File No. 33-59279
As filed with the Securities and Exchange Commission on April 23, 1999
Securities and Exchange Commission
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4 ON FORM S-2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DynCorp
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
8744
(Primary Standard Industrial Classification Code Number)
36-2408747
(I.R.S. Employer Identification Number)
2000 Edmund Halley Drive, Reston, Virginia 20191-3436 (703) 264-0330
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
David L. Reichardt
Senior Vice President & General Counsel
DynCorp
2000 Edmund Halley Drive
Reston, Virginia 20191-3436
(703) 264-9106
(Name, address, including zip code and telephone number, including area code,
of agent for service)
Copies to:
Robert B. Ott
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004-1202
(202) 942-5008
<PAGE>
SUBJECT TO COMPLETION DATED April 23, 1999
The Information in this prospectus is not complete and may be changed. We
may not sell these securities until the post-effective amendment to this
registration statement filed with the Securities and Exchange commission is
effective. This prospectus is not an offer to sell these securities, and it is
not soliciting an offer to buy these securities, in any state where the offer or
sale is not permitted.
PROSPECTUS
The Art of Technology (logo)
DynCorp
11,969,313 Shares of DynCorp Common Stock
(Par Value $0.10 per Share)
DynCorp originally offered 11,969,313 shares of common stock, par value
$0.10 per share, in 1996. This prospectus has been revised to present current
information. Some of those shares have already been sold on our internal stock
market or distributed through our benefit plans described below, and 10,877,821
shares remain in this offering.
The DynCorp Internal Stock Market
These shares may be offered and sold on our internal stock market, a
limited securities trading market established by DynCorp to provide employees,
benefit plans, and other stockholders the opportunity to buy and sell shares of
common stock on selected days each year at a price determined by our Board of
Directors. All offers and sales on the internal stock market by stockholders may
be attributed to DynCorp under the federal securities laws. We may also sell or
buy shares of common stock on the internal stock market for our own account, but
we will do so only to address imbalances between the number of shares offered
for sale and bid for purchase by stockholders on any particular trade date. The
internal stock market is managed by our subsidiary, DynEx, Inc. The purchases
and sales of shares on the internal stock market are carried out by Buck
Investment Services, Inc., a registered broker-dealer, upon instructions from
the respective buyers and sellers. See "Market Information -- The Internal Stock
Market."
See "Risk Factors" on pages 2 through 6 for information concerning certain
factors that should be considered by prospective investors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _______, 1999
<PAGE>
Where You Can Find More Information
We file annual, quarterly, and special reports and other information with
the SEC. You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov.
The SEC allows us to incorporate by reference the information that we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. We incorporate by reference the
document listed below:
Our Annual Report on Form 10-K for the year ended December 31, 1998.
You may request a copy of this filing, at no cost, by writing or
telephoning: H. Montgomery Hougen, Vice President and Corporate Secretary,
DynCorp, 2000 Edmund Halley Drive, Reston, Virginia 20191, telephone (703)
264-9112.
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide information other than that
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of this document.
Information in this prospectus, or incorporated by reference, includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These statements use forward-looking
words or phrases such as "intended", "will be positioned", "expects",
"expected", "anticipates", and "anticipated." These forward-looking statements
are based on our current expectations. All statements other than statements of
historical facts, including those regarding our financial position, business
strategy, projected costs, and plans and objectives of management for future
operations, are forward-looking statements. Although we believe that
expectations reflected in those forward-looking statements are reasonable, there
can be no assurance that our expectations will prove to have been correct.
Because forward-looking statements involve risks and uncertainties, our actual
results could differ materially. Important factors that could cause actual
results to differ materially from our expectations are disclosed under "Risk
Factors" and elsewhere in this prospectus. These forward-looking statements
represent our judgment as of the date of this prospectus. All subsequent written
and oral forward-looking statements attributable to DynCorp or persons acting on
behalf of DynCorp are expressly qualified in their entirety by these cautionary
statements. DynCorp does not, however, claim any intent or obligation to update
its forward-looking statements.
<PAGE>
Summary
There is no present public market for our common stock, although one could
be established in the future. So, we established an internal stock market in
1996, to provide liquidity for current stockholders, as well as a means for
current employees to acquire common stock through our various benefit plans.
If the internal stock market does not give a stockholder a ready means for
selling shares, and the stockholder cannot find another buyer for his or her
shares of common stock, the stockholder's investment could remain illiquid for
an indefinite period.
All of the shares of common stock offered by this prospectus will be
subject to certain internal market and by-law restrictions, including
restrictions on their transferability. Shares purchased on the internal stock
market will be subject to contractual transfer restrictions having the same
effect as those contained in the by-laws.
The purchase price of the common stock offered by this prospectus is called
the formula price. The formula price will be determined by a formula based on
our financial performance. The formula price of one share of common stock is
expressed as an equation:
formula price = [(CF x 7)MF + NOA - IBD]
ESO
In this formula, "CF" means operating cash flow, which is our earnings
before interest, taxes, depreciation, and amortization for the four fiscal
quarters preceding the date of a price valuation. "MF" means a market factor,
which is a numerical factor that reflects existing securities market conditions
relevant to the valuation of the common stock. "NOA" means our non-operating
assets at disposition value, net of disposition costs. "IBD" means the sum of
interest-bearing debt adjusted to market and other outstanding securities that
would be satisfied or repaid in a liquidation before our common stock. "ESO"
means the number of shares of stock outstanding at the date on which a valuation
is made, assuming exercise of all outstanding options.
Our Board of Directors reviews the formula price, including the market
factor, on a quarterly basis, in preparation for internal stock market trade
dates. The market factor is reviewed by the Board in conjunction with an
appraisal that is prepared by an independent appraisal firm for the committee
administering our Employee Stock Ownership Plan. The Board of Directors believes
that the valuation process results in a stock price that reasonably reflects the
value of DynCorp on a per-share basis.
DynCorp
DynCorp is a leading provider of diversified management, technical, and
professional services to a wide range of government customers. Our principal
markets are information management services, software development, and system
integration and analysis; facilities management; and aviation maintenance and
specialized support services. We are one of the foremost providers of services
to the U.S. Government. Current customers include agencies of the Department of
Defense, the Department of Energy, the National Aeronautics and Space
Administration, the Department of State, the Department of Justice, and various
other U.S.
Government and United Nations agencies, as well as a few commercial customers.
We employ approximately 16,278 employees throughout the United States and in
several foreign countries to perform services for our various customers.
DynCorp was incorporated in Delaware in 1946. The address of our principal
executive offices is 2000 Edmund Halley Drive, Reston, Virginia 20191-3436,
telephone (703) 264-0330.
You may find out more about DynCorp by visiting our internet home page at
http://www.dyncorp.com.
<PAGE>
Risk Factors
Prior to purchasing the common stock offered by this prospectus, you should
carefully consider all of the information contained in and incorporated by
reference to this prospectus, and in particular you should carefully consider
the following factors.
Substantial Leverage and Ability to Service and Refinance Debt
Our operations and acquisitions are financed largely through debt rather
than the sale of stock. Our indebtedness was $166.4 million as of December 31,
1998, net of discount of $0.5 million, including issued but undrawn letters of
credit of $6.1 million and excluding unused commitments available for borrowing
of $76.0 million. Our stockholders' equity was $11.9 million. Earnings for the
years ended December 31, 1995 and 1994 were insufficient to cover fixed charges
by approximately $4.5 million and $3.1 million, respectively. For the years
ended December 31, 1998, 1997, and 1996, earnings were greater than fixed
charges by ratios of 2.1 : 1.0, 1.5 : 1.0, and 2.0 : 1.0, respectively. Subject
to the restrictions in our existing financing agreements, we may incur
additional indebtedness from time to time to finance acquisitions, working
capital, or capital expenditures and for other purposes.
The level of our indebtedness could have important consequences, including:
o a substantial portion of our cash flow from operations must be
dedicated to pay interest and repay debt and will not be available for
other purposes;
o our ability to obtain additional debt financing in the future for
working capital, capital expenditures, or acquisitions may be limited,
and, if additional borrowings can be made, they may not be on favorable
terms; and
o our level of indebtedness could limit our flexibility in reacting to
changes in the industry and economic conditions generally.
Our ability to satisfy our debt obligations will depend upon our future
operating performance, which will be affected by prevailing economic conditions
and financial, business, and other factors, many of which are beyond our
control. If we are unable to service our indebtedness, we will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing
indebtedness, or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all.
If we are unable to repay our debt as it becomes due, the stockholders could
lose some or all of their investment.
Restrictions Imposed by Terms of Our Indebtedness
The terms of our agreements with banks and trustees relating to our
indebtedness restrict our ability to incur additional indebtedness, incur liens,
pay dividends or make other restricted payments, sell certain assets, and enter
into certain kinds of transactions with affiliates, and they impose restrictions
on the ability of subsidiaries to pay dividends or make payments to DynCorp.
These agreements also restrict our ability to merge or consolidate with another
company or to sell, assign, transfer, lease, convey, or otherwise dispose of all
or substantially all of our assets.
In addition, the agreements relating to our various financing arrangements,
which are our senior subordinated notes, our accounts receivable securitization
facility, and our revolving credit facility, contain other restrictive
covenants. A breach of any of these covenants could result in a default under
those arrangements. Upon the occurrence of an event of default, the lenders
could elect to declare all amounts outstanding, together with accrued interest,
to be immediately due and payable. If we were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure that
indebtedness.
This aggregate indebtedness is currently secured by substantially all of
the assets of DynCorp and its subsidiaries. If the lenders accelerate the
payment of such indebtedness, there can be no assurance that our assets would be
sufficient to repay our indebtedness in full.
Unless our consolidated fixed charge coverage ratio, as defined in the
indenture relating to our senior subordinated notes, after giving effect to
newly incurred indebtedness, remains at least 2.0 : 1.0, we could not make
certain types of additional investments or incur additional indebtedness outside
the ordinary course of business. As of December 31, 1998, our consolidated fixed
charge coverage ratio, as defined, was approximately 3.3 : 1.0.
Under the terms of our securitization financing facility, our ability to
obtain funding through the facility would be suspended if:
o our interest coverage ratio, as defined in the related documents,falls below
1.1 : 1.0,
o scheduled principal payments on our other indebtedness exceed $40.0 million
during the period from May 1, 2000 to April 30, 2001, or
o scheduled principal payments on our other indebtedness exceed $20.0 million
during the period from May 1, 2001 to April 30, 2002.
In those events, our wholly owned financing subsidiary, Dyn Funding Corporation,
would be unable to convert our accounts receivable into cash prior to actual
collection of those receivables. As of December 31, 1998, our interest coverage
ratio was approximately 4.3 : 1.0.
Further, if the collateral value of the receivables and cash held by Dyn
Funding Corporation falls below the amount of outstanding borrowings under the
facilities, and we fail to provide sufficient additional receivables or cash to
increase the collateral value to such amount, our ability to obtain funding
through the facility would be suspended or terminated. Then all collections on
our receivables would be used to repay all or part of the amounts outstanding
under the facilities. The suspension or termination of our ability to obtain
funding through the facility and the use of collections to repay borrowings
under the facility would result in additional demands on our cash resources.
Dependence on U.S. Government Contracts
We derived 95% of our revenues for the year ended December 31, 1998, and
97% of our revenues for each of the years ended December 31, 1997 and 1996, from
contracts and subcontracts with the U.S. Government. Contracts with agencies of
the Department of Defense represented 40%, 45%, and 50% of our revenues for the
years ended December 31, 1998, 1997, and 1996, respectively. Continuation and
renewal of our existing government contracts and the acquisition of additional
government contracts is contingent upon the availability of adequate funding for
various U.S. Government agencies, among other things. A significant decline in
or reapportioning of U.S. military expenditures could reduce the operations and
maintenance portion of the defense budget; that could have a serious effect our
revenues and earnings. The loss or significant curtailment of material
government contracts would also have a serious effect on our future revenues and
earnings.
Possible Termination of Government Contracts
Typically, a government contract has an initial term of one year combined
with two to four one-year renewal periods, exercisable at the discretion of the
Government. The Government is not obligated to exercise its option to renew a
government contract. At the time of completion of a government contract, the
contract is "recompeted" against all eligible third-party providers.
Contracts between DynCorp and the U.S. Government or its prime contractors
also contain standard provisions for termination at the convenience of the
Government or such prime contractors. There can be no assurance that
terminations will not occur, and such terminations could adversely affect our
business and prospects.
No Assurance of Revenues under Indefinite Quantity Contracts
Many government contracts, particularly those involving information
technology, are indefinite delivery, indefinite quantity ("IDIQ") contracts. An
agency may award an IDIQ contract to one or more contractors, but the award does
not represent any firm orders for services. Instead the contractor(s) may then
identify specific projects and propose to perform the service for a potential
customer covered by the IDIQ contract, and the customer may or may not decide to
order the services. Thus, having such a contract does not assure that any
revenues will be generated.
Risks Associated with Costs of Performance
Our government contract services are provided through three types of
contracts: fixed-price, time-and-materials, and cost-reimbursement. We assume
financial risk on fixed-price contracts and time-and-materials contracts,
because we assume the risk of performing those contracts at the stipulated
prices or negotiated hourly rates. If we do not accurately estimate ultimate
costs and control costs during performance of the work, we could lose money or
have smaller profits. With cost-reimbursement contracts, so long as actual costs
incurred are within the contract ceiling and allowable under the terms of the
contract, we are entitled to reimbursement of the costs plus a stipulated
profit.
From time to time costs which we believe to be payable under contracts are
questioned by the Government and audited. We cannot determine the outcome of
ongoing audit findings at this time.
Government contract payments received by us for allowable direct and
indirect costs are subject to adjustment after audit by government auditors and
repayment to the Government, if the payments exceed allowable costs as defined
in such government contracts. Audits have been completed on our incurred
contract costs through 1995, except for two contracts, and are continuing for
subsequent periods. We have included an allowance for possible excess billings
and contract losses in our financial statements which we believe is adequate,
based on our interpretation of contracting regulations and past experience.
There can be no assurance, however, that this allowance will be adequate.
Governmental Investigations
We are occasionally the subject of investigations by the Department of
Justice and other investigative organizations, resulting from employee actions
and other allegations regarding business practices. In management's opinion,
there are no outstanding issues of this nature at April 1, 1999 that will have a
material adverse effect on our consolidated financial position, results of
operations, or liquidity.
Potential for Suspension or Debarment
As a U.S. Government contractor, we are subject to federal regulations
under which our ability to receive awards of new government contracts, or
extensions of existing government contracts, may be unilaterally suspended or
barred by the U.S. Government, if we should be convicted of a crime or be
indicted based on allegations of a violation of certain specific federal
statutes or other activities. The initiation of suspension or debarment hearings
against us or any of our affiliated entities could have a material adverse
impact upon our business and prospects.
Potential for Adverse Judgments in Legal Proceedings
DynCorp and its subsidiaries and affiliates are involved in various claims
and lawsuits, including contract disputes and claims based on allegations of
negligence and other tortious conduct. We are also potentially liable for
certain personal injury, tax, environmental, and contract dispute issues related
to the prior operations of divested businesses.
The total amount of damages currently claimed by the claimants in these
cases is estimated to be approximately $78.1 million, including compensatory
punitive damages and penalties. In most cases, we have denied, or believe we
have a basis to deny, liability. In some cases, we also have offsetting claims
against the claimants, third parties, or insurance carriers.
We believe that any amounts that will actually be recovered by claimants
these cases will be substantially less than the aggregate amount claimed. After
taking into account available insurance, we believe we are adequately reserved
with respect to the potential liability for such claims. The estimate set forth
above does not reflect claims that may have been incurred but have not yet been
filed. We have recorded such damages and penalties that are considered to be
probable recoveries against DynCorp or its subsidiaries. It is possible that the
level of filings will increase more than management has anticipated, increasing
such exposures, and no upper limit of exposure can be reasonably estimated.
Competition
The markets that DynCorp serves are highly competitive. In each of our
businesses, our competition is quite fragmented, with no single competitor
holding a significant market position. We experience vigorous competition from
industrial firms, university laboratories, and nonprofit institutions. Some of
our competitors are large, diversified firms with substantially greater
financial resources and larger technical staffs than we have.
Government agencies also compete with us, because they can utilize internal
resources to perform certain types of services that might otherwise be performed
by us. Most of our revenues are derived from contracts with the U.S. Government
and its prime contractors, and such contracts are awarded on the basis of
negotiations or competitive bids where price is a significant factor.
Company May Be Obligated to Repurchase Shares of Certain ESOP Participants
When a participant in the DynCorp Employee Stock Ownership Plan ("ESOP")
receives a distribution of common stock from the ESOP prior to the time when our
common stock becomes readily tradable stock, the ESOP, or DynCorp under certain
circumstances, is obligated to repurchase such shares from the participant. To
the extent that DynCorp repurchases those shares, our availability of cash will
be adversely affected. DynCorp has the right under both the ESOP and applicable
law to defer indefinitely the repurchase of any shares, if payment to the
stockholders would impair the capital of DynCorp. See "Employee Benefit Plans --
Employee Stock Ownership Plan -- Distributions and Withdrawals."
