<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAXIMUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
VIRGINIA 8322 54-1000588
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(703) 734-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID V. MASTRAN
CHIEF EXECUTIVE OFFICER
MAXIMUS, INC.
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(703) 734-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LYNNETTE C. FALLON, ESQ. ROBERT F. WALL, ESQ.
PALMER & DODGE LLP WINSTON & STRAWN
ONE BEACON STREET 35 WEST WACKER DRIVE
BOSTON, MASSACHUSETTS 02108-3190 CHICAGO, ILLINOIS 60601-9703
(617) 573-0100 (312) 558-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE PRICE(1)(2) FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per
share............................... $ $81,000,000.00 $24,546
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</TABLE>
(1) Includes shares which the Underwriters may purchase from certain
Selling Shareholders to cover over-allotments, if any.
(2) Pursuant to Rule 457(o) under the Securities Act, the aggregate initial
offering price pursuant to this Registration Statement will not exceed
$81,000,000.00.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1997
PROSPECTUS
, 1997
SHARES
[MAXIMUS LOGO]
COMMON STOCK
Of the shares of Common Stock offered hereby,
are being sold by MAXIMUS, Inc. ("MAXIMUS" or the "Company") and
are being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "MXMS."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
Total(3).............. $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $750,000, which will be paid by the
Company.
(3) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to additional shares of Common Stock at the
Price to the Public, less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions, Proceeds
to the Company and Proceeds to the Selling Shareholders will be $ ,
$ , $ and $ , respectively. The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Shareholders pursuant to the Underwriters' over-allotment option, if
exercised. See "Underwriting" and "Principal and Selling Shareholders."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
<PAGE> 3
[CHART]
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information contained in this
Prospectus: (i) assumes that the Underwriters' over-allotment option is not
exercised; (ii) has been adjusted to give effect to a 10-for-1 split of the
shares of the Company's Common Stock, no par value per share (the "Common
Stock"), in December 1995; and (iii) has been adjusted to give effect to an
11-for-1 split of the shares of the Company's Common Stock in February 1997.
THE COMPANY
MAXIMUS, Inc. ("MAXIMUS" or the "Company") is a leading provider of program
management and consulting services to government health and human services
agencies in the United States. Since 1975, the Company has been at the forefront
of innovation in "Helping Government Serve the People(TM)." The Company's
services are designed to make government operations more efficient and cost
effective while improving the quality of the services provided to program
beneficiaries. The Company applies an entrepreneurial, private sector approach
incorporating advanced technology in large scale projects in almost every state
in the nation. The Company's leading position in the emerging private sector
health and human services industry is reflected by the growth in its annual
revenues from approximately $12 million in fiscal 1990 to over $100 million in
fiscal 1996.
Federal, state and local government agencies in the United States spend
over $200 billion annually on the health and human services programs for which
the Company markets its services, including welfare, child care, child support
enforcement, food stamps, Social Security Disability Insurance, Supplemental
Security Income and Medicaid. These entitlement programs cost an estimated $18.7
billion in annual administrative costs. Public pressure to reduce costs and
increase the efficiency and effectiveness of government-provided services has
led to intense scrutiny of government spending, including the costs of
administering health and human services programs. There has been a recent surge
in initiatives and legislation to reform federal, state and local welfare and
health services systems, the most significant of which is the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (the "Welfare
Reform Act"), a comprehensive bipartisan welfare reform plan that legislated
dramatic changes in the nation's welfare system. As a result of these
initiatives, states have significantly more incentive to seek efficient and
cost-effective ways to administer their health and human services programs and
reduce welfare caseloads. The Company believes that these fundamental changes in
the nation's entitlement programs will generate significant business
opportunities for companies similar to MAXIMUS that are positioned to assist
health and human services agencies in operating their programs more
cost-effectively.
MAXIMUS conducts its operations through two groups, the Government
Operations Group and the Consulting Group. The Government Operations Group
administers and manages government health and human services programs, including
welfare-to-work and job readiness, child support enforcement, managed care
enrollment and disability services. The Consulting Group provides health and
human services planning, information technology consulting, strategic program
evaluation, program improvement, communications planning and revenue
maximization services.
The Company believes that it possesses several business strengths that
provide a competitive advantage, including: (i) Vertical Market Focus resulting
in a thorough understanding of the regulations and operations of government
health and human services programs; (ii) Proven Track Record established by more
than 20 years of providing successful government program management and
consulting services; (iii) Wide Range of Services that meets the increasing
demands of government clients for integrated vendor offerings; (iv) Proprietary
Case Management Software Program, known as MAXSTAR, that reduces project
implementation time and cost; and (v) Experienced Team of Professionals who
thoroughly understand the marketing, assessment and delivery of services to
government health and human services agencies.
3
<PAGE> 5
The Company's goal is to become the nation's leading provider of program
management and consulting services to government health and human services
agencies. To achieve this goal, the Company intends to: (i) capitalize on the
reform of government entitlement programs; (ii) aggressively pursue new business
opportunities; (iii) recruit experienced professionals possessing the skills,
innovation and relationships necessary to provide high quality program
management and consulting services; and (iv) pursue strategic acquisitions to
provide fast, cost-effective increases in service capacity to maintain the
Company's position as a market leader.
MAXIMUS was incorporated in Virginia in September 1975. The Company's
principal executive offices are located at 1356 Beverly Road, McLean, Virginia
22101, and its telephone number is (703) 734-4200.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. shares
Common Stock offered by the Selling
Shareholders................................... shares
Common Stock to be outstanding after the
offering....................................... shares(1)
Use of proceeds.................................. Expansion of existing operations,
including opening new offices, acquiring
related businesses and expanding the
Company's international operations;
investing in systems infrastructure and
new technologies; payment of undistributed
S corporation earnings; and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol........... MXMS
</TABLE>
- ------------------------------
(1) Excludes: (i) 1,000,000 shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's 1997 Equity Incentive Plan,
pursuant to which options to purchase 403,975 shares were outstanding as of
the date of this Prospectus; (ii) 100,000 shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1997
Director Stock Option Plan, none of which had been granted as of the date of
this Prospectus; and (iii) 500,000 shares of Common Stock issuable under the
Company's 1997 Employee Stock Purchase Plan, none of which had been issued
as of the date of this Prospectus. See "Management -- 1997 Director Stock
Option Plan" and " -- Stock Plans."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1)..... $23,749 $18,071 $11,779 $16,951 $ 20,681 $ 4,102 $ 8,029
Consulting Group................... 9,400 12,522 15,138 20,698 25,902 5,152 6,704
SSA Contract(2).................... -- -- 2,943 14,314 56,530 7,446 22,511
------- ------- ------- ------- -------- ------- -------
Total revenues................... 33,149 30,593 29,860 51,963 103,113 16,700 37,244
Gross profit......................... 14,554 15,205 8,144 15,892 24,684 4,673 7,710
Income from operations............... 4,897 5,027 1,165 6,814 11,580 1,931 3,671
Net income(3)........................ 5,121 4,993 1,250 6,859 11,619 1,944 3,698
Pro forma net income(4)..................................................... 7,106 2,253
Pro forma net income per share(4)........................................... $ 0.59 $ 0.19
Shares used in computing pro forma net income per share(5).................. 12,078 12,113
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
ACTUAL PRO FORMA(6) AS ADJUSTED(7)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments............ $ 5,171 $ 5,171 $
Working capital................................................. 26,355 8,152
Total assets.................................................... 43,856 43,856
Redeemable common stock......................................... 18,790 --
Total shareholders' equity...................................... 10,862 6,865
</TABLE>
- ------------------------------
(1) In fiscal years 1992 and 1993, the Company's Government Operations Group had
revenues of $11.4 million and $10.4 million, respectively, related to a
significant contract that expired in July 1993. No further revenues were
received under this contract after its expiration.
(2) Represents revenues under a significant contract with the federal Social
Security Administration, which terminated pursuant to legislative action and
under which no revenues will be received after February 28, 1997. See "Risk
Factors -- Legislative Change," "-- Variability of Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) For all periods shown, the Company elected to be treated as an S corporation
and, as a result, the income of the Company has been taxed for federal and
most state purposes directly to the Company's shareholders rather than to
the Company.
(4) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% combined effective tax rate) as if the
Company had been taxed as a C corporation for the periods presented. Pro
forma net income does not reflect two significant charges that the Company
will record in the quarter in which the offering is consummated: (i) a
charge for income tax expense representing the cumulative deferred tax
liability (estimated to be $5.3 million as of December 31, 1996) resulting
from the termination of the Company's S corporation status; and (ii) a
compensation charge, estimated at $5.5 million, related to the grant to
employees on January 31, 1997 of options for an aggregate of 403,975 shares
of Common Stock. The estimated compensation expense represents the
difference between the assumed initial public offering price of $ per
share and the option exercise price of $ per share. The option
exercise price is based on the book value of the Common Stock at September
30, 1996, and was established pursuant to pre-existing compensation
arrangements with certain of the Company's key employees. See
"Management -- Executive Compensation," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 of
Notes to Financial Statements.
(5) Assumes 12,078,000 and 12,113,000 shares were issued and outstanding during
the year ended September 30, 1996 and the three months ended December 31,
1996, respectively. Such amounts consist of 11,418,000 and 11,453,000
weighted average shares outstanding for the respective periods, the shares
issuable upon the exercise of options granted in January 1997, and the
shares necessary to replace equity to be distributed as a result of the S
Corporation Dividend. See "S Corporation Dividend," "Management -- Executive
Compensation" and Note 3 of Notes to Financial Statements.
(6) Reflects the S Corporation Dividend to be paid to the shareholders, a
reclassification of redeemable common stock to reflect elimination of the
Company's obligation to purchase its Common Stock from shareholders and the
net deferred tax liability that would have been recorded by the Company if
its S corporation status was terminated at that date. See "S Corporation
Dividend," "Capitalization" and Note 3 of Notes to Financial Statements.
(7) Adjusted to give effect to the sale by the Company of shares of
Common Stock offered by the Company (at an assumed initial public offering
price of $ per share and after deducting the underwriting discounts
and commissions and estimated offering expenses) and the application of the
net proceeds therefrom, including the estimated $3.5 million of net offering
proceeds that will be used to fund the portion of the S Corporation Dividend
not funded by available cash. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus,
investors should consider carefully the following factors in connection with an
investment in the shares of Common Stock offered hereby.
GOVERNMENT CONTRACTS
Substantially all of the Company's clients are federal, state or local
government authorities. Effective marketing of the Company's services to
government clients requires the ability to respond to government requests for
proposals ("RFPs"). To succeed in the RFP process, the Company must estimate its
cost structure for servicing the proposed contract, the time required to
establish operations and the likely terms of the proposals submitted by
competitors. The Company must assemble and submit a large volume of information
on a rigid timetable set forth in the RFP. The Company's ability to successfully
respond to the RFP process in the future will have an important impact on the
Company's business, financial condition and results of operations. No assurance
can be given that the Company will be awarded contracts through the RFP process.
Contracts awarded to the Company typically contain provisions that permit
the government client to terminate the contract on short notice, with or without
cause. The expiration of large contracts presents additional management
challenges. Many contracts contain base periods of one or more years as well as
one or more option periods that may cover more than half of the potential
contract duration. Government agencies generally have the right not to exercise
option periods and the failure to exercise such option periods could impact the
profitability of certain of the Company's contracts. While the Company has
experienced a limited number of early terminations since inception, the
unexpected termination of one or more of the Company's more significant
contracts could result in severe revenue shortfalls which, without corresponding
reductions in expenses, could adversely affect the business, financial condition
and results of operations of the Company. There can be no assurance that such
government authorities will not terminate any or all of the Company's contracts
to administer and manage health and human services programs.
In order to establish and maintain relationships with members of government
agencies, the Company occasionally engages marketing consultants, including
lobbyists. In the event of a significant political change, such consultants may
lose their ability to effectively assist the Company. In addition, the
implementation of term limits on certain elected officials will require the
Company to confront political change on a regular basis. If the Company fails to
manage its relationships effectively with political consultants, its business,
financial condition and results of operations could materially and adversely be
affected. No assurance can be given that the Company will be successful in
managing such relationships.
To avoid experiencing higher than anticipated demands for federal funds,
federal government officials on occasion advise state and local authorities not
to engage private consultants to advise on maximizing federal revenues. There
can be no assurance that state and local officials will not be influenced by
federal government officials and, therefore, not engage the Company for such
services. To the extent that state and local officials determine not to seek the
Company's services, the business, financial condition and results of operations
of the Company could be adversely affected.
PROJECT RISKS
Upon the receipt of a contract for the management of a health and human
services program, the Company's Government Operations Group may incur
significant start-up expenses prior to the receipt of any payments under such
contract. Such expenses include the costs of leasing office space, purchasing
necessary office equipment and hiring sufficient personnel. As a result, for
large contracts, the Company may be required to make significant investments
prior to the receipt of related contract payments.
Approximately 23% (51% after excluding a significant contract with the
Social Security Administration) of the Company's total revenues for the year
ended September 30, 1996 resulted from fixed-price contracts pursuant to which
the Company received its fee for meeting specified objectives or upon the
achievement of specified units of work, such as the placement of welfare
recipients into jobs, the collection of child support payments or the completion
of managed care enrollment transfers. The Company's ability to earn a profit on
6
<PAGE> 8
these contracts is dependent upon accurate estimates of the costs involved as
well as the probability of meeting the specified objectives or realizing the
expected units of work within a certain period of time. The Company's failure to
accurately estimate the factors on which contract pricing is based could result
in the Company incurring losses on such contracts and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's inability or failure to satisfy its contractual obligations
in a manner consistent with the terms of any contract could have a material
adverse effect on the Company's financial condition because the Company is often
required to indemnify clients for its failure to meet performance standards.
Certain of the Company's contracts have liquidated damages provisions and
financial penalties related to performance failures. In addition, in order for
the Company's Government Operations Group to bid for certain contracts, the
Company has been and will continue to be required to secure its indemnification
obligations by obtaining a performance bond from an insurer, posting a cash
performance bond or obtaining a letter of credit from a suitable financial
institution. In the event that a government entity makes a claim against such
performance bond or letter of credit, the premiums demanded by the insurers for
such bonds could increase, thereby limiting the Company's ability to bid for
contracts in the future. In addition, the Company's failure to meet a client's
expectations in the performance of its contractual obligations could have a
material adverse effect on the Company's reputation, thereby adversely affecting
its business, financial condition and results of operations.
When contracts between the Company's Government Operations Group and a
state or local government expire or otherwise terminate, unless the Company can
successfully enter into a new contract using the services of employees formerly
engaged in servicing the terminated contract or otherwise re-assign such
employees, the Company will need to terminate the employment of such employees.
The termination of large Government Operations Group contracts and the
subsequent re-assignment or termination of employees places significant demands
on the Company's management and its administrative resources. If the Company is
unable to manage these challenges, the Company's business could materially and
adversely be affected.
Government contracts generally are subject to audits and investigations by
government agencies. These audits and investigations involve a review of the
government contractor's performance of its contracts as well as its pricing
practices, cost structure and compliance with applicable laws, regulations and
standards. If any costs are improperly allocated to a contract, such costs are
not reimbursable and, if already reimbursed, will be required to be refunded to
the government. Furthermore, if improper or illegal activities are discovered in
the course of any audits or investigations, the contractor may be subject to
various civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeitures of profits, suspension of payments, fines
and suspension or disqualification from doing business with the government. If
the Company becomes subject to penalties or sanctions, such penalties or
sanctions could have a material adverse effect on the Company's business,
financial condition and results of operations.
LEGISLATIVE CHANGE
The market for the Company's services is largely dependent on federal and
state legislative programs, any of which may be modified or terminated by acts
of the legislative or executive branches of federal and state government. There
can be no assurance that such legislative change will not occur or that the
Company will be able to anticipate and respond in a timely manner to any such
legislative change. The Company's failure to manage effectively its business in
light of anticipated or unanticipated legislative change could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Welfare Reform Act is expected to be a catalyst for sweeping changes in
the administration and management of the welfare system in the United States. As
part of its growth strategy, the Company plans to aggressively pursue the
opportunities created by this legislation by seeking new contracts to administer
and manage health and human services programs of state and local government
agencies. However, opponents of welfare reform continue to criticize the
advances made by the current administration and continued progress in the
welfare reform area is uncertain. The repeal of the Welfare Reform Act, in whole
or in part, could have a material adverse effect on the future business,
financial condition and results of operations of the Company. There can be no
assurance that additional reforms will be proposed or enacted, or that
previously enacted reforms will not be challenged, repealed or otherwise
invalidated.
7
<PAGE> 9
The adverse impact that legislative changes can have on the Company was
recently evidenced by the termination of a significant contract with the federal
Social Security Administration. This contract related to the referral and
treatment monitoring of social security or supplemental income beneficiaries
with drug or alcohol-related disabilities (the "SSA Contract"). In its fiscal
year ended September 30, 1996, the Company received revenues of $56.5 million
from the SSA Contract, representing approximately 55% of the Company's total
revenues for such fiscal year. In October 1996, the President signed into law an
amendment to the Social Security Act of 1935, effective January 1, 1997, that
eliminated social security and supplemental income benefits based solely on drug
and alcohol disabilities. As a result of this amendment, the SSA Contract was
terminated and no further revenues will be received thereunder after February
28, 1997.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results occur from
quarter to quarter as a result of a number of factors, including the progress of
contracts, levels of revenues earned on contracts, the commencement, completion
or termination of contracts during any particular quarter, the schedules of
government agencies for awarding contracts, the term of each contract that the
Company has been awarded and general economic conditions. Because a significant
portion of the Company's expenses are relatively fixed, successful contract
performance and variation in the volume of activity as well as in the number of
contracts commenced or completed during any quarter may cause significant
variations in operating results from quarter to quarter. Furthermore, the
Company has on occasion experienced a pattern in its results of operations in
which it incurs greater operating expenses during the start-up and early stages
of significant contracts. In addition, the Company's SSA Contract contributed
$56.5 million, $14.3 million and $2.9 million to the Company's revenues in
fiscal 1996, 1995 and 1994, respectively. The termination of the SSA Contract
will significantly reduce the Company's revenue base as compared to previous
quarters. No assurance can be given that the Company will be able to generate
additional revenues in future periods in amounts sufficient to replace the
revenues received under the SSA Contract and as a result, the Company may
experience materially lower revenues as compared to prior periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
During the quarter in which this offering is completed, the Company will
recognize two significant charges against income. The completion of this
offering will result in the termination of the Company's S corporation status.
As a result, the Company will record a one-time income statement charge to
operations estimated at $5.3 million based on the deferred tax liabilities as of
December 31, 1996. In connection with this offering, on January 31, 1997,
certain key employees of the Company surrendered rights to purchase shares of
Common Stock of the Company in exchange for options to purchase shares of Common
Stock at an exercise price of $ per share. Upon completion of this offering,
the Company will recognize a non-cash compensation charge against income equal
to the difference between the initial public offering price and the option
exercise price for all outstanding options. At an assumed initial public
offering price of $ per share, the charge against income is estimated
to be $5.5 million. The option exercise price is based on the book value of the
Common Stock at September 30, 1996 and was established pursuant to pre-existing
compensation arrangements with these employees. As a result of these charges,
the Company will report a significant net loss in the period in which this
offering is completed, which is anticipated to be the quarter ended June 30,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management -- Executive Compensation."
RELIANCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts, abilities,
business generation and project execution capabilities of certain of its
executive officers and senior managers. While the Company has executive
employment agreements with each of David V. Mastran, President and Chief
Executive Officer of the Company, Raymond B. Ruddy, Chairman of the Board of
Directors and President of the Consulting Group, Russell A. Beliveau, President
of the Government Operations Group, Ilene R. Baylinson, President of the
Disability Services Division, Susan D. Pepin, President of the Systems Planning
and Integration Division and Lynn P. Davenport, President of the Human Services
Division, such agreements are terminable under
8
<PAGE> 10
certain conditions. Other than these six agreements with executive officers, the
Company does not have employment agreements with any other senior employees. The
loss of the services of any of these key executives could have a material
adverse effect upon the Company's business, financial condition and results of
operations, including its ability to secure and complete engagements. The
Company maintains key-man life insurance policies on David V. Mastran and
Raymond B. Ruddy in the amounts of $10,700,000 and $7,250,000, respectively,
with proceeds payable to the Company. See "Management."
ATTRACTION AND RETENTION OF EMPLOYEES
The Company's business involves the delivery of professional services and
is labor-intensive. When the Company's Government Operations Group is awarded a
contract by a government agency, the Company is often under a tight timetable to
hire project leaders and case management personnel to meet the needs of the new
project. In addition, the resulting large increases in the number of the
Company's employees create demand for increased administrative personnel at the
Company's headquarters. The Company's success in both the Government Operations
Group and the Consulting Group depends in large part upon its ability to
attract, develop, motivate and retain experienced and innovative executive
officers, senior managers who have successfully managed or designed health and
human services programs in the public sector and information technology
professionals who have designed or implemented complex information technology
projects. Such innovative, experienced and technically proficient individuals
are in great demand and are likely to remain a limited resource for the
foreseeable future. There can be no assurance that the Company will be able to
continue to attract and retain desirable executive officers and senior managers
in the future. The inability to hire sufficient personnel on a timely basis or
the loss of a significant number of executive officers and senior managers could
have a material adverse effect on the Company's business, financial condition
and results of operations, including its ability to obtain and successfully
complete service contracts. See "Business -- Human Resources."
MANAGEMENT OF GROWTH
The Company's continued growth has placed significant demands on the
Company's management as well as its administrative, operational and financial
resources. The Company's ability to manage its growth will require the Company
to continue to implement new and to improve existing operational, financial and
management information systems and to continue to expand, motivate and manage
its workforce. In addition, the Company's growth will depend in large part on
its ability to manage large-scale health and human services programs while
continuing to ensure quality service and reasonable profits. If the Company is
unable to manage effectively any of these factors, the quality of the Company's
services, its financial condition and results of operations could be materially
and adversely affected. No assurance can be given that the Company will continue
to experience growth or that the Company will be successful in managing its
growth, if any.
COMPETITION
The market for certain program management and consulting services to state
and local health and human services agencies is becoming more competitive and is
subject to rapid change while the market for certain other services is not yet
competitive. The Company's Government Operations Group competes for program
management contracts with local non-profit organizations such as the United Way
and Goodwill Industries, government services divisions of large organizations
such as Andersen Consulting, Lockheed Martin Corp. and Electronic Data Systems,
Inc., managed care enrollment companies such as Foundation Health Corporation
and specialized service providers such as America Works, Inc., Policy Studies
Incorporated and GC Services, Inc. The Company's Consulting Group competes with
the consulting divisions of the "Big 6" accounting firms as well as Electronic
Data Systems, Inc. Many of these companies are national and international in
scope and have greater financial, technical, marketing and personnel resources
than the Company. The significant financial resources of certain competitors
could lead to severe price cutting in an effort to secure market share, which
could adversely affect the Company's business, financial condition and results
of operations. There can
9
<PAGE> 11
be no assurance that the Company will compete successfully against its existing
competitors or against new competitors, if any. See "Business -- Competition."
In addition to competition from existing competitors, the Company may
experience future competition from its former employees. Although the Company
has entered into non-competition agreements with certain senior level employees,
there can be no assurance that such contracts will be enforceable or that
departing employees not subject to non-competition agreements will not seek to
exploit their personal relationships with government officials by competing
against the Company. Any such competition by former employees could have a
material adverse effect on the Company.
GOVERNMENT UNIONS
The Company's success depends in part on its ability to obtain contracts to
profitably administer and manage health and human services programs that
traditionally have been administered and managed by government employees. Many
of these government employees are members of labor unions which have
considerable financial resources and established lobbying networks that are
effective in applying political pressure to legislators and other government
officials who seek to contract with private companies to administer and manage
government programs. Successful efforts to oppose private management of
government programs by these unions may slow welfare reform and ultimately
result in fewer opportunities for the Company to provide services to government
agencies, thereby adversely affecting the business, financial condition and
results of operations of the Company. There can be no assurance that these
unions will not succeed in whole or in part in their efforts to oppose the
outsourcing of government programs.
ADVERSE PUBLICITY
The Company has received and expects to continue to receive media attention
as a result of its contracts with state and local government authorities. In
particular, the management of health and human services programs by the
Company's Government Operations Group and the establishment of revenue
maximization programs by the Company's Consulting Group have been the subject of
highly controversial media coverage. Negative coverage of the types of program
management services provided by the Company could influence government officials
and slow the pace of welfare reform, thereby reducing the Company's growth
prospects. In addition to media attention arising out of the types of services
provided by the Company, the Company is also vulnerable to media attention as a
result of the activities of political consultants engaged by the Company, even
when such activities are unrelated to the Company. Such an event occurred in
connection with a marketing representative hired by the Company to assist in
responding to an RFP promulgated by the State of West Virginia. After learning
that the marketing representative was also a state employee, the Company
voluntarily withdrew from the bidding. Certain media coverage relating to this
incident was inaccurate and incorrectly suggested wrongdoing by the Company. The
Company has become aware that certain of its competitors have sought to exploit
such suggestions in connection with other competitive-bidding situations. There
can be no assurance that the Company will not receive adverse media attention as
the result of activities of individuals not under the Company's control. In
addition, there can be no assurance that media attention focused on the Company
will be accurate or that the Company will be able to anticipate and respond in a
timely manner to all media contacts. Inaccurate or misleading media coverage or
the Company's failures to manage such coverage could have a material adverse
effect on the Company's reputation, thereby adversely affecting its business,
financial condition and results of operations.
RISKS RELATED TO POSSIBLE ACQUISITIONS
A part of the Company's growth strategy is to expand its operations through
the acquisition of additional businesses. The Company has no prior history of
making acquisitions and there can be no assurance that the Company will be able
to identify, acquire or profitably manage additional businesses or successfully
integrate any acquired businesses into the Company without incurring substantial
expenses, delays or other operational or financial problems. Furthermore,
acquisitions may involve a number of special risks, including diversion of
management's attention, failure to retain key personnel, unanticipated events or
circumstances, legal liabilities and amortization of acquired intangible assets,
some or all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Client dissatisfaction
or performance problems at a single acquired firm could have a material adverse
effect on the reputation of the Company as a
10
<PAGE> 12
whole. In addition, there can be no assurance that acquired businesses, if any,
will achieve anticipated revenues and earnings. The failure of the Company to
manage its acquisition strategy successfully could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Growth Strategy."
INTERNATIONAL OPERATIONS
While the Company's current international operations are paid in U.S.
dollars by the World Bank and the U.S. Agency for International Development, as
the Company expands its operations into developing countries it may become
subject to a number of risks. International revenues are subject to a number of
risks including currency exchange rate fluctuations, collection of receivables
and enforcement of contract terms through a foreign country's legal system.
Foreign countries could impose additional withholding taxes or otherwise tax the
Company's foreign income or impose tariffs. There can be no assurance that any
of these factors will not have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business -- Services -- Consulting Group."
LITIGATION
On February 3, 1997, Network Six, Inc. ("Network Six") filed a Third-Party
Complaint in the State of Hawaii Circuit Court of the First Circuit in which
Network Six named the Company and other parties as third party defendants in an
action by the State of Hawaii against Network Six. In 1991, the Company's
Consulting Group was engaged by the State of Hawaii to provide assistance in
planning for and monitoring the development and implementation by Hawaii of a
statewide automated child support system. In 1993, Hawaii contracted with
Network Six to provide systems development and implementation services for this
project. In 1996 the state terminated the Network Six contract for cause and
filed an action against Network Six for punitive damages. Network Six
counterclaimed against Hawaii that the state breached its obligations under the
contract with Network Six. In the Third Party Complaint, Network Six alleges
that the Company is liable to Network Six on grounds that: (i) Network Six was
an intended third party beneficiary under the contract between the Company and
Hawaii; (ii) the Company tortiously interfered in the contract between Network
Six and Hawaii; (iii) the Company negligently breached duties to Network Six;
and (iv) the Company aided and abetted Hawaii in Hawaii's breach of contract.
Network Six's complaint seeks $60 million in damages from the Company, which is
claimed to represent a decline in Network Six's stock value over an unspecified
period. The Company believes Network Six may have filed or may in the future
file actions in other jurisdictions asserting similar claims against the
Company. The Company believes that Network Six was not an intended third party
beneficiary under its contract with Hawaii and that Network Six's claims are
without merit. The Company does not believe this action will have a material
adverse effect on the Company's business and intends to vigorously defend this
action.
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, the Board of Directors of the
Company will have broad discretion with respect to the use of the net proceeds
of this offering. See "Use of Proceeds."
CONTROL BY PRINCIPAL SHAREHOLDERS
After completion of this offering, the Company's executive officers will
own beneficially % of the Company's outstanding shares of Common Stock.
Certain executive officers who will hold approximately % of the outstanding
shares of Common Stock after giving effect to this offering have agreed with the
Company not to dispose of such shares for a period of four years following the
closing of this offering subject to certain exceptions. In addition, each of Dr.
Mastran and Mr. Ruddy, who will hold together approximately % of the
outstanding shares of Common Stock of the Company after giving effect to this
offering, has agreed to vote his shares in favor of the election of the other to
the Board of Directors, as long as each of such shareholders owns or controls
20% of the outstanding Common Stock. Mr. Ruddy has also agreed to vote his
shares of Common Stock in a manner consistent with instructions received from
Dr. Mastran during the four
11
<PAGE> 13
year period commencing on the closing of this offering. As a result, these
officers will continue to be able to control the outcome of matters requiring a
shareholder vote, including the election of the members of the Board of
Directors, thereby controlling the affairs and management of the Company. Such
control could adversely affect the market price of the Common Stock or delay or
prevent a change in control of the Company. See "Principal and Selling
Shareholders" and "Management -- Agreements with Executives."
BENEFITS OF OFFERING TO SELLING SHAREHOLDERS
The Selling Shareholders will receive substantial proceeds and certain
other benefits from their participation in this offering. This offering will
establish a public market for the Common Stock and provide significantly
increased liquidity to the Selling Shareholders for the shares of Common Stock
they will own after this offering. At an assumed initial public offering price
of $ per share, after deducting underwriting discounts and commissions,
the aggregate proceeds (before deduction of estimated income taxes) as a result
of the offering by the Selling Shareholders will be approximately $ million
(excluding the S Corporation Dividend). Upon completion of this offering, the
Selling Shareholders will own an aggregate of % of the outstanding Common
Stock. See "Use of Proceeds," "Dilution" and "Principal and Selling
Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock will be determined by negotiations among management of the Company and the
representatives of the Underwriters (the "Representatives"). See "Underwriting"
for factors to be considered in determining the initial public offering price
per share. Although the Company has applied to have the Common Stock approved
for quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or be sustained after this offering. The
market price of the Common Stock may fluctuate substantially due to a variety of
factors, including quarterly fluctuations in results of operations, the failure
to be awarded a significant contract on which it has bid, the termination by a
government client of a material contract, announcements of new services by
competitors, changes in earnings estimates by securities analysts, changes in
accounting principles, sales of Common Stock by existing holders, negative
publicity, loss of key personnel and other factors. In addition, the stock
market is subject to extreme price and volume fluctuations. This volatility has
often had a significant effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of these companies.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation often has been instituted against
such a company. Any such litigation initiated against the Company could result
in substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution of $ in the pro forma net tangible
book value per share of Common Stock. To the extent outstanding options to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
DIVIDEND POLICY
Other than the S Corporation Dividend (see "S Corporation Dividend") and
past dividends to cover S corporation taxes payable by shareholders, the Company
has rarely paid cash dividends on its capital stock and does not anticipate
paying cash dividends in the foreseeable future. The Company currently intends
to retain all earnings for the development of its business. See "Dividend
Policy."
12
<PAGE> 14
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") and Amended and Restated By-Laws (the "Restated By-Laws"), both to be
effected immediately upon the close of this offering, and Virginia law include
provisions that may be deemed to have antitakeover effects and may delay, defer
or prevent a takeover attempt that shareholders might consider to be in their
best interests. Directors of the Company are divided into three classes and are
elected to serve staggered three-year terms, the existence of which could render
more difficult or discourage an attempt to obtain control of the Company by
means of a proxy contest or otherwise. See "Management -- Board of Directors."
The ability of the shareholders of the Company to take any action, or to consent
to the taking of any action, in each case in writing without a meeting, is
specifically denied. See "Description of Capital Stock -- Anti-Takeover
Provisions of the Articles of Incorporation." In addition, Virginia law contains
provisions that impose certain limitations and special voting requirements on
affiliated transactions and deny voting rights, unless granted by shareholder
vote, with respect to shares acquired in control share acquisitions. See
"Description of Capital Stock -- Anti-Takeover Provisions of Virginia Law."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this offering, the Company will have
shares of Common Stock outstanding, of which the
shares sold pursuant to this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except those shares acquired by affiliates of the
Company. Holders of the remaining shares will be eligible to sell such shares
pursuant to Rule 144 under the Securities Act ("Rule 144") at prescribed times
and subject to the manner of sale, volume, notice and information restrictions
of Rule 144. In addition, shares of Common Stock are issuable upon
the exercise of outstanding stock options (none of which are currently
exercisable and all of which will become exercisable on the closing of this
offering), which shares may be registered by the Company under the Securities
Act and become freely tradable without restriction. The Company and all of its
shareholders (holding in the aggregate shares of Common Stock
upon the closing of this offering), have agreed not to offer, sell, contract to
sell or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any securities convertible into or exchangeable or exercisable for
shares of Common Stock, until 180 days after the date of this Prospectus,
without the prior consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Certain executive officers of the Company, holding an aggregate of
shares of Common Stock, will have entered into Executive
Employment, Non-Compete, Confidentiality and Stock Restriction Agreements
pursuant to which each such executive will have agreed with the Company subject
to certain exceptions not to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock for a period of four years from the
closing of this offering. See "Management -- Agreements with Executives."
Because these agreements will be between the Company and each executive officer
and may be waived by the Company at any time, investors should not rely on these
agreements. Sales of substantial amounts of such shares in the public market or
the availability of such shares for future sale could adversely affect the
market price of the shares of Common Stock and the Company's ability to raise
additional capital at a price favorable to the Company. See "Shares Eligible for
Future Sale" and "Underwriting."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of Common Stock offered by the Company, after deducting underwriting discounts
and commissions and estimated offering expenses, are estimated to be
$ , assuming an initial public offering price of $ per share.
The Company expects to use the net proceeds from this offering for: (i)
expansion of existing operations, which may include opening new offices,
acquiring related businesses and expanding the Company's international
operations; (ii) investing in systems infrastructure and new technologies; (iii)
the partial payment of undistributed S corporation earnings not funded by
available cash, estimated at $3.5 million; and (iv) general corporate purposes,
including working capital. The Company has no present commitments, agreements or
understandings and is not presently conducting negotiations with respect to any
acquisitions. The Company's management will have broad discretion to allocate
proceeds from this offering to uses that it believes are appropriate. Pending
such uses, the net proceeds of this offering will be invested in short-term,
investment grade, interest-bearing securities. The principal purposes of this
offering are to obtain additional working capital, create a public market for
the Common Stock, provide liquidity to the Company's shareholders and facilitate
future access by the Company to public equity markets. See "S Corporation
Dividend" and "Business -- Growth Strategy."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."
S CORPORATION DIVIDEND
Since 1987, the Company has been a corporation subject to taxation under
subchapter S of the Internal Revenue Code of 1986, as amended. As a result,
substantially all of the Company's net income has been attributed, for income
tax purposes, directly to the Company's shareholders rather than to the Company.
The Company's S corporation status will terminate in connection with this
offering and the Company will make a final distribution to its existing
shareholders of undistributed S Corporation earnings, as explained below.
The Company has declared an S corporation dividend to its existing
shareholders in an aggregate amount representing all undistributed earnings of
the Company taxed or taxable to its shareholders through the closing of this
offering payable upon such closing (the "S Corporation Dividend"). The S
Corporation Dividend is estimated to be approximately $17.5 million, of which it
is estimated that $14.0 million will be funded from available cash and $3.5
million will be funded with a portion of the proceeds from this offering.
Purchasers of Common Stock in this offering will not receive any portion of the
S corporation Dividend.
Following termination of its S corporation status, the Company will be
subject to income taxation as a C corporation. The termination of the Company's
S corporation status will result in the Company recording a liability for
deferred income taxes on its balance sheet and a one-time income statement
charge of the same amount. Based on differences between income for tax and
financial reporting through December 31, 1996, the one-time income statement
charge is estimated to be $5.3 million. The deferred tax liability will be
recorded in accordance with Statement of Financial Accounting Standards No. 109.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of Notes to Financial Statements.
DIVIDEND POLICY
Following the declaration and payment of the S Corporation Dividend, the
Company anticipates that it will retain all of its earnings for development of
the Company's business and does not anticipate paying any cash dividends in the
foreseeable future. Future cash dividends, if any, will be paid at the
discretion of the Company's Board of Directors and will depend, among other
things, upon the Company's future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as the Board of Directors may deem relevant.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth, as of December 31, 1996: (i) the actual
total capitalization of the Company; (ii) the pro forma total capitalization of
the Company after giving effect to the S Corporation Dividend (see "S
Corporation Dividend"), the recognition of a net deferred tax liability upon
termination of the Company's S corporation status estimated to be $5.3 million,
and reclassification of redeemable Common Stock to shareholders' equity as a
result of elimination of the Company's obligation to purchase its Common Stock
from shareholders; and (iii) the pro forma total capitalization as adjusted for
the sale of shares of Common Stock by the Company (at an assumed initial public
offering price of $ per share) and the application of the estimated net
proceeds therefrom, including the estimated $3.5 million of net offering
proceeds that will be used to fund the portion of the S Corporation Dividend not
funded by available cash. See "Use of Proceeds." The following table should be
read in conjunction with the Financial Statements and related Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents and short term investments..... $ 5,171 $ 5,171 $
======= ======= ======
Redeemable common stock.................................. $18,790 $ -- $--
Shareholders' equity:
Common stock, no par value; 30,000,000 shares
authorized; 11,453,145 shares issued and
outstanding, actual and pro forma; shares
issued and outstanding as adjusted.................. -- 6,865
Retained earnings...................................... 10,862 --
------- ------- ------
Total shareholders' equity.......................... 10,862 6,865
------- ------- ------
Total capitalization.............................. $29,652 $ 6,865 $
======= ======= ======
</TABLE>
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996 was $6,865,000 or $0.60 per share. Pro forma net tangible book value per
share represents the total tangible assets of the Company, less total
liabilities, divided by the aggregate number of shares of Common Stock
outstanding, after giving effect to: (i) the S Corporation Dividend (see "S
Corporation Dividend"); (ii) the recording of deferred income taxes upon
termination of the Company's S corporation status; and (iii) the
reclassification of redeemable common stock to shareholders' equity, as a result
of elimination of the Company's obligation to purchase its Common Stock from
shareholders. After giving effect to the sale by the Company of shares of
Common Stock offered hereby (at an assumed initial public offering price of
$ per share) and the application of the net proceeds therefrom, the pro
forma net tangible book value of the Company as of December 31, 1996 would have
been $ or $ per share. This represents an immediate increase in the
pro forma net tangible book value of $ per share to existing shareholders
and an immediate dilution of $ per share to purchasers of Common Stock in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $
Pro forma net tangible book value per share as of December 31,
1996............................................................. $ 0.60
Increase per share attributable to new investors....................
-----
Pro forma net tangible book value per share after this offering.......
------
Dilution in pro forma net tangible book value per share to new
investors........................................................... $
======
</TABLE>
The following table sets forth, as of December 31, 1996, the differences
between existing shareholders and new investors in this offering with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share (assuming an initial
public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 11,453,145 % $ 1,618,746 % $ 0.14
New investors........................... % %
---------- ----- ----------- -----
Total......................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- ------------------------------
(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders of the Company to or %
of the total number of shares outstanding after this offering ( shares
or % if the Underwriters' over-allotment option is exercised in full)
and will increase the number of shares held by new investors to
shares or % of the total number of shares of Common Stock outstanding
after this offering ( shares or % if the Underwriters' over-
allotment option is exercised in full). See "Principal and Selling
Shareholders."
16
<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data presented below as of September 30, 1995 and
1996, and for each of the three years in the period ended September 30, 1996 are
derived from the Company's Financial Statements and related Notes thereto which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data presented below as of September 30, 1992, 1993 and 1994, and for
each of the years ended September 30, 1992 and 1993 are derived from the
Company's financial statements, not included in this Prospectus, which have been
audited by the Company's predecessor accountants. The selected financial data as
of December 31, 1996 and for the interim three-month periods ended December 31,
1995 and 1996 are unaudited but, in the opinion of management, include all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the results of the interim periods. The results of operations
for the interim period ended December 31, 1996, are not necessarily indicative
of the results to be expected for any other interim period or for the full year.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1)...... $23,749 $18,071 $11,779 $16,951 $ 20,681 $ 4,102 $ 8,029
Consulting Group.................... 9,400 12,522 15,138 20,698 25,902 5,152 6,704
SSA Contract(2)..................... -- -- 2,943 14,314 56,530 7,446 22,511
------- ------- ------- ------- -------- ------- -------
Total revenues................. 33,149 30,593 29,860 51,963 103,113 16,700 37,244
Cost of revenues...................... 18,595 15,388 21,716 36,071 78,429 12,027 29,534
------- ------- ------- ------- -------- ------- -------
Gross profit.......................... 14,554 15,205 8,144 15,892 24,684 4,673 7,710
Selling, general and administrative
expenses............................ 9,657 10,178 6,979 9,078 13,104 2,742 4,039
------- ------- ------- ------- -------- ------- -------
Income from operations................ 4,897 5,027 1,165 6,814 11,580 1,931 3,671
Interest and other income............. 376 80 80 169 264 53 84
------- ------- ------- ------- -------- ------- -------
Income before income taxes............ 5,273 5,107 1,245 6,983 11,844 1,984 3,755
Provision (benefit) for income
taxes............................... 152 114 (5) 124 225 40 57
------- ------- ------- ------- -------- ------- -------
Net income(3)......................... $ 5,121 $ 4,993 $ 1,250 $ 6,859 $ 11,619 $ 1,944 $ 3,698
======= ======= ======= ======= ======== ======= =======
PRO FORMA STATEMENT OF INCOME DATA:(4)
Historical income before income taxes.............................................. $ 11,844 $ 3,755
Pro forma income tax expense....................................................... 4,738 1,502
-------- -------
Pro forma net income............................................................... $ 7,106 $ 2,253
======== =======
Pro forma net income per share..................................................... $ 0.59 $ 0.19
======== =======
Shares used in computing pro forma net
income per share(5).............................................................. 12,078 12,113
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1996
ACTUAL PRO FORMA(6)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments............................ $ 1,849 $ 1,093 $ 326 $ 2,502 $ 3,333 $ 5,171 $ 5,171
Working capital.......................... 6,158 6,818 6,855 13,184 22,700 26,355 8,152
Total assets............................. 17,091 12,745 15,049 22,670 35,493 43,856 43,856
Redeemable common stock.................. 6,759 6,971 6,889 10,578 16,757 18,790 --
Total shareholders' equity............... 1,907 2,484 2,921 5,706 9,197 10,862 6,865
</TABLE>
- ------------------------------
(1) In fiscal years 1992 and 1993, the Company's Government Operations Group had
revenues of $11.4 million and $10.4 million, respectively, related to a
significant contract that expired in July 1993. No further revenues were
received under this contract after its expiration.
(2) Represents revenues under a significant contract with the federal Social
Security Administration, which terminated pursuant to legislative action and
under which no revenues will be received after February 28, 1997. See "Risk
Factors -- Legislative Change," "-- Variability of Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) For all periods shown, the Company elected to be treated as an S corporation
and, as a result, the income of the Company has been taxed for federal and
most state purposes directly to the Company's shareholders rather than to
the Company.
17
<PAGE> 19
(4) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% combined effective tax rate) as if the
Company had been taxed as a C corporation for the periods presented. Pro
forma net income does not reflect two significant charges that the Company
will record in the quarter in which the offering is consummated: (i) a
charge for income tax expense representing the cumulative deferred tax
liability (estimated to be $5.3 million as of December 31, 1996) resulting
from the termination of the Company's S corporation status; and (ii) a
compensation charge, estimated at $5.5 million, related to the grant to
employees on January 31, 1997 of options for an aggregate of 403,975 shares
of Common Stock. The estimated compensation expense represents the
difference between the assumed initial public offering price of $ per
share and the option exercise price of $ per share. The option exercise
price is based on the book value of the Common Stock at September 30, 1996,
and was established pursuant to pre-existing compensation arrangements with
certain of the Company's key employees. See "Management -- Executive
Compensation," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of Notes to Financial Statements.
(5) Assumes 12,078,000 and 12,113,000 shares were issued and outstanding during
the year ended September 30, 1996 and the three months ended December 31,
1996, respectively. Such amounts consist of 11,418,000 and 11,453,000
weighted average shares outstanding for the respective periods, the shares
issuable upon the exercise of options granted in January 1997, and the
shares necessary to replace equity to be distributed as a result of the S
Corporation Dividend. See "S Corporation Dividend," "Management -- Executive
Compensation" and Note 3 of Notes to Financial Statements.
