FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 1999 Commission file number 1-3879
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DynCorp
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(Exact name of registrant as specified in its charter)
Delaware 36-2408747
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2000 Edmund Halley Drive, Reston, VA 20191-3436
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(Address of principal executive offices) (Zip Code)
(703) 264-0330
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 10, 1999
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Common Stock, $0.10 Par Value 10,015,000
<PAGE>
DYNCORP AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JULY 1, 1999
INDEX
Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
July 1, 1999 and December 31, 1998 3-4
Consolidated Condensed Statements of Operations for
Three and Six Months Ended July 1, 1999 and July 2, 1998 5
Consolidated Condensed Statements of Cash Flows for
Six Months Ended July 1, 1999 and July 2, 1998 6
Consolidated Statement of Stockholders' Equity 7
Notes to Consolidated Condensed Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 1, 1999 AND DECEMBER 31, 1998
(In thousands)
July 1,
1999 December 31,
Unaudited 1998
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<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents $ 26,606 $ 4,088
Accounts receivable, net 250,134 257,670
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 806 769
Other current assets 20,792 15,775
-------- --------
Total current assets 298,338 278,302
Property and Equipment (net of accumulated depreciation
and amortization of $30,430 in 1999 and $27,538 in 1998) 18,807 18,544
Intangible Assets (net of accumulated amortization of
$51,034 in 1999 and $50,030 in 1998) 61,354 58,796
Other Assets 34,950 23,596
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Total Assets $413,449 $379,238
======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 1, 1999 AND DECEMBER 31, 1998
(In thousands, except share amounts)
July 1,
1999 December 31,
Unaudited 1998
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<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable and current portion of long-term debt $ 26,252 $ 8,145
Accounts payable 54,040 66,885
Deferred revenue and customer advances 3,217 2,542
Accrued liabilities 133,821 110,051
-------- ---------
Total current liabilities 217,330 187,623
Long-Term Debt 152,098 152,121
Other Liabilities and Deferred Credits 34,976 27,644
Contingencies and Litigation - -
Temporary Equity:
Redeemable common stock -
ESOP shares, 7,239,642 and 7,082,422
shares issued and outstanding in 1999 and 1998,
respectively, subject to restrictions 193,272 180,812
Other, 125,714 shares issued and outstanding in 1998 - 3,049
Stockholders' Equity:
Common stock, par value ten cents per share, authorized 20,000,000 shares;
issued 5,019,503 and 4,976,423 shares in 1999 and 1998, respectively 502 498
Paid-in surplus 127,195 127,216
Accumulated other comprehensive income (7) (10)
Reclassification to temporary equity for redemption value
greater than par value (192,549) (183,140)
Deficit (71,579) ( 78,782)
Common stock held in treasury, at cost; 2,244,146 and
2,005,728 shares in 1999 and 1998, respectively (41,555) (35,640)
Unearned ESOP shares (6,234) (2,153)
--------- ---------
Total Liabilities and Stockholders' Equity $413,449 $379,238
======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
UNAUDITED
Three Months Ended Six Months Ended
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July 1, July 2, July 1, July 2,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues $321,262 $303,602 $633,148 $601,475
Costs and expenses:
Costs of services 303,820 287,927 599,188 571,863
Corporate general and administrative 5,674 4,793 11,091 10,061
Interest income (261) (328) (1,038) (677)
Interest expense 4,489 3,855 8,544 7,648
Other 2,050 1,502 2,285 1,868
------- ------- ------- -------
Total costs and expenses 315,772 297,749 620,070 590,763
Earnings before income taxes and minority interest 5,490 5,853 13,078 10,712
Provision for income taxes 1,973 2,130 4,566 3,906
------- ------- ------- -------
Earnings before minority interest 3,517 3,723 8,512 6,806
Minority interest 205 528 1,309 947
------- ------- ------- -------
Net earnings $ 3,312 $ 3,195 $ 7,203 $ 5,859
======== ======== ======== ========
Basic earnings per share $ 0.33 $ 0.31 $ 0.71 $ 0.58
Diluted earnings per share $ 0.32 $ 0.30 $ 0.70 $ 0.56
Weighted average number of shares
outstanding for basic earnings per share 10,062 10,255 10,127 10,135
Weighted average number of shares
outstanding for diluted earnings per share 10,317 10,609 10,324 10,537
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
Six Months Ended
----------------
July 1, July 2,
1999 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 7,203 $ 5,859
Adjustments to reconcile net earnings from operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,587 4,142
Increase in reserves for divested businesses 2,000 383
Proceeds from insurance settlement for asbestos claims - 1,463
Other (848) (58)
Changes in current assets and liabilities, net of acquisitions:
Decrease (increase) in current assets except cash and cash equivalents 2,483 (18,895)
Increase in current liabilities excluding notes payable
and current portion of long-term debt 9,237 4,881
------ -------
Cash provided by (used in) operating activities 24,662 (2,225)
Cash Flows from Investing Activities:
Sale of property and equipment 34 299
Purchase of property and equipment (2,699) (2,498)
Assets and liabilities of acquired business - (10,241)
Increases in investment in unconsolidated affiliates (2,415) (1,054)
Capitalized cost of new financial and human resource systems (5,101) (3,100)
Other (32) (131)
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Cash used in investing activities (10,213) (16,725)
Cash Flows from Financing Activities:
Treasury stock purchased (6,237) (1,033)
Payment on indebtedness (97,656) (18,265)
Proceeds from debt issuance 115,726 20,000
Payment received on Employee Stock Ownership Plan note 3,665 3,318
Loan to Employee Stock Ownership Plan (7,746) -
Exercise of stock options 308 11
Other 9 12
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Cash provided by financing activities 8,069 4,043
Net Increase (Decrease) in Cash and Cash Equivalents 22,518 (14,907)
Cash and Cash Equivalents at Beginning of the Period 4,088 24,602
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Cash and Cash Equivalents at End of the Period $26,606 $ 9,695
======= =======
Supplemental Cash Flow Information:
Cash paid for income taxes $ 2,179 $ 4,253
======= =======
Cash paid for interest $ 7,144 $ 7,311
======= =======
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
UNAUDITED
Adjustment for Accumulated
Redemption Value Unearned Other
Common Paid-in Greater than Treasury ESOP Comprehensive
Stock Surplus Par Value Deficit Stock Shares Income
------ ------- ----------------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $498 $127,216 $(183,140) $(78,782) $(35,640) $(2,153) $(10)
Employee compensation plans
(option exercises, restrited
stock plan, incentive bonus) 7 (21) 322
Treasury stock purchased (6,237)
Loans to the Employee Stock Ownership Trust (7,746)
Payment received on Employee Stock
Ownership Trust note 3,665
Reclassification to redeemable common stock (3) (9,409)
Translation adjustment 3
Net earnings 7,203
---- -------- ---------- --------- --------- -------- ----
Balance, July 1, 1999 $502 $127,195 $(192,549) $(71,579) $(41,555) $(6,234) $(7)
==== ======== ========== ========= ========= ======== ====
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
DYNCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 1, 1999
UNAUDITED
Note 1. Basis of Presentation
The Company has prepared the unaudited consolidated condensed financial
statements included herein pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is recommended that these condensed financial
statements are read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, the unaudited consolidated condensed
financial statements included herein reflect all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the financial
position, the results of operations and the cash flows for such interim
periods. The results of operations for such interim periods are not
necessarily indicative of the results for the full year. Certain amounts
presented for prior periods have been reclassified to conform to the 1999
presentation.
Note 2. Accounts Receivable and Contracts in Process
At July 1, 1999 and December 31, 1998, $107.0 million and $87.9 million,
respectively, of accounts receivable were restricted as collateral for the
7.486% Contract Receivable Collateralized Notes ("Notes"). Additionally,
$1.5 million of cash was restricted as collateral for the Notes and has
been included in Other Assets on the accompanying Consolidated Condensed
Balance Sheets at July 1, 1999 and December 31, 1998.
Accounts receivable are net of an allowance for doubtful accounts of
$1.4 million at July 1, 1999 and $1.1 million at December 31, 1998.
Note 3. Redeemable Common Stock
Common stock which is redeemable upon the exercise of puts under the
Company's Employee Stock Ownership Plan ("ESOP") has been reflected as
Temporary Equity at each balance sheet date and consists of the following:
<TABLE>
<CAPTION>
Balance at Balance at
Redeemable July 1, Redeemable December 31,
Shares Value 1999 Shares Value 1998
------ ----------- ----------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ESOP Shares 3,347,519 $29.25 $ 97,915 3,382,340 $27.75 $ 93,860
3,892,123 $24.50 95,357 3,700,082 $23.50 86,952
--------- ---------- --------- ---------
7,239,642 $ 193,272 7,082,422 $ 180,812
========= ========== ========= =========
Other Shares 125,714 $24.25 $ 3,049
========= =========
</TABLE>
In accordance with the Employee Retirement Income Security Act regulations
and the ESOP documents, the Company is obligated, unless the ESOP Trust
purchases the shares, to purchase distributed common stock shares from
ESOP participants on retirement or termination at fair value as long as
the Company's common stock is not publicly traded. However, under the
Subscription Agreement with the ESOP dated September 9, 1988, the Company
is permitted to defer put options if, under Delaware law, the capital of
the Company would be impaired as a result of such repurchase.
In conjunction with the acquisition of Technology Applications, Inc. in
1993, the Company issued put options on 125,714 shares of common stock. On
January 12, 1999, the holder exercised the put option on these 125,714
shares of common stock at the applicable price of $24.25 per share.
Note 4. Employee Stock Ownership Plan
From time to time, the Company makes collateralized loans to the Employee
Stock Ownership Trust ("ESOT") to purchase shares and pay off expiring
loans. During the first half of 1999, the Company loaned the ESOT
$7.7 million and the ESOT paid back to the Company $3.7 million of the
outstanding loan balance. The unpaid loan balance, reflected as a
reduction of stockholders' equity, was $6.2 million and $2.2 million
at July 1, 1999 and December 31, 1998, respectively. The unpaid loan
balances represented 257,849 and 99,309 shares at July 1, 1999, and
December 31, 1998, respectively.
Note 5. Income Taxes
The provision for income taxes in 1999 and 1998 is based upon an estimated
annual effective tax rate. This rate includes the impact of differences
between the book value of assets and liabilities recognized for financial
reporting purposes and the basis recognized for tax purposes.
Note 6. Earnings Per Share
The following table sets forth the reconciliation of shares for basic EPS
to shares for diluted EPS. Basic EPS is computed by dividing net earnings
by the weighted average number of common shares outstanding and
contingently issuable shares. The weighted average number of common shares
outstanding includes issued shares less shares held in treasury and any
unallocated ESOP shares. Shares earned and vested but unissued under the
Restricted Stock Plan are contingently issuable shares whose conditions
for issuance have been satisfied and as such have been included in the
calculation of basic EPS. Diluted EPS is computed similarly except the
denominator is increased to include the weighted average number of stock
warrants and options outstanding, assuming the treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 2, July 1, July 2,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding for basic EPS 10,062 10,255 10,127 10,135
Effect of dilutive securities:
Warrants - 169 - 244
Stock options 255 185 197 158
------ ------ ------ ------
Weighted average shares outstanding for diluted EPS 10,317 10,609 10,324 10,537
====== ====== ====== ======
</TABLE>
Note 7. Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-5, "Reporting on the
Costs of Start-up Activities," which became effective for fiscal years
beginning after December 15, 1998. The statement provides guidance on the
financial reporting of start-up costs and organization costs and requires
costs of start-up activities to be expensed as incurred. The adoption of
this statement, effective January 1, 1999, did not have a material impact
on the Company's financial statements.
