DYNAMICS RESEARCH CORPORATION
60 Frontage Road
Andover, Massachusetts 01810
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 25, 2000
To the Stockholders:
The Annual Meeting of the stockholders of Dynamics Research
Corporation will be held at 3:30 p.m. on Tuesday, April 25, 2000 on the
33rd Floor of the State Street Bank and Trust Building, 225 Franklin
Street, Boston, Massachusetts, for the following purposes:
1. To fix the number of directors for the ensuing year and to elect
the Class I Directors,
2. To amend the provisions of the Company's Articles of Organization
relating to preferred stock.
3. To consider and act upon such other matters as may properly
come before the meeting.
Only stockholders of record at the close of business on March 10,
2000 will be entitled to receive notice of and to vote at the meeting.
By order of the Board of Directors,
Alan R. Cormier
Clerk
March 28, 2000
IMPORTANT
All stockholders are urged to complete and mail the enclosed proxy promptly
whether or not you plan to attend the meeting in person. The enclosed
envelope requires no postage if mailed in the U.S.A. or Canada.
Stockholders attending the meeting may revoke their proxies and personally
vote on all matters which are considered. It is important that your shares
be voted.
DYNAMICS RESEARCH CORPORATION
60 Frontage Road
Andover, Massachusetts 01810
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 25, 2000
GENERAL
The accompanying proxy is solicited by the Board of Directors of
Dynamics Research Corporation (the "Company") to be voted at the 2000
Annual Meeting of Stockholders to be held on April 25, 2000.
Shares represented by proxies in the accompanying form, if properly
executed and returned and not revoked, will be voted at the Annual Meeting.
To be voted, proxies must be filed with the Clerk prior to voting. Proxies
will be voted as specified by the stockholders. If no specification is
made, the proxy will be voted for the election of the Class I directors
unless authority to vote has been withheld. A proxy may only be revoked by
written revocation received by the Clerk of the Company prior to the
exercise thereof.
Stockholders of record at the close of business on March 10, 2000 are
entitled to notice of and to vote at the Annual Meeting. There were
7,528,724 shares of Common Stock, $.10 par value per share, outstanding as
of that date, each entitled to one vote.
This proxy statement and the enclosed proxy are being mailed to
stockholders on or about the date of the Notice of Annual Meeting.
The cost of solicitation of proxies will be borne by the Company.
Employees of the Company may also solicit proxies by mail, telephone or
personal interview.
QUORUM REQUIREMENT
Consistent with state law and under the Company's by-laws, a majority
of the shares entitled to be cast on a particular matter, present in person
or represented by proxy, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Company to act as election inspectors for the meeting.
If a quorum is present, the two nominees for election as Class I
directors at the Annual Meeting who receive the greatest number of votes
properly cast for the election of directors will be elected directors.
The affirmative vote of the holders of shares representing a majority
of the votes represented by the shares of Common Stock [outstanding on the
record date] present and entitled to vote at the meeting on the matter is
required for the approval of the amendment of the Articles of Organization.
The election inspectors will count the total number of votes cast
"for" approval of Items 1 and 2 for purposes of determining whether
sufficient votes have been cast. The election inspectors will count shares
represented by proxies that withhold authority to vote for a nominee for
election as a director or that reflect abstentions and "broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have
not been received from the beneficial owners and (ii) the broker or
nominee does not have the discretionary authority to vote on a particular
matter) only as shares that are present and entitled to vote on the matter
for purposes of determining a quorum, but neither abstentions nor broker
non-votes have any effect on the outcome on voting on the matter.
PRINCIPAL STOCKHOLDERS
Common Stock Ownership of Certain Beneficial Owners and Management
The following table shows the beneficial ownership of the Common Stock
of the Company as of March 10, 2000 by persons or groups known to the
Company to be the beneficial owner of more that 5% of its outstanding
common stock, based on filings with the Securities and Exchange Commission,
each director, each executive officer listed in the Summary Compensation
Table below and all directors and executive officers as a group. Except as
otherwise indicated, the beneficial owners listed below have sole
investment and voting power with respect to their shares.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
John S. Anderegg, Jr 808,798(1) 10.7
c/o Dynamics Research Corporation
60 Frontage Road
Andover, MA 01810
James P. Regan 50,000(2) *
c/o Dynamics Research Corporation
60 Frontage Road
Andover, MA 01810
Francis J. Aguilar 33,571(3) *
Martin V. Joyce, Jr. 10,133(4) *
Kenneth F. Kames 7,133(5) *
James P. Mullins. 17,893(6) *
John L. Wilkinson 17,567(7) *
Chester Ju 135,534(8) 1.8
DFA Investment Dimensions Group, Inc 612,238(9) 8.1
c/o Dimensional Fund Advisors, Inc.
