UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
Filed
by the Registrant
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Filed
by a Party other than the Registrant
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Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to
Section 240.14a-12
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Dynamics
Research Corporation
(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):
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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Title
of each class of securities to which transaction
applies:
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Aggregate
number of securities to which transaction applies:
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3
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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):
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Proposed
maximum aggregate value of transaction:
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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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.
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Amount
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Schedule or Registration Statement No.:
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Explanatory
Note
We are
filing this amended definitive Proxy Statement solely to
correct certain typographical errors in the table disclosing "Stock
Ownership of Directors and Management" on page 24. We have
corrected these errors and no other changes have been made to the Proxy
Statement. These errors will not appear in the version of the Proxy
Statement posted on the Company's website or in any materials mailed to our
stockholders.
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held June 4, 2008
To the
Shareholders:
The
Annual Meeting of the shareholders of Dynamics Research Corporation will be held
at 2:00 p.m. on June 4, 2008 at the offices of Nixon Peabody LLP, 100
Summer Street, Boston, Massachusetts 02110, for the following
purposes:
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1.
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To
elect two Class III Directors to hold office until the 2011 Annual
Meeting of Shareholders.
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2.
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To
consider and act upon such other matters as may properly come before the
meeting.
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Only
shareholders of record at the close of business on April 11, 2008 will be
entitled to receive notice of and to vote at the meeting.
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By
order of the Board of Directors,
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April
22, 2008
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Richard
A. Covel
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Secretary
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IMPORTANT
Whether or not you plan to attend the
meeting in person all shareholders are urged to promptly vote your shares either
via the Internet, or if you have received a copy of the proxy card by mail, by
signing, dating, and mailing the enclosed proxy The enclosed envelope requires
no postage if mailed in the U.S.A. or Canada. Shareholders attending the meeting
may revoke their proxies and personally vote on all matters that are considered.
It is important that your shares be voted.
TABLE OF
CONTENTS
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DYNAMICS RESEARCH CORPORATION
60
Frontage Road
Andover,
Massachusetts 01810
PROXY
STATEMENT
ANNUAL
MEETING OF SHAREHOLDERS
TO
BE HELD JUNE 4, 2008
GENERAL
The
accompanying proxy is solicited by the Board of Directors of Dynamics Research
Corporation (the “Company”) to be voted at the 2008 Annual Meeting of
Shareholders to be held on June 4, 2008.
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 Secretary prior to voting. The authority granted
by an executed proxy may be revoked at any time before it is exercised by filing
with the Secretary of the Company a written revocation or a duly executed proxy
bearing a later date or by voting in person at the Annual Meeting. Proxies will
be voted as specified by the shareholders. If no specification is made, the
proxy will be voted for the election of two Class III Directors to hold
office until the 2011 Annual Meeting of Shareholders.
Shareholders
of record at the close of business on April 11, 2008 are entitled to notice
of and to vote at the Annual Meeting. There were 9,558,759 shares of common
stock, $0.10 par value per share, outstanding as of that date, each
entitled to one vote.
INFORMATION
ABOUT PROXY MATERIALS AND VOTING
Pursuant
to the new rules recently adopted by the Securities and Exchange Commission, the
Company has elected to provide shareholders access to proxy materials over the
Internet. Accordingly, the Company has sent a Notice of Internet Availability of
Proxy Materials (the “Notice”) to shareholders of record and beneficial owners.
All shareholders will have the ability to access the proxy materials on a
website referred to in the Notice or request to receive a printed set of the
proxy materials. Instructions on how to access the proxy materials over the
Internet or to request a printed copy may be found on the Notice. In addition,
shareholders may request to receive proxy materials in printed form by mail on
an ongoing basis.
Shareholders
of record may vote in one of four ways: (i) by internet at www.voteproxy.com,
(ii) by toll-free telephone by following the instructions on the proxy card,
(iii) by completing and mailing your proxy card, or (iv) by written ballot at
the Annual Meeting. A Company representative will give shareholders
of record a ballot when they arrive. Beneficial owners may vote by
following the voting instructions sent by their broker, trustee or
nominee.
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 vote on a particular matter, present in person or represented by
proxy, constitutes a quorum as to such matter. Persons appointed by the Company
to act as election inspectors for the meeting will count votes cast by proxy or
in person at the Annual Meeting.
If a
quorum is present, the affirmative vote of the holders of a plurality of the
votes properly cast for the election of directors at the Annual Meeting is
required to elect the two nominees for election as Class III Directors at
the Annual Meeting.
The
election inspectors will count shares represented by proxies that withhold
authority to vote for this proposal 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 proposal for purposes of determining a quorum. Neither abstentions
nor broker non-votes have any effect on the outcome of voting on the election of
directors.
PROPOSAL 1
ELECTION OF
DIRECTORS
Director Selection Process
The
Company maintains a standing Nominating and Governance Committee, comprised
solely of independent directors who are responsible for identifying individuals
qualified to become Board of Director (“Board”) members and recommending
director nominees to the Board. This Committee periodically reviews the size and
composition of the Board and determines whether it is necessary to add or
replace directors. Nominees for directors are selected based on the criteria set
forth in the Nominating and Governance Committee section under “Board of
Directors and Committees” within this section.
Nominees for Directorship
The Board
is comprised of seven members and is organized 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 elect two Class III Directors for a term of three-years expiring at the
2011 Annual Meeting of Shareholders, or until their respective successors are
elected and qualified. If a nominee should become unavailable, proxies will be
voted for a substitute nominee designated by the Board, unless instructions are
given to the contrary. The Board has no reason to expect that the nominees will
become unavailable to serve.
The
following table sets forth for each nominee and each director whose term
continues after the meeting, his age, a brief description of his principal
occupation and business experience during the last 5 years, certain other
directorships held and how long he has been a director of the Company. Except
for Mr. Regan and Mr. Anderegg, none of the nominees or directors is
employed by the Company.
The
Board recommends a vote “FOR” the election of all nominees as Class III
Directors.
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Director
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Name,
Principal Occupation, Certain Other Directorships and
Age
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Since
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Continuing
as Class I Directors — Terms Expiring in 2009
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General George T. Babbitt, Jr.
(U.S.A.F., retired), 65,
retired from BearingPoint, Inc. in
2008. He was a Managing Director in BearingPoint’s Public
Service Business from 2000 to May 31, 2008. He served in the
United States Air Force from 1965 to 2000
,
most recently as
commander of the Air Force Materiel Command at Wright-Patterson Air Force
Base, Ohio.
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2004
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Lieutenant General Charles P.
McCausland (U.S.A.F., retired), 72,
has been retired from the
United States Air Force since 1992. He served in the United States Air
Force from 1957 to 1992, most recently as Director of the Defense
Logistics Agency. Lt. General McCausland is a member of the advisory board
of the H.H. Franklin Center for Supply Chain Management, Syracuse
University. He is a director and past president of the Ontario County
Chapter of the Association for Retarded Children, which is an affiliate of
NYSARC Inc., and a trustee of the Finger Lakes Community College, both
located in Canandaigua, New York. He is also a director of the Keuka Lake
Association, Hammondsport, New York.
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2003
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Director
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Name,
Principal Occupation, Certain Other Directorships and
Age
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Since
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Continuing
as Class II Directors — Terms Expiring in 2010
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Francis J. Aguilar, 75,
is Professor of Business Administration, Emeritus, Harvard University
Graduate School of Business Administration, and since 1995, Executive
Director of Management Education Alliance, a non-profit organization
dedicated to improving business education for Afro-Americans and Hispanic
Americans. Dr. Aguilar was a director and chairman of the Human
Resources and Compensation Committee of Bowater, Inc. until his retirement
in June 2005 and he is a trustee of Bentley College and Treasurer of the
New Hampshire Music Festival.
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1987
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John S. Anderegg, Jr.,
84,
has been Chairman, Emeritus of the Company since April 2001.
Mr. Anderegg served as Chairman of the Company from 1988 until April
2001.
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1955
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Nickolas Stavropoulos,
49,
became Executive Vice President US Gas Distribution for
National Grid and was elected President, KeySpan Energy Delivery, in June,
2004 and Executive Vice President in April 2002. He previously
served as President of KeySpan Energy New England since April 2002, and
Senior Vice President of sales and marketing in New England since 2000.
Prior to joining KeySpan, Mr. Stavropoulos was Senior Vice President
of marketing and gas resources for Boston Gas Company. Before
joining Boston Gas, he was Executive Vice President and Chief Financial
Officer for Colonial Gas Company. In 1995, Mr. Stavropoulos was
elected Executive Vice President – Finance, Marketing and CFO, and assumed
responsibility for all of Colonial’s financial, marketing, information
technology and customer service functions. Mr. Stavropoulos was
a director of Colonial Gas Company and currently serves on the board for
Enterprise Bank and Trust Company.
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2005
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Nominees
as Class III Directors — Terms Expiring in 2011
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Kenneth F. Kames, 73,
has been retired from The Gillette Company since 1999. He was employed
with The Gillette Company from 1968 to 1999, most recently as Vice
President of New Business Development. Mr. Kames was a director of
LAU Defense Systems, LLC until October 2003 and of Boston Rheology, LLC
until November 2003.
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1997
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James P. Regan, 67,
has
been Chief Executive Officer of the Company since November 1999 and
Chairman since April 2001. Mr. Regan was 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, from 1992 to 1996. Mr. Regan also serves as
a director for the Massachusetts High Tech Council, Massachusetts Defense
Tech Initiative and Oyster Creek Preservation, Inc. and is a trustee at
Merrimack College.
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1999
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Board of Directors and Committees
The Board
has an Audit Committee, a Compensation Committee and a Nominating and Governance
Committee. The Board held six regularly scheduled meetings during 2007. In 2007,
each of the directors attended 100% of the total number of meetings of the Board
except for Mr. Aguilar and Mr. Stavropoulos who each attended 83%.
Audit
Committee
.
