File No. 33-59279
As filed with the Securities and Exchange Commission on November 15, 2002
Securities and Exchange Commission
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8 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)
11710 Plaza America Drive, Reston, Virginia 20190
(703) 261-5000
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
H. Montgomery Hougen
Vice President & Corporate Secretary
DynCorp
11710 Plaza America Drive
Reston, Virginia 20190-6039
(703) 261-5028
(Name, address, including zip code and telephone number, including area code, of
agent for service)
Copies to:
Robert B. Ott
Arnold & Porter
1600 Tysons Boulevard, Suite 900
McLean, Virginia 22102-4865
(703) 720-7005
SUBJECT TO COMPLETION, DATED _______, 2002
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
11,969,313 Shares of DynCorp Common Stock
(Par Value $0.10 per Share)
We originally offered 11,969,313 shares of our 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 9,704,173 shares
remain in this offering.
Our Internal Stock Market
These shares may be offered and sold on our internal stock market, a limited
securities trading market established by us to provide employees, benefit plans,
and other stockholders the opportunity to buy and sell shares of our common
stock on selected days each year at a price determined by our Board of
Directors. Sales and purchases are made at the most recent formula price
established by our Board of Directors. All offers and sales on our internal
stock market by stockholders may be attributed to us under the federal
securities laws. We may also sell or buy shares of our common stock on our
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. Our internal stock market is managed
by our subsidiary, DynEx, Inc. The purchases and sales of shares on our internal
stock market are carried out by a registered broker-dealer, upon instructions
from the respective buyers and sellers. See "Market Information -- Our 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 ______, 2002
Where You Can Find More Information
We file annual, quarterly, and special reports and other information with the
Securities and Exchange Commission. You may read and copy any document we file
at the SEC's public reference rooms located at 450 5th Street, N.W., Room 1200,
Washington, D.C.. 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
documents listed below:
1. Our Annual Report on Form 10-K for the year ended December 27, 2001; and
amendment no. 2 to such Form 10-K filed on Form 10-K/A on November 1, 2002.
2. An Amendment to Form 10-K filed for the year ended December 28, 2000 on
Form 10-K/A, filed on May 17, 2002.
3. Our Quarterly Reports for the quarter ended March 28, 2002 filed on
Form 10-Q and amendment no. 1 filed on Form 10-Q/A on November 5, 2002;
for the quarter ended June 27, 2002 filed on Form 10-Q and
amendment no. 1 filed on November 8, 2002; and for the quarter ended
September 26, 2002 filed on Form 10-Q on November 15, 2002.
4. Our Current Reports filed on Forms 8-K or Forms 8-K/A as of March
19, 2002, April 22, 2002, May 31, 2002, June 3, 2002, August 6, 2002,
September 23, 2002, and November 12, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning: H. Montgomery Hougen, Vice President and Corporate Secretary,
DynCorp, 11710 Plaza America Drive, Reston, Virginia 20190-6039, telephone
(703) 261-5029, or by e-mail to monty.hougen@dyncorp.com.
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.
Certain matters discussed or incorporated by reference in this prospectus
are forward-looking statements within the meaning of the federal securities
laws. Although we believe that the expectations reflected in these
forward-looking statements are based upon reasonable assumptions, there can be
no assurance that our expectations will be achieved. Factors that could cause
our actual results to differ materially from our current expectations include
the early termination of, or failure of a customer to exercise option periods
under, a significant contract; our inability to generate actual customer orders
under indefinite delivery, indefinite quantity contracts; technological change;
our inability to manage its growth or to execute internal performance plan; our
inability to integrate the operations of acquisitions; our inability to attract
and retain the technical and other personnel required to perform our various
contracts; general economic conditions; and other risks discussed elsewhere in
this report and in our other filings with the Securities and Exchange
Commission.
Summary
In 1996 we established an internal stock market to provide liquidity for
our stockholders, because no public market existed for our common stock. The
internal stock market was also established to provide a means for current
employees to acquire our common stock through our various benefit plans. Since
there is no public market for our common stock, a stockholder's investment could
remain illiquid for an indefinite period, if our internal stock market does not
give such stockholder a ready means for selling shares, and such stockholder
cannot find another buyer for his or her shares of our common stock.
All of the shares of our common stock offered by this prospectus, including
shares purchased on our internal stock market, will be subject to certain
internal stock market and by-law restrictions, including restrictions on their
transferability.
The purchase price of our 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 our 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 our common stock. "NOA" means our non-operating
assets at disposition value, net of disposition costs. "IBD" means the sum of
interest-bearing debt, net of cash, 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 as of the end of
the preceding quarter, assuming exercise of all outstanding options. See "Market
Information -- Determination of Purchase Price".
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 our Board in conjunction with an
appraisal that is prepared by an independent appraisal firm for the trustee of
our Savings Plans. Our Board of Directors believes that the valuation process
results in a stock price that reasonably reflects the market value of our common
stock.
- --------------------------------------------------------------------------------
DynCorp
We provide diversified management, technical, and professional services to
a wide range of government customers. Our principal markets are information
management services, software development, system integration and analysis,
facilities management, and aviation maintenance and specialized support
services. Current customers include agencies of the Departments of Defense,
Energy, State, and Justice and the National Aeronautics and Space
Administration, as well as various other U.S. Government, United Nations, state,
and local government agencies. We employ approximately 23,000 employees
throughout the United States and several foreign countries to perform services
for our customers.
We were incorporated in Delaware in 1946. The address of our principal
executive offices is 11710 Plaza America Drive, Reston, Virginia 20190,
telephone (703) 261-5000.
You may find out more about us by visiting our internet home page at
www.dyncorp.com. The contents of this web site are not to be considered part of
this prospectus.
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 in this prospectus, and in particular you
should carefully consider the following risk factors.
- --------------------------------------------------------------------------------
The absence of a public market for our stock could make it difficult to
liquidate your investment.
There is no present public market for our common stock, although we could
establish one in the future. Our internal stock market provides the only
mechanism for selling our common stock. There may be insufficient 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. We cannot assure that the
purchasers of our common stock in this offering will be able to resell their
shares through our internal stock market should they decide to do so.
To the extent that our 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
can afford a total loss of investment. See "Market Information -- Our Internal
Stock Market".
Our substantial indebtedness could impair our performance and lead to
loss of stockholder value.
Our operations and acquisitions are financed largely through debt rather
than the sale of stock. Our long-term indebtedness was $243.0 million as of
September 26, 2002, net of discount of $5.1 million, not including issued but
undrawn letters of credit of $13.9 million and excluding unused commitments
available for borrowing of $76.1 million. Our equity was $48.5 million. For the
years ended December 2001, 2000, 1999, 1998, and 1997 (1), the ratios of
earnings to fixed charges were 3.1 : 1.0, 0.02 : 1.0, 1.5 : 1.0, 2.1 : 1.0, and
1.5 : 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.
(1) Since 1999, our fiscal years have ended on the last Thursday in
December. Before that, they ended on the last day of the calendar
year. Accordingly, the fiscal years referred to in this prospectus
ended on December 27, 2001, December 28, 2000; December 30, 1999;
December 31, 1998; and December 31, 1997.
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, our stockholders could
lose some or all of their investment.
Restriction imposed by the terms of our indebtedness could limit our ability to
take various actions.
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 us. 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 and our revolving credit and term loan
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 our
assets, including the assets of our subsidiaries. If the lenders accelerate the
payment of our indebtedness, we cannot assure that our assets would be
sufficient to repay our indebtedness in full.
Unless we maintain certain financial ratios, as defined in the indentures
relating to our senior subordinated notes, after giving effect to newly incurred
indebtedness, we could not make certain types of additional investments outside
the ordinary course of business or incur additional indebtedness beyond the
amounts available under our revolving credit and term loan facility. In
addition, our revolving credit and term loan facility has absolute limits on
additional amounts of indebtedness we may incur. As a result, the amount of
indebtedness that we could incur beyond the amounts available under our
revolving credit facility is severely limited.
Our focus on Government contract work makes us dependent on available Government
funding.
We derived 96%, 98%, and 97% of our revenues for the years ended December
2001, 2000, and 1999, respectively, from contracts and subcontracts with the
U.S. Government. Prime contracts with agencies of the Department of Defense
represented 49%, 44%, and 40% of our revenues for the years ended December 2001,
2000, and 1999, respectively. Continuation and renewal of our existing
government contracts and the acquisition of additional government contracts are
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, which could have a serious effect on our revenues and earnings.
The loss or significant curtailment of material government contracts could also
have a serious effect on our future revenues and earnings.
Termination of Government contracts could lead to unexpected loss of revenues.
Typically, a government contract has an initial term of one year combined
with four one-year renewal periods, exercisable at the discretion of the
Government. The Government is not obligated to exercise its option to renew a
contract. At the time of completion of a government contract, the contract is
"recompeted" against all eligible third-party providers.
Contracts between us and the U.S. Government or the Government's prime
contractors also contain standard provisions for termination at the convenience
of the Government or the prime contractors. We cannot assure that terminations
will not occur, and terminations could adversely affect our business.
We may never receive any revenues under our indefinite delivery, 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 an IDIQ contract does not assure that the
contractor will generate any revenues.
Our cost of performing contracts may exceed our revenues.
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 the Government audits and questions costs that we believe
are payable under contracts. We cannot predict 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 the government contracts. Audits have been completed on our incurred contract
costs through 1999 and are continuing for subsequent periods. We have included
an allowance for possible excess billings and contract losses in our financial
statements; we believe the amount of this allowance is adequate, based on our
interpretation of contracting regulations and past experience. We cannot assure,
however, that this allowance will be adequate.
We are subject to frequent Governmental investigations which could lead
to civil or criminal penalties.
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 our opinion, there are no
outstanding issues of this nature as of September 26, 2002 that will have a
material adverse effect on our consolidated financial position, results of
operations, or liquidity.
Suspension or debarment could result in our inability to receive
Government contracts.
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 indicted
based on allegations of a violation of certain specific federal statutes or
other activities. Should the Government initiate suspension or debarment
hearings against us or any of our affiliated entities, these actions could have
a material adverse impact upon our business and prospects.
We are engaged in numerous legal proceedings which could result in adverse
judgments and payment of damages and penalties.
We and our 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 also are 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 $7.0 million, including compensatory and
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 might actually be recovered by claimants
in these cases will be substantially less than the aggregate amount claimed.
