Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to .
Commission File No.1-7348
DYNAMICS RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2211809
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
60 Frontage Road, Andover, Massachusetts 01810-5498
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (508) 475-9090
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No .
The number of shares outstanding of the Registrant's Common stock,
par value $.10 per share, at April 9, 1997 was 5,689,925 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 28, 1996 . . . . . . 3
Consolidated Statements of Income -
Quarterly Period Ended March 31, 1997 and
March 23, 1996 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Quarterly Period Ended March 31, 1997 and
March 23, 1996 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART I. FINANCIAL INFORMATION
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
(unaudited)
ASSETS March 31, 1997 December 28, 1996
CURRENT ASSETS:
Cash and cash equivalents $ 165 $ 234
Receivables, less allowances of $326
in 1997 and $340 in 1996 19,772 19,436
Unbilled expenditures and fees
on contracts in process 18,287 22,690
Inventories 2,903 3,211
Refundable income taxes 1,436 1,436
Prepaid expenses and other current assets 1,254 1,247
Total current assets 43,817 48,254
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 41,824 40,970
Less accumulated depreciation
and amortization (28,909) (28,266)
Net property, plant and equipment 21,815 21,604
Excess of purchase price over net assets
of business acquired, net 1,156 1,244
Total assets $ 66,788 $ 71,102
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ 11,250 $ 10,600
Accounts and drafts payable 2,759 8,925
Accrued payroll and employee benefits 7,790 6,998
Deferred contract and other revenue 150 42
Other accrued expenses 949 852
Accrued and current deferred income taxes 6,567 6,091
Current portion of long-term debt 1,201 1,201
Total current liabilities 30,666 34,709
Long-term debt - 300
Deferred income taxes 600 854
SHAREHOLDERS' INVESTMENT:
Preferred stock, par value $.10 per share
5,000,000 shares authorized, none issued
Common stock, par value $.10 per share -
Authorized - 15,000,000 shares
Issued - 6,707,433 shares in 1997
and 6,689,767 in 1996 671 669
Less: Treasury stock - 1,009,508 in 1997
and 996,108 in 1996, at par value (101) (100)
Capital in excess of par value 9,472 9,516
Retained earnings 25,480 25,154
Total shareholders' investment 35,522 35,239
Total liabilities and
shareholders' investment $ 66,788 $ 71,102
The accompanying notes are an integral part of these consolidated
financial statements.
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share data)
(unaudited)
Quarter Ended 12 Weeks Ended
March 31, 1997 March 23, 1996
Product sales and contract revenue:
Contract revenue $ 26,874 $ 20,474
Product sales 6,134 6,153
Total revenue 33,008 26,627
Costs and expenses:
Cost of contract revenue 23,771 18,534
Cost of goods 5,169 4,559
Selling, engineering and
administrative expenses 3,304 3,100
Total costs and expenses 32,244 26,193
Operating income 764 434
Interest expense, net 205 100
Income before provision for income taxes 559 334
Provision for income taxes 233 125
Net income $ 326 $ 209
Net income per common share: * $ .05 $ .03
Weighted average common shares outstanding * 6,266,031 6,219,373
The accompanying notes are an integral part of these consolidated
financial statements.
* Retroactively adjusted for the April 1997 stock dividend.
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Quarter Ended 12 Weeks Ended
March 31, 1997 March 23, 1996
Cash provided by operations:
Net income $ 326 $ 209
Depreciation and amortization 1,199 1,180
Deferred income taxes (254) -
Provision for receivable reserves (14) 9
1,257 1,398
Cash provided by (used for) working capital:
Receivables (322) (7,899)
Unbilled expenditures and fees
on contracts in process 4,403 5,841
Inventories 308 (475)
Refundable income taxes - 3
Prepaid expenses and other current assets (7) (164)
Accounts and drafts payable (6,166) 464
Accrued payroll and employee benefits 792 768
Deferred contract and other revenue 108 (599)
Other accrued expenses 97 (10)
Accrued and current deferred income taxes 476 (225)
Net cash provided by (used for) operations 946 (898)
Cash used for investing activities:
Additions to property, plant
and equipment, net (1,197) (1,792)
Excess of purchase price over net assets
of business acquired, net (125) (2,000)
Net cash used for investing activities: (1,322) (3,792)
Cash provided by (used for) financing activities:
Net borrowings (repayment) under
line of credit agreements
650 4,196
Principal payments under long-term borrowings (300) (300)
Proceeds from the exercise of stock options 74 183
Purchase of treasury shares (117) -
Net cash provided by (used for)
financing activities 307 4,079
Net increase (decrease) in cash
and cash equivalents (69) (611)
Cash and cash equivalents at
the beginning of the year 234 777
Cash and cash equivalents at
the end of the period $ 165 $ 166
Supplemental disclosures of cash flow information:
Cash paid during the quarterly period for:
Interest $ 173 $ 108
Income taxes $ 16 $ 659
The accompanying notes are an integral part of these consolidated
financial statements.
