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
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DYNAMICS RESEARCH CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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.
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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[_] Fee paid previously with preliminary materials:
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offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
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DYNAMICS RESEARCH CORPORATION
60 Frontage Road
Andover, Massachusetts 01810
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 24, 2001
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To the Stockholders:
The Annual Meeting of the stockholders of Dynamics Research Corporation will be
held at 1:30 p.m. on Tuesday, April 24, 2001 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 II Directors,
2. 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 16, 2001 will be
entitled to receive notice of and to vote at the meeting.
By order of the Board of Directors,
Richard A. Covel
Clerk
March 23, 2001
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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
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 24, 2001
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GENERAL
The accompanying proxy is solicited by the Board of Directors of Dynamics
Research Corporation (the "company") to be voted at the 2001 Annual Meeting of
Stockholders to be held on April 24, 2001.
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 II directors. 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 16, 2001 are
entitled to notice of and to vote at the Annual Meeting. There were 7,601,519
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 II directors
at the Annual Meeting who receive the greatest number of votes properly cast
for the election of directors will be elected directors.
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 16, 2001 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.
Amount and Nature of Percent
Beneficial Owners(1) Beneficial Ownership(2) of Class
-------------------- ----------------------- --------
John S. Anderegg, Jr......................... 808,798(3) 10.6
James P. Regan............................... 102,140 1.3
Francis J. Aguilar........................... 34,637(4) *
Martin V. Joyce, Jr.......................... 11,199 *
Kenneth F. Kames............................. 10,199 *
James P. Mullins............................. 18,959 *
Richard A. Covel............................. -- *
David Keleher................................ 10,000 *
John L. Wilkinson............................ 19,567 *
DFA Investment Dimensions Group, Inc......... 597,638(5) 7.9
c/o Dimensional Fund Advisors, Inc.
1299 Ocean Avenue--11th Floor
Santa Monica, CA 90401
All directors and executive officers as a
group (9 persons)........................... 1,015,499 13.3%
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* Less than 1% of the outstanding shares of Common Stock.
(1) Unless otherwise indicated, each address is c/o Dynamics Research
Corporation, 60 Frontage Road, Andover, MA 01810.
(2) Includes options to acquire shares which are currently exercisable or
exercisable within 60 days of March 16, 2001: Mr. Regan, 102,140 shares;
Dr. Aguilar, 11,659 shares; Mr. Joyce, 6,199 shares; Mr. Kames, 8,199
shares; Mr. Mullins, 11,319 shares; Mr. Keleher, 10,000 shares; Mr.
Wilkinson, 13,920 shares; and all directors and officers as a group,
163,436 shares.
(3) 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.
(4) Includes 11,659 shares held in a pension plan over which Dr. Aguilar has
sole voting and investment power.
(5) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 597,638 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.
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 II directors for terms of three years expiring at the 2004
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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 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 II Directors--Terms Expiring in 2004
Francis J. Aguilar...... 68 Professor of Business 1987
Administration, Emeritus since 1996,
Harvard University Graduate School
of Business Administration
Executive Director of Management
Education Alliance--A non-profit
organization dedicated to improving
business education for Afro-
Americans and Hispanic Americans
since 1995.
John S. Anderegg, Jr.... 77 Chairman of the company 1955
Continuing Class III Directors--Terms Expiring in 2002
Kenneth F. Kames........ 66 Retired Vice President, New Business 1997
Development,
The Gillette Company from 1968 to
1999.
James P. Regan.......... 60 President and Chief Executive 1999
Officer of the company.
President and Chief Executive
Officer of CVSI, Inc., an
international information technology
solutions and services company from
1997 to October 1999, and senior
vice president of Litton PRC,
Information Business unit, a company
offering systems development,
deployment and support services,
from 1992 to 1996.
Continuing Class I Directors--Terms Expiring in 2003
Martin V. Joyce, Jr..... 54 Vice President, 1997
A.T. Kearney, Inc., a consulting
firm since 1995.
General James P.
