<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12997
MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
-------------------
VIRGINIA 54-1000588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 734-4200
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [x]
<TABLE>
<CAPTION>
Class Outstanding at August 8, 1997
----- -----------------------------
<S> <C>
Common Shares, No Par Value 14,790,470
</TABLE>
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<PAGE> 2
MAXIMUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 (unaudited) and September
30, 1996
Statements of Income for the three months and nine months
ended June 30, 1997 and 1996 (unaudited)
Statements of Cash Flows for the nine months ended June 30,
1997 and 1996 (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
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MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $2,326 $6,649
Short-term investments . . . . . . . . . . . . . . . . . . . . . 1,007 40,812
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 25,352 31,351
Costs and estimated earnings in excess of billings . . . . . . . 2,949 5,721
Prepaid expenses and other current assets . . . . . . . . . . . 605 1,130
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . - 1,809
------------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 32,239 87,472
Property and equipment at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 662
Building and improvements . . . . . . . . . . . . . . . . . . . 1,676 1,721
Office furniture and equipment . . . . . . . . . . . . . . . . . 1,206 1,432
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 188 188
------------- ---------
3,732 4,003
Less: Accumulated depreciation and amortization . . . . . . . . (1,096) (1,306)
------------- ---------
Total property and equipment, net . . . . . . . . . . . . . . . . . . . . 2,636 2,697
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618 682
------------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,493 $90,851
============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $2,043 $2,369
Accrued compensation and benefits . . . . . . . . . . . . . . . 1,912 4,564
Billings in excess of costs and estimated earnings . . . . . . . 5,208 11,034
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . - 388
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 19 990
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 357 -
------------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 9,539 19,345
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,349
Contingencies (Note 3)
Redeemable common stock:
No par value; 30,000,000 shares authorized; 11,453,145 shares
issued and outstanding at June 30, 1996, at redemption
amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,757 -
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized;
14,787,445 shares issued and outstanding at June 30, 1997, at
stated amount . . . . . . . . . . . . . . . . . . . . . . . . . - 72,472
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . 9,197 (3,315)
------------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 9,197 69,157
------------- ---------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $35,493 $90,851
============= =========
</TABLE>
See notes to financial statements.
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MAXIMUS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
1996 1997 1996 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $27,898 $27,315 $67,484 $96,077
Cost of revenues . . . . . . . . . . . . . . . . . . 21,577 18,561 50,566 71,418
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . . 6,321 8,754 16,918 24,659
Selling, general and administrative expenses . . . . 3,343 4,298 9,229 12,309
Stock option compensation expense (Note 2) . . . . . -- 5,724 -- 5,874
------- ------- ------- -------
Income (loss) from operations . . . . . . . . . . . . 2,978 (1,268) 7,689 6,476
Interest and other income . . . . . . . . . . . . . . 63 185 162 333
------- ------- ------- -------
Income (loss) before income taxes . . . . . . . . . . 3,041 (1,083) 7,851 6,809
Provision for income taxes . . . . . . . . . . . . . 60 1,011 154 1,161
------- ------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . $2,981 ($2,094) $7,697 $5,648
======= ======= ======= =======
Pro forma data:
Historical income (loss) before income taxes. . . $3,041 ($1,083) $7,851 $6,809
Pro forma income tax expense (benefit). . . . . . 1,216 (433) 3,140 2,724
------- ------- ------- -------
Pro forma net income (loss) . . . . . . . . . . . $1,825 ($650) $4,711 $4,085
======= ====== ======= =======
Pro forma net income (loss) per share . . . . . . $0.15 ($0.05) $0.39 $0.33
======= ====== ======= =======
Shares used in computing pro forma net income (loss)
per share . . . . . . . . . . . . . . . . . . . . 12,226 12,611 12,116 12,241
</TABLE>
See notes to financial statements.