After taking into account available insurance, we believe we have adequate
reserves with respect to the potential liability for those claims. The estimate
set forth above does not reflect claims that may have been incurred but have not
yet been filed. We have recorded the damages and penalties that we consider to
be probable recoveries against us or our subsidiaries. It is possible, however,
that the level of filings will increase more than we have anticipated,
increasing our exposures, and we cannot reasonably estimate the upper limit of
exposure.
Our position in a highly competitive market could lead to loss of business.
The markets we serve 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 these contracts are awarded on the basis of
negotiations or competitive bids where price is a significant factor.
Our obligation to repurchase shares held in certain employee retirement
plan accounts could consume substantial amounts of cash.
When a participant in one of our Savings Plans receives a distribution of
our common stock from his or her ESOP Account prior to the time when our common
stock becomes readily tradable stock, either we or the Savings Plan trusts are
obligated to repurchase these shares from the participant. To the extent that we
repurchase those shares, our availability of cash will be adversely affected. We
have the right under the Savings Plans and applicable law to defer indefinitely
the repurchase of any shares, if payment to the stockholders would impair our
capital. See "Employee Benefit Plans -- ESOP Accounts -- Distributions".
Our right of first refusal could prevent your ability to sell your shares
to third parties.
All shares of our common stock offered by this prospectus will be subject
to our right of first refusal to purchase these shares before they may be
offered to third parties, except on our internal stock market or in a sale that
has been approved by the Board of Directors. Shares of our common stock
purchased on our 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 Our Common Stock".
The offering price for our shares has been determined by a formula, not by
normal market forces.
The offering price for our common stock is, and subsequent offering prices
will be, determined by means of the formula set forth on 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 a determination
by the trustee of our Savings Plans, who in turn acts upon the advice of an
independent appraisal. The formula is subject to change by our Board of
Directors in its sole discretion. See "Market Information -- Determination of
Purchase Price".
The structure of our ownership would make it unlikely that any party would
undertake a hostile tender offer for our shares.
The combined effects of ownership of a substantial portion of the
outstanding shares of our common stock by our management and our Savings Plan
trusts, together with our right of first refusal, may discourage, delay, or
prevent attempts to acquire control of us that are not negotiated with our Board
of Directors and the trustee of the Savings Plans. These may, individually or
collectively, have the effect of discouraging takeover attempts that some of our
stockholders might deem to be in their best interests, including tender offers
in which our stockholders might receive a premium for their shares over the
formula price available on our internal stock market, as well as making it more
difficult for individual stockholders or a group of stockholders to elect
directors to our Board of Directors. See "Description of Capital Stock".
The shares offered by this prospectus are subject to substantial dilution.
Our net tangible book value on September 26, 2002 was ($79.6) million, or
$(7.53) per share, which is substantially less than the formula price of $51.25
as of such date. This variance is due primarily to the significant amount of
goodwill in intangible assets, which relates to our various acquisitions over
the years. Should we have to sell our tangible assets in order to meet future
debt obligations, we might not have adequate funds left over for our
stockholders. We have 1,782,375 outstanding stock options and 103,176 unissued
shares of restricted stock. Therefore, purchasers of our common stock in the
offering will realize immediate and substantial dilution of $42.62 per share
(83%), or $43.23 per share (84%) assuming conversion of all outstanding stock
options and the issuance of all restricted stock shares. The amount of dilution
may vary, depending on the formula price.
The 2,232,063 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".
If all the shares that could be issued upon the exercise of outstanding options
(whether or not vested at this time) and as a result of expiration of deferrals
under our former Restricted Stock Plan were issued, there would be 12,428,701
shares of our common stock outstanding. As of September 26, 2002, there were
10,568,541 shares outstanding.
Selected Consolidated Financial Data
The following table presents summary selected historical financial data derived
from the audited Consolidated Financial Statements of the Company for each of
the five years presented. During these periods, the Company paid no cash
dividends on its Common Stock. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited Consolidated Financial Statements and
related notes thereto, included in the 2001 Annual Report on Form 10-K/A,
Amendment No. 2. (Dollars in thousands, except per share data.)
Dec 27 2001 Dec 28 2000 Dec 30 1999 Dec 31 1998 Dec 31 1997
(a) (b) (c) (d) (e)
----------- ----------- --- --- ---
Statement of Operations Data:
Revenues $1,955,973 $ 1,805,155 $ 1,345,281 $ 1,233,707 $ 1,145,937
Cost of services $1,810,273 $ 1,778,329 $ 1,280,239 $ 1,173,151 $ 1,096,246
Corporate general and administrative $ 29,456 $ 29,350 $ 21,741 $ 18,630 $ 17,785
Interest expense $ 31,521 $ 41,408 $ 18,943 $ 14,144 $ 12,432
Earnings (loss) from continuing operations before
extraordinary item, cumulative effect of change
in accounting principle and certain other
expenses (f) (g) $ 60,834 $ (38,498) $ 9,507 $ 15,585 $ 15,579
Earnings (loss) from continuing operations before
extraordinary item and cumulative effect of
change in accounting principle (g) $ 60,834 $ (38,646) $ 7,610 $ 15,055 $ 7,422
Net earnings (loss) (g) $ 60,834 $ (43,416) $ 6,009 $ 15,055 $ 7,422
Common stockholders' share of net earnings (loss)
(g) $ 58,444 $ (45,258) $ 5,915 $ 15,055 $ 7,422
Common stockholders' share of earnings (loss) per
share from continuing operations before
extraordinary item and cumulative effect of
change in accounting principle
Basic $ 5.53 $ (3.86) $ 0.75 $ 1.47 $ 0.83
Diluted $ 5.26 $ (3.86) $ 0.74 $ 1.43 $ 0.70
Common stockholders' shares of net earnings (loss)
Basic $ 5.53 $ (4.32) $ 0.59 $ 1.47 $ 0.83
Diluted $ 5.26 $ (4.32) $ 0.58 $ 1.43 $ 0.70
Balance Sheet Data:
Total assets $ 598,440 $ 586,756 $ 628,934 $ 379,238 $ 390,122
Long-term debt excluding current maturities $ 264,482 $ 283,889 $ 334,944 $ 152,121 $ 152,239
Redeemable common stock $ 333,335 $ 246,330 $ 189,116 $ 183,861 $ 154,840
<FN>
(a) 2001 includes a $17,442 gain recognized on the disposition of DynCorp
Management Resources, Inc. on December 27, 2001.
(b) 2000 includes $5,998 for the replacement of core systems, including
DynCorp Information Systems LLC ("DIS") systems. Interest expense was
higher in 2000 compared to 1999 as a result of the acquisition of DIS
in December 1999, which the Company financed through additional
borrowings of $167.5 million under higher cost debt instruments.
(c) 1999 includes reversal of $2,000 reserve for favorable resolution of
contract compliance issues, $4,387 for the replacement of core
systems, DIS in-process research and development write-off $6,400,
settlement of a suit with a former electrical subcontractor $2,200,
and write-off of cost in excess of net assets acquired of consolidated
subsidiary $1,234.
(d) 1998 includes reversal of $670 reserve for asbestos litigation, $1,177
accrual for subcontractor suit, reversal of $2,500 reserve for
contract compliance issues, and $2,159 expense for the replacement of
core systems. (e) 1997 includes $7,800 accrual of costs related to
asbestos litigation, $2,488 reversal of income tax valuation
allowance, and $2,055 reversal of accrued interest related to IRS
examinations and potential disallowance of deductions.
(f) Certain other expenses include costs and expenses associated with
divested businesses of $148 in 2000, $1,897 in 1999, $530 in 1998, and
$8,157 in 1997.
(g) The cumulative effect of change in accounting principle, net of income
taxes, in 2000 of $4,770 resulted from the Company's change in
accounting method for certain long-term service contracts previously
using percentage of completion accounting. See Note 2 to the
Consolidated Financial Statements included in the 2001 Annual Report
on Form 10-K/A, Amendment No. 2 for further details. The extraordinary
loss, net of income taxes, in 1999 of $1,601 resulted from the early
extinguishment of the $50.0 million of 7.486% Fixed Rate Contract
Receivable Collateralized Notes due to refinancing of the Company's
debt in order to complete the acquisition of DIS. The difference
between Net Earnings (Loss) and Common Stockholders' Share of Net
Earnings (Loss) is the accretion in the fair value of shares of the
Company's stock which were issued as part of the December 1999
acquisition of DIS.
</FN>
The following tables present pro forma results of adjusted earnings (loss) from
continuing operations before extraordinary item and cumulative effect of change
in accounting principle, the adjusted common stockholders' shared net earnings
(loss), and their associated per share amounts for the fiscal years ended
December 27, 2001, December 28, 2000, and December 30, 1999, as if the
non-amortizatin provisions of statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets," which the Company adopted on
December 28, 2001, the first day of fiscal year 2002, had been applied. The
adjusted results presented below are net of taxes.
