-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RuXogNpXd4VhAF5TLo1yqKett5ZhmfEdXUiSby/FhLyV9fcU4/VI2SLD2EbTKJzP DZ0dHgxWqofefVc6EnagXw== 0000030770-96-000022.txt : 19960513 0000030770-96-000022.hdr.sgml : 19960513 ACCESSION NUMBER: 0000030770-96-000022 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960510 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNCORP CENTRAL INDEX KEY: 0000030770 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 362408747 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-59279 FILM NUMBER: 96559805 BUSINESS ADDRESS: STREET 1: 2000 EDMUND HALLEY DR CITY: RESTON STATE: VA ZIP: 22091-3436 BUSINESS PHONE: 7032640330 MAIL ADDRESS: STREET 1: 2000 EDMUND HALLEY DRIVE CITY: RESTON STATE: VA ZIP: 22091-3436 FORMER COMPANY: FORMER CONFORMED NAME: DYNALECTRON CORP DATE OF NAME CHANGE: 19870722 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA EASTERN AVIATION INC DATE OF NAME CHANGE: 19710923 S-1/A 1 S1/A NUMBER 5 As filed with the Securities and Exchange Commission on May 10, 1996 Pre-Effective Amendment No. 4 to Registration Statement No. 33-59379 Securities and Exchange Commission 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) 4581 (Primary Standard Industrial Classification Code Number) 36-2408747 (I.R.S. Employer Identification Number) 2000 Edmund Halley Drive, Reston, Virginia 22091-3436 (703) 264-0330 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) David L. Reichardt Daniel L. Goelzer Senior Vice President & General Counsel Marc R. Paul DynCorp Baker & McKenzie 2000 Edmund Halley Drive 815 Connecticut Avenue, N.W. Reston, Virginia 22091-3436 Washington, D.C. 20006-4078 (703) 264-9106 (202) 452-7000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to rule 415 under the Securities Act of 1933, check the following box. |X| CALCULATION OF REGISTRATION FEE Proposed Title of Proposed Maximum Amount of Each Class of Amount to Maximum Offering Aggregate Securities to be Offering Price Registration Fee be Registered(1)Registered Price Per Share(2) Aggregate Common Stock 11,969,313 $15.00 $179,539,695 $61,497.50(3) par value $0.10 shares per share (1) This Registration Statement also relates to an indeterminate number of interests in the DynCorp Savings and Retirement Plan, the DynCorp Employee Stock Purchase Plan, the DynCorp 1995 Non-Qualified Stock Option Plan, the DynCorp Executive Incentive Plan, and the DynCorp Employee Stock Ownership Plan pursuant to which certain of the shares of Common Stock offered pursuant to the Prospectus included as part of this Registration Statement may be issued and delivered or sold. (2) Estimated solely for purposes of determining the registration fee pursuant to Rule 457 under the Securities Act of 1933. (3) Fee based on a bona fide estimate of maximum offering price per share of $14.90. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. DynCorp Cross Reference Sheet Pursuant to Rule 404(a) of Regulation C and Item 501(b) of Regulation S-K Form S-1 Item Number and Caption Caption or Location 1. Forepart of Registration Statement Facing Page of Registration Statement; and Outside Front Cover Page of Outside Front Cover Page of Prospectus Prospectus 2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages of Prospectus Cover Pages of Prospectus 3. Summary Information, Risk Factors The Company; Risk Factors; Securities and Ratio of Earnings to Fixed Offered by this Prospectus; Exhibit 12 Charges 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Outside Front Cover Page of Prospectus; Market Information -- Determination of Offering Price 6. Dilution Dilution 7. Selling Security Holders Securities Offered by this Prospectus 8. Plan of Distribution Outside Front Cover Page of Prospectus; Employee Benefit Plans; Market Information 9. Description of the Securities Securities Offered by this Prospectus; to be Registered Description of Capital Stock 10.Interests of Named Experts and Validity of Common Stock; Experts Counsel 11.Information with Respect to the The Company; Risk Factors; Use of Registrant Proceeds; Dividend Policy; Selected Financial Data; Business; Management's Discussion and Analysis of Financial Condition and Results of Operations; Employee Benefit Plans; Management; Security Ownership of Certain Beneficial Owners and Management; Certain Relationships and Related Transactions; Description of Capital Stock; Financial Statements 12.Disclosure of Commission Position Commission Position on Indemnification on Indemnification for Securities Act Liabilities DynCorp 11,969,313 Shares of DynCorp Common Stock (Par Value $0.10 per Share) Of the 11,969,313 shares of DynCorp (the "Company") common stock, par value $0.10 per share (the "Common Stock"), being offered hereby (the "Offering"), 4,277,728 shares may be offered and sold by the Company, 5,810,308 shares (which represent all of the shares owned by certain officers, directors, and affiliates of the Company as of the date of this Prospectus) may be offered and sold by such officers, directors, and affiliates, and 1,881,277 shares may be offered and sold by other current and former employees and other stockholders of the Company. See "Securities Offered by this Prospectus." The Company will not receive any portion of the net proceeds from the sale of shares by officers, directors, affiliates or other individual employees or stockholders. The 4,277,728 shares of Common Stock offered by the Company (of which approximately 1,600,000 are currently treasury shares which were acquired by the Company pursuant to the Stockholders Agreement and through the Employee Stock Ownership Plan ("ESOP") between 1989 and 1995, and the remainder of such shares are heretofore unissued shares) are expected to be offered as follows: (i) up to 850,000 shares may be issued and delivered by the Company to a trustee for the benefit of employees under the DynCorp Savings and Retirement Plan; (ii) up to 100,000 shares may be issued and delivered by the Company to employees under the DynCorp Employee Stock Purchase Plan; (iii) up to 1,200,000 shares may be issued upon the exercise of options granted and available to be granted to employees under the DynCorp 1995 Non-Qualified Stock Option Plan; (iv) up to 300,000 shares may be issued and delivered to employees under the DynCorp Executive Incentive Plan; and (v) up to 1,827,728 shares may be offered and sold by the Company to present and future employees and directors through one or more of the employee benefit plans listed above. The actual number of shares offered and sold by the Company under each category may be less than the indicated number, but will not exceed the maximum for such category. See "Securities Offered by this Prospectus" and "Employee Benefit Plans." All of the shares offered hereby will be offered and sold on a limited trading market (the "Internal Market") established by the Company's wholly owned subsidiary, DynEx, Inc. The Internal Market is established and managed by DynEx, Inc., in order to provide employees, directors and stockholders of the Company the opportunity to buy and sell shares of Common Stock. The Internal Market generally permits eligible stockholders to buy and sell shares of Common Stock on four predetermined days each year (each a "Trade Date"). All offers and sales on the Internal Market by officers, directors, employees, affiliates and other stockholders of the Company may, for purposes of the registration requirements of the Securities Act of 1933, be attributed to the Company. The Company may also sell (through one or more of its employee benefit plans) or buy shares of Common Stock on the Internal Market for its own account, but will do so only to address imbalances between the number of shares offered for sale and bid for purchase by shareholders on any particular Trade Date. The Company will not be both a buyer and a seller on the Internal Market on the same Trade Date. The purchase and sale of shares on the Internal Market are carried out by Buck Investment Services, Inc. ("Buck"), a registered broker-dealer, upon instructions from the respective buyers and sellers. All stockholders (other than the Company and its retirement plans) will pay a commission to Buck equal to 2% of the proceeds from the sale of any shares of Common Stock sold by them on the Internal Market, half of which will be paid to DynEx, Inc. to defray the costs of establishing and maintaining the Internal Market. See "Market Information -- The Internal Market." There is no public market for the Common Stock, and it is not currently anticipated that such a market will develop. To the extent that the Internal Market does not provide sufficient liquidity for a shareholder, and the shareholder is otherwise unable to locate a buyer for his or her shares of Common Stock, the shareholder could effectively be subject to a total loss of investment. See "Market Information -- The Internal Market." All of the shares of Common Stock offered hereby will be subject to certain restrictions (including restrictions on their transferability) set forth in the Company's By-Laws (the "By-Laws") and may be subject to other contingencies. Shares purchased on the Internal Market will be subject to contractual transfer restrictions having the same effect as those contained in the By-Laws. See "Description of Capital Stock -- Restrictions on Common Stock." See "Risk Factors" on pages 6 through 11 for information concerning certain factors that should be considered by prospective investors. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION; NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The purchase price of the shares of Common Stock offered hereby, other than those shares issuable upon exercise of options or awarded under the DynCorp Executive Incentive Plan, will be determined pursuant to the formula and valuation process described below (the "Formula Price"). The Formula Price per share of Common Stock is the product of seven times the operating cash flow ("CF") where operating cash flow is represented by earnings before interest, taxes, depreciation and amortization ("EBITDA") of the Company for the four fiscal quarters immediately preceding the date on which a price revision is to occur and the market factor (the "Market Factor" denoted "MF"), plus the non-operating assets at disposition value (net of disposition costs)("NOA"), minus the sum of interest bearing debt adjusted to market and other outstanding securities senior to Common Stock ("IBD") divided by the number of shares of Common Stock outstanding at the date on which a price revision is made, on a fully diluted basis assuming conversion of all Class C Preferred Stock and exercise of all outstanding options and warrants ("ESO"). The Market Factor is a numerical factor which reflects existing securities market conditions relevant to the valuation of such stock. The Formula Price of the Common Stock, expressed as an equation (the "Formula"), is as follows: Formula Price = [(CF x 7)MF + NOA - IBD] / ESO The Formula Price including the Market Factor will be reviewed four times each year, generally in conjunction with Board of Directors meetings, which are generally scheduled for February, May, August and November. At such meetings, the Market Factor is reviewed by the Board in conjunction with an appraisal which is prepared by an independent appraisal firm for the committee administering the ESOP. The Board of Directors believes that the valuation process results in a stock price which reasonably reflects the value of the Company on a per share basis. See "Market Information -- Determination of Offering Price" and "Market Information -- Price Range of Common Stock." On May 9, 1996, the Formula Price as determined by the Company's Board of Directors was $15.00 per share. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in "Risk Factors". The date of this Prospectus is May 10, 1996 THE COMPANY DynCorp (the "Company") provides diversified management, technical, and professional services to government and commercial customers throughout the United States and internationally. The Company provides primarily information technology, operations and maintenance, and research and development support services under contracts with U.S. Government agencies, foreign government agencies and commercial customers. The Company's U.S. Government customers include the Department of Defense, the National Aeronautics and Space Administration, the Department of State, the Department of Energy, the Environmental Protection Agency, the Centers for Disease Control, the National Institutes of Health, the U.S. Postal Service, and other U.S. Government agencies. 