(6) Reflects the S Corporation Dividend to be paid to the shareholders, a
reclassification of redeemable common stock to reflect elimination of the
Company's obligation to purchase its Common Stock from shareholders and the
net deferred tax liability that would have been recorded by the Company if
its S corporation status was terminated at that date. See "S Corporation
Dividend," "Capitalization" and Note 3 of Notes to Financial Statements.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MAXIMUS is a leading provider of program management and consulting services
to government health and human services agencies in the United States. Founded
in 1975, the Company has been profitable every year since inception. The Company
conducts its operations through two groups, the Government Operations Group and
the Consulting Group. The Government Operations Group administers and manages
government health and human services programs, including welfare-to-work and job
readiness, child support enforcement, managed care enrollment and disability
services. The Consulting Group provides health and human services planning,
information technology consulting, strategic program evaluation, program
improvement, communications planning and revenue maximization services.
The Company's revenues are generated from contracts with various payment
arrangements, including: (i) costs incurred plus a fixed fee ("cost-plus"); (ii)
fixed price; (iii) performance-based criteria; and (iv) time and materials
reimbursement (utilized primarily by the Consulting Group). For the fiscal year
ended September 30, 1996, revenues from these contract types were approximately
62%, 23%, 11% and 4%, respectively, of total revenues. Traditionally, federal
government contracts have been cost-plus and a majority of the contracts with
state and local government agencies have been fixed price and performance-based.
Fixed price and performance-based contracts generally offer higher margins but
typically involve more risk than cost-plus or time and materials reimbursement
contracts because the Company is subject to potential cost overruns or
inaccurate revenue estimates. As discussed further below, the SSA Contract was
terminated in December 1996 as a result of legislative action. Excluding the SSA
Contract, fiscal 1996 revenues from the above contract types were approximately
15%, 51%, 25% and 9%, respectively, of total revenues.
In October 1996, President Clinton signed into law an amendment to the
Social Security Act of 1935, effective January 1, 1997, that eliminated Social
Security Income and Supplemental Security Disability Insurance benefits based
solely on drug and alcohol disabilities. As a result of this legislative act,
the Social Security Administration terminated the SSA Contract effective at the
end of February 1997. All services to be provided to the Social Security
Administration will be completed in the second quarter of the Company's 1997
fiscal year. The SSA Contract contributed $56.5 million, $14.3 million and $2.9
million to the Company's revenues in fiscal years 1996, 1995 and 1994,
respectively. The termination of the SSA Contract will significantly reduce the
Company's revenue base as compared to prior periods. No assurance can be given
that the Company will be able to generate additional revenues in future periods
in amounts sufficient to replace the revenues received under the SSA Contract
and, as a result, the Company may experience materially lower revenues as
compared to prior periods. The Company has experienced a limited number of other
early terminations since inception. See "Risk Factors -- Variability of
Quarterly Operating Results."
The Government Operations Group's contracts generally contain base periods
of one or more years as well as one or more option periods that may cover more
than half of the potential contract duration. As of September 30, 1996, the
Company's average Government Operations contract duration was 3 1/2 years. The
Company's Consulting Group is typically engaged for periods in excess of 24
months. Indicative of the long-term nature of the Company's engagements,
approximately 84% of the Company's fiscal 1996 revenues were in backlog as of
September 30, 1995.
The Company's most significant expense is cost of revenues, which consists
primarily of project related employee salaries and benefits, subcontractors,
computer equipment and travel expenses. The Company's ability to accurately
predict personnel requirements, salaries and other costs as well as to
effectively manage a project or achieve certain levels of performance can have a
significant impact on the service costs related to the Company's fixed price and
performance-based contracts. Service cost variability has little impact on cost-
plus arrangements because allowable costs are reimbursed by the client. The
profitability of the Consulting Group's contracts is largely dependent upon the
utilization rates of its consultants.
19
<PAGE> 21
Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
reproduction, communications and equipment depreciation. Selling, general and
administrative expenses as a percentage of revenues have decreased in recent
years as these costs have been absorbed by a larger revenue base.
From October 1, 1987 to the date of this offering, the Company elected to
be treated as an S corporation for federal income tax purposes. For all periods
prior to October 1, 1996, the Company's income was taxed directly to its
shareholders on the cash basis and for the period from October 1, 1996 through
the date of this offering, the Company plans to have its income taxed directly
to its shareholders on the accrual basis. Upon completion of this offering, the
Company's S corporation status will terminate and the Company will be subject to
income tax on the accrual basis as a C corporation.
During the quarter in which this offering is completed, the Company will
recognize two significant charges against income. The completion of this
offering will result in the termination of the Company's S corporation status.
As a result the Company will record a one-time income statement charge to
operations estimated at $5.3 million based on the deferred tax liabilities as of
December 31, 1996. In connection with this offering, on January 31, 1997,
certain key employees of the Company surrendered rights to purchase shares of
Common Stock of the Company in exchange for options to purchase shares of Common
Stock at an exercise price of $ per share. Upon completion of this offering,
the Company will recognize a non-cash compensation charge against income equal
to the difference between the initial public offering price and the option
exercise price for all outstanding options. At an assumed initial public
offering price of $ per share, the charge against income is estimated
to be $5.5 million. The option exercise price is based on the book value of the
Common Stock at September 30, 1996, and was established pursuant to pre-existing
compensation arrangements with these employees. As a result of these charges,
the Company will report a significant net loss in the period in which this
offering is completed, which is anticipated to be the quarter ended June 30,
1997. See "Management -- Executive Compensation."
20
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
YEARS ENDED SEPTEMBER 30, 31,
------------------------- -----------------
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues:
Government Operations Group........... 39.4% 32.6% 20.1% 24.6% 21.6%
Consulting Group...................... 50.7 39.8 25.1 30.8 18.0
SSA Contract.......................... 9.9 27.5 54.6 44.6 60.4
----- ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Gross Profit:
Government Operations Group........... 5.2 22.7 25.5 22.6 18.4
Consulting Group...................... 46.9 48.0 46.9 50.9 46.3
SSA Contract.......................... 14.8 14.8 12.9 15.0 13.9
Total gross profit................. 27.3 30.6 23.9 28.0 20.7
Selling, general and administrative
expenses.............................. 23.4 17.5 12.7 16.4 10.8
----- ----- ----- ----- -----
Income from operations.................. 3.9 13.1 11.2 11.6 9.9
Interest and other income............... 0.3 0.3 0.3 0.3 0.2
----- ----- ----- ----- -----
Income before income taxes.............. 4.2 13.4 11.5 11.9 10.1
Provision for income taxes.............. 0.0 0.2 0.2 0.2 0.2
----- ----- ----- ----- -----
Net income.............................. 4.2% 13.2% 11.3% 11.7% 9.9%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Revenues. Total contract revenues increased 123.0% to $37.2 million for
the three months ended December 31, 1996 as compared to $16.7 million for the
same period in 1995. Government Operations Group revenues increased 164.5% to
$30.5 million for the three months ended December 31, 1996 from $11.5 million
for the same period in 1995 due to an increase in the number of projects and an
increase in revenues from the SSA Contract. For the three months ended December
31, 1996, revenues from the SSA Contract were $22.5 million as compared to $7.4
million in the same period in 1995. Excluding the SSA Contract, Government
Operations Group revenues increased 95.7% to $8.0 million in the three months
ended December 31, 1996 from $4.1 million in same period in 1995. Consulting
Group revenues increased 30.1% to $6.7 million for the three months ended
December 31, 1996 from $5.2 million in the same period in 1995 due to an
increase in the number of contracts.
Gross Profit. Gross profit consists of total revenues less cost of
revenues. Total gross profit increased 65.0% to $7.7 million for the three
months ended December 31, 1996 as compared to $4.7 million for the same period
in 1995. Government Operations Group gross profit increased 124.9% to $4.6
million for the three months ended December 31, 1996 from $2.0 million for the
three months ended December 31, 1995. As a percentage of revenues, gross profit
decreased to 20.7% in the three months ended December 31, 1996 from 28.0% in the
same period in 1995, primarily due to the increased revenue contribution of the
SSA Contract, which had a lower gross profit margin. Excluding the SSA Contract,
as a percentage of revenues, Government Operations Group gross profit decreased
to 18.4% in the three months ended December 31, 1996 from 22.6% in the same
period in 1995 due to the incurrence of approximately $1.0 million of
pass-through costs which generated no gross margin for the three months ended
December 31, 1996, and the recognition of $0.2 million of above-normal profit
due to the Company exceeding expectations, on a performance-based contract for
the three months ended on December 31, 1995. Consulting Group gross profit
increased 18.2% to $3.1 million for the three months ended December 31, 1996
from $2.6 million for the same period in 1995 due to higher revenues. As a
percentage of revenues, Consulting Group gross profit decreased to 48.2% for the
three months ended December 31, 1996 from 50.9% in the same period in 1995
primarily due to the recognition of above
21
<PAGE> 23
normal profit due to the Company exceeding expectations on several
performance-based contracts in the three months ended December 31, 1995.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 47.3% to $4.0 million for the three months
ended December 31, 1996 as compared to $2.7 million in the same period in 1995.
Increased numbers of both professional and administrative employees resulted in
an increase in salary and benefit expense for the three months ended December
31, 1996. Training costs and professional fees also increased for the three
months ended December 31, 1996. As a percentage of revenues, selling, general
and administrative expenses decreased to 10.8% for the three months ended
December 31, 1996 from 16.4% for the same period in 1995 as the Company was able
to support its revenue growth without a proportionate increase in associated
costs.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Revenues. Total revenues increased 98.4% to $103.1 million in fiscal 1996
from $52.0 million in fiscal 1995. Government Operations Group revenues
increased 147.0% to $77.2 million in fiscal 1996 from $31.3 million in fiscal
1995. This growth was due to an increase in the number of projects and an
increase in revenues from the SSA Contract, which contributed $56.5 million to
fiscal 1996 revenues as compared to $14.3 million to fiscal 1995 revenues.
Excluding the SSA Contract, Government Operations Group revenues increased 22.0%
to $20.7 million in fiscal 1996 from $17.0 million in fiscal 1995. Consulting
Group revenues increased 25.1% to $25.9 million in fiscal 1996 from $20.7
million in fiscal 1995 primarily due to an increase in revenues from revenue
maximization contracts. The Consulting Group's nine revenue maximization
contracts in fiscal 1996 contributed $7.6 million to fiscal 1996 revenues as
compared to two revenue maximization contracts which contributed $2.5 million to
fiscal 1995 revenues.
Gross Profit. Total gross profit increased 55.3% to $24.7 million in
fiscal 1996 from $15.9 million in fiscal 1995. Government Operations Group gross
profit increased 110.6% to $12.5 million in fiscal 1996 from $6.0 million in
fiscal 1995. As a percentage of revenues, Government Operations Group gross
profit decreased to 16.2% in fiscal 1996 as compared to 19.0% in fiscal 1995,
primarily due to the increased revenue contribution of the SSA Contract, which
had a lower gross margin. Excluding the SSA Contract, as a percentage of
revenues, Government Operations Group gross profit increased to 25.5% for fiscal
1996 from 22.7% for fiscal 1995. Consulting Group gross profit increased 22.2%
to $12.1 million in fiscal 1996 from $9.9 million in fiscal 1995 as a result of
higher revenues. As a percentage of revenues, Consulting Group gross profit
decreased to 46.9% in fiscal 1996 from 48.0% in fiscal 1995, which represents
normal variability of gross profit from year to year.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 44.3% to $13.1 million in fiscal 1996 from
$9.1 million in fiscal 1995. This increase in costs was due to increases in both
professional and administrative personnel necessary to support the Company's
growth. The total number of employees increased to 754 at September 30, 1996
from 439 at September 30, 1995. Additionally, marketing and proposal preparation
expenditures increased as the Company pursued further revenue growth. As a
percentage of revenues, selling, general and administrative expenses decreased
to 12.7% in fiscal 1996 from 17.5% in fiscal 1995 due to the Company's ability
to support its growth without a proportionate increase in associated costs.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues. Total revenues increased 74.0% to $52.0 million in fiscal 1995
from $29.9 million in fiscal 1994. Government Operations Group revenues
increased 112.4% to $31.3 million in fiscal 1995 from $14.7 million in fiscal
1994 due to an increase in the number of projects and an increase in revenue
from the SSA Contract, which commenced in February 1994. The SSA Contract
contributed $14.3 million to fiscal 1995 revenues as compared to $2.9 million to
fiscal 1994 revenues. Excluding the SSA Contract, Government Operations Group
revenues increased 43.9% to $17.0 million in fiscal 1995 from $11.8 million in
fiscal 1994. Consulting Group revenues increased 36.7% to $20.7 million in
fiscal 1995 from $15.1 million in fiscal 1994 due to an increase in the number
of contracts and revenues resulting from revenue maximization contracts,
22
<PAGE> 24
which the Company commenced performing in fiscal 1994. Revenues attributable to
revenue maximization contracts grew to $2.2 million in fiscal 1995 from $0.3
million in fiscal 1994.
Gross Profit. Total gross profit increased 95.1% to $15.9 million in
fiscal 1995 from $8.1 million in fiscal 1994. Government Operations Group gross
profit increased 468.5% to $6.0 million in fiscal 1995 from $1.0 million in
fiscal 1994. As a percentage of revenues, Government Operations Group gross
profit increased to 19.0% in fiscal 1995 from 7.1% in fiscal 1994. This increase
in gross margin resulted primarily from nonrecurring losses on two of its
contracts in fiscal 1994, whereas the Company realized above normal profit on
one of its contracts in fiscal 1995. Consulting Group gross profit increased
40.0% to $9.9 million in fiscal 1995 from $7.1 million in fiscal 1994 due to
higher revenues. As a percentage of revenues, Consulting Group gross profit
increased to 48.0% in fiscal 1995 from 46.9% in fiscal 1994 which represents
normal variability of gross profit from period to period.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 30.1% to $9.1 million in fiscal 1995 from $7.0
million in fiscal 1994. This increase in costs was due to increased professional
and administrative personnel necessary to support the growth of the Company. The
number of Consulting Group professionals increased 46% during the year ended
September 30, 1995 and administrative personnel increased 30% over the same
period. As a percent of revenues, selling, general and administrative expenses
decreased to 17.5% for fiscal 1995 from 23.4% for fiscal 1994 due to the ability
of the Company to support its growth without a proportionate increase in
associated costs.
QUARTERLY RESULTS
Set forth below are selected income statement data for the nine fiscal
quarters ended December 31, 1996. This information is derived from unaudited
quarterly financial statements which include, in the opinion of management, all
adjustments necessary for a fair presentation of the information for such
periods. This information should be read in conjunction with the Financial
Statements and related Notes thereto contained elsewhere in this Prospectus.
Results of operations for any fiscal quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Government Operations
Group.................. $ 4,303 $ 4,715 $ 3,964 $ 3,969 $ 4,102 $ 4,947 $ 4,896 $ 6,736 $ 8,029
Consulting Group......... 4,742 5,030 5,446 5,481 5,152 7,333 5,832 7,585 6,704
SSA Contract............. 2,290 2,724 3,787 5,512 7,446 10,606 17,170 21,308 22,511
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 11,335 12,469 13,197 14,962 16,700 22,886 27,898 35,629 37,244
Cost of revenues........... 8,124 8,385 9,064 10,498 12,027 16,962 21,577 27,863 29,534
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 3,211 4,084 4,133 4,464 4,673 5,924 6,321 7,766 7,710
Selling, general and
administrative
expenses................. 1,762 2,176 2,446 2,694 2,742 3,022 3,219 4,121 4,039
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations..... 1,449 1,908 1,687 1,770 1,931 2,902 3,102 3,645 3,671
Interest and other
income................... 34 36 46 53 53 46 63 102 84
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................... 1,483 1,944 1,733 1,823 1,984 2,948 3,165 3,747 3,755
Provision for income
taxes.................... 26 35 31 32 40 54 60 71 57
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................. $ 1,457 $ 1,909 $ 1,702 $ 1,791 $ 1,944 $ 2,894 $ 3,105 $ 3,676 $ 3,698
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the progress of contracts, revenues earned on contracts, the commencement and
completion of contracts during any particular quarter, the schedule of the
government agencies for awarding contracts, the term of each contract that the
Company has been awarded and general economic conditions. Because a significant
portion of the Company's expenses are relatively fixed, successful contract
performance and variation in the volume of activity as well as in the number of
contracts commenced or completed during any quarter may cause significant
variations in operating results from quarter to quarter.
23
<PAGE> 25
Furthermore, the Company has on occasion experienced a pattern in its results of
operations pursuant to which it incurs greater operating expenses during the
start-up and early stages of significant contracts. In addition, the termination
of the SSA Contract will significantly reduce the Company's revenue base as
compared to previous quarters. No assurances can be given that quarterly results
will not fluctuate, causing a material adverse effect on the Company's operating
results and financial condition. See "Risk Factors -- Variability of Quarterly
Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations. The Company's cash flows from operations were $1.8 million, $3.1
million, $2.7 million and $0.4 million for the three months ended December 31,
1996 and for the years ended September 30, 1996, 1995, and 1994, respectively.
Because the Company elected to be treated as an S corporation for tax purposes,
the Company's net cash provided by operations reflects only certain state taxes.
The timing of receipt of contract payments can vary and, combined with the
requirement to provide start-up funding for new projects, cash flows fluctuate
from period to period.
Of the $1.4 million of cash flow used for investing activities for the year
ended September 30, 1996, $1.0 million was used to purchase short-term municipal
bonds, which can be readily converted to cash if needed. The Company has no
material commitments for capital expenditures and, as a services company, does
not anticipate making any significant capital expenditures over the next two
years.
Cash flows from financing activities consisted solely of stock sales to
employees, purchases from departing employees and S corporation distributions,
which were made to fund the payment of income taxes by the shareholders. The
Company does not anticipate the future payment of dividends, other than the S
Corporation Dividend.
The Company has a $10.0 million revolving credit facility (the "Credit
Facility") with a bank, which may be used for borrowing and the issuance of
letters of credit. Outstanding letters of credit totalled $1.2 million at
December 31, 1996. The Credit Facility bears interest at a rate equal to LIBOR
(approximately 5.4% at February 3, 1997) plus 2.0%. The Credit Facility contains
certain restrictive covenants and financial ratio requirements, including a
minimum net worth requirement of $10.5 million. The Company has not used the
Credit Facility to finance its working capital needs and, at December 31, 1996,
the Company had $8.8 million available under the Credit Facility.
The Company believes the net proceeds from the sale of Common Stock offered
hereby, together with funds generated by operations, will provide adequate cash
to fund its anticipated cash needs over the next 12 months, which may include
start-up costs associated with new contract awards, obtaining additional office
space, establishing new offices, expansion of international operations,
investment in upgraded systems infrastructure or acquisitions of other
businesses, technologies, product rights or distribution rights. In addition,
the Company's stronger financial condition should facilitate its ability to
compete for certain larger contracts from which it is currently restricted.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, was issued in October 1995. The Company will be
required to adopt the new standard for its fiscal year ending September 30,
1997. This standard establishes the fair-value-based method (the "FAS 123
Method") rather than the intrinsic value based method as the preferred
accounting methodology for stock-based compensation arrangements. Entities are
allowed to: (i) continue to use the intrinsic value based methodology in their
basic financial statements and provide in the footnotes pro forma net income and
earnings per share information as if the FAS 123 Method had been adopted; or
(ii) adopt the FAS 123 Method. The Company anticipates providing the required
disclosures in the Notes to the Financial Statements.
24
<PAGE> 26
BUSINESS
OVERVIEW
MAXIMUS is a leading provider of program management and consulting services
to government health and human services agencies in the United States. Since
1975, the Company has been at the forefront of innovation in "Helping Government
Serve the People(TM)." The Company's services are designed to make government
operations more efficient and cost effective while improving the quality of the
services provided to program beneficiaries. The Company applies an
entrepreneurial, private sector approach incorporating advanced technology in
large scale projects in almost every state in the nation. The Company's leading
position in the emerging private sector health and human services industry is
reflected by its growth in annual revenues from approximately $12 million in
fiscal 1990 to over $100 million in fiscal 1996.
MAXIMUS conducts its operations through two groups, the Government
Operations Group and the Consulting Group. The Government Operations Group
administers and manages government health and human services programs, including
welfare-to-work and job readiness, child support enforcement, managed care
enrollment and disability services. The Consulting Group provides health and
human services planning, information technology consulting, strategic program
evaluation, program improvement, communications planning and revenue
maximization services.
MARKET OPPORTUNITY
The Company believes that providing program management and consulting
services to government agencies in the health and human services sector
represents a significant market opportunity for the Company. Federal, state and
local government agencies in the United States spend over $200 billion annually
on the health and human services programs for which the Company markets its
services, including welfare, child care, child support enforcement, food stamps,
Social Security Disability Insurance, Supplemental Security Income and Medicaid.
These programs cost an estimated $18.7 billion in annual administrative costs.
The following chart sets forth currently available data from U.S. government
publications for programs served by the Company:
<TABLE>
<CAPTION>
ESTIMATED NUMBER ESTIMATED ANNUAL
PROGRAM OF BENEFICIARIES SERVED ADMINISTRATIVE EXPENDITURES
<S> <C> <C>
Social Security Disability Insurance
and Supplemental Security Income..... 7.4 million $ 4.8 billion
Food Stamps............................ 28.0 million 3.7 billion
Medicaid............................... 35.1 million 3.7 billion
Temporary Assistance to Needy
Families............................. 13.6 million 3.5 billion
Child Support Enforcement.............. 3.5 million 3.0 billion
</TABLE>
There has been a recent surge in legislation and initiatives to reform
federal, state and local welfare and health and human services systems. The most
significant of these legislative reforms is the Welfare Reform Act, which
restructures the benefits available to welfare recipients, eliminates
unconditional welfare entitlement and, most importantly, restructures the
funding mechanisms that exist between federal and state governments. Under the
Welfare Reform Act, states will receive block grant funding from the federal
government and will no longer be able to seek reimbursement in the form of
matching federal government funds for expenditures in excess of block grants.
Accordingly, states will bear the financial risk for the operation of their
welfare programs. A number of state governments are taking action to respond to
the changes created by welfare reform. For example, the State of Wisconsin
recently awarded a performance-based contract to the Company to manage the
welfare-to-work program in part of Milwaukee. In addition, in Essex County
(Newark), New Jersey, authorities are currently preparing an RFP for the
administration of the county's welfare programs, which currently cost
approximately $52 million per year to administer.
The Company believes that political pressures, combined with the financial
constraints imposed by the Welfare Reform Act, will accelerate the rate at which
state and local health and human services agencies seek new solutions to reduce
costs and improve the effectiveness of entitlement programs. The Company
believes
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that government agencies are increasingly turning to companies similar to
MAXIMUS to administer programs more effectively. Government outsourcing ranges
from the engagement of sophisticated private consulting firms working with
government to improve the delivery of human services to the complete outsourcing
of government health and human services programs. The Company believes that many
government agencies have concluded that private companies, similar to MAXIMUS,
offer cost savings and increased efficiency due to their ability to: (i) accept
contracts where compensation is based on performance; (ii) attract and
compensate experienced, high level management personnel; (iii) rapidly procure
and utilize advanced technology; (iv) vary the number of personnel on a project
to match fluctuating work loads; (v) increase productivity by providing
employees with financial incentives and performance awards and more readily
terminating non-productive employees; (vi) provide employees with ongoing
training and career development assistance; and (vii) maintain a professional
work environment that is more conducive to employee productivity.
STRENGTHS AND DIFFERENTIATIONS
MAXIMUS has been a pioneer in offering state and local government agencies
a private sector alternative to the internal administration of government health
and human services programs and has been innovative in developing new businesses
and market opportunities for the Company's services. The Company believes that
the following business strengths and differentiating characteristics position it
to capitalize on the significant market opportunities presented by the
environment of changing health and human services program regulation and
evolving technologies.
Vertical Market Focus. The Company believes that it is the largest company
dedicated exclusively to providing program management and consulting services to
government health and human services agencies. The Company has accumulated a
detailed knowledge base and understanding of the regulation and operation of
health and human services programs that allows it to apply proven methodologies,
skills and solutions to new projects in a cost-effective and timely fashion. The
Company believes that its exclusive focus, size and broad range of health and
human services program expertise differentiate it from both small firms and non-
profit organizations with limited resources and skill sets as well as from large
consulting firms that serve multiple industries but lack the focus necessary to
understand the complex nature of serving government agencies.
Proven Track Record. Since 1975, MAXIMUS has successfully applied its
entrepreneurial private sector approach to assisting government health and human
services agencies. Over the last five years, MAXIMUS has successfully completed
approximately 100 program management and consulting services projects for state
and local health and human services agencies serving millions of beneficiaries
in nearly every state. The Company believes that the successful execution of
these projects has earned MAXIMUS a reputation for providing efficient and
cost-effective services to government agencies while improving the quality of
services provided to program beneficiaries. This reputation has contributed
significantly to its ability to compete successfully for new contracts.
Wide Range of Services. Many of the Company's clients require their
vendors to provide a broad array of service offerings, something many of the
Company's competitors cannot provide. Engagements often require creative
solutions that must be drawn from diverse areas of expertise. The Company's
expertise in a wide range of services enable it to better pursue such
opportunities and to offer itself as a single-source provider of program
management, consulting and information technology services to government
agencies.
Proprietary Case Management Software Program. MAXIMUS has developed a
proprietary automated case management software program called the MAXSTAR Human
Services Application Builder. MAXSTAR is a software platform that allows the
Company to reduce project implementation time and cost. Because government
agencies are required to manage vast amounts of data and large numbers of cases
without access to advanced technology and experienced professionals, the Company
believes that MAXSTAR, together with the Company's information technology
professionals, is a key element of its success.
Experienced Team of Professionals. MAXIMUS has assembled an experienced
management team of former government executives, state agency officials,
information technology specialists and other profession-
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als with backgrounds in the public health and human services industry. The
Company's employees understand the problems and challenges faced in the
marketing, assessment and delivery of government agency services. Furthermore,
since state and local government administrators are subject to changing
legislative and political mandates, MAXIMUS has developed strong relationships
with experienced political consultants who inform and advise the Company with
respect to strategic marketing and legislative initiatives.
GROWTH STRATEGY
The Company's goal is to be the leading provider of administrative and
consulting services to government health and human services programs. The
Company's strategy to achieve this goal includes the following:
Capitalize on Government Reform. The Company believes that it is
well-positioned to benefit from the expected increase in demand for new program
management and consulting services that will arise in an environment
characterized by changing regulation and evolving technology. The Company
believes that fiscal pressures will compel state governments to rationalize
program operations and upgrade existing technology to operate more
cost-efficient and productive programs. To achieve these efficiencies, MAXIMUS
believes that many government agencies will turn to outside experts for help.
Aggressively Pursue New Business Opportunities. Throughout its 21-year
history, the Company has been a leader in developing innovative solutions to
meet the evolving needs of state and local health and human services agencies.
The Company plans to expand its revenue base by: (i) marketing new and
innovative program management solutions to the Company's extensive client base;
(ii) expanding the Company's client base by marketing the Company's experience
and established methodologies and systems; (iii) investing in early
identification of government bid opportunities; and (iv) submitting competitive
bids that leverage the Company's proven solutions for past projects.
Recruit Highly Skilled Professionals. The Company continually strives to
recruit top government management and information technology professionals with
the experience, skills and innovation necessary to design and implement
solutions to complex problems presented by resource-constrained government
agencies. The Company also seeks to attract middle-level consultants with a
proven track record in the health and human services field and a network of
political contacts to leverage the Company's existing management infrastructure,
client relationships and areas of expertise.
Pursue Strategic Acquisitions. Given the highly fragmented structure of
the government services and consulting marketplace, MAXIMUS believes that
numerous acquisition opportunities exist. Acquisitions can provide the Company
with a rapid, cost-effective method to grow its number of consultants, broaden
its client base, establish or expand its presence in a geographic region or
obtain additional skill sets.
SERVICES
The Company's services are designed to make government operations more
efficient and cost effective while improving the quality of the services
government agencies provide to program beneficiaries. The Company organizes its
operations into two groups: (i) the Government Operations Group, specializing in
the management of government health and human services operations; and (ii) the
Consulting Group, providing health and human services planning, information
technology consulting, strategic program evaluation, program improvement and
revenue maximization services.
GOVERNMENT OPERATIONS GROUP
The Company's Government Operations Group is comprised of four divisions
specializing in the administration and management of government health and human
services programs.
Welfare Reform Division. The Company manages welfare-to-work programs by
providing a wide range of services, including eligibility determination,
emergency assistance, job referral and placement, transition services such as
child care and transportation, community work training services, job readiness
preparation, case management services and selected educational and training
services. The Company's typical welfare-to-work contract involves the engagement
of the Company for a period of three to five years. The Company has
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<PAGE> 29
served over 250,000 welfare recipients at 16 locations in five states. In 1996,
for example, Fairfax County, Virginia awarded the Company a one year, $2 million
contract to place welfare recipients into unsubsidized employment. To date, the
Company has achieved a placement rate in excess of 90% on this contract.
Child Support Enforcement Division. The Company provides a full range of
child support enforcement ("CSE") services, including: (i) outreach to and
interview of parents of children entitled to child support; (ii) establishing
paternity and obtaining, enforcing, reviewing and modifying child support
orders; and (iii) payment processing. The Company operates statewide client
service units, updates case arrearage and demographic data for new CSE automated
systems and provides training to CSE workers. The Company believes that it has
one of the largest CSE staffs in the private sector with over 350 professionals.
The Company has been performing these services since 1976, which the Company
believes is longer than any other private sector firm in the United States. The
Company is currently engaged in the management of CSE programs in 13 locations
in seven states providing full child support services for approximately 150,000
cases and specialized services for an additional 95,000 cases. For example, the
Company currently is providing services under a five year, $12 million,
full-service CSE program management contract in Nashville, Tennessee.
Disability Services Division. The Company provides a host of
disability-related services geared toward case management, client assessment,
treatment and vocational rehabilitation referral, client monitoring and
innovative return-to-work strategies. MAXIMUS became the first company to
operate a national case management and monitoring program for disability
beneficiaries in 1995 when it won a contract with the Social Security
Administration to provide referral and monitoring services to beneficiaries with
drug or alcohol disabilities. The SSA Contract was the largest ever awarded by
the SSA with potential revenues of $350 million. Under the SSA Contract, the
Company has successfully referred approximately 100,000 disabled beneficiaries
into treatment as a first step to re-entering the work force. The Company
believes the skills and tools it employed in the SSA Contract will be invaluable
in pursuing other large scale program management contracts. One example is the
1996 five-year, $4.6 million contract awarded to the Company by the State of New
Jersey to develop and implement a program to identify and locate family members
responsible for paying the institutional care costs of their disabled relatives.
Managed Care Enrollment Services Division. MAXIMUS has obtained
significant experience in managing certain aspects of Medicaid programs through
projects in 20 states. In these projects, MAXIMUS provides recipient outreach,
education and enrollment services; an automated information system customized
for the state; data collection and reporting; outreach to community-based
organizations and advocacy groups; design and development of program materials;
collection of enrollment premiums for uninsured participants; encounter data
reporting to health plans; and care coordination for Early and Periodic
Screening, Diagnosis and Treatment services. MAXIMUS currently operates the
California Options Project, a three year managed care enrollment contract
awarded to the Company in 1996. This project is one of the largest Medicaid
managed care enrollment programs in the country with over two million program
beneficiaries. The Company has also recently been awarded a significant managed
care enrollment contract with the State of New York.
CONSULTING GROUP
The Company's Consulting Group is organized into four operational
divisions: the Human Services Division, the Information Technology Division, the
Systems Planning and Integration Division and the International Division.
Human Services Division. The Company provides consulting and technical
support to the federal government as well as to state and local government
agencies in the financing, delivery and management of a range of human services
programs in the areas of revenue maximization, program evaluations and program
improvement. Revenue maximization involves seeking to increase federal financial
participation in state health and human services programs. The Company collects
a contingency fee based on the amount of additional federal revenues recovered.
Since it began offering revenue maximization services, the Company has succeeded
in obtaining approximately $150 million in additional federal revenues and is
currently engaged in projects that the Company estimates will yield more than
$150 million in additional federal revenues. The
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Company is also frequently engaged to conduct evaluations and provide
improvement recommendations for government programs. Program evaluation
consulting contracts are frequently long-term, multi-year research projects
involving the collection of extensive data using automated data merges as well
as surveys and case record reviews. Since 1994, the Company has completed 70
revenue maximization, program evaluation and program improvement projects in
over 25 states and localities and has recorded approximately $31 million in
revenues from these types of projects. Since 1993, the State of Wisconsin has
awarded to the Company a series of Department of Health and Social Services
projects valued at $6 million, including over one dozen program evaluation
engagements.
Information Technology Division. The Company provides computer system
management services to state and local government agencies administering health
and human services and criminal justice programs. MAXIMUS provides assistance in
designing and/or implementing emerging technologies involving Internet/Intranet,
imaging, telephony, automated kiosks and touch screen technology. The Company
provides assistance in assessing and evaluating the extent of Year 2000 problems
and in strategic planning to resolve compliance issues. The Company believes
that welfare reform legislation will increase the need for new and re-engineered
systems applications, thus increasing the demand for the Company's services.
This division also supports the technical electronic data processing needs of
the Company's other divisions. Since 1984, the Company has provided information
technology systems and design services for 58 projects in over twelve states.
For example, the Company is currently engaged in a six month, $900,000 contract
to provide Year 2000 planning to the Office of Policy and Management of the
State of Connecticut.
Systems Planning and Integration Division. The Company provides a range of
systems consulting support services to state and local government health and
human services agencies and criminal justice systems. This division focuses on
integrating different systems and provides objective, third party strategic
planning, procurement and project management support. Since 1990, the State of
Michigan has awarded to the Company various contracts valued at more than $7
million in the aggregate to monitor and assess Family Assistance Management
Information Systems, CSE systems and Medical Management Information Systems.
International Division. The Company provides healthcare consulting and
systems services to foreign government agencies and non-profit organizations
responsible for the delivery of treatment services to large populations. The
Company automates and restructures clinical information systems for large
outpatient providers, hospital information systems, managed care information
systems, beneficiary management systems and treatment network management systems
for managing large networks of health treatment facilities. In addition, MAXIMUS
consults with foreign government agencies in developing healthcare policy
reforms, treatment quality improvements and productivity enhancements. The
Company's healthcare systems software, developed in ORACLE7(R), is a
platform-independent and multi-language software package. The Company has
developed an Arabic language version of this software for use in the Middle
East. Currently, the division is engaged in a major automation project for the
United States Agency for International Development in Egypt. The objective of
the five-year, $22 million contract is to install a national healthcare system
database in 18 hospitals and 200 clinics throughout Egypt, allowing the Egyptian
Health Insurance Organization to better manage its facilities.
BACKLOG
The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts. Using the best available information,
the Company estimates backlog on a quarterly basis with respect to all executed
contracts. The backlog estimate includes revenues expected under the current
terms of executed contracts, revenues from contracts in which the scope and
duration of the services required are not definite but estimable and does not
assume any contract renewals or extensions.
Changes in the backlog calculation from quarter to quarter result from: (i)
additional revenues from the execution of new contracts or extension or renewal
of existing contracts; (ii) reduction in revenues from fulfilling contracts
during the most recent quarter; (iii) reduction in revenues from the early
termination of contracts; and (iv) adjustments to estimates of previously
included contracts.
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At December 31, 1996 and 1995, the Company's backlog for services pursuant
to its contracts with federal, state and local health and human services
agencies was approximately $112.8 million and $126.5 million, respectively. At
December 31, 1996 and 1995, the Company's backlog, excluding the SSA Contract,
was approximately $104.3 million and $57.1 million, respectively.
MARKETING AND SALES
The Company's Government Operations Group obtains program management
contracts from state and local authorities by responding to RFPs issued by such
authorities. Whenever possible, prior to the issuance of an RFP, senior
executives in the Government Operations Group work with senior government
representatives, such as the governor, members of the governor's staff and the
heads of health and human services agencies to encourage them to outsource
certain health and human services functions. To identify opportunities to work
with government officials at early stages and to optimize the government's
receptivity to the Company's proposal to provide program management services,
the Company establishes and maintains relationships with elected officials,
political appointees and government employees. The Company occasionally engages
marketing consultants, including lobbyists to establish and maintain
relationships with these client representatives. The Company's consultants and
lobbyists provide introductions to government personnel and provide information
to the Company regarding the status of legislative and executive
decision-making.
Following the issuance of an RFP the Government Operations Group
participates in formal discussions, if any, between the contracting government
agency and the group of potential service providers seeking to modify the RFP
and prepare the proposal. Upon the award of a government operations contract,
the Company's representatives then negotiate the contract with representatives
of the contracting government authority until all terms are agreed.
The Consulting Group generates leads for consulting contracts by employing
lobbyists, maintaining relationships with government personnel in charge of
health and human services operations and communicating directly with current and
prospective clients. The Consulting Group participates in professional
associations of government administrators and industry seminars featuring
presentations by MAXIMUS personnel. Senior executives from the Consulting Group
develop leads through on-site presentations to the decision-makers. In most
cases, consulting contracts, like program management contracts, are obtained
after responding to a formal RFP. The Consulting Group's efforts in generating a
lead prior to the RFP can facilitate the Company's insight in responding to a
particular RFP. A portion of the Consulting Group's new business arises from
prior client engagements, in which case the Company may be the sole source of
services. In addition, clients frequently expand the scope of engagements during
delivery to include follow-on activities.
COMPETITION
The market for providing program management and consulting services to
state and local health and human services agencies is competitive and subject to
rapid change. The Company's Government Operations Group competes for program
management contracts with local non-profit organizations such as the United Way
and Goodwill Industries, government services divisions of large companies such
as Lockheed Martin Corp. and Electronic Data Systems, Inc., managed care
enrollment companies such as Foundation Health Corporation and specialized
service providers such as Andersen Consulting, America Works, Inc., Policy
Studies Incorporated and GC Services, Inc. The Company's Consulting Group
competes with the consulting divisions of the "Big 6" accounting firms as well
as Electronic Data Systems, Inc. Many of these companies are national and
international in scope and have greater financial, technical, marketing and
personnel resources than the Company. The Company anticipates that it will face
increased competition in the future as new companies enter the market. The
Company believes that its experience, reputation, industry focus and broad range
of services will enable it to compete effectively in its marketplace. See "Risk
Factors -- Intense Competition."
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GOVERNMENT REGULATION
The market for the Company's services exists under a United States federal
regulatory framework of social programs which are largely implemented at the
state or local level. The following summarizes this framework:
WELFARE PROGRAMS. Under Title IV-A of the federal Social Security Act, the
federal government provides financial assistance to underprivileged families
under several programs generally known as "Welfare," which have included Aid to
Families with Dependent Children ("AFDC"), Job Opportunities and Basic Skills
Training ("JOBS") and the Food Stamp Program. Under the AFDC program, cash
welfare payments are provided to needy children who have been deprived of
parental support or care and certain others in the household of the child. State
governments are required to define "need," set their own benefit levels,
establish (within federal limitations) income and resource limits and administer
the program or supervise its administration. Beginning in October 1990, the
federal government required each state to implement a JOBS program, which is
designed to help needy families with children to avoid long-term Welfare
dependency by providing education, training, job placement and other supportive
services including child care. The Food Stamp Program is designed to improve the
nutrition of low-income households and is also administered by state welfare
agencies under the supervision of the United States Department of Agriculture.
Benefits are generally provided in the form of food stamp coupons and are funded
by the federal government, which reimburses part of the cost of establishing an
automated system and part of the cost of operating an automated food stamp
program.
Under the recently enacted Welfare Reform Act, AFDC and JOBS have been
combined into a single program, known as "Temporary Assistance to Needy
Families" or "TANF." Under TANF the federal government will make "block grants"
of funds to the states, to be administered at the state level in programs that
include certain mandatory work, education and job-related activities, including
job training and job search for the purposes of: (i) providing needy families
with time-limited assistance in order to end their dependency on government
benefits and achieve self-sufficiency; (ii) preventing and reducing
out-of-wedlock pregnancies, especially teenage pregnancies; and (iii)
encouraging the formation and maintenance of two-parent families. While the
federal act provides general requirements, states must determine how these
requirements will be met.
CHILD SUPPORT ENFORCEMENT. The federal Child Support Enforcement ("CSE")
program, authorized under Title IV-D of the Social Security Act, was established
in 1975 in response to the increasing failure of many parents to provide
financial support to their children. The purpose of the CSE program is to help
strengthen families and reduce Welfare dependency by placing the responsibility
for supporting children on the parents rather than on the government. State
governments are generally required to locate absent parents, establish paternity
if necessary, obtain judicial support orders and collect the support payments
required by those orders. Child Support Enforcement has been the subject of
close scrutiny in recent years and is an area of health and human services where
government has sought significant private sector involvement including full
service program management efforts.
The Child Support Enforcement Amendments of 1984 mandated that state CSE
information systems, in order to receive matching federal funding, must meet
certain federal functional requirements covering case initiation, case
management, database linkage, financial management, enforcement, security,
privacy and reporting. The Family Support Act of 1988, effective October 1992,
mandated enhanced functional requirements for state CSE systems, including the
implementation of automated systems able to interface electronically with other
state systems such as Welfare, driver and vehicle registration and Medicaid
systems.
SOCIAL SECURITY DISABILITY INSURANCE AND SUPPLEMENTAL SOCIAL SECURITY
INCOME. Titles II and XVI of the federal Social Security Act provide for the
administration and distribution of financial assistance to disabled individuals
whose impairments make them unemployable. These benefits fall into two
categories: (i) Social Security Disability Insurance (Title II) provides
financial benefits to individuals who have contributed to Social Security during
a prior period of employment; and (ii) Supplemental Security Income or SSI
(Title XVI) provides financial benefits to individuals who meet all the
disability criteria used to determine eligibility under Title II, but who have
not made a sufficient contribution to Social Security.
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Recently, there has been political pressure on the Social Security
Administration (the "SSA") to review the caseload of Title II and Title XVI
beneficiaries to ensure that each individual's disability still exists and that
the extent of such disability remains sufficient to preclude employment. In
addition, the SSA has been under pressure to increase and improve vocational
rehabilitation efforts focused on returning disabled beneficiaries to work and
self-sufficiency.
MEDICAID AND MEDICARE. Medicaid and Medicare were implemented under Title
XIX and XVIII of the Social Security Act. Medicaid is a federal-state matching
entitlement program, that provides reimbursement for the cost of medical care to
low-income individuals who are aged, blind, disabled or AFDC beneficiaries, and
to certain pregnant woman and children. Within broad federal guidelines, each
state designs and administers its own program. Eligibility and claims processing
systems are automated by each state to handle this program, which is typically
the largest line item in a state budget. Federal assistance is also available on
a waiver basis for managed care experimental medical treatment for Medicaid
recipients and similar populations. Medicare is a federal entitlement program
providing reimbursement of a portion of the cost of medical care provided to the
elderly.
HUMAN RESOURCES
As of December 31, 1996, the Company had 777 employees, consisting of 608
employees in the Government Operations Group, 108 employees in the Consulting
Group and 61 administrative employees. The Company's success depends in large
part on attracting, retaining and motivating talented, innovative and
experienced professionals at all levels. In connection with its hiring efforts,
the Company employs a full-time human resources coordinator, retains several
executive search firms and relies on personal and business contacts to recruit
senior level employees for senior management positions in the Government
Operations Group and the Consulting Group and for senior administrative
positions. When the Company's Government Operations Group is awarded a contract
by state or local government, the Company is often under a tight timetable to
hire project leaders and case management personnel to meet the needs of the new
project. To meet such needs, the Company engages intensive short-term hiring
efforts at the project's location. See "Risk Factors -- Reliance on Key
Executives" and "-- Attraction and Retention of Employees."
The Company's hiring focus is to identify candidates who are well suited by
background and temperament to serve the Company's government clients. The
Company's Government Operations employees are largely drawn from government
employment positions, while the Consulting Group employees are largely selected
from other consulting organizations and government agencies.
MAXIMUS offers employees an internal training program designed to enhance
professional skills and knowledge. Offered twice a year, the three-day program
includes human resources topics such as cultural sensitivity, sexual harassment
and wrongful termination; marketing, proposal writing and public relations;
project administration topics, such as contract negotiations, project
management, deliverable preparation and client management; and technology
updates. In addition, MAXIMUS offers partial tuition reimbursement for employees
pursuing relevant degree programs and fully reimburses employees for relevant
training seminars and short courses.
The Company promotes loyalty and continuity of its employees by offering
packages of base and incentive compensation and benefits that it believes are
significantly more attractive than those offered by the government or other
government consulting firms in general. In addition, to attract and retain
employees, the Company has established several employee benefit plans. See
"Management -- Stock Plans" and "-- 401(k) Plan."
LEGAL PROCEEDINGS
On February 3, 1997, Network Six, Inc. ("Network Six") filed a Third-Party
Complaint in the State of Hawaii Circuit Court of the First Circuit in which
Network Six named the Company, and other parties, as third party defendants in
an action by the State of Hawaii against Network Six. In 1991, the Company's
Consulting Group was engaged by the State of Hawaii to provide assistance in
planning for and monitoring the development and implementation by Hawaii of a
statewide automated child support system. In 1993, Hawaii
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contracted with Network Six to provide systems development and implementation
services for this project. In 1996 the state terminated the Network Six contract
for cause and filed an action against Network Six for punitive damages. Network
six counterclaimed against Hawaii that the state breached its obligations under
the contract with Network Six. In the Third Party Complaint, Network Six alleges
that the Company is liable to Network Six on grounds that: (i) Network Six was
an intended third party beneficiary under the contract between the Company and
Hawaii; (ii) the Company tortiously interfered in the contract between Network
Six and Hawaii; (iii) the Company negligently breached duties to Network Six;
and (iv) the Company aided and abetted Hawaii in Hawaii's breach of contract.