The Audit
Committee, comprised solely of independent directors, is responsible for the
oversight of the Company's accounting and financial reporting processes and the
audits of the Company's financial statements. In discharging its duties, the
Audit Committee reviews with the independent registered public accounting firm
and management the financial statements and reports issued by the Company,
reviews the Company’s internal accounting procedures, controls and programs,
reviews any transactions that involve a potential conflict of interest, reviews
the scope of independent audit coverage and the fees charged by the independent
accountants and reviews the independence of such accountants from the Company's
management and the Company. The Audit Committee also is responsible for
selecting and engaging the Company’s independent registered public accounting
firm. The Audit Committee operates under a written charter, which was initially
adopted by the Board on April 25, 2000 and amended by the Board most
recently on July 28, 2004. A copy of the Audit Committee Charter, as
amended, is publicly available on the Company’s website at www.drc.com. The
Company’s Audit Committee consists of three members: Mr. Kames, Chairman,
Lt. General McCausland and Mr. Stavropoulos. The Audit Committee held
nine meetings during 2007 in which Mr. Kames and Mr. Stavropoulos each
attended 88% of the meetings and
Mr. McCausland
attended 100% of the meetings. The Board has determined that each Audit
Committee member has sufficient knowledge in financial and accounting matters to
serve on the Committee. The Board has also designated Mr. Kames and
Mr. Stavropoulos as the “audit committee financial experts,” as defined
under Item 407(d)(5) of Regulation S-K, adopted in accordance with
Section 407 of the Sarbanes-Oxley Act of 2002.
Compensation
Committee
.
The Compensation
Committee is responsible for determining the compensation for the Chief
Executive Officer (“CEO”) and the Company’s other executive officers and for
administering the Company’s various stock option and other incentive plans and
determining distributions and granting awards under such plans at the executive
level. The CEO determines distributions and grants awards under such plans at
the non-executive level. The Compensation Committee operates under a written
charter, which was initially adopted by the Board on December 10, 2002 and
amended on December 10, 2003. A copy of the Compensation Committee Charter,
as amended, is publicly available on the Company’s website at www.drc.com. The
current members of the Compensation Committee are Dr. Aguilar, Chairman,
General Babbitt and Mr. Stavropoulos, all of whom satisfy the independence
requirements of the current listing standards of the Nasdaq Global Market. The
Compensation Committee held three meetings during 2007 in which all committee
members attended 100% of the meetings.
Nominating
and Governance Committee
.
The Nominating
and Governance Committee recommends to the Board nominees for the Board as well
as for the Board committees, reports annually to the Board on succession
planning, leads the Board in its annual review of the Board’s performance and
recommends to the Board on an ongoing basis the corporate governance guidelines
applicable to the Company. The Nominating and Governance Committee was appointed
by the Board and held two meeting in 2007 which all committee members attended.
The Board discussed governance matters at each of its six meetings in 2007. The
Nominating and Governance Committee operates under a written charter, which was
initially adopted by the Board on December 10, 2002 and amended on
December 10, 2003. A copy of the Nominating and Governance Committee
Charter, as amended, is publicly available on the Company’s website at
www.drc.com. The current members of the Nominating and Governance Committee are
Dr. Aguilar, Chairman, Lt. General McCausland and General Babbitt, all of
whom satisfy the independence requirements of the current listing standards of
the Nasdaq Global Market.
The
Nominating and Governance Committee considers and evaluates equally candidates
proposed by shareholders, non-management directors, the CEO, other executive
officers, third-party search firms or other sources and conducts appropriate
inquiries into the backgrounds and qualifications of such candidates. Although
the Nominating and Governance Committee currently identifies candidates
primarily through networking, third-party search firms would be used if
considered necessary. Shareholders may recommend individuals to the Nominating
and Governance Committee for consideration as potential director candidates by
submitting the names and backgrounds of the proposed candidates to
Dr. Aguilar, Chairman of the Nominating and Governance Committee, in care
of Richard A. Covel, Dynamics Research Corporation, 60 Frontage Road, Andover,
Massachusetts 01810-5498. The Nominating and Governance Committee shall consider
such recommendations only if appropriate biographical information and background
material is provided.
To be
recommended by the Nominating and Governance Committee for a position on the
Company’s Board, a candidate must, at a minimum, have high standards of personal
and professional ethics, integrity and values; substantial experience at the
policy making level in business, government, or education; expertise that is
complementary to the experience of other Board members; a willingness and
ability to devote the required amount of time to fulfill diligently the duties
and responsibilities of Board membership; and a desire to represent the balanced
best interests of the shareholders as a whole. In addition, the Nominating and
Governance Committee believes that one or more of the Company’s directors should
have expertise or experience as a military officer or a senior civil service
executive; as a senior corporate manager or operating officer; and as a public
company financial or accounting officer.
Corporate Governance
The Board
has determined that a majority of the Company’s directors are independent. In
determining director independence, the Board broadly considers all relevant
facts and circumstances, including the rules of the Nasdaq Global Market. The
Board considers the issue not merely from the standpoint of a director, but also
from that of persons or organizations with which the director has an
affiliation. An independent director is free of any relationship with the
Company or its management that may impair the director’s ability to make
independent
judgments.
Particular attention is paid to whether a director is independent from
management and to any financial relationships that may exist with a director or
a related interest.
The
following directors have been determined by the Board to be independent after
applying the guidelines set forth above: Dr. Aguilar, General Babbitt,
Mr. Kames, Lt. General McCausland, and Mr. Stavropoulos. Each member
of the Compensation Committee, the Governance and Nominating Committee, and the
Audit Committee is independent. There are no family relationships between any
director, executive officer, or person nominated or chosen by the Company to
become a director or executive officer.
Shareholder Communications with Directors
Shareholders
of the Company may communicate in writing directly with the Board by submitting
to Richard A. Covel, Dynamics Research Corporation, 60 Frontage Road, Andover,
Massachusetts 01810, any such communications. Mr. Covel is primarily
responsible for monitoring the communications and providing summaries or copies
of such communications to the full Board as he deems appropriate. In general,
communications relating to corporate governance and long-term corporate strategy
will be submitted to the full Board, and communications relating to ordinary
business affairs, personal grievances and the like may be dealt with by
Mr. Covel.
Director Compensation
The table
below provides information concerning the compensation of the directors for the
Company's most recently completed fiscal year. Except as noted below, all of the
Company's directors are paid at the same rate. The differences among directors
in the table below are a function of additional compensation for chairing a
committee. In accordance with Securities and Exchange Commission (“SEC”)
regulations, grants of restricted stock are valued at the grant date fair value
computed in accordance with Statement of Financial Accounting Standards
No. 123 (Revised), “
Share-Based Payment
”
(“SFAS 123(R)”). For stock options, the SFAS 123(R) fair value per
share is based on certain assumptions. For both restricted stock and
stock options we disclose such expense ratably over the vesting period but
without reduction for assumed forfeitures (as we do for financial reporting
purposes). We include in the table below the ratable portion of grants made both
in 2007 and in prior years to the extent the vesting period for those grants
fell in such year.
Each
non-employee director received an annual retainer of $27,500 in 2007. The
Chairman of each of the Audit Committee, Compensation Committee and Nominating
and Governance Committee also received an additional retainer of $10,000, $5,000
and $2,500, respectively. In addition, directors are paid a fee of $1,500 for
each day the full Board meets in excess of each year’s five regularly scheduled
meetings. Non-employee directors serving on the Board in May 2007
also received a grant of 2,400 restricted stock awards, which vest in equal
installments over a three-year period from the grant anniversary date. The
Company's non-employee directors do not participate in the non-equity incentive
compensation plans or retirement plans of the Company.
Non-employee
directors may elect to defer all or a portion of their fees payable to them
under the Company’s Deferred Compensation Plan for Non-Employee Directors.
Participants may also elect to receive their deferred balance in the form of
cash or restricted stock after they cease to be a director. Amounts
deferred are maintained in a separate account and for participants who elect a
cash payment, interest is credited to such account quarterly at the lowest rate
at which the Company borrowed money during each quarter or, if there was no such
borrowing, at the prime rate. 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 and General Babbitt have each elected to defer all of their compensation
for 2007, and both of them have elected to receive their deferred compensation
in the form of stock. General Babbitt elected to have the deferred
amounts distributed in five annual installments after he ceases to be a
director of the Company. Dr. Aguilar elected to have the deferred
amounts distributed in a single payment after he ceases to be a director of the
Company.
2007 Director
Compensation
Name
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Fees Earned or Paid in
Cash
(2)
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Stock
Awards
(3)
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Option Awards
(4)
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Non-Equity Incentive Plan
Compensation
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Change in Pension Value and Nonqualified Deferred
Compensation Earnings
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All Other Compensation
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Total
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Francis
J. Aguilar
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$
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35,000
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$
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34,911
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$
|
-
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$
|
-
|
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$
|
-
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$
|
-
|
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$
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69,911
|
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John
S. Anderegg, Jr
.
(1)
|
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$
|
-
|
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$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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$
|
114,521
|
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$
|
114,521
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General
George T. Babbitt, Jr.
|
|
$
|
27,500
|
|
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$
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29,660
|
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$
|
14,588
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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$
|
71,748
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|
Kenneth
F. Kames
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$
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37,500
|
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$
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34,911
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|
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$
|
-
|
|
|
$
|
-
|
|
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$
|
-
|
|
|
$
|
-
|
|
|
$
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72,411
|
|
Lieutenant
General Charles P. McCausland
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|
$
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27,500
|
|
|
$
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34,911
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,411
|
|
Nickolas
Stavropoulos
|
|
$
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27,500
|
|
|
$
|
29,660
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
57,160
|
|
(1)
|
|
Mr.
Anderegg is an employee of the Company and therefore does not receive any
fees related to his directorship on the Board. All other
compensation for Mr. Anderegg consists of a base salary of $97,500, 401(k)
contributions of $3,900 and executive medical and dental insurance
premiums of $13,121. Mr. Anderegg is also a participant in the Company’s
defined benefit pension plan. The decrease in the present value
of his benefit in that plan during 2007 was $30,742, primarily due to
benefit payments of $58,067 that Mr. Anderegg received during the
year. The present value of pension plan benefits was determined
using interest rate mortality and retirement assumptions consistent with
those used in the Company's financial statements.
|
|
|
|
(2)
|
|
Amounts
relate to fees earned and paid to Mr. Kames, Lt. General McCausland and
Mr. Stavropoulos and amounts earned by Mr. Aguilar and General Babbitt but
deferred and payable in the form of stock after they cease to become
directors of the Company.
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|
|
|
(3)
|
|
Amounts
relate to ratable portion of the value of grants made in 2007 and prior
years, calculated in accordance with SFAS 123(R), to the extent the
vesting period fell in 2007. Please refer to footnote 2 to the Company's
financial statements for a discussion related to the calculation of such
value.
