UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
2000 Edmund Halley Drive, Reston, VA 22091-3436
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 264-0330
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
17% Redeemable Pay-In-Kind Class A Preferred Stock, par value $0.10
per share
(Title of class)
16% Pay-In-Kind Junior Subordinated Debentures due 2003
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. The registrant's voting stock is
not publicly traded; therefore the aggregate market value of the
less than 1.0% of outstanding voting stock held by nonaffiliates
is not available.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date. 4,727,181 shares of common stock having a par value of
$0.10 per share were outstanding March 10, 1994.
TABLE OF CONTENTS
1993 FORM 10-K
Item
Part I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Part II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
Auditors' Report
Financial Statements
Consolidated Balance Sheets
Assets
Liabilities, Redeemable Common Stock and Stockholders' Equity
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Part III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
General Information
The Company provides diversified management, technical and
professional services to government and commercial customers
throughout the United States and to a limited extent in certain
foreign countries. Generally, these services are provided under
written contracts which may be fixed-price, time-and-material or
cost reimbursable depending on the work requirements and other
individual circumstances. The Company performs these services
through several operating units. For business reporting purposes
these operating units are combined into two categories:
Government Services and Commercial Services. (In 1992 and 1991
the Company reported through four operating groups: The
Government Services Group, the Applied Sciences Group, the
Commercial Aviation Services Group and the Postal Operations
Division.)
Government Services provides services to all branches of the
Department of Defense and to NASA, the Department of State, the
Department of Energy, the Environmental Protection Agency, the
Centers for Disease Control, the National Institutes of Health,
the Postal Service and other U.S. Government agencies and foreign
governments. These services encompass a wide range of management,
technical and professional services covering the following areas:
Aviation Services, including engineering, maintenance,
modification, and operational and logistical support of
military aircraft and weapons systems.
Facilities Management Services, including specialized
facilities operations, maintenance and management support on
military installations and at other federal operating
locations.
Security and Telecommunications Services, including the
design, installation and maintenance of security and
telecommunications systems.
Range Operations, Test and Evaluation Services, including the
test and evaluation of military hardware and weapons systems
at Government test ranges, and research, development and
engineering services.
Computer and Information Services, including software
development and maintenance, computer center operations, data
processing and analysis, database administration,
telecommunications, and operation and maintenance of
integrated electronic systems.
Health and Information Technology Services, including a full
range of health services, medical care, environmental and
biomedical research, and information technology services to
such customers as the Centers for Disease Control, the
National Institutes of Health and the Environmental
Protection Agency.
Energy, Environmental and Management Consulting Services,
including technical and program management consulting
services to the U.S. Government and private industry clients
in areas such as energy, environmental engineering, robotics,
nuclear weapons security, artificial intelligence and
information processing.
Commercial Services is composed of two major operating units that
provide aircraft maintenance, ground support, cargo handling,
passenger services and aircraft fueling to domestic and
international air carriers throughout the U.S. In 1993, business
proposals were submitted in several European countries and
aviation ground support services were provided in Russia. The two
major operating units of Commercial Services are as follows:
Aircraft Maintenance includes maintenance checks, component
overhaul, heavy structural maintenance, airframe and system
maintenance and modification on a wide variety of passenger
and cargo aircraft including wide-body aircraft.
Ground Support Services includes cargo handling, cabin
grooming, line maintenance, ticketing and passenger handling
and boarding services. Auxiliary support services include
bus and limousine operation, security, baggage service and
passenger screening operations. Also includes into-plane
fueling services and the management and operation of tank
farms and fuel distribution systems.
Industry Segments
The Company has one line of business, which is to provide
management and technical services to commercial and government
organizations in support of the customers' facilities and/or operations.
Backlog
The Company's backlog of business (including estimated value of
option years on government contracts) was $2.772 billion at the
close of 1993, compared to a year-end 1992 backlog of $2.241
billion. Of the total backlog on December 31, 1993, $1.823
billion is expected to produce revenues after 1994.
Contracts with the U.S. Government are generally written for
periods of three to five years. Because of appropriation
limitations in the federal budget process, firm funding is usually
made for only one year at a time, with the remainder of the years
under the contract expressed as a series of one-year options.
U.S. Government contracts contain standard provisions for
termination for the convenience of the U.S. Government, pursuant
to which the Company is generally entitled to recover costs
incurred, settlement expenses, and profit on work completed to
termination.
The Company's ground support services contracts with airlines
generally run for one to three years. Some contracts are
terminable on short notice, but the Company's experience has been
that few airlines choose to exercise this option given the
difficulty of integrating a replacement provider into the
airline's schedule. The Company is usually paid for its ground
services at a fixed contract rate on a per-flight basis (every
takeoff and landing). For heavy aircraft maintenance checks,
carriers solicit bids for the required services. Awards are made
on the basis of price, quality of service and past performance.
For routine line maintenance, the Company charges a flat rate
based on the service and the frequency of visits.
Competition
The general fields in which the Company conducts business are all
highly competitive, with competition based on a variety of factors
including, but not limited to, price, service and past experience.
Competitors of the Company vary in size with some having a larger
financial resource base. However, the Company believes that it
has been awarded many contracts because of its technical know-how
and past service record. Some of the major competitors of the
Company are as follows:
Government Services Commercial Services
SAIC AMR Services, Inc.
BDM Hudson General Corp
Computer Science Corp. Ogden Aviation Services
Johnson Controls Lockheed
Tracor Page Avjet
Brown and Root Delfort Aviation Inc.
Vitro ASI
Foreign Operations
The Company has a minority investment in an affiliate company
which operates in Saudi Arabia. In addition, the Company in 1993
established operations in Mexico and Russia. None of these
foreign operations are material to the Company's financial
position or results of operations.
Other activities of the Company presently include the providing
of services within the United States to certain foreign customers.
These services for foreign customers are generally paid for in
United States dollars. The Company also performs services in
foreign countries under U.S. Government contracts.
The risks associated with the Company's foreign operations in
regard to foreign currency fluctuation, and political and economic
conditions in foreign countries are not significant.
Incorporation
The Company was incorporated in Delaware in 1946.
Employees
The Company had approximately 21,800 employees at December 31,
1993.
ITEM 2. PROPERTIES
The Company is a service-oriented company, and as such the
ownership or leasing of real property is an activity which is not
material to an understanding of the Company's operations.
Properties owned or leased include office facilities, hangars,
warehouses used in connection with the storage of inventories and
fabrication of materials associated with various services rendered
and servicing facilities used in the Company's commercial aviation
operations. None of the properties is unique; however, several of
the leases constitute partially exclusive rights to operate at
certain airports. All of the Company's owned facilities are
located within the United States. In the opinion of management,
the facilities employed by the Company are adequate for the
present needs of the business. Reference is made to the
Consolidated Financial Statements and Notes, included elsewhere in
this Annual Report on Form 10-K, for additional information
concerning capital expenditures and lease commitments for
property.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to Note 16 to the
Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
DynCorp's common stock is not publicly traded. There were
approximately 336 record holders of DynCorp common stock at
December 31, 1993. In addition, the DynCorp Employee Stock
Ownership Plan Trust owns stock on behalf of approximately 29,000
present and former employees of the Company. Cash dividends have
not been paid on the common stock since 1988.
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data of the Company should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K. (Dollars in
thousands except per share data.)
<TABLE>
Years Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Revenues $953,144 $911,422 $807,186 $717,391 $646,107
Loss before extraordinary item $(13,414) $(20,816) $(12,595) $(14,417) $(13,594)
Extraordinary gain (loss) (a) - (2,526) 192 726 -
Net loss $(13,414) $(23,342) $(12,403) $(13,691) $(13,594)
Net loss for common stockholders $(13,414) $(24,301) $(17,583) $(18,752) $(19,939)
Earnings (loss) per common share:
Primary -
Loss before extraordinary item $ (2.87) $ (4.49) $ (3.97) $ (4.28) $ (4.37)
Extraordinary gain (loss) (a) - (0.49) 0.04 0.15 -
Net loss $ (2.87) $ (4.98) $ (3.93) $ (4.13) $ (4.37)
Fully Diluted $ (2.87) $ (4.98) $ (3.93) $ (4.13) $ (4.37)
Cash dividends per common share $ - $ - $ - $ - $ -
YEAR-END DATA
Long-term debt (excluding
current maturities) $216,425 $199,762 $121,251 $103,584 $110,969
Redeemable preferred stock $ - $ - $ 24,884 $ 19,705 $ 21,062
Redeemable common stock $ 2,200 - - - -
Stockholders' equity $ 6,166 $ 3,884 $ 26,598 $ 27,416 $ 26,346
Total assets $382,456 $348,273 $316,361 $289,354 $298,650
<FN>
(a) The extraordinary gain (loss) in 1992, 1991 and 1990 results from the early extinguishment of debt.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In 1993, the Company achieved record revenues, incurred the
smallest loss ($11.1 million) before income taxes, minority
interest and extraordinary item since the leveraged buy-out by
its management and Employee Stock Ownership Plan in 1988, and
ended the year with the largest backlog in its history. In fact,
but for losses in the Commercial Services' aircraft maintenance
business ($6.6 million), unusual write-offs and expenses in
connection with two acquisitions ($3.6 million) and the above
market PIK interest (approximately $4.1 million) the Company
would have been profitable for the year. However, the Company
continues to be highly leveraged, and its debt expense continued
to be excessive in comparison to its earnings and cash flow.
Some of the major events in 1993 were:
- Completed the acquisition of Technology Applications, Inc.
and the purchase of certain net assets of Science Management
Corporation's Information Division and NMI Systems, Inc.
- Eliminated the Commercial Services Administrative Group,
resulting in improved efficiencies and reduced general and
administrative expenses.
- Completed the relocation of the Miami, Florida aircraft
maintenance operation to larger hanger facilities which will
permit the Company to perform maintenance on wide-body
aircraft.
- Received the last payment from the ESOP on its $100 million
loan from the Company.
Revenues from the Department of Defense were $543 million in
1993 compared to $538 million in 1992 and $523 million in 1991.
These revenues represented 56.9% of total 1993 revenues compared
to 59.0% in 1992 and 64.8% in 1991. This represents the
Company's third year of its strategic long range plan to continue
to grow or maintain its defense business while focusing primarily
on the growth of non-defense business.
Following is a three-year summary of operations, cash flow and
long-term debt and redeemable preferred stock (in thousands):
Years Ended December 31,
1993 1992 1991
Operations
Revenues $953,144 $911,422 $807,186
Gross profit 39,557 28,146 23,886
Selling and corporate
administrative (18,267) (20,476) (17,935)
Interest, net (23,099) (22,458) (16,826)
Other (9,324) (5,860) (7,717)
Loss before income taxes, minority
interest and extraordinary item $(11,133) $(20,648) $(18,592)
Cash Flow
Net loss $(13,414) $(23,342) $(12,403)
Depreciation and amortization 19,818 19,372 24,473
Pay-in-kind interest 13,142 6,590 11,950
Working capital items (7,704) (7,559) (823)
Other (1,222) 283 (1,920)
Cash provided (used) by
operations 10,620 (4,656) 21,277
Investing activities (15,611) (18,130) (8,622)
Financing activities 7,817 26,868 (110)
Increase in cash and short-
term investments $ 2,826 $ 4,082 $ 12,545
December 31,
1993 1992 1991
Long-term Debt and Redeemable Preferred Stock
Junior Subordinated Debentures,
net of discount $ 86,947 $ 73,489 $ 75,612
Contract Receivable
Collateralized Notes 100,000 100,000 -
Employee Stock Ownership Plan Term
and Revolving Credit Loan - - 38,215
Mortgages payable 23,416 19,436 -
Other notes payable and
capitalized leases 9,899 9,507 9,861
Class A Preferred Stock - - 24,884
$220,262 $202,432 $148,572
The following discussion of the Company's results of operations
is directed toward the two major categories, Government Services
and Commercial Services.
Results of Operations
Revenues - Revenues for 1993 were $953.1 million compared to
1992 revenues of $911.4 million, an increase of $41.7 million
(4.6%). Government Services (GS) had an increase of $49.1
million (6.7%) while Commercial Services (CS) had a decrease of
$7.4 million (4.0%). The increase in GS's revenues includes
approximately $15.1 million from businesses acquired in December
1992 and February and December 1993, $16.0 million from the
Postal contracts which were in the start-up phase in 1992 but
were fully operational in 1993, and $17.9 million from new
contract awards offset partially by contracts completed and/or
not renewed. The overall decline in CS's 1993 revenues results
from low volume in the aircraft maintenance activities and the
impact of relocating the Miami, Florida maintenance operation to
a new hangar facility; offset partially by increases in ground
support services. Aircraft maintenance 1993 revenues decreased
to $57.3 from $74.3 million in 1992 while ground support
services' 1993 revenues increased to $118.6 million from $109.0
million in 1992.
The increase in 1992 revenues of $104.2 million (11.9%) over 1991
was attributable to a combination of internal growth and the
effect of acquisitions; GS increased $73.6 million (11.2%) and
CS increased $30.6 million (20.1%). The increase in GS's
revenues includes approximately $18.2 million from businesses
acquired in April and May of 1991, $16.3 million from the Postal
Service contracts awarded in the latter part of 1991 with the
remaining increase attributable to the net increase in contract
awards over contracts completed and/or not renewed. The increase
in CS's revenues includes $23.0 million from higher volume in
aircraft maintenance and $7.6 million from ground support
services. The absence of the negative impact of the Persian Gulf
War on ground support services also contributed to the overall
increase in CS's 1992 revenues.
Cost of Services/Gross Margins - Cost of services was 95.8% of
revenues in 1993, 96.9% in 1992 and 97% in 1991 which resulted in
gross margins of $39.6 million (4.1%), $28.1 million (3.1%) and
$23.9 million (3.0%) respectively. GS's 1993 gross margins were
improved while CS's 1993 margins declined from that of the prior
year. The improvement in GS's gross margins was principally due
to improved profit performance on new contracts started in 1992
and the early part of 1993 (in particular the Postal and the
Department of Energy contracts). CS's decline in gross margin
was the result of reduced volume in the aircraft maintenance
activities, offset partially by improved gross margins of the
ground support activities. Aircraft maintenance had gross margin
losses of $6.6 million in 1993 compared to $.4 million in 1992.
Also contributing to the decline in CS's margins were
approximately $.6 million of costs associated with the relocation
of the Miami, Florida aircraft maintenance operations to larger
hangar facilities at the Miami, Florida airport.
The 1992 gross margin, compared to 1991, was adversely impacted
by approximately $7.0 million of nonrecurring insurance claims
related to prior years, losses on the start-up of the new Postal
contracts and a decline in GS's margins. These charges and the
decline in GS's margins substantially offset increased gross
margins in CS maintenance activities and a reduction in the
amount of amortization of merger related contract write-ups.
Selling and Corporate Administrative - Selling and corporate
administrative expenses as a percentage of revenues were 1.9% in
1993 and 2.2% in both 1992 and 1991. There were both increases
and decreases in 1993 of the various elements and components of
these expenses, however, the two most significant factors
contributing to the decrease of $2.2 million from 1992 were cost
reductions made in CS's general and administrative expenses and a
decrease in GS's marketing and bid and proposal costs from the
unusually high amount incurred in 1992 on a contract proposal for
the Department of Energy's Strategic Petroleum Reserve in
Louisiana. Even though selling and corporate administrative
expenses as a percentage of revenues were the same in both 1992
and 1991, the dollar amount increased $2.5 million over 1991.
This increase was caused principally by marketing and proposal
costs associated with the bidding of the Department of Energy
Contract mentioned above and costs, principally the addition of
staff, incurred in developing new nondefense business and
customers.
Interest - Interest expense in 1993 of $25.5 million was $.6
million higher than 1992. This small increase was primarily the
result of the Contract Receivable Collateralized Notes being
outstanding for the full year of 1993 compared to approximately
eleven months in 1992, interest on the mortgage for the Corporate
office building was for the full year of 1993 compared to five
months in 1992 and an increase in the amount of capitalized
leases outstanding, all of which were partially offset by a
reduction in the accrual of interest on possible payments of
Federal income taxes. Interest expense in 1992 was $24.9
million compared to $18.9 in 1991. This increase in 1992 was
principally the result of the issuance of the Contract Receivable
Collateralized Notes, compounding of Junior Subordinated
Debentures due to pay-in-kind interest, accrual of interest on
possible payments of federal income taxes and interest on the
mortgage assumed on July 31, 1992 for the Corporate office
building.
Interest income in 1993 of $2.4 million was approximately the
same as that in 1992 while interest income in 1992 was $.3
million higher than 1991. Even though interest rates were lower
in 1992 than 1991, the Company had more excess funds available
for investment and owned the Cummings Point Industries, Inc. note
receivable with an interest rate of 17%.
Other - The net increase in 1993 from 1992 is caused primarily by
accelerated amortization of costs in excess of net assets of a
recently acquired business and legal and other expenses
associated with another acquired business. (The legal and other
expenses relate to events which occurred prior to the businesses
being acquired by the Company.) The net decrease in 1992
compared to 1991 is caused primarily by adjustment of reserves
for environmental costs related to divested businesses,
obligations to repurchase shares from terminated ESOP
participants at a premium in excess of the fair value, and other
transactions related to divested businesses.
(In thousands)
1993 1992 1991
Amortization of costs in excess
of net assets acquired and
deferred ESOP costs $4,830 $ 3,793 $3,791
Provision for nonrecovery of
receivables 1,141 965 953
ESOP Repurchase Premium 1,507 2,787 3,680
Legal and other expenses associated
with an acquired business 2,070 - -
Environmental costs of divested
businesses - 1,000 709
Gain on sale of warrants obtained in
divestitures - (756) (1,331)
Other divested business adjustments(224) (1,929) (85)
Total Other $9,324 $ 5,860 $7,717
Income Taxes - In 1993, the Company recorded a foreign income tax
provision and a state income tax benefit and in addition, for its
majority owned subsidiary which is required to file a separate
return, a federal income tax provision. In 1992, the Company
recorded only a foreign income tax provision. In 1993 and 1992,
the Company did not recognize any federal income tax benefit on
its losses because of the uncertainty regarding the level of
future income. In 1991, the effective income tax rate was 32.3%.
The income tax benefit for 1991 is less than the federal
statutory rate because of nondeductibility of amortization of
goodwill and value assigned to contracts and fixed assets in
connection with the 1988 merger and reorganization.
Cash Flow
Cash and short-term investments increased to $22.8 million at
December 31, 1993, from $20.0 million at the prior year-end.
Working capital at December 31, 1993, was $73.8 million compared
to $59.2 million at December 31, 1992. The working capital
increase was primarily the result of expanded business volume.
The 1993 ratio of current assets to current liabilities was 1.53
compared to 1.47 in 1992 (as restated). At December 31, 1993,
$17.6 million of cash and short-term investments and $107.1
million of accounts receivable were restricted as collateral for
the Contract Receivable Collateralized Notes.
In 1993, operating activities produced cash flow of $10.6
million compared to a negative cash flow of $4.7 million in 1992
(for an improvement of $15.3 million). The two major reasons for
the improved cash flow from operating activities were a decrease
of $9.9 million in the amount of loss for 1993 compared to 1992
and an increase of $6.6 million of pay-in-kind interest on Junior
Subordinated Debentures. In 1992, the Company had voluntarily
elected to pay the interest due December 31, 1992 in cash rather
than pay-in-kind.
Investing activities used $15.6 million of cash, of which
$10.9 million was used for the acquisition of businesses (see
Note 15 to the Consolidated Financial Statements included
elsewhere in this Form 10-K) and another $5.4 million was used
for the purchase of property and equipment. In addition, $1.3
million of contract phase-in costs of a new long-term contract
were incurred and deferred. These costs will be amortized over
the duration of the contract. In 1992, investing activities used
$18.1 million of cash. The primary use of cash was the purchase
of property and equipment for $11.4 million and another $4.6
million was the net increase in notes receivable resulting
primarily from the loan to Cummings Point Industries, Inc. In
1991, investing activities used $8.6 million of cash. The
principal uses were the purchase of property and equipment for
$12.1 million and the acquisitions of businesses for $6.3 million
offset by proceeds received from notes receivable of $8.4
million.
Financing activities provided cash of $7.8 million in 1993.
Payments of $16.1 million were received on the loan to the
Employee Stock Ownership Plan (the last and final payment on the
loan from the Company was received in December, 1993), $6.3
million was used for payments on indebtedness and $2 million was
used to purchase treasury stock. In 1992, financing activities
provided cash of $26.9 million principally from the payments
received from the ESOP plus surplus funds from the new financing
arrangement of $100 million. During 1992, the Company used $38.1
million to pay in full its outstanding balance under the Restated
Credit Agreement, $33.3 million for redemption of all of the
outstanding Class A Preferred Stock plus accrued dividends and
$10.2 million for the partial redemption of its 16% Junior
Subordinated Debentures. In 1991, the Company received payments
of $15.4 from the ESOP and borrowed $6.0 million under its
revolving credit, which funds were offset by payments on
indebtedness of $17.0 million and the purchase of treasury stock
and Junior Subordinated Debentures of $4.9 million.
Liquidity and Capital Resources
At December 31, 1993, the Company's debt totaled $220.3
million compared to $202.4 million the prior year-end and $148.6
million at December 31, 1991, including redeemable preferred
stock. The net increase in debt resulted principally from the
pay-in-kind interest of $13.1 million on the Junior Subordinated
Debentures and the $4.0 million mortgage assumed in the
acquisition of Technology Applications, Inc. The Company had a
net increase in cash and short-term investments of $2.8 million,
$4.1 million and $12.5 million in 1993, 1992 and 1991,
respectively. However, without the pay-in-kind interest on the
Junior Subordinated Debentures (interest becomes payable in cash
effective with the December 31, 1995 payment) and the payments
received on the loan to the Employee Stock Ownership Plan (ESOP),
the Company would have had a net decrease in cash and short-term
investments of $26.4 million, $18.6 million and $14.8 million in
1993, 1992 and 1991, respectively. Annualized interest expense
at January 1, 1994 is approximately $28.4 million of which $15.3
million of interest on the Junior Subordinated Debentures is
payable in kind. The only significant debt maturing in the next
three years is the mortgage of approximately $19 million on the
Corporate Office, which matures in March, 1995. The Company
intends to refinance this mortgage before it matures.
The Company believes that it can achieve the required cash
flow by continued profit improvement, reduced debt service cost
and/or the continuation of its contribution to the ESOP which can
be used to purchase common stock from the Company. The Company
plans to continue its Value Improvement Program which was
initiated in late 1992 to reduce and/or eliminate operating costs
and loss operations, turn around the losses in Commercial
Services' aircraft maintenance operations, and to improve the
gross margins in Government Services. To reduce its debt service
costs, the Company is presently in discussions with its
investment bankers to replace its high interest rate Junior
Subordinated Debentures through the issuance of new senior notes
or an initial public offering, or both. In addition, the Company
and the ESOP have an agreement in principal under which the ESOP
will continue during 1994 to purchase Company common stock to
fund the ESOP retirement benefit.
The Company is also considering its alternatives, including
the possible sale or spinoff, in respect to CS's aircraft
maintenance unit which has incurred operating losses in the last
three years. Selected financial operating data of the aircraft
maintenance unit is as follows (in thousands except number of
employees):
1993 1992 1991
Revenues $57,288 $74,253 $51,221
Operating losses $(6,629) $(428) $(1,137)
Net assets including Goodwill
at December 31, $44,354 $43,328 $42,775
Backlog at December 31, $11,368 $ - $12,584
Number of employees 701 631 627
These units are continuing to face an extremely competitive
market with some competitors willing to buy market share at or
below cost. At this point, the Company does not believe that the
assets and goodwill associated with this unit has been
permanently impaired; however, it is possible that future events
may require a write-down of the carrying value.
Although the Company has made some progress to diversify into
non-defense business activities, the Company is still heavily
dependent on the Department of Defense. Due to the procurement
cycles of its customers (generally three to five years), the
Company's revenues and margins are subject to continual
recompetition. In a typical annual cycle approximately 20% to
30% of the Company's business will be recompeted, and the Company
will bid on several new contracts. Existing contracts can be
lost or rewon at lower margins at any time and new contracts can
be won. The net outcome of this bidding process, which in any
one year can have a dramatic impact on future revenues and
earnings, is impossible to predict. Also, if the U.S. Government
budget is reduced or spending shifts away from locations or
contracts for which the Company provides services, the Company's
success in retaining current contracts or obtaining new contracts
could be significantly reduced. The Company's Commercial
Services business is likewise highly competitive and subject to
the economic conditions of the domestic and foreign airline
industry.
In summary, the Company continues to be highly leveraged, and
its ability to meet its future debt service and working capital
requirements is dependent upon increased future earnings and cash
flow from operations, extension of the ESOP and the reduction of
its debt expense.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the
Company's Consolidated Financial Statements and Financial
Statement Schedules included elsewhere in this Annual Report on
Form 10-K.
Report of Independent Public Accountants
To DynCorp:
We have audited the accompanying consolidated balance sheets of
DynCorp (a Delaware corporation) and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the
three years in the periods ended December 31, 1993. These
financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of DynCorp and subsidiaries as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules
listed in Item 14 of the Form 10-K are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules
have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
Washington, D.C.,
March 22, 1994.
ARTHUR ANDERSEN & CO.
DynCorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1993 1992
Assets
Current Assets:
Cash and short-term investments (includes restricted
cash and short-term investments of $17,632 in 1993
and $16,768 in 1992) (Notes 2 and 4) $ 22,806 $ 19,980
Notes and current portion of long-term receivables
(Notes 2 and 8) (a) 235 161
Accounts receivable and contracts in process
(Notes 2, 3 and 4) 177,470 151,970
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 6,467 6,137
Prepaid income taxes (Note 10) 127 1,836
Other current assets 6,724 5,708
Total Current Assets 213,829 185,792
Long-term Receivables, due through 1998 (Note 2) 274 342
Property and Equipment, at cost (Notes 1 and 14):
Land 5,539 5,234
Buildings and leasehold improvements 33,498 30,324
Machinery and equipment 64,907 50,842
103,944 86,400
Accumulated depreciation and amortization (42,996) (32,258)
Net property and equipment 60,948 54,142
Intangible Assets, net of accumulated amortization
(Notes 1 and 15) 93,890 94,653
Other Assets (Notes 2 and 4) 13,515 13,344
Total Assets $382,456 $348,273
(a) December 1992 has been restated to conform to the 1993 presentation.
