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
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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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1
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Title
of each class of securities to which transaction
applies:
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2
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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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4
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Proposed
maximum aggregate value of transaction:
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5
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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
Previously Paid:
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Form,
Schedule or Registration Statement No.:
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Filing
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Date
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NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held June 2, 2010
To
the Shareholders:
The
Annual Meeting of the shareholders of Dynamics Research Corporation will be held
at 2:00 p.m. on June 2, 2010 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 three Class II Directors named in the Company’s Proxy Statement
to hold office until the 2013 Annual Meeting of
Shareholders.
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2.
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To
approve the Company’s Executive Long-Term Incentive
Plan.
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3.
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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 7, 2010 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
15, 2010
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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 in order to ensure the presence of a quorum.
TABLE OF
CONTENTS
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DYNAMICS RESEARCH CORPORATION
Two
Tech Drive
Andover,
Massachusetts 01810
PROXY
STATEMENT
ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD JUNE 2, 2010
GENERAL
The
accompanying proxy is solicited by the Board of Directors of Dynamics Research
Corporation (the “Company”) to be voted at the 2010 Annual Meeting of
Shareholders to be held on June 2, 2010.
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 three Class II Directors named in
the Proxy to hold office until the 2013 Annual Meeting of
Shareholders.
Shareholders
of record at the close of business on April 7, 2010 are entitled to notice
of and to vote at the Annual Meeting. There were 9,924,056 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
This
year, the Company has again 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:
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by
internet at
www.voteproxy.com
and entering the control number found on your Notice or proxy
card;
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by
toll-free telephone by following the instructions on the Notice or proxy
card;
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by
completing and mailing your proxy card;
or
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by
written ballot at the Annual Meeting. If you attend 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.
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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 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 three nominees for
election as Class II Directors at the Annual Meeting.
The
election inspectors will count shares represented by proxies that withhold
authority to vote for the proposals or that reflect abstentions and “broker
non-votes” only as shares that are present and entitled to vote on the proposal
for purposes of determining a quorum.” Broker non-votes are 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. Abstentions
and broker non-votes will not be considered a vote for or a vote against a
proposal but will have the effect of reducing the number of affirmative votes
required to achieve a majority vote. Please note that this year the
rules regarding how brokers may vote your shares have changed. Brokers may no
longer vote your shares on the election of directors or other non-routine
matters in the absence of your specific instructions as to how to
vote. Both proposals presented in this Proxy Statement represent are
considered non-routine matters. It is important that you to provide
instructions to your broker regarding the voting of your shares.
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 comprises nine members and is organized into three classes, equal in
number, 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 three
Class II Directors for a term of three years expiring at the 2013 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 II
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 2012
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General George T. Babbitt, Jr.
(U.S.A.F., retired), 67,
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
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most recently as
commander of the Air Force Materiel Command at Wright-Patterson Air Force
Base, Ohio. The Company believes this background and experience is among
the reasons General Babbitt is qualified to serve on the Board of
Directors.
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2004
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Lieutenant General Charles P.
McCausland (U.S.A.F., retired), 74,
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. The Company believes this background and
experience is among the reasons Lt. General McCausland is qualified to
serve on the Board of Directors.
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2003
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W. Scott Thompson, 64,
presently serves as Chairman of the Board for Enterprise Solutions
Group, Inc. (ESG), which provides implementation services for
enterprise resource planning systems. Prior to founding ESG in
1991 Mr. Thompson was the Chief Executive Officer of Planning Research
Corporation, later PRC, a $780 million subsidiary of Black and
Decker. PRC was one of the largest federal systems integrators
at that time. From 1978 to 1989 Mr. Thompson worked at Advanced
Technology, Inc. rising through all management levels to Chief Operating
Officer as the Company grew from $5 million to $178 million in annual
revenue. From 1969 through 1977 Mr. Thompson served in the
United States Navy. Mr. Thompson received a Bachelor of
Science degree from the University of Mississippi in 1969. The Company
believes this background and experience is among the reasons Mr. Thompson
is qualified to serve on the Board of Directors.
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2010
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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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Nominees
as Class II Directors — Terms Expiring in 2013
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Francis J. Aguilar, 77,
is Professor of Business Administration, Emeritus, Harvard University
Graduate School of Business Administration, and from 1995 through 2009 was
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 former trustee of Bentley University
and Treasurer of the New Hampshire Music Festival. The Company believes
this background and experience is among the reasons Dr. Aguilar is
qualified to serve on the Board of Directors.
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1987
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John S. Anderegg, Jr.,
86,
has been Chairman, Emeritus of the Company since April 2001.
Mr. Anderegg served as Chairman of the Company from 1988 until April
2001. The Company believes this background and experience is among the
reasons Mr. Anderegg is qualified to serve on the Board of
Directors.
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1955
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Nickolas Stavropoulos,
52,
presently serves as 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. The Company believes this background and experience is
among the reasons Mr. Stavropoulos is qualified to serve on the Board of
Directors.
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2005
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Continuing
as Class III Directors — Terms Expiring in 2011
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Kenneth F. Kames, 75,
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. The Company believes this background and experience
is among the reasons Mr. Kames is qualified to serve on the Board of
Directors.
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1997
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James P. Regan, 69,
presently serves as Chief Executive Officer (“CEO”) of the
Company. He has served in this capacity since November 1999 and
as 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
Chairman for the Massachusetts High Tech Council and is an advisory board
member for the College of Engineering at Villanova University. The Company
believes this background and experience is among the reasons Mr. Regan is
qualified to serve on the Board of Directors.