1299 Ocean Avenue - 11th Floor
Santa Monica, CA 90401
All directors and executive officers
as a group (8 persons) 1,080,629(10) 14.4
*Less than 1% of the outstanding shares of Common Stock.
(1) Includes 58,300 shares held by Mr. Anderegg as custodian for his
children, 84,902 shares held in the estate of Mrs. Anderegg (deceased),
of which Mr. Anderegg is executor, and 8,720 shares held by the current
Mrs. Anderegg, as to all of which he disclaims beneficial ownership.
(2) Includes an option to purchase 50,000 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
(3) Includes 11,659 shares held in a pension plan over which Dr.
Aguilar has sole voting and investment power. Includes options to
purchase 10,253 shares, which are currently exercisable or will be
exercisable within 60 days of March 10, 2000.
(4) Includes options to purchase 5,133 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
(5) Includes options to purchase 5,133 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
(6) Includes options to purchase 10,253 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
(7) Includes options to purchase 11,920 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
(8) Includes options to purchase 83,933 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
(9) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 612,238
shares, all of which shares are owned by investment companies and their
investment vehicles for which Dimensional serves as investment advisor
and investment manager. Dimensional has the sole power to vote and
dispose of these shares. Dimensional disclaims beneficial ownership of
all such shares.
(10) Includes options to purchase 176,625 shares, which are currently
exercisable or will be exercisable within 60 days of March 10, 2000.
Proposal 1
ELECTION OF DIRECTORS
Under Massachusetts law, the Board of Directors of the Company is
classified into three classes, as nearly equal in number as possible,
having staggered terms of three years each with the term of office of one
class expiring each year. The enclosed proxy will be voted to fix the
number of directors at six and to elect the persons named below, unless
otherwise instructed, as the Class I directors for terms of three years
expiring at the 2003 Annual Meeting of Stockholders or until their
respective successors are elected and qualified. If either nominee should
become unavailable, proxies will be voted for a substitute nominee
designated by the Board of Directors or to fix the number of directors at a
lesser number, unless instructions are given to the contrary. The current
Board has no reason to expect that the nominees will become unavailable to
serve.
Year First Elected
Name Age Principal Occupation A Director
Nominees for Election as Class I Directors - Terms Expiring in 2003
Martin V. Joyce, Jr. 53 Vice President, 1997
A.T. Kearney, Inc.
General James P. Mullins 71 Executive Consultant 1991
U.S.A.F., retired)
Continuing Class II Directors - Terms Expiring in 2001
Francis J. Aguilar 67 Professor of Business 1987
Administration,
Emeritus, Harvard University
Graduate School of Business
Administration
Education Alliance
Executive Director of Management
John S. Anderegg, Jr. 76 Chairman of the Company 1955
Continuing Class III Directors - Terms Expiring in 2002
Kenneth F. Kames 65 Retired 1997
James P. Regan 59 President and Chief Executive 1999
Officer of the Company
The principal occupation of the above nominees and continuing directors
is that set forth above for the past five years except for Mr. Regan, who
served as President and Chief Executive Officer of CVSI, Inc. from 1997 to
October 1999, and as senior vice president of Litton PRC from 1986 to 1996,
and Mr. Kames, who was, prior to his retirement Vice President, New
Business Development, The Gillette Company.
Mr. Joyce, Mr. Kames and Mr. Regan were elected directors by the Board.
Dr. Aguilar is also a director of Bowater, Inc. and Burr-Brown
Corporation. Mr. Anderegg is a director of Ivy and MacKenzie Mutual Funds,
and Burr-Brown Corporation.
Board Meetings and Committees
The Board of Directors held eleven meetings during 1999.
