UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported)
July 30, 2008
DYNAMICS
RESEARCH CORPORATION
(Exact
name of registrant as specified in its charter)
Commission
file number 000-02479
MASSACHUSETTS
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04-2211809
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(State
or other jurisdiction of Incorporation or organization)
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(I.R.S.
Employer Identification No.)
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60
FRONTAGE ROAD, ANDOVER, MASSACHUSETTS 01810-5498
(Address
of principal executive offices) (Zip Code)
978-289-1500
(Registrant’s
telephone number, including area code)
N/A
(Former
name or former address, if changed since last report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions (
see
General Instruction A.2.
below):
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Completion
of Acquisition or Disposition of
Assets.
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On August
1, 2008, Dynamics Research Corporation (the “Company”) completed the
acquisition of Kadix Systems, LLC (“Kadix”) for approximately
$42 million in cash with the potential for additional consideration of up
to $5 million, based on achievement of certain conditions. Kadix
maintains practice specialties in organizational change, human capital,
information technology, public and environmental health and learning and
organizational development. Kadix is focused on the U.S. Department
of Homeland Security, Marine Corps information technology, military medical
health, and federal civilian markets. Kadix currently has about 270
employees and is headquartered in Arlington, VA with additional offices in
Greater Washington, DC, Aberdeen, MD, and Fort Sam Houston, TX. Kadix
had annual revenues of $23 million for the year ended December 31,
2007.
The terms
of the acquisition of Kadix are set forth in the Membership Interest Purchase
Agreement dated July 30, 2008, between the Company, Kadix and Daisy D. Layman,
the sole member of Kadix (the “Seller”), filed as Exhibit 2.1 to this
Current Report on Form 8-K, and incorporated herein by reference.
The terms
of the transaction and the consideration paid by the Company to Seller were a
result of arm’s length negotiations between the Company’s representatives and
representatives of Seller. Prior to the completion of the transaction, neither
the Company nor, to the Company’s knowledge, any of its directors and officers
and their respective associates had any material relationship with Seller. The
Company used borrowings under the unsecured financing agreement described in
Item 2.03 below to pay the consideration for the acquisition on the closing
date.
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Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
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On August
1, 2008, the Company entered into a new unsecured credit facility (the
“facility”) with its bank group to restructure and increase the Company’s credit
facility to $65.0 million. The facility provides for a $40.0 million,
five-year term loan (the “term loan”) and a $25.0 million, five-year
revolving credit agreement for working capital (the “revolver”). The bank group,
led by Brown Brothers Harriman & Co. as a lender and as administrative agent
(when acting in such capacity, the “Administrative Agent”), also includes TD
Bank, N.A. and Bank of America, N.A. The term loan and the revolver replace
the Company’s previous $50.0 million revolving credit agreement, which was
entered into on September 29, 2006.
On an
ongoing basis, the facility requires the Company to meet certain financial
covenants, including maintaining a minimum net worth and certain cash flow and
debt coverage ratios. The covenants also limit the Company’s ability to incur
additional debt, pay dividends, purchase capital assets, sell or dispose of
assets, make additional acquisitions or investments, or enter into new leases,
among other restrictions. In addition, the facility provides that the bank group
may accelerate payment of all unpaid principal and all accrued and unpaid
interest under the facility, upon the occurrence and continuance of certain
events of default, including, among others, the following:
•
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Any
failure by the Company and its subsidiaries to make any payment of
principal, interest and other sums due under the facility within
three calendar days of the date when such payment is
due;
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•
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Any
breach by the Company or any of its subsidiaries of certain covenants,
representations and warranties;
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•
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Any
default and acceleration of any indebtedness owed by the Company or any of
its subsidiaries to any person (other than the bank group) which is in
excess of $1,000,000;
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•
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Any
final judgment against the Company or any of its subsidiaries in excess of
$1,000,000 which has not been insured to the reasonable satisfaction of
Brown Brothers Harriman & Co. as Administrative Agent;
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•
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Any
bankruptcy (voluntary or involuntary) of the Company or any of its
subsidiaries; and
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•
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Any
material adverse change in the business or financial condition of the
Company and its subsidiaries; or
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•
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Any
change in control of the Company.
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The
Company used the $40 million term loan proceeds at closing of the
acquisition of Kadix described in Item 2.01 above. The facility requires
quarterly principal payments on the term loan of $2
million, commencing December 31, 2008.