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MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1996 1997
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,697 $5,648
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 210
Stock option compensation expense . . . . . . . . . . . . . . . . . . - 5,874
Change in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . (8,134) (5,999)
Costs and estimated earnings in excess of billings . . . . . . . . . . (987) (2,772)
Prepaid expenses and other current assets . . . . . . . . . . . . . . (326) (609)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) (64)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,497 326
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . 2,651 2,652
Billings in excess of costs and estimated earnings . . . . . . . . . . 2,852 5,826
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 23 971
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 90 183
----------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . 5,408 12,246
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (167) (271)
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . (1,000) (39,721)
----------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (1,167) (39,992)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in initial public offering . . . . . . . . . . . . - 53,943
S Corporation distributions . . . . . . . . . . . . . . . . . . . . . . . . (1,821) (21,636)
Redeemable common stock issued . . . . . . . . . . . . . . . . . . . . . . 228 -
Payment of note for purchase of redeemable common stock . . . . . . . . . . - (238)
----------- ----------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . (1,593) 32,069
----------- ----------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . 2,648 4,323
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . 2,502 2,326
----------- ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . $5,150 $6,649
=========== ==========
</TABLE>
See notes to financial statements.
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<PAGE> 6
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normally recurring accruals, except as described below) considered necessary
for a fair presentation have been included. The results of operations for the
three and nine month periods ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the full fiscal year. These financial
statements should be read in conjunction with the audited financial statements
as of September 30, 1995 and 1996 and for each of the three years in the period
ended September 30, 1996, included in the Company's registration statement on
Form S-1 (No. 333-21611), as filed with the Securities and Exchange Commission.
2. INITIAL PUBLIC OFFERING
The Company completed an initial public offering (IPO) of
Common Stock during June 1997. Of the 6,037,500 shares of Common Stock sold in
the IPO, 2,360,000 shares were sold by selling shareholders and 3,677,500
shares were sold by MAXIMUS, Inc. generating $53,943 in proceeds to the
Company, net of offering expenses.
In January 1997, the Company issued options to various
employees to purchase 403,975 shares of the Company's common stock at a formula
price based on book value. Upon completion of the IPO, the Company recorded a
non-recurring charge against income of $5,724 for the difference between the IPO
price and the formula price for all options outstanding. The Company recorded a
deferred tax benefit relating to the charge in the amount of $2,055.
The Company made cash distributions to shareholders in the
period prior to the IPO totaling $1,136. In addition, the Company made a
distribution of $20,500 (the S Corporation Dividend) upon closing the IPO. The S
Corporation Dividend was for a preliminary amount that is not expected to exceed
the undistributed earnings of the Company taxed or taxable to the shareholders
through the date of the IPO. The actual amount of such undistributed earnings
will not be determinable until the Company's taxable income for the full fiscal
year ending September 30, 1997 is determined.
The Company's obligation to purchase common shares from
shareholders terminated upon completion of the IPO. Accordingly, amounts
classified previously as redeemable common stock were reclassified into
shareholders'equity in the June 30, 1997 balance sheet.
See also note 5.
3. CONTINGENCIES
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. 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 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.
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<PAGE> 7
4. REVENUES FROM SIGNIFICANT CONTRACT
Government Operations Group revenues for the nine months ended
June 30, 1997 and 1996 include $31,612 and $35,222 respectively, from a
significant contract with the U.S. Government Social Security Administration
which was terminated pursuant to legislative action. Revenues under this
contract were $19 and $17,170 for the three months ended June 30, 1997 and 1996,
respectively.
5. INCOME TAX PROVISION AND PRO FORMA FINANCIAL DATA
The Company's income tax provision for the three month and
nine month periods ended June 30, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
------------------------ ----------------------
1996 1997 1996 1997
--------- ---------- -------- -------
<S> <C> <C> <C> <C>
State income taxes.............................................. $60 $81 $154 $231
Federal taxes payable - current................................. - 419 - 419
Cumulative deferred income taxes recognized..................... - 2,566 - 2,566
Deferred tax benefit related to stock option compensation
expense......................................................... - (2,055) - (2,055)
--------- ---------- -------- -------
$60 $1,011 $154 $1,161
========= ========== ======== =======
</TABLE>
Prior to the IPO, the Company and its shareholders elected to
be treated as an S corporation under the Internal Revenue Code. Under the
provisions of the tax code, the Company's shareholders included their pro rata
share of the Company's income in their personal tax returns. Accordingly, the
Company was not subject to federal and most state income taxes. Upon completion
of the IPO, the Company's S Corporation status terminated for federal and state
taxation purposes, and the Company recorded a deferred tax charge against income
of $2,566 for the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities at June 12, 1997.
Pro forma net income and pro forma net income per share are
presented as if the Company had been taxed as a C corporation for the periods
presented. The pro forma tax provision (benefit) has been calculated assuming a
40% combined effective tax rate.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
MAXIMUS provides 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.
