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
[X] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
[_] Definitive Additional Materials RULE 14A-6(E)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
DYNAMICS RESEARCH COMMISSION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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.
(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:*
-------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
DYNAMICS RESEARCH CORPORATION
60 Frontage Road
Andover, Massachusetts 01810
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 25, 2002
-----------------
To the Stockholders:
The Annual Meeting of the stockholders of Dynamics Research Corporation will be
held at 2:00 p.m. on Thursday, April 25, 2002 on the 2nd floor of the Hampshire
House, 84 Beacon Street, Boston, Massachusetts, 02108, for the following
purposes:
1. To fix the number of directors for the ensuing year and to elect the
Class III 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 15, 2002 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 15, 2002
-----------------
- --------------------------------------------------------------------------------
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 that 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, 2002
-----------------
GENERAL
The accompanying proxy is solicited by the Board of Directors of Dynamics
Research Corporation (the "company") to be voted at the 2002 Annual Meeting of
Stockholders to be held on April 25, 2002.
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 III 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 15, 2002 are
entitled to notice of and to vote at the Annual Meeting. There were 7,842,611
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 III 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 of 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 15, 2002 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 of
Beneficial Owner (1) Beneficial Ownership (2) Class
-------------------- ------------------------ ----------
John S. Anderegg, Jr........................................ 808,798(3) 10.1
James P. Regan.............................................. 180,210 2.3
Francis J. Aguilar.......................................... 62,881(4) *
Martin V. Joyce, Jr......................................... 18,866 *
Kenneth F. Kames............................................ 15,866 *
James P. Mullins............................................ 24,626 *
Richard A. Covel............................................ 16,751 *
Chester Ju.................................................. 153,201 1.9
David Keleher............................................... 35,500 *
John L. Wilkinson........................................... 26,292 *
DFA Investment Dimensions Group, Inc........................ 404,538 5.1
c/o Dimensional Fund Advisors, Inc.
1299 Ocean Avenue--11th Floor
Santa Monica, CA 90401
All directors and executive officers as a group (10 persons) 1,342,991 16.8
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) Unless otherwise indicated, the address of each beneficial owner 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 15, 2002: Mr. Regan, 153,210 shares;
Dr. Aquilar, 16,986 shares; Mr. Joyce, 13,866; Mr. Kames, 13,866 shares;
General Mullins, 16,986 shares; Mr. Covel, 6,667 shares; Mr. Ju, 94,600
shares; Mr. Keleher, 20,000; Mr. Wilkinson, 13,920 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 404,538 shares at
December 31, 2001, 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.
2
Proposal 1
ELECTION OF DIRECTORS
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 III directors for terms
of three years expiring at the 2005 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 III Directors--Terms Expiring in 2005
Kenneth F. Kames........ 67 Retired Vice President, new Business 1997
Development.
The Gillette Company from 1968 to 1999.
James P. Regan.......... 61 Chairman, 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..... 55 Vice President, A.T. Kearney, Inc., a 1997
consulting firm since 1995.
General James P. Mullins 73 Executive Consultant. 1991
(U.S.A.F., retired)
Continuing Class II Directors--Terms Expiring in 2004
Francis J. Aguilar...... 69 Professor of Business Administration, 1987
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.... 78 Chairman, Emeritus of the company 1955
3
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.
Board Meetings and Committees
The Board of Directors held five meetings during 2001.
The Audit Committee, consisting of Mr. Joyce, Mr. Kames and General Mullins
in 2001, 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 seven meetings during 2001.
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 three meetings during 2001.
The company does not have a standing nominating committee.
In 2001, all directors attended 100% of the meetings of the Board of
Directors. All directors attended 100% of the meetings of the committees on
which they serve, except Mr. Joyce who attended 71% of the Audit Committee
meetings.
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. Effective July 26, 2001, Dr.
Aguilar converted his deferred compensation, having an aggregate value of
$262,176, into 23,577 shares of restricted company stock based on the fair
market value of the stock on the date of conversion.