1988 Leveraged Buy-Out In late 1987, the Board of Directors of the Company received several expressions of interest and firm proposals for the purchase of the Company. Following negotiations with several parties, the Board entered into an agreement and plan of merger with DME Holdings, Inc. ("DME"), a company newly formed by the senior managers of the Company in conjunction with Capricorn Investors, L.P. ("Capricorn"), a limited partnership in which a company controlled by H. S. Winokur, Jr., the Company's current Chairman, served as general partner, and other outside investors. The agreement provided for a two-step transaction, whereby DME made a partial tender offer for 51% of the outstanding common stock of the Company, reduced by the number of DynCorp shares owned by DME, at a cash price of $24.25 per share, followed by a second-step merger of DME into the Company. In the merger, DME disappeared, and the Company was the surviving corporation. Upon the merger, which was completed on September 9, 1988, each remaining outstanding share of the Company's common stock (other than the shares held by DME) was converted into the right to receive $8.82 in cash, $10.45 principal amount of newly issued DynCorp 16% pay-in-kind junior subordinated debentures, and 0.1992 shares of newly issued DynCorp 17% redeemable pay-in-kind Class A preferred stock. All the previously outstanding common stock of the Company was automatically canceled, and each outstanding equity security of DME was converted into a like security of the Company. Thus, the Company's capital structure immediately following this leveraged buy-out (the "LBO") consisted of: Post-LBO capitalization table (in thousands) Long-term debt ESOP exempt loan $100,000 Revolving credit 35,000 Bank bridge loan 5,000 Debentures (net of discount) 46,593 Other notes payable 1,399 Total long-term debt 187,992 Redeemable Class A preferred stock (net of discount) 14,504 Redeemable Class B preferred stock 10,875 Total redeemable preferred stock 25,379 Class C preferred stock 3,000 Common stock 474 Common stock warrants 15,119 Paid-in surplus 101,818 DME Holdings deficit (1,138) ESOP loan (100,000) Total stockholders equity 19,273 Total capitalization $232,644 The following tables set forth the sources and use of funds for the LBO transaction: Sources of funds (in millions): $100.0 Bank loan to DynCorp. These funds were in turn loaned to a newly formed DynCorp employee stock ownership plan, which immediately used the funds to purchase 4,123,711 shares of new common stock of DynCorp, and DynCorp used the proceeds to repay an earlier bridge loan of a like amount used to fund the first step of the two-step transaction 35.0 Bank revolving credit facility 5.0 Bank bridge loan 55.0 16% pay-in-kind Junior Subordinated Debentures (principal amount issued in exchange for cancellation of DynCorp stock upon the merger) 26.2 Class A preferred 17% pay-in-kind redeemable stock (principal amount issued in exchange for cancellation of DynCorp stock upon the merger) 13.0 Sale of DME Class B and C preferred stock, issued to investors and subsequently converted into like securities of DynCorp 11.8 Sale of DME common stock, issued to investors and subsequently converted into like securities of DynCorp (cash portion only; excludes shares of DynCorp common stock and DynCorp options converted into DME stock) 35.0 Available cash of DynCorp $281.0 Total Uses of funds (in millions): $253.1 Acquisition of DynCorp shares 9.7 Investment banker fees 0.1 Filing fees 4.2 Legal and accounting fees 1.0 Printing fees and expenses 0.1 Depository fees 0.2 Solicitation expenses 5.5 Break-up fee 2.0 Expenses of Special Committee of Board of Directors 3.7 Termination of Stock Options 1.4 Miscellaneous $281.0 As to the officers, directors and affiliates whose shares of Common Stock are offered hereby, the following table sets forth the securities owned by such investors at the time of the LBO in September, 1988, their cost of acquiring such securities, the number of shares of Common Stock into which such securities have been or could be converted, the current market price for such shares on the Internal Market, and the potential gain in the event such investors were to sell all such shares offered hereby. These investors purchased securities from DME Holdings, Inc., in March, 1988, and such securities were converted into like securities of the Company in September, 1988. Although the principal means of payment for the DME securities was cash, portions of the price were paid by employees surrendering shares of pre-merger common stock, valued at $22.31 per share, which was the pre-merger estimate of the fair market value based on the blended two-step tender price; cancellation of vested pre-merger options under the Company's former stock option plan, valued at the spread between such pre-merger fair market value and the then-current exercise price; and conversion of deferred compensation accounts held by the Company, valued at the cash value of such accounts.
1988 Class Fully 1988 C Preferred diluted Current Common Stock shares 1988 Common market value Stock 1988 aggregate Stock @ $15.00 per Potential Beneficial owner shares Warrants cost shares1 share gain2 D.R.Bannister 37,542 250,590 $910,401 282,850 $4,242,750 $3,332,349 T.E.Blanchard 20,635 137,707 $500,406 155,439 $2,331,585 $1,831,179 D.L.Reichardt 7,840 52,279 $190,128 59,017 $885,255 $695,127 Capricorn Investors 278,146 1,857,097 123,711 $9,745,032 3,084,936 $46,274,040 $36,529,008 L.P./H.S.Winokur,Jr. G.A.Dunn 8,292 55,296 $201,089 62,422 $936,330 $735,241 H.M.Hougen 1,821 12,158 $44,159 13,723 $205,845 $161,686 R.A.Hutchinson 1,856 12,392 $45,008 13,987 $209,805 $164,797 M.J.Hyman 2,067 13,801 $50,125 15,577 $233,655 $183,530 R.Morrel 1,257 8,393 $30,482 9,473 $142,095 $111,613 R.G.Wilson 2,700 18,027 $65,475 20,347 $305,205 $239,730 Total 362,156 2,417,740 123,711 $11,782,305 3,717,771 $55,766,580 $43,984,260 1 Reflects fully diluted shares of Common Stock after taking into effect shares surrendered to the Company in payment for exercise of warrants to purchase Common Stock ("Warrants"). 2 Amount which would be realized if all shares were to be sold at current Formula Price. 3 Reduced by costs to exercise outstanding warrants. No other shareholders listed on this table currently hold warrants.
The table does not include Class B Preferred Stock purchased by Capricorn Investors L.P. in 1988, which was redeemed by the Company in 1989. The outstanding options to purchase Common Stock under the Company's 1995 Stock Option Plan were granted at exercise prices ranging from $14.50 to $17.50. Recent Developments - Sale of Commercial Aviation Business During the second quarter of 1995, the Company's Board of Directors determined that it would be in the Company's best interest to discontinue its commercial aviation business operations (the "Commercial Aviation Business"), which provided approximately 20% of the Company's revenues in fiscal year 1994. This decision was made as a result of several factors including: (i) the Company's need for cash to reduce its debt, (ii) the capital-intensive nature of the Commercial Aviation Business, (iii) the continuing losses of the unit of the Commercial Aviation Business responsible for aircraft maintenance and repair operations (the "Aircraft Maintenance Unit"), and (iv) a high level of interest from potential buyers. On June 30, 1995, the Company sold the Aircraft Maintenance Unit in a $13.7 million cash transaction with Sabreliner Corporation. On August 31, 1995, the Company divested that portion of the Commercial Aviation Business comprising its aviation ground handling business, including DynAir Services, Inc. and its affiliates (the "Ground Handling Unit"), in a $122 million (subject to adjustment) cash transaction with ALPHA Airports Group Plc. The proceeds from the two aforementioned transactions have been used to retire all of the Company's 16% Pay-In-Kind debentures and to satisfy existing equipment financing obligations of the Ground Handling Unit. See "Business -- Commercial Aviation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Contemporaneously with the sale of the Commercial Aviation Business, the Company agreed with 46 management employees of the sold entities and the former president of the Commercial Aviation Business sector to repurchase their Common Stock (other than stock held in their Employee Stock Ownership Plan accounts) at the August 15, 1995 Formula Price. As a result, the Company has, since June 30, 1995, repurchased 532,604 shares of Common Stock and Warrants, at a cost of $7,916,536, and has agreed to repurchase an additional 42,664 shares at a cost of $635,694 in May, 1996. In addition, in January, 1996, pursuant to a Stockholders Agreement with other employees who terminated employment in 1994 and 1995, the Company repurchased 198,246 shares of Common Stock and Warrants from such terminated employees, at a total cost of $2,952,275. Recent Developments - Possible Sale or Merger of Company The Company has engaged Bear Stearns & Co. Inc., ("Bear Stearns"), an investment banking firm, to analyze the Company and its businesses with a view to determining the potential value of the Company to a third-party purchaser. Under the engagement, the Board of Directors has the option to authorize Bear Stearns to discuss the possible acquisition of the Company or portions of the Company with third-party potential buyers. It is possible that the Board of Directors will authorize such discussions, although no specific buyer or proposal has been identified to or by the Company. In the event a transaction involving the sale or merger of the Company is approved by the Board of Directors, the value of the Company's Common Stock in such a transaction could be greater than or less than the Formula Price for shares sold on the Internal Market. Principal Executive Offices The Company's principal executive offices are located at 2000 Edmund Halley Drive, Reston, Virginia 22091-3436. The Company's telephone number is (703) 264-0330. As used in this Prospectus, all references to the Company include, unless the context indicates otherwise, DynCorp and its predecessor and subsidiary corporations. RISK FACTORS Prior to purchasing the Common Stock offered hereby, purchasers should carefully consider all of the information contained in this Prospectus and in particular should carefully consider the following factors: Past and Prospective Net Operating Losses The Company reported net earnings of $2.4 million for the year ended December 31, 1995 and net losses for the years ended December 31, 1994 and 1993 of $12.8 million and $13.4 million respectively, and for the years ended December 31, 1992 and 1991 of $23.3 million and $12.4 million, respectively. In the future, there can be no guarantee that profitable operations will be sustained. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Highly Leveraged Financial Position As a result of the management buyout in 1988 and the recent acquisition of several businesses, the Company is highly leveraged. As of December 31, 1995, the Company had a long-term indebtedness of $104.1 million, temporary and permanent stockholders' equity of $25.9 million, and a long-term debt-to-equity ratio of 4.0:1. The Company's continuing debt service payments may have materially adverse effects on its cash flow. In addition, the Company's debt levels may limit its future ability to borrow funds, including borrowing for growth opportunities or to respond to competitive conditions, or if additional borrowings can be made, they may not be on terms favorable to the Company. The Company's ability to meet its future debt service and working capital requirements is dependent upon improved cash flow from the Company's continuing operations, the potential expansion of the financing facility underlying the Contract Receivable Collateralized Notes and the continuation of other programs which have been initiated to improve operations and cash flows. If the Company is unable to repay its debt as it becomes due, the purchasers of Common Stock could lose some or all of their investment. See "Risk Factors -- Inability to Maintain Certain Ratios Under the Contract Receivable Collateralized Notes" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on and Risks Inherent in U.S. Government Contracts The Company derived 96% of its revenues in 1995 from contracts with the U.S. Government ("Government Contracts"); contracts with the Department of Defense ("DoD") represented 55% of the Company's 1995 revenues. Continuation and renewal of the Company's existing Government Contracts and the acquisition by the Company of additional Government Contracts is contingent upon, among other things, the availability of adequate funding for various U.S. Government agencies. The current world political situation and domestic pressure to reduce the federal budget deficit have reduced, and may continue to reduce, military and other spending by the U.S. Government. Typically, a Government Contract has an initial term of one year combined with two, three, or four one-year renewal periods, exercisable at the discretion of the Government. The Government is not obligated to exercise its option to renew a Government Contract. At the time of completion of a Government Contract, the contract in its entirety is "recompeted" against all interested third-party providers. Federal law permits the Government to terminate a contract at any time if such termination is deemed to be in the Government's best interest. The Government's failure to renew or termination of any significant portion of the Company's Government Contracts could adversely affect the Company's business and prospects. See "Business -- Government Contracting." Termination of Contracts/Increased Demand on Cash Flow Upon termination of any of the Company's contracts, including Government Contracts, the Company would no longer accrue a stream of accounts receivable thereunder for sale to its wholly owned financing subsidiary, Dyn Funding Corporation ("DFC"), which may result in demands on the Company's available cash as the Company endeavors to replace the terminated contracts. The ability of the Company to maintain certain ratios under the Contract Receivable Collateralized Notes depends in part on its ability to keep in force existing contracts and/or acquire new contracts such that sufficient eligible receivables are available for sale by the Company to DFC. See "Risk Factors -- Inability