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|
|
|
|
|
As
of December 31, 2007, the aggregate number of unvested restricted
stock awards held by each director was as follows: Dr. Aguilar, 4,800
shares; Mr. Anderegg, 0 shares; General Babbitt, 4,800 shares;
Mr. Kames, 4,800 shares; Lt. General McCausland, 4,800 shares;
Mr. Stavropoulos, 4,800 shares.
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(4)
|
|
For
General Babbitt this amount represents that portion of a grant made in
2004 that vested during 2007.
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|
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|
|
|
As
of December 31, 2007, the aggregate number of exercisable options
held by each director was as follows: Dr. Aguilar, 16,414 options;
Mr. Anderegg, 0 options; General Babbitt, 5,000 options; Mr. Kames,
18,200 options; Lt. General McCausland, 5,000 options;
Mr. Stavropoulos, 0 options.
|
EXECUTIVE
COMPENSATION
Unless
the context requires otherwise, in this Executive Compensation section,
including the Compensation Discussion and Analysis and the tables which follow
it, references to “we,” “us,” “our” or similar terms are to Dynamics Research
Corporation and our subsidiaries.
Executive Officers
Executive
officers are elected by the Board and will hold office until the next annual
election of officers and their successors are elected and qualified, or until
their earlier resignation or removal by the Board. Executive officers and their
principal positions currently held with us are provided in the “Summary
Compensation Table.” Please refer to our Annual Report on Form 10-K under
Item 4, “Submission of Matters to a Vote of Security Holders” for a listing
of all positions and offices held by each executive officer during the past five
years.
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
We
provide a total compensation package that supports the accomplishment of our
objectives and of our customers by supporting the following goals:
|
·
|
attraction
of a high quality workforce
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|
·
|
retention
of that workforce over time
|
|
·
|
motivation
of that workforce to achieve high levels of
performance
|
The
underlying foundation of our compensation system is to pay for performance at
all levels (i.e., individual, business segment, and
corporate-wide). Our programs are designed to align incentives with
the most appropriate segments of the business that the executive’s performance
can impact. In addition, the compensation system encourages and
supports the professional and technological skills development and career growth
of employees while balancing the individual’s goals and our goals.
Compensation
Objectives
|
1.
|
Our
total compensation systems and programs reinforce and support our values
and culture related to dedication, respect and continuous
improvement.
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|
2.
|
Consistent
with a pay-for-performance orientation, we ensure effective
differentiation of pay, rewards, and recognition based on demonstrated
performance and overall contribution to the success of our
business.
|
|
·
|
Performance
evaluation at all levels considers both the results achieved (i.e.,
what
was accomplished) as well as the methods and behaviors used to achieve the
results (i.e.,
how
they were achieved). This second segment evaluates the extent
to which the results were achieved using methods, values, and team
building behaviors that are consistent with our culture and
values.
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|
·
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We
maintain a disciplined approach to performance measurement that is applied
to the lowest level position up through the highest level
executive.
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|
·
|
Each
year we accomplish our goal of having all employees including highest
level managers receive an annual performance review. This
review is used along with other factors to make compensation decisions for
each employee.
|
|
3.
|
All
elements of our direct compensation system (i.e., base salary, short-term
variable, long-term variable and the policies and practices supporting the
programs) are targeted at median competitive market levels for appropriate
industry competitor groups in which we compete for our
workforce.
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|
·
|
Through
the use of both short-term and long-term variable compensation
alternatives, we will deliver upper quartile total compensation levels if
superior Company and individual performances are exhibited. All variable
compensation programs for executive management positions have established
threshold levels of performance and payout schedules governing the level
of payouts for different levels of performance against
goals.
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|
·
|
While
on an overall basis, base salaries and total compensation levels are
generally targeted at competitive or median market rates, the actual rates
for individuals may vary in relation to these rates based on the
particular skill sets of an individual, the strategic and critical nature
of a position to our business, and business
affordability.
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|
·
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Variable
pay, where applicable, will fluctuate based on quantitative assessments of
corporate, business unit, and individual performance and will encourage
employees to act as stakeholders in achieving key business
results.
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4.
|
We
offer a diversified array of benefits, covering health and welfare and
retirement savings programs that matches competitive practice for our
industry.
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5.
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We
provide ongoing training of supervisors in the best practices and
techniques for measuring and evaluating performance. Managers will be held
accountable for effective performance management, employee development,
and the creation of a rewarding work
environment.
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6.
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We
use a job evaluation system that appropriately balances internal ranking
and external competitiveness, is simple to administer, and is easy to
understand.
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7.
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We
continuously define, acknowledge and reward an individual’s acquisition of
the professional and technical skills that are important to our
success.
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8.
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We
are committed to openly communicating with all employees about our total
compensation strategy, systems, and programs, and make a wide array of
information available through our intranet site, ongoing training
programs, and focused training used each year to deliver
programs.
|
It is a
strong cultural norm of ours that the same compensation philosophy, policies,
and practices are applied to all. While there are differences in
programs for different employee groups, the differences are only created where
competitive differences exist externally, and are required to be sure that the
competitiveness of programs are maintained at all levels.
Purpose
& Strategic Fit of Executive Compensation Programs
The
following table provides a summary of the primary purpose and strategic fit of
each of the programs available to our executives. These purposes are
key considerations for any changes being proposed to programs or in the
consideration of adding additional programs. More detail for each of
these programs are provided in the descriptions following this
chart.
Program
Element
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Attraction
of New Executives
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Retention
of Executives
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Motivating
Individual
Performance
|
|
Motivation
Group/Unit
Performance
|
|
Motivating
Corporate
Performance
|
Base
Salary
|
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ü
|
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ü
|
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ü
|
|
ü
|
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Annual
Cash Incentive Award
(Executive
Incentive Plan)
|
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ü
|
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ü
|
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ü
|
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ü
|
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ü
|
2001
Executive Long-Term Incentive Plan
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|
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ü
|
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ü
|
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ü
|
|
ü
|
Executive Long-Term Incentive
Plan
(2007
and Future Periods)
|
|
ü
|
|
ü
|
|
ü
|
|
ü
|
|
ü
|
Restricted
Stock Awards
(2000
Incentive Plan)
|
|
ü
|
|
ü
|
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ü
|
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ü
|
|
ü
|
Defined
Benefit Pension Plan
|
|
|
|
ü
|
|
|
|
|
|
|
Senior
Management Deferred Compensation Plan
|
|
ü
|
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ü
|
|
|
|
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Employment
Contracts and Change of Control Agreements
|
|
ü
|
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ü
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Perquisites
and Other Benefits
|
|
ü
|
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ü
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Base
Salary
We
provide an ongoing base salary with consideration for annual salary increases
based on performance of the executive over the past year. A
competitive analysis of base salaries and total cash compensation payouts is
developed using published cross-industry surveys for companies comparable in
size to the Company.
A
performance evaluation is completed for each named executive by the Chairman and
CEO. This evaluation covers their specific operational goals and
objectives as well as their performance against key company
management
behaviors and values. Based
on this evaluation, recommendations are developed and presented to the
Compensation Committee for review and consideration for
approval. These recommendations are subject to approval by the
Board. The salary increases granted in February 2007 for the named
executive officers averaged 3.97%. This was down from the increases
granted in February 2006 which averaged 4.54%.
Annual
Cash Incentive Award (Executive Incentive Plan)
This
annual award plan design is typical of annual award plans used throughout the
industry, and is designed to provide an annual incentive to maximize performance
over the current fiscal year. Each year the Board approves a target
award percentage for each executive based on competitive analysis as mentioned
above. This award target is communicated to the executive along with the agreed
upon goals for the year that are used to generate payout. For 2007,
the goals used were revenue growth (45% of total), net performance income (45%
of total) and days sales outstanding (10% of total). Mr. Regan’s
consideration is based 100% on company-wide performance against these three
operations objectives. For executives of the corporate functions,
their consideration was based 75% on company-wide performance against the three
operations objectives and 25% on their performance against each of their
functional financial budgets for the year. In addition, personal
performance against individual objectives is part of the consideration in the
recommendation.
As part
of the same process mentioned above for determining salary increases, the
Chairman and CEO makes recommendations to the Compensation Committee each year
for payout of individual awards based on our operating performance and that of
each individual named executive against their goals. Upon approval by
the Compensation Committee, these recommendations are then presented to the
Board for review and consideration for approval. The Compensation
Committee and the Board also have the responsibility for reviewing and approving
any adjustments to goals or exceptions to the plan that may be recommended by
the Chairman and CEO to respond to competitive or key executive retention
issues. Based on the performance results achieved in 2007, awards
granted to the named executive officers for 2007 performance averaged 33.1% of
base salary which was 81.3% of their original target on average. Due
to improved performance, this was up from the prior year’s awards which averaged
19% of base salary, less than half of their average original target award
percentage for the year. The awards approved by the Compensation Committee and
the Board reflect our consideration of Company and individual performance
against goals, as described above, during the year.
2001
Executive Long-Term Incentive Plan
The 2001
Executive Long-Term Incentive Plan (“ELTIP”) is a one-time long-term incentive
plan approved by the Compensation Committee and Board in 2001. The
purpose of the plan is both long-term performance incentive and
retention. Messrs. Regan, Keleher, Covel, and O’Brien are
participants in the plan. The plan awards include both restricted
share awards and incentive stock options. Performance goals were
established over the term of the plan. The plan provides for 100%
vesting after seven years with the opportunity for acceleration of vesting if
performance targets are achieved prior to the end of the
term. Vesting for this plan will occur in May of 2008.
Long-Term
Incentive Plan (2007 and Future Periods)
Long-term
incentive cash awards were offered for the first time beginning in April
2007. A peer group competitive sizing was completed to benchmark
competitive total long-term incentive opportunity and establish target
opportunities for our executives. The companies used in that peer
group comparison were: CACI International, Inc., ManTech International Corp.,
Maximus, Inc., MTC Technologies, Inc., NCI, Inc., SI International, Inc., SRA
International, Inc., TechTeam Global, Inc. and Tyler Technologies, Inc.
Restricted stock awards are used to fill a portion of that competitive sizing,
as mentioned above, and to address retention as well as incentive performance
objectives. The remaining portions (currently estimated to be
approximately 75% of the total award opportunity) will be provided through
long-term cash incentives. This opportunity will generally have a
three-year performance period with performance based on achievement of specified
corporate performance goals over the three-year period. For one time
only, the 2007 grant provided for 50% after the first two years and 50% at the
end of the third year, provided performance goals for the plan are
achieved. This one-time adjustment was done to assure a smooth
transition from the previous one-time long-term incentive plan that will vest in
2008.