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 the 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. No shares were granted under this plan in 2001.
4
The 2000 Incentive Plan allows the company to grant incentive stock options,
non-qualified stock options, stock appreciation rights, awards of
nontransferable shares of restricted common stock and deferred grants of common
stock up to a total of 1.5 million shares. In the case of incentive stock
options, the option price will not be less than the fair market value of the
stock at the date of grant. The option period will not exceed 10 years from the
date of grant. Under the 2000 Incentive Plan each director was granted 15,000
options in 2001.
Executive Compensation
Summary Compensation Table
The following table summarizes the compensation earned by the Chairman,
President and Chief Executive Officer and each of the company's other executive
officers that earned salary and bonus in excess of $100,000 for the year ended
December 31, 2001 (the "named executive officers") for services rendered during
2001, 2000 and 1999.
Annual Long-Term
Compensation Compensation
- - ------------------ ------------------------
Restricted Shares All Other
Name and Stock Awards Underlying Compensation
Principal Position Year Salary($) Bonus($) (#) Options (#) ($)(1)
------------------ ---- --------- -------- ------------ ----------- ------------
James P. Regan....................... 2001 320,000 400,000 25,000 225,000 2,550
Chairman, President & Chief 2000 300,000 300,000 5,350 340,533(2)
Executive Officer 1999 46,153 250,000
Richard A. Covel (3)................. 2001 170,000 38,833 10,000 50,000 1,798
Vice President & General Counsel 2000 9,113 20,000
Chester Ju........................... 2001 184,600 38,885 7,000 45,000 2,550
Vice President & General Manager, 2000 175,000 54,842 10,000 2,550
Precision Manufacturing Group 1999 175,000 15,000 2,400
David Keleher (4).................... 2001 210,000 100,000 15,000 60,000 2,550
Vice President & 2000 181,586 100,000 30,000 2,550
Chief Financial Officer
John L. Wilkinson.................... 2001 168,000 46,052 7,000 45,000 2,550
Vice President & General Manager, 2000 160,000 43,502 2,550
Human Resources 1999 160,000 2,400
- --------
(1) Consists of employer's match for 401(K) plan.
(2) Consists of employer's match for 401(k) plan and relocation expenses.
(3) Mr. Covel joined the company as Vice President and General Counsel in
December 2000.
(4) Mr. Keleher joined the company as Vice President and Chief Financial
Officer in January 2000.
5
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 2001. 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 Stock Price Appreciation
Individual Grants for Option Term
------------------------------------ ----------------------------------------
Exercise
Options % of Total Options or Base
Granted Granted to Employee Price Expiration
(#)(1) in Fiscal Year ($/Sh) Date 5%($) 10%($)
------- ------------------- -------- ---------- --------- ---------
James P. Regan... 225,000 29% 8.94 5/31/2011 3,276,522 5,217,313
Richard A. Covel. 50,000 7% 8.94 5/31/2011 728,116 1,159,403
Chester Ju....... 45,000 6% 8.94 5/31/2011 655,304 1,043,463
David Keleher.... 60,000 8% 8.94 5/31/2011 873,739 1,391,283
John L. Wilkinson 45,000 6% 8.94 5/31/2011 655,304 1,043,463
- --------
(1) Stock option grants vest after seven (7) years (subject to acceleration of
vesting by achievement of long-term performance goals).
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table presents the value of unexercised options held by the
named executive officers at fiscal year-end.
Number of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Options Exercised in 2001 12/31/01(#) 12/31/01($)(1)
- - --------------------------- ---------------- ----------------
Shares Acquired Value Exercisable/(E) Exercisable/(E)
Name on Exercise(#) Realized($) Unexercisable(U) Unexercisable(U)
---- --------------- ----------- ---------------- ----------------
James P. Regan... -- -- 153,210E 2,057,236E
327,140U --U
Richard A. Covel. -- -- 6,667E 64,670E
63,333U --U
Chester Ju....... -- -- 91,266E 1,110,328E
48,334U --U
David Keleher.... -- -- 10,000E 104,500E
80,000U --U
John L. Wilkinson -- -- 13,920E 165,114E
45,000U ---U
- --------
(1) Based on market value at 12/31/01 of $17.95 per share less respective
exercise prices.