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 a significant contract with the
Company (the "SSA Contract") effective at the end of February 1997. All services
to be provided to the Social Security Administration were completed in the
quarter ended March 31, 1997. The SSA Contract contributed $31.6 million and
$35.2 million to the Company's revenues in the nine months ended June 30, 1997
and June 30, 1996.
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<PAGE> 9
The Company recognized two significant charges against income during the
quarter ended June 30, 1997. The completion of the offering resulted in the
termination of the Company's S corporation status. As a result, the Company
recorded a one-time income statement charge to operations of $2.6 million to
recognize the cumulative deferred tax liabilities as of June 12, 1997. In
connection with the 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
$1.46 per share. The Company recognized a non-cash compensation charge against
income equal to the difference between the initial public offering price of
$16.00 per share and the option exercise price for all outstanding options.
Compensation expense totaling $150,000 had been recognized through March 31,
1997, and upon completion of the offering, the Company recognized an
additional charge against income of $5.7 million. The Company recorded a
deferred tax benefit relating to the charge in the amount of $2.1 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues. Total contract revenues decreased 2.1% to $27.3 million for the
three months ended June 30, 1997 as compared to $27.9 million for the same
period in 1996. Government Operations Group revenues decreased 13.1% to $19.2
million for the three months ended June 30, 1997 from $22.1 million for the
same period in 1996 due to the termination of the SSA Contract in February
1997. For the three months ended June 30, 1997, revenues from the SSA Contract
were $19,000 as compared to $17.2 million for the same period in 1996.
Excluding the SSA Contract, Government Operations Group revenues increased
291.3% to $19.2 million in the three months ended June 30, 1997 from $4.9
million for the same period in 1996. Consulting Group revenues increased 39.5%
to $8.1 million for the three months ended June 30, 1997 from $5.8 million for
the same period in 1996 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 38.5% to $8.8 million for the three
months ended June 30, 1997 as compared to $6.3 million for the same period in
1996. Government Operations Group gross profit increased 35.4% to $4.7 million
for the three months ended June 30, 1997 from $3.4 million for the three months
ended June 30, 1996. As a percentage of revenues, Government Operations Group
gross profit increased to 25.9% in the three months ended June 30, 1997 from
15.5% in the same period in 1996, primarily due to the decreased revenue
contribution of the SSA Contract in the June 1997 quarter, which had a lower
gross profit margin than other contracts in the Group, and to favorable profit
recognition adjustments on two large projects. Consulting Group gross profit
increased 42.1% to $4.1 million for the three months ended June 30, 1997 from
$2.9 million for the same period in 1996 due principally to the increased
revenues. As a percentage of revenues, Consulting Group gross profit increased
to 50.5% for the three months ended June 30, 1997 from 49.6% for the same
period in 1996.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 28.6% to $4.3 million for the three months
ended June 30, 1997 as compared to $3.3 million in the same period in 1996.
This increase in costs was due to increases in both professional and
administrative personnel necessary
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<PAGE> 10
to support the Company's growth and marketing and proposal preparation
expenditures to pursue further growth. As a percentage of revenues, selling,
general and administrative expenses increased to 15.7% for the three months
ended June 30, 1997 from 12.0% for the same period in 1996.
Stock Option Compensation Expense. In January 1997, the Company issued
options to certain employees to acquire 403,975 shares of the Company's Common
Stock at a formula price based upon book value. Upon completion of the initial
public offering in June 1997, the Company recorded a non-recurring compensation
charge against income for the difference between the IPO price and the formula
price. Compensation expense totaling $150,000 had been recognized through
March 31, 1997, and upon completion of the offering, the Company recorded an
additional charge against income of $5.7 million.
Provision For Income Taxes. Prior to the IPO, the Company and its
tockholders elected to be treated as an S corporation under the Internal
Revenue Code. Under the provisions of the tax code, the Company's
shareholders included their pro rata share of the Company's income in their
personal tax returns. Accordingly, the Company was not subject to federal and
most state income taxes during 1996 and the period to June 12, 1997. Upon
completion of the IPO, the Company's S Corporation status was terminated and
the Company became subject to federal and state corporate income taxes.