December 27, December 28 December 30
2001 2000 1999
Earnings (loss) from continuing operations
before extraordinary item and cumulative effect of
change in accounting principle $60,834 $(38,646) $7,610
Add back: Goodwill amortization, net of tax 1,979 2,784 1,923
Add back: Assembled workforce amortization, net of tax 599 625 33
------- -------- ------
Adjusted earnings (loss) from continuing operations
before extraordinary item and cumulative effect of
change in accounting principle
$63,412 $(35,237) $9,566
======= ========= ======
Basic earnings per share:
Earnings (loss) from continuing operations
before extraordinary item and cumulative effect
of change in accounting principle $ 5.76 $ (3.69) $ 0.76
Goodwill amortization, net of tax 0.19 0.27 0.19
Assembled workforce amortization, net of tax 0.06 0.06 -
-------- -------- -------
Adjusted earnings (loss) from continuing operations
before extraordinary item and cumulative effect
of change in accounting principle $ 6.01 $ (3.36) $ 0.95
======== ========= =======
Diluted earnings per share:
Earnings (loss) from continuing operations
before extraordinary item and cumulative effect of
change in accounting principle $ 5.47 $ (3.69) $ 0.74
Goodwill amortization, net of tax 0.18 0.27 0.19
Assembled workforce amortization, net of tax 0.06 0.06 -
-------- ------- -------
Adjusted earnings (loss) from continuing operations
before extraordinary item and cumulative effect
of change in accounting principle
$ 5.71 $ (3.36) $ 0.93
======== ======= =======
December 27, December 28, December 30,
2001 2000 1999
---- ---- ----
Reported common stockholders' share of net earnings
(loss) $58,444 $(45,258) $5,915
Add back: Goodwill amortization, net of tax 1,979 2,784 1,923
Add back: Assembled workforce amortization, net of tax 599 625 33
------- --------- -------
Adjusted common stockholders' share of net earnings (loss) $61,022 $(41,849) $7,871
======= ========== ======
Basic earnings per share:
Reported common stockholders' share of net earnings (loss) $ 5.53 $ (4.32) $ 0.59
Goodwill amortization, net of tax 0.19 0.27 0.19
Assembled workforce amortization, net of tax 0.06 0.06 -
-------- -------- ------
Adjusted common stockholders' share of net earnings (loss) $ 5.78 $ (3.99) $ 0.78
======== ========== ======
Diluted earnings per share:
Reported common stockholders' share of net earnings (loss) $ 5.26 $ (4.32) $ 0.58
Goodwill amortization, net of tax 0.18 0.27 0.19
Assembled workforce amortization, net of tax 0.06 0.06 -
-------- ----------- ----------
Adjusted common shareholderes' share of net earnings (loss) $ 5.50 $ (3.99) $ 0.77
======== ========== ======
Securities Offered by This Prospectus
Common Stock Offered by Us
The shares of our common stock offered by us may be offered through our
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 our internal stock market, whether direct by us, by our officers,
directors, and other affiliates, and by other stockholders, may be attributed to
us.
Total sales of our common stock on our internal stock market to date are:
o 2,945 shares sold directly by us,
o 294,403 shares sold by our officers, directors, and affiliates
(including for this purpose our Savings Plans), and
o 1,732,941 shares sold by other stockholders.
In addition, we have issued 234,850 shares directly to employees through
our employee benefit plans described below.
Following these sales and issuances, 9,704,173 shares remain available for
this offering, of which 4,006,845 shares are available for sale by us or
issuance under our benefit plans, 2,387,264 shares are available for sale on the
internal stock market by our officers, directors, and affiliates, and 3,310,064
shares may be sold by the Savings Plans and other stockholders.
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 these employees an
opportunity to make an equity investment in our common stock as an inducement to
become and remain employees. At the discretion of our Board of Directors or the
Compensation Committee of our Board of Directors, and subject to applicable
state securities laws employees and directors may be offered an opportunity to
purchase shares of our common stock offered by this prospectus.
All these direct and contingent sales to our employees and directors will
be effected through our internal stock market or the employee benefit plans
described below and may be attributable to us. Pursuant to our by-laws, all
shares of common stock offered by us on or after May 11, 1995, to our employees
or directors and all shares of our common stock purchased on our internal stock
market are subject to a right of first refusal. See "Description of Capital
Stock -- Restrictions on Our 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 our common stock over a period of seven years.
Under the Policy, certain senior executives are encouraged to invest an amount
related to their annual salary rate in shares of our common stock as follows:
recommended value
Base salary rate of: 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.
As an incentive to conform to the Policy, we pay 15% of the purchase price
plus related withholding taxes for individuals subject to the Policy who
directly purchase 250 or more shares of our common stock on our internal stock
market on a single trade date.
Savings Plans
We maintain a Savings and Retirement Plan and a Capital Accumulation and
Retirement Plan (the Savings Plans), which are intended to be qualified under
Section 401(a) of the Internal Revenue Code. Generally, all of our employees are
eligible to participate in one or the other of the Savings Plans, 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 primarily employ foreign nationals. The Savings
Plans permit a participant to elect to defer, for federal income tax purposes, a
portion of his or her annual compensation and to have that amount contributed
directly by us to the deferred fund of the Savings Plan for his or her benefit.
In some circumstances, we may permit an employee to make after-tax
contributions, which do not receive matching contributions.
The plan documents provide that we may make (1) matching contributions to
the Savings Plan trust for the benefit of participants who have elected to defer
a portion of their compensation, (2) supplemental matching contributions for the
benefit of participants who elect to invest a portion of their salary deferral
amounts in our common stock investment account, and (3) discretionary
contributions to eligible employees. These contributions may be made either in
shares of our common stock or in cash to be used by the trusts to purchase our
common stock on our internal stock market or from Savings Plans participants
exercising their ESOP Account put options. See "Employee Benefit Plans -- ESOP
Accounts -- Distributions".
Each participant is vested at all times in 100% of his or her personal
salary deferral contributions, after-tax contributions, and earnings thereon.
Our matching and discretionary contributions become fully vested after one year
of service. Benefits are distributable to a participant over certain specified
time periods following the participant's retirement, permanent disability,
death, or other termination of employment. Pursuant to our by-laws, shares of
our common stock distributed to a participant under the Savings Plan are subject
to our right of first refusal. See "Employee Benefit Plans -- Savings Plans" and
"Description of Capital Stock -- Restrictions on Our Common Stock".
Employee Stock Purchase Plan
We have established an Employee Stock Purchase Plan (ESPP) for the benefit
of substantially all our employees. The ESPP provides for the purchase of our
common stock by participating employees through payroll deductions. The ESPP 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 our common stock, and they pay 85% of
the purchase price. We either pay the remaining amount in cash or contribute the
difference in shares of our common stock for each participant.
Purchases on behalf of participating employees are made through our
internal stock market. All shares purchased pursuant to the ESPP 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. The Savings Plans may also sell shares in the internal
stock market to meet current cash needs. See "Employee Benefit Plans -- Employee
Stock Purchase Plan" and "Description of Capital Stock -- Restrictions on Our
Common Stock".
1995 Stock Option Plan
Pursuant to our 1995 Stock Option Plan, we have granted stock options to
certain of our employees and directors. As of September 26, 2002, 189,538 stock
options have been exercised and 1,027,375 are outstanding. Pursuant to the
by-laws, all shares of our common stock issued upon the exercise of those 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 Our Common Stock".
Executive Incentive Plan
Our Executive Incentive Plan (EIP) provides for the payment of annual
bonuses to certain of our officers and executive employees. The EIP provides for
payment of 20% of the bonuses, net of applicable taxes, in the form of shares of
our common stock, valued at the then-current formula price. The shares of our
common stock are distributed following each fiscal year. As of September 26,
2002, 45,312 shares have been distributed under the Executive Incentive Plan.
Pursuant to our by-laws, shares of our 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 Our 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 our 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.
Shares Remaining for Issue under Benefit Plans
Of the shares of our common stock initially registered under this
prospectus for issuance by us through our benefit plans, the following shares
remain available for issue: o up to 850,000 shares through the Savings Plans, o
up to 100,000 shares under the ESPP, o up to 1,027,375 shares through the Stock
Option Plan, and o up to 254,688 shares under the EIP.
Common Stock Offered by Our Officers, Directors, and Affiliates
This prospectus relates to the offer and sale of shares directly by certain
of our officers, directors, and affiliates, including the Savings Plans. These
persons may, from time to time, sell shares of our common stock being offered by
this prospectus on our internal stock market, and 294,403 shares have been sold
by them on our internal stock market by these persons as of September 26, 2002.
The total aggregate shares remaining available for offer and sale by our
officers, directors, and affiliates under this prospectus as of September 26,
2002 is 2,387,264 shares.
While we have registered all shares owned by our officers, directors, and
affiliates on a fully diluted basis, including unvested options, we do not know
whether some, none, or all of those shares will be so offered or sold. We
believe that the Executive Target Ownership Policy acts as a disincentive to
some officers and affiliates to sell their common stock at this time. Our
officers, directors, and affiliates will not be treated more favorably than our
other stockholders participating as sellers on our internal stock market. Like
all other stockholders selling shares on our internal stock market (except us
and our benefit plans), our 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 -- Our Internal Stock Market".
The following table sets forth information as of September 26, 2002 with
respect to the number of shares of our common stock owned directly or indirectly
by each of our 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 the person's accounts under our employee benefit plans, as well as
their respective percentages of ownership of equity on a fully diluted basis.
The shares are owned of record or beneficially. The table also reflects the
relative ownership of these persons in the event of, and after, their individual
sales of all the registered shares owned by them in this offering.
Percent Number of
Number of ownership of shares Percent
shares fully diluted remaining after ownership after
beneficially equity (1) sale of all sale of all
Name and Title of Beneficial Owner owned (1) before offering covered shares covered shares
- ------------------------------------------------ -------------- ---------------- ----------------- -----------------
D. R. Bannister, Director & Chairman of the 477,495 3.8% 0 *
Board
T. E. Blanchard, Director 162,118 1.3% 0 *
M. P. C. Carns, Director 10,000 * 0 *
P. G. Kaminski, Director 15,000 * 0 *
P. V. Lombardi, Director & President & Chief 281,936 2.3% 0 *
Executive Officer
D. C. Mecum II, Director 12,825 * 0 *
D. L. Reichardt, Director & Senior Vice 214,306 1.7% 0 *
President & General Counsel
H. B. Thompson, Director 10,000 * 0 *
H. S. Winokur, Jr., Director 432,912 3.5% 0 *
J. A. Campbell, Vice President 5,910 * 0 *
S. J. Cannon, President of DynCorp 75,638 * 0 *
International LLC
J. L. Cunningham, President of DynCorp Systems 63,641 * 0 *
& Solutions LLC
J. J. Fitzgerald, Vice President & Controller 61,636 * 0 *
P. C. FitzPatrick, Senior Vice President & 172,663 1.4% 0 *
Chief Financial Officer
V. K. Gopalan, Vice President 16,953 * 0 *
P. T. Graham, Vice President & Treasurer 43,068 * 0 *
H. M. Hougen, Vice President & Secretary 30,598 * 0 *
M. S. Mandell, Senior Vice President 152,243 1.2% 0 *
W. B. Medley, President of DynCorp Technical 55,671 * 0 *
Services LLC
R. Morrel, Vice President 47,930 * 0 *
R. G. Wilson, Vice President & General Auditor 47,721 * 0 *
---------- -
Total $2,390,263 19.2% 0 *
<FN>
* Indicates less than one percent
(1) 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 these
persons' accounts under our employee benefit plans.