Under
this plan, performance goals will be reviewed annually, and adjusted as required
for the grant for that year based on updated Company goals. For the
2007 grant, organic revenue growth and return on invested capital
were
selected as the measures of performance. The 2008 grant was awarded with a
three-year performance period using the same performance goals as prior
year. The 2008 grant opportunity for the named executives averaged
47.4% of base pay (25% to be delivered using restricted share awards and 75% to
be delivered as cash) which is unchanged from the 2007
opportunity. Recommendations for future awards will be submitted
annually by the Chairman and CEO for consideration and approval by the
Compensation Committee and the Board. When the performance period is
completed, the Compensation Committee and the Board will certify the level of
performance against the goals and will approve appropriate payments to
executives. The Compensation Committee and the Board will also have
approval responsibilities of any plan changes due to administrative or
non-recurring business transactions that may change performance goals based on
recommendations by the Chairman and CEO.
Restricted
Stock Awards (2000 Incentive Plan)
This
program is designed to reward long-term performance at all levels and to provide
retention value to the executive. Each year grants are made to
executives to fill a portion of the competitive target for total long-term
incentive compensation as determined in a peer competitive
analysis.
In 2005,
stock ownership guidelines were approved by the Board for the senior executive
group. As a result, Mr. Regan is required to maintain a level of
equity ownership with us equal to at least three times the midpoint of his base
salary range. Mr. Keleher is required to maintain a level of equity
ownership with us equal to at least one and one-half times the midpoint of his
base salary range. The other named executive officers have an additional
one-year holding restriction after vesting prior to being able to exercise
vested shares. These awards generally vest ratably over three
years. Recommendations for these grants are proposed by the Chairman
and CEO to the Compensation Committee for review and consideration for
approval. The grants are then presented to the Board for
consideration and approval. The remaining portion of long-term
incentives is provided in a long-term cash incentive opportunity as described
above.
Defined
Benefit Pension Plan
We
currently maintain a defined benefit pension plan that has undergone significant
changes in recent years. In February 2002, the Board approved
specific retirement program changes that limited future increases in benefits
and froze the plan to new participants. These changes became
effective July 1, 2002. Then in October 2006, the Board approved a
total freeze in benefits effective as of January 1, 2007. Currently
Messrs. Regan, Keleher, O’Brien and Covel are participants in this
plan.
Senior
Management Deferred Compensation Plan
This is a
voluntary, deferred compensation plan in which executives may elect to defer a
portion of their base salary and all or a portion of their annual cash bonus
until a specified event or date. We do not make contributions to this
plan. Therefore all gains are purely a function of funds that have
been deferred and the investment performance on these funds. Election
periods are established according to statutory deadlines governing these
plans.
Employment
Contracts and Change of Control Agreements
We have
an employment agreement with Mr. Regan providing for his full-time
employment as president, CEO and a director. Mr. Regan is eligible for an
annual incentive award of up to 75% of his base salary. The agreement precludes
Mr. Regan from competing with us 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 us other than for cause
or by Mr. Regan with good reason (unless he is covered by the change of
control agreement described below), we will continue to pay Mr. Regan’s
base salary and to provide his health and life insurance for twelve
months. Mr. Regan would be entitled to receive the portion of his
earned prorated annual incentive award and all of his unvested stock grants and
options would vest and remain exercisable for one year.
Our
change of control agreement with Mr. Regan provides him with benefits if
his employment with us is terminated, other than for cause or his disability or
death, or if he resigns for good reason within two years of any change of
control agreement we enter into. Upon such a termination, (i) we 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 unvested restricted stock grants, stock options or other awards
will immediately vest and remain exercisable for the lesser of four years or
their original term; and (iii) we will continue to insure Mr. Regan
and his dependents in our 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 we provide under the agreement
is subject to an excise tax under Section 4999 of the Internal Revenue Code
of 1986, as amended (the “Code”), we will provide Mr. Regan with a payment
to cover such tax.
Pursuant
to the Company’s Special Severance Plan, Messrs. Keleher, Wentzell and
Covel would each be provided with benefits if their employment with us 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 agreement we
enter into. Upon such a termination, (i) we will pay Mr. Keleher
eighteen months, and Messrs. Wentzell and Covel 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 control, whichever is higher; and (ii) we will continue to
provide our 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 Special Severance Plan agreements terminate
on January 1, 2009 or on the second anniversary of a change of
control.
Perquisites
and Other Benefits
In
addition to the compensation and benefits programs described above, named
executive officers receive certain limited perquisites and other
benefits. These include Company paid benefits for an executive
medical and dental insurance plans, a supplemental executive medical insurance
plan, and 401(k) contributions and, only in the case of Mr. Regan, use of a
Company vehicle, club membership dues and executive life insurance plan
premiums. These perquisites and other benefits are provided to assure
competitiveness and provide additional retention incentive for these named
executives. The costs associated with providing these additional
benefits are reflected in the “All Other Compensation” column of the Summary
Compensation Table.
Tax Deductibility of Executive
Compensation
Section 162(m)
of Code imposes limitations on the federal income tax deductibility of
compensation paid to our CEO and to each of our other four most highly
compensated executive officers. Under these limitations, we may deduct such
compensation only to the extent that during any fiscal year the compensation
does not exceed $1,000,000 or meets certain specified conditions (such as
certain performance-based compensation that has been approved by our
shareholders). Based on our current compensation plans and policies and proposed
regulations interpreting the Code, we and the Compensation Committee believe
that, for the near future, there is not a significant risk that we will lose any
significant tax deduction for executive compensation. Our compensation plans and
policies will be modified to ensure full deductibility of executive compensation
if we and the Compensation Committee determine that such an action is in our
best interest.
In
summary, we believe this mix of salary, potentially significant variable cash
incentives for both short-term and long-term performance, and the potential for
equity ownership in the Company motivates our management team to produce strong
returns for shareholders. We further believe this program strikes an appropriate
balance between the interests and needs of the Company in operating our business
and appropriate employee rewards based on shareholder value
creation.
Report of Compensation Committee
The
Compensation Committee has reviewed the Compensation Discussion and Analysis and
discussed that analysis with management. Based on its review and discussions
with management, the committee recommended to the Board that the Compensation
Discussion and Analysis be included in our Form 10-K for 2007 and our 2008 proxy
statement. This report is provided by the following independent directors, who
comprise the committee:
|
The
Compensation Committee of the Board of Directors
|
|
|
|
Francis
J. Aguilar, Chairman
|
|
George
T. Babbitt
|
|
Nickolas
Stavropoulos
|
Summary of Executive Compensation
The
following sections provide a summary of cash and certain other amounts we paid
for the year ended December 31, 2007 to the named executive officers.
Except where noted, the information in the Summary Compensation Table generally
pertains to compensation to the named executive officers for the year ended
December 31, 2007. The compensation we disclose below is presented in
accordance with SEC regulations. According to those regulations we are required
in some cases to include:
|
•
|
amounts
paid in previous years;
|
|
|
|
|
•
|
amounts
that may be paid in future years, including amounts that will be paid only
upon the occurrence of certain events, such as a change in
control;
|
|
|
|
|
•
|
an
assumed value for share-based compensation equal to the fair value of the
grant as presumed under accounting regulations Such value
presumes the option will not be forfeited or exercised before the end of
its 10-year life, and the actual realization of cash from the award will
depends upon whether our stock price appreciates above its price on the
date of grant, whether the executive will continue his employment with us,
and when the executive chooses to exercise the
option; and
|
|
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|
|
•
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the
increase in present value of future pension payments. Such
increase is not cash compensation paid this year and the actual pension
benefits will depend upon several factors, including when the executive
retires, his compensation at retirement, and in some cases the number of
years the executive lives following his
retirement.
|
Therefore,
we encourage you to read the following tables closely. The narratives preceding
the tables and the footnotes accompanying each table are important parts of each
table. Also, we encourage you to read this section in conjunction with the
Compensation Discussion and Analysis.
Summary Compensation
The
following provides information concerning the compensation of the named
executive officers for our most recently completed fiscal year for the table
illustrated on the following page.
In the
column “Salary”, we disclose the amount of base salary earned by the named
executive officer during the fiscal year.
In the
columns “Stock Awards” and “Option Awards,” SEC regulations require us to
disclose the award of stock or options measured in dollars and calculated in
accordance with SFAS 123(R). For restricted stock, the SFAS 123(R)
fair value per share is equal to the closing price of our stock on the date of
grant. For stock options, the SFAS 123(R) fair value per share is based on
certain assumptions. For both restricted stock and stock options we disclose
such expense ratably over the vesting period but without reduction for assumed
forfeitures (as we do for financial reporting purposes). The amounts shown in
the Summary Compensation Table also include a ratable
portion
of each grant we made in prior years to the extent the vesting period fell in
each applicable fiscal year. Please also refer to the second table in this Proxy
Statement, “Grants of Plan-Based Awards.”
The
“Stock Awards” column includes expense attributable to restricted stock awards
granted in each applicable fiscal year and in prior years. Restricted stock
awards generally vest ratably over three years, with the exception of awards
granted under the ELTIP which cliff-vest at seven years. Awards are conditioned
on the participant’s continued employment with the Company.
We made
no grants of stock option awards to the named executive officers in 2007 or
2006. Therefore, the “Option Award” column discloses only a portion of the
expense attributable to stock options granted in prior years. Stock option
awards generally vest ratably over three years, with the exception of awards
granted under the ELTIP which cliff-vest at seven years. Awards are conditioned
on the participant’s continued employment with the Company.
In the
column “Non-Equity Incentive Plan Compensation,” we disclose the dollar value of
all earnings for services performed during each applicable fiscal year pursuant
to awards under our Executive Incentive Plan.
In the
column “Change in Pension Value and Nonqualified Deferred Compensation
Earnings,” we disclose the sum of the dollar value of the aggregate change in
the actuarial present value of the named executive officer’s accumulated benefit
under our defined benefit pension plan in each applicable fiscal year. There
were no above-market or preferential earnings, as defined by the SEC, on
nonqualified deferred compensation otherwise this amount would be included in
this column.
