PROXY STATEMENT
DynCorp
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of DynCorp, a Delaware corporation, will be
held at the principal executive offices of the Company, 2000 Edmund Halley
Drive, Reston, Virginia, 20191, at 10:00 a.m., Eastern Daylight Time, Wednesday,
July 1, 1998, to consider and take action on the following:
1. Re-election of Dan R. Bannister, Paul G. Kaminski, and David L. Reichardt
as Class I directors to serve for three-year terms;
2. Ratification of Arthur Andersen LLP as independent public
accountants for 1998; and
3. To act on such other business properly before the meeting.
Your Board of Directors recommends a vote "FOR" re-election of the three
directors and "FOR" ratification of the independent public accountants.
Voting cards must be mailed in the enclosed envelope. They must reach the
addressee no later than the close of business, Friday, June 26, 1998, in order
for the votes or instructions to be counted.
The voting instructions discussed in this proxy statement are being solicited on
behalf of the Board of Directors of the Company. The proxy statement, the voting
cards, and the Company's 1997 Annual Report are being distributed on or about
May 26, 1998.
By Order of the Board of Directors,
H. Montgomery Hougen
Vice President & Secretary
May 26, 1998
Important: To ensure that your vote is counted at the Annual Meeting, you are
urged to sign and return the enclosed voting card today.
PROXY STATEMENT
TABLE OF CONTENTS
Question Page
What is a voting card?....................................................1
What is a proxy statement?................................................1
Who will receive this proxy statement?....................................1
Who can vote?.............................................................1
How can I vote shares in my ESOP or SARP account?.........................1
What happens if I do not vote my ESOP or SARP shares?.....................2
What about my ESPP shares?................................................2
How do I make my vote?....................................................2
How do I mark the voting card?............................................2
Who will count the vote?..................................................2
How many votes are necessary to adopt a proposal?.........................3
Is my vote confidential?..................................................3
What does it mean if I get more than one voting card?.....................3
Who owns the Company's common stock?......................................3
Who pays for this proxy solicitation?.....................................3
How do I receive an Annual Report?........................................4
Can I revoke or change my voting card?....................................4
What directors am I voting on?............................................4
What are independent public accountants?..................................4
What is the purpose of my vote?...........................................5
Who are the other directors?..............................................5
Who are the other officers of the Company?................................6
Are there any agreements regarding voting?................................7
Does the Board of Directors have any standing committees?. ...............7
Who determines executive compensation amounts?............................8
What is the relationship between the members of the
Compensation Committee and the Company?..................._ ....8
What reports must the Compensation Committee make about compensation?.....8
Are directors paid for their duties?......................................9
Do directors receive other forms of compensation?.........................10
What is the compensation of the named executive officers?.................10
Are there any employment contracts between the named executive 12
officers and the Company?
What is the Board's policy about stock ownership by executives?...........12
How do employees acquire stock?...........................................12
How does our stock performance compare with others?.......................13
Who are the largest stockholders of the Company?..........................14
How much stock do directors and officers own?.............................14
Have there been any business transactions between any director 15
or officer and the Company during the past year?
Can I suggest an item for inclusion on next year's proxy statement?.......16
PROXY STATEMENT
QUESTIONS AND ANSWERS
What is a voting card?
A voting card is like a written ballot. It is sometimes called a "proxy" card.
When you instruct someone to vote your shares in a certain manner, the
designated person then acts as your agent or "proxy" in casting your vote or
giving your voting instructions.
What is a proxy statement?
This is a proxy statement. When the Company offers you the opportunity to vote
as a stockholder or to give voting instructions, it must also give you certain
information about the Company and the election. For example, the securities laws
require that we furnish you with specific information about stock ownership and
executive compensation. Much of that information is in this proxy statement. The
balance of the financial and other information which we are required to give you
can be found in the Company's 1997 Annual Report, Form 10-K.
Who will receive this proxy statement?
o Persons who own stock in their own names ("record holders") will
receive a proxy statement and one or more voting cards, together with
an envelope addressed to the Corporate Secretary. Record holders
include current and former employees who bought stock in their own
names, outside investors, and the ESOP and SARP trusts, which hold
stock on behalf of participants in the plans. For record holders known
to the Company to be participants in the ESOP, we will send your proxy
statement with your ESOP materials.
o Participants in the Employee Stock Ownership Plan ("ESOP") will receive
a proxy statement and voting card, together with an envelope addressed
to the ESOP's ballot-counting agent.
o Participants in the Savings and Retirement Plan ("SARP") who hold a
Company stock account will receive a voting card, together with an
envelope addressed to the SARP's ballot-counting agent. We will also
send your proxy statement with your ESOP materials.
Who can vote?
All record holders can vote directly when they send in their voting cards. The
ESOP Trust and SARP Trust own shares directly and will vote those shares in
accordance with voting instructions received from their participants.
How can I vote shares in my ESOP or SARP account?