DYNAMICS RESEARCH CORPORATION
Notes to Consolidated Financial Statements
Note 1. The unaudited consolidated financial statements presented
herein have been prepared by the registrant pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to
such rules and regulations, although the registrant believes that
the disclosures are adequate to make the information presented not
misleading. The accompanying consolidated financial statements
have not been audited by independent accountants, but in the
opinion of the management such financial statements include all
adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the results of operations.
The results of operations for the quarterly period ended March
31, 1997 may not be indicative of the results that may be expected
for the fiscal year ending December 31, 1997.
Note 2. Inventories are comprised of the following (in thousands of
dollars):
March 31, 1997 December 28, 1996
Work in process $1,035 $1,411
Raw materials and subassemblies 1,868 1,800
Total inventories $2,903 $3,211
Note 3. The Company has changed its fiscal year. Previously, the
Company used a 13-period accounting year with the first three fiscal quarters
containing twelve weeks and the fourth fiscal quarter containing sixteen
weeks. In 1996, the Company's fiscal year ended on December 28, 1996. The
Company's fiscal year will now end on December 31 in each year, and the
Company will employ a calendar-month accounting year. The Company's first
year under this new method commenced on December 29, 1996 and will terminate
on December 31, 1997. Accordingly, the first quarter of fiscal 1997 will
contain thirteen weeks and 3 days. Thereafter, all quarters will contain
thirteen weeks.
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Because the first quarter of 1996 contains 12 weeks and the first
quarter of 1997 contains 13 weeks and 3 days as described in Note 3, the
two quarters are not directly comparable. However, it is not
practicable for the Company to provide financial information for
comparable periods. Other than the factors discussed below and the
additional length of the 1997 first quarter, the Company is not aware of
any factors that would materially affect the comparability of the
financial information. (The first quarter of 1997 is referred to herein
as the first three months of 1997 as the three additional days in the
quarter included only two working days.)
Total revenue increased $6,381,000 or 24% for the first three
months of 1997 compared to the first twelve weeks of 1996, consisting of
increases mainly in the systems and services business segment.
Contract revenues for the systems and services segment increased 31%
for the first three months of 1997 compared to the first twelve weeks of
1996. Contributors to this growth included technical and management
services contracts with the U.S. Army and Air Force as well as non-
defense Federal and State contracts. Defense budget pressures and
priorities may alter the future scope of defense programs, and the
potential impact of these changes on the Company's future revenue is
difficult to predict. Much of the Company's contract revenue relates to
the development and operation of computer-based management information
and logistics support systems, as well as other information technology
services. The Company is continuing to pursue additional programs both
within the Department of Defense (DoD) and with other government
agencies, as well as in the telecommunications and non-defense
information technology markets.
During the first quarter of 1996 the Company acquired the
Massachusetts based operations of Support Systems Associates, Inc.
(SSAI). The acquired business included a prime contract to provide
services under the Air Force's Technical & Engineering Management
Support (TEMS) program which had an unfunded backlog with a potential
value of approximately $24 million that may be used to support both
existing business and new tasking for three years. The first quarter of
1997 reflects a full quarter of revenues under this contract.
Product sales decreased less than 1% for the first three months of
1997 compared to the first twelve weeks of 1996. Sales of electroformed
components for commercial ink-jet printers decreased in the quarter.
Cost of contract revenue as a percentage of contract revenue
decreased to 88% for the first three months of 1997 from 91% for the
first 12 weeks of 1996. The shift from a subcontractor to a prime
contractor on certain "time and material" business under the TEMS
program increased hourly billing rates available to the Company for a
full quarter in 1997. However, profit margins in the Defense services
segment of the Company's business continue to be under pressure.
Cost of goods as a percentage of product sales for the first
three months of 1997 was 84%, up from 74% for the first twelve weeks of
1996. This increase was attributed principally to decreased production
levels of electroformed components for commercial ink-jet printers.
Selling, engineering and administrative expenses increased 7% from
1996 principally due to increased research and development and marketing
efforts by the Company in connection with a software design and
development tool which was announced during 1996.