In the
column “All other compensation,” we disclose the sum of the dollar value
of:
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•
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perquisites
and other personal benefits, or property;
|
|
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|
|
•
|
any
life or medical insurance premiums we paid during the year for the benefit
of a named executive officer; and
|
|
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|
|
•
|
our
contributions to the defined contribution
plan.
|
Summary
Compensation
|
|
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Change
in
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Pension
Value
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and
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Nonqualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive
Plan
|
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Compensation
|
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All
Other
|
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Name and Principal
Position
|
|
Year
|
|
Salary
|
|
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Awards
(1)
|
|
|
Awards
(2)
|
|
|
Compensation
(3)
|
|
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Earnings
(4)
|
|
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Compensation
(5)
|
|
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Total
|
|
James
P. Regan
|
|
2007
|
|
$
|
460,000
|
|
|
$
|
162,238
|
|
|
$
|
233,703
|
|
|
$
|
230,000
|
|
|
$
|
7,303
|
|
|
$
|
40,941
|
|
|
$
|
1,134,185
|
|
President,
Chairman and
|
|
2006
|
|
|
441,667
|
|
|
|
187,320
|
|
|
|
223,704
|
|
|
|
113,650
|
|
|
|
2,926
|
|
|
|
37,825
|
|
|
|
1,007,092
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Keleher
|
|
2007
|
|
$
|
269,900
|
|
|
$
|
71,873
|
|
|
$
|
59,654
|
|
|
$
|
95,308
|
|
|
$
|
-
|
|
|
$
|
26,070
|
|
|
$
|
522,805
|
|
Senior
Vice President and
|
|
2006
|
|
|
261,408
|
|
|
|
88,416
|
|
|
|
59,655
|
|
|
|
43,000
|
|
|
|
4,898
|
|
|
|
26,203
|
|
|
|
483,580
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
H. O'Brien
|
|
2007
|
|
$
|
201,322
|
|
|
$
|
27,141
|
|
|
$
|
44,741
|
|
|
$
|
69,422
|
|
|
$
|
-
|
|
|
$
|
22,372
|
|
|
$
|
364,998
|
|
Senior
Vice President and
|
|
2006
|
|
|
192,934
|
|
|
|
32,387
|
|
|
|
44,741
|
|
|
|
40,000
|
|
|
|
32,351
|
|
|
|
23,334
|
|
|
|
365,747
|
|
General
Manager,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Solutions and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
P. Wentzell
|
|
2007
|
|
$
|
201,646
|
|
|
$
|
35,599
|
|
|
$
|
68,435
|
|
|
$
|
56,899
|
|
|
$
|
-
|
|
|
$
|
20,954
|
|
|
$
|
383,533
|
|
Senior
Vice President and
|
|
2006
|
|
|
193,125
|
|
|
|
33,150
|
|
|
|
87,645
|
|
|
|
37,000
|
|
|
|
-
|
|
|
|
21,155
|
|
|
|
372,075
|
|
General
Manager,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Human
Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Covel
|
|
2007
|
|
$
|
214,785
|
|
|
$
|
33,045
|
|
|
$
|
49,712
|
|
|
$
|
40,341
|
|
|
$
|
-
|
|
|
$
|
20,956
|
|
|
$
|
358,839
|
|
Vice
President, General
|
|
2006
|
|
|
206,366
|
|
|
|
34,188
|
|
|
|
49,712
|
|
|
|
27,000
|
|
|
|
3,316
|
|
|
|
21,360
|
|
|
|
341,942
|
|
Counsel
and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For
Messrs. Regan, Keleher, O’Brien and Covel, includes amounts for
grants made in 2001 as part of the ELTIP that continued to vest during
2007, as well as other grants made in 2004 through 2007 that vested or
continued to vest during 2007. For Mr. Wentzell, includes amounts for
grants made in 2004 through 2007 that continued to vest during
2007.
|
|
|
|
(2)
|
|
For
Messrs. Regan, Keleher, O’Brien and Covel, this is for a grant made
in 2001 as part of the ELTIP that continued to vest during 2007. For
Mr. Wentzell, this is for a grant made in 2004 that continued to vest
during 2007. Please refer to footnotes 2 and 9 of our financial
statements for a discussion of assumptions used for the calculation of the
grant values.
|
|
|
|
(3)
|
|
Represents
Executive Incentive Plan payouts for the performance period ending in 2007
that were paid in the first quarter of 2008.
|
|
|
|
(4)
|
|
Amounts
reflect the actuarial change in the present value under our qualified
pension plan, determined using interest rate, mortality, and retirement
assumptions consistent with those used in our financial statements. There
were no above-market or preferential earnings on nonqualified deferred
compensation during 2007. For Mr. Regan, the increase in
present value is primarily due to a benefit adjustment for employees who
work beyond age 65. Messrs. Keleher, O’Brien and Covel,
experienced a decrease in present value of $682, $5,621, and $138,
repectively, due to the change in the interest rate used to determine the
financial statement liabilities of our pension plan.
|
|
|
|
(5)
|
|
The
amount shown as “all other compensation” includes the following
perquisites and personal benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
and
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
Executive
Life
|
|
|
401
(k)
|
|
|
Dental
|
|
|
Total
Other
|
|
Name
of Executive
|
|
Year
|
|
Vehicle
|
|
|
Membership
|
|
|
Insurance
|
|
|
Contributions
|
|
|
Insurance
|
|
|
Compensation
|
|
James
P. Regan
|
|
2007
|
|
$
|
7,649
|
|
|
$
|
4,615
|
|
|
$
|
6,598
|
|
|
$
|
8,958
|
|
|
$
|
13,121
|
|
|
$
|
40,941
|
|
|
|
2006
|
|
|
7,492
|
|
|
|
4,920
|
|
|
|
3,002
|
|
|
|
9,801
|
|
|
|
12,610
|
|
|
|
37,825
|
|
David
Keleher
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,000
|
|
|
$
|
17,070
|
|
|
$
|
26,070
|
|
|
|
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,900
|
|
|
|
16,303
|
|
|
|
26,203
|
|
Lawrence
H. O'Brien
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,302
|
|
|
$
|
17,070
|
|
|
$
|
22,372
|
|
|
|
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,031
|
|
|
|
16,303
|
|
|
|
23,334
|
|
Steven
P. Wentzell
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,833
|
|
|
$
|
13,121
|
|
|
$
|
20,954
|
|
|
|
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,545
|
|
|
|
12,610
|
|
|
|
21,155
|
|
Richard
A. Covel
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,835
|
|
|
$
|
13,121
|
|
|
$
|
20,956
|
|
|
|
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,750
|
|
|
|
12,610
|
|
|
|
21,360
|
|
Grants of Plan-Based Awards
In this
table, we provide information concerning each grant of an award made to a named
executive officer in the most recently completed fiscal year. This includes
non-equity incentive plan awards granted under the Executive Incentive Plan and
restricted stock awards made under the 2000 Incentive Plan. The threshold,
target and maximum columns reflect the range of estimated payouts under the
Executive Incentive Plan. Restricted stock awards granted to the named executive
officer in 2007 were fixed, so the number of awards granted is disclosed in the
“target” column under the equity incentive plan awards section. During 2007, we
did not issue any stock option awards and therefore any related columns related
to stock option information have been eliminated.
2007
Grants of Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
|
|
|
|
|
Estimated
Future Payouts Under Non-Equity
|
|
|
Estimated
Future Payouts Under Equity
|
|
|
and
|
|
|
|
|
|
|
|
Incentive
Plan Awards
|
|
|
Incentive Plan
Awards
|
|
|
Option
|
|
Name of
Executive
|
|
Award
Type
|
|
Grant
Date
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
Awards
|
|
James
P. Regan
|
|
EIP
(1)
|
|
|
|
$
|
104,175
|
|
|
$
|
347,250
|
|
|
$
|
694,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
2/27/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
$
|
10.18
|
|
David
Keleher
|
|
EIP
(1)
|
|
|
|
$
|
32,556
|
|
|
$
|
108,521
|
|
|
$
|
217,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
2/27/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
-
|
|
|
$
|
10.18
|
|
Lawrence
O'Brien
|
|
EIP
(1)
|
|
|
|
$
|
21,285
|
|
|
$
|
70,950
|
|
|
$
|
141,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
2/27/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
|
$
|
10.18
|
|
Steven
P. Wentzell
|
|
EIP
(1)
|
|
|
|
$
|
21,319
|
|
|
$
|
71,064
|
|
|
$
|
142,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
2/27/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
|
$
|
10.18
|
|
Richard
A. Covel
|
|
EIP
(1)
|
|
|
|
$
|
16,213
|
|
|
$
|
54,043
|
|
|
$
|
108,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
2/27/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
|
$
|
10.18
|
|
(1)
|
|
EIP
information relates to Executive Incentive Plan awards that could have
been earned in 2007, which were paid during the first quarter of 2008 as
described and quantified in the “Summary Compensation
Table.”
|
|
|
(2)
|
|
RSA
information relates to the restricted stock awards made in 2007 under the
2000 Incentive Plan. These awards were fixed and therefore do not provide
for a threshold or maximum amount.
|
Option Exercises and Stock Vested
The
following table provides information, for the named executives, on the number of
shares acquired upon the vesting of restricted stock awards and the value
realized before payment of any applicable withholding tax and broker
commissions. During 2007, none of the named executives exercised vested stock
options and therefore columns related to stock option information have been
eliminated.
2007
Option Exercises and Stock Vested
|
|
Stock
Awards
|
|
Name
of Executive
|
|
Number of Shares
Acquired on Vesting
(#)
|
|
|
Value Realized Upon
Vesting
($)
(1)
|
|
James
P. Regan
|
|
|
10,000
|
|
|
$
|
103,850
|
|
David
Keleher
|
|
|
4,333
|
|
|
$
|
44,983
|
|
Lawrence
O'Brien
|
|
|
1,500
|
|
|
$
|
15,580
|
|
Steven
P. Wentzell
|
|
|
2,333
|
|
|
$
|
25,885
|
|
Richard
A. Covel
|
|
|
1,433
|
|
|
$
|
15,340
|
|
(1)
|
|
We
computed the aggregate dollar amount realized upon vesting by multiplying
the number of shares of stock by the market value of the underlying shares
on the vesting date.
|
Outstanding Equity Awards at Fiscal Year-End
The
following table provides information concerning unexercised options, stock that
has not vested, and equity incentive plan awards for each named executive
officer outstanding as of the end of our most recently completed fiscal year.
Each outstanding award is represented by a separate row which indicates the
number of securities underlying the award.
For
option awards, the table discloses the exercise price and the expiration date.
For stock awards, the table provides the total number of shares of stock that
have not vested and the aggregate market value of shares of
stock
that have
not vested.