No Payment of Cash Dividends
We have not paid a cash dividend since 1987. We do not have a policy for
the payment of regular dividends. Any payment of dividends in the future will be
subject to the discretion of our Board of Directors and may be subject to
restrictions imposed by financing arrangements and by legal and regulatory
restrictions.
Absence of a Public Market
There is no present public market for our common stock, although one could
be established in the future. Our internal stock market provides the only
mechanism for selling our common stock. There may not be sufficient buy orders
on a trade date to support current sell orders. We may defer or cancel a trade
date, either because of an imbalance of buy and sell orders which would not
permit an orderly trade or for other reasons. There can be no assurance that the
purchasers of common stock in this offering will be able to resell their shares
through the internal stock market should they decide to do so.
To the extent that the internal stock market does not provide sufficient
liquidity for a stockholder, and the stockholder is otherwise unable to locate a
buyer for his or her shares, the stockholder's investment could remain illiquid
for an indefinite period, and the stockholder could effectively be subject to a
total loss of investment. Accordingly, the purchase of our common stock is
suitable only for persons who have no need for liquidity in this investment and
who can afford a total loss of investment. See "Market Information -- The
Internal Stock Market."
Right of First Refusal
All shares of common stock offered by this prospectus will be subject to
our right of first refusal to purchase such shares before they may be offered to
third parties, except on the internal stock market. Shares of common stock
purchased on the internal stock market will be subject to contractual transfer
restrictions having the same effect as those contained in the by-laws. See
"Description of Capital Stock -- Restrictions on Common Stock."
Offering Price Determined by Formula, Not Market Forces
The offering price for the common stock is, and subsequent offering prices
will be, determined by means of the formula set forth on the page 1 of this
prospectus. The formula takes into consideration our financial performance, the
market valuation of comparable companies, and the limited liquidity of the
common stock, as determined by our Board of Directors based on an independent
appraisal. The formula is subject to change by the Board of Directors in its
sole discretion. See "Market Information -- Determination of Purchase Price."
Anti-Takeover Effects
The combined effects of ownership of a substantial portion of the
outstanding shares of common stock by management and our benefit plans, together
with our right of first refusal, may discourage, delay, or prevent attempts to
acquire control of DynCorp that are not negotiated with our Board of Directors
and the trustees of the benefit plans. These may, individually or collectively,
have the effect of discouraging takeover attempts that some stockholders might
deem to be in their best interests, including tender offers in which
stockholders might receive a premium for their shares over the formula price
available on the internal stock market, as well as making it more difficult for
individual stockholders or a group of stockholders to elect directors. See
"Description of Capital Stock."
Dilution
The net tangible book value of DynCorp on December 31, 1998 was a negative
$130.8 million, or $(18.20) per share, which is substantially less than the
current formula price of $23.50. This is caused by the fact that the shares of
common stock held by the Employee Stock Ownership Plan are subject to a put
option. See "Employee Benefit Plans Employee Stock Ownership Plan -
Distributions and Withdrawals." These shares are deemed to be redeemable and are
only treated as temporary equity. Therefore, purchasers of common stock in the
offering will realize immediate and substantial dilution of $41.70 per share
(177%), or $40.93 per share (174%) assuming conversion of all outstanding
options, and the issuance of all restricted stock shares. The amount of dilution
may vary, depending on the formula price.
The 2,391,044 shares remaining available for issue under our benefit plans
described below would dilute the number of shares outstanding. See "Securities
Offered by this Prospectus -- Shares Remaining for Issue under Benefit Plans."
The Compensation Committee also adopted a new 1999 Long-Term Incentive Stock
Plan, under which up to 800,000 additional shares may be issued. If all the
shares which could be issued under our benefit plans, including our former
Restricted Stock Plan, were to be issued, there would be 13,414,123 shares of
common stock outstanding. As of April 1, 1999, there were 10,032,872 shares
outstanding.
<PAGE>
Securities Offered by This Prospectus
Common Stock Offered by DynCorp
The shares of common stock offered by DynCorp may be offered through the
internal stock market to trustees or agents for the benefit of employees under
our employee benefit plans described below or directly to our current and future
employees. For purposes of our registration under the Securities Act of 1933,
all sales on the internal stock market, whether direct by DynCorp, by officers,
directors, and other affiliates of DynCorp, and by other stockholders may be
attributed to us.
Total sales to date on the internal stock market are:
o 2,945 shares sold directly by DynCorp,
o 144,094 shares sold by officers, directors, and affiliates of DynCorp, and
o 885,497 shares sold by other stockholders
In addition, we have issued 58,956 shares to employees through our employee
benefit plans.
Direct and Contingent Sales to Employees
We believe that our success is dependent upon the abilities of our
employees. Since 1988, we have pursued a policy of offering such persons an
opportunity to make an equity investment in DynCorp as an inducement to become
and remain employees. At the discretion of our Board of Directors or the
Compensation Committee of the Board of Directors, and subject to applicable
state securities laws, employees and directors may be offered an opportunity to
purchase shares of common stock offered by this prospectus.
All such direct and contingent sales to employees, as well as directors,
will be effected through the internal stock market or the employee benefit plans
described below and may be attributable to DynCorp. Pursuant to our by-laws, all
shares of common stock offered by us after May 11, 1995, to our employees or
directors and all shares of common stock purchased on the internal stock market
are subject to a right of first refusal. See "Description of Capital Stock --
Restrictions on Common Stock."
Equity Target Ownership Policy
We have adopted an Equity Target Ownership Policy, under which certain
highly paid employees are encouraged to invest specified multiples of their
annual salaries in shares of the common stock, over a period of seven years.
Under the Policy, employees in the company's four highest salary bands are
encouraged to invest an amount related to their annual salary rate in shares of
common stock as follows:
recommended value of
Base salary rate of: holdings:
President & CEO 4.0 times base salary
$300,000 or more 3.0 times base salary
$200,000 to $299,999 2.5 times base salary
less than $200,000 1.5 times base salary
Investments under any of the employee benefit plans described below, as
well as other shares owned by the employee, will qualify for purposes of the
Policy.
Savings and Retirement Plan
We maintain a Savings and Retirement Plan ("SARP"), which is intended to be
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code.
Generally, all employees are eligible to participate, except for employees of
units designated as ineligible, such as units which are subject to the terms of
collective bargaining agreements, participate in other site-specific benefit
plans, or are located in foreign countries. The SARP permits a participant to
elect to defer, for federal income tax purposes, a portion of his or her annual
compensation and to have such amount contributed directly by us to the deferred
fund of the SARP for his or her benefit.
We may, but are not obligated to, make a matching contribution to the SARP
trust for the benefit of those participants who have elected to defer a portion
of their compensation for investment in shares of common stock. The amount of
any matching contribution is determined periodically by our Board of Directors
based on the aggregate amounts deferred by participants. We currently provide a
company matching contribution, either in cash for purchase of common stock on
the internal stock market or in shares of common stock, of 100% of the first one
percent of compensation invested in the Company common stock fund by a
participant and 25% of the next four percent of compensation so invested. We may
also make additional contributions to the SARP trust in order to comply with
Section 401(k) of the Internal Revenue Code.
Each participant is vested at all times in 100% of his or her personal
contributions to the deferred fund accounts. Company contributions become 100%
vested after one year of service. Benefits are payable to a participant within
certain specified time periods following such participant's retirement,
permanent disability, death, or other termination of employment. Pursuant to our
by-laws, shares of common stock distributed to a participant under the SARP are
subject to our right of first refusal. See "Employee Benefit Plans -- Savings
and Retirement Plan" and "Description of Capital Stock -- Restrictions on Common
Stock."
Employee Stock Purchase Plan
We have also established an Employee Stock Purchase Plan for the benefit of
substantially all our employees. The Stock Purchase Plan provides for the
purchase of common stock through payroll deductions by participating employees.
The Stock Purchase Plan is intended to qualify as a stock purchase plan under
Section 423(b) of the Internal Revenue Code. Participants designate a certain
amount to be withheld from their regular pay for the purchase of common stock,
and DynCorp contributes an additional 5% of that amount in the form of cash or
shares of common stock for each participant.
Purchases on behalf of participating employees are made through the
internal stock market. All shares purchased pursuant to the Stock Purchase Plan
are credited to the participant's directly owned stock account promptly
following the trade date on which they were purchased and, pursuant to our
by-laws, are subject to our right of first refusal. See "Employee Benefit Plans
- -- Employee Stock Purchase Plan" and "Description of Capital Stock --
Restrictions on Common Stock."
1995 Stock Option Plan
Pursuant to our 1995 Stock Option Plan, we have granted stock options to
certain employees and directors. As of April 1, 1999, 26,500 stock options have
been exercised and 1,220,600 are outstanding. We do not anticipate granting any
more options under this Plan. Pursuant to the by-laws, all shares of common
stock issued upon the exercise of such stock options will be subject to our
right of first refusal. See "Employee Benefit Plans -- 1995 Stock Option Plan"
and "Description of Capital Stock -- Restrictions on Common Stock."
Executive Incentive Plan
Our Executive Incentive Plan provides for the payment of annual bonuses to
certain officers and executive employees. The Executive Incentive Plan provides
for payment of up to 20% of the bonuses, net of applicable taxes, in the form of
shares of common stock, valued at the then-current formula price. The shares of
common stock are distributed following each fiscal year. As of April 1, 1999,
32,456 shares have been distributed under the Executive Incentive Plan. Pursuant
to our by-laws, shares of common stock awarded pursuant to this Plan will be
subject to our right of first refusal. See "Employee Benefit Plans -- Executive
Incentive Plan" and "Description of Capital Stock -- Restrictions on Common
Stock."
Direct Purchase Plan
Under the Direct Purchase Plan, active employees and directors who desire
to purchase shares directly in their own names on the internal stock market are
permitted to do so, subject to availability of shares and applicable state
securities laws. Shares are purchased at the current formula price.
As an incentive to comply with the Equity Target Ownership Policy,
individuals subject to the Policy who directly purchase 1,000 or more shares of
common stock on the internal stock market on a single trade date are paid a
special bonus equal to 7 1/2% of the purchase price.
Employee Stock Ownership Plan
The Employee Stock Ownership Plan ("ESOP") is a retirement plan, and its
assets are not taxed under the Internal Revenue Code until they are distributed
to participants. Generally, all employees participate in the ESOP, except
employees of groups or units designated as ineligible, such as employees covered
by collective bargaining agreements. Interests of participants in the ESOP vest
in accordance with a four-year vesting schedule. Benefits are normally allocated
to a participant in shares of common stock and are distributable within certain
specified time periods following such participant's retirement, permanent
disability, death, or other termination of employment.
Since our common stock is not "readily tradable" as defined by the Internal
Revenue Code, a participant is entitled to a statutory "put option" at two
separate times following a distribution of shares. Under the put option, the
ESOP, or DynCorp if the ESOP does not do so, is obligated to purchase the shares
at the ESOP share price, as determined upon advice from the ESOP's appraisers.
See "Employee Benefit Plans - Employee Stock Ownership Plan - Distributions and
Withdrawals." In the event the participant declines to exercise the put option,
such shares of common stock may be sold by the participant on the internal stock
market, subject to the restrictions and limitations of the internal stock
market. The ESOP share price paid for these shares being distributed from the
ESOP is not determined by the formula, and amounts paid to participants at the
time of distribution may be different from amounts paid to sellers on the
internal stock market. See "Market Information -- The Internal Stock Market."
The amount of our annual contribution to the ESOP is determined by, and
within the discretion of, our Board of Directors and may be in the form of cash
or common stock. Pursuant to the plan document, any shares of common stock
distributed out of the ESOP will be subject to a right of first refusal on
behalf of the ESOP and DynCorp. See "Employee Benefit Plans -- Employee Stock
Ownership Plan -- Distributions and Withdrawals."
Shares Remaining for Issue under Benefit Plans
Of the shares of common stock initially registered under this prospectus
for issuance by DynCorp through our benefit plans, the following shares remain
available for issue:
o up to 850,000 shares through the Savings and Retirement Plan,
o up to 100,000 shares under the Employee Stock Purchase Plan,
o up to 1,223,500 shares through the 1995 Stock Option Plan, and
o up to 267,544 shares under the Executive Incentive Plan.
Common Stock Offered by Officers, Directors, and Affiliates
This prospectus relates to the offer and sale of shares directly by certain
officers, directors, and affiliates. Such persons may, from time to time, sell
shares of the common stock being offered by this prospectus on the internal
stock market or otherwise, and 144,094 shares have been sold as of April 1,
1999. The total aggregate shares remaining available for offer and sale by
officers, directors, and affiliates under this prospectus as of April 1, 1999 is
2,005,722 shares.
While we have registered all shares owned by officers, directors, and
affiliates on a fully diluted basis, including unvested options, we do not know
whether some, none, or all of such shares will be so offered or sold. We believe
that the Executive Target Ownership Policy acts as a disincentive to some
officers to sell their common stock at this time. The officers, directors, and
affiliates will not be treated more favorably than other stockholders
participating as sellers on the internal stock market. Like all other
stockholders selling shares on the internal stock market, other than DynCorp and
our benefit plans, the officers, directors, and affiliates will pay our
designated broker-dealer a commission equal to one percent of the proceeds from
their sales.
See "Market Information -- The Internal Stock Market."
The following table sets forth information as of April 1, 1999 with respect
to the number of shares of common stock owned directly or indirectly by each of
the officers, directors, and affiliates. It includes shares issuable upon the
exercise of outstanding options, shares issuable as a result of expiration of
deferrals under our former Restricted Stock Plan and shares allocated to such
person's accounts under our employee benefit plans, as well as their respective
percentages of ownership of equity on a fully diluted basis. Each of the persons
is a director or officer of DynCorp. The shares are owned of record or
beneficially. The table also reflects the relative ownership of such persons in
the event of, and after, their individual sales of all the registered shares
owned by them in this offering. .
<PAGE>
<TABLE>
<CAPTION>
Percent ownership Number of Percent
Number of of fully diluted shares ownership
shares equity(1) before remaining after after sale of
beneficially offering sale of all all covered
Name and Title of Beneficial Owner owned (1) covered shares shares
<S> <C> <C> <C> <C>
D. R. Bannister, Chairman of the Board & Director 500,229 4.4% 0 *
T. E. Blanchard, Director 186,015 1.6% 0 *
R. E. Dougherty, Director 9,000 * 0 *
P. G. Kaminski, Director 10,000 * 0 *
P. V. Lombardi, President & Chief Executive 161,753 1.4% 0 *
Officer & Director
D. C. Mecum II, Director 7,825 * 0 *
D. L. Reichardt, Senior Vice President & General 164,192 1.4% 0 *
Counsel & Director
H. S. Winokur, Jr., Director 445,412 3.9% 0 *
R. B. Alleger, Jr., Vice President 53,031 * 0 *
J. J. Fitzgerald, Vice President & Controller 28,894 * 0 *
P. C. FitzPatrick, Senior Vice President & Chief 105,929 * 0 *
Financial Officer
P. T. Graham, Vice President & Treasurer 16,573 * 0 *
G. P. Hobbs, President, Information & Enterprise 50,497 * 0 *
Technology unit
H. M. Hougen, Vice President & Secretary 34,299 * 0 *
R. P. Kerr, Senior Vice President 30,715 * 0 *
M. S. Mandell, Senior Vice President 90,556 * 0 *
R. Morrel, Vice President 24,071 * 0 *
H. H. Philcox, Vice President 58,391 * 0 *
R. G. Wilson, Vice President & General Auditor 28,342 * 0 *
Total 2,005,722 17.5% 0 *
* Indicates less than one percent
<FN>
(1) Includes shares issuable as a result of expiration of deferrals under
our former Restricted Stock Plan, exercise of all outstanding options whether or
not vested, and shares allocated to the person's accounts under our employee
benefit plans
</FN>
</TABLE>
<PAGE>
Market Information
The Internal Stock Market
In 1988, following a decision by our Board of Directors to consider offers
for the purchase of DynCorp, we became privately owned through a leveraged
buy-out involving the company's management group. Public trading of our common
stock ceased, and the new management installed the Employee Stock Ownership Plan
as our principal retirement benefit. Approximately 33,200 current and former
employees are now beneficial owners of our common stock through the ESOP,
representing approximately 72.9% of the shares of common stock outstanding on
April 1, 1999 and approximately 63.9% of our common stock on a fully diluted
basis.
After public trading of our common stock ceased, our management
stockholders and outside investors relied on a stockholders agreement as a means
of restricting the distribution and permitting limited sales of our common
stock. On May 10, 1995, our Board of Directors approved the establishment of the
internal stock market as a means of trading common stock on a regular basis to
replace the former stockholders agreement.