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1993 1992
Liabilities, Redeemable Common Stock and Stockholders' Equity
Current Liabilities:
Notes payable and current portion of long-term debt
(Notes 2 and 4) $ 3,837 $ 2,670
Accounts payable (Note 2) 25,376 18,763
Deferred revenue and customer advances (Note 1) 2,178 2,188
Accrued income taxes (Notes 1 and 10) 3,074 345
Accrued expenses (Note 5) 105,578 102,667
Total Current Liabilities 140,043 126,633
Long-term Debt (Notes 2, 4 and 15) 216,425 199,762
Deferred Income Taxes (Notes 1 and 10) 1,269 1,189
Other Liabilities and Deferred Credits (Note 2) 16,353 16,805
Total Liabilities 374,090 344,389
Commitments, Contingencies and Litigation (Notes 14 and 16)
Redeemable Common Stock $17.50 per share redemption value,
125,714 shares issued and outstanding (Note 6) 2,200 -
Stockholders' Equity (Note 7)
Capital stock, par value ten cents per share -
Preferred stock, Class C, 18% cumulative,
convertible, $24.25 liquidation value,
123,711 shares authorized and issued and outstanding 3,000 3,000
Common stock, authorized 15,000,000 shares;
issued 5,015,139 shares in 1993 and 4,913,385
shares in 1992 502 491
Common stock warrants 15,119 15,119
Unissued common stock under restricted stock plan 10,395 9,941
Paid-in surplus 95,983 96,408
Retained earnings (deficit) (105,425) (92,011)
Common stock held in treasury, at cost; 285,987
shares and 178,100 warrants in 1993 and 325,211
shares and 180,210 warrants in 1992 (5,840) (6,538)
Cummings Point Industries, Inc. note
receivable (Note 8) (a) (7,568) (6,410)
Employee Stock Ownership Plan Loan (Note 9) - (16,116)
Total stockholders' equity 6,166 3,884
Total Liabilities, Redeemable Common Stock
and Stockholders' Equity $382,456 $348,273
(a) December 1992 has been restated to conform to 1993 presentation.
See accompanying notes.
DynCorp and Subsidiaries Consolidated Statements of Operations
For the Years Ended December 31 (Dollars in thousands except per share data)
1993 1992 1991
Revenues (Note 1) $953,144 $911,422 $807,186
Costs and expenses:
Cost of services 913,587 883,276 783,300
Selling and corporate administrative 18,267 20,476 17,935
Interest expense 25,538 24,876 18,910
Interest income (2,439) (2,418) (2,084)
Other 9,324 5,860 7,717
Total costs and expenses 964,277 932,070 825,778
Loss before income taxes, minority interest
and extraordinary item (11,133) (20,648) (18,592)
Provision (benefit) for income taxes (Note 10) 1,329 168 (5,997)
Loss before minority interest and
extraordinary item (12,462) (20,816) (12,595)
Minority interest (Note 1) 952 - -
Loss before extraordinary item (13,414) (20,816) (12,595)
Extraordinary gain (loss) from early
extinguishment of debt, net of income
taxes of $99 in 1991 (Note 4) - (2,526) 192
Net loss (13,414) (23,342) (12,403)
Preferred Class A dividends declared and
paid and accretion of discount - 959 5,180
Net loss for common stockholders $(13,414)$ (24,301) $(17,583)
Earnings (Loss) Per Common Share (Note 12)
Primary and fully diluted:
Loss before extraordinary item $ (2.87)$ (4.49)$ (3.97)
Extraordinary item - (0.49) 0.04
Net loss for common stockholders $ (2.87)$ (4.98)$ (3.93)
See accompanying notes.
<TABLE>
DynCorp and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31 (Dollars in thousands)
<CAPTION>
Unissued
Common Cummings
Stock Employee Point
Under Retained Stock Industries
Preferred Common Stock Restricted Paid-in Earnings Treasury Ownership Note
Stock Stock Warrants Stock Plan Surplus (Deficit) Stock Plan Loan Receivable
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $3,000 $474 $15,119 $ 5,903 $101,469 $(50,128) $ (804) $(47,617) $ -
Pay-in-kind Preferred Stock
Class A dividends (5,056)
Accretion of Preferred Stock Class A
discount and issuance costs (123)
Adjustment of the purchase of
Preferred Stock Class A (11)
Treasury stock purchased (Note 7) (2,810)
Stock issued under the Management
Employees Stock Purchase
Plan (Note 7) 25 373
Accrued compensation (Note 7) 3,785
Payments received on Employee Stock
Ownership Plan Loan (Note 9) 15,402
Net loss (12,403)
Balance, December 31, 1991 3,000 474 15,119 9,688 101,483 (67,710) (3,241) (32,215) -
Pay-in-kind Preferred Stock
Class A dividends (934)
Accretion of Preferred Stock Class A
discount and issuance costs (25)
Stock issued under Restricted
Stock Plan (Note 7) 17 (3,011) 2,994
Purchase of Preferred Stock Class A (8,047)
Treasury stock purchased (Note 7) (3,448)
Stock issued under the Management
Employees Stock Purchase Plan
(Note 7) (22) 151
Accrued compensation (Note 7) 3,264
Payments received on Employee Stock
Ownership Plan (Note 9) 16,099
Cummings Point Industries note
receivable (Note 8) (a) (5,500)
Accrued interest on note receivable
(Note 8) (a) (910)
Net loss (23,342)
Balance December 31, 1992 3,000 491 15,119 9,941 96,408 (92,011) (6,538) (16,116) (6,410)
Stock issued under Restricted
Stock Plan (Note 7) 11 (1,781) 1,770
Treasury stock purchased (Note 7) (1,980)
Stock issued under the Management
Employees Stock Purchase
Plan (Note 7) 5 41
Accrued compensation (Note 7) 2,235
Payments received on Employee Stock
Ownership Plan (Note 9) 16,116
Contribution of stock to ESOP
(Note 9) 437
Stock issued in conjunction
with acquisition (Notes 6 and 15) (2,200) 2,200
Accrued interest on note
receivable (Note 8) (1,158)
Net loss (13,414)
Balance December 31, 1993 $3,000 $502 $15,119 $10,395 $ 95,983 $(105,425) $(5,840) $ - $ (7,568)
<FN>
(a) Restated to conform to the 1993 presentation.
See accompanying notes.
</TABLE>
DynCorp and Subsidiaries Consolidated Statements of Cash Flows
For the Years Ended December 31 (Dollars in thousands)
1993 1992 1991
Cash Flows from Operating Activities:
Net loss $(13,414) $(23,342)$(12,403)
Adjustments to reconcile net loss from operations
to net cash provided by operating activities:
Depreciation and amortization 19,818 19,372 24,473
Pay-in-kind interest on Junior Subordinated
Debentures (Note 4) 13,142 6,590 11,950
Loss (gain) on purchase of Junior
Subordinated Debentures (Note 4) - 2,526 (291)
Deferred income taxes 521 (2,114) (4,933)
Accrued compensation under Restricted Stock Plan 2,235 3,264 3,785
Noncash interest income (1,158) (910) -
Other (2,820) (2,483) (481)
Change in assets and liabilities, net of acquisitions and dispositions:
Increase in accounts receivable and contracts
in process (9,698) (14,904) (14,298)
(Increase) decrease in inventories (326) 280 (174)
(Increase) decrease in other current assets 1,159 2,797 (1,117)
Increase in current liabilities except notes payable
and current portion of long-term debt 1,161 4,268 14,766
Cash provided (used) by operating activities 10,620 (4,656) 21,277
Cash Flows from Investing Activities:
Sale of property and equipment 1,422 1,262 1,974
Proceeds received from notes receivable 558 1,353 8,439
Purchase of property and equipment (5,423) (11,400) (12,106)
Increase in notes receivable (Note 8) - (5,934) -
Increase in investments in affiliates (99) (1,888) -
Deferred income taxes from "safe harbor"
leases (Note 10) (441) (314) (338)
Deferred income taxes related to the merger
and disposition of businesses - - 342
Assets and liabilities of acquired businesses,
excluding cash acquired (Notes 1 and 15) (10,890) (905) (6,262)
Other (738) (304) (671)
Cash used by investing activities (15,611) (18,130) (8,622)
Cash Flows from Financing Activities:
Purchase of Class A Preferred Stock and
Junior Subordinated Debentures (Note 4) - (42,466) (2,074)
Treasury stock purchased (Note 7) (1,980) (3,448) (2,810)
Payment on indebtedness (6,365) (41,040) (17,026)
Increase in bank borrowings - - 6,000
Refinancing proceeds (Note 4) - 100,000 -
Deferred financing expenses (Note 4) - (1,524) -
Dividends paid on Class A Preferred Stock - (861) -
Treasury stock sold under Management Employees
Stock Purchase Plan 46 108 398
Reduction in loan to Employee Stock Ownership
Plan (Note 9) 16,116 16,099 15,402
Cash provided (used) by financing activities 7,817 26,868 (110)
Net Increase in Cash and Short-term Investments 2,826 4,082 12,545
Cash and Short-term Investments at
Beginning of the Period 19,980 15,898 3,353
Cash and Short-term Investments at
End of the Period $ 22,806 $ 19,980 $ 15,898
See accompanying notes.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation -- All majority-owned subsidiaries have
been included in the financial statements and all significant
intercompany accounts and transactions have been eliminated. Outside
investors' interest in minority owned subsidiaries is reflected as
minority interest. Investments less than 50% owned are accounted for
using the equity method of accounting.
Contract Accounting -- Contracts in process are stated at the lower
of actual cost incurred plus accrued profits or net estimated
realizable value of incurred costs, reduced by progress billings.
The Company records income from major fixed-price contracts,
extending over more than one accounting period, using the percentage-
of-completion method. During performance of such contracts,
estimated final contract prices and costs are periodically reviewed
and revisions are made as required. The effects of these revisions
are included in the periods in which the revisions are made. On
cost-plus-fee contracts, revenue is recognized to the extent of costs
incurred plus a proportionate amount of fee earned, and on time-and-
material contracts, revenue is recognized to the extent of billable
rates times hours delivered plus material and other reimbursable
costs incurred. Losses on contracts are recognized when they become
known. Disputes arise in the normal course of the Company's business
on projects where the Company is contesting with customers for
additional funds because of events such as delays or changes in
contract specifications. For fixed-price contracts, such disputes,
whether claims or unapproved changes in the process of negotiation,
are recorded at the lesser of their estimated net realizable value or
actual costs incurred and only when realization is probable and can
be reliably estimated. Claims against the Company are recognized
where loss is considered probable and reasonably determinable in
amount.
It is the Company's policy to provide reserves for the
collectibility of accounts receivable when it is determined that it
is probable that the Company will not collect all amounts due and the
amount of reserve requirement can be reasonably estimated.
Property and Equipment -- The Company computes depreciation and
amortization using both straight-line and accelerated methods. The
estimated useful lives used in computing depreciation and
amortization on a straight-line basis are: building, 15-33 years;
machinery and equipment, 3-20 years; and leasehold improvements, term
of lease. Accelerated depreciation is based on a 150% declining
balance method with light-duty vehicles assigned a three-year life
and machinery and equipment assigned a five-year life. Depreciation
and amortization expense was $9,670,000 for 1993, $9,275,000 for 1992
and $10,759,000 for 1991.
Cost of property and equipment sold or retired and the related
accumulated depreciation or amortization is removed from the accounts
in the year of disposal, and any gains or losses are reflected in the
consolidated statement of operations. Expenditures for maintenance
and repairs are charged to expense as incurred, and major additions
and improvements are capitalized.
Intangible Assets -- At December 31, 1993, intangible assets consist
of $91,942,000 of unamortized goodwill and $1,948,000 of value
assigned to contracts. Goodwill is being amortized on a straight-
line basis over periods up to forty years. Amortization expense was
$3,990,000, $2,953,000 and $2,952,000 in 1993, 1992 and 1991,
respectively. Amounts allocated to contracts are being amortized
over the lives of the contracts for periods up to ten years.
Amortization of amounts allocated to contracts was $3,555,000,
$4,566,000 and $7,763,000 in 1993, 1992 and 1991, respectively.
Cumulative amortization of $16,116,000 and $31,720,000 has been
recorded through December 31, 1993, of goodwill and value assigned to
contracts, respectively.
The Company assesses and measures impairment of intangible
assets, including goodwill, based on several factors including the
probable fair market value, probable future cash flows and net
income and the aggregate value of the business as a whole. See
Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on Liquidity and Capital
Resources, included elsewhere in this Form 10-K concerning possible
impairment.
Income Taxes -- As prescribed by Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes" the Company
utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of
existing assets and liabilities.
Postretirement Health Care Benefits -- The Company provides no
significant postretirement health care or life insurance benefits to
its retired employees other than allowing them to continue as
participants in the Company's plans with the retiree paying the full
cost of the premium. The Company has determined, based on an
actuarial study, that it has no liability under Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
Postemployment Benefits -- The Company has no liability under
Statement of Financial Accounting Standard 112, "Employers'
Accounting for Postemployment Benefits," as it provides no benefits
as defined.
New Accounting Pronouncements -- The Financial Accounting Standards
Board issued Statement 114, "Accounting by Creditors for Impairment
of a Loan," and Statement 115, "Accounting for Certain Investments in
Debt and Equity Securities," in May 1993. The statements are
required to be adopted in 1995 and 1994, respectively. The Company
has no significant financial instruments of the nature described and
therefore believes the statements will not have a material effect on
its results of operations or financial condition.
The Company intends to contribute approximately $15 million to the
Employee Stock Ownership Plan in 1994 to acquire common stock at a
per share value to be determined by an independent appraisal. At
such time, the Company will adopt SOP 93-6, "Employer's Accounting
for Employee Stock Ownership Plans," issued in November 1993 and
effective for financial statements issued after December 15, 1993.
Consolidated Statement of Cash Flows -- For purposes of this
Statement, short-term investments which consist of certificates of
deposit and government repurchase agreements with a maturity of
ninety days or less are considered cash equivalents.
Cash paid for income taxes was $1,232,000 for 1993, $4,054,000
for 1992 and $944,000 for 1991.
Cash paid for interest, excluding the interest paid under the
Employee Stock Ownership Plan term loan, was $11,706,000 for 1993,
$17,212,000 for 1992 and $3,371,000 for 1991.
Noncash investing and financing activities consist of the
following (in thousands):
1993 1992 1991
Acquisitions of businesses:
Assets acquired $31,675 $ 3,524 $14,849
Liabilities assumed (17,198) (1,248) (6,959)
Stock issued (2,200) - -
Notes issued and other liabilities (1,382) (592) (1,764)
Cash paid for fees and noncompete covenant - - 141
Cash acquired (5) (779) (5)
Net cash 10,890 905 6,262
Pay-in-kind interest on Junior
Subordinated Debentures (Note 4) 13,142 6,590 11,950
Pay-in-kind dividends and accretion of
discount on preferred stock - - 5,056
Unissued common stock under
restricted stock plan (Note 7) 2,235 3,264 3,785
Capitalized equipment leases and notes
secured by property and equipment 5,294 1,792 1,759
Mortgage note assumed (Note 4) - 19,456 -
(2) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate the value:
Accounts Receivable and Accounts Payable - The carrying amount
approximates their fair value.
Notes and long-term receivables - The carrying amount approximates the
fair value because of the short maturity of these instruments.
Investments (included in "Other Assets") - The Company has an
investment in convertible debentures and preferred stock of an untraded
company. Based upon the financial statements of this business, the
carrying value of these investments approximates their fair value.
Long-term debt and other liabilities - The fair value of the Company's
long-term debt is based on the quoted market price for its Junior
Subordinated Debentures, the current rate as if the issue date were
December 31, 1993 for its Collateralized Notes. For the remaining long-
term debt (see Note 4) and other liabilities, the carrying amount
approximates the fair value.
Cummings Point Industries, Inc. Note Receivable - The carrying value
approximates the fair value. (See Note 8.)
The estimated fair values of the Company's financial instruments are
as follows (in thousands):
1993 1992
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and short-term investments $ 22,806 $ 22,806 $19,980 $19,980
Accounts receivable 177,470 177,470 151,970 151,970
Notes and long-term receivables (a) 509 509 503 503
Investments 2,116 2,116 2,439 2,439
Accounts Payable 25,376 25,376 18,763 18,763
Long-term debt and
other liabilities 218,758 229,012 200,950 208,623
Cummings Point note receivable 7,568 7,568 6,410 6,410
(a) December 1992 has been restated to conform to the 1993 presentation
of the Cummings Point Industries, Inc. note receivable.
(3) Accounts Receivable and Contracts in Process
The components of accounts receivable and contracts in process were
as follows (in thousands):
1993 1992
U.S. Government:
Billed and billable $ 83,822 $ 83,722
Recoverable costs and accrued profit on progress
completed but not billed 25,473 20,218
Retainage due upon completion of contracts 1,287 1,762
110,582 105,702
Commercial Customers:
Billed and billable (less allowances for doubtful accounts
of $1,469 in 1993 and $3,415 in 1992) 43,660 32,239
Recoverable costs and accrued profit on progress completed
but not billed 23,228 14,029
66,888 46,268
$177,470 $151,970
Billed and billable include amounts earned and contractually
billable at year-end but which were not billed because customer
invoices had not yet been prepared at year-end. Recoverable costs
and accrued profit not billed is composed primarily of amounts
recognized as revenues, but which are not contractually billable at
the balance sheet dates.
The Company performs substantial services for the commercial
aviation industry. Receivables from domestic and foreign airline and
leasing companies were approximately $38,700,000 and $26,600,000 at
December 31, 1993 and 1992, respectively.
(4) Long-term Debt
At December 31, 1993 and 1992, long-term debt consisted of (in
thousands):
1993 1992
Contract Receivable Collateralized Notes,
Series 1992-1 $100,000 $100,000
Junior Subordinated Debentures, net of
unamortized discount of $5,175 and $5,491 86,947 73,489
Mortgages payable 23,416 19,436
Notes payable, due in installments through
2002, 9.27% weighted average interest rate 6,689 6,343
Capitalized equipment leases 3,210 3,164
220,262 202,432
Less current portion 3,837 2,670
$216,425 $199,762
Maturities of long-term debt as of December 31, 1993, were as
follows (in thousands):
1994 $ 3,837
1995 21,638
1996 2,157
1997 101,527
1998 1,044
Thereafter 90,059
On January 23, 1992, the Company's wholly owned subsidiary, Dyn
Funding Corporation (DFC), completed a private placement of
$100,000,000 of 8.54% Contract Receivable Collateralized Notes,
Series 1992-1 (the "Notes"). The Notes are collateralized by the
right to receive proceeds from certain U.S. Government contracts and
certain eligible accounts receivable of commercial customers of the
Company and its subsidiaries. Credit support for the Notes is
provided by overcollateralization in the form of additional
receivables. The Company retains an interest in the excess balance
of receivables through its ownership of the common stock of DFC.
Additional credit and liquidity support is provided to the Notes
through a cash reserve fund. Interest payments are made monthly with
monthly principal payments beginning February 28, 1997. (The period
between January 23, 1992 and January 30, 1997 is referred to as the
Non-Amortization Period.) The notes are projected to have an average
life of five years and two months and to be fully repaid by July 30,
1997.
Upon receiving the proceeds from the sale of the Notes, DFC
purchased from the Company an initial pool of receivables for
$70,601,000, paid $1,524,000 for expenses and deposited $3,000,000
into a reserve fund account and $24,875,000 into a collection account
with Bankers Trust Company as Trustee pending additional purchases of
receivables from the Company. Of the proceeds received from DFC, the
Company used $38,112,000 to pay the outstanding balances of the
Employee Stock Ownership Plan term loan and revolving loan facility
under the Restated Credit Agreement and $33,280,000 was used for the
redemption of all of the outstanding Class A Preferred Stock plus
accrued dividends (the redemption price per share was $25.00 plus
accrued dividends of $.66). The Company expensed $1,432,000
(reported as an extraordinary loss) of unamortized deferred debt
expense pertaining to the term loan and revolving loan facility which
was paid in full. The Company charged $8,047,000 of unamortized
discount and deferred issuance costs associated with the redemption
of the Class A Preferred Stock to paid-in surplus.
On an ongoing basis, cash receipts from the collection of the
receivables are used to make interest payments on the Notes, pay a
servicing fee to the Company, and purchase additional receivables
from the Company. Beginning February 28, 1997, instead of purchasing
additional receivables, the cash receipts will be used to repay
principal on the Notes. During the Non-Amortization Period, cash in
excess of the amount required to purchase additional receivables and
meet payments on the Notes is to be paid to the Company subject to
certain collateral coverage tests. The receivables pledged as
security for the Notes are valued at a discount from their stated
value for purposes of determining adequate credit support. DFC is
required to maintain receivables, at their discounted values, plus
cash on deposit at least equal to the outstanding balance of the Notes.
Commencing March 30, 1994, the Notes may be redeemed in whole, but
not in part, at the option of DFC at a price equal to the principal
amount of the Notes plus accrued interest plus a premium (as
defined).
Mandatory redemption (payment of the Notes in full plus a premium)
is required in the event that (i) the collateral value ratio test is
equal to or less than .95 as of three consecutive monthly
determination dates and the Company has not substituted receivables
or deposited cash into the collection account to bring the collateral
value ratio above .95; or (ii) three special redemptions are required
within any consecutive 12-month period; or (iii) the aggregate stated
value of all ineligible receivables which have been ineligible
receivables for more than 30 days exceeds 7% of the aggregate
collateral balance and the collateral value ratio is less than 1.00.
Special redemption (payment of a portion of the Notes plus a
premium) is required in the event that the collateral value ratio
test is less than 1.00 as of two consecutive monthly determination
dates and the Company has not substituted receivables or deposited
cash into the collection account to bring the collateral value ratio
to 1.00.
Also, DFC may not purchase additional eligible receivables if the
Company has an interest coverage ratio (as defined) of less than
1.10; or if the Company has more than $40 million of scheduled
principal debt (as defined) due within 24 months prior to the
amortization date or $20 million of scheduled principal debt due
within 12 months prior to the amortization date.
At December 31, 1993, $17,632,000 of cash and short-term
investments and $107,091,000 of accounts receivable are restricted as
collateral for the Notes.
As of December 31, 1993, the Company had two separate unsecured
revolving credit facilities available. One facility, which matured
January 23, 1994, provided that the Company could borrow up to
$10,000,000 less any outstanding letters of credit. At the Company's
option, amounts borrowed under this facility bear interest at either
prime rate plus 1% or Eurodollar rate plus 2%, all as defined. The
other revolving credit facility, which matured January 31, 1994,
provided that the Company could borrow up to $5,000,000 at a per
annum interest rate equal to 1% plus the prime interest rate
established by the Bank. The Company paid commitment fees of $68,000
and $73,000 in 1993 and 1992, respectively, which equal 1/2 of 1%
per annum on the unused loan commitments. At December 31, 1993, the
Company had $12,084,000 available under these Revolving Credit
Facilities.
In March 1994, the Company entered into a secured revolving credit
agreement which provides a $5,000,000 line of credit plus a
$2,500,000 revolving letter of credit facility. The agreement is
secured by the stock of the Company's Commercial Aviation
subsidiaries and selected fixed assets. Advances under the line of
credit will bear interest at a per annum interest rate equal to 1%
plus the prime interest rate established by the bank. For each
letter of credit issued, the Company must assign a cash collateral
deposit in favor of the bank for 100% of the face value of the letter
of credit. The Company will pay a fee of 1.5% per annum computed on
the face amount of the letter of credit for the period the letter of
credit is scheduled to be outstanding. The credit agreement will
expire July 1, 1994.
The Junior Subordinated Debentures (Debentures) mature on June 30,
2003, and bear interest of 16% per annum, payable semi-annually. The
effective interest rate is 19.4%. The Company may, at its option,
prior to September 9, 1995, pay the interest either in cash or issue
additional Debentures. The Debentures are subject to annual
mandatory redemption beginning June 30, 1999. The Company may, at
its option, redeem in whole or in part, at any time, the Debentures
at their face value plus accrued interest. During 1993, 1992 and
1991, $13,142,000, $6,590,000 and $11,950,000, respectively, of
additional Debentures were issued in lieu of cash interest payments.
Using a lottery selection method, the Company called for partial
redemption of $10,000,000 face value plus accrued interest for cash
redemption on August 10, 1992. The lottery resulted in redeeming
$9,698,000 face value of the Debentures. Open market purchases
during 1992 retired $290,000 of the Debentures. The related
unamortized discount, deferred debt expense and expenses, net of
applicable income taxes, were reported as an extraordinary loss in
1992.
The Company received title to its corporate office building on July
31, 1992 by assuming a mortgage of $19,456,000. At the Company's
option, the interest on the mortgage may be computed from time to
time under one of three methods based on the Certificate of Deposit
Rate, LIBOR Rate or the Prime Rate, all as defined. Also, the
Company was required to pay additional interest through May 27, 1993.
The additional interest was the difference between a fixed rate of
9.36% and a floating rate based upon an imputed amount of
$31,900,000. The original mortgage maturity date was May 27, 1993;
however, as provided, the Company extended the mortgage to March 27,
1995 with an increase in the interest rate of 1/2% per annum plus an
extension fee (based on the principal amount of the mortgage
outstanding) of .42% on May 27, 1993 and .50% on March 27, 1994.
The Company acquired the Alexandria, VA headquarters of Technology
Applications, Inc. on November 12, 1993. A mortgage of $3,344,000
bearing interest at 8% per annum was assumed. Payments are made
monthly and the mortgage matures in April 2003. Additionally, a
$1,150,000 promissory note was issued. The note bears interest at 7%
per annum. Payments under the note shall be made quarterly through
October, 1998.
Deferred debt issuance costs are being amortized using the
effective interest rate method over the terms of the related debt.
At December 31, 1993, unamortized deferred debt issuance costs were
$1,339,000 and amortization for 1993, 1992 and 1991 was $328,000,
$420,000 and $2,309,000, respectively.
(5) Accrued Expenses
At December 31, 1993 and 1992, accrued expenses consisted of the
following (in thousands):
1993 1992
Salaries and wages $ 43,698 $ 38,906
Insurance 17,202 23,802
Interest 6,233 6,187
Payroll and miscellaneous taxes 10,412 9,123
Accrued contingent liabilities and operating reserves 19,028 16,440
Other 9,005 8,209
$105,578 $102,667
(6) Redeemable Common Stock
In conjunction with the acquisition of Technology Applications,
Inc. (see Note 15), the Company issued put options on 125,714 shares
of common stock. The holder may, at any time commencing on December
31, 1998 and ending on December 31, 2000, sell these shares to the
Company at a price per share equal to the greater of $17.50; or, if
the stock is publicly traded, the market value at a specified date;
or, if the Company's stock is not publicly traded, the fair market
value at the time of exercise.