AICPA SOP No. 98-9, "Software Revenue Recognition," was issued in December
1998. SOP No. 98-9 amends SOP No. 97-2 to require recognition for
multiple-element arrangements by means of the "residual method" in certain
circumstances. The provisions of SOP No. 98-9 that extend the deferral of
certain passages of SOP No. 97-2 became effective December 15, 1998. All
provisions are effective for transactions entered into in fiscal years
beginning after March 15, 1999. Earlier application for financial
statements or information that has not been issued is permitted and
retroactive application is prohibited. SOP No. 98-9 is not expected to have
a material impact on the Company's consolidated results of operations or
financial position.
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, which
deferred the effective date of SFAS 133. In June 1998, FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. Because of the Company's minimal use of derivatives,
the Company does not expect that the adoption of this new standard
will have a material impact on its results of operations or financial
condition.
Note 8. Business Segments
Effective January 1, 1999, the Company realigned its three Strategic
Business Segments into two focused sectors. The Company's Information and
Engineering Technology Unit and most of its Enterprise Management Unit were
combined to become DynCorp Information and Enterprise Technology. Aerospace
Technology and the remaining parts of Enterprise Management were combined
to become DynCorp Technical Services. The purpose of this realignment was
to provide focus and clarity to the Company's businesses and enable the
Company to better serve its customers by concentrating technical services
and information technology competencies in individual single business unit
structures. Business segment information for 1998 has been restated to give
effect to this change.
Revenues, operating profit and identifiable assets for the Company's two
business segments for 1999 and the comparable periods for 1998 are
presented below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 2, July 1, July 2,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
--------
DynCorp Information and Enterprise Technology $162,287 $155,714 $317,743 $ 307,513
DynCorp Technical Services 158,975 147,888 315,405 293,962
-------- -------- -------- --------
$321,262 $303,602 $633,148 $601,475
========= ======== ======== ========
Operating Profit (a)
----------------
DynCorp Information and Enterprise Technology $9,429 $7,082 $ 18,398 $ 15,020
DynCorp Technical Services 7,649 7,117 14,609 12,678
-------- -------- --------- --------
17,078 14,199 33,007 27,698
Corporate general and administrative 5,674 4,793 11,091 10,061
Interest income (261) (328) (1,038) (677)
Interest expense 4,489 3,855 8,544 7,648
Goodwill amortization 393 394 786 784
Minority interest included in operating profit (205) (528) (1,309) (947)
Amortization of intangibles of acquired companies 365 184 749 512
Other miscellaneous 1,133 (24) 1,106 (395)
------ ------- -------- ---------
Earnings before income taxes and minority interest $5,490 $5,853 $ 13,078 $ 10,712
====== ====== ======== =========
</TABLE>
<TABLE>
<CAPTION>
July 1, December 31,
1999 1998
------- ------------
<S> <C> <C>
Identifiable Assets
-------------------
DynCorp Information and Enterprise Technology $187,445 $193,094
DynCorp Technical Services 149,011 141,514
Corporate 76,993 44,630
-------- --------
$413,449 $379,238
======== ========
(a) Defined as the excess of revenues over operating expenses and certain
nonoperating expenses.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the consolidated
results of operations and financial condition of DynCorp and its subsidiaries
(collectively, the "Company"). The discussion should be read in conjunction with
the interim condensed consolidated financial statements and notes thereto and
the Company's annual report on Form 10-K for the year ended December 31, 1998.
Results of Operations
- ---------------------
The Company provides diversified management, technical and professional services
primarily to U.S. Government customers throughout the United States and
internationally. The Company's customers include various branches of the
Department of Defense, the Department of Energy, NASA, the Department of State,
the Department of Justice and various other U.S., state and local government
agencies, commercial clients and foreign governments. The following discusses
the Company's results of operations and financial condition for the three and
six months ended July 1, 1999 and the comparable periods for 1998.
Revenues and Operating Profit
- -----------------------------
For the three and six months ended July 1, 1999, revenue increased 5.8% and 5.3%
to $321.3 million and $633.1 million, respectively, compared to $303.6 million
and $601.5 million for the comparable periods in 1998. Operating profit, defined
as the excess of revenues over operating expenses and certain non-operating
expenses, increased 20.3% and 19.2% to $17.1 million and $33.0 million,
respectively, compared to $14.2 million and $27.7 million for the comparable
periods in 1998.
DynCorp Information and Enterprise Technology reported revenue growth of 4.2%
and 3.3% to $162.3 million and $317.7 million, respectively, compared to $155.7
million and $307.5 million for the comparable periods in 1998. The revenue
increases were primarily due to the start-up of a contract with the U.S. Postal
Service, which was awarded in 1998 but became operational in 1999, increased
tasking on indefinite delivery/indefinite quantity ("IDIQ") contracts, and
growth in a contract with the Department of Justice. Also contributing to the
revenue increases were higher volume of state and local contract business, two
award fees received which were greater than accrued (expected), growth in health
information technology services, and new business with the customer at the Norco
location. Partially offsetting these increases in revenue was the loss in
recompetition of significant portions of the work scope of an enterprise
contract at the DoE Rocky Flats location. In the second quarter and first half
of 1998, Rocky Flats' revenue was $20.8 million and $46.1 million, respectively.
DynCorp Information and Enterprise Technology had a contract with the Federal
Occupational Health terminated in the second quarter for convenience of the
customer. Revenue for this contract for the three and six months ended July 1,
1999, was $1.7 million and $3.3 million, respectively, compared to $1.6 million
and $3.3 million for the same periods in 1998. Currently management is
negotiating a possible extension of this contract for one year.
DynCorp Information and Enterprise Technology has two contracts that will end in
the third quarter of 1999. Option years on a subcontract for the U.S. Postal
Service were not exercised due to the lack of funding. A contract with the
Department of Justice was lost in recompetition. Revenue for these two contracts
was $16.9 million and $40.8 million for the three and six months ended July 1,
1999, respectively, compared to $16.7 and $29.3 for the comparable periods in
1998.
For the three and six months ended July 1, 1999, operating profit for DynCorp
Information and Enterprise Technology increased 33.1% and 22.5% to $9.4 million
and $18.4 million, respectively, compared to $7.1 million and $15.0 million for
the comparable prior year periods. The increase in operating profit resulted
from the start-up of the contract with the U.S. Postal Service, volume increases
on contracts with the Department of Justice, and improved profitability on
previously awarded IDIQ contracts. Also contributing to the increase in
operating profit were the receipts of award fees on two contracts that were
greater than accrued (expected), and the fact that 1998 operating profit
reflected losses on several contracts that did not continue in 1999. These
increased profits more than offset the decrease in profits from the loss of the
enterprise contract at the Rocky Flats location.
DynCorp Technology Services' revenues for the three and six months ended July 1,
1999, grew 7.5% and 7.3%, respectively, to $159.0 million and $315.4 million,
respectively, compared to $147.9 million and $294.0 million for the comparable
periods in 1998. The revenue increase was primarily due to a contract providing
technical and support services for the United States Air Force at Columbus AFB,
which became fully operational in the fourth quarter of 1998. Increased tasking
on a State Department contract providing support services related to the Kosovo
conflict, increased services at Qatar, and increases in the purchase of
reimbursable materials for the customer at Fort Rucker also contributed to the
second quarter and first half revenue growth. Slightly offsetting these revenue
increases were lower tasking on certain base operations support contracts.
Operating profit for DynCorp Technology Services increased 7.5% and 15.2% to
$7.6 million and $14.6 million for the three and six months ended July 1, 1999,
compared to $7.1 million and $12.7 million for the comparable prior year
periods. The increase in operating profit for the second quarter 1999 compared
to the second quarter 1998 was due mostly to the absence of bid and proposal
costs related to the Fort Rucker recompetition, which was awarded to the Company
in December 1998, and other one-time expenses. The increase in six month
operating profit, compared to the same period in 1998, resulted from the
aforementioned increased tasking on the State Department contract, more
favorable pricing included in a new contract awarded in the fourth quarter of
1998 with the customer at Fort Rucker, the contract with the United States Air
Force at Columbus AFB, and lower bid and proposal costs. Slightly offsetting
these increases were operating losses on certain residual security contracts.
Cost of Services
- ----------------
Cost of services for the second quarter and six months of 1999 was 94.6% of
revenue as compared to 94.8% and 95.1% for the comparable periods in 1998.
Improved pricing on several contracts, the shift to more profitable businesses,
and higher profit margins on some existing contracts all contributed to the
improvement in cost of services percentage.
Corporate General and Administrative Expense
- --------------------------------------------
Corporate general and administrative expense for the second quarter and six
months of 1999 were $5.7 million and $11.1 million, respectively, as compared to
$4.8 million and $10.1 million for the comparable periods in 1998, an increase
of $.9 million and $1.0 million, respectively. The increase in second quarter
and six months corporate general and administrative expense primarily resulted
from the Company's implementation of new financial and human resource software
packages, as described below under Year 2000.
Interest Expense
- ----------------
For the three and six months ended July 1, 1999, interest expense was $4.5
million and $8.5 million, respectively, compared to $3.9 million and $7.6
million for the comparable periods in 1998. The increase in interest expense
resulted from an increase in debt borrowings. Also contributing to the three and
six months increase in interest expense was an arbitration award to a plaintiff
on a contract dispute related to a discontinued operation.
Other Expense
- -------------
Other expense was $2.1 million and $2.3 million, respectively, for the three and
six months ended July 1, 1999 compared to $1.5 million and $1.9 million for the
comparable periods of 1998. The increase in three and six months other expense
compared to the comparable periods in 1998 resulted mostly from expenses
associated with an arbitration award to a plaintiff on a contract dispute
related to a discontinued operation.
Income Taxes
- ------------
The provision for income taxes in 1999 and 1998 is based upon an estimated
annual effective tax rate, including the impact of differences between the book
value of assets and liabilities recognized for financial reporting purposes and
the basis recognized for tax purposes. The provision for income taxes decreased
by $0.1 million to $2.0 million for the three months ended July 1, 1999 compared
to $2.1 million in the comparable period in 1998. The decrease was due to lower
pretax income in 1999 offset by a slightly lower effective tax rate in 1998. For
the six months ended July1, 1999, the provision for income taxes increased by
$0.7 million to $4.6 million compared to $3.9 million in the comparable period
in 1998. The increase was due to higher pretax earnings in 1999 and by a
slightly lower effective tax rate in 1998. The Company's effective tax rate
approximated 38.8% for the three and six months ended July 1, 1999.
Backlog
- ------
The Company's backlog of business, which includes awards under both prime
contracts and subcontracts as well as the estimated value of option years on
government contracts, was $3.9 billion at July 1, 1999 compared to $4.1 billion
at December 31, 1998, a net decrease of $0.2 billion. The backlog at July 1,
1999 consisted of $2.0 billion for DynCorp Technical Services and $1.9 billion
for DynCorp Information and Enterprise Technology compared to December 31, 1998
backlog of $2.0 billion for DynCorp Technical Services and $2.1 billion for
DynCorp Information and Enterprise Technology. The Company has been awarded
significant IDIQ contracts with GSA and NASA to provide comprehensive desktop
computer, server and intra-center communication support. The Company's backlog
at July 1, 1999 does not include any significant value for these contracts
because the Company cannot reasonably estimate the future revenues from these
contracts.
Working Capital and Cash Flow
- -----------------------------
Working capital, defined as current assets less current liabilities, was $81.0
million at July 1, 1999 compared to $90.7 million at December 31, 1998, a
decrease of $9.7 million. This decrease was primarily the result of the
additional borrowings against the Contract Receivable Collateralized Class B
Variable Rate Note.
Cash provided by operations was $24.7 million in the six months of 1999, as
compared to $2.2 million cash used in operations in the six months of 1998, an
increase in cash provided of $26.9 million. The increase resulted mostly from
the absence of an increase in accounts receivable similar to that of 1998, which
was caused by increased revenues and start-up of new contracts, and higher net
earnings and payable balances in 1999.
Investing activities used funds of $10.2 million in the six months ended July 1,
1999, principally for the purchase of property and equipment and the capitalized
cost of new software for internal use as part of the Company's Year 2000 plan.
