and Inflationary Event

417. On August 4, 2014, after the market closed, WG issued its 2Q14 Earnings Release.

At 9:00 a.m. EDT on August 5, 2014, WG initiated its 1Q14 investor conference call. WG’s 2Q14

Report on Form 10-Q was filed with the SEC later the same day.

418. WG’s 2Q14 financial results were materially inflated by the failure to report the

losses suffered on the Allegheny Access project and other losses in the Oil & Gas segment resulting

from the undisclosed weaknesses in WG’s internal controls, as alleged above.

419. WG’s 2Q14 reported financial results included a significant loss in the Oil & Gas

segment resulting from the losses incurred on the Seaway project, which should have been reported

in 1Q14 or earlier. On the 2Q14 earnings call, Harl confirmed that the entire loss in the segment was

due to the Seaway project: “Primarily as a result of losses incurred on this one project, the oil and

gas segment reported an operating loss of $7.9 million for the quarter.” Harl reaffirmed that

response later in the call in response to a follow up question from an analyst: “We would have been

profitable in that segment had it not been for this one project. So I think that gives you pretty good

color on how much it impacted us. It was significant.”

420. WG’s common stock dropped more than 9% on August 5, 2014 on heightened

volume of 999,100 shares, more than 2.5 times its average daily volume during the year. This drop

removed some, but not all, of the fraud – caused inflation from WG’s share price.

421. The negative results in the Oil & Gas segment announced in the 2Q14 Earnings

Release was the primary driver of the decline in the price of WG’s common stock on August 5,

2014.

422. Had WG reported the losses from the Allegheny Access and other projects in the Oil

& Gas segment with its 2Q14 Earnings Release, or revealed the material weaknesses in its internal

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controls, including the weaknesses that caused it to delay reporting the Seaway losses, WG’s stock

price would have fallen further than it did on August 5, 2014.

423. The disclosure of the financial impact of the expenses associated with the Seaway

project in connection with the 2Q14 Earnings Release therefore was only a partial corrective

disclosure of the information concealed by the fraud alleged herein. The 2Q14 release disclosed part

of the financial impact to WG from the failure to adopt or maintain effective internal controls over

financial reporting, and represented a partial manifestation of the risks to WG’s business arising

from its lack of internal controls.

424. The 2Q14 Earnings Release stopped short of being a complete corrective disclosure,

because it did not disclose the material weaknesses in WG internal controls, or the risk that the lack

of controls presented to WG’s earnings from ongoing construction contracts. To the contrary, Harl

assured investors that the conditions that caused the losses in the Seaway project did not give rise to

risks to profitability on other ongoing construction projects:

We are currently executing four cross-country pipeline construction projects. One of those projects incurred substantial cost increases during the completion phase. We have assessed the other three projects and are confident the contributing factors are confined to this one project.

425. WG’s failure to accurately report the 2Q14 losses in its Oil & Gas segment or to

disclose the material weaknesses in its internal controls, and Hart’s false assurances regarding the

scope and existence of the control weaknesses, caused WG’s stock price to trade at a higher price on

and after August 5, 2014 than it otherwise would have, thereby creating or maintaining fraud-related

inflation in WG’s stock price.

4. October 21-22, 2014 Corrective Event

426. On October 21, 2014, after the market closed, WG issued a press release announcing

the delay in its 3Q14 Earnings Release and the restatement of its prior financial results due to a lack

of internal controls that rendered its prior reported results unreliable, as alleged above. The press - 156 -

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release was filed with the SEC in a Report on Form 8-K on October 22, 2014. At 9:00 a.m. EDT on

October 22, 2014, WG hosted a conference call with investors and Wall Street analysts to discuss the

October 21, 2014 announcement.

427. WG’s stock dropped 36% on October 22, 2014 on heightened volume of 3,733,500

shares, nearly ten times its average daily volume during the year.

428. WG’s revelation of the internal control deficiencies that rendered its past financial

results unreliable and made it unable to finalize its current financial results was the primary driver of

the 36% decline in the price of WG’s common stock on October 22, 2014.

429. The negative information about the Company that was revealed to the market in

WG’s October 21, 2014 press release and its October 22, 2014 conference call and Report on

Form 8-K was directly and proximately caused by the defective internal controls, the inaccurate

financial results, and the manifestation of the risks to WG’s financial condition and operations that

were concealed from Class members during the Class Period, including the material weaknesses in

its internal and project controls in its Oil & Gas segment, the lack of relevant experience of its

management to handle the projects on which it was bidding, the overstatement of WG’s profits and

revenues and understatement of expenses on its pipeline construction contracts, and the need to

significantly restructure its business and sell off significant assets to respond to the conditions and

challenges first revealed on the October 21 and 22 disclosures.

430. The October disclosures stopped short of being a complete disclosure of the relevant

truth, because it did not disclose the Company’s violation of its debt covenants, the weaknesses in its

internal controls over its debt forecasts, or that it lacked the liquidity needed to fund its planned

reorganization. Had defendants disclosed these conditions, WG’s stock would have fallen further

than it did on October 22, 2014.

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5. December 15-16, 2014 Inflationary Event

431. On December 15, 2014, WG issued its 3Q14 financial results, along with its restated

financial results for 1Q14 and 2Q14, and announced that it had renegotiated its borrowing

agreements to relax, and thereby avoid a 3Q14 violation of, the debt covenants contained therein.

These events were announced in two press releases issued that day by WG and in the Reports on

Forms 10-Q and 10-Q/A filed with the SEC that day by WG. In addition, at 10:00 a.m. EST on

December 16, 2014, WG hosted a conference call with investors and Wall Street analysts to discuss

the information contained in those press releases and SEC filings.

432. WG’s common stock increased 24.7% on December 16, 2014 on heightened volume

of 2,039,100 shares, more than five times its average daily volume during the year.

433. The increase in WG’s stock price was caused by the announcements that WG had

successfully completed its restatement and renegotiated its debt agreements. Those announcements,

together with the related statements on the December 16 conference call and the December 22

Moody’s press release alleged above, falsely led investors to believe that WG’s control problems had

been fixed and the negative financial impact of its faulty controls had been identified and contained,

and that WG had maintained the liquidity and leverage necessary to operate its business.

434. In fact, at the time of these events, WG lacked effective controls and had not taken

into account current business conditions that created significant and undisclosed risks to its ability to

operate its business within the constraints of its renegotiated borrowing arrangements. Additionally,

at the time of these events, and contrary to the statements alleged above, WG had not completed its

investigation into or testing and analysis of the impact of the material weaknesses in its internal

controls over reporting revenues, costs and profits under the construction contracts in its Oil & Gas

segment.

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435. Had WG reported that it did not have reliable internal forecasts of or controls over its

debt capacity and borrowing arrangements and was still analyzing the full extent of the impact of its

ineffective controls over its Oil & Gas contracts, WG’s stock would not have increased as much as it

did, or would have declined in value, on December 16, 2014. Had these matters been disclosed,

Moody’s would not have issued a stable rating on WG on December 22, 2014, nor would WG’s

stock price have increased in the amount it did on the following day.

436. The false and misleading statements alleged herein regarding the completion of WG’s

restatement and the extent of the weaknesses in its internal controls, including the omission of

information about WG’s ability to operate within the constraints of its new borrowing arrangements,

caused WG’s stock price to trade at a higher price on and after December 16, 2014 than it otherwise

would have, thereby creating or maintaining fraud-related inflation in WG’s stock price.

6. March 17-18, 2015 Corrective Event

437. On March 17, 2015, after the market closed, WG filed a Report on Form 12b-25 and

issued a press release announcing that it would delay the filing of its Report on Form 10-K for FY14,

pending completion of its analysis of the impact of the control violations in its Oil & Gas segment

and renegotiation of its borrowing agreements, and stating that unless the agreements could be

renegotiated WG would again be in violation of its debt covenants requiring its debt to be repaid

within 12 months. WG alerted investors that its 4Q14 and FY14 results would be lower than

forecast, and that its outlook for FY15 was being re-evaluated and would be reduced. See, e.g. ,

KeyBanc Capital Markets, “WG – Quick Alert: Delay of 4Q Results, 10-K on Covenant Breach”

(March 18, 2015) (“[M]anagement indicated that it was reevaluating its 2015 outlook . . . .

Management expects both 4Q14 and 1Q15 to be impacted . . . . ”).

438. WG’s common stock dropped more than 50% on March 18, 2015 on exceptional

volume of 14,096,000 shares, more than 35 times its average daily volume during the preceding

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year. The March 18, 2015 stock price decline was caused by the information communicated in the

March 17, 2015 Report on Form 12b-25 and press release, the internal business conditions and

control deficiencies that led to the negative conditions reported therein, and the manifestation of

risks, the existence and/or magnitude of which had previously been concealed from investors,

including the risks arising from the continuing ineffectiveness of its management and controls over

the regional operations of its Oil & Gas segment. The March 18, 2015 price reaction to this

statement therefore eliminated fraud – caused inflation from WG’s stock price.

439. WG’s 4Q14 and FY14 results, released March 31, 2015, confirmed that the

Company’s inability to comply with its debt covenants and the missed earnings and lowered

guidance all resulted primarily from the conditions in WG’s Oil & Gas business that had been

concealed by defendants’ fraud. “The problem [is] within our regional delivery model,” McNabb

said on WG’s FY14 earnings call on April 1, 2015, “fix that and we fix Willbros,” McNabb said that

“the losses in the fourth quarter are the product of the hangover from the regional delivery model,

weather impacts, low revenue levels in our oil and gas segment, other charges of $7 million and a

$14 million non-cash debt extinguishment charge.” Welch said on the call that the “other charges”

“primarily relate to an internal review of the operational issues within the oil and gas segment

identified in Q3, 2014 as well as severance cost related to headcount reductions.”

440. Following the release of WG’s FY14 results and the publication of its annual report

on Form 10-K, market commentators recognized that WG’s stock would trade at a discount until the

Company could demonstrate that its management and oversight of the Oil & Gas segment had been

improved and that the material weaknesses in its controls had been corrected. See, e.g. , UBS, “End

market headwinds, Oil & Gas execution drive 4Q loss” (March 31, 2015) (“We expect WG to trade

at a discount to historical levels and peers until it executes with a consistent track record.”);

KeyBanc Capital Markets, “WG: Key Takeaways from 4Q14 Results” (April 12, 2015) (“We look

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for sustained execution performance to get constructive and are lowering our 2015 estimate . . . .”)

Commentary such as this further illustrates the reasons for the market’s negative reaction to WG’s

disclosure on March 17 about the continuing impact that weak controls were having on its business.

7. Subsequent Price Declines and Other Corrective Events

441. On March 31, 2015, the value of WG’s outstanding shares was substantially diluted

when WG issued 10.1 million new shares to KKR as a condition of its agreement to suspend the

Company’s obligation to comply with its debt covenants through 1Q16. This event represented the

direct manifestation of a risk that had been concealed by defendants’ prior misrepresentations about

the effectiveness of its internal controls, the sufficiency of its liquidity, and the benefits of the

relaxed debt covenants under the November and December amendments to its borrowing

agreements. The dilution in share value therefore caused additional economic injury to Class

members who continued to hold the WG shares they acquired during the Class Period through the

date on which those interests were diluted by the grant to KKR. See, e.g. , UBS, Willbros Group,

Inc., “On more stable footing, but still a show me story” (April 2, 2015) (reducing 2015, 2016 and

2017 EPS estimates “to reflect a lower revenue base, expected 1Q15 operating losses, and share

count dilution”)

442. Market commentators also noted following the release of the Company’s FY14

results that WG’s stock was getting “pummeled” despite favorable market conditions and

competitors’ ability to thrive in those conditions. Contrary to defendants’ claims that poor weather,

falling oil prices and other poor market conditions caused the Company’s poor financial results, the

oil & gas and related markets and competitors were actually up in 2015. As the financial analysis

company buy sell signals reported on April 14, 2015:

Willbros Group, Inc., NYSE’s 36th largest Oil Equipment & Services company by market cap, plummeted US$3.64 (or 57.9%) year to date in 2015 to close at US$2.64. This makes the stock the biggest decliner in the Oil Equipment & Services sector which is up 1.6% in 2015 . Compared with the S&P 500 Index

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which has risen 1.8% YTD, this is a relative price change of -59.8%. The volume YTD has been 1.5 times the average trading of 461,913 shares. In 2015 the market cap has declined US$183.4 million.