We
computed the market value of stock awards by multiplying the closing market
price of our stock at the end of the most recently completed fiscal year by the
number of shares or units of stock or the amount of equity incentive plan
awards, respectively.
Outstanding
Equity Awards at Fiscal Year-End 2007
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name of
Executive
|
|
Option Grant
Date
|
|
Number
of
Securities Underlying Unexercised
Options
(#)
Exercisable
|
|
|
Equity Incentive Plan Awards: Number of Securities
Underlying Unexercised Unearned Options
(#)
(1)
|
|
|
Option Exercise Price
($)
|
|
Option Expiration
Date
|
|
Stock Award Grant
Date
|
|
Equity Incentive Plan Awards: Number of Unearned
Shares, Units or Other Rights That Have Not Vested
(#)
(2)
|
|
|
Equity Incentive Plan Awards: Market or Payout
Value of Unearned Shares, Units or Other Rights That Have Not
Vested
($)
(3)
|
|
James
P. Regan
|
|
11/1/1999
|
|
|
250,000
|
|
|
|
|
|
$
|
4.44
|
|
11/1/2009
|
|
|
|
|
|
|
|
|
|
|
10/31/2000
|
|
|
5,350
|
|
|
|
|
|
$
|
8.38
|
|
10/31/2010
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
|
|
|
|
225,000
|
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
25,000
|
|
|
$
|
270,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2005
|
|
|
3,000
|
|
|
$
|
32,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2006
|
|
|
6,000
|
|
|
$
|
64,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
10,000
|
|
|
$
|
108,200
|
|
David
Keleher
|
|
3/9/2000
|
|
|
30,000
|
|
|
|
|
|
|
$
|
7.50
|
|
3/9/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
|
|
|
|
60,000
|
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
15,000
|
|
|
$
|
162,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2005
|
|
|
1,334
|
|
|
$
|
14,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2006
|
|
|
2,000
|
|
|
$
|
21,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
4,000
|
|
|
$
|
43,280
|
|
Lawrence
O'Brien
|
|
12/12/2000
|
|
|
10,000
|
|
|
|
|
|
|
$
|
8.25
|
|
12/12/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
|
|
|
|
45,000
|
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
7,000
|
|
|
$
|
75,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2005
|
|
|
200
|
|
|
$
|
2,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2006
|
|
|
1,000
|
|
|
$
|
10,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
2,000
|
|
|
$
|
21,640
|
|
Steven
P. Wentzell
|
|
10/12/2004
|
|
|
25,000
|
|
|
|
|
|
|
$
|
15.73
|
|
10/12/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2006
|
|
|
1,667
|
|
|
$
|
18,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
2,000
|
|
|
$
|
21,640
|
|
Richard
A. Covel
|
|
12/12/2000
|
|
|
20,000
|
|
|
|
|
|
|
$
|
8.25
|
|
12/12/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
|
|
|
|
50,000
|
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
10,000
|
|
|
$
|
108,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2005
|
|
|
334
|
|
|
$
|
3,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/20/2006
|
|
|
1,000
|
|
|
$
|
18,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
2,000
|
|
|
$
|
21,640
|
|
(1)
|
Vesting
dates of unvested option awards are as follows:
|
|
•
|
each
on 5/31/2008 — Messrs. Regan, 225,000 options; Keleher, 60,000
options; O’Brien, 45,000 options; and Covel, 50,000
options.
|
|
|
|
(2)
|
Vesting
dates of unvested restricted stock awards are as
follows:
|
|
•
|
each
on 2/27/2008 — Messrs. Regan, 3,333 shares; Keleher,
1,333 shares; O’Brien, 667 shares; Covel, 667 shares and
Wentzell, 667 shares;
|
|
•
|
each
on 3/1/2008 — Messrs. Regan, 3,000 shares; Keleher,
1,334 shares; O’Brien, 200 shares; and Covel,
334 shares;
|
|
|
|
|
•
|
each
on 3/2/2008 — Messrs. Regan, 3,000 shares; Keleher,
1,000 shares; O’Brien, 500 shares; and Wentzell,
833 shares;
|
|
|
|
|
•
|
on
4/20/2008 — Mr. Covel, 500 shares;
|
|
|
|
|
•
|
each
on 5/31/2008 — Messrs. Regan, 25,000 shares; Keleher,
15,000 shares; O’Brien, 7,000 shares; and Covel,
10,000 shares;
|
|
|
|
|
•
|
each
on 3/2/2009 — Messrs. Regan, 3,000 shares; Keleher,
1,000 shares; O’Brien, 500 shares; and Wentzell,
834 shares; and
|
|
|
|
|
•
|
on
4/20/2009 — Mr. Covel, 500 shares;
|
|
|
|
|
•
|
each
on 2/27/2009 — Messrs. Regan, 3,333 shares; Keleher,
1,333 shares; O’Brien, 667 shares; Covel, 667 shares and
Wentzell, 667 shares;
|
|
|
|
|
•
|
each
on 2/27/2010 — Messrs. Regan, 3,334 shares; Keleher,
1,334 shares; O’Brien, 666 shares; Covel, 666 shares and
Wentzell, 666 shares.
|
|
|
|
(3)
|
Based
on the closing market price of our stock on the Nasdaq Global Market as of
December 31, 2007 of $10.82 per
share.
|
Pension Benefits
Our
Defined Benefit Pension Plan (“Pension Plan”) is tax-qualified and
non-contributory, covering substantially all employees, including the named
executives, who completed one year of service prior to July 1,
2002.
Effective
July 1, 2002, the Board approved specific retirement program changes that limit
future increases in benefits and froze membership in the Pension
Plan. On July 1, 2002, we calculated the accrued pension benefit for
all eligible participants. This benefit was calculated using an
employee’s final average pay and years of service. The amount of
annual retirement benefit as of June 30, 2002, was determined by a formula which
multiplied years of service by the product of 0.683% of the average of the
participant’s five highest consecutive years of compensation in the last ten
years worked (or actual number of years, if less than 5 years) plus 0.65% 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 our prior retirement
program. This accrued benefit increased by 3% each year through
December 31, 2006, while the participant was employed with
us. Terminated vested employees who worked at least 1,000 hours in
the year of termination were eligible for the 3% increase. The 3%
increase was applied on the last business day of each year beginning in 2003 and
ending on December 31, 2006. A participant who has 10 or more years
of service may elect early retirement at any time between age 55 and normal
retirement age of 65, subject to reduction of the retirement benefit to reflect
the early commencement of the benefit. The only executive that
qualifies for early retirement is Mr. O’Brien.
On
October 25, 2006, our Board approved amendments to the Pension Plan which
removed the 3% annual benefit inflator for active participants in the
Pension Plan and froze each participant's calculated pension benefit as
of December 31, 2006. Effective October 1, 2007, the Board
approved plan participants, age 65 and older, to continue working at their
current schedule and be eligible to begin their full pension
payments. Plan participants who do not choose to commence pension
payments will receive an actuarial adjustment when they do decide to start
receiving benefits to reflect their delayed retirement beyond age
65.
The
following table provides information with respect to the Pension Plan for
payments or other benefits at, following, or in connection with retirement. This
does not include defined contribution plans (whether tax qualified or not).
Values reflect the actuarial present value of each named executive officer’s
accumulated benefit under the plan, computed as of December 31, 2007. In
making such calculation, we assumed that the retirement age will be the normal
retirement age as defined in the plan, or if not so defined, the earliest time
at which a participant may retire under the plan without any benefit reduction
due to age.
2007
Pension Benefits
Name of
Executive
|
|
Plan
Name
|
|
Number of Years Credited Service
(#)
|
|
|
Present Value of Accumulated Benefit
($)
(1)
|
|
|
Payments During Last Fiscal Year
($)
|
|
James
P. Regan
|
|
Defined
Benefit Plan
|
|
|
8.2
|
|
|
$
|
78,920
|
|
|
$
|
-
|
|
David
Keleher
|
|
Defined
Benefit Plan
|
|
|
7.9
|
|
|
$
|
40,805
|
|
|
$
|
-
|
|
Lawrence
O'Brien
|
|
Defined
Benefit Plan
|
|
|
29.4
|
|
|
$
|
268,379
|
|
|
$
|
-
|
|
Steven
P. Wentzell
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Richard
A. Covel
|
|
Defined
Benefit Plan
|
|
|
7.1
|
|
|
$
|
27,949
|
|
|
$
|
-
|
|
(1)
|
|
Present
values are based on the same assumptions as used in the 2007 year-end
financial statement except that no pre-retirement mortality is assumed.
Please refer to footnote 8 to our financial statements for a discussion of
the assumptions related to this
benefit.
|
Nonqualified Deferred Compensation
Our
Senior Management Deferred Compensation Plan allows certain employees the
ability to annually elect to defer up to 100% of any cash incentive payments and
any salary in excess of the FICA earnings ceiling. Employee contributions are
invested in selected mutual funds held within a Rabbi Trust. A hypothetical
account is established for each participant who elects to defer and the
participant selects investment funds from a broad range of options. Earnings and
losses on each account are determined based on the performance of the investment
funds selected by the participant. We do not contribute to this
plan.
The
following table provides information with respect to the nonqualified deferred
compensation plan. The amounts shown include compensation earned and deferred in
prior years, and earnings on such amounts.
2007
Nonqualified Deferred Compensation
Name of
Executive
|
|
Executive Contributions
in Last
FY
|
|
|
Registrant Contributions
in Last
FY
|
|
|
Aggregate Earnings in
Last FY
(1)
|
|
|
Aggregate Withdrawals/
Distributions
|
|
|
Aggregate
Balance at Last FYE
|
|
James
P. Regan
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
98,635
|
|
|
$
|
-
|
|
|
$
|
1,110,518
|
|
David
Keleher
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Lawrence
O'Brien
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,672
|
|
|
$
|
-
|
|
|
$
|
55,878
|
|
Steven
P. Wentzell
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Richard
A. Covel
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(1)
|
|
Amounts
represent interest earned at market rates during
2007.
|
Potential Payments Upon Termination or Change In
Control
The
following table summarizes the estimated payments to be made under each
contract, plan or agreement (collectively referred to as “contracts”) which
provides for payments to a named executive officer at, following, or in
connection with any termination of employment including by resignation,
retirement or a constructive termination of a named executive officer, or a
change of control. No contracts provide for any additional compensation or
benefits for the named executive officers in the event of termination by
disability or death. In the event Mr. Regan becomes disabled during
employment, the Company would continue to pay his base salary, less the amount
of any benefits provided through a Company-provided disability plan, and would
continue to provide health and life insurance benefits for up to six months of
disability. If Mr. Regan is unable to return to work after six months of
disability, the Company may terminate his employment. The following table does
not repeat information disclosed above under the pension benefits table, the
deferred compensation table, or the outstanding equity awards at fiscal year-end
table, except to the extent that the amount payable would be enhanced by the
termination event. For the purpose of the quantitative disclosure in the
following table, and in accordance with SEC regulations, we have assumed that
the termination took place on the last business day of our most recently
completed fiscal year.