The Company's income tax provision for the three months ended June 30, 1997
was $1.1 million as compared to $60,000 for the three months ended June
30, 1996. The provision for income taxes for the three months ended June 30,
1996 consisted of state income taxes payable. The provision for income taxes
for the three months ended June 30, 1997 consisted of state income taxes
payable in the amount of $154,000, a non-recurring deferred tax charge
against income of $2.6 million for the cumulative differences between the
financial reporting and income tax basis of certain assets and liabilities at
June 12, 1997, current federal taxes owing of $419,000 and a non-recurring
deferred tax benefit related to the stock option compensation charge amounting
to $2.1 million.
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
Revenues. Total contract revenues increased 42.4% to $96.1 million for the
nine months ended June 30, 1997 as compared to $67.5 million for the same
period in 1996. Government Operations Group revenues increased 51.2% to $74.4
million for the nine months ended June 30, 1997 from $49.2 million for the same
period in 1996 due to an increase in the number of projects, offset by a
decrease in revenues from the SSA Contract from $35.2 million for the nine
months ended June 30, 1996 to $31.6 million for the same period in 1997.
Excluding the SSA Contract, Government Operations Group revenues increased
206.5% to $42.7 million in the nine months ended June 30, 1997 from $13.9
million for the same period in 1996. Consulting Group revenues increased 18.6%
to $21.7 million for the nine months ended June 30, 1997 from $18.3 million for
the same period in 1996 due to an increase in the number of contracts.
Gross Profit. Total gross profit increased 45.8% to $24.7 million for the
nine months ended June 30, 1997 as compared to $16.9 million for the same
period in 1996. Government Operations Group gross profit increased 71.2% to
$14.2 million for the nine months ended June 30, 1997 from $8.3 million for the
nine months ended June 30, 1996. As a percentage of revenues, Government
Operations Group gross profit increased to 19.1% in the nine months ended June
30, 1997 from 16.9% in the same period in 1996, primarily due to the decreased
revenue contribution of the SSA Contract, which had a lower gross profit margin
than other contracts in the Group. Consulting Group gross profit increased
21.3% to $10.5 million for the nine months ended June 30, 1997 from $8.6
million for the same period in 1996 principally due to higher revenues. As a
percentage of revenues, Consulting Group gross profit increased to 48.2% for
the nine months ended June 30, 1997 from 47.1% for the same period in 1996.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 33.4% to $12.3 million for the nine months
ended June 30, 1997 as compared to $9.2 million for the same period in 1996.
The increase was due to increased professional and administrative personnel
necessary to support the Company's growth and marketing and proposal
preparation expenditures to pursue further growth. As a percentage of
revenues, selling, general and administrative expenses decreased to 12.8% for
the nine months ended June 30, 1997 from 13.6% for the same period in 1996 as
the Company was able to support its revenue growth without a proportionate
increase in associated costs.
Stock Option Compensation Expense. In January 1997, the Company issued
options to certain employees to acquire 403,975 shares of the Company's Common
Stock at a formula price based upon book value. Upon completion of the initial
public offering in June 1997, the Company recorded a
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<PAGE> 11
non-recurring compensation charge against income for the difference between the
IPO price and the formula price. Compensation expense totaling $5.9 million
was recognized in the nine months ended June 30, 1997.
Provision for income taxes. The Company's income tax provision for the
nine months ended June 30, 1997 was $1.2 million as compared to $154,000
for the nine months ended June 30, 1996. The increase is directly related to
events occurring during the three months ended June 30, 1997, as discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flows from operations.
The Company's cash flow from operations for the nine months ended June 30, 1997
was $12.2 million as compared to $5.4 million for the nine months ended June
30, 1996. The increased cash from operations was the result of higher net
income earned during the period, after adjusting for the $5.9 million non-cash
stock compensation charge related to the IPO. Increases in accounts receivable
of $6.0 million were largely offset by increases in accounts payable,
compensation liabilities, and income taxes payable. Accounts receivable
totaled $31.4 million at June 30, 1997, an increase of $6.0 million from
September 30, 1996, the end of fiscal 1996. This increase is due to the
submission of large value invoices in May and June combined with slow payment
from a few large customers. The timing of receipt of contract payments can
vary and, combined with the requirement to provide start-up funding for new
projects, cause cash flows to fluctuate from period to period.
Of the $40.0 million of cash flows used for investing activities for the
nine months ended June 30, 1997, $39.7 million was used to purchase investment
grade interest-bearing securities, which can be readily converted to cash if
needed. The Company has no material commitments for capital expenditures.