The internal stock market generally permits all stockholders to sell shares
of common stock on one trade date each calendar quarter, subject to purchase
demand. All sales of common stock on the internal stock market are made to
active employees and the trustees or administrator of our benefit plans, who may
purchase shares of common stock for their respective trusts and plans, to the
extent permitted under applicable state securities laws. Limitations on the
number of shares that an individual can purchase directly may be imposed where
there are more buy orders than sell orders on a particular trade date.
The internal stock market is managed by our wholly owned subsidiary, DynEx,
Inc. A registered broker-dealer, acting upon instructions from the respective
buyers and sellers, carries out the purchase and sale of shares on the internal
stock market. Following determination of the applicable formula price for use on
the next trade date, the broker-dealer advises the stockholders of record by
mail, usually at least 15 days prior to the trade date, as to the amount of the
formula price and the trade date. The broker-dealer asks whether the
stockholders wish to sell shares on the internal stock market and advises them
how to deliver written sell orders and stock certificates. These must be
received at least two days prior to the trade date, to facilitate the sale. This
information is also provided through our internal communications systems to
participants in the various benefit plans.
We may, but are not obligated to, purchase shares of common stock on the
internal stock market on any trade date. We would only purchase shares if the
number of shares offered for sale by stockholders exceeds the number of shares
sought to be purchased by authorized buyers and if, in our discretion, we
determine to make such purchases. If the number of shares sought to be purchased
exceeds the number offered for sale, we may, but again are not obligated to,
sell sufficient shares to make up such shortfall. We will only enter the
internal stock market to correct such imbalance, and we cannot be both a buyer
and a seller on the same trade date.
If the aggregate number of shares offered for sale on the internal stock
market is greater than the aggregate number of shares sought to be purchased by
authorized buyers, including DynCorp, offers to sell up to the first 500 shares
offered by any seller will be accepted first. If, however, there are
insufficient purchase orders to support the primary allocation of 500 shares of
common stock, then the purchase orders will be allocated equally among all of
the proposed sellers up to the first 500 shares offered for sale by each seller.
Thereafter, a similar procedure will be applied to the next 10,000 shares
offered by each remaining seller. If there are remaining purchase orders, offers
to sell shares in excess of 10,500 shares will then be accepted on a pro-rata
basis determined by dividing the total number of shares remaining under purchase
orders by the total number of shares remaining under sell orders.
To the extent that the aggregate number of shares sought to be purchased
exceeds the aggregate number of shares offered for sale, we may, but are not
obligated to, sell authorized but unissued shares of common stock on the
internal stock market. All sellers on the internal stock market, other than
DynCorp and our benefit plans, will pay the broker-dealer a commission equal to
one percent of the proceeds from such sales. Purchasers on the internal stock
market pay no commission. All offers and sales of common stock made on the
internal stock market may be attributed to us.
If the aggregate purchase orders exceed the number of shares available for
sale, the following prospective purchasers will have priority, in the order
listed:
1. the administrator of the Employee Stock Purchase Plan;
2. the trustee of the Savings and Retirement Plan;
3. eligible employees, on a pro rata basis; and
4. the trustees of the Employee Stock Ownership Plan.
There is no public market for our common stock, and it is not currently
anticipated that such a market will develop. We established the internal stock
market in an effort to provide liquidity to our stockholders, but there can be
no assurance that there will be sufficient liquidity to permit stockholders to
resell their shares on the internal stock market or that a regular trading
market will develop or be sustained in the future. The internal stock market
will be dependent on the presence of sufficient buyers to support sell orders
that will be placed through the internal stock market. Depending on our
performance, potential buyers may elect not to buy on the internal stock market.
Moreover, although we may enter the internal stock market as a buyer of common
stock under certain circumstances, including an excess of sell orders over buy
orders, we have no obligation to engage in internal stock market transactions.
Consequently, there is a risk that sell orders could be prorated as a result of
insufficient buyer demand or that the internal stock market may not be permitted
to open on a trade date because of the lack of buyers.
We may defer or cancel a trade date, either because of an imbalance of buy
and sell orders which would not permit an order trade or for other reasons.
If the internal stock market does not give a stockholder a ready means for
selling shares, and the stockholder is otherwise unable to locate a buyer for
his or her shares of common stock, the stockholder could effectively be subject
to a total loss of investment. Accordingly, the purchase of common stock is
suitable only for persons who have no need for liquidity in this investment and
who can afford a total loss of investment. See "Risk Factors -- Absence of a
Public Market."
Determination of Purchase Price
The purchase price, or formula price, of the shares of common stock offered
by this prospectus will be determined pursuant to the following formula and
valuation process. The formula price of the common stock, expressed as a
formula, is as follows:
formula price = [(CF x 7)MF + NOA - IBD]
ESO
The formula price per share of common stock is the product of seven times
the operating cash flow (CF) for the four fiscal quarters preceding the date on
which a price valuation is made, multiplied by a market factor (MF), plus the
non-operating assets at disposition value, net of disposition costs (NOA), minus
the sum of interest-bearing debt adjusted to market and other outstanding
securities senior to common stock (IBD), divided by the number of shares of
common stock outstanding at the date on which a price revision is made, on a
fully diluted basis assuming exercise of all outstanding options (ESO).
Operating cash flow is the earnings basis which is considered to be
representative of our future performance. The basic measurement we use for
operating cash flow is our earnings before interest, taxes, depreciation, and
amortization. Each of these elements is measured according to generally accepted
accounting principles. Before using those objective numbers in the formula, our
Board of Directors examines the details used in those earnings to see if any
adjustments are needed in order for the earnings number to be representative of
our future performance. Following are examples of situations where our Board of
Directors may feel it appropriate to make adjustments so that the earnings used
in the formula would be more representative of expected future performance:
o the earnings from an acquisition made late in the year may be pro-formed for
a full year;
o the earnings from a discontinued activity may be pro-formed out even
though the discontinued activity may not qualify as a discontinued
business under generally accepted accounting principles; or
o a truly unusual expenditure or windfall profit may be pro-formed out
even though it is clearly part of earnings for the current year.
The market factor is subjective. Our Board of Directors looks at the public
market pricing for other government service contractors which we believe are
comparable to us. Several other companies are considered, but there is no set
number of comparable companies. The pricing multiples of net income and of cash
flow for these companies are looked at on a last-twelve-month basis, on a
fiscal-year basis, and, where available from analysts' reports, on a projected
basis. Since the formula capitalizes our operating cash flow by a multiple of
seven, these comparable companies give the Board of Directors a sense whether
the public market is currently at a higher, lower, or roughly the same level as
that fixed multiple. The Board of Directors also looks at our earnings trends in
setting the market factor, because the stock market generally rewards an upward
trend and punishes a downward trend. Our Board of Directors will also look at
the price earnings multiples of comparable companies to see if there are any
significant changes that might influence the Board's determination of the market
factor to be used in the formula.
Our principal non-operating asset since 1992 has been restricted cash. This
is cash in our wholly owned subsidiary, Dyn Funding Corporation, which must
remain in specified short-term marketable investments, such as U.S. Treasury
bills, on a temporary basis, when DynCorp and its other subsidiaries do not have
enough eligible accounts receivable to sell to Dyn Funding Corporation at any
particular point in time to utilize the minimum $50 million of capital of Dyn
Funding Corporation. If DynCorp discontinues a business, and the net assets of
that business were recorded as assets held for sale, those assets would be
included in non-operating assets at management's estimate of their disposition
value, net of disposition costs. The earnings from those assets would also be
excluded from operating cash flow in the formula. If we had a passive investment
outside our normal operations, the earnings from that investment would also be
excluded from operating cash flow, and the lower of cost or estimated market
value would be included in non-operating assets. Other similar situations
could give rise to inclusion in non-operating assets, but an asset must be
clearly non-operating to be so included.
Interest-bearing debt includes any securities senior to common stock. Under
generally accepted accounting principles, interest-bearing debt is to be
reported net of any unamortized discount at issuance. However, such issuance
discounts are ignored in the formula, and it is expected that debt will be
recorded at its face value. On the other hand, if it is the intent of management
to call any portion of our long-term debt in the near term, the amount used for
that portion of interest-bearing debt would be at its call price. Similarly, if
the debt were publicly traded at a discount, and it was management's intent in
the near term to retire debt through open market discounted purchases, the
market price would be used for that portion of the debt in the formula. In
applying the formula, our Board of Directors would also look at any convertible
securities and subjectively decide whether it is likely that these securities
would be converted. If, in the opinion of the Board, they will be converted,
these securities would be included in the fully diluted common shares and not as
interest-bearing debt. Preferred stock, or any similar security senior to the
common stock in liquidation, would be considered as interest-bearing debt.
The number of equivalent shares outstanding assumes the exercise of all
outstanding options, if no greater than the current formula price, and the
conversion of any convertible securities, of which none are outstanding at the
current time.
Our Board of Directors reviews the formula price, including the market
factor, on a quarterly basis, in preparation for internal stock market trade
dates. The valuation of our common stock is also coordinated with the
independent appraiser retained by the committee administering the Employee Stock
Ownership Plan. Our Board of Directors believes that the valuation process
results in a stock price which reasonably reflects the value of DynCorp on a
per-share basis. See "Risk Factors -- Offering Price Determined by Formula, Not
Market Forces."
Our Board of Directors adopted the formula in its current form on August
15, 1995. The formula is subject to change by the Board of Directors.
Availability of Information
We intend to disseminate the current formula price on at least a quarterly
basis to all employees through internal communications, including bulletins and
electronic mail messages and to other stockholders by mailed reports, including
mailed notices of upcoming trade dates. Participants in the employee benefit
plans may obtain the current formula price by calling T. Rowe Price's Plan
Account Line at 1-800-922-9945.
We also intend to distribute copies of our audited annual financial
statements to all stockholders, including record holders and beneficial owners,
and to potential participants in the internal stock market through employee
benefit plans, either through U.S. mail or inter-company mail. Such information
is distributed at the time that proxy information is distributed and
solicitations are made for voting instructions from participants in the benefit
plans, normally in June of each year. We file unaudited quarterly financial
information with the SEC, and copies of such information are available from the
SEC. See "Where You Can Find More Information."
Private Transactions
This prospectus does not apply to private transactions outside the internal
stock market. From time to time, stockholders, including former employees, sell
shares to us or to the Employee Stock Ownership Plan trust in private,
unsolicited transactions. Sales to the trust are intended to take advantage of
the capital gain deferral provisions of Section 1042 of the Internal Revenue
Code.
<PAGE>
Use of Proceeds
The shares of common stock that may be offered by us are being offered
primarily to permit the acquisition of shares by our employee benefit plans as
described herein and to permit us to offer shares of common stock to employees
and directors. We do not intend or expect this offering to raise significant
capital. Any net proceeds received by us from the sale of the common stock
offered will be added to our general funds for working capital and general
corporate purposes. Currently, we have no specific plans for the use of such
proceeds. It is anticipated that stockholders, not DynCorp, will make the
majority of the sales of common stock on the internal stock market, and we will
not receive any portion of the net proceeds from the sale of such shares.
<PAGE>
Employee Benefit Plans
We maintain several employee benefit plans pursuant to which some of the
shares of common stock being offered by this prospectus may be offered or sold.
The primary purpose of these plans is to motivate our employees to contribute to
our growth and development by encouraging them to achieve and surpass annual
goals of DynCorp and the operations for which they are responsible. Following is
a summary description of these plans.
SAVINGS AND RETIREMENT PLAN
Trustees
T. Rowe Price Retirement Plan Services, Inc., P. O. Box 17215, Baltimore,
Maryland 21297-1215, serves as trustee of the Savings and Retirement Plan,
except that DynCorp serves as trustee of the DynCorp common stock fund.
Administration
DynCorp administers the SARP through an administrative committee consisting
of P. T. Graham, H. M. Hougen, and R. P. Kerr, employees of DynCorp, whose
address is 2000 Edmund Halley Drive, Reston, VA 20191.
Eligibility and Participation
All employees are eligible to participate in the SARP upon commencing
employment, except for employees in groups or units designated as ineligible,
such as employees covered by collective bargaining agreements or employed by
foreign subsidiaries. As of April 1, 1999, there were approximately 4,509 active
participants in the SARP, of which approximately 3,558 participate in the
DynCorp common stock fund.
Contributions and Allocations
The SARP permits a participant to elect to defer a portion of his or her
compensation for the plan year and to have such deferred amount contributed
directly by DynCorp to the SARP trust for allocation to the participant's SARP
account. Amounts deferred by participants for the plan year ended December 31,
1998 totaled approximately $15.8 million. Such deferred amounts are treated for
tax purposes as contributions made by DynCorp. The administrative committee
determines the maximum amount of compensation that a participant may elect to
defer, but in no event may the deferral exceed $10,000 during 1999. This annual
limitation is periodically adjusted for cost-of-living changes under rules
prescribed by the Secretary of the Treasury.
A participant in the SARP who has made a deferral election may terminate or
alter the rate of his or her deferrals at any time under the terms of the SARP.
In addition to amounts deferred by participants, we may make a matching
contribution to the SARP accounts of those participants who have elected to
defer a portion of their compensation equal to a percentage or percentages of
the amounts which such participants have elected to defer. This company matching
contribution is determined periodically by our Board of Directors and is
allocated to the SARP accounts of those participants who have elected to defer a
portion of their compensation. However, we are not obligated to make such a
contribution.
We intend to contribute a stock match of 100% of the first 1% of a
participant's compensation deferred under the SARP for investment in DynCorp
common stock and 25% of the next 4% of such compensation so deferred. Our
stock-match contribution to the SARP could be made in shares of common stock or
in cash, which would then be used to purchase common stock on the internal stock
market. 850,000 shares of common stock were reserved in 1995 for possible
issuance in satisfaction of our stock-match obligations through 2001, but we
have not issued any such shares to date.
Amounts deferred by participants must be paid to the trustee within 15
business days of the last day of the calendar month in which the deferral
occurred. Other company contributions to the SARP are made by the due date for
our federal income tax return for the applicable year. Our practice has been to
make matching company contributions quarterly, based on current participant
deferrals, and we plan to make a stock match in kind or a contribution of cash
to purchase common stock for the stock match in conjunction with the applicable
trade date.
An eligible employee may transfer a rollover contribution from another
qualified retirement plan to the trust fund maintained for the SARP, pursuant to
applicable regulations and administrative committee procedures. Such transferred
funds may be invested in DynCorp common stock but are not eligible for a stock
match.
Investment of Funds
The administrative committee has established a choice of investment
alternatives, including DynCorp common stock, in which contributions to the
SARP, including that portion of compensation which participants elect to defer,
may be invested.
The investment alternatives currently available to participants in the SARP
include DynCorp common stock and 13 T. Rowe Price investment funds. Participants
may also invest in self-directed investments through T. Rowe Price's TradeLink
Plus investment account. These T. Rowe Price investment funds have been
available to participants since September, 1998. Previously, the SARP used
Merrill Lynch & Company and other publicly traded funds for investment options.
A participant's entire interest in his or her SARP account may be invested
in a mixture of DynCorp common stock and any of the other investment funds.
However, in order to obtain the stock match, the matched portion of a
participant's compensation deferred under the SARP must be invested in DynCorp
common stock that is not exchangeable for other investment alternatives until
after a period of 18 months. The stock match will also be invested in the
DynCorp common stock fund, but that stock match portion of the investment may
not be exchanged for another investment alternative.
Participants may elect to have contributions allocated or apportioned among
the different investment alternatives, subject to restrictions the
administrative committee may specify. Separate SARP accounts are established for
each investment alternative selected by a participant, and each such account is
valued separately. Except for restrictions on investments in DynCorp common
stock, participants may transfer amounts from one investment alternative to one
or more other investment alternatives on a daily basis.
Investments in DynCorp common stock, other than the non-exchangeable
company contribution described above, may be exchanged into other investment
choices, subject to the 18-month limitation mentioned above, only on a trade
date.
All amounts related to DynCorp common stock are invested in common stock,
except for accumulations pending use at the next trade date. At a trade date,
the monies attributable to shares which participants have elected to transfer
into or out of DynCorp common stock are first netted against each other, and the
trustee then buys or sells the remaining number of shares on the internal stock
market. If there is an insufficient market to allow the trustee to sell all the
shares, the investor may not be able to convert the shares into another
investment or into cash for a distribution. Accordingly, investment exchanges of
participants' investments that are held in DynCorp common stock fund may be
restricted. See "Risk Factors -- Absence of a Public Market" and "Market
Information -- The Internal Stock Market."
The following tables summarize, as of the dates indicated, the investment
performance, since December 31, 1995, of each of the nationally traded T. Rowe
Price investment funds in which SARP funds can be invested. The summary is based
on the assumption that a participant made an initial investment of $100.00 in
the investment fund.