The Company has capitalized $10.8 million of internal use software, of which
$5.1 million was capitalized during the first half of 1999, and anticipates
capitalizing another $0.5 million over the next six months. During the first six
months of 1998, investing activities used funds of $16.7 million principally for
the acquisition of FMAS, a medical outcome measurement and data abstraction
services company acquired in February 1998, the purchase of property and
equipment, and the purchase of new software for internal use as part of the
Company's Year 2000 plan.
Financing activities provided funds of $8.1 million in the six months of 1999
which consisted primarily of additional borrowing against the Contract
Receivable Collateralized Class B Variable Rate Note as described above. The
proceeds were used to make a loan to the Employee Stock Ownership Trust, to fund
the Company's purchase of common stock from ESOP participants and other
investors, and to finance working capital needs. During the six months of 1998,
financing activities provided funds of $4.0 million. The Company borrowed $20.0
million and repaid $18.3 million of the Contract Receivable Collateralized Class
B Variable Rate Notes, which was used primarily to finance working capital
needs.
The Company expects to acquire additional shares of its stock from ESOP
participants' stock puts and other investors during the remainder of the year.
The level of stock purchases will be dependent on the number of puts exercised,
the amount of excess sellers versus buyers, if any, in the Company's internal
market, and limitations on stock repurchases in the Company's debt agreements.
Earnings before Interest, Taxes, Depreciation, and Amortization
- ---------------------------------------------------------------
Earnings before Interest, Taxes, Depreciation, and Amortization ("EBITDA") as
defined by management, consists of net earnings before income tax provision, net
interest expense, and depreciation and amortization. EBITDA represents a measure
of the Company's ability to generate cash flow and does not represent net income
or cash flow from operating, investing and financing activities as defined by
generally accepted accounting principles ("GAAP"). EBITDA is not a measure of
performance or financial condition under GAAP, but is presented to provide
additional information about the Company to the reader. EBITDA should be
considered in addition to, but not as a substitute for, or superior to, measures
of financial performance reported in accordance with GAAP. EBITDA has been
adjusted for the amortization of deferred debt expense and debt issue discount
which are included in "interest expense" in the Consolidated Statements of
Operations and included in "amortization and depreciation" in the Consolidated
Statements of Cash Flows. Readers are cautioned that the Company's definition of
EBITDA may not necessarily be comparable to similarly titled captions used by
other companies due to the potential inconsistencies in the method of
calculation. The following presentation represents the Company's computation of
EBITDA (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 2, July 1, July 2,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $3,312 $3,195 $7,203 $5,859
Depreciation and amortization 2,277 2,054 4,587 4,142
Interest expense, net 4,228 3,527 7,506 6,971
Income taxes 1,973 2,130 4,566 3,906
Amortization of deferred debt expense (180) (180) (366) (357)
Debt issue discount (9) (9) (18) (18)
------- ------- ------- -------
EBITDA $11,601 $10,717 $23,478 $20,503
======= ======= ======= =======
</TABLE>
Year 2000 Readiness Disclosure
- ------------------------------
The "Year 2000" issue ("Y2K") concerns the inability of some computer software
and hardware to accommodate "00" appropriately in the two digit data field used
to identify the year. The principal Y2K risk to the Company would come from an
extended failure of one or more of its core systems (financial, payroll, and
human resources).
Replacement of the Company's core financial, human resources and payroll systems
software was initiated following a Year 2000 analysis conducted in 1997 that
found these programs to be non-compliant for the millennium date rollover.
Deployment of a new human resources and payroll system was launched and has been
completed. Due to the large number of conversions and the demands on field
organizations, the financial systems implementation is now scheduled for
completion in the second quarter of 2000. A contingency plan was activated to
install an updated compliant version of the Company's current financial software
package in all locations where conversion to the new Enterprise Resource
Planning package is not assured prior to 2000. This contingency effort is now
53% complete with full completion expected in October 1999. Total expenditures
for the Y2K effort were $15.8 million as of July 1, 1999, of which $10.8 million
represented capitalized software costs. The Company anticipates additional
capitalized software costs of $0.5 million for the remainder of 1999.
The core systems assessment included contact in 1998 with third-party
telecommunications, employee benefits, insurance, and other providers. The
initial letters obtained from these providers generally stated that they were
working the Y2K problem. In June 1999, follow-up contact was initiated to
ascertain progress by these providers.
A Year 2000 Program Management Plan was developed and a Y2K Project Office
launched in mid-1998 to address other Y2K compliance issues. A multifunctional
task group is overseeing assessment and remediation or replacement efforts in
the areas of core systems, network and office automation, and field information
and non-information systems. No problems have been identified that would
materially affect the Company's ability to perform on its significant contracts.
These assessments include third-party service providers and other vendors on
whom a given contract might depend.
One area of possible vulnerability is the payment capability of the various
government payment offices receiving and processing invoices from a given
contract site. A letter received in December 1998 from the Defense Finance and
Accounting Service ("DFAS") office in Arlington, Virginia stated that 77% of the
payment offices are Y2K compliant, with 100% compliance expected by March 31,
1999. A recent check of the DFAS web site indicated that September 25, 1999 is
the target date for full compliance for all DoD payment systems and contingency
plans are being developed to assure that Y2K does not adversely affect DFAS'
ability to make payments.
Another assessment being pursued by contract sites is on government-furnished
equipment ("GFE"). If GFE is critical to performance on a contract and is not
compliant, a failure could affect contract performance. While this may not be
material to the Company as a whole, individual contracts are addressing these
potential areas of risk with customers. No problems have been identified that
would materially affect the Company's ability to perform on its significant
contracts. By way of prudence, contract managers are considering alternative
work methods in the event of a short-term interruption of GFE service,
facilities or contracted vendor operations.
An employee awareness program was initiated in mid-1998 to inform employees and
managers of the potential for Y2K problems. In addition to creating general
awareness, this program is intended to address "home grown" office automation
systems and stand-alone PCs. None of these types of systems is considered
mission critical to the Company as a whole.
Infrastructure items that may have Y2K compliance problems such as desktop
workstations, network components, and servers, are being systematically tested,
repaired or replaced. The annual expenditures for these components are not
significantly above levels that can be expected in the normal course of
business, given our normal infrastructure replacement plan and budget.
Depreciation and amortization expenses for the resystemization and for these
infrastructure components are allowable costs under government contracts.
Recommended clauses for contracts and purchases have been adopted and are being
used to protect the Company from inappropriate litigation.
In summary, the primary Y2K vulnerability for the Company is possible failure of
core systems. The resystemization effort is a top priority within the Company,
with dedicated teams and incentive plans for retaining these employees
throughout the project. Contingency plans are being executed where delays have
been experienced. Millennium Coordinators are overseeing the Y2K effort in each
business area, and a multi-functional team of executives, headed by the Y2K
Program Manager and chaired by the Corporate Chief Information Officer, acts as
a Y2K steering committee. Assessments at the contract level are largely
complete, and preliminary impact analyses results indicate little cause for
concern for the Company overall. Nevertheless, appropriate "what-if" scenarios
are being considered, information systems staff readiness for the millennium
rollover is being evaluated, and contingency planning has been launched.
Forward Looking Statements
- --------------------------
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward-looking statements" that are
based on management's expectations, estimates, projections and assumptions.
Words such as "expects," "anticipates," "plans," "believes," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements that include, but are not limited to, projections of
future performance, assessment of contingent liabilities and expectations
concerning liquidity, cash flow and contract awards. Such forward-looking
statements are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. These statements are not guarantees of
future performance and involve certain risks and uncertainties that are
difficult to predict. Therefore, actual future results and trends may differ
materially from what is forecast in forward-looking statements due to a variety
of factors, including the Company's successful execution of internal performance
plans; the outcome of litigation in process; labor negotiations; changing
priorities or reductions in the U.S. Government defense budget; and termination
of government contracts due to unilateral government action.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company has limited exposure to market risk due to the nature of its
financial instruments. The Company's only use of derivative financial
instruments is to manage its exposure to fluctuations in interest rates and
foreign exchange rates. The Company does not hold or issue derivative financial
instruments for trading or other speculative purposes. There have been no
material changes in market risk to which the Company is exposed since the end of
the Company's preceding fiscal year.
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At the annual meeting of stockholders, held on July 28, 1999, at the Company's
headquarters in Reston, Virginia, the stockholders of the Company:
(a) Elected the following individuals to the Board of Directors for the terms
set forth:
Director Term Votes Cast For Votes Withheld/Against
-------- ---- -------------- ----------------------
Russell E. Dougherty One year 8,990,408 664,379
H. Brian Thompson Three year 9,037,627 617,120
Herbert S. Winokur, Jr. Three year 9,007,893 646,894
(b) Ratified the appointment of Arthur Andersen LLP, public accountants, to
audit the consolidated financial statements of the Company as of and for the
fiscal year ending December 30, 1999. There were 9,099,570 votes for the
appointment, 265,399 votes against, and 289,819 abstentions.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
10.2 Management Incentive Plan, as amended (filed herewith)
10.3 Executive Incentive Plan, as amended (filed herewith)
10.10 1999 Long-Term Incentive Stock Plan (filed herewith)
(b) Reports on Form 8-K
None filed.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNCORP
/s/ P. C. FitzPatrick
Date: August 13, 1999 --------------------
P.C. FitzPatrick
Senior Vice President
and Chief Financial Officer
Date: August 13, 1999
/s/ J. J. Fitzgerald
--------------------
J. J. Fitzgerald
Vice President
and Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10 - Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10 - Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1999
<PERIOD-END> JUL-01-1999
<CASH> 26,606
<SECURITIES> 0
<RECEIVABLES> 251,582
<ALLOWANCES> 1,448
<INVENTORY> 806
<CURRENT-ASSETS> 298,338
<PP&E> 49,237
<DEPRECIATION> 30,430
<TOTAL-ASSETS> 413,449
<CURRENT-LIABILITIES> 217,330
<BONDS> 0
0
0
<COMMON> 502
<OTHER-SE> 8,543
<TOTAL-LIABILITY-AND-EQUITY> 413,449
<SALES> 633,148
<TOTAL-REVENUES> 633,148
<CGS> 0
<TOTAL-COSTS> 599,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,544
<INCOME-PRETAX> 13,078
<INCOME-TAX> 4,566
<INCOME-CONTINUING> 7,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,203
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.70
</TABLE>
DynCorp Management Incentive Plan
Amended and Restated as of DynCorp Fiscal Year 1999
I. PURPOSE
The purpose of the Management Incentive Plan (the Plan) is to reward
and motivate key employees, who have significant impact on the Company
strategy, performance and profitability, for the achievement of
pre-established, measurable objectives which directly impact the
financial performance of DynCorp and increase shareholder value.
II. GENERAL DESCRIPTION
At the beginning of the Plan Year, DynCorp and organizational financial
objectives, individual objectives and target incentive award levels
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. ELIGIBILITY
Senior and mid-level managers and employees in Salary Band 4 and
selected individuals in Salary Grades 10-14 who have at least six
months service during the Plan Year, will be eligible for participation
in the Plan. Inclusion of individuals with less than six months service
must be approved as an exception to the Plan.
With the exception of disability, retirement or death, participants
must be employed (on the active payroll) on the date the awards are
paid in order to receive an incentive award. However, at its sole
discretion, the Compensation Committee may make an award to a former
employee, or to the former employee's estate, in such amount as is
deemed appropriate.
Participation in the Plan precludes eligibility for participation in
any other annual cash incentive plan(s) provided by the Company.
IV. RESPONSIBILITIES
A. The Senior Vice President, Human Resources and Administration,
is responsible for administering the Plan.