Network Six's complaint seeks $60 million in damages from the Company, which is
claimed to represent a decline in Network Six's stock value over an unspecified
period. The Company believes Network Six may have filed or may in the future
file actions in other jurisdictions asserting similar claims against the
Company. The Company believes that Network Six was not an intended third party
beneficiary under its contract with Hawaii and that Network Six's claims are
without merit. The Company does not believe this action will have a material
adverse effect on the Company's business, and it intends to rigorously defend
this action.
The Company is not a party to any material legal proceedings, except as set
forth above.
FACILITIES
The Company is headquartered in McLean, Virginia, in a 21,000 square foot
office building which is owned by the Company. The Company leases office space
for other management and administrative functions in connection with the
performance of its contracts in various states and foreign countries. On
December 31, 1996, the Company conducted operations from twenty leased office
facilities totalling 300,000 square feet. See Note 6 of Notes to Financial
Statements. The lease terms vary from month-to-month to three-year leases and
are at market rates. The Company believes that additional space will be required
as the business expands and believes that it will be able to obtain such space
as needed.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees and their
respective ages and positions as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David V. Mastran(1)................ 54 President, Chief Executive Officer and Director
Raymond B. Ruddy(1)................ 53 Chairman of the Board of Directors, Vice President of
the Company and President of Consulting Group
Russell A. Beliveau(2)............. 49 President of Government Operations Group and Director
F. Arthur Nerret................... 49 Treasurer and Chief Financial Officer
Donna J. Muldoon................... 54 Vice President of Administrative Services, Secretary
and Director
Susan D. Pepin(2).................. 42 President of Systems Planning and Integration Division
and Director
Lynn P. Davenport.................. 49 President of Human Services Division and Director
Robert J. Muzzio................... 62 Executive Vice President and Director
Ilene R. Baylinson................. 40 President of Disability Services Division
Edward F. Hilz..................... 51 Chief Information Officer and President of Information
Technology Division
David A. Hogan..................... 48 President of Child Support Division
John P. Lau, Sr.................... 53 President of International Division
Holly A. Payne..................... 44 President of Welfare Reform Division
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
David V. Mastran has served as President and Chief Executive Officer since
he founded the Company in 1975. Dr. Mastran received his Sc. D. in Operations
Research from George Washington University in 1973, his M.S. in Industrial
Engineering from Stanford University in 1966 and his B.S. from the United States
Military Academy at West Point in 1965.
Raymond B. Ruddy has served as the Chairman of the Board of Directors since
1985 and President of the Company's Consulting Group since 1986. From 1969 until
he joined the Company, Mr. Ruddy served in various capacities with Touche Ross &
Co., including, Associate National Director of Consulting from 1982 until 1984
and Director of Management Consulting (Boston, Massachusetts office) from 1978
until 1983. Mr. Ruddy received his M.B.A. from the Wharton School of Business of
the University of Pennsylvania and his B.S. in Economics from Holy Cross
College.
Russell A. Beliveau has served as the President of the Company's Government
Operations Group since 1995. Mr. Beliveau has more than 20 years experience in
the Health and Human Services Industry during which he has worked in both
government and private sector positions at the senior executive level. Mr.
Beliveau's past positions include Vice President of Operations at Foundation
Health Corporation of Sacramento, California from 1988 through 1994 and Deputy
Associate Commissioner (Medicaid) for the Massachusetts Department of Public
Welfare from 1983 until 1988. Mr. Beliveau received his M.B.A. in Business
Administration and Management Information Systems from Boston College in 1980
and his B.A. in Psychology from Bridgewater State College in 1974.
F. Arthur Nerret has served as Treasurer and Chief Financial Officer of the
Company since 1994 and serves as Trustee of the Company's 401(k) Plan. He has
over 24 years of accounting experience as a CPA. From 1981 until he joined the
Company, Mr. Nerret held a variety of positions at Frank E. Basil, Inc. in
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<PAGE> 36
Washington, D.C. including Vice President, Finance from 1991 to 1994 and
Director of Finance from 1989 until 1991. Mr. Nerret received his B.S. in
Accounting from the University of Maryland in 1970.
Donna J. Muldoon has served as the Vice President of the Company's
Administrative Services Division since 1989 and has served in various
administrative capacities since 1978. Before joining the Company, Ms. Muldoon
was an Administrative/Top Secret Control Officer with the Department of the Air
Force, Logistic Plans and Programs, from 1973 until joining the Company.
Susan D. Pepin has served as the President of the Company's Systems
Planning and Integration Division since 1994 and has been with the Company since
1988. She has over 14 years experience in technical management and consulting
with a focus on health and human services management information systems. Before
joining the Company, Ms. Pepin served as Director of eligibility systems for the
Massachusetts Department of Public Welfare from 1984 until 1987 and a Project
Leader for Wang Laboratories, Inc. from 1979 until 1984. Ms. Pepin received her
B.S. in Home Economics with a concentration in Consumer Studies and a minor in
Business from the University of New Hampshire in 1976.
Lynn P. Davenport has served as the President of the Company's Human
Services Division since he joined the Company in 1991 after 17 years of health
and human services experience in the areas of administration, productivity
improvement, management consulting, revenue maximization and management
information systems. Prior to joining the Company, Mr Davenport was employed by
Deloitte & Touche, and its predecessor, Touche Ross & Co., in Boston,
Massachusetts, where he became a partner in 1987. Mr. Davenport received his
M.P.A. in Public Administration from New York University in 1971 and his B.A. in
Political Science and Economics from Hartwick College in 1969.
Robert J. Muzzio has served in various positions with the Company since
1979, including Executive Vice President since 1987, and has more than 30 years
of experience as a health care administrator, health systems researcher, and
personnel and manpower analyst. Prior to joining the Company, Mr. Muzzio held
many public and private sector positions in the health care industry, including
Life Support Coordinator for the Morrison Knudsen Saudi Arabia Consortium in
1978 and 1979 and Director of the Personnel Policies Division of the Office of
the Surgeon General, Department of the Army, from 1976 until 1978. Mr. Muzzio
received his M.A. in Health Care Administration from Baylor University in 1967
and his B.A. in Public Health from San Jose State College in 1956.
Ilene R. Baylinson has served as the President of the Company's Disability
Services Division since 1995 and as Chief Operating Officer from 1991 to 1995.
She has more than 17 years of experience in health and human services program
administration. After obtaining her B.A. from John Hopkins University in 1978,
Ms. Baylinson worked in a variety of positions for Koba Associates, Inc. of
Washington, D.C., including Senior Vice President for Corporate Management,
Marketing and Operations from 1989 until her departure and Corporate Vice
President/Director, Law and Justice Division from 1985 through 1991.
Edward F. Hilz has served as the Company's Chief Information Officer and
President of the Company's Information Technology Division since 1992 and has
over 18 years of experience in the areas of research and development,
telecommunications, health, marketing, finance and data center management. From
1987 until joining the Company, Mr. Hilz served as Chief Operating Officer of
Nationwide Remittance Centers of McLean, Virginia. Previously, Mr. Hilz had
worked in a variety of capacities for Martin Marietta Data Systems, Inc. since
1980. Mr. Hilz received a B.S. in Business Administration and Computer Sciences
from the University of Baltimore in 1969.
David A. Hogan has served as the President of the Company's Child Support
Division since 1994 and served as a Vice President of the division from 1993
until 1994. Prior to joining the Company, Mr. Hogan spent 23 years working in
numerous positions for the Washington State Department of Social and Health
Services including five years as the State's Child Support Director. Mr. Hogan
also served one year as the President of the National Child Support Directors
Association. Mr. Hogan received his J.D. from the University of Puget Sound in
1976 and his B.A. from Western Washington University in 1970.
John P. Lau, Sr. has served as the President of the Company's International
Division since 1993 and served as President of the Company's Advanced Systems
Division from 1989 until 1993. From 1961 until 1988,
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<PAGE> 37
Mr. Lau worked in a variety of government and private health care systems
organizations in technical, managerial and executive positions. Most recently,
Mr. Lau was a Vice President of Modern Psychiatric Systems in Rockville,
Maryland in 1988 and 1989 and served from 1968 through 1988 as Consultant to the
President of Creative SocioMedics Corporation. Mr. Lau received his M.S. in
Physics from Fairleigh Dickinson University in 1968 and his B.S. in Physics from
St. Peter's College, Jersey City, New Jersey in 1965.
Holly A. Payne has served in various executive capacities at the Company
since 1987 and as President of the Company's Welfare Reform Division since 1995.
Ms. Payne has over 21 years of human services programs experience. From 1983
until she joined the Company, Ms. Payne was a Program Manager at Electronic Data
Systems Corporation in Bethesda, Maryland and from 1978 until 1983 she worked in
several capacities for the Departments of Social Services in Prince William and
Fairfax Counties in Virginia. Ms. Payne received her M.S.W. from West Virginia
University in 1978 and her B.S. in Family Services from Northern Illinois
University in 1975.
BOARD OF DIRECTORS
The Company's Amended and Restated Articles of Incorporation, to be filed
concurrently with the closing of this offering, provide for a classified board
of directors consisting of three classes, with each class being as nearly equal
in number of directors as possible. The Board of Directors currently consists of
seven members. The Company expects to increase the size of the Board of
Directors within 90 days after the closing of this offering and to fill the
newly created seats on the Board of Directors with at least two independent
directors.
The term of one class of Directors expires, and their successors are
elected for a term of three years, at each annual meeting of the Company's
shareholders. The Company has designated two Class I directors (Donna J. Muldoon
and Robert Muzzio), two Class II directors (Russell A. Beliveau and Susan D.
Pepin) and three Class III directors (David V. Mastran, Raymond B. Ruddy and
Lynn P. Davenport). These Class I, Class II and Class III directors will serve
until the annual meetings of shareholders to be held in 1998, 1999 and 2000,
respectively, and until their respective successors are duly elected and
qualified, or until their earlier resignation or removal. The Amended and
Restated Articles of Incorporation provide that directors may be removed only
for cause by a majority of shareholders. There are no family relationships among
any of the directors or executive officers.
Each of Raymond B. Ruddy and David V. Mastran, who will together hold %
of the outstanding Common Stock of the Company after giving effect to this
offering, has agreed to vote his shares in favor of the election of the other to
the Board of Directors, as long as each of such shareholders owns or controls at
least 20% of the Company's outstanding Common Stock. See "Agreements with
Executives."
BOARD COMMITTEES
The Company's Board of Directors has standing Audit and Compensation
Committees but does not have a Nominating Committee. The selection of nominees
for the Board of Directors may be made either by the entire Board of Directors
or, subject to certain notice provisions contained in the Company's Bylaws, by
any shareholder entitled to vote for the election of directors.
The Audit Committee, consisting of Mr. Beliveau and Ms. Pepin was formed in
January 1997 and has not held any meetings. The primary function of the Audit
Committee is to assist the Board of Directors in the discharge of its duties and
responsibilities by providing the Board with an independent review of the
financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee reviews
the general scope of the Company's annual audit, the fees charged by the
Company's independent accountants and other matters relating to internal control
systems. The Company intends to appoint two independent directors to the Audit
Committee.
The Compensation Committee determines the compensation to be paid to all
executive officers of the Company, including the Chief Executive Officer. The
Compensation Committee also administers the Company's 1997 Equity Incentive
Plan, including the grant of stock options and other awards under the
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<PAGE> 38
Equity Plan. The Compensation Committee, consisting of Dr. Mastran and Mr.
Ruddy, was also formed in January, 1997 and has not held any meetings. The
Company intends to appoint two independent directors to the Compensation
Committee or to a separate committee that will administer executive officer
compensation.
1997 DIRECTOR STOCK OPTION PLAN
All of the directors who are not employees of the Company or of any
subsidiary of the Company (the "Eligible Directors") are currently eligible to
participate in the Company's 1997 Director Stock Option Plan (the "Director
Plan"). Upon the closing of the Company's initial public offering and upon any
subsequent election or re-election of an Eligible Director, such director is
automatically granted an option to purchase 2,000 shares of Common Stock for
each year of the term of office for which such director has been elected (the
"Options"). The Options become exercisable with respect to 2,000 shares on the
date of grant, and if such Option is for more than 2,000 shares, such Option
shall become exercisable as to 2,000 shares on the next, or each of the next two
annual meetings of shareholders of the Company, as the case may be. The Options
have a term of ten years and an exercise price payable in cash or shares of
Common Stock. The exercise price for Options granted under the Director Plan is
equal to the last sale price for the Common Stock on the business day
immediately preceding the date of grant, as reported on the Nasdaq National
Market.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid with respect to services rendered in the fiscal year ended September 30,
1996 to the Company's Chief Executive Officer and four most highly compensated
executive officers of the Company, whose total salary for such fiscal year
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) COMPENSATION(3)
<S> <C> <C> <C>
David V. Mastran....................................... $311,538 $190,039 --
President and Chief Executive Officer
Raymond B. Ruddy....................................... 300,000 177,165 $ 12,000
Chairman of the Board, Vice President of the Company,
President of Consulting Services
Ilene R. Baylinson..................................... 181,731 200,175(4) 6,375
President of Disability Services Division
Lynn P. Davenport...................................... 212,884 246,067(4) 6,063
President of Human Services Division
Susan D. Pepin......................................... 184,358 212,883(4) 7,374
President of Systems Planning and Integration
Division
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total amount of annual salary and bonus for the
executive officer for the year ended September 30, 1996.
(2) Bonuses earned for the year ended September 30, 1996 were paid on September
30, 1996 for Mr. Ruddy and Ms. Baylinson, on October 21, 1996 for Dr.
Mastran, and on December 19, 1996 for Mr. Davenport and Ms. Pepin.
(3) The figures in this column represent the amount contributed by the Company
to the employee under the Company's 401(k) Plan.
(4) Excludes rights to purchase shares of Common Stock at the price of
per share granted to Ms. Baylinson, Mr. Davenport and Ms. Pepin as
part of their compensation for the year ended September 30, 1996. Such
purchase rights applied to 34,650, 110,000 and 110,000 shares for Ms.
Baylinson, Mr. Davenport and Ms. Pepin, respectively. These executives
surrendered their purchase rights in exchange for options granted on January
31, 1997 under the 1997 Equity Incentive Plan exercisable for the same
number of shares at an exercise price of per share.
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<PAGE> 39
STOCK PLANS
1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"Equity Plan") authorizes the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options for the purchase of an aggregate of
1,000,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to employees of the Company and, in the case of
non-qualified stock options, to consultants of the Company or any Affiliate (as
defined in the Equity Plan) capable of contributing to the Company's
performance. Grants of options under the Equity Plan and all questions of
interpretations with respect to the Equity Plan are determined by the Board of
Directors of the Company. The Board of Directors has appointed the Compensation
Committee to administer the Equity Plan. As of the date of this Prospectus,
options to purchase 403,975 shares had been granted under the Equity Plan.
1997 Employee Stock Purchase Plan. The Company has also adopted an
employee stock purchase plan (the "Purchase Plan") under which employees may
purchase shares of Common Stock at a discount from fair market value. There are
500,000 shares of Common Stock reserved for issuance under the Purchase Plan. To
date, no shares of Common Stock have been issued under the Purchase Plan. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Rights to purchase Common Stock under
the Purchase Plan are granted at the discretion of the Compensation Committee,
which determines the frequency and duration of individual offerings under the
Plan and the dates on which stock may be purchased. Eligible employees
participate voluntarily and may withdraw from any offering at any time before
stock is purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The Purchase Plan
terminates on January 31, 2007. No shares have been or will be issued under the
Purchase Plan until after the closing of this offering.
401(K) PLAN
The Company has a 401(k) savings and retirement plan (the "401(k) Plan")
which covers substantially all employees of the Company. The 401(k) Plan allows
participants to agree to certain salary deferrals which the Company allocates to
the participants' plan account. These amounts may not exceed statutorily
mandated annual limits set forth in the Internal Revenue Code of 1986, as
amended. During the Company's most recent fiscal year, the Company matched
employee contributions to the 401(k) Plan dollar-for-dollar for the first four
percent of the employee's gross salary contributed to the plan per calendar
year.
AGREEMENTS WITH EXECUTIVES
Before the closing of this offering, the Company will have entered into
Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreements with Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms. Pepin
and Mr. Davenport (each, an "Executive Agreement") pursuant to which each
individual will agree to serve as an officer of the Company. Pursuant to the
terms of the Executive Agreements, the officer will be entitled to a base salary
and a year end bonus consistent with the Company's past practices. The initial
base salary for each of Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms.
Pepin and Mr. Davenport will be $350,000, $350,000, $237,500, $182,000, $220,000
and $250,000, respectively. The term of the employment obligation under each
Executive Agreement will be four years subject to the right of the Company to
terminate each officer if the officer breaches any material duty or obligation
to the Company or engages in certain other proscribed conduct. Each Executive
Agreement also will provide that the officer will not compete with the Company
for four years and will maintain the Company's trade secrets in strict
confidence. In addition, the Executive Agreements will restrict the ability of
each officer to sell or transfer shares of Common Stock of the Company held by
such officer during a four year period following this offering and will grant to
the officer certain piggyback registration rights with respect to such shares.
See "Shares Eligible for Future Sale."
38
<PAGE> 40
In the Executive Agreements with each of Raymond B. Ruddy and David V.
Mastran, such executives will agree to vote their shares in favor of the
election of the other to the Board of Directors, as long as each of such
executives owns or controls at least 20% of the outstanding Common Stock. In
addition, Mr. Ruddy will agree in his Executive Agreement to vote his shares of
Common Stock in a manner consistent with instructions received from Dr. Mastran
during the four year period commencing on the closing of this offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was not in existence prior to January 1997.
Accordingly, Dr. Mastran and Messrs. Ruddy and Beliveau consulted one another
regarding executive officer compensation matters, with Dr. Mastran retaining
sole responsibility for any and all final decisions.
CERTAIN TRANSACTIONS
In January 1995, the Company loaned to Russell A. Beliveau, President of
Government Operations Group and a Director of the Company, the aggregate
principal amount of $64,860, evidenced by an interest bearing promissory note.
The note was repaid in full in September 1996.
In May 1995, the Company entered into a Stock Purchase Agreement with
Raymond B. Ruddy, under which the parties agreed that the Company will purchase
up to 2,878,040 of Mr. Ruddy's shares of Common Stock over a four year period,
subject to various conditions including an election by Mr. Ruddy after each
fiscal year end to demand such sale. This agreement will terminate upon
completion of this offering.
In March, 1996, the Company loaned to Lynn P. Davenport, President of Human
Services Division, the aggregate principal amount of $85,000, evidenced by an
interest bearing promissory note. The note was repaid in full in January 1997.
39
<PAGE> 41
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock immediately prior to this offering, and as adjusted to
reflect the sale of the shares offered hereby, by: (i) each person known by the
Company to own beneficially five percent or more of the outstanding shares of
Common Stock; (ii) each of the Company's directors; (iii) each of the Named
Executive Officers; (iv) each Selling Shareholder; and (v) all directors and
executive officers of the Company as a group. The Company believes that each
person named below has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such holder, subject to
community property laws where applicable. Unless otherwise indicate, each of the
Company's shareholders has an address in care of the Company's principal
executive offices.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO BENEFICIAL OWNERSHIP
OFFERING(1)(2) NUMBER AFTER OFFERING(1)
---------------------- OF SHARES ---------------------
NUMBER OF BEING NUMBER OF
NAME SHARES PERCENT OFFERED(2) SHARES PERCENT
<S> <C> <C> <C> <C> <C>
David V. Mastran...................... 6,050,000 54.5%
Raymond B. Ruddy...................... 4,088,370 36.8
Russell A. Beliveau................... 253,000 2.3
F. Arthur Nerret...................... 4,125 *
Ilene R. Baylinson.................... 48,400 *
Lynn P. Davenport..................... 343,200 3.1
Donna J. Muldoon...................... 116,325 1.0
Susan D. Pepin........................ 288,200 2.6
Robert J. Muzzio...................... 143,550 1.3
All Directors and Executive Officers
as a group (9 persons).............. 11,335,170 99.6
Paul G. Buckley(3).................... 1,100 *
William F. Dinneen.................... 6,050 *
Kevin Dorney.......................... 15,675 *
Edward F. Hilz........................ 4,950 *
David A. Hogan........................ 11,000 *
John P. Lau, Sr....................... 11,550 *
Alice Meana........................... 4,125 *
Holly A. Payne........................ 10,450 *
Philip A. Richardson.................. 15,675 *
Robert L. Sarno....................... 4,950 *
Catherine Tracy....................... 4,125 *
Michael C. Truby...................... 9,075 *
</TABLE>
- ------------------------------
* Less than 1%
(1) Applicable percentage of ownership prior to this offering is based upon
11,109,945 shares of Common Stock outstanding. For ownership after
completion of this offering, applicable percentage ownership is based on
shares of Common Stock outstanding and assumes no exercise of the
Underwriters' over-allotment option. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to the shares shown as
beneficially owned. Number of shares of Common Stock deemed beneficially
owned by any person includes outstanding shares of Common Stock held by such
person and any shares of Common Stock issuable upon exercise of stock
options held by such person exercisable within 60 days. Upon the closing of
this offering, each of the following Selling Shareholders will beneficially
own fully exercisable options to purchase that number of shares of Common
Stock set forth after his or her respective name:
40
<PAGE> 42
Ms. Baylinson, 34,650; Mr. Beliveau, 12,100; Mr. Davenport, 110,000; Mr.
Dinneen, 2,750; Mr. Dorney, 8,800; Mr. Hilz, 2,200; Mr. Hogan, 6,050; Mr.
Lau, 5,225; Ms. Meana, 2,200; Ms. Muldoon, 3,575; Mr. Muzzio, 3,575; Mr.
Nerret, 1,925; Ms. Payne, 3,575; Ms. Pepin, 110,000; Mr. Richardson, 8,880;
Mr. Sarno, 2,200; Ms. Tracy, 2,750; and Mr. Truby, 3,575. All directors and
executive officers as a group are deemed to beneficially own an aggregate of
shares of Common Stock issuable upon the exercise of options which
will be fully exercisable within 60 days.
(2) If the over-allotment option is exercised in full, each of the following
Selling Shareholders will sell that number of additional shares of Common
Stock set forth after his or her respective name equal to an aggregate of
shares of Common Stock: Ms. Baylinson, ; Mr. Beliveau, ;
Mr. Buckley, ; Mr. Davenport, ; Mr. Dinneen, ; Mr. Dorney,
; Mr. Hilz, ; Mr. Hogan, ; Mr. Lau, ; Dr. Mastran,
; Ms. Meana, ; Ms. Muldoon, ; Mr. Muzzio, ; Mr. Nerret,
; Ms. Payne, ; Ms. Pepin, ; Mr. Richardson, ; Mr. Ruddy,
; Mr. Sarno, ; Ms. Tracy, ; and Mr. Truby, .
(3) Mr. Buckley's address is 34 Keeling Road, Wakefield, MA 01880.
41
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of the Company's Common
Stock. Such summary is subject to, and qualified in its entirety by, applicable
law and the provisions of the Company's Amended and Restated Articles of
Incorporation (the "Restated Articles") and the Company's Amended and Restated
By-Laws (the "Restated By-Laws"), each to be effective immediately prior to the
closing of this offering and both of which are included as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information." The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, no par value per share, of which 11,109,945 shares were
outstanding immediately prior to this offering.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. Upon the liquidation, dissolution or
winding-up of the Company, holders of Common Stock are entitled to receive
ratably the net assets of the Company available for distribution after the
payment of all debts and other liabilities of the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may adversely be
affected by, the rights of holders of shares of any series of Preferred Stock
that the Company may authorize, designate and issue in the future.
Prior to this offering the outstanding Common Stock was held of record by
21 shareholders. After giving effect to the issuance of the shares of Common
Stock offered by the Company (assuming no exercise of the Underwriters'
overallotment option), there will be shares of Common Stock
outstanding.
LIMITATION OF LIABILITY
The Restated By-Laws limit the liability of the Company's directors and
officers to the maximum extent permitted by Virginia law. Thus, the directors
and officers of the Company shall not be personally liable to the Company or its
shareholders for any breach of any duty based upon any act or omission, except
for an act or omission; (i) resulting from such person's willful misconduct; or
(ii) in knowing violation of criminal law or any federal or state securities
law.
ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS
The Restated Articles prohibit the Company's shareholders from taking any
action, or consenting to any action, by unanimous written consent without a
meeting. The Company's Restated Articles also provide that the directors of the
Company shall be classified into three classes, with staggered three-year terms.
See "Management -- Board of Directors." Any director may be removed only for
cause upon the affirmative vote of at least a majority of the shares entitled to
vote for the election of directors.
The Company's Restated By-Laws provide that for nominations for the Board
of Directors or for other business to be properly brought by a shareholder
before a meeting of shareholders, the shareholder must first have given timely
notice thereof in writing to the Chairman of the Board, if any, the President or
the Secretary of the Company. To be timely, a notice must be delivered to or
mailed and received not less than 45 days before the meeting of the
shareholders; provided, however, that if less than 60 days notice or prior
public disclosure of the date of the meeting is given to shareholders, notice by
the shareholder, to be timely, must be received no later than the close of
business on the 15th day following the day on which such notice or public
disclosure of the meeting date was made. The notice must contain, among other
things, certain information about the shareholder delivering the notice and, as
applicable, background information about each nominee or a description of the
proposed business to be brought before the meeting. The Company's Restated
By-Laws
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<PAGE> 44
also provide that special meetings of shareholders may be called only by the
President or a majority of the Board of Directors of the Company. These
provisions could have the effect of delaying, until the next annual shareholders
meeting, holder actions that are favored by the holders of a majority of the
outstanding voting securities of the Company.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
ANTI-TAKEOVER PROVISIONS OF VIRGINIA LAW
Restrictions on Affiliated Transactions. The Virginia Stock Corporation
Act (the "VSCA") requires the approval of certain material transactions (an
"Affiliated Transaction") between a Virginia corporation and any beneficial
holder of more than 10% of any class of its outstanding voting shares (an
"Interested Shareholder") by the other holders of voting shares. Affiliated
Transactions include any merger, share exchange or material disposition of
corporate assets not in the ordinary course of business involving an Interested
Shareholder, any dissolution of the corporation proposed by or on behalf of an
Interested Shareholder, or any reclassification, including reverse stock splits,
recapitalizations or mergers of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Shareholder by more than 5%.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. On February , 1997, the Company, by action
of its shareholders, adopted such an amendment to its Articles of Incorporation.
The amendment will become effective eighteen months after the date of its
adoption. Any subsequent amendment eliminating the election not to be governed
by this statute would not restrict an Affiliated Transaction between the Company
and an Interested Shareholder existing at the time of such subsequent amendment.
Voting Restrictions Arising from Control Share Acquisitions. The VSCA also
contains provisions governing "Control Share Acquisitions." These provide that
shares of a Virginia public issuer acquired in a transaction that would cause
the voting strength of the acquiring person and its associates to meet or exceed
any of three thresholds (20%, 33 1/3% or 50%) have no voting rights unless
granted by a majority vote of shares not owned by the acquiring person or any
officer or employee-director of the Virginia public issuer. An acquiring person
may require the Virginia public issuer to hold a special meeting of shareholders
to consider the matter within 50 days of the request. The Company has "opted
out" of the Control Share Acquisitions provisions.
Fiduciary Duty of Directors. The provisions of the VSCA governing
Affiliated Transactions and those governing Control Share Acquisitions
explicitly provide a statutory standard of care for directors, which applies to
all aspects of a Board's actions in responding to a tender offer. Specifically,
the VSCA states that a director shall discharge his duties as a director in
accordance with his good faith business judgment of the best interests of the
corporation, and, in determining the best interests of the corporation, a
director may consider the possibility that those interests may best be served by
the continued independence of the corporation.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is
.
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<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options, warrants or other
rights to purchase Common Stock. Of these shares, the shares sold in this
offering will be freely tradable, without restriction or further registration
under the Securities Act, except for shares purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. In
general, affiliates include directors, executive officers and holders of 10% or
more of the outstanding Common Stock.
The remaining outstanding shares of Common Stock are owned by
existing shareholders and are deemed "Restricted Shares" under Rule 144. These
may not be resold, except pursuant to an effective registration statement or an
applicable exemption from registration. Upon expiration of the 180 day lock-up
agreements described below, shares will be eligible for sale under Rules
144 and 701.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the public market during the four calendar weeks preceding such sale. Since
the Restricted Shares were acquired in connection with the stockholder's
employment pursuant to an exemption from registration under Rule 701 of the
Securities Act, but for the lock-up agreements discussed below such Restricted
Shares would be eligible for sale under Rule 144 90 days after the effective
date of this offering regardless of when such Restricted Shares were acquired.
Except in the case of Restricted Shares held by persons other than affiliates
for more than three years, sales under Rule 144 are also subject to certain
requirements as to the manner of sale. In addition, sales of Restricted Shares
and any other shares of Common Stock held by affiliates under Rule 144 are
subject to notice of sale, the availability of public information concerning the
Company and volume limitations.
The Company's directors and executive officers and its existing
shareholders have agreed that they will not, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation offer to sell, sell,
contract to sell, grant any options to sell or otherwise dispose of or require
the Company to file with the Commission a registration statement under the Act
to register any shares of Common Stock during the 180-day period following the
effective date of the Registration Statement. In addition, pursuant to the
Executive Agreements, Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms.
Pepin and Mr. Davenport have agreed for the four year period commencing at the
closing of this offering not to offer, sell, assign, grant a participation in,
pledge or otherwise transfer any of their respective shares of Common Stock of
the Company without the prior written consent of the Company other than: (i) to
certain permitted transferees; (ii) as may be required by applicable federal or
state law or regulation; or (iii) pursuant to a registration of such shares.
Because these agreements will be between the Company and each executive officer
and may be waived by the Company at any time, investors should not rely on the
stock restrictions contained therein.
At the completion of this offering, Dr. Mastran, Mr. Ruddy, Mr. Beliveau,
Ms. Baylinson, Ms. Pepin and Mr. Davenport (the "Rightsholders"), will be
entitled to certain piggyback rights with respect to registration under the
Securities Act, for resale to the public, of an aggregate of shares of
Common Stock (collectively, the "Registrable Shares") under the terms of each
Rightsholder's Executive Agreement with the Company. If the Company proposes to
register shares of Common Stock in an underwritten offering under the Securities
Act, the Rightsholders will be entitled to include Registrable Shares in such
registration, subject to certain conditions and limitations, which include the
right of the managing underwriter of any such offering to exclude Registrable
Shares from such registration; provided, however, that the Registrable Shares
shall not be reduced to less than an amount equal to 25% of the total number of
shares to be registered
The Company plans to file registration statements under the Securities Act
to register 1,000,000, 100,000 and 500,000 shares of Common Stock issuable under
the Equity Plan, the Director Plan and the Stock Purchase Plan, respectively.
Upon registration, such shares are eligible for immediate resale upon exercise,
subject, in the case of affiliates, to the volume and notice requirements of
Rule 144.
44
<PAGE> 46
No prediction can be made as to the effect, if any, that sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. No assurance can be given,
however, that sales of substantial amounts of Common Stock in the public market
will not have an adverse impact on the market price for the Common Stock. See
"Risk Factors -- Shares Eligible for Future Sale."
45
<PAGE> 47
UNDERWRITING
Subject to certain terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc. are acting as
Representatives (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed severally to sell to each of the Underwriters, the
number of shares of Common Stock (the "Shares") set forth opposite their
respective names at the initial public offering price per share less the
underwriting discounts and commissions set forth on the cover of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.....................
Lehman Brothers Inc.....................................................
-----------
Total.........................................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares are subject to approval of certain legal
matters by their counsel and to certain other conditions. If any of the Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, the
Underwriters are obligated to purchase all Shares (other than those covered by
the over-allotment option described below).
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Shares to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession not in excess of $ per
Share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per Share to certain other dealers. After this offering,
the offering price and other selling terms may be changed by the Underwriters.
Pursuant to the Underwriting Agreement, certain Selling Shareholders have
granted to the Underwriters an option, exercisable not later than 30 calendar
days from the date of the Underwriting Agreement, to purchase up to an aggregate
of additional Shares at the initial offering price set forth on the cover
page of this Prospectus, less the underwriting discounts and commissions, solely
to cover over-allotments.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of the option shares as the number of Shares to be purchased by it
shown in the above table bears to the total number of Shares shown in the above
table, and the Selling Shareholders will be obligated, pursuant to the option,
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Shares. If purchased, the Underwriters will sell such additional shares
on the same terms as those on which the Shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its shareholders, executive officers and directors
who will own in the aggregate shares of Common Stock after this offering
(assuming no exercise of the Underwriters' over-allotment option), each have
agreed that during the 180-day period after the date of this Prospectus they
will not,
46
<PAGE> 48
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, sell, offer to sell, contract to sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, other than the
Shares, except that the Company may issue shares upon the exercise of stock
options granted prior to the execution of the Underwriting Agreement, and may
grant additional options under the Equity Plan, provided that, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, such
options shall not be exercisable during such period.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any discretionary
accounts without prior specific written approval of the client.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuations of companies in related
businesses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Winston & Strawn, Chicago, Illinois.
EXPERTS
The financial statements of the Company as of September 30, 1995 and 1996
and for each of the three years in the period ended September 30, 1996 included
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus as to the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each such instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement, each such statement being deemed qualified in its entirety by such
reference. A copy of the Registration Statement may be inspected without charge
at the principal office of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from the
Commission upon the payment of certain fees prescribed by the Commission. Such
reports and other information can also be reviewed through the Commission's Web
site on the Internet (http://www.sec.gov).
"Helping Government Serve the People" and MAXSTAR are trademarks of the
Company. All other trademarks and registered trademarks used in this Prospectus
are the property of their respective owners.
47
<PAGE> 49
MAXIMUS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors........................................................ F-2
Financial Statements
Balance Sheets as of September 30, 1995 and 1996 and December 31, 1996
(unaudited)...................................................................... F-3
Statements of Income for the years ended September 30, 1994, 1995 and 1996 and the
three months ended December 31, 1995 and 1996 (unaudited)........................ F-4
Statements of Changes in Redeemable Common Stock and Retained Earnings for the years
ended September 30, 1994, 1995 and 1996 and the three months ended December 31,
1996 (unaudited)................................................................. F-5
Statements of Cash Flows for the years ended September 30, 1994, 1995 and 1996 and
the three months ended December 31, 1995 and 1996 (unaudited).................... F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
MAXIMUS, Inc.
We have audited the accompanying balance sheets of MAXIMUS, Inc. as of
September 30, 1995 and 1996 and the related statements of income, changes in
redeemable common stock and retained earnings, and cash flows for each of the
three years in the period ended September 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MAXIMUS, Inc. at September
30, 1995 and 1996 and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Washington, D.C.
February 7, 1997
F-2
<PAGE> 51
MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
----------------- DECEMBER 31, DECEMBER 31,
1995 1996 1996 1996
(UNAUDITED --
(UNAUDITED) NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,502 $ 2,326 $ 4,164 $ 4,164
Short-term investments................................. -- 1,007 1,007 1,007
Accounts receivable, net............................... 15,941 25,352 29,937 29,937
Costs and estimated earnings in excess of billings..... 776 2,949 4,847 4,847
Prepaid expenses and other current assets.............. 354 605 604 604
------- ------- -------- --------
Total current assets..................................... 19,573 32,239 40,559 40,559
Property and equipment at cost:
Land................................................... 662 662 662 662
Building and improvements.............................. 1,627 1,676 1,679 1,679
Office furniture and equipment......................... 913 1,206 1,212 1,212
Leasehold improvements................................. 188 188 188 188
------- ------- -------- --------
3,390 3,732 3,741 3,741
Less: Accumulated depreciation and amortization........ (810) (1,096) (1,166) (1,166)
------- ------- -------- --------
Total property and equipment, net........................ 2,580 2,636 2,575 2,575
Other assets............................................. 517 618 722 722
------- ------- -------- --------
Total assets............................................. $22,670 $35,493 $ 43,856 $ 43,856
======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,200 $ 2,043 $ 4,415 $ 4,415
Accrued compensation and benefits...................... 793 1,912 2,829 2,829
Billings in excess of costs and estimated earnings..... 3,118 5,208 6,527 6,527
Income taxes payable................................... 41 19 46 46
Deferred income taxes.................................. 237 357 387 1,090
Dividend payable....................................... -- -- -- 17,500
------- ------- -------- --------
Total current liabilities................................ 6,389 9,539 14,204 32,407
Deferred income taxes.................................... -- -- -- 4,584
Commitments and contingencies (Notes 6, 9 and 10)
Redeemable common stock:
No par value; 30,000,000 shares authorized; 11,210,870,
11,453,145, 11,453,145 shares issued and
outstanding, at redemption amount................... 10,575 16,757 18,790 --
Shareholders' equity:
Common stock, no par value; 30,000,000 shares
authorized; 11,453,145 pro forma shares issued and
outstanding, at stated amount....................... -- -- -- 6,865
Retained earnings...................................... 5,706 9,197 10,862 --
------- ------- -------- --------
Total shareholders' equity............................... 5,706 9,197 10,862 6,865
------- ------- -------- --------
Total liabilities and shareholders' equity............... $22,670 $35,493 $ 43,856 $ 43,856
======= ======= ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 52
MAXIMUS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- -------------------------
1994 1995 1996 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $29,860 $51,963 $103,113 $16,700 $37,244
Cost of revenues............................ 21,716 36,071 78,429 12,027 29,534
------- ------- -------- ------- -------
Gross profit................................ 8,144 15,892 24,684 4,673 7,710
Selling, general and administrative
expenses.................................. 6,979 9,078 13,104 2,742 4,039
------- ------- -------- ------- -------
Income from operations...................... 1,165 6,814 11,580 1,931 3,671
Interest and other income................... 80 169 264 53 84
------- ------- -------- ------- -------
Income before income taxes.................. 1,245 6,983 11,844 1,984 3,755
Provision (benefit) for income taxes........ (5) 124 225 40 57
------- ------- -------- ------- -------
Net income.................................. $ 1,250 $ 6,859 $ 11,619 $ 1,944 $ 3,698
======= ======= ======== ======= =======
Pro forma data (Unaudited -- Note 3)
Historical income before income taxes..... $ 11,844 $ 3,755
Pro forma income tax expense.............. 4,738 1,502
-------- -------
Pro forma net income...................... $ 7,106 $ 2,253
======== =======
Pro forma net income per share............ $ 0.59 $ 0.19
======== =======
Shares used in computing pro forma net
income per share....................... 12,078 12,113
</TABLE>
See notes to financial statements.
F-4
<PAGE> 53
MAXIMUS, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE
COMMON RETAINED
STOCK EARNINGS
<S> <C> <C>
Balance at September 30, 1993.......................................... $ 6,971 $ 2,484
Purchase of redeemable common stock from employees................... (293) --
Issuance of redeemable common stock to employees..................... 148 --
Net income........................................................... -- 1,250
Adjustment to redemption value of redeemable common stock............ 63 (63)
S Corporation distributions.......................................... -- (750)
------- -------
Balance at September 30, 1994.......................................... 6,889 2,921
Purchase of redeemable common stock from employees................... (548) --
Issuance of redeemable common stock to employees..................... 277 --
Net income........................................................... -- 6,859
Adjustment to redemption value of redeemable common stock............ 3,957 (3,957)
S Corporation distributions.......................................... -- (117)
------- -------
Balance at September 30, 1995.......................................... 10,575 5,706
Issuance of redeemable common stock to employees..................... 229 --
Net income........................................................... -- 11,619
Adjustment to redemption value of redeemable common stock............ 5,953 (5,953)
S Corporation distributions.......................................... -- (2,175)
------- -------
Balance at September 30, 1996.......................................... 16,757 9,197
Net income (unaudited)............................................... -- 3,698
Adjustment to redemption value of redeemable common stock
(unaudited)....................................................... 2,033 (2,033)
------- -------
Balance at December 31, 1996 (unaudited)............................... $ 18,790 $ 10,862
======= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 54
MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------- -------------------------
1994 1995 1996 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 1,250 $ 6,859 $11,619 $ 1,944 $ 3,698
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 172 168 307 51 70
Other................................... 145 (134) (22) -- --
Changes in assets and liabilities:
Accounts receivable, net................ (3,162) (6,646) (9,411) (1,454) (4,585)
Costs and estimated earnings in excess
of billings........................... 195 1,587 (2,173) (1,379) (1,898)
Prepaid expenses and other current
assets................................ (166) 245 (251) (68) 1
Other assets............................ (189) (124) (101) (27) (104)
Accounts payable........................ (271) 1,680 (157) 455 2,372
Accrued compensation and benefits....... 109 161 1,119 1,194 917
Billings in excess of costs and
estimated earnings.................... 2,405 (1,154) 2,090 771 1,319
Income taxes payable.................... (23) 41 (22) (34) 27
Deferred income taxes................... (20) 62 120 74 30
------- ------- ------- ------- -------
Net cash provided by operating activities.... 445 2,745 3,118 1,527 1,847
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......... (317) (180) (348) (60) (9)
Purchase of short-term investments......... -- -- (1,000) -- --
------- ------- ------- ------- -------
Net cash used in investing activities........ (317) (180) (1,348) (60) (9)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
S Corporation distributions................ (750) (117) (2,175) (104) --
Redeemable common stock purchased.......... (293) (548) -- -- --
Redeemable common stock issued............. 148 277 229 114 --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................. (895) (388) (1,946) 10 --
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ (767) 2,177 (176) 1,477 1,838
Cash and cash equivalents, beginning of
year....................................... 1,092 325 2,502 2,502 2,326
------- ------- ------- ------- -------
Cash and cash equivalents, end of year....... $ 325 $ 2,502 $ 2,326 $ 3,979 $ 4,164
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 55
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
MAXIMUS, Inc. (the "Company") provides a wide range of program management
and consulting services to federal, state and local government health and human
services agencies. The Company conducts its operations through two groups. The
Government Operations Group administers and manages government health and human
services programs, including welfare-to-work and job readiness, child support
enforcement, managed care enrollment and disability services. The Consulting
Group provides health and human services planning, information technology
consulting, strategic program evaluation, program improvement, communications
planning and assistance in identifying and collecting previously unclaimed
federal welfare revenues.
The Company operates predominantly in the United States. Revenues from
foreign-based projects were less than 10% for the year ended September 30, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the Company's more significant accounting
policies.
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 amounts reported in the financial statements and
accompanying notes, in particular, estimates used in the earnings recognition
process. Actual results could differ from those estimates.
Revenue Recognition
The Company generates revenues under various arrangements, generally
long-term contracts under which revenues are based on costs incurred plus a
negotiated fee, a fixed price or various performance-based criteria. Revenues
for cost-plus contracts are recorded as costs are incurred and include a pro
rata amount of the negotiated fee. Revenues on long-term fixed price and
performance-based contracts are recognized as costs are incurred. The timing of
billing to clients varies based on individual contracts and often differs from
the period of revenue recognition. These differences are included in costs and
estimated earnings in excess of billings and billings in excess of costs and
estimated earnings.
Management reviews the financial status of its contracts periodically and
adjusts revenues to reflect the current expectations on realization of costs and
estimated earnings in excess of billings. Provisions for estimated losses on
incomplete contracts are provided in full in the period in which such losses
become known. The Company has various fixed price and performance-based
contracts that may generate profit in excess of the Company's expectations. The
Company recognizes additional revenue and profit in these situations after
management concludes that substantially all of the contractual risks have been
eliminated, which generally is at task or contract completion.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
F-7
<PAGE> 56
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Short-Term Investments
Short-term investments consist of interest bearing investments with
maturities of less than one year but greater than three months when purchased.
These investments are readily convertible to cash and are stated at fair value.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method based on estimated useful lives of 32 years for the
Company's building and between three and ten years for office furniture and
equipment. Amortization of leasehold improvements is provided using the
straight-line method over the lesser of the life of the improvement or the
remaining term of the lease.
Income Taxes
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The
cumulative effect of the change in accounting principle was not material and is
included in the provision for income taxes for the year ended September 30,
1994. Under SFAS 109, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted rates expected to be in effect during the year in
which the differences reverse.
The Company and its shareholders have elected to be treated as an S
corporation under the Internal Revenue Code. Under the provisions of the tax
code, the Company's shareholders include their pro rata share of the Company's
income in their personal income tax returns. Accordingly, the Company was not
subject to federal and most state income taxes during the periods presented. The
Company currently anticipates completing an initial public offering of its
common stock in 1997 (the "IPO"), which will result in the termination of the
Company's S corporation status.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable, to approximate the fair
value of the respective assets and liabilities at September 30, 1995 and 1996.
Interim Financial Information
The financial statements as of December 31, 1996 and for the three months
ended December 31, 1995 and 1996 are unaudited and have been prepared on the
same basis as the audited financial statements included herein. In the opinion
of management, the unaudited financial statements include all adjustments,
consisting only of normal recurring items, necessary to present fairly the
periods indicated. Results of operations for the interim period ended December
31, 1996 are not necessarily indicative of the results for the full fiscal year.
3. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Balance Sheet
The pro forma balance sheet of the Company as of December 31, 1996 reflects
the declaration of a dividend payable to the shareholders, a reclassification of
redeemable common stock to reflect elimination of the Company's obligation to
purchase its common shares from the shareholders, and the net deferred tax
liability which would have been recorded by the Company if its S corporation
status was terminated at that date.
F-8
<PAGE> 57
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company will pay a dividend to its shareholders in connection with the
IPO. The dividend (estimated at $17,500) will be paid in part from available
cash and in part from proceeds of the offering.
Upon completion of the IPO, the Company's obligation to purchase common
shares from its shareholders will terminate. Accordingly, amounts classified as
redeemable common stock will be reclassified into shareholders' equity.
The pro forma net deferred tax liability represents the tax effect of the
cumulative differences between the financial reporting and income tax basis of
certain assets and liabilities as of December 31, 1996. The actual net deferred
tax liability recorded will be adjusted to reflect the effect of the Company's
operations for the period through the date immediately preceding the termination
of its S corporation status.
The Company's income currently taxable to its shareholders as an S
corporation has been determined under a cash basis of accounting through
September 30, 1996. In the year the Company completes the IPO, it will be
required to begin reporting its taxable income on an accrual basis. The
cumulative deferred tax obligation for the difference between cash and accrual
income will be settled over four years. The Company plans to elect the accrual
basis of accounting beginning October 1, 1996, and accordingly, one-fourth of
the taxable income related to the cash versus accrual accounting difference will
be allocated to the Company's shareholders. The significant items comprising the
Company's pro forma net deferred tax liability as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
PRO FORMA DEFERRED TAX ASSETS-CURRENT:
Liabilities for costs deductible in future periods........................ $ 410
Billings in excess of costs and estimated earnings........................ 2,731
------
Total pro forma deferred tax assets......................................... 3,141
PRO FORMA DEFERRED TAX LIABILITIES-CURRENT:
Cash versus accrual accounting............................................ 2,292
Costs and estimated earnings in excess of billings........................ 1,939
------
Total pro forma deferred tax liabilities.................................... 4,231
------
Pro forma net deferred tax liability-current................................ 1,090
PRO FORMA DEFERRED TAX LIABILITY-NON-CURRENT:
Cash versus accrual accounting............................................ 4,584
------
Total pro forma net deferred tax liability.................................. $5,674
======
</TABLE>
Pro Forma Statements of Income
Upon the closing of the IPO, the Company will terminate its status as an S
corporation and will be subject to federal and state income taxes thereafter.
Accordingly, the unaudited pro forma data shown on the statements of income
includes an adjustment to reflect income tax expense as if the Company had been
a C corporation at an estimated combined effective income tax rate of 40%.
In the period the IPO is completed the Company will recognize two
significant charges against income. As described above, completion of the IPO
will result in the termination of the Company's S corporation status, and the
Company will recognize the cumulative deferred tax liability at that time by a
charge against income. Based on the pro forma deferred tax liability as of
December 31, 1996, the one-time income statement charge would be approximately
$5,300.
As discussed in Note 9, in January 1997 the Company issued options to
employees to acquire the Company's common stock at a formula price based on book
value. Upon completion of the IPO, the Company will recognize a charge against
income for the difference between the IPO price and the formula price for all
F-9
<PAGE> 58
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
options outstanding. Assuming an IPO price of $ per share, the charge to
compensation expense would be approximately $5,500, net of the related income
tax benefit, if any.
Pro Forma Net Income Per Share
The pro forma net income per share presented in the accompanying statements
of income have been computed giving effect to the assumed issuance, as of the
beginning of the pro forma periods presented, of the number of shares of Common
Stock necessary to: (i) replace equity to be distributed as a result of the S
corporation dividend to the extent such amount exceeds earnings since January 1,
1996; and (ii) give effect to options issued in January 1997 to purchase Common
Stock of the Company.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following components:
<TABLE>
<CAPTION>
BALANCE SHEET CAPTION
--------------------------------------
COSTS AND BILLINGS IN
ESTIMATED EXCESS OF COSTS
EARNINGS IN AND ESTIMATED
EXCESS OF BILLINGS EARNINGS
<S> <C> <C>
September 30, 1995:
Costs and estimated earnings........................ $ 29,702 $48,661
Billings............................................ 28,926 51,779
------- -------
$ 776 $ 3,118
======= =======
September 30, 1996:
Costs and estimated earnings........................ $ 89,893 $60,489
Billings............................................ 86,944 65,697
------- -------
$ 2,949 $ 5,208
======= =======
</TABLE>
Costs and estimated earnings in excess of billings relate primarily to
performance-based contracts which provide for billings based on attainment of
results specified in the contract and differences between actual and provisional
billing rates on cost-based contracts.
5. CREDIT FACILITIES
The Company has a $10 million revolving line of credit with a bank for
borrowings and letters of credit. Borrowings under this line bear interest at
LIBOR plus 2% and are secured by the Company's accounts receivable. Borrowings
are limited to 90 percent of eligible accounts receivable. At September 30, 1995
and 1996, the Company had letters of credit outstanding amounting to $2,139 and
$1,210, respectively. There were no outstanding borrowings under the line of
credit facility. The Company is required to meet certain conditions on net worth
and to maintain certain financial ratios. The credit facility is renewable in
March 1997.
6. LEASES
The Company leases office space under various operating leases, the
majority of which contain clauses permitting cancellation upon certain
conditions. Terms of these leases provide for certain minimum payments as well
as increases in lease payments based upon the operating cost of the facility and
the consumer price index. Rent expense for the years ended September 30, 1994,
1995 and 1996 was $602, $1,150 and $2,282, respectively.
F-10
<PAGE> 59
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future payments under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
<S> <C>
1997................................................................ $3,021
1998................................................................ 2,826
1999................................................................ 1,558
2000................................................................ 801
2001................................................................ 565
Thereafter.......................................................... 138
------
$8,909
======
</TABLE>
7. EMPLOYEE 401(K) PLAN
The Company has a 401(k) plan for the benefit of all employees who meet
certain eligibility requirements. In the year ended September 30, 1996, the
Company implemented a program to match employee contributions. The plan also
allows management to make discretionary contributions. The Company made no
contributions to the plan during the years ended September 30, 1994 and 1995.
During the year ended September 30, 1996, the Company contributed $574 to the
plan.
8. INCOME TAXES
The tax provision (benefit) consists of the following state taxes for those
states in which the Company, rather than the shareholders, is liable for income
taxes:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
----------------------
1994 1995 1996
<S> <C> <C> <C>
Current tax expense........................................... $ 15 $ 62 $105
Deferred tax expense (benefit)................................ (20) 62 120
---- ---- ----
$ (5) $124 $225
==== ==== ====
</TABLE>
No federal income taxes have been recorded due to the Company's S
corporation status. See Note 3. Deferred tax liabilities resulting from
temporary differences at September 30, 1995 and 1996 are primarily related to
use of the cash basis of accounting for income taxes reported in certain states
and differences related to revenue recognition. Cash paid for income taxes
during the years ended September 30, 1994, 1995 and 1996 was $67, $9 and $110,
respectively.
9. SHAREHOLDERS' EQUITY
Redeemable Common Stock
The Shareholders' Agreement, dated January 1996, obligates the Company to
purchase all shares offered for sale by the Company's shareholders at a formula
price based on the book value of the Company. In addition, shareholders are
obligated to sell and the Company is obligated to purchase at the formula price
all of the shares owned by the shareholders upon the shareholder's death,
disability or termination of employment. Accordingly, the redemption obligation
is reflected as redeemable common stock in the accompanying balance sheets. The
Company has insurance polices totaling approximately $18,000 on the lives of its
two major shareholders that may be used to fund this obligation.
F-11
<PAGE> 60
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Agreement with Major Shareholder
In May 1995, the Company entered into a Stock Purchase Agreement with one
of its shareholders. Under this agreement, the parties agreed that the Company
will purchase up to 2,878,040 of its shares owned by the shareholder over a four
year period, subject to various conditions including an election by the
shareholder after each fiscal year end to demand such sale. Under this
agreement, sales will be transacted at the formula price referred to above. This
agreement will terminate upon completion of the IPO.
Employee Stock Purchases and Options
The Company entered into agreements at various times with certain employees
that provided for the employee to purchase common stock of the Company at the
formula price. During the years ended September 30, 1994, 1995 and 1996 the
Company sold 126,500, 231,000 and 242,275 shares, respectively, under these
arrangements.
In January 1997, the Company issued options to various employees to
purchase 403,975 shares of the Company's common stock at the formula price.
These options are exercisable at completion of the IPO. The options terminate on
June 30, 1997 in the event the IPO has not been completed by that date. If the
IPO is completed, the options will have a term of 10 years. These options were
granted in exchange for stock purchase rights awarded pursuant to certain
pre-existing compensation arrangements with certain of the Company's key
employees.
Stock Split
In December 1995, the Company effected a 10 for 1 stock split. On February
3, 1997, the Company's shareholders approved an amendment to the Company's
articles of incorporation to increase the number of authorized shares to
30,000,000, to eliminate the par value of common stock and to effect an 11 for 1
split of the common stock. Amounts for all periods have been adjusted to reflect
the effects of these changes.
10. COMMITMENTS AND CONTINGENCIES
Litigation
On February 3, 1997, the Company was named as a third party defendant by
Network Six, Inc. ("Network Six") in a legal action brought by the State of
Hawaii against Network Six. Network Six alleges that the Company is liable to
Network Six on various grounds and seeks $60 million in damages. The Company
believes Network Six's claims are without merit and intends to vigorously defend
this action.
The Company believes this action will not have a material adverse effect on
its financial condition or results of operations and has not accrued for any
loss related to this claim.
The Company also is involved in various other legal proceedings in the
ordinary course of its business. In the opinion of management, these proceedings
involve amounts that would not have a material effect on the financial position
or results of operations of the Company if such proceedings were disposed of
unfavorably.
DCAA Audits
A substantial portion of payments to the Company from U.S. Government
agencies is subject to adjustments upon audit by the Defense Contract Audit
Agency (DCAA). Audits through 1993 have been completed with no material
adjustments. In the opinion of management, the audits of subsequent years are
not expected to have a material adverse effect on the Company's financial
position or results of operations.
F-12
<PAGE> 61
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts. To date,
these financial instruments have been derived from contract revenues earned
primarily from federal, state and local agencies located in the United States.
At September 30, 1995 and 1996, $8,260 and $14,815, respectively, of the
Company's accounts receivable were due from the U.S. Government. Revenues under
contracts with various agencies of the United States Government were $7,480,
$17,851 and $61,317 for the years ended September 30, 1994, 1995 and 1996,
respectively. Of these amounts, $2,943, $14,314 and $56,530 for the years ended
September 30, 1994, 1995 and 1996, respectively, were revenues of the government
operations segment. As a result of legislation that eliminated certain Social
Security Administration program benefits, a contract with the U.S. Government
that contributed $56.5 million of contract revenues for the year ended September
30, 1996 was terminated by the United States Government and is expected to
conclude in February 1997.
12. BUSINESS SEGMENTS
The following table provides certain financial information for each
business segment:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Revenues:
Government Operations.............................. $14,723 $31,265 $ 77,211
Consulting......................................... 15,137 20,698 25,902
------- ------- --------
$29,860 $51,963 $103,113
======= ======= ========
Income(loss) from operations:
Government Operations.............................. $(1,878) $ 1,636 $ 4,936
Consulting......................................... 3,043 5,178 6,644
------- ------- --------
$ 1,165 $ 6,814 $ 11,580
======= ======= ========
Identifiable assets:
Government Operations.............................. $ 5,642 $ 8,962 $ 19,369
Consulting......................................... 6,488 8,416 9,910
Corporate.......................................... 3,417 5,292 6,214
------- ------- --------
$15,547 $22,670 $ 35,493
======= ======= ========
Capital expenditures:
Government Operations.............................. $ 203 $ 2 $ 4
Consulting......................................... 14 19 73
Corporate.......................................... 100 159 271
------- ------- --------
$ 317 $ 180 $ 348
======= ======= ========
Depreciation and amortization:
Government Operations.............................. $ 15 $ 5 $ 99
Consulting......................................... 17 17 27
Corporate.......................................... 140 146 181
------- ------- --------
$ 172 $ 168 $ 307
======= ======= ========
</TABLE>
F-13
<PAGE> 62
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANYTIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
S Corporation Dividend................ 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 25
Management............................ 34
Certain Transactions.................. 39
Principal and Selling Shareholders.... 40
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 46
Legal Matters......................... 47
Experts............................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[MAXIMUS LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 24,546
Nasdaq National Market fee................................................ 50,000
NASD filing fee and expenses.............................................. 8,600
Blue Sky fees and expenses................................................ 15,000
Legal fees and expenses................................................... 200,000
Accounting fees and expenses.............................................. 150,000
Printing and engraving expenses........................................... 150,000
Transfer Agent and Registrar fees......................................... 10,000
Miscellaneous expenses.................................................... 141,854
--------
TOTAL........................................................... $750,000
========
</TABLE>
All of the above figures, except the SEC registration fee and NASD filing
fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Articles of Incorporation provide that the
Registrant's directors and officers shall be indemnified to the full extent
required or permitted by the VSCA, including the advance of expenses, and that
other employees and agents shall be indemnified to such extent as shall be
authorized by the Board of Directors or the Bylaws of the Registrant and as
shall be permitted by law.
Sections 13.1-697 and 13.1-702 of the VSCA permit the Registrant to
indemnify an individual made party to a proceeding because he was a director,
officer, employee or agent of the Registrant against liability incurred in the
proceeding if (1) he conducted himself in good faith, (2) he believed, in the
case of conduct in his official capacity, that such conduct was in the
Registrant's best interests, or, in all other cases, that such conduct was at
least not opposed to the Registrant's best interests, and (3) he had no
reasonable cause to believe, in the case of a criminal proceeding, that his
conduct was unlawful; provided, however, no indemnification shall be permitted
(1) in connection with a proceeding by or in the right of the Registrant in
which the individual is adjudged liable to the Registrant, or (2) in connection
with any other proceeding charging improper personal benefit to such individual
in which the individual is adjudged liable on the basis that personal benefit
was improperly received by such individual. Under sections 13.1-698 and 13.1-702
of the VSCA, unless limited by its Articles of Incorporation, the Registrant
shall indemnify a director or officer who entirely prevails in the defense of
any proceeding to which he was a party because he is or was a director or
officer against reasonable expenses incurred.
The Registrant carries Directors' and Officers' insurance which covers its
directors and officers against certain liabilities they may incur when acting in
their capacity as directors or officers of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Issuances of Common Stock.
Since February 1, 1994, the Registrant has issued and sold the unregistered
securities described below. In each case, the number of shares issued and sold
reflects a 10-for-1 stock split effected in December 1995 and an 11-for-1 stock
split effected February 3, 1997.
On October 1, 1994 the Registrant sold 110,000 shares of Common Stock to
Gene DeLucia for an aggregate purchase price of $64,860.
II-1
<PAGE> 64
In October 1994, the Registrant sold 77,000 shares of Common Stock to Susan
D. Pepin for a purchase price of $45,402.
In January 1995 and October 1995, the Registrant sold 110,000 and 11,000
shares of Common Stock to Russell A. Beliveau for purchase prices of $64,860 and
$10,376, respectively.
In January 1996, the Registrant sold an aggregate of 121,275 shares of
Common Stock to certain of the Registrant's employees for an aggregate purchase
price of $114,438.
(b) Grants and Exercises of Stock Options.
In January 1997, pursuant to the Registrant's 1997 Equity Incentive Plan
(the "Plan"), the Registrant granted to certain employees options to purchase an
aggregate of 403,975 shares of Common Stock at an exercise price per share of
$ exercisable on the closing of the initial public offering. The
options expire (i) on June 30, 1997, in the event that the initial public
offering has not closed on or prior to that date, or (ii) the earlier of (x) the
termination of each respective option holder's employment with the Registrant or
(y) ten years from the date of issuance. All of such options are outstanding and
none have been exercised, and 596,025 shares of Common Stock remain available
for future grant under the Plan.
No underwriter was engaged in connection with the foregoing sales of
securities. Sales of Common Stock to employees have been made in reliance upon
the exemption for the registration requirements afforded by Section 4(2) of the
Securities Act and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written contract relating to the compensation of such individuals.
The Registrant has reason to believe that all of the foregoing purchasers were
familiar with or had access to information concerning the operations and
financial condition of the Registrant, and all of those individuals acquired
shares for investment and not with a view to the distribution thereof. At the
time of issuance, all of the foregoing shares of Common Stock were deemed to be
restricted securities for the purposes of the Securities Act, and the
certificates representing such securities bore legends to that effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant as amended through February 10, 1997.
3.2 Form of Amended and Restated Articles of Incorporation of Registrant, as proposed
to be amended and restated.
3.3 By-laws of the Registrant.
3.4 Form of Amended and Restated By-laws of Registrant, as proposed to be amended and
restated.
*4.1 Specimen Common Stock Certificate.
*5.1 Opinion of Palmer & Dodge LLP with respect to the legality of the securities being
registered.
10.1 1997 Equity Incentive Plan.
10.2 1997 Director Stock Option Plan.
10.3 1997 Employee Stock Purchase Plan.
10.4 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and David V. Mastran to be executed at the closing
of the offering.
10.5 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Raymond B. Ruddy to be executed at the closing
of the offering.
</TABLE>
II-2
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<C> <S>
10.6 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Rusell A. Beliveau to be executed at the closing
of the offering.
10.7 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Susan D. Pepin to be executed at the closing of
the offering.
10.8 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Ilene R. Baylinson to be executed at the closing
of the offering.
10.9 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Lynn P. Davenport to be executed at the closing
of the offering.
10.10 Form of Indemnification Agreement by and between the Registrant and each of the
directors of the Registrant.
10.11 Letter Agreement dated June 29, 1995, as amended by the Letter Amendment dated
April 10, 1996, between the Registrant and Crestar Bank with respect to a $10
million line of credit, and the Letter Amendment dated February 10, 1997.
11 Statement re Computation of Pro Forma Net Income Per Share.
23.1 Consent of Ernst & Young LLP, independent auditors.
*23.2 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
24 Powers of Attorney (included on the signature pages attached hereto).
27 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser;
(2) that, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective; and
II-3
<PAGE> 66
(3) that, for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the city of McLean,
Commonwealth of Virginia, on the 11th day of February, 1997.
MAXIMUS, INC.
By: /s/ DAVID V. MASTRAN
------------------------------------
David V. Mastran
Chief Executive Officer
POWER OF ATTORNEY
Each undersigned person hereby constitutes and appoints David V. Mastran,
F. Arthur Nerret and Lynnette C. Fallon and each of them with full power of
substitution and full power to act without the other, as his true and lawful
attorney-in-fact and agent, with full power to sign any and all amendments to
this Registration Statement on Form S-1 of MAXIMUS, Inc., and to file the same
with the Securities and Exchange Commission, including any and all
post-effective amendments and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) and to execute all other documents
and take all other actions on behalf of such undersigned person as may be
necessary or advisable in connection with the registration of the shares covered
by this Registration Statement under the Securities Act of 1933, as amended,
hereby ratifying and confirming all that said attorneys-in-fact may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ DAVID V. MASTRAN President, Chief Executive February 11, 1997
- ---------------------------------------- Officer and Director (Principal
David V. Mastran Executive Officer)
/s/ RAYMOND B. RUDDY Chairman of the Board of February 11, 1997
- ---------------------------------------- Directors
Raymond B. Ruddy
/s/ F. ARTHUR NERRET Chief Financial Officer February 11, 1997
- ---------------------------------------- (Principal Financial and
F. Arthur Nerret Accounting Officer)
/s/ RUSSELL A. BELIVEAU Director February 11, 1997
- ----------------------------------------
Russell A. Beliveau
/s/ LYNN P. DAVENPORT Director February 11, 1997
- ----------------------------------------
Lynn P. Davenport
/s/ ROBERT J. MUZZIO Director February 11, 1997
- ----------------------------------------
Robert J. Muzzio
/s/ DONNA J. MULDOON Director February 11, 1997
- ----------------------------------------
Donna J. Muldoon
/s/ SUSAN D. PEPIN Director February 11, 1997
- ----------------------------------------
Susan D. Pepin
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
W&S DRAFT
1/23/97
Shares
MAXIMUS, INC.
Common Stock
UNDERWRITING AGREEMENT
____________________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS INC.
As representatives of the
several underwriters named in
Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs and Mesdames:
MAXIMUS, Inc., a Virginia corporation (the "Company"), and the stockholders
of the Company named in Schedule II hereto, (collectively, the "Selling
Stockholders"), severally propose to sell an aggregate of shares of
common stock, $.01 par value of the Company (the "Firm Shares"), to the several
underwriters named in Schedule I hereto (the "Underwriters"). The Firm Shares
consist of shares to be issued and sold by the Company and
outstanding shares to be sold by the Selling Stockholders. The Selling
Stockholders also propose to sell to the several Underwriters not more than
additional shares of common stock, $.01 par value of the Company
(the "Additional Shares"), if requested by the Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the Shares. The shares of common stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the Common Stock. The Company and the Selling Stockholders are
hereinafter collectively called the Sellers.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-1 (File No. 333-_____) including
<PAGE> 2
a prospectus relating to the Shares, which may be amended. The registration
statement as amended at the time when it becomes effective, including a
registration statement (if any) filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act and information (if
any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 43OA under the Act, is hereinafter referred to as
the Registration Statement; and the prospectus in the form first used to confirm
sales of Shares is hereinafter referred as the Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
(i) the Company agrees to issue and sell Firm Shares, (ii) each
Selling Stockholder agrees, severally and not jointly, to sell the number of
Firm Shares set forth opposite such Selling Stockholder's name in Schedule II
hereto and (iii) each Underwriter agrees, severally and not jointly, to purchase
from each Seller at a price per share of $__________ (the "Purchase Price") the
number of Firm Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Firm Shares to be sold by such Seller as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto bears to the total
number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) certain of the Selling
Stockholders agree, severally and not jointly, to sell up to the number of
Additional Shares set forth opposite such Selling Stockholder's name in Schedule
II hereto and (ii) the Underwriters shall have the right to purchase, severally
and not jointly, up to an aggregate of Additional Shares from those
Selling Stockholders who have agreed to sell Additional Shares, at the Purchase
Price. Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
Underwriters may exercise their right to purchase Additional Shares in whole or
in part from time to time by giving written notice thereof to the Company within
30 days after the date of this Agreement. You shall give any such notice on
behalf of the Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof. The date specified in any such notice shall be a
business day (i) no earlier than the Closing Date (as hereinafter defined), (ii)
no later than ten business days after such notice has been given and (iii) no
earlier than two business days after such notice has been given. The maximum
number of Additional Shares to be purchased from each such Selling Stockholder
is set forth on Schedule II hereto. If less than the maximum number of
Additional Shares are to be purchased hereunder, each of such Selling
Stockholders, severally and not jointly, agrees to sell to the Underwriters the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Additional
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<PAGE> 3
Shares to be purchased by the Underwriters as the maximum number of Additional
Shares to be sold by each of such Selling Stockholders bears to the total number
of Additional Shares. If any Additional Shares are to be purchased, each
Underwriter, severally and not jointly, agrees to purchase from such Selling
Stockholders the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) which bears the same
proportion to the total number of Additional Shares to be purchased from such
Selling Stockholders as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I bears to the total number of Firm Shares.
The Sellers hereby agree, severally and not jointly, and the Company shall,
concurrently with the execution of this Agreement, deliver an agreement executed
by (i) each of the directors and officers of the Company who is not a Selling
Stockholder and (ii) each stockholder of the Company who is not a Selling
Stockholder, pursuant to which each such person agrees not to offer, sell,
contract to sell, pledge, grant any option to purchase, or otherwise dispose of
any common stock of the Company or any securities convertible into or
exercisable or exchangeable for such common stock or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of any such common stock, except to the Underwriters pursuant to this
Agreement, for a period of 180 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Notwithstanding the foregoing, during such period (i) the Company may grant
stock options pursuant to the Company's existing stock option plan described in
the Prospectus and (ii) the Company may issue shares of its common stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof.
3. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and payment for
the Firm Shares shall be made at 10:00 A.M., New York City time, on the third or
fourth business day following the date of the initial public offering unless
otherwise permitted by the Commission pursuant to Rule 15c6-1 of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act")(the "Closing Date"), at
such place outside the State of New York as you shall designate. The Closing
Date and the location of delivery of and the form of payment for the Firm Shares
may be varied by agreement between you and the Sellers.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at such place as you shall designate
at 10:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you
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<PAGE> 4
pursuant to Section 2 (an "Option Closing Date"). Any such Option Closing Date
and the location of delivery of and the form of payment for such Additional
Shares may be varied by agreement between you and the Company.
Certificates for the Shares shall be registered in such names and issued in
such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or an option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or an Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Sellers, for the respective accounts of the
several Underwriters, against payment of the Purchase Price therefor by wire
transfer of same day funds to the order of the applicable Sellers.
5. AGREEMENTS OF THE COMPANY. The Company agrees with you:
(a) To use its best efforts to cause the Registration Statement to become
effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such advice
in writing, (i) when the Registration Statement has become effective and when
any post-effective amendment to it becomes effective, (ii) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation of any proceeding for
such purposes, and (iv) of the happening of any event during the period referred
to in paragraph (e) below which makes any statement of a material fact made in
the Registration Statement or the Prospectus untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal or lifting of such order at the earliest possible time.
(c) To furnish to you, without charge, two (2) signed copies of the
Registration Statement as first filed with the Commission and of each amendment
to it, including all exhibits, and to furnish to you and each Underwriter
designated by you such number of conformed copies of the Registration Statement
as so filed and of each amendment to it, without exhibits, as you may reasonably
request.
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<PAGE> 5
(d) Not to file any amendment or supplement to the Registration Statement,
whether before or after the time when it becomes effective, or to make any
amendment or supplement to the Prospectus of which you shall not previously have
been advised or to which you shall reasonably object; and to prepare and file
with the Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or supplement to the Prospectus which may be necessary or
advisable in connection with the distribution of the Shares by you, and to use
its best efforts to cause the same to become promptly effective.
(e) promptly after the Registration Statement becomes effective, and from
time to time thereafter for such period as in the opinion of counsel for the
Underwriters a prospectus is required by law to be delivered in connection with
sales by an Underwriter or a dealer, to furnish to each Underwriter and dealer
as many copies of the Prospectus (and of any amendment or supplement to the
Prospectus) as such Underwriter or dealer may reasonably request.
(f) If during the period specified in paragraph (e) any event shall occur
as a result of which, in the opinion of counsel for the Underwriters it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement the
Prospectus to comply with any law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with law, and to furnish to each Underwriter and to
such dealers as you shall specify, such number of copies thereof as such
Underwriter or dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such qualification in effect so long as required
for distribution of the Shares and to file such consents to service of process
or other documents as may be necessary in order to effect such registration or
qualification.
(h) To mail and make generally available to its stockholders as soon as
reasonably practicable an earnings statement covering a period of at least
twelve months after the effective date of the Registration Statement (but in no
event commencing later than 90 days after such date) which shall satisfy the
provisions of Section II(a) of the Act, and to advise you in writing when such
statement has been so made available.
(i) During the period of five years after the date of this Agreement, (i)
to mail as soon as reasonably practicable after the
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<PAGE> 6
end of each fiscal year to the record holders of its Common Stock a financial
report of the Company and its subsidiaries on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of stockholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants, and (ii)
to mail and make generally available as soon as practicable after the end of
each quarterly period (except for the last quarterly period of each fiscal year)
to such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you as
soon as available a copy of each report or other publicly available information
of the Company mailed to the holders of Common Stock or filed with the
Commission and such other publicly available information concerning the Company
and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including financial statements and exhibits), each preliminary
prospectus and all amendments and supplements to any of them prior to or during
the period specified in paragraph (e), (ii) the printing and delivery of the
Prospectus and all amendments or supplements to it during the period specified
in paragraph (e), (iii) the printing and delivery of this Agreement, the
Preliminary and Supplemental Blue Sky Memoranda and all other agreements,
memoranda, correspondence and other documents printed and delivered in
connection with the offering of the Shares (including in each case any
disbursements of counsel for the Underwriters relating to such printing and
delivery), (iv) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of the several states (including in
each case the fees and disbursements of counsel for the Underwriters relating to
such registration or qualification and memoranda relating thereto), (v) filings
and clearance with the National Association of Securities Dealers, Inc. in
connection with the offering (including the fees and disbursements of counsel
for the Underwriters relating to such filings and clearance), (vi) the listing
of the Shares on the Nasdaq National Market, (vii) furnishing such copies of the
Registration Statement, the Prospectus and all amendments and supplements
thereto as may be requested for use in connection with the offering or sale of
the Shares by the Underwriters or 5 by dealers to whom Shares may be sold and
(viii) the performance by the Sellers of their other obligations under this
Agreement.
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<PAGE> 7
(1) To use its best efforts to maintain the inclusion of the Common Stock
in the Nasdaq National Market (or on a national securities exchange) for a
period of five years after the effective date of the Registration Statement.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will comply in
all material respects with the Act and (iii) the Prospectus does not contain
and, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration statement
as originally filed or as part of any amendment thereto, or filed pursuant to
Rule 424 under the Act, and each Registration Statement filed pursuant to Rule
462(b) under the Act, if any, complied when so filed in all material respects
with the Act; and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia and
has the corporate power and authority to carry on its business as it is
currently being conducted and to own, lease and operate its properties, and is
duly qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
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<PAGE> 8
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
Company.
(e) All the outstanding shares of capital stock of the Company (including
the Shares to be sold by the Selling Stockholders) have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights; and the Shares to be issued and sold by the
Company hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(f) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in the
Prospectus.
(g) The Company is not in violation of its charter or by-laws or in default
in the performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the business of
the Company to which the Company is a party or by which the Company or its
property is bound.
(h) The execution, delivery and performance of this Agreement, compliance
by the Company with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body (except as such may be required under the
securities or Blue Sky laws of the various states) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any agreement, indenture or other
instrument to which the Company is a party or by which the Company or its
property is bound, or violate or conflict with any laws, administrative
regulations or rulings or court decrees applicable to the Company or its
property.
(i) Except as otherwise set forth in the Prospectus, there are no material
legal or governmental proceedings pending to which the Company is a party or of
which any of its property is the subject, and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated. No contract or
document of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement is
not so described or filed as required.
(j) The Company has not violated any foreign, federal, state or local law
or regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances
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<PAGE> 9
or wastes, pollutants or contaminants ("Environmental Laws"), nor any federal or
state law relating to discrimination in the hiring, promotion or pay of
employees nor any applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company.
(k) The Company has such permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits"), including, without
limitation, under any applicable Environmental Laws, as are necessary to own,
lease and operate its properties and to conduct its business; the Company has
fulfilled and performed all of its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company.
(1) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of operation
of the Company, the Company has good and marketable title, free and clear of all
liens, claims, encumbrances and restrictions except liens for taxes not yet due
and payable, to all property and assets described in the Registration Statement
as being owned by it. All leases to which the Company is a party are valid and
binding and no default has occurred or is continuing thereunder which might
result in any material adverse change in the business, prospects, financial
condition or results of operation of the Company and the Company enjoys peaceful
and undisturbed possession under all such leases to which it is a party as
lessee with such exceptions as do not materially interfere with the use made by
the Company.
(m) The Company maintains reasonably adequate insurance.
(n) Ernst & Young LLP are independent public accountants with respect to
the Company as required by the Act.
(o) The Company owns or possesses adequate rights with respect to the use
of all trade secrets, know-how, propriety techniques, including processes and
substances, trademarks, service marks, trade names and copyrights (collectively,
"Intellectual Property") described or referred to in the Prospectus as owned or
used by it, or which are necessary for the conduct of its business as described
in the Prospectus, other than Intellectual Property the lack of which would not
reasonably be expected to result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and no
such rights as are material to the business and prospectus of the Company expire
or are subject to termination at the election of another party without cause or
the Company's consent at a time or under circumstances which would result in any
material adverse change in
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<PAGE> 10
the business, prospects, financial condition or results of operation of the
Company. The Company has not received any notice of infringement of or conflict
with asserted rights of others with respect to any patents, patent rights,
inventions, trade secrets, know-how, proprietary techniques, including processes
and substances, trademarks, service marks, trade names or copyrights which would
result in any material adverse change in the business, prospects, financial
condition or results of operation of the Company.
(p) The Company is not involved in any labor dispute which, either
individually or in the aggregate, would reasonably be expected to result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company, nor, to the knowledge of the Company, is
any such dispute threatened.
(q) The financial statements, together with related schedules and notes
forming part of the Registration Statement and the Prospectus (and any amendment
or supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data set forth in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) is, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company. The pro forma financial
statements and data set forth in the Prospectus present fairly in all material
respects the information shown therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma information,
have been properly compiled on the pro forma basis described therein, and, in
the opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate under the
circumstances.
(r) The Company is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(s) No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company.
(t) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(u) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act, to register the Common Stock, has filed an
application to list the Shares on the Nasdaq National
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<PAGE> 11
Market, and has received notification that the listing has been approved,
subject to notice of issuance.
(v) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any subsidiary
thereof except as otherwise disclosed in the Registration Statement.
(w) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed therein by
Item 404 of Regulation S-K of the Commission.
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) All material tax returns required to be filed by the Company in any
jurisdiction have been filed, other than those filings being contested in good
faith, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company have been paid, other than
those being contested in good faith and for which adequate reserves have been
provided.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder severally represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be sold
by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date (and Option Closing Date, if applicable) will have, good and clear
title to such Shares, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and clear title to such Shares will pass to the Underwriters,
free of all restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever.
(c) Such Selling Stockholder has, and on the Closing Date will have, full
legal right, power and authority to enter into this Agreement and the Custody
Agreement between the Selling Stockholders and , as Custodian (the "Custody
Agreement") and to
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<PAGE> 12
sell, assign, transfer and deliver such Shares in the manner provided herein and
therein, and this Agreement and the Custody Agreement have been duly authorized,
executed and delivered by such Selling Stockholder and each of this Agreement
and the Custody Agreement is a valid and binding agreement of such Selling
Stockholder enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law.
(d) The power of attorney signed by such Selling Stockholder appointing
_______________ and _____________________ , or either one of them, as his
attorney-in-fact to the extent set forth therein with regard to the transactions
contemplated hereby and by the Registration Statement and the Custody Agreement
has been duly authorized, executed and delivered by or on behalf of such SelLing
Stockholder and is a valid and binding instrument of such Selling Stockholder
enforceable in accordance with its terms, and, pursuant to such power of
attorney, such Selling Stockholder has authorized _________________ and
__________________ , or either one of them, to execute and deliver on his behalf
this Agreement and any other document necessary or desirable in connection with
transactions contemplated hereby and to deliver the Shares to be sold by such
Selling Stockholder pursuant to this Agreement.
(e) Such Selling Stockholder has not taken, and will not take, directly or
indirectly, any action designed to, or which might reasonably be expected to,
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares pursuant to the
distribution contemplated by this Agreement, and other than as permitted by the
Act, the Selling Stockholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares.
(f) The execution, delivery and performance of this Agreement by such
Selling Stockholder, compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body (except
as such may be required under the Act, state securities laws or Blue Sky laws)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of such Selling
Stockholder, if not an individual, or any agreement, indenture or other
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder or property of such Selling Stockholder is bound, or violate or
conflict with any laws, administrative regulation or ruling or court decree
applicable to such Selling Stockholder or property of such Selling Stockholder.
(g) (i) To the knowledge of such Selling Stockholder, the representations
and warranties of the Company set forth in Section 6 hereof are true and correct
and (ii) such parts of the Registration Statement under the caption "Principal
and Selling
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<PAGE> 13
Stockholders" which specifically relate to such Selling Stockholder do not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of circumstances under which they were made, not misleading.
(h) At any time during the period described in paragraph 5(e) hereof, if
there is any change in the information referred to in paragraph 7(g) above, the
Selling Stockholders will immediately notify you of such change.
8. Indemnification. (a) The Company and each Selling Stockholder, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all S losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriters furnished in
writing to the Company by or on behalf of any Underwriter through you expressly
for use therein. Notwithstanding the foregoing, the aggregate liability of any
Selling Stockholder pursuant to the provisions of this paragraph shall be
limited to an amount equal to, in the aggregate, the sum of (i) the purchase
price received by such Selling Stockholder from the sale of such Selling Stock-
holder's Shares hereunder and (ii) such Selling Stockholder's proportionate
share of the S Corporation Dividend (as defined in the Prospectus); provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages and liabilities and judgments
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended and supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or judgment.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company and the
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<PAGE> 14
Selling Stockholders, such Underwriter shall promptly notify the Company and the
Selling Stockholders in writing and the Company and the Selling Stockholders
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses. Any
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and participate in the defense thereof but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person unless (i) the employment of such counsel
has been specifically authorized in writing by the Company, (ii) the Company and
the Selling Stockholders shall have failed to assume the defense and employ
counsel or (iii) the named parties to any such action (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company or any Selling Stockholder, as the case may be, and such Underwriter or
such controlling person shall have been advised by such counsel that there may
be one or more legal defenses available to it which are different from or
additional to those available to the Company or the Selling Stockholders, as the
case may be (in which case the Company and the Selling Stockholders shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Company and the Selling Stockholders shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all such Underwriters and controlling
persons, which firm shall be designated in writing by Donaldson, Lufkin &
Jenrette Securities Corporation and that all such fees and expenses shall be
reimbursed as they are incurred). A Seller shall not be liable for any
settlement of any such action effected without the written consent of such
Seller but if settled with the written consent of such Seller, such Seller
agrees to indemnify and hold harmless any Underwriter and any such controlling
person from and against any loss or liability by reason of such settlement.
Notwithstanding the immediately preceding sentence, if in any case where the
fees and expenses of counsel are at the expense of the indemnifying party and an
indemnified party shall have requested the indemnifying party to reimburse the
indemnified party for such fees and expenses of counsel as incurred, such
indemnifying party agrees that it shall be liable for any settlement of any
action effected without its written consent if (i) such settlement is entered
into more than ten business days after the receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall have failed to
reimburse the indemnified party in accordance with such request for
reimbursement prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified
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<PAGE> 15
party from all liability on claims that are the subject matter of
such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, any person controlling the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, each Selling Stockholder and each
person, if any, controlling such Selling Stockholder within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Sellers to each Underwriter but only with
reference to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus. In case any action
shall be brought against the Company, any of its directors, any such officer or
any person controlling the Company or any Selling Stockholder or any person
controlling such Selling Stockholder based on the Registration Statement, the
Prospectus or any preliminary prospectus and in respect of which indemnity may
be sought against any Underwriter, the Underwriter shall have the rights and
duties given to the Sellers (except that if any Seller shall have assumed the
defense thereof) such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and the
Company, its directors, any such officers and any person controlling the Company
and the Selling Stockholders and any person controlling such Selling
Stockholders shall have the rights and duties given to the Underwriter, by
Section 8(b) hereof.
(d) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party in respect of any losses, claims, damages, liabilities or
judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Sellers on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Sellers and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the Sellers
and the Underwriters shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by the
Sellers, and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers and the Underwriters shall be determined by reference to,
among other
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<PAGE> 16
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Sellers and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section II(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) Each Seller hereby designates MAXIMUS, Inc., 1356 Beverly Road, McLean,
Virginia 22101 (a Virginia Corporation), as its authorized agent, upon which
process may be served in any action, suit or proceeding which may be instituted
in any state or federal court in the State of New York by any Underwriter or
person controlling an Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Seller will accept
the jurisdiction of such court in such action, and waives, to the fullest extent
permitted by applicable law, any defense based upon lack of personal
jurisdiction or venue. A copy of any such process shall be sent or given to such
Seller at the address for notices specified in Section 13 hereof.
9. CONDITIONS OF UNDERWRITERS OBLIGATIONS. The several obligations of the
Underwriters to purchase the Firm Shares under this Agreement are subject to the
satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in this
Agreement shall be true and correct on the Closing Date with the same force and
effect as if made on and as of the Closing Date.
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<PAGE> 17
(b) The Registration Statement shall have become effective not later than
5:00 P.M.(and in the case of a Registration Statement filed under Rule 462(b) of
the Act, not later than 10:00 p.m.), New York City time, on the date of this
Agreement or at such later date and time as you may approve in writing, and at
the Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been commenced or shall be pending before or contemplated by the Commission.
(c) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
affairs or business prospects, whether or not arising in the ordinary course of
business, of the Company, (ii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus there shall not have
been any change, or any development involving a prospective material adverse
change, in the capital stock or in the long-term debt of the Company from that
set forth in the Registration Statement and Prospectus, (iii) the Company and
its subsidiaries shall have no liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries, taken as a whole, other
than those reflected in the Registration Statement and the Prospectus and (iv)
on the Closing Date you shall have received a certificate dated the Closing
Date, signed by David V. Mastran and Raymond B. Ruddy, in their capacities as
the Chief Executive Officer and Chairman of the Board and President of
Consulting Services respectively, of the Company, confirming the matters set
forth in paragraphs (a), (b), and (c) of this Section 9.
(d) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received a certificate to such effect, dated the Closing Date, from each
Selling Stockholder.
(e) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Palmer & Dodge
LLP counsel for the Company and the Selling Stockholders, to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia and
has the corporate power and authority required to carry on its business as it is
currently being conducted and to own, lease and operate its properties;
(ii) the Company is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires such
qualification, except where
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<PAGE> 18
the failure to be so qualified would not have a material adverse effect on the
Company;
(iii) all the outstanding shares of Common Stock (including the Shares
to be sold by the Selling Stockholders) have been duly authorized and validly
issued and are fully paid, non-assessable and not subject to any preemptive or
similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will have been validly issued
and will be fully paid and non-assessable, and the issuance of such Shares is
not subject to any preemptive or similar rights;
(v) this Agreement has been duly authorized, executed and delivered by
the Company and each of the Selling Stockholders and is a valid and binding
agreement of the Company and each Selling Stockholder enforceable in accordance
with its terms (except as rights to indemnity and contribution hereunder may be
limited by applicable law);
(vi) the authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in the
Prospectus;
(vii) the Registration Statement has become effective under the Act no
stop order suspending its effectiveness has been issued and no proceedings for
that purpose are, to the knowledge of such counsel, pending before or
contemplated by the Commission;
(viii) the statements under the captions "Risk Factors - Certain
Anti-Takeover Effects, and - Shares Eligible for Future Sale", "Management -
Compensation Plans", "Description of Capital Stock", "Shares Eligible for Future
Sale", and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of
the Registration Statement insofar as such statements constitute a summary of
legal matters documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings;
(ix) the Company is not in violation of its charter or by-laws and, to
the best of such counsel's knowledge after due inquiry, the Company is not in
default in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of the business
of the Company, to which the Company is a party or by which the Company or its
property is bound;
(x) the execution, delivery and performance of this Agreement by the
Company and each Selling Stockholder, compliance by the Company and each Selling
Stockholder with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent, approval,
authorization or other
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<PAGE> 19
order of any court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Act or other securities or Blue
Sky laws) and will not conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the charter or by-laws of the Company or
the organizational documents of any Selling Stockholder that is not an
individual or any agreement, indenture or other instrument to which the Company
or any Selling Stockholder is a party or by which the Company or any Selling
Stockholder or their respective properties are bound, or violate or conflict
with any laws, administrative regulations or rulings or court decrees applicable
to the Company or any Selling Stockholder or their respective properties;
(xi) after due inquiry, such counsel does not know of any legal or
governmental proceeding pending or threatened to which the Company is a party or
to which any of its property is subject which is required to be described in the
Registration Statement or the Prospectus and is not so described, or of any
contract or other document which is required to be described in the Registration
Statement or the Prospectus or is required to be filed as an exhibit to the
Registration Statement which is not described or filed as required;
(xii) to the best of such counsel's knowledge, after due inquiry, the
Company has not violated any Environmental Laws, nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and . hours laws, nor any provisions of the
Employee Retirement Income Security Act or the rules and regulations promulgated
thereunder, which in each case might result in any material adverse change in
the business, prospects, financial condition or results of operation of the
Company;
(xiii) the Company has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease and operate its properties and to conduct its business in the manner
described in the Prospectus; to the best of such counsel's knowledge, after due
inquiry, the Company and each of its subsidiaries has fulfilled and performed
all of its material obligations with respect to such permits and no event has
occurred that allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such permit, subject in each case to such qualification as
may be set forth in the Prospectus; and, except as described in the Prospectus,
such permits contain no restrictions that are materially burdensome to the
Company;
(xiv) the Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended;
(xv) to the best of such counsel's knowledge, after due inquiry, no
holder of any security of the Company has any right to
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<PAGE> 20
require registration of shares of Common Stock or any other security of the
Company;
(xvi) to the best of such counsel's knowledge, after due inquiry, all
leases to which the Company is a party are valid and binding and no default has
occurred or is continuing thereunder that might result in any material adverse
change in the business, prospects, financial condition or results of operation
of the Company, and the Company enjoys peaceful and undisturbed possession under
all such leases to which it is a party as lessee with such exceptions as do not
materially interfere with the use made by the Company;
(xvii) (1) the Registration Statement (including any Registration
Statement filed under 462(b) of the Act, if any) and the Prospectus and any
supplement or amendment thereto (except for financial statements as to which no
opinion need be expressed) comply as to form in all material respects with the
Act, and (2) such counsel believes that (except for financial statements, as
aforesaid) the Registration Statement and the prospectus included therein at the
time the Registration Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that the Prospectus, as amended or supplemented, if applicable (except for
financial statements, as aforesaid) does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(xviii) the Custody Agreement has been duly authorized, executed and
delivered by each Selling Stockholder and is a valid and binding agreement of
such Selling Stockholder enforceable in accordance with its terms;
(xix) each Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than any approval imposed by
the applicable state securities and Blue Sky laws) to sell, assign, transfer and
deliver the Shares to be sold by him in the manner provided in this Agreement
and the Custody Agreement;
(xx) each Selling Stockholder has good and clear title to the
certificates for the Shares to be sold by such Selling Stockholder and upon
delivery thereof, pursuant hereto and payment therefore good and clear title
will pass to the Underwriters, severally, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever; and
(xxi) the power of attorney signed by each Selling Stockholder
appointing ________________ and ________________, or either of them, as his
attorney- in-fact to the extent set forth therein with regard to the
transactions contemplated hereby and by the Registration Statement has been duly
authorized, executed and delivered by or on behalf of each Selling Stockholder
and are valid and binding instruments of such Selling Stockholder enforceable in
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<PAGE> 21
accordance with its terms, and pursuant to such power of attorney, each of the
Selling Stockholders has authorized ____________ and ___________________, or
either of them, to execute and deliver on their behalf this Agreement and any
other document necessary or desirable in connection with transactions
contemplated hereby and to deliver the Shares to be sold by them pursuant to
this Agreement.