443. WG’s stock price has continued to decline after the Class Period ended, and opened at

$1.80 per share as of the date of this filing. Upon factual discovery and expert inquiry, plaintiffs

may also assert that some or all of these subsequent market losses represented further reactions to the

events and conditions concealed by fraud, as alleged herein, and therefore caused compensable

damages to members of the Class who retained WG shares they acquired during the Class Period

through the date of such price declines.

X. ADDITIONAL ALLEGATIONS REGARDING MOTIVATION AND CONTROL

444. During the Class Period, WG and each of the Individual Defendants had both the

motive and opportunity to engage in the fraudulent conduct herein, and the power to prevent or

correct the fraudulent misrepresentations and omissions that misled investors. Each of the

defendants, by virtue of their duties and responsibilities and positions of control, had control over the

communications that are alleged to have misled investors, and the ability to control the contents

thereof. Each of the defendants also had significant pecuniary interests that were improved at the

time of and by virtue of the communication of the false and misleading information alleged herein.

445. WG and McNabb acted as controlling persons of Harl and Welch within the meaning

of §20(a) of the Exchange Act as alleged herein because each of them had the power to and did

control or influence the decision making of Harl, Welch, and other WG employees, including with

respect to the particular transactions and statements giving rise to the securities violations alleged

herein. WG also acted as a controlling person of McNabb on and after the date he began to exercise

day-to-day management of and control over the Company, which occurred no later than August 29,

2014.

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446. WG and McNabb had the power to fire and discipline the employees who engaged in

the fraudulent misconduct alleged herein, so as to prevent or cause the correction of the false and

misleading information communicated to the market. WG and McNabb caused or brought about the

departures of Harl, Collins, Gibson and other employees as a direct result of the misconduct alleged

herein. WG and McNabb did so in a manner that was calculated to prevent investors from learning

the true reasons for their departures or to correct the misleading information that had been previously

communicated about the nature and extent of business conditions and risks facing the Company.

WG and McNabb permitted each of these employees to “retire” or “resign” from the Company and

to preserve or increase their rights to post-employment compensation, including the vesting of stock

options or severance payments that were subject to forfeiture had the true reasons for their departures

been disclosed and appropriate disciplinary actions taken.

447. By virtue of their high-level positions, ownership of and contractual rights with WG,

participation in or awareness of the Company’s operations, power to hire, fire and discipline

employees, and by reason of their intimate knowledge of the matters discussed in the public

statements filed by the Company with the SEC and disseminated to the investing public, each of the

Individual Defendants had the power to influence and control, and did influence and control, directly

or indirectly, the decision-making of the Company, including the contents and dissemination of the

false and misleading statements alleged above.

448. McNabb, Harl and Welch each possessed the power and authority to control the

contents of WG’s quarterly reports, press releases, quarterly conference calls and other presentations

to securities analysts, money and portfolio managers and institutional investors. It may be inferred,

from their positions within WG’s hierarchy and their duties and responsibilities of their positions

during the Class Period, that each of these Individual Defendants had the duty and the ability to

review copies of the Company’s reports and press releases and the statements on investor conference

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calls or at investor presentations alleged herein to be misleading prior to or shortly after they were

made, and therefore had the ability and opportunity to prevent their issuance or cause them to be

corrected.

449. Each of the Individual Defendants also had direct and supervisory involvement in the

day-to-day operations of the Company. As WG’s 2013 and 2014 Proxy Statements, filed with the

SEC on Forms DEF 14A on April 16, 2013 and April 15, 2014, respectively, stated that the

Company’s management is “responsible for day-to-day risk management processes” under the

Board’s oversight.

450. As WG’s Executive Chairman, and later, when he officially became its CEO,

McNabb exercised day-to-day control over WG’s operations. After he was appointed Executive

Chairman on or before August 29, 2014, McNabb immediately began supervising and taking over

responsibilities from Harl. According to a September 5, 2014 Report on Form 8-K, “Mr. Harl will

report to Mr. McNabb, until his retirement” and “various duties of Mr. Harl will be transitioned to

Mr. McNabb.” At the September 9, 2014 investor presentation, McNabb told participants “I moved

into the CEO’s office, a couple of days ago” and said “I’m going to be running the business.”

451. Even before he was appointed Executive Chairman, McNabb had and exercised his

power as Chairman of the Board to control the day-to-day activities of WG, Harl and other

executives. On WG’s December 16, 2014 investor conference call, McNabb stated that “ when I

stepped in, in July ” he had curtailed bidding activity pending a business review that resulted from “a

conscious decision in late June and July , where we slowed down in a couple of areas.”

452. McNabb also exercised substantial influence or control over the composition of WG’s

Board of Directors, which included members with significant personal or professional relationships

with, and were loyal to, McNabb. Amid charges of “cronyism,” and questions regarding McNabb’s

influence over other directors and his role in selecting the members of WG’s Board, shareholders

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have pushed for corporate governance reforms, including calls for McNabb confidant Edward

DiPaolo to resign from WG’s Board, and passing a resolution calling for WG to eliminate staggered

terms for WG’s Board in order to subject all members to an annual retention vote. See, e.g. , May 12,

2015 letter from Lawndale Capital Management, LLC to WG Director S. Miller Williams (“Our

attempts to discuss these concerns with you directly have been blocked by new CEO John McNabb”;

“McNabb[‘s] insistence on maintaining a tight grip on Willbros’ Board composition and corporate

governance practices indicates reforms . . . are desperately needed.”).

453. As WG’s President and CEO, Harl exerted direct and substantial control over WG’s

operations and the actions of its executives and management throughout its business. Harl was

intimately involved in managing WG’s business, especially pipeline construction projects.

According to WG’s 2014 Proxy Statement filed with the SEC on April 15, 2014, as WG’s President

Harl had “extensive knowledge of [WG’s] day-to-day operations” and was able to provide WG’s

Board with “access to timely and relevant information” about the Company’s operations and

performance. And as Harl himself said about his role in monitoring pipeline and other projects in an

August 5, 2014 conference call: “We are diligent in our monitoring of those projects. . . . Probably

nobody is more interested in how we are doing than I am, and we constantly look at those projects.”

Harl’s direct and personal involvement in establishing the project controls and his repeated

communications with investors about the existence and functionality of those controls further

demonstrates his control over the misconduct alleged herein.

454. As WG’s CFO, Welch also exerted significant control over WG’s daily operations,

including the internal and project controls over the accuracy of financial reporting and the estimated

profits at completion of the long-term pipeline construction contracts that formed the core of its

business. Welch’s direct, personal involvement in addressing and investigating matters leading to

cost over-runs on both the Seaway and Allegheny Access projects, as alleged elsewhere herein, and

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his repeated communications to investors about WG’s financial results and the conditions under

which pipeline revenues had purportedly been earned, further demonstrates his control over the

misconduct alleged herein.

455. WG, acting through the Compensation Committee of its Board of Directors, had, but

failed to exercise, the power to prevent the fraud alleged herein from occurring. Rather than

incentivizing WG’s executives and employees to identify, address and report problems to investors

as they were encountered, WG’s compensation programs were designed to reward management only

for achieving revenue and profitability goals, as well as for increasing the price of the Company’s

stock.

456. WG’s compensation programs gave Harl, Welch and other senior executives a direct,

personal and significant financial motive to overstate profits from the Company’s Oil & Gas

segment and to conceal the Company’s lack of internal controls.

457. During the Class Period, WG awarded its executives annual, performance-based cash

bonuses under the “Management Incentive Compensation Program” (“MIC”). The MIC allowed

WG’s CEO to earn a bonus of up to 150% of his salary, and all other executives to earn up to 100%

of theirs, for achieving designated financial targets. According to WG’s 2014 Proxy Statement,

bonuses under the MIC were based 50% on operating income, 20% on operating margin (measuring

ability to manage costs), and 10% each on safety performance, efficiency in collecting receivables,

and personal contribution to meeting strategic, financial and operational goals.

458. WG also provided “Long-term Incentive Compensation” (“LTI”) bonuses tied to both

service and performance, in the form of stock, and for the CEO stock and cash, under the 2010 Stock

Plan. The LTI program had performance goals similar to the MIC plan, but with different weighting

for the CEO, and adding the performance measure “Relative TSR”:

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Other 2010 Stock Plan CEO Execs

Relative Total Stockholder Returns 33% 50% Adjusted Operating Margin 27% 20% Safety (TRIR) 13% 10% Adjusted DSO 13% 10% Personal Performance 13% 10%

459. Due to the Company’s poor performance in 2013, Harl, Welch and other executives

had received significantly less than their potential bonuses and options under the MIC and LTI.

After 2013, however, the Company’s Compensation Committee changed the formula for non-CEO

named executives, increasing the performance-based element of the LTI from 33% to 50%, and

replacing the 5 performance measures above with a single measure, the “TSR matrix,” which

measures both “relative TSR performance against . . . peers as well as absolute stock price growth.”

Given the change in these metrics and their repeated representations at the outset of the Class Period

that they had strengthened the Company’s controls and operations in a manner that would prevent a

recurrence of the 2013 results, Harl, Welch and the other senior executives were under increasing

pressure to deliver positive financial results in order to obtain the significant financial rewards

provided for under their employment agreements.

460. WG and each of the Individual Defendants were also under significant pressure to

maintain compliance with the debt covenants in the Company’s borrowing agreements. The

Company had sought and obtained a relaxation of its debt covenants when it entered into its new

borrowing arrangements in August 2013, and knew that maintaining compliance with those

covenants would require an improvement in WG’s operating results.

461. Defendants therefore had little incentive to question reported revenues or profits from

its construction activities, particularly on its largest projects where a significant problem could

severely impact the Company’s overall profitability. The impact of the restatement on those debt

covenants, which showed a violation in 1Q14 and virtually no additional availability in 2Q14, adds

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to the inference that defendants were each severely reckless in failing to report or accurately account

for the impact of the problems on the Seaway and Allegheny Access projects on WG’s overall

earnings.

XI. CLAIMS FOR RELIEF

First Claim for Relief (Violation of Section 10(b) of the Exchange Act & Rule 10b-5)

(Against All Defendants)

462. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

463. By engaging in the acts, practices and omissions previously alleged, each of the

defendants violated §10(b) of the Exchange Act and Rule 10b-5 by:

(a) employing devices, schemes and artifices to defraud;

(b) making untrue statements of material facts or omitting to state material facts

necessary in order to make the statements made, in light of the circumstances under which they were

made, not misleading; or

(c) engaging in acts, practices and a course of business that operated as a fraud or

deceit upon Lead Plaintiffs and others similarly situated in connection with their purchases of WG

common stock during the Class Period.

