-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TNmMzSIsTM5KhygQUzsNXDQ9O3HScUtK++yaBTQRw8KI/wKGMkgsLXkcSrgjeyHn XGR1cGgpMoK5+OfLC2Eb7g== 0000950128-01-000527.txt : 20010327 0000950128-01-000527.hdr.sgml : 20010327 ACCESSION NUMBER: 0000950128-01-000527 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAKER MICHAEL CORP CENTRAL INDEX KEY: 0000009263 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 250927646 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06627 FILM NUMBER: 1579076 BUSINESS ADDRESS: STREET 1: AIRPORT OFFICE PARK BLDG 3 STREET 2: 420 ROUSER RD CITY: CORAOPOLIS STATE: PA ZIP: 15108 BUSINESS PHONE: 4122696300 MAIL ADDRESS: STREET 1: P O BOX 12259 CITY: PITTSBURGH STATE: PA ZIP: 15231-0259 FORMER COMPANY: FORMER CONFORMED NAME: EUTHENICS SYSTEMS CORP DATE OF NAME CHANGE: 19750527 FORMER COMPANY: FORMER CONFORMED NAME: BAKER MICHAEL JR INC DATE OF NAME CHANGE: 19720526 10-K 1 j8721401e10-k.txt MICHAEL BAKER CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-6627 MICHAEL BAKER CORPORATION ------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0927646 - ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) AIRPORT OFFICE PARK, BUILDING 3, 420 ROUSER ROAD, CORAOPOLIS, PA 15108 - ---------------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 269-6300 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of Class Name of each exchange on which registered -------------- ----------------------------------------- COMMON STOCK, PAR VALUE $1 PER SHARE AMERICAN STOCK EXCHANGE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The Registrant estimates that as of March 16, 2001, the aggregate market value of shares of the Registrant's Common Stock and Series B Common Stock held by non-affiliates (excluding for purposes of this calculation only, 2,238,503 shares of Common Stock and 1,223,475 shares of Series B Common Stock held of record or beneficially by the executive officers and directors of the Registrant as a group and the Registrant's Employee Stock Ownership Plan) of the Registrant was $40,716,107 for the Common Stock and $694,465 for the Series B Common Stock (calculated for the Series B Common Stock on the basis of the shares of Common Stock into which Series B Common Stock is convertible). As of March 16, 2001, the Registrant had outstanding 6,983,970 shares of its Common Stock and 1,304,415 shares of its Series B Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Parts of Form 10-K into which Document Document is incorporated -------- ------------------------ Financial Section of Annual Report to Shareholders for the year ended December 31, 2000 I, II Proxy Statement to be distributed in connection with the 2001 Annual Meeting of Shareholders III 2 Note with respect to Forward Looking Statements: This Annual Report on Form 10-K, and in particular the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of Exhibit 13.1 hereto, which is incorporated by reference into Item 7 of Part II, contains forward looking statements concerning future operations and performance of the Registrant. Forward looking statements are subject to market, operating and economic risks and uncertainties that may cause the Registrant's actual results in future periods to be materially different from any future performance suggested herein. Factors that may cause such differences include, among others: increased competition, increased costs, changes in general market conditions, changes in anticipated levels of government spending on infrastructure, and changes in loan relationships or sources of financing. Such forward looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. 3 PART I ITEM 1. BUSINESS Michael Baker Corporation ("Baker" or "the Registrant") was founded in 1940 and organized as a Pennsylvania corporation in 1946. Today, through its operating subsidiaries and joint ventures, Baker provides engineering, management and operations services worldwide. The Registrant was previously organized into the following five market-focused business units: Buildings, Civil, Energy, Environmental and Transportation. Under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Registrant's seven reportable segments included the Buildings, Energy and Environmental units, plus the Engineering and Baker Support Services, Inc. ("BSSI") divisions of the Civil unit and the Engineering and Construction (heavy and highway) divisions of the Transportation unit. In 2001, the Company changed its reporting of segment information to reflect management and financial reporting changes that have taken place. These new management and financial reporting changes reflect the Registrant's Core operations, the Engineering and Energy segments; and the Registrant's Non-Core operations, the wind-down of the Construction divisions and BSSI. Information regarding these changes is contained in Management's Discussion and Analysis of Financial Condition and Results of Operation, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. Information regarding the amounts of revenues, income before taxes, total assets, capital expenditures, and depreciation and amortization expense attributable to the Registrant's reportable segments is contained in Note 6 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. According to the annual listings published in 2000 by Engineering News Record magazine, Baker ranked 45th among U.S. design firms, 15th among water design firms, 18th among transportation design firms, 196th among international design firms, 69th among global design firms, 57th among environmental firms and 50th among construction management-for-fee firms. These rankings were based on 1999 revenues. BUSINESS UNITS Due to certain management and internal financial reporting changes that have taken place, the Registrant changed its reporting of segment information for the year 2001. The Registrant previously had five - 1 - 4 operating business units. The Building, Energy, and Environmental units each represented separate reportable segments, while the Transportation and Civil units each comprised two reportable segments. Accordingly, the Registrant in the future will be organized into the Engineering, Energy and Non-Core segments as addressed in Note 6 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. The following briefly describes the Registrants units as organized during the three years ended December 31, 2000. Buildings. Through March 1999, the Buildings unit comprised a general construction, construction management and design-build division and a facilities planning and design division, that together or separately pursued the design-build market. This unit offered a variety of services including design-build, construction management, planning, program management, general contracting, architectural and interior design, construction inspection, and constructability reviews. The Buildings unit has completed a wide range of projects, such as corporate headquarters, data centers, correctional facilities, educational facilities, airports and entertainment facilities. Effective in April 1999, following a significant 1998 loss on a construction project in the Buildings unit, this unit was restructured such that all bidding activity associated with its general construction operations was discontinued. Baker has placed increased emphasis on growing its construction management-for-fee business, and will partner with contractors to pursue larger design-build contracts in the buildings market. The facilities planning and design division of the Buildings unit continues to operate as it did prior to the restructuring. Civil. Through May 2000, the Civil unit included two divisions, Engineering and BSSI. This unit has combined Baker's military infrastructure work in planning and operations and maintenance ("O&M") to improve its ability to market to, and serve, the U.S. Department of Defense, a significant Baker client. The Engineering division provides services which include surveying, mapping, geographic information systems, planning, design, construction management and total program management. The BSSI segment was sold effective June 1, 2000, it principally provided O&M services on U.S. military bases. The Civil unit serves clients in the fields of telecommunications, water resources, pipelines, emergency management, resources management, water/wastewater systems and facilities O&M. Energy. The Energy unit specializes in providing a full range of technical services for operating energy production facilities. The unit's comprehensive services consist of training, personnel recruitment, pre-operations engineering, field operations and maintenance, mechanical equipment maintenance and logistics management. The Energy unit serves both major and smaller independent oil and gas - 2 - 5 producing companies, as well as domestic regulated utilities and independent power producers. This unit operates in over a dozen foreign countries, with major projects in the U.S., Venezuela, Thailand and Nigeria. A risk attendant to the international operations of this unit is further described in Note 6 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. Environmental. The Environmental unit provides environmental, health, and safety related engineering and consulting services in both the public and private markets. This unit provides services which include site restoration, strategic regulatory analysis, compliance and advanced management systems. Clients of the Environmental unit include commercial entities, Fortune 100 companies and the Department of Defense, including the U.S. Army Corps of Engineers and the U.S. Navy. Under the Navy's Comprehensive Long-term Environmental Action Navy (CLEAN) program, this unit has been providing environmental support services throughout the mid-Atlantic states, the Caribbean and Europe since 1991. Transportation. Through its two divisions, Engineering and Construction, the Transportation unit provided planning, design, construction and operations support services to governmental transportation agencies throughout the nation in 2000. Within the Engineering division, Baker serves the professional services segment of the market providing planning, design, construction management and inspection, and management consulting services to municipal, state and federal highway, toll road and transit agencies. This division is consistently among the twenty largest providers of such services and enjoys a national reputation for its work in developing highways, bridges, airports, busways and other transit facilities. The Construction division has historically acted as a general contractor for highways, bridges, track installation, sewer, water and other heavy civil construction projects. The primary customers for this division have been the same as the Engineering division, but more geographically centered in Pennsylvania, Illinois, New York and Florida. At the time of the previously mentioned restructuring of the Buildings unit in April 1999, the Registrant also announced that its heavy and highway construction business would be sold. In March 2000, certain assets of this business, including substantially all fixed assets and the remaining contractual rights and obligations associated with eight active construction projects, were sold to A&L, Inc. ("A&L"). The Transportation-Engineering division continues to operate as it has in prior years and expects to continue to benefit from the U.S. government's federal transportation (TEA-21) legislation signed during 1998. This division intends to partner with other contractors to pursue selected design-build contracts, which are becoming a growing project delivery method within the transportation marketplace. - 3 - 6 DOMESTIC AND FOREIGN OPERATIONS For the years ended December 31, 2000, 1999 and 1998, approximately 91%, 90% and 91% of the Registrant's total contract revenues, respectively, were derived from work performed within the United States. Further financial information regarding the Registrant's domestic and foreign operations is contained in Notes 6 and 13 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. Of the Registrant's domestic revenues, the majority comprises engineering work performed in the Northeast region of the U.S. and operations and maintenance work performed in the South Central region of the U.S. The Registrant's international revenues are derived primarily from its Energy segment. BACKLOG The Registrant's backlog consists of that portion of uncompleted work that is represented by signed contracts. Certain of the Company's signed contracts are with the Federal Government and other clients that give them the option of terminating the contract at will, therefore no assurance can be given that all backlog will be realized. The Company's backlog at December 31, 2000 and 1999 was $502 million and $657 million, respectively. The overall 2000 decrease is directly attributable to the previously discussed wind-down of the Company's two construction divisions and sale of the BSSI division. Backlog attributable to the Company's ongoing operations was $502 million and $417 million, as of the year-ended 2000 and 1999, respectively. The most significant 2000 increases in backlog were registered in the Company's Transportation-Engineering division and the Energy segment of 27% and 79%, respectively. These increases were the direct result of the aforementioned increase in TEA-21 funding in the Transportation-Engineering division and an increase in the number of contracts in the Energy segment related to the Company's OPCO model. There is not necessarily a direct correlation between the Registrant's backlog amounts and its annual total contract revenues. Further, the Registrant's backlog amounts do not represent a guarantee of future revenues or results of operations. In the case of multi-year contracts, total contract revenues are spread over several years and correspond to the timing of the contract rather than the Registrant's fiscal year. Many multi-year contracts, particularly with agencies of the U.S. government, provide for optional renewals on the part of the customer. The Registrant's experience has been that these optional contract renewals have generally been exercised. Backlog generally is highest during the last quarter of the Registrant's fiscal year because that corresponds to the first quarter of the U.S. government's fiscal year, which is when many government contract renewals occur. - 4 - 7 SIGNIFICANT CUSTOMERS Contracts with various branches of the U.S. government accounted for 17%, 21% and 27% of the Registrant's total contract revenues for the years ended December 31, 2000, 1999 and 1998, respectively. No individual contract accounted for more than 10% of the Registrant's total contract revenues in 2000 and 1999; however, several contracts with the Pennsylvania Department of Transportation provided 11% of the Company's total contract revenues for 1999. An individual Buildings unit construction contract with Universal City Development Partners ("UCDP") accounted for 12% of the Registrant's total contract revenues in 1998, which contract was terminated resulting in litigation. A description of this litigation is described in Item 3, and further financial information regarding this contract is contained in Note 2 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. COMPETITIVE CONDITIONS The Registrant's business is highly competitive with respect to all principal services it offers. Baker competes with numerous firms that provide some or all of the services provided by the Registrant. The competitive conditions in the Registrant's businesses relate to the nature of the contracts being pursued. Public-sector contracts, consisting mostly of contracts with federal and state governmental entities, are generally awarded through a competitive process, subject to the contractors' qualifications and experience. The Baker business units employ extensive cost estimating, scheduling and other techniques for the preparation of these competitive bids. Private-sector contractors compete primarily on the basis of qualifications, quality of performance and price of services. Most private and public-sector contracts for professional services are awarded on a negotiated basis. The Registrant believes that the principal competitive factors (in various orders of importance) in the areas of services it offers are quality of service, reputation, experience, technical proficiency and cost of service. The Registrant believes that it is well positioned to compete effectively by emphasizing the quality of services it offers and its widely known reputation in providing engineering, management and operations services. SEASONALITY Based upon the Registrant's experience, total contract revenues and net income from construction-related services, and to a lesser extent its engineering services, have historically been lower for the first quarter than for the remaining quarters due to winter weather conditions, particularly for projects in the - 5 - 8 Northeast and Midwest regions of the United States. Going forward, given the discontinuance of all general construction operations, seasonality is expected to have less of an impact on the Registrant's quarterly results of operations. PERSONNEL At December 31, 2000, the Registrant had approximately 3,704 employees, broken down by business unit as follows: Buildings unit-144 Environmental unit-152 Civil unit-840 Transportation unit-803 Energy unit-1,742 Corporate staff-23 At December 31, 2000, reporting by 2001 segments as described in Item 1 of this form 10-K and Note 6 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. Engineering segment- 1,939 Energy segment-1,742 Corporate-23 The Registrant's employees are not represented by labor unions. ITEM 2. PROPERTIES The principal offices of the Registrant are located in Coraopolis, Pennsylvania, at which approximately 160,000 square feet of office space is leased for use by the Registrant's Engineering segment and to a lesser extent, by its Corporate staff. The Registrant also leases approximately 49 other facilities in the U.S. and abroad with approximately 320,000 square feet of office-related floor space. These leases expire at various dates through the year 2010. The leases of the Registrant's offices located in Coraopolis expire on June 30, 2002. Proposals of several other office leases are currently being evaluated by the Registrant. The Registrant also owns a 75,000 square foot office building located in Beaver, Pennsylvania, which is situated on a 175 acre site and utilized by the Registrant's Engineering segment. The Registrant believes that the current facilities are adequate for the operation of the Registrant's business and that suitable additional office space is available to accommodate any needs that may arise. - 6 - 9 ITEM 3. LEGAL PROCEEDINGS In relation to Universal City Development Partners ("UCDP") legal issues, as discussed in Note 2 to the consolidated financial statements and referenced herein, a non-binding, court-ordered mediation process before a mediator mutually agreed by both parties commenced in January 2000. On March 22, 2000, mediation of this matter resulted in a conditional settlement agreement being entered into by the Company; BMSCI; Travelers Casualty and Surety Company of America ("Travelers"), which provided performance and payment bonds on behalf of BMSCI; UCDP; Hellmuth, Obata & Kassabaum, Inc. ("HOK"); which designed the project; and the court-appointed mediator. Pursuant to the terms of the settlement agreement, the parties resolved the claims between them, and BMSCI agreed to pay UCDP $2.0 million. On May 1, 2000 the Company and UCDP settled their claims. This final settlement preserved the Company's rights against HOK, the project policy insurer; and HOK's other insurers. The Company also remained responsible for all subcontractor and vendor claims arising from the project. The most material of these claims involved a suit brought by ADF International, Inc. ("ADF"), BMSCI's subcontractor for structural steel and miscellaneous metals. On December 28, 2000, judgements were entered in favor of ADF International Inc. against BMSCI and Travelers, jointly and severally, in the amount of $10.0 million as discussed in Note 2 to the consolidated financial statements and referenced herein. It was also further ordered and adjudged that BMSCI shall take nothing by its counterclaim or Third Party Claims. Subsequently, in 2000 BMSCI recorded charges of $5.5 million related to the Judgements and $1.3 million in attorney's fees which are yet to be determined by the court. The Company believes that it has made an adequate provision for the attorney's fees. In January 2001 the Company filed an appeal to the 11th Circuit Court of appeals. The Company had previously recorded charges of $4.5 million during the fourth quarter of 1999. The Registrant has been named as a defendant or co-defendant in legal proceedings wherein substantial damages are claimed. Such proceedings are not uncommon to the Registrant's business. After consultations with counsel, management believes that the Registrant has recognized adequate provisions for probable and reasonably estimable liabilities associated with these proceedings, and that their ultimate resolutions will not have a material adverse effect on the consolidated financial position or annual results of operations of the Registrant. The Registrant currently is a party to one material legal proceeding. The proceeding relates to a lawsuit brought in 1987 in the Supreme Court of the State of New York, Bronx County, by the Dormitory Authority of the State of New York against a number of parties, including the Registrant and one of its wholly-owned subsidiaries, that asserts breach of contract and alleges damages of $13 million. - 7 - 10 The Registrant, which was not a party to the contract underlying the lawsuit, contends that there is no jurisdiction with respect to the Registrant and that it cannot be held liable for any conduct of the subsidiary. Both the Registrant and the subsidiary are contesting liability issues and have filed cross-claims and third-party claims against the other entities involved in the project. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Registrant's security holders during the fourth quarter of 2000. EXECUTIVE OFFICERS OF THE REGISTRANT The following represents a listing of executive officers of the Registrant as of December 31, 2000. Richard L. Shaw - Age 73; Chief Executive Officer of the Registrant since September 1999, and previously President and Chief Executive Officer from 1993 through 1994 and from 1984 through 1992; Chairman of the Board of the Registrant since 1992 and a Director since 1966. Mr. Shaw has been with the Registrant since 1952 serving in various capacities. Donald P. Fusilli, Jr. - Age 49; President and Chief Operating Officer of the Registrant since March 2000. Mr. Fusilli has been employed by the Registrant in various capacities since 1973 and more recently has served as Executive Vice President of the Registrant from 1991 to 2000, President of Baker/MO Services, Inc., a subsidiary of the Registrant, from 1995 to 2000 and General Counsel and Secretary of the Registrant from 1986 through 1994. William P. Mooney - Age 50; Executive Vice President and Chief Financial Officer of the registrant, effective June 26, 2000. Prior to joining the Registrant, Mr. Mooney served as executive vice president and chief financial officer of FEI Company in Hillsboro, Oregon, a global supplier of capital equipment to the semiconductor and data storage industries. Prior to joining FEI, he was chief financial officer of Calgon Carbon Corporation and Sylvan, Inc. and president and chief executive officer of Leahy Business Archives. H. James McKnight - Age 56; Executive Vice President, General Counsel and Secretary of the Registrant since 1995. Mr. McKnight previously served as counsel to International Technology Corporation from February 1995 through September 1995, and was a self-employed consultant from 1992 through February 1995. - 8 - 11 Michael D. Whitten - Age 40; President of Baker Energy, effective June 1, 2000. Mr. Whitten was previously Vice President of international operations for O&M International, a division of Baker Energy based in London since joining the Registrant in 1999. Prior to joining the Registrant, Mr. Whitten worked for BP Amoco for 17 years in various operations and senior management positions. John D. Whiteford - Age 40; Executive Vice President Michael Baker Jr., Inc. and Manager of the North Region, effective June 1, 2000. Mr. Whiteford previously served in various capacities with the Registrant since 1983 including, Vice President of Baker Energy from 1997 to 2000, and Vice President of Baker Environmental from 1986 to 1997. James B. Richards - Age 53; Executive Vice President Michael Baker Jr., Inc. and manager of the South Region, effective June 1, 2000. Since joining the Registrant in 1996, Mr. Richards was Vice President of Michael Baker Jr. Inc. and regional manager of the Southeast Region from 1996 to 2000. John D. Swanson - Age 44; Senior Vice President Michael Baker Jr., Inc. and manager of the West Region, effective June 1, 2000. Mr. Swanson joined the Registrant in 1993 and was Assistant Vice President of Michael Baker Jr., Inc. from 1998 to 2000. From 1993 to 1998 Mr. Swanson served in various management capacities. Executive officers of the Registrant serve at the pleasure of the Board of Directors and are elected by the Board or appointed annually for a term of office extending through the election or appointment of their successors. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Information relating to the market for the Registrant's Common Stock and other matters related to the holders thereof is set forth in the "Supplemental Financial Information" section of Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. The Registrant's present policy is to retain any earnings to fund the operations and growth of the Registrant. The Registrant has not paid any cash dividends since 1983 and has no plans to do so in the foreseeable future. At March 16, 2001, the Registrant had 1,213 holders of its Common Stock and 541 holders of its Series B Common Stock. - 9 - 12 ITEM 6. SELECTED FINANCIAL DATA A summary of selected financial data for the Registrant, including each of the last five fiscal years for the period ended December 31, 2000, is set forth in the "Selected Financial Data" section of Exhibit 13.1 to this Form 10-K. Such summary is incorporated herein by reference. For discussions of the items affecting the comparability of the selected financial data refer to "Management's Discussion and Analysis" section of Exhibit 13.1 to this Form 10-K. Such discussion is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the Registrant's financial condition, cash flows and results of operations is set forth in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of Exhibit 13.1 to this Form 10-K. Such discussion is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Registrant's primary interest rate risk relates to its long-term debt obligations. As of December 31, 2000 and 1999, the Registrant had total long-term debt obligations, including the current portion of those obligations, totaling $2.3 million and $18.4 million, respectively. Of these amounts, fixed rate obligations totaled $0.1 million and $2.7 million, and variable rate obligations totaled $2.2 million and $15.7 million, as of December 31, 2000 and 1999, respectively. The 2000 decreases in these debt obligations relate to the payoff of the Registrant's credit agreement with its bank. Assuming a 10% increase in interest rates on the Registrant's variable rate obligations (i.e., an increase from the actual weighted average interest rates of 9.50% and 8.50%, to weighted average interest rates of 10.45% and 9.35%, as of December 31, 2000 and 1999, respectively), annual interest expense would have been approximately $21,000 higher in 2000 and $134,000 higher in 1999 based on the respective year-end outstanding balances of variable rate obligations. The Registrant has no interest rate swap or exchange agreements. Less than 1% of the Registrant's total assets and total contract revenues as of and for the periods ended December 31, 2000 and 1999 were denominated in currencies other than the U.S. Dollar; accordingly, the Registrant has no material exposure to foreign currency exchange risk. This materiality assessment is based on the assumption that the foreign currency exchange rates could change unfavorably by 10%. The Registrant has no foreign currency exchange contracts. Based on the nature of the Registrant's business, it has no direct exposure to commodity price risk. - 10 - 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP, dated March 16, 2001, and supplementary financial information are set forth within Exhibit 13.1 to this Form 10-K. Such financial statements and supplementary financial information are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to the Directors of the Registrant appears beneath the caption "Election of Directors" in the Registrant's definitive Proxy Statement which will be distributed in connection with the 2001 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934 appears beneath the caption "Directors and Officers" of such Proxy Statement. Such information is incorporated herein by reference. Information relating to the executive officers of the Registrant is set forth in Part I of this Report under the caption "Executive Officers of the Registrant." Such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation appears beneath the caption "Directors and Officers" in the Registrant's definitive Proxy Statement which will be distributed in connection with the 2001 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to the ownership of equity securities by beneficial owners of 5% or more of the common stock of the Registrant and by management has been set forth under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Registrant's definitive Proxy - 11 - 14 Statement which will be distributed in connection with the 2001 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and transactions between the Registrant and its directors and officers appears beneath the caption "Directors and Officers" in the Registrant's definitive Proxy Statement which will be distributed in connection with its 2001 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following financial statements are incorporated in Item 8 of Part II of this Report by reference to the consolidated financial statements within Exhibit 13.1 to this Form 10-K: Consolidated Statements of Income for the three years ended December 31, 2000 Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Cash Flows for the three years ended December 31, 2000 Consolidated Statements of Shareholders' Investment for the three years ended December 31, 2000 Notes to Consolidated Financial Statements Report of Independent Accountants (a)(2) All financial statement schedules are omitted because they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto. (a)(3) The following exhibits are included herewith as a part of this Report: Exhibit No. Description - ----------- ----------- 3.1 Articles of Incorporation of the Registrant, as amended, filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. - 12 - 15 Exhibit No. Description - ----------- ----------- 3.2 By-laws of the Registrant, as amended, filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference. 4.1 Rights Agreement dated November 16, 1999, between the Registrant and American Stock Transfer and Trust Company, as Rights Agent, filed as Exhibit 4.1 to the Registrant's Report on Form 8-K dated November 16, 1999, and incorporated herein by reference. 10.1 1999 Incentive Compensation Plan of Michael Baker Corporation, filed as exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference. 10.2 Employment Agreement dated as of April 12, 1988, Supplemental Agreement No. 1 dated as of March 17, 1992, and Supplemental Agreement No. 2 dated as of October 1, 1994, by and between the Registrant and Richard L. Shaw, filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference. 10.2(a) Supplemental Employment Agreement No. 3 dated as of June 1, 1995 and Supplemental Agreement No. 4 dated as of March 1, 1998, by and between the Registrant and Richard L. Shaw, filed as Exhibit 10.2(a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference. 10.2(b) Supplemental Employment Agreement No. 5 dated as of September 7, 1999, by and between the Registrant and Richard L. Shaw, filed as Exhibit 10.2(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference. 10.2(c) Employment Continuation Agreement dated as of October 27, 2000, by and between the Registrant and Donald P. Fusilli, Jr., William P. Mooney and H. James McKnight, filed herewith. - 13 - 16 Exhibit No. Description - ----------- ----------- 10.2(d) Employment Continuation Agreement dated as of October 27, 2000, by and and between the Registrant and James B. Richards, John D. Swanson, John D. Whiteford and Michael D. Whitten, filed herewith. 10.2(e) Employment Continuation Agreement dated as of October 27, 2000, by and between the Registrant and John N. Hickman and Rodney Levett-Prinsep, filed herewith. 10.3 Loan Agreement by and among Michael Baker Corporation and Subsidiaries and Mellon Bank, N.A. dated as of June 12, 1997, filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997, and incorporated herein by reference. 10.3(a) First Amendment to Loan Agreement by and among Michael Baker Corporation and Subsidiaries and Mellon Bank, N.A. dated as of July 24, 1998, filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998, and incorporated herein by reference. 10.3(b) First Amended and Restated Loan Agreement by and among Michael Baker Corporation and Subsidiaries and Mellon Bank, N.A. dated as of September 27, 2000, filed as exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2000, and incorporated herein by reference. 10.4 Michael Baker Corporation 1995 Stock Incentive Plan amended effective April 23, 1998, filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference. 10.5 Michael Baker Corporation 1996 Nonemployee Directors' Stock Incentive Plan, filed as Exhibit A to the Registrant's definitive Proxy Statement with respect to its 1996 Annual Meeting of Shareholders, and incorporated herein by reference. 13.1 Selected Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements as of December 31, 2000 and for the three years then ended, Report of Independent Accountants, and Supplemental Financial Information, filed herewith and to be included as the Financial Section of the Annual Report to Shareholders for the year ended December 31, 2000. - 14 - 17 Exhibit No. Description - ----------- ----------- 21.1 Subsidiaries of the Registrant, filed herewith. 23.1 Consent of Independent Accountants, filed herewith. (b)(1) The registrant filed no reports on Form 8-K during the fourth quarter of 2000. - 15 - 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MICHAEL BAKER CORPORATION Dated: March 21, 2001 By: /s/ Richard L. Shaw -------------------- Richard L. Shaw Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date - --------- ----- ---- /s/ William P. Mooney Executive Vice President March 21, 2001 - ----------------------------- and Chief Financial Officer William P. Mooney /s/ Richard L. Shaw Chairman of the Board and March 21, 2001 - ----------------------------- and Chief Executive Officer Richard L. Shaw /s/ Donald P. Fusilli, Jr. President and Chief Operating March 21, 2001 - ----------------------------- Officer Donald P. Fusilli, Jr. /s/ H. James McKnight Senior Vice President, General March 21, 2001 - ----------------------------- Counsel and Secretary H. James McKnight /s/ Robert N. Bontempo Director March 21, 2001 - ----------------------------- Robert N. Bontempo /s/ Nicholas P. Constantakis Director March 21, 2001 - ----------------------------- Nicholas P. Constantakis /s/ William J. Copeland Director March 21, 2001 - ----------------------------- William J. Copeland Director March 21, 2001 - ----------------------------- Roy V. Gavert, Jr. - 16 - 19 Signature Title Date - --------- ----- ---- /s/ Thomas D. Larson Director March 21, 2001 - ----------------------------- Thomas D. Larson /s/ John E. Murray, Jr. Director March 21, 2001 - ----------------------------- John E. Murray, Jr. Director March 21, 2001 - ----------------------------- Pamela S. Pierce - 17 - EX-10.2.C 2 j8721401ex10-2_c.txt EMPLOYMENT CONTINUATION AGREEMENT 1 Exhibit 10.2(c) EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Michael Baker Corporation, a Pennsylvania corporation (the "Company"), and ______________________ (the "Executive"), dated as of this _____ day of _______________, _______. W I T N E S S E T H: WHEREAS, the Company has employed the Executive in an officer position and has determined that the Executive holds an important position with the Company; WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of stockholders; WHEREAS, the Company understands that any such situation will present significant concerns for the Executive with respect to the Executive's financial and job security; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company without Cause (as defined in Section 6(c)) or by the Executive with Good Reason (as defined in Section 6(d)) after the occurrence of a Potential Change of 2 Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within one year of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 2. Definitions. (a) Change of Control. For the purposes of this Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities of the Company entitling such Person to 30% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 51% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or by the Company's Employee Stock Ownership Plan or related trust or by any corporation controlled by the Company; or (ii) Completion of a tender offer to acquire securities of the Company entitling the holders thereof to 30% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) A successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 50% or more of the members of any class of the Board shall be made by any Person other than the Company or less than 51% of the members of the Board shall be Continuing Directors; or (iv) The occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company, and as a result of which the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (i) in the case of a merger or consolidation, the surviving or resulting company, (ii) in the case of a share exchange, the acquiring company, or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring company which, immediately following -2- 3 the transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) A majority of the Board otherwise determines that a Change in Control shall have occurred. (b) Potential Change of Control. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 30% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board in its reasonable determination after a consideration of relevant facts and circumstances. (c) Board. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (d) Continuing Directors. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). 3. Employment Period. Subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Employment Period") commencing on the Effective Date and ending on the thirty-six month anniversary of the Effective Date. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this -3- 4 Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 12(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 35 miles from such location (or such other distance not in excess of 50 miles as shall be set forth in the Company's relocation policy as in effect immediately prior to the Effective Date). (b) Business Time. During the Employment Period, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which the Executive is serving or with which the Executive is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services to the Company. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company and any of its affiliated companies immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period and for each partial fiscal year during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the Company's goals and objectives) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date, provided that the amount of bonus which shall be awarded to the Executive during each year of the Employment Period shall be an amount not less than the average bonus earned by such Executive during the five fiscal year period of the Company ending immediately prior to the Effective Date (the "Annual Bonus -4- 5 Opportunity"), with the average bonus calculated by dividing the total bonuses paid to the Executive for such five year period by the total number of years for which any bonus was paid. Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option or stock incentive plans, at a level that is commensurate with the Executive's opportunity to participate in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. During the Employment Period, the Company will offer such plans and programs to the Executive as were in effect immediately prior to the Change of Control or, if more favorable to the Executive when measured against particular plans or programs previously offered, replacement plans or programs. (d) Benefit Plans. During the Employment Period, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled to participate in or be covered under all pension, retirement, deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. During the Employment Period, the Company will offer such plans and programs to the Executive as were in effect immediately prior to the Change of Control or, if more favorable to the Executive when measured against particular plans or programs previously offered, replacement plans or programs. All payments by the Company hereunder excepting payments for Accrued Obligations shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company shall apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are more favorable to the Executive than those in effect immediately prior to the Effective Date. -5- 6 (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, Director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Articles of Incorporation and By-laws (the "Governing Documents") and the Company shall maintain existing or comparable policies of insurance covering such matters, provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to other similarly situated officers provided that such items shall be at least equivalent to those provided for the Executive immediately prior to the Effective Date. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986 (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of nolo contendere to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure -6- 7 by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in paragraph 6(d), below) after a written demand for substantial performance is delivered to Executive by the Company, which demand specifically identifies the manner in which the Company believes that Executive has not substantially performed the required duties. (d) Good Reason. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's requiring the Executive to be based at any office or location more than 35 miles (or such other distance not in excess of 50 miles as shall be set forth in the Company's relocation policy as in effect immediately prior to the Effective Date) from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 12(b). -7- 8 In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(e). For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 10 business days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. -8- 9 (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause and Termination by the Executive for Good Reason. (i) Lump Sum Payments. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount') equal to three times the sum of (1) the Executive's annual Base Salary; and (2) the average of the bonuses payable to the Executive for the five fiscal years of the Company ending immediately prior to the Effective Date calculated by dividing the total bonuses paid to the Executive for such five year period by the total number of years for which any bonus was paid; and (C) the Accrued Obligations. The Earned Salary and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (x) the thirty-six month anniversary of the Date of Termination (the "End Date") and (y) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the Company's employee and executive welfare and fringe benefit plans (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's -9- 10 participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company through the End Date. (d) Limit on Payments by the Company. (i) Application of Section 7(d). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Section 7(d) shall apply to determine the amounts payable to Executive pursuant to this Agreement. (ii) Calculation of Benefits. Immediately following delivery of any Notice of Termination, the Company shall notify the Executive of the aggregate present value of all termination benefits to which the Executive would be entitled under this Agreement and any other plan, program or arrangement as of the projected Date of Termination, together with the projected maximum payments, determined as of such projected Date of Termination, that could be paid without the Executive being subject to the Excise Tax. (iii) Imposition of Payment Cap. If (A) the aggregate value of the Severance Amount, Accrued Obligations, and continuation of benefits to be paid or provided to the Executive under this Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive incurring an Excise Tax and (B) the Executive would receive a greater net-after-tax amount (taking into account all applicable taxes payable by the Executive, including any Excise Tax) by applying the limitation contained in this Section 7(d)(iii), then such amounts payable to the Executive under this Section 7 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits pursuant to the previous sentence, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that the Executive will receive in connection with the application of the Payment Cap. (iv) Application of Section 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, -10- 11 (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (v) For purposes of determining whether the Executive would receive a greater net-after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 7(d)(iii), the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year; provided, however, that the Executive may request that such determination be made based on the Executive's individual tax circumstances, which shall govern such determination so long as the Executive provides to the Accountants such information and documents as the Accountants shall reasonably request to determine such individual circumstances. (vi) If the Executive receives reduced payments and benefits, under this Section 7(d) (or this Section 7(d) is determined not to be applicable to the Executive because the Accountants conclude that Executive is not subject to any Excise Tax) and it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the aggregate "parachute payments" within the meaning of Section 280G of the Code paid to the Executive or for the Executive's benefit are in an amount that would result in the Executive's being subject to an Excise Tax, then the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to the Executive made -11- 12 on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If this Section 7(d) is not applied to reduce the Executive's entitlements under this Section 7 because the Accountants determine that the Executive would not receive a greater net-after-tax benefit by applying this Section 7(d) and it is established pursuant to a Final Determination that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the Executive would have received a greater net-after-tax benefit by subjecting the Executive's payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to the Executive or for the Executive's benefit in excess of the Payment Cap shall be deemed for all purposes a loan to the Executive made on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If the Executive receives reduced payments and benefits by reason of this Section 7(d) and it is established pursuant to a Final Determination that the Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter pay the Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. 