In giving such opinion with respect to the matters covered by clause (xvii)
such counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
The opinion of Palmer & Dodge LLP described in paragraph (e) above shall be
rendered to you at the request of the Company or one or more of the Selling
Stockholders, as the case may be, and shall so state therein.
(f) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Winston & Strawn, counsel for the Underwriters, as to the
matters referred to in clauses (v), (vi) (but only with respect to the Company),
(viii), (ix) (but only with respect to the statements under the captions
"Description of Capital Stock" and "Underwriting") and (xviii) of the foregoing
paragraph (e). In giving such opinion with respect to the matters covered by
clause (xvii) such counsel may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
(g) You shall have received a letter on and as of the Closing Date, in form
and substance satisfactory to you, from Ernst & Young LLP, independent public
accountants, with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus and
substantially in the form and substance of the letter delivered to you by Ernst
& Young LLP on the date of this Agreement.
(h) The Company and the Selling Stockholders shall not have failed at or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company and the
Selling Stockholders at or prior to the Closing Date.
(i) You shall have received on the Closing Date from each Selling
Stockholder a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof). The several obligations of the Underwriters to
purchase any Additional Shares hereunder are subject to the delivery to you on
the
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<PAGE> 22
applicable Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of such Additional Shares and other matters related to the issuance of
such Additional Shares.
10. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall
become effective upon the later of (i) execution of this Agreement and (ii) when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date by
you by written notice to the Sellers if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or development
involving a prospective material adverse change in the condition, financial or
otherwise, of the Company or the earnings, affairs, or business prospects of the
Company, whether or not arising in the ordinary course of business, which would,
in your judgment, make it impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
judgment, make it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or limitation on prices for
securities on any such exchange or the Nasdaq National Market, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects, or will materially and
adversely-affect, the business-or operations of the Company, (v) the declaration
of a banking moratorium by either federal or New York State authorities or (vi)
the taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be; which it or they have agreed to
purchase hereunder on such date and the aggregate number of Firm Shares or
Additional Shares, as the case may be, which such defaulting Underwriter or
Underwriters, as the case may be, agreed but failed or refused to purchase is
not more than one-tenth of the total number of Shares to be purchased on such
date by all Underwriters, each non-defaulting Underwriter shall be obligated
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I bears to the total number of Firm Shares which all the
non-defaulting Underwriters, as the case may be, have
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<PAGE> 23
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or-Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date or on an Option Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares, or
Additional Shares, as the case may be, and the aggregate number of Firm Shares
or Additional Shares, as the case may be, with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters and arrangements satisfactory to you and the
applicable Sellers for purchase of such Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the applicable Sellers. In any such case
which does not result in termination of this Agreement, either you or the
Sellers shall have the right to postpone the Closing Date or the applicable
Option Closing Date, as the case may be, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any default of any such Underwriter under this
Agreement.
11. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
severally agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with respect to the
Shares to be sold by such Selling Stockholder; and
(b) To take all reasonable actions in cooperation with the Company and the
Underwriters to cause the Registration Statement to become effective at the
earliest possible time, to do and perform all things to be done and performed
under this Agreement prior to the Closing Date and to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.
12. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company to _____________,
c/o MAXIMUS, INC., 1356 Beverly Road, McLean, Virginia 22101 (b) if to the
Selling Stockholders, to [NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS OF
ATTORNEY-IN-FACT] and (c) if to any Underwriter or to you, to you c/o Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
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<PAGE> 24
The respective indemnities, contribution agreements, representations,
warranties, covenants and other statements of the Selling Stockholders, the
Company, its officers and directors and of the several Underwriters set forth in
or made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Shares, regardless of
(i) any investigation, or statement as to the results thereof, made by or on
behalf of any Underwriter or by or on behalf of the Sellers, the officers or
directors of the Company or any controlling person of the Sellers, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If this Agreement shall be terminated by the Underwriters because of any
failure or refusal on the part of the Sellers to comply with the terms or to
fulfill any of the conditions of this Agreement, the Sellers agree to reimburse
the several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Sellers, the Underwriters, any
controlling persons referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of the Shares from
any of the several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
MAXIMUS, INC.
By
---------------------------------
Title:
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE II HERETO
By
---------------------------------
Attorney-in-fact
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<PAGE> 25
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-----------------------------------
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<PAGE> 26
SCHEDULE I
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Lehman Brothers Inc.
------------
Total
============
<PAGE> 27
SCHEDULE II
Selling Stockholders
--------------------
Maximum Number of
Number of Firm Additional Shares
Name Shares Being Sold Subject to Sale
- ---- ----------------- ---------------
David V. Mastran
Raymond B. Ruddy
Russell A. Beliveau
F. Arthur Nerret
Ilene R. Baylinson
Lynn P. Davenport
Donna J. Muldoon
Susan D. Pepin
Robert Muzzio
Paul G. Buckley
William F. Dinneen
Kevin Dorney
Edward F. Hilz
David A. Hogan
John P. Lau, Sr.
Alice Meana
Holly Payne
Philip A. Richardson
Robert L. Sarno
Catherine Tracy
Michael C. Truby
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
MAXIMUS, INC.
We hereby associate to form a stock corporation under the provisions of
Chapter 1 of Title 13.1 of the Code of Virginia 1950, as amended, and to that
end set forth the following:
1. The name of the Corporation is Maximus, Inc.
2. The Corporation is organized for the following purposes:
(a) To provide consulting work for both private and governmental
entitles.
(b) To have all those powers recited in Sections 13.1-3,
13.1-3.1, and 13.1-4, Code of Virginia.
(c) To carry on business of any character whatsoever that is not
prohibited by law or required to be stated in these articles.
3. The aggregate number of shares which the Corporation shall have the
authority to issue and the par value per share are as follows:
Par Value
Class Number of Shares Per Share
----- ---------------- ---------
Common Stock 100,000 50(cent)
4. The post office address of the initial registered office of the
Corporation is 501 Chesapeake Drive, Great Falls, Virginia. The county in which
the initial registered office is located is Fairfax County, Virginia. The name
of the initial registered agent is David V. Mastran, who is a resident of
Virginia and a director of the corporation and whose business address is the
same as the address of the initial registered office of the corporation.
<PAGE> 2
5. The number of directors constituting the initial Board of Directors
is two, either or both of whom will initially own all of the shares of the
Corporation, and whose names and addresses are as follows:
Name Address
---- -------
David V. Mastran 501 Chesapeake Drive
Great Falls, Virginia
Shelley S. Mastran 501 Chesapeake Drive
Great Falls, Virginia
6. The names and addresses of the incorporators are:
Name Address
---- -------
David V. Mastran 501 Chesapeake Drive
Great Falls, Virginia
Shelley S. Mastran 501 Chesapeake Drive
Great Falls, Virginia
James W. Haley, Jr. 910 Princess Anne Street
Fredericksburg, Virginia
Dated: September 14, 1975
------------------
/s/ David V. Mastran
---------------------------------
DAVID V. MASTRAN
/s/ Shelley S. Mastran
---------------------------------
SHELLEY S. MASTRAN
/s/ James W. Haley, Jr.
---------------------------------
JAMES W. HALEY, JR.
STATE OF VIRGINIA
COUNTY OF FAIRFAX, to wit:
The foregoing instrument was acknowledged before me this 14th day of
September, 1975, by David V. Mastran and Shelley S. Mastran.
My commission expires:
12 Feb 1979 /s/ John G. Bays
- ------------------ -----------------------------------
Notary Public
<PAGE> 3
STATE OF VIRGINIA
CITY OF FREDERICKSBURG, to wit:
The foregoing instrument was acknowledged before me this 11th day of
September, 1975, by James W. Haley, Jr.
My commission expires:
May 17, 1978 /s/ Lorna M. Keller
- ------------------ -----------------------------------
Notary Public
<PAGE> 4
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
MAXIMUS, INC.
PURSUANT TO SECTION 13.1-710
OF
VIRGINIA CORPORATION LAW
We, the undersigned being respectively the president and secretary of
MAXIMUS, Inc. ("the Corporation") do hereby certify as follows:
1. The name of the Corporation is the MAXIMUS, Inc.
2. The text of the amendment adopted, replacing Article 3 in its
entirety, is:
3. The aggregate number of shares which the Corporation shall have
authority to issue and the par value per share are as follows:
Class Number of Shares Par Value Per Share
----- ---------------- -------------------
Common Stock 110,000 50(cent)
3. The date of the amendment's adoption is December 22, 1986.
4. The amendment was adopted by shareholders owning more than ninety
percent of the stock in the Corporation.
IN WITNESS WHEREOF, we have made and subscribed these articles this 22nd
day of December, 1986.
/s/ David V. Mastran
--------------------------------
President
/s/ Shelley S. Mastran
--------------------------------
Secretary
ATTEST: /s/ Shelley S. Mastran
/s/ Alice Luituri
SEAL:
<PAGE> 5
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
MAXIMUS, INC.
Pursuant to Section 13.1-710 of the 1950 Code of Virginia, as amended, the
undersigned certify as follows:
1. The name of the Corporation is: MAXIMUS, Inc.
2. Article 1 of the Articles of Incorporation of the corporation is
amended to change the name of the corporation from Maximus, Inc. to: MAXIMUS,
Inc.
3. Article 3 of the Articles of Incorporation of the corporation is
amended to change each issued and unissued authorized share of common stock of
the Corporation into ten shares of such common stock and the par value per share
of such common stock is reduced from $0.50 per share to $0.10 per share. To
reflect the increased number of authorized shares of the Corporation's common
stock and the reduced par value per share of such shares, Article 3 of the
Articles of Incorporation is restated as follows:
3. The aggregate number of shares which the Corporation shall have
authority to issue and the par value per share are as follows:
Class Number of Shares Par Value Per Share
----- ---------------- -------------------
Common 1,100,000 $0.10
4. The Corporation has adopted the following procedures to implement
the stock split described in Article 3 above.
(a) NOTICE. Promptly after the acceptance of these Articles of
Amendment of its Articles of Incorporation by the Virginia State
Corporation Commission, the Chief Executive Officer of the Corporation
shall cause a notice to be prepared and sent to shareholders of record
as of September 1,
<PAGE> 6
1995, advising such shareholders of the procedures to be followed to
exchange existing stock certificates for new certificates reflecting
the change in shares. The notice shall include a copy of this Plan of
Reorganization and such other materials as the Chief Executive Officer
shall deem appropriate to facilitate the exchange of certificates.
(b) EXCHANGE. Upon surrender of existing certificates for the
Corporation's currently issued common stock, shareholders shall be
issued a certificate for ten shares of common stock for each share of
common stock owned by such shareholders. Certificates surrendered for
exchange shall be delivered to the Corporation's Secretary at the
corporate headquarters located at 1356 Beverly Road, McLean, Virginia
22041, Attention: Donna Muldoon, Secretary.
(c) LOST CERTIFICATES. In case of the loss, theft or apparent
destruction of a share certificate, the shareholder shall submit an
Affidavit to the Corporation, in such form as the Corporation shall
require, setting forth the fact of such loss, theft or apparent
destruction. The Board of Directors of the Corporation shall review
all such affidavits and may, in its discretion, (i) require that any
shareholder seeking the issue of a new certificate based upon a lost,
stolen or apparently destroyed certificate provide the Corporation
with an indemnity bond or other surety indemnifying the Corporation
from any loss arising as a result of such lost, mutilated or
apparently destroyed certificate and (ii) satisfy any other reasonable
requirement deemed necessary or advisable by the Board of Directors.
5. The date of the amendment's adoption was November 30, 1995.
6. The amendment was adopted by unanimous consent of the shareholders
of the Corporation.
MAXIMUS, Inc.
By: /s/ Raymond B. Ruddy
----------------------------------
Raymond B. Ruddy
Chairman of the Board of Directors
<PAGE> 7
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
MAXIMUS, INC.
Pursuant to Section 13.1-710 of the Stock Corporation Act under Chapter 9
of the Code of Virginia, as amended, the undersigned certifies as follows:
1. The name of the Corporation is MAXIMUS, Inc.
2. Article 3 of the Articles of Incorporation of the corporation is
hereby amended to read in its entirety as follows:
"3. The Corporation is authorized to issue 30,000,000 Shares of
Common Stock.
The pre-emptive rights granted by Section 13.1-651 of the
Virginia Stock Corporation Act, or any other provision of law, are expressly
denied to any Shareholders of this Corporation."
3. Upon the effectiveness of these Articles of Amendment to the
Articles of Incorporation, each issued and outstanding share of Common Stock of
the Corporation shall thereby be divided into eleven (11) validly issued, fully
paid, and nonassessable shares of Common Stock of the Corporation. There shall
not be any change in the number of shares authorized by reason of such division
or split, except as set forth in Article 3 of the Corporation's Articles of
Incorporation as amended above. No notice of such filing and effectiveness of
these Articles of Amendment shall be required to be given to any Shareholder of
the Corporation. Each certificate representing shares of Common Stock held by
any Shareholder prior to such filing and effectiveness shall be deemed for all
purposes to represent the number of shares stated on the face of such
certificate multiplied by eleven (11). Upon the request of any Shareholder to
exchange such certificate for a new certificate or to transfer shares, the
Corporation shall make such exchange or transfer in accordance with the By-laws
of the Corporation, taking into account the stock division or split effected by
these Articles of Amendment.
4. This amendment was adopted by the unanimous written consent of the
Board of Directors dated March 31, 1997 and submitted for approval by the
Shareholders of the Corporation in accordance with Chapter 9 of the Code of the
Commonwealth of Virginia (the "Meeting"). By unanimous written consent dated
February 3, 1997, the Shareholders of the Corporation approved this amendment.
No shares of any other class of stock were outstanding and entitled to vote.
MAXIMUS, Inc.
By: /s/ F. Arthur Nerret
--------------------------------
Name: F. Arthur Nerret
Title: Chief Financial Officer
<PAGE> 1
Exhibit 3.2
FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MAXIMUS, INC.
The undersigned, pursuant to Section 13.1-711 of the Stock Corporation Act
under Chapter 9 of Title 13.1 of the Code of Virginia, states as follows:
FIRST: The name of the Corporation is MAXIMUS, Inc.
SECOND: The Corporation is authorized to issue 30,000,000 shares of Common
Stock.
The preemptive rights granted by Section 13.1-651 of the Virginia Stock
Corporation Act, or any other provision of law, are expressly denied to any
Shareholder of this Corporation.
Subject to the provisions of any applicable law or of the by-laws of the
Corporation, as from time to time amended, the holders of outstanding shares of
Common Stock shall have exclusive voting rights for the election of directors
and for all other purposes, each holder of record of shares of Common Stock
being entitled to one vote for each share of Common Stock standing in his name
on the books of the Corporation.
The holders of Common Stock shall be entitled to receive such dividends
from time to time as may be declared by the Board of Directors out of any funds
of the Corporation legally available for the payment of such dividends.
In the event of the liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the holders of Common Stock shall
be entitled to share ratably according to the number of shares of Common stock
held by them in all assets of the Corporation available for distribution to its
Shareholders.
Subject to the provisions of these Articles of Incorporation and except as
otherwise provided by law, the shares of stock of the Corporation, regardless of
class, may be issued for such consideration and for such corporate purposes as
the Board of Directors may from time to time determine.
THIRD: The rights granted by Section 13.1-728 of the Virginia Stock
Corporation Act, or any other provision of law pertaining to Control Share
Acquisitions shall not apply to the Corporation.
FOURTH: The Affiliated Transactions Article, also known as Section 13.1-725
et seq. of the Virginia Stock Corporation Act shall not apply to the
Corporation.
FIFTH: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Virginia Stock
Corporation Act.
<PAGE> 2
SIX: The address of the registered office of the Company in the
Commonwealth of Virginia is 1356 Beverly Road, McLean, Virginia in the County of
Fairfax. The name of its registered agent at such address is David V. Mastran.
Mr. Mastran is a director and resident of the Commonwealth of Virginia.
SEVENTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation:
1. Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to the rights of creditors
and the rights expressly provided for particular classes or series of stock, for
the distribution among the Shareholders of the Corporation of the assets of the
Corporation as provided herein, wholly or in part or in kind, whether such
assets be in cash or other property, and may authorize the Board of Directors of
the Corporation to determine the valuation of the different assets of the
Corporation for the purpose of such liquidation and may divide or authorize the
Board of Directors to divide such assets or any part thereof among the
Shareholders of the Corporation, in such manner that every Shareholder will
receive a proportionate amount in value (determined as provided herein) of cash
or property of the Corporation upon such liquidation or dissolution even though
each Shareholder may not receive a strictly proportionate part of each such
asset.
2. If at any time the Corporation shall have a class of stock
registered pursuant to the provisions of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), for so long as such class is registered, the
directors shall be divided into three classes, as nearly equal in number as the
then total number of directors constituting the entire Board permits, with the
term of office of one class expiring each year. The initial Class I directors
elected by the Shareholders of the Corporation shall hold office for a term
expiring at the first annual meeting of Shareholders after such registration of
the Company's Stock; the initial Class II directors elected by the Shareholders
of the Corporation shall hold office for a term expiring at the second annual
meeting of Shareholders after such registration of the Company's Stock; and the
initial Class III directors elected by the Shareholders of the Corporation shall
hold office for a term expiring at the third annual meeting of Shareholders
after such registration of the Company's Stock. At each such annual meeting of
Shareholders and at each annual meeting thereafter, successors to the class of
directors whose term expires at that meeting shall be elected for a term
expiring at the third annual meeting following their election and until their
successors shall be elected and qualified, subject to prior death, resignation,
retirement or removal. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, but in no event will a
decrease in the number of directors shorten the term of any incumbent director.
This Section 2 of Article SEVENTH may not be amended, revised or revoked, in
whole or in part, except by the affirmative vote of the holders of 80% of the
voting power of the shares of all classes of stock of the Corporation entitled
to vote for the election of directors, considered for the purposes of this
Article SEVENTH as one class of stock.
3. Each director chosen to fill a vacancy in the Board of Directors
shall be elected to complete the term of office of the director who is being
succeeded. In the case of
- 2 -
<PAGE> 3
any election of a new director to fill a directorship created by an enlargement
of the Board, the Board shall in such election assign the class of directors to
which such additional director is being elected, and each director so elected
shall hold office for the same term as the other members of the class to which
the director is assigned.
4. At any special meeting of the Shareholders called at least in part
for the purpose, any director or directors may, by the affirmative vote of the
holders of at least a majority of the stock entitled to vote for the election of
directors, be removed from office for cause. Upon the registration of the
Company's Stock under the Exchange Act, and as long as so registered, the
provisions of this subsection shall be the exclusive method for the removal of
directors. This Section 4 of Article SEVENTH may not be amended, revised or
revoked, in whole or in part, except by the affirmative vote of the holders of
80% of the voting power of the shares of all classes of stock of the Corporation
entitled to vote for the election of directors, considered for the purposes of
this Article SEVENTH as one class of stock.
5. The Corporation shall indemnify (A) its directors and officers,
whether serving the Corporation or at its request any other entity, to the full
extent required or permitted by the Virginia Stock Corporation Act now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (B) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Corporation's
by-laws and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
right to indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
6. A director of the Corporation shall not be personally liable to the
Corporation or its Shareholders for monetary damages for breach of fiduciary
duty as a director, to the fullest extent permitted by Section 13.1-692.1(B) of
the Virginia Stock Corporation Act or any other provisions of applicable law. If
the Virginia Stock Corporation Act is amended after approval by the Shareholders
of this Article SEVENTH to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Virginia Stock Corporation Act as so amended from time to time.
Any repeal or modification of this Article SEVENTH shall not increase the
personal liability of any director of this Corporation for any act or occurrence
taking place before such repeal or modification, nor otherwise adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
8. Meetings of Shareholders may be held anywhere within or without the
Commonwealth of Virginia. The books of the Corporation may be kept outside the
Commonwealth of Virginia at such place or places as may be designated from time
to time by the Board of Directors or in the by-laws of the Corporation.
- 3 -
<PAGE> 4
EIGHTH: If at any time the Corporation shall have a class of stock
registered pursuant to the provisions of the Exchange Act, for so long as such
class is registered, no action required to be taken or that may be taken at any
annual or special meeting of Shareholders of the Corporation may be taken by
written consent without a meeting, and the power of Shareholders to consent in
writing, without a meeting, to the taking of any action shall be specifically
denied.
This Article EIGHTH may not be amended, revised or revoked, in whole or in
part, except by the affirmative vote of the holders of 80% of the voting power
of the shares of all classes of stock of the Corporation entitled to vote for
the election of directors, considered for the purposes of this Article EIGHTH as
one class of stock.
NINTH: The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in these Amended and Restated Articles of Incorporation
in the manner now or hereafter prescribed by statute, and all rights conferred
upon Shareholders are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned have duly executed these Amended and
Restated Articles of Incorporation in the name and on behalf of MAXIMUS, Inc. on
the _____ day of ________________, 1997 and the statements contained herein are
affirmed as true under penalties of perjury.
---------------------------------
Name:
Title:
ATTESTED:
- ------------------------------------
Name:
Title:
- 4 -
<PAGE> 1
Exhibit 3.3
BY-LAWS
OF
MAXIMUS, INC.
-------------
ARTICLE I - OFFICES
-------------------
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
------------------------------------
Section 1 - Annual Meetings:
- ----------------------------
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
- -----------------------------
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3 - Place Of Meetings:
- ------------------------------
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
Section 4 - Notice Of Meetings:
- -------------------------------
(a) Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail, not less than ten or more than fifty days before the
meeting, upon each shareholder of record entitled to vote at such meeting, and
to any other shareholder to whom the giving of notice may be required by law.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called, and shall indicate that it is being issued by, or at the
direction of, the person or persons calling the meeting. If, at any meeting,
action is proposed to be taken that would, if taken, entitle shareholders to
receive payment for their shares pursuant to the Business Corporation Act, the
notice of such meeting shall include a statement of that purpose and to that
effect. If mailed, such notice shall be directed to each such shareholder at his
address, as it appears on the records of the shareholders of the Corporation,
unless he shall have previously
<PAGE> 2
filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address,in which case, it shall be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
- -------------------
(a) Except as otherwise provided herein, or by statute, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), at all meetings of
shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and sufficient to constitute a quorum for
the transaction of any business. The withdrawal of any shareholder after the
commencement of a meeting shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called if a quorum
had been present.
Section 6 - Voting:
- -------------------
(a) Except as otherwise provided by statute or by the Articles of Incorporation,
any corporate action, other than the election of directors to be taken by vote
of the shareholders, shall be authorized by a majority of votes cast at a
meeting of shareholders by the holders of shares entitled to vote thereon.
(b) Except as otherwise provided by statute or by the Articles of Incorporation,
at each meeting of shareholders, each holder of record of shares of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
- 2 -
<PAGE> 3
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
Section 1 - Number, Election And Term Of Office:
- ------------------------------------------------
(a) The number of the directors of the Corporation shall be two (2), unless and
until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders.
(b) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote in the
election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties And Powers:
- ------------------------------
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Articles of Incorporation or by
statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
- ------------------------------------------------
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of
-3-
<PAGE> 4
this Article III, with respect to special meetings, unless such notice shall be
waived in the manner set forth in paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
- -------------------------------------
(a) Special Meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the day on
which the meeting is to be held. A notice, or waiver of notice, except as
required by Section 8 of this Article III, need not specify the purpose of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
- ---------------------
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
Directors shall preside.
Section 6 - Quorum and Adjournments:
- ------------------------------------
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Articles of
Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
- -----------------------------
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Articles of Incorporation,
or by these By-Laws, the action of a majority of the directors present at any
meeting at which a quorum is present shall be the
-4-
<PAGE> 5
act of the Board of Directors. Any action authorized, in writing, by all of the
directors entitled to vote thereon and filed with the minutes of the corporation
shall be the act of the Board of Directors with the same force and effect as if
the same had been passed by unanimous vote at a duly called meeting of the
Board.
Section 8 - Vacancies:
- ----------------------
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
- ------------------------
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 10 - Removal:
- ---------------------
Any director may be removed with or without cause at any time by the
shareholders, at a special meeting of the shareholders called for that purpose,
and may be removed for cause by action of the Board.
Section 11 - Salary:
- --------------------
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
- -----------------------
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of
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a majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
- ------------------------
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
---------------------
Section 1 - Number, Qualifications, Election and Term of Office:
- ----------------------------------------------------------------
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person, except the offices of
President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
- ------------------------
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 3 - Removal:
- --------------------
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time.
Section 4 - Vacancies:
- ----------------------
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<PAGE> 7
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
- -------------------------------
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-Laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
- -------------------------------
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
- -----------------------------------------
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
---------------------------
Section 1 - Certificate of Stock:
- ---------------------------------
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in the order issued. They shall bear the holder's name and the number
of shares, and shall be signed by (i) the Chairman of the Board or the President
or a Vice President, and (ii) the Secretary, or any Assistant Secretary, and may
bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting rights,
receive dividends and participate in liquidating distributions, in proportion to
the fractional holdings; or it may authorize the payment in cash of the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined; or it may authorize the issuance, subject to such
conditions as may be
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<PAGE> 8
permitted by law, of scrip in registered or bearer form
over the signature of an officer or agent of the Corporation, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder, except as therein provided.
Section 2 - Lost or Destroyed Certificates:
- -------------------------------------------
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
Section 3 - Transfers of Shares:
- --------------------------------
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
- ------------------------
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such
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<PAGE> 9
determination shall apply to any adjournment thereof, unless the directors fix a
new record date for the adjourned meeting.
ARTICLE VI - DIVIDENDS
----------------------
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
-----------------------------
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
-----------------------
Section 1 - By Shareholders:
- ----------------------------
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
Section 2 - By Directors:
- -------------------------
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-laws regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
-9-
<PAGE> 10
The undersigned certify the foregoing By-Laws have been adopted as the first
By-Laws of the Corporation, in accordance with the requirements of the Business
Corporation Act.
Dated: October 1, 1975 /s/ David V. Mastran
--------------- --------------------
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<PAGE> 1
Exhibit 3.4
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
MAXIMUS, INC.
Adopted by the Board of Directors on January 31, 1997,
Effective ________________ __, 1997
ARTICLE I
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of Shareholders shall be held at
the principal office of the Corporation or at such other place as may be named
in the notice.
SECTION 2. ANNUAL MEETING. The annual meeting of Shareholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be
called at any time by the President or a majority of the Board of Directors.
SECTION 4. NOTICE OF MEETINGS. Except where some other notice is required
by law, written notice of each meeting of Shareholders, stating the place, date
and hour thereof, shall be given by the Secretary under the direction of the
Board of Directors or the President, not less than ten (10) nor more than sixty
(60) days before the date fixed for such meeting, to each Shareholder of record
entitled to vote at such meeting, except that notice of a Shareholders' meeting
to act on an amendment of the Articles of Incorporation, a plan of merger or
share exchange, a proposed sale of assets (other than in the regular course of
business), or the dissolution of the Corporation shall be given not less than
twenty-five (25) nor more than sixty (60) days before the date fixed for such
meeting. Notice shall be given personally to each Shareholder or left at his or
her residence or usual place of business or mailed postage prepaid and addressed
to the Shareholder at his or her address as it appears upon the records of the
Corporation. In case of the death, absence, incapacity or refusal of the
Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A Shareholder may waive such notice in writing, whether before or
after the time stated therein. Attendance of a person at a meeting of
Shareholders shall constitute a waiver of notice of such meeting, except when
the Shareholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Shareholders need be
specified in any written waiver of notice. Except as required by statute, notice
of any adjourned meeting of the Shareholders shall not be required if the new
date, time or place is announced at the meeting before adjournment.
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<PAGE> 2
SECTION 5. RECORD DATE. The Board of Directors may fix in advance a record
date for the determination of the Shareholders entitled to notice of or to vote
at any meeting of Shareholders, or for the purpose of any other lawful action.
Such record date shall not be more than 70 days before the date of such meeting
or other action to which such record date relates. If no record date is fixed,
the record date for determining Shareholders entitled to notice of or to vote at
a meeting of Shareholders shall be at the close of business on the day before
the day on which notice is given, or, if notice is waived, at the close of
business on the day before the day on which the meeting is held, and the record
date for determining Shareholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose. A determination of Shareholders of record entitled to
notice of or to vote at a meeting of Shareholders shall apply to any adjournment
of the meeting unless the Board of Directors fixes a new record date for the
adjourned meeting which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
SECTION 6. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors at any annual or special meeting of Shareholders. Nominations of
persons for election as directors may be made only by or at the direction of the
Board of Directors, or by any Shareholder entitled to vote for the election of
directors at the meeting in compliance with the notice procedures set forth in
this Section 6. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Chairman of the Board, if any, the President or the Secretary. To be timely,
a Shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 45 days before the
meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to Shareholders, notice
by the Shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such Shareholder's
notice shall set forth (a) as to each person whom the Shareholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of capital stock
of the Corporation that are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, or any successor
provision thereto; and (b) as to the Shareholder giving the notice, (i) the name
and record address of such Shareholder and (ii) the class and number of shares
of capital stock of the Corporation that are beneficially owned by such
Shareholder.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
SECTION 7. ADVANCE NOTICE OF BUSINESS AT ANNUAL MEETINGS. At any annual
meeting of the Shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be brought properly before an
annual meeting, business must be either (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction
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<PAGE> 3
of the President or the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
properly brought before the meeting by a Shareholder. In addition to any other
applicable requirements, for business to be brought properly before an annual
meeting by a Shareholder, the Shareholder must have given timely notice thereof
in writing to the Chairman of the Board, if any, the President or the Secretary.
To be timely, a Shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 45 days
before the meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or
prior public disclosure of the date of the meeting is given or made to
Shareholders, notice by the Shareholder to be timely must be so received not
later than the close of business on the 15th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A Shareholder's notice shall set forth as to each matter the
Shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the Shareholder proposing such business, (iii) the class and number
of shares of the Corporation that are beneficially owned by the Shareholder and
(iv) any material interest of the Shareholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 7, PROVIDED, HOWEVER, that nothing in this
Section 7 shall be deemed to preclude discussion by any Shareholder of any
business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedure, and if the chairman should
so determine, he or she shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 8. VOTING LIST. The officer who has charge of the stock ledger of
the Corporation shall make or have made, at least 10 days before each meeting of
Shareholders, a complete list of the Shareholders entitled to vote at such
meeting, arranged by voting group and within each voting group by class or
series of shares and showing the address of each Shareholder and the number of
shares registered in the name of each Shareholder. Such list shall be open to
the examination of any Shareholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days before the
meeting, at the registered office of the Corporation or at its principal office
or at the office of its transfer agent or registrar. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Shareholder who is present. The stock
ledger shall be prima facie evidence as to who are the Shareholders entitled to
examine the stock ledger, the list required by this section or the books of the
Corporation, or to vote at any meeting of Shareholders.
SECTION 9. QUORUM OF SHAREHOLDERS. At any meeting of the Shareholders, the
holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but in the absence of a quorum a
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<PAGE> 4
smaller group may adjourn any meeting from time to time. When a quorum is
present at any meeting, action on a matter by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, except where a different vote is required by law or by the
Articles of Incorporation. Any election by Shareholders shall be determined by a
plurality of the vote cast by the Shareholders entitled to vote at the election.
SECTION 10. PROXIES AND VOTING. Unless otherwise provided in the Articles
of Incorporation, each Shareholder shall at every meeting of the Shareholders be
entitled to one vote in person or by proxy for each share of the capital stock
held of record by such Shareholder, but no proxy shall be voted or acted upon
after eleven months from its date, unless said proxy expressly provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote unless in the transfer by the pledgor on the books of the Corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the Corporation belonging to the
Corporation or to another Corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the Corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 11. CONDUCT OF MEETING. Meetings of the Shareholders shall be
presided over by one of the following officers in the order specified and if
present and acting: the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice-President (and, in the event there be more
than one person in any such office, in the order of their seniority), or, if
none of the foregoing is in office and present and acting, a chairman designated
by the Board of Directors or, in the absence of such designation, a chairman
chosen by the Shareholders at the meeting. The Secretary of the Corporation, if
present, or an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present the chairman of
the meeting shall appoint a secretary of the meeting.
The Board of Directors may adopt such rules, regulations and procedures for
the conduct of the meeting of Shareholders as it shall deem appropriate. Except
to the extent inconsistent with such rules and regulations as adopted by the
Board of Directors, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgement of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, (i) the establishment of an agenda or order of
business for the meeting, (ii) rules and procedures for maintaining order at the
meeting and the safety of those present, (iii) limitations on attendance at or
participation in the meeting to Shareholders of record of the Corporation, their
duly authorized and constituted proxies or such other persons as the chairman of
the meeting shall determine, (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof, and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting, meetings of
Shareholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
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<PAGE> 5
ARTICLE II
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the Corporation that are not by law required to be
exercised by the Shareholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. NUMBER; ELECTION; TENURE AND QUALIFICATION. Subject to any
restrictions contained in the Articles of Incorporation, the number of directors
that shall constitute the whole Board shall be fixed by resolution of the Board
of Directors but in no event shall be less than one. The directors shall be
elected in the manner provided in the Articles of Incorporation, by such
Shareholders as have the right to vote thereon. The number of directors may be
increased or decreased by action of the Board of Directors. Directors need not
be Shareholders of the Corporation.
SECTION 3. ENLARGEMENT OF THE BOARD. Subject to any restrictions contained
in the Articles of Incorporation, the number of the Board of Directors may be
increased at any time, such increase to be effective immediately unless
otherwise specified in the resolution, by vote of a majority of the directors
then in office.
SECTION 4. VACANCIES. Unless and until filled by the Shareholders and
except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by the holders of such series,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director, may be filled by vote of a majority of the
directors then in office although less than a quorum, or by the sole remaining
director. Each director so chosen to fill a vacancy shall serve for a term
determined in the manner provided in the Articles of Incorporation. When one or
more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective. If at any
time there are no directors in office, then an election of directors may be held
in accordance with the Virginia Stock Corporation Act.
SECTION 5. RESIGNATION. Any director may resign at any time upon written
notice to the Corporation. Such resignation shall take effect at a later time
specified therein, or if no time is specified, at the time of its receipt by the
Chairman of the Board, if any, the President or the Secretary.
SECTION 6. REMOVAL. Directors may be removed from office only as provided
in the Articles of Incorporation. The vacancy or vacancies created by the
removal of a director may be filled by the Shareholders at the meeting held for
the purpose of removal or, if not so filled, by the directors in the manner
provided in Section 4 of this Article II.
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<PAGE> 6
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of two or more directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee to replace any absent or disqualified member
at any meeting of the committee. The Board of Directors shall have the power to
change the members of any such committee at any time, to fill vacancies therein
and to discharge any such committee, either with or without cause, at any time.
Any such committee, to the extent permitted by law and to the extent
provided in the resolution of the Board of Directors or in these by-laws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the Commonwealth of Virginia, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board of Directors shall otherwise
by resolution provide. Each committee shall keep regular minutes of its meetings
and make such reports as the Board of Directors may from time to time request.
SECTION 8. MEETINGS OF THE BOARD OF DIRECTORS. Regular meetings of the
Board of Directors may be held without call or formal notice at such places
either within or without the Commonwealth of Virginia and at such times as the
Board may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the Shareholders, or any special meeting of
the Shareholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the Commonwealth of Virginia at any time when called by the
Chairman of the Board, if any, the President, the Secretary or two or more
directors. Reasonable notice of the time and place of a special meeting shall be
given to each director unless such notice is waived by attendance or by written
waiver in the manner provided in these by-laws for waiver of notice by
Shareholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least seventy-two hours, or by telegram or fax at least forty-eight
hours, before the meeting, addressed to such director at his or her usual or
last known business or home address.
Directors or members of any committee may participate in a meeting of the
Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
SECTION 9. QUORUM AND VOTING. A majority of the total number of directors
shall constitute a quorum, except that when a vacancy or vacancies exist in the
Board, a majority of
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<PAGE> 7
the directors then in office (but not less than one-third of the total number of
the directors) shall constitute a quorum. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting from time to time.
The vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors, except where a different
vote is required by law, by the Articles of Incorporation or by these by-laws.
SECTION 10. COMPENSATION. The Board of Directors may fix fees for their
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity, as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting and without notice if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or of such committee.
ARTICLE III
OFFICERS
SECTION 1. TITLES. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, who may include without
limitation a Chairman of the Board, a Vice-Chairman of the Board and one or more
Vice-Presidents, Assistant Treasurers or Assistant Secretaries.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the Shareholders. Each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote electing such officer, or until his or her earlier death,
resignation or removal.
SECTION 3. QUALIFICATION. Unless otherwise provided by resolution of the
Board of Directors, no officer, other than the Chairman or Vice-Chairman of the
Board, need be a director. No officer need be a Shareholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. REMOVAL. Any officer may be removed, with or without cause, at
any time, by resolution adopted by the Board of Directors.
SECTION 5. RESIGNATION. Any officer may resign by delivering a written
resignation to the Corporation at its principal office or to the Chairman of the
Board, if any, the President or the Secretary. Such resignation shall be
effective upon receipt or at such later time as may be specified therein.
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<PAGE> 8
SECTION 6. VACANCIES. The Board of Directors may at any time fill any
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. POWERS AND DUTIES. The officers of the Corporation shall have
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors and shall have such
additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. PRESIDENT AND VICE-PRESIDENTS. Except to the extent that such
duties are assigned by the Board of Directors to the Chairman of the Board, or
in the absence of the Chairman or in the event of his or her inability or
refusal to act, the President shall be the chief executive officer of the
Corporation and shall have general and active management of the business of the
Corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The President shall preside at each meeting of the Shareholders and
the Board of Directors unless a Chairman or Vice-Chairman of the Board is
elected by the Board and is assigned the duty of presiding at such meeting.
The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors. In the absence of the President or in the event of his
or her inability or refusal to act, the duties of the President shall be
performed by the Executive Vice-President, if any, Senior Vice President, if
any, or Vice President, if any, in that order (and, in the event there be more
than one person in any such office, in the order of their seniority), and when
so acting, such officer shall have all the powers of and be subject to all the
restrictions upon the President.
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend
all meetings of the Board of Directors and of the Shareholders and record all
the proceedings of such meetings in a book to be kept for that purpose, shall
give, or cause to be given, notice of all meetings of the Shareholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of Shareholders and their addresses as required and shall have
custody of the corporate seal, which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the Corporation.
Any Assistant Secretary may, in the absence of the Secretary or in the
event of the Secretary's inability or refusal to act, perform the duties and
exercise the powers of the Secretary.
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall have
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by or
pursuant to resolution of the Board of Directors. The Treasurer shall disburse
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<PAGE> 9
the funds of the Corporation as may be ordered by the Board of Directors, the
Chairman of the Board, if any, or the President, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, if any, the
President and the Board of Directors, at its regular meetings or whenever they
may require it, an account of all transactions and of the financial condition of
the Corporation.
Any Assistant Treasurer may, in the absence of the Treasurer or in the
event of his or her inability or refusal to act, perform the duties and exercise
the powers of the Treasurer.
SECTION 11. BONDED OFFICERS. The Board of Directors may require any officer
to give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of the duties of such officer and for the restoration
to the Corporation of all property in his or her possession or control belonging
to the Corporation.
SECTION 12. SALARIES. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors or any committee thereof appointed for the
purpose.
ARTICLE IV
STOCK
SECTION 1. CERTIFICATES OF STOCK. One or more stock certificates, signed by
the Chairman or Vice-Chairman of the Board of Directors or by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, shall be issued to each Shareholder certifying the
number of shares owned by the Shareholder in the Corporation. Any or all
signatures on any such certificate may be facsimiles. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile signature
shall have been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Each certificate for shares of stock that are subject to any restriction on
transfer pursuant to the Articles of Incorporation, the by-laws, applicable
securities laws, or any agreement among any number of Shareholders or among such
holders and the Corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
SECTION 2. TRANSFERS OF SHARES OF STOCK. Subject to the restrictions, if
any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the Corporation by the surrender to the Corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of
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<PAGE> 10
signature as the Corporation or its transfer agent may reasonably require. The
Corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to that stock, regardless of any
transfer, pledge or other disposition of that stock, until the shares have been
transferred on the books of the Corporation in accordance with the requirements
of these by-laws.
SECTION 3. LOST CERTIFICATES. A new stock certificate may be issued in the
place of any certificate theretofore issued by the Corporation and alleged to
have been lost, stolen, destroyed or mutilated, upon such terms in conformity
with law as the Board of Directors shall prescribe. The directors may, in their
discretion, require the owner of the lost, stolen, destroyed or mutilated
certificate, or the owner's legal representatives, to give the Corporation a
bond, in such sum as they may direct, to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss, theft,
destruction or mutilation of any such certificate, or the issuance of any such
new certificate.
SECTION 4. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not
be required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (i) arrange for the disposition of fractional
interests by those entitled thereto, (ii) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip in registered or bearer form,
which shall entitle the holder to receive a full share upon the surrender of
such scrip aggregating a full share. A certificate for a fractional share shall,
but scrip shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the Corporation in the event of liquidation. The Board of
Directors may cause scrip to be issued subject to the conditions that they shall
become void if not exchanged for certificates representing full shares before a
specified date, or subject to the conditions that the shares for which scrip are
exchangeable may be sold by the Corporation and the proceeds thereof distributed
to the holders of scrip, or subject to any other conditions that the Board of
Directors may impose.
SECTION 5. DIVIDENDS. Subject to the provisions of the Articles of
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION
SECTION 1. PROCEDURE. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification under the Corporation's Articles of
Incorporation (the "Indemnified Party"). The right to indemnification and
advances hereunder shall be enforceable by the Indemnified Party in any court of
competent jurisdiction, if (i) the Corporation denies such request, in whole or
in
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<PAGE> 11
part, or (ii) no disposition thereof is made within 60 days. The Indemnified
Party's costs and expenses incurred in connection with successfully establishing
his or her right to indemnification, in whole or in part, in any such action
shall also be reimbursed by the Corporation. It shall be a defense to any action
for advance for expenses that (a) a determination has been made that the facts
then known to those making the determination would preclude indemnification or
(b) the Corporation has not received both (i) an undertaking as required by law
to repay such advances in the event it shall ultimately be determined that the
standard of conduct has not been met and (ii) a written affirmation by the
Indemnified Party of such Indemnified Party's good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met.
SECTION 2. EXCLUSIVITY, ETC. The indemnification and advance of expenses
provided by the Articles of Incorporation and these by-laws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advance of expenses may be entitled under any law (common or statutory), or any
agreement, vote of Shareholders or disinterested directors or other provision
that is consistent with law, both as to action in his or her official capacity
and as to action in another capacity while holding office or while employed by
or acting as agent for the Corporation, shall continue in respect of all events
occurring while a person was a director or officer after such person has ceased
to be a director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. All rights to
indemnification and advance of expenses under the Articles of Incorporation and
hereunder shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity at
any time while this by-law is in effect. Nothing herein shall prevent the
amendment of this by-law, provided that no such amendment shall diminish the
rights of any person hereunder with respect to events occurring or claims made
before its adoption or as to claims made after its adoption in respect of events
occurring before its adoption. Any repeal or modification of this by-law shall
not in any way diminish any rights to indemnification or advance of expenses of
such director or officer or the obligations of the Corporation arising hereunder
with respect to events occurring, or claims made, while this by-law or any
provision hereof is in force.
SECTION 3. SEVERABILITY; DEFINITIONS. The invalidity or unenforceability of
any provision of this Article V shall not affect the validity or enforceability
of any other provision hereof. The phrase "this by-law" in this Article V means
this Article V in its entirety.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise designated from time to time by
the Board of Directors, the fiscal year of the Corporation shall begin on the
first day of October and end on the last day of September.