The Audit Committee, consisting of Mr. Kames and General Mullins in
1999, reviews with the independent auditors the financial statements and
reports issued by the Company, reviews the Company's internal accounting
procedures, controls and programs and makes recommendations to the Board of
Directors on the engagement of the independent auditors. The Audit
Committee held two meeting during 1999. Mr. Kames became a member of the
Audit Committee in February 1999. In February 2000, Mr. Joyce was elected
to the Audit Committee.
The Compensation Committee, consisting of Dr. Aguilar and Mr. Joyce,
administers the 1993 Equity Incentive Plan and the 2000 Incentive Plan,
including the granting of options and other awards under the plans, reviews
the compensation policies of the Company and approves the compensation of
the officers. The Compensation Committee held one meeting during 1999.
The Company does not have a standing nominating committee.
In 1999, all directors attended at least 75% of the meetings of the
Board and of the Committees on which they served.
COMPENSATION AND RELATED MATTERS
Compensation of Directors
Directors who are not employees of the Company receive an annual fee
of $20,000 plus travel and incidental expenses incurred in attending
meetings. No additional compensation is paid to those directors who serve
on a committee of the Board of Directors.
The Company has a Deferred Compensation Plan under which non-employee
directors may elect to defer their directors' fees. Amounts deferred for
each participant are credited to a separate account, and interest at the
lowest rate at which the Company borrowed money during each quarter or, if
there was no such borrowing, at the prime rate, is credited to such account
quarterly. The balance in a participant's account is payable in a lump sum
or in installments when the participant ceases to be a director. Dr.
Aguilar deferred his 1999 director fees. Interest accrued as of December
31, 1999 on all such director fees deferred by Dr. Aguilar to date was
$49,925.
Under the 1995 Stock Option Plan for Non-Employee Directors, each
director who is not an employee of the Company is granted an initial grant
of an option to purchase 5,000 shares of common stock and an annual grant
of an option to purchase 1,000 shares, each at an exercise price equal to
fair market value on the date of grant. All options granted under this
plan become exercisable in three equal installments on each of the first,
second and third anniversaries of the date of grant.
Executive Compensation
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned by the
President and Chief Executive Officer and each of the Company's other
executive officers who earned salary and bonus in excess of $100,000 for
the year ended December 31, 1999 (the "named executive officers") for
services rendered during 1999, 1998, and 1997.
Annual Long Term
Compensation Compensation
Name and Other Shares All Other
Principal Annual Underlying Compensation
Position Year Salary($) Bonus($) Compensation($)(2)Options(#) ($) (1)
Albert Rand 1999 300,000 40,000(4) 67,923 2,400
President & 1998 300,000 50,942 2,400
C.E.O. (5) 1997 260,000 40,000(3) 2,375
James P. Regan 1999 46,153 250,000 0
President &
C.E.O.
John S.
Anderegg, Jr. 1999 195,000 58,067 2,400
Chairman 1998 195,000 58,067 2,400
1997 195,000 58,067 2,375
Douglas R.
Potter 1999 102,083 1,639
V.P. of Finance
& C.F.O (6) 1998 175,000 12,000 2,400
1997 162,000 20,000 2,375
John L.
Wilkinson 1999 160,000 2,400
V.P. of Human 1998 145,000 7,000 6,000 2,362
Resources
& Clerk 1997 142,000 2,126
Chester Ju 1999 175,000 15,000 10,000 2,400
V.P. of Encoder
and Metripraphics
Divs. 1998 170,000 20,000 12,000 2,400
1997 160,000 40,000 13,200 2,375
(1) Consists of employer's match for the 401 (K) plan.
(2) Consists of distributions from the Company's Defined Benefit Pension Plan.
(3) Paid in 1998 based on performance for 1997.
(4) Paid in 1999 based on performance for 1998.
(5) Retired 11/2/99.
(6) Resigned 7/31/99.
Option Grants in Last Fiscal Year
The table below shows information regarding grants of stock options,
if any, made to the named executives during fiscal 1999. The amounts shown
for each of the named executives as potential realizable values are based
on arbitrarily assumed annualized rates of stock price appreciation of five
percent and ten percent over the full term of the options, pursuant to
applicable Securities and Exchange Commission regulations. Actual gains,
if any, on option exercises are dependent on the future performance of the
Common Stock and overall stock market conditions.