</FN>
Market Information
Our Internal Stock Market
In 1988, following a decision by our Board of Directors to consider offers
for the purchase of our company, we became privately owned through a leveraged
buy-out involving our management. Public trading of our common stock ceased, and
we installed an Employee Stock Ownership Plan, under which shares of our common
stock were allocated annually to employees accounts, as our principal retirement
benefit plan. In 1996, we permitted employees to invest in our common stock
through the Savings and Retirement Plan as well. This investment opportunity
continues through the Savings Plans. See "Employee Benefit Plans -- Savings
Plans". Approximately 40,000 current and former employees are now beneficial
owners of our common stock through the Savings Plans, representing approximately
84.0% of the shares of our common stock outstanding on September 26, 2002.
After public trading of our common stock ceased in 1988, 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 our
internal stock market as a means of trading our common stock on a regular basis
to replace the former stockholders agreement.
Our internal stock market generally permits our stockholders to sell shares
of our common stock on one trade date each calendar quarter, subject to purchase
demand. (The trusts, not the individual participants, of our employee benefit
plans constitute stockholders.) All sales of our common stock on our internal
stock market are made to active employees and the trustees or administrators of
our benefit plans, who may purchase shares of our 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.
Our 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 our 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 our internal stock market and advises them
how to deliver written sell orders and stock certificates. The broker-dealer
must receive these orders and certificates at least three business 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 our common stock on
our internal stock market on any trade date. We would only purchase shares if
the number of shares offered for sale by our stockholders exceeds the number of
shares sought to be purchased by authorized buyers and if, in our discretion, we
determine to make any purchases in our internal stock market. 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 the shortfall. We
would only enter our internal stock market to correct an 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 our internal stock
market is greater than the aggregate number of shares sought to be purchased by
authorized buyers, offers to sell up to the first 500 shares offered by any
seller (other than the Savings Plan trusts selling accelerated distribution
shares) 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 and then again to the next 20,000 shares offered by each remaining
seller. If there are remaining purchase orders, offers to sell shares in excess
of 30,500 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. Finally, the Savings Plan trusts
may sell accelerated distribution shares put to the trusts from ESOP Accounts or
otherwise to generate cash to pay for the liquidation of the shares. See
"Employee Benefit Plans -- ESOP Accounts -- Distributions".
All sellers on our internal stock market (except us and our benefit plan
trusts) will pay the broker-dealer a commission equal to one percent of the
proceeds from their sales. Purchasers on our internal stock market pay no
commission. All offers and sales of our common stock made on our 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 trustee of the Savings Plans,
2. the administrator of the Employee Stock Purchase Plan, and
3. eligible employees and directors, on a pro rata basis.
There is no public market for our common stock, and it is not currently
anticipated that a public market will develop. We established our internal stock
market in an effort to provide liquidity to our stockholders, but we cannot
assure that there will be sufficient liquidity to permit stockholders to resell
their shares on our internal stock market or that a regular trading market will
develop or be sustained in the future. Our internal stock market will be
dependent on the presence of sufficient buyers to support sell orders that will
be placed through our internal stock market. Depending on our performance,
potential buyers may elect not to buy on our internal stock market. Moreover,
although we may enter our internal stock market as a buyer of our 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 our internal stock market may not be permitted
to open on a trade date because of the lack of sellers or buyers.
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.
If our 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 our common stock, 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 "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 our common stock, expressed as a
formula, is as follows:
formula price = [(CF x 7)MF + NOA - IBD]
---------------------
ESO
The formula price per share of our 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, net of cash, adjusted to market
and other outstanding securities senior to our common stock (IBD), divided by
the number of shares of our common stock outstanding as of the end of the
preceding quarter, on a fully diluted basis assuming exercise of all outstanding
options (ESO).
We consider operating cash flow to be the earnings basis which is
representative of our future performance. The basic measurement we use for
operating cash flow is our earnings before interest, taxes, depreciation, and
amortization (EBITDA) for the four fiscal quarters preceding the date of a price
valuation, although EBITDA is not a generally accepted accounting principles
measurement. Before using those 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 adjusted
for a full year,
o the earnings from a discontinued activity may be adjusted 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 adjusted out even
though it is clearly part of earnings for the current year.
The market factor is subjective. Our common stock is valued from time to
time by the trustee of our Savings Plans, normally as of the end of the year and
in anticipation of an internal stock market trade date. The valuation is
necessary to determine the fair market value of the shares for purposes of
transactions by the Savings Plan trusts. The trustee's valuation is based upon
an appraisal of the common stock prepared by an independent advisor retained by
the trustee, which looks at our financial performance, including factors such as
CF, NOA, and IBD, and the public market pricing for other companies which it
believes 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 other factors 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. The appraiser also looks at valuations recently used in the
acquisition of other companies.
Since the formula capitalizes our operating cash flow by a multiple of
seven, the appraisal gives our Board of Directors a sense whether the public
market is currently at a higher, lower, or roughly the same level as that fixed
multiple. Our Board also considers the fact that the Savings Plan trusts are the
primary buyers in the internal stock market, so that the trustee's determination
is tantamount to the highest bid price in a true auction market. Our Board will
then look to the trustee's valuation to determine the market factor to be used
in the formula.
If we discontinue a business, and the net assets of that business are
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 our common stock.
Under generally accepted accounting principles, interest-bearing debt is to be
reported net of any unamortized discount at issuance. However, 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 our 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 our
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 but assuming
that as many shares as are issued upon exercise will be issued from treasury,
and the conversion of any convertible securities, of which none are outstanding
at the current time. 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 our Board.
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,
electronic mail messages, and at the Company Information portion of our internal
web site insidedyn.dyncorp.com and to other stockholders by mailed reports,
including mailed notices of upcoming trade dates, or through the Financial News
portion of our external web site www.dyncorp.com. Participants in the Savings
Plans may also 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 our internal stock market through employee
benefit plans, either through U.S. mail or inter-company mail and by posting on
our web sites. This 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 these
filings are available from the SEC. See "Where You Can Find More Information".
Private Transactions
This prospectus does not apply to private transactions outside our internal
stock market.
Use of Proceeds
The shares of our 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 our 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 our 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 any
proceeds. It is anticipated that our stockholders, not we, will make the
majority of the sales of our common stock on our internal stock market, and we
will not receive any portion of the net proceeds from the sale of their shares.
- --------------------------------------------------------------------------------
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 our annual
goals and the operations for which they are responsible and increase the value
of our common stock. Following is a summary description of these plans.
SAVINGS PLANS
We first adopted our Savings and Retirement Plan in 1983. It was amended
and restated in 1989. On January 1, 2001, we split our Savings and Retirement
Plan into two similar plans known as the Savings and Retirement Plan and the
Capital Accumulation and Retirement Plan. At the same time, the former Employee
Stock Ownership Plan was merged into the two Savings Plans. The former Employee
Stock Ownership Plan accounts of active participants in the Capital Accumulation
and Retirement Plan were transferred to their ESOP Accounts in the Capital
Accumulation and Retirement Plan. The former Employee Stock Ownership Plan
accounts of all other active and former employees were transferred to their ESOP
Accounts in the Savings and Retirement Plan. The following discussion does not
apply to ESOP Accounts. See "Employee Benefits Plans -- ESOP Accounts".
Eligibility and Participation
Generally, all employees are eligible to participate in a Savings Plan,
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 primarily employ foreign nationals. As of
September 26, 2002, there were approximately 22,200 active participants in the
Savings Plans; most of them have investments in our common stock through the
Savings Plans.
Contributions and Allocations
The Savings Plans permit a participant to elect to defer a portion of his
or her compensation for the plan year and to have the deferred amount
contributed directly by us to the Savings Plan trust for allocation to the
participant's Savings Plan account. Amounts deferred by participants for the
plan year ended December 31, 2001 totaled approximately $8.1 million. The
deferred amounts are treated for tax purposes as contributions made by us. The
administrative committee determines the maximum amount of compensation that a
participant may elect to defer, but in no event may the deferral exceed $11,000
during 2002. This annual limitation is periodically adjusted for cost-of-living
changes under rules prescribed by the U.S. Secretary of the Treasury. In some
circumstances, we may permit an employee to make after-tax contributions, which
do not receive matching contributions.
A participant in a Savings Plan 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 Savings Plan.
The plan documents provide that we may make (1) matching contributions to
the Savings Plan trust for the benefit of participants who have elected to defer
a portion of their compensation, (2) supplemental matching contributions for the
benefit of participants who elect to invest a portion of their salary deferral
amounts in our common stock investment account, and (3) discretionary
contributions to eligible employees. These contributions may be made either in
shares of our common stock or in cash to be used by the trusts to purchase our
common stock on our internal stock market or from Savings Plans participants
receiving distributions of their ESOP Accounts and exercising their put options.
See "Employee Benefit Plans -- ESOP Accounts -- Distributions". We may also make
additional contributions to the Savings Plan trusts in order to comply with
Section 401(k) of the Internal Revenue Code.
Maximum employer contributions to the Savings and Retirement Plan (SARP)
and Capital Accumulation and Retirement Plan (CAP) are as follows:
SARP CAP
matching on salary 50% of first 8% 25% of first 8%
deferral of salary of salary
deferred deferred
supplemental 50% of first 3% 50% of first 3%
matching on of salary so of salary so
investment in invested invested
our stock
discretionary 1% of salary 2% of salary
These matching and discretionary contributions are made either in the form
of our common stock or in cash to be used by the trusts to purchase our common
stock in the internal stock market and are allocated to the Savings Plan
accounts of those participants. We reserved 850,000 shares of our common stock
in 1995 for possible issuance in satisfaction of our stock-match obligations,
but we have not issued any of those shares to date.
Salary deferred by participants must be paid to the trust within 15
business days of the last day of the calendar month in which the deferral
occurred. Other employer contributions to the Savings Plans must be made by the
due date for our federal income tax return for the applicable year. Our practice
has been to make matching and discretionary employer contributions quarterly in
cash, based on current participant deferrals.
An eligible employee may transfer a rollover contribution from another
qualified retirement plan to the trust fund maintained for the Savings Plans,
pursuant to applicable regulations and administrative committee procedures. The
transferred funds may be invested in the various investment alternatives,
including our common stock, but are not eligible for a matching contribution.
Investment of Funds
The administrative committee has established a choice of investment
alternatives, including our common stock, in which contributions to the Savings
Plans, including that portion of compensation which participants elect to defer,
may be invested. The investment alternatives currently available to participants
in the Savings Plans include 13 T. Rowe Price investment options. Participants
may also invest in self-directed investments through T. Rowe Price's TradeLink
Plus investment account.