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<PAGE> 12
SECTION 2. CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal, and a duplicate seal may be kept and used by each
Assistant Secretary and by any other officer the Board of Directors may
authorize.
SECTION 3. ARTICLES OF INCORPORATION. All references in these by-laws to
the Articles of Incorporation shall be deemed to refer to the Articles of
Incorporation of the Corporation, as in effect from time to time.
SECTION 4. EXECUTION OF INSTRUMENTS. The President, the Treasurer and the
Secretary shall have power to execute and deliver on behalf and in the name of
the Corporation any instrument requiring the signature of an officer of the
Corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts and other orders for the payment of money. In addition, the Board
of Directors, the President, the Treasurer and the Secretary may expressly
delegate such powers to any other officer or agent of the Corporation.
SECTION 5. VOTING OF SECURITIES. The President, the Treasurer and the
Secretary, and each other person authorized by the Board of Directors, each
acting singly, may waive notice of, and act as, or appoint any person or persons
to act as, proxy or attorney-in-fact for this Corporation (with or without power
of substitution) at any meeting of Shareholders or owners of other interests of
any other Corporation or organization the securities of which may be held by
this Corporation. In addition, the Board of Directors, the President and the
Treasurer may expressly delegate such powers to any other officer or agent of
the Corporation.
SECTION 6. EVIDENCE OF AUTHORITY. A certificate by the Secretary, an
Assistant Secretary or a temporary secretary as to any action taken by the
Shareholders, directors, a committee or any officer or representative of the
Corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other Corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for that
reason or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or a committee of the Board of
Directors that authorizes the contract or transaction or solely because the vote
of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
such committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
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<PAGE> 13
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Shareholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the Shareholders; or
(3) The contract or transaction is fair to the Corporation as of the time
it is authorized, approved or ratified by the Board of Directors, a committee of
the Board of Directors or the Shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee that
authorizes the contract or transaction.
SECTION 8. BOOKS AND RECORDS. The books and records of the Corporation
shall be kept at such places within or without the Commonwealth of Virginia as
the Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
SECTION 2. BY THE SHAREHOLDERS. These by-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of votes properly cast at any regular meeting of Shareholders, or at
any special meeting of Shareholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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<PAGE> 1
EXHIBIT 10.1
MAXIMUS, INC.
1997 EQUITY INCENTIVE PLAN
--------------------------
Adopted by the Board of Directors on January 31, 1997
Approved by the Stockholders on February 3, 1997
SECTION 1. PURPOSE
-------
The purpose of the MAXIMUS, Inc. 1997 Equity Incentive Plan is to attract
and retain key employees and consultants of the Company and its Affiliates, to
provide an incentive for them to achieve long-range performance goals, and to
enable them to participate in the long-term growth of the Company.
SECTION 2. DEFINITIONS
-----------
"Affiliate" means any business entity that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the Company. For purposes hereof, "control" (and with correlative
meanings, the terms "controlled by" and "under common control with") shall mean
the possession of the power to direct or cause the direction of the management
and policies of the Company, whether through the ownership of voting stock, by
contract or otherwise. In the case of a corporation "control" shall mean, among
other things, the direct or indirect ownership of more than fifty percent (50%)
of its outstanding voting stock.
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, Stock Unit or Other Stock-Based Award awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor to such Code.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, each of whom is a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor provision, as applicable to the Company at the time ("Rule
16b-3"); PROVIDED, HOWEVER, that until such committee is appointed, "Committee"
means the Board.
"Common Stock" or "Stock" means the common stock of the Company.
"Company" means MAXIMUS, Inc.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, "Designated
Beneficiary" shall mean the Participant's estate.
<PAGE> 2
"Effective Date" means February 3, 1997.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.
"Participant" means a person selected by the Committee to receive an
Award under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock, which may be earned by
the achievement of performance goals, awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time during which an Award may be
forfeited to the Company pursuant to the terms and conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
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SECTION 3. ADMINISTRATION
--------------
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for all such Participants and a
maximum for any one Participant.
SECTION 4. ELIGIBILITY
-----------
All employees and, in the case of Awards other than Incentive Stock
Options, consultants of the Company or any Affiliate, capable of contributing
significantly to the successful performance of the Company, other than a person
who has irrevocably elected not to be eligible and other than members of the
Committee during their service as such and for such additional periods as are
required to ensure that they are "disinterested persons" under Rule 16b-3 with
respect to such service, are eligible to be Participants in the Plan. Incentive
Stock Options may be awarded only to persons eligible to receive such Options
under the Code.
SECTION 5. STOCK AVAILABLE FOR AWARDS
--------------------------
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 90,909 shares of Common Stock (1,000,000 shares after giving
effect to the stock split approved by the Board of Directors on January 31,
1997). If any Award in respect of shares of Common Stock expires or is
terminated unexercised or is forfeited without the Participant having had the
benefits of ownership (other than voting rights), the shares subject to such
Award, to the extent of such expiration, termination or forfeiture, shall again
be available for award under the Plan. Common Stock issued through the
assumption or substitution of outstanding grants from an acquired company shall
not reduce the shares available for Awards under the Plan. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) If the Committee determines that any stock dividend, extraordinary
cash dividend, creation of a class of equity securities, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination, exchange
of shares, warrants or rights offering to purchase Common Stock at a price
substantially below fair market value, or other similar transaction affects the
Common Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under the Plan,
then the Committee (subject, in the case of Incentive Stock Options, to any
limitation required under the Code) shall equitably adjust any or all of (i) the
number and kind of shares in respect of which Awards may be made under the Plan,
(ii) the number and kind of shares subject to outstanding Awards, and (iii) the
award, exercise or conversion price with respect to any of the foregoing, and if
considered appropriate, the Committee may make provision for a cash payment with
respect to an
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<PAGE> 4
outstanding Award, provided that the number of shares subject to any Award shall
always be a whole number.
SECTION 6. STOCK OPTIONS
-------------
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code or any successor provision and any regulations
thereunder, and no Incentive Stock Option may be granted hereunder more than ten
years after the Effective Date.
(b) The Committee shall establish the option price at the time each Option
is awarded, which price shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of award with respect to Incentive Stock Options.
Nonstatutory Stock Options may be granted at such prices as the Committee may
determine.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.
(e) The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery or retention of shares to the Company
in payment of an Option, the Participant automatically be awarded an Option for
up to the number of shares so delivered.
SECTION 7. STOCK APPRECIATION RIGHTS
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs granted in
tandem with Options shall have an exercise price not less than the exercise
price of the related Option. SARs granted alone and unrelated to an Option may
be granted at such exercise prices as the Committee may determine.
(b) An SAR related to an Option, which SAR can only be exercised upon or
during limited periods following a change in control of the Company, may entitle
the Participant to
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<PAGE> 5
receive an amount based upon the highest price paid or offered for Common Stock
in any transaction relating to the change in control or paid during the
thirty-day period immediately preceding the occurrence of the change in control
in any transaction reported in the stock market in which the Common Stock is
normally traded.
SECTION 8. PERFORMANCE SHARES
------------------
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares shall
be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The committee shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares awarded for
such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares that have been earned
on the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
SECTION 9. RESTRICTED STOCK
----------------
(a) Subject to the provisions of the Plan, the Committee may award shares
of Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Committee, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
to the Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
- 5 -
<PAGE> 6
SECTION 10. STOCK UNITS
-----------
(a) Subject to the provisions of the Plan, the Committee may award Stock
Units subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration as may
be required by applicable law.
SECTION 11. OTHER STOCK-BASED AWARDS
------------------------
(a) Subject to the provisions of the Plan, the Committee may make other
awards of Common Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Common Stock, including without
limitation convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based Awards may be
granted either alone or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.
(b) The Committee may establish performance goals, which may be based on
performance goals related to book value, subsidiary performance or such other
criteria as the Committee may determine, Restricted Periods, Performance Cycles,
conversion prices, maturities and security, if any, for any Other Stock-Based
Award. Other Stock-Based Awards may be sold to Participants at the face value
thereof or any discount therefrom or awarded for no consideration or such
minimum consideration as may be required by applicable law.
SECTION 12. GENERAL PROVISIONS APPLICABLE TO AWARDS
---------------------------------------
(a) Limitations on Transferability. Options shall not be transferable by
the recipient other than by will or the laws of descent and distribution and are
exercisable during such person's lifetime only by such person or by such
person's guardian or legal representative; provided that the Committee may in
its discretion waive such restriction in any case.
(b) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(d) Settlement. The Committee shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Company,
Awards or other property.
- 6 -
<PAGE> 7
The Committee may permit a Participant to defer all or any portion of a payment
under the Plan, including the crediting of interest on deferred amounts
denominated in cash and dividend equivalents on amounts denominated in Common
Stock.
(e) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(f) Termination of Employment. The Committee shall determine the effect on
an Award of the disability, death, retirement or other termination of employment
of a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
(g) Change in Control. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at any time thereafter, take one
or more of the following actions: (i) provide for the acceleration of any time
period relating to the exercise or realization of the Award, (ii) provide for
the purchase of the Award upon the Participant's request for an amount of cash
or other property that could have been received upon the exercise or realization
of the Award had the Award been currently exercisable or payable, (iii) adjust
the terms of the Award in a manner determined by the Committee to reflect the
change in control, (iv) cause the Award to be assumed, or new rights substituted
therefor, by another entity, or (v) make such other provision as the Committee
may consider equitable and in the best interests of the Company.
(h) Loans. The Committee may authorize the making of loans or cash payments
to Participants in connection with any Award under the Plan, which loans may be
secured by any security, including Common Stock, underlying or related to such
Award (provided that such Loan shall not exceed the Fair Market Value of the
security subject to such Award), and which may be forgiven upon such terms and
conditions as the Committee may establish at the time of such loan or at any
time thereafter.
(i) Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Options under the Plan no later than the date
of the event creating the tax liability. The Company and its Affiliates may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant. In the Committee's discretion, the
Participant may pay any taxes due with respect to an Option in whole or in part
in shares of Common Stock, including shares retained from the Option creating
the tax obligation, valued at their Fair Market Value on the date of retention
or delivery.
(j) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
- 7 -
<PAGE> 8
(k) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
SECTION 13. MISCELLANEOUS
-------------
(a) Limitation on Number of Shares Granted. Notwithstanding any other
provision of the Plan, the aggregate number of shares of Common Stock subject to
Options and SARs that may be granted within any fiscal year to any one Eligible
Person under the Plan shall not exceed that number of shares equal to 20% of the
total number of shares reserved for issuance under the Plan, except for grants
to new hires during the fiscal year of hiring which shall not exceed that number
of shares equal to 30% of the total number of shares reserved for issuance under
the Plan.
(b) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(c) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(d) Effective Date. Subject to the approval of the stockholders of the
Company, the Plan shall be effective on the Effective Date. Before such
approval, Awards may be made under the Plan expressly subject to such approval.
(e) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, subject to any stockholder approval that the
Board determines to be necessary or advisable.
(f) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Virginia.
- 8 -
<PAGE> 1
EXHIBIT 10.2
MAXIMUS, INC.
1997 DIRECTOR STOCK OPTION PLAN
-------------------------------
Adopted by the Board of Directors on January 31, 1997
Approved by the Stockholders on February 3, 1997
The purpose of this 1997 Director Stock Option Plan (the "Plan") of
MAXIMUS, Inc. (the "Company") is to attract and retain highly qualified
non-employee directors of the Company and to encourage ownership of stock of the
Company by such directors so as to provide additional incentives to promote the
success of the Company.
1. ADMINISTRATION OF THE PLAN.
Grants of stock options under the Plan shall be automatic as provided in
Section 6. However, all questions of interpretation with respect to the Plan and
options granted under it shall be determined by the Board of Directors of the
Company (the "Board") or by a committee consisting of one or more directors
appointed by the Board and such determination shall be final and binding upon
all persons having an interest in the Plan.
2. PERSONS ELIGIBLE TO PARTICIPATE IN THE PLAN.
Each director of the Company who is not an employee of the Company or of
any subsidiary of the Company shall be eligible to participate in the Plan
unless such director irrevocably elects not to participate.
3. SHARES SUBJECT TO THE PLAN.
(a) The aggregate number of shares of the Company's Common Stock which may
be optioned under this Plan is 9,091 shares (100,000 shares after giving effect
to the stock split approved by the Board of Directors on January 31, 1997).
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Company's Common Stock, the maximum aggregate number and kind of
shares or securities of the Company as to which options may be granted under
this Plan and as to which options then outstanding shall be exercisable, and the
option price of such options shall be appropriately adjusted so that the
proportionate number of shares or other securities as to which options may be
granted and the proportionate interest of holders of outstanding options shall
be maintained as before the occurrence of such event.
(c) In the event of a consolidation or merger of the Company with another
corporation where the Company's stockholders do not own a majority in interest
of the surviving or resulting corporation, or the sale or exchange of all or
substantially all of the assets of the Company, or a reorganization or
liquidation of the Company, any deferred
<PAGE> 2
exercise period shall be automatically accelerated and each holder of an
outstanding option shall be entitled to receive upon exercise and payment in
accordance with the terms of the option the same shares, securities or property
as he would have been entitled to receive upon the occurrence of such event if
he had been, immediately prior to such event, the holder of the number of shares
of Common Stock purchasable under his or her option; provided, however, that in
lieu of the foregoing the Board may upon written notice to each holder of an
outstanding option or right under the Plan, provide that such option or right
shall terminate on a date not less than 20 days after the date of such notice
unless theretofore exercised.
(d) Whenever options under this Plan lapse or terminate or otherwise
become unexercisable the shares of Common Stock which were subject to such
options may again be subjected to options under this Plan. The Company shall at
all times while this Plan is in force reserve such number of shares of Common
Stock as will be sufficient to satisfy the requirements of this Plan.
4. NON-STATUTORY STOCK OPTIONS.
All options granted under this Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
5. FORM OF OPTIONS.
Options granted hereunder shall be in such form as the Board or any
committee appointed pursuant to Section 1 above may from time to time determine.
6. GRANT OF OPTIONS AND OPTION TERMS.
(a) AUTOMATIC GRANT OF OPTIONS. Upon (i) the election of any eligible
director after the adoption of this Plan by the Board (whether such election is
by the Board of stockholders and whether to fill a vacancy or otherwise), (ii)
election or re-election of any eligible director at the Company's 1998 annual
meeting of stockholders and (iii) election or re-election at any annual meeting
thereafter, each eligible director shall automatically be granted an option
(each, an "Option") to purchase 2,000 shares of Common Stock for each year of
the term of office for which such director has been elected, treating partial
years as full years for this purpose; provided, however, that any grant which
would, but for this proviso, be made prior to the closing of the Company's
initial public offering of its Common Stock shall be made on the date of such
closing. Therefore, at each annual meeting occurring after the Company's
completion of its initial public offering at which time the Company has a
staggered Board of Directors which are re-elected every three years, Options
shall be granted to all eligible directors being elected or re-elected to three
year terms to purchase 6,000 shares. No options shall be granted hereunder after
ten years from the date on which this Plan was initially approved and adopted by
the Board.
(b) DATE OF GRANT. The "Date of Grant" for options granted under this Plan
shall be the date of the closing of the Company's initial public offering, or
the date of election or re-election as a director, as the case may be.
- 2 -
<PAGE> 3
(c) OPTION PRICE. The option price for each option granted under this Plan
shall be the current fair market value of a share of Common Stock of the Company
as determined by the closing price for the Company's Common Stock as reported by
the National Association of Securities Dealers Automated Quotations National
Market on the last trading day prior to Date of Grant.
(d) TERM OF OPTION. The term of each option granted under this Plan shall
be ten years from the Date of Grant.
(e) EXERCISABILITY OF OPTIONS. The Options granted under this Plan shall
become exercisable with respect to 2,000 shares on the Date of Grant, and if
such Option is for more than 2,000 shares, such Option shall become exercisable
as to 2,000 shares on the next, or each of the next two annual meetings of
stockholders of the Company, as the case may be, (i.e., options to purchase
6,000 shares of Common Stock granted at the 1998 annual meeting in the event the
Company has completed its initial public offering will become exercisable with
respect to 2,000 shares at each of the Date of Grant, the 1999 and 2000 annual
meetings of stockholders), but in all cases if and only if the option holder is
a member of the Board at the opening of business on that date.
(f) GENERAL EXERCISE TERMS. Directors holding exercisable Options under
this Plan who cease to serve as members of the Board may, during their lifetime,
exercise the rights they had under such Options at the time they ceased being a
director for the full unexpired term of such Option. Any rights that have not
yet become exercisable shall terminate upon cessation of membership on the
Board. Upon the death of a director, those entitled to do so shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights which were available to the director at the time of
his or her death. The rights of the Option holder may be exercised by the
holder's guardian or legal representative in the case of disability and by the
beneficiary designated by the holder in writing delivered to the Company or, if
none has been designated, by the holder's estate or his or her transferee on
death in accordance with this Plan, in the case of death. Options granted under
the Plan shall terminate, and no rights thereunder may be exercised, after the
expiration of the applicable exercise period. Notwithstanding the foregoing
provisions of this section, no rights under any Options may be exercised after
the expiration of ten years from their Date of Grant.
(g) METHOD OF EXERCISE AND PAYMENT. Options may be exercised only by
written notice to the Company at its head office accompanied by payment of the
full option price for the shares of Common Stock as to which they are exercised.
The option price shall be paid in cash or by check or in shares of Common Stock
of the Company, or in any combination thereof. Shares of Common Stock
surrendered in payment of the option price shall have been held by the person
exercising the option for at least six months, unless otherwise permitted by the
Board. The value of shares delivered in payment of the option price shall be
their fair market value, as determined in accordance with Section 6(c) above, as
of the date of exercise. Upon receipt of such notice and payment, the Company
shall promptly issue and deliver to the optionee (or other person entitled to
exercise the option) a certificate or certificates for the number of shares as
to which the exercise is made.
- 3 -
<PAGE> 4
(h) NON-TRANSFERABILITY. Options granted under this Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution and are exercisable during such person's lifetime only by such
person or by such person's guardian or legal representative; provided that the
Board or any committee appointed by the Board may in its discretion waive such
restriction in any case.
7. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting
of an option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied, that the Company will retain an
option holder as a director for any period of time or at any particular rate of
compensation.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. A director shall have no rights
as a stockholder with respect to the shares covered by options until the date
the director exercises such options and pays the option price to the Company,
and no adjustment will be made for dividends or other rights for which the
record date is prior to the date such option is exercised and paid for.
8. AMENDMENT OR TERMINATION.
The Board may amend or terminate this Plan at any time. The Board may
amend or modify any outstanding option in any respect, provided that the
optionee's consent to such action shall be required unless the Board determines
that the action, taking into account any related action, would not materially
and adversely affect the optionee.
9. STOCKHOLDER APPROVAL.
This Plan and the automatic grants made upon adoption thereof by the Board
of Directors are subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company present, or represented and entitled to vote, at a meeting duly held
in accordance with the Company's Articles of Incorporation and the laws of the
Commonwealth of Virginia. In the event such approval is not obtained, all
options granted under this Plan shall be void and without effect.
10. GOVERNING LAW.
This Plan shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Virginia.
- 4 -
<PAGE> 1
EXHIBIT 10.3
MAXIMUS, INC.
1997 Employee Stock Purchase Plan
Adopted by the Board of Directors on January 31, 1997
Approved by the Stockholders on February 3, 1997
1. PURPOSE.
-------
The purpose of this 1997 Employee Stock Purchase Plan (the "Plan") is to
provide employees of MAXIMUS, Inc. (the "Company"), and its subsidiaries, who
wish to become shareholders of the Company an opportunity to purchase Common
Stock of the Company (the "Shares"). The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. ELIGIBLE EMPLOYEES.
------------------
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
is a full-time employee (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors as eligible to participate in the Plan,
is eligible to participate in any Offering of Shares (as defined in Section 3
below) made by the Company hereunder. Full-time employees shall include all
employees whose customary employment is:
(a) 20 hours or more per week, and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
3. OFFERING DATES.
--------------
From time to time, the Company, by action of the Board of Directors, will
grant rights to purchase Shares to employees eligible to participate in the Plan
pursuant to one or more offerings (each of which is an "Offering") on a date or
series of dates (each of which is an "Offering Date") designated for this
purpose by the Board of Directors.
4. PRICES.
------
The price per share for each grant of rights hereunder shall be the lesser
of:
(a) eighty-five percent (85%) of the fair market value of a Share
on the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share
on the date such right is exercised.
<PAGE> 2
At its discretion, the Board of Directors may determine a higher price for a
grant of rights.
5. EXERCISE OF RIGHTS AND METHOD OF PAYMENT.
----------------------------------------
(a) Rights granted under the Plan will be exercisable periodically
on specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of
rights granted hereunder shall be through regular payroll deductions or by lump
sum cash payment or both, as determined by the Board of Directors. No interest
shall be paid upon payroll deductions unless specifically provided for by the
Board of Directors.
(c) Any payments received by the Company from a participating
employee and not utilized for the purchase of Shares upon exercise of a right
granted hereunder shall be promptly returned to such employee by the Company
after termination of the right to which the payment relates.
6. TERM OF RIGHTS.
--------------
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when it
authorizes an Offering may designate one or more exercise periods during the
Offering Period. Rights granted on an Offering Date shall be exercisable in full
on the Offering Date or in such proportion on the last day of each exercise
period as the Board of Directors determines.
7. SHARES SUBJECT TO THE PLAN.
--------------------------
No more than 45,455 Shares (500,000 Shares after giving effect to the
stock split approved by the Board of Directors on January 31, 1997) the may
be sold pursuant to rights granted under the Plan. Appropriate adjustments in
the above figure, in the number of Shares covered by outstanding rights granted
hereunder, in the exercise price of the rights and in the maximum number of
Shares which an employee may purchase (pursuant to Section 9 below) shall be
made to give effect to any mergers, consolidations, reorganizations,
recapitalizations, stock splits, stock dividends or other relevant changes in
the capitalization of the Company occurring after the effective date of the
Plan, provided that no fractional Shares shall be subject to a right and each
right shall be adjusted downward to the nearest full Share. Any agreement of
merger or consolidation will include provisions for protection of the then
existing rights of participating employees under the Plan. Either authorized and
unissued Shares or issued Shares heretofore or hereafter reacquired by the
Company may be made subject to rights under the Plan. If for any reason any
right under the Plan terminates in whole or in part, Shares subject to such
terminated right may again be subjected to a right under the Plan.
- 2 -
<PAGE> 3
8. LIMITATIONS ON GRANTS.
---------------------
(a) No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, or of any subsidiary, computed in
accordance with Section 423(b)(3) of the Code.
(b) No employee shall be granted a right which permits his right to
purchase shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) (or such other maximum as may be prescribed from time to time by the
Code) of the fair market value of such Shares (determined at the time such right
is granted) for each calendar year in which such right is outstanding at any
time in accordance with the provisions of Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under an
Offering, when aggregated with rights granted under any other Offering still
exercisable by the participating employee, shall cover more shares than may be
purchased at an exercise price equal to fifteen percent (15%) of the employee's
annual rate of compensation on the date the employee elects to participate in
the Offering or such lesser percentage as the Board of Directors may determine.
9. LIMIT ON PARTICIPATION.
----------------------
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
10. CANCELLATION OF ELECTION TO PARTICIPATE.
---------------------------------------
An employee who has elected to participate in an Offering may cancel such
election as to all (but not part) of the unexercised rights granted under such
Offering by giving written notice of such cancellation to the Company before the
expiration of any exercise period. Any amounts paid by the employee for the
Shares or withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee, without interest,
unless otherwise determined by the Board of Directors, upon such cancellation.
11. TERMINATION OF EMPLOYMENT.
-------------------------
Upon the termination of employment for any reason, including the death of
the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or withheld for the purchase of Shares from the
employee's compensation through payroll deductions shall be paid to the employee
or to the employee's estate, without interest unless otherwise determined by the
Board of Directors.
- 3 -
<PAGE> 4
12. EMPLOYEES' RIGHTS AS SHAREHOLDERS.
---------------------------------
No participating employee shall have any rights as a shareholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
13. RIGHTS NOT TRANSFERABLE.
-----------------------
Rights under the Plan are not assignable or transferable by a
participating employee and are exercisable only by the employee.
14. AMENDMENTS TO OR DISCONTINUATION OF THE PLAN.
--------------------------------------------
The Board of Directors of the Company shall have the right to amend,
modify or terminate the Plan at any time without notice; provided, however, that
the then existing rights of all participating employees shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, no such amendment to the Plan shall, without the approval of
the shareholders of the Company, increase the total number of Shares which may
be offered under the Plan.
15. EFFECTIVE DATE AND APPROVALS.
----------------------------
This Plan became effective on January 31, 1997, the date it was
adopted by the Board of Directors.
The Company's obligation to offer, sell and deliver its Shares under the
Plan is subject to (i) the approval of any governmental authority required in
connection with the authorized issuance or sale of such Shares, (ii)
satisfaction of the listing requirements of any national securities exchange on
which the Shares are then listed and (iii) compliance, in the opinion of the
Company's counsel, with all applicable federal and state securities and other
laws.
16. TERM OF PLAN.
------------
No rights shall be granted under the Plan after January 31, 2007
17. ADMINISTRATION OF THE PLAN.
--------------------------
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan as it deems necessary to meet special circumstances not
anticipated or covered expressly by the Plan. Nothing contained in this Section
shall be deemed to authorize the Administrator to alter or administer the
provisions of the Plan in a manner inconsistent with the provisions of Section
423 of the Code.
- 4 -
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Mastran]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between David V. Mastran (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President and Chief
Executive Officer of the Corporation. The Executive shall provide day to day
management of the Corporation and shall perform such other services and duties
as are appropriate to such office. During the term of this Agreement, the
Executive shall be a full time employee of the Corporation and shall devote such
time and attention to the discharge of his duties as President and Chief
Executive Officer as may be necessary and appropriate to accomplish and complete
such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $350,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
<PAGE> 2
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during his
or her employment with the Corporation, and thereafter for a period of two years
after the termination of such employment, the Executive will not engage in any
unethical behavior which may adversely affect the Corporation. For the purpose
of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive to
divert any existing contracts or subcontracts from the Corporation to any other
firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive, to
adversely influence clients of the Corporation or organizations with which the
Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive to
divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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(4) any attempt, successful or unsuccessful, by the Executive
to offer his or her services, or to influence any other employee of the
Corporation to offer their services, to any firm to compete against the
Corporation in the performance of services provided under existing contracts or
follow-ons to existing contracts or pending proposals with the Corporation's
clients as of the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. Business Opportunities: Conflicts of Interest: Other
----------------------------------------------------
Employment and Activities of the Executive.
- ------------------------------------------
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably may be available to the Corporation, whether or not such
business opportunities are related to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing
Shares or interests therein transferred as provided in this Section 4.3 shall
bear the legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not in
compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
4.7. ELECTION OF RUDDY AS A DIRECTOR. The Executive agrees to vote his
shares of Common Stock of the Corporation (and any other shares of the capital
stock of the Company over which he exercises voting control) and take such other
actions as are necessary to elect Raymond B. Ruddy as a Director of the
Corporation and thereafter continue Mr. Ruddy in office as a Director of the
Corporation, provided, however, that in the event that either Mr. Ruddy or the
Executive holds less than 20% of the outstanding Common Stock of the Company,
the Executive's obligation under this Section 4.7 shall terminate.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek to
create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event the
Corporation determines to file a registration pursuant to Section 5.1(a), the
Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION OFFERING.
If, at any time prior to the Expiration Date, the Corporation shall file a
registration statement to register shares of Common Stock for its own account in
an underwritten offering with the Commission while any Registrable Shares are
outstanding, the Corporation shall give all the Holders at least 45 days prior
written notice of the filing of such registration statement. Subject to 5.2(b)
below, if requested by any Holder in writing within 30 days after receipt of any
such notice, the
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<PAGE> 7
Corporation shall register or qualify all or, at each Holder's option, any
portion of the Registrable Shares of any Holders who shall have made such
request, concurrently with the registration of such other securities, all to the
extent requisite to permit the public offering and sale of the Registrable
Shares through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable.
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate
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<PAGE> 8
in a registration hereunder shall be conditioned upon the inclusion of such
Holder's Registrable Shares in such underwriting. If a Holder disapproves of the
terms of the underwriting, such Holder may elect to withdraw therefrom by
written notice to the Corporation and the underwriter delivered at least seven
days prior to the effective date of the Registration Statement. The securities
so withdrawn shall also be withdrawn from the Registration Statement.
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; provided, however, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best
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<PAGE> 9
efforts to keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Registrable
Shares to sell such securities under Rule 144.
6. Indemnity.
---------
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 6, without limitation, attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Registrable Shares, filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Corporation with respect
to such Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or
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<PAGE> 10
additional to those available to the Corporation, in any of which events such
fees and expenses shall be borne by the Corporation, and the Corporation shall
not have the right to direct the defense of such action on behalf of the
Indemnified Party or Parties. Anything in this Section 5 to the contrary
notwithstanding, the Corporation shall not be liable for any settlement of any
such claim or action effected without its written consent, which shall not be
unreasonably withheld. The Corporation shall not, without the prior written
consent of each Indemnified Party that is not released as described in this
sentence, settle or compromise any action, or permit a default or consent to the
entry of judgment in or otherwise seek to terminate any pending or threatened
action, in respect of which indemnity may be sought hereunder (whether or not
any Indemnified Party is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Party from all liability in respect of such action. The Corporation agrees
promptly to notify the Holders of the commencement of any litigation or
proceedings against the Corporation or any of its officers or directors in
connection with the sale of any Registrable Shares or any preliminary
prospectus, prospectus, registration statement or amendment or supplement
thereto, or any application relating to any sale of any Registrable Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution, if
(i) an Indemnified Party makes a claim for indemnification pursuant to Section
6.1 or 6.2 but it is found in a final judicial determination, not subject to
further appeal, that such indemnification may not be enforced in such case, even
though this Agreement expressly provides for indemnification in such case, or
(ii) any indemnified or indemnifying party seeks contribution under the Act, the
Exchange Act or otherwise, then the Corporation (including for this purpose any
contribution made by or on behalf
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<PAGE> 11
of any director of the Corporation, any officer of the Corporation who signed
any such registration statement, any controlling person of the Corporation, and
its or their respective counsel), as one entity, and the Holders of the
Registrable Shares included in such registration in the aggregate (including for
this purpose any contribution by or on behalf of an Indemnified Party), as a
second entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Corporation
and such Holders in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses. The relative fault, in the case of an
untrue statement, alleged untrue statement, omission or alleged omission, shall
be determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Corporation
or by such Holders, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Corporation and the Holder agree
that it would be unjust and inequitable if the respective obligations of the
Corporation and the Holders for the contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages and
expenses (even if the Holder and the other indemnified parties were treated as
one entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations, referred to in this Section 6.3. In no
case shall any Holder be responsible for a portion of the contribution
obligation imposed on all Holders in excess of its pro rata share based on the
number of Registrable Shares of by it and included in such registration as
compared to the number of Registrable Shares owned by all Holders and included
in such registration. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 6.3, each person, if any, who controls any Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such Holder or
control person shall have the same rights to contribution as such Holder or
control person and each person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Corporation who shall have signed any such registration
statement, each director of the Corporation and its or their respective counsel
shall have the same right to contribution as the Corporation, subject in each
case to the provisions of this Section 6.3. Anything in this Section 6.3 to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 6.3 is intended to supersede any right to contribution under the
Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
David V. Mastran
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns and the obligations of the Executive under Section 4.7
shall also inure to the benefit of Raymond B. Ruddy. This Agreement may not be
assigned by either party without the consent of the other except that the
Corporation may assign this Agreement in connection with the merger,
consolidation or sale of all or substantially all of its business or assets.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding commenced in such court by the
Corporation. The Section headings are included
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<PAGE> 14
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties, and no
alteration or addition may be made to the provisions in Section 4.7 without the
consent of Raymond B. Ruddy.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any
gender shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
---------------------------------------
David V. Mastran
MAXIMUS, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and David V. Mastran (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Ruddy]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Raymond B. Ruddy (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the Chairman of the Board
of Directors, Vice President, Consulting of the Corporation and President of
Consulting Group of the Corporation. The Executive shall provide day to day
management of the Corporation as Chairman of the Board of Directors, Vice
President, Consulting of the Corporation and President of Consulting Group and
shall perform such other services and duties as are appropriate to such office
or Chief Operating Officer of the Corporation. During the term of this
Agreement, the Executive shall be a full time employee of the Corporation and
shall devote such time and attention to the discharge of his duties as Chairman
of the Board of Directors, Vice President, Consulting of the Corporation and
President of Consulting Group as may be necessary and appropriate to accomplish
and complete such duties.
1.2. COMPENSATION.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $350,000 and regular year-end bonus
consistent with the Corporation's past practices; provided however that the
Executive's aggregate compensation shall not be less than that paid to the Chief
Executive Officer of the Corporation.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices and as are provided by the Corporation to its Chief Executive Officer.
<PAGE> 2
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
(b) upon Executive's death or inability, by reason of physical or
mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the event of
Executive's breach of any material duty or obligation hereunder, or intentional
or grossly negligent conduct that is materially injurious to the Corporation, as
reasonably determined by the Corporation's Board of Directors, or willful
failure to follow the reasonable directions of the Corporation's Board of
Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his or her employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
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<PAGE> 3
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
(4) any attempt, successful or unsuccessful, by the Executive
to offer his or her services, or to influence any other employee of the
Corporation to offer their services, to any firm to compete against the
Corporation in the performance of services provided under existing contracts or
follow-ons to existing contracts or pending proposals with the Corporation's
clients as of the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably may be available to the Corporation, whether or not such
business opportunities are related to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the
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<PAGE> 4
Executive's immediate family, including any lending relationship or the
guarantying of any obligations of such person or business entity by the
Executive or member of his immediate family.
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
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<PAGE> 5
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
EXHIBIT A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
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<PAGE> 6
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the Executive shall be entitled to inspect and copy such records
and documents to the extent provided by the Stock Corporation Act of the
Commonwealth of Virginia and any other applicable law.
4.7. ELECTION OF MASTRAN AS A DIRECTOR. The Executive agrees to vote
his shares of Common Stock of the Corporation (and any other shares of the
capital stock of the Company over which he exercises voting control) and take
such other actions as are necessary to elect David V. Mastran as a Director of
the Corporation and thereafter continue Dr. Mastran in office as a Director of
the Corporation, provided, however, that in the event that either Dr. Mastran or
the Executive holds less than 20% of the outstanding Common Stock of the
Company, the Executive's obligation under this Section 4.7 shall terminate.
4.8. VOTING AGREEMENT. Until September 30, 2001, the Executive
agrees to vote his shares of the Corporation Common Stock (and any other shares
of the capital stock of the Corporation over which he exercises voting control)
and take such other actions as are necessary, in connection with any action of
the stockholders of the Corporation in a manner consistent with any instructions
received by the Executive from David Mastran. The Executive shall make
reasonable efforts prior to any stockholder action to obtain such instructions
from David Mastran and if such instructions are not obtained prior to the date
of a stockholder action, the Executive shall abstain from voting his shares in
such action.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
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<PAGE> 7
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
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<PAGE> 8
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request;
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<PAGE> 9
PROVIDED, HOWEVER, that the Corporation shall not be required to qualify to do
business in any state by reason of this Section 5.5 in which it is not otherwise
required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 6, without limitation, attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Registrable Shares, filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be
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<PAGE> 10
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Corporation with respect to such
Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without the prior written consent of each Indemnified Party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought hereunder (whether or not any Indemnified Party is a party thereto),
unless such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Party from all liability in respect of
such action. The Corporation agrees promptly to notify the Holders of the
commencement of any litigation or proceedings against the Corporation or any of
its officers or directors in connection with the sale of any Registrable Shares
or any preliminary prospectus, prospectus, registration statement or amendment
or supplement thereto, or any application relating to any sale of any
Registrable Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the
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<PAGE> 11
Holder, each other person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Corporation to the Holders in Section 6.1, but only with respect to
statements or omissions, if any, made in any registration statement, preliminary
prospectus or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Corporation with respect to such Holder by
or on behalf of such Holder expressly for inclusion in any such registration
statement, preliminary prospectus or final prospectus, or any amendment or
supplement thereto, as the case may be. If any action shall be brought against
the Corporation or any other person so indemnified based on any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Corporation and such Holders in
connection with the facts which resulted in such losses, liabilities, claims,
damages and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Corporation or by such
Holders, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement, omission or
alleged omission. The Corporation and the Holder agree that it would be unjust
and inequitable if the respective obligations of the Corporation and the Holders
for the contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses (even if the Holder
and the other indemnified parties were treated as one entity for such purpose)
or by any other method of allocation that does not reflect the equitable
considerations, referred to in this Section 6.3. In no case shall any Holder be
responsible for a portion of the contribution obligation imposed on all Holders
in excess of its PRO RATA share based on
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<PAGE> 12
the number of Registrable Shares of by it and included in such registration as
compared to the number of Registrable Shares owned by all Holders and included
in such registration. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 6.3, each person, if any, who controls any Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such Holder or
control person shall have the same rights to contribution as such Holder or
control person and each person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Corporation who shall have signed any such registration
statement, each director of the Corporation and its or their respective counsel
shall have the same right to contribution as the Corporation, subject in each
case to the provisions of this Section 6.3. Anything in this Section 6.3 to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 6.3 is intended to supersede any right to contribution under the
Act, the Exchange Act or otherwise.
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Raymond B. Ruddy
26 Rolling Lane
Dover, MA 02030
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal
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<PAGE> 13
Express (or a comparable overnight delivery service), or (iv) the third business
day after the date on which it is deposited in the United States mail. Either
party may change its address by notifying the other party of the new address in
any manner permitted by this paragraph. Rejection or other refusal to accept or
the inability to deliver because of a changed address of which no notice was
given shall not affect the date of such notice, election or demand sent in
accordance with the foregoing provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided the obligations of the Executive under Sections
4.7 and 4.8 shall also inure to the benefit of David V. Mastran provided this
Agreement may not be assigned by either party without the consent of the other
except that the Corporation may assign this Agreement in connection with the
merger, consolidation or sale of all or substantially all of its business or
assets. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and other legal
representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A
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<PAGE> 14
waiver or consent given by the Corporation on any occasion if effective only in
that instance and will not be construed as a bar to or waiver of any right on
any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding commenced in such court by the
Corporation. The Section headings are included solely for convenience and shall
in no event affect or be used in connection with, the interpretation of this
Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties, an d no
alteration or addition may be made to the provisions of Section 4.7 without the
consent of David V. Mastran.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
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<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
-----------------------------------------
Raymond B. Ruddy
MAXIMUS, INC.
By:
--------------------------------------
Name:
Title:
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<PAGE> 16
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Raymond B. Ruddy (the
"Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Beliveau]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Russell A. Beliveau (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the Vice President,
Government Operation/President of Government Operations Group of the
Corporation. The Executive shall provide day to day management of the
Corporation's Government Operations Group and shall perform such other services
and duties as are appropriate to such office. During the term of this Agreement,
the Executive shall be a full time employee of the Corporation and shall devote
such time and attention to the discharge of his duties as Vice President,
Government Operations/President of Government Operations Group as may be
necessary and appropriate to accomplish and complete such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $237,500 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
<PAGE> 2
(a) by mutual written consent of the parties; or
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his or her employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his or her services, or to influence any other employee of the
Corporation to offer their services, to any firm to compete against the
Corporation in the performance of services provided under existing contracts or
follow-ons to existing contracts or pending proposals with the Corporation's
clients as of the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably may be available to the Corporation, whether or not such
business opportunities are related to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. Confidentiality.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. Stock Restrictions.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; provided, however, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 6, without limitation, attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Registrable Shares, filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Corporation with respect
to such Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
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<PAGE> 11
subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
pro rata share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Russell A. Beliveau
MAXIMUS, INC.
1485 River Park Drive, #200
Sacramento, CA 95815
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
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<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
----------------------------------------
Russell A. Beliveau
MAXIMUS, INC.
By:
-------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Russell A. Beliveau (the
"Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Pepin]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Susan D. Pepin (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President of Systems
Planning and Integration Division of the Corporation. The Executive shall
provide day to day management of the Corporation's Systems Planning and
Integration Division and shall perform such other services and duties as are
appropriate to such office. During the term of this Agreement, the Executive
shall be a full time employee of the Corporation and shall devote such time and
attention to the discharge of her duties as the President of Systems Planning
and Integration Division as may be necessary and appropriate to accomplish and
complete such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of her obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $220,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
<PAGE> 2
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. Non-Competition.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his or her employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his or her services, or to influence any other employee of the
Corporation to offer their services, to any firm to compete against the
Corporation in the performance of services provided under existing contracts or
follow-ons to existing contracts or pending proposals with the Corporation's
clients as of the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably may be available to the Corporation, whether or not such
business opportunities are related to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
------------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; PROVIDED, HOWEVER, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 6, without limitation, attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Registrable Shares, filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Corporation with respect
to such Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
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<PAGE> 11
subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
PRO RATA share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Susan D. Pepin
MAXIMUS, Inc.
36 Washington Street, #320
Wellesley, MA 02181-1904
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
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<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
----------------------------------------
Susan D. Pepin
MAXIMUS, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Susan D. Pepin (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Baylinson]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Ilene R. Baylinson (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President of Health
and Disability Services Division of the Corporation. The Executive shall provide
day to day management of the Corporation's Health and Disability Services
Division and shall perform such other services and duties as are appropriate to
such office. During the term of this Agreement, the Executive shall be a full
time employee of the Corporation and shall devote such time and attention to the
discharge of her duties as the President of Health and Disability Services
Division as may be necessary and appropriate to accomplish and complete such
duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of her obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $182,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
<PAGE> 2
(a) by mutual written consent of the parties; or
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his or her employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his or her services, or to influence any other employee of the
Corporation to offer their services, to any firm to compete against the
Corporation in the performance of services provided under existing contracts or
follow-ons to existing contracts or pending proposals with the Corporation's
clients as of the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. Business Opportunities: Conflicts of Interest: Other Employment
---------------------------------------------------------------
and Activities of the Executive.
- -------------------------------
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably may be available to the Corporation, whether or not such
business opportunities are related to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
EXHIBIT A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of EXHIBIT A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; PROVIDED, HOWEVER, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 6, without limitation, attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Registrable Shares, filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Corporation with respect
to such Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
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subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
pro rata share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provid ed for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Ilene R. Baylinson
MAXIMUS, Inc.
8150 Lessburg Pike, #1250
Vienna, VA 22182
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
areements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
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<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
-------------------------------------------
Ilene R. Baylinson
MAXIMUS, INC.
By:
----------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Ilene R. Baylinson (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.9
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Davenport]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Ilene R. Baylinson (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President of Health
and Disability Services Division of the Corporation. The Executive shall provide
day to day management of the Corporation's Health and Disability Services
Division and shall perform such other services and duties as are appropriate to
such office. During the term of this Agreement, the Executive shall be a full
time employee of the Corporation and shall devote such time and attention to the
discharge of her duties as the President of Health and Disability Services
Division as may be necessary and appropriate to accomplish and complete such
duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of her obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $182,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
<PAGE> 2
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his or her employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his or her services, or to influence any other employee of the
Corporation to offer their services, to any firm to compete against the
Corporation in the performance of services provided under existing contracts or
follow-ons to existing contracts or pending proposals with the Corporation's
clients as of the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably may be available to the Corporation, whether or not such
business opportunities are related to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; provided, however, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 6, without limitation, attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Registrable Shares, filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Corporation with respect
to such Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
- 10 -
<PAGE> 11
subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
pro rata share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
- 11 -
<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Lynn P. Davenport
MAXIMUS, Inc.
36 Washington Street, #320
Wellesley, MA 02181-1904
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
- 12 -
<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
- 13 -
<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
----------------------------------------------
Lynn P. Davenport
MAXIMUS, INC.
By:
-------------------------------------------
Name:
Title:
- 14 -
<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Ilene R. Baylinson (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
Exhibit 10.10
FORM OF
INDEMNIFICATION AGREEMENT
[Director]
This Agreement dated __________ __, 199_ is between MAXIMUS, Inc. (the
"Company"), a Virginia corporation, and _______________________________ (the
"Indemnitee"), who is a director of the Company. Its purpose is to provide the
maximum protection for the Indemnitee against personal liability arising out of
his service to the Company so as to encourage the continuation of such service
and the effective exercise of his business judgment in connection herewith.
The parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings hereafter assigned to them:
(a) "CHANGE IN CONTROL" shall mean that the following has occurred:
(i) there has been a change in control of the Company, not approved by a
resolution of the Company's Board of Directors, of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor provision thereof, including
in any event the acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) of beneficial ownership,
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, (ii) followed within a period of not more than two years by a
change in the identity of a majority of the members of the Company's Board
of Directors otherwise than through death, disability or retirement in
accordance with the Company's normal retirement policies.
(b) "CLAIM" shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether conducted by
the Company or any other party, that the Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other.
(c) "EXPENSES" shall include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any Claim relating
to any Indemnifiable Event.