Potential Realizable Value
Individual Grants at Assumed Annual Rates of
Options % of Total Exercise or Stock Price Appreciation
Granted Options Granted Base Price for Option Term
($) to Employees ($/Sh)
in Fiscal Year Expiration
Date 5%($) 10%($)
Chester Ju 12,000 4% 4.75 2/16/09 92,847 147,843
James P.
Regan 250,000 82% 4.44 11/01/09 361,615 575,811
(1) Options normally become exercisable 1/3 each year, commencing on
the first anniversary of the grant, with full vesting on the third
anniversary. Mr. Regan's options become exercisable at the rate of
(20%) on the date of grant and on each of the first four
anniversaries thereof.
(2) The exercise price and tax withholding obligations may be paid, at
the option of the Board, by delivery of already owned shares.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table presents the value of unexercised options held by
the named executive officers at fiscal year-end. John S. Anderegg, Jr.
did not hold any options during 1999.
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Options Exercised in 1999 12/31/99(#) 12/31/99($)(1)
Shares Acquired Value Exercisable/(E) Exercisable/(E)
Name on Exercise(#) Realized($) Unexercisable(U) Unexercisable(U)
James P. Regan - - - - 50,000 E 203,000 E
- - 200,000 U - - U
John L. Wilkinson - - - - 11,920 E 42,570 E
2,000 U - - U
Chester Ju - - - - 83,933 E 215,399 E
14,667 U - - U
(1) Based on market value at 12/31/99 of $8.50 per share less respective
exercise prices.
Pension Plan
The following table sets forth the annual benefits payable as a life
annuity which would be payable under the Company's noncontributory defined
benefit Pension Plan at normal retirement at age 65 to participants having
the years of service and average annual earnings as indicated in the table,
assuming all such participants attained age 65 in 1999:
ESTIMATED ANNUAL BENEFIT FOR YEAR 1999
Average Estimated Annual Benefit
Annual For Indicated Years of Service
Earnings 15 20 25 30 or more
$100,000 $16,782 $22,376 $27,970 $33,564
$125,000 $21,782 $29,043 $36,303 $43,564
$150,000 $26,782 $35,709 $44,636 $53,564
$170,000* $30,782 $41,042 $51,303 $61,563
Frozen Benefit - Accrued through 12/31/93:
$175,000 $31,782 $42,376 $52,969 $63,563
$200,000 $36,782 $49,042 $61,303 $73,563
$225,000 $41,781 $55,709 $69,636 $83,563
$235,840 $43,949 $58,599 $73,249 $87,899
*The maximum Plan Compensation for 1999 is $170,000.
Employees are entitled to the greater of: the benefit accrued through
12/31/93 (with wages capped at each year's IRS limit) or benefit based on
wages up to the $170,000 wage cap.
As of March 10, 2000, Messrs. Anderegg, Ju, Wilkinson and Regan had
43, 19, 18 and 0 years of service, respectively, for purposes of the
Pension Plan.
All employees of the Company who complete a year of service, including
the individuals named in the compensation table above, are eligible to
earn benefits under the Pension Plan. Upon a participant's retirement, the
benefits payable under the Pension Plan vary depending upon the
participant's age at retirement, years of service with the Company and
average annual earnings for the five consecutive highest years of service
in the ten years prior to termination. The amount of annual retirement
benefits is determined by a formula which applies years of service to a
basic defined benefit, which, in the case of a participant with at least
30 years of service, is .683% of the average of the participant's 5
highest consecutive years of compensation in the last 10 years worked
plus .65% of such average annual earnings which
exceed Social Security Covered Compensation, but not less than (a) $60
multiplied by his or her years of service or (b) the benefit which had
accrued as of December 31, 1987 under the Company's prior retirement
program. Compensation reflects the amounts shown under the salary and the
bonus columns in the Summary Compensation Table. The Pension Plan limits
the compensation taken into account for purposes of determining the benefit
under the Pension Plan to the maximum amount permissible under the Internal
Revenue Code, which for 1999 was $170,000. Social Security Covered
Compensation means the dollar amount which represents the average of the
maximum wages subject to Social Security tax for each year of the
participant's working career. The benefits under the Pension Plan are
payable in various annuity forms and are subject to maximum limits in
certain circumstances.
The Company has a supplemental retirement Pension Agreement with its
former President and Chief Executive Officer, Albert Rand, who retired
during 1999, that calls for monthly payments of $4,760, beginning on the
sixth anniversary of his retirement and terminating on his death.