Interest expense, net was $205,000 in 1997 compared to $100,000 in
1996. This increase resulted from a higher level of average borrowings
during the first quarter of 1997 which was due to working capital
requirements attributable to growth, $9.3 million of capital
expenditures in 1996 and a $2 million acquisition in 1996.
The effective tax rate for the first three months of 1997 was 41.7%
compared to 37.4% in 1996. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 -
Accounting for Income Taxes (SFAS 109).
Liquidity and Capital Resources
During the first quarter of 1996, the Company's cash and cash
equivalents decreased by $69,000. Receivables increased $336,000 to
$19,772,000 at March 31, 1997 from $19,436,000 at December 28, 1996
while unbilled expenditures and fees on contracts in process decreased
$4,403,000 to $18,287,000 from $22,690,000. These changes are
principally due to the final billing of retained costs and fees on a
large fixed price contract as well as invoicing provisions on various
other contracts.
Capital spending during the first quarter of 1997 was $1,197,000,
consisting principally of computer equipment. This level of capital
spending is expected to continue during 1997.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At March 31, 1997, $7,750,000 was
available under the Company's current lines of credit. The Company
believes that its liquid assets, cash flow from operations, available
bank lines of credit and additional bank financing will satisfy its
operating and capital requirements for the foreseeable future.
Forward Looking Information
This report includes certain forward-looking statements about the
Company's business including the effect of the federal budget on the
Company's sales, anticipated capital spending, research and development
spending and marketing spending. Such forward-looking statements are
subject to risk and uncertainties that could cause the actual results to
vary materially. These risks and uncertainties, discussed in more
detail in the Company's Form 10-K for the year ended December 28, 1996,
include possible reductions in federal funding for the Company's
customers and potential customers, concentration of customers, risks of
sustaining existing contracts and orders thereunder at the same or
increasing levels and obtaining of new contracts, high levels of
competition and difficulties of entering new markets, government
contracting issues including audit adjustments and costs of completing
fixed-price contracts, supply difficulties, warranty claims, and factors
affecting the business segments in which the Company operated and the
economy generally.
PART II. OTHER INFORMATION
Item 6. (a) Exhibits
(10.1) Amended 1995 Stock Option Plan for Non-Employee
Directors
(10.2) Form of Consulting Agreement between Dynamics
Research Corporation
and Albert Rand
(10.3) Form of Supplemental Retirement Pension Agreement
between Dynamics
Research Corporation and Albert Rand
(27.1) Financial Data Schedule
Item 6 (b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the quarterly period for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DYNAMICS RESEARCH CORPORATION
(Registrant)
Date: May 13, 1997 By: /s/ Douglas R. Potter
Douglas R. Potter
Vice President of Finance
and Chief Financial Officer
(Principal financial and
accounting officer)
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<TOTAL-LIABILITY-AND-EQUITY> 66,788
<SALES> 6,134
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<TOTAL-COSTS> 28,940
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<INCOME-PRETAX> 559
<INCOME-TAX> 233
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As Amended
April 3, 1997
DYNAMICS RESEARCH CORPORATION
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of this 1995 Stock Option Plan for Non-Employee
Directors (the "Plan") is to advance the interests of Dynamics Research
Corporation (the "Company") by enhancing the ability of the Company to
attract and retain non-employee directors who are in a position to make
significant contributions to the success of the Company and to align the
interest of those directors more closely with the stockholders.
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of
the Board of Directors (the "Board") of the Company designated by the
Board for that purpose. Unless and until a Committee is appointed the
Plan shall be administered by the entire Board, and references in the
Plan to the "Committee" shall be deemed references to the Board. The
Committee shall have authority, not inconsistent with the express
provisions of the Plan, (a) to grant options in accordance with the Plan
to such directors as are eligible to receive options; (b) to prescribe
the form or forms of instruments evidencing options and any other
instruments required under the Plan and to change such forms from time
to time; (c) to adopt, amend and rescind rules and regulations for the
administration of the Plan; (d) to accelerate the vesting of or
otherwise change the terms of any option granted hereunder; and (e) to
interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan.
Such determinations of the Committee shall be conclusive and shall bind
all parties.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on the date on which the Plan is
approved by the Board of Directors of the Company, subject to approval
by the shareholders of the Company. No option shall be granted under
the Plan after the completion of ten years from the date on which the
Plan was adopted by the Board, but options previously granted may extend
beyond that date.