Cash flows from financing activities were $32.1 million in the nine months
ended June 30, 1997. The Company received net proceeds of $53.9 million from
the sale of stock in the initial public offering, net of underwriters fees and
other IPO expenses. The Company made S corporation distributions totaling
$21.6 million, of which $20.5 million was paid in June 1997 following the
closing of the initial public offering. The distributions to shareholders were
based upon the income previously taxed to the S corporation shareholders and
the estimated fiscal 1997 income taxable to the S corporation shareholders.
The actual amount of such undistributed earnings will not be determinable until
the Company's taxable income for the full fiscal year ended September 30, 1997
is determined.
Management believes that the Company will have sufficient resources to meet
its 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, investment in upgraded systems infrastructure or
acquisitions of other businesses and technologies. Cash requirements beyond
the next 12 months depend on the Company's profitability, its ability to manage
working capital requirements and its rate of growth.
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<PAGE> 12
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence and strategies and the Company's expectations about future
contracts, market opportunities, market demand or acceptance of the Company's
products are forward looking statements that involve risks and uncertainties.
These uncertainties include reliance on government clients; risks associated
with government contracting; risks involved in managing government projects;
legislative change and political developments; opposition from government
unions; challenges resulting from growth; adverse publicity; and legal,
economic and other risks detailed in Exhibit 99 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1997 filed on August 14,
1997.
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<PAGE> 13
Part II. Other Information.
Item 1. Legal Proceedings.
On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, 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. 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 engaged in bad faith
conduct and tortiously interfered with the contract and relationship 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 damages, including punitive damages,
from the third party defendants in an amount to be proven at trial. 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 factual or legal
merit. The Company does not believe this action will have a material adverse
effect on the Company's business, and it intends to vigorously defend this
action. However, given the early stage of this litigation, no assurance may be
given that the Company will be successful in its defense. A decision by the
court in Network Six's favor or any other conclusion of this litigation in a
manner adverse to the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is not a party to any material legal proceedings, except as set
forth above.
Item 2. Changes in Securities.
On June 12, 1997, pursuant to the Company's 1997 Equity Incentive Plan, the
Company granted to certain employees options to purchase an aggregagte of
124,000 shares of Common Stock at an exercise price per share of $16.00. Each
option became exercisable upon the date of grant as to 25% of the shares
represented by such option, and will become exercisable as to an additional 25%
of such shares on each of the next three anniversaries of the date of grant.
Each option will expire upon the earlier of (i) June 12, 2007 or (ii) the
termination of the holder's employment with the Company.
No underwriter was engaged in connection with the foregoing issuance of
securities. Such issuance was made in reliance upon the exemption for the
registration requirements afforded by Section 4(2) of the Securities Act of
1933, as amended, and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written compensatory benefit plan and interests in such a plan
established by the issuer. The Company has reason to believe that all of the
optionees were familiar with or had access to information concerning the
operations and financial condition of the Company, and all of those individuals
acquired their options for investment and not with a view to the distribution
of such options or the underlying shares of Common Stock.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The Exhibits filed as part of this Form 10-Q are listed on
the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the
quarter ended June 30, 1997.
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXIMUS, INC.
Date: August 14, 1997 By: /s/ F. ARTHUR NERRET
----------------------------------------
F. Arthur Nerret
Vice President, Finance, Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
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<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles
of Incorporation of the Company
3.2 Amended and Restated By-laws
of the Company
4.1 Specimen Common Stock Certificate
11 Computation of Earnings Per Share
27 Financial Data Schedules (EDGAR)
99 Important Factors Regarding
Forward Looking Statements
</TABLE>
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<PAGE> 1
EXHIBIT 3.1
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.
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
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<PAGE> 2
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 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.
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<PAGE> 3
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.
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 certifies that these Amended and
Restated Articles of Incorporation were adopted by the unanimous written
consent of the Board of Directors dated January 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
these Amended and Restated Articles of Incorporation. No shares of any other
class of stock were outstanding and entitled to vote.
AND, FURTHER, the undersigned has duly executed these Amended and
Restated Articles of Incorporation in the name and on behalf of MAXIMUS, Inc.
on the 16th day of June, 1997 and the statements contained herein are affirmed
as true under penalties of perjury.
/s/ F. Arthur Nerret
-----------------------------
F. Arthur Nerret
Vice President, Finance, and
Assistant Secretary
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
MAXIMUS, INC.
Adopted by the Board of Directors on January 31, 1997
Effective June 18, 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.