Employment Contracts and Change in Control Arrangements
The Company has a severance agreement with Mr. Anderegg. Under this
agreement, the Company agrees to pay severance benefits to Mr. Anderegg if
his employment is terminated for any reason other than for cause (as
defined in the agreement) or if the executive terminates his employment as
a result of a specified justification, within two years following a change
of control of the Company. A change in control includes the acquisition of
20% or more of the combined voting power of the Company's then-outstanding
securities, other changes in control of a kind required to be reported by
certain regulatory authorities, and certain changes in membership of the
Board of Directors. Under the agreement, the executive is entitled to a
severance payment equal to 299% of his average annual base salary and bonus
for the two calendar years immediately prior to a change in control. In
addition, the executive is entitled to certain other benefits, including
the acceleration of the exercisability of outstanding stock options,
continued participation for up to three years in life, accident, medical,
health and other similar plans and programs in which the executive
participated prior to the change in control, and the payment by the Company
of any legal fees and expenses incurred as a result of such termination of
employment. At the option of the executive, the payments or benefits
payable under the agreement may be decreased to the extent necessary to
avoid any excise taxes payable as a result of the severance benefits. Such
severance payments would not be reduced for compensation received by the
executive from any new employment.
The Company has an employment agreement with Mr. Regan providing for
his full-time employment as president, chief executive officer and a
director at a base salary of $300,000 per year. Mr. Regan is eligible for
an annual incentive bonus of up to 75% of his base salary. The agreement
precludes Mr. Regan from competing with the Company for one year after the
cessation of his employment. The agreement may be terminated by either
party on six month's notice. If Mr. Regan's employment is terminated by
the Company other than for cause or by Mr. Regan with good reason (unless
he is covered by the change of control agreement described below), the
Company will continue to pay Mr. Regan's base salary and to provide his
health and life insurance for twelve months, and all of his options will
vest and remain exercisable for one year.
The Company's change of control agreement with Mr. Regan provides him
with benefits if his employment with the Company is terminated, other than
for cause or his disability or death, or if he resigns for good reason
within 24 months of any change of control of the Company. Upon such a
termination, (i) the Company will pay Mr. Regan his annual base salary to
the time of termination, to the extent not theretofore paid for the year,
plus a prorated portion of his target incentive bonus for the year together
with a cash payment equal to two times his annual base salary at the rate
in effect immediately prior to the date of termination or immediately prior
to the change of control, whichever is higher, plus his target bonus
compensation for the fiscal year during which the termination of employment
occurs or in effect immediately prior to the change of control, whichever
is higher;(ii) any stock, stock option or other awards will immediately
vest and remain exercisable for the lesser of four years or their original
term; and (iii) the Company will continue to insure Mr. Regan and his
dependents in the Company's life and medical insurance plans for up to two
years after termination or the date Mr. Regan is eligible to receive
substantially equivalent life and medical benefits under another employer-
provided plan. If any payment or benefit provided by the Company under the
agreement will be subject to an excise tax under Section 4999 of the
Internal Revenue Code, the Company will provide Mr. Regan with a payment to
cover such tax.
Indemnification Agreements
The Company has indemnification agreements with each of its directors.
Each indemnification agreement entitles the director to be indemnified by
the Company for any liabilities and expenses incurred in connection with
the defense or disposition of any legal claim or action brought or
threatened against him or her by reason of (i) being or having been a
director of the Company or (ii) serving or having served at the Company's
request as a director of another organization or in any capacity with
respect to an employee benefit plan. The indemnification agreement also
requires the Company to advance payment for any expenses incurred by a
director in connection with such an action. However, a director will not
receive indemnification under the agreement if he or she is found not to
have acted in good faith in the reasonable belief that his or her actions
were in the best interest of the Company. The indemnification provided
under the indemnification agreement is required whether or not an action is
brought asserting that the director seeking indemnification acted
unlawfully or acted to create an improper personal benefit, unless the
director is actually found not to have acted in good faith in the
reasonable belief that his or her actions were in the best interests of the
Company. The rights under the indemnification agreement are in addition to
any rights of indemnification the director may have under the Company's
Articles of Incorporation or By-laws or otherwise and are not subject to
any limitations which may be contained in the Company's Articles of
Incorporation or By-laws.