4. SHARES SUBJECT TO THE PLAN
(a) Number of Shares. Subject to adjustment as provided in
Section 4(c), the aggregate number of shares of the Company's common
stock (the "Stock") that may be delivered upon the exercise of options
granted under the Plan shall be 100,000. If any option granted under
the Plan terminates without having been exercised in full, the number of
shares of Stock as to which such option was not exercised shall be
available for future grants within the limits set forth in this Section
4(a).
(b) Shares to be Delivered. Shares delivered under the Plan shall
be authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock shall be delivered under the
Plan.
(c) Changes in Stock. In the event of a stock dividend, stock
split or combination of shares, recapitalization or other change in the
Company's capital stock, after the effective date of the Plan, the
number and kind of shares of stock or securities of the Company subject
to options then outstanding or subsequently granted under the Plan, the
maximum number of shares or securities that may be delivered under the
Plan, the exercise price, and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination shall be
binding on all persons.
5. ELIGIBILITY FOR OPTIONS
Directors eligible to receive options under the Plan ("Eligible
Directors") shall be those directors who are not employees of the
Company or of any subsidiary of the Company.
6. TERMS AND CONDITIONS OF OPTIONS
(a) Number of Options.
On the date of the first annual meeting of stockholders following
the adoption of this Plan each Eligible Director who is elected,
reelected or continuing as a director on such date shall be awarded on
such date an option covering 5,000 shares of Stock; thereafter, at each
annual meeting or meeting of the board of directors at which a new
Eligible Director is elected to the Board or following the election by
the Board of a new Eligible Director to the Board, he or she shall be
awarded an option covering 5,000 shares of Stock; and at each annual
meeting subsequent to the annual meeting at which the initial grant was
made to an Eligible Director and at which he or she is reelected or is
continuing as a director, he or she shall be awarded an additional
option covering 1,000 shares of Stock.
(b) Exercise Price. The exercise price of each option shall be
100% of the fair market value per share of the Stock on the date the
option is granted. In no event, however, shall the option price be
less, in the case of an original issue of authorized stock, than par
value per share. For purposes of this paragraph, (A) the fair market
value of a share of Stock on any date shall be the Closing Price on such
day or, if there was no Closing Price on such day, the latest day prior
thereto on which there was a Closing Price; and (B) the "Closing Price"
of the Stock on any business day will be the last sale price as reported
on the principal market on which the Stock is traded or, if no last sale
is reported, then the mean between the highest bid and lowest asked
prices on that day.
(c) Duration of Options. The latest date on which an option may
be exercised (the "Final Exercise Date") shall be the date which is ten
years from the date the option was granted.
(d) Exercise of Options.
(1) Each option shall become exercisable to the extent of one-
third of the shares covered thereby on the date of the
Annual Meeting held in each of the first, second and third
years following the date of grant, except that options
granted on dates other than the date of the Annual Meeting
shall become exercisable to the extent of one-third of the
shares covered thereby on each of the first, second and
third anniversaries of the date of the grant.
(2) Any exercise of an option shall be in writing,
signed by the proper person and delivered or mailed to the
Company, accompanied by (i) any documentation required by
the Committee and (ii) payment in full for the number of
shares for which the option is exercised.
(3) The Committee shall have the right to require that the
individual exercising the option remit to the Company an
amount sufficient to satisfy any federal, state, or local
withholding tax requirements (or make other arrangements
satisfactory to the employer with regard to such taxes)
prior to the delivery of any Stock pursuant to the exercise
of the option. If permitted by the Committee the individual
exercising the option may elect, at such time and in such
manner as the Committee may prescribe, to have the Company
hold back from the transfer Stock having a value calculated
to satisfy such withholding obligation. In the case of an
individual subject to Section 16(b) of the Exchange Act, no
such election shall be effective unless made in compliance
with the applicable requirements of Rule 16b-3 or any
successor Rule under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(4) If an option is exercised by the executor or administra
tor of a deceased director, or by the person or persons to
whom the option has been transferred by the director's will
or the applicable laws of descent and distribution, the
Company shall be under no obligation to deliver Stock
pursuant to such exercise until the Company is satisfied as
to the authority of the person or persons exercising the
option.
(e) Payment for and Delivery of Stock. Stock purchased under the
Plan shall be paid for as follows: (i) in cash or by check (acceptable
to the Company in accordance with guidelines established for this
purpose), bank draft or money order payable to the order of the Company;
(ii) through the delivery of shares of Stock (which, in the case of
shares of Stock acquired from the Company, have been outstanding for at
least six months) having a fair market value on the last business day
preceding the date of exercise equal to the purchase price; (iii) by
having the Company hold back from the shares transferred upon exercise
Stock having a fair market value on the last business day preceding the
date of exercise equal to the exercise price; (iv) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the purchase price; or
(v) by any combination of the permissible forms of payment; provided,
that if the Stock delivered upon exercise of the option is an original
issue of authorized Stock, at least so much of the exercise price as
represents the par value of such Stock shall be paid other than with a
personal check or promissory note of the option holder.