8. Non-Exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive, stock option or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. In the event of a termination of the Executive's employment by -12- 13 the Company other than for Cause or termination of employment by the Executive for Good Reason, the Executive shall have no duty to seek any other employment after termination of employment with the Company and the Company hereby waives and agrees not to raise or use any defense based on the position that the Executive had a duty to mitigate or reduce the amounts due to the Executive hereunder by seeking other employment whether suitable or unsuitable and should the Executive obtain other employment, then the only effect of such on the obligations of the Company hereunder shall be that the Company shall be entitled to credit against any payments which would otherwise be made pursuant to Section 7(c)(ii) hereof, any comparable payments to which the Executive is entitled under the employee and executive welfare benefit plans maintained by the Executive's other employer or employers in connection with services to such employer or employers after termination of the Executive's employment with the Company. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, reasonable attorneys' fees and expenses, if the Executive is the prevailing party in such contest, as determined by the arbitrators selected pursuant to Section 13(b) hereof to resolve such contest. 11. Confidential Information; Company Property. For and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Company Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. (c) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the -13- 14 Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to pursue an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. -14- 15 (c) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (d) Entire Agreement. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. The Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has read this Agreement and that he understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: Chairman of the Board Michael Baker Corporation Airport Office Park, Building #3 420 Rouser Road Coraopolis, Pennsylvania 15108 with a copy to: Reed Smith LLP Attn: David L. DeNinno, Esq. 435 Sixth Avenue Pittsburgh, PA 15219 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) or Section 11(c) are not enforceable in accordance with its terms, the Executive and the Company agree that such -15- 16 Sections shall be reformed to make such Sections enforceable in a manner which provides the Company the maximum rights permitted at law. (h) Effect of Agreement on Rights of Executive. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (i) Waiver. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. [CORPORATE SEAL] MICHAEL BAKER CORPORATION _________________________________ __________________________________ By: By: Title: Secretary Title: EXECUTIVE _________________________________ __________________________________ Witnessed Donald P. Fusilli, Jr. -16- EX-10.2.D 3 j8721401ex10-2_d.txt EMPLOYMENT CONTINUATION AGREEMENT 1 Exhibit 10.2(d) EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Michael Baker Corporation, a Pennsylvania corporation (the "Company"), and ____________________________ (the "Executive"), dated as of this ______ day of _____________, _____. W I T N E S S E T H: WHEREAS, the Company has employed the Executive in an officer position and has determined that the Executive holds an important position with the Company; WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of stockholders; WHEREAS, the Company understands that any such situation will present significant concerns for the Executive with respect to the Executive's financial and job security; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company without Cause (as defined in Section 6(c)) or by the Executive with Good Reason (as defined in Section 6(d)) after the occurrence of a Potential Change of 2 Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within one year of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 2. Definitions. (a) Change of Control. For the purposes of this Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities of the Company entitling such Person to 30% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 51% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or by the Company's Employee Stock Ownership Plan or related trust or by any corporation controlled by the Company; or (ii) Completion of a tender offer to acquire securities of the Company entitling the holders thereof to 30% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) A successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 50% or more of the members of any class of the Board shall be made by any Person other than the Company or less than 51% of the members of the Board shall be Continuing Directors; or (iv) The occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company, and as a result of which the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (i) in the case of a merger or consolidation, the surviving or resulting company, (ii) in the case of a share exchange, the acquiring company, or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring company which, immediately following -2- 3 the transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) A majority of the Board otherwise determines that a Change in Control shall have occurred. (b) Potential Change of Control. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 30% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board in its reasonable determination after a consideration of relevant facts and circumstances. (c) Board. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (d) Continuing Directors. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). 3. Employment Period. Subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Employment Period") commencing on the Effective Date and ending on the twenty-four month anniversary of the Effective Date. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this -3- 4 Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 12(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 35 miles from such location (or such other distance not in excess of 50 miles as shall be set forth in the Company's relocation policy as in effect immediately prior to the Effective Date). (b) Business Time. During the Employment Period, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which the Executive is serving or with which the Executive is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services to the Company. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company and any of its affiliated companies immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period and for each partial fiscal year during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the Company's goals and objectives) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date, provided that the amount of bonus which shall be awarded to the Executive during each year of the Employment Period shall be an amount not less than the average bonus earned by such Executive during the five fiscal year period of the Company ending immediately prior to the Effective Date (the "Annual Bonus -4- 5 Opportunity"), with the average bonus calculated by dividing the total bonuses paid to the Executive for such five year period by the total number of years for which any bonus was paid. Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option or stock incentive plans, at a level that is commensurate with the Executive's opportunity to participate in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. During the Employment Period, the Company will offer such plans and programs to the Executive as were in effect immediately prior to the Change of Control or, if more favorable to the Executive when measured against particular plans or programs previously offered, replacement plans or programs. (d) Benefit Plans. During the Employment Period, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled to participate in or be covered under all pension, retirement, deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. During the Employment Period, the Company will offer such plans and programs to the Executive as were in effect immediately prior to the Change of Control or, if more favorable to the Executive when measured against particular plans or programs previously offered, replacement plans or programs. All payments by the Company hereunder excepting payments for Accrued Obligations shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company shall apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are more favorable to the Executive than those in effect immediately prior to the Effective Date. -5- 6 (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, Director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Articles of Incorporation and By-laws (the "Governing Documents") and the Company shall maintain existing or comparable policies of insurance covering such matters, provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to other similarly situated officers provided that such items shall be at least equivalent to those provided for the Executive immediately prior to the Effective Date. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986 (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of nolo contendere to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure -6- 7 by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in paragraph 6(d), below) after a written demand for substantial performance is delivered to Executive by the Company, which demand specifically identifies the manner in which the Company believes that Executive has not substantially performed the required duties. (d) Good Reason. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's requiring the Executive to be based at any office or location more than 35 miles (or such other distance not in excess of 50 miles as shall be set forth in the Company's relocation policy as in effect immediately prior to the Effective Date) from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 12(b). -7- 8 In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(e). For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 10 business days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. -8- 9 (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause and Termination by the Executive for Good Reason. (i) Lump Sum Payments. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount') equal to two times the sum of (1) the Executive's annual Base Salary; and (2) the average of the bonuses payable to the Executive for the five fiscal years of the Company ending immediately prior to the Effective Date calculated by dividing the total bonuses paid to the Executive for such five year period by the total number of years for which any bonus was paid; and (C) the Accrued Obligations. The Earned Salary and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (x) the twenty-four month anniversary of the Date of Termination (the "End Date") and (y) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the Company's employee and executive welfare and fringe benefit plans (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's -9- 10 participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company through the End Date. (d) Limit on Payments by the Company. (i) Application of Section 7(d). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Section 7(d) shall apply to determine the amounts payable to Executive pursuant to this Agreement. (ii) Calculation of Benefits. Immediately following delivery of any Notice of Termination, the Company shall notify the Executive of the aggregate present value of all termination benefits to which the Executive would be entitled under this Agreement and any other plan, program or arrangement as of the projected Date of Termination, together with the projected maximum payments, determined as of such projected Date of Termination, that could be paid without the Executive being subject to the Excise Tax. (iii) Imposition of Payment Cap. If (A) the aggregate value of the Severance Amount, Accrued Obligations, and continuation of benefits to be paid or provided to the Executive under this Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive incurring an Excise Tax and (B) the Executive would receive a greater net-after-tax amount (taking into account all applicable taxes payable by the Executive, including any Excise Tax) by applying the limitation contained in this Section 7(d)(iii), then such amounts payable to the Executive under this Section 7 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits pursuant to the previous sentence, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that the Executive will receive in connection with the application of the Payment Cap. (iv) Application of Section 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, -10- 11 (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (v) For purposes of determining whether the Executive would receive a greater net-after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 7(d)(iii), the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year; provided, however, that the Executive may request that such determination be made based on the Executive's individual tax circumstances, which shall govern such determination so long as the Executive provides to the Accountants such information and documents as the Accountants shall reasonably request to determine such individual circumstances. (vi) If the Executive receives reduced payments and benefits, under this Section 7(d) (or this Section 7(d) is determined not to be applicable to the Executive because the Accountants conclude that Executive is not subject to any Excise Tax) and it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the aggregate "parachute payments" within the meaning of Section 280G of the Code paid to the Executive or for the Executive's benefit are in an amount that would result in the Executive's being subject to an Excise Tax, then the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to the Executive made -11- 12 on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If this Section 7(d) is not applied to reduce the Executive's entitlements under this Section 7 because the Accountants determine that the Executive would not receive a greater net-after-tax benefit by applying this Section 7(d) and it is established pursuant to a Final Determination that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the Executive would have received a greater net-after-tax benefit by subjecting the Executive's payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to the Executive or for the Executive's benefit in excess of the Payment Cap shall be deemed for all purposes a loan to the Executive made on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If the Executive receives reduced payments and benefits by reason of this Section 7(d) and it is established pursuant to a Final Determination that the Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter pay the Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. 8. Non-Exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive, stock option or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. In the event of a termination of the Executive's employment by -12- 13 the Company other than for Cause or termination of employment by the Executive for Good Reason, the Executive shall have no duty to seek any other employment after termination of employment with the Company and the Company hereby waives and agrees not to raise or use any defense based on the position that the Executive had a duty to mitigate or reduce the amounts due to the Executive hereunder by seeking other employment whether suitable or unsuitable and should the Executive obtain other employment, then the only effect of such on the obligations of the Company hereunder shall be that the Company shall be entitled to credit against any payments which would otherwise be made pursuant to Section 7(c)(ii) hereof, any comparable payments to which the Executive is entitled under the employee and executive welfare benefit plans maintained by the Executive's other employer or employers in connection with services to such employer or employers after termination of the Executive's employment with the Company. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, reasonable attorneys' fees and expenses, if the Executive is the prevailing party in such contest, as determined by the arbitrators selected pursuant to Section 13(b) hereof to resolve such contest. 11. Confidential Information; Company Property. For and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Company Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. (c) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the -13- 14 Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to pursue an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. -14- 15 (c) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (d) Entire Agreement. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. The Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has read this Agreement and that he understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: Chairman of the Board Michael Baker Corporation Airport Office Park, Building #3 420 Rouser Road Coraopolis, Pennsylvania 15108 with a copy to: Reed Smith LLP Attn: David L. DeNinno, Esq. 435 Sixth Avenue Pittsburgh, PA 15219 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) or Section 11(c) are not enforceable in accordance with its terms, the Executive and the Company agree that such -15- 16 Sections shall be reformed to make such Sections enforceable in a manner which provides the Company the maximum rights permitted at law. (h) Effect of Agreement on Rights of Executive. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (i) Waiver. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. [CORPORATE SEAL] MICHAEL BAKER CORPORATION _________________________________ __________________________________ By: By: Title: Secretary Title: EXECUTIVE _________________________________ __________________________________ Witnessed James B. Richards, Jr. -16- EX-10.2.E 4 j8721401ex10-2_e.txt EMPLOYMENT CONTINUATION AGREEMENT 1 Exhibit 10.2(e) EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Michael Baker Corporation, a Pennsylvania corporation (the "Company"), and ____________________________ (the "Executive"), dated as of this _____ day of _____________, ______. W I T N E S S E T H: WHEREAS, the Company has employed the Executive in an officer position and has determined that the Executive holds an important position with the Company; WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of stockholders; WHEREAS, the Company understands that any such situation will present significant concerns for the Executive with respect to the Executive's financial and job security; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company without Cause (as defined in Section 6(c)) or by the Executive with Good Reason (as defined in Section 6(d)) after the occurrence of a Potential Change of 2 Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within one year of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 2. Definitions. (a) Change of Control. For the purposes of this Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities of the Company entitling such Person to 30% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 51% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or by the Company's Employee Stock Ownership Plan or related trust or by any corporation controlled by the Company; or (ii) Completion of a tender offer to acquire securities of the Company entitling the holders thereof to 30% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) A successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 50% or more of the members of any class of the Board shall be made by any Person other than the Company or less than 51% of the members of the Board shall be Continuing Directors; or (iv) The occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company, and as a result of which the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (i) in the case of a merger or consolidation, the surviving or resulting company, (ii) in the case of a share exchange, the acquiring company, or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring company which, immediately following the -2- 3 transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) A majority of the Board otherwise determines that a Change in Control shall have occurred. (b) Potential Change of Control. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 30% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board in its reasonable determination after a consideration of relevant facts and circumstances. (c) Board. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (d) Continuing Directors. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). 3. Employment Period. Subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Employment Period") commencing on the Effective Date and ending on the twelve month anniversary of the Effective Date. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this -3- 4 Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 12(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 35 miles from such location (or such other distance not in excess of 50 miles as shall be set forth in the Company's relocation policy as in effect immediately prior to the Effective Date). (b) Business Time. During the Employment Period, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which the Executive is serving or with which the Executive is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services to the Company. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company and any of its affiliated companies immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period and for each partial fiscal year during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the Company's goals and objectives) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date, provided that the amount of bonus which shall be awarded to the Executive during each year of the Employment Period shall be an amount not less than the average bonus earned by such Executive during the five fiscal year period of the Company ending immediately prior to the Effective Date (the "Annual Bonus -4- 5 Opportunity"), with the average bonus calculated by dividing the total bonuses paid to the Executive for such five year period by the total number of years for which any bonus was paid. Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option or stock incentive plans, at a level that is commensurate with the Executive's opportunity to participate in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. During the Employment Period, the Company will offer such plans and programs to the Executive as were in effect immediately prior to the Change of Control or, if more favorable to the Executive when measured against particular plans or programs previously offered, replacement plans or programs. (d) Benefit Plans. During the Employment Period, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled to participate in or be covered under all pension, retirement, deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. During the Employment Period, the Company will offer such plans and programs to the Executive as were in effect immediately prior to the Change of Control or, if more favorable to the Executive when measured against particular plans or programs previously offered, replacement plans or programs. All payments by the Company hereunder excepting payments for Accrued Obligations shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company shall apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are more favorable to the Executive than those in effect immediately prior to the Effective Date. -5- 6 (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, Director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Articles of Incorporation and By-laws (the "Governing Documents") and the Company shall maintain existing or comparable policies of insurance covering such matters, provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to other similarly situated officers provided that such items shall be at least equivalent to those provided for the Executive immediately prior to the Effective Date. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986 (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of nolo contendere to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure -6- 7 by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in paragraph 6(d), below) after a written demand for substantial performance is delivered to Executive by the Company, which demand specifically identifies the manner in which the Company believes that Executive has not substantially performed the required duties. (d) Good Reason. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's requiring the Executive to be based at any office or location more than 35 miles (or such other distance not in excess of 50 miles as shall be set forth in the Company's relocation policy as in effect immediately prior to the Effective Date) from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 12(b). -7- 8 In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(e). For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 10 business days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. -8- 9 (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause and Termination by the Executive for Good Reason. (i) Lump Sum Payments. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount') equal to one times the sum of (1) the Executive's annual Base Salary; and (2) the average of the bonuses payable to the Executive for the five fiscal years of the Company ending immediately prior to the Effective Date calculated by dividing the total bonuses paid to the Executive for such five year period by the total number of years for which any bonus was paid; and (C) the Accrued Obligations. The Earned Salary and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (x) the twelve month anniversary of the Date of Termination (the "End Date") and (y) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the Company's employee and executive welfare and fringe benefit plans (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's -9- 10 participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company through the End Date. (d) Limit on Payments by the Company. (i) Application of Section 7(d). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Section 7(d) shall apply to determine the amounts payable to Executive pursuant to this Agreement. (ii) Calculation of Benefits. Immediately following delivery of any Notice of Termination, the Company shall notify the Executive of the aggregate present value of all termination benefits to which the Executive would be entitled under this Agreement and any other plan, program or arrangement as of the projected Date of Termination, together with the projected maximum payments, determined as of such projected Date of Termination, that could be paid without the Executive being subject to the Excise Tax. (iii) Imposition of Payment Cap. If (A) the aggregate value of the Severance Amount, Accrued Obligations, and continuation of benefits to be paid or provided to the Executive under this Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive incurring an Excise Tax and (B) the Executive would receive a greater net-after-tax amount (taking into account all applicable taxes payable by the Executive, including any Excise Tax) by applying the limitation contained in this Section 7(d)(iii), then such amounts payable to the Executive under this Section 7 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits pursuant to the previous sentence, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that the Executive will receive in connection with the application of the Payment Cap. (iv) Application of Section 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, -10- 11 (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (v) For purposes of determining whether the Executive would receive a greater net-after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 7(d)(iii), the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year; provided, however, that the Executive may request that such determination be made based on the Executive's individual tax circumstances, which shall govern such determination so long as the Executive provides to the Accountants such information and documents as the Accountants shall reasonably request to determine such individual circumstances. (vi) If the Executive receives reduced payments and benefits, under this Section 7(d) (or this Section 7(d) is determined not to be applicable to the Executive because the Accountants conclude that Executive is not subject to any Excise Tax) and it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the aggregate "parachute payments" within the meaning of Section 280G of the Code paid to the Executive or for the Executive's benefit are in an amount that would result in the Executive's being subject to an Excise Tax, then the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to the Executive made -11- 12 on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If this Section 7(d) is not applied to reduce the Executive's entitlements under this Section 7 because the Accountants determine that the Executive would not receive a greater net-after-tax benefit by applying this Section 7(d) and it is established pursuant to a Final Determination that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the Executive would have received a greater net-after-tax benefit by subjecting the Executive's payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to the Executive or for the Executive's benefit in excess of the Payment Cap shall be deemed for all purposes a loan to the Executive made on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If the Executive receives reduced payments and benefits by reason of this Section 7(d) and it is established pursuant to a Final Determination that the Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter pay the Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. 8. Non-Exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive, stock option or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. In the event of a termination of the Executive's employment by -12- 13 the Company other than for Cause or termination of employment by the Executive for Good Reason, the Executive shall have no duty to seek any other employment after termination of employment with the Company and the Company hereby waives and agrees not to raise or use any defense based on the position that the Executive had a duty to mitigate or reduce the amounts due to the Executive hereunder by seeking other employment whether suitable or unsuitable and should the Executive obtain other employment, then the only effect of such on the obligations of the Company hereunder shall be that the Company shall be entitled to credit against any payments which would otherwise be made pursuant to Section 7(c)(ii) hereof, any comparable payments to which the Executive is entitled under the employee and executive welfare benefit plans maintained by the Executive's other employer or employers in connection with services to such employer or employers after termination of the Executive's employment with the Company. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, reasonable attorneys' fees and expenses, if the Executive is the prevailing party in such contest, as determined by the arbitrators selected pursuant to Section 13(b) hereof to resolve such contest. 11. Confidential Information; Company Property. For and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Company Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. (c) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the -13- 14 Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to pursue an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. -14- 15 (c) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (d) Entire Agreement. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. The Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has read this Agreement and that he understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: Chairman of the Board Michael Baker Corporation Airport Office Park, Building #3 420 Rouser Road Coraopolis, Pennsylvania 15108 with a copy to: Reed Smith LLP Attn: David L. DeNinno, Esq. 435 Sixth Avenue Pittsburgh, PA 15219 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) or Section 11(c) are not enforceable in accordance with its terms, the Executive and the Company agree that such -15- 16 Sections shall be reformed to make such Sections enforceable in a manner which provides the Company the maximum rights permitted at law. (h) Effect of Agreement on Rights of Executive. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (i) Waiver. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. [CORPORATE SEAL] MICHAEL BAKER CORPORATION _________________________________ __________________________________ By: By: Title: Secretary Title: EXECUTIVE _________________________________ _________________________________ Witnessed John N. Hickman -16- EX-13.1 5 j8721401ex13-1.txt ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13.1
SELECTED FINANCIAL DATA 2000 1999 1998 1997 1996 ================================================================================================================================= (In thousands, except per share information) RESULTS OF OPERATIONS Total contract revenues $ 390,710 $ 506,012 $ 521,271 $ 446,432 $ 418,388 Operating income/(loss) 10,725 (8,175) (1,667) 8,020 7,663 Net income/(loss) 5,376 (8,164) (2,419) 4,953 4,180 Diluted net income/(loss) per share $ 0.65 $ (1.00) $ (0.30) $ 0.60 $ 0.50 Return on average equity 11.3% (16.7)% (4.4)% 9.3% 8.5% ================================================================================================================================= FINANCIAL CONDITION Total assets $ 133,357 $ 149,191 $ 151,861 $ 144,425 $ 126,082 Working capital $ 29,391 $ 25,733 $ 31,855 $ 36,220 $ 27,417 Current ratio 1.37 1.31 1.36 1.41 1.36 Long-term debt $ 51 $ 14,867 $ 3,138 $ -- $ -- Shareholders' investment 50,329 44,799 52,862 55,862 50,752 Book value per outstanding share 6.09 5.48 6.47 6.79 6.19 Year-end closing share price $ 7.75 $ 6.63 $ 9.75 $ 9.75 $ 6.38 ================================================================================================================================= CASH FLOW Cash provided by/(used in) operating activities $ 12,425 $ 1,143 $ (1,379) $ 7,803 $ 1,167 Cash provided by/(used in) investing activities 2,672 (10,255) (11,416) (2,533) (3,739) Cash provided by/(used in) financing activities (9,660) 7,783 1,935 124 (1,251) - --------------------------------------------------------------------------------------------------------------------------------- Increase/(decrease) in cash $ 5,437 $ (1,329) $ (10,860) $ 5,394 $ (3,823) ================================================================================================================================= BACKLOG Total $ 501,900 $ 657,300 $ 735,300 $ 648,700 $ 543,700 ================================================================================================================================= SHARE INFORMATION Year-end shares outstanding 8,267 8,181 8,166 8,224 8,197 Average diluted shares outstanding during year 8,238 8,175 8,297 8,299 8,383 =================================================================================================================================
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following tables reflect a summary of the Company's operating results for ongoing operations and non-core businesses during the years ended December 31, 2000, 1999 and 1998 (in millions):
TOTAL CONTRACT REVENUES CHANGE/ CHANGE/ 2000 PRIOR YEAR 1999 PRIOR YEAR 1998 ======================================================================================================================== ENGINEERING $228.0 13.0% $201.7 13.1% $178.4 Percentage of total revenues 58.4% 39.9% 34.2% ENERGY 120.7 50.5% 80.2 16.9% 68.6 Percentage of total revenues 30.9% 15.8% 13.2% NON-CORE* 41.6 (81.4)% 223.3 (18.6)% 274.2 Percentage of total revenues 10.6% 44.1% 52.6% - ------------------------------------------------------------------------------------------------------------------------- CORPORATE/INSURANCE 0.4 (50.0)% 0.8 700.0% 0.1 Percentage of total revenues 0.1% -- 0.2% -- - ------------------------------------------------------------------------------------------------------------------------- Total $390.7 (22.8)% $506.0 (2.9)% $521.3 =========================================================================================================================
INCOME/(LOSS) FROM OPERATIONS CHANGE/ CHANGE/ 2000 PRIOR YEAR 1999 PRIOR YEAR 1998 ========================================================================================================================== ENGINEERING $ 11.4 67.6% $ 6.8 (6.8)% $ 7.3 Percentage of Engineering revenues 5.0% 3.4% 4.1% ENERGY 8.1 161.3% 3.1 (20.5)% 3.9 Percentage of Energy revenues 6.7% 3.9% 5.7% NON-CORE* (7.6) 58.5% (18.3) (50.0)% (12.2) Percentage of Non-Core revenues (18.3)% (8.2)% (4.4)% - -------------------------------------------------------------------------------------------------------------------------- CORPORATE/INSURANCE (1.2) (700.0)% 0.2 128.6% (0.7) Percentage of Corp/Insurance revenues (300.0)% 25.0% (700.0)% ========================================================================================================================== Total $ 10.7 230.5% $ (8.2) (382.4)% $ (1.7) ==========================================================================================================================
* Non-Core operations are defined as the construction operations that are being wound down within the Buildings and Transportation units, and the Civil-BSSI division, which was sold effective June 1, 2000. As discussed more fully in Note 2 to the financial statements, during the first quarter of 2000, BMSCI entered into a non-binding, court ordered mediation process that resulted in BMSCI agreeing to pay UCDP $2.0 million to resolve the claims between them. BMSCI remained responsible for resolution of all remaining subcontractor and vendor claims, the most significant of which was the suit brought by ADF International, Inc. ("ADF"). ADF filed this suit in Federal Court during the fourth quarter of 1998 and judgements were entered in favor of ADF during the fourth quarter of 2000 in the amount of $10.0 million. In addition to amounts previously accrued, the Company recorded a charge of $6.8 million in the fourth quarter of 2000 as a result. In January of 2001 after an in-depth analysis and recommendation by appellate counsel, the Company filed an appeal to the 11th Circuit Court of appeals. 3 During the second and third quarter of 2000, the Company received cash proceeds of $13.5 million and $0.4 million, respectively, and recorded gains totaling $2.0 million and $0.2 million, respectively, from the sale of Baker Support Services, Inc. ("BSSI"), a wholly owned subsidiary of the Company. Charges totaling $1.2 million were recorded during the second quarter of 2000 relating to lease obligations on construction equipment within the Company's Non-Core segment. An offset of $0.2 million to this amount was recorded during the third quarter when certain of the aforementioned construction equipment was sold and the lease obligations were settled. During the first quarter of 1999, the Company determined that it would no longer participate in general construction projects for buildings or transportation infrastructure. Accordingly, the Company's Buildings division was restructured, and the Company recorded related charges in the amount of $0.8 million during the first quarter of 1999. During the third and fourth quarters of 1999, the Company recorded additional charges totaling $21.1 million associated with construction projects in its Buildings and Transportation divisions. Of this amount, approximately $5.9 million relates to obligations determined during the third quarter of 1999 to certain subcontractors and vendors associated with a construction project for Universal City Development Partners ("UCDP") at the Universal Studios theme park in Orlando, FL; another $2.4 million relates to the March 2000 conditional settlement of litigation related to the UCDP project, the effects of which were recorded during the fourth quarter of 1999; and the remaining $12.8 million resulted from changes in cost estimates on several Transportation-Construction (heavy and highway) projects during the year. In connection with the Company's sale of certain assets held by its heavy and highway division, additional charges totaling $1.9 million were recorded during the fourth quarter of 1999. Other 1999 charges of $3.2 million comprised adjustments on engineering projects, the writeoff of certain intangible assets and severance costs. Due to the service oriented nature of the Company's line of business, the increase in prices for oil and gas could have an impact on costs in current or future periods to the organization as a whole. The energy segment is more vulnerable to fluctuations in these commodities and increases could adversely affect this segments cost of work performed on a much larger scale. Due to certain management and internal financial reporting changes that have taken place, the Company changed its reporting of segment information for the year 2001. The new segments, and the related discussion of operating results in this Management's Discussion and Analysis section, will reflect management's changing focus toward the ongoing Engineering and Energy operations. However, the following discussion also provides information to explain changes in total contract revenues and income from operations for the segments reported in Note 6. Total Contract Revenues Total contract revenues from the Company's ongoing operations increased 23.7% in 2000. The Engineering segment posted revenue growth of 13.0% during 2000, with the largest components originating from the Transportation-Engineering and Civil-Engineering divisions of 20.6% and 12.5%, respectively. Growth in both Transportation and Civil engineering divisions is attributable to several new contracts, volume increases on existing projects and the U.S. government's 1998 federal transportation (TEA-21) funding increases in its geographic markets. The Energy segment improved its revenues by 50.5% during the year, with the increases attributable to the Steen Production Services, Inc. ("Steen") purchase as well as increased revenue from "OPCO", Baker Energy's Operations Consolidation model. Revenues associated with Steen grew 90.8% from the reported pro forma revenue in Note 3. During the first year of implementation of the OPCO model revenues totaled 26.8% of total Energy contract revenues. The (81.4)% revenue reduction associated with the Company's non-core operations for 2000 reflects the wind-down of the Transportation-Construction division and the construction portion of the Buildings segment as well as sale of the BSSI unit in May 2000. 4 For 1999, total contract revenues from the Company's ongoing operations increased 14.1%. The Engineering segment posted revenue growth of 13.1% with the most significant 1999 fluctuations registered in the form of increases for the Transportation-Engineering and Environmental-Engineering divisions of 24.8% and 25.6%, respectively. The increase in the Transportation-Engineering division was a direct result of state transportation funding increases associated with the TEA-21 legislation while growth in the Environmental-Engineering division resulted from an increase in contracts. The Energy division increased its revenue by 16.9% in 1999 due to the addition of several new contracts to provide offshore operations and maintenance ("O&M") services, as well as revenue increases on existing contracts. The substantial decrease in the Company's Non-Core segment of (18.6)% was directly attributable to the Company's restructuring and its discontinuance of general construction services during 1999. While general construction services were discontinued during 1999, revenue from the Transportation-Construction division increased by 74.1% in 1999 due to previously executed contracts. Gross Profit As a percentage of total contract revenues, gross profit increased to 13.3% from 8.1% in 1999. Excluding Non-Core operations, the Company's gross profit from ongoing operations was 16.2% of total contract revenues for 2000, versus 16.0% of total contact revenues in 1999. The combined Engineering divisions' gross profit margin was 14.4% for 2000, down from 14.9% in 1999. This overall Engineering margin decrease is generally associated with new work on which the Company has provided services and recognized costs, but for which the contract execution is uncertain and/or the contract revenue recognition has been delayed until the related contracts and change orders have been fully executed by the clients. Satisfactory resolution of these contracts and change orders could contribute to operating margins in future periods. The Energy segment posted gross margins of 19.4% and 18.8% for 2000 and 1999, respectively. This improvement in gross margin was the direct result of improved utilization of direct labor related to OPCO. In the Non-Core operations, gross margins from the former construction divisions decreased to (34.4)% for 2000 from (6.3)% in 1999, while the BSSI division contributed 12.9% and 11.6% in 2000 and 1999, respectively. This decrease in Non-Core gross margins directly resulted from the unfavorable court decision in the ADF litigation reported in Note 2. Were it not for the ADF litigation, the gross margins would have been 3.0% and (3.7)% in 2000 and 1999, respectively. Direct labor expressed as a percentage of total contract revenues was 33%, 33% and 28% in 2000, 1999 and 1998, respectively. This is a major component of the Company's cost of work performed due to the nature of the service business.