464. During the Class Period:

(a) Defendant WG made or had ultimate authority over the contents of each of the

statements specified in §VII above;

(b) Defendant Harl made or had ultimate authority over the contents of each of

the statements specified in §§VII(A)-(C), and (G)(1) above;

(c) Defendant Welch made or had ultimate authority over the contents of the

statements specified in §§VII(A)-(C), (F) and (G) above; and

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(d) Defendant McNabb made or had ultimate authority over the contents of the

statements specified in §§VII(D)-(F), and (G)(2) above and in the statements from WG’s 2013

Report on Form 10-K specified in §VII(A) above.

465. Each of the statements specified in §VII, supra, was materially false or misleading at

the time it was made, in that it contained misrepresentations of fact or failed to disclose material

facts necessary to make the statements, in light of the circumstances under which they were made,

not misleading.

466. The statutory safe harbor conditionally provided by 15 U.S.C. §78u-5 for certain

forward-looking statements does not apply to any of the statements alleged herein to be materially

false or misleading because:

(a) the statements were not forward-looking, or identified as such when made;

(b) the statements were not accompanied by meaningful cautionary language that

sufficiently identified the specific, important factors that could cause actual results to differ

materially from those in the statement;

(c) the statements were included in a financial statement prepared in accordance

with generally accepted accounting principles; or

(d) the statements were made by defendants with actual knowledge that the

statement was false or misleading.

467. Defendants made, disseminated or approved the statements specified in §VII, supra,

while knowing or recklessly disregarding that the statements were false or misleading, or omitted to

disclose facts necessary to prevent the statements from misleading investors in light of the

circumstances under which they were made.

468. Lead Plaintiffs are presumed to have purchased shares of WG’s securities in reliance

upon the statements specified in §VII, supra, and the other material information that was publicly

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reported by defendants about WG and its operations. At the time of their purchases of WG

securities, Lead Plaintiffs were without knowledge of the facts, transactions, circumstances and

conditions fraudulently misrepresented to or concealed from the market during the Class Period, as

specified above.

469. Lead Plaintiffs and the Class have suffered damages in that they:

(a) paid artificially inflated prices for publicly-issued shares of WG securities;

(b) purchased their WG securities on an open, developed and efficient public

market; and

(c) incurred economic losses when the price of those securities declined as the

direct and proximate result of the public dissemination of information that was inconsistent with

defendants’ prior public statements or otherwise alerted the market to the facts, transactions,

circumstances and conditions concealed by defendants’ misrepresentations and omissions, or the

economic consequences thereof.

470. Lead Plaintiffs would not have purchased WG common stock at the prices they paid,

or at all, if they had been aware that the market prices had been artificially inflated by the false and

misleading statements and omissions specified above.

Second Claim for Relief (Violation of Section 20(a) of the Exchange Act & Rule 10b-5)

(Against All Defendants)

471. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

472. Defendants and/or persons under their control violated §10(b) of the Exchange Act

and Rule 10b-5 by their acts and omissions described above, causing economic injury to Lead

Plaintiffs and the other members of the Class.

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473. Because each of the Individual Defendants had direct and supervisory involvement in

the day-to-day operations of the Company they are each presumed to have had the power to, and did,

control or influence the business practices or conditions giving rise to the securities violations

alleged herein, and the contents of the statements which misled investors about those conditions and

practices, including with respect to the particular transactions and statements giving rise to the

securities violations alleged herein.

474. Each of the defendants acted as a controlling person of some or all of their co-

defendants, as set forth in the chart below, because they each had the capacity to control, or did

actually exert control, over the actions of their co-defendants in violation of the securities laws:

Defendant controlled Defendants by virtue of WG Harl and Welch at all its power to hire, fire, discipline and compensate its

relevant times alleged senior executives and to supervise them in the herein, and McNabb on performance of their job responsibilities and after August 29, 2014

Harl WG and Welch until his status as the CEO and a director of the Company, October 21, 2014 which gave him direct supervisory responsibilities

over Welch and other WG employees who participated in the misconduct alleged herein, his signing of SEC filings and responsibility over WG’s internal controls, and his power to hire, fire and compensate Welch and other WG employees

McNabb WG, Harl and Welch at his status as the Chairman and, later, the Executive all relevant times Chairman and then CEO of WG, which gave him alleged herein direct supervisory authority over Harl, Welch and

other WG employees who participated in the misconduct alleged herein, his signing of SEC filings and responsibility, after June 30, 2014, for WG’s internal controls, and his power to hire, fire and compensate Welch and other WG employees.

Welch WG and Harl at all his status as the CFO of the Company, his supervisory relevant times alleged responsibilities over other WG employees who herein participated in the misconduct alleged herein, and his

signing of SEC filings and responsibility over WG’s internal controls.

- 171 - 1038793_1


475. As set forth above, defendants violated §10(b) of the Exchange Act and Rule 10b-5

by their acts and omissions as alleged in this complaint.

476. By virtue of their positions as controlling persons, defendants are liable pursuant to

§20(a) of the Exchange Act for failing to exert their control to prevent or correct the violations of

§10(b) of the Exchange Act and Rule 10b-5 by their acts and omissions as alleged in this complaint.

477. As a direct and proximate result of defendants’ wrongful conduct, Lead Plaintiffs and

other members of the Class suffered damages in connection with their purchases of the Company’s

publicly traded securities during the Class Period.

478. By virtue of their positions as controlling persons, defendants are each liable pursuant

to §20(a) of the Exchange Act for the acts and omissions of their co-defendants in violation of the

Exchange Act.

XII. PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiffs pray for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;

B. Awarding compensatory damages in favor of Lead Plaintiffs and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result of

defendants’ wrongdoing in an amount to be proven at trial, including interest;

C. Awarding Lead Plaintiffs and the Class reasonable costs and expenses incurred in this

action, including attorneys’ fees; and

D. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

- 172 - 1038793_1


XIII. JURY DEMAND

479. Lead Plaintiffs demand a trial by jury on all issues.

DATED: June 15, 2015 EDISON, MCDOWELL & HETHERINGTON LLP

By: s/ Andrew M. Edison Andrew M. Edison Attorney-in-Charge Southern District Bar No. 18207 [email protected]

3200 Southwest Freeway, Suite 2100 Houston, TX 77027 Telephone: 713/337-5580 713/337-8850 (fax) [email protected]

Liaison Counsel

DATED: June 15, 2015 ROBBINS GELLER RUDMAN & DOWD LLP

DENNIS J. HERMAN KENNETH J. BLACK

s/ Dennis J. Herman DENNIS J. HERMAN

Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 Telephone: 415/288-4545 415/288-4534 (fax)

Lead Counsel for Plaintiffs

VANOVERBEKE MICHAUD & TIMMONY, P.C. THOMAS C. MICHAUD 79 Alfred Street Detroit, MI 48201 Telephone: 313/578-1200 313/578-1201 (fax)

Additional Counsel for Plaintiff

- 173 - 1038793_1


EXHIBIT 1-A


AMENDED CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS

WAYNE COUNTY EMPLOYEES' RETIREMENT SYSTEM ("Plaintiffs)

declares:

1. Plaintiff has reviewed a complaint and authorized its filing.

2. Plaintiff did not acquire the security that is the subject of this action at

the direction of plaintiff's counsel or in order to participate in this private action or

any other litigation under the federal securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of the

class, including providing testimony at deposition and trial, if necessary.

4. Plaintiff has made the following transaction(s) during the Class Period

in the securities that are the subject of this action:

Security Transaction Date Price Per Share

See attached Schedule A.

5. (a) Plaintiff has been appointed to serve as a representative party

for a class in the following actions filed under the federal securities laws within the

three-year period prior to the date of this Certification:

(b) Plaintiff is seeking to serve as a representative party for a class

in the following actions filed under the federal securities laws:

(c) Plaintiff initially sought to serve as a representative party for a

class in the following actions filed under the federal securities laws within the

three-year period prior to the date of this Certification:

Iron Workers District Council of New England Pen. 1,7und, et al, v. Nil Holdings, Inc., No. I :14-cv-00227 (ED. Va.) Henningsen v. The ADT Corporation, ci cil.,No, 9:14-cv-80566 (SD. Fla.)

.In re World Wrestling Entertainment, Inc. Sec. Litig., No. 3:14-Qv-0 1070 (D, Conn.) Town of Davie Police Pension Plan v. Comm Vault Systems, Inc., dol., No. 3:14-cv-5628 (D.NJ.)

WILLBROS


6. The Plaintiff will not accept any payment for serving as a

representative party on behalf of the class beyond the Plaintiff's pro rata share of

any recovery, except such reasonable costs and expenses (including lost wages)

directly relating to the representation of the class as ordered or approved by the

court.

I declare under penalty of perjury that the foregoing is true and correct.

Executed this day of March, 2015.

WAYNE COUNTY EMPLOYEES' RETIREMENT SYSTEM

By: jL Robert J. Orden, Executive Director

-2- WJLLBROS


SCHEDULE A

SECURITIES TRANSACTIONS

Acquisitions

Date Type/Amount of Acquired

Securities Acciuired

Price

08/11/2014 08/12/2014 08/13/2014 08/14/2014 08/15/2014 08/18/2014 08/19/2014

970 1,188 1,124 1252 1,089 460

2,017

$10.86 $10.62 $10.68 $10.80 $10.75 $10.92 $10.96

Sales

Date Sold

04/15/2014 04/16/2014 04/16/2014 04/21/2014 04/21/2014 04/22/2014 10/10/2014 12/16/2014 12/18/2014 12/19/2014 12/19/2014 12/22/2014 12/22/2014

*Opening position of 48,454 shares.

Type/Amount of Securities Sold

Price

1,920

$11.65 2,213

$11.60 1,192

$11.60 2,837

$11.76 284

$11.82 2,554

$11.63 4,500

$7.17 10,282

$4.93 4,879

$5.36 9,365

$5.69 8,264

$5.79 1,377

$5.69 6,887

$5.71


EXHIBIT 1-B


AMENDED CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS

CITY OF ROSE VILLE EMPLOYEES' RETIREMENT SYSTEM

("Plaintiff') declares:

1. Plaintiff has reviewed a complaint and authorized its filing.

2. Plaintiff did not acquire the security that is the subject of this action at

the direction of plaintiff's counsel or in order to participate in this private action or

any other litigation under the federal securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of the

class, including providing testimony at deposition and trial, if necessary.

4. Plaintiff has made the following transaction(s) during the Class Period

in the securities that are the subject of this action:

Security Transaction Date Price Per Share

See attached Schedule A.

5. Plaintiff has not sought to serve or served as a representative party in

a class action that was filed under the federal securities laws within the three-year

period prior to the date of this Certification except as detailed below:

McHardy v. KIT digital, Inc., et al., No. 12-cv-4 199 (S.D.N.Y,) Waterford Township Police & Fire Ret. Sys. v. Regional Management Corp., No. 1: 14-cv-03 876 (S.D.N.Y.)

6. The Plaintiff will not accept any payment for serving as a

representative party on behalf of the class beyond the Plaintiff's pro rata share of

any recovery, except such reasonable costs and expenses (including lost wages)

WILLBROS


directly relating to the representation of the class as ordered or approved by the

court.

I declare under penalty of perjury that the foregoing is true and correct.

Executed this 26th day of March, 2015.

CITY OF ROSEVILLE EMPLOYEES' RETIREMENT SYSTEM

By: PHILIP 9 F. LONGU IL

Its: CHAIRMAN

-2- WILLBROS


6-143V4 911 111

SECURITIES TRANSACTIONS

Acquisitions

Date

Type/Amount of Acquired

Securities Acquired

Price

08/11/2014 08/12/2014 08/13/2014 08/14/2014 08/15/2014 08/18/2014 08/19/2014

670 822 778 866 754 317

1,393

$10.86 $1062 $10.68 $10.80 $10.75 $10.92 $10.96

Sales

Date

Type/Amount of Sold

Securities Sold

Price

03/04/2014 03/05/2014 03/05/2014 03/06/2014 03/07/2014 03/10/2014 08/07/2014 12/16/2014 12/18/2014 12/19/2014 12/19/2014 12/22/2014 12/22/2014

*open i ng position of 20,844 shares.