Mullins................ 72 Executive Consultant 1991
(U.S.A.F., retired)
The principal occupation of the above nominees and continuing directors is
that set forth above for the past five years.
Mr. Regan was elected a director by the Board.
Dr. Aguilar is a director of Bowater, Inc. Mr. Anderegg is a director of Ivy
and MacKenzie Mutual Funds. Mr. Kames is a director of LAU Defense Systems,
LLC, and Boston Rheology, LLC. Dr. Aguilar and Mr. Anderegg were directors of
Burr-Brown Corporation in 2000.
3
Board Meetings and Committees
The Board of Directors held ten meetings during 2000.
The Audit Committee, consisting of Mr. Joyce, Mr. Kames and General Mullins,
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 six
meetings during 2000.
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 two meetings during 2000.
The company does not have a standing nominating committee.
In 2000, all directors except Mr. Joyce attended at least 75% of the
meetings of the Board and of the Committees on which they served. Mr. Joyce
attended 72% of the meetings of the Board and of the Committees on which he
served.
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 2000 director's fee.
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.
4
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 $100,000 for the year ended December 31,
2000 (the "named executive officers") for services rendered during 2000, 1999,
and 1998.
Annual Long Term
Compensation Compensation
---------------------------- ------------
Other Annual Shares All Other
Name and Salary Bonus Compensation Underlying Compensation
Principal Position Year ($) ($) ($)(1) Options (#) ($)(2)
------------------ ---- ------- ------- ------------ ------------ ------------
John S. Anderegg, Jr. ... 2000 195,000 58,067 2,550
Chairman 1999 195,000 58,067 2,400
1998 195,000 58,067 2,400
James P. Regan........... 2000 300,000 300,000 5,350 340,553(3)
President & Chief 1999 46,153 250,000
Executive Officer
Richard A. Covel (4)..... 2000 9,113 20,000
Vice President & General
Counsel
David Keleher (5)........ 2000 181,586 100,000 30,000 2,550
Vice President
& Chief Financial
Officer
John L. Wilkinson........ 2000 160,000 43,502 2,550
Vice President & General 1999 160,000 2,400
Manager, Human Resources 1998 145,000 7,000 6,000 2,362
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(1) Consists of distributions from the company's Defined Benefit Pension
Plan.
(2) Consists of employer's match for the 401(k) plan.
(3) Consists of employer's match for the 401(k) plan and relocation expenses.
(4) Mr. Covel joined the company as Vice President and General Counsel in
December 2000.
(5) Mr. Keleher joined the company as Vice President and Chief Financial
Officer in January 2000.
Option Grants in Last Fiscal Year
The table below shows information regarding grants of stock options, if any,
made to the named executives during fiscal 2000. The amounts shown for each of
the named executives as potential realizable values are based on arbitrarily
assumed annualized rates of stock price appreciation of five percent and ten
percent over the full term of the options, pursuant to applicable Securities
and Exchange Commission regulations. Actual gains, if any, on option exercises
are dependent on the future performance of the Common Stock and overall stock
market conditions.
Potential Realizable Value
at Assumed Annual Rates of
Individual Grants Stock Price Appreciation
------------------------------------------------ for Option Term
% of Total Options Exercise or --------------------------
Options Granted to Employees Base Expiration
Granted (#)(1) in Fiscal Year Price ($/Sh) Date 5%($) 10%($)
-------------- -------------------- ------------ ---------- ------- -------
James P. Regan.......... 5,350 1% 8.38 11/3/08 66,199 96,046
Richard A. Covel........ 20,000 4% 8.25 12/12/10 268,768 427,968
David Keleher........... 30,000 6% 7.50 3/9/10 349,049 583,538
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(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 40% on
the anniversary date of his employment and 20% on each of the first three
anniversaries thereafter.
5
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 2000.