Name
of Executive
|
|
Involuntary Not for Cause
Termination
|
|
|
Involuntary or Good Reason Termination
(Change in
Control)
|
|
James
P. Regan (1)
|
|
|
|
|
|
|
Severance
(2)
|
|
$
|
693,000
|
|
|
$
|
1,620,500
|
|
Accelerated
vesting of equity incentive awards (3)
|
|
|
899,080
|
|
|
|
899,080
|
|
Other
benefits (4)
|
|
|
19,719
|
|
|
|
419,979
|
|
Total
|
|
$
|
1,611,799
|
|
|
$
|
2,939,559
|
|
David
Keleher
|
|
|
|
|
|
|
|
|
Severance
(5)
|
|
$
|
-
|
|
|
$
|
515,474
|
|
Other
benefits (6)
|
|
|
-
|
|
|
|
25,605
|
|
Total
|
|
$
|
-
|
|
|
$
|
541,079
|
|
Lawrence
O'Brien
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
-
|
|
|
$
|
-
|
|
Other
benefits
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Steven
P. Wentzell
|
|
|
|
|
|
|
|
|
Severance
(7)
|
|
$
|
-
|
|
|
$
|
274,105
|
|
Other
benefits (8)
|
|
|
-
|
|
|
|
13,121
|
|
Total
|
|
$
|
-
|
|
|
$
|
287,226
|
|
Richard
A. Covel
|
|
|
|
|
|
|
|
|
Severance
(7)
|
|
$
|
-
|
|
|
$
|
270,214
|
|
Other
benefits (8)
|
|
|
-
|
|
|
|
13,121
|
|
Total
|
|
$
|
-
|
|
|
$
|
283,335
|
|
(1)
|
|
For
Mr. Regan, in a voluntary or involuntary for cause termination, the
Company would only be liable for the amount Mr. Regan earned under
the Executive Incentive Plan award which was paid in the first quarter of
2008, as described and quantified in the “2007 Summary Compensation
Table”.
|
|
|
|
(2)
|
|
For
Mr. Regan, severance for an involuntary not for cause termination
would be equal to the sum of (i) the base salary as determined in
2007 and (ii) the Executive Incentive Plan award earned for 2007 as
mentioned in (1) above. Payments made for an involuntary not for
cause termination would be paid based on their typical pay cycle over one
year. Severance for an involuntary or good reason termination under a
change of control for Mr. Regan would be equal to the sum of
(i) two times the base salary as determined in 2007 and (ii) two
times the 2007 target Executive Incentive Plan award, as described and
quantified in the “2007 Grants of Plan-Based Awards” table. Payments made
under a change of control agreement would be paid as a lump sum within
five business days after such termination.
|
|
|
(3)
|
|
For
Mr. Regan, accelerated vesting of equity incentive awards as of
December 31, 2007 would include the accelerated vesting of 225,000
stock options and an aggregate of 44,000 restricted stock awards. This
realized gain is based on the Company’s year end closing stock price of
$10.82.
|
|
|
(4)
|
|
For
Mr. Regan, other benefits for an involuntary not for cause
termination would include health and life insurance premiums for twelve
months. Other benefits for an involuntary or good reason termination under
a change of control would include health and life insurance premiums for
two years plus certain tax gross-up payments. Other benefit payments would
be made under the Company’s typical pay cycle over the respective
term.
|
|
|
(5)
|
|
For
Mr. Keleher, severance for an involuntary or good reason termination
under a change of control would be equal to the sum of (i) eighteen
months of the base salary as determined in 2007 and (ii) the 2007
target Executive Incentive Plan award, as described and quantified in the
“2007 Grants of Plan-Based Awards” table. Severance payments would be paid
as a lump sum within seven business days after such
termination.
|
(6)
|
|
For
Mr. Keleher, other benefits for an involuntary or good reason
termination under a change of control would include health and life
insurance premiums for eighteen months. Other benefit payments would be
made under the Company’s typical pay cycle over the eighteen month
period.
|
|
|
(7)
|
|
For
Messrs. Wentzell and Covel, severance for an involuntary or good
reason termination under a change of control would be equal to the sum of
(i) twelve months of the base salary as determined in 2007 and
(ii) the 2007 target Executive Incentive Plan award, as described and
quantified in the “2007 Grants of Plan-Based Awards” table. Severance
payments would be paid as a lump sum within seven business days after such
termination.
|
|
|
(8)
|
|
For
Messrs. Wentzell and Covel, other benefits for an involuntary or good
reason termination under a change of control would include health and life
insurance premiums for twelve months. Other benefit payments would be made
under the Company’s typical pay cycle over the twelve month
period.
|
INDEPENDENT
PUBLIC ACCOUNTANTS
On
May 24, 2007 the Audit Committee voted to engage Grant Thornton LLP (“Grant
Thorton”) as the Company’s independent registered public accounting firm. A
representative of Grant Thornton is expected to be present at the Annual Meeting
with the opportunity to make a statement if desired and to respond to
appropriate questions.
Audit and Non-Audit Fees
The
following table presents fees for professional audit services rendered by Grant
Thornton for the audit of the Company’s annual financial statements for the
years ended December 31, 2007 and December 31, 2006, and fees billed
for other services rendered by Grant Thornton during those periods. The Audit
Committee approved 100% of the 2007 and 2006 audit fees.
Type
of Fees
|
|
2007
|
|
|
2006
|
|
Audit
Fees
|
|
$
|
589,664
|
|
|
$
|
611,047
|
|
In the
above table, in accordance with the SEC’s definitions and rules, “audit fees”
are fees the Company paid to Grant Thornton for the audit of the Company’s
annual financial statements included in the Form 10-K and review of
financial statements included in the Form 10-Qs; for the audit of the
Company’s internal control over financial reporting with the objective of
obtaining reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects; and for services
that are normally provided by the auditor in connection with statutory and
regulatory filings or engagements. There were no tax or non-audit
fees paid to Grant Thornton during 2007 and 2006.
Audit Committee Policy for Pre-approval of Independent Accountant
Services
The Audit
Committee of the Board is required to pre-approve all audit and non-audit
services provided by the Company’s independent accountants in order to assure
that the provision of such services does not impair the accountant’s
independence. The Audit Committee has established a policy regarding
pre-approval of permissible audit, audit-related, tax and other services
provided by the independent accountants, which services are periodically
reviewed and revised by the Committee. Unless a type of service has received
general pre-approval under the policy, the service will require specific
approval by the Audit Committee. The policy also includes pre-approved fee
levels for specified services, and any proposed service exceeding the
established fee level must be specifically approved by the
Committee.
REPORT OF
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit
Committee of the Board of Directors reviews the Company’s auditing, accounting,
financial reporting and internal control functions and selects and engages the
Company’s independent auditors. In discharging its duties, the Audit Committee
reviews and approves the scope of the annual audit, non-audit services to be
performed by the independent auditors and the independent auditors’ audit and
non-audit fees; reviews the audited financial statements to be included in the
Form 10-K for filing with the Securities and Exchange Commission (“SEC”);
meets independently with the Company’s director of internal audit, independent
auditors and senior management; and reviews the general scope of the Company’s
accounting, financial reporting, annual audit and internal audit programs and
matters relating to internal control systems, as well as the results of the
annual audit and interim financial statements, and auditor independence issues.
The Audit Committee of the Board of Directors is composed of three directors,
each of them qualifying as independent under the current listing standards of
the Nasdaq Global Market and applicable SEC rules and regulations. The Audit
Committee operates under a written charter adopted and amended by the Board of
Directors. A copy of the Audit Committee Charter is publicly available on the
Company’s website at www.drc.com.
Prior to
commencing the 2007 integrated audit of financial statements and internal
controls, the Committee discussed with the Company’s independent accountants
Grant Thornton LLP (“Grant Thornton”) the overall scope and plans for their
audit. Upon completion of the audit, the Committee met with Grant Thornton, with
and without 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 reviewed with management and with Grant Thornton the audited financial
statements for the year ended December 31, 2007, including footnotes as
well as management’s discussion and analysis of results of operations included
in the Form 10-K. The Committee also discussed with Grant Thornton matters
required to be discussed by Statement on Auditing Standards No. 61, as
amended, as adopted by the Public Company Accounting Oversight Board (“PCAOB”)
in Rule 3200T. The Committee has received the written disclosures and the
letter from Grant Thornton as to that firm’s independence from management and
the Company, as required by the Independence Standards Board Standard
No. 1, “Independence Discussion with Audit Committees”, as adopted by the
PCAOB in Rule 3600T, and has discussed with Grant Thornton their
independence.