to Maintain Certain Ratios Under the Contract Receivable Collateralized Notes" and "Business - -- Factoring of Receivables." Inability to Maintain Certain Ratios Under the Contract Receivable Collateralized Notes In 1992, the Company, DFC and various lending institutions entered into a Note Purchase Agreement whereby DFC purchased certain accounts receivable from the Company and issued to the lending institutions $100,000,000 of 5-year, 8.54% Contract Receivable Collateralized Notes (the "Notes") which are secured by certain of the Company's accounts receivable. By the terms of the Notes, in the event that the interest coverage ratio (as defined in the Notes) falls below certain prescribed levels and the Company's principal debt exceeds certain amounts, DFC may be prohibited from purchasing additional receivables from the Company, thereby reducing the Company's access to additional cash resources. Further, in the event that the collateral value ratio (as defined in the Notes) falls below certain levels required in the Notes due to a decrease in the Company's contract revenue and the Company fails to provide sufficient receivables in order to increase the collateral value ratio, the Company may be forced to redeem part or all of the Notes which would result in additional demands on the Company's cash resources. See "Risk Factors -- Termination of Contracts/Increased Demand on Cash Flow," "Risk Factors -- Potential for Suspension and Debarment" and "Business -- Factoring of Receivables." Contract Profit Exposure Based on Type of Contract The Company's Government Contract services are provided through three types of contracts -- fixed-price, time-and-materials, and cost-reimbursement. The Company assumes financial risk on fixed-price contracts (approximately 20% of the Company's total Government Contracts revenue in 1995) and time-and-material contracts (approximately 25% of its total Government Contracts revenue in 1994), because the Company assumes the risk of performing those contracts at the stipulated prices or negotiated hourly rates. The failure to accurately estimate ultimate costs or to control costs during performance of the work could result in losses or smaller than anticipated profits. The balance of the Company's Government Contracts revenue in 1995 (approximately 55%) was derived from cost-reimbursement contracts. To the extent that the actual costs incurred in performing a cost-reimbursement contract are within the contract ceiling and allowable under the terms of the contract and applicable regulations, the Company is entitled to reimbursement of its costs plus a stipulated profit. However, if the Company's costs exceed the ceiling or are not allowable under the terms of the contract or applicable regulations, any excess would be subject to adjustment and repayment upon audit by Government agencies. See "Risk Factors -- Contract Receivables Subject to Audits by U.S. Government Agencies" and "Business -- Government Contracting." Contract Receivables Subject to Audits by U.S. Government Agencies Government Contract payments received by the Company for allowable direct and indirect costs are subject to adjustment and repayment after audit by Government auditors if the payments exceed allowable costs as defined in such Government Contracts. Audits have been completed on the Company's incurred contract costs through 1986 and are continuing for subsequent periods. The Company has included an allowance in its financial statements for excess billings and contract losses which it believes is adequate based on its interpretation of contracting regulations and past experience. There can be no assurance, however, that this allowance will be adequate. See "Business -- Government Contracting." Potential for Suspension and Debarment As a U.S. Government contractor, the Company is subject to federal regulations under which its right to receive future awards of new Government Contracts, or extensions of existing Government Contracts, may be unilaterally suspended or barred, should the Company be convicted of a crime or be indicted based on allegations of a violation of certain specific federal statutes or other activities. Suspensions, even if temporary, can result in the loss of valuable contract awards for which the Company would otherwise be eligible. While suspension and debarment actions may be limited to that division or subsidiary of a company which is involved in the alleged improper activity which gives rise to the suspension or debarment actions, Government agencies have authority to impose debarment and suspension on affiliated entities which in no way were involved in the alleged improper activity. The initiation of suspension or debarment hearings against the Company or any of its affiliated entities could have a material adverse impact upon the Company's business and prospects. See "Risk Factors -- Termination of Contracts/Increased Demand on Cash Flow," "Risk Factors -- Inability to Maintain Certain Ratios Under the Contract Receivable Collateralized Notes" and "Business -- Government Contracting." Future Revenues Dependent on Funding of Backlog Much of the Company's future revenue is dependent upon the eventual funding of its currently unfunded backlog. The Company's backlog of business was $2.9 billion at December 31, 1995. To the extent that this backlog is not funded, the Company will not realize revenue on the estimated value of its outstanding contracts. See "Business -- Backlog." Potential Environmental Liability The Company's business activities occasionally result in the generation of non-nuclear hazardous wastes, the hauling and disposal of which are governed by federal, state, and local environmental compliance statutes and regulations. In addition, certain of the Company's businesses operate petroleum storage and other facilities that are subject to similar regulations. Violations of these laws can result in significant fines and penalties for which insurance is not reasonably available. Moreover, because many of the Company's operations involve the management of storage and other facilities owned by others, primarily governmental entities, the Company is not always in a position to control the compliance of the facilities it operates with environmental and other laws. See "Business -- Environmental Matters." Dilution Because the net tangible book value per share of the Common Stock after the Offering will be ($15.30), which is substantially less than the offering price of $15.00, purchasers of Common Stock in the Offering will realize immediate and substantial dilution of $32.09 per share or $24.22 per share assuming the conversion of all outstanding and issuable warrants. See "Dilution." Potential for Adverse Judgments in Legal Proceedings The Company is a party to various civil lawsuits which have arisen in the course of its business. In addition, a former subsidiary of the Company which was acquired in 1974 was, as of March 1, 1996, named as one of many defendants in approximately 3,000 civil law suits which have been filed in various state courts beginning in 1986. The alleged claims arise out of the subsidiary's installation and distribution of industrial insulation products which contained asbestos. See "Legal Matters." No Payment of Cash Dividends The Company has not paid a cash dividend since 1986. The Company does not have a policy for the payment of regular dividends. The payment of dividends in the future will be subject to the discretion of the Board of Directors of the Company. The holder of the Class C Preferred also has the right to approve or disapprove proposed dividend payments and any proposed dividend payments may be subject to restrictions imposed by financing arrangements, if any, and by legal and regulatory restrictions. See "Dividend Policy," "Risk Factors -- Class C Preferred Stockholder's Ability to Veto Certain Corporate Actions" and "Description of Capital Stock -- Class C Preferred Stock." Risks Inherent in International Operations The Company from time to time conducts some operations outside of the United States. Such international operations entail additional business risks and complexities such as foreign currency exchange fluctuations, different taxation methods, restrictions on financial and business practices and political instability. Each of these factors could have an adverse impact on operating results. There can be no assurance that the Company can achieve or maintain success in these markets. See "Business -- International Operations." Competition The markets which the Company services are highly competitive. Some of the Company's competitors are large, diversified firms with substantially greater financial resources and larger technical staffs than the Company has available to it. Government agencies also compete with and are potential competitors of the Company because they can utilize their internal resources to perform certain types of services that might otherwise be performed by the Company. See "Business -- Competition." Participants in Employee Stock Ownership Plan Maintain Substantial Shareholdings in the Company In September 1988, the Company established its Employee Stock Ownership Plan (the "ESOP") as a principal retirement vehicle for the Company's employees. As of the date of this Prospectus, the ESOP owns approximately 76% of the outstanding Common Stock, and approximately 48% of the Common Stock on a fully diluted basis assuming conversion of all Class C Preferred Stock and exercise of all outstanding options and warrants. Under the terms of the ESOP, each participant has the right to instruct the ESOP trustee as to how to vote his or her shares. The ESOP trustee will vote all unallocated shares (shares for which no voting instructions have been received) in the same proportion as the allocated shares. Collectively, the ESOP participants maintain substantial shareholdings and may influence Company policy. See "Risk Factors -- Parties to Shareholders Agreement Effectively Control Appointments to the Board of Directors" and "Employee Benefit Plans -- Employee Stock Ownership Plan." Absence of a Public Market There is no present public market for the Common Stock, and it is not currently anticipated that such a market will develop in the future. There can be no assurance that the purchasers of Common Stock in this Offering will be able to resell their shares through the Internal Market should they decide to do so. To the extent that the Internal Market does not provide sufficient liquidity for a shareholder, and the shareholder is otherwise unable to locate a buyer for his or her shares, the shareholder could effectively be subject to a total loss of investment. Accordingly, the purchase of Common Stock is suitable only for persons who have no need for liquidity in this investment and who can afford a total loss of investment. See "Market Information -- The Internal Market." All Shares of Stock Issued in Connection with the Internal Market are Subject to the Company's Right of First Refusal All shares of Common Stock offered hereby will be subject to the Company's right of first refusal to purchase such shares before they may be offered to third parties (other than on the Internal Market). Shares of Common Stock purchased on the Internal Market will be subject to contractual transfer restrictions having the same effect as those contained in the By-Laws. See "Description of Capital Stock -- Restrictions on Common Stock." Offering Price Determined by Formula Not Market Forces The offering price is, and subsequent offering prices will be, determined by means of a formula as set forth on the cover page of this Prospectus. The formula takes into consideration the Company's financial performance, the market valuation of comparable companies and the limited liquidity of the Common Stock, as determined by the Board of Directors based on an independent appraisal. The Formula is subject to change by the Board of Directors in its sole discretion. See "Market Information -- Determination of Offering Price" and "Market Information -- Price Range of Common Stock." Class C Preferred Stockholder's Ability to Veto Certain Corporate Actions The Company has outstanding 123,711 shares of Class C Preferred Stock, par value $0.10 per share (the "Class C Preferred"), all of which is owned by Capricorn Investors, L.P. ("Capricorn"), a limited partnership in which a company controlled by H. S. Winokur, Jr., the Company's Chairman, serves as general partner. The holder of Class C Preferred shares has the right to vote as a separate class on certain major corporate actions, such as corporate borrowings, issuance of stock, payment of dividends and the repurchase of more than $250,000 per annum of shares of Common Stock held by employees of the Company (other than shares of Common Stock distributed to retiring or terminated employees by the ESOP). These voting rights give the holder of Class C Preferred the ability to effectively control the Company with respect to certain major corporate decisions. Consequently, actions that might otherwise be approved by a majority of the holders of Common Stock could be vetoed by the holder of Class C Preferred. See "Description of Capital Stock -- Class C Preferred Stock." Parties to Stockholders Agreement Effectively Control Appointments to the Board of Directors Certain individuals in the management group of the Company, Capricorn and other outside investors who hold shares of Common Stock are parties to a Stockholders Agreement originally dated March 11, 1988 and restated March 11, 1994 (the "Stockholders