2,247 298

1,192 1,490 894

3,279 900

3,689 1,975 3,345 3,791 557

2,787

$1076 $10.63 $10.76 $10.71 $10.48 $10.41 $10.36 $4.93 $5.36 $5.79 $5.69 $5.69 $5.71


EXHIBIT 2


Ex. 2 (False Statement Chart)

# When Where Who Subject Reasons Why False or Misleading Circumstances Supporting a Statement/Omission Matter Strong Inference of Scienter -

“... we have addressed the issues that led to the losses generated by our (1) WG’s new policies, procedures, tools and other controls were still (1) Because control improvements were still being designed and had not FY13 WG Effectiveness of regional delivery services. ... We have also established clear performance in the process of being designed and implemented. (§VI(B)(3)); yet been implemented, there was no basis to claim that the improvements

1 2/27/2014 Earnings Harl Internal standards and an assurance process to verify that these standards are had already been made, correcting WG’s control weaknesses and leading Release Welch Controls being met.” (¶237). (2) WG had not adopted or required its Oil & Gas segment to to improved operating results. (§VI(B)(3)).

implement a uniform set of controls and tools, and permitted its "We have implemented a core set of business conduct practices and business units, including Lineal, to continue using outdated controls (2) Lineal and other regional business units had refused to adopt new policies that have fundamentally improved our risk profile including and tools (¶¶81, 84-86, 141-142); control procedures, and prior audits had shown Lineal’s existing controls to diversifying our service offerings and end markets to reduce market be inadequate for the work it was performing, and revealed Lineal’s failure specific exposure, and focusing on contract execution risk starting with our (3) The improvements that had been made and adopted were not to adhere to required procedures, including procedures governing contract opportunity review process and ending at job completion." (¶¶69, 234); being followed (¶¶79, 84-86, 90-91); change orders. (¶¶140-142, 146, 149-150, 153-155). "...the changes in our Oil & Gas segment leadership, specifically our regional delivery services, coupled with improvements made in our (4) The Company had not established clear performance standards or (3) The control weaknesses in the Oil & Gas business were pervasive, and estimating process and project management, will continue to positively adopted reliable processes to verify compliance (§VI(B)(3)), and was included a lack of oversight to verify compliance with required procedures. impact our performance into 2014." (¶234); "... rapid growth ... in our not conducting required oversight of projects in the Oil & Gas segment (¶¶90-95). regional delivery services ... outpaced our management capacity resulting (¶¶84-89, 90, 92-94); in significant deterioration to our overall financial results. ... At the (4) The efforts to improve controls were a core focus of the business prior

WG Effectiveness of beginning of the year, we changed leadership within the Oil & Gas (5) The Oil & Gas segment, particularly the regional business, lacked to and during the Class Period, and had been initiated by Harl in direct Harl 2 2/28/2014 2013 10-K McNabb

Internal segment and added management talent to provide more oversight and the skill, experience and procedures needed to properly perform, response to weak financial performance in 2013. (65-73, 80-81).Controls training. Additionally, we improved the back office systems and tools manage and oversee the types of projects it was constructing

Welch required for these transaction-intensive locations. We have established (¶¶87-94, 107-108, 125, 151); (5) Harl and Welch had direct supervisory authority over internal control clear performance standards and an assurance process to verify that these matters, frequently spoke about the adequacy of and improvements to standards are being met. These actions are proving successful with (6) As a result of the foregoing, the Oil & Gas segment still had WG’s controls, and regularly certified that they had investigated the quarter-over-quarter improvement, and we believe these issues have been material weaknesses in its internal controls at the time these controls and confirmed that they were being adhered to and functioning as adequately addressed." (¶¶65, 235). statements were made (§VI(B)(4)); designed. (¶¶69-73, 76, 80-81).

(7) The material weaknesses had caused undisclosed losses and performance problems on significant ongoing construction contracts, including Seaway and Allegheny Access (§VI(C), (E); ¶¶93-94);

(8) As a result of the foregoing, there was no basis for asserting that

- We have strengthened our processes and systems across the Company. the Company’s current financial performance had resulted from

The greatest impact from these improvements will be in our regional improvements in its controls, or predicting that control and

service lines, w hich w e expect to improve by at least $40 m illion a t the management improvements would lead to improved operating results

operating line in 2014." (238); “Our culture of accountability is driving our going forward (VI(B)(3)).

improved performance throughout the organization.” (¶¶71, 238); "So outlook for Oil & Gas, I think, is we’re back, and we’re back on the basis of a good backlog, changes in management and process and system. And I

FY13 Effectiveness of think we’re looking forward for a great year." (¶240); "[T]he 2013 operating 3 2/28/2014 Conference WG Internal losses in our Oil & Gas segment’s regional delivery service line were very

Harl Call Controls disappointing. We have addressed the issues that led to these losses and in the fourth quarter ...." (¶239).

Page 1 1040350_1



# When Where Who Subject Statement/Omission Reasons Why False or Misleading Circumstances Supporting a Matter Strong Inference of Scienter

-

"... Pipeline Construction business has always been the centerpiece of our (1) Undisclosed losses and performance problems on the Seaway (1) The results of the pigging that had been completed in the preceding business. We were cautious in how we pursued the market early in the pipeline construction project had increased costs and reduced margins month on the Seaway project had revealed that significant expenses year, got held back, made sure we got the margins that we needed, the on the project (¶¶114-117, 119-122, 125-126, 129); beyond the project budget were or would be incurred. lowering the contract current terms that we needed in that business. And I think that profitability of that project. Harl and Timpone would have received copies what you saw in the fourth quarter with – starting with the Seaway project, (2) WG had also experienced significant start up problems leading to of the pigging reports, and the project problems were regularly discussing is that strategy beginning to pay off for us." (¶240);in the quarter, the Oil & cost increases above project budget amounts on the Allegheny in weekly operations meetings attended by Collins and Timpone (¶¶119- Gas segment generated operating income of $1.9 million, a $10.9 million Access project (§VI(C)(3)(6)); 127). sequential improvement. This positive change was driven by good performance on the Seaway project ... We began work on Seaway late in (3) WG had not disclosed the material weaknesses in its internal (2) The Allegheny Access project was significantly behind schedule and the third quarter. That project is now 88% complete." (¶239). controls in the Oil & Gas segment, as described above, which gave over-budget by the time of the FY14 call, and under discussion by Lineal's

rise to materially increased risks of loss of profitability on its contracts management. Lineal had sought corporate approval to pay start-up costs (§VI(B)(1), §VI(B)(4)(a)); significantly over the project's budget. Collins had personally visited the

project site in January, and therefore knew of the delay and its cause. FY13 Performance of WG (4) WG had not disclosed the negative issues affecting its regional (§VI(C)(3)(b)). 4 2/28/2014 Conference Oil & Gas Harl business, including its lack of skill and oversight and the high costs in Call segment relation to the margins attainable under its MSAs and other (3) Both projects were of significant size and scope, and as a result had

construction contracts (¶¶91, 93-95, 141-142, 151); been designated for heightened scrutiny and oversight by WG’s corporate executives. (¶¶109-110, 112, 119, 124, 133).

(5) As a result of the foregoing, neither the performance of the Seaway project or the reported financial results of WG or its Oil & Gas segment (4) The problems with both projects were open and obvious, and widely was a reliable indicator of WG’s 1Q or future performance, or of the discussed. (¶¶90-92, 109, 127-128, 147-148, 153-154). improvements in its controls and contracting activities.

(5) The problems in the Oil & Gas segment were pervasive, including the widespread lack of proper controls, oversight or experience to handle the type and volume of work being pursued in the regions, and the high costs of running its operations in comparison to the margins to be achieved under its MSAs and other contracts. (§VI(B)(4)(a)).

Page 2 1040350_1




- "Our liquidity continues to improve along with our financial performance ... (1) WG omitted to disclose that it lacked effective controls to provide (1) WG required ready access to capital and needed to maintain significant We believe that our financial results, combined with our current liquidity, reasonable assurances of the reliability of its forecasts of working borrowing availability in order to provide the working capital needed to run and availability under our credit facility will provide sufficient funds to capital and liquidity requirements or of its ability to maintain its business, and its borrowing availability was significantly constrained enable us to meet our working capital requirements and our planned compliance with its debt covenants (¶¶78, 97-98); during the Class Period by the WAPCo settlement obligation. (§VI(A)(2)) capital expenditures, as well as facilitate our ability to grow in the foreseeable future." (Welch, ¶241); "We expect to reduce our term loan (2) WG therefore had no reasonable basis to project that it would be (2) WG had renegotiated its borrowing agreements in 3Q13 due to its debt by approximately $30 million to $50 million, and fund the final able to pay the WAPCo liability and reduce the balance on its term inability to maintain compliance with the debt covenants (¶26). payments due under the WAPCo settlement by the end of the year through loan by the amounts stated out of operating cash flow and the cash flow from operations, and proceeds from potential asset sales." proceeds of planned asset sales, (3) Welch and Harl regularly communicated with investors about WG’s (Welch, ¶242); "One thing you need to keep in mind, and as we mentioned, liquidity and borrowing availability, and knew that was a subject of the $30 million to $50 million is the term loan. We also have the liability (3) WG omitted to disclose the issues affecting its Oil & Gas segment, significant scrutiny by analysts and investors. (¶¶57, 64, 197, 241-242) associated with around -- with WAPCo. That WAPCo liability is around including the material weaknesses in its internal controls, the

FY13 WG Liquidity and $36.5 million. Were going to pay both of those in the $30 million to $50 performance issues and losses on the Seaway and Allegheny Access (4) As a result of the foregoing, it can be strongly inferred that defendants 5 2/28/2014 Conference Harl million, $30 million to $50 million. Let me back up, that $30 million to $50 projects, and the significant risks facing its regional business, as were provided with WG’s debt, liquidity, working capital, and covenant

debt Call Welch million is strictly term loan pay down. So I've -- in the past, I think we've described above, and it may be inferred from the material weaknesses compliance forecasts, understood the manner in which those forecasts had said total debt, I'm guiding you towards $30 million to $50 million term loan in its controls that it also failed to take those matters into account in been completed, and knew the specific historical information, market debt reduction, as well as the payment of the $36.5 million on the WAPCo preparing its debt forecasts; conditions and business-specific circumstances that had, and had not liability, all of that coming from operating cash flow and, as you mentioned, been, considered in developing those forecasts. proceeds from asset sales" (Welch, ¶242); "... With our improved DSO and (4) As a result of the foregoing, it was misleading to assert that WG operating performance, our liquidity is substantially greater and is sufficient had sufficient liquidity and operating cash flow to reduce its debt and (5) The same facts that support a strong inference of scienter with respect to operate our business and reduce debt." (Harl, ¶238). meet its working capital needs, or to assert that WG’s liquidity position to Statement Nos. 1-4 further support an inference of scienter with respect

was continuing to improve as a result of its financial performance. to these statements because they demonstrate the WG and its executives either knew about the conditions posing significant undisclosed risks to WG's borrowing availability and liquidity, or were severely reckless in not conducting an adequate or reasonable investigation into those matters before speaking on such topics.