A participant's entire interest in his or her Savings Plan account may be
invested in a mixture of our common stock and any of the other investment
options. However, the portion of a participant's compensation deferred under the
Savings Plan that was invested in our common stock and thereby generated the
supplemental employer match as well as the shares representing matching and
discretionary contributions are not exchangeable for other investment
alternatives until after a period of four quarters, in the case of the Savings
and Retirement Plan, and eight quarters, in the case of the Capital Accumulation
and Retirement Plan.
Participants may elect to have contributions allocated or apportioned among
the different investment alternatives, subject to restrictions the
administrative committee may specify. Separate Savings Plan accounts are
established for each investment alternative selected by a participant, and each
account is valued separately. Except for restrictions on liquidation of
investments in our common stock, participants may transfer amounts from one
investment alternative to one or more other investment alternatives on a daily
basis.
All amounts related to our common stock are invested in our common stock,
except for cash accumulations held pending purchase of common stock.
At a trade date, the monies attributable to shares which participants have
elected to transfer into or out of our common stock are first netted against
each other, and the trustee then buys or sells the remaining number of shares on
our 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 our common
stock fund may be restricted. See "Risk Factors -- Absence of a Public Market"
and "Market Information -- Our Internal Stock Market".
The following tables summarize, as of the dates indicated, the investment
performance, since December 31, 1997, of each of the T. Rowe Price investment
options in which Savings Plan 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 or trust.
T. Rowe Price Stable Value Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $106.03 6.0
12/31/1999 $112.20 5.8
12/31/2000 $118.93 6.0
12/31/2001 $125.87 5.8
6/30/2002 $129.14 2.6
T. Rowe Price Corporate Income Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $102.28 2.3
12/31/1999 $101.43 (0.8)
12/31/2000 $109.52 8.0
12/31/2001 $120.24 9.8
6/30/2002 $120.91 0.6
T. Rowe Price U.S. Treasury Intermediate Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $110.18 10.2
12/31/1999 $106.64 (3.2)
12/31/2000 $119.61 12.2
12/31/2001 $128.61 7.5
6/30/2002 $133.72 4.0
T. Rowe Equity Index Trust
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $128.59 28.6
12/31/1999 $155.53 21.0
12/31/2000 $141.39 (9.1)
12/31/2001 $124.45 (12.0)
6/30/2002 $107.96 (13.2)
T. Rowe Price Global Stock Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $122.50 22.5
12/31/1999 $157.73 28.8
12/31/2000 $145.13 (8.0)
12/31/2001 $122.80 (15.4)
6/30/2002 $110.40 (10.0)
T. Rowe Price Growth & Income Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $109.96 10.0
12/31/1999 $114.12 3.8
12/31/2000 $124.35 9.0
12/31/2001 $121.66 (2.2)
6/30/2002 $103.94 (14.6)
T. Rowe Price Growth Stock Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $127.41 27.4
12/31/1999 $155.63 22.1
12/31/2000 $156.05 0.3
12/31/2001 $140.77 (9.8)
6/30/2002 $118.01 (16.2)
T. Rowe Price International Stock Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $116.14 16.1
12/31/1999 $156.32 34.6
12/31/2000 $129.60 (17.1)
12/31/2001 $101.07 (22.0)
6/30/2002 $97.30 (3.7)
T. Rowe Price Mid-Cap Growth Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $122.00 22.0
12/31/1999 $151.01 23.8
12/31/2000 $162.23 7.4
12/31/2001 $160.64 (1.0)
6/30/2002 $143.81 (10.5)
T. Rowe Price New Horizons Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $106.25 6.3
12/31/1999 $140.80 32.5
12/31/2000 $138.18 (1.9)
12/31/2001 $134.26 (2.8)
6/30/2002 $111.77 (16.8)
T. Rowe Price Personal Strategy Balanced Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $113.90 13.9
12/31/1999 $122.96 8.0
12/31/2000 $129.85 5.6
12/31/2001 $126.61 (2.5)
6/30/2002 $122.56 (3.2)
T. Rowe Price Personal Strategy Growth Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $115.65 15.7
12/31/1999 $128.61 11.2
12/31/2000 $134.65 4.7
12/31/2001 $126.58 (6.0)
6/30/2002 $120.23 (5.0)
T. Rowe Price Personal Strategy Income Fund
% increase/
Unit value (decrease)
---------- ----------
12/31/1997 $100.00 --
12/31/1998 $111.50 11.5
12/31/1999 $117.26 5.2
12/31/2000 $124.98 6.6
12/31/2001 $126.17 1.0
6/30/2002 $124.30 (1.5)
Our Company Stock Fund
Because our common stock has not been publicly traded since 1988, there has
not been any historical market-determined price. The prices shown below
represent the formula price for the last trade date on or preceding the date
shown. See "Market Information -- Determination of Purchase Price".
The following tables summarize, as of the dates indicated, the investment
performance of our common stock since December 31, 1997. The summary is based on
the assumption that a participant made an initial investment of $100.00 in our
common stock in the Savings and Retirement Plan (SARP).
Price per % increase
share Unit value (decrease)
----- ------ ----------
12/31/1997 $20.00 $100.00 --
12/31/1998 $20.00 $100.00 0.0
12/31/1999 $23.50 $117.50 17.5
12/31/2000 $29.00 $145.00 23.4
12/31/2001 $44.75 $223.75 54.3
6/30/2002 $51.25 $256.25 14.5
However, investments in our common stock through the SARP were immediately
enhanced by a stock match which was, at that time, 100% of the first 1% of
salary so invested and 25% of the next 4% of salary so invested. Assuming that a
participant in the SARP had elected to defer 5% of salary toward an investment
in our common stock for the December 18, 1997 trade date and that we made the
appropriate stock match, an investment of $100.00 would have grown as follows:
Price per % increase
share Unit value (decrease)
----- ------ ----------
12/18/1997 $20.00 $100.00 (1) --
12/18/1997 $20.00 $140.00 (2) 40.0
12/31/1998 $20.00 $140.00 0.0
12/31/1999 $23.50 $164.50 17.5
12/31/2000 $29.00 $203.00 23.4
12/31/2001 $44.75 $313.25 54.3
6/30/2002 $51.25 $358.75 14.5
(1) initial investment (2) effect of stock match
Vesting
Each Savings Plan participant is 100% vested in those portions of his or
her Savings Plan account which are attributable to the participant's salary
deferrals, after-tax contributions, rollover contributions, and earnings
thereon. The matching and discretionary employer contributions are fully vested
after one year of service.
Loans
Loans from their Savings Plan 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 our 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. Loans
are secured by a pledge of up to 50% of the participant's vested account
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. Upon termination of employment for any reason, the entire amount of
the loan and interest becomes immediately due and payable.
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
Savings Plan account as soon as practicable following the date of termination.
If a participant dies while employed, the trustee will make a distribution of
the participant's entire interest in his or her Savings Plan account to the
participant's spouse, or, if the 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 Savings Plan 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 Savings Plan 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 Savings Plan 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 after-tax, rollover,
matching, and discretionary contributions.
All distributions from the Savings Plan, including withdrawals, are paid in
cash, except that the portion of Savings Plan balances represented by our common
stock may be distributed in kind or in cash, at the participant's election.
Shares distributed from the Savings Plan are not subject to the put option which
applies to shares transferred to ESOP Accounts. See "Employee Benefit Plans --
ESOP Accounts -- Distributions".
Shares which the trustee is unable to liquidate in time for a timely
distribution will be distributed in kind. Shares of our common stock distributed
in kind will be subject to our right of first refusal in the event that the
participant desires to sell the shares other than on our internal stock market.
See "Description of Capital Stock -- Restrictions on Our Common Stock".
ESOP ACCOUNTS
From January 1, 1988 until December 31, 2000, our Employee Stock Ownership
Plan was our principal retirement plan. At the time of the January 1, 2001
merger of the Employee Stock Ownership Plan into the Savings Plans, the Employee
Stock Ownership Plan accounts of participants, consisting principally of shares
of our common stock, were transferred to the Savings Plans. The foregoing
discussions of Eligibility and Participation, Contributions and Allocations,
Investment of Funds, Vesting, Loans, and Distributions and Withdrawals do not
apply to these ESOP Accounts, to which the rules of the Employer Stock Ownership
Plan continue to apply.
Eligibility and Participation
Only those participants who had accounts in the Employee Stock Ownership
Plan have ESOP Accounts in the Savings Plans.
Contributions and Allocations
We did not make any contributions to the Employee Stock Ownership Plan for
the plan year ended December 31, 2001.
Employer contributions to the Employee Stock Ownership Plan for each plan
year were generally allocated to the accounts of participants in the ratio which
each participant's eligible compensation bore to the total eligible compensation
of all participants. When the ESOP Accounts were transferred to the Savings
Plans on January 1, 2001, there were 7.6 million shares so transferred.
Investment of Funds
Although it is generally intended that ESOP Accounts will be invested in
our common stock, the trust may hold cash and liquid investments pending
purchase of our common stock and for current cash needs.
Participants who have attained the age of 55 and have ten or more years of
combined participation in the Savings Plans and the Employee Stock Ownership
Plan are entitled to receive distributions of a portion of their ESOP Account
balances for diversification purposes. They can invest the cash proceeds of the
distribution in another retirement plan, such as an Individual Retirement
Account (IRA) or the Savings Plan.
Vesting
The ESOP Account 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 the participant
attains age 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
A participant will normally commence receiving distributions of shares of
our common stock from the ESOP Account 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. When ESOP
Account distributions commence before the time that our common stock has become
"readily tradable" stock, as defined in the Internal Revenue Code, the trust or
we are obligated to repurchase distributed shares of our common stock. This "put
option" gives the holder of the shares the right to require the trust or, if the
trust does not honor the put, us, to purchase all or a portion of the shares at
the ESOP Account 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 the distribution,
subject to notification by the trust of the current valuation of our common
stock. These shares will also be subject to a right of first refusal by the
trust and a subsequent right of first refusal by us if the participant desires
to sell these shares other than on our internal stock market. See "Description
of Capital Stock -- Restrictions on Our Common Stock".