Agreement"). Under the terms of the Stockholders Agreement, stockholders who own approximately 51% of the fully diluted outstanding shares of Common Stock have agreed, among other things, to vote for the election of a Board of Directors consisting of four management group nominees, four Capricorn nominees and a joint nominee who would be elected if needed to break a tie vote. Since the management group stockholders, directly and through ESOP shareholdings, and Capricorn represent a majority of the shares of Common Stock necessary to elect the Company's Board of Directors on a fully diluted basis, it is unlikely that other stockholders acting in concert or otherwise will be able to change the composition of the Board of Directors. Unless extended, the Stockholder's Agreement expires on March 10, 1999. See "Description of Capital Stock -- Stockholders Agreement." The Company may be Obligated to Repurchase Shares of Certain ESOP Participants In the event that an employee participating in the ESOP is terminated, retires, dies or becomes disabled while employed by the Company, the Company is obligated to repurchase shares of Common Stock distributed to such former employee under the ESOP, until such time as the Common Stock becomes "Readily Tradable Stock," as defined in the ESOP plan documents. In the event the valuation of shares, as determined in accordance with the ESOP plan (the "ESOP Share Price") is less than $27.00 per share, the Company is committed through December 31, 1996, to pay up to an aggregate of $16,000,000, the difference ("Premium") between the ESOP Share Price and $27.00 per share. As of December 31, 1995, the Company had paid a total of $5,400,000 of the $16,000,000 to such former employees. To the extent that the Company repurchases shares as described above, its ability to purchase shares on the Internal Market will be adversely affected. See "Employee Benefit Plans -- Employee Stock Ownership Plan." Anti-Takeover Effects The combined effects of management's and Capricorn's collective ownership of a majority of the outstanding shares of Common Stock, the voting rights of the Class C Preferred, the voting provisions of the Stockholders Agreement, and the Company's right of first refusal may discourage, delay, or prevent attempts to acquire control of the Company that are not negotiated with the Company's Board of Directors. These may, individually or collectively, have the effect of discouraging takeover attempts that some stockholders might deem to be in their best interests, including tender offers in which stockholders might receive a premium for their shares over the Formula Price available on the Internal Market, as well as making it more difficult for individual stockholders or a group of stockholders to elect directors. See "Description of Capital Stock." Possible Sale or Merger of the Company The Company has engaged Bear Stearns & Co. Inc., an investment banking firm, to analyze the Company and its businesses with a view to determining the potential value of the Company to a third-party purchaser. Under the engagement, the Board of Directors has the option to authorize Bear Stearns to discuss the possible acquisition of the Company or portions of the Company with third-party potential buyers. It is possible that the Board of Directors will authorize such discussions, although no specific buyer or proposal has been identified to or by the Company. In the event a transaction involving the sale or merger of the Company is approved by the Board of Directors, the value of the Company's Common Stock in such a transaction could be greater than or less than the Formula Price for shares sold on the Internal Market. See "Recent Developments - Possible Sale or Merger of the Company" and or Merger of the Company" and Risk Factors - Anti-Takover Effects." SECURITIES OFFERED BY THIS PROSPECTUS Common Stock Offered by the Company The shares of Common Stock offered by the Company may be offered through the Internal Market and directly or contingently to present and future employees and directors of the Company and to trustees or agents for the benefit of employees under the Company's employee benefit plans described below. Direct and Contingent Sales to Employees and Directors The Company believes that its success is dependent upon the abilities of its employees and directors. Therefore, since 1988, the Company has pursued a policy of offering such persons an opportunity to make an equity investment in the Company as an inducement to such persons to become or remain employed by or affiliated with the Company. At the discretion of the Board of Directors or the Compensation Committee of the Board of Directors (the "Compensation Committee"), employees and directors may be offered an opportunity to purchase a specified number of shares of Common Stock offered hereby. All such direct and contingent sales to employees and directors will be effected through the Internal Market or the employee benefit plans described below, and may be attributable to the Company. Pursuant to the By-Laws, all shares of Common Stock offered by the Company after May 11, 1995, directly or contingently, to its employees or directors and all shares of Common Stock purchased on the Internal Market are subject to a right of first refusal. See "Description of Capital Stock -- Restrictions on Common Stock." Equity Target Ownership Policy The Company has adopted an Equity Target Ownership Policy (the "ETOP") under which certain highly paid employees of the Company are encouraged over a period of seven years to invest up to specified multiples of their annual salaries in shares of the Common Stock. Under the ETOP, corporate officers, presidents and vice presidents of strategic business units, and other participants in the Executive Incentive Plan with salaries greater than $99,999 but less than $200,000 are encouraged to invest at least 1.5 times their salary in shares of Common Stock; those with salaries greater than $199,999 but less than $300,000 are encouraged to invest at least two times their salary in shares of Common Stock; and those with salaries greater than $299,999 are encouraged to invest at least three times their salary in shares of Common Stock. Investments under any of the employee benefit plans described below, as well as any other holdings, including securities held prior to adoption of the ETOP, will qualify for purposes of the ETOP. Savings and Retirement Plan The Company maintains a Savings and Retirement Plan (the "SARP"), which is intended to be qualified under Sections 401(a) and (k) of the Internal Revenue Code of 1986, as amended (the "Code"). Generally, all employees are eligible to participate, except for employees of divisions or other units designated as ineligible. The SARP permits a participant to elect to defer, for federal income tax purposes, a portion of his or her annual compensation and to have such amount contributed directly by the Company to the deferred fund of the SARP for his or her benefit. The Company may, but is not obligated to, make a matching contribution to the SARP's deferred fund for the benefit of those participants who have elected to defer a portion of their compensation for investment in shares of Common Stock. The amount of the matching contribution will be determined periodically by the Company's Board of Directors based on the aggregate amounts deferred by participants. The SARP currently provides for a Company matching contribution, in cash or Common Stock, of 100% of the first one percent of compensation invested in a Company Common Stock fund by a participant and 25% of the next four percent of compensation so invested. The Company may also make additional contributions to the SARP deferred fund in order to comply with Section 401(k) of the Code. Each participant will be vested at all times in 100% of his or her contributions to the deferred fund accounts. Company contributions will vest 50% after two years of service and 100% after three years of service. Benefits are payable to a participant within certain specified time periods following such participant's retirement, permanent disability, death or other termination of employment. Pursuant to the By-Laws, shares of Common Stock distributed to a participant under the SARP will be subject to the Company's right of first refusal. See "Employee Benefit Plans -- Savings and Retirement Plan" and "Description of Capital Stock -- Restrictions on Common Stock." Employee Stock Purchase Plan The Company has established the Employee Stock Purchase Plan (the "ESPP") for the benefit of substantially all its employees. The ESPP provides for the purchase of Common Stock through payroll deductions by participating employees. The ESPP is intended to qualify under Section 423(b) of the Code. Participants contribute 95% of the purchase price of the Common Stock, and the Company contributes the balance in the form of cash or shares of Common Stock. Such purchases will be made through the Internal Market. All shares purchased pursuant to the ESPP will be credited to the participant's account promptly following the Internal Market trade day on which they were purchased and, pursuant to the By-Laws, will be subject to the Company's right of first refusal. See "Employee Benefit Plans -- Employee Stock Purchase Plan" and "Description of Capital Stock -- Restrictions on Common Stock." 1995 Stock Option Plan Pursuant to the Company's 1995 Non-Qualified Stock Option Plan ("1995 Option Plan"), the Company may grant stock options to certain of its employees and directors. Stock options under the 1995 Option Plan may be granted contingent upon an employee obtaining a certain level of contract awards for the Company within a specified period or upon the satisfaction of other performance criteria and, in many cases, a requirement that such individual also purchase a specified number of shares of Common Stock on the Internal Market at the Formula Price. Pursuant to the By-Laws, all shares of Common Stock issued upon the exercise of such stock options will be subject to the Company's right of first refusal. See "Employee Benefit Plans -- 1995 Stock Option Plan" and "Description of Capital Stock -- Restrictions on Common Stock." Executive Incentive Plan The Company maintains an Executive Incentive Plan (the "EIP"), which provides for the payment of annual bonuses to certain officers and management/executive employees. The Company intends to amend the Incentive Plan, effective January 1, 1996, to provide for payment of up to 20% of the bonuses in the form of shares of Common Stock, valued at the then current Formula Price. Awards of shares of Common Stock will be distributed during each fiscal year. Pursuant to the By-Laws, all shares of Common Stock awarded pursuant to the EIP will be subject to the Company's right of first refusal. See "Employee Benefit Plans -- Executive Incentive Plan" and "Description of Capital Stock -- Restrictions on Common Stock." Employee Stock Ownership Plan The Company maintains an Employee Stock Ownership Plan ("ESOP"), which is a stock bonus plan intended to be qualified under Section 401(a) of the Code. Generally, all employees are eligible to participate, except employees of groups or units designated as ineligible. Interests of participants in the ESOP vest in accordance with the vesting schedule and other vesting rules set forth in the ESOP plan document. Benefits are allocated to a participant in shares of Common Stock and are distributable within certain specified time periods following such participant's retirement, permanent disability, death or other termination of employment. Upon distribution, the participant is entitled to a statutory "put" right at two separate times, whereby the ESOP or the Company is obligated to purchase the shares at the ESOP Share Price. In the event the participant declines to exercise the put right, such shares of Common Stock may be sold by the participant on the Internal Market subject to the restrictions and limitations of the Internal Market. The ESOP Share Price is not determined by the Formula, and amounts paid to participants at the time of distribution may be different from amounts paid to sellers on the Internal Market. See "Market Information -- The Internal Market." The amount of the Company's annual contribution to the ESOP is determined by, and within the discretion of, the Board of Directors and may be in the form of cash, Common Stock or other qualifying securities. Pursuant to the ESOP plan document, any shares of Common Stock distributed out of the ESOP will be subject to a right of first refusal on behalf of the Company. See "Employee Benefit Plans -- Employee Stock Ownership Plan -- Distributions and Withdrawals." Common Stock Offered by Officers, Directors, and Affiliates Certain officers, directors, and affiliates of the Company may, from time to time, sell up to an aggregate of 5,810,308 shares of the Common Stock being offered hereby on the Internal Market or otherwise. 5,810,308 is the total aggregate holdings of all officers, directors and affiliates as of the date of this Prospectus. While the Company has registered all shares owned by its officers, directors and affiliates on a fully diluted basis, including unvested options, the Company does not know whether some, none, or all of such shares will be so offered or sold. However, the Company believes that the ETOP will act as a disincentive to the officers to sell their Common Stock during 1996 and possibly in later years as well. The officers, directors, and affiliates will not be treated more favorably than other stockholders participating on the Internal Market and, like all other stockholders selling shares on the Internal Market (other than the Company and its retirement plans), will pay Buck, the Company's designated broker-dealer, a commission equal to two percent of the proceeds from their sales. See "Market Information -- The Internal Market." The following table sets forth information as of March 7, 1996, with respect to the number of shares of Common Stock owned directly or indirectly by each of the officers, directors, and affiliates (including shares issuable upon the exercise of outstanding options and warrants, shares issuable upon conversion of outstanding Class C Preferred and exercise of related warrants, shares issuable as a result of vesting and expiration of deferrals or otherwise under the former Restricted Stock Plan, and shares allocated to such person's accounts under the Company's employee benefit plans), and their respective percentages of ownership of equity on a fully diluted basis. Each of the persons (other than Capricorn, which is an affiliate by reason of its ownership of more than 10% of the Company's equity) is now and has, during some portion of the past three years, been a director and/or officer of the Company. Except as indicated below, all the shares are owned of record or beneficially. The table also reflects the relative ownership of such persons in the event of their individual sales of all the shares owned by them in this Offering.