(7) Stockholders' Equity
Class C Preferred Stock is convertible, at the option of the
holder, into one share of common stock, adjusted for any stock
splits, stock dividends or redemption. At conversion the holders of
Class C Preferred Stock are also entitled to receive such warrants as
have been distributed to the holders of the common stock. Dividends
accrue at an annual rate of 18%, compounded quarterly. At December
31, 1993, cumulative dividends of $5,342,000 have not been recorded
or paid. Dividends will be payable only when cash dividends are
declared with respect to common stock and only in an aggregate amount
equal to the aggregate amount of dividends that such holders would
have been entitled to receive if such Class C Preferred Stock had
been converted into common stock. Each holder of Class C Preferred
Stock is entitled to one vote per share on any matter submitted to
the holders of common stock for stockholder approval. In addition,
so long as any Class C Preferred Stock is outstanding, the Company is
prohibited from engaging in certain significant transactions without
the affirmative vote of the holders of a majority of the outstanding
Class C Preferred Stock.
The Company has issued warrants to the Class C Preferred
stockholders and to certain common stockholders to purchase a maximum
of 5,891,987 shares of common stock of the Company. At December 31,
1993, warrants were outstanding to purchase 5,713,887 shares of
common stock of the Company. Each warrant is exercisable to obtain
one share of common stock for $0.25. Rights under the warrants lapse
no later than September 9, 1998. The Board of Directors has
authorized a new stockholders' agreement which will permit current
stockholders to convert warrants to shares on a noncash basis.
The Company has a Restricted Stock Plan (the Plan) under which
management and key employees may be awarded shares of common stock
based on the Company's performance. The Company has reserved
1,025,037 shares of common stock for issuance under the Plan. Under
the Plan, Restricted Stock Units (Units) are granted to participants
who are selected by the Compensation Committee of the Board of
Directors. Each Unit will entitle the participant upon achievement
of the performance goals (all as defined) to receive one share of the
Company's common stock. Units cannot be converted into shares of
common stock until the participant's interest in the Units has
vested. Vesting occurs upon completion of the specified periods as
set forth in the Plan. In 1993, 1992 and 1991, the Company accrued
as compensation expense $2,235,000, $3,264,000 and $3,785,000,
respectively, under the Plan which was charged to cost of services
and corporate administrative expenses.
The Company has a Management Employees Stock Purchase Plan (the
Stock Purchase Plan) whereby employees in management, supervisory or
senior administrative positions may purchase shares of the Company's
common stock along with warrants at current fair value. The Board
of Directors is responsible for establishing the fair value for
purposes of the Stockholders Agreement and the Management Employees
Stock Purchase Plan. The determination has been based upon the most
recent appraisal of the Company's common stock prepared by the
financial advisors to the Employee Stock Ownership Plan Committee,
adjusted to reflect the absence of a control-share premium, lack of
liquidity, reductions in the warrant exercise price, and inflationary
forces. At December 31, 1993, the fair value was determined to be
$59.52 per share including 6.6767 warrants. Treasury stock, which
the Company acquired from terminated employees who had previously
purchased the stock from the Company, is being issued to employees
purchasing stock under the Stock Purchase Plan.
In accordance with ERISA regulations and the Employee Stock
Ownership Plan Documents, the ESOP Trust or the Company are obligated
to purchase vested common stock shares from ESOP participants (see
Note 9) at the fair value (as determined by an independent appraiser)
as long as the Company's common stock is not publicly traded.
Participants receive their vested shares upon retirement, becoming
totally disabled, or death, over a period of one to five years and
for other reasons of termination over a period of one to ten years,
all as set forth in the Plan. In the event the fair value of a
share is less than $27.00, the Company is committed to pay through
December 31, 1996, up to an aggregate of $16,000,000, the difference
(Premium) between the fair value and $27.00 per share. As of
December 31, 1993, the Company has purchased 327,411 shares from
participants and has expended $3,069,000 of the $16,000,000
commitment. Based on the fair value of $17.99 per share at December
31, 1993, the Company estimates a total Premium of $8,500,000 and an
aggregate annual commitment to repurchase shares from the ESOP
participants upon death, disability, retirement and termination as
follows; $3,600,000 in 1994, $5,900,000 in 1995, $4,000,000 in 1996,
$3,000,000 in 1997, $4,300,000 in 1998 and $56,800,000 thereafter.
The fair value is charged to Treasury Stock at the time of
repurchase. The estimated Premium of $8,500,000 is being recorded
over the life of the ESOP and reported as "Other" expense in the
income statement. Through December 31, 1993, $7,181,000 of the
Premium had been recorded and recognized as compensation expense.
The Company is presently in discussions with its investment bankers
to replace the Junior Subordinated Debentures through the issuance of
new senior notes or an initial public offering or a combination of
the two. In the event of an initial public offering, the unpaid
balance of the $16 million premium may become payable.
Under the DynCorp Stockholders' Agreement which expired on March
11, 1994, the Company was committed, upon an employee's termination
of employment, to purchase common stock shares held by employees
pursuant to the merger (Management Investor Shares), through the
Stock Purchase Plan or through the Restricted Stock Plan. The share
price is fair value ($59.52 per share including 6.6767 warrants at
December 31, 1993) as determined by the Board of Directors for
Management Investor Shares and Stock Purchase Plan shares. Such
shares outstanding at December 31, 1993, were 262,298, with 1,751,285
warrants attached. The share price for Restricted Stock Plan shares
($17.99 at December 31, 1993) is fair value as set forth in the
appraisal of shares held by the ESOP. However, the Company may not
purchase more than $250,000 of Management Investor shares or
Restricted Stock shares in any fiscal year without the approval of
the Class C Preferred stockholders. The Board of Directors has
authorized an extension of the Stockholders' agreement, pending
acceptance by the shareholders, which will contain similar repurchase
obligations.
(8) Cummings Point Industries, Inc. Note Receivable
The Company loaned $5,500,000 to Cummings Point Industries, Inc.
("CPI"), of which Capricorn Investors, L.P. ("Capricorn") owns more
than 10%. The indebtedness is represented by a promissory note (the
"Note"), bearing interest at the annual rate of 17%, which provides
that interest is payable quarterly but that interest payments may not
be payable in cash but may be added to the principal of the Note.
The Note is subordinated to all senior debt of CPI. The Note, which
was issued February 12, 1992, was due three months thereafter;
however, the Company, at its option, has extended and may further
extend the maturity date in three month increments to no later than
February 12, 1995. By separate agreement and as security to the
Company, Capricorn has agreed to purchase the Note from the Company
upon three months' notice, for the amount of outstanding principal
plus accrued interest. As additional security, Capricorn's purchase
obligation is collateralized by certain common stock and warrants
issued by the Company and owned by Capricorn. The note has been
reflected as a reduction in stockholders' equity as it is anticipated
the collateral will be used to satisfy the obligation.
(9) Employee Stock Ownership Plan
In September, 1988, the Company established an Employee Stock
Ownership Plan (the Plan). The Company borrowed $100 million and
loaned the proceeds, on the same terms as the Company's borrowings,
to the Plan to purchase 4,123,711 shares of common stock of the
Company (the "ESOP loan"). The common stock purchased by the Plan
was held in a collateral account as security for the ESOP loan from
the Company. The Company was obligated to make contributions to the
Plan in at least the same amount as required to pay the principal and
interest installments under the Plan's borrowings. The Plan used the
Company contributions to repay the principal and interest on the ESOP
loan. As the ESOP loan was liquidated, shares of the Company's
common stock were released from the collateral account and allocated
to participants of the Plan. As of December 31, 1993, the loan has
been fully repaid.
In March, 1991, the Employee Stock Ownership Plan was amended to
provide for an additional contribution of no fewer than 25,000 shares
of common stock in 1993 and 625,000 shares in 1994. The Company may,
at its option, contribute cash in lieu of the aforementioned shares
of common stock, based on the most recent valuation of such stock.
The Company has an agreement in principle with the ESOP to contribute
approximately $15 million in cash or stock in 1994, inclusive of the
625,000 shares, to satisfy its funding obligations.
The Plan covers a majority of the employees of the Company.
Participants in the Plan become fully vested after four years of
service. All of the 4,148,711 shares owned by the ESOP have been
allocated to participants as of December 31, 1993. The Company
recognizes ESOP expense each year based on contributions committed to
be made to the Plan. The Company's cash contributions were
determined based on the ESOP's debt service. Stock contributions are
determined in accordance with the amended agreement. In 1993 cash
and stock contributions to the ESOP were $16,608,000 and $437,000
respectively, 1992 and 1991 cash contributions were $17,275,000 and
$18,805,000, respectively. These amounts were charged to cost of
services and selling and corporate administrative expenses (including
$491,000, $1,450,000 and $3,231,000 of interest on the ESOP term
loan).
(10) Income Taxes
The Company changed from Statement of Financial Accounting
Standards (SFAS) No. 96 to Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" effective
January 1, 1992. There was no significant cumulative effect from
this change and prior year financial statements were not restated.
Earnings (loss) before income taxes and minority interest (but
including extraordinary item - see Note 4) were derived from the
following (in thousands):
1993 1992 1991
Domestic operations $(11,240) $(23,378) $(18,393)
Foreign operations 107 204 92
$(11,133) $(23,174) $(18,301)
The provision (benefit) for income taxes (and including
extraordinary item - see Note 4) consisted of the following (in
thousands):
1993 1992 1991
Current:
Federal $ 723 $ 416 $ (867)
Foreign 170 168 567
State (85) 193 (665)
808 777 (965)
Deferred:
Federal 500 (416) (5,106)
State 21 (193) 173
521 (609) (4,933)
Total $ 1,329 $ 168 $(5,898)
The components of and changes in deferred taxes are as
follows (in thousands):
<TABLE>
Deferred Deferred
Dec.31, Expense Dec. 31, Expense Jan. 1,
1993 (Benefit) 1992 (Benefit) 1992
<S> <C> <C> <C> <C> <C>
Increase due to federal rate change $ 402 $ (402) $ - $ - $
Benefit of state tax on temporary differences
and state net operating loss carryforwards 4,858 (1,135) 3,723 (2,211) 1,512
Benefit of foreign tax credit carryforwards 2,530 (1,073) 1,457 - 1,457
Difference between book and tax method of
accounting for depreciation and amortization (390) 1,020 630 (398) 232
Difference between book and tax method of
accounting for income on U.S. Government
contracts (8,844) 1,195 (7,649) 2,988 (4,661)
Deferred compensation expense 5,416 (113) 5,303 (2,344) 2,959
Operating reserves and other accruals 17,573 (2,644) 14,929 (6,200) 8,729
Difference between book and tax method of
accounting for certain employee benefits 719 (1,243) (524) 73 (451)
Amortization of intangibles (148) (204) (352) (945) (1,297)
Other, net (179) 173 (6) 186 180
Net deferred tax asset before valuation
allowance 21,937 (4,426) 17,511 (8,851) 8,660
Federal valuation allowance (11,300) 3,812 (7,488) 6,031 (1,457)
State valuation allowance (4,858) 1,135 (3,723) 2,211 (1,512)
Total temporary differences affecting
tax provision 5,779 521 6,300 (609) 5,691
Deferred taxes from "safe harbor"
lease transactions (7,048) (441) (7,489) (314) (7,803)
Net deferred tax liability $(1,269) $ 80 $(1,189) $ (923) $(2,112)
</TABLE>
The components of the changes in deferred taxes are as
follows (in thousands):
1991
Difference between book and tax method
of accounting for depreciation and
amortization $(1,233)
Difference between book and tax method
of accounting for income on U.S.
Government contracts 2,668
Deferred compensation expense (255)
Operating reserves and other accruals (3,661)
Difference between book and tax
method of accounting for certain
employee benefits (485)
Amortization of intangibles (2,051)
Other, net 84
Total temporary differences affecting
tax provision (4,933)
Deferred taxes from "safe harbor" lease transactions (338)
Taxes related to the merger and
disposition of businesses 342
$(4,929)
The tax provision (benefit) differs from the amounts
obtained by applying the statutory U.S. Federal income tax rate
to the pre-tax loss amounts. The differences can be reconciled
as follows (in thousands):
1993 1992 1991
Expected Federal income tax benefit $(3,785) $(7,879) $(6,222)
Valuation allowance 3,812 6,031 -
State and local income taxes, net of
Federal income tax benefit (42) - (325)
Nondeductible amortization of intangibles
and other costs 1,552 2,300 2,651
Foreign income tax 84 99 585
Tax credits, primarily foreign (359) (222) (2,663)
Other, net 67 (161) 76
Tax provision (benefit) $1,329 $ 168 $(5,898)
In 1993, the Company recorded a $170,000 foreign income tax
provision and a $64,000 state income tax benefit. However, due
to the uncertainty regarding the level of future taxable income,
the Company did not recognize any federal tax benefits on the
losses incurred in 1993. The federal tax provision of $1,223,000
is that of a majority owned subsidiary which is required to file
a separate federal return.
The Company's U.S. Federal income tax returns have been
audited through 1984. The Internal Revenue Service has performed
an examination of the Company's tax returns for the period 1985-
88 and has proposed several adjustments, the most significant of
which relates to deductions taken by the Company for expenses
incurred in the 1988 merger. The Company and its attorneys are
currently protesting these proposed adjustments with the IRS
appeals office. Taxes and accrued interest associated with these
proposed adjustments, including the ongoing effects of similar
adjustments in future years, are approximately $15,700,000. In
the opinion of management, based in part upon opinion of its
attorneys, the tax liability, if any, for these proposed
adjustments will not have a material adverse effect on the
consolidated results of operations and financial position of the
Company.
The Company has state net operating losses and foreign tax
credit carryforwards available to offset future taxable income
and income taxes. Following are the net operating losses and
foreign tax credits by year of expiration (in thousands):
Year of Foreign State Net
Expiration Tax Credits Operating Losses
1994 $2,341 $ -
1995 - 2,448
1996 189 20
2005 - 8,145
2006 - 66
2007 - 472
$2,530 $11,151
(11) Pension Plans
Union employees who are not participants in the ESOP are covered
by multiemployer pension plans under which the Company pays fixed
amounts, generally per hours worked, according to the provisions of
the various labor contracts. In 1993, 1992 and 1991, the Company
expensed $2,400,000, $2,693,000 and $2,900,000, respectively, for
these plans. Under the Employee Retirement Income Security Act of
1974 as amended by the Multiemployer Pension Plan Amendments Act of
1980, an employer is liable upon withdrawal from or termination of a
multiemployer plan for its proportionate share of the plan's
unfunded vested benefits liability. Based on information provided
by the administrators of the majority of these multiemployer plans,
the Company does not believe there is any significant amount of
unfunded vested liability under these plans.
The Company makes contributions to a defined benefit pension plan
for employees working on one cost plus U.S. Government contract.
The plan is accounted for in accordance with the requirements of
Statement of Financial Accounting Standards No. 87. The pension
plan had assets of $5,642,000 and projected benefit obligations of
$5,356,000 at September 30, 1993 (the plan's fiscal year end). This
pension plan remains in effect regardless of changes in contractors
which may occur as a result of the recompetition process.
(12) Earnings Per Share
Primary earnings per share is based on the weighted average number
of common and dilutive common equivalent shares outstanding during
the period. In addition, 1993 and 1992 include as outstanding
common stock, shares earned and vested but unissued under the
Restricted Stock Plan. For years 1993, 1992 and 1991, the
outstanding warrants and shares which would be issued under the
assumed conversion of Class C Preferred Stock have been excluded
from the calculation of earnings per share as their effect is
antidilutive because of the losses incurred during the periods (see
also Note 6). Further, the loss per common share for 1993, 1992 and
1991 includes the effect of the unpaid dividends on the Class C
Preferred Stock ($1,347,000 in 1993, $1,129,000 in 1992 and $947,000
in 1991 - see Note 7) and, in addition, for 1991 and 1992 the
dividends paid on Class A Preferred Stock. The average number of
shares used in determining primary earnings per share was 5,141,319
for 1993, 5,102,621 for 1992 and 4,719,407 for 1991.
(13) Incentive Compensation Plans
The Company has several formal incentive compensation plans which
provide for incentive payments to officers and key employees.
Incentive payments under these plans are based upon operational
performance, individual performance, or a combination thereof, as
defined in the plans. Incentive compensation expense was $7,067,000
for 1993, $6,058,000 for 1992 and $5,788,000 for 1991.
(14) Leases
The Company has capitalized all significant leases which meet the
criteria for classification as capital leases, principally leases
for vehicles and equipment. Capitalized leases are amortized over
the useful lives of the assets.
Future minimum lease payments required under operating leases that
have remaining noncancellable lease terms in excess of one year at
December 31, 1993 and payments under capitalized leases are
summarized below:
Operating Capitalized
Leases Leases
Years Ending December 31,
1994 $ 6,805 $1,519
1995 6,562 1,022
1996 4,080 651
1997 3,683 489
1998 2,727 77
Thereafter 7,831 -
Total minimum lease payments $31,688 $3,758
Less interest on capitalized leases 548
Present value of capitalized leases
as of December 31, 1993 (Note 4) $3,210
Net rent expense for leases, excluding amounts for capitalized
leases, was $16,553,000 for 1993, $14,706,000 for 1992 and
$14,980,000 for 1991.
(15) Acquisitions
On November 12, 1993 the Company acquired Technology Applications,
Inc. (TAI). Aggregate cash paid, notes issued and mortgages assumed
totaled $11,419,000 and 125,714 shares of common stock valued at
$2,200,000 were issued (see Note 6). TAI, located in Alexandria,
Virginia, provides tactical and nontactical software engineering and
logistics services to industry as well as defense and civilian
government agencies. The acquisition was accounted for as a
purchase and $2,710,000 of goodwill was recorded which will be
amortized over 40 years.
The Company also acquired certain assets of Science Management
Corporation ("SMC") and NMI Systems Inc. ("NMI") on February 18,
1993 and December 10, 1993, respectively, for an aggregate of
$5,352,000 in cash, notes and other liabilities. SMC provides
information processing, systems management and related consulting
services, primarily to the U.S. Government. Key customers include
the U.S. Postal Service, Centers for Disease Control and the
Department of Education. NMI, headquartered in Fairfax, VA,
provides telecommunications operations, engineering and local and
wide area network design and consulting services primarily for the
Environmental Protection Agency, the U.S. Treasury and the Internal
Revenue Service. Both of these acquisitions were accounted for as
purchases. Goodwill of $3,373,000 was recorded and will be
amortized over periods up to 40 years. The allocation period for
the NMI acquisition remains open pending resolution of certain
contract issues.
Consolidated revenues, loss before extraordinary item, net loss
and loss per share for the years ended December 31, 1993 and 1992,
adjusted on an unaudited pro forma basis as if the above
acquisitions and the acquisition in 1992 (BK Dynamics Inc. was
acquired on December 15, 1992 for an aggregate of $2,277,000 in cash
and notes) had been consummated at the beginning of the respective
periods, are as follows (in thousands except per share amounts):
Unaudited
1993 1992
Revenues $999,285 $993,180
Loss before extraordinary item $(11,951) $(19,307)
Net loss for common stockholders (a) $(13,298) $(22,792)
Net loss per common share $ (2.64) $ (4.58)
(a) The net loss for common stockholders includes Preferred Class
A dividends declared and paid and accretion of discount of
$959,000 in 1992.
(16) Commitments, Contingencies and Litigation
The Company is involved in various claims and lawsuits, including
contract disputes and claims based on allegations of negligence and
other tortious conduct. The Company is also potentially liable for
certain environmental, personal injury, tax and contract dispute
issues related to the prior operations of divested businesses. In
most cases, the Company has denied, or believes it has a basis to
deny, liability, and in some cases has offsetting claims against the
plaintiffs or third parties.
Damages currently claimed by the various plaintiffs for these
items which may not be covered by insurance aggregate approximately
$34,000,000 (including compensatory and possible punitive damages
and penalties).
A former subsidiary, which discontinued its business activities in
1986, has been named as one of many defendants in civil lawsuits
which have been filed in various state courts against manufacturers,
distributors and installers of asbestos products. (The subsidiary
had discontinued the use of asbestos products prior to being
acquired by the Company.) The Company has also been named as a
defendant in several of these actions. At the beginning of 1991, 31
claims had been filed and during the year 360 additional claims were
filed with one claim being settled. In 1992, 1,755 additional
claims were filed and 73 were settled. In 1993, 662 new claims were
filed with 1,204 claims being settled. Defense has been tendered to
and accepted by the Company's insurance carriers. The former
subsidiary was a nonmanufacturer that installed or distributed
industrial insulation products. Accordingly, the Company strongly
believes that the subsidiary has substantial defenses against
alleged secondary and indirect liability. The Company has provided
a reserve for the estimated uninsured legal costs to defend the
suits and the estimated cost of reaching reasonable no-fault
liability settlements of $18,000,000 less estimated insurance
coverages of $11,000,000. The amount of the reserve has been
estimated based on the number of claims filed and settled to date,
number of claims outstanding, current estimates of future filings,
trends in costs and settlements, and the advice of the insurance
carriers and counsel.
The Company and a wholly-owned subsidiary acquired in 1991 are the
subjects of separate investigations by federal investigators who are
reviewing, respectively, the accuracy of the Company's equipment
maintenance records on a military equipment maintenance contract,
and the appropriateness of pricing proposals submitted by the
subsidiary to a government agency prime contractor for software
development services. The Company and subsidiary are cooperating
with the investigators. The Company has provided a reserve for the
estimated legal costs associated with these investigations.
The Company has also been notified of certain proposed tax
adjustments by the IRS relative to the deduction taken by the
Company for expenses incurred in the 1988 merger.
The Company is a party to other civil lawsuits which have arisen
in the normal course of business for which potential liability,
including costs of defense, are covered by insurance policies.
The Company has recorded its best estimate of the liability that
will result from these matters. While it is not possible to predict
with certainty the outcome of the litigation and other matters
discussed above, it is the opinion of the Company's management,
based in part upon opinions of counsel, insurance in force and the
facts presently known, that liabilities in excess of those recorded,
if any, arising from such matters would not have a material adverse
effect on the results of operations or consolidated financial
position of the Company.
The major portion of the Company's business involves contracting
with departments and agencies of, and prime contractors to, the U.S.
government and as such are subject to possible termination for the
convenience of the government and to audit and possible adjustment
to give effect to unallowable costs under cost-type contracts or to
other regulatory requirements affecting both cost-type and fixed-
price contracts. In management's opinion, there are no outstanding
issues of this nature at December 31, 1993 that would have a
material adverse effect on the Company's consolidated financial
position or results of operations.
The Company is highly leveraged, and its ability to meet its
future debt service and working capital requirements is dependent
upon several factors. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations for a
discussion on the Company's Liquidity and Capital Resources,
included elsewhere in this Form 10-K.
(17) Business Segment
The Company operates in one line of business, that of providing
management and technical services to industry and government
organizations primarily to support the customers' facilities and/or
operations on a turn-key (full) service basis.
The Company has no significant foreign operations or assets
outside the United States. The largest single customer of the
Company is the U.S. Government. The Company had prime contract
revenues from the U.S. Government of $663 million in 1993, $674
million in 1992 and $600 million in 1991. Included in revenues from
the U.S. Government are revenues from the Department of Defense of
$543 million in 1993, $538 million in 1992 and $523 million in 1991.
No other customer accounted for more than 10% of revenues in any
year.
(18) Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 1993 and 1992 is as follows
(in thousands, except per share data):
<TABLE>
1993 Quarters 1992 Quarters
First Second Third Fourth First Second Third Fourth
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $231,560 $235,567 $239,013 $247,005 $215,095 $228,990 $218,848 $248,489
Gross profit (a) 6,726 9,507 8,219 15,104 6,982 8,532 5,803 6,829
Earnings (loss) before
income taxes,
minority interest and
extraordinary item (6,015) (2,548) (2,953) 383 (3,036) (5,014) (8,407) (4,191)
Minority interest (a) 118 386 113 335 - - - -
Extraordinary item (b) - - - - (1,432) (1,036) (56) (2)
Net loss (6,186) (2,979) (3,854) (395) (4,498) (6,081) (8,483) (4,280)
Preferred dividends and
accretion of discount - - - - 959 - - -
Net loss for common
stockholders (6,186) (2,979) (3,854) (395) (5,457) (6,081) (8,483) (4,280)
Earnings (loss) per
common share:
Primary and fully diluted:
Loss before
extraordinary item (1.26) (0.65) (0.82) (0.15) (0.83) (1.04) (1.71) (0.91)
Extraordinary item (b) - - - - (0.28) (0.20) (0.01) -
Net loss for common
stockholders (1.26) (0.65) (0.82) (0.15) (1.11) (1.24) (1.72) (0.91)
<FN>
(a) The first two quarters of 1993 have been restated to (
present minority interest in operations as a separate
line item.
(b) Loss from early extinguishment of debt (see Note 4). (
Quarterly data may not equal annual totals due to rounding.
</TABLE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Herbert S. Winokur, Jr., 50 Director and Chairman of the Board
since 1988, term expires 1996
President, Winokur Holdings, Inc.
(investment company)
Formerly Senior Executive Vice President, Member Office of
the President, and Director, Penn Central Corporation.
Director of ENRON Corporation; NacRe Corp.; NHP, Inc.; and
Marine Drilling Companies, Inc.
Dan R. Bannister, 63* Director since 1985, term expires
1995
Chief Executive Officer since 1985
President since 1984
Director of Industrial Training
Corporation
T. Eugene Blanchard, 63* Nominee for Director, term expires 1997
Director since 1988
Senior Vice President and Chief
Financial Officer since 1979
Russell E. Dougherty, 73 Director since 1989, term expires 1996
Attorney, McGuire, Woods, Battle &
Boothe (law firm)
Retired General, United States Air Force; served as
Commander-in-Chief, Strategic Air Command and Chief of
Staff, Allied Command, Europe. From 1980 to 1986 served as
Executive Director of the Air Force Association and
Publisher of Air Force Magazine. Member of the Defense
Science Board. Trustee of the Institute for Defense
Analysis. Director of The Aerospace Corp.
James H. Duggan, 58* Director since 1988, term expires 1996
Executive Vice President since 1987
President of Applied Sciences Group
since 1991
Paul G. Kaminski, 51 Director since 1988, term expires
1995
Chairman and Chief Executive Officer of
Technology Strategies & Alliances
(strategic partnership consulting)
Retired Colonel, United States Air Force. Director of
Atlantic Aerospace & Electronics; Delfin Systems, Inc.;
Geodynamics, Inc.; Jaycor; Microwave Technology Inc.; ISX
Corp.; and Michigan Development Corp. Chairman of the
Defense Science Board.