T. Rowe Price Prime Reserve Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $105.98 5.1
12/31/97 $110.49 5.1
12/31/98 $115.91 4.9
3/31/99 $117.15 1.7
T. Rowe Price Corporate Income Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $102.28 2.3
12/31/97 $115.14 12.6
12/31/98 $120.53 4.7
3/31/99 $120.01 (0.4)
T. Rowe Price Personal Strategy Fund - Growth
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $115.65 15.7
12/31/97 $139.43 20.6
12/31/98 $164.07 17.7
3/31/99 $165.69 1.0
T. Rowe Price U.S. Treasury Intermediate Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $110.18 10.2
12/31/97 $119.19 8.2
12/31/98 $122.01 2.4
3/31/99 $119.60 (2.0)
T. Rowe Personal Strategy Fund - Balanced
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $113.90 13.9
12/31/97 $134.16 17.8
12/31/98 $153.21 14.2
3/31/99 $154.17 0.6
T. Rowe Price Personal Strategy Fund - Income
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $111.50 11.5
12/31/97 $128.24 15.0
12/31/98 $143.36 11.8
3/31/99 $143.78 0.3
T. Rowe Price Equity Index Trust
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $128.59 28.6
12/31/97 $171.35 33.3
12/31/98 $210.66 22.9
3/31/99 $221.04 4.9
T. Rowe Price Growth & Income Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $109.96 10.0
12/31/97 $135.84 23.5
12/31/98 $170.67 25.6
3/31/99 $173.63 1.7
T. Rowe Price International Stock Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $116.14 16.1
12/31/97 $119.28 2.7
12/31/98 $138.35 16.0
3/31/99 $140.10 1.3
T. Rowe Price New Horizons Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $106.25 6.3
12/31/97 $116.63 9.8
12/31/98 $136.50 17.0
3/31/99 $126.97 (7.0)
T. Rowe Price Global Stock Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $120.01 20.0
12/31/97 $135.89 13.2
12/31/98 $166.48 22.5
3/31/99 $171.03 2.7
T. Rowe Price Growth Stock Fund
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $127.41 27.4
12/31/97 $161.26 26.6
12/31/98 $196.26 21.7
3/31/99 $200.97 2.4
T. Rowe Price Mid-Cap Growth
Unit value % increase
---------- ----------
12/31/95 $100.00 --
12/31/96 $122.00 22.0
12/31/97 $144.36 18.3
12/31/98 $180.22 24.8
3/31/99 $178.79 (0.8)
DynCorp Stock Fund
Because our common stock has not been publicly traded since 1988, there has
not been any historical market-determined price.
The following tables summarize, as of the dates indicated, the investment
performance of DynCorp common stock since December 31, 1995. The summary is
based on the assumption that a participant made an initial investment of $100.00
in DynCorp common stock.
The average price per share figures shown below for December 31, 1995
reflects the market value established by our Board of Directors for purposes of
sales under our former employee stock purchase plan and transactions under our
former stockholders agreement. The price per share for December 31, 1996 and
later dates is based upon the formula price. There can be no assurance that the
common stock will provide returns in the future comparable to historical
returns. Because the prices listed in the table below were developed under
differing valuation methods for differing purposes, they are not fully
comparable with the formula price.
Average
price per
share Unit value % increase
12/31/95 $14.50 $100.00 --
12/31/96 $19.00 $131.04 31.0%
12/31/97 $20.00 $137.94 5.3%
12/31/98 $20.00 $137.94 --
3/31/99 $23.50 $162.08 17.5%
However, investments in DynCorp common stock through the SARP were first
possible at the time of the first internal stock market trade date, June 12,
1996, and were immediately enhanced by the applicable stock match. Assuming that
a participant in the SARP had elected to defer 1% of salary toward an investment
in DynCorp common stock for that first trade date and that DynCorp made the
appropriate 100% stock match, the investment of $100.00 would have grown as
follows:
Average
price per
share Unit value % increase
6/12/96 $15.00 $100.00 (1) --
6/12/96 $15.00 $200.00 (2) 100.0%
12/31/96 $19.00 $253.35 26.7%
12/31/97 $20.00 $266.66 5.3%
12/31/98 $20.00 $266.66 --
3/31/99 $23.50 $313.35 17.5%
(1) initial investment (2) effect of stock match
Vesting
Each SARP participant is 100% vested in those portions of his or her SARP
account which are attributable to the participant's salary deferrals and
earnings thereon. The stock match and any other discretionary employer
contributions will be fully vested after one year of service.
Loans
Loans from their SARP accounts are available to all participants. Loans
have a maximum limit of $50,000, reduced by the participant's highest aggregate
outstanding loan balance during the preceding 12-month period. Loans are further
limited to 50% of a participant's vested interest in his or her eligible
accounts, excluding amounts invested in DynCorp common stock. Loans must:
o bear a reasonable rate of interest,
o be adequately secured,
o state the date upon which the loans must be repaid, which in any event
may not exceed five years from the date on which the loan is made,
unless the proceeds are used for the purchase of a principal residence,
in which case repayment may not exceed 10 years, and
o be amortized with level payments made not less frequently than quarterly over
the term of the loan.
Active employees' loans must be repaid through payroll deductions. Up to
50% of the participant's vested account balances are security for the loan, and
the SARP has a security lien against those balances. A loan will result in a
withdrawal of the borrowed amounts from the participant's interest in the funds
against which the loan is made. Principal and interest payments on the loan are
allocated to the account of the borrowing participant in accordance with the
current investment choices of the participant.
Distributions and Withdrawals
If a participant's employment terminates, the participant is entitled to
receive a distribution of his or her entire vested interest in his or her SARP
account as soon as practicable following the date of such termination. If a
participant dies while employed, the trustee will make a distribution of the
participant's entire interest in his or her SARP account to the participant's
spouse, or, if such spouse has given proper consent or if the participant has no
spouse, to the beneficiary designated by the participant. If the participant has
suffered a permanent disability while employed by us, the trustee may make a
distribution of the participant's entire interest in his or her SARP account to
the disabled participant.
Except in the case of qualifying hardship, no withdrawals may be made from
the salary deferral portion of a participant's SARP account prior to his or her
termination of employment unless and until he or she attains the age of 59 1/2.
In the absence of a qualified domestic relations court order to the contrary, a
participant's interest in the SARP may not be voluntarily or involuntarily
assigned or hypothecated. We have established procedures for hardship
withdrawals including;
o definition of qualifying hardships, and
o requirements for having first withdrawn all voluntary after-tax
contributions from any other retirement plans and having received the
maximum loans available under such plans.
All distributions from the SARP, including withdrawals, are paid in cash,
except that the portion of SARP balances represented by DynCorp common stock may
be distributed in kind or in cash, at the participant's election. Shares
distributed from the SARP are not subject to the put option which applies to
shares distributed from the Employee Stock ownership Plan. See "Employee Benefit
Plans Employee Stock Ownership Plan - Distributions and Withdrawals."
Shares which the trustee is unable to liquidate in time for a timely
distribution will be distributed in kind. Shares of DynCorp common stock
distributed in kind will be subject to our right of first refusal in the event
that the participant desires to sell such shares other than on the internal
stock market. See "Description of Capital Stock -- Restrictions on Common
Stock."
EMPLOYEE STOCK OWNERSHIP PLAN
Our Employee Stock Ownership Plan was established as of January 1, 1988 as
our principal retirement plan. It replaced our defined benefit pension plan that
was terminated in November, 1988. Following termination of the pension plan,
approximately $10 million of excess pension plan assets were rolled over into
the ESOP for the benefit of ESOP participants who were also pension plan
participants.
Trustees and Administration
The ESOP is administered by the ESOP committee, consisting of T. E.
Blanchard, a director and former employee of DynCorp, and C. S. Cameron, J. P.
McCoy, and J. W. Supina, employees of DynCorp or its subsidiaries. Their address
is 2000 Edmund Halley Drive, Reston, VA 20191. The members of the ESOP committee
also serve as trustees of the ESOP.
Eligibility and Participation
Generally, all employees, except groups or units designated as ineligible,
participate in the ESOP. As of December 31, 1998, there were approximately
33,200 active and terminated, vested participants in the ESOP.
Contributions, Allocations, and Forfeitures
For the plan year ended December 31, 1998, DynCorp contributed
approximately $12.7 million to the ESOP. The amount of our contributions to the
ESOP is determined by, and within the discretion of, our Board of Directors,
subject to certain limitations. See "General Provisions of the ESOP and SARP."
Our annual contribution to the ESOP may be in the form of cash or DynCorp common
stock. Participants may not make voluntary contributions to the ESOP. Our
current practice has been to make contributions quarterly.
Company contributions to the ESOP for each plan year are generally
allocated to the accounts of participants in the ratio which each such
participant's eligible compensation bears to the total eligible compensation of
all such participants, except in the case of employees covered by collective
bargaining agreements, which may specify another allocation ratio. Forfeitures,
if any, of the non-vested portion of terminated participants' accounts are
allocated to the accounts of remaining participants who are entitled to receive
an allocation of company contribution, in the ratio which each such remaining
participant's allocation bore to the total allocation of all such remaining
participants.
<PAGE>
Investment of Funds
Although it is generally intended that the assets of the ESOP will be
invested in DynCorp common stock, the ESOP may hold cash and liquid investments
pending purchase of common stock and for current cash needs. The exact number of
shares of common stock, if any, which may be purchased by the trustee of the
ESOP in the future will depend on various factors, including any modifications
to the ESOP adopted either in response to changes or modifications in the laws
and regulations governing the ESOP or at the discretion of our management.
Participants who have attained the age of 55 and have ten or more years of
participation are entitled to receive distributions of a portion of their
balances in the ESOP for diversification purposes. They can invest the cash
proceeds of the distribution in another retirement plan, such as an Individual
Retirement Account.
It is the current policy of the ESOP committee to keep all assets invested
in DynCorp common stock, except for estimated cash reserves which are primarily
used to provide future benefit distributions, future investment exchanges, and
other cash needs as determined by the ESOP committee.
Vesting
The ESOP vesting schedule provides that a participant's interest vests 50%
after two years of service, 75% after three years of service, and 100% after
four years of service, so that each participant's interest becomes fully vested
after the participant is credited with four years of service. A participant's
interest also becomes fully vested at the time of such participant's attainment
of the age of 65, permanent disability, or death while employed by us,
notwithstanding the fact that the participant has not yet been credited with
four years of service.
Distributions and Withdrawals
A participant will normally commence receiving distributions of shares of
common stock from the ESOP after he or she retires, dies, becomes disabled while
employed, has otherwise been separated from employment for five plan years, or
is scheduled to receive a diversification distribution. In some cases,
distributions may commence earlier. When distributions commence before the time
that the common stock has become "readily tradable stock", as defined in the
Internal Revenue Code, the ESOP or DynCorp is obligated to repurchase
distributed shares of common stock. This "put option" gives the holder of such
shares the right to require the ESOP or, if the ESOP does not honor the put,
DynCorp, to purchase all or a portion of such shares at the ESOP share price
during two limited time periods.
The first of these put option periods is at the time the shares are
initially distributed to the participant. The second period is the 60-day period
following the beginning of the plan year commencing after such distribution.,
subject to notification by the ESOP of the current valuation of the common
stock. These shares will also be subject to a right of first refusal by the ESOP
and a subsequent right of first refusal by DynCorp if the participant desires to
sell such shares other than on the internal stock market.
See "Description of Capital Stock -- Restrictions on Common Stock."
The ESOP share price is actually two different prices. One price is
applicable to the shares first acquired by the ESOP in 1988, incidental to the
leveraged buy-out, which constituted a controlling portion of the outstanding
common stock of DynCorp. These shares have an "enterprise value" which was
$27.75 per share as of the December 31, 1998 valuation determined by the ESOP
committee, upon the advice of its independent appraisal firm. The other price is
applicable to shares acquired by the ESOP subsequent to 1988, which carried no
such controlling factor. These shares have a "minority value" which was $23.50
per share as of the December 31, 1998 valuation. Each participant's account
tracks the number of enterprise value shares and minority value shares allocated
to his or her account and distributable at any given time, and distributions are
made pro rata from the two types of shares. If a share is put to the ESOP or
DynCorp pursuant to the put option, the applicable ESOP share price, depending
upon whether such shares bears an enterprise value or a minority value, is
payable for the share.
We estimate an aggregate annual commitment to repurchase shares from the
ESOP participants as follows: $7.2 million in 1999, $9.4 million in 2000, $12.7
million in 2001, $15.3 in 2002, $22.4 in 2003, and $142.1 million thereafter. To
the extent that DynCorp repurchases shares as described above, our ability to
purchase shares on the internal stock market will be adversely affected. See
"Risk Factors -- Company May be Obligated to Repurchase Shares of Certain ESOP
Participants."
A participant may withdraw up to 25% of his or her aggregate vested account
after age 55 and ten years of participation, in order to diversify the
investment of his or her retirement fund account. After six years, the amount
which may be withdrawn increases to 50%. This is called a diversification
distribution.
Except for the diversification distribution, participants can not make
withdrawals under the ESOP prior to termination of employment. In the absence of
a qualified domestic relations order to the contrary, a participant's interest
in the ESOP may not be voluntarily or involuntarily assigned or hypothecated.
Any permitted designee will be subject to the same rules and limitations
applicable to the participant.
GENERAL PROVISIONS OF THE ESOP AND SARP
The following provisions are applicable to each of the ESOP and SARP.
Contribution Limitations
The maximum contribution for any plan year which we may make to both plans
for the benefit of a participant, including contributions to the SARP as a
result of salary deferral elections by participants, plus forfeitures, may not
exceed the lesser of (1) $30,000 or (2) 25% of the participant's compensation.
Administration
The plans are administered, respectively, by the SARP administrative
committee and the ESOP committee, whose members are appointed by and serve at
the discretion of our Board of Directors. The members of the committees who are
employed by DynCorp and its subsidiaries receive no compensation from the plans
for services rendered in connection therewith.
The committees have the power to supervise administration and control of
each plan's operations including the power and authority to:
o allocate fiduciary responsibilities, other than trustee responsibilities,
among the named fiduciaries,
o designate agents to carry out responsibilities relating to the plan,
other than fiduciary responsibilities,
o employ legal,actuarial, medical, accounting, programming, and other
assistance as the committee may deem appropriate in carrying out the
plan,
o establish rules and regulations for the conduct of the committee's
business and the administration of the plan,
o administer, interpret, construe, and apply the plan and determine
questions relating to the eligibility, the amount of any participant's
service, and the amount of benefits to which any participant or
beneficiary is entitled,
o determine the manner in which plan assets are disbursed, and
o direct the trustee regarding investment of plan assets, subject to the
directions of participants when provided for in the plans.
Pass-Through Voting and Tendering of Common Stock
Each participant in the plans is a "named fiduciary" under the plan and has
the right to instruct the trustee on a confidential basis on how to vote shares
of common stock held in the participant's account. The trustee will vote all
allocated shares held in the plans for which no voting instructions are
received, together with all unallocated shares held in the ESOP, in the same
proportion as the allocated shares in each plan for which voting instructions
have been received are voted. The committees are required to notify participants
of their pass-through voting rights prior to each meeting of stockholders.
In the event of a tender or exchange offer for our common stock, each
participant in the plans has the right to instruct the trustee on a confidential
basis whether or not to tender or exchange his or her proportionate interest in
the shares of common stock held in the various plans. The trustee will not
tender or exchange any allocated shares with respect to which no instructions
are received from participants. Shares held in the plans which have not yet been
allocated to the accounts of participants will be tendered or exchanged by the
trustee, on a plan-by-plan basis, in the same proportion as the allocated shares
held in each plan are tendered or exchanged.
The fiduciary provisions of the Employee Retirement Income Security Act of
1974 govern the trustee's duties with respect to voting and tendering of common
stock. These fiduciary provisions may require, in certain limited circumstances,
that the trustee override the participants' voting instructions or decisions
whether or not to tender shares and determine, in the trustee's best judgment,
how to vote the shares or whether or not to tender the shares.
Trustee
Generally, the trustee has all the rights afforded a trustee under
applicable law, although the trustee generally may exercise those rights at the
direction of the respective committee. Subject to this limitation and those set
forth in the plans and master trust agreement, the trustee's rights include, but
are not limited to, the right to:
o invest and reinvest the funds held in the plan's trust in any
investment of any kind, including qualifying employer securities and
qualifying employer real property as such investments are defined in
the Employee Retirement Income Security Act, and contracts issued by
insurance companies, including contracts under which the insurance
company holds plan assets in a separate account or commingles separate
accounts managed by the insurance company,
o retain or sell the securities and other property held in the plan's
trust,
o consent or participate in any reorganization or merger in regard to any
corporation whose securities are held in the plan's trust, subject, in
the case of our securities, to the participants' pass-through voting
rights and right to instruct the trustee in the event of a tender or
exchange offer, and to pay calls or assessments imposed on the holder
or the securities,
o consent to any contract, lease, mortgage, purchase, or sale of any
property between a corporation whose securities are held in the plan's
trust and any other parties,
o exercise all the rights of the holder of any security held in the
plan's trust, including the right to vote such securities, subject, in
the case of our securities, to the participants' pass-through voting
rights, convert such securities into other securities, acquire
additional securities and exchange such securities, subject, in the
case of our securities, to the participants' right to instruct the
trustee in the event of a tender or exchange offer, and
o vote proxies and exercise any other similar rights of ownership,
subject to the committee's right to instruct the trustee on how, or the
method of determining how, the proxies should be voted or such rights
should be exercised.