The
Company has the option of selecting an interest rate for the term loan equal to
either: (a) the then applicable LIBOR Rate plus 1.50% per annum to 2.50% per
annum, depending on the Company’s most recently reported leverage ratio; or (b)
the base rate as announced from time to time by the Administrative Agent (the
“Base Rate”) plus 0.00% per annum to 0.25% per annum, depending on the Company’s
most recently reported leverage ratio. For those portions of the acquisition
term loan accruing at the LIBOR Rate, the company has the option of selecting
interest periods of 30, 60, 90 or 180 days. The facility also requires the
Company, within thirty days of the closing date, to secure interest rate
protection in an amount not less than fifty percent of the outstanding principal
balance of the term loan.
The
revolver has a five-year term and is available to the Company for general
corporate purposes, including strategic acquisitions. The Company used $4.8
million of the revolver to complete the acquisition of Kadix. The interest rate
terms on the revolver are similar to those of the term
loan. The revolver matures on August 1, 2013.
The terms
of the facility are more fully described in the Fourth Amended and Restated Loan
Agreement, dated August 1, 2008, by and among the Company, all of the
subsidiaries of the Company, Brown Brothers Harriman & Co., TD Banknorth and
Bank of America, which is filed as Exhibit 10.1 to this Current Report on
Form 8-K, and the related pledge agreement, filed as Exhibits 10.2 to this
Current Report on Form 8-K, and incorporated herein by reference.
Item 9.01.
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Financial
Statements and Exhibits.
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(a)
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Financial
Statements of Businesses Acquired
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The
required financial statements relating to Kadix are not included in this
Report. The Company will file the required financial statements by
amendment no later than 71 calendar days after the date this Current
Report on Form 8-K is required to be filed with the Securities and
Exchange Commission.
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(b)
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Unaudited
Pro Forma Financial Information
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The
required pro forma financial information is not included in this Report.
The Company will file the required pro forma financial information by
amendment no later than 71 calendar days after the date this Current
Report on Form 8-K is required to be filed with the Securities and
Exchange Commission.
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(d)
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Exhibits
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2.1
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*
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Membership
Interest Purchase Agreement among Dynamics Research Corporation
and Kadix Systems, LLC and Daisy D. Layman, The Sole Member of
Kadix Systems, LLC, dated July 30, 2008.
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10.1
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Fourth
Amended and Restated Loan Agreement by and among Dynamics Research
Corporation, DRC International Corporation, H.J. Ford Associates,
Inc., Kadix Systems, LLC as the Borrowers, and The Lenders Party
hereto and Brown Brothers Harriman & Co., as Administrative Agent and
TD Bank, N.A. as Documentation Agent and Bank of America, N.A. as
Syndication Agent, as of August 1, 2008.
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10.2
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Pledge
Agreement by and between Dynamics Research Corporation and Brown Brothers
Harriman & Co., for itself and as Administrative Agent for each of the
Lenders which are and which may become parties to the Loan Agreement, as
of August 1, 2008.
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* Certain exhibits and schedules to this Agreement have been omitted
pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish
supplementally a copy of any omitted schedules to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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DYNAMICS
RESEARCH CORPORATION
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(Registrant)
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Date: August
5, 2008
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/s/
David Keleher
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Senior
Vice President, Chief Financial Officer and
Treasurer
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Exhibit
Index
Exhibit
Number
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Exhibit
Name
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Location
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2.1
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Membership
Interest Purchase Agreement among Dynamics Research Corporation
and Kadix Systems, LLC and Daisy D. Layman, The Sole Member of
Kadix Systems, LLC, dated July 30, 2008.
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Filed
herewith
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10.1
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Fourth
Amended and Restated Loan Agreement by and among Dynamics Research
Corporation, DRC International Corporation, H.J. Ford Associates,
Inc., Kadix Systems, LLC as the Borrowers, and The Lenders Party
hereto and Brown Brothers Harriman & Co., as Administrative Agent and
TD Bank, N.A. as Documentation Agent and Bank of America, N.A. as
Syndication Agent, as of August 1, 2008.
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Filed
herewith
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10.2
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Pledge
Agreement by and between Dynamics Research Corporation and Brown Brothers
Harriman & Co., for itself and as Administrative Agent for each of the
Lenders which are and which may become parties to the Loan Agreement, as
of August 1, 2008.
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Filed
herewith
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