The ESOP Account share price is actually two different prices. One price is
applicable to the shares first acquired by the Employee Stock Ownership Plan in
1988, incidental to the leveraged buy-out, which constituted a controlling
portion of our outstanding common stock. These shares have an "enterprise value"
which was $53.25 per share as of the May 24, 2002 valuation made by the trustee
upon the advice of the independent appraisal firm. The other price is applicable
to shares acquired by the Employee Stock Ownership Plan subsequent to 1988,
which carried no controlling factor. These shares have a "minority value" which
was $51.25 per share as of the May 24, 2002 valuation. Each participant's ESOP
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 trust or us pursuant to the put option, the applicable ESOP Account share
price, depending upon whether the shares bears an enterprise value or a minority
value, is payable for the share.
Commencing January 1, 2001, participants who have terminated employment and
are scheduled for ordinary distributions from their ESOP Accounts in 2002 and
later years are offered the opportunity to elect accelerated distributions of
those shares, provided they immediately put the shares to the trust in
accordance with the plan procedures and provided there are buy orders remaining
open on the internal stock market. See "Market Information -- Our Internal Stock
Market". The aggregate number of shares of all participants making this election
which are then distributed on any internal stock market trade date is equivalent
to the number of shares the trust is able to sell on the internal stock market
to generate cash to honor the puts. Accelerated distribution shares are then
allocated pro rata among all electing participants. Shares distributed are taken
from participants' ESOP Accounts in inverse order, so the last shares otherwise
due for distribution are removed first. Shares not distributed because of an
inadequate internal stock market are retained in the participants' ESOP Account
until the next trade date or a normal distribution date, whichever is first.
Participants may make an election or revocation at any time, provided that
elections must be received by the plan administrator ten business days prior to
a trade date, and revocations must be received three business days prior to a
trade date.
As of September 26, 2002, we estimate an aggregate annual commitment to
repurchase shares from the ESOP Accounts as follows: $12.1 million in 2002,
$27.9 million in 2003, $30.1 million in 2004, $27.7 million in 2005, $23.9
million in 2006, and $241.1 million thereafter. To the extent that we or the
trusts repurchase shares as described above, our ability, and the ability of the
trusts, to purchase shares on our internal stock market will be adversely
affected. See "Risk Factors -- We May be Obligated to Repurchase Shares of
Certain ESOP Accounts".
A participant may withdraw up to 25% of his or her aggregate vested ESOP
Account after age 55 and ten years of participation, in order to diversify the
investment of his or her retirement fund account. At the sixth year after this
event occurs, the amount which may be withdrawn increases to 50%. This is called
a diversification distribution.
Except for the diversification distribution, participants cannot receive a
distribution from the ESOP Account prior to termination of employment. In the
absence of a qualified domestic relations order to the contrary, a participant's
interest in the ESOP Account 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 SAVINGS PLANS
The following provisions are applicable to each of the Savings Plans,
including ESOP Accounts.
Trustees
T. Rowe Price Retirement Plan Services, Inc., P. O. Box 17215, Baltimore,
Maryland 21297-1215, serves as trustee of the Savings Plans, except that
GreatBanc Trust Company, 45 Rockefeller Plaza, Suite 2055, New York, NY 10111
serves as trustee of our common stock accounts held in the trusts, including
ESOP Accounts.
Administration
We administer the Savings Plans through an administrative committee
consisting of T. E. Blanchard, P. T. Graham, and H. M. Hougen, whose address is
11710 Plaza America Drive, Reston, Virginia 20190.
The members of the administrative committee are appointed by and serve at
the discretion of our Board of Directors. The members of the committee who are
currently employed by us receive no compensation from the plans for services
rendered in connection therewith.
The committee has 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.
Contribution Limitations
The maximum contribution for any plan year which we may make to our Savings
Plans for the benefit of a participant, including contributions as a result of
salary deferral elections by participants, plus forfeitures, may not exceed the
lesser of (1) $40,000 or (2) 100% of the participant's compensation.
Pass-Through Voting and Tendering of Common Stock
Each participant in the Savings 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 our common stock held in the participant's account. The trustee will
vote all shares held in the Savings Plans for which no voting instructions are
received in the same proportion as the shares in each plan for which voting
instructions have been received are voted. The trustee is 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 Savings 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 our common stock held in the Savings 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 Savings 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 (ERISA) govern the trustee's duties with respect to voting and tendering of
shares of our common stock. These fiduciary provisions may require, in certain
limited circumstances, that the trustee override the participants' voting
instructions or decide 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 administrative 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 these investments are defined by
ERISA, 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 the securities, subject, in
the case of our securities, to the participants' pass-through voting
rights, convert the securities into other securities, acquire
additional securities and exchange the 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, in the case of our securities, to the participants'
pass-through voting rights.
The trustee's compensation and other expenses incurred in the
establishment, administration, and operation of the plans are borne by the
respective trusts to the extent permitted by law, unless we elect to pay these
expenses.
Administrative and Custodial Services
We, as well as commercial service providers, perform administrative
services for the plans, principally related to accounting, valuation, and
recordkeeping. The costs of the commercial service providers 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 frequently 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 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 (ERISA)
Each of the Savings Plans is subject to ERISA, including reporting and
disclosure obligations, fiduciary standards, and prohibited transaction rules.
Because each of the plans is an individual account plan as defined in ERISA, the
plans are not subject to the jurisdiction of the Pension Benefit Guaranty
Corporation under Title IV of ERISA, 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 employer
contributions to the plans at the time 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 we will be subject to federal employment taxes on
employer contributions to the plans, except as set forth below with respect to
certain employer contributions to the Savings Plans. The plan trusts will not be
subject to federal income tax on the contributions by us 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, we will be able to deduct
the amounts that we contribute as matching and discretionary contributions under
the plans as compensation expense, with the amount of these deductions 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, 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 IRA,
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 or partial capital gains taxation of the
distribution, or
o receives our common stock as part of his or her distribution and elects
to defer the tax on "net unrealized appreciation" of our 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,
pro rata with earnings on after-tax contributions, and to the extent
attributable to after-tax contributions, the distribution will not be taxable.
The balance of the 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 IRA 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 IRA or the
other qualified plan.
If an eligible rollover distribution is not directly rolled over from one
of the plans to an IRA 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 IRA 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 IRA 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 IRA 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 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 tax rates and may elect to
have the pre-1974 portion of the lump-sum distribution taxed at 1986 capital
gains rates. Ten-year averaging often reduces the tax a participant owes because
it treats the distribution much as if it were paid over ten years.
The special 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 his or her regular Savings
Plan account and ESOP Account in the same taxable year, he or she could not
elect to use ten-year averaging on one account while electing a rollover to an
IRA of the distribution from the other.
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 IRA or another qualified plan. However, if the participant
rolls over the common stock to an IRA, the special rule for net unrealized
appreciation does not apply when the common stock is distributed from the IRA.
"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 IRA 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 age 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 IRA, 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 funds of the Savings Plans are intended to be a qualified
"cash or deferred arrangement" under Section 401(k) of the Internal Revenue
Code. A participant in the Savings Plans who elects to defer a portion of his or
her compensation and have us contribute it to the Savings Plans 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 Savings Plan account are limited to certain annual
amounts (adjusted for cost-of-living changes). 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 2002, the
adjusted limit is $11,000.
Generally, we will be able to deduct the amounts that we contribute to the
Savings Plans pursuant to employee elections to defer a portion of their
compensation, as well as any matching or additional employer contributions we
make to the deferred fund. The deduction will be equal to the amount of
contributions made.
With respect to loans from the Savings Plans 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 ESPP was adopted on May 10, 1995, and it became effective July 1, 1995.
The ESPP is intended to qualify as a stock purchase plan under Section 423(b) of
the Internal Revenue Code. The ESPP provides for the purchase of our common
stock by participating employees through voluntary payroll deductions. At each
trade date, the ESPP will purchase for the account of each participant that
number of shares of our common stock which may be acquired with the funds
available in the participant's stock purchase account, together with our
contribution described below. The ESPP is not subject to ERISA.
Eligibility
Generally, all of our employees are eligible to participate in the ESPP.
However, no employee who owns our capital stock having more than five percent of
the voting power or value of the capital stock is able to participate. An
employee's eligibility to participate in the ESPP will terminate upon
termination of employment.
Employees may participate in the ESPP by completing a payroll deduction
authorization and establishing a brokerage account with the broker-dealer
handling our 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 ESPP and any other employee stock purchase plan that may be
adopted by us.
Purchase of Shares/Discount
Shares of our common stock purchased under the ESPP will be acquired on our
internal stock market. See "Market Information -- Our 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. We may either pay the discount
portion to the ESPP 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 15%. We reserved 100,000 shares of our common stock in 1995 for possible
issuance under the ESPP in satisfaction of this contribution obligation, but we
have not issued any of these shares to date.
Distribution, Withdrawals, and Sales
Shares of our common stock acquired under the ESPP 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 our by-laws, all shares of our common stock purchased through
the ESPP will be subject to our right of first refusal in the event that the
participant desires to sell the shares other than on our internal stock market.
See "Description of Capital Stock -- Restrictions on Our Common Stock".
Participants may withdraw the money held in their stock purchase accounts
at any time prior to its use to purchase shares, although upon doing so the
participant will not be eligible to participate in the ESPP until three months
after withdrawal. No interest will be paid on the money held in the stock
purchase accounts of the participants.
Amendment and Termination
Our Board of Directors may suspend or amend the ESPP 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 that share,
o cause the ESPP to fail to qualify under Section 423 of the Internal
Revenue Code, or
o deny to participating employees the right at any time to withdraw from
the ESPP and obtain all amounts then due to their credit in their stock
purchase accounts.
The ESPP will terminate on December 31, 2004, unless extended by our Board
of Directors.
Administration
A commercial service provider performs administrative services for the
ESPP, principally related to accounting and recordkeeping. The costs of these
administrative services are borne by us.
Federal Income Tax Consequences
In our view, the following discussion includes a description of all
material federal income tax considerations relating to the ESPP. We have not
received an opinion of counsel with respect to this discussion.
For federal income tax purposes, a participant in the ESPP will recognize
no taxable income until the taxable year of sale or other disposition of the
shares of our common stock acquired under the ESPP.
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 ESPP, 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 ESPP 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 38.6 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 ESPP 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 ESPP. 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 ESPP under Section
423 of the Internal Revenue Code.