An option holder shall not have the rights of a shareholder with
regard to awards under the Plan except as to Stock actually received by
him or her under the Plan.
The Company shall not be obligated to deliver any shares of Stock
(a) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, and
(b) if the outstanding Stock is at the time listed on any stock
exchange, until the shares to be delivered have been listed or
authorized to be listed on such exchange upon official notice of
issuance, and (c) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the option, such representations or agreements
as counsel for the Company may consider appropriate to avoid violation
of such Act and may require that the certificates evidencing such Stock
bear an appropriate legend restricting transfer.
(f) Nontransferability of Options. No option may be transferred
other than by will or by the laws of descent and distribution, and
during a director's lifetime an option may be exercised only by him or
her.
(g) Death. Upon the death of any Eligible Director granted
options under this Plan, all options not then exercisable shall
terminate. All options held by the director that are exercisable
immediately prior to death may be exercised by his or her executor or
administrator, or by the person or persons to whom the option is
transferred by will or the applicable laws of descent and distribution,
at any time within one year after the director's death (subject,
however, to the limitations of Section 6(c) regarding the maximum
exercise period for such option). After completion of that one-year
period, such options shall terminate to the extent not previously
exercised.
(h) Other Termination of Status of Director. If a director's
service with the Company terminates for any reason other than death, all
options held by the director that are not then exercisable shall
terminate. Options that are exercisable on the date of termination
shall continue to be exercisable for a period of three months (subject
to Section 6(c)). After completion of that three-month period, such
options shall terminate to the extent not previously exercised, expired
or terminated.
(i) Mergers, etc. In the event of a consolidation or merger in
which the Company is not the surviving corporation or which results in
the acquisition of substantially all the Company's outstanding Stock by
a single person or entity or by a group of persons and/or entities
acting in concert, or in the event of a sale or transfer of
substantially all of the Company's assets or a dissolution or
liquidation of the Company, all options hereunder will terminate;
provided, that 20 days prior to the scheduled date of the stockholders
meeting to vote upon any such merger, consolidation sale, dissolution,
or liquidation as set forth in the related proxy statement, or if there
shall be no such meeting, 20 days prior to the effective date of any
such transaction, all options outstanding hereunder that are not
otherwise exercisable shall become immediately exercisable, and
provided, further that in the event such a transaction is to be
accounted for as a pooling of interests, the Company shall provide for
the surviving or acquiring corporation or an affiliate thereof to grant
each holder of an option hereunder outstanding at the time of the
transaction replacement options on substantially equivalent terms.
7. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, TERMINATION
AND EFFECTIVENESS
Neither adoption of the Plan nor the grant of options to a
director shall affect the Company's right to grant to such director
options that are not subject to the Plan, to issue to such directors
Stock as a bonus or otherwise, or to adopt other plans or arrangements
under which Stock may be issued to directors.
The Committee may at any time terminate the Plan as to any further
grants of options. The Committee may at any time or times amend the
Plan for any purpose which may at the time be permitted by law.
CONSULTING AGREEMENT
This Agreement is made and entered into by and between Dynamics
Research Corporation, a Massachusetts corporation (the "Company"), and
Albert Rand (the "Consultant") as of 22nd day of April, 1997.
WHEREAS Consultant has been employed by the Company for many years,
most recently as its President and Chief Executive Officer, and is
eligible to retire from such employment; and
WHEREAS, in view of Consultant's valuable experience as an
executive employee, the Company wishes to retain Consultant to provide
consulting services to the Company for a period of time following
retirement of the Consultant.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual promises, terms, provisions and conditions contained in this
Agreement, the parties agree as follows:
1. Term. Subject to earlier termination, as hereinafter
provided, the term of this Agreement shall be for a period of five (5)
years, commencing as of the date of retirement of the Consultant from
the employ of the Company (such period is referred to hereafter as "the
term hereof" or "the term of this Agreement.")