The trustee's compensation and other expenses incurred in the
establishment, administration, and operation of the plans are borne by the
respective trusts, unless DynCorp elects to pay such expenses.
Administrative and Custodial Services
Commercial service providers perform administrative services for the plans,
principally related to accounting, valuation, and recordkeeping. The costs of
these administrative services are borne by the trusts.
Account Statements
Each participant is furnished with a statement of his or her accounts in
the respective plans, no less than annually.
Amendment and Termination
We have reserved the right to amend each of the plans at any time and for
any reason, except that no such amendment may have the effect of:
o generally causing any assets of the plan trusts to be used for or
diverted to any purposes other than providing benefits to participants
and their beneficiaries and defraying expenses of the plans, except as
permitted by applicable law,
o depriving any participant or beneficiary, on a retroactive basis, of
any benefit to which they would otherwise be entitled had the
participant's employment terminated immediately prior to the amendment,
or
o increasing the liabilities or responsibilities of a trustee or an investment
manager without its written consent.
We have retained the right to terminate any of the plans at any time and
for any reason. In addition, we may discontinue contributions to the plans;
provided, however, that discontinuation of contributions will not automatically
terminate the plans as to funds and assets then held by the trustee.
Employee Retirement Income Security Act
Each of the plans is subject to the Employee Retirement Income Security Act
of 1974, including reporting and disclosure obligations, fiduciary standards,
and prohibited transaction rules. Since each of the plans is an individual
account plan under the Employee Retirement Income Security Act, neither of the
plans is subject to the jurisdiction of the Pension Benefit Guaranty Corporation
under Title IV of the Employee Retirement Income Security Act, and the plans'
benefits are not guaranteed by the Pension Benefit Guaranty Corporation.
Federal Income Tax Consequences
In our view, the following discussion includes a description of all
material federal income tax considerations relating to the plans. We have not
received an opinion of counsel with respect to this discussion.
Each of the plans is intended to be qualified under Section 401(a) of the
Internal Revenue Code. Qualification of the plans under Section 401(a) of the
Internal Revenue Code has the federal income tax consequences described below.
A participant will not be subject to federal income tax on company
contributions to the plans at the time such contributions are made. A
participant will not be subject to federal income tax on any income or
appreciation with respect to the participant's accounts under the plans until
distributions are made or deemed to be made to the participant.
Neither a participant nor DynCorp will be subject to federal employment
taxes on company contributions to the plans, except as set forth below with
respect to certain company contributions to the SARP. The plan trusts will not
be subject to federal income tax on the contributions by DynCorp and will not be
subject to federal income tax on any of their income or realized gains, assuming
that the plans do not realize any unrelated-business taxable income.
Subject to statutory contribution limitations, DynCorp will be able to
deduct the amounts that it contributes under the plans as compensation expense,
with the amount of such deduction generally equaling the amount of the
contributions.
Distributions from the plans will be subject to federal income tax under
special, complex rules that apply generally to distributions from tax-qualified
retirement plans. In general, a distribution from any of the plans will be
taxable in the year of receipt at ordinary income rates on the full amount of
the distribution, exclusive of the amount of the distribution attributable to
the participant's after-tax contributions made to those plans which previously
permitted such contributions, unless the participant:
o is eligible for and elects to roll over the portion of his or her
distribution that is an "eligible rollover distribution" to an
Individual Retirement Account, other than a Roth IRA, or another
qualified plan,
o receives a distribution that is a "lump-sum distribution" and elects to
utilize ten-year averaging, five-year averaging, or partial capital
gains taxation of the distribution, or
o receives common stock as part of his or her distribution and elects to
defer the tax on "net unrealized appreciation" of the common stock.
These special tax rules are described below.
However, if a participant receives an in-service distribution
of his or her account balance under any of the plans, i.e., a withdrawal, the
distribution is first considered a return of the participant's after-tax
contributions, if any, made before 1987, and to that extent will not be subject
to federal income tax. Next, an in-service distribution is treated as a pro rata
return of the participant's post-1986 after-tax contributions and earnings
attributable to all the participant's after-tax contributions, and to the extent
attributable to after-tax contributions, the distribution will not be taxable.
The balance of such distribution will be fully taxable as ordinary income unless
the participant is eligible for, and elects to use, any of the special tax rules
described below.
Special rules apply to any annuity distributions made under any of the
plans.
Eligible Rollover Distributions. In general, an "eligible rollover
distribution" is all or a portion of any distribution, including a withdrawal or
a lump-sum distribution, from any of the plans except:
o any distribution that is one of a series of substantially equal
periodic payments, not less frequently than annually, made over (1) the
participant's life, or the joint lives of the participant and his or
her beneficiary, (2) the participant's life expectancy, or the joint
life expectancies of the participant and his or her beneficiary, or (3)
a specified period of at least ten years,
o any distribution required to be made because of the participant's
attainment of age 70 1/2, or
o any distribution to the extent that it consists of after-tax
contributions.
A participant can choose a direct rollover of all or any portion of his or
her distribution from one of the plans that qualifies as an eligible rollover
distribution. In a direct rollover, the eligible rollover distribution is paid
directly from the plan to an Individual Retirement Account or to another
qualified plan that accepts rollovers. If a participant chooses a direct
rollover, he or she is not taxed on his or her distribution until he or she
later takes it out of the Individual Retirement Account or the other qualified
plan.
If an eligible rollover distribution is not directly rolled over from one
of the plans to an Individual Retirement Account or to another qualified plan
and is, instead, paid to the participant, it is subject to mandatory 20%
withholding for income taxes. The distribution is taxed in the year the
participant receives it unless, within 60 days of receipt of the distribution,
the participant rolls it over to an Individual Retirement Account or to another
qualified plan. The portion of the distribution that is rolled over will not be
taxed until the participant takes it out of the Individual Retirement Account or
the other qualified plan. If the participant does not roll the distribution
over, special tax rules may apply, as described below.
A participant can roll over up to 100% of an eligible rollover distribution
paid directly to him or her, including an amount equal to the 20% that was
withheld for income taxes. If the participant chooses to roll over 100% of the
distribution, he or she must use other money to contribute to the Individual
Retirement Account or the other qualified plan to replace the 20% that was
withheld from the distribution. If the participant rolls over only the 80% that
he or she received, the participant will be taxed on the 20% that was withheld
for income taxes but was not rolled over.
Lump-Sum Distributions. A "lump-sum distribution" is a payment within one
taxable year of a participant's entire account balance under one of the plans
that is payable because the participant has attained age 59 1/2 or died or
otherwise separated from service. In addition, the distribution will qualify as
a lump-sum distribution only if the participant has participated in the plan
making the distribution for at least five years. The special tax treatment for
lump-sum distributions is described below.
Under five-year averaging, a participant may make a one-time election to
calculate the tax on a lump-sum distribution by using "five-year averaging".
Five-year averaging often reduces the tax a participant owes because it treats
the distribution much as if it were paid over five years. A participant may not
elect to use five-year averaging with respect to any distribution received after
1999.
Under ten-year averaging, a participant who attained age 50 before January
1, 1986 may make a one-time election to calculate the tax on a lump-sum
distribution by using "ten-year averaging" at 1986 rates and may elect to have
the pre-1974 portion of the lump-sum distribution taxed at 1986 capital gains
rates. Like the five-year averaging rules, ten-year averaging often reduces the
tax a participant owes with respect to a distribution.
The special five-year or ten-year averaging treatment, as well as partial
capital gains treatment, of lump-sum distributions is applicable to a lump-sum
distribution from a plan only if all other lump-sum distributions, whether or
not from the same plan or plans of a similar type, received during the same
taxable year by the participant are treated in the same manner. So, for example,
if a participant receives a lump-sum distribution from the SARP and ESOP in the
same taxable year, he or she could not elect to use five-year or ten-year
averaging on the SARP distribution while electing a rollover to an Individual
Retirement Account of the distribution from the ESOP.
If a participant receives a lump-sum distribution that includes common
stock, he or she also may be eligible to use the special rule relating to "net
unrealized appreciation" described below.
Distributions of Common Stock. There is a special rule for a distribution
from any of the plans that includes shares of common stock. To use this special
rule, (1) the distribution must qualify as a lump-sum distribution, as described
above, or would qualify except that the participant does not yet have five years
of participation in the plan, or (2) the common stock included in the
distribution must be attributable to the participant's after-tax contributions,
if any, to the Plan. Under this special rule, the participant may have the
option of not paying tax on the net unrealized appreciation of the common stock
until he or she sells or otherwise disposes of the shares of common stock in a
taxable transaction. Net unrealized appreciation generally is the increase in
the value of the common stock while it was held by the plan. Upon disposition of
the common stock in a subsequent taxable transaction, the gain realized, if any,
may be eligible for capital gains treatment. Because the rules governing the tax
treatment of capital gains and losses, and their application to tax-
qualified plans, are complex and subject to change, participants should
consult their tax advisors.
A participant may instead elect not to have the special rule apply to the
net unrealized appreciation. In this case, the net unrealized appreciation will
be taxed in the year the participant receives the shares of common stock, unless
he or she rolls over the common stock, including the net unrealized
appreciation, to an Individual Retirement Account or another qualified plan.
However, if the participant rolls over the common stock to an Individual
Retirement Account, the special rule for net unrealized appreciation does not
apply when the common stock is distributed from the Individual Retirement
Account.
"Early" distributions from the plans will result in an additional 10%
excise tax on the taxable portion of the distributions, except to the extent the
distribution (1) is rolled over into an Individual Retirement Account or other
qualified plan or (2) is used for deductible medical expenses. "Early"
distributions are distributions made prior to the date the participant attains
age 59 1/2 unless:
o due to permanent disability of the participant,
o made to a beneficiary or an alternate payee under a qualified domestic
relations order, or
o made to a participant who terminated employment during or after the calendar
year the participant attained the age of 55.
In general, the rules summarized above that apply to distributions to
participants also apply to distributions to surviving spouses of employees and
to spouses or former spouses who are "alternate payees" under a qualified
domestic relations order. A qualified domestic relations order is an order
issued by a court, usually in connection with a divorce or legal separation.
Some of the rules summarized above also apply to a deceased participant's
beneficiary who is not a spouse. However, there are some exceptions for
distributions to surviving spouses, alternate payees and other beneficiaries
that should be mentioned.
If a surviving spouse or an alternate payee receives an eligible rollover
distribution from any of the plans, he or she has the same choices as the
participant with respect to the distribution, except that a surviving spouse may
roll over the distribution only to an Individual Retirement Account, and not to
another qualified plan. A beneficiary other than a surviving spouse may not roll
over any distribution from any of the plans.
A surviving spouse, an alternate payee, or another beneficiary may be able
to use the special tax treatment for lump-sum distributions and the special rule
for distributions that include common stock, as described above. A beneficiary
who receives a distribution from one of the plans because of the participant's
death may be able to treat the distribution as a lump-sum distribution if the
participant met the appropriate age requirements, whether or not the participant
had five years of participation in the plan.
A participant's account balances under all the plans must be included in
the gross estate of a participant for federal estate tax purposes upon his or
her death. If the distributee is the participant's spouse, to the extent of the
amount included in the participant's gross estate, an unlimited marital
deduction may be available.
In addition to the federal income tax consequences applicable to all of the
plans, the deferred fund of the SARP is intended to be a qualified "cash or
deferred arrangement" under Section 401(k) of the Internal Revenue Code. A
participant in the SARP who elects to defer a portion of his or her compensation
and have DynCorp contribute it to the SARP will not be subject to federal income
tax on the amounts contributed at the time the contributions are made. However,
these contributions will be subject to social security taxes and certain federal
unemployment taxes. Elective deferrals by a participant to his or her SARP
account is limited to $7,000 annually (adjusted for cost-of-living). This annual
limit applies on an employee-by-employee basis to all 401(k) plans in which the
employee participates, including plans of other employers. For calendar year
1999, the adjusted limit is $10,000.
Generally, we will be able to deduct the amounts that we contribute to the
SARP pursuant to employee elections to defer a portion of their compensation, as
well as any matching or additional company contributions it makes to the
deferred fund. The deduction will be equal to the amount of contributions made.
With respect to loans from the SARP commencing after December 31, 1986, any
interest paid by the participant will not be deductible, regardless of the
purpose of the loan or use of the loan proceeds. Moreover, interest paid on any
loan from any of the plans by a "key employee", as defined in Section 416(i) of
the Internal Revenue Code, will not be deductible.
Participants should consult their own tax advisors with respect to all
federal, state, and local tax effects of participation in the plans. Moreover,
we do not represent that the foregoing tax consequences will apply to any
particular participant's specific circumstances or will continue to apply in the
future, and we make no undertaking to maintain the tax-qualified status of the
plans under Section 401(a) of the Internal Revenue Code.
EMPLOYEE STOCK PURCHASE PLAN
General
The Employee Stock Purchase Plan was adopted on May 10, 1995, and it became
effective July 1, 1995. The Stock Purchase Plan is intended to qualify as a
stock purchase plan under Section 423(b) of the Internal Revenue Code. The Stock
Purchase Plan provides for the purchase of common stock by participating
employees through voluntary payroll deductions. At each trade date, the Stock
Purchase Plan will purchase for the account of each participant that number of
shares of DynCorp common stock which may be acquired with the funds available in
the participant's stock purchase account, together with our contribution
described below. The Stock Purchase Plan is not subject to the Employee
Retirement Income Security Act.
Eligibility
Generally, all of our employees are eligible to participate in the Stock
Purchase Plan. However, no employee who owned capital stock of DynCorp having
more than five percent of the voting power or value of the capital stock would
be able to participate. An employee's eligibility to participate in the Stock
Purchase Plan will terminate immediately upon termination of employment.
Employees may participate in the Stock Purchase Plan by completing a
payroll deduction authorization and establishing a brokerage account with the
broker-dealer handling the internal stock market. The minimum payroll deduction
allowed is $7.00 per week, and the maximum deduction is $450 per week. No
employee is entitled to purchase an aggregate amount of common stock having a
value, measured as of its purchase date, in excess of $25,000 in any calendar
year pursuant to the Stock Purchase Plan and any other employee stock purchase
plan that may be adopted by DynCorp.
Purchase of Shares/Discount
Shares of common stock purchased under the Stock Purchase Plan will be
acquired on the internal stock market. See "Market Information -- The Internal
Stock Market." The amount of the payroll deductions will be used to purchase
shares at a discount established from time to time by the Compensation
Committee, not to exceed 15% of the prevailing formula price. DynCorp may either
pay the discount portion to the Stock Purchase Plan in cash or deliver a
sufficient number of shares having a value equal on the applicable trade date to
the aggregate amount of the discount. The Compensation Committee has established
the current discount rate at 5%. A total of 100,000 shares was reserved in 1995
for possible issuance under the Stock Purchase Plan in satisfaction of this
contribution obligation, but we have not issued any such shares to date.
Distribution, Withdrawals, and Sales
Shares of common stock acquired under the Stock Purchase Plan will be
allocated to each participant's individual ownership account immediately
following the trade date in which the acquisition occurred. These shares may not
be sold until the participant has owned them for at least one year. However,
within 45 days following termination of a participant's employment for any
reason, we may in our sole discretion purchase the shares from the participant
or his or her estate or legal representatives at the most recent formula price.
If required by applicable state securities laws and if the initial purchase
price were higher than the most recent formula price, we would have to pay the
amount of the initial purchase price for the shares.
Pursuant to the by-laws, all shares of common stock purchased pursuant to
the Stock Purchase Plan will be subject to our right of first refusal in the
event that the participant desires to sell such shares other than on the
internal stock market. See "Description of Capital Stock -- Restrictions on
Common Stock."
Participants may withdraw the money held in their stock purchase accounts
at any time prior to its use to purchase shares of common stock, although upon
doing so the participant will not be eligible to participate in the Stock
Purchase Plan until three months after such withdrawal. No interest will be paid
on the money held in the stock purchase accounts of the participants.
Amendment and Termination
The Board of Directors may suspend or amend the Stock Purchase Plan in any
respect, except that no amendment may:
o increase the maximum number of shares authorized to be issued under the
Plan,
o increase our contribution for each share purchased above 15% of the
applicable purchase price for such share,
o cause the Stock Purchase Plan to fail to qualify under Section 423(b) of
the Internal Revenue Code, or
o deny to participating employees the right at any time to withdraw from
the Stock Purchase Plan and obtain all amounts then due to their credit
in their stock purchase accounts.
The Stock Purchase Plan will terminate on December 31, 1999, unless
extended by the Board of Directors.