Dudley C. Mecum II, 59 Nominee for Director, term expires 1997
Director since 1988
Partner, G.L. Ohrstrom & Co. (investment
company)
Formerly Chairman of Mecum Associates, Inc. Served as Group
Vice President and Director, Combustion Engineering, Inc.
Director of The Travelers Inc., Lyondell Petrochemical
Company, Vicorp Restaurants Inc., Fingerhut Companies, Inc.,
and Roper Industries Inc.
David L. Reichardt, 51* Director since 1988, term expires
1995
Senior Vice President and General
Counsel since 1986
President of Dynalectric Company, a subsidiary of DynCorp,
from 1984 to 1986. Vice President and General Counsel of
DynCorp from 1977 to 1984.
Other Executive Officers
Patrick G. Deasy, 55* Vice President since 1993
President of DynAir Ground Services
Group since 1993, President of DynAir
Services Inc. since 1985
Gerald A. Dunn, 60* Vice President since 1973
Controller since 1967
H. Montgomery Hougen, 58 Corporate Secretary and Deputy General
Counsel since 1984
Richard A. Hutchinson, 49 Treasurer since 1978
Marshal J. Hyman, 48 Vice President since 1993
Director of Taxes since 1986
Paul V. Lombardi, 52* Vice President since 1992
President of Government Services Group
since 1992
Senior Vice President and Group General Manager, Planning
Research Corporation from 1990 to 1992. Senior Vice
President and Group General Manager, Advanced Technology
Inc. from 1988 to 1990.
Gregory Moyer, 45 Vice President, Human Resources and
Administration since 1993
Vice President, Human Resources and Quality, Planning
Research Corporation from 1989 to 1993.
John H. Saunders, 37 Vice President, Finance since 1993
Director of Corporate Finance since 1990
Vice President, Finance, Government
Services Group from 1987 to 1990
Donald S. Sullenberger, 53 Vice President, Quality Improvement
since 1991. Retired Colonel,
United States Air Force. Division
Manager, DynCorp, Holloman Support
Division from 1987 to 1991
Richard L. Webb, 61* Vice President since 1988
President of DynAir Technical Services
Group since 1993, President of Aviation
Services Group from 1985 to 1993
Robert G. Wilson, 52 Vice President and General Auditor
since 1985
*Officers designated by an asterisk are deemed to be
officers for purposes of Rule 16a-1(f), as promulgated in
Release No. 34-28869.
Stockholders Agreement
In anticipation of the merger of DME Holdings, Inc. into the
Company, which occurred in September, 1988, the stockholders and
other investors in DME Holdings, Inc. entered into a Stockholders
Agreement, dated March 11, 1988. This Agreement, to which most
of the holders of voting stock of DynCorp, except the Employee
Stock Ownership Plan Trust and participants in such Plan to whom
shares have been distributed, are parties, provides that the
Company's management employees as a group and the outside
investors acting through Capricorn Investors as a group are each
entitled to nominate four of the nine authorized directors and,
in concert, to nominate a ninth director, for which nominees all
the parties are required to vote. Each of the eight current
directors, including those currently nominated to succeed
themselves, was initially nominated by this procedure. The
Stockholders Agreement expired on March 11, 1994, but a
replacement Stockholders Agreement, effective as of such
expiration date and having similar terms, has been approved by
the Board of Directors and is expected to be adopted by the
respective parties.
ITEM 11. EXECUTIVE COMPENSATION
Compensation
The following table sets forth information regarding annual
and long-term compensation for the chief executive officer and
the other four most highly compensated executive officers of the
Company. The table does not include information for any fiscal
year during which a named executive officer did not hold such a
position with the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Principal Salary Bonus(1) Compen- Award(s)(2) Options/ Payouts sation (3)
Position Year ($) ($) sation($) ($) SARs (#) ($) ($)
<S> <C> <C> <C> <C> <C>
Dan R. Bannister 1993 339,896 155,000 17,465
President & Chief 1992 317,800 140,000 16,634
Executive Officer 1991 296,618 140,000 33,934 19,128
James H. Duggan 1993 248,736 90,000 12,813
Executive Vice 1992 234,688 80,000 13,767
President & President 1991 226,115 80,000 20,695 16,261
Appl. Sci. Group
T. Eugene Blanchard 1993 200,591 90,000 17,018
Senior Vice President 1992 189,131 75,000 16,634
& Chief Financial 1991 181,784 75,000 19,128
Officer
David L. Reichardt 1993 193,371 90,000 11,793
Senior Vice President 1992 181,934 75,000 10,360
& General Counsel 1991 172,478 75,000 12,854
Paul V. Lombardi 1993 219,663 100,000 105,000 11,960
Vice President & 1992 47,859 60,000 105,000 2,338
President, Government 1991 - - -
Services Group
</TABLE>
(1) Column (d) reflects bonuses earned and expensed during year,
whether paid during or after such year.
(2) Value of restricted stock units determined in accordance
with Restricted Stock Plan. Units awarded in 1991 could vest in
less than three years, in the event of earlier issuance of a tax
ruling regarding the allocation of shares within the Employee
Stock Ownership Plan (ESOP). There is no provision to pay
dividends on restricted stock units. The following table
reflects the number of restricted stock units in the respective
accounts of the named individuals, whether vested or unvested,
and the aggregate valuation as of December 31, 1993.
Name No. of Value ($)
Units
Dan R. Bannister 55,292 967,610
James H. Duggan 58,764 1,028,370
T.Eugene Blanchard 47,980 839,650
David L. Reichardt 32,528 569,240
Paul V. Lombardi 12,000 210,000
(3) Column (i) includes individual's pro rata share of the
Company's contribution to the ESOP Trust, estimated for 1993, and
the Company-paid portion of group term-life insurance premiums
covering the individual, as reflected in the following table.
Name ESOP Contributions ($) Insurance Premiums($)
1993 1992 1991 1993 1992 1991
Dan R. Bannister 8,912 8,912 11,406 8,553 7,722 7,722
James H. Duggan 8,912 8,912 11,406 3,901 4,855 4,855
T. Eugene Blanchard 8,912 8,912 11,406 8,106 7,722 7,722
David L. Reichardt 8,912 8,912 11,406 2,881 1,448 1,448
Paul V. Lombardi 8,912 1,810 - 3,048 528 -
Compensation of Directors
Non-employee directors of the Company receive an annual
retainer fee of $16,500 as directors and $2,750 for each
committee on which they serve. The Company also pays non-
employee directors a meeting fee of $1,000 for attendance at each
Board meeting and $500 for attendance at committee meetings.
Directors are reimbursed for expenses incurred in connection with
attendance at meetings and other Company functions.
Directors and Officers Liability Insurance
The Company has purchased and paid the premium for insurance
in respect of claims against its directors and officers and in
respect of losses for which the Company may be required or
permitted by law to indemnify such directors and officers. The
directors insured are the directors named herein and all
directors of the Company's subsidiaries. The officers insured
are all officers and assistant officers of the Company and its
subsidiaries. There is no allocation or segregation of the
premium as regards specific subsidiaries or individual directors
and officers.
Employment-Type Contracts
In September, 1987, the Company entered into change-in-
control severance agreements with Messrs. Bannister, Duggan,
Blanchard, and Reichardt, and certain other executive officers of
DynCorp (the "Severance Agreements"). Each Severance Agreement
provides that certain benefits, including a lump-sum payment,
will be triggered if such executive is terminated following a
change in control during the term of that executive's Severance
Agreement, unless such termination occurs under certain
circumstances set forth in the Severance Agreements. The
Severance Agreements expire on December 31, 1994, but they are
automatically extended. The amount of such lump sum payment
would be equal to 2.99 times the sum of the executive's annual
salary and the average annual amount paid to the executive
pursuant to certain applicable compensation-type plans in the
three years preceding the year in which the termination occurs.
Other benefits include payment of any incentive compensation
which has been allocated or awarded but not yet paid to the
executive for a fiscal year or other measuring period preceding
termination and a pro rata portion to the date of termination of
the aggregate value of incentive compensation awards for
uncompleted periods under such plans. Each Severance Agreement
also provides that, if the aggregate of the lump sum payment to
the executive and any other payment or benefit included in the
calculation of "parachute payments" within the meaning of Section
280G of the Internal Revenue Code exceeds the amount the Company
is entitled to deduct on its federal income tax return, the
severance payments shall be reduced until no portion of the
aggregate termination payments to the executive is not so
deductible or the severance payment is reduced to zero. The
Severance Agreements also provide that the Company will reimburse
the executive for legal fees and expenses incurred by the
executive as a result of termination except to the extent that
the payment of such fees and expenses would not be, or would
cause any other portion of the aggregate termination payments not
to be, deductible by reason of Section 280G of the Code. The
Company has an employment contract with Mr. Lombardi, under which
Mr. Lombardi receives salary at an annual rate of $215,000;
subject to earlier termination for specified reasons, the
contract continues until September 30, 1994.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of
Directors during 1993 were: Herbert S. Winokur, Jr., Chairman of
the Board and Director; Russell E. Dougherty, Director; and Paul
G. Kaminski, Director. None of the members are current or former
employees of the Company, and, except for Mr. Winokur, whose
relationship to Capricorn Investors, L.P. ("Capricorn") is
described in Item 12, none have any relationship with the Company
of the nature contemplated by Rule 404 of Regulation S-K.
On February 12, 1992, the Company loaned $5,500,000 to
Cummings Point Industries, Inc. ("CPI"), a Delaware corporation
of which Capricorn owns more than 10%. The indebtedness is
represented by a promissory note (the "Note"), bearing interest
at the annual rate of 17%, which provides that interest is
payable quarterly but that interest payments may be added to the
principal of the Note rather than being paid in cash. The Note
is subordinated to all senior debt of CPI. The Note was due six
months after issuance, but it has been, and may continue to be,
automatically extended for three-month periods until no later
than February 12, 1995. By separate agreement, Capricorn agreed
to purchase the Note from the Company upon three months' notice,
for the amount of outstanding principal plus accrued interest.
The purchase obligation is secured by certain common stock and
warrants issued by the Company and owned by Capricorn.
No executive officer of the Company serves on the board of
directors or compensation committee of any entity (other than
subsidiaries of the Company) whose directors or executive
officers served on the Board of Directors or Compensation
Committee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Voting Securities
As of March 1, 1994, the Company had 4,728,563 shares of
Common Stock and 123,711 shares of Class C Preferred Convertible
Stock outstanding, which constituted all the outstanding voting
securities of the Company. If all the shares issuable upon
exercise of outstanding warrants, all the shares issuable upon
conversion of outstanding Class C Preferred Convertible Stock and
exercise of related warrants, and shares issuable as a result of
scheduled expiration within 60 days of Restricted Stock Plan
deferrals (but excluding any vesting of Restricted Stock Plan
units or shares subsequent to March 1, 1994) were issued, the
outstanding voting securities following such dilution would
consist of 10,570,267 shares of Common Stock (and no shares of
Class C Stock). The following tables show beneficial ownership
of issued voting shares as a percentage of currently outstanding
stock and beneficial ownership of issued and issuable shares as a
percentage of common stock on a fully diluted basis assuming all
such conversions, exercises, and issuances.
Security Ownership of Certain Beneficial Owners
The following table presents information as of March 1,
1994, concerning the only known beneficial owners of five percent
or more of the Company's Common Stock and Class C Preferred
Stock.
Amount & Amount &
Nature of Nature of Percent
Title Ownership Percent Ownership of
Name and Address of of of Outstand- of of Diluted Diluted
Beneficial Owner Class ing Shares Class Shares (3) Shares (3)
Chemical Bank, Common 3,816,841 80.7% 3,816,841 36.1%
Trustee of the Direct(1) Direct (1)
DynCorp Employee Stock
Ownership Trust
450 W. 33rd Street
New York, NY 10001-2697
Capricorn Investors, Common 292,369 6.2% 4,117,127 39.0%
L.P.(2) Direct Direct
72 Cummings Point
Road
Stamford, CT 06902
Capricorn Investors, Class C 123,711 100% N/A -
L.P.(2) Preferred Direct
72 Cummings Point Road
Stamford, CT 06902
(1) Shares are held for the accounts of participants in the
ESOP. When allocated to individual participant accounts,
shares are voted upon instruction of the individual
participants. Until so allocated, shares are voted upon the
instruction of the ESOP Administrative Committee, 2000
Edmund Halley Drive, Reston, Virginia 22091-3436.
(2) Herbert S. Winokur, Jr., Chairman of the Board and a
Director of the Company, is the President of Winokur
Holdings, Inc., which is the managing partner of Capricorn
Holdings, G.P., which in turn is the general partner of
Capricorn Investors, L.P.
(3) Assumes dilution described above.
Security Ownership of Management(1)
Beneficial ownership of the Company's equity securities by
directors and nominees for election to the Board, and all current
officers and directors as a group, are set forth below:
Amount & Amount &
Nature of Nature of Percent
Title Ownership Percent Ownership of
Name and Title of of of Outstand- of of Diluted Diluted
Beneficial Owner Class ing Shares(2) Class(3) Shares (4) Shares(3)
(4)
D. R. Bannister Common 55,030 Direct} 1.3% 305,620 Direct} 3.0%
President & 6,952 Indirect} 6,952 Indirect}
Director
T. E. Blanchard Common 19,385 Direct} * 148,746 Direct} 1.5%
Senior Vice 5,763 Indirect} 14,109 Indirect}
President
& Director
R. E. Dougherty -- -- -- -- -- - --
Director
J. H. Duggan Common 16,146 -- * 123,881 Direct} 1.3%
Executive Vice 7,278 12,426 Indirect}
President &
Director
P. J. Kaminski -- -- -- -- -- -- --
Director
D. C. Mecum II -- -- -- -- -- -- --
Director
D. L. Reichardt Common 10,905 Direct} * 58,430 Direct} *
Senior Vice 5,994 Indirect} 10,748 Indirect}
President
& Director
H. S. Winokur, Common 292,369 Indirect 6.2% 4,117,127 Indirect 39.0%
Jr.(5)
Chairman of the Class C 123,711 Indirect 100% N/A --
Board & Preferred
Director
All officers Common 159,793 Direct} 10.7% 910,596 Direct} 48.5%
and 345,198 Indirect} 4,216,487 Indirect}
directors as a
group Class C 123,711 Indirect 100% N/A -- --
Preferred
(1) As disclosed in filings under the Securities Exchange Act of
1934 or otherwise known to the Company as of March 1, 1994.
Shares held by the ESOP trustee but within individual voting
control are included in the table, whether or not vested.
(2) Restricted stock units which have not been converted into
shares of stock and distributed pursuant to the Company's
Restricted Stock Plan as of March 1, 1994 are not
transferable by or within the voting control of the
participants. Such units are not included herein.
(3) An asterisk indicates that beneficial ownership is less than
one percent of the class.
(4) Assumes dilution described above.
(5) Includes securities owned by Capricorn. See preceding table
for relationship of Mr. Winokur thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Dougherty is of counsel to the law firm of McGuire,
Woods, Battle & Boothe, which firm has provided legal services to
the Company from time to time.
During 1993, Bankers Trust Company was a lender to the
Company pursuant to a revolving credit agreement in the amount of
$10,000,000; except for letters of credit issued thereunder and
still outstanding, the credit agreement has expired. Bankers
Trust Company also provides various trustee, banking, and other
financial and advisory services to the Company. An affiliated
company of Bankers Trust Company is a partner in Capricorn.
Officers and directors who obtained securities through the
Company's Management Employees Stock Purchase Plan and Restricted
Stock Plan are subject to the Stockholders Agreement described in
Item 10. Under the terms of the Stockholders Agreement, the
Company's securities can not be sold individually to outside
parties. Management employees of the Company whose employment is
terminated, except retiring employees who could elect to retain
their securities indefinitely, are required to sell such
securities, at the fair market price established by the Board of
Directors from time to time, to the other stockholders or to the
Company, and the Company is required to repurchase such
securities at such price, subject to restrictions imposed by its
Certificate of Incorporation and various financing agreements.
The Stockholders Agreement expired on March 11, 1994, but a
replacement Stockholders Agreement, effective as of such
expiration date and having similar terms, has been approved by
the Board of Directors and is expected to be adopted by the
respective parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. All financial statements. See Table
of Contents
2. Financial statement Schedules.
Schedule III - Condensed Financial Information of Registrant
DynCorp (Parent Company)
Balance Sheets
Assets
Liabilities and Stockholders' Equity
Statements of Operations
Statements of Cash Flows
Notes to Condensed Financial Statements
Schedule VIII - Valuation and Qualifying Accounts for the
Years Ended December 31, 1993, 1992, and 1991.
All other financial schedules not listed have been omitted
since the required information is included in the Consolidated
Financial Statements or the notes thereto, or is not applicable
or required.
3. Exhibits
Exhibit 3
(1) Certificate of Incorporation, as currently in effect,
consisting of Restated Certification of Incorporation
(incorporated by reference to Registrant's Form 10-K
for 1992, File No. 1-3879)
(2) Registrant's By-laws as amended to date.
Exhibit 4
(1) Specimen 16% Pay-in-Kind Junior
Subordinated Debentures due 2003 Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(2) Indenture for $100,000,000 of 8.54% Contract Receivables
Collateralized Notes, Series 1992-1, Due 1997, dated
as of January 1, 1992, between Dyn Funding Corporation
(wholly owned subsidiary of the Registrant) and Bankers
Trust Company, as trustee (incorporated by reference to
Registrant's Form 8-K filed February 7, 1992, File No. 1-
3879)
(3) Specimen 18% Class C Preferred Stock Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(4) Specimen Common Stock Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(5) Specimen Class A Common Stock Warrant Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(6) Specimen Class B Common Stock Warrant Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(7) Indenture Agreement for 16% Pay-in-kind Junior Subordinated
Debenture (incorporated by reference to Exhibit 4.1 to
Form S-4 filed July 27, 1988)
(8) Statement Respecting Warrants and Lapse of Certain
Restrictions
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(9) Amendment (effective March 26, 1991) to Statement Respecting
Warrants and Lapse of Certain Restrictions (incorporated by
reference to Registrant's Form 10-K for 1990, File No. 1-
3879)
(10) Article Four of the Restated Certificate of Incorporation
(incorporated by reference to Registrant's Form 10-K for
1992, File No. 1-3879)
The Registrant, by signing this Report, agrees to furnish the
Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long-term debt of
the Registrant.
Exhibit 10
(1) Deferred Compensation Plan.
(incorporated by reference to Registrant's Form 10-K for
1987, File No. 1-3879)
(2) Management Incentive Plan (MIP)
(3) DynCorp Executive Incentive Plan (EIP)
(4) Management Severance Agreements.
(incorporated by reference to Exhibits (c)(4) through (c)(12)
to Schedule 14D-9 filed by Registrant January 25, 1988.
(5) Employment agreement of Richard L. Webb, Vice President,
Aviation Services, dated June 24, 1992 (incorporated by
reference to Registrant's Form 10-K for 1992, File No. 1-
3879)
(6) Employment agreement of Paul V. Lombardi,
Vice President, Government Services Group
(7) Restricted Stock Plan.
Exhibit 11
(1) Computations of Earnings Per Common Share for the
Years Ended December 31, 1993, 1992, and 1991
Exhibit 21
(1) Subsidiaries of the Registrant
Exhibit 24
(1) Consent of Independent Public Accountants
(b) Reports on Form 8-K
None filed during the fourth quarter
ended December 31, 1993
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNCORP
March 31, 1994 By: D. R. Bannister
D. R. Bannister
President and Chief
Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report is signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
D. R. Bannister President and Director March 31, 1994
D. R. Bannister (Principal Executive Officer)
J. H. Duggan Executive Vice President March 31, 1994
J. H. Duggan and Director
T. E.Blanchard Senior Vice President March 31, 1994
T. E. Blanchard Chief Financial Officer
and Director
D. L. Reichardt Senior Vice President March 31, 1994
D. L. Reichardt General Counsel and Director
G. A. Dunn Vice President March 31, 1994
G. A. Dunn and Controller
(Principal Accounting Officer)
D. C. Mecum II Director March 31, 1994
D. C. Mecum II
H. S. Winokur, Jr. Director March 31, 1994
H. S. Winokur, Jr.
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in Thousands)
ASSETS
December 31,
1993 1992
Current Assets:
Cash and short-term investments $ 6,894 $ 5,822
Notes and current portion of long-term receivables (a) - 1
Accounts receivable and contracts in process,
net of allowance for doubtful accounts (Note 3) 20,723 18,153
Inventories of purchased products and supplies 513 419
Other current assets 3,718 5,710
Total current assets 31,848 30,105
Investment in and advances to subsidiaries and affiliates 70,277 50,005
Property and Equipment, net of accumulated depreciation
and amortization 9,836 11,479
Intangible Assets, net of accumulated amortization 86,811 90,374
Other Assets 6,040 7,513
Total Assets $204,812 $189,476
(a) December 1992 has been restated to conform to 1993 presentation of the
Cummings Point Industries, Inc. note receivable.
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements"
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in Thousands)
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
December 31,
1993 1992
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 2) $ 3,392 $ 2,601
Accounts payable (a) 11,594 7,776
Advances on contracts in process 864 668
Accrued liabilities (a) 71,855 77,283
Total current liabilities 87,705 88,328
Long-term Debt (Note 2) 93,150 80,294
Other Liabilities and Deferred Credits 15,591 16,970
Total Liabilities 196,446 185,592
Commitments, Contingencies and Litigation - -
Redeemable Common Stock $17.50 per share redemption value,
125,714 shares issued and outstanding 2,200 -
Stockholders' Equity:
Capital stock, $0.10 par value:
Preferred stock, Class C 3,000 3,000
Common stock 502 491
Common stock warrants 15,119 15,119
Unissued common stock under restricted stock plan 10,395 9,941
Paid-in surplus 95,983 96,408
Deficit (105,425) (92,011)
Common stock held in treasury (5,840) (6,538)
Cummings Point Industries, Inc. note receivable (b) (7,568) (6,410)
Employee Stock Ownership Plan Loan - (16,116)
Total Stockholders' Equity 6,166 3,884
Total Liabilities, Redeemable Common Stock
and Stockholders' Equity $204,812 $189,476
(a) December 1992 has been restated to conform to the 1993 presentation.
(b) December 1992 has been restated to conform to 1993 presentation of the
Cummings Point Industries, Inc. note receivable.
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Statements of Operations
(Dollars in Thousands)
For the Years Ended December 31,
1993 1992 1991
Revenues $552,662 $557,675 $513,601
Costs and Expenses:
Cost of services 528,776 542,901 501,584
Selling and corporate administrative 10,994 12,534 10,473
Interest expense 14,950 14,608 18,295
Interest income (1,969) (1,693) (2,006)
Other (Note 3) 23,902 23,490 8,805
576,653 591,840 537,151
Loss before income taxes, equity in net income
of subsidiaries and extraordinary item (23,991) (34,165) (23,550)
Benefit for income taxes (1,561) (3,900) (7,951)
Loss before equity in net income of subsidiaries
and extraordinary item (22,430) (30,265) (15,599)
Equity in net income of subsidiaries 9,016 9,449 3,004
Loss before extraordinary item (13,414) (20,816) (12,595)
Extraordinary gain (loss) from early retirement
of debt, net of income tax provision - (2,526) 192
Net Loss (13,414) (23,342) (12,403)
Preferred Stock Class A dividends declared
and paid and accretion of discount - 959 5,180
Net Loss for Common Stockholders $(13,414)$(24,301) $(17,583)
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Statements of Cash Flow
(Dollars in Thousands)
For the Years Ended December 31,
1993 1992 1991
Cash Flows from Operating Activities:
Net loss $(13,414) $(23,342) $(12,403)
Adjustments to reconcile net loss from operations
to net cash provided by operating activities:
Depreciation and amortization 7,834 9,510 14,713
Pay-in-kind interest on Junior
Subordinated Debentures 13,142 6,590 11,950
Loss (gain) on purchase of Junior
Subordinated Debentures - 2,526 (291)
Deferred income taxes 521 (666) (5,167)
Accrued compensation under Restricted
Stock Plan 2,047 2,354 3,061
Noncash interest income (1,158) (910) -
Other (1,936) (4,363) (1,312)
Change in assets and liabilities, net of acquisitions
and dispositions and sale of accounts receivable in 1993:
Decrease in accounts receivable and
contracts in process (2,570) (10,173) (11,446)
(Increase) decrease in inventories (93) (72) 254
(Increase) decrease in other
current assets 1,992 986 (577)
Increase (decrease) in current
liabilities except notes payable and
current portion of long-term debt (976) 6,690 16,418
Cash provided (used) by
operating activities 5,389 (10,870) 15,200
Cash Flows from Investing Activities:
Sale of property and equipment 829 130 103
Proceeds received from notes receivable - 1,346 8,423
Purchase of property and equipment (928) (2,381) (2,519)
Increase in notes receivable - (5,500) -
Increase in investments and affiliates - (1,888) -
Deferred income taxes from "safe harbor" leases - (20) (104)
Deferred income taxes related to the merger and
disposition of businesses - - 342
Other 345 (201) (66)
Cash provided (used) from
investing activities 246 (8,514) 6,179
Cash Flows from Financing Activities:
Purchase of Preferred Stock Class A and
Junior Subordinated Debentures - (42,466) (2,074)
Treasury stock purchased (1,979) (3,448) (2,810)
Payment on indebtedness (4,725) (41,010) (17,005)
Increase in bank borrowings - - 6,000
Accounts receivable sold (Note 3) - 63,682 -
Dividends paid on Class A Preferred Stock - (861) -
Treasury stock sold under Management Employees
Stock Purchase Plan 46 108 398
Reduction in loan to Employee Stock
Ownership Plan 16,116 16,099 15,402
Change in intercompany balances, net (14,021) 14,050 (8,438)
Cash provided (used) from
financing activities (4,563) 6,154 (8,527)
Net Increase (Decrease) in Cash and
Short-term Investments 1,072 (13,230) 12,852
Cash and Short-term Investments at Beginning
of the Period 5,822 19,052 6,200
Cash and Short-term Investments at End
of the Period $ 6,894 $ 5,822 $ 19,052
The "Notes to Consolidated Financial Statements" of DynCorp and
Subsidiaries are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
Pursuant to the rules and regulations of the Securities and
Exchange Commission, the Condensed Financial Statements of the
Registrant do not include all of the information and notes
normally included with financial statements prepared in
accordance with generally accepted accounting principles. It is,
therefore, suggested that these Condensed Financial Statements be
read in conjunction with the Consolidated Financial Statements
and Notes included elsewhere in this Annual Report on Form 10-K.