The ESOP voting card shows the number of shares allocated to your ESOP account
as of December 31, 1997. The plan document designates participants as "named
fiduciaries", which allows participants to give voting instructions for their
shares. The ESOP Trust will count your voting instructions, together with the
instructions of all other participants who mail in their voting cards, to
determine the proportion of votes "for" or "against" each nominee and the
independent public accountants. Then the ESOP Trustees will vote all the shares
in the ESOP, including those allocated to the accounts of other participants and
those not yet allocated to individual accounts, in the same proportions "for" or
"against" the respective matter, unless following the participant instructions
would at the time be contrary to the laws governing such trusts, in which case
the Trustees will vote the shares in accordance with the law.
The same process applies to your SARP voting card, except that the voting card
reflects all the shares held in your SARP account as of the record date.
What happens if I do not vote my ESOP or SARP shares?
The plan documents provide that all shares are to be voted proportionately in
the same ratio as votes are cast in actual voting instructions received. If you
do not give voting instructions for shares in your account, the other
participants who do give instructions will actually instruct the trustees how to
vote them for you. On the other hand, if you do vote your shares, your vote will
determine the voting of other shares as well, including a proportionate share of
unallocated shares and the allocated shares which other participants do not
vote.
What about my ESPP shares?
Participants in the Employee Stock Purchase Plan ("ESPP") payroll deduction
stock purchase plan have their shares issued directly in their own names and are
record holders. They vote shares directly by sending in voting cards.
How do I make my vote?
Mark, sign, and date the enclosed voting card, and return it immediately in the
enclosed envelope. If this is a joint account, both owners should sign the card.
You should send all the voting cards in the envelope that came with the voting
card. It is important to match the voting cards with the right envelopes,
because the voting instructions are counted by different parties.
How do I mark the voting card?
If you want to vote for all the three nominees for the Board of Directors, you
may check the box marked "FOR".
If you want to vote against an individual candidate, write that person's name on
the line below the words "Withhold Authority: (to withhold authority to vote for
an individual nominee, write that nominee's name below.)". If you want to vote
against all nominees, check the box marked "WITHHOLD AUTHORITY". The words
"withhold authority" really mean "against".
If you want to vote for ratification of Arthur Andersen LLP as independent
public accountants, you may check the box marked "FOR". If you want to vote
against ratification, you may check the box marked "AGAINST".
If you do not mark any selections, your voting card will be voted FOR the
election of the three directors. If you check the box marked "ABSTAIN", you are
not casting a vote either for or against the matter.
Who will count the vote?
The Corporate Secretary counts the votes of record holders. The ESOP Trust and
SARP Trust have hired Chase Mellon National Bank to count ESOP and SARP voting
cards. The Trusts will vote the shares at the Annual Meeting.
How many votes are necessary to adopt a proposal?
Each share held by a record holder is equal to one vote. On May 15, 1998, (the
"record date"), there were 10,103,948 shares outstanding, and each share carries
one vote. So, 3,367,983 shares make up a quorum for the meeting. When a quorum
is present, the meeting can carry on business. A majority of the total shares
then voted at the meeting is necessary to pass an action. Because the ESOP Trust
holds 7,282,222 shares, the mere presence of the Trustee voting those shares
will constitute a quorum.
Is my vote confidential?
ESOP and SARP votes are confidential; the ballot-counting agency merely tells
the Trustee the number of shares voted for or against a matter. Many record
holders have signed the Stockholders Agreement, described below, and the
Corporate Secretary must determine whether their votes comply with their
obligations under that Agreement.
What does it mean if I get more than one voting card?
You will get an ESOP voting card for your ESOP shares. If you hold stock in the
SARP Company stock account, you will also get a SARP voting card for those
shares. If you are also a record holder, you will receive a voting card for
those shares. Some record holders may receive more than one record holder voting
card, because they hold shares in more than one account, such as through a joint
account or individual retirement account.
Who owns the Company's common stock?
If all warrants and options to buy shares were exercised and all shares
currently deferred under the former Restricted Stock Plan were issued, this is
approximately what our ownership would be:
Owners No. of shares Percentage
ESOP Trust 7,282,222 62.4%
SARP Trust 385,579 3.3%
DynCorp directors and officers (1)(2) 2,631,908 22.6%
Other current or former DynCorp employees 892,791 7.6%
Outside investors 473,675 4.1%
Total 11,666,175 100.0%
1. Does not include approximately 49,311 shares held in the ESOP
and SARP Trusts on behalf of directors and officers.
2. Includes 1,231,952 shares owned by Capricorn Investors, L.P.,
an investment company controlled by Mr. Winokur, a director.
3. See tables on pages 14-15 for more information.
Who pays for this proxy solicitation?
The cost of printing and mailing the Annual Report and this proxy statement to
ESOP participants plus the cost of tabulating ESOP voting cards will be paid by
the ESOP. The costs relating to SARP participants will be paid by the SARP.
Remaining costs will be paid by the Company.
How do I receive an Annual Report?
The ESOP is sending Annual Reports to ESOP participants with these proxy
statements. Nearly all our stockholders are also ESOP participants. For record
holders who are not known to be ESOP participants, the Company is sending an
Annual Report directly with this proxy statement. If you have not received an
Annual Report through one of these methods, you may call the Corporate
Secretary's office at (703) 264-9112, send a request by facsimile to (703)
264-9147, or send a message to him on internal e-mail (Hougen, Monty) or on the
internet (hougenm@dyncorp.com).
Can I revoke or change my voting card?