Page 3 1040350_1



# When Where Who Subject Circumstances Supporting a Statement/Omission Reasons Why False or Misleading Matter Strong Inference of Scienter

- Reported ($000s except EPS): (1) WG's 1Q14 financial statements materially overstated WG's The circumstances that support scienter with respect to statements 1-4 & Contract Revenue ....................$517,745 quarterly revenues (by $16.8 million), profits (by $18.0 million) and 8-9 -- including the losses suffered and operating problems on the Seaway Contract Operating Expense ....... $463,662 EPS (by $0.38/share), and materially understated its expenses (by and Allegheny Access projects, the importance of those projects to the Operating Income ........................$11,024 $2.5 million) (¶¶114, 260-261, 172, 356); business, the lack of effective controls, the high operating costs of the Loss Per Share ........................... ($0.14) regional offices, and defendants' financial motives -- also support a finding

(2) WG's sequential and year-over-year results for 1Q14 were that defendants knew the reported 1Q14 results were materially false, or "... we improved our financial results quarter-over-quarter ... revenue ... is significantly worse than stated (¶¶174-175); were severely reckless to the falsity thereof including by reason of failing to an improvement of $30.4 million from first quarter of 2013. ... operating correct known or knowable control violations and failing to conduct a

1Q14 income [is] ... $12.6 million higher than last year’s first quarter ... net (3) WG failed to follow generally accepted accounting principles reasonable investigation into the accuracy of the information before it was Financial income from continuing operations ... increase[d] $11.6 million from the ("GAAP") and its own accounting policies in reporting profits and reported. In addition, scienter is supported by the nature, magnitude and Statements prior year’s first quarter [a]nd our adjusted EBITDA ... is an improvement of losses in its Oil & Gas segment, including by failing to accurately or reasons for WG’s restatement, including: publ. in 1Q14 $12.9 million from first quarter 2013. We expect the quarter-over-quarter timely report losses on the Seaway and Allegheny Access projects Earnings WG 1Q14 Financial improvement to continue in the second quarter and throughout the year." (§VIII); (1) The restatement turned a reported operating profit into a loss. (¶¶114,

6 5/5/2014 Release Harl Results (Welch, ¶254); "...income from continuing operations of $10,000 or 172, 260-261); (¶251) and Welch essentially breakeven, on revenue of $517.7 million. Our operating income (4) WG had not taken into account the costs needed to complete the 10-Q (¶261); for the first quarter of 2014 was ... a $12.6 million improvement when Seaway and Allegheny Access projects in compliance with its stated (2) The restatement overstated WG's earnings per share by $0.38 by discussed on compared to ... the first quarter of last year. " (Harl, ¶255). policies, including by failing to account for work remaining, the understating its expenses by $18.4 million (278%) (¶¶78, 114, 172, 260- 1Q14 conf. physical progress of the project, known physical defects in 261, 356); call (¶254). construction, costs incurred or expected to be incurred in excess of

project budget amounts, or undocumented change orders (§VI(C); (3) The restatement was not the result of complicated or disputed ¶¶363-372); questions of accounting, but from well-understood rules that were

misapplied by ignoring facts that were known to WG at the time its 1Q14 (5) WG’s stated accounting policies (¶¶51, 54, 337, 339, 351-354) results were reported (¶¶364-371); heightened the misleading impact of statement nos. 4, 6, 8-9 about actual and expected results in the Oil & Gas segment and the (4) The restatement arose in part from material weaknesses in internal purported success of the Seaway and Allegheny Access projects controls of a type that defendants had known to exist (¶65), had claimed to

- because they led investors to believe that such policies had been have corrected (§VI(B)(1)), but failed to take reasonable steps to confirm "estimated contract income and resulting revenue is generally accrued followed in reporting results from those operations when in fact they that the controls were effective or determine whether they were being Accounting based on costs incurred to date as a percentage of total estimated costs,

policies publ. taking into consideration physical completion ... If a current estimate of had not (VIII(A)). applied (§VI(B)(4));

in FY13 10-K WG total contract cost indicates a loss on a contract, the projected loss is 7 5/5/2014

(5) WGs improper accounting continued for at least two successive

Welch

and 2014 Had recognized when determined. (364); Revenue from change orders, extra quarters, and its control weaknesses persisted for more than a year Reports on Results work and variations in the scope of work is recognized when an agreement (VI(E)). Form 1 0Q is reached with the client as to the scope of work and when it is probable (¶233). that the cost of such work will be recovered ..." (¶365).

Page 4 1040350_1




- “The $11.0 million improvement in the Oil & Gas segment’s operating (1) WG's Oil & Gas segment was not profitable and its performance The losses suffered on the Seaway and Allegheny Access projects, the results was due to solid execution in cross-country pipeline construction as had declined on a quarter-over-quarter basis, as described above. importance of those projects to the business, and the lack of effective well as a $12.5 million improvement in our regional delivery service line. In controls in the Oil & Gas segment that support scienter with respect to our regional delivery services, positive operating performance in the (2) Undisclosed losses and performance problems on both the statements 1-4, and the nature magnitude and reasons for WG's Northeast was offset by weather related costs incurred in the Northern Allegheny Access and Seaway pipeline construction projects and restatement described above, also support scienter with respect to these Plains and Southern regions and under-absorption of indirect costs undisclosed material weaknesses in internal controls had increased statements. In addition, scienter is supported by the following: associated with lower than planned revenue levels. . . . Positive costs and reduced margins, rendering the projects unprofitable, such performance in cross-country pipeline construction, which benefited from that it was not true that there had been “positive operating (1) The losses on the Seaway and Allegheny Access projects had

1Q14 WG Performance of higher utilization of resources, was more than offset by losses associated performance” in the Northeast, “very good results” on the Seaway continued to grow since the time of the FY13 call, and were well knownwith regional delivery and downstream services. ... The Company project or “solid execution” in the cross-country business. within the business units constructing those projects and by managers and 8 5/5/2014 Earnings Harl Oil & Gas

Release Welch segment continues to expect strong performance going forward from its cross- (VI(B)(4)(a), VI(C)(1), (3)) executives in the Oil & Gas segment (VI(C)). country pipeline construction services and for the regional service lines to be breakeven or better for the full year 2014. (Harl, ¶253). (3) The “slip” on the Allegheny Access (Sunoco) project was not a (2) The Allegheny Access project was still significantly delayed, such that

minor event as portrayed on the 1Q14 earnings call. Instead, the its lack of profitability would have been apparent to experienced pipeline project was significantly behind schedule due to the lack of effective contractors (¶¶144-145, 148) (20% in, losses become apparent). control or management over the project, leading to significant and undisclosed losses that rendered the project unprofitable. (§VI(C)(3). (3) WG stood to suffer significant financial consequences if its reported

results revealed the violation of its debt covenants (¶¶60-64), and (4) WG had not disclosed the material weaknesses in its internal executives’ compensation would also suffer if reported results were below controls in the Oil & Gas segment, which gave rise to materially expectations for performance (¶¶446, 456-459).

"The Oil & Gas segment generated an $11 million operating improvement increased risks of loss of profitability on its contracts that had already compared to the first quarter of 2013. These results were due to the solid manifested in the Allegheny Access and Seaway projects execution by our cross-country Pipeline Construction business, as well as (§VI(B)(4)(a)); a $12.5 million improvement in our regional delivery business. Our cross- country Pipeline Construction business met our expectations and (5) WG had not disclosed the negative issues affecting its regional generated an operating profit in the first quarter." (Harl, ¶255); “In terms of business, including its lack of skill and oversight and the high costs in the pipeline business, as we talked about in the prepared remarks, we relation to the margins attainable under its MSAs and other were very happy with the results that we achieved in the mainline pipeline construction contracts, that had materially increased the risks of

1Q14 WG Performance of operation. That was – that did meet our expectations and was profitable.” project losses like those being incurred on the Allegheny Access

9 5/6/2014 Conference Had Oil & Gas (Welch, ¶257); "We had very good results on Seaway. We expect that to projects (90-91, 93-95, 141-142, 151).continue. Our team has stayed together. The transition between the two Call Welch segment probably couldn’t have been more seamless. So the kind of the end of (6) Given the nature and extent of the problems with the projects and Seaway played into the front end and start of the NET project. So we had the lack of effective controls over those and other projects in the Oil & very little absorption of indirect costs that weren’t deployed. And so that Gas segment, there could be no reasonable basis for an expectation went extremely well." (Harl, ¶256); “the Northeast region was profitable” that the Northeast would come back very strong in Q2 or to expect (Welch, ¶257); "the Northeast did do very well for us, but we did have a slip strong performance going forward in the pipeline businesses or for the in that Sunoco project, which we do expect to come back very strong as we regional business to be profitable in 2014 (§VI(B)(3-4)). head into Q2. And we expect that regional business to turn around as we head into Q2. It was just a slip out with that Sunoco project.” (Harl, ¶257).

Page 5 1040350_1




- We expect to reduce our term loan debt by approximately $30 million to (1) The Company omitted to disclose that it was then in violation of the (1) The extent of WG's debt, the core importance of liquidity and debt to $50 million, and fund the final payments due under the WAPCO settlement debt covenants under its borrowing agreements (¶¶199-200). WG's operations, and management's frequent communications on those by the end of the year through cash flow from operations and/or proceeds topics with investors, as described above (Stmt. #5). from potential asset sales." (Welch, ¶258); "We believe we'll continue to be (2) The Company omitted to disclose the material weaknesses in its able to pay down that term loan debt further, as well as, as we mentioned controls over debt forecasting and over its Oil & Gas business or the (2) WG was unable to maintain a fixed charge coverage ratio above 1.15 in the Q4 call, to pay down the WAPCO liability of $36.5 million before the losses resulting from the Seaway and Allegheny Access projects, as by the time its 1Q14 financial statements were issued, increasing its end of the year." (Welch, ¶258). described above. borrowing costs, raising the risk of insolvency, and increasing pressure on

management to report revenues and earnings that would not raise WG's (3) Due to the material weaknesses in its controls and the unreported expenses or trigger a violation of its borrowing agreements, including by losses, WG had no reasonable basis to project that it would be able to delaying recognition of losses. pay the WAPCo liability and reduce the balance on its term loan by the amounts stated out of operating cash flow and the proceeds of (3) The same facts that support a strong inference of scienter with respect 1Q14

10 5/6/2014 Conference WG Liquidity and planned asset sales. to each of the other statements alleged above, including the nature and

Call We lch debt extent of its control violations, and the significant financial consequences

that would occur if it reported a violation of its debt covenants, the nature, magnitude of and reasons for its restatement, and the extent of the operating problems in the Oil & Gas segment, including the losses suffered by the Seaway and Allegheny Access project support an inference of scienter with respect to these statements, because they demonstrate that WG and its management either knew about the conditions that had reduced current and anticipated borrowing availability and had or threatened to result in violations of its debt covenants, or were severely reckless in failing to conduct a reasonable investigation of those matters, which would have revealed the extent and nature of WG's liquidity problems.

Page 6 1040350_1



# When Where Who Mattert Statement/Omission Reasons Why False or Misleading Circumstances Supporting a Strong Inference of Scienter

- "Our strategy to build a more diversified model with broader end-market (1) The process and management systems in the Oil & Gas segment, (1) WG's Oil & Gas President, Collins, did not support efforts to implement exposure is supported by process and management systems. This is to particularly in the regional business, were not adequate to provide new controls over its business, and would disband the PMO and stop improve our operating performance and produce more predictable results." control over the type or number of construction projects being efforts to implement or use the new control procedures as soon as he (I255). handled, and thus had not and could not improve WG’s operating became WG's new president, as announced shortly after the 1Q14 call

performance or produce more predictable results (§VI(B)(4)(a)). took place.