B. The Presidents of SBA's and standalone businesses, Band 2 and
other appropriate Corporate executives are responsible for
confirming Plan participants, recommending individual target
award levels, recommending SBA, SBU and other financial
performance objectives, recommending appropriate individual
performance objectives for Plan participants from their
respective organizations or functions, evaluating participant
performance, submitting financial results at the end of the
Plan Year for SBA, SBU, and other financial metrics approved
at the beginning of the Plan Year, and recommending individual
incentive award amounts.
C. The DynCorp Chief Financial Officer (CFO) is responsible for
reviewing SBA, SBU and other financial performance objectives
recommended by the Presidents and informing the CEO of his
concurrence with the recommended measurements or proposing
alternative financial measurements more applicable to specific
SBAs or SBUs and for concurring with the calculations of
actual financial performance used to determine actual award
amounts.
D. The Chief Executive Officer (CEO) is responsible for approving
Plan participants, individual target award levels and
financial and individual objectives. Further, the CEO is
responsible for recommending DynCorp financial objectives,
deviations from the Plan and actual incentive payments.
E. The Compensation Committee of the Board of Directors (the
Committee) is responsible for amending the Plan, approving
DynCorp financial objectives, deviations from the Plan and
actual incentive payments.
V. DEFINITIONS
A. Award Pool
The dollar amount available for payment of Management
Incentive awards.
B. Base Salary
The base annual salary rate of a participant as of April 1 of
the Plan Year or, if later, the time the individual is
approved as a participant for a given year, exclusive of
overtime, per diem, bonuses or any other premiums, special
payments or allowances.
C. Days Sales Outstanding (DSO)
Days Sales Outstanding as defined in DynCorp Finance Policy
Statement PS505, as in effect at the beginning of the fiscal
year during which performance is measured for Plan purposes.
D. EBIDTA
Earnings of DynCorp before deductions for interest, taxes,
depreciation, amortization, discontinued operations and
merger/acquisition costs, as recorded on the books and records
of the Corporation.
E. Earnings per Share (EPS)
Diluted Earnings Per Share, per GAAP, assuming the treasury
stock method, calculated by dividing the income available to
common shareholders for the fiscal year by the fully diluted
shares outstanding at the end of the fiscal year.
F. Operating Profit
Earnings of the applicable organizational unit (i.e. SBA, SBU,
business, division, subsidiary or group, etc.) after ESOP and
after all accruals, but before the Corporate G&A Expense,
Interest and Dividend Income, Interest Expense, Net Asset
Allocation and Taxes on Income.
G. Plan Year
The fiscal year of DynCorp.
H. Revenue
Revenue as recorded in accordance with DynCorp Finance Policy
Statement PS510 and as in effect at the beginning of the
fiscal year during which performance is measured for Plan
purposes and as reported in the Company's consolidating
financial statements after audit adjustments, if any.
I. Return on Net Assets (RONA)
Return on Net Assets as defined in accordance with DynCorp
Finance Policy Statement PS505, as in effect at the beginning
of the fiscal year during which performance is measured for
Plan purposes.
J. Strategic Business Area (SBA)
A group of DynCorp organizational units responsible to a
presiding officer who reports directly to the CEO of DynCorp
or a DynCorp Senior Vice President.
K. Strategic Business Unit
One or more DynCorp organizational units (excluding joint
ventures) responsible to an officer or manager who reports
directly to the presiding officer of an SBA.
L. Target Award
The dollar amount that a participant is eligible to receive if
the combined weighted performance against DynCorp,
organizational unit and individual objectives equals an
overall achievement level of exactly 100%.
M. Target Percentage
The percentage of Base Salary which is payable to a
participant if combined weighted performance against DynCorp,
organizational unit and individual objectives equals an
overall achievement level of exactly 100%.
N. Threshold
The level of performance level required before an award is
paid. For Plan purposes the threshold performance level is 75%
of objectives. The threshold is applied at three levels.
o If performance against any single objective is less
than 75%, then the portion of the award based on
performance against that objective is not paid.
o If combined weighted performance against the
applicable financial objective(s) is less than 75% in
the aggregate, then no award is paid.
o If combined weighted performance against both
financial and individual objectives is less than 75%
in the aggregate, then no award is paid.
VI. FUNDING
At the beginning of the Plan Year executive management establishes,
subject to approval by the Committee, the amount of the total bonus
award pool which includes the payment of Management Incentive Plan
awards for that year. This amount represents the maximum amount that
can be paid to bonus participants unless Plan financial performance
exceeds Plan financial objectives. The definition of Plan financial
objectives is those organizational financial metrics approved by the
CEO or Compensation Committee at the beginning of the Plan Year.
The Award Pool will be accrued ratably on a monthly basis during the
Plan Year. The accrual amount will be reviewed quarterly and adjusted
as necessary to reflect the most recent projections of actual financial
performance versus budgeted performance and additions to, deletions
from or other changes in Plan participation.
VII. AWARDS
Target Awards ranging from 10% to 30% (in 5% increments) of Base Salary
will be established for each participant at the beginning of each Plan
Year. These targets will be divided into financial and individual
performance components and weighted as shown below in Table 1.
<TABLE>
TABLE 1
Weighting of Performance Measurement Components
<CAPTION>
Unit/Site/
DynCorp SBA Financial SBU Financial Division Contract
Participant Profile Financial Performance Performance Financial Financial Individual
Performance Performance Performance Performance
<S> <C> <C> <C> <C> <C> <C>
Band 4 - Corporate 80% 20%
Grades 10-14 - Corporate 60% 40%
Band 4 and Grades 10-14
- - SBA Staff Support 20% 60% 20%
Band 4 and Grades 10-14
- - SBU Oprns/Staff Support 20% 60% 20%
Band 4 and Grades 10-14
- - Div Oprns/Staff Support 20% 60% 20%
Grades 10-14
Unit/Site/Contract 20% 60% 20%
Oprns/Staff Support
</TABLE>
Target award recommendations will be submitted for review and approval
in accordance with procedures established by the Senior Vice President,
Human Resources and Administration, to achieve the approvals described
in Section IV of the Plan.
At the end of the Plan Year, performance against pre-established
financial and individual objectives, as described in Section VIII, will
be calculated to develop financial and individual performance factors.
These factors will reflect the level, expressed as a percentage, of
attainment of each objective. These performance factors will be
multiplied by the appropriate weighting for each objective
The results of these calculations then will be added to determine the
percentage of the Target Award payable to each participant. Payment of
the calculated award is subject to performance exceeding Threshold
performance as described in Section V. (Exhibit I of the Plan shows
detailed examples of award calculations.)
A bonus due to a participant hired after the beginning of the Plan Year
will be prorated based upon the number of months employed by the
Company as a percentage of the full year.
With the exception of disability, retirement or death, participants
must be employed (on the active payroll) on the date the awards are
paid in order to receive an incentive award. However, at its sole
discretion, the Compensation Committee may make an award to a former
employee, or to the former employee's estate, in such amount as is
deemed appropriate.
VIII. PERFORMANCE MEASUREMENT COMPONENTS
In order to reinforce the importance of DynCorp managers achieving a
balanced performance against financial and non-financial criteria,
incentive awards under the Plan will be based on team and individual
achievements in two or more of the following three areas:
A. The Financial Performance of DynCorp:
DynCorp's financial success is the key determinant of its
ongoing viability as an independent business entity. In
recognition of this, a portion of each Corporate and SBA level
participant's award will be based on DynCorp's success against
its financial objective.
This objective, which will be recommended by the CEO and
approved by the Committee at the beginning of each Plan Year,
may be comprised of one or more financial measurements. The
measurement may be changed each Plan Year to properly reflect
DynCorp's strategic objectives. Further, the financial
objective will be established at a level that will require
above average performance from the management team to achieve
it.
B. The Financial Performance of the Organizational Unit:
For non-Corporate participants, the financial performance of
the SBA, SBU or other organizational unit in which they have
the most direct control and accountability, will be given the
heaviest weighting in order to motivate and reward
participants for financial achievements.
Financial objectives established for each SBA and SBU will be
measurable and consistent with the overall strategic goals of
the SBA. SBA and SBU financial objectives generally will be
expressed in terms of RONA, Revenue, Operating Profit and/or
DSO. Moreover, as with the DynCorp financial objective, they
will be established at a level that will require above average
performance from the management team to achieve them.
C. The Individual Performance of the Participant:
Individual performance will be measured in terms of
performance against pre-established objectives and the
participant's manager's subjective judgment of overall
individual performance. Performance against objectives must
comprise at least 50% of the individual performance factor.
Individual objectives should be established according to the
following guidelines:
1. Each participant will have 4-6 written objectives
that have been jointly agreed to by the participant
and the participant's supervisor.
2. Objectives will evolve from, respond to and/or
reflect the Company objectives established and
communicated by the CEO. Objectives covering the
following areas will typically be included:
o Key operational objectives
o Human resources management
o Quality and process improvement
o Business development
o 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 and within the
control of the participant.
IX. AWARD DETERMINATION
Awards will be calculated by:
1) multiplying the appropriate Financial and Individual Performance
Factors by the weighting assigned to corresponding performance
components as determined in Table 1 above,
2) adding the resulting percentages together to determine a composite
percentage that represents overall achievement against
expectations, and
3) then multiplying the target award amount by the composite
percentage.
The award payable for any single component for any participant may
range from 0 to 150% of the established arget amount for the component.
Actual award amounts will be rounded to the nearest $100.00.
If the performance achievement level on any of the approved financial
performance factors falls below the Threshold level, the participant
will not generally receive an award for that component. However, the
CEO may on a discretionary basis recommend the payment of an award
where unusual or extraordinary circumstances contributed to the below
Threshold performance. If the combined weighted achievement level for
all applicable financial performance measurements is less than the
Threshold level, 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.
X. YEAR-END ADMINISTRATION
Initial award recommendations will be calculated at the SBA and
Corporate levels and submitted in accordance with procedures
established by the Senior Vice President, Human Resources and
Administration, for Company level consolidation and submission to the
CEO. Documentation of objectives, accomplishments and individual
evaluations will be required to be submitted along with the individual
award recommendations. Financial performance will be reviewed by the
CFO as soon as the results for the Plan Year are available. Initial
actual award recommendations will be adjusted as necessary based on
this review to reflect the actual financial performance. The adjusted
recommendations will be submitted by the CEO to the Committee for
approval.
Payments will be made in cash, net of applicable witholdings, as soon
as practical following the Compensation Committee meeting, normally
held in March following final year-end closing.
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.
<PAGE>
Exhibit I
The following examples illustrate how the Plan formula will be applied to
calculate the incentive award for a Grade 10-14 Corporate and SBU
Operations employees.
A. Sample Award Calculation: Corporate
Target formula:
0.60 DynCorp Financial Performance + 0.40 Individual Performance = 1.00
ASSUMPTIONS:
Base Salary $75,000
Target Award Percentage 15%
Target Award $ 11,250
Company Financial Performance Factor 80%
(actual EPS $1.60 / EPS Objective $2.00)
Individual Performance Factor 90%
Award Calculation
Performance % of Component
Component Factor Weighting Target % Payable
Company Financial
Performance 80% X 80% = 64% +
Individual
Performance 90% X 20% = 18% =
Percent of Total Target Award Payable = 82%
Actual Award Amount = 82% of $11,250 = $9,225 (Rounded to $9,200)
<PAGE>
B. Sample Award Calculation: SBU Operations
Target formula: .20 SBA RONA Performance + .30 SBU RONA Performance +
.30 SBU Revenue Performance + 0.20 Individual Performance = 1.0
ASSUMPTIONS:
Base Salary $ 100,000
Target Award Percentage 25%
Target Award $ 25,000
SBA Financial Performance Factor 80%
SBU RONA Performance Factor 100%
SBU Revenue Factor 110%
Individual Performance Factor 75%
Award Calculation
Performance % of Component
Component Factor Weighting Target % Payable
SBA Financial
Performance 80% X 20% = 16% +
SBU RONA
Performance 100% X 30% = 30% +
SBU Revenue
Performance 110% X 30% = 33% +
Individual
Performance 75% X 20% = 15% =
Percent of Total Target Award Payable = 94%
Actual Award Amount = 94% of $23,500= $23,500 (No rounding required)
DynCorp Executive Incentive Plan
Amended and Restated as of DynCorp Fiscal Year 1999
I. PURPOSE
The purpose of the Executive Incentive Plan (the Plan) is to reward and
motivate executives who have significant impact on the Company
strategy, performance and profitability for the achievement of
pre-established, measurable objectives which directly impact the
financial performance of the DynCorp and increase shareholder value.