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.
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<PAGE> 2
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 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.
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<PAGE> 3
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
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> 4
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.
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
- 4 -
<PAGE> 5
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 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
- 5 -
<PAGE> 6
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.
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 the funds of the Corporation as may be ordered by the
Board of Directors, the Chairman of the Board, if any,
- 6 -
<PAGE> 7
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 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.
- 7 -
<PAGE> 8
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 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.
- 8 -
<PAGE> 9
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.
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
- 9 -
<PAGE> 10
(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.
- 10 -
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
MAXIMUS, INC.
NO PAR VALUE CUSIP 577933 10 4
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE UPON THE BOOKS OF THE CORPORATION
This Certifies that
---------------------
---------------------
---------------------
is the owner of
---------------------
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
MAXIMUS, Inc. transferable upon the books of the corporation in person or by
attorney upon surrender of this certificate duly endorsed or assigned. This
certificate and the shares represented hereby are subject to the laws of the
Commonwealth of Virginia and to the certificate of incorporation and amendments
thereof and by-laws of the corporation. This certificate is not valid until
countersigned by the transfer agent and registered by the registrant.
In Witness Whereof, MAXIMUS, Inc. has caused its corporate seal to be
hereunto affixed and its certificate to be signed by its duly authorized
officers.
/s/ Donna J. Muldoon /s/ SEAL /s/ David V. Mastran
Secretary President
COUNTERSIGNED AND REGISTERED:
- 1 -
<PAGE> 2
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
------------------------
AUTHORIZED SIGNATURE
MAXIMUS, INC.
The Company is authorized to issue more than one class or series of
stock. Upon written request the Company will furnish without charge to each
shareholder a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- Custodian
----------------- -----------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-----------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------
- 2 -
<PAGE> 3
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------------
Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the promises.
Dated
-------------------------------------
---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
- --------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
- 3 -
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PRO FORMA NET INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30,
1996 1997 1996 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Pro forma net income. . . . . . . . . . . . . . . . . . . . . . . $1,824 ($650) $4,711 $4,085
====== ======= ====== ======
Shares used in computing pro forma net income per share:
Weighted average shares outstanding for period . . . . . . . . .
Effect of options granted in January 1997: 11,453 11,837 11,343 11,468
Options granted . . . . . . . . . . . . . . . . . . . . . . 404
Options price . . . . . . . . . . . . . . . . . . . . . . . $ 1.46
-------
Assumed proceeds . . . . . . . . . . . . . . . . . . . . . . . . 590
Average market price . . . . . . . . . . . . . . . . . . . . . . $ 17.81
-------
Shares assumed repurchased . . . . . . . . . . . . . . . . . . . 33
-------
Shares deemed outstanding . . . . . . . . . . . . . . . . . . . . 371 371 371 371 371
Effect of options granted in June 1997:
Options granted . . . . . . . . . . . . . . . . . . . . . . 31
Option price . . . . . . . . . . . . . . . . . . . . . . . . $ 16.00
-------
Assumed proceeds . . . . . . . . . . . . . . . . . . . . . . . . 496
Average market price per share . . . . . . . . . . . . . . . . . $ 17.81
-------
Shares assumed repurchased 28
-------
Shares deemed outstanding 3 3 3 3 3
-------
Effect on distribution to stockholders:
S Corporation Dividend . . . . . . . . . . . . . . . . . . . . . 20,500
Less: Net income for period from July 1, 1996 to June 30, 1997 . 14,645
-------
Dividend in excess of income . . . . . . . . . . . . . . . . . . 5,855
Estimated net IPO proceeds per share . . . . . . . . . . . . . . $14.66
-------
Shares deemed outstanding . . . . . . . . . . . . . . . . . . . . 399 399 399 399 399
------ ------- ------ ------
Shares used in computing pro forma net income per share: . . . . 12,226 12,610 12,116 12,241
====== ======= ====== ======
Pro forma net income per share . . . . . . . . . . . . . . . . . $0.15 ($0.05) $0.39 $0.33
====== ======= ====== ======
</TABLE>
- 1 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 6,649
<SECURITIES> 40,812
<RECEIVABLES> 31,351
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,472
<PP&E> 4,003
<DEPRECIATION> (1,306)
<TOTAL-ASSETS> 90,851
<CURRENT-LIABILITIES> 19,345
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,315)
<TOTAL-LIABILITY-AND-EQUITY> 90,851
<SALES> 96,077
<TOTAL-REVENUES> 96,077
<CGS> 71,418
<TOTAL-COSTS> 71,418
<OTHER-EXPENSES> 18,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,809
<INCOME-TAX> 1,161
<INCOME-CONTINUING> 5,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,648
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
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EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
RELIANCE ON GOVERNMENT CLIENTS
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.