Based
upon these reviews and discussions, the Committee recommended to the Board of
Directors that the audited financial statements be included in the
Form 10-K for the year ended December 31, 2007 for filing with the
SEC.
|
The
Audit Committee of the Board of Directors
|
|
|
|
Kenneth
F. Kames, Chairman
|
|
Charles
P. McCausland
|
|
Nickolas
Stavropoulos
|
STOCK OWNERSHIP
OF CERTAIN PERSONS
Stock Ownership of Directors and Management
The
following table sets forth the number and the percentage of shares of the
Company’s common stock that were beneficially owned by the executive officers
named in the Summary Compensation Table, by the directors and by all current
directors and executive officers as a group as of April 11, 2008. There were no
shares of the Company’s preferred stock that was issued and outstanding as of
April 11, 2008. Except as otherwise indicated, each director or executive
officer listed below possessed sole voting and investment power with respect to
their shares.
|
|
Amount
and
|
|
|
|
|
|
|
Nature
of
|
|
|
|
|
|
|
Beneficial
|
|
|
Percent
of
|
|
Name of Beneficial
Owner
|
|
Ownership
(1)
|
|
|
Class
(2)
|
|
Francis
J. Aguilar
|
|
|
79,475
|
(3)
|
|
|
*
|
|
John
S. Anderegg, Jr.
|
|
|
767,728
|
(4)
|
|
|
7.4
|
%
|
General
George T. Babbitt Jr.
|
|
|
12,200
|
|
|
|
*
|
|
Kenneth
F. Kames
|
|
|
29,800
|
|
|
|
*
|
|
Lieutenant
General Charles P. McCausland
|
|
|
13,900
|
|
|
|
*
|
|
Nickolas
Stavropoulos
|
|
|
7,200
|
|
|
|
*
|
|
James
P. Regan
|
|
|
551,188
|
(5)
|
|
|
5.3
|
%
|
David
Keleher
|
|
|
115,372
|
|
|
|
1.1
|
%
|
Lawrence
H. O’Brien
|
|
|
67,111
|
|
|
|
*
|
|
Steven
P. Wentzell
|
|
|
33,682
|
|
|
|
*
|
|
Richard
A. Covel
|
|
|
87,086
|
|
|
|
*
|
|
All
Directors and Executive Officers as a Group
(11 persons)
|
|
|
1,764,742
|
|
|
|
17.1
|
%
|
*
|
|
Less
than 1% of the outstanding shares of the Company common
stock.
|
|
|
(1)
|
|
Includes
options to acquire shares which are currently exercisable or exercisable
within 60 days of
April
11, 2008: Dr. Aguilar, 16,414 shares; Mr. Anderegg, 0 shares;
General Babbitt, 5,000 shares; Mr. Kames, 18,200 shares; Lt.
General McCausland, 5,000 shares; Mr. Stavropoulos, 0 shares;
Mr. Regan, 480,350 shares; Mr. Keleher, 77,600 shares;
Mr. O’Brien, 55,000 shares; Mr. Wentzell, 25,000 shares;
Mr. Covel, 70,0000 shares; for a total of 752,564
shares.
|
|
|
(2)
|
|
Outstanding
shares represent the 9,558,759 shares of the Company common stock
outstanding on
April
11, 2008, plus an aggregate of 752,564 shares, as noted above,
that are the subject of stock options exercisable within 60 days
following such date, pursuant to SEC Rule 13d-3, for a total of
10,311,323 shares outstanding.
|
|
|
(3)
|
|
Includes
11,655 shares held in a pension plan over which Dr. Aguilar has
sole voting and investment power.
|
|
|
(4)
|
|
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, 8,400 shares held by his current
spouse, and 32,000 shares held in a Children’s Gift Trust, as to all
of which he disclaims beneficial ownership.
|
|
|
(5)
|
|
Includes
2,000 shares held by his spouse, as to which he disclaims beneficial
ownership.
|
Stock Ownership of Principal Shareholders
The
following sets forth certain information concerning the principal shareholders
known to us who may be considered beneficial owners of more than 5% of the
outstanding shares of the Company common stock as of December 31,
2007.
|
|
Amount
and
|
|
|
|
|
|
|
Nature
of
|
|
|
|
|
|
|
Beneficial
|
|
|
Percent
of
|
|
Name of Address of Principal
Shareholders
|
|
Ownership
|
|
|
Class
(1)
|
|
Heartland
Advisors, Inc.
|
|
|
1,268,842
|
(2)
|
|
|
13.30
|
%
|
789
North Water Street
|
|
|
|
|
|
|
|
|
Milwaukee,
WI 53202
|
|
|
|
|
|
|
|
|
Rutabaga
Capital Management.
|
|
|
905,977
|
(3)
|
|
|
9.50
|
%
|
64
Broad Street, 3rd Floor
|
|
|
|
|
|
|
|
|
Boston,
MA 02109
|
|
|
|
|
|
|
|
|
Dimensional
Fund Advisors LP.
|
|
|
507,920
|
(4)
|
|
|
5.30
|
%
|
1299
Ocean Avenue
|
|
|
|
|
|
|
|
|
Santa
Monica, CA 90401
|
|
|
|
|
|
|
|
|
(1)
|
|
Outstanding
shares represent the 9,509,849 shares of the Company common stock
outstanding on December 31, 2007.
|
|
|
(2)
|
|
According
to a Schedule 13G/A Heartland Advisors, Inc. (“Heartland”) filed with
the SEC on February 8, 2008, Heartland beneficially owns
1,268,842 shares of the Company’s common stock and reported shared
dispositive power of such shares with William J. Nasgovitz. Heartland
reported shared voting power of 1,216,748 shares of the Company’s
common stock with Mr. Nasgovitz in such filing.
|
|
|
(3)
|
|
According
to a Schedule 13G/A Rutabaga Capital Management (“Rutabaga”) filed
with the SEC on February 13, 2008, Rutabaga beneficially owns
905,977 shares of the Company’s common stock and reported sole
dispositive power of such shares. Rutabaga reported sole voting power of
596,377 shares of the Company’s common stock in such
filing.
|
|
|
|
(4)
|
|
According
to a Schedule 13G/A Dimensional Fund Advisors LP (“Dimensional”)
filed with the SEC on February 6, 2008, Dimensional beneficially owns
507,920 shares of the Company’s common stock and reported sole
dispositive power of such shares. Dimensional reported sole voting power
of 507,920 shares of the Company’s common stock in such
filing.
|
Equity Compensation Plans
The
Company has four shareholder approved equity incentive plans, which are
administered by the Compensation Committee of the Board. These plans, which
include the 1993 Equity Incentive Plan, the 1995 Stock Option Plan for
Non-Employee Directors, the 2000 Incentive Plan and the 2003 Incentive Plan, are
more fully described in footnote 9 to our financial statements which are
included in our Form 10-K.
The
Company also maintains a shareholder approved 2000 Employee Stock Purchase Plan
(the “ESPP”) which is designed to give eligible employees an opportunity to
purchase common stock of the Company through accumulated payroll deductions. All
employees of the Company or designated subsidiaries who customarily work at
least 20 hours per week and do not own five percent or more of the
Company’s common stock are eligible to participate in the ESPP. On
October 25, 2006, the Company’s Board of Directors approved an amendment to
eliminate the “look-back” option and to reduce the stock purchase discount from
15% to 5% under the ESPP effective November 1, 2006. Under
SFAS 123(R), this amendment results in the Company accounting for shares
purchased in connection with the ESPP as non-compensatory as of the effective
date. Please refer to footnote 9 to our financial statements for additional
information regarding the ESPP.
The
following table summarizes, as of December 31, 2007, the number of shares
of the Company’s common stock to be issued upon exercise of options issued under
our equity compensation plans and the number of shares of common stock remaining
available for future issuance under these plans.
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding
options, warrants and rights
(a)
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(b)
|
|
Number
of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in
column (a))
(c)
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
1993
Equity Incentive Plan
|
|
|
30,000
|
|
$
|
14.73
|
|
|
|
-
|
1995
Stock Option Plan for Non-Employee Directors
|
|
|
14,614
|
|
$
|
12.38
|
|
|
|
-
|
2000
Incentive Plan
|
|
|
717,464
|
|
$
|
9.35
|
|
|
|
96,434
|
2003
Incentive Plan
|
|
|
-
|
|
$
|
-
|
|
|
|
400,000
|
Total
equity compensation plans approved by security holders
|
|
762,078
|
|
$
|
9.62
|
|
|
|
496,434
|
Equity
compensation plans not approved by security holders (1)
|
|
250,000
|
|
$
|
4.44
|
|
|
|
-
|
Total
|
|
|
1,012,078
|
|
$
|
8.34
|
|
|
|
496,434
|
(1)
|
|
In
1999, we granted Mr. Regan a non-qualified stock option to purchase
250,000 shares of our common stock. The option price was the fair
market value of the common stock at the date of grant. Twenty percent of
the options vested immediately and an additional 20% vested in each
successive year from the date of grant. The options expire ten years from
the date of grant.
|
OTHER DIRECTOR
AND EXECUTIVE OFFICER INFORMATION
Transactions with Related Persons
The
Company recognizes that related party transactions can present potential or
actual conflicts of interest and create the appearance that Company decisions
are based on considerations other than our best interests and our shareholders.
Therefore, all related party transactions are reviewed and approved by the Audit
Committee in accordance with the Audit Committee Charter. During 2007, there
were no related party transactions that were reviewed by the Audit
Committee.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a)
of the Securities Exchange Act of 1934 requires the Company’s directors,
executive officers and any persons who own more than 10% of the Company’s common
stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. To the Company’s knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, all filing requirements under
Section 16(a) were complied with during 2007, except for a Form 3 for Mr.
O'Brien and Forms 4 for Mr. O'Brien and Mr. Covel with respect to certain
transactions. The Form 3 and Forms 4 were filed late due to an
administrative oversight on the part of the Company.
ADDITIONAL
INFORMATION
Shareholder Proposals for 2009 Annual Meeting of
Shareholders
Proposals
of shareholders submitted pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 for consideration at the 2009 Annual Meeting of Shareholders must be
received by the Company no later than December 1, 2008 in order to be
considered for inclusion in the Company’s proxy materials for that
meeting.
For
proposals that shareholders intend to present at the 2009 Annual Meeting of
Shareholders that will not be included in the Company’s proxy materials, if the
shareholder fails to notify the Company of such intent on or before
February 13, 2009, then the proxies that management solicits for the 2009
Annual Meeting will include discretionary authority to vote on the shareholder’s
proposal, if it is properly presented at the meeting.
Delivery of Documents to Shareholders Sharing an
Address
For
shareholders that are beneficial owners, but not record holders, of the
Company’s common stock, your broker, bank or other nominee may only deliver one
copy of this proxy statement and our 2007 Annual Report to multiple shareholders
who share an address unless that nominee has received contrary instructions from
one or more of the shareholders. We will deliver promptly, upon written or oral
request, a separate copy of this proxy statement and our 2007 Annual Report to a
shareholder at a shared address to which a single copy of the documents was
delivered. A shareholder who wishes to receive a separate copy of the proxy
statement and annual report, now or in the future, should submit this request by
writing to Treasurer’s Office, Dynamics Research Corporation, 60 Frontage Road,
Andover, MA 01810-5498, or calling (800) 522-4321. Beneficial owners
sharing an address who are receiving multiple copies of proxy materials and
annual reports and who wish to receive a single copy of such materials in the
future will need to contact their broker, bank or other nominee to request that
only a single copy of each document be mailed to all shareowners at the shared
address in the future.
Other Matters
The Board
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.
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