1995 STOCK OPTION PLAN
General
Our Board of Directors approved the 1995 Stock Option Plan (Option Plan) on
February 10, 1995, and it became effective July 1, 1995. The Option Plan
authorized the granting of stock options with respect to an aggregate of
1,250,000 shares of our common stock, during the period July 1, 1995 through
June 30, 2001. As of September 26, 2002, 189,538 options have been exercised,
1,027,375 options are outstanding, and no options are available for award.
The exercise price of options granted under the Option Plan is determined
by the Compensation Committee and may not be less than 100% of the most recent
formula price of our common stock as of the date of grant.
All options granted pursuant to the 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 Option Plan are directors
and key employees designated by the Compensation Committee.
Vesting of Options
Except as otherwise determined by the Compensation Committee, the right to
exercise options granted prior to March 5, 1998 under the Option Plan vest at
the rate of 20% per year during the five-year period following the date of the
grant, and the right to exercise options granted on and after that date vest at
the rate of 25% per year during the four-year period following the date of the
grant. Options granted prior to March 5, 1998 will expire seven years after the
date of grant unless earlier exercised; other options will expire ten years
after the date of grant.
In the event we are involved in a change of control, 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 may be 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 and payroll taxes are
payable in cash or in shares of our common stock valued at the formula price on
the date of exercise.
Amendment and Termination
The Option Plan will terminate, and all unexercised options will expire,
ten years after the grant of the last option, which will be June 29, 2011.
The Option Plan may be amended, terminated, or revised by our Board of
Directors, except that no amendment may impair any outstanding option without
the consent of the holder of the option.
General Provisions
All shares issued upon exercise of options granted under the 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 our 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 Our Common
Stock".
If the outstanding shares of our common stock 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 our 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 our Board of Directors administers the Option
Plan. The current members of the Compensation Committee are H. S. Winokur, Jr.,
M. P. C. Carns, and P. G. Kaminski. The address of each member is 11710 Plaza
America Drive, Reston, Virginia 20190. The Compensation Committee is appointed
annually by our Board, which may also fill vacancies or replace members of the
Compensation Committee.
Subject to the express provisions of the Option Plan, the Compensation
Committee has the authority to:
o interpret the Option Plan,
o prescribe, amend, and rescind rules and regulations relating to the
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 Option Plan,
o determine the terms and conditions of the option agreements under the
Option Plan, which need not be identical, and
o make all other determinations necessary or advisable for the
administration of the Option Plan.
The members of the Compensation Committee receive no compensation from the
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 Option Plan. We have
not received an opinion of counsel with respect to this discussion.
All options granted under the Option Plan are non-qualified stock options;
that is, they do not receive the same treatment under the Internal Revenue Code
as do "qualified" incentive 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 an option, the optionee will recognize ordinary income for federal
income tax purposes and be liable for FICA and Medicare taxes, based on the
excess of fair market value at the time of exercise over the exercise price. We
will generally be entitled to a tax deduction at the same time and in the same
amount that the optionee realizes ordinary income.
When common stock acquired upon the exercise of a non-qualified stock
option is later sold, the difference between the sale price and the fair market
value of the shares on the date of exercise 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 the 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 The 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 ESPP. See "Employee Benefit Plans -- Employee Stock
Purchase Plan".
Holders of options granted under the 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
our 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.
1999 LONG-TERM INCENTIVE STOCK PLAN
On March 3, 1999, we adopted the 1999 Long-Term Incentive Stock Plan, which
is an employee benefit plan under which selected employees and directors may
receive incentive-based stock options, restricted stock, and other stock-based
awards. We may issue up to 900,000 additional shares under this plan. The
issuances of shares under that plan are not the subject of this offering or this
prospectus.
EXECUTIVE INCENTIVE PLAN
General
Our EIP became effective in 1993 and has been modified from time to time to
reflect management's current incentive goals. The EIP provides for the annual
award of discretionary bonuses based on the achievement of specific financial
and individual performance goals. The EIP was amended effective January 1, 1996
to provide for the payment of 20% of each award in the form of shares of our
common stock, based on the most recent formula price.
We reserved 300,000 shares of our common stock in 1995 for possible
issuance under the EIP, and 45,312 shares have been issued to date. The EIP is
not subject to ERISA and is not intended to be qualified under Section 401(a) of
the Internal Revenue Code.
Eligibility and Participation
Our officers and certain key executive employees are designated by the
Compensation Committee to be eligible to participate in and receive bonuses
under the EIP.
Awards
Each year we establish bonus pools representing the aggregate targeted
bonuses negotiated in advance with EIP participants. Awards under the EIP are
generally made based upon the achievement of previously established individual
and financial performance criteria. Awards under the EIP are made based on
recommendations of our 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 termination of the
person's employment prior to the date for payment of awards.
Awards of bonuses under the EIP are generally distributed after the end of
the fiscal year to which the bonus relates. After calculation of the bonus
amount and allowing for applicable taxes, 20% of the net bonus amount is
normally paid in the form of shares of our common stock, valued at the formula
price.
Pursuant to our by-laws, all shares of our common stock distributed under
the EIP will be subject to our right of first refusal in the event that the
participant desires to sell these shares other than on our internal stock
market. See "Description of Capital Stock -- Restrictions on Our Common Stock".
As an exception to the normal procedure, the Compensation Committee
directed that no shares would be issued under the EIP in 2002 as a result of
bonuses accrued during 2001.
Federal Income Tax Consequences
In our view, the following discussion includes a description of all
material federal income tax considerations relating to the EIP. We have not
received an opinion of counsel with respect to this discussion.
Awards under the EIP that are not subject to forfeiture are taxable as
ordinary income to the recipient at the time of receipt.
Recipients of awards under the EIP should consult their own tax advisors
with respect to all federal, state, and local tax effects of participation in
the Incentive Plan. Moreover, we do not represent that the foregoing tax
consequences will
apply to any particular participant's specific circumstances.
Amendment and Termination
The EIP may at any time be amended or terminated by the Compensation
Committee.
Administration
The Compensation Committee of our Board of Directors administers the EIP.
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Description of Capital Stock
General
Our authorized capital stock consists of 20,000,000 shares of common stock,
par value $0.10 per share, of which, as of September 26, 2002, 10,568,541 shares
are outstanding, and 123,711 shares of Class C Preferred, par value $0.10 per
share, of which none are outstanding. As of September 26, 2002, there were
approximately 849 holders of record of our 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 our 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 our 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 our common stock is
equal in respect of rights and liquidation and rights to dividends and to
distributions. Our stockholders will not have any preferred or preemptive rights
to subscribe for, purchase, or receive additional shares of any class of our
capital stock, or any options or warrants for shares, or any rights to subscribe
for or purchase shares, or any securities convertible into or exchangeable for
shares which may be issued, sold, or offered for sale by us.
Restrictions on Our Common Stock
Our Board of Directors amended our by-laws on May 10, 1995, to provide that
no share of our 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 us at
the same price and under substantially the same terms as apply to the intended
sale, and we have failed or declined in writing to accept these terms within 14
days of receipt of the written offer or have refused to proceed to a closing on
the transaction within a reasonable time. The sale to the third party following
our failure, declination, or refusal must be made on the same terms which were
not previously accepted by us and within 60 days following our failure,
declination, or refusal, or we must again be offered refusal rights prior to a
sale of the shares.
Our right of first refusal right does not apply to:
o any transactions made at the current formula price through our internal
stock market,
o any transactions made at any time while our common stock is listed for
trading on a national securities exchange or on the over-the-counter
market,
o shares which have been reissued to the holder in exchange for shares
issued prior to May 11, 1995, to the extent the previously issued
shares were not subject to any right of first refusal by us or our
stockholders, or
o shares tendered in response to a tender offer or otherwise sold,
transferred, or converted pursuant to a merger or acquisition agreement
which has been approved by our Board of Directors.
Shares of our common stock purchased on our internal stock market will
be subject to market-rules transfer restrictions having the same effect as
those contained in the by-laws. Shares of our common stock issued prior to
May 11, 1995 are not subject to these restrictions. See "Risk Factors --
Right of First Refusal".
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Validity of Common Stock
The validity of our common stock offered by this prospectus has been passed
upon for us by H. Montgomery Hougen, our Vice President and Secretary and Deputy
General Counsel. As of September 26, 2002, Mr. Hougen owned directly
and indirectly 16,467 shares of common stock and options to purchase 9,500
shares of our common stock. Mr. Hougen is the beneficial owner of an additional
4,631 shares through our benefit plans.
- --------------------------------------------------------------------------------
Experts
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from the Company's Report on
Form 8-K dated November 12, 2002 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
---------------------------
PROSPECTUS
---------------------------
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 us. 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 11,969,313 Shares
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.
- -------------------------------------------------
TABLE OF CONTENTS
Page
Where You Can Find More Information ii Common Stock
Summary 1
DynCorp 1 par value $0.10 per share
Risk Factors 2
Selected Consolidated Financial Data 7
Securities Offered by This Prospectus 10
Market Information 14
Use of Proceeds 18
Employee Benefit Plans 18
Description of Capital Stock 37
Validity of Common Stock 38
Experts 38
___________, 2002
PROS-DYN 10/02
- --------------------------------------------------------------------------------
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 By-Laws 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 Delaware 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
3.1.... Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Registrant's Form 10-K/A for 1995, File
No. 1-3879)
3.2.....By-Laws of the Registrant (incorporated by reference to Registrant's
Form 10-Q for the third quarter 2002, File No. 1-3879)
4.1.... Specimen Common Stock Certificate (incorporated by reference to
Registrant's Form 10-K for 1988, File No. 1-3879)
4.2.... Capital Accumulation and Retirement Plan, as amended (incorporated by
reference to Registrant's Form S-1, File No. 33-59279)
4.3... Savings and Retirement Plan, as amended (incorporated by reference to
Registrant's Form S-1, File No. 33-59279)
4.4... Credit Agreement by and among Citicorp USA, Inc., certain Lenders, the
Registrant and Dyn Funding Corporation, dated December 10, 1999
(incorporated by reference to Registrant's Form 8-K, filed December 27,
1999, File No. 1-3879)
4.5... 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)
4.6.... Purchase Agreement dated as of December 10, 1999 among certain
Purchasers and the Registrant relating to $40,000,000 Aggregate
Principal Amount of 15% Senior Subordinated Notes due 2007 (incorporated
by reference to Registrant's Form 8-K, filed December 27, 1999, File No.