2. Long-term Debt
At December 31, 1993 and 1992, long-term debt consisted of:
1993 1992
(In thousands)
Junior Subordinated Debentures, net of unamortized
discount of $5,175 and $5,491 $86,947 $73,489
Notes payable, due in installments through 2002,
9.3% weighted average interest rate 6,643 6,242
Capitalized equipment leases 2,952 3,164
96,542 82,895
Less current portion 3,392 2,601
$93,150 $80,294
Maturities of long-term debt as of December 31, 1993, were as
follows:
Years Ending December 31, (In Thousands)
1994 $ 3,392
1995 2,267
1996 1,747
1997 1,106
1998 688
Thereafter 92,517
3.Accounts Receivable
At December 31, 1992, the Company sold $63,682,000 of its
accounts receivable to Dyn Funding Corporation (DFC), a wholly
owned subsidiary of the Company. DFC was established in January,
1992 to issue $100,000,000 of Contract Receivable Collateralized
Notes (Notes) and to purchase eligible accounts receivable from
the Company and its subsidiaries. On an ongoing basis, the cash
received by DFC from collection of the receivables is used to
make interest payments on the Notes, pay a servicing fee to the
Company and purchase additional receivables from the Company (see
Note 4 to Consolidated Financial Statements included elsewhere in
this Form 10-K).
The Company receives 97% of the face value of the accounts
receivable sold to DFC. The 3% discount from the face value of
the accounts receivable is recorded as an expense by the Company
at the time of sale. In 1993 and 1992, the Company recorded as
expense $16,298,000 and $17,308,000 which is reflected in "Other"
in the accompanying "Statements of Operations" (in the
"Consolidated Statements of Operations" of DynCorp and
Subsidiaries this expense is offset by the gain recognized by DFC).
<TABLE>
DynCorp and Subsidiaries
SCHEDULE VIII - Valuation and Qualifying Accounts
For the Years Ended December 31, 1993, 1992, and 1991
(Dollars in Thousands)
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts(1) Deductions(2) Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful accounts $3,415 $1,141 $ 79 $3,166 $1,469
Year Ended December 31, 1992
Allowance for doubtful accounts $2,532 $ 965 $ 254 $ 336 $3,415
Year Ended December 31, 1991
Allowance for doubtful accounts $1,336 $ 953 $ 333 $ 90 $2,532
<FN>
(1) Includes recovery of prior year writeoffs.
(2) Writeoff of uncollectible accounts.
</TABLE>
Exhibit 3(2)
DYNCORP BY-LAWS 5/26/93
ARTICLE I
Office
Section 1. The registered office of the Corporation shall be in
the City of Wilmington, County of New Castle, State of Delaware,
and the name of the resident agent is The Company Corporation.
Section 2. The Corporation may also have offices in the Reston
area of Fairfax County, Commonwealth of Virginia, and at such
other places either within or without the State of Delaware as
the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
Stockholders' Meetings
Section 1. All meetings of the stockholders for the election of
directors shall be held at the office of the Corporation in the
Reston area of Fairfax County, Virginia, or at such other place
either within or without the State of Delaware as may be fixed
from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other
purpose may be held at such place and time as shall be stated in
the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. An annual meeting of stockholders shall be held on
the second Monday of May in each year if not on a legal holiday,
and if a legal holiday then on the next secular day following, at
1:30 p.m. or at such other date and/or time as shall be designat-
ed by the Board of Directors and stated in the notice of meeting,
at which they shall elect directors by a plurality vote and
transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting or any special
meeting shall be served upon or mailed to each stockholder
entitled to vote thereat at such address as appears on the books
of the Corporation, except as provided by the statutes or these
By-Laws, at least ten days prior to the meeting.
Section 4. At least ten days before every election of directors,
a complete list of stockholders entitled to vote at said elec-
tion, arranged in alphabetical order, with the address of each
and the number of voting shares held by each, shall be prepared
by the Secretary. Such list shall be open at the place where the
election is to be held, during ordinary business hours, for said
ten days, to the examination of any stockholder for any purpose
germane to the meeting, and shall be produced and kept at the
time and place of election during the whole time thereof and
subject to the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of
the Board or the President and shall be called by the President
or Secretary at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning
a majority in amount of the entire capital stock of the Corpora-
tion issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.
Section 6. Business transacted at all special meetings shall be
confined to the objects stated in the notice.
Section 7. The holders of at least one-third of the stock issued
and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall be requisite and shall constitute
a quorum at all meetings of the stockholders for the transaction
of business except as otherwise provided by statute, the Certifi-
cate of Incorporation, or these By-Laws. If, however, such
quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn
the meeting from time to time, without notice other than an-
nouncement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each stock-
holder of record entitled to vote at the meeting.
Section 8. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power
present in person or represented by proxy and voting thereon
shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes
or the Certificate of Incorporation, or these By-Laws, a differ-
ent vote is required, in which case such express provision shall
govern and control the decision of such question.
Section 9. At any meeting of the stockholders, every stockholder
having the right to vote thereat shall be entitled to vote in
person or by proxy appointed by an instrument in writing sub-
scribed by such stockholder and bearing a date not more than
three years prior to said meeting, unless said instrument pro-
vides for a longer period. Each stockholder shall have one vote
for each share of stock having voting power, registered in his
name on the books of the Corporation, and except where the
transfer books of the Corporation shall have been closed or a
date shall have been fixed as a record date for the determination
of its stockholders entitled to vote, no share of stock shall be
voted on at any election of directors which shall have been
transferred on the books of the Corporation within twenty days
next preceding such election of directors. At the elections of
directors of the Corporation, each stockholder having voting
power shall be entitled to exercise the right of cumulative
voting, if any, as provided in the Certificate of Incorporation.
Section 10. Unless otherwise provided by the statutes or the
Certificate of Incorporation, whenever the vote of stockholders
is required or permitted to be taken in connection with any
corporate action, the meeting and vote of stockholders may be
dispensed with, if the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to
authorize or take such action if such meeting and vote were held
shall consent in writing to such corporate action being taken.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
Directors
Section 1. Subject to the provision of the Certificate of
Incorporation, the number of directors of the Corporation shall
not be less than nine (9), nor more than twelve (12), the exact
number of directors to be determined from time to time by resolu-
tion of a majority of the whole Board of Directors, and such
exact number shall be nine (9) until otherwise determined by
resolution adopted by affirmative vote of a majority of the whole
Board of Directors. As used in these By-Laws, the term "whole
Board" means the total number of directors which the Corporation
would have if there were no vacancies. The Board of Directors
shall be divided into three classes, as nearly equal in number as
the then-total number of directors constituting the whole Board
permits, with the term of office of one class expiring each year.
The initial term of directors of the first class shall expire at
the next succeeding annual meeting, the initial term of directors
of the second class shall expire at the second succeeding annual
meeting, and the initial term of directors of the third class
shall expire at the third succeeding annual meeting. Thereafter
at the conclusion of each term, each class of nominated directors
shall stand for election for a three-year term. If the number of
directors is changed, any increase or decrease shall be appor-
tioned among the classes so as to maintain the number of direc-
tors in each class as nearly equal as possible, and any addition-
al director of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of
any incumbent director. A director shall hold office until the
annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualifica-
tion or removal from office; provided further that the policy
regarding mandatory retirement of directors shall be as estab-
lished by a majority of the whole Board of Directors, and any
incumbent director reaching any mandatory retirement age last
established prior to his most recent election to the Board of
Directors shall be eligible to serve only through the date he
attains such mandatory retirement age (regardless of the remain-
ing term of such incumbent director's class).
Section 2. Any vacancy on the Board of Directors that results
from an increase in the number of directors may be filled by a
majority of the whole Board of Directors, and any other vacancy
occurring in the Board of Directors may be refilled by a majority
of the whole Board of Directors, although less than a quorum, or
by a sole remaining director. Any director elected to fill a
vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his predecessor.
Section 3. The property, business, and affairs of the Corpora-
tion shall be managed by or under the direction of its Board of
Directors, which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute, the
Certificate of Incorporation, or these By-Laws directed or
required to be exercised or done by the stockholders.
Committees of Directors
Section 4. The Board of Directors at its first meeting after
each annual meeting of the stockholders shall designate three or
more of its members, to include the Chairman of the Board and the
Chief Executive Officer, if the Chief Executive Officer is a
member of the Board of Directors, who shall constitute the
Executive Committee of the Board of Directors. The Executive
Committee shall have and may exercise all of the powers of the
Board of Directors as may be lawfully delegated in the management
of the business and affairs of the Corporation and shall have the
power to authorize the seal of the Corporation to be affixed to
all papers which may require it. The Board of Directors may
designate one or more of its members as alternate members of the
Executive Committee, who may replace any absent or disqualified
member at any meeting of the Executive Committee. In the absence
or disqualification of a member of the Executive Committee, the
member or members thereof present at any meeting and not disqual-
ified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors
to act at the meeting in the place of any such absent or disqual-
ified member; provided however, that in no event shall the
Executive Committee have the authority to consider or act upon
matters concerning United States Government security.
Section 5. The Board of Directors may, by resolution or resolu-
tions passed by a majority of the whole Board, designate one or
more additional committees consisting of two or more of the
directors of the Corporation. Such additional committee or
committees shall have and may exercise such powers and shall have
such names as are provided in said resolution or resolutions.
Section 6. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required.
Advisory Directors
Section 7. The Board of Directors may appoint advisory directors
whose experience and knowledge would be useful to the Board, said
advisory directors to be former members of the Board or current
stockholders. Such advisory directors shall be no more than four
in number and shall serve at the pleasure of the Board, with
terms expiring as of each annual meeting of stockholders. Adviso-
ry directors shall be given notice of and may attend meetings of
the Board of Directors but shall not be considered members of
the Board of Directors. Advisory directors shall have no right
to vote and shall not be counted in determining whether a quorum
is present at any meeting. Advisory directors shall not be
charged with responsibilities, nor shall they be subject to the
liabilities of directors. An advisory director may be appointed
as an advisory member of any committee of the Board.
Compensation of Directors and Advisory Directors
Section 8. Directors or advisory directors, as such, shall not
receive any stated salary for their services but, by resolution
of the Board, may be allowed an annual retainer fee and/or a
fixed sum for attendance at each regular or special meeting of
the Board, together with any expenses of attendance; provided
that nothing herein contained shall be construed to preclude any
director or advisory director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 9. Members of special or standing committees may, by
resolution of the Board, be allowed an annual retainer fee and/or
a fixed sum for attending committee meetings, together with any
expenses of attendance.
Meetings of the Board
Section 10. The first meeting of the Board after each annual
meeting of stockholders shall be held at such time and place
either within or without the State of Delaware as shall be fixed
by the vote of the stockholders at the annual meeting or by the
Board of Directors prior to the annual meeting, and no notice of
such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall
be present, or they may meet at such place and time as shall be
fixed by the consent in writing of all the directors.
Section 11. Regular meetings of the Board may be held without
notice at such time and place either within or without the State
of Delaware as shall from time to time be determined by the
Board.
Section 12. Special meetings of the Board may be called by the
Chairman of the Board or by the President on one day's notice to
each director, either personally or by mail or by telegram;
special meetings shall be called by the Chairman of the Board or
the President or the Secretary in like manner and on like notice
on the written request of two directors.
Section 13. At all meetings of the Board, the presence of four
directors, or, if fewer, a majority of the whole Board, shall be
necessary and sufficient to constitute a quorum for the transac-
tion of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as otherwise specifically
provided by statute, the Certificate of Incorporation, or these
By-Laws. If a quorum shall not be present at any meeting of
directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 14. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, 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, if all members
of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes
of proceedings of the Board or committee.
Section 15. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Direc-
tors, or any committee, may participate in a meeting of the Board
of Directors, or any committee, by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at
the meetings.
ARTICLE IV
Reimbursement and Indemnification of
Officers, Directors, and Advisory Directors
Section 1. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative (other
than an action by or in the right of the Corporation) by reason
of the fact that he is or was or has agreed to become a director,
advisory director, officer, employee, or agent of the Corpora-
tion, or is or was serving or has agreed to serve at the request
of the Corporation as a director, advisory director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, or by reason of any action
alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action,
suit, or proceeding and any appeal therefrom, if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of
any action, suit, or proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equiva-
lent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or proceed-
ing, had reasonable cause to believe that his conduct was unlaw-
ful.
Section 2. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was or has agreed to become a director,
advisory director, officer, employee, or agent of the Corpora-
tion, or is or was serving or has agreed to serve at the request
of the Corporation as a director, advisory director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, or by reason of any action
alleged to have been taken or omitted in such capacity, against
costs, charges, and expenses (including attorneys' fees) actually
and reasonably incurred by him or on his behalf in connection
with the defense or settlement of such action or suit and any
appeal therefrom, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, except that no indemnification shall be made
in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the Corporation unless
and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall deter-
mine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
costs, charges, and expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Notwithstanding the other provisions of these By-
Laws, to the extent that a director, advisory director, officer,
employee, or agent of the Corporation has been successful on the
merits or otherwise, including, without limitation, the dismissal
of an action without prejudice, in defense of any action, suit,
or proceeding referred to in this Article IV or in defense of any
claim, issue, or matter therein, he shall be indemnified against
all costs, charges, and expenses (including attorneys' fees)
actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 4. Any indemnification under these By-Laws (unless
ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the director,
advisory director, officer, employee, or agent is not proper in
the circumstances, because he has not met the applicable standard
of conduct set forth in these By-Laws. Such determination may be
made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or
(3) by the stockholders.
Section 5. Costs, charges, and expenses (including attorneys'
fees) incurred by a person referred to in this Article IV in
defending a civil or criminal action, suit, or proceeding shall
be paid by the Corporation in advance of the final disposition of
such action, suit, or proceeding; provided, however, that the
payment of such costs, charges, and expenses incurred by a
director, advisory director, or officer in his capacity as a
director, advisory director, or officer (and not in any other
capacity in which service was or is rendered while a director,
advisory director, or officer) in advance of the final disposi-
tion of such action, suit, or proceeding shall be made only upon
receipt of an undertaking by or on behalf of the director,
advisory director, or officer to repay all amounts so advanced in
the event that it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in
this Article IV. Such costs, charges, and expenses incurred by
other employees and agents maybe so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
The Board of Directors may, in the manner set forth above, and
upon approval of such director, advisory director, officer,
employee, or agent of the Corporation, authorize the Corporatio-
n's counsel to represent such person in any action, suit, or
proceeding, whether or not the Corporation is a party to such
action, suit, or proceeding.
Section 6. Any indemnification or advance of costs, charges, and
expenses under these By-Laws shall be made promptly, and in any
event within 60 days, upon the written request of the director,
advisory director, officer, employee, or agent. The right to
indemnification or advances as granted by these By-Laws shall be
enforceable by the director, advisory director, officer, employ-
ee, or agent in any court of competent jurisdiction, if the
Corporation denies such request, in whole or in part, or if no
disposition thereof is made within 60 days. Such person's costs
and expenses incurred in connection with successfully establish-
ing his right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges, and
expenses under Section 5 of this Article IV where the required
undertaking, if any, has been received by the Corporation) that
the claimant has not met the standard of conduct set forth in
these By-Laws, but the burden of proving such defense shall be on
the Corporation. Neither the failure of the Corporation (includ-
ing its Board of Directors, its independent legal counsel, and
its stockholders) to have made a determination prior to the
commencement of such action that the indemnification of the
claimant is proper in the circumstances, because he has met the
applicable standard of conduct set forth in these By-Laws, or the
fact that there has been an actual determination by the Corpora-
tion (including its Board of Directors, its independent legal
counsel, and its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the appli-
cable standard of conduct.
Section 7. The rights of indemnity provided in these By-Laws
shall not be deemed exclusive, and the Corporation may, by
contract, the Certificate of Incorporation, vote of stockholders
or disinterested directors, or otherwise, further indemnify
directors, advisory directors, officers, employees, or agents of
the Corporation to the full extent permitted under the laws of
the State of Delaware or any other applicable laws, now or
hereafter in effect, both as to matters in such person's official
capacity and as to action in another capacity while holding such
office, and the provisions of these By-Laws shall inure to the
benefit of a person who has ceased to be a director, advisory
director, officer, employee, or agent and to the benefit of the
heirs, executors, and administrators of such a person. All
rights to indemnification under these By-Laws shall be deemed to
be a contract between the Corporation and each director, advisory
director, officer, employee, or agent of the Corporation who
serves or served in such capacity at any time while these By-Laws
are in effect. Any repeal or modification of these By-Laws or
any repeal or modification of relevant provisions of the Delaware
General Corporation Law or any other applicable laws shall not in
any way diminish any rights to indemnification of such director,
advisory director, officer, employee, or agent or the obligations
of the Corporation arising hereunder.
Section 8. The foregoing rights shall be available in respect of
any claim, action, suit, or proceeding whether or not based upon
matters which antedate the adoption or amendment of these By-
Laws.
Section 9. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each director,
advisory director, officer, employee, and agent of the Corpora-
tion as to costs, charges, expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to
any action, suit, or proceeding, whether civil, criminal, admin-
istrative, arbitrative, or investigative, including an action by
or in the right of the Corporation, to the full extent permitted
by any applicable portion of these By-Laws that shall not have
been so invalidated and to the full extent permitted by applica-
ble law.
ARTICLE V
Notices
Section 1. Whenever, under the provisions of the statutes, the
Certificate of Incorporation, or these By-Laws, notice is re-
quired to be given to any director or stockholder, it shall not
be construed solely to mean personal notice, but such notice may
be given in writing, by mail, by depositing the same in a post
office or letter box, in a post-paid sealed wrapper, addressed to
such director or stockholder at such address as appears on the
books of the Corporation and such notice shall be deemed to be
given at the time when the same shall be thus mailed.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes, the Certificate of Incorporation, or
these By-Laws, a waiver thereof in writing signed by the person
or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
Officers
Section 1. The officers of the Corporation shall be chosen by
the Directors and shall include a Chairman of the Board, a
President, a Vice President, a Secretary, a Treasurer and a
General Auditor. The Board of Directors may also choose one or
more Executive Vice Presidents, one or more Senior Vice Presi-
dents, and additional Vice Presidents, and the Board of Directors
or the Chief Executive Officer may also choose one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant
Treasurers. Two or more offices may be held by the same person,
unless the Certificate of Incorporation or these By-Laws other-
wise provide.
Section 2. The Board of Directors at its first meeting after
each annual meeting of the stockholders shall choose a Chairman
of the Board from its members, and a President, one or more Vice
Presidents, a Secretary, and a Treasurer, none of whom need be a
member of the Board.
Section 3. The Board may appoint such other officers and agents
as it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. The salaries of all officers, other than assistant
officers, of the Corporation shall be fixed by the Board of
Directors.
Section 5. The officers of the Corporation shall hold office
until their successors are chosen and qualify in their stead.
Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the
whole Board of Directors. If any office becomes vacant for any
reason, the vacancy may be filled as provided above.
The Chairman of the Board
Section 6. The Chairman of the Board shall preside at all
meetings of the stockholders, Board of Directors, and Executive
Committee and shall be ex-officio a member of all of the standing
committees, excepting, however, such Audit Committee or Commit-
tees as may be established by the Board of Directors from time to
time. He shall see that all votes and resolutions of the Board
are carried into effect. He shall also perform such other duties
as may from time to time be assigned to him by the Board of
Directors or the Executive Committee.
The President and Chief Executive Officer
Section 7. The President shall be the Chief Executive Officer of
the Corporation. He shall report to the Board of Directors and
shall have active and general charge and control of all affairs
of the Corporation. He may execute bonds, mortgages, and other
contracts requiring a seal, under the seal of the Corporation,
except where required by law to be otherwise signed and executed
and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. He shall also perform such
other duties as the Executive Committee or the Board of Directors
shall prescribe.
Vice Presidents
Section 8. The Executive Vice President shall, subject to the
direction of the President, be responsible for the operations of
the Corporation. He shall, in the absence or disability of the
President, perform the duties and exercise the powers of the
President and shall perform such other duties as the President,
the Executive Committee, or the Board of Directors may prescribe.
Section 9. The Senior Vice Presidents shall perform such duties
as the President, the Executive Committee, the Board of Direc-
tors, or the Executive Vice President to whom they may report
shall prescribe.
Section 10. The Vice Presidents shall perform such duties as the
President, the Executive Committee, the Board of Directors, or
the Executive Vice President or any Senior Vice President to whom
they may report directly or indirectly may prescribe.
The Secretary and Assistant Secretaries
Section 11. The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and record all votes and the
minutes of proceedings in a book to be kept for that purpose and
shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of
Directors, and in his capacity as Secretary shall perform such
other duties as may be prescribed by the Board of Directors, the
Executive Committee, the Chairman of the Board, or the President.
He shall keep in a safe custody the seal of the Corporation and,
when authorized by the Board, affix the same to any instrument
requiring it, and, when so affixed, it shall be attested by his
signature or by the signature of the Treasurer or an Assistant
Secretary or an Assistant Treasurer or such other officer who may
be so authorized by the Board of Directors.
Section 12. The Assistant Secretaries in the order designated
from time to time by the Secretary shall, in the absence or
disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as
the Board of Directors shall prescribe.
The Treasurer and Assistant Treasurers
Section 13. The Treasurer shall have the custody of the corpo-
rate funds and securities and shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation
in such depositories as may be designated by the Executive
Committee or the Board of Directors.
Section 14. He shall disburse the funds of the Corporation as
may be ordered by the Executive Committee or the Board, taking
proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, at the regular meetings of
the Board or whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation.
Section 15. If required by the Board of Directors, he shall give
the Corporation a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be satis-
factory to the Board for the faithful performance of the duties
of his office and for the restoration to the Corporation in case
of his death, resignation, retirement, or removal from office, of
all books, papers, vouchers, money, and other property of whatev-
er kind in his possession or under his control belonging to the
Corporation.
Section 16. The Assistant Treasurers in the order of their
seniority shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and
shall perform such other duties as the Executive Committee or the
Board of Directors shall prescribe.
General Auditor
Section 17. The General Auditor shall, subject to guidance from
the Audit Committee of the Board of Directors, organize and
maintain an effective audit program for the Corporation, includ-
ing coordination of the internal audit activities of the Corpora-
tion with those of the independent public accountants who are
called upon to certify the Corporation's annual financial state-
ments. The scope of the audit shall encompass all of the manage-
rial, administrative, financial, and operational functions of the
Corporation.
ARTICLE VI
Certificates of Stock
Section 1. The certificates of stock of the Corporation shall be
numbered and shall be entered in the books of the Corporation as
they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the Chairman of the Board or the
President or a Vice President and by the Treasurer or an Assis-
tant Treasurer or the Secretary or an Assistant Secretary. In
case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or regis-
trar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issuance. Any of or
all the signatures on the certificate may be a facsimile.
Transfer of Stock
Section 2. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly en-
dorsed or accompanied by proper evidence of succession, assign-
ment, or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction
upon its books.
Closing of Transfer Books
Section 3. The Board of Directors shall have the power to close
the stock transfer books of the Corporation for a period not
exceeding sixty days preceding the date of any meeting of stock-
holders or the date for payment of any dividend or the date for
the allotment of rights or the date when any change or conversion
or exchange of capital stock shall go into effect or for a period
not exceeding sixty days in connection with obtaining the consent
of stockholders for any purpose; provided, however, that in lieu
of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding sixty days
preceding the date of any meeting of stockholders, or the date
for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of
capital stock shall go into effect or a date in connection with
obtaining such consent, as a record date for the determination of
the stockholders entitled to notice of, and to vote at, any such
meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or any such allotment or rights, or
to exercise the rights in respect of any such change, conversion,
or exchange of capital stock or to give such consent, and in such
case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, or to give
such consent, as the case may be, notwithstanding any transfer of
any stock on the books of the Corporation after any such record
date fixed as aforesaid.
Registered Stockholders
Section 4. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by
the laws of Delaware.
Lost Certificate
Section 5. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certifi-
cate or certificates, the Board of Directors may, in its discre-
tion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a
bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
ARTICLE VII
General Provisions
Dividends
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash,
in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors, from time to time in
its absolute discretion, thinks proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the Board shall think conducive to the interest of the
Corporation, and the Board may modify or abolish any such reserve
in the manner in which it was created.
Directors' Annual Statement
Section 3. The Board of Directors shall present at each annual
meeting, and when called for by vote of the stockholders at any
special meeting of the stockholders, a full and clear statement
of the business and condition of the Corporation.
Checks
Section 4. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time
to time designate.
Fiscal Year
Section 5. The fiscal year shall begin the first day of January
in each year.
Seal
Section 6. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization, and the
words "Corporate Seal, Delaware", and said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE VIII
Amendments
Section 1. These By-Laws may be altered, amended, or repealed at
any regular meeting of the stockholders or at any special meeting
of the stockholders at which a quorum is present or represented,
provided notice of the proposed alteration, amendment, or repeal
be contained in the notice of such special meeting, by the
affirmative vote of a majority of the stock entitled to vote at
such meeting and present or represented thereat, or by the
affirmative vote of a majority of the Board of Directors at any
regular meeting of the Board or at any special meeting of the
Board if notice of the proposed alteration or repeal be contained
in the notice of such special meeting.
Exhibit 10(2)
Group
Management Incentive Plan (MIP)
Effective January, 1994
I. PURPOSE
The purpose of the Management Incentive Plan (MIP) is to motivate and
reward key managers for their achievement of preestablished, measurable
objectives that contribute to the success of their organizational unit.
II. GENERAL DESCRIPTION
At the beginning of the plan year, unit financial and key operational
objectives, individual performance objectives and target incentive
awards will be established and confirmed in writing for each Plan
participant.
At the conclusion of the plan year, the achievement of the specified
individual objectives will be scored and weighted for each participant
and together with the achievement level of the organizational unit will
be used to determine the actual amount of the incentive award.
III. RESPONSIBILITIES
A. The Corporate Vice President Human Resources and Administration is
responsible for administering the Plan.
B. Division and Corporate Executives are responsible for nominating
participants to be included in the plan, recommending appropriate
objectives for participants, evaluating participant performance
and recommending individual incentive award amounts.
C. The Group President is responsible for recommending the amount to
be budgeted cross the group for the Plan target pool, establishing
the organizational unit operating objectives, approving managers
selected for participation, apportioning the group target pool to
the organizational units, recommending actual award pools and
approving individual incentive awards.