Number of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Options Exercised in 2000 12/31/00 (#) 12/31/00 ($)(1)
---------------------------- ---------------- ----------------
Shares Acquired Value Exercisable/(E) Exercisable/(E)
Name on Exercise (#) Realized ($) Unexercisable(U) Unexercisable(U)
---- --------------- ------------ ---------------- ----------------
James P. Regan.......... -- -- 102,140E 331,000E
-- 153,210U --U
Richard A. Covel........ -- -- --E --E
2,000U --U
David Keleher........... -- -- --E --E
30,000U --U
John L. Wilkinson....... -- -- 11,920E 36,630E
20,000U --U
- --------
(1) Based on market value at 12/31/00 of $7.75 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 2000:
ESTIMATED ANNUAL BENEFIT FOR YEAR 2000
Estimated Annual Benefit For
Average Indicated Years of Service
Annual ----------------------------------
Earnings 15 20 25 30 or more
-------- ------- ------- ------- ----------
$100,000..................................... $16,577 $22,103 $27,629 $33,155
$125,000..................................... $21,577 $28,770 $35,962 $43,154
$150,000..................................... $26,577 $35,436 $44,295 $53,154
$170,000*.................................... $30,577 $40,769 $50,962 $61,154
Frozen Benefit--Accrued through 12/31/93:
$175,000..................................... $31,577 $42,103 $52,628 $63,154
$200,000..................................... $36,577 $48,769 $60,961 $73,154
$225,000..................................... $41,577 $55,436 $69,294 $83,153
$235,840..................................... $43,745 $58,326 $72,908 $87,489
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* The maximum Plan Compensation for 2000 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 16, 2001, Messrs. Anderegg, Wilkinson, Regan, Keleher and Covel
had 44, 19, 1, 1 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,
6
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 2000 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.
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.
7
Report of the Compensation Committee of the Board of Directors
The Compensation Committee of the Board of Directors administers the
company's executive management 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 executive
officers of the company and for reviewing the design and effectiveness of
executive compensation policies. All awards issued under the company's
executive management incentive plans 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 and variable 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 interests 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 Compensation Committee believes, is competitive with
other companies of comparable size and scope. 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 Compensation Committee utilizes industry
compensation data provided by nationally recognized information sources.
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 scope.
Base salaries of executives are determined by using the following factors:
1. The potential impact of the individual on the company and its
performance,
2. Salaries paid by other companies for comparable positions,
3. Individual performance against goals, and
4. The overall performance of the company.
Cash Bonuses. The Compensation Committee may approve cash bonuses as a means
of rewarding executives for significant company and individual performance.
The cash bonus is designed to encourage and reward performance, over and above
any merit increase received, and, to the extent warranted by performance,
maintain employee total compensation in line with internal and external peer
groups. The principle vehicle for executive cash bonuses is the Executive
Incentive Plan (EIP), which provides for year-end bonus payments, tied to
measures that best assess and reflect performance of the company, the
executive, and her/his business group. EIP measurement is built into
objectives, which are established and agreed to at the beginning of the year.
Performance against these objectives provides a basis for reward
determination.
8
Long-Term Incentives. Long-term incentives are provided in the form of stock
options. The Committee and the Board of Directors believe that management
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 are granted at the market value of the common stock on date of
grant. The value received 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. Consequently, the value of the compensation is proportionate to
increases in shareholder value. Grants of stock options are made by the
Compensation Committee in its discretion based both upon the executives'
actual contribution to the company's current performance and their expected
contribution toward meeting the company's long-term financial/strategic goals.
CEO Compensation
Mr. Regan joined the company as 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 operational circumstance and 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 2000 and was granted options to purchase 250,000 shares of DRC stock. He
was also awarded a $300,000 bonus for 2000.
The Compensation Committee
of the Board of Directors:
Francis J. Aguilar
Martin V. Joyce
9
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of three directors
and each of them is independent of the management of the company. The Audit
Committee oversees the company's financial reporting process on behalf of the
Board of Directors.
Management has the primary responsibility for the financial statements and
the reporting process, including the system of internal controls. The
independent accountants are responsible for expressing an opinion on the
financial statements, based on an audit conducted in accordance with auditing
standards generally accepted in the United States. The Audit Committee has the
responsibility of monitoring and overseeing these processes.