6
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 2001:
ESTIMATED ANNUAL BENEFIT FOR YEAR 2001
Estimated Annual Benefit
For Indicated Years of Service
----------------------------------
Average Annual Earnings 15 20 25 30 or more
----------------------- ------- ------- ------- ----------
$100,000........ $16,371 $21,828 $27,286 $32,743
$125,000........ $21,371 $28,495 $35,619 $42,742
$150,000........ $26,371 $35,161 $43,952 $52,742
$170,000*....... $30,371 $40,495 $50,618 $60,742
Frozen Benefit--Accrued through 12/31/93:
$175,000........ $31,371 $41,828 $52,285 $62,742
$200,000........ $36,371 $48,494 $60,618 $72,742
$225,000........ $41,371 $55,161 $68,951 $82,741
$235,840........ $43,539 $58,052 $72,564 $87,077
- --------
* The maximum Plan Compensation for 2001 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 15, 2002, Messrs. Ju, Wilkinson, Regan, Keleher and Covel had
21, 20, 2, 2 and 1 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 2001 was $170,000. Social Security Covered Compensation means the dollar
amount that 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.
7
In December 2001, the Board of Directors approved to proceed with amendments
limiting future increases in benefits under the company's defined benefit
Pension Plan, freezing membership in the Plan, and providing for improvements
to the company's 401(k) Plan.
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 and chief executive officer and a director at
an initial 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.
The company's change of control agreement with Messrs Keleher, Covel, and
Wilkinson provides them with benefits if their employment with the company is
terminated, other than for cause or their disability or death, or if they
resign for good reason within 24 months of any change of control of the
company. Upon such a termination, (i) the company will pay Mr. Keleher eighteen
months, and Mr. Covel and Mr. Wilkinson twelve months of their current 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 their
target bonus compensation for the fiscal year during which the termination of
employment occurs or in effect immediately prior to the change of
8
control, whichever is higher; and (ii) the company will continue to provide the
company's life and medical insurance plans or similar coverage for the same
term as their severance pay term after termination or until the date they
become eligible to receive substantially equivalent life and medical benefits
under another employer-provided plan. The change of control agreements
terminate on January 1, 2004 or on the second anniversary of a change of
control.
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 comprised
of Dr. Francis J. Aguilar and Mr. Martin V. Joyce. Both are independent
non-employee directors and 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. The committee considered and recommended all awards
issued under the company's executive management incentive plans for Board of
Directors approval.
Compensation Philosophy and Objectives
A. The company's executive compensation program consists of base salary,
annual cash incentives and long-term incentives comprised of stock options and
restricted stock. The program's 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 that is
competitive with similarly sized companies of comparable performance.
. Reward executives for outstanding achievements that clearly benefit the
company.
. Align the interests of the company's executives with the long-term
interests of shareholders.
B. The executive compensation program provides an overall level of
compensation opportunity that the Compensation Committee believes to be
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; hence, it may be greater or less than
actual compensation at other companies. The committee uses its discretion to
define and recommend to the Board of Directors executive compensation at levels
that, 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 executive base salary levels that are
competitive with other companies of comparable size and scope in similar
industries.
Base salaries of executives are determined by using the following factors:
. Potential impact of the individual on the company and its performance
. Salaries paid by other companies for equivalent positions
9
. Individual performance against goals
. Overall performance of the company
Annual Cash Incentives. The Compensation Committee may recommend cash
incentives as a means of rewarding executives for significant company and
individual performance. The cash incentive 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 principal vehicle for executive cash
bonuses is the Executive Incentive Plan (EIP). The EIP provides for year-end
incentive payments that are tied to measures assessing and reflecting
performance of the corporation, the executive, and her/his business group. EIP
measurement is built into objectives that are established and agreed to at the
beginning of the year. Performance against these objectives provides a basis
for reward determination.