Administration
A commercial service provider performs administrative services for the
Stock Purchase Plan, principally related to accounting and recordkeeping. The
costs of these administrative services are borne by DynCorp.
Federal Income Tax Consequences
In our view, the following discussion includes a description of all
material federal income tax considerations relating to the Stock Purchase Plan.
We have not received an opinion of counsel with respect to this discussion.
For federal income tax purposes, a participant in the Stock Purchase Plan
will recognize no taxable income until the taxable year of sale or other
disposition of the shares of common stock acquired under the Stock Purchase
Plan.
When the shares are disposed of by a participant more than two years after
the date the shares were purchased for the participant's account, the
participant must recognize ordinary income for the taxable year of disposition
to the extent of the lesser of:
o the "discount", which is the excess of the fair market value of the
shares on the purchase date over the amount of the purchase price paid
by the participant, or
o the amount by which the fair market value of the shares at disposition
or death exceeds the purchase price.
In addition, a participant generally will recognize long-term capital gain
equal to the excess, if any, of the proceeds from the disposition over the sum
of the purchase price paid by the participant for the shares and the amount of
ordinary income the participant recognizes. If the proceeds from disposition of
the shares are less than the purchase price paid by the participant, the
participant generally will be entitled to a capital loss. In the event of a
participant's death while owning shares acquired under the Stock Purchase Plan,
ordinary income must be recognized in the year of death in the amount specified
in the first sentence of this paragraph.
When the shares are disposed of prior to the expiration of the two-year
holding period, a "disqualifying disposition", the participant must recognize
ordinary income in the amount of the discount, even if the disposition is by
gift or is at a loss. In addition. the participant will generally recognize (1)
capital gains equal to the excess, if any, of the proceeds from the disposition
over the fair market value of the shares on the purchase date, or (2) capital
loss equal to the excess, if any, of the fair market value of the shares as of
the purchase date over the proceeds from the disposition of the shares.
The tax treatment and tax rate applicable to any capital gain a participant
recognizes from the disposition of shares acquired under the Stock Purchase Plan
depends on the length of time the participant has held the shares, the amount of
the participant's other income during the year, and other factors. In general,
as of the date of this prospectus, the maximum tax rate applicable to any
capital gain arising from a participant's disposition of these shares is 20
percent in the case of shares held for more than one year, and 39.6 percent in
the case of shares held for one year or less. For years beginning after December
31, 2000, reduced maximum rates may apply with respect to any capital gain
recognized from the disposition of shares that, under special rules, are treated
as having been acquired after December 31, 2000 and held for more than five
years.
The deduction of any capital loss you may recognize from the disposition of
shares acquired under the Stock Purchase Plan are subject to limitations.
Because the rules governing the tax treatment of capital gains and losses are
complex and subject to change, participants should consult their tax advisors.
Participants should consult their own tax advisors with respect to all
federal, state, and local tax effects of participation in the Stock Purchase
Plan. Moreover, we do not represent that the foregoing tax consequences will
apply to any participant's specific circumstances or will continue to apply in
the future. We make no undertaking to maintain the qualified status of the Stock
Purchase Plan under Section 423 of the Internal Revenue Code.
1995 STOCK OPTION PLAN
General
Our Board of Directors approved the 1995 Stock Option Plan on February 10,
1995, and it became effective July 1, 1995. The 1995 Stock Option Plan
authorized the granting of stock options with respect to an aggregate of
1,250,000 shares of common stock, during the period July 1, 1995 through
December 31, 1999. As of April 1, 1999, 26,500 such options have been exercised
and 1,214,600 are outstanding. Substantially all of the authorized options have
been granted at this time, so we do not anticipate the grant of any additional
options under the Stock Option Plan.
The exercise price of options granted under the Stock Option Plan is
determined by the Compensation Committee and may not be less than 100% of the
most recent formula price of the common stock on the date of grant.
All options granted pursuant to the Stock Option Plan are non-transferable
except by will or the laws of intestate succession.
Eligibility and Participation
The persons eligible to receive options under the Stock Option Plan are key
employees designated by the Compensation Committee and directors.
Vesting of Options
The right to exercise options granted prior to March 5, 1998 under the
Stock Option Plan vest at the rate of 20% per year during the five-year period
following the date of the grant. The right to exercise options granted on and
after such date vest at the rate of 25% per year during the four-year period
following the date of the grant. All options granted prior to March 5, 1998 will
expire seven years after the date of grant unless earlier exercised; options
granted on or after such date, if unexercised, will expire ten years after the
date of grant.
In the event of a change of control involving DynCorp, all options vest
immediately and may be exercised within 30 days, unless they are replaced with
options of an equal or greater value.
Exercise of Options
If an optionee's employment terminates as a result of death, all options
vest and may be exercised by the employee's estate or legal representative
during the six-month period following death. If the employee terminates by
reason of disability or retires before age 65, all options vested as of the
termination date may be exercised during the six-month period following
termination or retirement. If an option retires at or after age 65, all options
become vested at the date of retirement and maybe exercised within one year.
Upon termination of employment for any other reason, all options, whether or not
vested, will terminate, unless otherwise authorized by the Compensation
Committee, which may authorize the employee to exercise vested options within 30
days.
Upon the exercise of an option, the exercise price is payable in cash or in
shares of common stock valued at the formula price on the date of exercise. Any
withholding required as a result of the exercise of an option may, at the
discretion of the Compensation Committee, be satisfied by withholding shares of
common stock valued at the formula price on the date of exercise.
Amendment and Termination
The Stock Option Plan will terminate, and all unexercised options will
expire ten years after the grant of the last option. No options may be granted
under the Stock Option Plan after December 31, 1999.
The Stock Option Plan may be amended, terminated, or revised by the Board
of Directors, except that no such amendment may impair any previously granted
option without the consent of the holders of outstanding options.
General Provisions
All shares issued upon exercise of options granted under the Stock Option
Plan are subject to (1) our right of first refusal in the event that the
optionee desires to sell his or her shares other than on the internal stock
market and (2) our right of repurchase upon termination of the optionee's
employment or affiliation. See "Description of Capital Stock -- Restrictions on
Common Stock."
If the outstanding shares of common stock of DynCorp are changed into or
exchanged for a different number or kind of shares or securities through
reorganization, merger, recapitalization, reclassification or similar
transaction, or if the number of outstanding shares is changed through a stock
split, stock dividend, stock consolidation, or similar transaction, an
appropriate adjustment, determined by the Board of Directors in its sole
discretion, will be made in the number and kind of shares and the exercise price
per share of options which are outstanding.
Administration
The Compensation Committee of the Board of Directors administers the Stock
Option Plan. The current members of the Compensation Committee are H. S.
Winokur, Jr., R. E. Dougherty, and P. G. Kaminski. The address of each member is
2000 Edmund Halley Drive, Reston, Virginia 20191. The Compensation Committee is
appointed annually by the Board of Directors, which may also fill vacancies or
replace members of the Compensation Committee.
Subject to the express provisions of the Stock Option Plan, the Compensation
Committee has the authority to:
o interpret the Stock Option Plan,
o prescribe, amend, and rescind rules and regulations relating to the
Stock Option Plan,
o determine the individuals to whom and the time or times at which
options may be granted and the number of shares to be subject to each
option granted under the Stock Option Plan,
o determine the terms and conditions of the option agreements under the
Stock Option Plan, which need not be identical, and
o make all other determinations necessary or advisable for the
administration of the Stock Option Plan.
The members of the Compensation Committee receive no compensation from the
Stock Option Plan for services rendered in connection therewith.
Federal Income Tax Consequences
In our view, the following discussion includes a description of all
material federal income tax considerations relating to the Stock Option Plan. We
have not received an opinion of counsel with respect to this discussion.
All options granted under the Stock Option Plan are non-qualified stock
options; that is, they do not receive the same treatment under the Internal
Revenue Code as do "qualified" stock options. Generally, the optionee will not
be taxed at the time of the grant of a non-qualified stock option. At the time
of exercise of such option, the optionee will recognize ordinary income for
federal income tax purposes in an amount equal to the excess of the fair market
value, at the time of exercise, of the common stock purchased over the exercise
price. We will generally be entitled to a company tax deduction at such time and
in the same amount that the optionee realizes ordinary income.
If common stock acquired upon the exercise of a non-qualified stock option
is later sold or exchanged, then the difference between the sale price and the
fair market value of the shares on the date which governs the determination of
ordinary income is generally taxable, provided the stock is a capital asset in
the holder's hands, as long-term or short-term capital gain or loss, depending
upon the holding period for such common stock at the time of disposition.
If payment of the exercise price of a non-qualified stock option is made by
surrendering previously owned shares of common stock, the following rules apply:
o No gain or loss will be recognized as a result of the surrender of
shares in exchange for an equal number of shares subject to the
non-qualified stock option;
o The number of shares received equal to the shares surrendered will have
a basis equal to the shares surrendered and a holding period that
includes the holding period of the shares surrendered; and
o Any additional shares received (1) will be taxed as ordinary income in
an amount equal to the fair market value of the shares at the time of
exercise, (2) will have a basis equal to the amount included in taxable
income by the optionee, and (3) will have a holding period that begins
on the date of the exercise.
The tax treatment of capital gains is discussed above in the discussion of
federal income taxes for the Employee Stock Purchase Plan. See "Employee Benefit
Plans - Employee Stock Purchase Plan."
Holders of options granted under the Stock Option Plan should consult their
own tax advisors for specific advice with respect to all federal, state, or
local tax effects before exercising any options and before disposing of any
shares of common stock acquired upon the exercise of an option. Moreover, we do
not represent that the foregoing tax consequences apply to any particular option
holder's specific circumstances or will continue to apply in the future.
EXECUTIVE INCENTIVE PLAN
General
Our current Executive Incentive Plan became effective in 1993. The
Incentive Plan provides for the annual award of discretionary bonuses based on
the achievement of specific financial and individual performance goals. The
Incentive Plan was amended effective January 1, 1996 to provide for the payment
of 20% of each award in the form of shares of common stock, based on the most
recent formula price.
300,000 shares were reserved for possible issuance under the Incentive Plan
for calendar years 1996 through 2000. The Incentive Plan is not subject to the
Employee Retirement Income Security Act and is not intended to be qualified
under Section 401(a) of the Internal Revenue Code.
Eligibility and Participation
Officers and certain key executive employees of DynCorp are designated by
the Compensation Committee to be eligible to participate in and receive bonuses
under the Incentive Plan.
Awards
Each year we establish bonus pools representing the aggregate targeted
bonuses negotiated in advance with Incentive Plan participants. Awards under the
Incentive Plan are generally made based upon the achievement of previously
established individual and financial performance criteria. Awards under the
Incentive Plan are made based on recommendations of the Chief Executive Officer
to the Compensation Committee. Awards of bonuses, including potential shares of
common stock, may also be subject to forfeiture, in whole or in part, in the
event of the termination of the recipient's employment or affiliation with
DynCorp prior to the date for payment of awards.
Awards of bonuses under the Incentive Plan are generally distributed after
the end of the fiscal year to which the bonus relates. After calculation of each
individual award, 20% of the net award distribution, net of applicable taxes, is
made in the form of shares of common stock, valued at the formula price.
Pursuant to our by-laws, all shares of common stock distributed under the
Incentive Plan will be subject to our right of first refusal in the event that
the participant desires to sell such shares other than on the internal stock
market. See "Description of Capital Stock -- Restrictions on Common Stock."
For services rendered during the fiscal year ended December 31, 1998, a
total of 46 individuals received an aggregate of 11,210 shares of common stock
as the stock portion of bonuses under the Incentive Plan.
Federal Income Tax Consequences
In our view, the following discussion includes a description of all
material federal income tax considerations relating to the Incentive Plan. We
have not received an opinion of counsel with respect to this discussion.
Awards under the Incentive Plan of cash bonuses and shares of common stock,
valued at fair market value at the time of receipt, that are not subject to
forfeiture are taxable as ordinary income to the recipient at the time of
receipt.
Recipients of awards under the Incentive Plan should consult their own tax
advisors with respect to all federal, state, and local tax effects of
participation
in the Incentive Plan. Moreover, DynCorp does not represent that the foregoing
tax consequences will apply to any particular participant's specific
circumstances.
Amendment and Termination
The Incentive Plan may at any time be amended or terminated by the
Compensation Committee.
Administration
The Compensation Committee of the Board of Directors administers the
Incentive Plan.
<PAGE>
Description of Capital Stock
General
The authorized capital stock of DynCorp consists of 20,000,000 shares of
common stock, par value $0.10 per share, of which, as of April 1, 1999,
10,032,872 shares are outstanding, and 123,711 shares of Class C Preferred, par
value $0.10 per share, of which none are outstanding. As of April 1, 1999, there
were approximately 664 holders of record of common stock.
The following is a summary of the material provisions of our certificate of
incorporation and by-laws regarding our capital stock. The summary is not
complete and is qualified in its entirety by reference to the certificate of
incorporation and by-laws, copies of which are incorporated by reference to the
registration statement of which this prospectus is a part.
Common Stock
The holders of common stock are entitled to one vote per share held of
record in elections for directors and on all other matters required or permitted
to be approved by a vote of our stockholders. Each share of common stock is
equal in respect of rights and liquidation and rights to dividends and to
distributions. Stockholders will not have any preferred or preemptive rights to
subscribe for, purchase, or receive additional shares of any class of capital
stock of DynCorp, or any options or warrants for such shares, or any rights to
subscribe for or purchase such shares, or any securities convertible into or
exchangeable for such shares, which may be issued, sold, or offered for sale by
DynCorp.
Restrictions on Common Stock
The Board of Directors of DynCorp amended our by-laws on May 10, 1995, to
provide that no share of common stock issued on or after May 11, 1995 may be
sold or transferred by the stockholder to any third party, other than by descent
or distribution, bona fide
gift, or bona fide sale. A bona fide sale may only occur after the stockholder
has first offered in writing to sell the share to DynCorp at the same price and
under substantially the same terms as apply to the intended sale, and DynCorp
has failed or declined in writing to accept such terms within 14 days of receipt
of such written offer or has refused to proceed to a closing on the transaction
within a reasonable time. The sale to the third party following such failure,
declination, or refusal must be made on the same terms which were not previously
accepted by DynCorp and within 60 days following such event, or DynCorp must
again be offered such refusal rights prior to a sale of such share.
Our right of first refusal right does not apply to:
o any transactions made at the current formula price through the internal
stock market,
o any transactions made at any time while the common stock is listed for
trading on a national securities exchange or on the over-the-counter
market,
o sales to the ESOP, or
o shares which have been reissued to the holder in exchange for shares
issued prior to May 11, 1995 to the extent such previously issued
shares were not subject to any right of first refusal by DynCorp or its
stockholders.
Shares of common stock purchased on the internal stock market will be
subject to contractual transfer restrictions having the same effect as those
contained in the by-laws. Prior to trading on the internal stock market, each
buyer will be required to adhere to the internal stock market rules, which
impose such transfer restrictions on all shares purchased on the internal stock
market. Shares of common stock issued prior to May 11, 1995 and not subsequently
purchased on the internal stock market are not subject to such restrictions. See
"Risk Factors -- Right of First Refusal."
.
<PAGE>
Validity of Common Stock
The validity of the common stock offered by this prospectus has been passed
upon for DynCorp by H. Montgomery Hougen, Vice President and Secretary and
Deputy General Counsel of DynCorp. As of April 1, 1999, Mr. Hougen owned
directly and indirectly 26,075 shares of common stock and options to purchase
4,500 shares of common stock. Mr. Hougen is the beneficial owner of an
additional 3,274 shares through our benefit plans.
Experts
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with the offer contained in this prospectus. If any
such offer is given or made, any information or representations must not be
relied upon as having been authorized by DynCorp. This prospectus is not an
offer of any securities other than the shares described in this prospectus. It
is not an offer to sell, or a solicitation of an offer to buy, any securities to
any person in any jurisdiction in which such offer or solicitation is not
authorized, or to any person to whom it is not lawful to make
such an offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder at any time implies
that information contained in this prospectus is correct as of
any time subsequent to the date of this prospectus.
PROSPECTUS
11,969,313 Shares
DynCorp
Common Stock
par value $0.10 per share
_____________, 1999
TABLE OF CONTENTS
Page
Where You Can Find More Information ii
Summary 1
DynCorp 1
Risk Factors 2
Securities Offered by This Prospectus 7
Market Information 11
Use of Proceeds 14
Employee Benefit Plans 14
Description of Capital Stock 33
Validity of Common Stock 34
Experts 34
<PAGE>
II-6
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Not applicable.
Item 15. Indemnification of Directors and Officers.
Section 102 of the General Corporation Law of the State of Delaware ("GCL")
allows a corporation to eliminate the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except in cases where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or a
knowing violation of law, authorized the unlawful payment of a dividend or
approved an unlawful stock redemption or repurchase or obtained an improper
personal benefit. The Registrant's Amended and Restated Certificate of
Incorporation, a copy of which is filed as an exhibit to this registration
statement, contains a provision which eliminates directors' personal liability
as set forth above.