Consulting Agreement
The Company has a post-employment consulting agreement with Albert
Rand, its retired President and Chief Executive Officer. Compensation under
this agreement will be $60,000 annually through November 3, 2004.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee of the Board of Directors (the
"Committee") administers the Company's executive compensation program.
The Committee is composed of Dr. Francis J. Aguilar and Mr. Martin V.
Joyce, both of whom are independent non-employee directors and who have no
"interlocking" relationships as defined by the Securities and Exchange
Commission. The Committee meets formally and consults informally during
the year. The Committee is responsible for recommending to the Board of
Directors the compensation of all the officers of the Company and for
reviewing the design and effectiveness of executive compensation policies.
All awards under the Company's 1993 Equity Incentive Plan and the 2000
Incentive Plan are made by the Committee.
Compensation Philosophy and Objectives
The Company's executive compensation program consists of base salary,
potential cash bonus incentives and long-term incentives in the form of
stock options. Its objectives are fourfold:
Provide base compensation that enables the company to attract and
retain key executives.
Provide executive officers with total direct remuneration which is
competitive with similarly sized companies for comparable
performance.
Reward executives for outstanding achievements which clearly
benefit the Company.
Align the interest of the Company's executives with the long-term
interests of shareholders.
The executive compensation program provides an overall level of
compensation opportunity, which the Committee believes, is competitive with
other companies of comparable size and complexity. Actual compensation
will vary with annual and long-term Company performance, as well as
individual performance and longevity, and hence may be greater or less than
actual compensation at other companies. The Committee uses its discretion
to establish executive compensation at levels, which in its judgment are
warranted by external or internal factors as well as an executive's
individual circumstances. In arriving at what it considers appropriate
levels and components of compensation, the Committee utilizes industry
compensation data provided by nationally recognized compensation
information sources evaluates the cost to replace the executive and the
particular executive's level of achievement and responsibility with the
Company.
Executive Compensation Program Components
The particular elements of the compensation program are discussed more
fully below:
Base Salary. The Committee maintains base salary levels for
executives that, based on its analysis of pertinent compensation data, are
competitive with other companies of comparable size and complexity.
Base salaries of executives are determined by the potential impact of
the individual on the Company and its performance, salaries paid by other
companies for comparable positions, individual performance against goals
and the overall performance of the Company.
Cash Bonuses. From time to time the Committee approved cash bonuses
as a means of rewarding executives (and other employees) for significant
Company and individual performance. These cash awards have not been based
on a specific formula; rather, they were intended to be compensation in
recognition of outstanding accomplishments that resulted in clearly
quantitative or qualitative benefit to the Company. Under the recently
approved FY2000 Management Incentive Plan, certain executives and managers
will be eligible to receive incentive awards upon the achievement of
specific corporate, business unit and individual goals and objectives.
Long-Term Incentives. Long-term incentives are provided in the form
of stock options, both Incentive Stock Options and Non- Qualified Options,
Restricted and Unrestricted Stock Awards, Stock Appreciation Rights and
Deferred Stock Awards.. The Committee and the Board of Directors believe
that management's ownership of a significant equity interest in the Company
aligns the long-term interests of management and shareholders and is an
important incentive and contributing factor toward building shareholder
value. Stock options, therefore, are granted at the market value of the
common stock on date of grant. The value to be realized by the executive
from a stock option grant depends on increases in the market price of the
Company's common stock during the term of the option. The vesting of stock
options, generally over a three-year period, also serves as a means of
retaining the executives. Grants of stock options are made by the Committee
in its discretion based both upon the executive's actual contribution to
the Company's current performance and his expected contribution toward
meeting the Company's long-term financial/strategic goals.
CEO Compensation
Mr. Regan joined the Company as its Chief Executive Officer in
November of 1999. In determining his employment agreement, the Board took
into consideration various factors including the above-described
compensation philosophy, information with respect to chief executive
compensation for companies of comparable size in similar industries, advice
of the Company's executive recruiting firm, the Company's financial
condition and the desire to induce Mr. Regan to join the Company. Under
his employment agreement, Mr. Regan was paid a base salary at the rate of
$300,000 for 1999, is eligible for an annual incentive bonus of up to 75%
of his base salary, and was granted an option to purchase 250,000 shares.