If record holders want to change their vote, they can revoke their voting
instructions by: (1) sending a written statement to the Corporate Secretary
prior to the Annual Meeting; (2) submitting a properly signed replacement voting
card with a later date to the Corporate Secretary; or (3) voting in person at
the Annual Meeting. ESOP and SARP participants cannot change their voting
instructions.
What directors am I voting on?
The first item on the ballot is the re-election of three directors for
three-year terms. The nominees for re-election are:
Dan R. Bannister Director since 1985
Mr. Bannister, age 67, is Chairman of the Board. He served as President of the
Company from 1984 until 1997 and as Chief Executive Officer from 1985 until
1997. In February, 1997, he was elected Chairman of the Board; he is an
active employee of the Company. He is a director of ITC Training Corporation.
Paul G. Kaminski Director since July, 1997
Mr. Kaminski, age 55, also served as a director of the Company from 1988 until
1994. He is President and Chief Executive Officer of Technovation, Inc.
(consulting and investment banking). He served in the United States Department
of Defense as Under Secretary of Defense for Acquisition and Technology from
1994 to 1997. He was Chairman and Chief Executive Officer of Technology
Strategies & Alliances (strategic partnership consulting) from 1993 to 1994.
David L. Reichardt Director since 1988
Mr. Reichardt, age 55, has served as Senior Vice President and General
Counsel of the Company since 1986. He served as President of Dynalectric
Company, a former subsidiary of the Company, from 1984 to 1986 and as Vice
President and General Counsel of DynCorp from 1977 to 1984.
Each nominee has consented to serve a three-year term. If any nominee is unable
to stand for re-election, the Board of Directors may, by resolution, provide for
a lesser number of directors or designate a substitute. In the latter case,
shares represented by proxies may be voted for a substitute director.
What are independent public accountants?
Independent public accountants audit the Company's financial each year, to
assure that the information contained in the Annual Report is presented in
accordance with generally accepted accounting principles. Representatives of the
independent public accountants meet regularly with the Audit Committee, and the
Audit Committee reviews their reports and findings. Arthur Andersen LLP is one
of the largest such firms in the world, and it has provided this service to the
Company for nearly 50 years. The Board of Directors has selected the firm to
provide audit services to the Company again in 1998, on the advice of its Audit
Committee, and recommends that you ratify that selection. Representatives of the
independent public accountants are not expected to attend the Annual Meeting.
What is the purpose of my vote?
An affirmative vote of a majority of the shares voted at the meeting is
necessary to elect a director, and an affirmative vote for the independent
public accountants helps assure the Board that it is making suitable choice of
accountants on behalf of the stockholders. Your Board of Directors recommends a
vote FOR these nominees and FOR ratification. If a record holder does not send
in a voting card or votes "withhold" on a voting card, that will have the same
effect as voting against election. However, the ESOP Trust will vote all the
shares held by the ESOP Trust, and the SARP Trust will vote all the shares held
in the SARP Trust, proportionately in the same ratio as votes are cast in actual
voting instructions received.
Who are the other directors? The other current directors are:
T. Eugene Blanchard Director since 1988
Mr. Blanchard, age 67, served as Senior Vice President and Chief Financial
Officer from 1979 to February, 1997, when he retired as an employee of the
Company. He is the Chairman of the Company's Employee Stock Ownership Plan
Committee. He is a director of Landmark Systems Corporation. His current term
as a director expires in 2000.
Russell E. Dougherty Director since 1989
General Dougherty, age 77, is an attorney with the law firm of McGuire, Woods,
Battle & Boothe. He is a retired General, United States Air Force, who served
as Commander-in-Chief, Strategic Air Command and Chief of Staff, Allied
Command, Europe. From 1980 to 1986, he served as Executive Director of the
Air Force Association and Publisher of Air Force Magazine. He was formerly a
member of the Defense Science Board; trustee of the Institute for Defense
Analysis; and trustee of The Aerospace Corp. His current term as a director
expires in 1999.
Paul V. Lombardi Director since 1994
Mr. Lombardi, age 56, has served as President and Chief Executive Officer
since February, 1997. He served as Chief Operating Officer from 1995 to
February, 1997; as Executive Vice President from 1994 to February, 1997; as
Vice President 1992 to 1994; as President of Federal Sector 1994 to 1995, and as
President of Government Services Group 1992 to 1994. He was Senior Vice
President and Group General Manager, Planning Research Corporation from
1990 to 1992. He is a director of Avid Medical Systems, Inc. His current term
as a director expires in 2000.
Dudley C. Mecum II Director since 1988
Mr. Mecum, age 63, is a Managing Director of Capricorn Holdings LLC (an
investment company). He was a partner, G. L. Ohrstrom & Co., an investment
firm, from 1989 to 1997. He served as Group Vice President and Director,
Combustion Engineering, Inc. from 1985 to 1988, and previously as Vice
Chairman, Peat, Marwick & Mitchell. He is a director of The Travelers Group,
Travelers Property and Casualty Inc., Lyondell Petrochemical Company, Vicorp
Restaurants Inc., Fingerhut Companies, Inc., Metris Companies Inc., and
Suburban Propane Partners LLP. His current term as a director expires
in 2000.
