<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) on Section
240.14a-12
DYNAMICS RESEARCH CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1)Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2)Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4)Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5)Total fee paid:
- -------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or schedule and the date of its filing.
(1)Amount Previously Paid:
- -------------------------------------------------------------------------------
(2)Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3)Filing Party:
- -------------------------------------------------------------------------------
(4)Date Filed:
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<PAGE>
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.
<PAGE>
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 and voted in favor of
the proposal set forth in the Notice of Meeting. 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
shares of Common Stock issued and outstanding on the record date is required
for the approval of the amendment of the Articles or Organization.
<PAGE>
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.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership of Class
------------------------------------ -------------------- --------
<S> <C> <C>
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
</TABLE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
2
<PAGE>
(1) Includes 58,300 shares held by Mr. Anderegg as custodian for his
children, 84,902 shares held in the estate of his deceased spouse, of
which Mr. Anderegg is executor, and 8,720 shares held by his current
spouse, 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) ncludes 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 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.
3
<PAGE>
<TABLE>
<CAPTION>
Year First
Elected
Name Age Principal Occupation A Director
---- --- -------------------- ----------
Nominees for Election as Class I Directors--Terms Expiring in 2003
<C> <C> <S> <C>
Martin V. Joyce, Jr....... 53 Vice President, A.T. Kearney, Inc., 1997
a consulting firm.
General James P. Mullins.. 71 Executive Consultant 1991
(U.S.A.F., retired)
<CAPTION>
Continuing Class II Directors--Terms Expiring in 2001
<C> <C> <S> <C>
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
<CAPTION>
Continuing Class III Directors--Terms Expiring in 2002
<C> <C> <S> <C>
Kenneth F. Kames.......... 65 Retired Vice President, New 1997
Business Development,
The Gillette Company
James P. Regan............ 59 President and Chief Executive 1999
Officer of the company, President
and Chief Executive Officer of
CVSI, Inc. from 1997 to October
1999, and senior vice president of
Litton PRC from 1993 to 1996
</TABLE>
The principal occupation of the above nominees and continuing directors is
that set forth above for the past five years.
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 Funds and Burr-Brown Corporation.
4
<PAGE>
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
meetings during 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 except Mr. Regan attended at least 75% of the
meetings of the Board and of the Committees on which they served. Mr. Regan
attended at least 75% of the meetings of the Board following his election to
the Board in November 1999.
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 shares representing a
majority of the shares of Common Stock of the company issued and outstanding
on the record date is required for the approval of the proposed amendment.
The Board of Directors unanimously recommends a vote FOR the proposed
amendment.
5
<PAGE>
COMPENSATION AND RELATED MATTERS
Compensation of Directors
Directors who are not employees of the company receive an annual fee of
$20,000. 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.
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.
6
<PAGE>
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 $100,000 for the year ended December 31,
1999 (the "named executive officers") for services rendered during 1999, 1998,
and 1997.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------- ------------
Other Annual Shares All Other
Name and Salary Bonus Compensation Underlying Compensation
Principal Position Year ($) ($) ($)(1) Options (#) ($)(2)
------------------ ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Albert Rand............. 1999 300,000 40,000 67,923 2,400
President & C.E.O.(3) 1998 300,000 50,942 2,400
1997 260,000 40,000 2,375
James P. Regan.......... 1999 46,153 250,000 -0-
President & C.E.O.
John S. Anderegg, Jr. .. 1999 195,000 58,067 2,400
Chairman 1998 195,000 58,067 2,400
1997 195,000 58,067 2,375
Virginia A. Lavery...... 1999 110,108 10,000 1,652
Acting C.F.O. 1998 43,115 5,000 647
John L. Wilkinson....... 1999 160,000 2,400
V.P. of Human Resources 1998 145,000 7,000 6,000 2,362
& Clerk 1997 142,000 2,126
Chester Ju.............. 1999 175,000 15,000 10,000 2,400
V.P. of Encoder and 1998 170,000 20,000 12,000 2,400
Metrigraphics Division 1997 160,000 40,000 13,200 2,375
</TABLE>
- --------
(1) Consists of distributions from the company's Defined Benefit Pension Plan.
(2) Consists of employer's match for the 401(K) plan.
(3) In November 1999, Mr. Rand retired and Mr. Regan joined the company as
President and C.E.O.
7
<PAGE>
Option Grants in Last Fiscal Year
The table below shows information regarding grants of stock options, if any,
made to the named executives during fiscal 1999. The amounts shown for each of
the named executives as potential realizable values are based on arbitrarily
assumed annualized rates of stock price appreciation of five percent and ten
percent over the full term of the options, pursuant to applicable Securities
and Exchange Commission regulations. Actual gains, if any, on option exercises
are dependent on the future performance of the Common Stock and overall stock
market conditions.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
--------------------------------- at Assumed Annual Rates of
% of Total Stock Price Appreciation
Options Exercise for Option Term
Granted to or Base --------------------------
Options Employees in Price Expiration
Granted ($) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------- ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Chester Ju.............. 12,000 4% 4.75 2/16/09 92,847 147,843
James P. Regan.......... 250,000 82% 4.44 11/01/09 361,615 575,811
Virginia A. Lavery...... 10,000 3% 4.00 8/27/09 65,156 103,750
</TABLE>
- --------
(1) Options normally become exercisable 1/3 each year, commencing on the first
anniversary of the grant, with full vesting on the third anniversary. Mr.