Long-Term Incentives. Long-term incentives are provided in the form of stock
options and restricted stock. 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 the
date of grant. The value received by the executive from a stock option grant
depends on changes in the market price of the company's common stock during the
term of the option. Consequently, the value realized from stock options is
proportionate to the incremental changes in shareholder value over the same
time period as the stock vesting schedule.
Restricted stock grants represent awards of DRC common stock with specific
vesting restrictions (e.g., continuous employment for a specified period of
time). The shares of restricted stock that have been issued vest in seven (7)
years from the date of grant, subject to acceleration based on actual
performance relative to earnings per share (EPS) and sales growth targets.
Until the restrictions are satisfied and the employee takes full ownership of
the shares of stock, no dividends are paid, nor is the employee entitled to
vote the shares. Restricted stock ties rewards of executives to increasing
value of company stock while serving as a tool to retain key executive talent.
Grants of stock options and restricted stock are considered and recommended
for approval to the Board of Directors by the Compensation Committee at its
discretion based both upon each executive's actual contribution to the
company's current performance and her/his expected contribution toward meeting
the company's long-term financial and strategic goals.
CEO Compensation
Mr. Regan joined the company as president, chief executive officer and a
director in November of 1999. In determining his compensation for 2001, 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, the
company's favorable turn-around performance, and the financial condition of the
company. Mr. Regan was paid a base salary of $320,000 for 2001, and was awarded
a $400,000 bonus.
The Compensation Committee
of the Board of Directors:
Francis J. Aguilar
Martin V. Joyce
February 20, 2002
10
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 10-K 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 for the fiscal year
ending December 31, 2002. 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 seven meetings in 2001.
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, 2001 for filing with the Securities and
Exchange Commission.
Fees billed to the company by Arthur Andersen LLP for the year 2001 were as
follows:
. Audit Fees. Arthur Anderson LLP's fee for its audit of the company's
annual financial statements and its review of the company's quarterly
financial statements for 2001 was $234,000.
. Financial Information Systems Design and Implementations. Arthur
Anderson LLP did not bill the company any fees for this type of work in
2001.
. Tax-related services. Arthur Andersen LLP billed the company a total of
$5,150 in 2001 for tax-related other services.
. Audit-related and other fees. Arthur Anderson LLP billed the company in
2001 a total of $17,100 for services traditionally performed by the
auditor, such as accounting consultation, registration statements and
related services. The committee has considered whether the provision of
the services included in this category is compatible with maintaining
Arthur Andersen LLP independence.
11
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
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.
12
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 31, 1996 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:
[CHART]
DYNAMCIS Nasdaq Self
RESEARCH Stock Market Determined
CORPORATION (US Companies) Peer Group
12/31/1996 100.000 100.000 100.000
01/31/1997 95.946 107.094 89.277
02/28/1997 98.649 101.168 73.488
03/31/1997 91.892 94.570 76.226
04/30/1997 98.108 97.518 82.762
05/30/1997 108.514 108.561 85.084
06/30/1997 101.081 111.899 87.086
07/31/1997 107.027 123.689 83.911
08/29/1997 107.027 123.505 86.796
09/30/1997 133.784 130.824 86.557
10/31/1997 139.730 124.008 83.507
11/28/1997 150.135 124.663 80.442