Herbert S. Winokur, Jr. Director since 1988
Mr. Winokur, age 54, served as Chairman of the Board from 1988 to February,
1997. He is President, Winokur Holdings, Inc.(an investment company), which is
the Managing Partner of Capricorn Investors, L.P. and Capricorn Investors II,
L.P. He was formerly Senior Executive Vice President, Member, Office of the
President, and Director, Penn Central Corporation. He is a director of ENRON
Corporation; NAC Re Corp.; Mrs. Fields Holdings, Inc.; and the WMF Group Ltd.
His current term as a director expires in 1999.
Who are the other officers of the Company?
In addition to the above-named directors who are hold offices, the Company's
officers are:
* Robert B. Alleger, Jr., age 52, Vice President, Aerospace Technology, has
served in that capacity and as President of the Aerospace Technology Strategic
Business Unit ("SBU") since 1996. He was Vice President, Systems Support
Services, Lockheed Martin Services, Inc. from 1992 to February, 1996 and Vice
President, Business Development, GE Government Services, General Electric
Company from 1989 to 1992.
* John J. Fitzgerald, age 44, Vice President and Controller, has served in that
capacity since July, 1997. He was Vice President and Controller, PRC, Inc. from
1992 to 1997.
* Patrick C. FitzPatrick, age 58, Senior Vice President and Chief Financial
Officer, has served as Senior Vice President and Chief Financial Officer since
February, 1997. He also served as Treasurer from March to November, 1997. He was
Chief Financial Officer, American Mobile Satellite Corporation from 1996 to
February, 1997; Senior Vice President and Chief Financial Officer of PRC Inc.
from 1992 to 1996; and President and Chief Operating Officer of Oxford Real
Estate Management Services from 1990 to 1992.
Paul T. Graham, age 31, Vice President and Treasurer, has served in that
capacity since November, 1997. He was Finance Manager of the Company from 1992
to 1994, Assistant Treasurer from 1994 to 1997, and Director of Finance from
1995 to 1997.
H. Montgomery Hougen, age 63, Vice President and Secretary and Deputy General
Counsel, has served as a Vice President since 1994 and as Corporate Secretary
and Deputy General Counsel since 1984.
* Roxane P. Kerr, age 50, Senior Vice President, Human Resources, has served in
that capacity since March, 1998. She was Vice President, Human Resources,
LucasVerity Plc from 1993 to 1998, and a private human resources consultant from
1992 to 1993.
* Marshall S. Mandell, age 55, Vice President, Business Development, has served
in that capacity since 1994. He has also served as Acting President of the
Information and Engineering Technology SBU since September, 1997. He served as
Vice President, Business Development, Applied Science Group from 1992 to 1994.
He was Senior Vice President, Eastern Computers, Inc. from 1991 to 1992 and
President, Systems Engineering Group, Ogden/Evaluation Research Corporation from
1984 to 1991.
* Carl H. McNair, Jr. age 64, Vice President, Enterprise Management, has served
in that capacity and as President of the Enterprise Management SBU since 1994.
He served as President, Support Services Division from 1990 to 1994. He is a
director of Air Methods Corporation.
Ruth Morrel, age 43, Vice President, Law and Compliance, has served in that
capacity since 1994. She served as Group General Counsel from 1984 to 1994.
Henry H. Philcox, age 58, Vice President and Chief Information Officer, has
served in that capacity since August, 1995. He was Chief Information Officer of
the Internal Revenue Service from 1990 to June, 1995.
Richard E. Stephenson, age 62, Vice President, Technology and Government
Relations, has served in that capacity since 1994. He served as Vice President
Strategic Planning, Government Services Group from 1991 to 1994.
Robert G. Wilson, age 57, Vice President and General Auditor, has served in that
capacity since 1985.
* The officers designated by an asterisk, as well as the officers who are
also directors, have been designated as "officers" for purposes of Rule
16a-1, issued under Section 16 of the Securities Exchange Act of 1934.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act requires certain officers and directors to file
periodic reports of purchases and sales of the Company's stock to the Securities
and Exchange Commission. The Company believes that all required persons filed
all required reports under Section 16 of the Act in a timely manner.
Are there any agreements regarding voting?
Under the terms of the New Stockholders Agreement (the "Stockholders Agreement")
which was adopted by substantially all management stockholders and expires on
March 10, 1999, the management stockholders and outside investors who control
approximately 32% of the voting stock on a fully diluted basis agreed to the
following procedure for election of directors. Capricorn Investors, L.P.
("Capricorn"), an entity under the control of Mr. Winokur, on behalf of itself
and the other outside investors, was entitled to nominate four of the total
number of directors; Company management was entitled to nominate four directors;
and the two groups would agree on a ninth director, for whom all of the parties
have agreed to vote. All of the current directors and the nominees listed above
were initially selected by this process. Effective January 23, 1997, Capricorn
waived its right to nominate directors, but not its obligation to vote in
accordance with the Stockholders Agreement.
Does the Board of Directors have any standing committees?
The Board of Directors has established several standing committees of directors.
The description of those committees and their memberships are:
Audit Committee: Provides oversight and review of the Company's accounting
and financial functions and its financial reporting process.
Business Ethics and Compliance Committee: Oversees the implementation and
maintenance of, and assures corporate compliance with, a comprehensive
business ethics and legal compliance program.