Regan's options become exercisable at the rate of (20%) on the date of
grant and on each of the first four anniversaries thereof.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table presents the value of unexercised options held by the
named executive officers at fiscal year-end. John S. Anderegg, Jr. did not
hold any options during 1999.
<TABLE>
<CAPTION>
Number of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Options Exercised in 1999 12/31/99 (#) 12/31/99 ($)(1)
----------------------------- ----------------- -----------------
Shares Acquired Value Exercisable/(E) Exercisable/(E)
Name on Exercise (#) Realized ($) Unexercisable (U) Unexercisable (U)
---- --------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
James P. Regan.......... -- -- 50,000E 203,000E
-- -- 200,000U --U
John L. Wilkinson....... -- -- 11,920E 42,570E
-- -- 2,000U --U
Chester Ju.............. -- -- 83,933E 215,399E
-- -- 14,667U --U
Virginia A. Lavery...... -- -- 1,667E 7,501E
-- -- 13,333U --U
</TABLE>
- --------
(1) Based on market value at 12/31/99 of $8.50 per share less respective
exercise prices.
8
<PAGE>
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
<TABLE>
<CAPTION>
Average Estimated Annual Benefit For Indicated Years of Service
Annual -------------------------------------------------------------
Earnings 15 20 25 30 or more
-------- ------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
$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
</TABLE>
- --------
*The maximum Plan Compensation for 1999 is $170,000.
Employees are entitled to the greater of: the benefit accrued through
December 31, 1993 (with wages capped at each year's IRS limit) or the 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 five highest consecutive years of compensation in
the last ten 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
9
<PAGE>
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. Under the agreement, he 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 and certain other benefits, including the
acceleration of outstanding stock options, and 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.
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 an amount 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.
.
10
<PAGE>
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.
11
<PAGE>
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 a $40,000 bonus in 1999 for
service performed in 1998.
The Compensation Committee
of the Board of Directors:
Francis J. Aguilar
Martin V. Joyce
12
<PAGE>
Performance Graph
The following graph illustrates the return that would have been realized
(assuming reinvestment of dividends) by an investor who invested $100 on
December 30, 1994 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:
[GRAPH APPEARS HERE]
LEGEND
<TABLE>
<CAPTION>
Dynamics
Research NASDAQ Peer
Corporation Composite Group
<S> <C> <C> <C>
1994.......................... 100 100 100
1995.......................... 309 141 189
1996.......................... 336 174 174
1997.......................... 470 213 148
1998.......................... 282 300 124
1999.......................... 408 556 450
</TABLE>
13
<PAGE>
Companies in Self-Determined Peer Group:
<TABLE>
<S> <C>
B T G Inc. CACI International Inc.
G R C International Nichols Research Corp.
Titan Corp.
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.00 on 12/30/1994.
14
<PAGE>
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
15
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
DYNAMICS RESEARCH CORPORATION
April 25, 2000
Please Detach and Mail in the Envelope Provided
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as to vote for all
marked to the nominees
contrary below) listed at right
Nominees:
<S> <C> <C> <C>
1. Fixing the number [_] [_] Martin V. Joyce, Jr.
of Directors and General James P. Mullins
Election of the
Class I Directors
To withhold authority to vote for any individual
nominee, write the nominee's name in the space
provided below.
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. To amend the provisions of the [_] [_] [_]
Company's Articles of Organization
relative to preferred stock.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. EVERY PROPERLY SIGNED
PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, PROXIES WILL
BE VOTED FOR THE ITEM SET FORTH ABOVE. IN THEIR DISCRETION, THE PROXIES
ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
</TABLE>
Signature Signature Date ,2000
------------------ ------------------ ------------
NOTE: Please mark, date and sign as your name appears hereon and return in the
enclosed envelope. If signing as an attorney, executor, administrator, trustee,
guardian or other representative capacity, please give your full title as such.
<PAGE>
PROXY
DYNAMICS RESEARCH CORPORATION
Annual Meeting of Stockholders - April 25, 2000
The undersigned hereby appoints John S. Anderegg, Jr., James P. Regan and
Alan R. Cormier, and each of them as proxies, with full power of substitution
and re-substitution to each, and hereby authorizes them to represent and to
vote as designated on the reverse side, at the Annual Meeting of Stockholders of
Dynamics Research Corporation (the "Company") on April 25, 2000 at 3:30 P.M.
Boston time, and at any adjournments thereof, all of the shares of the Company
which the undersigned would be entitled to vote if personally present.
(To Be Signed On Reverse Side.)