12/31/1997 139.730 122.477 86.152
01/30/1998 139.730 126.359 93.940
02/27/1998 138.243 138.232 100.612
03/31/1998 144.189 143.342 104.048
04/30/1998 165.000 145.766 110.386
05/29/1998 167.676 137.668 102.872
06/30/1998 165.892 147.283 115.156
07/31/1998 149.838 145.558 108.614
08/31/1998 96.324 116.697 95.243
09/30/1998 95.432 132.887 91.005
10/30/1998 82.054 138.725 106.761
11/30/1998 88.297 152.826 111.071
12/31/1998 83.838 172.680 125.881
01/29/1999 83.838 197.743 134.823
02/26/1999 57.973 180.035 129.432
03/31/1999 74.027 193.655 126.784
04/30/1999 77.595 199.893 111.308
05/28/1999 71.351 194.354 127.650
06/30/1999 82.054 211.792 151.745
07/30/1999 62.433 207.974 142.132
08/31/1999 55.297 216.767 132.680
09/30/1999 56.189 217.065 135.765
10/29/1999 57.081 234.464 134.700
11/30/1999 75.811 262.986 153.509
12/31/1999 121.297 320.832 217.275
01/31/2000 111.487 308.986 186.340
02/29/2000 107.027 367.771 167.884
03/31/2000 108.811 360.182 212.190
04/28/2000 114.162 302.948 180.130
05/31/2000 103.460 266.403 164.564
06/30/2000 123.081 313.182 181.486
07/31/2000 114.162 296.205 172.938
08/31/2000 106.135 331.219 164.553
09/29/2000 107.027 288.191 151.948
10/31/2000 119.514 264.523 155.718
11/30/2000 115.946 203.800 162.462
12/29/2000 110.595 192.977 173.551
01/31/2001 120.406 216.384 192.281
02/28/2001 121.297 167.525 199.896
03/30/2001 144.487 144.050 187.674
04/30/2001 128.433 165.540 207.543
05/31/2001 127.576 165.340 231.236
06/29/2001 127.862 169.778 234.375
07/31/2001 156.402 158.978 244.500
08/31/2001 164.822 141.657 235.870
09/28/2001 206.634 117.789 244.520
10/31/2001 234.746 132.900 284.766
11/30/2001 212.627 151.818 310.097
12/31/2001 256.152 153.121 335.969
Legend
CSRP Total Returns Index for: 12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
- ----------------------------- ------- ------- ------- ------- ------- -------
DYNAMICS RESEARCH CORPORATION 100.0 139.7 83.8 121.3 110.6 256.2
Nasdaq Stock Market (US Companies)100.0 122.5 172.7 320.8 193.0 153.1
Self-Determined Peer Group 100.0 86.2 125.9 217.3 173.6 336.0
Companies in the Self-Determinded Peer Group
AFFILIATED COMPUTER SERVICES INC
CACI INTERNATIONAL INC PEC SOLUTIONS INC
TITAN CORP
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 12/31/1996.
13
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, 2002. 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 2003 Annual Meeting of Stockholders
Proposals of stockholders submitted pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934 for consideration at the 2003 Annual Meeting of
Stockholders must be received by the company no later than November 29, 2002 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 2003 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 14, 2003, then the proxies that management solicits for the 2003
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 that 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 15, 2002
14
8888
PROXY
DYNAMICS RESEARCH CORPORATION
Annual Meeting of Stockholders -- April 25, 2002
The undersigned hereby appoints John S. Anderegg, Jr., Richard A. Covel,
and David C. Proctor, 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,
2002 at 2:00 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 25, 2002
Please Detach and Mail in the Envelope Provided
Please mark your
A [X] 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 number
of Directors and [_] [_] Nominees: Kenneth F. Kemes THIS PROXY IS SOLICITED BY THE
Election of the James P. Regan BOARD OF DIRECTORS. EVERY
Class III Directors PROPERLY SIGNED PROXY WILL BE
VOTED AS DIRECTED. UNLESS
To withhold authority to vote for any individual OTHERWISE DIRECTED, PROXIES
nominee, write the nominee's name in the space WILL BE VOTED FOR ITEM 1. IN
provided below. THEIR DISCRETION, THE PROXIES
ARE AUTHORIZED TO VOTE UPON
SUCH OTHER MATTERS AS MAY
- ------------------------------------------------ PROPERLY COME BEFORE THE
MEETING.
Signature _____________________________ Signature _______________________________ Dated ______________, 2002
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.