Compensation Committee: Reviews, approves, and revises the Company's
compensation policies, practices, and plans, including the appropriateness
of salary, incentive compensation, stock option, and other benefit
payments.
Executive Committee: Acts for the Board of Directors between meetings.
Nominating Committee: Provides the Board of Directors with recommendations
concerning the qualifications of potential candidates for membership on the
Board. The Committee may, but is not obligated to, consider written
suggestions of potential candidates submitted by stockholders.
Membership roster:
Name Board of Business
Directors Audit Ethics Compensation Executive Nominating
Mr. Bannister Chairman * *
Mr. Blanchard * *
Gen. Dougherty * * *
Dr. Kaminski * Chairman * *
Mr. Lombardi * *
Mr. Mecum * Chairman *
Mr. Reichardt *
Mr. Winokur * * Chairman Chairman Chairman
No. of meetings 4 2 3 2 14 0
in 1997
Each director attended at least 75% of the meetings of the Board of Directors
and at least 75% of the various committees on which he served.
Who determines executive compensation amounts?
The Compensation Committee of the Board of Directors sets policies and rates for
executive compensation. The members of the Compensation Committee during 1997
were: Mr. Winokur, Chairman of the Committee; General Dougherty; Mr. Mecum; and
Dr. Kaminski.
What is the relationship between the members of the Compensation Committee and
the Company?
None of the members of the Compensation Committee are, or were, current or
former employees of or have a business or other relationship with the Company,
except for Mr. Winokur. See page 16 below for the description of transactions
involving Mr. Winokur and the Company. No executive officer of the Company
serves on the board of directors or compensation committee of any entity (other
than subsidiaries of the Company) whose directors or executive officers served
on the Board of Directors or Compensation Committee of the Company.
What reports must the Compensation Committee make about compensation?
The following comments and several tables in this proxy statement pertain
to certain "named executive officers". For this proxy statement, that term
applies to Mr. Lombardi, President and Chief Executive Officer; Mr. Bannister,
Chairman of the Board; Mr. Reichardt, Senior Vice President and General Counsel;
Mr. FitzPatrick, Senior Vice President and Chief Financial Officer; and Mr.
Mandell, Vice President, Business Development and Acting President, Information
& Engineering Technology business unit.
What is our compensation philosophy?
Our compensation programs have been carefully designed to motivate our
management team to create and maximize stockholder value. The linking of
executive compensation with the returns realized by our stockholders has proven
to be instrumental to our continued growth and performance. Our Compensation
Committee consists of three independent non-employee directors who have the
primary responsibility to administer executive compensation programs, policies
and practices. DynCorp's executive compensation program consists of three
elements: base pay, an annual incentive program, and a long-term incentive
compensation program. The mix of short- and long-term incentives is continually
reviewed to assure the proper linkage between executive rewards and stockholder
returns.
How do we determine base pay?
The base pay of our executives is determined by individual performance and
comparisons to executive compensation in the service, information technology,
and general industry businesses.
How are annual bonuses determined?
The purpose of annual bonuses is to motivate and reward key executives for their
achievement of pre-established, measurable objectives that have significant and
direct impact on the overall success of the company and its business. At the
beginning of the year, company and unit financial objectives, individual
objectives, and target incentive award levels are established and confirmed in
writing for each participant. At the conclusion of the year, the achievement of
the specified financial objectives and individual objectives are scored and
weighted for each participant according to established formulae to determine the
actual bonus amount to be awarded.
How is compensation used to focus management on long-term value creation?
Stock options are granted by the Company to aid in the retention of key
employees and to align the interests of management employees with those of the
stockholders. Stock options have value for management employees only if the
price of the Company's stock increases above the fair market value on the grant
date and the employee remains in the Company's employ for the period required
for the stock option to be exercisable, thus providing an incentive to remain in
the Company's employ. Additionally, stock options directly link a portion of the
management employee's compensation to the interests of stockholders by providing
an incentive to maximize stockholder value.
By the Compensation Committee:
Herbert S. Winokur, Chairman
Russell E. Dougherty
Paul G. Kaminski
Are directors paid for their duties?
Directors who are employees of the Company or a subsidiary do not receive any
additional compensation for their services as directors.
Directors who are not employees of the Company receive an annual retainer of
$16,500 and an attendance fee of $1,000 for each meeting they attend, They also
receive reimbursement for related travel expenses. Members of the Executive,
Audit, and Business Ethics and Compliance Committees receive an annual retainer
of $2,750 for serving on the committees and an attendance fee of $500 for each
meeting they attend. In 1997, non-employee directors received $157,785 in
retainers and fees, as a group.
Do directors receive other forms of compensation?
Directors may also receive stock options under the Company's 1995 Stock Option
Plan, discussed below. The Board awarded 5,000 stock options to Dr. Kaminski in
1997, at an exercise price of $20.00 per share. Non-employee directors do not
participate in other current benefit plans of the Company.
Because directors of the Company can incur personal liability for activities in
connection with Company business, the Company purchases insurance to cover
claims against its directors and officers and losses for the Company's
indemnification of directors and officers as required or permitted by law. The
directors and officers covered are the directors and officers of the Company and
its subsidiaries. There is no allocation or segregation of the premium as
regards specific subsidiaries or individual directors and officers.