II. GENERAL DESCRIPTION
At the beginning of the Plan Year, DynCorp and organizational financial
objectives, individual objectives and target incentive award levels
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. ELIGIBILITY
All executives in Salary Bands 1 through 3 who have been in their
positions a minimum of six months during the Plan Year are participants
in the Plan. Inclusion of individuals with less than six months must be
approved as an exception to the Plan.
With the exception of disability, retirement or death, participants
must be employed (on the active payroll) on the date an award is paid
in order to receive an incentive award. However, at its sole
discretion, the Compensation Committee may approve an award to a former
employee, or to the former employee's estate, in such amount as is
deemed appropriate.
Participation in the Plan precludes eligibility for participation in
any other annual cash incentive plan(s) provided by the Company.
IV. RESPONSIBILITIES
A. The Senior Vice President, Human Resources and Administration,
is responsible for administering the Plan.
B. As appropriate, Band 2 executives are responsible for
confirming Plan participants, recommending individual target
award levels, SBA and SBU financial performance objectives,
and individual performance objectives, submitting financial
results at the end of the Plan Year for SBA, SBU, and other
financial metrics approved at the beginning of the Plan Year,
and evaluating participant individual performance.
C. The DynCorp Chief Financial Officer (CFO) is responsible for
reviewing SBA and SBU financial performance objectives
recommended by the Presidents and informing the CEO of his
concurrence with the recommended measurements or proposing
alternative financial measurements more applicable to specific
SBA's or SBU's and for concurring with the calculations of
actual financial performance used to determine actual award
amounts.
D. The Chief Executive Officer (CEO) is responsible for
reviewing, modifying and subsequently recommending individual
target award levels and financial and individual participant
objectives, DynCorp financial objectives, deviations from the
Plan and actual incentive payments.
E. The Compensation Committee of the Board of Directors (the
Committee) is responsible for amending the Plan, approving
individual target award levels, financial objectives, DynCorp
financial objectives, deviations from the Plan and actual
incentive payments.
V. DEFINITIONS
A. Award Pool
The dollar amount available for payment of Executive Incentive
awards.
B. Base Salary
The base annual salary rate of a participant as of April 1 of
the Plan Year or, if later, the time the individual is
approved as a participant for a given year, exclusive of
overtime, per diem, bonuses or any other premiums, special
payments or allowances.
C. Days Sales Outstanding (DSO)
Days Sales Outstanding as defined in DynCorp Finance Policy
Statement PS505, as in effect at the beginning of the fiscal
year during which performance is measured for Plan purposes.
D. EBIDTA
Earnings of DynCorp before deductions for interest, taxes,
depreciation, amortization, discontinued operations and
merger/acquisition costs, as recorded on the books and records
of the Corporation.
E. Earnings per Share (EPS)
Diluted Earnings Per Share, per GAAP, assuming the treasury
stock method, calculated by dividing the income available to
common shareholders for the fiscal year by the fully diluted
shares outstanding at the end of the fiscal year.
F. Operating Profit
Earnings of the applicable organizational unit (i.e. SBA, SBU,
Business, division, subsidiary, or group, etc.) after ESOP and
after all accruals, but before the Corporate G&A Expense,
Interest and Dividend Income, Interest Expense, Net Asset
Allocation and Taxes on Income.
G. Plan Year
The fiscal year of DynCorp.
H. Revenue
Revenue as recorded in accordance with DynCorp Finance Policy
Statement PS510, as in effect at the beginning of the fiscal
year during which performance is measured for Plan purposes
and as reported in the Company's consolidating financial
statements after audit adjustments, if any.
I. Return on Net Assets (RONA)
Return on Net Assets as defined in accordance with DynCorp
Finance Policy Statement PS505, as in effect at the beginning
of the fiscal year during which performance is measured for
Plan purposes.
J. Strategic Business Area (SBA)
A group of DynCorp organizational units responsible to a
presiding officer who reports directly to the CEO of DynCorp
or a DynCorp Senior Vice President.
K. Strategic Business Unit (SBU)
One or more DynCorp organizational units (excluding joint
ventures) responsible to an officer or manager who reports
directly to the presiding officer of an SBA.
L. Target Award
The dollar amount that a participant is eligible to receive if
the combined weighted performance against DynCorp,
organizational unit and individual objectives equals an
overall achievement level of exactly 100%.
M. Target Percentage
The percentage of Base Salary which is payable to a
participant if combined weighted performance against DynCorp,
organizational unit and individual objectives equals an
overall achievement level of exactly 100%.
N. Threshold
The level of performance required before an award is paid. For
Plan purposes the threshold performance level is 75% of
objectives. The threshold is applied at three levels.
o If performance against any single objective is less
than 75%, then the portion of the award based on
performance against that objective is not paid.
o
If combined weighted performance against the
applicable financial objective(s) is less than 75% in
the aggregate, then no award is paid.
o If combined weighted performance against both
financial and individual objectives is less than 75%
in the aggregate, then no award is paid.
VI. FUNDING
At the beginning of the Plan Year executive management establishes,
subject to approval by the Committee, the amount of the total bonus
award pool which includes the payment of Executive Incentive Plan
awards for that year. This amount represents the maximum amount that
can be paid to bonus participants unless Plan financial performance
exceeds Plan financial objectives. The definition of Plan financial
objectives is those organizational financial metrics approved by the
CEO or Compensation Committee at the beginning of the Plan Year.
The Award Pool will be accrued ratably on a monthly basis during the
Plan Year. The accrual amount will be reviewed quarterly and adjusted
as necessary to reflect the most recent projections of actual financial
performance versus budgeted performance and additions to, deletions
from or other changes in Plan participation.
VII. AWARDS
Target Awards ranging from 30% to 70% (in 5% increments) of Base Salary
will be established for each participant at the beginning of each Plan
Year. These targets will be divided into financial and individual
performance components and weighted as shown below in Table 1.
TABLE 1
Weighting of Performance Measurement Components
DynCorp SBA SBU
Financial Financial Financial Individual
Description Performance Performance Performance Performance
Corporate Participants 80% 20%
SBA Participants 20% 60% 20%
SBU Participants 20% 60% 20%
Target award recommendations will be submitted for review and approval
in accordance with procedures established by the Senior Vice President,
Human Resources and Administration, to achieve the approvals described
in Section IV of the Plan.
At the end of the Plan Year, performance against pre-established
financial and individual objectives, as described in Section VIII, will
be calculated to develop financial and individual performance factors.
These factors will reflect the level, expressed as a percentage, of
attainment of each objective. These performance factors will be
multiplied by the appropriate weighting for each objective.
The results of these calculations then will be added to determine the
percentage of the Target Award payable to each participant. Payment of
the calculated award is subject to performance exceeding Threshold
performance as described in Section V. (Exhibit I of the Plan shows
detailed examples of award calculations.)
A bonus due to a participant hired after the beginning of the Plan Year
will be prorated based upon the number of months employed by the
Company as a percentage of the full year.
With the exception of disability, retirement or death, participants
must be employed (on the active payroll) on the date the awards are
paid in order to receive an incentive award. However, at its sole
discretion, the Compensation Committee may approve an award to a former
employee, or to the former employee's estate, in such amount as deemed
appropriate.
VIII. PERFORMANCE MEASUREMENT COMPONENTS
In order to reinforce the importance of DynCorp executives achieving a
balanced performance against financial and non-financial criteria,
incentive awards under the Plan will be based on team and individual
achievements in two or more of the following three areas:
A. The Financial Performance of DynCorp:
DynCorp's financial success is the key determinant of its
ongoing viability as an independent business entity. In
recognition of this, a portion of each Corporate and SBA level
participant's award will be based on DynCorp's performance
against its financial objective.
This objective, which will be recommended by the CEO, and
approved by the Committee at the beginning of each Plan Year,
may be comprised of one or more financial measurements. The
measurement may be changed each Plan Year to properly reflect
DynCorp's strategic objectives. Further, the financial
objective will be established at a level that will require
above average performance from the management team to achieve
it.
B. The Financial Performance of the Organizational Unit:
For non-Corporate participants, the financial performance of
the SBA or SBU in which they have the most direct control and
accountability, will be given the heaviest weighting in order
to motivate and reward participants for financial.
Financial objectives established for each SBA and SBU will be
measurable and consistent with the overall strategic goals of
the SBA. SBA and SBU financial objectives generally will be
expressed in terms of RONA, Revenue, Operating Profit and/or
DSO. Moreover, as with the DynCorp financial objective, they
will be established at a level that will require above average
performance from the management team to achieve them.
C. The Individual Performance of the Participant:
Individual performance will be measured in terms of
performance against pre-established objectives and the
participant's manager's subjective judgment of overall
individual performance. Performance against objectives must
comprise at least 50% of the individual performance factor.
Individual objectives should be established according to the
following guidelines:
1. Each participant will have 4-6 written objectives
that have been jointly agreed to by the participant
and the participant's supervisor.
2. Objectives will evolve from, respond to and/or
reflect the Company objectives established and
communicated by the CEO. Objectives covering the
following areas may typically be included:
o Key operational objectives
o Human resources management
o Quality and process improvement
o Business development
o 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 and within the
control of the participant.
X. AWARD DETERMINATION
Awards will be calculated by:
1) multiplying the appropriate Financial and Individual
Performance Factors by the weighting assigned to
corresponding performance components as determined in Table
1 above,
2) adding the resulting percentages together to determine a
composite percentage that represents overall achievement
against expectations, and
3) then multiplying the target award amount by the composite
percentage.
The award payable for any single component for any participant may
range from 0 to 150% of the established target amount for the component.
Actual award amounts will be rounded to the nearest $100.00.
If the performance achievement level on any of the approved financial
performance factors falls below the Threshold level, the participant
will not generally receive an award for that component. However, the
CEO may on a discretionary basis recommend the payment of an award
where unusual or extraordinary circumstances contributed to the below
Threshold performance. If the combined weighted achievement level for
all applicable financial performance measurements is less than the
Threshold level, 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. YEAR-END ADMINISTRATION
Initial actual award recommendations will be calculated at the SBA and
Corporate levels and submitted in accordance with procedures
established by the Senior Vice President, Human Resources and
Administration, for Company level consolidation and submission to the
CEO. Documentation of objectives, accomplishments and individual
evaluations will be required to be submitted along with the individual
award recommendations. Financial performance will be reviewed by the
CFO as soon as the results for the Plan Year are available. Initial
actual award recommendations will be adjusted as necessary based on
this review to reflect the actual financial performance. The adjusted
recommendations will be submitted by the CEO to the Committee for
approval.
Effective with the Plan Year beginning 1996 and thereafter, a portion
of each award payable will be paid in the form of DynCorp Common Stock.
Twenty percent of the total award will be paid in the aggregate in the
form of stock and withholding taxes and Savings and Retirement Plan
(SARP) deferrals due thereon. The remaining 80% of the award, net of
any reductions by reason of the Key Executives Share-Option
Compensation Plan, will be paid in the aggregate in cash, withholding
taxes and SARP deferrals.
Bonus award payments are made following approval by the Compensation
Committee at its annual spring meeting.
Nothing in the Plan or in any action taken hereunder shall constitute
any contract of employment or 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.
<PAGE>
Exhibit I
Sample Award Calculations
The following examples illustrate how the Plan formula will be applied
to calculate the incentive award for a Corporate Staff executive and
for a Strategic Business Unit line executive.