Gross Profit without Charges discussed in Note 2 (in millions) 2000 1999 1998 ================================================================================================================= Total Company Gross Profit $52.1 $40.7 $47.2 Expressed as a percentage of total contract revenues 13.3% 8.0% 9.1% Charges 6.8 22.6 13.7 Expressed as a percentage of total contract revenues 1.7% 4.5% 2.6% - ----------------------------------------------------------------------------------------------------------------- Total Gross Profit without Charges $58.9 $63.3 $60.9 ================================================================================================================= Expressed as a percentage of total contract revenues 15.1% 12.5% 11.7% =================================================================================================================
5 As a percentage of total contract revenues, gross profit declined to 8.1% in 1999 from 9.1% in 1998. During 1999 and 1998, project charges totaling $22.6 million and $13.7 million, respectively, reduced the Company's gross profit. The 1999 project charges primarily affected the Buildings and Transportation-Construction divisions in amounts of $8.8 million and $12.8 million, respectively, while the 1998 charges were entirely recorded on construction projects in the Buildings and Transportation divisions. The gross profit percentage increased in the Civil and Buildings divisions for 1999, with decreases in the other divisions. The Company's BSSI division posted both dollar and percentage improvements in gross profit due to an overall change in its mix of projects following the completion of its then most significant contract in 1998. Excluding the previously mentioned 1999 and 1998 project charges, the Buildings division's profit percentage still would have improved for 1999 due to closer management of its construction projects as they were being completed during 1999. Despite significant revenue growth which improved the gross profit in dollars for the Transportation division's engineering segment, the Transportation division's overall results suffered due to the aforementioned 1999 construction project charges. The Energy segment's decrease in its gross profit percentage for 1999 was impacted by nonrecurring project-related difficulties during the second quarter of 1999. The Environmental division's gross profit percentage was lower for 1999 due to a change in its mix of contracts. Selling, General and Administrative Expenses Selling, general and administrative expenses expressed as a percentage of total contract revenues increased to 10.6% for 2000, from a reported 9.7% for 1999. As discussed in the paragraph below and in Note 2 to the consolidated financial statements, the Company's non-recurring charges had the effect of increasing selling, general and administrative expenses by $0.8 million and $4.4 million for 2000 and 1999, respectively. Excluding these charges, selling, general and administrative expenses expressed as a percentage of revenues would have been 10.4% and 8.8% of total contract revenues for the years 2000 and 1999, respectively. Selling, general and administrative expenses from the Company's ongoing operations decreased to 10.6% in 2000 from 12.4% in 1999. The Building, Civil and Transportation Engineering divisions each posted decreases in selling, general and administrative expenses expressed as a percentage of revenue due to a slight decrease in overhead while the Environmental division posted the only increase in 2000 due to a reduction in revenues coupled with overhead remaining relatively flat. In the Energy segment, selling, general and administrative expenses expressed as a percentage of revenues decreased due to several OPCO related contracts progressing into later stages of the OPCO model which results in an increase in revenue without a corresponding increase in overhead costs. In the non-core operations, selling, general and administrative expenses represented 10.5% and 6.2% of contract revenues in 2000 and 1999, respectively. Management believes that its non-cash charges will be lower in 2001 due to non-recurring adjustments in the amount of $1.2 million related to certain fixed assets in the Company's Engineering segment achieving a zero book value and an adjustment to goodwill related to the acquisition of GeoResearch within the Civil-Engineering division. This $1.2 million charge was offset by the reduction of a note in the amount of $0.4 million, resulting in a net charge to selling, general and administrative expenses of $0.8 million.. Non-compete covenants associated with the acquisition of OTS, within the Energy segment, in 1993 will be fully amortized by the end of the first quarter of 2001 resulting in a favorable decrease in amortization expense of $0.2 million in 2001. The Company continues to modify its incentive compensation plans and is in the process of developing a plan designed to increase the performance-based compensation component of its executive and business management employees. The impact of such a plan could increase selling, general and administrative expenses in the future. The Company also administers various voluntary and involuntary fringe benefits. The Company realizes that its employees are its greatest assets and retention of highly skilled employees is beneficial and essential to the Company's growth. 6 Expressed as a percentage of total contract revenues, selling, general and administrative expenses increased slightly to 9.7% in 1999 from 9.4% in 1998. Selling, general and administrative expenses in the Engineering segment decreased to 11.5% of contract revenues in 1999 from 12.4% in 1998. This decrease resulted from lower corporate and business unit overhead allocations. The Energy segment's selling, general and administrative expenses decreased to 14.9% of contract revenues in 1999 from 16.9% in 1998 due to a decrease in incentive compensation expense. Non-Core selling, general and administrative expenses increased to 6.2% from 5.2% of total contract revenues in 1999 and 1998, respectively. The main driver of this increase was the previously mentioned non-recurring charges. Other Income and Expense Interest income increased to $413,000 in 2000 from $155,000 in 1999, due to the Company's investment of excess cash from the sale of BSSI and paying off its revolving credit debt due to its bank in early June. Interest expense decreased to $866,000 in 2000 from $948,000 in 1999. The slight decrease in interest expense was attributable to the Company's payoff of the aforementioned revolving credit line which was partially offset by the full year effect of interest on seller financed notes related to the purchase of Steen during the third quarter of 1999. Other income was $700,000 in 2000, compared to other expenses of $273,000 for 1999. The primary composition of the 2000 amount includes a $2.2 million gain on the sale of BSSI, as offset by the charges totaling $1.2 million related to leased construction equipment and a $0.2 million gain associated with the sale of certain leased construction equipment to A&L. Interest income decreased in 1999 from $439,000 in 1998, due to a combination of the Company being in a net borrowed position throughout the majority of 1999 and slightly lower interest rates in 1999. Despite the lower interest rates in 1999, interest expense increased to $948,000 in 1999 from $145,000 in 1998 due to higher borrowings under the Company's credit agreement with its bank, some of which borrowings were used for the purchase of Steen during the third quarter of 1999. Additional 1999 interest expense also resulted from seller financed notes due to the former shareholders of Steen and higher 1999 interest expense associated with certain heavy and highway construction equipment that was financed during the second half of 1998. Other expense was $273,000 in 1999 versus other income of $42,000 in 1998, primarily due to lower 1999 profitability associated with unconsolidated joint ventures and higher 1999 expense associated with a minority interest in the income of a consolidated Energy segment joint venture. Income Taxes The Company's 2000 provision for income taxes resulted in an effective tax rate of 51% in 2000, compared to a benefit from income taxes that resulted in an effective tax benefit rate of 12% in 1999 and a provision for income taxes that resulted in an effective tax rate of (82)% in 1998. The difference between these percentages and the 34% statutory U.S. federal rate is attributable primarily to state and foreign income taxes and foreign withholding taxes. The income tax provision for 2000 and minimal income tax benefit for 1999 result from the effects of certain foreign and state taxes that cannot be offset against tax benefits derived from other jurisdictions during the current reporting periods. The change in the effective tax rate in 2000 also resulted from the Company's current inabilities to realize a tax benefit from foreign tax credits that resulted from cash repatriation from offshore earnings and the impact of lower domestic earnings that resulted from the court decision in the ADF litigation. CONTRACT BACKLOG Backlog consisted of that portion of uncompleted work that is represented by signed or executed contracts. Certain of the Company's contracts with the Federal Government and other clients may be terminated at will, therefore no assurance can be given that all backlog will be realized. The Company's backlog at December 31, 2000 and 1999 was $502 million and $657 million, respectively. The overall 2000 decrease is directly attributable to the previously discussed wind-down of the Company's two construction divisions and sale of the BSSI division. Backlog attributable 7 to the Company's ongoing operations was $502 million and $417 million, as of the year-ended 2000 and 1999, respectively. The most significant 2000 increases in backlog were registered in the Company's Transportation-Engineering division and the Energy segment of 27% and 79%, respectively. These increases were the direct result of the aforementioned increase in TEA-21 funding in the Transportation-Engineering division and an increase in the number of contracts in the Energy segment related to the Company's OPCO model. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased to $12.4 million in 2000, compared to net cash provided by operating activities of $1.1 million in 1999 and net cash used in operating activities of $1.4 million in 1998. The 2000 cash improvement resulted from higher net income from continuing operations while the 1999 cash improvement resulted primarily from net reductions in receivables and other contract-related assets associated with the wind-down of the Company's construction operations. The decrease for 1998 was primarily related to the Company's 1998 net loss. Net cash provided by investing activities increased to $2.7 million in 2000, compared to net cash used in investing activities of $10.3 million in 1999 and $11.4 million in 1998. The 2000 cash improvement resulted primarily from the proceeds received from the sale of BSSI of $13.9 million partially offset by the purchase of short-term investments of $9.0 million. The 1999 and 1998 amounts include $4.9 million and $0.8 million, respectively, that was paid relative to the acquisition of new subsidiaries (as discussed in Note 3 to the consolidated financial statements). The Company's capital expenditures included computer equipment and software purchases totaling $1.8 million in 2000, compared with $2.8 million in 1999 and $3.9 million in 1998. An additional $3.5 million of the overall 1999 decrease and the 1998 increase is attributable to the purchase of heavy and highway construction equipment needed for new projects added during 1998. Net cash used in financing activities was $9.7 million in 2000, compared to net cash provided by financing activities of $7.8 million in 1999 and $1.9 million in 1998. The 2000 cash decrease was the result of the Company paying off its revolving credit debt due to its bank. Of the Company's 1999 proceeds from long-term debt, $10.1 million represents borrowings against its credit agreement with its bank, while the 1998 proceeds related entirely to the aforementioned purchase of heavy and highway construction equipment. The 1999 and 1998 repayments of long-term debt correlate to both the financed construction equipment and the acquisitions of new subsidiaries. In 1998, the Company also paid $0.8 million to acquire 96,379 treasury shares under a stock repurchase program. Working capital increased to $29.4 million at December 31, 2000 from $25.7 million at December 31, 1999. The Company's current ratio was 1.37:1 and 1.31:1 at the end of 2000 and 1999, respectively. Both the working capital and current ratio at year-end 2000 and 1999 were primarily impacted by the effects of the construction-related charges discussed in Note 2 to the consolidated financial statements. During the first quarter of 2001, the Company appealed the ADF judgement resulting in a reclassification of $13.1 million of cash and other accrued expenses to long-term assets and liabilities. In 2000, the Company amended and restated its secured credit agreement with its bank, which expires on May 31, 2001. The amended agreement reduces the committed facility from $25 million to $20 million. For the period June 1 thru December 31, 2000 no borrowings were outstanding. Letters of credit totaling $2.6 million had been issued under the Agreement. Borrowings under the agreement are currently secured by the receivables of the Company and most of its subsidiaries. As of December 31, 1999, borrowings totaling $10.1 million were outstanding under the agreement, along with outstanding letters of credit totaling $2.3 million. The Company expects to expand its existing credit facility to support any strategic opportunities that management identifies. The Company's strategy is to better position itself for growth in the areas of Engineering and Energy 8 through acquisitions that complement the Company's experience and skill. The Company views acquisitions as an important component of its growth strategy and intends to use both cash and the credit facility to fund such acquisitions. Short and long-term liquidity is further dependent upon appropriations of public funds for infrastructure and other government-funded projects, capital spending levels in the private sector, and the demand for the Company's services in the oil and gas markets. Additional external factors such as price fluctuations in the energy industry could affect the Company. The current TEA-21 legislation will provide significant increases in funding for transportation infrastructure projects in 2001 and beyond. At this time, management believes that its funds generated from operations and its existing credit facility will be sufficient to meet its operating and capital expenditure requirements for at least the next year. As a result of its 1999 restructuring, the Company will become increasingly less reliant on its bonding line during 2001. Management believes that its bonding line will be sufficient to meet its bid and performance needs for at least the next year. The Company has historically been required to provide bid and performance bonding on certain construction contracts, and has a $500 million bonding line available through Travelers Casualty & Surety Company of America. As discussed more fully in Note 2 to the consolidated financial statements, on December 28, 2000, judgements were entered in favor of ADF International, Inc. against BMSCI and Travelers Casualty and Surety Company of America, jointly and severally , in the amount of $10.0 million. On February 1, 2001, the Company placed $11.3 million in escrow at First Union Bank in Charlotte, N.C. pending the appeal. The amount placed in escrow included $1.3 million that was reserved for legal fees that the Company estimates as probable. During 1996 the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's common stock in the open market. During 1998 and 1996 the Company repurchased 96,000 and 207,000 shares, respectively. The Company did not repurchase shares under this authorization during the years 2000 and 1999. As of December 31, 2000, 197,000 shares remain available for repurchase. During 2000, the Company renewed its lease on a major facility and expects in 2001 to enter into another lease of a 7 to 10 year duration. The Company's lease of office space located in Coraopolis, Pennsylvania terminates on June 30, 2002. Proposals of several office space leases are currently being evaluated which would increase the amount of future annual minimum lease payments. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by Statements 137 and 138 in June 1999 and June 2000, respectively. These statements, which were required to be adopted for fiscal years beginning after June 15, 2000, require the Company to recognize all derivatives on the balance sheet at fair value. The statements also establish new accounting rules for hedging instruments which, depending on the nature of the hedge, require that changes in the fair value of derivatives either be offset against the change in fair value of assets, liabilities or firm commitments through earnings, or be recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value must be immediately recognized in earnings. The Company is not involved in any derivative or hedging activities and currently has no plans to enter into any of these types of transactions. The Company will apply the Statement's accounting and disclosure requirements when and if it decides to enter into these types of transactions (see Note 4). 