The Company's retired Chief Executive Officer, Mr. Rand, was paid the
same base salary rate in 1999 as in 1998 and received no bonus in 1998 and
1999.
The Compensation Committee
of the Board of Directors:
Francis J. Aguilar
Martin V. Joyce
Performance Graph [Revised Graph to come]
The following graph illustrates the return that would have been
realized (assuming reinvestment of dividends) by an investor who invested
$100 on December 25, 1993 in each of (i) the Company's Common Stock, (ii)
the NASDAQ Stock Market - Composite U.S. Index and (iii) a Peer Group of
companies as listed below:
LEGEND
Dynamics
Research NASDAQ Peer
Corporation Composite Group
1993 100 100 100
1994 65 98 113
1995 202 138 169
1996 220 170 252
1997 307 209 263
1998 184 293 236
Companies in Self- Determined Peer Group:
Analysis & Technology Inc. CACI International Inc.
Comarco Inc. Geodynamics Corp.
Perceptronics Inc Nichols Research Corp.
Proposal 2
AMENDMENT OF ARTICLES OF ORGANIZATION
The Board of Directors has unanimously approved an amendment to the
Company's Articles of Organization to remove the restriction that limits to
ten (10) the number of votes per share of preferred stock. If this
amendment is approved by stockholders, Article 4, Section c of the
Company's Articles will be amended to remove this restriction.
Massachusetts law has been amended since the Company's preferred stock
provisions were originally adopted to clarify that limitations on the
number of votes per share are not legally necessary. Eliminating this
restriction will provide the Company the flexibility for acquisitions and
financings currently permitted by Massachusetts law. The Company has no
immediate plans, agreements or understandings to issue any shares of
preferred stock for any purpose. It should also be noted that the
Company's ability to issue preferred stock with multiple votes is
restricted by the requirements of the NASDAQ Stock Market.
The Company does not intend to issue any preferred stock except on
terms that it considers to be in the best interests of the Company and its
stockholders. However, issuance of preferred stock with more than ten (10)
votes per share might have a dilutive effect on the voting power of
existing holders of common stock. As a result, it might allow the Board of
Directors to discourage or make more difficult a hostile business
combination with the Company.
The affirmative vote of a majority of the holders of all issued and
outstanding shares of stock of the Company entitled to vote at the meeting
is required to authorize the proposed amendment.
The Board of Directors unanimously recommends a vote FOR the proposed
amendment.
AUDIT MATTERS
Upon the recommendation of the Audit Committee, the Board of Directors
has selected Arthur Andersen LLP, certified public accountants, as auditors
for the Company for the fiscal year ending December 31, 2000. Arthur
Andersen LLP has served as the Company's independent auditors since 1957.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if desired and to
respond to appropriate questions.
OTHER INFORMATION
Stockholder Proposals for 2001 Annual Meeting of Stockholders
Proposals of stockholders submitted pursuant to Rule 14a-8 of the
Securities Exchange Act of 1934 for consideration at the 2001 Annual
Meeting of Stockholders must be received by the Company no later than
November 10, 2000 in order to be considered for inclusion in the Company's
proxy materials for that meeting.
For proposals that stockholders intend to present at the 2001 Annual
Meeting of Stockholders that will not be included in the Company's proxy
materials, if the stockholder fails to notify the Company of such intent on
or before February 16, 2001, then the proxies that management solicits for
the 2001 Annual Meeting will include discretionary authority to vote on the
stockholder's proposal, if it is properly presented at the meeting.
Other Business
The Board of Directors does not know of any business which will be
presented to the Annual Meeting other than that referred to in the
accompanying notice. If other business properly comes before the Annual
Meeting, it is intended that the proxies will be voted in the discretion of
the persons voting the proxies unless specific instructions to the contrary
are given.
Form 10-K and Annual Report to Stockholders
A copy of the Company's annual report on Form 10-K filed with the
Securities and Exchange Commission is available to stockholders without
charge by writing to the Treasurer's office, Dynamics Research Corporation,
60 Frontage Road, Andover, Massachusetts 01810-5498. A copy of the
Company's Annual Report to Stockholders accompanies this proxy statement.
By the Order of the Board of Directors
Alan R. Cormier
Clerk
Andover, Massachusetts
March 28, 2000