A. Sample Award Calculation: Corporate Staff executive
Target formula:
0.80 DynCorp Financial Performance + 0.20 Individual Performance = 1.00
ASSUMPTIONS:
Base Salary $108,000
Target Award Percentage 30%
Target Award $ 32,400
Company Financial Performance Factor 80%
(actual EPS $1.60 / EPS Objective $2.00)
Individual Performance Factor 90%
Award Calculation
Performance % of Component
Component Factor Weighting Target % Payable
Company
Financial 80% X 80% = 64% +
Individual
Performance 90% X 20% = 18% =
Percent of Total Target Award Payable = 82%
Actual Award Amount = 82% of $32,400 = $26,568 (Round to $26,600)
<PAGE>
B. Sample Award Calculation: Strategic Business Unit Manager.
Target formula: .20 SBA RONA Performance + .30 SBU RONA Performance + .30 SBU
Revenue Performance + 0.20 Individual Performance = 1.0
ASSUMPTIONS:
Base Salary $ 108,000
Target Award Percentage 30%
Target Award $ 32,400
SBA Financial Performance Factor 80%
SBU RONA Performance Factor 100%
SBU Revenue Factor 110%
Individual Performance Factor 75%
Award Calculation
Performance % of Component
Component Factor Weighting Target % Payable
SBA Financial Performance 80% X 20% = 16% +
SBU RONA Performance 100% X 30% = 30% +
SBU Revenue Performance 110% X 30% = 33% +
Individual Performance 75% X 20% = 15% =
Percent of Total Target Award Payable = 94%
Actual Award Amount = 94% of $32,400 = $30,456 (Round to $32,500)
DynCorp
1999 LONG-TERM INCENTIVE STOCK PLAN
(Adopted March 3, 1999)
1. PURPOSE.
The purposes of the DynCorp 1999 Long-Term Incentive Stock Plan (the "Plan") are
to advance the interests of the Company and its shareholders by strengthening
the ability of the Company to attract, retain, and reward highly qualified
directors, officers, and other employees, to motivate them to achieve business
objectives established to promote the long-term growth, profitability, and
success of the Company, and to encourage their ownership of the Common Stock of
the Company. The Plan authorizes performance-based stock and cash incentive
compensation in the form of stock options, stock appreciation rights, restricted
stock, performance grants and awards, and other stock-based grants and awards.
2. DEFINITIONS.
For the purposes of the Plan, the following terms shall have the following
meanings:
(a) "Adjusted Net Income" means, with respect to any calendar or other fiscal
year of the Company, the amount reported as "Net Income" in the audited
Consolidated Income Statement of the Company and Subsidiaries for such year (as
set forth in the Company's Annual Report to Shareholders for such year),
adjusted to exclude any of the following items: (i) extraordinary items (as
described in Accounting Principles Board Opinion No. 30); (ii) gains or losses
on the disposition of discontinued operations; (iii) the cumulative effects of
changes in accounting principles; (iv) the writedown of any asset; and (v)
charges for restructuring and rationalization programs.
(b) "Annual Net Income Per Share" means, with respect to any calendar or other
fiscal year of the Company in respect of which a determination thereof is being
or to be made, the Adjusted Net Income for such year divided by the average
number of shares of Common Stock outstanding during such year.
(c) "Award" means any payment or settlement in respect of a grant made pursuant
to the Plan, whether in the form of shares of Common Stock or in cash, or in any
combination thereof.
(d) "Board of Directors" means the Board of Directors of the Company.
(e) "Change in Control" means any of the following: (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
DynCorp or its subsidiaries, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
DynCorp representing more than 35% of the combined voting power of DynCorp's
then-outstanding securities; or (ii) during any period of two consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board and any new director
(other than a director designated by a person who has entered into an agreement
with DynCorp to effect a transaction described in clause (iii) of this
definition) whose election by the Board or nomination for election by DynCorp's
Shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or (iii) the shareholders
of DynCorp approve a merger or consolidation of DynCorp with any other
corporation, other than a merger or consolidation which would result in the
voting securities of DynCorp outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of DynCorp
approve a plan of complete liquidation of DynCorp or an agreement for the sale
or disposition by DynCorp of all or substantially all DynCorp's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, or any successor statute thereto, together with the published
rulings, regulations and interpretations duly promulgated thereunder.
(g) "Committee" means the Compensation Committee of the Board of Directors
established and constituted as provided in Section 5 of the Plan.
(h) "Common Stock" means the common stock, par value $0.10 per share, of the
Company, or any security issued by the Company in substitution or exchange
therefor or in lieu thereof.
(i) "Common Stock Equivalent" means a Unit (or fraction thereof, if authorized
by the Committee) substantially equivalent to a hypothetical share of Common
Stock, credited to a Participant and having a value at any time equal to the
Fair Market Value of a share of Common Stock (or such fraction thereof) at such
time.
(j) "Company" means DynCorp, a Delaware corporation, or any successor
corporation.
(k) "Covered Employee" means any person who is a "covered employee" within the
meaning of Section 162(m) of the Code.
(l) "Cumulative Net Income" means, in respect of any Performance Period, the
aggregate cumulative amount of the Adjusted Net Income for the calendar or other
fiscal years of the Company during such Performance Period.
(m) "Cumulative Net Income Per Share" means, in respect of any Performance
Period, the aggregate cumulative amount of the Annual Net Income Per Share for
the calendar or other fiscal years of the Company during such Performance
Period.
(n) "Director" means a member of the Board of Directors who is not an Employee.
(o) "Dividend Equivalent" means, in respect of a Common Stock Equivalent and
with respect to each dividend payment date for the Common Stock, an amount equal
to the cash dividend on one share of Common Stock payable on such dividend
payment date.
(p) "Employee" means any individual, including any officer of the Company or a
Subsidiary, who is on the active payroll of the Company or a Subsidiary falling
within Bands 1 through 4 of the DynCorp Executive/Senior Management Compensation
Program or, in the event the Subsidiary does not participate in such Program,
employed at a level determined by the Committee to be commensurate therewith.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as amended and in
effect from time to time, including all rules and regulations promulgated
thereunder.
(r) "Fair Market Value" means, in respect of any date on or as of which a
determination thereof is being or to be made, the most recent DynEx Internal
Stock Market valuation, or, if the Common Stock of the Company is publicly
traded on a national stock exchange, the average of the high and low per share
sale prices of the Common Stock reported on such exchange on such date, or, if
the Common Stock was not traded on such date, on the next preceding day on which
sales of shares of the Common Stock were reported on such exchange.
(s) "Incentive Stock Option" means any option to purchase shares of Common Stock
granted pursuant to the provisions of Section 6 of the Plan that is intended to
be and is specifically designated by the Committee as an "incentive stock
option" within the meaning of Section 422A of the Code.
(t) "Non-Qualified Stock Option" means any option to purchase shares of Common
Stock granted pursuant to the provisions of Section 6 of the Plan that is not an
Incentive Stock Option.
(u) "Participant" means any Director of the Company or Employee of the Company
or a Subsidiary who receives a grant or Award under the Plan.
(v) "Performance Award" means the number of shares of Common Stock and/or the
amount of cash earned and payable in settlement of a Performance Grant pursuant
to Section 9.
(w) "Performance Grant" means a grant made pursuant to Section 9 of the Plan,
the Award of which is contingent on the achievement of specific Performance
Goals during a Performance Period, determined using a specific Performance
Measure, all as specified in the grant agreement relating thereto.
(x) "Performance Goals" mean, with respect to any applicable grant made pursuant
to the Plan, the one or more targets, goals or levels of attainment required to
be achieved in terms of the specified Performance Measure during the specified
Performance Period, all as set forth in the related grant agreement.
(y) "Performance Measure" means, with respect to any applicable grant made
pursuant to the Plan, one or more of the criteria identified at Section 9(c) of
the Plan selected by the Committee for the purpose of establishing, and
measuring attainment of, Performance Goals for a Performance Period in respect
of such grant, as provided in the related grant agreement.
(z) "Performance Period" means, with respect to any applicable grant made
pursuant to the Plan, the one or more periods of time, which may be of varying
and overlapping durations, as the Committee may select during which the
attainment of one or more Performance Goals will be measured to determine
whether, and the extent to which, a Participant is entitled to receive payment
of an Award pursuant to such grant.
(aa) "Plan" means this 1999 Long-Term Incentive Stock Plan, as set forth herein
and as hereafter amended from time to time in accordance with the terms hereof.
(bb) "Restricted Stock" means shares of Common Stock issued pursuant to a
Restricted Stock Grant under Section 8 of the Plan so long as such shares remain
subject to the restrictions and conditions specified in the grant agreement
pursuant to which such Restricted Stock Grant is made.
(cc) "Restricted Stock Grant" means a grant made pursuant to the provisions of
Section 8 of the Plan.
(dd) "Stock Appreciation Right" means a grant in the form of a right to benefit
from the appreciation of the Common Stock made pursuant to Section 7 of the
Plan.
(ee) "Stock-Based Grant" means a grant made pursuant to Section 10 of the Plan.
(ff) "Stock Option" means and includes any Non-Qualified Stock Option and any
Incentive Stock Option granted pursuant to Section 6 of the Plan.
(gg) "Subsidiary" means any corporation or entity in which the Company directly
or indirectly owns or controls 50% or more of the equity securities issued by
such corporation or entity having the power to vote for the election of
directors; provided, however, that in the case of Incentive Stock Options,
Grants shall be limited to Employees of corporations.
(hh) "Unit" means a bookkeeping entry used by the Company to record and account
for the grant, settlement or, if applicable, deferral of an Award until such
time as such Award is paid, canceled, forfeited or terminated, as the case may
be, which, except as otherwise specified by the Committee, shall be equal to one
Common Stock Equivalent.
3. EFFECTIVE DATE; TERM.
(a) EFFECTIVE DATE. The Plan shall be effective on March 1, 1999.
(b) TERM. The Plan shall remain in effect until February 29, 2004, unless sooner
terminated by the Board of Directors. Termination of the Plan shall not affect
grants and Awards then outstanding.
4. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) MAXIMUM NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN. The maximum
aggregate number of shares of Common Stock which may be issued pursuant to the
Plan, subject to adjustment as provided in Section 4(b) of the Plan, shall be
eight hundred thousand (800,000) plus (i) any shares of Common Stock issued
under the Plan that are forfeited back to the Company or are canceled, and (ii)
any shares of Common Stock that are tendered, whether by physical delivery or by
attestation, to the Company by a Participant as full or partial payment of the
exercise price of any Stock Option granted pursuant to the Plan, in connection
with the payment or settlement of any other grant or Award made pursuant to the
Plan, or in payment of any applicable withholding for federal, state, city,
local or foreign income, payroll or other taxes incurred in connection with the
exercise of any Stock Option or Stock Appreciation Right granted under the Plan
or the receipt or settlement of any other grant or Award under the Plan. The
shares of Common Stock which may be issued under the Plan may be authorized and
unissued shares or issued shares which have been reacquired by the Company. No
fractional share of the Common Stock shall be issued under the Plan. Awards of
fractional shares of the Common Stock, if any, shall be settled in cash.
(b) ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event of any change in
the capital structure, capitalization or Common Stock of the Company such as a
stock dividend, stock split, recapitalization, merger, consolidation, split-up,
combination or exchange of shares or other form of reorganization, or any other
change affecting the Common Stock, such proportionate adjustments, if any, as
the Board of Directors in its discretion may deem appropriate to reflect such
change shall be made with respect to: (i) the maximum number of shares of Common
Stock which may be (1) issued pursuant to the Plan, (2) the subject of any type
of grant or Award under the Plan, and (3) granted, Awarded or issued to any
Participant pursuant to any provision of the Plan; (ii) the number of shares of
Common Stock subject to any outstanding Stock Option, Stock Appreciation Right
or other grant or Award made to any Participant under the Plan; (iii) the per
share exercise price in respect of any outstanding Stock Options and Stock
Appreciation Rights; (iv) the number of shares of Common Stock and the number of
Units or the value of such Units, as the case may be, which are the subject of
grants and Awards then outstanding under the Plan; and (v) any other term or
condition of any grant affected by any such change.