Name and Title of Beneficial Owner Number of Percent of Number of Percent Shares Ownership of Shares Ownership Beneficially Fully Diluted Offered After Sale of Owned (1) Equity (1) Before All Shares Offering D. R. Bannister, President & Director 544,493 4.05% 544,493 * T. E. Blanchard, Senior Vice President & Director 297,864 2.22% 297,864 * R. E. Dougherty, Director 4,000 * 4,000 * P. V. Lombardi, Executive Vice President & Director 150,697 1.12% 150,697 * D. C. Mecum II, Director 4,000 * 4,000 * D. L. Reichardt, Senior Vice President & Director 199,754 1.49% 199,754 * Capricorn/H. S. Winokur, Jr., Chairman of the Board 4,117,127 30.63% 4,117,127 * and Director R. B. Alleger, Jr., Vice President 8,000 * 8,000 * G. A. Dunn, Vice President & Controller 112,560 * 112,560 * M. C. Filteau, Vice President 52,858 * 52,858 * C. L. Hendershot, Vice President 13,523 * 13,523 * H. M. Hougen, Vice President & Secretary 32,684 * 32,684 * R. A. Hutchinson, Treasurer 24,535 * 24,535 * M. J. Hyman, Vice President 32,092 * 32,092 * J. A. Mackin, Vice President 7,243 * 7,243 * M. S. Mandell, Vice President 47,670 * 47,670 * C. H. McNair, Jr., Vice President 56,918 * 56,918 * R. Morrel, Vice President 25,606 * 25,606 * H. H. Philcox, Vice President 35,113 * 35,113 * R. E. Stephenson, Vice President 7,535 * 7,535 * R. G. Wilson, Vice President & General Auditor 36,036 * 36,036 * Total 5,810,308 43.16% 5,810,308 * * indicates less than one percent (1) Includes shares issuable upon the exercise of outstanding warrants, shares issuable upon conversion of outstanding Class C Preferred and exercise of related warrants, shares issuable as a result of vesting and expiration of deferrals or otherwise under the former Restricted Stock Plan, exercise of all outstanding options whether or not vested, and shares allocated to such person's accounts under the Company's employee benefit plans.
MARKET INFORMATION The Internal Market In 1988, following a decision by the Company's Board of Directors to consider offers for the purchase of the Company, the Company became privately owned through a leveraged buy-out (the "LBO") involving its management group. Public trading of the Company's common stock ceased, and the new management installed the ESOP as the Company's principal retirement benefit. Approximately 33,500 former and present employees are now beneficial owners of the Common Stock through the ESOP, representing approximately 76% of the shares of Common Stock outstanding on the date of this Prospectus and approximately 48% of the Company's Common Stock on a fully diluted basis. Approximately 280 managers and other employees have also made direct investments in the Company since the LBO. As a consequence of these investments and the subsequent issuance of shares pursuant to the Company's former Restricted Stock Plan, 1,428,144 shares of Common Stock, and 119,154 warrants to purchase Common Stock at an exercise price of $0.25 per share (the "Warrants"), are held by current and former management employees. In addition, the Company accepted a subscription for 350,313 shares of Common Stock and 2,338,934 Warrants from certain private and institutional investors and Capricorn, a limited partnership which is controlled by the Company's Chairman, Herbert S. Winokur, Jr. Capricorn also purchased 123,711 Class C Preferred shares, which are convertible share for share into Common Stock and into 825,981 Warrants, and purchased 82,475 shares of Class B Preferred Stock, which the Company retired through redemption in 1990. See "Description of Capital Stock -- Class C Preferred Stock." Since the LBO, the management stockholders, Capricorn and certain other investors have relied on the Stockholders Agreement as a means of restricting the distribution of the Company's shares of capital stock. The Stockholders Agreement contains various provisions for the annual offering of shares of Common Stock owned by retiring and terminated management stockholders, first to other management stockholders, Capricorn, and certain other investors and then to the Company as purchaser of last resort. However, the holder of Class C Preferred shares may veto the repurchase of more than $250,000 per annum of shares of Common Stock held by employees of the Company (other than shares of Common Stock distributed to retiring or terminated employees by the ESOP). On May 10, 1995, the Board of Directors, with the consent of the Class C Preferred holder, approved the establishment of the Internal Market as a replacement for the resale procedures set forth in the Stockholders Agreement. The Internal Market generally permits all stockholders to sell shares of Common Stock on four predetermined days each year (each a "Trade Date"), subject to purchase demand. All Warrants to be sold must first be converted into shares of Common Stock which can then be sold on the Internal Market, subject to purchase demand. All sales of Common Stock on the Internal Market will be made to employees and directors of the Company who have been approved by the Compensation Committee as being entitled to purchase Common Stock, and to the trustees of the SARP and the ESOP and the administrator of the ESPP who may purchase shares of Common Stock for their respective trusts and plan (collectively "Authorized Buyers"). The Compensation Committee will normally permit direct purchases in the Internal Market only by employees who are purchasing such stock to meet the requirements of the ETOP. Other employees will be encouraged to participate through the various employee benefit plans. Limitations on the number of shares which an individual may purchase may be imposed where there are more buy orders than sell orders for a particular trade date. The Internal Market will be established and managed by the Company's wholly owned subsidiary, DynEx, Inc. The purchase and sale of shares on the Internal Market will be carried out by Buck Investment Services, Inc. ("Buck"), a registered broker-dealer, upon instructions from the respective buyers and sellers, and individual stock ownership account records will be maintained by Buck's affiliate, Buck Consultants, Inc. Subsequent to determination of the applicable Formula Price for use on the next Trade Date, and at least fifteen days prior to such trade date, Buck will advise the stockholders of record by mail as to the amount of the Formula Price and the Trade Date, inquiring whether such stockholders wish to sell shares on the Internal Market and advising them, if they do so, how to deliver written sell orders and stock certificates (which must be received by Buck at least two days prior to such Trade Date) to facilitate such sale. The Company may, but is not obligated to, purchase shares of Common Stock on the Internal Market on any Trade Date, but only if and to the extent that the number of shares offered for sale by stockholders exceeds the number of shares sought to be purchased by Authorized Buyers, and the Company, in its discretion, determines to make such purchases. Such purchases are also limited by the rights and preferences of the Class C Preferred Stock as noted above. See "Risk Factors -- Class C Preferred Stockholder's Ability to Veto Certain Corporate Actions." Except as provided below, in the event that the aggregate number of shares offered for sale on the Internal Market is greater than the aggregate number of shares sought to be purchased by Authorized Buyers and the Company, offers to sell 500 shares or less of Common Stock or up to the first 500 shares if more than 500 shares of Common Stock are offered by any seller will be accepted first and offers to sell shares in excess of 500 shares of Common Stock 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. 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. To the extent that the aggregate number of shares sought to be purchased exceeds the aggregate number of shares offered for sale, the Company may, but is not obligated to, sell authorized but unissued shares of Common Stock on the Internal Market. All sellers on the Internal Market (other than the Company and its retirement plans) will pay Buck a commission equal to two percent of the proceeds from such sales. No commission is paid by purchasers on the Internal Market. All offers and sales of Common Stock made on the Internal Market may be attributed to the Company. If the aggregate purchase orders exceed the number of shares available for sale, the following prospective purchasers will have priority, in the order listed: 1. the administrator of the Employee Stock Purchase Plan 2. the trustees of the Savings and Retirement Plan 3. individuals approved for purchases by the Compensation Committee of the Board of Directors, on a pro rata basis 4. the trustees of the Employee Stock Ownership Plan Pursuant to Section 1042 of the Internal Revenue Code, stockholders who tender certain shares of Common Stock purchased by the ESOP in response to a tender offer by the Company may be entitled to defer the payment of federal income tax relating to the gain derived from the sale of such shares, provided that certain conditions are met. Although the Company has not entered into a tender offer pursuant to Section 1042 and has no current intention to do so, it is conceivable that it may choose to do so in the future. In the event that such a tender offer is commenced in the future, those stockholders who tender their shares and who satisfy the other conditions of Section 1042 may, by virtue of their being able to defer the income tax on the gain derived from the sale, in effect, temporarily receive a higher after-tax benefit from tendering their shares than they would receive by selling such shares on the Internal Market. There is no public market for the Common Stock. While the Company is initiating the Internal Market in an effort to provide liquidity to stockholders, there can be no assurance that there will be sufficient liquidity to permit stockholders to resell their shares on the Internal Market, or that a regular trading market will develop or be sustained in the future. The Internal Market will be dependent on the presence of sufficient buyers to support sell orders that will be placed through the Internal Market. Depending on the Company's performance, potential buyers (which would include employees and trustees under the Company's benefit plans) may elect not to buy on the Internal Market. Moreover, although the Company may enter the Internal Market as a buyer of Common Stock under certain circumstances, including an excess of sell orders over buy orders, the Company has no obligation to engage in Internal Market transactions. Consequently, there is a risk that sell orders could be prorated as a result of insufficient buyer demand, or that the Internal Market may not be permitted to open because of the lack of buyers. To the extent that the Internal Market does not provide sufficient liquidity for a shareholder and the shareholder is otherwise unable to locate a buyer for his or her shares, the shareholder could effectively be subject to a total loss of investment. Accordingly, the purchase of Common Stock is suitable only for persons who have no need for liquidity in this investment and who can afford a total loss of investment. See "Risk Factors -- Absence of a Public Market." Determination of Offering Price The purchase price of the shares of Common Stock offered hereby, other than those shares issuable upon exercise of options or awarded under the EIP, will be determined pursuant to the formula and valuation process described below (the "Formula Price"). The Formula Price per share of Common Stock is the product of seven times the operating cash flow ("CF") where operating cash flow is represented by earnings before interest, taxes, depreciation and amortization ("EBITDA") of the Company for the four fiscal quarters immediately preceding the date on which a price revision is made and the market factor (the "Market Factor" denoted MF), plus the non-operating assets at disposition value (net of disposition costs)("NOA"), minus the sum of interest bearing debt