(2) WG had still not implemented the control improvements to (2) The new controls over the Oil & Gas segment that had been described address the problems in its Oil & Gas segment . (II86, 128). at the outset of the year still had not been adopted by the time of the 1Q14

call, and were not being followed internally. (3) WG had unreported material weaknesses in its controls over its Oil & Gas segment and its determination of its liquidity, capital resource (3) As a result of the losses on the Seaway and Allegheny Access needs and debt covenant compliance. (§VI(B)(4)). projects, and the continuing inability of the regional offices to be run

profitability due to their high operating costs, management knew that the 1Q14 Effectiveness of WG (4) WG had not designed its disclosure controls and procedures to attempted control improvements had not succeeded in bringing required or 11 5/6/2014 Conference Internal

Call Harl Controls ensure that material information would be reported to management effective oversight to the Oil & Gas segment. and reflected in its public disclosures of operating results in compliance with GAAP (§VIII). (4) The same facts that support a strong inference of scienter with respect

to Statement Nos. 1-3 & 6-7 support an inference of scienter with respect (5) The disclosure controls and procedures WG had implemented to these statements, including the extent and continuing nature of WG's were not being followed, and WG had not adopted effective control violations, the recognized importance of correcting control procedures to assure compliance with required procedures or to weaknesses to WG's financial performance and success, and the individual detect, prevent and correct violations of required policies and defendants' direct responsibilities over designing and monitoring procedures. (II79, 84-86, 90-91, 93). compliance with controls.

(6) Harl and Welch had not made a reasonable examination of the design and effectiveness of WG's internal controls and procedures during 1Q14 (II90-95).

- WG has: (i) "Designed ... disclosure controls and procedures ... to ensure that material information ... is made known to [Harl and Welch] by others ... during the period in which this report is being prepared ... [and] to provide reasonable assurance regarding the reliability of financial reporting ... in accordance with [GAAP]"; (ii) "Evaluated the effectiveness of [WG's] disclosure controls and procedures as of the end of [1Q14] ... and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during [1Q14] ... that has materially

WG Effectiveness of affected, or is reasonably likely to materially affect, [WG's] internal control 12 5/6/2014 1Q14 10-Q Harl Internal over financial reporting"; and (iii) "disclosed ... to [WG's] audit committee ...

Welch Controls All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting ... and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting." (I337); "our disclosure controls and procedures were effective as of March 31, 2014 ... There were no changes in our internal control over financial reporting ... that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting ..." (I339).

Page 7 1040350_1



# When Where Who Subject Circumstances Supporting a Statement/Omission Reasons Why False or Misleading Matter Strong Inference of Scienter

- Reported ($000s except EPS): (1) WG's 2Q14 financial statements were not reported in compliance The circumstances that support scienter with respect to statements 1-4, Contract Revenue ....................$543,557 with GAAP and materially overstated WG's quarterly revenues (by 8-9 & 15-16 -- including the losses suffered and operating problems on the Contract Operating Expense ....... $482,559 $3.8 million), profits (by $11.9 million) and EPS (by $0.24/share), and Seaway and Allegheny Access projects, the importance of those projects Operating Income ........................$18,506 materially understated its expenses (by $10.9 million) (¶¶172, 356); to the business, the lack of effective controls, the high operating costs of Earnings Per Share ..................... ($0.24) the regional offices, and defendants' financial motives -- also support a

2Q14 (2) WG's sequential and year-over-year results for 2Q14 were finding that defendants knew the reported 2Q14 results were materially Financial "... that's a $12.2 million improvement [in net income] when compared to significantly worse than stated (¶167). false, or were severely reckless to the falsity thereof including by reason of Statements the second quarter of last year and an almost 50% increase sequentially. failing to correct known or knowable control violations and failing to publ. in 2Q14 As we anticipated, our operating results exceeded any quarter last year. (3) WG failed to follow generally accepted accounting principles conduct a reasonable investigation into the accuracy of the information Earnings WG It’s also the best quarter we’ve had since the second quarter of 2010. ... ("GAAP") and its own accounting policies (Stmt. #7, supra) in reporting before it was reported. In addition, scienter is supported by the nature,

2Q14 Financial 13 8/4/2014 Release Harl $9.8 million improvement [in EBITDA] from the second quarter of 2013. profits and losses in its Oil & Gas segment, including by failing to magnitude and reasons for WG’s restatement, including: Results(¶268) and Welch Our adjusted EBITDA for the first six months of 2014 was $51.4 million, accurately or timely report losses on the Seaway and Allegheny

10-Q (¶281); and that’s a $24 million improvement year over year." (Harl, ¶271); Access projects (§VIII); (1) The restatement turned a reported $0.14/share profit from continuing discussed on "Contract revenue ... is an improvement of $50.2 million from the first operations into a loss of $0.24/share. (¶¶132, 279, 356); 2Q14 conf. quarter of 2014 and ... $107.7 million from the second quarter of 2013. ... (4) WG omitted to disclose that the losses reported from the Seaway call (¶271). operating income ... is $6.1 million higher than last quarter and $12.2 project had been incurred, and were required to be reported, in 1Q14 (2) The restatement overstated WG's earnings by $11.9 million, 325%

million, or nearly 3 times, higher than last year’s second-quarter operating (¶169); higher than its actual results (¶356); results. ... EBITDA ... continues to increase, with a $5.2 million improvement from the first quarter of 2014 and a $9.8 million improvement (5) WG had not taken into account the costs needed to complete the (3) The restatement was not the result of complicated or disputed from the second quarter of 2013." (Welch, ¶272). remainder of the Seaway and Allegheny Access projects in questions of accounting, but from well-understood rules that were

compliance with its stated policies, including by failing to account for misapplied by ignoring facts that were known to WG at the time its 2Q14

...in our oil and gas segment we saw a $14 million improvement in work remaining, the physical progress of the project, known physical results were reported (364-371);

operating income in the second quarter compared to last year. As defects in construction, costs incurred or expected to be incurred inexcess of project budget amounts, or undocumented change orders (4) The restatement arose in part from material weaknesses in internal anticipated, our regional delivery services business became profitable for

the first time since 2012. Year to date the regions have generated a nearly (VI(C)(1), (3)); controls of a type that defendants had known to exist (65), had claimed tohave corrected (§VI(B)(1)) , but failed to take reasonable steps to confirm $30 million improvement in operating income compared to the first half of

2013. This should enable us to achieve the $40 million of operating income (6) WG’s stated accounting policies (51, 54, 337, 339, 351-354) led that the controls were effective or determine whether they were beinginvestors to believe that such policies had been followed in reporting applied (§VI(B)(4)); improvement we expected for this year." (¶273) results from the Oil & Gas segment when in fact they had not

2Q14 (VIII(A)). (5) WGs improper accounting continued for at least two successive

WG Financial quarters, and its control weaknesses persisted for more than a year 14 8/5/2014 Conference Harl Results (7) As a result of the ongoing problems with and losses from the (§VI(E)).

Call Allegheny Access project, and the weaknesses in controls and management and the lack of profitability throughout the regional business, the business had not generated a $30 million improvement in operating profits over the prior year, and there was no reasonable basis to project the regional business would generate a $40M improvement in operating income for the year (¶¶193-195).

Page 8 1040350_1



Subject Circumstances Supporting a # When Where Who Matter Statement/Omission Reasons Why False or Misleading Strong Inference of Scienter -

“We continue to deliver more stable and predictable results ... The [$14.0 (1) As a result of the losses suffered on and the lack of control over (1) The pigging of the Seaway pipeline that had revealed the increased million increase in operating income over 2Q13] was primarily driven by the projects in the Oil & Gas segment, WG's results were neither stable costs needed to complete the project had been completed in January and return to profitability in the regional service lines, reflecting the Company’s nor predictable (§VI(B)(4)a)); WG had immediately begun investigating the causes of those losses, such focus on larger midstream opportunities and right-sizing the regional offices that it may be presumed that it knew the true timing and nature of the to align resources with the markets where it can be successful. However, (2) The regional businesses had undisclosed material weaknesses in issues affecting the project by the time these statements were made 6 cost increases on one project in Oil & Gas led to a loss for the segment." its internal controls and other undisclosed risks to its earnings, months later. (Harl, ¶270). including that it lacked the proper management, skill, oversight and 2Q14 WG Performance of

controls over the types of work being performed and was incurring (2) The physical progress of Allegheny Access made it apparent the project 15 8/4/2014 Earnings Harl Oil & Gas costs disproportionate to the revenues to be earned, such that its was significantly behind schedule, Sunoco had complained to WG Release Welch segment offices were neither "right sized" or focused on product lines where management about project delays, approvals for significant cost overruns that business could be successful, and that it was making already had been submitted to corporate, suppliers had questioned excessive plans to downsize or exit the regional business (¶¶93-95, 151, 177- purchase orders, significant and unusual cost saving efforts had been 182); initiated, and WG was investigating the extent, nature and cause of the

problems on the project. (§VI(C)(3)). (3) WG’s investigation into the circumstances leading to the losses on the Seaway project was not as thorough or its results as conclusive as (3) Management had shut down the PMO and ceased efforts to implement defendants reported, or defendants misrepresented the results of their the new controls described at the beginning of the Class Period (¶86), such

"We are currently executing four cross-country pipeline construction investigation (¶¶127-129, 169); that they knew the controls had not been implemented, were not effective, projects. One of those projects incurred substantial cost increases during and had not succeeded in bringing more oversight to the Oil & Gas the completion phase. We have assessed the other three projects and are (4) The problems that led to the losses on the Seaway project were business or increasing its profitability. confident the contributing factors are confined to this one project. Primarily not "confined to that one project" or a "one-time kind of thing that as a result of losses incurred on this one project, the oil and gas segment happened" but were in fact systemic to the Oil & Gas segment (4) The regional business lacked profitability due to high costs and reported an operating loss of $7.9 million for the quarter. I have asked (§VI(B)(4)(a); ¶¶177-182), and had arisen much earlier in the project defendants were still conducting the review of the Oil & Gas segment in Mike Fournier, our newly appointed COO and, most recently, President of than defendants’ stated ( Id. ; §VI(C)(1)); response to its operating problems, such that they knew their statements Willbros Canada, to focus on the oil and gas segment in order to improve that the conditions which caused the Seaway losses did not pose risks to its operational reliability." (Harl, ¶273); "... the key thing is that the things (5) Similar control problems and losses were then occurring on the other projects were based on investigations that were not as thorough as that happened on that project, fortunately, weren’t systemic to the Allegheny Access project, such that it was not true that performance represented and had not been completed, such that their statements business; are things that we can and have fixed. And we have done a very on that project had been "very, very good" or that the Northeast was lacked a reasonable basis, were misleading, and misrepresented the 2Q14 WG Performance of thorough assessment of the other projects similar to that and determined performing "very, very well" and had improved its performance in the results of the type of investigation they claimed had been made. 16 8/5/2014 Conference Harl Oil & Gas that it was really a one-time kind of thing that happened, and that we were manner stated (§VI(C)(3)); Call Welch segment very near completion, right at the end. I don’t want to say a lot more about (5) Scienter is also supported by the same facts that support scienter with that. We are still working with our customer to finish the project and move (6) As a result of the foregoing, there was no reasonable basis to respect to other statements, including, the nature, magnitude and reasons on. And we will give more color on that as it’s appropriate." (Harl, ¶274); " expect “continued improvement going forward” in the regional for the restatement (Stmts. ##4, 10); the core importance of the matters ... the Northeast is just doing very, very well. Highly – very well utilized. business. discussed (##1-3, 10); the refusal by Lineal and other regional offices to Revenues are going up. They are working on a pipeline project up there adopt controls appropriate to their work, and the lack of experience, skill, that performance has been very, very good at. So all in all, I think as management and oversight of those projects (##1-4, 8-9); the financial Randy mentioned in his comments from the regional delivery side, we have consequences of reporting lower financial results (##5-7, 10, 13-14); the seen the improvement that we were hoping that we were going to see. individual defendants’ job duties, including their direct responsibilities over And I think we will see continued improvement going forward." (Welch, controls (##8-9). ¶275).