2. Relationship of the Parties.
a. It is expressly understood and agreed by the parties that
the Consultant will be an independent contractor in the performance of
each and every part of this Agreement and that nothing contained in this
Agreement is intended, or shall be construed, to constitute the
Consultant as the employee, agent, partner or joint venturer of the
Company or as constituting the exercise by the Company of control or
direction over the manner or method by which the Consultant performs the
services which are the subject of this Agreement.
b. During the term of this Agreement, the Consultant shall
have no right, power or authority in any way to bind the Company to the
fulfillment of any condition, contract or obligation or to create any
liability binding on the Company. The Company shall not be responsible
for any expenses or liabilities incurred by the Consultant during the
term of this Agreement, other than business expenses expressly
authorized in writing by a duly authorized representative of the
Company.
3. Consultant's Services. During the term hereof, the Consultant
shall provide such advice and other consulting services on such subjects
familiar to the Consultant as the Company may from time to time request,
upon reasonable notice to the Consultant, oral or in writing. Services
shall be provided during normal business hours, unless otherwise
mutually agreed. The Consultant shall devote such business time as is
necessary or appropriate to fully perform hereunder; provided, however,
that Consultant shall not be obligated hereunder to provide consulting
services more than three (3) days per month. During the term of this
agreement, the Consultant shall be free to engage in other employment or
self-employment (subject to paragraph 7 below) provided that such other
duties are compatible with the Consultant's commitments to the Company
under this paragraph. The Consultant shall be free to move his
residence during the term of this Agreement.
4. Compensation.
a. During the term hereof, as full compensation for all
services performed by Consultant for the Company and subject to the
Consultant's performance hereunder, the Company agrees to pay the
Consultant a fee (the "Consulting Fee") at the rate of Sixty Thousand
Dollars ($60,000) per year, payable in approximately equal monthly
installments in arrears during the term hereof.
b. As an independent contractor, the Consultant shall be
solely responsible for all incidents of employment for himself and his
employees and agents, including without limitation workers' compensation
insurance, unemployment insurance, withholding and payment of all
federal and state income taxes and social security and Medicare taxes
and other legally-required payments on sums received from the Company.
5. No Eligibility for Employee Benefits. The Consultant
understands that he is an independent contractor and, as such, neither
he nor any dependent or other individual claiming through him will be
eligible as a result of this Agreement to participate in, or receive
benefits under, any of the employee benefit plans, programs and
arrangements maintained by the Company (collectively, the "Plans"). The
Consultant hereby waives irrevocably any and all rights as a result of
this Agreement to participate in, or receive benefits under, any of the
Plans. Nothing herein shall limit the Consultant's rights to any
benefits to which he may be entitled pursuant to the Company's tax-
qualified retirement or other benefit plans as a result of his previous
employment with the Company.
6. Insurance. The Consultant acknowledges that the Company will
not maintain any comprehensive general liability, workers' compensation
or other insurance on behalf of the Consultant as a result of this
Agreement and that it is the sole responsibility of the Consultant to
obtain and keep in force such insurance as Consultant determines
appropriate. The Consultant assumes all risk in connection with the
adequacy of any and all such insurance which he elects to obtain.
7. Confidential Information; Non-Competition. The Consultant
agrees that some restrictions on his activities during and after the
term of this Agreement are necessary to protect the Confidential
Information, good will and other legitimate interests of the Company, as
follows:
a. During the term hereof, the Consultant shall not,
directly or indirectly, compete with the Company, whether as a
contractor, consultant, agent, partner, principal, investor, employee or
otherwise. Specifically, but without limiting the generality of the
foregoing, the Consultant agrees that he shall not, directly or
indirectly, solicit or encourage any customer of the Company to
terminate or diminish its relationship with the Company or to conduct
with himself or with any other person, organization or other entity any
business or activity which such customer conducts or could conduct with
the Company. Notwithstanding the foregoing, nothing herein shall
prevent Consultant from owning up to 5% of the outstanding equity
securities of any company traded on a national securities exchange or
quoted on the NASDAQ National Market. Consultant further agrees that,
during the term hereof, he shall not, directly or indirectly, hire or
attempt to hire any employee of the Company, assist in such hiring by
any other person or entity, or encourage any such employee to terminate
his or his relationship with the Company.
b. The Consultant acknowledges that, during the course of his
performance under this Agreement, the Consultant may develop
Confidential Information for the Company and may learn of Confidential
Information developed or owned by the Company or entrusted to it by
others. The Consultant agrees that he will not, during the term of this
Agreement or at any time thereafter, use or disclose any Confidential
Information without the prior written consent of the Chief Executive
Officer of the Company. (For purposes of this Agreement, "Confidential
Information" means any and all information of the Company that is not
generally available to the public. Confidential Information includes
but is not limited to (i) the Company's development, research and
marketing activities, (ii) the Company's products and services, (iii)
the Company's costs, sources of supply and strategic plans, (iv) the
identity and special needs of the Company's customers and (v) the people
and organizations with whom the Company has business relationships and
those relationships. Confidential Information also includes such
information as the Company may receive or has received belonging to
customers or others who do business with it.)