D. The CEO is responsible for approving the Plan target pool and
actual award pools for each group and organizational unit, and
approving any exceptions to the Plan.
E. The Compensation Committee Board of Directors (the Committee) is
responsible for amending the Plan, and approving the Plan target
pool and the actual award pool for the company.
IV. DEFINITIONS
A. Adjusted Operating Profit (AOP)
Operating profit plus incentive plan accruals less a Net Asset
Adjustment.
B. Average Net Assets
The average of the net assets assigned to the organizational unit
at the beginning of the Plan Year and at the end of each month
during the year through November. The net asset base will be the
total assets assigned to said operation reduced by any non-
interest bearing liabilities attributable to the unit, and
exclusive of intercompany accounts, marketable securities and
other non-operating accounts assigned to the Company.
C. Base Salary
The basic annual salary rate of a participant as of January 1 of
the Plan year or, if later the time he or she is approved as a
potential participant for a given year, exclusive of overtime, per
diem, bonuses, or any other premiums, special payments, or
allowances.
D. EBITDA
Earnings of DynCorp before deductions for interest, taxes,
depreciation, discontinued operations, and merger/acquisition
costs, as recorded on the books and records of the Corporation.
E. Key Manager
Those employees holding management positions who are designated as
eligible under the provisions of the MIP.
F. Net Asset Adjustment
The average net assets times a Net Asset Adjustment. The
percentage adjustment shall be at least equal to the weighted
average of the company's projected cost of debt capital for the
Plan Year. Only under extraordinary circumstances will this
percentage be set at less than 12%.
G. Operating Profit
Earnings of the applicable organizational unit (i.e., branch,
division, subsidiary, group, etc.,) after ESOP and after all
accruals, but before the Company's G&A Expense, Interest and
Dividend Income, Interest Expense, Net Asset Allocation and taxes
on income.
H. Plan Year
The period commencing January 1 and ending December 31 of the year
for which performance is being measured.
I. Target Award
The dollar amount that a Participant is eligible to receive if the
combined performance of the participant and the organizational
unit is at an achievement level of 100% of the established
performance objectives.
V. ELIGIBILITY
Eligibility for participation in the Plan will be limited to key
managers in the operating groups and Corporate Headquarters who have
significant impact on the overall performance and profitability of their
organizational unit who are not participants in the Executive Incentive
Plan.
All participants in the Plan must be approved in advance by the Group
President.
A minimum of six months in an eligible position is required for
participation in the Plan. Awards to individuals with less than one
year's participation will be pro-rated based on the time in the eligible
position.
With the exception of retirement or death, participants must be actively
employed on the date the awards are paid in order to receive a
management incentive award. At its sole discretion, DynCorp may make an
award to a former employee, or to the former employee's estate, in such
amount as the Company may deem appropriate.
Participation in the plan terminates on the date the employee terminates
employment with the Company, whether voluntary or involuntary.
VI. TARGET POOL FUNDING
At the beginning of the plan year a management incentive target pool
will be established for each organizational unit. Several factors are
considered in determining the size of each target pool. These include:
the number of key managers to be incentivized; the target award level
assigned to each manager; and the AOP objective of the unit. The target
pool when established should be equal to the sum of the target awards
for all participants plus the portion earmarked for key contributor
awards.
A key contributor pool may be established as part of the total target
award pool to recognize the performance of other managers and employees
who are not specifically designated as participants with a target
preestablished at the beginning of the year. Key contributors are those
select employees who stand out as having made a significant contribution
to the overall performance of the unit during the plan year.
As a general rule, the sum of the individual target pools for all
incentive plans within a given group will not exceed ten percent of the
group AOP objective. The Group President will determine the amount to
be apportioned to each of the unit MIP target pools. At year end the
actual award pool will be adjusted upward or downward proportionate to
the achievement level of the unit against budgeted AOP and other key
operational objectives.
VII. TARGET AWARDS
At the beginning of the plan year, a target award, expressed in the form
of a dollar amount, is established for each participant based on the
employee's position level and degree of impact on the overall results of
the organizational unit. Target awards will typically range from 5% to
25% of the participant's base salary. Target awards at or above 30% of
base salary require CEO approval.
VIII. ESTABLISHMENT OF ORGANIZATIONAL UNIT OBJECTIVES
At the beginning of the plan year an AOP objective will be set for each
organizational unit along with key operational performance objectives.
The AOP objective, for purposes of the plan, should be set at an
achievement probability of approximately 80%. At this level an above
average performance from the management team will be required in order
to achieve the objective.
The operational performance objectives should address the 4 to 6 key
areas of performance that are critically important to the continued
success of the organizational unit. The objectives must be quantitative
in nature to permit an accurate and objective measurement of the degree
to which they were achieved. Categories to consider for operational
objectives include, but are not limited to, the following: quality and
process improvement; overhead efficiency; direct labor utilization;
business expansion; award fee evaluations; and safety performance.
A weighting factor is placed on both the AOP objective and the
operational objectives. The weightings should help focus management on
the areas of performance that most need to be emphasized during the plan
year. The AOP objective will typically be weighted at 60% or higher.
However, in some organizational units the financial performance may not
be subject to much risk, nor can it be greatly influenced by management.
In this case, a higher weighting may be placed on the operational
objectives.
IX. ESTABLISHMENT AND MEASUREMENT OF INDIVIDUAL PERFORMANCE
OBJECTIVES
At the beginning of each plan year, specific individual performance
objectives will be established and confirmed in writing for each
participant. At year end, the individual's performance will be measured
in relation to these preestablished objectives to produce an individual
performance achievement level.
Individual performance objectives should be established according to the
following guidelines:
1. Each MIP participant will have 6-8 written objectives that have
been jointly agreed to by the participant and his or her
supervisor.
2. Performance objectives should be aligned with group objectives
established and communicated by the President of the Group as well
as objectives established for the participant's immediate
organization. Objectives covering each of the following areas
will typically be included in the objectives established by each
line executive:
* Financial and operational performance
* Human resources management
* Quality and process improvement
* Business development
* Customer satisfaction
3. Objectives will be both quantitative and qualitative in nature and
will include non financial as well as appropriate financial
related goals.
4. Objectives will be highly measurable.
5. Objectives will have performance criteria thoroughly established
in advance to enable individuals to monitor their own performance
in relation to their objectives, and to provide an objective
measurement at year-end.
At the conclusion of the plan year, the participant's achievements in
relation to each objective will be evaluated, and scored on a scale of
0% to 130%, with a rating of 100% indicating that the individual fully
met the objective. The scores are then totaled to yield an overall
individual performance percentage.
X. AWARD POOL DETERMINATION
The actual award pool that is authorized for distribution to
participants within an organizational unit is determined by measuring
the achievement level of the preestablished AOP and key operational
objectives.
The AOP achievement level is calculated by dividing the actual AOP, by
the AOP target objective.
Each of the operational objectives are evaluated and scored and equated
to a preestablished target achievement level. The sum of the
achievement level percentages for the operational objectives is then
multiplied by a predetermined weighting factor. The AOP achievement
level percentage is likewise weighted. The two weighted scores are then
added together and the resulting Organizational Unit Award percentage is
applied to the target pool to derive the actual award pool.
A threshold achievement level of 75% of the target AOP objective is
required in order for formula awards to be made within a unit. The
Group President with CEO approval may on a discretionary basis authorize
the payment of awards where unusual or extraordinary circumstances
contributed to the below threshold performance. The maximum level of
achievement recognized for plan purposes is 150% of the target
objectives.
The size of the actual award pool at corporate will be based solely on
the EBITDA achievement level of the company overall.
The Group President reserves the right to adjust the size of the actual
award pools at the unit level to reflect extraordinary or unusual
circumstances. However, the sum total of such adjustments cannot exceed
the amount that would have otherwise been awarded within the group
through the formula calculation without CEO approval.
XI. INDIVIDUAL AWARD DETERMINATION
The determination of individual awards is carried out in three steps.
First, the target award for each individual is multiplied by the
Organizational Unit Award percentage. This step spreads the performance
results of the unit proportionately across all participants to produce
an Adjusted Target Award.
Second, the degree to which the participant achieved each of his/her
individual objectives is evaluated and scored in a range of 0 - 130%.
The achievement percentages for each objective are then totaled to
produce a composite individual performance factor. This factor is then
applied against the adjusted target award from step one to yield a
formula award.
Third, if the sum of the individual formula awards are less than or
greater than the authorized award pool, a uniform prorate adjustment is
applied against the individual formula awards. The maximum award for
any participant will be 150% of the established target amount.
Awards to key contributors are set at the discretion of the unit
managers. The key contributor pool is factored by the same
organizational unit award percentage to derive the payout pool.
XII. ADMINISTRATION
Individual awards will be consolidated and approved at the Group level
and the actual award pool recommended for allocation to participants,
will be submitted to the Corporate Vice President Human Resources by the
end of January for approval by the CEO.
Payments will be made in cash as soon as practical after the conclusion
of the plan year, typically by early March.
Any exceptions to the plan must be approved by the CEO and the Vice
President-Human Resources. Nothing in the plan or in any action taken
hereunder shall affect the Company's right to determine at any time and
for any reason the employment of any employee who is a participant in
the plan.
XIII. SAMPLE AWARD CALCULATION
The example below illustrates how the Plan formula is applied to
calculate the incentive award for a division manager.
ASSUMPTIONS:
Target Pool $250,000
Manager's Target Award $ 8,000
Manager's Individual Performance Factor 103%
AOP Objective $5.0M
AOP Weighting 60%
Key Operational Objectives Weighting 40%
Actual AOP $4.8M
Actual Key Operational Objectives 84%
Composite Average
DETERMINATION OF AWARD POOL:
Actual AOP / AOP Objective = AOP Achievement Level
$4.8M / $5.0M = 96%
AOP Achieve Level x Weighting = AOP Percentage
96% x 60% = 57.6%
Key Operational Objectives Key Operational
Composite Average x Weighting = Objectives Percentage
84% x 40% = 33.6%
Key Operating Organizational Unit
AOP Percentage + Obj. Percentage = Actual Award
57.6% + 33.6% = 91.2%
Organizational Unit Actual
Target Pool x Award Percentage = Award Pool
$250,000 x 91.2% = $228,000
DETERMINATION OF INDIVIDUAL AWARDS:
Organizational Unit
Adjusted
Target Award x Award Percentage = Target
Award
$8,000 x 91.2% = $7,296
Adjusted Individual
Target Award x Performance Factor = Formula
Award
$7,296 x 103% = $7,515
PRORATA ADJUSTMENT = 102%
FINAL AWARD = $7,666
Exhibit 10(3)
DynCorp
Executive Incentive Plan (EIP)
Effective January, 1994
I. PURPOSE
The purpose of the Executive Incentive Plan (the Plan) is to
motivate and reward senior executives for their achievement of
preestablished, measurable objectives that have significant and
direct impact on the overall success of the company and its
business.
II. GENERAL DESCRIPTION
At the beginning of the Plan year, company and unit financial
objectives, individual objectives, and target incentive award
level will be established and confirmed in writing for each Plan
participant.
At the conclusion of the Plan year, the achievement of the
specified financial objectives and individual objectives will be
scored and weighted for each participant according to established
formulae to determine the actual incentive amount to be awarded.
III. RESPONSIBILITIES
A. The Corporate Vice President Human Resources and
Administration is responsible for administering the Plan.
B. Group and Division Executives and Corporate Staff Officers
are responsible for nominating Plan participants,
recommending appropriate individual performance objectives
for Plan participants from their respective organizations or
functions, evaluating participant performance and
recommending individual incentive award amounts.
C. The CEO is responsible for recommending Plan participants,
approving group financial and individual objectives,
approving individual target award levels, recommending
actual incentive payments, and recommending any deviations
from the Plan.
D. The Compensation Committee of the Board of Directors (the
Committee) is responsible for amending the Plan, approving
plan participants, establishing company financial
objectives, and approving actual incentive payments.
IV. DEFINITIONS
A. Adjusted Operating Profit (AOP)
Operating profit plus incentive plan accruals less a Net
Asset Adjustment.
B. Average Net Assets
The average of the net assets assigned to the organizational
unit at the beginning of the Plan Year and at the end of
each month during the year through November. The net asset
base will be the total assets assigned to said operation
reduced by any non-interest bearing liabilities attributable
to the unit, and exclusive of intercompany accounts,
marketable securities and other non-operating accounts
assigned to the Company.
C. Base Salary
The base annual salary rate of a participant as of January 1
of the Plan year or, if later, the time he or she is
approved as a potential participant for a given year,
exclusive of overtime, per diem, bonuses, or any other
premiums, special payments, or allowances.
D. EBITDA
Earnings of DynCorp before deductions for interest, taxes,
depreciation, discontinued operations, and
merger/acquisition costs, as recorded on the books and
records of the Corporation.
E. Net Asset Adjustment
The average net assets times a Net Asset Adjustment. The
percentage adjustment shall be at least equal to the
weighted average of the company's projected cost of debt
capital for the Plan Year. Only under extraordinary
circumstances will this percentage be set at less than 12%.
F. Operating Profit
Earnings of the applicable organizational unit (i.e.,
branch, division, subsidiary, group, etc.,) after ESOP and
after all accruals, but before the Company's G&A Expense,
Interest and Dividend Income, Interest Expense, Net Asset
Allocation and taxes on income.
G. Plan Year
The period commencing January 1 and ending December 31 of
the year for which performance is being measured.
H. Target Award
The dollar amount that a participant is eligible to receive
if the combined weighted performance against company,
organizational unit and individual objectives equals an
overall achievement level of 100%.
V. ELIGIBILITY
Eligibility for participation in the Plan will be limited to key
executives in Corporate Headquarters and in the operating groups
who have significant impact on company strategy, performance and
profitability and who hold selected positions as either a senior
line executive at the Group, Division or major P&L Center level,
or as a major staff functional head at the corporate, group or
division level.
All participants in the Plan must be approved by the Committee
upon recommendation by the CEO.
A minimum of six months in an eligible position is required for
participation in the Plan. Awards to individuals with less than
one year's participation will be pro-rated based on the time in
the eligible position.
With the exception of disability, retirement or death,
participants must be actively employed on the date the awards are
paid in order to receive an incentive award. At its sole
discretion, DynCorp may make an award to a former employee, or to
the former employee's estate, in such amount as the Company may
deem appropriate.
Participation in the Plan terminates on the date the employee
terminates employment with the Company, whether voluntary or
involuntary.
Participation in the Plan precludes eligibility for participation
in any other annual incentive plan provided by the company.
VI. FUNDING
At the beginning of each Plan year, a target pool, equal to 100%
of the target award amounts for all participants, will be
established and accrued for during the year. The target pool
represents the maximum amount that can be awarded unless overall
company EBITDA achievement exceeds the plan objective. Payment
of an amount greater than or less than the target pool will be at
the sole discretion of the Committee.
VII. TARGET AWARDS
At the beginning of each Plan year, a target award, expressed in
the form of a dollar amount, will be established for each
participant based on the percentage of base salary applicable to
the salary grade to which he or she has been assigned. Target
awards range from approximately 30% to 60% of the participant's
base salary. Target awards that deviate from the standard for a
given position require CEO approval.
VIII. PERFORMANCE MEASUREMENT COMPONENTS
In order to reinforce the need for DynCorp executives to achieve
a balanced performance against financial and non-financial
criteria, incentive awards under the EIP will be based on team
and individual achievements in the following three areas:
A. The Financial Performance of DynCorp:
DynCorp will reward participants for the results of their
team efforts, as measured by the financial performance of
the company in relation to established financial objectives.
This component seeks to reinforce the need for participants
to support achievement of the company's objectives by
sharing people, technology, information, and resources
across organizations.
The financial performance of the company will have a
weighting of 75% for Corporate Staff participants and 25%
for all other participants.
B. The Financial Performance of the Organizational Unit:
The financial performance of the appropriate Group, Division
or major P&L Center will be given the heaviest weighting in
the determination of incentive awards for participants from
those organizations in order to motivate and reward
participants for financial achievements over which they have
the most direct control and accountability.
The financial performance of the appropriate organizational
unit (i.e., Group, Division, or major P&L Center) will have
a weighting of 50% for Plan participants at that
organization level.
C. The Individual Performance of the Participant:
The individual performance of the Plan participant against
preestablished objectives is an important measurement
component that reinforces and rewards executives for their
performance and achievements in areas such as human
resources management, process/quality improvement, customer
satisfaction and business development.
The following table summarizes the weighting of each of three
performance measurement components:
TABLE 1
Weighting of Performance Measurement Components
PERFORMANCE MEASUREMENT &
ORGANIZATIONAL WEIGHTING
Company Organizational Individual
Financial Unit's Financial Performance
EIP PARTICIPANT Performance Performance
Corporate Staff
Executives 75% 25%
Group & Division &
Major P&L Executives 25% 50% 25%
IX. PERFORMANCE MEASUREMENT CRITERIA
A. Establishment and Measurement of Financial Objectives
At the beginning of each Plan year, specific financial
objectives will be established for company EBITDA and for
AOP at the group, division and major P&L Center level. At
the conclusion of the Plan year, the financial performance
of the company and of each organizational unit will be
measured in relation to the applicable preestablished
objectives. Performance will be expressed as a percentage
of the objective that was achieved.
In setting the financial objectives for purposes of the
Plan, the target for EBITDA and AOP should reflect an
achievement probability of approximately 80%. At this level
of probability an above average performance from the
management team is required in order to achieve the
objectives A threshold achievement level of 75% of the
target objective for EBITDA and AOP will be required in
order for a formula award to be made relative to each of
these factors. The maximum level of achievement recognized
for Plan purposes on each factor is 150% of the target
objective.
B. Establishment and Measurement of Individual Performance
Objectives
At the beginning of each Plan year, specific individual
performance objectives will be established and documented
for each participant. At year end, the individual's
performance will be measured in relation to these
preestablished objectives to produce an individual
performance achievement level.
Individual performance objectives should be established
according to the following guidelines:
1. Each participant will have 6-8 written objectives that
have been jointly agreed to by the participant and his
or her supervisor.
2. Objectives will evolve from, respond to, and/or reflect
the company objectives established and communicated by
the CEO. Objectives covering each of the following
areas will typically be included in the objectives
established by each line executive;
* Key operational objectives
* Human resources management
* Quality and process improvement
* Business development
* Customer satisfaction
3. Objectives will be both quantitative and qualitative in
nature and will include non financial as well as
appropriate financial related goals.
4. Objectives will be highly measurable.
5. Objectives will have performance criteria thoroughly
established in advance to enable individuals to monitor
their own performance in relation to their objectives,
and to provide an objective measurement at year-end.
Objectives are to be scored in a range of 0% to 130%
depending upon the degree to which the objective was
achieved. The sum of the individual objective scores yields
an overall individual performance factor.
X. AWARD DETERMINATION
Awards will be determined by weighting the Company's financial
performance percentage, the Organizational Unit's financial
performance percentage, and the individual performance percentage
by the percentages indicated in Table 1 above, adding the
resulting percentages together and then multiplying the target
award by the composite percentage. To illustrate, the formula
for determining the incentive award for an individual participant
at the Group, Division, or major P&La Center level is as follows:
Actual Award Amount =
[(Company Financial Performance Factor x .25} +
(Organizational Unit Financial Performance Factor x .50) =
(Individual Performance Factor x .25)]
x Target Award Amount
The maximum award for any participant will be 150% of the
established target amount. Actual award amounts will be rounded
to the nearest $100.00
If the performance achievement level on either of the two
financial performance factors falls below the 75% threshold, the
participant will not generally receive an award for that
component. However, the CEO may on a discretionary basis
recommend the payment of awards where unusual or extraordinary
circumstances contributed to the below-threshold performance. If
the combined weighted achievement level for EBITDA and AOP does
not meet the stated threshold of 75%, the award for the
individual performance component shall also be at the discretion
of the CEO and the Committee.
Should a participant transfer to another organization during the
plan year, the final award will be jointly determined and
prorated for the time spent in each organization.
All incentive awards proposed under the Plan are subject to the
approval of the CEO and the Committee, who may at their
discretion adjust the amounts to be awarded in order to reflect
exceptional performance, performance that falls below objectives,
or other performance factors that affect or potentially affect
the ability of the company or any of its units to meet its
business and financial goals.
XI. ADMINISTRATION
Bonus awards will be calculated at the Group level and submitted
to the Corporate Vice President Human Resources and
Administration by the end of January for company level
consolidation and approval by the President and CEO and the
Committee. Documentation of objectives, accomplishments and
individual evaluations will be required to be submitted along
with the individual award recommendations.
Payments will be made in cash as soon as practical after the
Compensation Committee meeting in early March following final
year end closing.
Any exceptions to the Plan must be approved by the President and
CEO.
Nothing in the plan or in any action taken hereunder shall affect
the Company's right to terminate at any time and for any reason
the employment of any employee who is a participant in the plan.
XII. SAMPLE AWARD CALCULATIONS
The examples on the following pages illustrate how the Plan
formula will be applied to calculate the incentive award for a
Corporate Staff executive and for a Division line executive.
A. Sample Award Calculation: Corporate Staff Executive
ASSUMPTIONS:
Base Salary $108,000
Target Award Percentage 30%
Target Award $ 32,400
Company Financial Performance Factor 80%
(EBITDA Act. $36M/EBITDA Obj. $45M)
Individual Performance Factor 90%
AWARD CALCULATION:
(80% x .75) + (90% x .25) =
60% + 22.5% = 82.5%
Actual Award Amount (.825 x $32,400) =$26,730
B. Sample Award Calculation: Division General Manager
ASSUMPTIONS:
Base Salary $120,000
Target Award Percentage 40%
Target Award $ 48,000
Company Financial Performance (See Above) 80%
Division Financial Performance 105%
(AOP Act. $10.5M / AOP Obj. $10.0M)
Individual Performance Factor 75%
AWARD CALCULATION:
(80% x 25%) + (105% x 25%) + (75% x 25%) =
20% + 52.5% + 18.8% = 91.3%
Actual Award Amount (.913 x $48,000) =$ 43,824
Exhibit 10(6)
September 10, 1992
Paul V. Lombardi
2600 Penny Royal Lane
Reston, Virginia 22091
Dear Mr. Lombardi:
The following is for the purpose of setting forth our
agreement with respect to your employment by DynCorp (the
"Company").
1. You will be employed by the Company in the capacity of
President of the Government Services Group or such other position
as the Board of Directors of the Company may from time to time
specify. In this capacity, you will be generally responsible for
the management and operations of the Government Services Group.
In addition, your name will be placed before the Board of
Directors for confirmation as a Vice President of the Company.
2. It is mutually agreed that your employment by the
Company will be subject to the terms and conditions hereinafter
set forth. You will perform such functions and duties in
addition to or in lieu of those set forth in paragraph 1 above as
the Chairman of the Board of the Company or his authorized
representative may specify or from time to time assign to you.
You agree to serve the Company faithfully and to the best of your
ability and to devote your entire working time and energy, and
the highest degree of your skill and care, exclusively to the
business and affairs of the Company and the promotion of the
Company interests. The hours of work, travel, duties, and other
general conditions of your employment will be consistent with the
standard policies of the Company in effect from time to time
during your employment.
3. The term of this Agreement shall begin on
, and shall continue for a period of twenty-four (24) months
(after which you shall be considered an employee "at will") or
such earlier date upon which you may be terminated for cause,
die, or become unable, with or without accommodation, to perform
the essential functions of your position. The Company shall have
the right, upon 30 days' advance written notice, to terminate
this Agreement for good and sufficient cause as defined in
paragraph 8(a) below; provided that this Agreement shall not be
so terminated if you have corrected and removed such cause during
said 30-day period. A termination for good and sufficient cause
as defined under paragraph 8(b) below shall become effective
immediately upon receipt of written notification of such
termination. In addition, the Company shall have the right to
terminate this Agreement on written notification because of your
inability for a period of 90 consecutive days to perform the
essential functions of your position, with or without
accommodation, by reason of physical or mental disability.
4. Your salary for services performed hereunder shall be
at the annual rate of Two Hundred Twenty Five Thousand Dollars
($225,000.00), payable either in equal weekly, bi-weekly, or
semi-monthly installments at the election of the Company. You
will also receive within thirty (30) days of execution of this
Agreement, a one-time One Hundred Thousand Dollar ($100,000.00)
"sign-on bonus." In addition, your position would be eligible
for bonus consideration under the Company Incentive Compensation
Plan (the "Plan") during years which you are employed by the
Company under this Agreement commencing in 1994 for calendar year
1993. Your target bonus amount as defined in the Plan for
calendar year 1993 will be Sixty Thousand Dollars ($60,000.00).
Upon commencement of performance hereunder, the Company shall
award you five thousand (5,000) units of its restricted stock,
subject to the terms and conditions of the Company's Restricted
Stock Plan as amended. You will also be entitled to standard
Company fringe benefits in effect from time to time during the
term of this Agreement for employees having responsibilities
comparable to yours. Upon termination of your employment, your
salary and fringe benefits shall be prorated to the effective
date of termination.
5. During your employment by the Company, you will be
reimbursed for your reasonable travel and other expenses incident
to your employment in conformity with the Company's standard
policies in effect from time to time. Reimbursement of such
expenses will be made upon presentation of expense vouchers in
such detail as Company may require. You will be permitted use of
a Company furnished automobile in connection with your employment
hereunder, such use to also be in accordance with standard
Company policy.
6. (a) During your employment by the Company, you shall
not directly or indirectly, enter into or engage in any business
in competition with the Company, or any of its affiliated
companies either as an individual for your own account, or as a
partner or joint venturer, or as an employee, agent, consultant,
or salesman for any business, or as an officer, director, or
shareholder of a corporation, or otherwise. Nothing herein
contained, however, will prevent you from owning one percent (1%)
or less of the equity or debt securities of any competitive
business, if such securities are listed for trading on a national
securities exchange or are traded in the over-the-counter market.
(b) It is understood that the foregoing covenants
shall be deemed to be a series of separate covenants, one for
each and every county and state of the United States of America.
If any of the provisions of such covenants shall be held
unenforceable because of excessive breadth, such provisions shall
be construed, and limited accordingly, so as to be enforceable to
the maximum extent compatible with the applicable law.
(c) During your employment by the Company and thereaf-
ter, you will not use for yourself or others, nor divulge to
others, any proprietary information, knowledge, or data of the
Company developed by you or obtained by you as a result of your
employment, or any proprietary information of third parties which
is in the custody or control of the Company, unless authorized by
the Company in connection with your employment. It is understood
that this applies to information of either a technical or commer-
cial nature, including trade secrets, proprietary processes,
formulas, machinery, drawings, designs, manufacturing procedures
and arts, customer lists, market information, and the like, and
that any unpublished information is deemed proprietary.