What is the compensation of the named executive officers?
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual compensation Awards
Other Securities
annual underlying
compen- options/ All other
Name and principal Salary Bonus sation SARs compensation
position Year ($) ($)(1) ($) (#) ($) (2)
(a) (b) (c) (d) (e) (f) (i)
Paul V. Lombardi 1997 332,789 160,000 177 -- 49,592
President & Chief 1996 279,614 148,000 -- 90,000 50,974
Executive Officer 1995 257,071 105,900 -- 40,000 47,749
Dan R. Bannister 1997 275,481 -- 174 -- 55,698
Chairman of the Board 1996 326,105 235,000 -- 100,000 66,132
(formerly President & 1995 325,853 165,000 -- 65,000 67,060
Chief Executive Officer)
David L. Reichardt 1997 245,082 90,000 244 -- 45,712
Senior Vice President 1996 219,464 99,000 -- 75,000 41,780
& General Counsel 1995 206,008 88,300 -- 25,000 40,497
Patrick C. FitzPatrick 1997 241,933 90,000 -- 100,000 37,690
Senior Vice President 1996 -- -- -- -- --
& Chief Financial 1995 -- -- -- -- --
Officer
Marshall S. Mandell 1997 204,248 73,300 364 -- 28,326
Vice President, 1996 179,246 80,000 30,000 9,182
Business Development 1995 157,705 65,000 12,500 7,066
(1) Column (d) reflects bonuses earned and expensed during year, whether
paid during or after such year. Since 1996, 20% of executive bonuses
have been paid in shares of Common Stock, valued at then-current market
value.
(2) Column (i) includes individual's pro rata share of the Company's
contribution to the ESOP and SARP and the Company-paid portion of group
term and supplemental executive retirement plan insurance premiums.
These amounts are:
ESOP contributions SARP contributions Insurance Premiums
($) ($) ($) (1)
Name 1997 1996 1995 1997 1996 1995 1997 1996 1995
Mr. Lombardi 4,197 5,075 4,632 2,850 900 -- 42,545 44,999 43,117
Mr. Bannister -- 5,075 4,632 3,800 1,250 -- 51,898 59,807 62,428
Mr. Reichardt 4,197 5,075 4,632 1,269 913 -- 40,246 35,792 35,865
Mr. FitzPatrick 4,197 -- -- 1,267 -- -- 32,227 -- --
Mr. Mandell 4,197 5,075 4,632 2,361 1,306 -- 21,768 2,801 2,434
(1) Includes supplemental executive retirement plan insurance and term life
insurance premium, the premium for which is computed according to
Internal Revenue Service tables.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential realizable
value at assumed
annual rates of stock
price appreciation for
Individual Grants option term
Number of Percent of total
securities options/ SARs Exercise
underlying granted to or base
options/SARs employees in price Expiration
Name granted (#) fiscal year ($/Share) date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
Mr. Lombardi 0 n/a n/a n/a n/a n/a
Mr. Bannister 0 n/a n/a n/a n/a n/a
Mr. Reichardt 0 n/a n/a n/a n/a n/a
Mr. FitzPatrick 50,000 }69% 19.00 2/3/04 386,745 901,281
50,000 } 20.00 11/24/04 407,100 848,717
Mr. Mandell 0 n/a n/a n/a n/a n/a
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of securities Value of unexercised
underlying unexercised in-the-money options/
options/SARs at fiscal SARs at fiscal year-
year-end (#) end ($)
Shares Value
acquired on realized Exercisable/ Exercisable/
Name exercise (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
Mr. Lombardi -- -- 34,000 96,000 126,600 302,400
Mr. Bannister -- -- 46,000 119,000 182,600 398,900
Mr. Reichardt -- -- 25,000 75,000 88,500 226,500
Mr. FitzPatrick -- -- 0 100,000 0 50,000
Mr. Mandell -- -- 11,000 31,500 40,500 98,250
Are there any employment contracts between the named executive officers and the
Company?
Except for the change-in-control agreements described below, the Company's
executives serve at the pleasure of the Board of Directors.
The Company has entered into change-in-control severance agreements with Messrs.
Alleger, FitzPatrick, Lombardi, Mandell, McNair, and Reichardt, (the "Severance
Agreements"). Each Severance Agreement provides that certain benefits, including
a lump-sum payment, will be triggered if the executive is terminated following a
change in control of the Company, unless termination occurs under those
circumstances set forth in the Severance Agreements. A change in control would
occur if the Company were to be substantially acquired by a new owner or if a
majority of the Board of Directors were replaced. The Severance Agreements
currently expire on December 31, 1998, but are subject to annual automatic
renewal unless terminated by the Board of Directors. The amount of such lump sum
payment would be 2.99 times the sum of the executive's annual salary and the
average incentive compensation for the three prior years. Other benefits include
payment of incentive compensation not yet paid for the prior year and a pro rata
portion of incentive compensation awards for the current year, as well as
immediate vesting of all unvested stock options. Each Severance Agreement also
provides a reduction if the payments exceeds the amount the Company is entitled
to deduct on its federal income tax return. The Severance Agreements also
provide that the Company will reimburse the individual for legal fees and
expenses incurred by the executive as a result of termination.