8. No Conflicting Agreements. The Consultant hereby represents
and warrants that the execution of this Agreement and the performance of
his obligations hereunder will not breach or be in conflict with any
other agreement to which the Consultant is a party or is bound and that
the Consultant is not now subject to any covenants against competition
or similar covenants that would affect the performance of his
obligations hereunder. The Consultant will not disclose to or use on
behalf of the Company any proprietary information of any third party
without such party's consent.
9. Termination. Notwithstanding the provisions of Section 1 hereof,
this Agreement shall terminate under the following circumstances and no
others:
a. Death. In the event of the Consultant's death during the term
hereof, this Agreement shall immediately and automatically terminate.
b. Termination by the Company For Cause. The Company may
terminate this Agreement for Cause at any time upon notice to the
Consultant setting forth in reasonable detail the nature of such Cause.
The following, as determined by the Board of Directors of the Company in
its reasonable judgment, shall constitute Cause for termination:
i. The Consultant's willful and continued failure substantially to
perform his duties and responsibilities hereunder (other than by
reason of disability) after specific written demand for performance
which failure is or will be demonstrably and materially injurious
to the Company;
ii. Consultant's dishonesty, gross negligence or other
willful misconduct related to this Agreement which is or will be
demonstrably and materially injurious to the Company; or
iii. Consultant's material and continued breach of Section 7
hereof after specific written demand for performance.
c. Effect of Termination. Upon termination of this Agreement in
accordance with this Section 9 or by expiration of the term, the Company
shall have no further obligations to the Consultant, other than for the
Consulting Fee prorated through the date of termination.
10. Enforceability. If any portion or provision of this
Agreement shall to any extent be declared illegal or unenforceable by a
court of competent jurisdiction, then the remainder of this Agreement,
or the application of such portion or provision in circumstances other
than those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent permitted
by law.
11. Assignment. This Agreement shall be binding upon the
Company and any successor thereto by merger, consolidation, sale of
assets or otherwise. Executive's rights and obligations under this
Agreement may not be assigned, pledged, hypothecated, or otherwise
transferred or alienated in any way.
12. Waiver. No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving party. The
failure of either party to require the performance of any term or
obligation of this Agreement, or the waiver by either party of any
breach of this Agreement, shall not prevent any subsequent enforcement
of such term or obligation or be deemed a waiver of any subsequent
breach.
13. Notices. Except as otherwise expressly provided herein, any
notices, requests, demands or other communications provided for by this
Agreement shall be in writing and shall be effective when delivered in
person or mailed, postage prepaid, and addressed to the Consultant at
his last known address on the books of the Company or, in the case of
the Company, to it at its main office, attention: President or to such
other address as either party may specify to the other by written notice
actually received.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements,
whether written or oral, with respect to the services to be provided by
the Consultant to the Company and all matters related thereto,
provided, however, that this Agreement shall not terminate or supersede
any additional obligations of the Consultant pursuant to any other
agreement with respect to confidentiality or any restrictions on the
activities of the Consultant or the like.
15. Amendment. This Agreement may be amended or modified only by
a written instrument signed by the Consultant and by a duly authorized
representative of the Company.
16. Captions and Counterparts. The captions and headings in this
Agreement are for convenience only and in no way define or describe the
scope or content of any provision of this Agreement. This Agreement may
be executed in two or more counterparts, each of which shall be an
original and all of which together shall constitute one and the same
instrument.
17. Governing Law. This is a Massachusetts contract and shall be
construed and enforced under and be governed in all respects by the laws
of The Commonwealth of Massachusetts, without regard to the conflict of
laws principles thereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by
the Consultant, as of the date first written above.
THE CONSULTANT: THE COMPANY:
Dynamics Research Corporation
______________________ By: ___________________________
Albert Rand Name:
Title:
SUPPLEMENTAL RETIREMENT PENSION AGREEMENT
THIS SUPPLEMENTAL RETIREMENT PENSION AGREEMENT dated as of April
22, 1997, by and between Dynamics Research Corporation (the "Company")
and Albert Rand ("Executive").
WITNESSETH:
WHEREAS Executive has been employed by the Company for many years,
most recently as President and Chief Executive Officer, and is eligible
to retire from such employment; and
WHEREAS the Company wishes to reward Executive for his many years
of prior service by awarding him a supplemental retirement pension.