Page 9 1040350_1




-

We expect to reduce our term loan debt for fiscal year 2014 by (1) WG omitted to disclose the 1Q14 violation of the debt covenants or (1) The extent of WG's debt, the core importance of liquidity and debt to approximately $30 million to $40 million and fund the final payment due that it was then at a heightened risk of violating its debt covenants and WG's operations, and management's frequent communications on those under the WAPCo settlement by the end of the year through cash flow from other terms of its borrowing agreements (¶¶199-200); topics with investors, as described above (Stmt. ##5,10). operations." (¶276); [ANALYST: "... you said that you were expecting to pay [the WAPCO settlement] out of free cash flow. So is that out of cash (2) The Company omitted to disclose the material weaknesses in its (2) The same facts that support a strong inference of scienter with respect you are generating in the fourth quarter?"] Welch: "Yes ... that is exactly controls over debt forecasting and over its Oil & Gas business or the to each of the other statements alleged above, including the nature and what I am talking about." (¶276); [ANALYST: "can [you] give us an update losses resulting from the Seaway and Allegheny Access projects, as extent of its control violations, and the significant financial consequences on ... your liquidity position[?] Welch: "... We are going to do $30 million to described above. that would occur if it reported a violation of its debt covenants, the nature,

2Q14 $40 million term loan debt reduction. That's our plan. But our priority is magnitude of and reasons for its restatement, and the extent of the WG Liquidity and 17 8/5/2014 Conference that we are going to be looking at having enough working capital as we end (3) As a result of the weaknesses in its internal controls, the losses on operating problems in the Oil & Gas segment, including the losses suffered Welch debt

Call the year to fund the growth in 2015 and beyond ... we would like to pay significant Oil & Gas projects (including Seaway and Allegheny by the Seaway and Allegheny Access project support an inference of down the revolver when we get to 2015. We will also pay down the Access), and the high costs in the regional business, WG had no scienter with respect to these statements, because they demonstrate that WAPCo settlement ... and we are also going to pay down an additional bit reasonable basis to project that it would be able to reduce its term WG and its management either knew about the conditions that had on the term loan debt, for the year." Id. loan by the amounts stated and pay the WAPCo liability out of reduced current and anticipated borrowing availability and had or

operating cash flow or to project its 2015 working capital needs or its threatened to result in violations of its debt covenants, or were severely ability to meet those needs (¶¶199-200, 205). reckless in failing to conduct a reasonable investigation of those matters,

which would have revealed the extent and nature of WG's liquidity problems.

WG has: (i) "Designed ... disclosure controls and procedures ... to ensure (1) WG had unreported material weaknesses in its controls over its Oil (1) By the time of the 2Q14 call, WG had disbanded the PMO and ceased that material information ... is made known to [Harl and Welch] by others ... & Gas segment and its determination of its liquidity, capital resource efforts to implement the new controls over its regional business. Thus during the period in which this report is being prepared ... [and] to provide needs and debt covenant compliance. (§VI(B)(4)). management knew that required control improvements had not been made reasonable assurance regarding the reliability of financial reporting ... in and were not or would no longer be followed, recognized that the controls accordance with [GAAP]"; (ii) "Evaluated the effectiveness of [WG's] (2) WG had never implemented the control improvements to address were not being followed. disclosure controls and procedures as of the end of [2Q14] ... and the problems in its Oil & Gas segment, and omitted to disclose that it Disclosed in this report any change in the registrant’s internal control over had abandoned efforts to do so, including shutting down the PMO. (2) As a result of the losses on the Seaway and Allegheny Access projects, financial reporting that occurred during [2Q14] ... that has materially (¶¶84-86). and the continuing inability of the regional offices to be run profitability due affected, or is reasonably likely to materially affect, [WG's] internal control to their high operating costs, management knew that the attempted control over financial reporting"; and (iii) "disclosed ... to {WG's] audit committee ... (3) WG had not designed its disclosure controls and procedures to improvements had not succeeded in bringing required or effective All significant deficiencies and material weaknesses in the design or ensure that material information would be reported to management oversight to the Oil & Gas segment. operation of internal control over financial reporting ... and Any fraud, and reflected in its public disclosures of operating results in

WG Effectiveness of whether or not material, that involves management or other employees compliance with GAAP. (§VIII). (3) The same facts that support a strong inference of scienter with respect 18 8/5/2014 2Q14 10-Q Harl Internal who have a significant role in the registrant’s internal control over financial to Statement Nos. 1-3, 6-7 and 12 support an inference of scienter with

Welch Controls reporting." (¶337); "our disclosure controls and procedures were effective (4) The disclosure controls and procedures WG had implemented respect to these statements, including the extent and continuing nature of as of June 30, 2014 ... There were no changes in our internal control over were not being followed, and WG had not adopted effective WG's control violations, the recognized importance of correcting control financial reporting ... that have materially affected, or are reasonably likely procedures to assure compliance with required procedures or to weaknesses to WG's financial performance and success, and the individual to materially affect, our internal control over financial reporting ..." (¶339). detect, prevent and correct violations of required policies and defendants' direct responsibilities over designing and monitoring

procedures. (¶¶79, 84-86, 90-91). compliance with controls.

(5) Harl and Welch had not made a reasonable examination of the design and effectiveness of WG's internal controls and procedures during 2Q14. (¶¶90-95).

Page 10 1040350_1




- Harl “is retiring as CEO and director when his current employment (1) Harl did not voluntarily retire, but had been fired or forced out due (1) McNabb was involved in negotiating the August 29, 2014 letter agreement expires on January 2, 2015.” (¶291). to the on-going problems in the Oil & Gas segment. agreement he signed, which reflects that Harl's resignation was

involuntary. (¶¶159, 161). 19 9/4/2014 WG Press WG

McNabb Harl resignation (2) The Company omitted to disclose the problems in the business Release that had led to Harl's departure;. (2) The reversal of the decision to name Collins as Harl's successor

reflects WG's concern over the conditions in the Oil & Gas segment that (3) Harl was no longer involved in the management of the Company, Collins had previously run, and the role those conditions played in its

Harl "is retiring" (¶¶291-292); "Mr. Harl will report to Mr. McNabb until his and had been expressly prohibited from exercising any management decision to force Harl to resign. (¶¶158, 162, 178, 303). retirement ... during the period until Mr. Harl's retirement, various duties of duties after August 29, 2014. (¶¶159-161). Mr. Harl will be transitioned to Mr. McNabb and other members of (3) McNabb and the other members of WG's Board's responsibility for executive management of the Company until Mr. Harl’s successor has (4) The Company omitted to disclose that it was starting its CEO hiring and firing the CEO establishes their knowledge of the true reasons

WG been selected and is in place in order to ensure a smooth transition in the search over from the beginning, after having previously selected for and circumstances surrounding his departure. (293, 450-452). 20 9/5/2014 WG 8-K report McNabb Harl resignation event a successor has not been named at the time of his retirement." Collins and then reversing that decision (¶¶159, 291-294, 303).

(¶293).

- "What’s happened is, our CEO retired. He was going to retire on January 2, Randy Harl, a very good friend of mine, personally and professionally, a really good guy, ran KBR. And we have a handful of excellent candidates to become the new CEO of the company. But we weren’t ready, we didn’t feel as a board, and Randy, we just didn’t feel like we were ready to select one through this process by the time Randy was going to retire on January

D.A. Davidson 2, which he’ll do. He’s still CEO, I’ve assumed most of his responsibilitiesWG as Executive Chair. But we really are deep. And so, that’s the reason for 21 9/9/2014 investor McNabb Harl resignation

this bridge. It’s really just a process that we’re involved in at this point. So, conference that should answer all questions about why I’m here and why Randy retired." (¶294).

Page 11 1040350_1




" ... -

Under [Harl’s] leadership, we have assembled a strong team with (1) WG was then involved in an intense investigation, with the (1) The intensive investigation into the problems on the Allegheny Access complementary skill sets and experience to move the Company to the next assistance of outside counsel and auditors, into the Allegheny Access project that was on-going at the time of these statements, the involvement level of operational performance. I am confident that this team has the project losses and their impact on the business (¶90); of outside counsel and auditors in those investigations, and the proximity in industry experience, operational track-record and technological expertise to time of these statements to WG's announcement that it would restate its provide valuable solutions for our customers and increase value for all our (2) As a result of those losses and the other negative operating prior financial results as a result of the problems on that project. (¶90; stakeholders.” (¶291). conditions in the regional offices, performance in the Oil & Gas §VI(C)(E)).

segment had had a significant negative impact on results in both the Performance of 22 9/4/2014 WG Press WG Oil & Gas Oil & Gas segment and on WGs consolidated financial performance (2) The decision not to appoint Collins as the new CEO further reflect WGs

Release McNabb (§VI(C)(E); ¶¶176-182); and McNabb's scienter as to the condition of the Oil & Gas segment, given segment Collins role as the president of that segment just prior to his promotion to

(3) Given the ongoing project losses, there was no reasonable basis to Company President in July 2014. project a $40 million improvement in operating margin in 2014 in the Oil & Gas segment (§VI(C)(F)); (3) The circumstances that support scienter with respect to previous

misrepresentations about performance and operating conditions in the Oil (4) WG omitted to disclose the losses on Allegheny Access, the & Gas segment (e.g., ##15-16) also support scienter with respect to these negative operating conditions in the regional business, or the need to statements.

"It’s a big turnaround for us right now, after having really gone out in a big restate WG's prior financial statements. way into the regions. And we haven’t performed very well, and that’s going

D.A. Davidson Performance of to change. And it’s changing this year, with the performances really WG 23 9/9/2014 investor Oil & Gas improving. We’re going to have a $40 million improvement in operating McNabb conference segment margin this year and operating operations. So, Oil & Gas segment, cross

country still good." (¶50). -

" ... we’ve got some relaxation with waivers from our lenders and we have (1) WG could not operate its business or carry out its restructuring (1) The investigations that WG later admitted had led to the discovery of a revolver. We have an ABL facility and we have a Term B loan with two plans in compliance with the revised debt covenants, and omitted to the extent of the problems in the Oil & Gas segment and the causes of the type primarily big lenders KKR and Redwood. And so you can look for us disclose the business conditions that created significant risks to its Seaway and Allegheny Access losses and the extent of the Company's to do some of this. You can look for us to restructure our balance sheet. ability to do so (§VI(B)(4)(a-b)); control weaknesses had been substantially completed by the time of this We’re not – we have no plans to sell equity, but it’s a solid plan that makes conference (§VI(C)(2); ¶¶176-181); a lot of sense, I think, it’s very, very doable. And that’s one of the things (2) WG’s planned asset sales were insufficient to reduce its debt by I’ve done in the past with some of my background, my career and things the amount needed to provide it with the liquidity it needed, increasing (2) The significance of the restatement and restructuring activities and the I’ve done. So I think it’s very doable with the management team we have." the risks of future equity sales diluting the interests of shareholders renegotiation of the borrowing agreements and the extent that senior

Three 314); " ... as I look at 2015, I look at a better capitalized business without (¶¶102, 210, 212-213); executives were involved in those activities (VI(E-G));

ee art the overhang of the past, where we can really start performing unfettered Advisors WG Liquidity and 24 11/20/2014 and it just would be up to us to perform." (¶315); "... Recent amendments (3) WG omitted to disclose that it was in violation of its debt covenants (3) McNabb's knowledge of the current business conditions facing the investor McNabb debt to credit agreement provide covenant headroom ... Planned asset sales at the end of 1Q14 and 3Q14, or to disclose its inability to comply with Company as a result of the foregoing investigations, together with his conference would improve balance sheet substantially" (¶319); "revenue capacity after the minimum fixed charge coverage ratio in its borrowing agreements substantial experience as an investment banker (¶24), his prior

sales are complete = $1.6-$1.7 billion; Amended credit facility to relax (¶¶199-200); relationships with WG's lenders (¶206), his participation in and knowledge minimum interest coverage and maximum leverage covenants" (¶316). about the negotiations leading to the amendment of WG's borrowing

(4) WG had undisclosed material weaknesses in its internal controls agreements (¶¶100-101, 103), and his responsibilities for WG's internal over debt forecasting and reporting (§VI(B)(4)(b)). controls (¶95) establishes that he either knew that material information had

not been taken into account in WG's debt forecasts, or was severely reckless in overlooking that such information was not considered.