9 MICHAEL BAKER CORPORATION CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 =============================================================================================================================== (In thousands, except per share amounts) Total contract revenues $390,710 $506,012 $521,271 Cost of work performed 338,629 465,273 474,027 - ------------------------------------------------------------------------------------------------------------------------------- Gross profit 52,081 40,739 47,244 Selling, general and administrative expenses 41,356 48,914 48,911 - ------------------------------------------------------------------------------------------------------------------------------- Income/(loss) from operations 10,725 (8,175) (1,667) Other income/(expense): Interest income 413 155 439 Interest expense (866) (948) (145) Other, net 700 (273) 42 - ------------------------------------------------------------------------------------------------------------------------------- Income/(loss) before income taxes 10,972 (9,241) (1,331) Provision for/(benefit from) income taxes 5,596 (1,077) 1,088 - ------------------------------------------------------------------------------------------------------------------------------- Net income/(loss) $ 5,376 $ (8,164) $ (2,419) =============================================================================================================================== Basic and diluted net income/(loss) per share $ 0.65 $ (1.00) $ (0.30) ===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 10 MICHAEL BAKER CORPORATION CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, ASSETS 2000 1999 =============================================================================================================================== CURRENT ASSETS (In thousands) Cash and cash equivalents $ 9,122 $ 3,685 Short-term investments 8,999 -- Receivables 68,042 77,374 Cost of contracts in progress and estimated earnings, less billings 16,105 20,803 Prepaid expenses and other 7,335 7,363 - ------------------------------------------------------------------------------------------------------------------------------- Total current assets 109,603 109,225 - ------------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, NET 10,058 17,120 - ------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill and other intangible assets, net 10,846 14,563 Other assets 2,850 8,283 - ------------------------------------------------------------------------------------------------------------------------------- Total other assets 13,696 22,846 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $133,357 $149,191 =============================================================================================================================== LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES Current portion of long-term debt $ 2,244 $ 3,526 Accounts payable 25,670 28,862 Accrued employee compensation 9,697 10,462 Accrued insurance 5,321 7,884 Accrued litigation reserve 11,334 4,500 Income taxes payable 4,443 1,269 Other accrued expenses 20,348 19,422 Excess of billings on contracts in progress over cost and estimated earnings 1,155 7,567 - ------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 80,212 83,492 - ------------------------------------------------------------------------------------------------------------------------------- OTHER LIABILITIES Long-term debt 51 14,867 Other 2,765 6,033 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 83,028 104,392 - ------------------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' INVESTMENT Common Stock, par value $1, authorized 44,000,000 shares, issued 7,265,149 and 7,170,663 shares, in 2000 and 1999, respectively 7,265 7,171 Series B Common Stock, par value $1, authorized 6,000,000 shares, issued 1,304,927 and 1,313,816 shares, in 2000 and 1999, respectively 1,305 1,314 Additional paid-in-capital 37,488 37,084 Retained earnings 6,659 1,283 Other comprehensive loss (335) -- Less 302,989 shares of Common Stock in treasury, at cost, in 2000 and 1999, respectively (2,053) (2,053) Total shareholders' investment 50,329 44,799 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $133,357 $149,191 ===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 11 MICHAEL BAKER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 =============================================================================================================================== (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income/(loss) $ 5,376 $ (8,164) $ (2,419) Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Depreciation and amortization 7,068 7,408 5,049 Deferred income taxes (3,207) (3,117) (695) Gain on sale of BSSI (2,157) -- -- Changes in assets and liabilities, net of acquisitions: (Increase)/decrease in receivables and contracts in progress 5,357 12,306 (4,841) Increase/(decrease) in accounts payable and accrued expenses 3,263 (19,035) 9,590 (Decrease)/increase in advance billings (5,237) 5,233 (3,809) Decrease/(increase) in other net assets 1,962 6,512 (4,254) - ------------------------------------------------------------------------------------------------------------------------------- Total adjustments 7,049 9,307 1,040 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by/(used in) operating activities 12,425 1,143 (1,379) - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (2,944) (5,337) (10,573) Purchase of short-term investments (8,999) Acquisition of Steen Production Services, Inc. -- (4,918) -- Acquisition of GeoResearch, Inc. -- -- (843) Proceeds from the sale of certain construction assets 748 -- -- Proceeds from the sale of BSSI 13,867 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by/(used in) investing activities 2,672 (10,255) (11,416) - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt -- 10,167 3,516 Repayments of long-term debt (10,127) (2,454) (964) Proceeds from exercise of stock options 467 70 183 Payments to acquire treasury stock -- -- (800) - ------------------------------------------------------------------------------------------------------------------------------- Net cash (used in)/provided by financing activities (9,660) 7,783 1,935 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents 5,437 (1,329) (10,860) Cash and cash equivalents, beginning of year 3,685 5,014 15,874 - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 9,122 $ 3,685 $ 5,014 =============================================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA Interest paid $ 985 $ 669 $ 165 Income taxes paid $ 2,127 $ 387 $ 2,588 ===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 12 MICHAEL BAKER CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
SERIES B COMMON COMMON OTHER TREASURY ADDITIONAL STOCK STOCK COMPREHENSIVE -------------------- PAID-IN RETAINED PAR VALUE $1 PAR VALUE $1 LOSS SHARES AMOUNT CAPITAL EARNINGS ============================================================================================================================== (In thousands) BALANCE, DECEMBER 31, 1996 $7,056 $1,349 $ -- 208 $1,260 $36,694 $ 6,913 Net income -- -- -- -- -- 4,953 Series B Common Stock conversions to Common Stock 6 (6) -- -- -- -- -- Restricted stock issued 3 -- -- -- -- 21 -- Issuance of Treasury stock -- -- -- (1) (4) 2 -- Stock options exercised 22 -- -- -- -- 102 -- Other -- -- -- -- -- 3 -- - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 7,087 1,343 -- 207 1,256 36,822 11,866 Net loss -- -- -- -- -- -- (2,419) Series B Common Stock conversions to Common Stock 24 (24) -- -- -- -- -- Restricted stock issued 4 -- -- -- -- 32 -- Treasury stock purchases -- -- -- 96 800 -- -- Stock options exercised 35 -- -- -- -- 148 -- - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1998 7,150 1,319 -- 303 2,056 37,002 9,447 Net loss -- -- -- -- -- -- (8,164) Series B Common Stock conversions to Common Stock 5 (5) -- -- -- -- -- Restricted stock issued 4 -- -- -- -- 24 -- Issuance of Treasury stock -- -- -- -- (3) -- -- Stock options exercised 12 -- -- -- -- 58 -- - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1999 7,171 1,314 -- 303 2,053 37,084 1,283 Net income -- -- -- -- -- -- 5,376 Series B Common Stock conversions to Common Stock 9 (9) -- -- -- -- -- Restricted stock issued 4 -- -- -- -- 18 -- Other Comprehensive Loss: Currency translation adj -- -- (335) -- -- -- -- Stock options exercised 81 -- -- -- -- 386 -- - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 2000 $7,265 $1,305 $(335) 303 $2,053 $37,488 $ 6,659 ==============================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Michael Baker Corporation and its subsidiaries (the "Company"), and joint ventures over which it exercises control. All intercompany accounts and transactions have been eliminated in consolidation. Accounting for Contracts Total contract revenues have been recorded on the percentage-of-completion method of accounting for the majority of engineering and construction contracts in the Engineering segment. Contract revenues attributable to claims are recognized when signed and approved by the customer. Contract revenues relating to change orders are recognized when realization is probable and the amounts are estimable. Earnings on fixed-price contracts are determined by multiplying the total estimated gross profit for the contracts by the percentage of physical completion to date (which approximates costs incurred to date in relation to total estimated costs), less earnings recognized in prior periods. Earnings under cost reimbursement contracts are principally recorded as costs are incurred. In the event that legal costs are expected to be incurred in connection with defending the Company's position related to claims or litigation on projects, such costs are accrued at the time they are probable of being incurred and reasonably estimable. As work is performed under long-term contracts, estimates of the costs are reviewed and, when necessary, revised on a current basis. Contract costs include costs of subcontracts, direct labor, supplies and overhead. Estimated losses on contracts in progress are recorded as they are identified. Total contract revenues for the operations and maintenance contracts within the Civil division and Energy segment are primarily recognized as related services are provided. The Civil division's government contracts are typically binding on the Company for a multi-year period and are renewable at the option of the respective government agency. Modifications to contract terms that result in retroactive adjustments to contract revenues are recognized when realization is probable. Accounting for Joint Ventures The Company's proportionate share of majority-owned, project-specific joint venture revenue and cost of contracts is included in the accompanying Consolidated Statements of Income. In the accompanying Consolidated Balance Sheets, the Company records its interest in all majority-owned, project-specific joint ventures based on the equity method of accounting for investments. Depending on whether the related projects are expected to be completed within one year, the Company's investment in these joint ventures is included within either prepaid expenses and other current assets or other non-current assets in the accompanying Consolidated Balance Sheets. All businesses accounted for on a proportionate share basis in the income statement were part of BSSI, which was sold in 2000. All 50% or less interests in ventures are recorded on the equity method in the accompanying Balance Sheets and Consolidated Statements of Income. Fair Value of Financial Instruments The fair value of financial instruments classified as current assets and liabilities approximates carrying value due to the short-term nature of the instruments. Substantially all long-term debt is based on rates that float with the current prime rate; accordingly, the carrying value of these obligations approximates their fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those which result from using the 14 estimates. The use of estimates is an integral part of applying the percentage-of-completion method of accounting for contracts. Cash and Cash Equivalents and Short-Term Investments Cash and cash equivalents include cash on hand or deposit. The company's short-term investments are comprised of money market mutual funds with remaining maturities of less than 90 days at the time of purchase. Any outstanding checks which create book overdrafts within banking institutions are reclassified as accounts payable; such amounts totaled $1,106,000 and $3,920,000 at December 31, 2000 and 1999, respectively. Depreciation and Amortization Depreciation on property, plant and equipment is recorded using straight-line and accelerated methods over the estimated useful lives of the assets. The estimated useful lives range from 5 to 40 years on buildings and improvements and from 3 to 10 years on equipment and vehicles. Amortization of intangible assets is provided primarily on a straight-line basis over the estimated useful lives of the assets, which range from 1 to 19 years. Upon disposal of property, the asset and related accumulated depreciation accounts are relieved of the amounts recorded therein for such items and any resulting gain or loss is reflected in income. Goodwill Goodwill, which represents the excess of cost over net assets of acquired companies, is being amortized on a straight-line basis over periods ranging from 5 to 20 years. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment, and uses estimates of future undiscounted net cash flows over the remaining lives in measuring whether goodwill is recoverable. Earnings Per Common Share The following table summarizes basic and diluted shares outstanding at December 31, 2000, 1999 and 1998. The additional shares included in diluted shares outstanding are entirely attributable to stock options. Outstanding Shares 2000 1999 1998 ============================================================================ Basic 8,209,395 8,175,090 8,178,067 Diluted 8,237,791 8,175,090 8,178,067 ============================================================================ Reclassifications Certain reclassifications have been made to prior years balances in order to conform to the current year presentation. 2. CONSTRUCTION, RESTRUCTURING AND OTHER CHARGES During 1998, 1999 and 2000 the Company recorded losses related to the CityWalk construction project being performed by Baker Mellon Stuart Construction, Inc. ("BMSCI"), a wholly-owned subsidiary of the Company, for Universal City Development Partners ("UCDP") at the Universal Studios theme park in Orlando, Florida. This project involved the construction of a new entrance to the park, which comprises a shopping area, restaurants and a large cineplex, and represented BMSCI's largest active construction contract during 1998. Under this contract, BMSCI acted as the construction manager and self-performed a portion of the work. 15 Following its inception in May 1997, the project suffered delays and performance issues arose. On March 5, 1999, BMSCI was terminated by UCDP from this project, which was over 90% complete. UCDP alleged contract breaches related to the quality of work, contract administration and delays in project completion, and sought damages, including consequential damages related to project delays. Both parties filed lawsuits in this matter during the first quarter of 1999. Certain subcontractors also sued BMSCI and its surety, seeking reimbursement for costs incurred and related damages. The UCDP project losses recorded by the Company in the fourth quarter of 1998 totaled $10.9 million, and reflected costs incurred in excess of amounts provided for in the contract, estimated legal costs to defend the Company's position, the reversal of the cumulative gross profit totaling $1.1 million recorded through the third quarter of 1998, and certain other costs related to the termination. A non-binding, court-ordered mediation process before a mediator mutually agreed by both parties commenced in January 2000. On March 22, 2000, mediation of this matter resulted in a conditional settlement agreement being entered into by the Company; BMSCI; Travelers Casualty and Surety Company of America ("Travelers"), which provided performance and payment bonds on behalf of BMSCI; UCDP; Hellmuth, Obata & Kassabaum, Inc.("HOK"); which designed the project; and the court-appointed mediator. Pursuant to the terms of the settlement agreement, the parties resolved the claims between them, and BMSCI agreed to pay UCDP $2.0 million. On May 1, 2000, the Company and UCDP settled their claims. This final settlement preserves the Company's rights against HOK, the project policy insurer; and HOK's other insurers. The Company also remains responsible for all subcontractor and vendor claims arising from the project. The most material of claims involved a suit brought by ADF International, Inc. ("ADF"), BMSCI's subcontractor for structural steel and miscellaneous metals, against BMSCI and Travelers. On November 24, 1998, ADF filed suit in Federal Court against BMSCI and Travelers seeking damages for alleged breaches of contract relating to the project. BMSCI and its surety answered the complaint (and amended complaint) and BMSCI filed a counterclaim. In connection with the conditional settlement agreement, and the estimated amounts that were required to be settled with subcontractors and vendors, the Company recorded additional charges totaling $2.4 million during the fourth quarter of 1999. On December 28, 2000, judgements were entered in favor of ADF International Inc. against BMSCI and Travelers, jointly and severally, in the amount of $10.0 million. It was also further ordered and adjudged that BMSCI shall take nothing by its counterclaim or Third Party Claims. BMSCI recorded charges during the fourth quarter of $5.5 million related to the Judgements and $1.3 million in attorney's fees which are yet to be determined by the court. The Company believes that it has made an adequate provision for the attorney's fees. In January 2001, after an in-depth analysis and recommendation by appellate counsel, the Company filed an appeal to the 11th Circuit Court of appeals. The Company had previously recorded charges of $4.5 million during the fourth quarter of 1999. In connection with the UCDP litigation, the Company determined during the first quarter of 1999 that it would no longer participate in general construction projects for buildings or transportation infrastructure. Accordingly, the Company's Buildings unit was restructured, and the Company recorded related charges totaling $0.8 million during the first quarter of 1999. Such charges reflected severance costs associated with employee terminations, writedowns related to fixed asset impairments, and lease costs for certain office space permanently idled by the restructuring. Certain assets held by the Company's Transportation-Construction (heavy and highway) division, including substantially all fixed assets and the remaining contractual rights and obligations associated with eight active construction projects, were sold to A&L, Inc. ("A&L") in March 2000 in exchange for cash proceeds of $0.7 million and A&L's assumption of certain debt and lease obligations. In contemplation of this sale, charges totaling $1.9 16 million were recorded during the fourth quarter of 1999. Such charges primarily reflect write-downs related to fixed asset impairments, equipment lease termination costs, and lease costs for certain office space permanently idled by the restructuring. In 2000, the Company recorded the effects of settling lease obligations associated with certain heavy & highway construction equipment that was no longer being fully utilized. The Company recorded a charge totaling $1.2 million to the "other, net" caption in the accompanying Condensed Consolidated Statements of Income and other income of $0.2 million from the sale of the equipment and settlement of the outstanding lease obligations. All heavy & highway construction projects were substantially completed at December 31, 2000. The components of this 1999 restructuring charge by segment were as follows:
Buildings - 1999 2000 Construction: DEC. 31 ------------------------ DEC. 31 ------------------------ DEC. 31 1998 CHARGED SETTLED 1999 CHARGED SETTLED 2000 ================================================================================================================================= Severance Costs $ - $ 126,000 $ (126,000) $ -- $ -- $ -- $ -- Write-down of fixed - 253,000 (231,000) 22,000 -- (22,000) -- assets Lease termination - 360,000 (210,000) 150,000 -- (150,000) -- costs - --------------------------------------------------------------------------------------------------------------------------------- Total - $ 739,000 $ (567,000) $172,000 $ -- $(172,000) -- ================================================================================================================================= Transportation - 1999 2000 Construction: DEC. 31 ------------------------ DEC. 31 ------------------------ DEC. 31 1998 CHARGED SETTLED 1999 CHARGED SETTLED 2000 ================================================================================================================================= Write-down of fixed $-- $1,086,000 $(1,086,000) $ -- $ -- $ -- $ -- assets Lease termination -- 571,000 -- 571,000 -- (389,000) 182,000 costs Other -- 235,000 -- 235,000 -- (160,000) 75,000 - --------------------------------------------------------------------------------------------------------------------------------- Total $-- $1,892,000 $(1,086,000) $806,000 $ -- $(549,000) $257,000 =================================================================================================================================