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING
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.
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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.
Government contracts generally are subject to audits and investigations by
government agencies, including audits by the Defense Contract Audit Agency
("DCAA"). 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.
A substantial portion of payments to the Company from U.S. Government agencies
is subject to adjustment upon audit by the DCAA. Audits through 1993 have been
completed with no material adjustments and the Company believes that
adjustments resulting from audits of subsequent years will not have a material
adverse effect on the Company's business, financial condition and results of
operations. 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.
RISKS INVOLVED IN MANAGING GOVERNMENT PROJECTS
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 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. In
addition, the Company recognizes revenues on fixed price contracts based on
costs incurred. The Company periodically reviews such contracts and adjusts
revenues to reflect current
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expectations. Such adjustments will affect the timing and amount of revenue
recognized and could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's failure to
accurately estimate the factors on which contract pricing is based could result
in the Company reporting a decrease in revenues or 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.
LEGISLATIVE CHANGE AND POLITICAL DEVELOPMENTS
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
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growth strategy, the Company plans to aggressively pursue the opportunities
created by this legislation by seeking new contracts to administer and manage
welfare 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.
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 earned 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 revenues will be earned
thereunder after March 31, 1997.
In addition, under current law the privatization of certain functions of
government programs, such as determining eligibility for Food Stamps and
Medicaid, requires the consent and/or waiver of the executive branch acting
through the applicable administering government agency. In May 1997, in
response to a request by the State of Texas for a waiver to allow private
corporations to decide the eligibility of applicants for Food Stamps and
Medicaid benefits, the Department of Health and Human Services determined not
to grant a waiver to the existing requirement in these programs that only
public employees may make such decisions. The Company did not bid for any
contracts for these Texas projects, and the determination will not affect any
of the Company's existing contracts. However, there can be no assurance that
the Department of Health and Human Services or other health and human services
agencies will not in the future narrow or eliminate certain future markets for
health and human services contracts in which the Company intends to compete.
OPPOSITION FROM 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
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business, financial condition and results of operations of the Company. A
recent example of the influence of government unions is the role played by
union lobbyists in promoting a May 1997 determination by the Department of
Health and Human Services, in response to a waiver request by the State of
Texas, that only public employees may make decisions on eligibility of
applicants for Food Stamps and Medicaid benefits. See "Legislative Change and
Political Developments." 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.
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 (including any adjustments
in expectations on revenue recognition on fixed price 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 $31.6 million, $56.5 million, $14.3 million
and $2.9 million to the Company's revenues in the nine months ended June 30,
1997 and fiscal years 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.
The Company recognized two significant charges against income during the
quarter ended June 30, 1997. The completion of the offering resulted in the
termination of the Company's S corporation status. As a result the Company
recorded a one-time income statement charge to operations of $5.9 million to
recognize the cumulative deferred tax liabilities as of June 13, 1997. In
connection with the 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
$1.46 per share. The Company recognized a non-cash compensation charge against
income equal to the difference between the initial public offering price of
$16.00 per share and the option exercise price for all outstanding options.
Compensation expense totaling $150,000 had been recognized through March 31,
1997, and upon completion of this offering, the Company recognized an
additional charge against income of $5.7 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.
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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, 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 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. Because
the levels of insurance were established to fund stock redemption obligations
of the Company that will terminate upon the closing of this offering, the
Company anticipates that it will substantially reduce these policies subsequent
to this offering.
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
manages 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.
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CHALLENGES RESULTING FROM 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.
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
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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 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.
LITIGATION
On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, 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. 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 engaged in bad faith
conduct and tortiously interfered with the contract and relationship 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 damages, including punitive damages,
from the third party defendants in an amount to be proven at trial. 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 factual or legal
merit. The Company does not believe this action will have a material adverse
effect on its business and intends to vigorously defend this action. However,
given the early stage of this litigation, no assurance may be given that the
Company will be successful in its defense. A decision by the court in Network
Six's favor or any other conclusion of this litigation in a manner adverse to
the Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
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