What is the Board's policy about stock ownership by executives?
In 1995, the Board of Directors established the DynCorp Equity Target Ownership
Policy ("ETOP"). The ETOP applies to all corporate officers, including the named
executive officers, and all participants in the Company's Executive Incentive
Plan and Stock Option Plan. The ETOP implements the Compensation Committee's
belief that significant stock ownership by management employees will provide an
incentive for those managers to improve stockholder value over the long term.
This will benefit the managers as well as all stockholders. The ETOP establishes
goals of stock ownership based on individual levels of compensation. It provides
that the aggregate value of shares owned by the individuals or held on their
behalf in various plans, like the ESOP and SARP, be at least as great as the
following multiples of their base annual salary:
Base salary rate of: required value of holdings:
$300,000 or more 3.0 times base salary
$200,000 to $299,999 2.5 times base salary
$100,000 to $199,999 1.5 times base salary
less than $100,000 0.75 times base salary
If an executive subject to the ETOP purchases a block of 1,000 shares or more on
the Company's Internal Stock Market in the course of meeting ETOP targets, the
purchaser receives a special bonus payment equal to 7 1/2% of the purchase
price, which is intended to have the same effect as if the shares had been
purchased through the ESPP mentioned below. Shares held on behalf of the
individuals in employee benefit plans count toward this calculation.
How do employees acquire stock?
The Company has provided several additional ways for its employees, including
the named executive officers and employees subject to the ETOP, to acquire
stock.
The ESOP is the Company's principal retirement program for substantially
all its non-union employees. The Company makes regular contributions to the
ESOP Trust each year. The ESOP Trust uses these contributions to buy shares
of the Company's stock. Shares purchased during the year are allocated, at
the end of the year, to the accounts of all participants on the basis of
annual compensation. Current contribution levels are approximately 3% of
compensation. Vesting in the ESOP occurs over the first four years of
employment.
The SARP is a tax-deferred (401(k)) retirement plan open to substantially
all employees. Participants may defer receipt of a portion of their
compensation, limited to the maximum amount of $9,500 per year in the case
of the named executive officers. The Company contributes such amounts to
the Trust on their behalf. The investment options for participants includes
a Company stock fund. The Company matches investments in the stock fund.
For the first 1% of an employee's pay so invested, the Company contributes
an equal amount. For the next 4% of pay so invested, the Company
contributes one-fourth of such amount. In 1997, the Trust acquired shares
for such investments and the Company-match portion by purchase on the
Company's Internal Stock Market. The salary deferral portion is always
vested. Vesting in the Company-match portion occurs on the earlier of
termination of employment by reason of normal retirement, death, or
disability or completion of one year of employment.
The Executive Incentive Plan ("EIP") is the bonus compensation plan for
corporate officers and other key executives, including the named executive
officers. As noted above, participants' performance for the year is
measured against certain individual criteria and the Company's performance
for the year. Following such measurement, the Compensation Committee
determines the amount of bonuses payable to the participants. Twenty
percent of these EIP payments are made in shares of stock, valued at the
then-current market price.
The ESPP is a tax-qualified employee stock purchase plan. All employees
can participate in the ESPP. They may contribute a portion of their salary,
at rates not to exceed $450 per week, on an after-tax basis. The
contributions are used to purchase stock on their behalf in the Company's
Internal Stock Market. The Company contributes an amount equal to 5% of
each individual's deferrals to purchase additional shares on their behalf.
The purchaser must hold ESPP-purchased shares for at least one year.
The 1995 Stock Option Plan is a non-qualified (for income tax purposes)
stock option plan. Key managers, including the named executive officers,
may receive stock options from time to time. A stock option permits them to
purchase a certain number of shares over a period of seven years, at the
market price in effect at the time of the grant. Options vest in equal
increments over the next five years (the next four years for options
granted after March 5, 1998), if the participant remains an employee for
the full vesting period. When a portion of the option vests, the
participant may exercise the option by payment of the exercise price. The
difference between the exercise price and the market value of the shares at
time of exercise is taxable as salary-type income. If the participant
leaves the Company because of normal retirement, death, or disability, all
the options vest immediately. Vested options may be exercised over a six to
twelve-month period following termination. If employment is terminated for
other reasons, unvested options are forfeited.
How does our stock performance compare with others?
The following chart shows a comparison of the theoretical returns on an
investment of $100 in Company stock on December 31, 1992, using the valuation
price established by the Board of Directors for purposes of the Stockholders
Agreement and Internal Stock Market, with a similar $100 theoretical investment
in each of the NASDAQ composite index and a composite of 22 other Government
technical services companies on the same date. The chart shows the comparable
value in dollars of each such investment, as of the end of each of the following
five years.
Performance Graph
The performance graph shows that the comparable value, as of the dates set
forth, for the three theoretical investments of $100 is:
Date DynCorp Common NASDAQ composite composite of other Government
Stock index technical services companies
12/31/92 $100 $100 $100
12/31/93 $107 $112 $120
12/31/94 $136 $108 $147
12/31/95 $170 $151 $226
12/31/96 $217 $135 $242
12/31/97 $229 $226 $255
Who are the largest stockholders of the Company?