(d) "INDEMNIFIABLE EVENT" shall mean any event or occurrence related
to the fact that the Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of
the Company as a director, officer, employee, trustee, agent or fiduciary
of another corporation, partnership,
<PAGE> 2
joint venture, employee benefit plan, trust or other enterprise, or by
reason of anything done or not done by the Indemnitee in any such capacity.
(e) "POTENTIAL CHANGE IN CONTROL" shall mean that any of the following
have occurred: (i) any person publicly announces an intention to take or to
consider taking actions which if consummated might result in a Change in
Control, (ii) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Exchange Act) acquires beneficial ownership, directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, or
(iii) the Company's Board of Directors adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has
occurred.
(f) "REVIEWING PARTY" shall mean the person or body appointed by the
Company's Board of Directors pursuant to SECTION 2(b) hereof, which shall
not be or include a person who is a party to the particular Claim for which
the Indemnitee is seeking indemnification.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) If the Indemnitee was or is a party to or witness or other
participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify the Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than thirty days after written demand is presented to the Company,
against all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in respect of such Expenses, judgments, fines, penalties or amounts
paid in settlement) of such Claim. If so requested by the Indemnitee, the
Company shall advance (within two business days of such request) all
Expenses to the Indemnitee (an "Expense Advance"). Notwithstanding anything
in this Agreement to the contrary, prior to a Change in Control, the
Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Claim initiated by the Indemnitee against
the Company or any director or officer of the Company (otherwise than to
enforce his rights under this Agreement) unless the Company has consented
to the initiation of such Claim.
(b) In the event of any demand by the Indemnitee for indemnification
hereunder or under the Company's Articles of Incorporation or By-laws, the
Board of Directors of the Company shall designate a Reviewing Party, who
shall, if there has been a Change of Control of the Company, be the special
independent counsel referred to in SECTION 3 hereof. The obligations of the
Company under SECTION 2(a) shall be subject to the condition that the
Reviewing Party shall not have determined (in a written opinion, in any
case in which the special independent counsel referred to in SECTION 3
hereof is involved) that the Indemnitee is not permitted to be indemnified
under applicable law, and the obligation of the Company to make an Expense
Advance pursuant to SECTION 2(a) shall be subject to the condition that,
if, when and
-2-
<PAGE> 3
to the extent that the Reviewing Party determines that the Indemnitee is
not permitted to be so indemnified under applicable law, the Company shall
be entitled to be reimbursed by the Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid. If the
Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that the Indemnitee may be
indemnified under applicable law, any determination made by the Reviewing
Party that the Indemnitee is not permitted to be indemnified under
applicable law shall not be binding, and the Indemnitee shall not be
required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect hereto (as to which all rights
of appeal therefrom have been exhausted or lapsed). If there has been no
determination by the Reviewing Party or if the Reviewing Party determines
that the Indemnitee is not permitted to be indemnified in whole or in part
under applicable law, the Indemnitee shall have the right to commence
litigation in any court in the Commonwealth of Virginia having subject
matter jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and the Company hereby consents to
service of process and to appear in any such proceeding. Any determination
by the Reviewing Party otherwise shall be conclusive and binding on the
Company and the Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Articles of Incorporation or By-laws now or hereafter in effect relating to
Claims for Indemnifiable Events, the Company shall seek legal advice only from
special independent counsel selected by the Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld) who has not
otherwise performed services for the Company within the last ten years (other
than in connection with such matters) or for the Indemnitee. Such counsel among
other things, shall render its written opinion to the Company and the Indemnitee
as to whether and to what extent the Indemnitee is permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
special independent counsel and to indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages relating
to this Agreement or its engagement pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control,
the Company may create a Trust for the benefit of the Indemnitee (either alone
or together with one or more other indemnitees) and from time to time fund such
Trust in such amounts as the Company's Board of Directors may determine to
satisfy Expenses reasonably anticipated to be incurred in connection with
investigating, preparing for and defending any Claim relating to an
Indemnifiable Event, and all judgments, fines, penalties and settlement amounts
of all Claims relating to an Indemnifiable Event from time to time paid or
claimed, reasonably anticipated or proposed to be paid. The terms of any Trust
established pursuant hereto shall provide that upon a Change in Control (i) the
Trust shall not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within two business
days of a request by the Indemnitee, all Expenses to the Indemnitee (and the
Indemnitee hereby agrees to reimburse the Trust under the circumstances
-3-
<PAGE> 4
under which the Indemnitee would be required to reimburse the Company under
SECTION 2(b) of this Agreement), (iii) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (iv) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a person or entity satisfactory to the
Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify the
Indemnitee against all expenses (including attorneys' fees) and, if requested by
the Indemnitee, shall (within two business days of such request) advance such
expenses to the Indemnitee, which are incurred by the Indemnitee in connection
with any claim asserted against or action brought by the Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement, any other agreement or provision of the Company's Articles of
Incorporation or By-laws now or hereafter in effect relating to Claims for
Indemnifiable Events or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
the Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
6. PARTIAL INDEMNITY, ETC. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that the Indemnitee is not so entitled.
7. NO PRESUMPTION. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be in
addition to any other rights the Indemnitee may have under the Company's
Articles of Incorporation and By-laws or the Virginia Stock Corporation Act or
otherwise. To the extent that a change in the Virginia Stock Corporation Act
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Articles of
Incorporation and By-laws and this Agreement, it is the
-4-
<PAGE> 5
intent of the parties hereto that the Indemnitee shall enjoy by this Agreement
the greater benefits afforded by such change.
9. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent to the coverage available for any Company
director or officer.
10. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
11. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all such papers and do all such
things as may be necessary or desirable to secure such rights.
12. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, the Company's Articles of Incorporation, or the Company's
By-laws or otherwise) of the amounts otherwise indemnifiable hereunder.
13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
the Indemnitee continues to serve as an officer or director of the Company or of
any other enterprise at the Company's request.
14. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
15. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of The Commonwealth of Virginia applicable
to contracts made and to be performed in such commonwealth without giving effect
to the principles of conflicts of law.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Indemnification
Agreement as of the date first above written.
MAXIMUS, INC.
By:
------------------------------
Name:
Title:
---------------------------------
[Director]
-6-
<PAGE> 1
Exhibit 10.11
MAXIMUS
HELPING GOVERNMENT SERVE THE PEOPLE
January 30, 1997
Mr. John M. Cannon
Crestar Bank
8245 Boone Boulevard
Vienna, Virginia 22182-3871
Re: Consents and Extension Request
Dear John:
MAXIMUS, Inc. (the "Borrower") currently has a $10,000,000.00 revolving
line of credit (the "Line") with Crestar Bank (the "Bank"). The Line is
evidenced by a commercial note (the "Note") dated April 10, 1996 and is
governed by the letter agreement dated June 29, 1995, as amended by the letter
amendment dated April 10, 1996 (collectively, the "Agreement"). The Borrower is
writing to request (i) certain waiver and consents under the Note and
Agreement in connection with the Borrower's proposed Offering (defined below)
and (ii) an extension of the term of the Line. Capitalized terms used herein
and not otherwise defined herein shall have the meanings set forth in the
Agreement and Note.
1. Request for Waiver and Consents
The Borrower anticipates making an initial public offering of its Common
Stock in March 1997 (the "Offering"). In connection with and prior to the
Offering, the Borrower will make a distribution to its current shareholders of
all or a portion of the Borrower's retained earnings on which taxes have been
paid, or will be due, to date (the "Distribution"). In order for the Borrower
to effect both the Distribution and the Offering, the Bank needs to grant
certain waiver and consents. By executing a copy of this letter the Bank agrees
as follows:
1.1 Waiver of Notice and Consent to the Distribution: The Bank hereby
waives the requirement, under subsection (h) of the Section entitled
"Covenants" in the Agreement, that the Borrower must notify the Bank in
writing, 60 days prior to the payment of the Distribution described in this
letter. And, further, the Bank consents to such Distribution subject to (a) the
Borrower closing the Offering simultaneously with the Distribution and (b) the
Borrower's stockholders equity (as defined per GAAP) does not decline as a
result of the Distribution and Offering.
1.2 Consent of the Offering to the Public: The Bank hereby consents to
the Offering of shares of Common Stock of the Borrower to the public, which
Offering shall not be deemed an event triggering default of the line under
subsection (g), or any other subsection, of the section entitled "Default,
Acceleration and Setoff" in the Note.
2. Request for an Extension of the Term of the Line
The Line is currently due to terminate on March 31, 1997 (the
"Termination Date"). By Execution of this letter, the Bank agrees to the
Termination Date of the line, as defined in the second paragraph of the
Agreement, to mean April 30, 1997.
<TABLE>
<S> <C>
MAXIMUS OFFICE CENTER - 1356 BEVERLY ROAD/McLEAN, VIRGINIA 22101 - (703) 734-4200 - FAX (703) 734-4277
</TABLE>
<PAGE> 2
Please execute a copy of this letter in the space provided below.
Sincerely,
MAXIMUS, Inc.
By: /s/ F. Arthur Nerret
----------------------------
Title: Chief Financial Officer
-------------------------
Accepted and Agreed:
Crestar Bank
By: /s/ John M. Cannon
------------------------
Title: Vice President
---------------------
MAXIMUS
<PAGE> 3
Crestar Bank
8245 Boone Boulevard
Vienna, VA 22182-3871
April 10, 1996
Mr. David V. Mastran
Chief Executive Officer
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22101
Dear David:
The purpose of this letter amendment (the Amendment) is to amend certain
provisions of the letter agreement, dated June 29, 1995 (as amended from time to
time, the Agreement), between Crestar Bank, a Virginia banking corporation (the
Bank), and MAXIMUS, Inc., a Virginia corporation (the Borrower). Terms defined
in the Agreement shall have the same defined meanings when such terms are used
in this Amendment.
The Borrower has requested that the Bank amend certain terms of the
Agreement. The Bank has agreed to do so, subject to the terms and conditions of
this Amendment. Accordingly, by signing below, the Bank and the Borrower agree
as follows:
1. The first sentence of the first paragraph of the Agreement is deleted
in its entirety and is replaced with the following language:
"Crestar Bank (the BANK) is pleased to advise you that it has
established a $10,000,000 revolving line of credit (the LINE), under which
up to $5,000,000 in letters of credit (the LC SUBFACILITY) may be issued,
for MAXIMUS, Inc., a Virginia corporation (the BORROWER), subject to the
terms, covenants and conditions set forth in this letter agreement (as
amended from time to time, the AGREEMENT)."
2. The second paragraph of the Agreement, entitled "AMOUNT," is deleted in
its entirety and is replaced with the following language:
"AMOUNT. The aggregate principal amount of Advances under the Line
outstanding at any time shall not exceed the lesser of the Borrowing Base
or $10,000,000 (the MAXIMUM AMOUNT); provided, however, that the Maximum
Amount shall be reduced by an amount equal to the aggregate of the face
amounts of the Letters of Credit, whether such Letters of Credit are now
outstanding or hereafter issued. Within this limit, the Borrower may
borrow, repay and reborrow until
<PAGE> 4
March 31, 1997 (the TERMINATION DATE); provided, however, that no Advance
shall be disbursed and no Letter of Credit shall be issued by the Bank if,
after such disbursement or issuance, the aggregate outstanding principal
amount of the Advances and the aggregate outstanding face amounts of the
Letters of Credit would exceed the Borrowing Base. The Borrower shall
immediately prepay the Advances to the extent that the aggregate
outstanding principal amount of the Advances and the aggregate outstanding
face amounts of the Letters of Credit exceed the Borrowing Base at any
time, and if no Advances are then outstanding, the Borrower shall cash
collateralize any Letter of Credit exceeding the then-applicable Borrowing
Base in a manner satisfactory to the Bank. The Bank in its sole discretion
may continue to make Advances or issue Letters of Credit after the
Termination Date, but it shall have no obligation to do so. Advances made
or Letters of Credit issued after the Termination Date on any one or more
occasions shall not be deemed to be an extension of the Termination Date
and shall not obligate the Bank to make Advances or issue Letters of
Credit on any subsequent occasion. The Bank shall have the right to cancel
the Line at any time upon written notice to the Borrower given at least 30
days prior to the effective date of such cancellation. Any Advances made
or Letters of Credit issued subsequent to the giving of such notice shall
be made in the sole and absolute discretion of the Bank."
3. The third paragraph of the Agreement, entitled "INTEREST," is deleted
in its entirety and replaced with the following language:
"INTEREST. Advances shall bear interest at a per annum rate equal to
LIBOR plus 2.00%. Accrued interest shall be payable monthly, in arrears,
on the first day of each month, and on the Termination Date. Interest
shall be calculated on the basis of a year of 360 days and for actual days
elapsed."
4. The fifth paragraph of the Agreement, entitled "LC FACILITY," together
with its caption, is deleted in its entirety and replaced with the following
language:
"LC SUBFACILITY. The Borrower may request that the Bank issue
Letters of Credit for the account of the Borrower from time to time prior
to the Termination Date, the aggregate principal face amounts of which
shall not exceed $5,000,000 at any one time outstanding; provided,
however, that no Letter of Credit will be issued by the Bank if, after
such issuance, the aggregate principal amount of the outstanding Advances
and the aggregate outstanding face amounts of the Letters of Credit would
exceed the Borrowing Base. The purpose, form and substance of each Letter
of Credit must be acceptable to the Bank. Unless otherwise approved by the
Bank in its sole discretion, the initial term of a Letter of Credit shall
not exceed 12 months and may be renewable annually thereafter, subject to
the Bank's prior cancellation of such Letter of Credit, in its sole
discretion, within 30 days prior to the anniversary date of the issuance
of such Letter of Credit. At least three days prior to the issuance of a
Letter of Credit, the Borrower shall execute and deliver to the Bank an
Application and Agreement for Irrevocable Standby
<PAGE> 5
Letter of Credit on the Bank's standard form. The Bank shall be reimbursed
on demand by the Borrower for any draws paid by the Bank under a Letter of
Credit, together with interest from the date of such demand at the Prime
Rate. Subject to the terms of this Agreement, the Borrower may use the
proceeds of an Advance to pay any Indebtedness arising out of a Letter of
Credit. The Borrower shall pay (a) a nonrefundable commission to the Bank
for each Letter of Credit, payable quarterly in advance, beginning on the
date of issuance of each Letter of Credit and on the first day of each
calendar quarter thereafter, equal to (1) 1.25% per annum of the face
amount if such Letter of Credit is not cash collateralized, and (2) 0.75%
per annum of the face amount if such Letter of Credit is cash
collateralized in a manner satisfactory to the Bank, and (b) a
non-refundable opening fee for all Letters of Credit of $200, payable in
advance on the date of issuance of each Letter of Credit."
5. The tenth paragraph of the Agreement, entitled "LC FACILITY FEE,"
together with its caption, is deleted in its entirety and replaced with the
following language:
"LC SUBFACILITY FEE. The Borrower agrees to pay to the Bank a
subfacility fee of $2,500 per year, due at closing and on any renewal of
the LC Subfacility."
6. Subclause (j)(2) of the thirteenth paragraph of the Agreement, entitled
"COVENANTS," is deleted in its entirety and replaced with the following
language:
"(2) Tangible Net Worth of not less than $10,500,000, and"
7. The definition of "Indebtedness" contained in the SCHEDULE OF
DEFINITIONS to the Agreement is deleted in its entirety and replaced with the
following language:
"`Indebtedness' means all indebtedness, liabilities and obligations
of the Borrower to the Bank, whether now existing or arising in the
future, direct or indirect, fixed or contingent, whether related or
unrelated to the Line or the LC Subfacility, and whether of a similar or
different class, including, without limitation, overdrafts, guaranties and
obligations to reimburse the Bank for amounts paid by it under Letters of
Credit."
8. The following definition is added to the SCHEDULE OF DEFINITIONS to the
Agreement:
"`LIBOR' shall have the meaning given such term in EXHIBIT A
attached to the Note."
9. Simultaneously with the execution of this Amendment, the Borrower
agrees to execute and deliver to the Bank a new Note, in the principal amount of
$10,000,000 and otherwise in form and substance satisfactory to the Bank. Each
reference in the Agreement and any other Loan Document to the Note shall be a
reference to the Note as amended,
<PAGE> 6
restated and replaced by the Note required hereunder, and each reference in the
Loan Documents to the Agreement shall be deemed to be a reference to the
Agreement as amended hereby. Except for these amendments, the remaining terms of
the Agreement and other Loan Documents shall remain in full force and effect,
and are ratified and affirmed by the Borrower in all respects.
10. The Borrower represents and warrants that this Amendment has been duly
authorized, executed and delivered by it in accordance with resolutions adopted
by its board of directors. All other representations and warranties made by the
Borrower in the Loan Documents are incorporated by reference in this Amendment
and are deemed to have been repeated as of the date of this Amendment with the
same force and effect as if set forth in this Amendment, except that any
representation or warranty relating to any financial statements shall be deemed
to be applicable to the financial statements most recently delivered to the Bank
in accordance with the provisions of the Loan Documents.
11. The Borrower acknowledges and agrees that this Amendment and the new
Note required by paragraph 9 above only amend certain terms of the Loan
Documents and do not effect a novation, and the Borrower ratifies and confirms
the terms and provisions of, and its obligations under, the Agreement and each
other Loan Document in all respects. The Borrower acknowledges and agrees that
(a) there are no defenses, counterclaims or setoffs against any of its
obligations under the Loan Documents, and (b) the prior grant of a security
interest in the Collateral created by the Security Agreement continues to secure
the Indebtedness (including, but not limited to, the new Note required by
paragraph 9 above), is in full force and effect, and is ratified and confirmed
by the Borrower in all respects.
12. The Borrower agrees to pay all reasonable attorney's fees and expenses
incurred by the Bank in connection with this Amendment.
13. This Amendment shall be governed by the laws of the Commonwealth of
Virginia, without reference to conflict of laws principles.
Please sign below to indicate your acceptance of these terms and return an
executed copy of this Amendment to me by April 26, 1996. Upon our receipt of the
executed copy, this Amendment will become a binding agreement between the Bank
and the Borrower.
Sincerely yours,
CRESTAR BANK
By: /s/ John M. Cannon
------------------------------
John M. Cannon
Vice President
ACCEPTED AND AGREED as of April 10, 1996
BORROWER:
- --------
MAXIMUS, INC.
By: /s/ David V. Mastran
-------------------------------
David V. Mastran
Chief Executive Officer
By: /s/ Raymond B. Ruddy
-------------------------------
Raymond B. Ruddy
Chairman of the Board
<PAGE> 7
Crestar Bank
8245 Boone Boulevard
Vienna, VA 22182-3871
June 29, 1995
Mr. David V. Mastran
Chief Executive Officer
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22101
Dear David:
Crestar Bank (the BANK) is pleased to advise you that it has established a
$5,000,000 revolving line of credit (the Line) and a $5,000,000 letter of credit
facility (the LC Facility) for MAXIMUS, Inc., a Virginia corporation (the
BORROWER), subject to the terms, covenants and conditions set forth in this
letter agreement (as amended from time to time, the AGREEMENT). Certain
capitalized terms used in this Agreement are defined on the attached Schedule of
Definitions.
AMOUNT. The aggregate principal amount of Advances under the Line
outstanding at any time shall not exceed the lesser of the Borrowing Base or
$5,000,000. Within this limit, the Borrower may borrow, repay and reborrow until
March 31, 1996 (the TERMINATION DATE); provided, however, that no Advance shall
be disbursed and no Letter of Credit shall be issued by the Bank if, after such
disbursement or issuance, the aggregate principal amount of the Advances and 50%
of the outstanding face amounts of the Letters of Credit would exceed the
Borrowing Base. The Bank may in its sole discretion continue to make Advances
after the Termination Date, but it shall have no obligation to do so. Advances
made after the Termination Date on any one or more occasions shall not be deemed
to be an extension of the Termination Date and shall not obligate the Bank to
make Advances on any subsequent occasion. The Bank shall have the right to
cancel the Lien at any time upon written notice to the Borrower given at least
30 days prior to the effective date of such cancellation. Any Advances
subsequent to the giving of such notice shall be made in the sole and absolute
discretion of the Bank.
INTEREST. Advances shall bear interest at a per annum rate equal to the
Prime Rate. Accrued interest shall be payable monthly, in arrears, on the first
day of each month, and on the Termination Date. Interest shall be calculated on
the basis of a year of 360 days and for actual days elapsed. The interest rate
shall be adjusted daily when and as the Prime Rate is changed.
<PAGE> 8
USE OF PROCEEDS. The proceeds of Advances shall be used to pay current
operating expenses, carry accounts receivable and for other short-term working
capital needs of the Borrower.
LC FACILITY. The Borrower may request that the Bank issue Letters of
Credit for the account of the Borrower from time to time prior to the
Termination Date, the aggregate principal face amounts of which shall not exceed
$5,000,000 at any one time outstanding; provided, however, that no Letter of
Credit will be issued by the Bank if, after such issuance, the aggregate
principal amount of the outstanding Advances and 50% of the outstanding face
amounts of the Letters of Credit would exceed the Borrowing Base. The purpose,
form and substance of each Letter of Credit must be acceptable to the Bank.
Unless otherwise approved by the Bank in its sole discretion, the initial term
of a Letter of Credit shall not exceed 12 months and may be renewable annually
thereafter subject to the Bank's cancellation of such Letter of Credit, in its
sole discretion, within 30 days prior to the anniversary date of the issuance of
such Letter of Credit. At least three days prior to the issuance of a Letter of
Credit, the Borrower shall execute and deliver an Application and Agreement for
Irrevocable Standby letter of Credit on the Bank's standard form. The Bank shall
be reimbursed on demand by the Borrower for any draws paid by the Bank under a
Letter of Credit, together with interest from the date of such demand at the
Prime Rate. The Borrower shall pay a nonrefundable commission to the Bank for
each Letter of Credit equal to (a) 1.50% per annum of the face amount if such
Letter of Credit is not cash collateralized, and (b) 0.75% per annum of the face
amount if such Letter of Credit is cash collateralized in a manner satisfactory
to the Bank, such fees, as applicable, to be payable quarterly in advance on the
date of issuance and each quarter thereafter and a non-refundable opening fee
for all Letters of Credit of $200.
PREPAYMENTS. The Borrower shall immediately prepay the Advances to the
extent that the aggregate unpaid principal balance of the Advances plus 50% of
the outstanding face amounts of the Letters of Credit at any time exceeds the
Borrowing Base. If, after prepayment of all advances, 50% of the aggregate
outstanding face amount of the Letters of Credit exceeds the Borrowing Base, the
Borrower, within seven days of the Bank's demand therefor, shall pledge cash
collateral to the Bank in an amount equal to the difference between 50% of the
aggregate face amount of the Letters of Credit then outstanding and the
Borrowing Base, and any such cash deposited by the Borrower shall be held by the
Bank in the Cash Collateral Account.
PAYMENTS. Advances shall be repaid on demand, or if demand is not sooner
made, on the Termination Date. The Borrower agrees that the Bank may demand
payment even if an Event of Default has not occurred.
COLLATERAL. The Indebtedness shall be secured by a security interest in
all accounts, chattel paper, general intangibles, instruments and inventory of
the Borrower, as described in the Security Agreement.
ADMINISTRATIVE FEE. The Borrower agrees to pay to the Bank an audit and
administrative fee of $2,500 per year, due at closing and on any renewal of the
Termination Date.
<PAGE> 9
LC FACILITY FEE. The Borrower agrees to pay to the Bank a facility fee of
$2,500 per year, due at closing and on any renewal of the LC Facility.
CONDITIONS. The following are conditions precedent to each advance or the
issuance of each Letter of Credit:
(a) LOAN DOCUMENTS. Receipt by the Bank of all Loan Documents, duly
executed by all applicable parties;
(b) ORGANIZATIONAL DOCUMENTS. Receipt by the Bank of certified
copies of resolutions and organizational documents of the Borrower, a
certificate as to the incumbency and signatures of the authorized officers or
representatives of the Borrower, and current good standing certificates issued
by the appropriate public officials in the Borrower's state of formation and
each jurisdiction in which it does business;
(c) PERFECTION. Financing statements perfecting the Bank's security
interest in the Collateral shall be filed, all conflicting financing statements
shall be terminated and all other actions required by the Bank to perfect its
Liens in the Collateral shall be completed to the Bank's satisfaction.
(d) INSURANCE. Receipt by the Bank of certificates or policies of
insurance confirming that all insurance required by the Loan Documents has been
obtained;
(e) COLLATERAL/SYSTEMS REPORT. Completion by the Bank of a
satisfactory examination report of the Collateral and the Borrower's systems;
(f) LANDLORD WAIVERS. Receipt by the Bank of such landlord and
mortgagee waivers as it deems to be necessary to protect its security interest
in the Collateral;
(g) SATISFACTORY DOCUMENTS. All documents, certificates and opinions
delivered under this Agreement must be in form and substance satisfactory to the
Bank and its counsel; and
(h) NO DEFAULTS. No default shall be continuing.
REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to extend
credit to the Borrower, the Borrower represents and warrants as follows:
(a) EXECUTION OF DOCUMENTS. The Borrower has the power and has taken
all of the necessary actions to execute, deliver and perform the terms of the
Loan Documents. When executed and delivered, the Loan Documents will be binding
obligations of the Borrower, enforceable in accordance with their terms and will
not violate any provisions of law or conflict with, result in a breach of or
constitute a default under the organizational documents of the Borrower or under
any other agreement to which the Borrower is a party.
<PAGE> 10
(b) FINANCIAL STATEMENTS. All financial statements and information
delivered to the Bank by the Borrower in connection with this Agreement are
correct and complete and present fairly the financial condition, and reflect all
known liabilities, contingent or otherwise, of the Borrower as of the dates of
such statements and information, were prepared in accordance with GAAP in the
case of the Borrower and, since such dates, no material adverse change in the
assets, liabilities, financial condition, business or operations of the Borrower
has occurred.
(c) NO LITIGATION. There is no action, suit or proceeding pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower that may, either in any case or in the aggregate, result in any
material adverse change in the business, properties or assets or in the
condition, financial or otherwise, of the Borrower, or that may result in any
material liability on the part of the Borrower.
(d) DEBARMENT. No event has occurred and no condition exists that is
likely to result in the debarment or suspension of the Borrower from any
Government Contracts, and the Borrower has not, nor has any Affiliate, been
subject to any such debarment or suspension.
(e) COMPLIANCE WITH LAWS. The Borrower is in compliance in all
material respects with all federal, state and local laws, regulations and
ordinances.
(f) DEBT. The Borrower is not in default with respect to any debt.
(g) SUBSIDIARIES. The Borrower does not have any subsidiaries.
COVENANTS. In consideration of credit extended or to be extended by the
Bank, the Borrower covenants and agrees that, unless the Bank otherwise consents
in writing:
(a) FINANCIAL REPORTING REQUIREMENTS. The Borrower shall deliver to
the Bank (1) within 90 days after the close of each of its fiscal years, audited
financial statements of the Borrower, prepared in accordance with GAAP,
including a balance sheet, income statement, statements of stockholders' equity
and of cash flows, prepared by an independent certified public accounting firm
acceptable to the Bank and accompanied by an unqualified opinion of such firm;
(2) within 30 days after the end of each calendar month (I) unaudited financial
statements of the Borrower, including a balance sheet and income statement,
prepared in accordance with GAAP, except as it relates to the Borrower's
practice of accruing undeclared dividends, (ii) an appropriately completed
Borrowing Base Certificate setting forth a calculation of the Borrowing Base as
of the end of the preceding calendar month, (iii) agings of accounts receivable
of the Borrower, and (iv) a report listing by contract any Billings in Excess of
Cost and Cost in Excess of Billings for work under the Borrower's contracts; (3)
within 30 days after the end of each calendar quarter, a Covenant Compliance
Certificate of the Borrower's chief financial officer and status and backlog
reports relating to the Borrower's contracts; (4) promptly upon receipt, copies
of any reports submitted to the Borrower by its independent certified public
accountants in connection with examinations of the Borrower's financial
statements; and (5) such other information concerning the Collateral or the
financial condition of the Borrower as the Bank from time to time may reasonably
request. All financial statements and reports shall be in form and detail
<PAGE> 11
acceptable to the Bank and shall be certified to be accurate by a duly
authorized officer of the Borrower.
(b) NOTICES. The Borrower shall furnish to the Bank prompt written
notice of (1) the occurrence of each Default or an Event of Default, (2) the
institution of any material litigation concerning the Borrower, (3) any final
decision of a contracting officer disallowing costs aggregating more than
$75,000 with respect to a Government Contract, and (4) any material
modifications to, or any termination of, any contract or agreement relating to
any Eligible Receivables.
(c) COLLATERAL/SYSTEMS EXAMINATIONS. The Bank shall have the right
to perform Collateral and systems examinations from time to time in accordance
with its standard procedures.
(d) COMPLIANCE WITH LAWS. The Borrower shall comply with all
applicable laws and regulations and shall pay all taxes, assessments or
governmental charges lawfully levied or imposed on or against it or any of its
properties. The Borrower shall not take any action that would result in the
debarment or suspension of the Borrower from contracting with the Government.
(e) LIENS. The Borrower shall not permit any Lien to attach to any
of its assets other than Permitted Liens.
(f) GUARANTIES. The Borrower shall not guarantee, endorse, become
contingently liable upon or assume the obligations of any Person, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
(g) DEBT. The Borrower shall not permit to exist any debt other than
Permitted Debt.
(h) DIVIDENDS AND DISTRIBUTIONS. The Borrower shall notify the Bank
in writing 60 days prior to (1) the declaration or payment of any dividend or
any other distribution to its equity owners or (2) the issuance, redemption,
repurchase or retirement of any of its equity interests; provided, however, that
if the Borrower is a Subchapter S Corporation, a limited liability company or a
limited partnership, the Borrower may without notification pay distributions to
its equity owners in amounts sufficient to allow such owners to pay income taxes
on their respective shares of the net taxable income of the Borrower.
(i) LOANS AND INVESTMENTS. Without the Bank's consent, the Borrower
shall not make or permit to exist any loans to, or debt or equity investments
in, acquire all or substantially all of the assets of, or merge or consolidate
with any Person, other than accounts receivable that arise in the ordinary
course of business. This not withstanding, the Borrower may make advances or
loans of up to $100,000 to any individual shareholder as long as the total sum
of all such outstanding advances or loans does not exceed $500,000 at any one
time.
<PAGE> 12
Without limiting the generality of the foregoing, the Borrower shall not acquire
or form any subsidiary, enter into any joint venture agreement, or become a
partner in any partnership; provided that, with the consent of the Bank, the
Borrower may enter into joint venture or teaming agreements with other Persons
to perform contracts.
(j) FINANCIAL COVENANTS. The Borrower shall maintain at all times
(1) a ratio of current assets to current liabilities of not less than 1.25 to 1,
(2) Tangible Net Worth of not less than $8,500,000, and (3) a ratio of total
liabilities to Tangible Net Worth of not more than 1.75 to 1.
(k) KEY MAN LIFE INSURANCE. The Borrower shall maintain life
insurance in an amount acceptable to the Bank on David V. Mastran and Raymond B.
Ruddy with the Borrower as the beneficiary.
DEFAULT. Upon the occurrence of an Event of Default, any obligation of the
Bank to make Advances or issue Letters of Credit shall terminate and the Bank,
at its option, by written notice to the Borrower, may declare all Indebtedness
to the Bank to be immediately due and payable. Upon the occurrence of an Event
of Default, the Bank also may require the Borrower to pay, and the Borrower
agrees to pay, to the Bank an amount of cash equal to the aggregate face amount
of the Letters of Credit then outstanding, and any amounts paid by the Borrower
shall be held by the Bank in the Cash Collateral Account.
ACCOUNTING TERMS. Each accounting term used in this Agreement, not
otherwise defined, will have the meaning given to it under GAAP as in effect on
the date of this Agreement, applied on a consistent basis.
NOTICES. All notices, requests, demands or other communications provided
for in this Agreement or any other Loan Document shall be in writing and shall
be delivered by hand, sent prepaid by a recognized overnight delivery service or
sent by the United States mail, certified, postage prepaid, return receipt
requested, to the Bank or to the Borrower at their addresses set forth in this
Agreement.
SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to
the benefit of the Bank and the Borrower, and their respective successors and
assigns, provided that the Borrower may not assign or transfer its rights under
this Agreement.
SOLE AGREEMENT. This Agreement and the other Loan Documents represent the
entire agreement between the Bank and the Borrower, and supersede all prior
commitments and may be modified only by an agreement in writing. The other Loan
Documents shall contain such terms as the Bank customarily requires for
financings of the type described in this Agreement.
SURVIVAL OF AGREEMENT. All terms contained in this Agreement shall survive
the delivery of this Agreement and the other Loan Documents, the making of the
Advances and the issuance of the Letters of Credit and shall remain in full
force and effect until the Indebtedness is fully discharged.
<PAGE> 13
GOVERNING LAW. This Agreement will be governed by the laws of the
Commonwealth of Virginia, without reference to conflict of laws principles.
EXPENSES. Whether or not any Advances are made or Letters of Credit issued
under this Agreement, the Borrower shall pay all out-of-pocket expenses incurred
by the Bank in connection with the preparation of this Agreement and the other
Loan Documents and the transactions contemplated by this Agreement.
COUNTERPARTS. This Agreement may be executed in counterparts, and all such
counterparts together shall constitute one and the same Agreement.
The Borrower may accept this Agreement by signing below and returning an
executed copy to the Bank prior to July 21, 1995. Upon receipt by the Bank of
such executed copy prior to such date, this Agreement will become a binding
agreement between the Bank and the Borrower.
Sincerely yours,
CRESTAR BANK
By: /s/ John M. Cannon
----------------------------------
John M. Cannon
Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE> 14
ACCEPTED: July 10, 1995
MAXIMUS, INC., a Virginia Corporation
By: /s/ David V. Mastran By: /s/ Raymond B. Ruddy 7/5/95
---------------------------- --------------------------
Name: David V. Mastran Name: Raymond S. Ruddy
Title: Chief Executive Officer Title: Chairman of the Board
<PAGE> 15
SCHEDULE OF DEFINITIONS
The following terms shall have the meanings set forth below when such
terms are used in the Loan Documents:
"Advance" means any advance of funds under the Line.
"Affiliate" means any Person in which the Borrower has an ownership
interest, whether direct or indirect, and any joint venture to which the
Borrower is a party.
"At-Risk Work" means work performed under Government Contracts, or any
other contract, (a) for which funds have not been appropriated and allocated,
(b) that have not been awarded or (c) for which all required contract documents,
including any documents required to modify or renew a contract previously
awarded, have not been executed.
"Bonded Receivables" means any account receivable arising out of a
contract under which the performance of the Borrower is guaranteed by a surety
bond.
"Borrowing Base" means, at the time in question, 90% of Eligible
Receivables.
"Borrowing Base Certificate" means a certificate of the Borrower
containing a computation of the Borrowing Base and certifying that no Default
has occurred and is continuing, in form and substance satisfactory to the Bank.
"Cash Collateral Account" means an account established with the Bank in
the name of the Borrower, over which the Bank has the exclusive right of
withdrawal, which account serves as additional security for the repayment of the
Indebtedness.
"Collateral" means any real or personal property securing any Indebtedness
at any time.
"Contras" means any account receivable of the Borrower that is due from a
Customer to whom the Borrower is indebted.
"Covenant Compliance Certificate" means a certificate setting forth
calculations and otherwise reflecting compliance by the Borrower with the
covenants in the Loan Documents, in form and substance acceptable to the Bank.
"Customer" means any Person obligated on an account receivable of the
Borrower.
"Default" means any Event of Default or any event that with the giving of
notice, or lapse of time, or both, would constitute an Event of Default.
"Eligible Receivables" means such accounts receivable of the Borrower that
are and at all times continue to be acceptable to the Bank in all respects.
Criteria for eligibility shall be fixed and revised by the Bank from time to
time in its sole discretion. In general, an account receivable shall not be an
Eligible Receivable unless (a) it represents a valid obligation of the
<PAGE> 16
Customer to pay for goods sold or services rendered, (b) it has been
appropriately billed in accordance with the terms of the applicable contract and
no more than 90 days have elapsed from the initial invoice date, (c) the goods
or services have been finally accepted by the Customer, (d) all payments,
setoffs, bad debt reserves, discounts, allowances and credits have been
deducted, (e) it conforms to the representations and warranties contained in the
Security Agreement, (f) the Customer is not an Affiliate, a foreign Person or a
creditor of the Borrower, (g) the Bank is satisfied with the credit standing of
the Customer ,and (h) if it arises out of a Government Contract, such receivable
arises out of a Government Contract on which the borrower is the prime
contractor. Eligible Receivables shall not include At-Risk Work, Bonded
Receivables that are not subordinated to the Bank on terms acceptable to the
Bank, Contras, cost overruns, progress payments, costs incurred in excess of
approved or allowed billing rates, rebillings or retainages. No Eligible
Receivable shall be included in more than three month-end Borrowing Base
calculations.
"Event of Default" means the occurrence of a default or event of default
under any Loan Document after the expiration of all applicable grace periods.
"FACA" means, collectively, the Federal Assignment of Claims Act of 1940,
as amended, 31 U.S.C. ss. 3727, 41 U.S.C. ss. 15, any applicable rules,
regulations and interpretations issued pursuant thereto, and any amendments to
any of the foregoing.
"GAAP" means generally accepted accounting principles consistently
applied.
"Government" means the United States of America and any of its departments
and agencies.
"Government Contracts" means any contract with the Government under which
the Borrower is the prime contractor or a subcontractor.
"Indebtedness" means all indebtedness, liabilities and obligations of the
Borrower to the Bank, whether now existing or arising in the future, direct or
indirect, fixed or contingent, whether related or unrelated to the Line or the
LC Facility, and whether of a similar or different class, including, without
limitation, overdrafts, guaranties and obligations to reimburse the Bank for
amounts paid by it under letters of credit issued by the Bank for the account of
the Borrower.
"Letter of Credit" means, collectively and individually, any letter of
credit issued by the Bank for the account of the Borrower pursuant to the
Agreement, as any of the same may be amended, modified or supplemented, renewed
or extended from time to time.
"Lien" means any mortgage, deed of trust, assignment, pledge, lien,
security interest, charge or encumbrance of any kind or nature, including the
interest of a lessor under a capitalized lease.
"Loan Documents" means the Agreement, the Note, the Security Agreement and
any other document that evidences, secures, governs or otherwise relates to any
of the Indebtedness, including, without limitation, any letter of credit
application and agreement,
<PAGE> 17
negative pledge agreement, deed of trust, mortgage security agreement, pledge
agreement or assignment.
"Note" means a promissory note, on the Bank's standard form, in the
principal amount of the Line, made by the Borrower, and evidencing the
obligation of the Borrower to repay the Advances, together with accrued
interest, and any amendments to or replacements of such promissory note.
"Permitted Debt" means (a) the Indebtedness, (b) purchase money financing
and capitalized lease obligations for fixed assets not exceeding $250,000 in the
aggregate outstanding at any time, (c) Subordinated Debt, and (d) ordinary and
customary trade accounts payable.
"Permitted Liens" means (a) Liens securing the Indebtedness, and (b) Liens
securing any purchase money financing or capitalized lease obligations described
in the definition of Permitted Debt.
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, governmental subdivision or agency or any
other entity of any nature.
"Prime Rate" means the rate established by the Bank from time to time and
recorded in its Credit Administration Division as a reference for fixing the
lending rate on certain commercial loans. The Prime Rate is not necessarily the
lowest or most favorable interest rate charged by the Bank.
"Security Agreement" means a security agreement from the Borrower on the
Bank's standard form, creating a first priority security interest in the
Collateral.
"Subordinated Debt" means debt of the Borrower subordinated to the
Indebtedness on terms acceptable to the Bank.
"Tangible Net Worth" means, at any time, amounts that would be included
under stockholders' equity on the balance sheet of the Borrower in accordance
with GAAP consistently applied, provided that, in any event, such amounts are to
be net of amounts carried on the books of the Borrower for (1) any write-up in
the book value of any assets of the Borrower resulting from a revaluation
subsequent to the date of this Agreement, (2) treasury stock, (3) unamortized
debt discount expense, (4) any cost of investments in excess of net assets
acquired at any time of acquisition by the Borrower, (5) loans, advances or
other amounts owed to the Borrower by any Affiliate or investments in any
Affiliate, (6) unmarketable securities, and (7) patents, patent applications,
copyrights, trademarks, trade names, goodwill, research and development costs,
organizational expenses, capitalized software costs and other like intangibles.
<PAGE> 18
EXHIBIT A
INTEREST RATE PROVISIONS
THIS EXHIBIT A is attached to and forms a part of that certain Commercial
Note (as amended, modified, supplemented or replaced from time to time, the
Note), dated April 10, 1996, in the principal amount of $10,000,000 made by
MAXIMUS, INC., a Virginia corporation (the Borrower), and payable to the order
of CRESTAR BANK, a Virginia banking corporation (the Bank). Terms defined in the
Note and not otherwise defined in Paragraph 5 below shall have the same defined
meanings when such terms are used herein.
1. INTEREST RATE. On the terms and subject to the conditions set forth
below and in the Agreement, any amounts outstanding, or to be disbursed, under
the Note shall bear interest at a per annum rate equal to LIBOR plus 2.00% (the
LIBOR Option). Interest based on the LIBOR Option shall be adjusted on the first
day of each calendar month, beginning on May 1, 1996, to reflect LIBOR then in
effect (each, an Interest Period). Notwithstanding any contrary provision of the
note or this EXHIBIT A, interest shall be calculated on the basis of the Prime
Rate if (i) the Bank, in good faith, is unable to ascertain the LIBOR Option by
reason of circumstances then affecting the applicable money market or otherwise,
(ii) dollar deposits are not available in the applicable money market or are not
available in sufficient quantities for the Bank, in its sole discretion, to
ascertain the LIBOR Option, (iii) in the sole judgment of the Bank, it becomes
unlawful or impracticable for the Bank to maintain loans based upon the LIBOR
Option for any reason, including, without limitation, the introduction of or any
change in any applicable law, rule or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) of any such
authority, or (iv) the Bank, in good faith, determines that it is impracticable
to maintain loans based on the LIBOR Option because of increased taxes,
regulatory costs, reserve requirements, expenses or any other costs or charges
that affect such interest rate option. Upon the occurrence of any of the above
events, the outstanding principal balance of the Note immediately (or at any
time thereafter at the option of the Bank), without further action of the
Borrower or the Bank, shall accrue interest at the Prime Rate, adjusted on the
same days on which the Bank changes its Prime Rate.
2. ADVANCES. The Borrower authorizes the Bank to make advances under the
Note from time to time in amounts sufficient to pay checks drawn on the
Borrower's operating account with the Bank, subject to the limitations set forth
in the paragraph entitled, "Amount," in the Agreement. In addition, the Borrower
may request an advance under the Note (each, a Request) by telephonic notice to
the Bank no later than 10:00 a.m. (Washington, D.C. time) on the Business Day on
which such advance is to be made. If required by the Bank, Requests made by
telephone shall be confirmed in writing and delivered to the Bank within three
Business Days after the date of the Request.
3. PREPAYMENTS. The Borrower may prepay amounts owing under the Note at
any time and from time to time, without premium or penalty.
<PAGE> 19
4. INDEMNITY. The Borrower agrees to indemnify the Bank and to hold the
Bank harmless from, and to reimburse the Bank on demand for, any loss, cost,
liability or expense that the Bank may sustain or incur as a result of (a) any
failure by the Borrower to make a borrowing or prepayment after the Borrower has
given notice thereof, if applicable, including, without limitation, any loss
incurred in liquidating or employing deposits from third parties and loss of
profit for the period after failure to borrow or prepay, or (b) any domestic or
foreign taxes, regulatory costs, reserve requirements, assessments, expenses or
other costs or charges that increase the cost to the Bank of making available to
the Borrower funds at the LIBOR Option. A written statement of the Bank to the
Borrower of such loss or expense shall be conclusive and binding, absent
manifest error, for all purposes. Notwithstanding the foregoing, the Bank may
require by notice to the Borrower that the Borrower pay directly to the
appropriate governmental authority any tax, levy, impost or any other charge of
any nature whatsoever as set forth herein in lieu of reimbursing the Bank for
said costs and expenses. This covenant shall survive repayment of the Note and
payment by the Borrower of all obligations arising under this EXHIBIT A.
5. DEFINED TERMS. The following terms as used in this EXHIBIT A shall have
the following meanings:
AGREEMENT means the letter agreement dated June 29, 1995, between the
Borrower and the Bank, as the same may be amended, modified or supplemented from
time to time.
BUSINESS DAY shall mean a day on which commercial banks are open for
business and dealing in deposits in Washington, D.C., Richmond, Virginia, and
New York, New York.
LIBOR shall mean the rate per annum quoted by the Bank from time to
time, as determined by the Bank based upon the rates of interest at which
one-month deposits would be offered to the Bank, in the amount of the aggregate
outstanding principal balance of the Note (as adjusted upwards, if necessary, if
such adjustment is required for the Bank to determine such rate) at the LIBOR
Option, by major banks in the London or Nassau inter- bank market (whichever is
greater) upon request of such banks at 11:00 a.m. (London or Nassau time, as the
case may be) on the day that is two Business Days prior to the first day of each
Interest Periods, as adjusted from time to time in the Bank's sole discretion,
for then-applicable reserve requirements, deposit insurance assessment rates,
broker's commissions and other regulatory costs.
PRIME RATE shall have the meaning ascribed to it in the Note.