NOW, THEREFORE, in consideration of these presents and other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and Executive agree as follows:
1. Supplemental pension. Commencing on the sixth anniversary of
Executive's retirement from his employment with the Company and
continuing until Executive's death, the Company shall pay a monthly
supplemental retirement benefit of Four Thousand Seven Hundred Sixty
Dollars ($4,760) to Executive while he is living. The supplemental
pension described in this paragraph shall be in addition to, and not in
lieu of, any other benefits to which Executive may be entitled. The
supplemental pension described in this paragraph shall be an unfunded
obligation of the Company, payable out of its general assets, and
nothing herein shall be construed as requiring the Company to establish
a trust or fund or to set aside any assets to meet its obligations
hereunder. Executive's rights to the supplemental pension described
herein shall be no greater than those of an unsecured general creditor
of the Company.
2. Non-competition, etc.
2.1 During the term hereof, Executive shall not, directly
or indirectly, compete with the Company, whether as a contractor,
consultant, agent, partner, principal, investor, employee or otherwise.
Specifically, but without limiting the generality of the foregoing,
Executive agrees that he shall not, directly or indirectly solicit or
encourage any customer of the Company to terminate or diminish its
relationship with the Company or to conduct with himself or with any
other person, organization or other entity any business or activity
which such customer conducts or could conduct with the Company.
Notwithstanding the foregoing, nothing herein shall prevent Consultant
from owning up to 5% of the outstanding equity securities of any company
traded on a national securities exchange or quoted on the NASDAQ
National Market. Executive further agrees that, during the term hereof,
he shall not, directly or indirectly, hire or attempt to hire any
employee of the Company, assist in such hiring by any other person or
entity, or encourage any such employee to terminate his or her
relationship with the Company.
2.2 Executive agrees that he will not use or disclose any
Confidential Information without the prior written consent of the Chief
Executive Officer of the Company. (For purposes of this Agreement,
"Confidential Information" means any and all information of the Company
that is not generally available to the public. Confidential Information
includes but is not limited to (i) the Company's development, research
and marketing activities, (ii) the Company's products and services,
(iii) the Company's costs, sources of supply and strategic plans, (iv)
the identity and special needs of the Company's customers and (v) the
people and organizations with whom the Company has business relation
ships and those relationships. Confidential Information also includes
such information as the Company may receive or has received belonging to
customers or others who do business with it.)
Executive shall notify the Company of any proposed activity which
might violate the provisions of this Section 2.
3. Assignment. This Agreement shall be binding upon the
Company and any successor thereto by merger, consolidation, sale of
assets or otherwise. Executive's rights and obligations under this
Agreement may not be assigned, pledged, hypothecated, or otherwise
transferred or alienated in any way.
4. Waiver. No waiver of any provision hereof shall
be effective unless made in writing and signed by the waiving party.
The failure of either party to require the performance of any term or
obligation of this Agreement, or the waiver by either party of any
breach of this Agreement, shall not prevent any subsequent enforcement
of such term or obligation or be deemed a waiver of any subsequent
breach.
5. Notices. Except as otherwise expressly provided
herein, any notices, requests, demands or other communications provided
for by this Agreement shall be in writing and shall be effective when
delivered in person or mailed, postage prepaid, and addressed to
Executive at his last known address on the books of the Company or, in
the case of the Company, to it at its main office, attention: President
or to such other address as either party may specify to the other by
written notice actually received.
6. Entire Agreement. This Agreement constitutes the
entire agreement between the parties and supersedes all prior
agreements, whether written or oral, with respect to the subject matter
hereof, provided, however, that this Agreement shall not terminate or
supersede any additional obligations of Executive pursuant to any other
agreement with respect to confidentiality or any restrictions on the
activities of Executive or the like.
7. Amendment. This Agreement may be amended or modified
only by a written instrument signed by Executive and by a duly
authorized representative of the Company.
8. Captions and Counterparts. The captions and headings
in this Agreement are for convenience only and in no way define or
describe the scope or content of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which
shall be an original and all of which together shall constitute one and
the same instrument.
9. Governing Law. This is a Massachusetts contract and
shall be construed and enforced under and be governed in all respects by
the laws of The Commonwealth of Massachusetts, without regard to the
conflict of laws principles thereof.
IN WITNESS WHEREOF, the Company and Executive have duly executed
this Agreement as of the date first set forth above.
DYNAMICS RESEARCH CORPORATION
By:_____________________________
________________________________
Albert Rand