adjusted to market and other outstanding securities senior to Common Stock ("IBD") divided by the number of shares of Common Stock outstanding at the date on which a price revision is made, on a fully diluted basis assuming conversion of all Class C Preferred Stock and exercise of all outstanding options and warrants ("ESO"). The Market Factor is a numerical factor which reflects existing securities market conditions relevant to the valuation of such stock. The Formula Price of the Common Stock, expressed as an equation (the "Formula"), is as follows: Formula Price = [(CF x 7)MF + NOA - IBD] / ESO "CF" is the earnings basis which is considered to be representative of the future performance of the Company. The abbreviation stands for operating cash flow, and the basic measurement used by the Company for operating cash flow is Earnings Before Interest, Depreciation and Taxes ("EBITDA."). Each element of EBITDA is measured according to generally accepted accounting principles ("GAAP"), but, before using those objective numbers in the formula, the 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 the future performance of the Company. Following are examples of situations where the Board used in the Formula would be representative of expected future performance: (a) the earnings from an acquisition made late in the year may be pro-formed for a full year, (b) the earnings from a discontinued activity may be pro-formed out even though the discontinued activity may not qualify as a discontinued business under GAAP; or (c) a truly unusual expenditure or windfall profit may be pro- formed out even though it is clearly part of GAAP earnings for the current year. "MF" is the market factor. In the end, it is totally subjective. Annually, the Board of Directors looks at the public market pricing for other government service contractors which in its opinion are most comparable to the Company. Six to eight other companies are generally considered, but there is no set number of comparables. The pricing multiples of Net Income and of Cash Flow for these companies are looked at on a last twelve-month basis, on a fiscal- year basis, and, where available from analysts' reports, on a projected basis. Since the Formula capitalizes the Company's CF at seven times, these comparables give the Board of Directors a sense whether the public market is currently at a higher, lower or roughly the same level as that fixed multiple. The Board of Directors also looks at the Company's earnings trends in setting the MF, because the stock market generally rewards an upward trend and punishes a downward trend. On a quarterly basis, the Board of Directors will look at the Price Earnings Multiples of its annual comparable companies to see if there are any significant changes which might influence the Board's determination of the MF to be used in the formula. "NOA" are non-operating assets at disposition value (net of disposition costs). The Company's principal non-operating asset since 1992 has been "Restricted Cash". This is cash in its wholly owned subsidiary, Dyn Funding Corporation ("DynFunding"), which must remain in specified short-term marketable investments (e.g., U.S. Treasury bills) on a temporary basis, because the Company and its other subsidiaries do not have enough eligible accounts receivable to sell to DynFunding at any particular point in time to utilize the full $100 million of capital of DynFunding. If the Company discontinues a business, and the net assets of that business were recorded as Assets Held For Sale, those assets would also be included in NOA at management's estimate of their disposition value, net of disposition costs. (The earnings from those assets would also be excluded from "CF" in the Formula.) If the Company had a passive investment outside its normal operations, the earnings from that investment would be excluded from "CF", and the lower of cost or estimated market value would be included in "NOA". Other similar situations could give rise to inclusion in "NOA", but an asset must be clearly non-operating to be included. "IBD" is interest-bearing debt and other securities senior to common stock. Under GAAP, interest-bearing debt is to be reported net of any unamortized discount at issuance, but in the Formula such issuance discounts are ignored, and it is expected that the debt will be recorded at its face value. On the other hand, if it is the intent of management in the near term to call any portion of its long term debt, the amount used for that portion of IBD 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, the Board of Directors will also look at any convertible securities and subjectively decide whether or not it is likely that those securities will be converted. If, in the opinion of the Board, they will be converted, such securities will be included in the fully diluted common shares and not IBD. Preferred stock, or any similar security, senior to the common stock in liquidation, will be considered as IBD. (At the present time, it is the opinion of the Board of Directors that the Class C Preferred Stock of the Company will be converted into common shares, so it is not treated as IBD.) "ESO" is the equivalent shares outstanding of common stock at the time of the valuation. It assumes the exercise of all outstanding options (if no greater than the current Formula Price), warrants, the conversion of the Class C Preferred Stock into common shares and possibly the conversion of any other convertible securities of which there are none at the present time. The Formula Price including the Market Factor will be reviewed four times each year, generally in conjunction with Board of Directors meetings, which are generally scheduled for February, May, August and November. At such meetings, the Market Factor will be reviewed by the Board in conjunction with an appraisal which is prepared by an independent appraisal firm for the committee administering the Company's Employee Stock Option Plan (the "ESOP"). The Board of Directors believes that the valuation process results in a stock price which reasonably reflects the value of the Company on a per share basis. See "Risk Factors -- Offering Price Determined by Formula Not Market Forces" and "Market Information -- Price Range of Common Stock." The Formula was adopted in its present form by the Board of Directors on August 15, 1995. The Formula is subject to change by the Board of Directors. The most recent Formula Price is $15.00 per share based on a Market Factor of 1.362, as determined at the Board of Directors meeting on May 9, 1996. The first use of the Formula Price on the Internal Market will be in connection with determination of the Formula Price prior to the first Trade Date. Such determination, and all subsequent determinations of the Formula Price, will be based on financial data for the four fiscal quarters immediately preceding the date on which a price revision is to occur. Changes in the Formula Price will be communicated on a regular basis to stockholders and participants in the employee benefit plans through which the employees can make investments in Common Stock. Trade Dates are expected to occur on or about February 15, May 15, August 15, and November 15 of each year. Price Range of Common Stock Because the Company's Common Stock has not been publicly traded since 1988, there has not been any historical market-determined price. However, there have been valuations of the Common Stock made by an independent appraiser as required by the ESOP, the Board of Directors has (based upon such valuations) periodically determined the price of the Common Stock for purposes of offers and sales of Common Stock made pursuant to the Stockholders Agreement, and there have also been private share transactions based upon such determinations. The prices of Common Stock set forth in the table below are based on these various valuations, determinations and transactions, and (with the exception of the price for July 1, 1995) not on the Formula Price that will be utilized for purchases and sales of Common Stock on the Internal Market. Effective with the commencement of the LBO in January 1988, the price was based on a "package" consisting of one share of Common Stock plus Warrants to purchase 6.6767 additional shares. The exercise price of the Warrants was reduced from $5.00 per share to $0.25 per share during the period 1988 to 1993; as each third of the outstanding balance of the initial ESOP loan was repaid, the exercise price was reduced by $1.58. The average price per share figures shown below for July 1, 1988 and 1989 ($3.47 and $3.79, respectively) represent the weighted average of the actual costs to the Company's employee stockholders based on a purchase price of $24.25 per unit, each unit being comprised of one share of Common Stock and Warrants to purchase 6.6767 shares of Common Stock at an exercise price of $0.25 per share. The average price per share figures shown below for July 1, 1990 through July 1, 1994, reflect market values established by the Board of Directors for purposes of sales under the former Management Employees Stock Purchase Plan and for transactions under the Stockholders Agreement. The Board's determination was based on its review of valuations of the Common Stock made annually by an independent appraiser for the ESOP Trust. Prior to December 31, 1993, the appraiser's calculation produced annually a single control share valuation, which applied to shares allocated to ESOP participants' accounts during the period from 1988 through 1993. This control share premium was not applicable to shares of Common Stock outside the ESOP, and therefore such valuation was adjusted by the Company's Chief Financial Officer in his recommendation to the Board to apply a discount for lack of liquidity and to eliminate the control share premium. Since December 31, 1993, the independent appraiser has also produced annually a valuation for the shares of Common Stock not having such a control premium, and the Board of Directors has determined market values for purposes of the Stockholders Agreement following its review of the ESOP valuation of Common Stock not having a control premium. The price per share for July 1, 1995 and later dates is based upon the Formula Price. From and after May 10, 1995, the Board of Directors has determined that the price per share will equal the Formula Price described herein. There can be no assurance that the Common Stock will in the future provide returns comparable to historical returns, or that the Formula Price will provide returns similar to those for past transactions that were based on prices other than the Formula Price. Because the prices listed in the table below were developed under differing valuation methods for differing purposes, they are not fully comparable with the Formula Price. Date Average Price % Increase Per Share July 1, 1988 $ 3.47 --- July 1, 1989 $ 3.79 9.22% July 1, 1990 $ 5.20 37.20% July 1, 1991 $ 5.72 10.00% July 1, 1992 $ 7.68 34.27% July 1, 1993 $ 7.97 3.78% July 1, 1994 $11.86 48.81% July 1, 1995 $14.90 25.63% February 10, 1996 $14.50 (2.68%) May 9, 1996 $15.00 3.45% Although the Formula is subject to change by the Board of Directors in its sole discretion, the Board of Directors will not change the Formula unless (i) in the good faith exercise of its fiduciary duties and after consultation with its professional advisors, the Board of Directors, including a majority of the directors who are not employees of the Company, determines that the Formula no longer results in a stock price which reasonably reflects the value of the Company on a per share basis, or (ii) a change in the Formula or the method of valuing the Common Stock is required under applicable law. The Company intends to disseminate the current Formula Price on at least a quarterly basis to all employees through internal communications, including bulletins and electronic mail messages and to other stockholders by mailed reports, including mailed notices of upcoming Trade Dates. Participants in any of the employee benefit plans may obtain the current Formula Price by calling the Company's Powerline system toll-free number (1-800-956-4015), which operates 24 hours a day, seven days a week. The Company also intends to distribute copies of its audited annual financial statements to all stockholders, as well as other employees, and to potential participants in the Internal Market through employee benefit plans, either through U. S. Mail or inter-company mail. Such information is normally distributed at the time of distribution of employee annual reports, which is made at approximately the same time that proxy information is distributed and solicitations are made for voting instructions from participants in the ESOP and SARP, in April or May of each year. The Company files unaudited quarterly financial information with the Securities and Exchange Commission, and copies of such information are available from the Commission. See "Available Information." USE OF PROCEEDS The shares of Common Stock which may be offered by the Company are principally being offered to permit the acquisition of shares by the Company's employee benefit plans as described herein and to permit the Company to offer shares of Common Stock to present and future employees and directors. The Company does not intend or expect this Offering to raise significant capital. Any net proceeds received by the Company from the sale of the Common Stock offered (after giving effect to the payment of expenses of the Offering) will be added to the general funds of the