6. FUNDING. The Bank shall be entitled, but not obligated, to fund all or
any portion of the Note in any manner it may determine in its sole discretion,
including, without limitation, in the Grand Cayman inter-bank market, the Nassau
inter-bank market, the London inter-bank market and within the United States,
but all calculations and transactions hereunder shall be conducted as though the
Bank actually funds all such amounts through the purchase in London or Nassau,
as the case may be, of one-month offshore dollar deposits in the relevant
principal amount.
<PAGE> 20
IN WITNESS WHEREOF, the Borrower has caused this Exhibit A to be executed
by its duly authorized representatives as of April 10, 1996.
MAXIMUS, INC., a Virginia Corporation
By: /s/ David V. Mastran
------------------------------------
David V. Mastran
Chief Executive Officer
By: /s/ Raymond B. Ruddy
------------------------------------
Raymond B. Ruddy
Chairman of the Board
<PAGE> 21
COMMERCIAL NOTE - CRESTAR BANK
BORROWER: MAXIMUS, Inc.
LOAN AMOUNT: Ten Million Dollars and No Cents ($10,000,000.00)
BORROWER'S ADDRESS: 1356 Beverly Road, Suite 300
McLean, VA 22101-3625
OFFICER: John M. Cannon J.C.(initials) DATE: April 10, 1996
ACCOUNT NO: 04300022378842 NOTE NO: 4003 NOTE TYPE: Renewal Loan
- -------------------------------------------------------------------------------
For Value Received, the undersigned (whether one or more) jointly and severally
promise to pay to the order of Crestar Bank (the "Bank") at any of its offices,
or at such place as the Bank may designate in writing, without offset and in
immediately available funds, the Loan Amount shown above, including or plus
interest, and any other amounts due, upon the terms specified below.
LOAN TYPE AND REPAYMENT TERMS
- -----------------------------
LOAN TYPE: Revolving Master Borrowing Line
This is an open end revolving line of credit. You may borrow an
aggregate principal amount up to the Loan Amount shown above
outstanding at any one time.
REPAYMENT TERMS
Principal on demand, plus interest, but the undersigned shall be
liable for only so much of the Loan Amount as shall be equal to the
total advanced to or for the undersigned, or any of them, by the Bank
from time to time, less all payments made by or for the undersigned
and applied by the Bank to principal, plus interest on each such
advance, and any other amounts due all as shown on the Bank's books
and records, which shall be prima facie evidence of the amount owed.
This Master Borrowing arrangement will terminate upon written notice
from the Bank to the undersigned, or if such notice is not sooner
given, 12 months from the date of this Note, unless an alternate
termination date is indicated in the"Agreement," as defined below.
THE BANK SHALL HAVE THE RIGHT TO DEMAND PAYMENT AT ANY TIME EVEN IF AN
EVENT OF DEFAULT (AS OUTLINED IN THIS NOTE) HAS NOT OCCURRED.
ADDITIONAL TERMS AND CONDITIONS:
This Note is governed by additional terms and conditions contained in a(n)
Letter Agreement between the undersigned and the Bank dated June 29, 1995, and
any modifications, renewals, extensions or replacements thereof (the
"Agreement"), which is incorporated in this Note by reference. In the event of a
conflict between any term or condition contained in this Note and in the
Agreement, such term or condition of the Agreement shall control.
<PAGE> 22
INTEREST
Accrued interest will be payable on the first day of each month beginning on May
1, 1996.
Interest will accrue daily on an actual/360 basis (that is, on the actual number
of days elapsed over a year of 360 days).
Each scheduled payment made on this Note will be applied to accrued interest
before it is applied to principal. Interest will accrue from the date of this
Note on the unpaid balance and will continue to accrue after maturity, whether
by acceleration or otherwise, until this Note is paid in full. If this is a
variable rate transaction, the interest rate is prospectively subject to
increase or decrease without prior notice, and if this is a Term-Variable
Payment loan, adjustments in the payment schedule will be made as necessary. If
the stated Rate (as defined below) is based on a Prime Rate of Crestar Bank, the
interest rate is subject to increase or decrease at the sole option of the Bank.
Subject to the above, interest per annum on this Note (the "Rate") will be the
applicable Rate as outlined in Exhibit A, incorporated herein by reference.
Adjustments to the Rate shall be effective as of in accordance with Exhibit A.
===============================================================================
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
===============================================================================
This Note includes a renewal and refinance of the balance owed on note number
043000223788424003 dated July 5, 1995, in the original principal amount of
$5,000,000.00
COLLATERAL
Any collateral pledged to the Bank to secure any of the undersigned's existing
or future liabilities to the Bank shall secure this Note. To the extent
permitted by law, each of the undersigned grants to the Bank a security interest
in and a lien upon all deposits or investments maintained by the undersigned
with, and all indebtedness owed to the undersigned by, the Bank or any of its
affiliates.
This Note is also secured by the following collateral and proceeds thereof;
All inventory, accounts general intangibles, leases, contracts, proceeds, lease
payments and insurance proceeds now existing or hereafter acquired and all
proceeds and products thereof as more particularly described in a Security
Agreement by MAXIMUS, Inc. dated July 5, 1995.
All of this security is referred to collectively as the "Collateral." The
Collateral is security for the payment of this Note and any other liability
(including overdrafts and future advances) of the undersigned to the Bank,
however evidenced, now existing or hereafter incurred, matured or unmatured,
direct or indirect, absolute or contingent, several, joint, or joint and
several, including any extensions, modifications or renewals. The proceeds of
any Collateral may be applied against the liabilities of the undersigned to the
Bank in any order at the option of the Bank.
<PAGE> 23
LOAN PURPOSE AND UPDATED FINANCIAL INFORMATION REQUIRED
- -------------------------------------------------------
The undersigned warrant and represent that the loan evidenced by this Note is
being made solely for the purpose of acquiring or carrying on a business,
professional or commercial activity or acquiring real or personal property as an
investment (other than a personal investment or for carrying on an investment
activity (other than a personal investment activity). The undersigned agree to
provide to the Bank updated financial information, including but not limited to,
tax returns, current financial statements in form satisfactory to the Bank, as
well as additional information, reports or schedules (financial or otherwise),
all as the Bank may from time to time request.
DEFAULT, ACCELERATION AND SETOFF
- --------------------------------
Any one of the following shall constitute an event of default under the terms of
this Note: (1) the failure to make when due any installment or other payment,
whether of principal, interest, late charges or other authorized charges due
under this Note, or the failure to pay the amount demanded by the Bank if this
Note is payable on demand; (2) the death, dissolution, merger, acquisition,
consolidation or termination of existence of the undersigned, any guarantor of
the indebtedness of any of the undersigned to the Bank, any endorser, or any
other party to this Note (collectively called a "Party"); (3) the insolvency or
inability to pay debts as they mature of any Party, or the application for the
appointment of a receiver for any Party or the filing of a petition under any
provision of the Bankruptcy Code or other insolvency law, statute or proceeding
by or against any Party or any assignment for the benefit of creditors by or
against any Party; (4) the entry of a judgment against any Party or the issuance
or service of any attachment, levy or garnishment against any Party or the
property of any Party, or the repossession or seizure of property of any Party;
(5) a determination by the Bank that it deems itself insecure or that a material
adverse change in the financial condition of any Party or decline or
depreciation in the value or market value of any Collateral has occurred since
the date of this Note or is reasonably anticipated; (6) the failure of any Party
to perform any other obligation to the Bank under this Note or under any other
agreement with the Bank; (7) the occurrence of an event of default with respect
to any existing or future indebtedness of any Party to the Bank or any other
creditor of the Party; (8) a material change in the ownership, control or
management of any Party that is an entity, unless such change is approved by the
Bank in its sole discretion; (9) if any Party gives notice to the Bank
purporting to terminate such Party's obligations under or with respect to this
Note; (10) the sale or transfer by a Party of all or substantially all of such
Party's assets other than in the ordinary course of business; or (11) any Party
commits fraud or makes a material misrepresentation at any time in connection
with this Note. If an event of default occurs, or in the event of non-payment of
this Note in full at maturity, the entire unpaid balance of this Note will, at
the option of the Bank, become immediately due and payable, without notice or
demand. Upon the occurrence of an event of default, the Bank shall be entitled
to interest on the unpaid balance at the stated Rate plus 2.00% (the "Default
Rate"), unless otherwise required by law, until paid in full. To the extent
permitted by law, upon default, the Bank will have the right, in addition to all
other remedies permitted by law, to set off the amount due under this Note or
due under any other obligation to the Bank against any and all accounts, whether
checking or savings or otherwise, credits, money, stocks, bonds or other
security or property of any nature whatsoever on deposit with, held by, owed by,
or in the possession of, the Bank or any of its affiliates to the credit of or
for the account of any Party, without notice to or consent by any Party. The
remedies provided in this Note and any other agreement between the Bank and any
Party are cumulative and not exclusive of any remedies provided by law.
CAPITAL ADEQUACY
- ----------------
Should the Bank, after the date hereof, determine that the adoption of any law
or regulation regarding capital adequacy, or any change in the interpretation or
administration, has or would have the effect of reducing the Bank's rate of
return hereunder to a level below that which the Bank could have achieved but
for such adoption or change, by an amount which the Bank considers to be
material, then, from time to time, 30 days after written demand by the Bank, the
undersigned shall pay to the Bank such additional amounts as will compensate the
Bank for such reduction. Each demand by the Bank shall be made in good faith and
shall be accompanied by a certificate claiming compensation under this paragraph
and stating the amounts to be paid to it hereunder and the basis therefor.
LATE CHARGES AND OTHER AUTHORIZED CHARGES
- -----------------------------------------
<PAGE> 24
If any portion of a payment is at least ten (10) days past due, the undersigned
agree to pay a late charge of 5.00% of the amount which is past due. Unless
prohibited by applicable law, the undersigned agree to pay the fee established
by the Bank from time to time for returned checks if a payment is made on this
Note with a check and the check is dishonored for any reason after the second
presentment. In addition, as permitted by applicable law, the undersigned agree
to pay the following: (1) all expenses, including, without limitation, all court
or collection costs, and attorney's fees of 25% of the unpaid balance of this
Note, or actual attorneys' fees if in excess of such amount, whether suit be
brought or not, incurred in collecting this note; (2) all costs incurred in
evaluating, preserving or disposing of any Collateral granted as security for
the payment of this Note, including the cost of any audits, appraisals,
appraisal updates, reappraisals or environmental inspections which the Bank from
time to time in its sole discretion may deem necessary; (3) any premiums for
property insurance purchased on behalf of the undersigned or on behalf of the
owner(s) of the Collateral pursuant to any security instrument relating to the
Collateral; (4) any expenses or costs incurred in defending any claim arising
out of the execution of this Note or the obligation which it evidences, or
otherwise involving the employment by the Bank of attorneys with respect to this
Note and the obligations it evidences; and (5) any other charges permitted by
applicable law. The undersigned agree to pay these authorized charges on demand
or, at the Bank's option, the charges may be added to the unpaid balance of the
Note and will accrue interest at the stated Rate. Upon the occurrence of an
event of default, interest will accrue at the Default Rate.
WAIVERS
- -------
The undersigned and each other Party waive presentment, demand, protest, notice
of protest and notice of dishonor and waive all exemptions, whether homestead or
otherwise, as to the obligations evidenced by this note. The undersigned and
each other Party waive any rights to require the Bank to proceed against any
other Party or person or any Collateral before proceeding against the
undersigned or any of them, or any other Party, and agree that without notice to
any Party and without affecting any Party's liability, the Bank, at any time or
times, may grant extensions of the time for payment or other indulgences to any
Party or permit the renewal or modification of this Note, or permit the
substitution, exchange or release of any Collateral for this Note and may add or
release any Party primarily or secondarily liable. The undersigned and each
other Party agree that the Bank may apply all monies made available to it from
any part of the proceeds of the disposition of any Collateral or by exercise of
the right of setoff either to the obligations under this Note or to any other
obligations of any Party to the Bank, as the Bank may elect from time to time.
The undersigned also waive any rights afforded to them by Sections 49-25 and
49-26 of the Code of Virginia of 1950 as amended. TO THE EXTENT LEGALLY
PERMISSIBLE, THE UNDERSIGNED WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LITIGATION
RELATING TO TRANSACTIONS UNDER THIS NOTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
JUDGMENT BY CONFESSION
- ----------------------
The undersigned hereby duly constitute and appoint Susan M. Banks or C.B.
Bohannon or Carl J. Wallace as the true and lawful attorney-in-fact for them in
any or all of their names, place and stead, and upon the occurrence of an event
of default, to confess judgment against them, or any of them, in the Circuit
Court for the County of Fairfax, Virginia, upon this Note and all amounts owed
hereunder, including all costs of collection, attorney's fees equal to 25% of
the unpaid principal balance hereof and court costs, hereby ratifying and
confirming the acts of said attorney-in-fact as if done by themselves, expressly
waiving benefit of any homestead or other exemption laws.
SEVERABILITY, AMENDMENTS AND NO WAIVER BY BANK
- ----------------------------------------------
Any provision of this Note which is prohibited or unenforceable will be
ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Note. No amendment, modification,
termination or waiver of any provision of this Note, nor consent to any
departure by the undersigned from any term of this Note, will in any event be
effective unless it is in writing and signed by an authorized employee of the
Bank, and then the waiver or consent will be effective only in the specific
instance and for the specific purpose for which given. If the interest Rate is
tied to an external index and the index becomes unavailable during the term of
this loan, the Bank may designate a substitute index with notice to Borrower. No
failure or delay on the part of the Bank to exercise any right, power or remedy
under this Note may be construed as a waiver of the right to exercise the same
or any other right at any time.
<PAGE> 25
LIABILITY, SUCCESSORS AND ASSIGNS AND GOVERNING LAW
Each of the undersigned shall be jointly and severally obligated and liable on
this Note. This Note shall apply to and bind each of the undersigned's heirs,
personal representatives, successors and assigns and shall inure to the benefit
of the Bank, its successors and assigns. This Note shall be governed by the
internal laws of the Commonwealth of Virginia and applicable federal law.
By signing below, the undersigned agree to the terms of this Note and
acknowledge receipt of a loan in the Loan Amount shown above.
MAXIMUS, Inc.
By: /s/ David V. Mastran (SEAL)
-----------------------------------------
David V. Mastran, Chief Executive Officer
By: /s/ Raymond B. Ruddy (SEAL)
-----------------------------------------
Raymond B. Ruddy, Chairman of the Board
<PAGE> 26
SECURITY AGREEMENT
This Security Agreement is made by MAXIMUS, INC. (the Owner) for the use and
benefit of Crestar Bank (the Bank).
1. SECURITY AGREEMENT. In order to induce the Bank from time to time to
extend or continue to extend credit to MAXIMUS, INC. (the Borrower), the Owner
(which may include the Borrower) hereby grants the Bank, its successors and
assigns, a security interest in the collateral and all proceeds, products, rents
and profits thereof and all revenues from the right to use the collateral as
described below (the Collateral) to secure the payment of all present and future
indebtedness of every kind and description, however evidenced, of the borrower
to the Bank, whether such indebtedness is direct or indirect, fixed or
contingent, liquidated or unliquidated, including any extensions, modifications
or renewals thereof (the Indebtedness) and to secure the performance by the
Owner of the agreements and warranties contained in this Security Agreement.
2. COLLATERAL. As used in this Security Agreement, the term "Collateral,"
whether now existing or hereafter acquired, shall mean (check all that are
applicable):
IF THE COLLATERAL IS NOT SPECIFICALLY DESIGNATED BY A CHECK MARK, THEN THE OWNER
GRANTS THE BANK A BLANKET SECURITY INTEREST.
[ ] Blanket All accounts ("Accounts"), inventory ("Inventory"),
Security furniture, fixtures and equipment ("Equipment"),
Interest general intangibles ("General Intangibles"),
instruments, documents and chattel paper, including,
without limitation, all goods represented thereby and
all goods that may be reclaimed or repossessed from
or returned by account debtors and all proceeds,
products, rents and profits thereof (as all such
terms are defined in the Uniform Commercial Code).
[ ] All or a portion of the Collateral will be
attached as a fixture to realty located at
----------------------------------------------
--------------------------------.
[ ] Accounts and All of the Owner's rights, now existing or arising
General in the future, to payment for goods sold or leased
Intangibles or for services rendered, whether or not earned by
performance, and whether or not such right to payment
is evidenced by an instrument, document or chattel
paper (the "Accounts"), together with all interest of
the Owner in goods, the sale or lease of which shall
have given rise or may give rise to any Account,
including Notes Receivable and all of the Owner's
personal property,including things in action, all
returned goods, reclaimed and repossessed goods,
chattel paper, documents, instruments and money,
including, without limitation, returned and unearned
insurance premiums, tax refunds, contract rights and
causes in action of any kind and nature whatsoever
("General Intangibles") and all proceeds and products
thereof and all substitutions and replacements
therefore.
<PAGE> 27
[X] Inventory, All goods of every nature which are held for sale or
Accounts, and furnished or are to be furnished under contracts of
General service or sale of lease, supplies, stock- in-trade,
Intangibles all raw materials, work-in-process, finished goods,
all items of personal property, and all returned,
reclaimed and repossessed goods, whether now in the
Owner's possession or control, in transit, in
storage, or hereafter acquired by way of replacement,
substitution, addition or otherwise and all other
inventory as defined in the Uniform Commercial Code
("Inventory"), all accounts as defined in the Uniform
Commercial Code ("Accounts"), General Intangibles and
all proceeds, products, rents and profits thereof.
[ ] Furniture, All of the Owner's furniture, fixtures, equipment,
Fixtures, and and leasehold improvements including all equipment
Equipment as defined in the Uniform Commercial Code
("Equipment"), and including, but not limited to,
any leases, rental agreements, chattel paper, rental
payments and insurance proceeds together with all
accessories, accessions, attachments, parts,
replacements, substitutions, improvements, repairs
installed in or affixed to any Equipment, and all
proceeds and products thereof.
[ ] All or a portion of the Collateral will e
attached as a fixture to realty located at
----------------------------------------------
--------------------------------.
[ ] Equipment and All of the following Equipment or Consumer Goods:
Consumer
Goods Body Serial Number/
Make Type Year Model Motor Number
---- ---- ---- ----- -------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
-------------
including, but not limited to, any leases, rental
agreements, chattel paper, rental payments and
insurance proceeds together with all licenses, tires,
tools, equipment, accessories and other accessions
now or hereafter installed in or affixed to the
Equipment or Consumer Goods and all substitutions,
renewals and replacements thereof, and all proceeds,
products, rents and profits thereof.
[ ] All or a portion of the Collateral will be
attached as a fixture to realty located at
----------------------------------------------
--------------------------------.
<PAGE> 28
[ ] Securities, The following securities, instruments, including
Instruments, unsecured notes and notes secured by deeds of trust
Certificates of or otherwise, certificates of deposit,documents,
Deposit, including documents of title, documentary drafts,
Documents, accounts, letters of credit, chattel paper, general
Chattel Paper, intangibles, including interests in estates and
and General trusts, and other property described as:____________
Intangibles ____________________________________________________
____________________________________________________
_____________________________________________and all
proceeds and products thereof and all substitutions
and replacements therefore.
The Owner also grants the Bank a security interest in all rights to
which an owner of the Collateral is now or may become entitled by
virtue of owning such Collateral including, without limitation,
interest, cash dividends, stock dividends and stock rights, all of
which shall, when received, and upon request by the Bank, be delivered
to the bank with written authority to sell, transfer or rehypothecate
the same.
If the Collateral includes all rights, title and interest in an Estate
or Trust, the security interest shall not apply to any shares of
capital stock of Crestar Financial Corporation or any of its
affiliates, or to any units of participation in the Bank's Common Trust
Fund held by the Estate or Trust, but shall apply to any proceeds from
the sale of such stocks and units or cash dividends thereof.
3. ACCOUNTS. If the Collateral includes Accounts:
--------
a) The Owner warrants that each and every Account, now owned or
hereafter acquired, is a bona fide existing obligation, valid
and enforceable against the account debtor, for goods sold or
leased and delivered or services rendered in the ordinary
course of business; it is subject to no dispute, defense or
offset; the Owner has good title to the Account and has full
right and power to grant the Bank a security interest in the
Collateral;
b) The Owner will immediately notify the Bank of any Account to
which the above warranties are or become untrue;
c) The Owner will prepare and deliver to the Bank, at the Bank's
request, a listing and aging of all Accounts and any further
schedules or information that the Bank may require.
d) The Bank shall have the right at any time to notify account
debtors of its security interest in the Accounts and require
payments to be made directly to the Bank. The Owner hereby
appoints the Bank and any officer or employee of the Bank, as
the Bank may from time to time designate, as its
attorneys-in-fact for the Owner, to sign and endorse in the
name of the Owner, to give notice in the name of the Owner,
and to perform all other actions necessary or desirable at the
reasonable discretion of the Bank to effect these provisions
and carry out the intent hereof, all at the cost and expense
of the Owner. The Owner hereby ratifies and approves all acts
of such attorneys-in-fact and neither the Bank nor any other
such attorneys-in-fact will be liable for any acts of
commission or omission nor for any error of judgment or
mistake of fact or law. This power being coupled with an
interest is irrevocable so long as any Account or General
Intangible assigned to the Bank remains unpaid and the
Borrower has any Indebtedness to the Bank. The costs of such
collection and enforcement, including attorneys' fees and
out-of-pocket expenses, shall be borne solely by the Owner
whether the same are incurred by the Bank or the Owner;
e) At the option of the Bank, all payments on the Accounts
received by the Owner shall be remitted to the Bank in their
original form on the day of receipt; all notes, checks, drafts
and other instruments so received shall be duly endorsed to
the order of the Bank. At the Bank's election, the payments
shall be deposited into a special deposit account ("Special
Account") maintained with the Bank. The Bank may designate
with each such deposit the
<PAGE> 29
particular Account upon which payment was made. The Special
Account shall be held by the Bank as security for the
Indebtedness. Prior to depositing payments on the Accounts
into the Special Account, the Owner agrees that it will not
commingle such payments with any of the Owner's funds or
property, but will hold them separate and apart and in trust
for the Bank. The Bank will have the power to withdraw from
the Special Account. The Bank may at any time and from time to
time,in its sole discretion, apply any part of the funds in
the Special Account to the Indebtedness whether or not the
same is due. Upon full and final satisfaction of the
Indebtedness plus termination of any commitment to extend
additional funds, the Bank will pay to the Owner any excess
funds, whether received by the Bank as a deposit in the
Special Account or as a direct payment on any of the
Indebtedness;
f) If any of the Owner's Accounts arise out of contracts with the
United States or any department, agency, or instrumentality
thereof, the Owner will immediately notify the Bank in writing
and execute any instruments and take any steps required by the
Bank in order that all monies due and to become due under such
contracts shall be assigned to the Bank and in order that
proper notice be given under the Federal Assignment of Claims
Act;
g) The Bank shall not be liable and shall suffer no loss on
account of loss or deprivation of any Account due to acts or
omissions of the Bank unless the Bank's conduct is willful and
malicious, and the Bank shall have no duty to take any action
to preserve the Collateral or collect Account.
4. INVENTORY. If the Collateral includes Inventory:
---------
a) The Owner agrees to maintain books and records pertaining to
the Inventory in such detail, form and scope as the Bank shall
require. The Owner shall promptly advise the Bank of any
substantial changes relating to the type, quality or quantity
of the Inventory or any event which would have a material
effect on the value of the Inventory or on the security
interest granted to the Bank. Upon reasonable notice by the
Bank, the Owner shall assemble and make readily available for
inspection and examination of the Inventory and all books and
records pertaining to the Inventory at any time;
b) If the Inventory remains in the possession or control of any
of the Owner's agents or processors, the Owner shall notify
such agents or processors of the Bank's security interest, and
upon request, instruct them to hold such Inventory for the
Bank's account and subject to the Bank's instructions;
c) The Owner will prepare and deliver to the Bank, at the Bank's
request, a listing of all Inventory and such information
regarding the Inventory as the Bank may require.
5. SECURITIES, INSTRUMENTS, CERTIFICATES OF DEPOSIT, DOCUMENTS, CHATTEL
PAPER AND GENERAL INTANGIBLES. If the Collateral includes securities,
instruments, certificates of deposit, documents, chattel paper or general
intangibles:
a) The Owner represents and warrants, as may be applicable that
(i) The Owner has good and marketable title to the Collateral. The
Collateral is valid and genuine and represents a bona fide,
binding, legal obligation of the maker, issuer, or grantor,
and all signatures are genuine;
(ii) The Collateral is in full force and effect and is not in
default and no prepayments have been made;
(iii) The Collateral is not represented by a judgment or any other
document not provided to the Bank;
<PAGE> 30
(iv) The Collateral is not subject to any assignment, claim, lien,
right of setoff or security interest of any other party;
(v) Unless otherwise stated, the face amount on the Collateral is
the correct amount actually and unconditionally due or to
become due according to the terms of the Collateral, and such
amount is not disputed or subject to any setoff, credit,
deduction, or counterclaim;
(vi) With respect to the security on the Collateral, the lien or
security interest represented thereby is not subject to prior
claim, lien, or security interest of any other party, unless
otherwise stated herein, or in the document evidencing such
security;
(vii) With respect to the security on the Collateral, it has been
properly perfected by the filing or recording of all necessary
financing statements, deeds of trust or other documents and
the payment of all recording, transfer and other taxes and
fees made in the appropriate public offices.
b) At any time, and from time to time, whether before or after
default, without notice, and at the expense of the Owner, the
Bank in its name or in the name of its nominee or of the
Owner, may, but shall not be obligated to:
(i) Notify the obligors on any Collateral to make payment to the
Bank of any or all dividends, interest, principal payments and
other sums now or hereafter payable upon or on account of the
Collateral, may collect the same by legal proceedings or
otherwise, and may perform any contract or endorse in the name
of the Owner any checks, drafts, notes, instruments or other
documents which constitute the Collateral:
(ii) Enter into any extension, reorganization, deposit, merger or
consolidation agreement or any agreement in any way relating
to or affecting the Collateral and in connection therewith may
deposit or surrender control of the Collateral, accept other
property in exchange for the Collateral and do and perform
such acts and things as it may deem proper, and any money or
property received in exchange for the Collateral may be either
applied to any Indebtedness or may be held by the Bank
pursuant to the provisions of this Security Agreement:
(iii) Make any compromise or settlement it deems desirable or proper
with reference to the Collateral;
(iv) Insure, process and preserve the Collateral;
(v) Cause the Collateral to be transferred to its name or the name
of its nominee;
(vi) Exercise as to the Collateral all the rights, powers and
remedies of an owner.
6. REPRESENTATIONS AND WARRANTIES. The Owner represents and warrants to
the Bank as follows:
a) The Owner is and will continue to be the absolute owner of the
Collateral and that there are no other liens or security
interests affecting the Collateral other than the security
interest granted in this Security Agreement except those
previously disclosed to the Bank in writing by the Owner; if
the Owner is acting in the capacity of trustee, administrator
or executor of an estate, such fact shall be disclosed and
evidence of capacity shall be provided to the Bank:
b) The Owner will defend the Collateral against the claims and
demands of all parties. The Owner will not, without prior
written consent of the Bank, grant any security interest in
the Collateral and will keep it free from any lien,
encumbrance or security interest;
<PAGE> 31
c) The Owner represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains
a lien on the Collateral, used for the generation, collection,
manufacture, storage, treatment, disposal, release or
threatened release of any hazardous substance, as those terms
are defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601, et seq. ("CERCLA"), Superfund Amendments and
Reauthorization Act ("SARA"), applicable state laws, or
regulations adopted pursuant to either of the foregoing. The
Owner agrees to comply with any federal, state or local law,
statute, ordinance or regulation, court or administrative
order or decree or private agreement regarding materials which
require special handling in collection, storage, treatment or
disposal because of their impact on the environment
("Environmental Requirements"). The Owner agrees to indemnify
and hold the Bank harmless against any and all claims, losses
and expenses resulting from a breach of this provision of this
Agreement and the Owner will pay or reimburse the Bank for all
costs and expenses for expert opinions or investigations
required or requested by the Bank which, in the Bank's sole
discretion, are necessary to ensure compliance with this
provision of this Agreement. This obligation to indemnify
shall survive the payment of the indebtedness and the
satisfaction of the Agreement;
d) The Collateral is and will be used or bought for use primarily
for the following purpose:
[ ] personal, family or household; [ ] farm; [ ] business;
e) The Owner warrants and represents that all Collateral has been
produced in compliance with the Fair Labor Standards Act or
other applicable wage and employee law, rule, regulation or
order, and that no existing or future liability shall occur as
a result thereof. The Owner may contest, in good faith, the
applicability of any such law, rule, regulation or order,
including prosecuting any appeals, so long as the Bank's
interest in the Collateral, in the opinion of the Bank, is not
jeopardized thereby;
f) The Owner, if an individual, is above the age of majority and
has the legal capacity to enter into this Security Agreement;
g) If an individual, the Owner's home address is
--------------------------------------------------------;
h) The Owner, if a corporation, is duly organized and existing
under the laws of the Commonwealth of Virginia is duly
qualified and in good standing as a foreign corporation in
every jurisdiction where such qualification is necessary; the
execution and performance of this Security Agreement have been
duly authorized by action of its Board of Directors, no action
of its shareholders being necessary; the execution and
performance of this Security Agreement will not violate or
contravene any provisions of law or regulation or its Articles
of Incorporation, Shareholder Agreement, By-Laws or other
agreements to which it is a party or by which it is bound; and
that no consent or approval of any governmental agency or
authority is required in making or performing the obligations
under this Security Agreement;
i) The Owner, if a partnership, is duly qualified and in good
standing to do business in every jurisdiction where such
qualification is necessary; the execution and performance of
this Security Agreement have been duly authorized by its
partners, no further actions of its partners is necessary; the
execution and performance of this Security Agreement will not
violate or contravene any provisions of law or regulation or
its Partnership Agreement or other agreements to which it is a
party or by which it is bound; and that no consent or approval
of any governmental agency or authority is required in making
or performing the obligations under this Security Agreement;
<PAGE> 32
j) If a corporation, partnership or proprietorship, the location
of the Owner's principal place of business in Virginia
(Jurisdiction) is Fairfax (County) and it does |_| does not
|X| have a place of business in another city or county in that
jurisdiction (list other jurisdiction if applicable);
k) The Collateral will be located at see below* ;
l) The Owner will maintain the Collateral in the above locations.
The collateral shall not be moved from the above locations
without the prior written consent of the Bank. The Owner must
notify the Bank in writing at least 30 days prior to any
change of its name, corporate structure or identity;
m) The Owner maintains its books of account and records only at
1356 Beverly Road, McLean, VA 22101
n) All information supplied and statements made to the Bank in
any financial or credit statement or application are true,
correct, complete, valid and genuine in all material respects.
The Owner further represents (check if applicable)
[ ] The Collateral is being acquired with funds simultaneously advanced
to the Borrower by the Bank, and such funds will be used for no
other purpose.
7. COVENANTS.
a) The Owner shall maintain complete and accurate books of
account and records, and its principal books of account and
records, including all records concerning Accounts and
contract rights, shall be kept and maintained at the place(s)
specified above. The Owner shall not move such books of
account and records without giving the Bank at least 30 days
prior written notice and executing and delivering to the Bank
financing statements satisfactory to the Bank prior to any
such move. All accounting records and financial reports
furnished to the Bank shall be maintained and prepared in
accordance with generally accepted accounting principles
consistently applied. It is specifically agreed that the Bank
shall have and the Owner hereby grants to the Bank a security
interest in all books of account and records of the Owner and
shall have access to them at any time for inspection,
verification, examination and audit;
b) The Owner shall furnish to the Bank such financial and
business information and reports in form and content
satisfactory to the Bank as and when the Bank may from time to
time require;
c) The Owner, if a corporation, shall maintain its corporate
existence in good standing and shall not consolidate or merge
with or acquire the stock of any other corporation without the
prior written consent of the Bank. If the Owner is a
corporation, the Owner shall, at the request of the Bank,
qualify as a foreign corporation and obtain all requisite
licenses and permits in each jurisdiction where the Owner does
business. The Owner shall not discontinue business, liquidate,
sell, transfer, assign or otherwise dispose of any of its
assets, except with the prior written permission of the Bank,
provided, however, that it may sell in the ordinary course of
business and for a full consideration in money or money's
worth, any product, merchandise or service produced or
marketed by it. The Bank's security interest shall attach to
all proceeds of all sales or dispositions of the Collateral;
<PAGE> 33
d) The Owner shall maintain all of the Collateral in good
condition and repair. The Bank shall have the right to inspect
the Collateral at any reasonable time and shall have the right
to obtain such appraisals, reappraisals, appraisal updates or
environmental inspections as the Bank, in its sole discretion,
may deem necessary from time to time.
e) The Owner shall at all times keep insurable Collateral insured
against any and all risks, including, without limitation,
fire, and such other insurance as may be required by the Bank
from time to time; and in such amounts as may be satisfactory
to the Bank. The Bank shall be named as Loss Payee on any such
insurance policies. Insurance may be purchased from an insurer
of the Owner's choice, except as otherwise required by law.
The Owner shall pay and discharge all taxes, assessments and
charges of every kind prior to the date when such taxes,
assessments or charges shall become delinquent and provide
proof of such payments to the Bank, upon request. However,
nothing contained in this Security Agreement shall require the
Owner to pay any such taxes, assessments and charges so long
as it shall contest its validity in good faith and shall post
any bond or security required by the Bank against the payment.
Upon the failure of the Owner to pay such required amounts,
the Bank, at its option, and at the Owner's expense, may
obtain such insurance or pay such taxes, assessments or
charges with the costs or premiums becoming part of the
Indebtedness at the option of the Bank, such amounts may be
payable on demand. Any insurance obtained by the Bank, at its
option, may be single or dual interest, protecting its rights,
rights of the Owner or joint rights. Any insurance obtained by
the Bank may provide, at its option, that such insurance will
pay the lesser of the unpaid balance of the indebtedness or
the repair or replacement value of the Collateral. The Owner
authorizes the Bank to give effect to any of these options
without prior notice to Owner or further consent from Owner.
No matter which insurance coverage or repayment options the
Bank chooses, the collateral will secure payment of these
amounts. The Bank may use the proceeds of any insurance
obtained by Owner or by the Bank to repair or replace the
collateral or, if the Bank elects to do so, to repay part or
all of the indebtedness, and the Borrowers will still be
responsible to repay any remaining unpaid balance of the
indebtedness. Owner assigns to the Bank all amounts payable
under the insurance, including unearned premiums, directing
the insurer to make payment to the Bank, and Owner appoints us
attorney-in-fact to endorse any draft.
f) The Owner will not pledge or grant any security interest in
any of the Collateral to anyone except the Bank, or permit any
lien or encumbrance to attach to any of the Collateral, or any
levy to be made on the Collateral, or any financing statement
(except financing statements in favor of the Bank) to be on
file against the Collateral;
g) The Owner agrees that it will not permit any return of
merchandise, the sale of which gave rise to any of the
Accounts, except in the usual and regular course of business.
8. DEFAULT. In addition to any right which the Bank may have to demand
payment of the Indebtedness under any other agreement, upon the occurrence of
any of the following events of default, the Bank, at its option, may declare any
or all of the Indebtedness immediately due and payable and may exercise any and
all of the rights and remedies of default of a secured party under the Uniform
Commercial Code and other applicable law and all rights provided herein, all of
which rights and remedies shall, to the full extent permitted by law, be
cumulative;
a) If the Borrower fails to pay when due any Indebtedness or
shall otherwise be in default under any agreement of the
Borrower with the Bank or with Crestar Financial Corporation,
or any subsidiary or affiliate of Crestar Financial
Corporation, or any subsidiary or affiliate of such subsidiary
or affiliate (whether now existing or hereafter organized or
acquired); or
b) The failure of the Owner to observe or perform any of the
terms or provisions of this Security Agreement, or any such
default by the Borrower, any endorser, or any guarantor of any
Indebtedness of the Borrower to the Bank (a Party); or
<PAGE> 34
c) The breach of any of the Owner's representations or warranties
in this Security Agreement or any other agreement with the
Bank; or
d) The death, dissolution, merger, consolidation or termination
of existence of the Owner or any Party; or
e) The insolvency or inability to pay debts as they mature of the
Owner or any Party, or the application for the appointment of
a receiver for any of them, or the filing of a petition under
any provision of the Bankruptcy Code or other insolvency law,
statute or proceeding by or against any of them, or any
assignment for the benefit of creditors by or against any of
them; or
f) The entry of a judgment against the Owner or any Party or the
issuance or service of any attachment, levy or garnishment
against the Owner or any Party or the property of any of them
or the repossession or seizure of property of the Owner or any
Party;
g) Any deterioration or impairment of the Collateral or any part
of the Collateral or any decline or depreciation in the value
or market value of the Collateral (whether actual or
reasonably anticipated), which causes the Collateral, in the
judgment of the Bank, to become unsatisfactory as to character
or value; or
h) A determination by the Bank that a material adverse change in
the financial condition of the Owner or any Party has occurred
since the date of this Security Agreement; or
i) The Owner or any Party commits fraud or makes a material
misrepresentation at any time in connection with this Security
Agreement.
The Bank may require the Owner to assemble the Collateral and make it available
to the Bank at a place to be designated by the Bank which is reasonably
convenient to the Bank and the Owner. The Bank may take possession of the
Collateral without a court order. The Owner shall pay to the Bank on demand all
legal expenses and reasonable attorneys' fees (not to exceed 15% of Indebtedness
then owed if the Bank is Crestar Bank, N.A. or Crestar Bank MD or 25% of
Indebtedness then owed if the Bank is Crestar Bank) if the Bank refers this
Security Agreement to an attorney who is not a salaried employee of the Bank,
appraisal fees and all expenses incurred or paid by the Bank, in protecting and
enforcing the rights of the Bank under this Security Agreement, including the
Bank's right to take possession of the Collateral and its proceeds, and to hold,
prepare for sale, sell and dispose of the Collateral. Any required notice by the
Bank of sale or other disposition on default, when placed in the mail and
addressed to or left upon the premises of the Owner, at the address specified
next to the Owner's signature below or such other address of the Owner as may
from time to time be shown on the Bank's records, at least ten days prior to
such action shall constitute reasonable notice to the Owner.
9. TERM. This Security Agreement shall be a continuing agreement and shall
remain in full force and effect irrespective of any interruptions in the
business relations of the Borrower with the Bank and shall apply to any ultimate
balance which shall remain due by the Borrower to the Bank; provided, however,
that the Owner may be written notice terminate this Security Agreement with
respect to all Indebtedness of the Borrower incurred or contracted by the
Borrower or acquired by the Bank after the date on which such notice is
personally delivered to or mailed via registered mail and accepted by the
Borrower's lending officer.
10. EXECUTION BY MORE THAN ONE PARTY. The term "Owner" as used in this
Security Agreement shall, if this instrument is signed by more than one Party,
mean the "Owner and each of them" and each shall be jointly and severally
obligated and liable. If any Party shall be a partnership, the agreements and
obligations on the part of the Owner shall remain in force and applicable
regardless of any changes in the individuals composing the partnership and the
term "Owner" shall include any altered or successive partnerships and the
predecessor partnerships and their partners shall not be released from any
obligation or liability.
<PAGE> 35
11. WAIVERS BY THE OWNER. The Owner hereby waives (1) notice of acceptance
of this Security Agreement and of any extension or renewals of credit by the
Bank to the Borrower; (2) presentment and demand for payment of the
Indebtedness; (3) protest and notice of dishonor or default to the Owner or to
any other party with respect to the Indebtedness; (4) all other notices to which
the Owner might otherwise be entitled; and (5) if for business purposes, the
benefit of the Homestead Exemption. The Owner further waives any right to
require that any action be brought against the Borrower or any other party, to
require that resort be had to any security or to any balance of any deposit
account or credit on the books of the Bank in favor of the Borrower or any other
party. The Owner further agrees that it shall not be subrogated and will not
enforce on its part or behalf any right of action which the Bank may have
against the Borrower until every Indebtedness secured under this Security
Agreement is paid in full.
12. NO OBLIGATIONS TO EXTEND CREDIT. This Contract shall not be construed
to impose any obligation on the Bank to extend or continue to extend any credit
at any time.
13. INDEMNITY. The Owner agrees to indemnify and hold harmless the Bank and
its subsidiaries, affiliates, successors, parents, and assigns and their
respective agents, directors, employees, and officers from and against any and
all complaints, claims, defenses, demands, actions, bills, causes of action
(including, without limitation, costs and attorneys' fees), and losses of every
nature and kind whatsoever, which may be raised or sustained by any directors,
officers, employees, shareholders, creditors, regulators, successors in
interest, or receivers of the Borrower or any third party as a result of or
arising out of, directly or indirectly, the Bank extending credit as evidenced
by the Indebtedness to the Borrower, and taking the Collateral as security for
the Indebtedness, and the Owner further agrees to be liable for any and all
judgments which may be recovered in any such action, claim, proceeding, suit, or
bill, including any compromise or settlement thereof, and defray any and all
expenses, including, without limitation, costs and attorneys' fees, that may be
incurred in or by reason of such actions, claims, proceedings, suits, or bills.
14. FINANCING STATEMENTS. The Owner will deliver such instruments of
further assignment or assurance as the Bank may from time to time request to
carry out the intent of this Security Agreement, and will join with the Bank in
executing financing statements and other documents in form satisfactory to the
Bank and pay the cost of filing the same, including all recordation, transfer
and other taxes and fees, continuation statements and any other documents in any
public office deemed advisable by the Bank. The Owner agrees that a carbon,
photographic or other reproduction of a financing statement or this Security
Agreement shall be sufficient as a financing statement.
15. SUCCESSOR IN INTEREST. This Security Agreement shall be binding upon
the Owner, its successors and assigns, and the benefits hereof shall inure to
the Bank, its successors and assigns.
16. WAIVER BY THE BANK. The Bank may waive any default or remedy any
default without waiving the default remedied or any other prior or subsequent
default. The Bank's failure to exercise any right or take any action under this
Security Agreement shall not constitute a waiver of that or any other right or
action.
17. WAIVER OF JURY TRIAL. To the extent legally permissible, the Owner
waives all right to trial by jury in any litigation relating to transactions
under this Security Agreement, whether sounding in contract, tort or otherwise.
18. GOVERNING LAW. The laws of the jurisdiction in which the Bank is
located shall govern the construction of this Security Agreement and the rights
and duties of the Owner and Parties.
The undersigned have executed or caused this Security Agreement to be
executed, under seal, as of this 5th day of July, 1995
1356 Beverly Road MAXIMUS, Inc. (SEAL)
- ------------------------ ----------------------------------
Street and Number Owner
McLean, VA 22101 By /s/ David V. Mastian
- ------------------------ -------------------------------
City State Zip (Name and Title)
(SEAL)
- ------------------------ ----------------------------------
Street and Number Owner
By /s/ Raymond B. Ruddy, Chairman
- ------------------------ -------------------------------
City State Zip (Name and Title)
<PAGE> 36
McLean, VA 22101 By /s/ David V. Mastran
- ------------------------ ----------------------------------
City State Zip (Name and Title)
(SEAL)
- ------------------------ ----------------------------------
Street and Number Owner
By /s/ Raymond B. Ruddy, Chairman
- ------------------------ ----------------------------------
City State Zip (Name and Title)
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PRO FORMA NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1996
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net income................................... $ 7,106 $ 2,253
======= =======
Shares used in computing pro forma net income per
share:
Weighted average shares outstanding for period......... 11,418 11,453
Effect of options granted in January 1997:
Options granted...................................... 404
Option price......................................... $ 1.46
-------
Assumed proceeds..................................... 582
Estimated net IPO proceeds per share................. $ 13.75
-------
Shares assumed repurchased........................... 42
-------
Shares deemed outstanding............................ 362 362 362
Effect on distribution to stockholders:
S Corporation Dividend............................... 17,500
Less: Net income for period from January 1, 1996 to
December 31, 1996................................. 13,400
-------
Dividend in excess of income......................... 4,100
Estimated net IPO proceeds per share................. $ 13.75
-------
Shares deemed outstanding......................... 298 298 298
------- -------
Shares used in computing pro forma net income per
share:............................................... 12,078 12,113
======= =======
Pro forma net income per share......................... $ 0.59 $ 0.19
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 7,
1997, in the Registration Statement (Form S-1 No. 333- ) and related Prospectus
of MAXIMUS, Inc. for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Washington, DC
February 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> DEC-31-1996 SEP-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 4,164 2,326
<SECURITIES> 1,007 1,007
<RECEIVABLES> 29,937 25,352
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 40,559 32,239
<PP&E> 3,741 3,732
<DEPRECIATION> 1,166 1,096
<TOTAL-ASSETS> 43,856 35,493
<CURRENT-LIABILITIES> 14,204 9,539
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 10,862 9,197
<TOTAL-LIABILITY-AND-EQUITY> 43,856 35,493
<SALES> 37,244 103,113
<TOTAL-REVENUES> 37,244 103,113
<CGS> 29,534 78,429
<TOTAL-COSTS> 29,534 78,429
<OTHER-EXPENSES> 4,039 13,104
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 3,755 11,844
<INCOME-TAX> 57 225
<INCOME-CONTINUING> 3,698 11,619
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,698 11,619
<EPS-PRIMARY> .19 .59
<EPS-DILUTED> .19 .59
</TABLE>