5. ADMINISTRATION.
(a) THE COMMITTEE. The Plan shall be administered by the Committee. Action
approved in writing by a majority of the members of the Committee then serving
shall be fully as effective as if the action had been taken by unanimous vote at
a meeting duly called and held. The Company shall make grants and effect Awards
under the Plan in accordance with the terms and conditions specified by the
Committee, which terms and conditions shall be set forth in grant agreements
and/or other instruments in such forms as the Committee shall approve.
(b) COMMITTEE POWERS. The Committee shall have full power and authority to
operate and administer the Plan in accordance with its terms. The powers of the
Committee include, but are not limited to, the power to: (i) select Participants
from among the Employees of the Company and Subsidiaries; (ii) establish the
types of, and the terms and conditions of, all grants and Awards made under the
Plan, subject to any applicable limitations set forth in, and consistent with
the express terms of, the Plan; (iii) make grants and pay or otherwise effect
Awards subject to, and consistent with, the express provisions of the Plan; (iv)
establish Performance Goals, Performance Measures and Performance Periods,
subject to, and consistent with, the express provisions of the Plan; (v) reduce
the amount of any grant or Award; (vi) prescribe the form or forms of grant
agreements and other instruments evidencing grants and Awards under the Plan;
(vii) pay and to defer payment of Awards on such terms and conditions, not
inconsistent with the express terms of the Plan, as the Committee shall
determine; (viii) direct the Company to make conversions, accruals and payments
pursuant to the Plan; (ix) construe and interpret the Plan and make any
determination of fact incident to the operation of the Plan; (x) promulgate,
amend and rescind rules and regulations relating to the implementation,
operation and administration of the Plan; (xi) adopt such modifications,
procedures and subplans as may be necessary or appropriate to comply with the
laws of other countries with respect to Participants or prospective Participants
employed in such other countries; (xii) delegate to other persons the
responsibility for performing administrative or ministerial acts in furtherance
of the Plan; (xiii) engage the services of persons and firms, including banks,
consultants and insurance companies, in furtherance of the Plan's activities;
and (xiv) make all other determinations and take all other actions as the
Committee may deem necessary or advisable for the administration and operation
of the Plan.
(c) SPECIAL SUBCOMMITTEE. When deemed advisable by the Committee, a special
Subcommittee, consisting solely of members of the Committee who are not "outside
directors" as such term is used in Section 162(m) of the Code or "non-employee
directors" as such term is used in Section 16 of the Exchange Act, may be
designated to act as the Committee and to make grants and Awards under the Plan.
(d) GRANTS BY BOARD OF DIRECTORS. Notwithstanding any other provision of the
Plan. the Board of Directors shall also have the power to make grants and Awards
under the Plan when such grants are to be made to Directors or to Employees who
are designated as "officers" for purposes of Section 16 of the Exchange Act.
(e) COMMITTEE'S DECISIONS FINAL. Any determination, decision or action of the
Committee in connection with the construction, interpretation, administration or
application of the Plan, and of any grant agreement, shall be final, conclusive
and binding upon all Participants, and all persons claiming through
Participants, affected thereby.
(f) ADMINISTRATIVE ACCOUNTS. For the purpose of accounting for Awards deferred
as to payment, the Company shall establish bookkeeping accounts expressed in
Units bearing the name of each Participant receiving such Awards. Each account
shall be unfunded, unless otherwise determined by the Committee in accordance
with Section 15(d) of the Plan.
(g) CERTIFICATIONS. In respect of each grant under the Plan to a Covered Person
which the Committee intends to be "performance based compensation" under Section
162(m) of the Code, the provisions of the Plan and the related grant agreement
shall be construed to confirm such intent, and to conform to the requirements of
Section 162(m) of the Code, and the Committee shall certify in writing (which
writing may include approved minutes of a meeting of the Committee) that the
applicable Performance Goal(s), determined using the Performance Measure
specified in the related grant agreement, was attained during the relevant
Performance Period at a level that equaled or exceeded the level required for
the payment of such Award in the amount proposed to be paid and that such Award
does not exceed any applicable Plan limitation.
6. STOCK OPTIONS.
(a) IN GENERAL. Options to purchase shares of Common Stock may be granted under
the Plan and may be Incentive Stock Options or Non-Qualified Stock Options;
provided however, that Incentive Stock Option may not be granted until the Plan
has been approved by the stockholders of the Company. All Stock Options shall be
subject to the terms and conditions of this Section 6 and shall contain such
additional terms and conditions, not inconsistent with the express provisions of
the Plan, as the Committee shall determine. Stock Options may be granted in
addition to, or in tandem with or independent of Stock Appreciation Rights or
other grants and Awards under the Plan. The Committee may grant Stock Options
that provide for the automatic grant of a replacement Stock Option if payment of
the exercise price and/or any related withholding taxes is made by tendering
(whether by physical delivery or by attestation) shares of Common Stock or by
having shares of Common Stock withheld by the Company. The replacement Stock
Option would cover the number of shares of Common Stock tendered or withheld,
would have a per share exercise price equal to at least 100% of the Fair Market
Value of a share of Common Stock on the date of the exercise of the original
Stock Option, and would have such other terms and conditions as may be specified
by the Committee and set forth in the related grant agreement.
(b) ELIGIBILITY AND LIMITATIONS. Any Director of the Company and any Employee of
the Company or a Subsidiary may be granted Stock Options. The Committee shall
determine, in its discretion, the Employees to whom Stock Options will be
granted, the timing of such grants, and the number of shares of Common Stock
subject to each Stock Option granted; provided, that, in respect of Incentive
Stock Options, the aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which an Incentive Stock Option becomes exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000, or such other
limit as may be required by the Code, except that, if authorized by the
Committee and provided for in the related grant agreement, any portion of any
Incentive Stock Option that cannot be exercised as such because of this
limitation may be converted into and exercised as a Non-Qualified Stock Option.
In no event shall any Stock Option or Stock Appreciation Right be granted to a
Participant in exchange for the Participant's agreement to the cancellation of
one or more Stock Options or Stock Appreciation Rights then held by such
Participant if the exercise price of the new grant is lower than the exercise
price of the grant to be cancelled and in no event shall any Stock Option or
Stock Appreciation Right be amended to reduce the option price, except as
contemplated by Section 4(b) of the Plan.
(c) OPTION EXERCISE PRICE. The per share exercise price of each Stock Option
granted under the Plan shall be determined by the Committee prior to or at the
time of grant, but in no event shall the per share exercise price of any Stock
Option be less than 100% of the Fair Market Value of the Common Stock on the
date of the grant of such Stock Option.
(d) OPTION TERM. The term of each Stock Option shall be fixed by the Committee;
except that in no event shall the term of any Incentive Stock Option exceed ten
years after the date such Incentive Stock Option is granted.
(e) EXERCISABILITY. A Stock Option shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the Committee
at the date of grant; provided, however, that no Stock Option shall be
exercisable during the first six months after the date such Stock Option is
granted. No Stock Option may be exercised unless the holder thereof is at the
time of such exercise an Employee is and has been continuously an Employee since
the date such Stock Option was granted, except as provided below and except that
the Committee may permit the exercise of any Stock Option for any period (not to
exceed 90 days in the case of an Incentive Stock Option except in case of the
Participant's death or disability) following the Participant's termination of
employment not in excess of the original term of the Stock Option on such terms
and conditions as it shall deem appropriate and specify in the related grant
agreement.
A Stock Option may only be exercised by the Participant or, in the case of the
Participant's death or disability, by the Participant's estate or other legal
representative.
Unless otherwise provided by the Committee, a Stock Option may only be exercised
within (i) 360 days following the Participant's retirement on or after age [65],
in the case of a Non-Qualified Stock Option; (ii) 90 days following the
Participant's retirement on or after age [65], in the case of an Incentive Stock
Option; and (iii) 180 days following termination by reason of death or
disability.
(f) METHOD OF EXERCISE. A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the Company specifying the number of shares
of Common Stock to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, plus any required withholding taxes, in cash or, to
the extent permitted by law, in shares of Common Stock already owned by the
Participant valued at the Fair Market Value of the Common Stock on the date of
exercise. The Committee may also permit Participants, either on a selective or
aggregate basis, to simultaneously exercise Stock Options and sell the shares of
Common Stock thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by the Committee and to use the proceeds from such sale to
pay the exercise price and withholding taxes.
7. STOCK APPRECIATION RIGHTS.
(a) IN GENERAL. Stock Appreciation Rights in respect of shares of Common Stock
may be granted under the Plan alone, in tandem with, in addition to or
independent of a Stock Option or other grant or Award under the Plan. A Stock
Appreciation Right entitles a Participant to receive an amount equal to the
excess of the Fair Market Value of a share of Common Stock on the date of
exercise over the Fair Market Value of a share of Common Stock on the date of
grant of the Stock Appreciation Right, or such other higher price as may be set
by the Committee, multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Right shall have been exercised.
(b) ELIGIBILITY. Any Employee of the Company or a Subsidiary selected by the
Committee may be granted Stock Appreciation Rights. The Committee shall
determine, in its discretion, the Employees to whom Stock Appreciation Rights
will be granted, the timing of such grants and the number of shares of Common
Stock in respect of which each Stock Appreciation Right is granted.
(c) EXERCISABILITY; EXERCISE; FORM OF PAYMENT. A Stock Appreciation Right may be
exercised by a Participant at such time or times and in such manner as shall be
authorized by the Committee and set forth in the related grant agreement, except
that in no event shall a Stock Appreciation Right be exercisable within the
first six months after the date of grant. The Committee may provide that a Stock
Appreciation Right shall be automatically exercised on one or more specified
dates.
No Stock Appreciation Right may be exercised unless the holder thereof is at the
time of exercise an Employee and has been continuously an Employee since the
date the Stock Appreciation Right was granted, except that the Committee may
permit the exercise of any Stock Appreciation Right for any period following the
Participant's termination of employment not in excess of the original term of
the Stock Appreciation Right on such terms and conditions as it shall deem
appropriate and specify in the related grant agreement. A Stock Appreciation
Right may be exercised, in whole or in part, by giving the Company a written
notice specifying the number of shares of Common Stock in respect of which the
Stock Appreciation Right is to be exercised. Stock Appreciation Rights may be
paid upon exercise in cash, in shares of Common Stock, or in any combination of
cash and shares of Common Stock as determined by the Committee.
8. RESTRICTED STOCK GRANTS AND AWARDS.
(a) IN GENERAL. A Restricted Stock Grant is the issue of shares of Common Stock
in the name of an Employee, which issuance is subject to such terms and
conditions as the Committee shall deem appropriate, including, without
limitation, restrictions on the sale, assignment, transfer or other disposition
of such shares and the requirement that the Employee forfeit such shares back to
the Company (i) upon termination of employment for specified reasons within a
specified period of time, or (ii) if any specified Performance Goals are not
achieved during a specified Performance Period, or (iii) if such other
conditions as the Committee may specify are not satisfied.
(b) ELIGIBILITY. Any Employee of the Company or a Subsidiary selected by the
Committee may receive a Restricted Stock Grant. The Committee, in its sole
discretion, shall determine whether a Restricted Stock Grant shall be made, the
Employee to receive the Restricted Stock Grant, and the conditions and
restrictions imposed on the Restricted Stock Grant.
(c) RESTRICTION PERIOD. Restricted Stock Grants shall provide that in order for
a Participant to receive shares of Common Stock free of restrictions, the
Participant must remain in the employment of the Company or its Subsidiaries,
subject to such exceptions as the Committee shall deem appropriate and specify
in the related grant agreement, for a period of not less than three years
commencing on the date of the grant and ending on such later date or dates as
the Committee may designate at the time of the grant (the "Restriction Period").