Effective June 1, 2000 the Company completed the sale of its wholly-owned subsidiary, Baker Support Services, Inc. (BSSI"), to SKE International LLC ("SKE"). BSSI primarily provided operations and maintenance services on U.S. military bases worldwide, and represented a separate segment of the Company's Civil business unit. In exchange for 100% of the common stock of BSSI, the Company received cash proceeds of $13.5 million, an another $0.5 million was placed in escrow by SKE pending resolution of a post-closing purchase price adjustment. Management's discussions with SKE during the third quarter of 2000 resulted in an additional payment approximately $0.4 million of the $0.5 million escrowed by SKE. In connection with this sale, BSSI's results of operations for the five months ended May 31, 2000 were included in the accompanying Condensed Consolidated Statements of Income for the year. In addition, the Company recorded 17 a gain totaling $2.2 million associated with this sale. This gain was included within the "Other, net" caption in the aforementioned Statements of Income. During 1999, additional charges totaling $12.8 million were recorded in the Company's Transportation-Construction division due to changes in estimates on several heavy and highway construction projects. Other 1999 charges totaling $3.2 million comprised the writeoff of certain goodwill and other intangible assets associated with the Company's 1998 acquisition of GeoResearch, Inc., severance costs related to the departure of certain former officers and employees, and adjustments on Engineering projects in the Buildings, Civil and Transportation divisions. 3. ACQUISITION On September 1, 1999, the Energy segment purchased all of the outstanding shares of capital stock of Steen Production Service, Inc. ("Steen"). The purchase price for the shares of Steen was $10.8 million, including interest bearing promissory notes totaling $4.4 million; and certain non-competition covenants valued at $2.0 million. The first of two payments on the interest bearing promissory notes was made in September 2000 in the amount of $3.0 million which included interest of $0.8 million. The last principal payment of $2.2 million will be paid in September 2001 and will accrue interest at the prime rate as announced by the Company's bank. This acquisition has been accounted for by the purchase method of accounting and the excess of the fair value of the net assets acquired over the purchase price in the amount of $7.2 million has been allocated to goodwill and is being amortized over 20 years. The operating results of Steen are included in the Company's results of operations from the date of purchase. Assuming that Steen had been acquired on January 1, 1999 and 1998, the unaudited pro forma operating results of the Company for the year ended December 31, 1999 and 1998 would have approximated the following (in millions): 1999 1998 ======================================================================== Total Contract Revenues $ 517 $ 538 Net loss $ (8.9) $ (3.3) Basic and diluted net loss per share $(1.09) $(0.41) ======================================================================== Effective October 1, 1998, the Company acquired all of the outstanding shares of capital stock of GeoResearch from its shareholder in a transaction accounted for as a purchase. While this transaction is not considered material for purposes of detailed disclosure, the Company recorded goodwill and other intangible assets totaling $1.9 million during the fourth quarter of 1998. During the third quarter of 1999, the Company determined that the value of the goodwill and other intangible assets were impaired and wrote off $825,000. The Company during the first quarter of 2000 wrote off an additional $375,000 of the unamortized balance due to the impairment of goodwill. 4. RECENT PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") which summarizes the SEC's interpretation of revenue recognition. The Company expects SAB 101 will not have any impact because it currently records revenue in accordance with Statement of Accounting Position 81-1, "Accounting for Performance of Construction-Type and Certain Production -Type Contracts," which is exempt from SAB 101 interpretations. 18 In June 1998 and June 2000, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments...an Amendment of FAS 133," respectively, which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires the Company to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption, the Company will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. The Company will adopt SFAS No. 133 and 138 in fiscal 2001. The adoption of SFAS No. 133 and 138 will not have a material effect on the Company's results of operations or financial position. 5. CONTRACTS The total cost of contracts in progress (used to determine cost of work performed) plus accumulated gross profit recorded was $804,328,000 and $910,838,000 at December 31, 2000 and 1999, respectively. Billings to date on contracts in progress at December 31, 2000 and 1999 were $789,378,000 and $903,590,000, respectively. Trade accounts receivable totaling $7,009,000 and $10,012,000 at December 31, 2000 and 1999, respectively, relate to retainage provisions under long-term contracts which will be due upon completion of the contracts. Based on management's estimates, substantially all of the retention balance at December 31, 2000 is expected to be collected in 2001. As of December 31, 2000 and 1999, accounts payable included amounts due to subcontractors of $287,000 and $2,087,000, respectively, which have been retained under contractual terms pending the completion and acceptance of the work performed by the subcontractors. Certain subsidiaries of the Company participate in joint ventures that are typically formed to accomplish specific projects and then dissolved upon completion of the projects. The number of joint ventures in which the Company participates and the size, scope and duration of the projects varies between periods. As a result of the Company exiting the construction businesses and BSSI the amount of joint venture activity has diminished and is immaterial to the financial statements during the year ended December 31, 2000. Summarized financial information for the joint ventures in the years 1999 and 1998 were as follows (in millions):
50% OR LESS EQUITY INVESTEES GREATER THAN 50% EQUITY INVESTEES FOR THE YEARS ENDED DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ --------------------------------- 1999 1998 1999 1998 ================================================================================================================== Total contract revenues $13.4 $8.2 $16.0 $12.2 Gross profit 0.8 1.4 2.4 0.7 Income from operations - 0.7 2.3 0.7 Net (loss)/income $(0.1) $0.5 $ 2.4 $ 0.7 ==================================================================================================================
As described in Note 1, the results of the operations for project-specific joint ventures in which the Company owns greater than a 50% interest are included in the Company's results of operations on a proportionate share basis. The portion of investee results of operations shown above and included in the Company's consolidated results of operations are as follows (in millions): 19 GREATER THAN 50% EQUITY INVESTEES FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 ========================================================================= Total contract revenues $9.1 $6.8 Gross profit 1.4 0.3 Income from operations 1.3 0.3 Net income $1.4 $0.4 ========================================================================= The Company's equity investment in these joint ventures was $4,699,000 and $2,028,000 at December 31, 1999 and 1998, respectively. Summarized balance sheet information for the Company's joint ventures is as follows (in millions): 50% OR LESS GREATER THAN 50% EQUITY INVESTEES EQUITY INVESTEES AS OF DECEMBER 31, AS OF DECEMBER 31, ------------------ ------------------ 1999 1998 1999 1998 ============================================================================ Current assets $7.3 $3.1 $7.3 $4.6 Noncurrent assets 4.7 0.1 0.8 -- Current liabilities 5.1 2.1 2.0 2.9 Noncurrent liabilities $2.0 $ -- $1.1 $ -- ============================================================================ Consistent with industry practice, within each of the Company's operating units, credit is granted to customers for the payment of services rendered. Although the Company has a diversified client base, a substantial portion of its receivables and net underbillings reflected in the accompanying Consolidated Balance Sheets is dependent upon U.S. federal and state government appropriations. Internationally, the Company conducts business in certain countries where the local political environment subjects the Company's related trade receivables, due from subsidiaries of major oil companies, to unique collection delays. Based upon past experience with these clients, management believes that these receivables will be fully collectible. 6. BUSINESS SEGMENT INFORMATION The Company changed the way it reports its business segment information for the year 2001. The company previously had five operating business units. The Buildings, Energy and Environmental divisions each represented separate reportable segments, while the Transportation and Civil divisions each comprised two reportable segments. Accordingly, the Company will have the following three reportable segments: o The Engineering segment has historically provided a variety of services including design-build, construction management, consulting, planning, program management, surveying, mapping, geographic information systems, architectural and interior design, construction inspection, constructability reviews and software development capabilities within the Civil, Transportation, Building and Environmental services. o The Energy segment offers services that include turbine overhauls, mechanical services including major equipment outages, operations and maintenance, in-shop and onsite mechanical reconditioning and training services for energy producers. o The Non-Core segment consists of the Building and Transportation construction units that are currently in the process of being wound down (see Note 2). All activity within this segment is expected to cease in 2001. 20 The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). The Company evaluates the performance of its segments primarily based on income before income taxes. The following tables reflect the required disclosures for the Company's reportable segments under future segment reporting and prior segment reporting for 2000 (in millions):
2000 FUTURE SEGMENT REPORTING REPORTING ENGINEERING ENERGY CORPORATE NON-CORE ====================================================================================================== Total contract revenues: Buildings $ 22.5 $ 20.9 -- -- $ 1.6 Civil: Engineering 76.6 76.6 -- -- - BSSI 23.4 -- -- -- 23.4 Energy 120.7 -- 120.7 -- - Environmental 21.7 21.7 -- -- - Transportation: Engineering 108.8 108.8 -- -- - Construction 16.6 -- -- -- 16.6 - ------------------------------------------------------------------------------------------------------ Subtotal - segments 390.3 228.0 120.7 -- 41.6 Corporate 0.4 -- -- 0.4 - - ------------------------------------------------------------------------------------------------------ Total $390.7 $228.0 120.7 0.4 $41.6 ======================================================================================================
OPERATING INCOME/(LOSS) FROM OPERATIONS WITHOUT CORPORATE OVERHEAD ALLOCATED:
2000 FUTURE SEGMENT REPORTING REPORTING ENGINEERING ENERGY CORPORATE NON-CORE ======================================================================================================= Operating income/(loss): Buildings $ (3.2) $ 4.4 $ -- $ -- $ (7.6) Civil: Engineering 3.4 3.4 -- -- -- BSSI 1.4 -- -- -- 1.4 Energy 9.7 -- 9.7 -- -- Environmental 0.4 0.4 -- -- -- Transportation: Engineering 7.7 7.7 -- -- -- Construction (0.7) -- -- -- (0.7) - ------------------------------------------------------------------------------------------------------- Subtotal - segments 18.7 15.9 9.7 -- (6.9) Corporate/Insurance (8.0) -- -- (8.0) -- - ------------------------------------------------------------------------------------------------------- Total $ 10.7 $15.9 $9.7 $(8.0) $ (6.9) =======================================================================================================
21 2000 1999 1998 ============================================================================== Total Contract Revenues: Buildings $ 22.5 $ 53.8 $151.5 Civil: Engineering 76.6 68.1 69.1 BSSI 23.4 53.5 61.8 Energy 120.7 80.2 68.6 Environmental 21.7 28.5 22.7 Transportation: Engineering 108.8 90.2 72.3 Construction 16.6 130.9 75.2 - ------------------------------------------------------------------------------ Subtotal - segments 390.3 505.2 521.2 Corporate/Insurance 0.4 0.8 0.1 - ------------------------------------------------------------------------------ Total $390.7 $506.0 $521.3 ============================================================================== 2000 1999 1998 ============================================================================== Operating income/(loss): Buildings $ (3.7) $ (7.2) $(14.2) Civil: Engineering 1.8 1.2 3.4 BSSI 1.2 2.1 0.5 Energy 8.1 3.1 3.9 Environmental 0.0 1.0 0.9 Transportation: Engineering 5.6 4.6 3.3 Construction (1.1) (13.2) 1.2 - ------------------------------------------------------------------------------ Subtotal - segments 11.9 (8.4) (1.0) Corporate/Insurance (1.2) 0.2 (0.7) - ------------------------------------------------------------------------------ Total $ 10.7 $ (8.2) $ (1.7) ============================================================================== 2000 1999 =============================================================== Segment assets: Buildings $ 3.6 $ 7.4 Civil: Engineering 20.2 23.3 BSSI -- 15.8 Energy 43.2 40.3 Environmental 4.1 4.8 Transportation: Engineering 34.6 28.9 Construction 13.7 17.4 - --------------------------------------------------------------- Subtotal - segments 119.4 137.9 Corporate/Insurance 14.0 11.3 - --------------------------------------------------------------- Total $133.4 $149.2 =============================================================== 22 2000 1999 1998 =========================================================================== Capital expenditures: Buildings $0.1 $0.2 $ 0.3 Civil: Engineering 0.6 1.0 1.4 BSSI 0.2 0.4 0.8 Energy 0.7 0.6 1.2 Environmental 0.1 0.1 0.2 Transportation: Engineering 0.6 1.2 1.3 Construction - 0.7 4.2 - --------------------------------------------------------------------------- Subtotal - segments 2.3 4.2 9.4 Corporate 0.6 1.1 1.2 - --------------------------------------------------------------------------- Total $2.9 $5.3 $10.6 =========================================================================== 2000 1999 1998 =========================================================================== Depreciation and amortization: Buildings $0.1 $0.2 $0.2 Civil: Engineering 1.8 1.9 0.7 BSSI 0.3 0.8 0.6 Energy 1.9 1.5 1.1 Environmental 0.1 0.1 0.1 Transportation: Engineering 1.5 0.9 0.6 Construction 0.1 0.9 0.7 - --------------------------------------------------------------------------- Subtotal - segments 5.8 6.3 4.0 Corporate 1.3 1.1 1.0 - --------------------------------------------------------------------------- Total $7.1 $7.4 $5.0 =========================================================================== The Company has determined that the intersegment revenues, interest income and expense, equity in the net income of investees accounted for by the equity method and the amount of investment in equity method investees, by segment, are immaterial for further disclosure in these financial statements. The required enterprise-wide disclosures are as follows (in millions): 2000 1999 1998 =========================================================================== Total contract revenues by type of service: Engineering $228.0 $201.7 $178.4 Construction 18.2 169.8 212.4 Operations & Maintenance 144.1 133.7 130.4 Corporate/Insurance 0.4 0.8 0.1 - --------------------------------------------------------------------------- Total $390.7 $506.0 $521.3 =========================================================================== 23
2000 1999 1998 ======================================================================================================= Total contract revenues by geographic origin: Domestic $354.2 $455.2 $475.2 Foreign 36.5 50.8 46.1 - ------------------------------------------------------------------------------------------------------- Total $390.7 $506.0 $521.3 ======================================================================================================= 2000 1999 1998 ======================================================================================================= Total contract revenues by principal markets: United States government 17.4% 21.4% 27.1% Various state governmental and quasi-governmental agencies 34.5% 46.9% 34.4% Commercial, industrial and private clients 48.1% 31.7% 38.5% =======================================================================================================
The Company's business is substantially conducted in the U.S. No individual contract accounted for more than 10% of the Company's total contract revenues in 2000 and 1999; however, several contracts with the Pennsylvania Department of Transportation provided 11% of the Company's total contract revenues in 1999. The aforementioned contract with UCDP accounted for 12% of the Company's total contract revenues in 1998. Long-lived assets are principally held in the U.S., all amounts in other locations are immaterial. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands): 2000 1999 ============================================================================ Land $ 486 $ 552 Buildings and improvements 5,963 7,091 Equipment and vehicles 32,587 42,319 - ---------------------------------------------------------------------------- Total, at cost 39,036 49,962 Less - Accumulated depreciation (28,978) (32,842) - ---------------------------------------------------------------------------- Net property, plant and equipment $ 10,058 $ 17,120 ============================================================================ 8. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets consist of the following (in thousands):
2000 1999 ========================================================================================== Goodwill, net of accumulated amortization of $3,040 and $3,927, respectively $ 9,164 $12,219 Other intangible assets, net of accumulated amortization of $3,578 and $2,916, respectively 1,682 2,344 - ------------------------------------------------------------------------------------------ Net intangible assets $10,846 $14,563 ==========================================================================================