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# When Where Who Mattert Statement/Omission Reasons Why False or Misleading Circumstances Supporting a Strong Inference of Scienter

- Allegheny Access problems "just popped up on the radar." ... "we have (1) WG lacked the liquidity necessary to run the restructured Oil & Gas The same factors that support an inference of scienter with respect to the one business segment that’s had two big losses. So it’s not a systemic segment (¶¶212-213); preceding statement (#24) also support scienter with respect to these problem that the company has. We don’t have operating and execution statements which similarly concern the state of WG's business, the nature problems all through the business." (¶312); "[WG's customers] look and (2) McNabb omitted to disclose the extent of lost business from of its restructuring plans, and its ability to carry out those plans as a result say, oh, gosh, you have – are you strong enough financially to do these existing customers concerned with WG’s financial strength following of the improved liquidity purportedly provided by the new borrowing large jobs? And so that’s the question and the answer, we’re going the announcement of its restatement (¶183); agreements. through the answer with them right now. But it hasn’t deterred us that I know of, it hasn’t deterred us and it won’t." (¶315); "we've got kind of a (3) The Oil & Gas business still lacked the necessary skill, expertise, nice flat surface to work from" (¶318); "management team with successful management and controls over its business (§VI(F)); track record ... Oil & Gas segment has recent relevant experience with successful execution of projects." (¶319). (4) The problems on Allegheny Access had erupted earlier than

Three Part indicated, the project losses were significantly higher than previously Performance of

25 11/20/2014 Advisors WG reported, and the cause of those losses was more significant than Oil & Gas investor McNabb represented (§VI(C)(3)); segment conference

(5) The management problems and control weaknesses in the business had not been corrected, and were more significant and systemic than represented (§VI(D), (F-G)).

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- “The refinancing of our term loan debt gives us greater flexibility to meet (1) WG could not operate its business in compliance with the modified (1) The conditions that were overlooked in WG’s debt forecasts all existed near-term obligations and frees up our revolver to address working capital debt covenants (¶¶212-213); at the time of these statements, as admitted in WG’s material weakness needs as we move into the 2015 construction season. We also have disclosures. (¶¶212-224); greater flexibility with respect to our loan covenants and maintain the ability (2) WG did not have sufficient borrowing availability under its revolver to reduce the debt with proceeds from the asset sales we expect to or liquidity to fund its anticipated 2015 working capital requirements (2) The information ignored by WG in forecasting its borrowing needs and accomplish as we move into 2015.” (¶326). (¶¶216-218); covenant compliance was basic information of a type that is readily

available to management, including historical financial performance, (3) WG omitted to disclose business conditions and other factors not macroeconomic conditions, and Company-specific information. (219-

WG Press WG Liquidity and considered in its debt forecasts, or to disclose the risks those 224); 26 12/15/2014 McNabb conditions presented to WG’s ability to comply with its debt covenants Release debt Welch or operate its restructured business; (3) The conditions that WG later blamed on its inability to comply with the

debt covenants – poor control and high costs in the regions, customer (4) WG had undisclosed material weaknesses in its internal controls concerns over WG’s financial strength following its restatement, and high over debt and liquidity forecasts and disclosures. oil prices – had all arisen by the time the statements were made (¶¶183,

216-224);

(4) WG’s lack of specific disclosure of the conditions that were ignored in its December debt forecasts is indicative of an intent to mislead rather than

- . Debt covenants are "much less restrictive ... We believe that this new term

inform (VI(G));

loan facility provides us with greater flexibility in meeting our future (5) WG’s repeated control violations is indicative of deliberate misconduct operating needs and our planned capital expenditures. ... Increases in cash and severe recklessness; and cash equivalents coupled with increased availability under our revolver will contribute to our improved liquidity position as we move into 2015.” 3Q14 WG (6) Defendants’ investigations into and responsibilities over WG’s controls,

27 12/16/2014 Conference McNabb Liquidity and (Welch, ¶327); "... we’re going to have that [reserve for WAPCo liability] their financial experience, and the other circumstances supporting scienter debt availability in our working capital line and our revolver, as I said, to get us Call Welch with respect to the other statements about liquidity and debt described

ready for the work season that’s coming up in 2015. So I’m very pleased herein (#24) also supports scienter with respect to these statements. with where we ended up and where our liquidity is as we start into the construction season in 2015." (McNabb, ¶328).

- [In response to questions about the impact of the price of oil on WG's (1) WG had not considered falling oil prices or other macroeconomic (1) WG's material weakness disclosures admit that macroeconomic factors business]: “[A]t the end of the day [WG's customers have] got to keep trends in its debt forecasts (¶¶171, 222-224); were not considered in WG's debt forecasts; these plants up and running. I haven't seen the reaction [to falling oil prices] that I saw, for example, in 2008, where people are shutting down (2) WG failed to accurately disclose the risks that falling oil prices (2) WG has asserted that the impact of falling oil prices was one reason it projects ... We still see strong activity in the shale oil, shale gas plays.” posed to its business (¶¶222-224); could not comply with its debt covenants;

3Q14 WG Performance of (171).

28 12/16/2014 Conference Oil & Gas (3) Activity in the shale oil and shale gas plays was then much weaker (3) Oil prices had significantly declined by the time of these statements; McNabb Call segment or less profitable than represented, leading to the closure of WG's regional offices in the Permian basin (¶¶193-194). (4) Defendants therefore knew that such information should have been

considered in the debt forecasts, and knew or were severely reckless to the risks and impact that falling oil prices had on WG's business and its ability to comply with its borrowing agreements.

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- WG has: (i) "Designed ... disclosure controls and procedures ... to ensure (1) WG lacked effective controls or procedures over its business, (1) In light of WG's repeated control weaknesses and the extensive that material information ... is made known to [McNabb and Welch] by including controls and procedures to provide reasonable assurances investigations McNabb and Fournier claimed to have made of WG's others ... during the period in which this report is being prepared ... [and] of the reliability of its forecasts of liquidity and working capital needs existing controls, McNabb's and Fournier's false Sarbanes-Oxley to provide reasonable assurance regarding the reliability of financial and its ability to comply with debt covenants and other terms in its certifications and the strong assurances they provided as to the lack of any reporting ... in accordance with [GAAP]"; (ii) "Evaluated the effectiveness of borrowing agreements (§§VI(B)(4)(b), VI(G)); control weaknesses other than disclosed in the quarterly reports is strongly [WG's] disclosure controls and procedures as of the end of [the quarter indicative of deliberate or severely reckless misconduct. covered by the report] ... and Disclosed in this report any change in the (2) WG omitted to disclose the material weaknesses in its internal registrant’s internal control over financial reporting that occurred during [the controls or changes in controls that were reasonably likely to affect (2) The same facts that support a strong inference of scienter with respect quarter covered by the report] ... that has materially affected, or is financial reporting (§VI(B)(4)(b)); to Statement Nos. 1-3, 11-12, 18 support an inference of scienter with

1Q14 and reasonably likely to materially affect, [WG's] internal control over financial respect to these statements, including the extent and continuing nature of 2Q14 10-Q/A WG Effectiveness of reporting"; and (iii) "disclosed ... to {WG's] audit committee ... All significant (3) WG failed to account for material information in its financial WG's control violations, the recognized importance of correcting control

29 12/16/2014 reports and McNabb Internal deficiencies and material weaknesses in the design or operation of internal reporting, including current business conditions affecting its working weaknesses to WG's financial performance and success, and the individual 3Q14 10-Q Welch Controls control over financial reporting ... and Any fraud, whether or not material, capital and liquidity needs and its ability to comply with debt covenants defendants' direct responsibilities over designing and monitoring Report that involves management or other employees who have a significant role and other terms in its borrowing agreements, or failed to enact compliance with controls.

in the registrant’s internal control over financial reporting." (¶337); "our effective controls to provide reasonably reliable assurance that such disclosure controls and procedures were effective as of [the end of the information would be reported to management and the Audit quarter covered by the report]" (¶339); "Other than the identification of the Committee before operating results were released (§VI(F-G)); material weakness identified above, there were no changes in our internal control over financial reporting ... that materially affected, or are reasonably (4) McNabb and Welch had not made a reasonable examination of the likely to materially affect, our internal control over financial reporting during design and effectiveness of WG's internal controls and procedures the [end of the quarterly period covered by the report]." (¶347). during 3Q14 (¶¶93-95, 97-100, 174, 188, 192, 195).

-

"... we now have the flexibility in our credit facility to address the multiple (1) WG did not have the flexibility in its credit facility to meet its The same factors that support an inference of scienter with respect to opportunities in energy infrastructure we see ahead of us.” (¶330). working capital needs (¶¶99, 212-213); Statement No. 27 also support scienter with respect to this statement.

WG (2) WG's opportunities were much more limited than publicly

30 1/6/2015 WG Press Liquidity and represented, due to the loss of business from customers unwilling to McNabb Release debt Welch work with WG in light of its financial problems (¶183).

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CERTIFICATE OF SERVICE

I hereby certify that on June 15, 2015, I authorized the electronic filing of the foregoing with

the Clerk of the Court using the CM/ECF system which will send notification of such filing to the

e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I

caused to be mailed the foregoing document or paper via the United States Postal Service to the non-

CM/ECF participants indicated on the attached Manual Notice List.

I certify under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed on June 15, 2015.

s/ Dennis J. Herman DENNIS J. HERMAN

ROBBINS GELLER RUDMAN & DOWD LLP

Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 Telephone: 415/288-4545 415/288-4534 (fax) E-mail: [email protected]

- 174 - 1038793_1

DC CM/ECF LIVE- US District Court-Texas Southern- Page 1 of 1 Case 4:14-cv-03084 Document 43 Filed in TXSD on 06/15/15 Page 204 of 204

Mailing Information for a Case 4:14-cv-03084 Walters v. Willbros Group, Inc. et al

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

• Kenneth J Black [email protected]

• Willie C Briscoe [email protected] ,[email protected]

• Douglas R Britton [email protected],[email protected],[email protected]

• Andrew M Edison [email protected],[email protected]

• James L Gascoyne [email protected]

• Ronald Dean Gresham [email protected],[email protected]

• Amy Pharr Hefley [email protected],[email protected]

• Dennis J Herman [email protected] ,[email protected],[email protected] ,[email protected]

•

Phillip Kim [email protected]

• Laurence M Rosen [email protected]

• David James Sacks [email protected],[email protected]

• David D Sterling [email protected] ,[email protected] ,[email protected] ,[email protected] ,[email protected]

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In re Willbros Group, Inc. Securities Litigation 14-CV-03084-Second Amended Consolidated Class

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