The Committee, in its sole discretion, may provide for the lapse of restrictions
in installments during the Restriction Period. The Committee may also establish
one or more Performance Goals that are required to be achieved during one or
more Performance Periods within the Restriction Period as a condition to the
lapse of the restrictions.
(d) RESTRICTIONS. The following restrictions and conditions shall apply to each
Restricted Stock Grant during the Restriction Period: (i) the Participant shall
not be entitled to delivery of the shares of the Common Stock; (ii) the
Participant may not sell, assign, transfer, pledge, hypothecate, encumber or
otherwise dispose of or realize on the shares of Common Stock subject to the
Restricted Stock Grant; and (iii) the shares of the Common Stock issued as
Restricted Stock shall be forfeited to the Company if the Participant for any
reason ceases to be an Employee prior to the end of the Restriction Period,
except due to circumstances specified in the related grant agreement or
otherwise approved by the Committee. The Committee may in, its sole discretion,
include such other restrictions and conditions as it may deem appropriate.
(e) PAYMENT. Upon expiration of the Restriction Period and if all conditions
have been satisfied and any applicable Performance Goals attained, the shares of
the Restricted Stock will be made available to the Participant, subject to
satisfaction of applicable withholding tax requirements, free of all
restrictions; provided, that the Committee may, in its discretion, require (i)
the further deferral of any Restricted Stock Grant beyond the initially
specified Restriction Period, (ii) that the Restricted Stock be retained by the
Company, and (iii) that the Participant receive a cash payment in lieu of
unrestricted shares of Common Stock.
(f) RIGHTS AS A SHAREHOLDER. A Participant shall have, with respect to shares of
Restricted Stock, all of the rights of a shareholder of the Company, including
the right to vote the shares and receive any cash dividends paid thereon. Stock
dividends distributed with respect to shares of Restricted Stock shall be
treated as additional shares under the Restricted Stock Grant and shall be
subject to the restrictions and other terms and conditions set forth therein.
9. PERFORMANCE GRANTS AND AWARDS.
(a) ELIGIBILITY AND TERMS. The Committee may grant to Employees of the Company
and its Subsidiaries the prospective contingent right, expressed in Units, to
receive payments of shares of Common Stock, cash or any combination thereof,
with each Unit equivalent in value to one share of Common Stock, or equivalent
to such other value or monetary amount as may be designated or established by
the Committee, based upon Company performance over a specified Performance
Period. The Committee shall, in its sole discretion, determine the officers of
the Company and other key Employees eligible to receive Performance Grants. At
the time each Performance Grant is made, the Committee shall establish the
Performance Period, the Performance Measure, and the Performance Goals to be
attained relative to such Performance Measure in respect of such Performance
Grant. The number of shares of Common Stock and/or the amount of cash earned and
payable in settlement of a Performance Grant shall be determined at the end of
the Performance Period (a "Performance Award").
(b) PERFORMANCE GOALS, PERFORMANCE MEASURES, AND PERFORMANCE PERIODS. Each
Performance Grant shall provide that, in order for a Participant to receive an
Award of all or a portion of the Units subject to such Performance Grant, the
Company must achieve certain Performance Goals over a designated Performance
Period having a minimum duration of one year, with attainment of the Performance
Goals determined using a specific Performance Measure. The Performance Goals and
Performance Period shall be established by the Committee in its sole discretion.
The Committee shall establish a Performance Measure for each Performance Period
for determining the portion of the Performance Grant which will be earned or
forfeited based on the extent to which the Performance Goals are achieved or
exceeded. In setting Performance Goals, the Committee may use a Performance
Measure based on any one, or on any combination, of the following Company
performance factors as the Committee deems appropriate: (i) stock price; (ii)
earnings per share, (iii) Cumulative Net Income Per Share; (iv) Cumulative Net
Income; (v) return on sales; (vi) total shareholder return; (vii) return on
assets; (viii) economic value added; (ix) cash flow; (x) return on equity; and
(xi) cumulative operating income (which shall equal consolidated sales minus
cost of goods sold and selling, administrative and general expense). Performance
Goals may include minimum, maximum and target levels of performance, with the
size of Performance Award based on the level attained. Once established by the
Committee and specified in the grant agreement, and if and to the extent
provided in or required by the grant agreement, the Performance Goals and the
Performance Measure in respect of any Performance Grant (or any Restricted Stock
Grant or Stock-Based Grant that requires the attainment of Performance Goals as
a condition to the Award) shall not be changed. The Committee may, in its
discretion, eliminate or reduce (but not increase) the amount of any Performance
Award (or Restricted Stock or Stock-Based Award) that otherwise would be payable
to a Participant upon attainment of the Performance Goal(s).
(c) FORM OF GRANTS. Performance Grants may be made on such terms and conditions
not inconsistent with the Plan, and in such form or forms, as the Committee may
from time to time approve. Performance Grants may be made alone, in addition to
in tandem with, or independent of other grants and Awards under the Plan.
Subject to the terms of the Plan, the Committee shall, in its discretion,
determine the number of Units subject to each Performance Grant made to a
Participant and the Committee may impose different terms and conditions on any
particular Performance Grant made to any Participant. The Performance Goals, the
Performance Period or Periods, and the Performance Measure applicable to a
Performance Grant shall be set forth in the relevant grant agreement.
(d) PAYMENT OF AWARDS. Each Participant shall be entitled to receive payment in
an amount equal to the aggregate Fair Market Value (if the Unit is equivalent to
a share of Common Stock), or such other value as the Committee shall specify, of
the Units earned in respect of such Performance Award. Payment in settlement of
a Performance Award may be made in shares of Common Stock, in cash, or in any
combination of Common Stock and cash, and at such time or times, as the
Committee, in its discretion, shall determine.
10. OTHER STOCK-BASED GRANTS AND AWARDS.
(a) IN GENERAL. The Committee may make other Stock-Based Grants pursuant to
which Common Stock is, or in the future may be, acquired by Participants, and
other grants and Awards to Participants denominated in Common Stock Equivalents
or other Units. Such Stock-Based Grants may be granted alone or in addition to,
in tandem with, or independent of any other grant made or Award effected under
the Plan.
(b) ELIGIBILITY AND TERMS. The Committee may make Stock-Based Grants to
Directors of the Company and Employees of the Company and its Subsidiaries.
Subject to the provisions of the Plan, the Committee shall have authority to
determine the Employees to whom, and the time or times at which, Stock-Based
Grants will be made, the number of shares of Common Stock, if any, to be subject
to or covered by each Stock-Based Grant, and any and all other terms and
conditions of each Stock-Based Grant.
(c) FORM OF GRANTS; PAYMENT OF AWARDS. Stock-Based Grants may be made in such
form or forms and on such terms and conditions, including the attainment of
specific Performance Goals, as the Committee, in its discretion, shall approve.
Payment of Stock-Based Awards may be made in cash, in shares of Common Stock, or
in any combination of cash and shares of Common Stock, and at such time or
times, as the Committee shall determine.
11. DEFERRALS.
The Committee may, whether at the time of grant or at anytime thereafter prior
to payment or settlement, require a Participant to defer, or permit (subject to
such conditions as the Committee may from time to time establish) a Participant
to elect to defer, receipt of all or any portion of any payment of cash or
shares of Common Stock that would otherwise be due to such Participant in
payment or settlement of any Award under the Plan. If any such deferral is
required by the Committee (or is elected by the Participant with the permission
of the Committee), the Committee shall establish rules and procedures for such
payment deferrals. The Committee may provide for the payment or crediting of
interest, at such rate or rates as it shall in its discretion deem appropriate,
on such deferred amounts credited in cash and the payment or crediting of
dividend equivalents in respect of deferred amounts credited in Common Stock
Equivalents. Deferred amounts may be paid in a lump sum or in installments in
the manner and to the extent permitted, and in accordance with rules and
procedures established, by the Committee.
12. NON-TRANSFERABILITY OF GRANTS AND AWARDS.
No grant or Award under the Plan, and no right or interest therein, shall be (i)
assignable, alienable or transferable by a Participant, except by will or the
laws of descent and distribution, or (ii) subject to any obligation, or the lien
or claims of any creditor, of any Participant, or (iii) subject to any lien,
encumbrance or claim of any party made in respect of or through any Participant,
however arising. During the lifetime of a Participant, Stock Options and Stock
Appreciation Rights are exercisable only by, and shares of Common Stock issued
upon the exercise of Stock Options and Stock Appreciation Rights or in
settlement of other Awards will be issued only to, and other payments in
settlement of any Award will be payable only to, the Participant or his or her
legal representative.
The Committee may, in its sole discretion, authorize written designations of
beneficiaries and authorize Participants to designate beneficiaries with the
authority to exercise Stock Options and Stock Appreciation Rights granted to a
Participant in the event of his or her death. Notwithstanding the foregoing, the
Committee may, in its sole discretion and on and subject to such terms and
conditions as it shall deem appropriate, which terms and conditions shall be set
forth in the related grant agreement: (i) authorize a Participant to transfer
all or a portion of any Non-Qualified Stock Option or Stock Appreciation Right,
as the case may be, granted to such Participant; provided, that in no event
shall any transfer be made to any person or persons other than such
Participant's spouse, children or grandchildren, or a trust for the exclusive
benefit of one or more such persons, which transfer must be made as a gift and
without any consideration; and (ii) provide for the transferability of a
particular grant or Award pursuant to a qualified domestic relations order. All
other transfers and any retransfer by any permitted transferee are prohibited
and any such purported transfer shall be null and void. Each Stock Option or
Stock Appreciation Right which becomes the subject of permitted transfer (and
the Participant to whom it was granted by the Company) shall continue to be
subject to the same terms and conditions as were in effect immediately prior to
such permitted transfer. The Participant shall remain responsible to the Company
for the payment of all withholding taxes incurred as a result of any exercise of
such Stock Option or Stock Appreciation Right.
In no event shall any permitted transfer of a Stock Option or Stock Appreciation
Right create any right in any party in respect of any Stock Option, Stock
Appreciation Right or other grant or Award, other than the rights of the
qualified transferee in respect of such Stock Option or Stock Appreciation Right
specified in the related grant agreement.
13. CHANGE IN CONTROL.
In the event of a Change in Control of the Company, except as the Board of
Directors comprised of a majority of Continuing Directors may expressly provide
otherwise, and notwithstanding any other provision of the Plan to the contrary:
(i) all Stock Options and Stock Appreciation Rights then outstanding shall
become fully exercisable as of the date of the Change in Control, whether or not
then exercisable; (ii) all restrictions and conditions in respect of all
Restricted Stock Grants then outstanding shall be deemed satisfied as of the
date of the Change in Control; and (iii) all Performance Grants and other
Stock-Based Grants shall be deemed to have been fully earned, at the maximum
amount of the award opportunity specified in the grant agreement, as of the date
of the Change in Control.
14. GENERAL PROVISIONS
(a) EFFECT ON EMPLOYMENT. Neither the adoption of this Plan, its operation, nor
any documents describing or referring to this Plan (or any part thereof) shall
confer upon any individual any right to continued employment with the Company or
in any way affect any right and power of the Company to terminate the employment
of any employee at any time with or without assigning a reason thereof.
(b) UNFUNDED PLAN. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by a
pledge of, or other encumbrance on, any property of the Company.
(c) RULES OF CONSTRUCTION. Headings are given to the sections of this Plan
solely as a convenience to facilitate reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
(d) NO OBLIGATION TO EXERCISE. No grant or Award shall impose any obligation
upon the Participant to exercise such grant or Award.
(e) GOVERNING LAW. The validity, construction and effect of the Plan, of
Agreements entered into pursuant to the Plan, and of any rules, regulations,
determinations or decisions made by the Compensation Committee relating to the
Plan or such Agreements, and the rights of any and all persons having or
claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the
Commonwealth of Virginia, without regard to its conflict of laws rules.