The Committee reviewed the audited financial statements in the Annual Report
on Form 10K with management, including a discussion of the consistency of
application of accounting principles, the quality of earnings, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
The Audit Committee recommended to the Board the selection of Arthur
Andersen LLP as the company's independent accountants. Arthur Andersen LLP has
discussed with the Committee and provided written disclosures as to the firm's
independence from management and the company, as required by the Independence
Standards Board, and discussed with the Committee other matters required to be
communicated by auditing standards generally accepted in the United States.
Prior to commencing the audit, the Committee discussed with Arthur Andersen
LLP the overall scope and plans for their audit. Upon completion of the audit,
the Committee met with the independent auditors, with management present, to
discuss the results of their examination, their evaluation of the company's
internal controls, and the overall quality of the company's financial
reporting. The Committee held six meetings in 2000.
Following these actions, the Committee recommended to the Board of Directors
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
Fees billed to the company by Arthur Andersen LLP for the year 2000 were as
follows:
. Audit Fees. Arthur Andersen LLP's fee for its audit of the company's
annual financial statements and its review of the company's quarterly
financial statements for 2000 was $270,000.
. Financial Information Systems Design and Implementation. Arthur Andersen
LLP did not bill the company any fees for this type of work in 2000.
. All Other Fees. Arthur Andersen LLP billed the company a total of
$20,000 in 2000 for all other services. The Committee has considered
whether the provision of the services included in this category is
compatible with maintaining Arthur Andersen LLP's independence.
The Directors who serve on the Audit Committee are all "Independent
Directors" for purposes of the National Association of Securities Dealers
("NASD") listing standards. That is, the Board has determined that none of the
Directors who serve on the Audit Committee has a relationship to the company
that may interfere with his independence from the company or its management.
The Audit Committee of the Board of
Directors:
/s/ Kenneth F. Kames
_____________________________________
Kenneth F. Kames, Chairman
/s/ Martin V. Joyce
_____________________________________
Martin V. Joyce
/s/ James P. Mullins
_____________________________________
James P. Mullins
10
AUDIT COMMITTEE CHARTER
The Audit Committee of the Board of Directors is composed of not fewer than
three nor more than five directors and each of them is independent of the
management of the company. The Audit Committee is accountable to the Board in
fulfilling the Board's oversight responsibilities to the shareholders,
potential shareholders and the investment community. The Audit Committee
reviews and monitors the company's business and financial controls, reporting
practices, the quality and integrity of its financial reports and the
company's regulatory and ethics compliance.
11
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 29, 1995 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]
NASDAQ Peer
Dynamics Research Corporation Composite Group
-------------------------------- --------- -----
1995........................... 100 100 100
1996........................... 109 123 152
1997........................... 152 151 131
1998........................... 91 213 191
1999........................... 132 395 329
2000........................... 120 238 264
Companies in Self- Determined Peer Group:
B T G Inc. CACI International Inc.
Titan Corp. Affiliated Computer Services Inc
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 12/29/1995.
12
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, 2001. 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 2002 Annual Meeting of Stockholders
Proposals of stockholders submitted pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934 for consideration at the 2002 Annual Meeting of
Stockholders must be received by the company no later than November 29, 2001
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 2002 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 15, 2002, then the proxies that management solicits for the 2002
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
Richard A. Covel
Clerk
Andover, Massachusetts
March 23, 2001
13
PROXY
DYNAMICS RESEARCH CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 24, 2001
The undersigned hereby appoints John S. Anderegg, Jr., James P. Regan and
Richard A. Covel, 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 24, 2001 at 1:30 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.)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
DYNAMICS RESEARCH CORPORATION
APRIL 24, 2001
Please Detach and Mail in the Envelope Provided
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked to to vote for all nominees
the contrary below) listed at right
1. Fixing the [_] [_] NOMINEES: Francis J. Aguillar
number of John S. Anderegg, Sr.
Directors and
Election of the
Class II Directors
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
____________________________________________________
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.
Signature____________________Signature___________________Date___________,2001
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.