Company for working capital and general corporate purposes. Currently, the Company has no specific plans for the use of such proceeds. It is anticipated that the majority of the sales of Common Stock on the Internal Market will be made by stockholders rather than by the Company, and the Company will not receive any portion of the net proceeds from the sale of such shares (other than the 1% received by DynEx, Inc. to defray the costs of establishing and maintaining the Internal Market). DIVIDEND POLICY The Company last paid a dividend in 1986, prior to the LBO. The Company has not, since that time, paid a dividend and does not have a policy for the payment of regular dividends. The payment of dividends in the future will be subject to the discretion of the Board of Directors of the Company and will depend on the Company's results of operations, financial position, and capital requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal and regulatory restrictions on the payment of dividends, and other factors the Board of Directors deems relevant. The holder of the Class C Preferred also has the right to approve or disapprove proposed dividend payments. See "Risk Factors - No Payment of Cash Dividends" and "Description of Capital Stock -- Class C Preferred Stock." DILUTION The tangible book value of the Company on December 31, 1995 was a negative figure of $160,721,000 or ($455.20) per share. Tangible book value per share represents the amount of total tangible assets less total liabilities and Redeemable Common Stock, divided by 353,078 shares of Common Stock outstanding (excluding Redeemable Common Stock). Total Common Stock outstanding at December 31, 1995 was 8,195,598 shares including Redeemable Common Stock. As the following table demonstrates, after giving effect to the sale of 4,722,366 shares of Common Stock by the Company in the Offering at a Formula Price of $15.00 per share, and after deducting anticipated expenses, the pro forma book value of the Company on December 31, 1995, would have been a negative $97,082,000 or ($20.96) per share, representing an immediate $35.96 per share (or 140%) dilution to new investors purchasing shares of Common Stock at the Formula Price. Formula Price per share $15.00 Net tangible book value per share ($455.20) before the Offering Increase per share attributable $476.16 to new investors Pro forma net tangible book value per share after the Offering ($20.96) Dilution per share to new investors $35.96 Dilution is determined by subtracting pro forma book value per share after giving effect to the Offering from the Formula Price paid by a new investor for a share of Common Stock. The foregoing calculation assumes no additional exercises of the outstanding warrants to purchase shares of Common Stock. As of December 31, 1995 there were outstanding warrants to purchase 4,322,449 million shares of Common Stock at a warrant exercise price of $0.25 per share. If all the warrants outstanding and warrants issuable upon conversion of the Class C Preferred as of December 31, 1995, were to be immediately converted to Common Stock, dilution per share to new investors would be $25.84 per share (or 73%). SELECTED FINANCIAL DATA The following table presents summary selected historical financial data derived from the Consolidated Financial Statements of the Company, which have been audited by Arthur Andersen LLP for each of the five years. During the periods presented, 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 Consolidated Financial Statements and related notes thereto, included elsewhere in this Prospectus. (Dollars in thousands except per share data.)
Years Ended December 31, 1995(2) 1994(1)(4) 1993(1)(5) 1992(1)(6) 1991(1) Statement of Operations Data: Revenues $908,725 $818,683 $777,216 $728,244 $654,710 Cost of services $871,471 $783,095 $742,455 $707,905 $634,126 Gross Profit $ 37,254 $ 35,588 $ 34,761 $ 20,339 $ 20,584 Selling and corporate administrative $ 18,705 $ 16,887 $ 17,547 $ 18,503 $ 15,538 Interest expense $ 14,856 $ 14,903 $ 14,777 $ 14,629 $ 12,135 Earnings (loss) from continuing operations before extraordinary item (3) $ 5,274 $ (352) $ (4,485) $(14,112) $ (7,568) Net earnings (loss) $ 2,368 $(12,831) $(13,414) $(23,342) $ (12,403) Common stockholders' share of earnings (loss) $ 453 $(14,437) $(14,761) $(25,430) $ (18,530) Earnings (loss) per share from continuing operations before extraordinary item for common stockholders $ 0.27 $ (0.29) $ (1.13) $ (3.18) $ (2.90) Balance Sheet Data: Total assets $375,490 $396,000 $360,103 $338,135 $298,725 Long-term debt excluding current maturities $104,112 $230,444 $215,939 $198,770 $119,949 Redeemable preferred stock $ - $ - $ - $ - $ 24,884 Redeemable common stock $135,894 $130,828 $100,630 $ 95,391 $ 91,536 (1) Restated for the discontinuance of the Commercial Aviation business. (2) 1995 included $7,707,000 reversal of income tax reserves (see Note 14), $4,362,000 accrued for losses and reserves related to the Company's Mexican operation, $2,400,000 accrual of legal fees related to the defense of a lawsuit filed by a subcontractor of a former electrical contracting subsidiary (see Notes 13 and 20) and $5,300,000 accrued for uninsured costs related to a former subsidiary's use of asbestos products (see Notes 13 and 20). (3) The extraordinary loss in 1995 of $2,886,000 and 1992 of $2,526,000 and the gain in 1991 of $192,000 results from the early extinguishment of debt. (4) 1994 includes $3,250,000 (see Note 13) write-off of investment in unconsolidated subsidiary, $2,665,000 (Notes 13 and 20) accrual of legal fees related to the defense of a lawsuit filed by a subcontractor of a former electrical contracting subsidiary, $1,830,000 (see Note 13) credit for reversal of legal costs associated with an acquired business and $4,069,000 (see Note 14) reversal of income tax reserves. (5) 1993 includes $2,000,000 of legal and other expenses associated with an acquired business (see Note 13). 1993 also includes $988,000 accelerated amortization of costs in excess of net assets of an acquired business, for assets that were subsequently determined to have been overvalued at the time of acquisition. (6) 1992 Cost of Services includes approximately $6,000,000 for settlement of claims against the Company related to prior years.
BUSINESS Overview The Company provides diversified management, technical, and professional services to government and commercial customers throughout the United States and internationally. The Company provides primarily information technology, operations and maintenance, and research and development support services under contracts with U.S. Government agencies, foreign government agencies and commercial customers. The Company's U.S. Government customers include the Department of Defense (the "DoD"), the National Aeronautics and Space Administration ("NASA"), the Department of State, the Department of Energy (the "DOE"), the Environmental Protection Agency (the "EPA"), the Centers for Disease Control, the U.S. Postal Service and other U.S. Government agencies. Sales generated from services provided to the DoD and the U.S. Government in the aggregate, represented 55% and 96% of total sales, respectively, in 1995. Total sales, earnings before extraordinary item, interest, taxes, depreciation and amortization, and net earnings for the Company in 1995 were $908.7 million, $21.6 million and $2.4 million, respectively. During the second quarter of 1995, the Company's Board of Directors determined that it would be in the Company's best interest to discontinue its commercial aviation business operations (the "Commercial Aviation Business"), which provided about 20% of the Company's revenues in fiscal year 1994. This decision was made as a result of several factors including: (i) the Company's need for cash to reduce its debt, (ii) the capital intensive nature of the Commercial Aviation Business, (iii) the continual losses of the unit of the Commercial Aviation Business responsible for aircraft maintenance and repair operations (the "Aircraft Maintenance Unit") and (iv) a high level of interest from potential buyers. On June 30, 1995, the Company sold the Aircraft Maintenance Unit in a $13.7 million cash transaction with Sabreliner Corporation. On August 31, 1995, the Company divested that portion of the Commercial Aviation Business comprising its aviation ground handling business, including DynAir Services, Inc. and its affiliates (the "Ground Handling Unit"), in a $122 million (subject to adjustment) cash transaction with ALPHA Airports Group Plc. The proceeds from the two aforementioned transactions have been used to retire all of the Company's 16% Pay-In-Kind debentures and satisfy existing equipment financing obligations of the Ground Handling Unit. See "Business -- Commercial Aviation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's strategy has been to grow internally, increasing business through strong marketing and business development efforts, as well as through an aggressive strategic acquisition program. The Company provides services through three primary business areas. The composition and market niches, including the total contract price of certain significant contracts, of the business areas are described below. While the contract descriptions provided below may refer to contract terms in excess of one year, such contracts are normally one-year contracts which may be extended at the customer's option for additional one-year periods up to the number of years indicated. Except as otherwise identified, contract amounts set forth herein represent aggregate anticipated gross revenues over the life of such contract, assuming exercise of all option years. Amounts include both prior periods and the remaining life of the contract. See "Risk Factors -- Dependence on and Risks Inherent in U.S. Government Contracts" and "Business -- Government Contracting." Aerospace Technology This organization consists of one of the Company's oldest businesses -- Aerospace Operations -- first started by the Company in 1951. It includes military aviation maintenance and aerospace engineering operations in Texas, various military bases and locations where Government aircraft are maintained, and certain locations overseas in support of the North Atlantic Treaty Organization ("NATO") and the United Nations. Revenues for 1995, 1994, and 1993 were $319.3 million, $300.9 million and $327.3 million, respectively. $508 million Contract Field Teams - This is the Company's second oldest contract, first awarded by the U.S. Air Force in 1951. Under this contract, which has been retained by the Company through successive recompetitions (the last of which was in 1993 for a five-year renewal), the Company furnishes between 1,500 and 2,500 aviation technicians who are available on short notice to travel anywhere in the world to service and modify U.S. military aircraft. $407 million Fort Rucker Helicopter Support - First awarded to the Company in 1988, this contract involving 1,400 employees was renewed in 1993 for an additional five-year period. The Company maintains over 600 rotary-wing aircraft which are operated 24 hours a day to support Army pilot training activities. $111 million Aerotherm - The Aerotherm subsidiary of Aerospace Technology is a test and evaluation contractor with expertise in space vehicle reentry technology. It also builds test vehicles for the U.S. Air Force Ballistic Missile Office and operates a high energy laser testing facility for the Army. Aerotherm performs most of its work under five major long-term contracts and numerous subcontracts of various durations. $98 million International Narcotics Matters Support - Under this contract first awarded in 1991, the Company operates and supports a dedicated air wing of the Department of State's drug interdiction program in Central and South America. The program is based in Florida and employs over 120 pilots, engineers, and technical support and advisory personnel. $97 million Johnson Space Center Support - This NASA aircraft maintenance support contract was won by the Company in January of 1994. A total of 200 Company technicians and support personnel maintain NASA aircraft used in launch activities. $84 million III Corps and Fort Hood Combined Aircraft Maintenance Program - More than 500 Company personnel support the U.S. Army and U.S. Army Reserve units in a ten-state region in maintaining 1,200 rotary wing aircraft and related ground support equipment. Under the contract, which extends through 1999, the Company provides line maintenance support, limited depot level repairs, maintenance work order installations and maintenance test flight operations. $76 million Patuxent River Research & Development Center - This is a Navy contract first awarded to the Company in 1985 and re-won in 1991 for an additional five-year term. Approximately 225 employees provide test and systems operations support in connection with test launches. $50 million Contingency Support - Under a five-year contract awarded in February, 1996, a joint venture between the Company (50%) and Brown & Root (50%) will provide operations, logistical, and other support to the U.S. Army in the Caribbean and Central and South American regions. $39 million Mission Field Teams - Under several contracts with the Department of State and the United Nations, Aerospace Technology furnishes logistical and other support services in connection with international peace keeping activities world-wide. Recent operations have been in Haiti, Bolivia, the United Arab Emirates, Kuwait, and the former Yugoslavia. Other