1-3879)
4.7... Registration Rights Agreement, dated as of December 10, 1999, among the
Registrant, DB Capital Investors, L.P., The Northwestern Mutual Life
Insurance Society, and Wachovia Capital Investors (incorporated by
reference to Registrant's Form 8-K, filed December 27, 1999, File No.
1-3879)
5..... Opinion of H. Montgomery Hougen (previously filed)
10.1.. Executive Incentive Plan (incorporated by reference to Registrant's
Form 10-K for 1999, File No. 1-3879)
10.2.. 1995 Stock Option Plan (incorporated by reference Registrant's Form 10-K
for 2001, File No. 1-3879)
10.3.. 1999 Long-Term Incentive Stock Plan (incorporated by reference to
Registrant's Form 10-K for 2001, File No. 1-3879)
10.4.. Employee Stock Purchase Plan (incorporated by reference to Registrant's
Form S-1, File No. 33-59279)
10.5.. Equity Target Ownership Policy (incorporated by reference to
Registrant's Form S-1, File No. 33-59279)
11.... Computation of Earnings Per Common Share for the Years Ended December
27, 2001, December 28, 2000, and December 30, 1999 (incorporated by
reference to Registrant's Form 10-K for 2000, File No. 1-3879)
13.1.. Registrant's 2001 Annual Report Amendment No. 2 Form 10-K/A (filed with
the Securities and Exchange Commission on November 1, 2002, File No.
1-3879)
13.2.. Registrant's Quarterly Report Amendment No. 1 on Form 10-Q/A for the
Quarter Ended March 28, 2002 (filed with the Securities and Exchange
Commission on November 5, 2002)
13.3.. Registrant's Quarterly Report Amendment No. 1 on Form 10-Q/A for the
Quarter Ended June 27, 2002 (filed with the Securities and Exchange
Commission on November 8, 2002)
13.4... Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
September 26, 2002 (filed with the Securities and Exchange Commission on
November 15, 2002)
21... Subsidiaries of the Registrant (incorporated by reference to
Registrant's Form 10-K for 2002, File No. 1-3879)
23... Consent of Deloitte & Touche LLP (filed herewith)
24.... Powers of Attorney (previously filed)
99.1.. Internal Stock Market Rules (filed herewith)
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 of 1933 (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 Securities and Exchange Commission (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 Securities Exchange Act of 1934 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 Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions set forth in Item 15 or otherwise, the
Registrant has been advised 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 the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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 November 15,
2002.
DynCorp
By: /s/ Paul V. Lombardi *
----------------------
Paul 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 the Registrant's registration statement has
been signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
/s/* Paul V. Lombardi President and Director November 15, 2002
- --------------------- (Principal Executive Officer)
Paul V. Lombardi
/s/* Patrick C. Fitzpatrick Senior Vice President and November 15, 2002
- --------------------------- Chief Financial Officer
Patrick C. FitzPatrick (Principal Financial Officer)
/s/* David L. Reichardt Senior Vice President, November 15, 2002
- ----------------------- General Counsel and Director
David L. Reichardt
/s/* John J. Fitzgerald Vice President and Controller November 15, 2002
- ----------------------- (Principal Accounting Officer)
John J. Fitzgerald
/s/* Dan R. Bannister Director November 15, 2002
- ---------------------
Dan R. Bannister
/s/* T. Eugene Blanchard Director November 15, 2002
- ------------------------
T. Eugene Blanchard
Director
- ---------------------------
Michael P. C. Carns
Director
Paul G. Kaminski
/s/* Dudley C. Mecum II Director November 15, 2002
- -----------------------
Dudley C. Mecum II
Director
H. Brian Thompson
/s/* Herbert S. Winokur, Jr. Director November 15, 2002
- ---------------------------
Herbert S. Winokur, Jr.
* By: /s/ H. Montgomery Hougen November 15, 2002
------------------------
H. Montgomery Hougen
Attorney-in-Fact
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 8 to Registration Statement No. 33-59279 of DynCorp on Form S-2 to Form S-1
of our report dated October 11, 2002 (November 7, 2002 as to Note 21) (which
report expresses an unqualified opinion and includes an explanatory paragraph
related to the revision of the financial statements) appearing in Form 8-K,
dated November 12, 2002, of DynCorp for the year ended December 27, 2001, and to
the reference to us under the heading "Experts" in the Prospectus, which is part
of such Registration Statement.
Deloitte & Touche LLP
McLean, Virginia
November 15, 2002
Exhibit 99.1
Internal Stock Market Rules
(As amended and restated September 9, 2002)
The following rules are to be applied to the operation of the DynCorp
Internal Stock Market.
DynEx may, from time to time, change Market rules and procedures and may,
in its discretion, postpone or cancel a scheduled Trade Date at any time.
The Market permits DynCorp stockholders to sell shares of DynCorp common
stock on predetermined Trade Dates each year. Normally, a Trade Date will be
scheduled once each fiscal quarter. Sales will be made at the prevailing Formula
Price to trustees and administrators of DynCorp's employee benefit plans and to
eligible employees and directors of DynCorp. Any employee or director who
resides in a state where direct individual purchase through the Market is
permitted, whether by reason of registration under or exemption from state
securities laws, is eligible to make purchases on the Market. In addition,
DynCorp is authorized, but not obligated, to sell or purchase shares in the
Market in order to balance a trade, provided that DynCorp cannot be both a
seller and a buyer on the same Trade Date.
All record holders of DynCorp common stock are eligible to offer to sell
some or all of the shares owned by them on any Trade Date. In the case of shares
owned beneficially, sales must be directed by the record holder and in
accordance with any relevant instrument relating to the rights and obligations
of the respective parties. If the aggregate number of shares offered for sale by
the sellers is greater than the aggregate number of shares sought to be
purchased by authorized buyers on a specific Trade Date, offers to sell will be
treated in the following manner.
o Offers to sell shares (other than Accelerated Distribution Shares (*))
by the trustees of the Savings and Retirement Plan (SARP) and Capital
Accumulation and Retirement Plan (CAP), up to the number of shares
sought to be purchased by the SARP and CAP trustees, will be accepted
for purchase first.
o Offers to sell 500 shares or less (other than Accelerated Distribution
Shares), up to the first 500 shares if more than 500 shares are offered
by a seller, will be accepted for purchase next. If there are
insufficient purchase orders to support the primary allocation of 500
shares per seller, then the purchase orders will be allocated on an
equal percentage of the first 500 shares per seller, among all of the
proposed sellers.
o If additional purchase orders then remain open, the same procedure will
be applied to the next 10,000 shares (other than Accelerated
Distribution Shares) remaining to be offered by each seller.
o If additional purchase orders then remain open, the same procedure will
be applied to the next 20,000 shares (other than Accelerated
Distribution Shares) remaining to be offered by each seller.
o If additional purchase orders then remain open, offers to sell any
remaining shares (other than Accelerated Distribution Shares) will be
accepted for purchase on a pro-rata basis based on the number of shares
then remaining to be offered by each seller.
o If additional purchase orders then remain open, remaining offers to
sell shares by the trustees of the SARP and CAP, including Accelerated
Distribution Shares, will be accepted for purchase on a pro-rata basis
based on the total number of such shares offered for sale.
o Subject to applicable legal or contractual restrictions and the
availability of funds, DynCorp may, in its discretion, purchase
sufficient shares on each Trade Date so that each stockholder wishing
to sell shares will be able to sell additional shares in accordance
with some or all of the above preferences.
If the aggregate purchase orders exceed the number of shares available for
sale, the following prospective buyers will have priority, in the order listed:
1. the trustees of the SARP and CAP;
2. the administrator of the Employee Stock Purchase Plan; and
3. eligible employees and directors, on a pro rata basis.
To the extent that the aggregate number of shares sought to be purchased
exceeds the aggregate number of shares for sale, DynCorp may, but is not
obligated to, sell shares into the Market.
Buck Investment Services ("BIS"), an NASD-registered broker-dealer, will
maintain the Market for DynEx. Prior to each Trade Date, BIS will notify record
holders in writing of the pending Trade Date and price at which shares will be
sold and will provide instructions regarding submission of stock certificates
and other administrative requirements. BIS will receive all sell orders from
stockholders and purchase orders from authorized buyers. On the Trade Date, BIS
will clear trades on an agency-only, unsolicited basis between sellers and
buyers of shares (including, to the extent applicable, DynCorp) according to the
priority rules described above. BIS will then forward payments to sellers, minus
the commission, and will issue the shares to the buyers. Shares will be issued
in book-entry form unless certificated form is required by law or requested by
the buyer. Commission provisions are discussed in the underlying agreement with
BIS.
Sale or purchase orders must be delivered to BIS no later than close of
business on the second business day prior to a Trade Date.
Individual sellers (other than sellers of Accelerated Distribution Shares)
will pay a sales commission to BIS of one percent (1%) of the sales price. The
Company and the SARP and CAP trustees will not pay such a commission in the
event of a sale. Buyers will not pay any commission.
For purchases by entities such as plan administrators, DynCorp will
coordinate wire transfers of payments to BIS' Special Reserve Account,
established for the protection of customer funds, with transmittal instructions
to be issued no later than noon on the first business day following the day BIS
advises DynCorp of the amount required. For purchases by individuals, deposits
in good federal funds must be received by BIS' Special Reserve Account prior to
the Trade Date.
Shares purchased by individual employees or directors may be issued in
joint names or in the name of a trust for the benefit of the buyer or eligible
transferees.
BIS will not buy or sell shares for its own account.
Shares issued as a result of purchases in the Market will be subject to the
following restrictions regarding resale or other distribution of the shares:
Shares purchased on the Market may not be sold or transferred by the holder
to any third party, other than:
o by descent or distribution;
o by bona fide gift;
o by transfers within a trust or other qualified tax-free entity, or
distribution by the trust or such entity to a participant, in the case
of an employee benefit plan, or a beneficial owner, in the case of
another tax-free entity; or
o by bona fide sale after the holder 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 by the
Corporate Secretary of DynCorp of such written offer or has refused to
proceed to a closing on the transaction within a reasonable time after
such acceptance;
provided, however, that 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 the shares; provided
further, however, that this restriction on transfer shall not apply to:
o any subsequent sale transaction made through the Market; or
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.
* "Accelerated Distribution Shares" are shares offered for sale by the
SARP or CAP trusts in conjunction with an Accelerated Distribution of
ESOP Accounts for terminated participants.