(d) Upon termination of your employment with the
Company, you shall immediately return to the Company any and all
property of the Company or any of its affiliated companies in
your possession or under your control, including for example, all
files, records, lists, samples, plans, agreements, specifications
(or other documents of any nature belonging to, or obtained in
connection with, your duties for the Company) and all other
personal property of any nature whatsoever.
(e) In the event of a breach or a threatened or
attempted breach of any provision of this paragraph 6 by you, the
Company shall, in addition to all other remedies available to it,
be entitled to temporary and permanent injunctions to enforce the
provisions of this paragraph 6.
7. It is understood that during your employment by the
Company, and for a six-month period thereafter, you, your heirs
and representatives will promptly make full disclosure and assign
to the Company any ideas, discoveries, inventions, developments
or improvements conceived or made by you either solely or jointly
with others, during the period of your employment with the
Company relating to Company business, development programs or
contemplated interests. You likewise agree to assign to the
Company, without any royalty payment therefor, all rights in
inventions conceived or made by you in the course of working on
assigned duties or which relate directly to such assigned duties.
At the Company's expense, but without required further
compensation to you, it is further understood that you will
cooperate in the preparation of patent applications, assignments,
and other necessary matters in obtaining, defending, or enforcing
the proprietary rights of the Company.
8. The term "good and sufficient cause" as used in this
Agreement shall be defined to include (a) gross negligence,
refusal to follow the reasonable instructions of your superiors,
or actions involving a breach of your obligations under this
Agreement, and (b) illegal acts, serious violation of
environmental laws and regulations, criminal conduct, violation
of the Procurement Integrity Provisions of the Office of Federal
Procurement Policy Act Amendments of 1988, or violation of the
DynCorp Standards of Conduct as amended or supplemented from time
to time.
9. Any notice or other communication required or permitted
to be given under this Agreement shall be deemed to have been
duly given when delivered personally or sent by registered or
certified mail, return receipt requested, postage prepaid, as
follows:
If to Company, to the DynCorp
attention of: 2000 Edmund Halley Drive
Reston, Virginia 22091
Attn: Dan R. Bannister, President
If to you, to your 2600 Penny Royal Lane
attention at: Reston, Virginia 22091
Either party may change its address for the purpose of this
paragraph by written notice similarly given.
10. Notwithstanding the termination of this Agreement, the
provisions of paragraphs 6 and 7 of this Agreement shall survive
and remain in full force and effect.
11. If Company shall at any time be merged or consolidated
into or with another corporation, or if substantially all the
assets of Company are transferred to another corporation, the
provisions of this Agreement shall be binding upon and inure to
the benefit of the corporation resulting from such merger,
consolidation or transfer. The provisions of this Agreement
shall likewise be enforceable against your legal representatives
or estate.
12. With the exception of other undertakings or agreements
signed by you contemporaneously with the execution of this
Agreement, this Agreement sets forth our entire understanding
with respect to the subject of your employment and shall not be
modified except by a written instrument signed by both parties
hereto. In the event of inconsistencies between this Agreement
and any other such undertakings or agreements related to your
employment, this Agreement shall govern.
If the foregoing correctly sets forth our understanding,
please indicate acceptance and approval of this Agreement as of
the date first above written by signing and returning a copy of
this Agreement to our attention.
DynCorp
By:
Ronald R. Geiger
Vice President, Human
Resources and Administration
Accepted and approved:
Paul V. Lombardi
RYM/92-242
Exhibit 10(7)
DynCorp
Restricted Stock Plan
l. Purpose. The purpose of the DynCorp Restricted Stock
Plan is to motivate and retain key employees of DynCorp and its
subsidiaries who are responsible for the attainment of the
primary long-term performance goals of DynCorp.
2. Definitions. When used herein, the following terms
shall have the meanings specified:
"Account" means the unfunded, bookkeeping account
maintained to record the Restricted Stock Units of each Partici-
pant.
"Award" means the grant of a number of Restricted Stock
Units to a Participant in accordance with the provisions of the
Plan.
"Board" means the Board of Directors of the Corpora-
tion.
"Cause" means a finding by the Compensation Committee
of the Board, of which the Participant is notified in writing,
based upon reasonable evidence that the Participant (i) has
engaged in dishonest or fraudulent actions; (ii) has engaged in
willful misconduct; or (iii) has materially harmed the Corpora-
tion or a Subsidiary by performing his duties in a grossly
negligent manner.
"Change of Control" means that one or more of the
following events has occurred: (a) any person or group, within
the meaning of Sections l3(d) and l4(d)(2) of the Securities
Exchange Act of l934, as amended (the "Act"), has, subsequent to
September 9, l988 become the beneficial owner (within the meaning
of Rule l3d-3 under the Act) of securities of the Corporation
representing 30% or more of the Corporation's then outstanding
voting securities, which change in ownership has not been ap-
proved prior to the effective date thereof by the Board consti-
tuted as of September 29, l988, including any changes in Board
membership approved thereafter by such Board (the "Continuing
Board"); provided, however, that, for purposes of the immediately
preceding clause, shares of Common Stock (i) owned or acquired by
the ESOP or any other employee benefit or stock purchase plan
sponsored and approved by the Corporation, or the participants or
beneficiaries thereof, or (ii) acquired by the exercise of
warrants or the conversion of preferred stock into Common Stock,
which warrants or preferred shares were outstanding as of Septem-
ber 29, l988, shall not be deemed to be owned by a "person" or,
if such plan is a member of a group, shall not be deemed to be
owned by such "group" (although such shares shall be deemed to be
outstanding if so treated by Rule l3d-3); (b) beneficial owner-
ship of more than 50% of the Corporation's Series C Preferred
Stock has been transferred prior to conversion into Common Stock
by its original record owner, Capricorn Investors, L.P. to any
party other than a controlled affiliate of Capricorn, or a member
or members of the Corporation's management group who is or are
also owners of Common Stock; (c) H. S. Winokur, Jr., his court
appointed legal representative, or a representative of his estate
has ceased acting as managing general partner of said Capricorn;
(d) a merger, consolidation, or other reorganization of the
Corporation not approved by the Continuing Board in which the
Corporation is not the surviving entity has occurred; (e) a sale
or other transfer of substantially all of the assets of the
Corporation has occurred; or (f) a public offering of shares of a
class of Common Stock or other securities which are convertible
into a class of Common Stock has occurred which, after giving
effect to such offering and assuming the conversion of all
securities, whenever issued, would constitute at least 30% of the
market value of all such Common Stock and other securities.
"Chief Executive Officer" means the Chief Executive
Officer of the Corporation.
"Committee" means the Compensation Committee of the
Board, a majority of the members of which shall not be employees
of the Corporation eligible to participate in the Plan.
"Common Stock" means common stock, par value $.l0 per
share, of the Corporation, as well as any additional classes of
common stock that the Corporation may issue from time to time.
"Corporation" means DynCorp, a Delaware corporation.
"Director" means a member of the Board.
"Disability" means a physical or mental condition as
determined by the Committee or under which the Participant
qualifies for disability benefits under the long-term disability
plan of the Corporation or Subsidiary that employs such Partici-
pant.
"Early Retirement" means separation from service, other
than for Cause, before attaining the age of 63, under conditions
entitling the Participant to a present or future distribution of
a benefit under the ESOP or any other qualified retirement
benefit plan in which the Participant participates.
"ESOP" means the DynCorp Employee Stock Ownership
Plan.
"ESOP Loan" means the September 9, 1988 loan by the
Corporation to the ESOP in the original principal amount of
$99,999,991.75.
"Fair Market Value" means, with respect to Common
Stock, the fair market value of such stock, established on the
last preceding Valuation Date pursuant to Section 5.6 of the
ESOP; provided, however, that for purposes of the last sentence
of Section 9, Fair Market Value shall be the value of the Common
Stock established in connection with any Change in Control.
"Forecasted Operational Cash Flow" or "Forecasted OFC"
means Operational Cash Flow as forecasted by the Corporation in
accordance with Attachment A hereto, subject only to such adjust-
ments that are approved by the Board and are not prejudicial to
the rights of Participants hereunder.
"Normal Payment Date" means the earlier of any date of
vesting in accordance with subsection 7(a) or the date on which
l00% vesting occurs under subsection 7(b).
"Normal Retirement" means separation from service,
other than for Cause, after attaining the age of 63, under
conditions entitling the Participant to a present or future
distribution of a benefit under the ESOP or any other qualified
retirement benefit plan in which the Participant participates.
"Operational Cash Flow" or "OCF" means a) for the
Government Services Group and the Aviation Services Group,
operating return (as customarily determined under the Corporatio-
n's accounting practices) plus ESOP replacement contributions,
and b) for the Corporate Group, Earnings before Interest, Taxes,
Merger Costs, ESOP Contributions, Depreciation and Amortization
less capital expenditures plus decreases/less increases in
working capital, as recorded on the books and records of the
Corporation.
"Original Award" means the Restricted Stock Units
originally awarded upon the commencement of this Plan in l989.
"Participant" means an employee of the Corporation or
any of its Subsidiaries who is selected to participate in the
Plan in accordance with Section 4.
"Plan" means the DynCorp Restricted Stock Plan.
"Restricted Stock Unit" or "Unit" means a unit of
measurement equivalent to one share of Common Stock, with none of
the attendant rights of a holder of such stock, such as, but not
limited to, the right to vote such stock and the right to receive
dividends thereon.
"Supplemental Restrictions" means Restrictions, as
defined in the Statement, as a result of which up to 674,029
shares of Common Stock represented by Restricted Stock Units
(65.75% of each Award of Units under the Plan) shall be further
restricted and shall not vest unless and until the ESOP realizes
at least an 18% per annum internal rate of return on its invest-
ment in the Corporation, or certain other lapsing conditions
occur, all as more specifically provided in Article III of the
Statement.
"Statement" means the Statement Respecting Warrants and
Lapse of Certain Restrictions dated as of September 9, l988, a
copy of which is by this reference made a part of this Plan.
"Stockholders Agreement" means the Stockholders Agree-
ment as amended among the various Common Stock holders dated as
of March 2, l988, a copy of which is attached hereto and by this
reference made a part of this Plan.
"Subsidiary" means any corporation, as defined in
Section 770l of the Internal Revenue Code of l986, as amended,
and the regulations promulgated thereunder, of which the Corpora-
tion, at the time, directly or indirectly, owns 50% or more of
the outstanding securities having ordinary voting power to elect
directors (other than securities having voting power only by
reason of a contingency).
"Valuation Date" means the valuation date established
pursuant to Section 5.6 of the ESOP.
3. Administration. The Plan shall be administered by the
Committee. Subject to the provisions of the Plan, the Committee
shall have the authority in its sole discretion to:
(i) Select the Participants;
(ii) Grant Restricted Stock Units to Participants in
such amounts as it shall determine, subject to the terms and
conditions of the Plan;
(iii) Determine the portion of each Participant's Award
which becomes vested each year in accordance with Section 7;
(iv) Determine the existence of Cause for the termina-
tion of employment of any Participant; and
(v) Establish from time to time policies, procedures
and guidelines for the administration of the Plan; interpret the
Plan; and make such other determinations and take all other
actions as it deems necessary or advisable for the administration
of the Plan.
4. Participation. Participants in the Plan shall be
limited to those employees of the Corporation or any of its
Subsidiaries who have received written notification from the
Chief Executive Officer (or, in the case of the participation by
the Chief Executive Officer, by the Committee), that they have
been selected by the Committee to participate in the Plan. In no
event shall any Director who is not also an officer and employee
of the Corporation be eligible to participate in this Plan.
5. Selection of Participants. On or before March 1, l989,
the Chief Executive Officer shall deliver to the Committee a list
of proposed Participants together with recommendations for Awards
to each Participant. As soon as practicable thereafter, but no
later than June 30, l989, the Committee shall approve Original
Awards hereunder based on the Chief Executive Officer's recommen-
dations; provided, that for purposes of this Plan, the anniversa-
ry date of such Awards shall be considered January l, l989. All
decisions, actions and interpretations of the Committee that are
within the scope of Section 3 shall be final, conclusive and
binding upon all parties.
6. Maximum Number of Deferred Compensation Units Available
for Awards. Except as otherwise provided in Section ll, no more
than l,025,037 Restricted Stock Units shall be available for
Awards. To the extent that any Awards granted under the Plan are
thereafter (a) forfeited due to the operation of Subsections (a),
(c) or (d) of Section 7, or (b) paid in cash pursuant to Section
9(b) rather than in shares of Common Stock, the Restricted Stock
Units covered by such Awards shall be available for new Awards
under the Plan to existing or new Participants as determined by
the Committee. For purposes of this Plan, Awards made subsequent
to Original Awards hereunder but prior to l992 shall be included
in the vesting computations made under Section 7(a)(i) below as
if they had been part of the Original Awards hereunder, but
Awards made hereunder after l99l shall only be included in the
vesting computations made under Section 7(a)(ii) and/or 7(a)(iii)
for the calendar year during and subsequent to which such Awards
are made in accordance with the terms of such Sections. The
shares of Common Stock distributed under the Plan may be autho-
rized but unissued shares, treasury shares, or shares purchased
on the open market or in private transactions by the Corporation
(at such time or times and in such manner as it may determine).
All authorized shares of Common Stock distributed under the Plan
shall be fully paid and nonassessable shares. The Corporation
shall reserve for issuance under its Certificate of Incorporation
at least l,025,037 shares of Common Stock for Awards under the
Plan, subject to adjustment pursuant to Section ll.
7. Vesting/Lapsing of Restrictions.
(a) Subject to Subsections (a) (iv), (b), (c), (d) (e)
and (f) of this Section 7, and provided that all Supplemental
Restrictions have lapsed or are otherwise no longer applicable to
Awards hereunder, Restricted Stock Units shall vest, rounded to
the next whole share of Common Stock, in accordance with the
following provisions:
(i) Up to three-fifths (3/5ths) of the Original Award
of Restricted Stock Units hereunder shall vest on the last day of
March, 1992, based on the ratio (not to exceed l to l or l00%) of
actual Operational Cash Flow ("OCF") during the three consecutive
calendar years ending December 31, 1991 to the Forecasted Opera-
tion Cash Flow ("Forecasted OCF") for the same period. All Units
available for vesting at the end of such vesting period which are
not so vested shall be forfeited.
(ii) Up to one-fifth (1/5th) of the Original Award of
Restricted Stock Units hereunder, plus up to one-half (l/2) of
any Units awarded to the Participant during l992, shall vest on
the last day of March, 1993 based on the ratio (not to exceed 1
to 1, or 100%) of actual OCF during calendar year 1992 to
Forecasted OCF for that year. All Units which are available for
vesting at the end of such vesting period which are not so vested
shall be forfeited.
(iii) Up to one-fifth (1/5th) of the Original Award of
Restricted Stock Units hereunder, plus up to one-half (l/2) of
all Restricted Stock Units awarded during 1992 and all Restricted
Stock Units Awarded during l993, shall vest on the last day of
March, 1994 based on the ratio (not to exceed l to l, or l00%)
of actual OCF during calendar year 1993 to Forecasted OCF for
that year. All Units which are available for vesting at the end
of such vesting period which are not so vested shall be forfeit-
ed.
(iv) Except as specified in Subsections (c) and (d)
below, only those Participants who are employed by the Corpora-
tion or one of its Subsidiaries as of the last day of the calen-
dar year periods described in Subsections (a)(i), (ii), and (iii)
above shall become vested in Restricted Stock Units for said
periods. Unless one of the special conditions described in
Subsections (b), (c) or (d) is applicable, any Participant who is
not so employed as of the last day of any such calendar year as a
result of voluntary termination or discharge for cause, shall
forfeit any Restricted Stock Units that would otherwise have
vested had the Participant been employed as of the last day of
such calendar year.
(b) Subject to Subsection (e) of this Section 7, a
Participant shall be vested in l00% of his awarded Units not
previously forfeited if (i) there is a Change in Control, or (ii)
his employment with the Corporation or a Subsidiary is terminated
because of his Normal Retirement after l99l.
(c) Subject to Subsections (e) and (f) below, a Partic-
ipant whose employment is terminated by the Corporation or a
Subsidiary prior to 1992 for reasons other than Cause, or as a
result of death or Disability, shall be vested as of the last day
of the third month after the calendar month in which such termi-
nation occurs in a number of Restricted Stock Units determined by
multiplying three-fifths (3/5ths) of his Original award of Units
times a fraction the numerator of which shall be the number of
consecutive calendar months during which the Participant was
employed by the Corporation or a subsidiary since the beginning
of the current vesting period, and the denominator of which shall
be the number of calendar months in such vesting period (the
"Product"), and by multiplying the Product by a fraction the
numerator of which shall be the actual OCF for the current
vesting period through the calendar month in which such termina-
tion occurs, and the denominator of which shall be the Forecasted
OCF for the current vesting period prorated through the end of
such calendar month in which termination occurs (the aforemen-
tioned fractions being referred to hereafter as the "Proration
Formula"); provided, that in no event shall the number of vested
Restricted Stock Units exceed the Product. Subject to subsec-
tions (e) and (f) below, a Participant whose employment is so
terminated by the Corporation or a Subsidiary after 1991 but
before 1994 for reasons other than Cause, or as a result of death
or Disability, shall be vested as of the last day of the third
month after the calendar month in which such termination occurs
in (i) all Restricted Stock Units vested in accordance with
Subsections (a)(i) and, if applicable, (a)(ii) above, and (ii) an
additional number of Restricted Stock Units determined by multi-
plying one-fifth (1/5th) of his Original Award of units, plus
Units, if any, carried over under Subsection (a)(ii) above, times
the Proration Formula. In no event shall the number of Units so
vested exceed the Product.
(d) Subject to subsections (e) and (f) below, any
Participant who, after calendar year 1991, but before calendar
year 1994, voluntarily terminates his employment with the Corpo-
ration or a Subsidiary or takes Early Retirement, shall be
entitled only to receive shares of Common Stock for Restricted
Stock Units vested under Subsections (a)(i) or, if applicable,
(a)(ii), as of such termination date.
(e) Notwithstanding any other provision of the Plan,
674,029 or 65.75% of the shares of Common Stock represented by
the Restricted Stock Units awarded and available to be awarded
under this Plan are presently subject to Supplemental Restric-
tions. Restricted Stock Units that are subject to Supplemental
Restrictions shall not vest until the later of (i) the date
Supplemental Restrictions lapse pursuant to Article III of the
Statement or otherwise, and (ii) the date all other conditions
for the vesting thereof imposed by this Plan are met. For
purposes of this Plan, 65.75% of the Restricted Stock Units
comprising each Award hereunder (rounded to the nearest whole
Restricted Stock Unit) and their related shares of Common Stock
are presently deemed to be subject to Supplemental Restrictions
in addition to the restrictions and vesting provisions described
in Subsections 7(a)-(d) above. Such Supplemental Restrictions
shall lapse pro rata in accordance with the Statement. To the
extent that any Awards of Restricted Stock Units are forfeited
due to the operation of Subsections (a), (c) or (d) of Section
7, the Restricted Stock Units represented by such forfeited
Awards shall be available for new Awards; provided, that the
percentage of Restricted Stock Units of each new Award that shall
be deemed to be subject to Supplemental Restrictions shall be a
percentage computed by dividing the total number of Common Shares
required by the Statement at the time of such new Award to be
restricted under this Plan, by l,025,037 Common Shares. The
number of Restricted Stock Units subject to Supplemental Restric-
tions shall be further subject to adjustment in accordance with
Section ll.
(f) Notwithstanding the provisions of Section 7(a) and
(c) above, if as of March 31, 1992, March 31, 1993, March 31,
1994 or any termination date under Subsection (c) above, Supple-
mental Restrictions continue to apply to Awards hereunder, half
of the Units that would otherwise vest under Sections 7(a)(i)
through (iii) or Section 7(c) above shall vest in accordance with
the formulas described therein, and the remaining half will vest
based on the ratio (not to exceed 1 to 1 or 100%) of the actual
cumulative ESOP Loan payments during the immediately preceding
vesting period to the scheduled cumulative ESOP Loan payments for
such vesting period. All Units available for vesting during such
vesting period which are not so vested shall be forfeited.
8. Accounts. An Account shall be established for each
Participant. Subject to the provisions of the Plan, each Partic-
ipant's Account shall be credited from time to time with the
number of Restricted Stock Units granted to such Participant.
Accounts shall be periodically annotated to reflect vesting and
the lapsing of Supplemental Restrictions as appropriate.
9. Payment of Accounts.
(a) Except as otherwise provided in this Section 9, on
the Normal Payment Date, the Corporation shall deliver to each
Participant one share of Common Stock for each vested Restricted
Stock Unit credited to his Account as of such date with respect
to which Supplemental Restrictions have lapsed. The lapsing of
Supplemental Restrictions and the vesting of Restricted Stock
Units pursuant to Section 7(e) after the Normal Payment Date
shall immediately entitle the Participant to receive one share of
Common Stock for each Restricted Stock Unit so vested that is no
longer subject to a Supplemental Restriction, except as otherwise
provided in this Section 9.
(b) The Committee shall be authorized to (a) permit a
Participant, not later than 45 days after the date an Award is
made to such Participant, to elect irrevocably to defer payment
of all or any portion of his Account attributable to such Award
beyond the Normal Payment Date until the occurrence of one or
more of the following events or dates (the choice of such event
or date being irrevocably elected within such 45-day period):
(i) his termination of employment for any reason, (ii) his
attainment of age 65, (iii) the later of his termination of
employment for any reason or attainment of age 65, or (iv) a date
subsequent to the Normal Payment Date; (b) settle a Participant's
vested Account prior to the Normal Payment Date if his employment
is terminated for any reason; (c) settle a Participant's account
because of hardship based on legally adequate circumstances and
supporting documentation; or (d) settle a Participant's vested
Account with the Participant's consent, in cash or in any combi-
nation of cash and Common Stock in an amount equal to the Fair
Market Value of the shares of Common Stock otherwise deliverable;
provided, that such combination shall have a total value equal to
the Fair Market Value of the shares of Common Stock otherwise
deliverable. Notwithstanding any other provision of the Plan,
Participant election, or exercise of Committee discretion, all
vested Units not subject to Supplemental Restrictions shall
immediately be paid in full upon a Change of Control in Common
Stock; provided, that with the consent of both the Company and
the Participant, such payment may be made in cash, in Common
Stock, or a combination of both, having a total value equal to
the Fair Market Value of the shares of Common Stock otherwise
deliverable. Payment in full shall likewise be made following a
Change of Control upon, and to the extent of, the lapsing of
Supplemental Restrictions under the Statement.
l0. Shares to be Held Subject to Stockholders Agreement.
All shares of Common Stock distributed under the Plan shall be
subject to the Stockholders Agreement so long as the Stockholders
Agreement remains applicable to shares of Common Stock outstand-
ing prior to the granting of Awards. During such time, no shares
of Common Stock shall be distributed to any Participant under the
Plan unless, either at the time of distribution such Participant
is already, or immediately prior to such distribution such
Participant becomes, a party to the Stockholders Agreement.
ll. Changes in Capitalization. In the event that the
Common Stock should, as a result of a stock split or stock divi-
dend, combination of shares, recapitalization or other change in
the capital structure of the Corporation or exchange of Common
Stock for other securities by reclassification or otherwise, be
increased or decreased or changed into, or exchanged for, a dif-
ferent number or kind of shares or other securities of the Corpo-
ration, or any other corporation, the number of Restricted Stock
Units and the number and kind of shares which thereafter may be
distributed under the Plan (and the percentage of shares of
Common Stock subject to Supplemental Restrictions) shall be
appropriately adjusted consistent with such change so that
Participants hereunder shall have the right to ultimately receive
the same number and type of security as they would have been
entitled to receive had they held at the time of such change in
capitalization shares of Common Stock equal to the number of
Restricted Stock Units Awarded as of such date (without regard to
Supplemental Restrictions); provided, however, that vested
Restricted Stock Units, and any other securities into which they
may be converted as a result of the operation of this Section ll,
shall continue to be subject to Supplemental Restrictions in
accordance with subsection 7(e).
l2. Unsecured Creditor Status. Participants shall have no
right, title, or interest whatsoever in or to any assets or
rights of the Corporation, except to the extent provided in this
Plan. Nothing contained in the Plan, and no action taken pursu-
ant to its provisions, shall create or be construed to create a
trust of any kind, or a fiduciary relationship between the
Corporation and any Participant, beneficiary, legal representa-
tive, or any other person. To the extent that any person ac-
quires a right to receive payments or distributions from the
Corporation under the Plan, such right shall be no greater than
the right of an unsecured general creditor of the Corporation.
All cash payments that may be made hereunder shall be paid from
the general funds of the Corporation, and no special or separate
fund shall be established, and no segregation of assets shall be
made, to assure payment of such amount.
l3. Successor Corporation. The obligations of the Corpora-
tion under the Plan shall be binding upon any successor corpora-
tion or organization succeeding to substantially all of the
assets and business of the Corporation and shall continue to be
binding upon the Corporation notwithstanding any change in
ownership of the Corporation. The Corporation agrees that it
will make appropriate provision for the preservation of Partici-
pants' rights under the Plan in any agreement or plan which it
may enter into or adopt to effect any such transfer of assets or
ownership.
l4. Non-Alienation of Benefits. Except insofar as applica-
ble law may otherwise require, (i) no Restricted Stock Units,
rights or interests of Participants or amounts payable to or in
respect of any Participant at any time under the Plan shall be
subject in any manner to alienation by anticipation, sale,
transfer, assignment, bankruptcy, pledge, attachment, charge or
encumbrance of any kind, and any attempt so to alienate, sell,
transfer, assign, pledge, attach, charge, or otherwise encumber
any such amount, whether presently or thereafter payable, shall
be void; and (ii) to the full extent permitted by law the Plan
shall in no manner be liable for, or subject to, claims, liens,
attachments, or other like proceedings or to the debts, liabili-
ties, contracts, engagements, or torts of any Participant or
beneficiary. Nothing in this Section l4 shall prevent (a) a
Participant from transferring shares of Common Stock that have
been issued under the Plan nor (b) a Participant's rights and
interests under the Plan from being transferred by will or by the
laws of descent and distribution.
l5. Listing and Qualification of Shares. The Committee, in
its discretion, may postpone the issuance or delivery of shares
of Common Stock until completion of any stock exchange listing,
or other qualification or registration of such shares under any
state or federal law, rule or regulation, as the Committee may
consider appropriate, and may require any Participant to make
such representations, including, but not limited to, a written
representation that the shares are to be acquired for investment
and not for resale or with a view to the distribution thereof,
and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the shares in compli-
ance with applicable laws, rules and regulations. The Committee
may cause a legend or legends to be placed on such certificates
to make appropriate reference to such representation and to
restrict transfer in the absence of compliance with applicable
federal or state securities laws. Subject to the provisions of
Sections 7 and 9 above, Participants shall be granted so-called
"piggy-back" registration rights with respect to the shares of
Common Stock delivered under the Plan to participate at no cost
in any public offering of Common Stock registered by the Corpora-
tion pursuant to the Securities Act of l933 at any time prior to
l996. In the event that the managing underwriter of such public
offering determines that marketing factors require a limitation
on the number of shares to be underwritten, the managing under-
writer may exclude from such registration and underwriting some
or all of the shares of Common Stock issued under the Plan which
would otherwise be underwritten pursuant hereto.
l6. No Claim or Right Under the Plan. No employee of the
Corporation or any Subsidiary shall at any time have the right to
be selected as a Participant in the Plan or, having been selected
as a Participant in the Plan or having been selected as a Partic-
ipant and granted an Award, to be granted any additional Award.