9. LONG-TERM DEBT AND BORROWING AGREEMENTS The Company has a secured credit agreement (the "Agreement") with its bank. The Agreement was amended and restated on September 27, 2000 following waiver of financial covenant violations during the third and fourth quarter of 1999. These amendments change the committed facility from $25 million to $20 million through May 31, 2001 and include a provision that borrowings under the Agreement shall be limited to 80% of eligible receivables, as defined in the agreement. The commitment change is expected to better approximate the Company's need in the near term and includes the sum of the principal amount of revolving credit loans outstanding and the aggregate face value 24 of outstanding letters of credit. For the period June 1 thru December 31, 2000, no borrowings were outstanding. During the year, however; letters of credit totaling $2.6 million had been issued under the agreement. The Agreement provides for the Company to borrow at the Bank's prime interest rate or LIBOR plus 2.25%, and for the Company to meet certain cash flow, leverage, interest coverage and tangible net worth requirements. Under the Agreement, the Company pays the Bank commitment fees of 3/8% per year based on the unused portion of the commitment. Due to the judgement rendered in the ADF litigation at December 28, 2000, the Company violated certain financial statement and other covenants. These fourth quarter 2000 violations were waived by its bank as of the date of the judgement. The maximum amount of borrowings outstanding under the Agreement during 2000 was $17,044,000. For 2000, the average daily balance outstanding when the Company was in a net borrowing position was $10,288,000 at a weighted average interest rate of 8.8%. The Company was in a net borrowed position from January 1 to May 31, 2000. Other amounts totaling $2,295,000 at December 31, 2000, and included in current portion of long-term debt and long-term debt in the accompanying Consolidated Balance Sheet, represent $2,190,000 associated with the Steen acquisitions, in addition to amounts due for certain equipment financed. These notes and obligations mature as follows: $2,244,000 in 2001 and $51,000 in 2002. The interest rates with respect to these notes ranged from 6.00% to 9.50% as of December 31, 2000. 10. CAPITAL STOCK In 1996, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's Common Stock in the open market. During 1998, the Company repurchased 96,379 treasury shares of Common Stock at market prices ranging from $7.53 to $8.87 per share, for a total price of $800,000. The Company made no treasury share repurchases during 2000 or 1999. The Company's Common Stock is divided into two series, Common Stock and Series B Common Stock. Each share of Common Stock entitles the holder thereof to one vote on all matters submitted to the shareholders, and each share of Series B Common Stock entitles the holder thereof to ten votes on all such matters. Each share of Series B Common Stock may be converted to one share of Common Stock at one time or at various times at the holder's discretion. The Company's Articles of Incorporation authorize the issuance of 300,000 shares of Cumulative Preferred Stock, par value $1 per share. At December 31, 2000 and 1999, there were no shares of such Preferred Stock outstanding. 11. RIGHTS AGREEMENT Effective November 11, 1999, the Company's Board of Directors adopted a Rights Agreement (the "Rights Agreement"). In connection with the Rights Agreement, the Company declared a distribution of one Right (a "Right") for each outstanding share of Common Stock to shareholders of record at the close of business on November 30, 1999. The Rights will become exercisable after a person or group has acquired twenty-five percent or more of the Company's outstanding Common Stock or has announced a tender offer that would result in the acquisition of twenty-five percent or more of the Company's outstanding Common Stock. The Board of Directors has the option to redeem the Rights for $0.001 per Right prior to their becoming exercisable. The Rights will expire on November 16, 2009, unless they are earlier exchanged or redeemed. 25 Assuming the Rights have not been redeemed, after a person or group has acquired twenty-five percent or more of the Company's outstanding Common Stock, each Right (other than those owned by a holder of twenty-five percent or more of the Common Stock) will entitle its holder to purchase, at the Right's then current exercise price, a number of shares of Common Stock of the acquiring party having a value equal to two times the exercise price of the Rights. In addition, at any time after the Rights become exercisable and prior to the acquisition by the acquiring party of fifty percent or more of the outstanding Common Stock, the Company's Board of Directors may exchange the Rights (other than those owned by the acquiring person or its affiliates) for Common Stock of the Company at an exchange ratio of one share of Common Stock per Right. 12. LEASE COMMITMENTS The Company's noncancellable leases relate to office space, computer equipment, office equipment and vehicles, with lease terms ranging from one to 10 years. Future annual minimum lease payments under noncancellable operating leases as of December 31, 2000 are as follows: FISCAL YEAR ========================================= 2001 $10,107,000 2002 $ 7,393,000 2003 $ 4,776,000 2004 $ 4,120,000 2005 $ 3,535,000 Thereafter $10,514,000 ========================================= Total $40,445,000 ========================================= Rent expense under noncancellable operating leases was $10,870,000 in 2000, $11,521,000 in 1999 and $11,687,000 in 1998. 13. INCOME TAXES The provision for income taxes consisted of the following (in thousands):
2000 1999 1998 ==================================================================================================== Current income taxes: Federal $ 219 $ (70) $ 18 State 721 295 246 Foreign 1,449 1,815 1,519 - ---------------------------------------------------------------------------------------------------- Total current income taxes 2,389 2,040 1,783 Deferred income taxes: Federal 3,547 (3,345) (799) State (340) 228 104 - ---------------------------------------------------------------------------------------------------- Total deferred income taxes 3,207 (3,117) (695) - ---------------------------------------------------------------------------------------------------- Total provision for/(benefit from) income taxes $5,596 $ (1,077) $1,088 ====================================================================================================
26 The following is a reconciliation of income taxes at the federal statutory rate to income taxes recorded by the Company (in thousands):
2000 1999 1998 ================================================================================================ Computed income taxes at U.S. federal statutory rate $3,743 $(3,142) $ (453) Foreign taxes, net of federal income tax benefits 964 1,180 1,003 State income taxes, net of federal income tax benefit 248 340 225 Nondeductible charges 384 542 313 Other, net 257 3 -- - ------------------------------------------------------------------------------------------------ Total provision for/(benefit from) income taxes $5,596 $(1,077) $ 1,088 ================================================================================================
The domestic and foreign components of the Company's income/(loss) before income taxes are as follows (in thousands): 2000 1999 1998 ============================================================================== Domestic $ 8,766 $(12,355) $(4,203) Foreign 2,206 3,114 2,872 - ------------------------------------------------------------------------------ Total $10,972 $ (9,241) $(1,331) ============================================================================== The components of the Company's deferred income tax assets and liabilities at December 31, 2000 and 1999 are as follows (in thousands): 2000 1999 ============================================================================== Deferred income tax assets: Deductible temporary differences: Provision for expenses and losses $ 8,369 $ 7,123 Contract overbillings 321 980 Federal tax operating loss carryforward -- 1,650 Accrued vacation pay 1,197 1,169 Fixed and intangible assets 732 728 Minimum tax credits -- 379 Charitable contribution carryforward 99 277 Other 4 90 - ------------------------------------------------------------------------------ Total deferred income tax assets 10,722 12,396 - ------------------------------------------------------------------------------ Deferred income tax liabilities: Contract underbillings (7,207) (7,232) Undistributed foreign earnings (2,916) (1,359) - ------------------------------------------------------------------------------ Total deferred income tax liabilities (10,123) (8,591) - ------------------------------------------------------------------------------ Net deferred tax asset $ 599 $ 3,805 ============================================================================== The Company has contribution carryforwards totaling $291,000 at December 31, 2000 that expire in 2004. During 2000, the Company used its 1999 U.S. net operating loss carryforward of $4,854,000. The Company's U.S. income tax returns for the years 1997 through 1999 remain subject to audit. Management believes that adequate provisions have been made for income taxes at December 31, 2000. 27 14. CONTINGENCIES The Company is self-insured for its primary layer of professional liability insurance through a wholly-owned captive insurance subsidiary. The secondary layer of the professional liability insurance continues to be provided, consistent with industry practice, under a "claims-made" insurance policy placed with an independent insurance company. Under claims-made policies, coverage must be in effect when a claim is made. This insurance is subject to standard exclusions. The Company is insured with respect to its workers' compensation and general liability exposures subject to deductibles or self-insured retentions. Provisions for losses expected for these exposures are recorded based upon the Company's estimates of the aggregate liability for claims incurred. Such estimates utilize certain actuarial assumptions followed in the insurance industry. Insurance coverage is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. The Company has been named as a defendant or co-defendant in legal proceedings wherein substantial damages are claimed. Such proceedings are not uncommon to the Company's business. After consultations with counsel, management believes that the Company has recognized adequate provisions for probable and reasonably estimable liabilities associated with these proceedings, and that their ultimate resolutions will not have a material adverse effect on the consolidated financial position or annual results of operations of the Company. The Company currently is a party to one material legal proceeding. The proceeding relates to a lawsuit brought in 1987 in the Supreme Court of the State of New York, Bronx County, by the Dormitory Authority of the State of New York against a number of parties, including the Company and one of its wholly-owned subsidiaries, that asserts breach of contract and alleges damages of $13,000,000. The Company, which was not a party to the contract underlying the lawsuit, contends that there is no jurisdiction with respect to the Registrant and that it cannot be held liable for any conduct of the subsidiary. Both the Registrant and the subsidiary are contesting liability issues and have filed cross-claims and third-party claims against the other entities involved in the project. 15. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST The Company maintains a defined contribution retirement program through an Employee Stock Ownership Plan ("ESOP"), in which substantially all employees are eligible to participate. In addition to providing a vehicle for investment in Company stock, the ESOP offers participants several other investment options. Contributions to the ESOP are derived from a 401(k) Salary Redirection Program with a Company matching contribution, and a discretionary contribution as determined by the Company's Board of Directors. Under the 401(k) Salary Redirection Program, the Company matches 100% of the first 5% and 50% of the next 1% of eligible salary contributed by participants. The Company's matching contributions are invested not less than 25% in Michael Baker Corporation Common Stock, with the remaining 75% being available to invest in Baker Common Stock or mutual funds, as directed by the participants. From July 1, 1997 through December 31, 1998, the Company's matching contributions were not permitted to be less than 50% being available to invest in Baker Common Stock or mutual funds, as directed by the participants. Company contributions under this program amounted to $4,965,000, and $4,565,000 in 2000 and 1999, respectively. As of December 31, 2000, the market value of all ESOP investments was $99,453,000, of which 27% represented the market value of the ESOP's investment in Michael Baker Corporation Common Stock. The Company's ESOP held 40.0% of the shares and 71% of the voting power for the outstanding Common Stock and Series B Common Stock of the Company at the end of 2000. 28 16. STOCK OPTION PLANS As of December 31, 1999, the Company has two fixed stock option plans. Under the amended 1995 Stock Incentive Plan (the "Plan"), the Company may grant options for an aggregate of 1,500,000 shares of Common Stock to key employees. Under the 1996 Nonemployee Directors' Stock Incentive Plan (the "Directors Plan"), the Company may grant options and restricted shares for an aggregate of 150,000 shares of Common Stock to nonemployee board members. Under both plans, the exercise price of each option equals the market price of the Company's stock on the date of grant. Unless otherwise established, one-fourth of the options granted to key employees become immediately vested, and the remaining three-fourths vest in annual one-fourth increments under the Plan, while the options under the Directors' Plan are fully vested at date of grant. Vested options remain exercisable for a period of ten years from the grant date under both plans. Under the Directors Plan, each nonemployee director was issued 500 restricted shares of Common Stock, for a total of 3,000 shares of restricted stock issued in 2000 and 3,500 shares of restricted stock issued in 1999 and 1998. The Company recognized compensation expense totaling $21,000, $27,000 and $35,000 related to the issuance of these restricted shares in 2000, 1999 and 1998, respectively. Restrictions on the shares expire two years after the issue date. The following table summarizes all stock option activity for both plans in 2000, 1999 and 1998: AVERAGE SHARES EXERCISE SUBJECT PRICE TO OPTION PER SHARE ================================================================== BALANCE AT DECEMBER 31, 1997 341,014 $5.92 Options granted 402,397 $9.96 Options exercised (35,191) $5.20 Options forfeited (2,639) $6.46 - ------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1998 705,581 $8.25 Options granted 67,289 $7.18 Options exercised (11,686) $6.02 Options forfeited (145,368) $9.60 - ------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1999 615,816 $7.86 Options granted 6,000 $6.25 Options exercised (82,097) $5.72 Options forfeited (144,060) $9.24 - ------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2000 395,659 $7.78 ================================================================== The weighted average fair value of options granted during 2000, 1999, and 1998 was $3.37, $3.87 and $5.37, respectively. The following table summarizes information about stock options outstanding under both plans as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED WEIGHTED AS OF AVERAGE AS OF AVERAGE RANGE OF EXERCISE PRICES 12/31/00 LIFE* EXERCISE PRICE 12/31/00 EXERCISE PRICE =========================================================================================================== $4.8125 - $ 5.0313 82,699 3.2 $4.95 82,699 $4.95 $6.2500 - $ 7.8125 141,633 6.4 6.85 126,750 6.87 $9.0000 - $10.125 171,327 6.9 9.92 44,429 9.58 - ----------------------------------------------------------------------------------------------------------- Total 395,659 5.9 $7.78 253,878 $6.72 ===========================================================================================================
*Average life remaining in years 29 As permitted under Statement of Financial Accounting Standards No. ("SFAS") 123, "Accounting for Stock-Based Compensation," the Company continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in its accounting for stock-based compensation plans, and adopted SFAS 123 for disclosure purposes only. Accordingly, no compensation cost was recognized for stock options granted in 2000, 1999 or 1998. If compensation costs for the Company's stock incentive plans had been determined based on the fair value at the grant dates for awards under those plans, consistent with the method prescribed by SFAS 123, the Company's net income and diluted net income per share amounts would have been reduced. If SFAS 123 had been used to account for both stock option plans, the Company's pro forma net income/(loss) amounts would have been $5,259,000, $(8,524,000) and $(2,669,000) for the years ended December 31, 2000, 1999 and 1998, respectively. Similarly, the Company's pro forma diluted net income/(loss) per share would have been $0.63, $(1.04) and $(0.33) for the years ended December 31, 2000, 1999, and 1998, respectively. The fair value of options on the respective grant dates was estimated using a Black-Scholes option pricing model with certain assumptions. The key assumptions used include a weighted average risk-free interest rate of 5.9%, weighted average expected volatility of 49.1%, an expected option life of 6 years, and a 0% expected dividend yield. 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the two years ended December 31, 2000 (in thousands, except per share information):
2000 - THREE MONTHS ENDED =============================================================================================================================== March 31 June 30 Sept. 30 Dec. 31# Total contract revenues $108,295 $97,762 $92,351 $92,302 Gross profit 14,815 14,271 13,521 9,474 Income/(loss) before income taxes 3,309 4,726 4,193 (1,256) Net income/(loss) 1,754 2,505 2,344 (1,227) Diluted net income/(loss) per common share $ 0.21 $ 0.31 $ 0.28 $ (0.15) ===============================================================================================================================
1999 - THREE MONTHS ENDED =============================================================================================================================== March 31* June 30* Sept. 30* Dec. 31* Total contract revenues $115,118 $134,066 $129,790 $127,038 Gross profit 13,459 15,885 6,158 5,237 Income/(loss) before income taxes 780 3,537 (5,438) (8,120) Net income/(loss) 413 1,875 (4,017) (6,435) Diluted net income/(loss) per common share $ 0.05 $ 0.23 $ (0.49) $ (0.79) ===============================================================================================================================
*Includes Buildings and Transportation unit project charges and Buildings unit restructuring charges (see Note 2). # Includes ADF Settlement (see Note 2). 30 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Michael Baker Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' investment and of cash flows present fairly, in all material respects, the financial position of Michael Baker Corporation and its subsidiaries (the Company) at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Pittsburgh, PA March 16, 2001 SUPPLEMENTAL FINANCIAL INFORMATION Market Information - Common Shares The principal market on which the Michael Baker Corporation Common Stock is traded is the American Stock Exchange. High and low closing prices of the Common Stock for each quarter during 2000 and 1999 were as follows:
2000 1999 ================================================================================================== First Second Third Fourth First Second Third Fourth ================================================================================================== High 6 7/8 7 3/16 7 15/16 8 1/8 9 5/8 8 7 7/8 6 5/8 Low 5 4 3/4 6 3/16 7 9/16 6 5/8 6 1/2 5 5/8 5 ==================================================================================================
EX-21.1 6 j8721401ex21-1.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT The following entities, unless otherwise indicated, are wholly-owned direct or indirect subsidiaries of the Registrant as of December 31, 2000: State or Country Name of Organization ---- --------------- 1. Baker Environmental, Inc. Pennsylvania 2. Baker Heavy & Highway, Inc. Pennsylvania 3. Baker Mellon Stuart Construction, Inc. Pennsylvania 4. Mellon Stuart Building Services, Inc. Pennsylvania 5. Mellon Stuart Construction International, Inc. Pennsylvania 6. Michael Baker Global, Inc. Pennsylvania 7. Michael Baker Jr., Inc. Pennsylvania 8. Michael Baker Alaska, Inc. Alaska 9. Baker Construction, Inc. Delaware 10. Baker Global Project Services, Inc. Delaware 11. Baker Holding Corporation Delaware 12. Baker/OTS, Inc. Delaware 13. International Pipeline Services, Inc. Delaware 14. Michael Baker International, Inc. Delaware 15. Baker GeoResearch, Inc. District of Columbia 16. Baker Engineering, Inc. Illinois 17. Steen Production Service, Inc. Louisiana 18. Michael Baker Jr. Company Nevada 19. Michael Baker Architects/Engineers, P.C. New Jersey 20. Baker Engineering NY, Inc. New York 21. Baker/MO Services, Inc. Texas 22. Vermont General Insurance Company Vermont 23. Michael Baker Barbados Ltd. Barbados 24. Baker O&M International, Ltd. Cayman Islands 25. Baker/OTS International, Inc. Cayman Islands 26. Overseas Technical Services (Middle East) Ltd. Cayman Islands 27. Michael Baker de Mexico S.A. de C.V. Mexico 28. OTS International Training Services Ltd. United Kingdom 29. Overseas Technical Services (Harrow) Ltd. United Kingdom 30. Baker/OTS Ltd. United Kingdom 31. SD Forty-Five Ltd. United Kingdom 32. Hanseatic Oilfield Services Ltd. Vanuatu 33. OTS Finance and Management Ltd. Vanuatu 34. Overseas Technical Service International Ltd. Vanuatu -1- EX-23.1 7 j8721401ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-05987; No. 333-59941; No. 33-62887; and No. 33-69306) of our report dated March 16, 2001 relating to the financial statements, which appears in the 2000 Annual Report to Shareholders of Michael Baker Corporation, which is incorporated by reference in Michael Baker Corporation's Annual Report on Form 10-K for the year ended December 31, 2000. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----