As of May 15, 1998, the Company had 10,103,948 outstanding shares of common
stock, which is the only class of voting securities of the Company. The
following table presents information as of May 15, 1998, concerning the largest
stockholdings, including the only beneficial owners of five percent or more of
the outstanding shares of the Company's common stock.
Name and address of Amount & nature of Percent of
beneficial owner ownership shares
DynCorp Employee Stock Ownership Plan Trust 7,282,222 72.1%
c/o DynCorp Direct (1)
2000 Edmund Halley Dr.
Reston, VA 20191-3436
Capricorn Investors, L.P. (2) 1,231,952 12.2%
30 East Elm Street Direct
Greenwich, CT 06830
(1) The Trust holds these shares for the accounts of approximately 30,400
participants. The Trustees vote the shares in accordance with
instructions received from participants.
(2) Mr. Winokur, a director of the Company, is the President of Winokur
Holdings, Inc., which is the managing partner of Capricorn Holdings,
G.P., which in turn is the general partner of Capricorn.
How much stock do directors and officers own?
The following table presents information as of May 15, 1998, concerning the
beneficial ownership of the Company's common stock by nominees, directors, and
named executive officers and all directors and officers as a group, including
shares obtainable as a result of exercise of vested options and expiration of
deferral periods for Restricted Stock Plan units. Shares include those held on
behalf of the individuals in the ESOP and SARP.
Amount & nature of ownership
Name and title of Outstanding Obtainable Total Percent of
beneficial owner shares shares (1) shares (2)
D. R. Bannister 259,605 131,711 390,316 Direct }3.9%
Chairman of the Board 9,702 9,702 Indirect
& Director
T. E. Blanchard 91,281 31,200 122,481 Direct }1.3%
Director 13,819 13,819 Indirect
R. E. Dougherty 4,000 0 4,000 Direct *
Director
P. C. FitzPatrick 899 10,000 10,899 Direct }*
Senior Vice President 3,382 3,382 Indirect
& Chuef Financial
Officer
P. G. Kaminski 0 0 0 *
Director
P. V. Lombardi 19,259 52,000 71,259 Direct }*
President, Chief 2,535 2,535 Indirect
Executive Officer &
Director
M. S. Mandell 4,281 17,000 21,281 Direct }*
Vice President, 2,469 2,469 Indirect
Business Development
D. C. Mecum II 0 0 0 *
Director
D. L. Reichardt 37,657 40,000 77,657 Direct }*
Senior Vice President 7,069 7,069 Indirect
& Director
H. S. Winokur, Jr. 1,231,952 0 1,231,952 Indirect 12.2%
(3) Director
All directors 489,929 325,511 815,440 Direct }20.3%
1,302,528 1,302,528 Indirect
(1) Shares which could be obtained as a result of exercise of vested
options and expiration of deferral periods during the next 60 days.
(2) Percentages include aggregate direct and indirect shares. An asterisk
indicates that beneficial ownership is less than one percent of the
class.
(3) Includes securities owned by Capricorn. See preceding table for
relationship of Mr. Winokur to Capricorn.
Have there been any business transactions between any director or officer and
the Company during the past year? Mr. Winokur is the President of Winokur
Holdings, Inc., which is the managing partner of Capricorn Holdings, G.P., which
in turn is the general partner of Capricorn. On January 23, 1997, the Company
entered into an agreement with Capricorn. Under the agreement, Capricorn waived
its rights to nominate directors of the Company under the Stockholders Agreement
and certain class voting rights of the Company's then-outstanding Class C
Preferred stock. As consideration, the Company paid Capricorn $1,175,000, and
the Company authorized Capricorn to distribute a substantial portion of the
shares of common stock and warrants and all of the formerly outstanding shares
of Class C Preferred stock, to its several individual investors (the
"Investors"). Following the distribution, the Company and the ESOP entered into
a series of transactions with the individual Investors, and, during February
through April 1997, the Company and the ESOP purchased the distributed
securities, which were the equivalent of 2,884,178 shares of common stock in the
aggregate, at a price of $19.55 per share. Except for the entities under the
control of Mr. Winokur, none of the Investors were affiliates of the Company.
On February 5, 1997, the Company also entered into a consulting agreement with
Capricorn Management, G.P., an entity controlled by Mr. Winokur. Under that
agreement, the Company paid an aggregate amount of $1,050,000 for consulting
services during the period from 1995 through 1997 and for a covenant against
competition; the payment was assigned to Capricorn. Capricorn also received a
right of first offer under certain circumstances in the event the Company seeks
additional growth capital.
Can I suggest an item for inclusion on next year's proxy statement?
An eligible stockholder who wants to have a qualified proposal considered for
inclusion in the proxy statement for the 1999 Annual Meeting of Stockholders
must notify the Corporate Secretary of the Company, 2000 Edmund Halley Drive,
Reston, Virginia 20191-3436. The proposal must be received at the Company's
offices no later than January 26, 1999. A stockholder must have been a
registered or beneficial owner of at least one percent of the Company's common
stock or stock with a market value of $1,000 for at least one year prior to
submitting the proposal, and the stockholder must continue to own such stock
through the date on which the meeting is held.