The Amended and Restated Certificate of Incorporation of the Registrant and
the Bylaws of the Registrant provide in effect that the Registrant shall
indemnify its directors, officers and employees to the extent permitted by
Section 145 of the GCL. Section 145 of the GCL provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
provided that such director or officer had no cause to believe his or her
conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue or matter for which such director or
officer shall have been adjudged to be liable for negligence or misconduct in
the performance of his or her duty to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action was brought
shall determine that despite the adjudication of liability such director or
officer is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him or her or incurred by him or her in any such capacity or arising out of his
or her status as such whether or not the corporation would have the power to
indemnify him or her against such liabilities under Section 145.
Item 16. Exhibits.
Exhibit Description
4.1... Indenture and supplement, dated April 18, 1997 between Dyn Funding
Corporation (a wholly owned subsidiary of the Registrant) and
Bankers Trust Company relating to Contract Receivable Collateralized
Notes (incorporated by reference to Registrant's Form 10K/A for 1995,
File No. 1-3879)
4.2... Registration Rights Agreement, dated as of March 17, 1997, among the
Registrant and BT Securities Corporation and Citicorp Securities, Inc.
(incorporated by reference to Registrant's Form S-4, File No.333-25355)
4.3... Indenture, dated March 17, 1997, between the Registrant and United
States Trust Company of New York relating to the 9 1/2% senior
subordinated notes due 2007 (incorporated by reference to Registrant's
Form S-4, File No. 333-25355)
4.4... Specimen common stock Certificate (incorporated by reference to
Registrant's Form 10-K for 1988, File No. 1-3879)
4.5... Amended and Restated Certificate of Incorporation (incorporated by
reference to Registrant's Form 10-K/A for 1995, File No.1-3879)
4.6... By-Laws of the Registrant (incorporated by reference to Registrant's
Form S-1, File No. 33-59279)
4.7... Second Amended and Restated Credit Agreement by and among Citicorp North
America, Inc., certain Lenders and the Registrant dated May 15, 1997
(incorporated by reference to Registrant's Form S-4, File No. 333-25355)
4.8... Employee Stock Ownership Plan (incorporated by reference to Registrant's
Form S-1, File No. 33-59279)
4.9... Savings and Retirement Plan (incorporated by reference to Registrant's
Form S-1, File No. 33-59279)
4.10....Equity Target Ownership Policy (incorporated by reference to
Registrant's Form S-1, File No. 33-59279)
5... Opinion of H. Montgomery Hougen (previously filed)
10.1... Key Employees Share-Option Compensation Plan (filed herewith)
10.2... Executive Incentive Plan (incorporated by reference to Registrant's Form
10K for 1997, File No. 1-3879)
10.3... Severance Agreement of David L. Reichardt (incorporated by reference to
Exhibit (c)(7) to Schedule 14D-9 filed by Registrant January 25, 1988)
10.4... Amendment to Severance Agreement of David L. Reichardt (incorporated by
reference to Registrant's Form S-1, File No. 33-59279)
10.5... Severance Agreement of Paul V. Lombardi (incorporated by reference to
Registrant's Form 10-K for 1993, File No. 1-3879)
10.6... Amendment to Severance Agreement of Paul V. Lombardi (incorporated by
reference to Registrant's Form S-1, File No. 33-59279)
10.7... Severance Agreement of Patrick C. FitzPatrick (incorporated by reference
to Registrant's Form 10-K for 1996, File No. 1-3879)
10.8... Amendment to Severance Agreement of Patrick C. FitzPatrick (incorporated
by reference to Registrant's Form S-1, File No. 33-59279)
10.9... Severance Agreement of Marshall S. Mandell (incorporated by reference to
Registrant's Form S-1, File No. 33-59279)
10.10.. Severance Agreement of Robert B. Alleger (incorporated by reference to
Registrant's Form S-1, File No.33-59279)
10.11.. Restricted Stock Plan (incorporated by reference to Registrant's Form
10-K/A for 1995, File No. 1-3879)
10.12...1995 Stock Option Plan (incorporated by reference Registrant's Form 10-K
for 1997, File No. 1-3879)
11... Computations of Earnings Per Common Share for the Years Ended December
31, 1998, 1997, and 1996 (incorporated by reference to Registrant's Form
10-K for 1998, 1997, and 1996, File No. 1-3879)
13.... Registrant's 1998 Annual Report Form 10-K, filed with the Securities and
Exchange Commission on March 10, 1999, File No. 1-3879
21... Subsidiaries of the Registrant (incorporated by reference to
Registrant's Form 10-K for 1998, File No. 1-3879)
23... Consent of Arthur Andersen LLP (filed herewith)
24.... Powers of Attorney (previously filed)
99... Internal Stock Market Rules (incorporated by reference to Registrant's
Form S-1, File No. 33-59279)
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs 1(a) and 1(b) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in conjunction with the securities being
registered, the Registrant will, unless in the opinion of its counsel of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this post-effective amendment to its registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Fairfax, Commonwealth of Virginia, on April 23,
1999.
DynCorp
By: /s/ Paul V. Lombardi
P. V. Lombardi
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this
post-effective amendment to registration statement appears below hereby appoints
Paul V. Lombardi, David L. Reichardt and H. Montgomery Hougen, and each of them,
any one of whom may act without the joiner of the others, as his or her attorney
in fact with full power of substitution and resubstitution to sign on his or her
behalf individually and in the capacity stated below, and to sign and file all
amendments and post-effective amendments to this post-effective amendment to its
registration statement and any and all other documents that may be required in
connection with the filing of this post-effective amendment to registration
statement, which amendments may make such changes and additions to this
post-effective amendment to registration statement as such attorney in fact may
deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this post-effective amendment to its registration statement has been signed
below by the following persons in the capacities and on the dates indicated:
Signature Title Date
* P. V. Lombardi President and Director April 23, 1999
(Principal Executive Officer)
* P. C. FitzPatrick Senior Vice President and April 23, 1999
Chief Financial Officer
(Principal Financial Officer)
* D. L. Reichardt Senior Vice President, General April 23, 1999
Counsel and Director
* J. J. Fitzgerald Vice President and Controller April 23, 1999
(Principal Accounting Officer)
* D. R. Bannister Director April 23, 1999
* T. E. Blanchard Director April 23, 1999
* P. G. Kaminski Director April 23, 1999
* D. C. Mecum II Director April 23, 1999
* R. E. Dougherty Director April 23, 1999
* H. S. Winokur, Jr. Director April 23, 1999
* By: /s/ H. M. Hougen April 23, 1999
- -----------------------------------
H. M. Hougen
Attorney-in-Fact
Exhibit 10.1
DYNCORP KEY EXECUTIVES SHARE-OPTION
COMPENSATION PLAN
("KEYSOP")
<PAGE>
ARTICLE I
PURPOSE
1.1 Purpose. The purpose of the Plan is to provide benefits to eligible
Employees of the Employer in a form that will encourage the recipients to
continue in the service of the Employer, and allow the recipients to
diversify their investment portfolios.
1.2 Intent. The Plan is intended to be a nonqualified option plan governed by
Section 83 of the Code and not an employee benefit plan as defined under
ERISA.
ARTICLE II
DEFINITIONS
As used herein, the following capitalized words and phrases shall have the
respective meanings set forth below:
2.1 "Administrative Committee" means a committee consisting of two or more
members designated from time to time by the Compensation Committee to administer
the Plan.
2.2 "Beneficiary" means the person or persons designated by a Participant,
pursuant to Section 3.6, to exercise a Share-Option after the Participant's
death.
2.3 "Board of Directors" or "Board" means the Board of Directors of DynCorp.
2.4 "Change of Control" means any of the following: (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (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 (B) 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 (C) 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 (C) 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.
Notwithstanding the foregoing, in the event the Employer by which a Participant
is employed is no longer a subsidiary or controlled affiliate of DynCorp, a
Change of Control shall not be deemed to have occurred if the Employer or new
owner of such Employer undertakes in writing with DynCorp to assume all the
obligations of DynCorp under this Plan.
2.5 "Code" means the Internal Revenue Code of 1986, as amended, and any
regulations or rulings issued thereunder.
2.6 "Compensation Committee" means the Compensation Committee of the Board
of Directors.
2.7 "Disability" means a disability as defined under the Employer's executive
long-term disability plan.
2.8 "Effective Date" means December 14, 1998.
2.9 "Employee" means any common law employee of the Employer.
2.10 "Employer" means DynCorp, any of its subsidiaries and controlled
affiliates, and any successor thereto.
2.11 "ERISA" means the Employee Retirement Income Security Act of 1974, any
amendments thereto, and any regulations or rulings issued thereunder.
2.12 "Exercise Date" means the date upon which the Administrative Committee
approves the Share-Option exercise form, which is completed and submitted by a
Participant to the Administrative Committee with respect to the Share-Option
being exercised.
2.13 "Exercise Period" means the period during which a Participant may exercise
a Share-Option, as determined under Section 4.1.
2.14 "Exercise Price" means the price to be paid by a Participant to exercise a
Share-Option, as determined under Section 3.3.
2.15 "Fair Market Value" means the closing price of a Share reflected in the
consolidated trading tables of The Wall Street Journal, or other recognized
market source, as determined by the Administrative Committee, on the applicable
date of reference hereunder or, if there is no sale of the Shares on such date,
then the closing price on the last previous day on which a sale is reported.
2.16 "Grant Date" means, with respect to any Share-Option, the date on which the
Share-Option is awarded or granted by the Administrative Committee to a
Participant pursuant to Section 3.2, which shall be the last day of the quarter
on which Shares are sold on the relevant market.
2.17 "Intrinsic Value" means the Fair Market Value of the aggregate underlying
Shares minus the aggregate Exercise Price, as of the Grant Date.
2.18 "Participant" means any individual who meets the eligibility requirements
of Section 3.1, who has received an award of Share-Options in accordance with
Section 3.2, and whose Share-Options have not all been completely exercised or
lapsed. For purposes of Section 4.3:
(a) After a Participant's death, his Beneficiary is to be treated as a
Participant under this Plan with respect to any Share-Options that are
outstanding at the time of the Participant's death;
(b) In the event of a Participant's legal incapacity, the Participant's
legal representative is to be treated as a Participant under this Plan
with respect to any Share-Options that are outstanding at the time the
Participant incurred the legal incapacity; and
(c) If a Participant has assigned Share-Options under Section 3.8, then
the assignee of such Share-Options is to be treated as a Participant
under this Plan with respect to the assigned Share-Options.
2.19 "Plan" means the DynCorp Key Executives Share-Option Compensation Plan
("KEYSOP") (including Exhibit A) as adopted by DynCorp and set forth herein and
from time to time amended.
2.20 "Retirement" means termination of employment, other than for Cause and not
due to Disability, at or after age 60.
2.21 "Share" or "Shares" means a share or shares of a registered investment
company regulated by the Investment Company Act of 1940, as amended (i.e.,
Mutual Fund shares), which share or shares are designated by the Administrative
Committee as subject to purchase through the exercise of Share-Option(s).
2.22 "Share-Option" means the right of a Participant, granted by the Employer in
accordance with Section 3.2, to purchase a Share from the Employer at the
Share-Option's Exercise Price.
2.23 "Share-Option Agreement" means an agreement executed on behalf of the
Employer and by a Participant to whom Share-Options have been awarded,
acknowledging the issuance of the Share-Options and setting forth terms of the
Share-Options.
2.24 "Termination for Cause" means termination of a Participant's employment
following a decision by a two-thirds majority vote of the Board that the
Participant's employment should be terminated by reason of any one or more of
the following acts:
(a) gross negligence relating to the Participant's employment;
(b) refusal to follow the reasonable instructions of the Board;
(c) actions involving a material breach of the Participant's employment
agreement, if any; (d) willful violation of environmental laws and
regulations relating to the Participant's employment; (e) criminal
conduct relating to the Participant's employment; (f) violation of the
Procurement Integrity Provisions of the Office of the Federal
Procurement Policy Act Amendments of 1988; or (g) material violation of
the DynCorp Standards of Conduct, as amended or supplemented from time
to time.
2.25 "Termination of Employment" means an Employee's separation from the service
of the Employer by reason of resignation, discharge, death, Disability or other
termination. The Administrative Committee may, in its discretion, determine
whether any leave or other absence from service constitutes a Termination of
Employment for purposes of the Plan.
2.26 "Trust" means the trust that shall be established pursuant to Article VII
to hold the Shares that are subject to purchase through the exercise of
Share-Options.
2.27 "Trust Agreement" means an agreement setting forth the terms of the Trust,
which may be established pursuant to Article VII.
2.28 "Trust Fund" means the Shares that are held in the Trust.
2.29 "Trustee" means the persons or institution acting as trustee of the Trust.
ARTICLE III
GRANT OF SHARE-OPTION
3.1 Eligibility. Share-Options may be granted to any Employee falling within
Bands 1 through 4 of the DynCorp Executive/Senior Management Compensation
Program, and to any Employee falling within any other category of Employees that
is designated by the Compensation Committee as eligible to participate in the
Plan.
3.2 Grant of Share-Option. Share-Options may be granted, in its sole discretion,
by the Administrative Committee to any eligible Employee at any time on or after
the Effective Date and prior to the termination of the Plan, as determined by
the Administrative Committee. (No Employee, even if an eligible Employee, shall
have any entitlement to a grant of Share-Options; grants are within the
discretion of the Administrative Committee.) A Share-Option is granted as
follows:
(a) Participation. The Administrative Committee will notify an eligible
Employee that he or she is eligible to participate in the Plan. If the
Employee desires to participate, the Employee and Employer will execute
a written Share-Option Agreement, substantially in the form set forth
in Exhibit A, in which they mutually agree that a fixed dollar amount
or a fixed percentage of the Employee's future bonus payments or future
salary payments will be exchanged for options to buy Shares
("Share-Options") that have a Fair Market Value, at the Grant Date,
equal to one and one-third (1-1/3) times the amount of the salary or
bonus payments so exchanged, and in which they mutually agree as to the
type(s) of Shares upon which the Share-Options will be granted, at an
Exercise Price set by the Administrative Committee.
(b) Changes in Participation. An Employee's election relating to future
bonus payments shall be irrevocable. An Employee's election relating to
future salary payments may be changed, upon execution by the Employee
and the Employer of a revised Share-Option Agreement setting for such
changed election, and will become effective with the first practicable
following pay period. If an election change relating to salary payments
is reduced so as to cease exchanging any current salary payments for
Share-Options, the Employee may not make any further election as to
salary payments until the fiscal quarter following such change.
(c) Addendum. The Employer will, as soon as practicable, prepare and
periodically update an Addendum to the Share-Option Agreement, which
shall reflect the amount or percentage of compensation to be exchanged
for Share-Options rather than cash, and specify the number of Shares
subject to the Share-Option Agreement, the Exercise Price of the
Share-Options as of the Grant Date, and such other terms and in such
form as the Administrative Committee may from time to time determine in
accordance with the Plan. The Administrative Committee may establish a
policy, which sets forth a maximum and/or minimum number of
Share-Options allowed to be granted to a Participant during any
calendar year; provided that any maximum number shall not include
substitutions pursuant to Section 3.5.
(d) Effect of Dividends and Distributions with Respect to Shares.
(1) Cash Dividends and Distributions. The Employer agrees to
reinvest all cash dividends and distributions received in cash
with respect to Shares in additional property of the same kind
(or as nearly the same kind as feasible, if property of the
same kind is not available). Any Shares acquired through
reinvestment will immediately be subject to Share-Options in
favor of the Participant which are granted pursuant to the
Share-Option Agreement that pertains to the Shares on which
the dividends or distributions were made.
(2) Noncash Distributions or Similar Transaction. In the event
of a Shares dividend, Shares split, reverse Shares split,
rights offering, recapitalization or similar transaction that
materially affects the Fair Market Value of the Shares, the
Administrative Committee shall adjust the Exercise Price so
that it retains the same ratio to the Fair Market Value of the
Shares as existed immediately before such transaction.
3.3 Exercise Price.
(a) Upon a request to exercise any Share-Option(s), the Exercise Price
required to be paid by the Participant shall be the greater of (i) the
Exercise Price initially set in the Share-Option Agreement as of the
Grant Date, or (ii) twenty-five percent (25%) of the Fair Market Value
of the Share(s) on the Exercise Date. The initial Exercise Price in
effect as of the effective date of this Plan is twenty-five percent
(25%) of the Fair Market Value of the Shares on the Grant Date.
(b) Notwithstanding any provision herein to the contrary, the
Administrative Committee may, in its discretion, charge reasonable
administrative costs of the Plan to individual Participants by
adjusting the Exercise Price of Share-Options, reducing the number of
Shares subject to Share-Options, or by other means in its discretion.