Neither the action of the Corporation in establishing the Plan,
nor any action taken by it or by the Committee thereunder, nor
any provision of the Plan, nor participation in the Plan shall be
construed to give, and does not give, to any person the right to
be retained in the employ of the Corporation or any Subsidiary,
or interfere in any way with the right of the Corporation or any
Subsidiary to discharge or terminate any person at any time with-
out regard to the effect such discharge or termination may have
upon such person's rights, if any, under the Plan.
l7. Taxes. The Corporation may make such provisions and
take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local, and other taxes re-
quired by law to be withheld with respect to the distribution of
shares of Common Stock and/or cash under the Plan, including, but
not limited to, (i) reducing the number of shares of Common Stock
otherwise deliverable, based upon their Fair Market Value, to
permit deduction of the amount of any such withholding taxes from
the amount otherwise payable under the Plan, (ii) deducting the
amount required to be withheld from the amount of cash otherwise
payable under the Plan with respect to Restricted Stock Units,
and (iii) requiring a Participant, beneficiary, or legal repre-
sentative to pay to the Corporation the amount required to be
withheld as a condition of releasing the Common Stock and any
other distributions related thereto.
l8. No Liability of Directors. No Director shall be
personally liable by reason of any contract or other instrument
executed by such Director on his behalf in his capacity as a
Director, nor for any mistake of judgment made in good faith, in
connection with this Plan, and the Corporation shall indemnify
and hold harmless each employee, officer and Director of the
Corporation, to whom any duty or power relating to the adminis-
tration or interpretation of the Plan may be allocated or dele-
gated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with
the approval of the Board) arising out of any act or omission to
act in connection with the Plan to the fullest extent permitted
or required by the Corporation's articles of incorporation and
bylaws, and, in addition, to the fullest extent of any applicable
insurance policy purchased by the Corporation.
l9. Other Plans. Nothing contained in the Plan is intended
to amend, modify, or rescind any previously approved compensation
plans or programs entered into by the Corporation or its Subsid-
iaries. The Plan shall be construed to be in addition to any
and all such plans or programs. No Award of Restricted Stock
Units under the Plan shall be construed as compensation under any
other executive compensation or employee benefit plan of the
Corporation or any of its Subsidiaries, except as specifically
provided in any such plan or as otherwise provided by the Board
or Committee. The adoption of the Plan by the Board shall not be
construed as creating any limitations on the power or authority
of the Board to adopt such additional compensation or incentive
arrangements as the Board may deem necessary or desirable.
20. Amendment or Termination. The Committee may prospec-
tively amend, suspend or terminate the Plan or any portion
thereof at any time; provided, however, that no amendment,
suspension or termination of the Plan shall in a manner contrary
to the Plan adversely affect the rights of any Participant with
respect to any Awards already made under the Plan, without his
written consent.
21. Captions. The captions preceding the sections of the
Plan have been inserted solely as a matter of convenience and
shall not, in any manner, define or limit the scope or intent of
any provisions of the Plan.
22. Governing Law. The Plan and all rights thereunder
shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Virginia, without reference to the princi-
ples of conflicts of law thereof.
23. Expenses. All expenses of administering the Plan shall
be borne by the Corporation.
24. Effective Date. The Plan shall be effective as of
January l, l989.
* * * * * * * * *
DYNCORP
RESTRICTED STOCK PLAN ADDENDUM
MERIDIAN CORPORATION PARTICIPATION
The DynCorp Restricted Stock Plan (the "Plan"), dated
January 1, 1989, is hereby amended by adding the following
provisions which shall be applicable only to those specified
Participants in the Plan who are employees of Meridian Corpora-
tion ("Meridian"), acquired by DynCorp effective December 6,
1990.
1. Meridian Participants - The Meridian Corporation
employees identified on Attachment A hereto (the "Meridian
Participants") shall be considered Participants under the Plan,
subject, however to the special provisions set forth below. The
Chief Executive Officer will consider requests for additional
Meridian Participants in accordance with the Plan.
2. Award of Units - The Meridian Participants are hereby
awarded a total of Thirty-Eight Thousand Seven Hundred Fifty
(38,750) Restricted Stock Units ("Total Allocated Units"), such
Units to be allocated in accordance with Attachment A. Unit
certificates will be delivered to the Meridian Participants upon
the consummation of the acquisition of Meridian by DynCorp.
3. Vesting of Units - The Restricted Stock Units so
awarded shall be available for vesting as follows based on the
achievement of certain Meridian operating profit targets during
calendar years 1991, 1992 and 1993 (the "Plan Years").
(a) The following portions of awarded Units shall be
available for vesting in the respective Plan Years: 45% in 1991;
35% in 1992, and 20% in 1993. For purposes of this Addendum, the
number of Units that will vest each Plan Year during the term of
this Addendum shall be determined, in the case of Class A Partic-
ipants, by multiplying the Units available for vesting for a
specific Plan Year times a fraction the numerator of which is the
actual Meridian Operating Profit for such Plan Year (as hereafter
defined), and the denominator of which is $1,200,000, and in the
case of Class B Participants, by multiplying the Units available
for vesting for such Plan Year times a fraction the numerator of
which is the actual Meridian Operating Profit for such Plan Year,
and the denominator of which is $600,000; provided that neither
fraction shall exceed 1.0. "Meridian Operating Profit" shall
mean Meridian's income (excluding the income of the M&O Business
as defined in the Meridian Corporation New Business Segment
Incentive Plan) before tax, interest expense/income, Restricted
Stock Plan expense, and DynCorp G & A, but after a DynCorp ESOP
charge equal to 5% of Meridian's total labor cost (total W-2
wages as shown on Meridian's Form 941 payroll return excluding
the aforementioned M&O Business).
(b) Should the Meridian Operating Profit for 1991 be
such that at least 35% but less than 45% of the Total Allocated
Units vest in 1991 (subject to pro rata adjustments for other
Participant's forfeitures), all unvested Units for that year
shall be carried over to 1992 and shall be available for vesting
for 1992 in addition to the Units originally available for
vesting in 1992, in accordance with the formula set forth in
paragraph 3(a). Any of the 1991 unvested Units that are not
carried over to 1992 shall be forfeited. Any of the 1991 unves-
ted Units that are carried over to 1992 which do not vest in
1992 shall be forfeited.
(c) Should the Meridian Operating Profit for 1992 be
such that at least 27.3% but less than 35% of the Total Allocated
Units (excluding any Units carried from 1991) vest in 1992
(subject to pro rata adjustments for other Participant's forfei-
tures), all unvested Units for that year (excluding any Units
carried from 1991) shall be carried over to 1993 and shall be
available for vesting for 1993, in accordance with the formula
set forth in paragraph 3(a). Any of the 1992 unvested Units that
are not carried over to 1993 shall be forfeited. Any of the 1992
unvested Units that are carried over to 1993 which do not vest in
1993 shall be forfeited.
(d) In the event of a Change in Control, all unvested
Units not previously forfeited shall immediately become vested.
4. Exceptions to the Plan Provisions - For purposes of
this Addendum, Units delivered hereunder, and Common Stock into
which such Units may be converted, shall not be subject to the
provisions contained in paragraphs 7 and 9(a), and the second and
third sentences of paragraph 6 of the Plan.
5. Exchange of Units for Common Stock - Each unit which
becomes vested in accordance with the provisions of paragraph 3
of this Addendum shall be exchangeable for one share of Common
Stock at the request of the Participant. Upon receipt of such
written request by the Secretary of DynCorp, a share of Common
Stock shall be delivered with 30 days to the Participant for each
vested Unit surrendered. Delivery of all Common Stock under this
Addendum shall be subject to the terms of the Plan.
6. Eligibility for Vesting - Notwithstanding the forego-
ing, no vesting of Units shall occur under this Addendum unless
the Participant is a full time employee of Meridian or a DynCorp
affiliate during the entire Plan Year; provided, that in the
event of termination of employment as a result of death or
disability of a Participant, or a Participant's retirement at or
after the age of 65, the number of Units that would normally vest
under this Addendum had the Participant been employed for the
entire Plan Year shall be prorated based on the number of days
actually employed during such Year. A Participant who resigns or
voluntarily terminates his employment, or is terminated for good
and sufficient cause as provided in paragraph 4(a) or (b) of the
Class A Participant's employment contract, or the second and
third sentences of paragraph 4 of the Class B Participant's
employment contract, shall not be eligible for vesting of any
Units for the current or any subsequent Plan Year, and all
unvested Units shall be forfeited. A Participant who is termi-
nated by Meridian or DynCorp for reasons other than those speci-
fied above, or a Class A Participant who terminates his employ-
ment under the circumstances described in paragraph 4(d) of his
employment contract, shall be entitled to have Units for the
current and all remaining Plan Years vest in accordance with this
Addendum; provided, that in no event shall the number of such
vested Units exceed the Units that would have vested had Meridian
Operating Profit for the Plan Year of such termination been
earned in all subsequent Plan Years.
7. Forfeitures - With the exception of unvested Units that
may be carried over as provided in paragraph 3(b) or (c) above,
all Units available for vesting at the end of a Plan Year which
are not so vested shall be forfeited.
8. Effective Date of Addendum - This Addendum shall only
become effective upon the consummation of the acquisition of
Meridian Corporation by DynCorp on or about December 6, 1990.
* * * * * * * * * *
DYNCORP RESTRICTED STOCK PLAN
ADDENDUM NO. 2
SPECIAL PARTICIPATION
The DynCorp Restricted Stock Plan (the "Plan"), dated January 1,
1989, and amended December 6, 1991, is hereby further amended by
adding the following provisions, which shall be applicable only
to those participants designated as Special Participants in
accordance with paragraph 2, below, and shall be effective as of
May 29, 1991.
1. Purpose - The purpose of this Addendum is to provide
Restricted Stock Units to certain employees who were unable to
receive benefits on the same basis as other participants in the
DynCorp Employee Stock Ownership Plan ("ESOP") following the
transfer of excess assets from the DynCorp Pension Plan Trust to
the ESOP Trust (the "Transfer"), due to limitations imposed by
the Internal Revenue Code of 1986, as amended.
2. Special Participants - The employees listed on Attach-
ment A hereto shall be special participants ("Special Partici-
pants") in the Plan.
3. Award of Units - The Special Participants are hereby
awarded a total of 18,072 Restricted Stock Units, as provided
herein. Individual Special Participants are awarded the number
of Units set forth immediately following their names on Attach-
ment A.
4. Vesting of Units - Units awarded pursuant to this
Addendum shall vest on the day following receipt by the Committee
of the written opinion of the General Counsel to the Corporation
to the effect that the method of allocation of shares released
from the ESOP suspense account pursuant to Section 4.3 of the
Plan (the "Allocation") following the Transfer has been reviewed
by the Internal Revenue Service to the extent practicable and has
not resulted in a substantial change to such Allocation; provid-
ed, however, (a) if such opinion is not issued prior to May 30,
1996, or (b) if prior to such date the Committee receives from
the General Counsel an opinion that the Allocation has been or is
likely to be changed substantially, whichever is earlier, then
all Units awarded pursuant to this Addendum shall be immediately
forfeited. Except in the case of forfeiture as provided above,
vesting shall not be affected by death, retirement, or other
termination of the Special Participant. Upon vesting, the
Special Participant, or beneficiary or estate thereof, shall be
immediately entitled to receive one share of Common Stock for
each unit so vested.
5. Exceptions to the Plan Provisions - For purposes of
this Addendum, Units awarded hereunder, and Common Stock into
which such Units may be converted, shall not be subject to the
provisions contained in paragraphs 7 and 9(a) and the second and
third sentences of paragraph 6 of the Plan.
* * * * * * * * * *
DYNCORP RESTRICTED STOCK PLAN
THIRD ADDENDUM
The DynCorp Restricted Stock Plan (the "Plan"), dated
January 1, 1989, as amended by the Addendum effective December 6,
1990, and by the Second Addendum effective May 29, 1991, is
hereby further amended, effective June 8, 1992, as follows:
1. The provisions of Section 7. Vesting/Lapsing of
Restrictions of the Plan shall not be applicable to any Restrict-
ed Stock Units awarded on or after the effective date of this
Third Addendum. The provisions of Sections 3, 4, and 5 of this
Third Addendum shall not be applicable to any Restricted Stock
Units awarded prior to such date.
2. All references in the Plan to "Operational Cash Flow"
and "OCF" shall hereafter be references to "Adjusted Operating
Profit" and "AOP", respectively. In addition the former defini-
tion of "Operational Cash Flow", set forth in Section 2 of the
Plan, is amended to read:
"`Adjusted Operating Profit' or `AOP' means, for each
Group and including the corporate headquarters group,
earnings before interest, taxes, merger, financing, and
discontinued businesses costs, acquisition earnings and
costs, ESOP contributions, and Restricted Stock Plan
expense, as recorded on the books and records of the
Corporation."
3. Restricted Stock Units awarded from and after the
effective date of this Third Addendum, and only Units awarded
after such date, shall vest, rounded to the next whole share of
Common Stock, in accordance with the following provisions:
(a) Subject to Subsection (b) below, up to 100% of any
Units awarded during 1992 shall vest as of the last day of
December, 1994, based on the ratio (not to exceed 1 to 1, or
100%) of (i) the sum of the actual AOP for each of calendar year
1992 and calendar year 1993 to (ii) the sum of Forecasted AOP for
each of calendar year 1992 and calendar year 1993, and the number
of such Units awarded shall be multiplied by such ratio in order
to calculate the number of Units which become vested. All Units
which are available for vesting on the basis of such ratio which,
because such ratio is less than 100%, are not so vested shall be
forfeited.
(b) Except as specified in Subsections (d) and (e)
below, only those Participants who are employed by the Corpora-
tion or one of its Subsidiaries, or are serving as a non-employ-
ee Director of the Corporation,
(i) as of December 31, 1994, and
(ii) at such time, in a position having substan-
tially the same duties and responsibilities as such Participant
had on the date that the Restricted Stock Units to which this
Third Addendum applies were awarded,
shall become vested in Restricted Stock Units. Unless one of the
special conditions described in Subsections (d) or (e) below
applies, any Participant who is not so employed, or has ceased to
serve as a non-employee Director, as of December 31, 1994, shall
forfeit any Restricted Stock Units that would otherwise have
vested had the Participant been so employed, or continued to
serve as a Director, as of such date.
(c) Notwithstanding Subsection (b) above, a Partici-
pant shall be vested in 100% of his awarded Units not previously
forfeited if there is a Change in Control.
(d) If a Participant fails to satisfy the conditions
set forth in Subsections (b)(i) and (ii) above (i) because of his
termination by reason of Early Retirement, Normal Retirement,
death, or Disability, (ii) because of his transfer to another
position of employment with the Corporation or one of its Subsid-
iaries without meeting the condition set forth in (e) below, or
(iii) because he has ceased to serve as a non-employee Director
by reason of death, Disability, or retirement, then he shall be
vested, as of December 31, 1994, in the number of Units that
would otherwise have vested (in accordance with (a) above) on
such date if he had been so employed, multiplied by a fraction,
the numerator of which shall be the number of days he was actual-
ly so employed during the calendar years 1992 through 1994, and
the denominator of which shall be 1,095.
(e) If a Participant fails to satisfy the conditions
set forth in Subsections (b)(i) and (ii) above solely because of
his transfer to another position of employment with the Corpora-
tion or one of its Subsidiaries, then, but only in the event that
the Chief Executive Officer has made a written determination,
which determination shall be made in the sole discretion of the
Chief Executive Officer, no later than 30 days following such
transfer, to the effect that after such transfer his employment
is in a position having substantially equivalent, or a higher
level of, duties and responsibilities as such Participant had on
the date that the Restricted Stock Units to which this Third
Addendum applies were awarded, he shall become vested in the
number of Units as would have vested if he had met both such
conditions.
4. The definition of "Normal Payment Date", as set forth
in Section 2 of the Plan is hereby amended, but only as to Units
awarded after the effective date of this Third Addendum, to read:
"`Normal Payment Date' means the earlier of (i) March
15, 1995, or (ii) if applicable, the date of vesting in
accordance with Section 3(c) of the Third Addendum."
5. The provisions of Subsection 9(b)(a) of the Plan,
relating to deferral of payments, is hereby amended, but only as
to Units awarded after the effective date of this Third Addendum,
to read:
"permit a Participant, not later than 45 days after the
date an Award is made to such Participant, to elect
irrevocably to defer payment of all or any portion of
his Account attributable to such Award beyond the end
of the year in which the Normal Payment Date occurs
until a date certain to be selected by such Participant
in his discretion, but which date shall be no later
than December 31, 1998, the choice of such date being
irrevocably elected within such 45-day period;"
6. Section 4 of the Plan is hereby amended to read:
"Participation. Participation in the Plan shall be
limited to those employees of the Corporation or any of
its Subsidiaries, and to members of the Board of Direc-
tors who are not employees of the Corporation, who have
received written notification from the Chief Executive
Officer (or, in the case of the participation by the
Chief Executive Officer, by the Committee), that they
have been selected by the Committee to participate in
the Plan."
* * * * * * * * * *
DYNCORP RESTRICTED STOCK PLAN
FOURTH ADDENDUM
The DynCorp Restricted Stock Plan (the "Plan"), dated
January 1, 1989, as amended by the Addendum effective December 6,
1990, by the Second Addendum effective May 29, 1991, and by the
Third Addendum effective June 8, 1992, is hereby further amended,
effective April 16, 1993, as follows:
1. The provisions of this Fourth Addendum shall not be
applicable to any Restricted Stock Units awarded prior to the
effective date of this Fourth Addendum.
2. Restricted Stock Units awarded from and after the
effective date of this Fourth Addendum, and only Units awarded
after such date, shall vest, rounded to the next whole share of
Common Stock, in accordance with such criteria as shall be
established by the Chief Executive Officer at the time of the
award and, unless specifically exempted therefrom by such estab-
lished criteria, the following provisions:
(a) If the vesting of such Units is conditioned upon
achievement of AOP by a certain segment of the Company for
certain established performance time periods, subject to any
other vesting criteria, up to 100% of the Units awarded shall
vest as of the last day of the established vesting period, based
on the ratio (not to exceed 1 to 1, or 100%) of (i) the sum of
the actual AOP for such segment for each of such performance time
periods to (ii) the sum of Forecasted AOP for such segment for
each of such performance time periods, and the number of such
Units awarded shall be multiplied by such ratio in order to
calculate the number of Units which become vested. All Units
which are available for vesting on the basis of such ratio which
are not so vested, because such ratio is less than 100%, shall be
forfeited.
(b) Except as specified in (i) and (ii) below, if the
vesting of such Units is conditioned upon the fact that the
Participant must be employed by the Corporation or one of its
Subsidiaries, or serving as a non-employee Director of the
Corporation, as of a certain vesting date and, at such time, in a
position having substantially the same duties and responsibili-
ties as such Participant had on the date that the Restricted
Stock Units to which this Fourth Addendum applies were awarded,
any Participant who is not so employed, or has ceased to serve as
a non-employee Director, as of such vesting date shall forfeit
any Restricted Stock Units that would otherwise have vested had
the Participant been so employed, or continued to serve as a
Director, as of such vesting date.
(i) If a Participant fails to satisfy the condi-
tions set forth in this Section (b) solely: (A) because of his
termination by reason of Early Retirement, Normal Retirement,
death, or Disability, (B) because of his transfer to another
position of employment with the Corporation or one of its Subsid-
iaries without meeting the condition set forth in (ii) below, or
(C) because he has ceased to serve as a non-employee Director by
reason of death, Disability, or retirement, then he shall be
vested, as of the established vesting date, in the number of
Units that would otherwise have vested (in accordance with (a)
above) on such vesting date if he had been so employed, multi-
plied by a fraction, the numerator of which shall be the number
of days he was actually so employed during the established
performance time periods, and the denominator of which shall be
the actual number of days contained in such established perfor-
mance time periods.
(ii) If a Participant fails to satisfy the condi-
tions set forth in this Section (b) solely because of his trans-
fer to another position of employment with the Corporation or one
of its Subsidiaries, then (but only in the event that the Chief
Executive Officer has made a written determination, which deter-
mination shall be made in the sole discretion of the Chief
Executive Officer no later than 30 days following such transfer
to the effect that after such transfer his employment is in a
position having substantially equivalent, or a higher level of,
duties and responsibilities as such Participant had on the date
that the Restricted Stock Units to which this Fourth Addendum
applies were awarded) he shall become vested in the number of
Units as would have vested if he had met such conditions.
3. Notwithstanding the above provisions, a Participant
shall be vested in 100% of his awarded Units not previously
forfeited if there is a Change in Control.
4. The definition of "Normal Payment Date", as set forth
in Section 2 of the Plan and as amended by the Third Addendum is
hereby further amended, but only as to Units awarded after the
effective date of this Fourth Addendum, to read:
"`Normal Payment Date' means the earlier of (i) March
15 following the established vesting date, or (ii) if
applicable, the date of vesting in accordance with
Section 3 of the Fourth Addendum."
EXHIBIT 11
DynCorp and Subsidiaries
Computations of Earnings Per Common Share
(Dollars in thousands except per share data)
Year Ended December 31,
1993 1992 1991
Primary and Fully Diluted
Earnings:
Loss before extraordinary item $(13,414) $(20,816) $(12,595)
Extraordinary gain (loss) - (2,526) 192
Net loss (13,414) $(23,342) (12,403)
Preferred stock Class A dividends declared
and paid and accretion of discount - 959 5,180
Preferred stock Class C dividends
not accrued or paid 1,347 1,129 947
Net loss for common stockholders $(14,761) $(25,430) $(18,530)
Shares:
Weighted average common shares
outstanding 5,141,319 5,102,621 4,719,407
Earnings (loss) per common share:
Loss before extraordinary item $ (2.87) $ (4.49) $ (3.97)
Extraordinary gain (loss) - (0.49) 0.04
Net loss for common stockholders $ (2.87) $ (4.98) $ (3.93)
Exhibit 21
February 1994 SUBSIDIARIES OF DYNCORP
Name of Subsidiary Jurisdiction of Owned* Remarks
Incorporation
Aerotherm Corporation California
Air Carrier Services, Inc. Virginia (2)
Anedyn, Inc. Georgia (5)
Anedyn Power Company Florida (5)
Audio Technical Services Inc. Delaware (5)
Cinco Investors, Ltd. Delaware (5)
Dyn Funding Corporation Delaware
Dyn Logistics Services Inc. California (5)
Dyn Marine Services, Inc. California
Dyn/Mexico Holdings Inc. Virginia
Dyn Network Management, Inc. Virginia
Dyn Realty Corporation Virginia
Dyn Systems Technology, Inc. Virginia
DynAir Caribbean Services, Inc. U.S. Virgin (5)
Islands
DynAir CFE Services, Inc. Delaware (2)
DynAir Fueling Inc. Delaware (2)
DynAir Fueling of Nevada Inc. Nevada (2)
DynAir Maintenance, Inc. New York (3)
DynAir Services Inc. Delaware (2)
DynAir Services Russia Inc. Delaware (3)
DynAir Tech of Arizona, Inc. Arizona (2)
DynAir Tech of Florida, Inc. Florida (2)
DynAir Tech of Texas, Inc. Texas (2)
DynAir Technical Services, Inc. Delaware (2) (5)
DynAir Technologies Virginia (2)
International, Inc.
Dynalectron Corporation Delaware (1) (1)
Dynalectron Systems Inc. Nevada (5)
DynCorp Aviation Services, Inc. Virginia
DynCorp/DynAir Corporation California (3)
DynCorp Aerospace Ops., Inc. Delaware (4)
DynCorp Int'l. Services GmbH Germany (4)
DynCorp Int'l. Services, Inc. Virginia
DynCorp Int'l Services Ltd. Cayman Islands (4)
DynCorp Viar Inc. Virginia
DynMcDermott Petroleum Louisiana (6)
Operations Co.
Elec. Utility Construction, Inc. Kentucky (5)
Fuller-Austin Insulation Co. Texas (5)
Grupo DynCorp de Mexico Mexico (8)
Kwajalein Services, Inc. Virginia
Meridian Corporation Virginia
OLDHD Systems, Inc. Texas (5)
Pacific TSD Corporation California (5)
Program Resources, Inc. Virginia
Sea Mobility, Inc. Delaware (5)
TAI Realty Corporation Virginia
Technology Applications, Inc. Delaware (7)
395146 Alberta Ltd. Alberta, Canada (5)
*Owned 100% by DynCorp unless otherwise specified.
NOTES:
(1) Owned 100% by DynAir CFE Services, Inc. and formerly known as CFE
Equipment Corporation
(2) Owned 100% by DynCorp Aviation Services, Inc.
(3) Owned 100% by DynAir Services Inc.
(4) Owned 100% by DynCorp International Services, Inc.
(5) Inactive subsidiaries
(6) DynCorp owns 60% of outstanding common stock.
(7) DynCorp owns 77% of outstanding Class A common shares
(8) DynCorp owns 1 share of common stock and Dyn/Mexico Holdings Inc. owns
99 shares of common stock
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our report dated March 22, 1994,
included in this Form 10-K, into the Company's previously
filed Amendment No. 3 to Form S-4 Registration Statement No.
33-21412 and Amendment No. 1 to Form S-8 Registration
Statement No. 33-24927.
ARTHUR ANDERSEN & CO.
Washington, D.C.
March 31, 1994.