Business Aerospace Technology has recently acquired exclusive application rights in North and South America to Australian-developed technology for the application of composite patches to aircraft surfaces and structural members. The utilization of this process where appropriate avoids the costly alternative of replacing and rebuilding metal surfaces and support members. Aerospace Technology recently completed repairs of C-141 aircraft for the U.S. Air Force using the composite repair technology. A prototype repair has also been made to a C-5A Starlifter aircraft. The Company believes that there is a significant market for composite repair of military and commercial aircraft surfaces and supporting structures. Enterprise Management This organization consists primarily of the former Support Services Division of the Company which was started in 1987 and the range operations and test and evaluation activities and contracts of the former Test & Evaluation Division of the Company. Its basic markets include management of test ranges, military and other governmental facilities, management of commercial enterprises and facilities, health and healthcare-related support services, and the operation and management of multi-location service contracts, such as the U.S. Department of Justice Asset Forfeiture Program involving over 300 offices throughout the United States. It includes the operation, maintenance, and management of major governmental and private enterprises and installations, ranging from the turn-key responsibility for operation of all aspects of a single base (such as a military installation) to assumption of responsibility for the staffing of particular functions at various locations for a single customer. Disciplines included within operational responsibility vary, but generally include scientific support, operation of sophisticated electronic and mechanical systems, grounds and buildings, environmental systems, security systems, industrial hygiene, transportation systems, construction and demolition, environmental remediation, and the handling of and accountability for inventories of equipment and materials/supplies and other property. Activities include testing and evaluation of military hardware systems at government test ranges, collection and processing of data, maintenance of targets, ranges and laboratory facilities, health education, health surveillance, clinical laboratory services, developmental testing of complex weapons systems, security systems work, and technology transfer into commercial applications. Revenues for 1995, 1994, and 1993 were $318.3 million, $325.6 million and $312.0 million, respectively. $1.5 billion 1 DOE Strategic Petroleum Reserve - Through its 60% controlled affiliate, DynMcDermott Petroleum Operations Company, Inc. ("DynMcDermott"), the Company furnishes approximately 900 technicians and operational personnel to operate DOE's seven-site emergency crude oil storage facilities in Louisiana and Texas (the "Reserve"). The Reserve is maintained for possible draw-down and domestic sales of crude in the event of an international crisis or threat to the U.S. oil supply. The operation of the Reserve involves all technical responsibility for approximately 700 million barrels of crude in storage, over 1,000 miles of pipeline, as well as all related environmental, safety, and security matters. The current contract runs through 2003. $585 million Rocky Flats - A subsidiary of the Company is a subcontractor to Kaiser Hill, a joint venture. Through the subsidiary, the Company will provide site support services to the DOE complex at Rocky Flats, Colorado. These services include facilities and equipment maintenance, logistics and property management, information and records management, and environmental safety and health services. The subcontract will run through 2003. $250 million 2 Arnold Engineering Development Center - Under a joint venture with Computer Sciences Corporation and General Physics Corporation, the Company will provide information technology, civil engineering, facilities management and environmental expertise to the Air Force's Advanced Simulation and Test Facilities. The Company is a 35% owner of the joint venture, which holds the eight-year contract, due to expire in 2003. $217 million Department of Justice Asset Forfeiture Support Program - This five-year, 1,000-person contract, requiring staffing of over 300 locations in the United States, involves the support of Department of Justice's drug-related asset seizure program. Company personnel support the various U.S. Attorney offices that are responsible for enforcing and administering the federal asset forfeiture laws. The contract was secured for a period of five years in 1993. $215 million National Training Center - Over 1,100 Company personnel operate the Army's National Training Center near Barstow, California, where U.S. and foreign military organizations engage in mock military exercises. The Company maintains and issues over 3,000 items of military equipment and provides personnel to operate the entire Fort Irwin facility, which supports more than 12,000 personnel. This contract was first won in 1987 and was renewed for an additional five-year term in 1991. $98 million White Sands Missile Range - Under the Company's oldest contract, originally awarded in 1946, the Company provides data collection services to the U.S. Army at White Sands Missile Range, New Mexico. The contract will expire in December, 1996. $88 million Fort Belvoir - This facility management and support contract involves every aspect of operational responsibility ranging from grounds maintenance to security and air field operations at Fort Belvoir, Virginia. Over 225 Company personnel are involved under this contract. The contract was renewed for a five-year period in March, 1995. $62 million Fallon Naval Air Station Support - Awarded in 1992, this contract covers the maintenance and support of the facilities at Fallon Naval Air Station, including all grounds and air field maintenance. The contract requires 302 Company support personnel. $55 million Department of State Security - The Company provides a variety of technical services to the Department of State at various locations around the world under six contracts that extend through 2000. $50 million Marine Spill Response Corporation Operations Contract Under this contract originally awarded in 1993 and extended for five years in October,1995, the Company operates a fleet of 16 oil spill response ships that were specifically commissioned and built for U.S. coastal protection service under the Oil Pollution Act of 1992. $44 million Memphis Naval Air Station - This five-year Navy contract awarded in 1993 involves operational and maintenance support for the infrastructure of the Naval Air Station in Millington, Tennessee. $40 million Reserve Training - A joint venture in which the Company is a 40% participant will provide operations and maintenance training on deployable medical systems for the U.S. Army Reserve Command under a five-year contract awarded in February, 1996. $18 million Biotechnology and Health Services - The Company provides biomedical technology services to various health organizations. Under contracts extending into 1998, the Company operates seven laboratories and five repositories for the National Institutes of Health. Other Business Enterprise Management operates internationally where it performs security services and other support activities related to facilities and enterprise management. In addition to its military customers, this unit has contracts for similar services with non-DoD agencies such as the U.S. Department of Agriculture, Department of State, and Department of Justice. 1 Represents value of costs incurred and fee earned by DynMcDermott. Only the Company's portion of the fee ($6.2 million in 1995) has been recorded as revenue in the Company's financial statements. 2 Represents the value of the Company's share of the joint venture's reimbursable costs and award fee. The Company will report only its share of net earnings on its financial statements. Information and Engineering Technology This business consists of segments of businesses acquired during the period 1991 through 1994 -- Viar & Company, Meridian Corporation, NMI Systems, Inc., Technology Applications, Inc., and CBIS Federal, Inc. -- plus existing segments. The Company integrated these portions of the previously acquired corporate entities into the Information and Engineering Technology business in 1995 and 1996. Its activities include software development and maintenance, computer center operations, data processing and analysis, database administration, telecommunications support and operations, maintenance and operation of integrated electronic systems, and networking of electronic systems in a local and wide area environment. This business also includes environmental regulation development, quality assurance studies and research, management of information relating to the proper handling of hazardous materials and substances, alternative energy research and evaluation, and energy security studies and assessments. This business also provides services in support of nuclear safeguards and security research and development. Specialized disciplines include the development of physical security systems, vulnerability and risk assessments, and human reliability. Revenues for 1995, 1994, and 1993 were $271.1 million, $192.2 million and $137.9 million, respectively. $247 million DOE Information Technology Support Operations - This five-year information technology support contract marks a significant milestone in the Company's efforts, starting with the acquisitions of Viar and Meridian in 1992, to expand its activities into the growing information technology marketplace. Over 200 Company personnel provide basic computer, software, and networking support to all of DOE's operations. $200 million Department of Treasury Information Processing Support Services - This five-year contract awarded in June, 1995 provides support to the Internal Revenue Service and Treasury Department for major information resource management projects. Company personnel will provide information systems services, telecommunication and network support, software and database development and technical evaluation analysis. $156 million General Services Administration ("GSA") Automated Data Processing - Under this recently acquired 4 1/2 year contract, the Company provides life cycle applications software development and maintenance for business and scientific systems to U.S. agencies in the GSA's Southeast Sunbelt and Great Lakes regions. The contract will employ between 400 and 800 persons in 14 states. $90 million Naval Warfare Systems Contract - One of the Company's oldest contracts, first awarded over 30 years ago, this is an engineering, technical and computer operations contract with the U.S. Navy. The contract was renewed for a five-year term in April, 1996. $89 million EPA Programs - Under several contracts, the Company performs program management, analytical, and technical support for EPA Superfund policy, research and development, and enforcement under Superfund and effluent guidelines. These contracts extend into 1998. $81 million Defense Policy Support - As a provider of direct energy policy support to DoD, DOE and other federal agencies, the Company holds contracts with terms continuing through 1999, under which it furnishes analysis and documentation support on defense policy related to energy matters. $40 million EPA Contract Laboratory Administrative Support Services - Under this five-year contract awarded in 1994, the Company provides program management support in the testing of environmental samples by EPA's contracted laboratories for the Office of Emergency and Remedial Responses. This is a successor contract to a contract first awarded to Viar & Company in 1980. Other Business Information and Communications Technology Performs approximately $20 million per annum of systems networking contracts inherited from its 1993 acquisition of NMI Systems, Inc. Commercial and governmental customers are served. Commercial Aviation During the second quarter of 1995, the Company's Board of Directors determined that it would be in the Company's best interest to discontinue the Commercial Aviation Business, which provided about 20% of the Company's revenues in fiscal year 1994. This decision was made as a result of several factors including: (i) the Company's need for cash to reduce its debt, (ii) the capital intensive nature of the Commercial Aviation Business, (iii) the continual losses of the Aircraft Maintenance Unit and (iv) a high level of interest from potential buyers. The Aircraft Maintenance Unit included the Company's DynAir Tech subsidiaries in Arizona (acquired in 1987), Florida (acquired in 1969), and Texas. The Aircraft Maintenance Unit performed maintenance checks, component overhauls, heavy structural maintenance, airframe and systems maintenance and modification of a wide variety of passenger and cargo aircraft. The Aircraft Maintenance Unit was sold on June 30, 1995, for $13.7 million. In addition, the Company may receive additional payments based on future revenues of the Aircraft Maintenance Unit. The aviation ground handling business was conducted through the Company's wholly owned subsidiaries, DynCorp Aviation Services, Inc., DynAir Fueling Inc., and DynAir Services Inc., formerly Servair Inc., which was acquired by the Company in 1971 (collectively, the "Ground Handling Unit"). The Ground Han