3.4 Purchase of Property Subject to Share-Option. Upon the grant of
Share-Options to a Participant, the Employer shall acquire an amount of Shares
having a Fair Market Value equal to the Intrinsic Value of the aggregate
Share-Options. The Employer shall contribute such amount of Shares to the Trust
established in accordance with Article VII. At the time the Shares are
contributed to the Trust, and at the time the Share-Options are exercised, the
Shares acquired by the Employer pursuant to the preceding sentence shall not be
subject to any security interest, whether or not perfected, or to any
Share-Options or contract under which any other person may acquire any interest
in them. Additional Shares required to be delivered at the time of exercise of
the Share-Options may be acquired in the open market by the Trustees, utilizing
proceeds from the Exercise Price payment.
3.5 Substitution of Share-Option Shares. The Administrative Committee may, in
its discretion and at the request of a Participant, cancel outstanding
Share-Options and issue substitute Share-Options on different types of Shares,
provided that the Shares of the substitute Share-Options are of equal aggregate
Fair Market Value as that of the Shares of the original Share-Options as of the
date of substitution. Notwithstanding anything to the contrary in this Plan, a
substitution of Share-Options pursuant to this paragraph shall be made no more
than one time during any fiscal quarter, or at additional times upon special
circumstances as determined by the Administrative Committee. Upon a change in
Shares pursuant to this paragraph, the Employer shall cause the Trust to dispose
of the old Shares and acquire and contribute to the Trust new Shares having the
same Fair Market Value (taken as of the Grant Date of the new Share-Options) as
the old Shares. This transaction shall be treated as a new grant of
Share-Options. The Intrinsic Value of the old Share-Options will in all cases
equal the Intrinsic Value of the new Share-Options on the date of substitution.
3.6 Designation of Beneficiary. In the Share-Option Agreement, the Participant
shall designate one or more Beneficiaries and successor Beneficiaries, and the
Participant may change a Beneficiary designation at any time, by filing the
prescribed form with the Administrative Committee. The consent of the
Participant's current Beneficiary shall not be required for a change of
Beneficiary. No Beneficiary shall have any rights under the Plan or a
Share-Option Agreement during the lifetime of the Participant, except as may
otherwise be provided in herein.
A Participant who dies without having designated a Beneficiary in
accordance with this Section 3.6 shall be deemed to have named the Participant's
estate as Beneficiary.
3.7 General Non-Transferability. No Share-Option granted under this Plan may be
transferred, assigned, or alienated (whether by operation of law or otherwise),
except as provided herein, and no Share-Option shall be subject to execution,
attachment or similar process. A Share-Option may be exercised only by a
Participant.
3.8 Permitted Transfers. Notwithstanding the provisions of Section 3.7, a
Participant may at any time prior to death, assign a Share-Option to the
Participant's spouse, lineal and/or collateral descendants, a trust for the
benefit of the Participant's spouse and/or lineal descendants, or a partnership
of which the Participant's spouse and/or lineal descendants are the only
partners, subject to approval by the Administrative Committee. Any such
assignment shall be permitted only if an assignment is expressly permitted in
the Share-Option Agreement, or approved in writing by the Administrative
Committee, and the Participant receives no consideration for the assignment. Any
such assignment shall be evidenced by an appropriate written document executed
by the Participant, and delivered to the Administrative Committee on or before
the effective date of the assignment. In the event of such assignment, the
spouse, lineal or collateral descendant, partnership or trustee of the trust
shall be entitled to all of the rights of the Participant under Section 4.3 with
respect to the assigned Share-Option, and such Share-Option shall continue to be
subject to all of the terms, conditions and restrictions applicable to the
Share-Option, as set forth in the Plan and the Share-Option Agreement.
ARTICLE IV
EXERCISE OF SHARE-OPTION
4.1 Exercise Period. A Participant may exercise a Share-Option pursuant to
Section 4.3 at any time during the period beginning on the earlier of (i) the
date which is six (6) months after the initial Grant Date (disregarding a
subsequent Grant Date caused by substitution of Shares pursuant to Section 3.5)
or (ii) the date of a Change of Control and ending on the earliest of:
(a) ninety (90) days after the Participant's Termination for Cause or
other Termination of Employment for reasons other than described in
Section 4.1(b) below; or
(b) fifteen (15) years after the Grant Date for active Employees,
Participants who have incurred a Termination of Employment by reason of
Retirement, Disability, death or an involuntary termination which is
not a Termination for Cause, or such later time as is approved by the
Administrative Committee.
If a Participant fails to exercise a Share-Option within the Exercise
Period, then the Share-Option expires and the Participant or his Beneficiary
loses any rights he or she had with respect to the Share-Option. Notwithstanding
the foregoing, (i) except in the case of a Share-Option outstanding as of a
Change of Control, the Exercise Period shall not commence earlier than six
months following the Grant Date and, (ii) in the event of the Participant's
death, the Exercise Period shall not expire earlier than one year following the
date of the Participant's death.
4.2 Notice. The Administrative Committee shall cause notice to be provided to
the Participant that Share-Options are set to expire. Such notice shall be given
approximately six months prior to the expiration of the Exercise Period, if
known and otherwise, as soon as practicable. The required notice will be a
written notice and will list the Shares subject to the Share-Option and the date
on which the Share-Option Exercise Period would expire. Failure to give or
receive notice with respect to a Share-Option will not in any way extend the
Exercise Period of the Share-Option or increase a Participant's rights with
respect to the Share-Option.
4.3 Share-Option Exercise. A Participant may exercise a Share-Option by giving
written notice to the Administrative Committee and tendering full payment of the
Exercise Price by cash, check or other means acceptable to the Administrative
Committee on or about the Exercise Date.
The minimum amount of Share-Options that can be exercised by a
Participant at any one time is the number of Share-Options for which the Fair
Market Value of the underlying Shares minus the applicable aggregate Exercise
Price totals $5,000, or 100% of the Fair Market Value of the underlying Shares,
whichever is less. For these purposes, the term "underlying Shares" means the
Shares which will be acquired by the Participant upon the exercise of the
Share-Options. A Participant shall not have any of the rights and privileges of
a shareholder with respect to any Shares purchasable or issuable upon the
exercise of Share-Options prior to the date of exercise of such Share-Options in
accordance with this Section 4.3.
In the event that the listing, registration or qualification of the
Share-Option on any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary as a
condition of, or in connection with, the exercise of the Share-Option, then the
Share-Option shall not be exercised in whole or in part until such listing,
registration, qualification, consent or approval has been effected or obtained.
4.4 Delivery of Shares. Within ten business days following the date that a
Participant satisfies the conditions for exercising Share-Options in accordance
with Section 4.3, the Employer shall deliver or cause to be delivered to the
Participant title to, or beneficial ownership of, the Shares subject to such
Share-Options, which Shares the Participant can direct to be liquidated or
otherwise disposed of.
4.5 Tax Withholding. Whenever Shares are to be delivered upon exercise of
Share-Options under the Plan, the Employer shall require as a condition of such
delivery payment by the Participant of an amount sufficient to satisfy all
federal, state and local tax withholding requirements related thereto. Such
payment shall take the form of whichever of the following is acceptable to the
Administrative Committee: (a) cash; (b) the withholding of such amount from any
Shares to be delivered to the Participant, (c) the withholding of such amount
from compensation otherwise due to the Participant, or (d) any combination of
the foregoing, at the election of the Participant. Such election shall be made
before the date on which the amount of tax to be withheld is determined by the
Employer, and such election shall be irrevocable. With the consent of the
Employer, the Participant may elect a greater amount of withholding, not to
exceed the estimated amount of the Participant's total tax liability with
respect to the exercise of Share-Options under the Plan. Such election shall be
made at the same time and in the same manner as provided above.
4.6 Failure to Exercise. No Share-Option shall be exercised, in whole or in
part, after the end of the Share-Option's Exercise Period as stated in Section
4.1. The Employer shall have no obligation to deliver or cause to be delivered
to the Participant the Shares subject to such Share-Option after the end of the
Share-Option's Exercise Period. Failure to exercise a Share-Option in a timely
fashion shall constitute a forfeiture of the Share-Option.
ARTICLE V
AMENDMENT OR TERMINATION
5.1 Plan Amendment. The Administrative Committee may, from time to time in its
discretion, amend any provision of the Plan, in whole or in part, with respect
to any Participant or group of Participants. Such amendment shall be effective
as of the date specified therein and shall be binding upon the Administrative
Committee, all Participants and Beneficiaries, and all other persons claiming an
interest under the Plan. Subject to Section 5.2 below, such amendment shall not
affect any Share-Options that are outstanding as of the amendment date without
the Participant's consent. Notwithstanding anything herein to the contrary, any
amendments which modify the category of individuals eligible to participate in
the Plan or which modify Article V or VI of the Plan must be approved by the
Compensation Committee.
5.2 Plan Termination. The Plan shall terminate as the Compensation Committee may
determine, in its discretion. Such termination shall be effective as of the date
determined by the Compensation Committee and shall be binding upon the
Administrative Committee, all Participants and Beneficiaries, and all other
persons claiming an interest under the Plan. Share-Options that are outstanding
as of the Plan's termination shall continue to be subject to exercise after the
effective date of such termination, and may be exercised in accordance with
Article IV and any applicable Share-Option Agreement; except that termination of
the Plan may provide for termination of all then outstanding Share-Options,
provided that the Employer gives the affected Participants 90 days' notice
before such termination. In the event a termination of outstanding Share-Options
occurs pursuant to the preceding sentence, and such outstanding Share-Options
are not exercised during the 90-day notice period, the Employer may pay all
holders of such Share-Options, in cash or such other form as determined by the
Employer in its sole discretion, the Share-Options' Intrinsic Value as of the
date the Share-Options terminated. As of the date of termination of the Plan, no
new Share-Options shall be granted, except for Share-Options required to be
granted under Section 3.2(b).
5.3 Amendment of Share-Options. A Share-Option may be amended by the
Administrative Committee at any time after the Grant Date if the Administrative
Committee determines that an amendment is necessary as a result of:
(a) any addition to or change in the Code or ERISA, a federal or state
securities law or any other law or regulation, which occurs after the
Grant Date and by its terms applies to the Share-Option;
(b) any Plan amendment pursuant to Section 5.1, or Plan termination
pursuant to Section 5.2, provided that the amendment does not
materially affect the terms, conditions and restrictions applicable to
the Share-Option, except for termination of the Share-Option with 90
days' notice as set forth in Section 5.2 above; or
(c) any circumstances not specified in paragraphs (a) or (b), with the
consent of the Participant.
5.4 Change of Control. Notwithstanding any other provision of the Plan or a
Share-Option Agreement, in the event of a Change of Control, the Exercise Period
under Section 4.1 shall begin immediately upon such Change of Control.
ARTICLE VI
ADMINISTRATION
6.1 The Administrative Committee. The Plan shall be administered by the
Administrative Committee.
6.2 Powers of the Administrative Committee. In carrying out its duties with
respect to the general administration of the Plan, the Administrative Committee
shall have, in addition to any other powers conferred by the Plan or by law, the
following powers:
(a) to grant Share-Options, and to determine the form, amount and
timing of such Share-Options;
(b) to determine the terms and provisions of the Share-Option
Agreements, and to modify such Share-Option Agreements as provided in
Section 5.3;
(c) to maintain all records necessary for the administration of the
Plan;
(d) to prescribe, amend, and rescind rules for the administration of
the Plan to the extent not inconsistent with the terms thereof;
(e) to appoint such individuals and subcommittees as it deems desirable
for the conduct of its affairs and the administration of the Plan;
(f) to employ counsel, accountants and other consultants to aid in
exercising its powers and carrying out its duties under the Plan;
(g) to perform any other acts necessary and proper for the conduct of
its affairs and the administration of the Plan, except those reserved
by the Compensation Committee; and
(h) to revise periodically, on a prospective basis only, the nature of
the Shares to be the subject of Share-Options and/or the amount or
percentage of the initial Exercise Price to be included in Share-Option
Agreements.
6.3 Determinations by the Administrative Committee. The Administrative Committee
shall interpret and construe the Plan and the Share-Option Agreements, and its
interpretations and determinations shall be conclusive and binding on all
Participants, Beneficiaries and any other persons claiming an interest under the
Plan or any Share-Option Agreement. The Administrative Committee's
interpretations and determinations under the Plan and the Share-Option
Agreements need not be uniform and may be made by it selectively among
Participants, Beneficiaries and any other persons whether or not they are
similarly situated.
6.4 Indemnification of the Administrative Committee and the Compensation
Committee. The Employer shall indemnify and hold harmless each member of the
Administrative Committee and Compensation Committee against any and all expenses
and liabilities arising out of such member's action or failure to act in such
capacity, excepting only expenses and liabilities arising out of such member's
own willful misconduct or failure to act in good faith.
Expenses and liabilities against which a member of the Administrative
Committee or the Compensation Committee is indemnified hereunder shall include,
without limitation, the amount of any settlement or judgment, costs, counsel
fees and related charges reasonably incurred in connection with a claim asserted
or a proceeding brought against him or the settlement thereof.
This right of indemnification shall be in addition to any other rights
to which any member of the Administrative Committee or the Compensation
Committee may be entitled.
The Employer may, at its own expense, settle any claim asserted or
proceeding brought against any member of the Administrative Committee or the
Compensation Committee when such settlement appears to be in the best interest
of the Employer.
6.5 Expenses of the Administrative Committee. The members of the Administrative
Committee shall serve without compensation for services as such. All reasonable
expenses of the Administrative Committee shall be paid by the Employer.
ARTICLE VII
TRUST PROVISIONS
7.1 Establishment of the Trust. The Employer shall establish a trust to hold all
Shares contributed by the Employer pursuant to Section 3.4. Except as otherwise
provided in Section 7.2 of the Plan and the terms of the Trust Agreement, the
Trust will be irrevocable and no portion of the Trust Fund will be used for any
purpose other than the exchange of substitute Shares in accordance with Section
3.5, the delivery of Shares pursuant to the exercise of Share-Options under the
Plan, the delivery of Shares subject to forfeited Share-Options to the Employer,
and the payment of expenses of the Plan and Trust.
7.2 Trust Status. Any Trust established pursuant to Section 7.1 shall be
designed as a grantor trust, within the meaning of section 671 of the Code, of
which the Employer is the grantor, and this Plan is to be construed in
accordance with that intention. Notwithstanding any other provision of this
Plan, the Trust Fund will remain the property of the Employer and will be
subject to the claims of its creditors in the event of its bankruptcy or
insolvency. No Participant will have any priority claim on the Trust Fund or any
security interest or other right superior to the rights of a general creditor of
the Employer.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Headings. The headings of Articles, Sections and Paragraphs are solely for
convenience of reference. If there is any conflict between such headings and the
text of this Plan, the text shall control.
8.2 Gender. Unless the context clearly requires a different meaning, all
pronouns shall refer indifferently to persons of any gender.
8.3 Singular and Plural. Unless the context clearly requires a different
meaning, singular terms shall also include the plural and vice versa.
8.4 Governing Law. Except to the extent preempted by federal law, the
construction and operation of the Plan shall be governed by the laws of the
Commonwealth of Virginia without regard to the choice of law principles of such
state.
8.5 Severability. If any provision of this Plan is held illegal or invalid by
any court or governmental authority for any reason, the remaining provisions
shall remain in full force and effect and shall be construed and enforced in
accordance with the purposes of the Plan as if the illegal or invalid provision
did not exist.
8.6 No Obligation to Exercise. The granting of a Share-Option shall impose no
obligation upon a Participant to exercise such Share-Option.
8.7 No Rights of Shareholder. Neither the Participant, a Beneficiary nor any
assignee shall be, or shall have any of the rights and privileges of, a
Shareholder with respect to any Shares subject to purchase or issuance or upon
the exercise of Share-Options, prior to the date of exercise of such
Share-Options in accordance with Section 4.3 of the Plan.
8.8 No Right to Continued Employment. Nothing contained in the Plan shall be
deemed to give any person the right to be retained in the employ of the
Employer, or to interfere with the right of the Employer to discharge any person
at any time without regard to the effect that such discharge shall have upon
such person's rights or potential rights, if any, under the Plan.
8.9 Notices. Unless otherwise specified in a Share-Option Agreement, any notice
to be provided under the Plan to the Administrative Committee shall be mailed
(by certified mail, postage prepaid) or delivered to the Administrative
Committee in care of the Employer at its executive offices, and any notice to
the Participant shall be mailed (by certified mail, postage prepaid) or
delivered to the Participant at the current address shown on the payroll records
of the Employer, or at such address as a Participant shall provide to the
Administrative Committee in accordance with this Section 8.9. No notice shall be
binding on the Administrative Committee until received by the Administrative
Committee, and no notice shall be binding on the Participant until received by
the Participant.
8.10 Conflict Between Plan and Share-Option Agreement. Should there be a
conflict or other contradiction between the language of the Plan and that
contained in any Share-Option Agreement, the terms and conditions of the Plan
will control.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
February 26, 1999 included in DynCorp's Form 10-K for the year ended December
31, 1998 and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Washington, D. C.
April 23, 1999