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1999
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Richard G. Tennant, 65,
presently serves as Senior Vice President and Chief Financial
Officer of iBasis, Inc., one of the three largest wholesale carriers of
international voice-over-internet traffic and a subsidiary of Royal KPN
NV. For fourteen years prior to joining iBasis in 2001, Mr. Tennant served
in chief financial officer positions with several communications firms
based in northern Virginia and Baltimore, Maryland. Mr. Tennant
served on the Board of Directors of The Burton Group for nine years until
its recent acquisition by Gartner, Inc. and served on the Board of
Directors and as the Chair of the Audit Committee of LTX Corporation from
1987 through 1992. Mr. Tennant received a Master of Science
degree from Bentley University in 1978. The Company believes this
background and experience is among the reasons Mr. Tennant is qualified to
serve on the Board of Directors.
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2010
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Board Leadership Structure
The
Board believes that the Company’s Chief Executive Officer is best situated to
serve as Chairman because he is the director most familiar with the Company’s
business and industry, and most capable of effectively identifying strategic
priorities and leading the discussion and execution of strategy. Independent
directors and management have different perspectives and roles in strategy
development. The Company’s independent directors bring experience, oversight and
expertise from outside the Company, from the government, and from other
industries, while the Chief Executive Officer brings Company-specific experience
and expertise. The Board believes that the combined role of Chairman and Chief
Executive Officer optimizes strategy development and execution, and facilitates
timely and complete information flow between management and the Board, which are
essential to effective governance.
One
of the key responsibilities of the Board is to develop strategic direction and
hold management accountable for the execution of strategy once it is developed.
The Board believes the combined role of Chairman and Chief Executive Officer,
together with an independent Lead Director having the duties described below, is
in the best interest of stockholders because it provides the appropriate balance
between strategy development and independent oversight of
management.
Lead Director
Dr.
Francis Aguilar, an independent director who serves on the Compensation
Committee and Nominating and Governance Committee, was selected by the Board to
serve as the Lead Director. The Lead Director has the responsibility of
acting as Chair of the Board in the absence of the Chairman, acting as chair of
executive sessions of the full Board’s independent directors, acting as the
liaison for the executive sessions with the Chairman, and consulting with the
Chairman on meeting schedules and agendas. The Lead Director may also have
additional duties, as may be determined from time to time by the Board of
Directors.
Risk Management
The
Board has an active role, as a whole and also at the committee level, in
overseeing management of the Company’s risks. The Board regularly reviews
information regarding the Company’s credit, liquidity and operations, as well as
the risks associated with each. The Company’s Compensation Committee is
responsible for overseeing the management of risks relating to the Company’s
executive compensation plans and arrangements. The Audit Committee oversees
management of financial risks. The Nominating and Governance Committee manages
risks associated with the independence of the Board of Directors and potential
conflicts of interest. While each committee is responsible for evaluating
certain risks and overseeing the management of such risks, the entire Board of
Directors is regularly informed through committee reports about such
risks.
Board of Directors and Committees
The
Board has an Audit Committee, a Compensation Committee and a Nominating and
Governance Committee. The Board held five regularly scheduled meetings during
2009. In 2009, each of the directors attended 100% of the total number of
meetings of the Board except for, Mr. Kames who attended 60% and Mr.
Stavropoulos who attended 80%. Effective April 1, 2010, Mr. Thompson
and Mr. Tennant were appointed to the Board.
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 Company’s 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 October 29, 2008. A copy of the Audit Committee
Charter, as amended, is publicly available on the Company’s website at
www.drc.com
. The current
members of the Audit Committee are Mr. Kames, Chairman, Lt. General
McCausland and Mr. Stavropoulos, and Mr. Tennant effective April 1, 2010.
The Audit Committee held eight meetings during 2009. Lt. General
McCausland attended 100% of the meetings and Mr. Kames and
Mr. Stavropoulos
each attended 87.5% 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
Messrs. Kames, Stavropoulos and Tennant 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 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 General Babbitt, Chairman;
Dr. Aguilar Mr. Stavropoulos, and Mr. Thompson, effective April 1,
2010, all of whom satisfy the independence requirements of the current listing
standards of the Nasdaq Global Market. The Compensation Committee held four
meetings during 2009 in which all committee members attended 100% of the
meetings.
Nominating
and Governance Committee
.
The Nominating
and Governance Committee recommends 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 three meeting in 2009 which all committee members attended. The Board
discussed governance matters at each of its five meetings in 2009. 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, General Babbitt, and Mr. Thompson effective
April 1, 2010, 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 and 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, Two Tech Drive, Andover,
Massachusetts 01810-2434. The Nominating and Governance Committee shall consider
such recommendations only if appropriate biographical information and background
material is provided.
The
Nominating and Governance Committee believes that it is necessary for each of
the Company’s directors to possess many qualities and skills. When searching for
new candidates, the Nominating and Corporate Governance Committee considers the
evolving needs of the Board and searches for candidates that fill any current or
anticipated future gap. 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. The Nominating and Governance Committee also focuses on
issues of diversity, such as diversity of gender, race and national origin,
education, professional experience and differences in viewpoints and skills. The
Nominating and Governance Committee does not have a formal policy with
respect to diversity; however, the Board and the Nominating and
Governance Committee believe that it is essential that the Board members
represent diverse viewpoints. In considering candidates for the Board, the
Nominating and Governance Committee considers the entirety of each
candidate’s credentials in the context of these standards. With respect to the
nomination of continuing directors
for
re-election, the individual’s contributions to the Board are also
considered.
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, Mr. Stavropoulos, Mr. Thompson and Mr.
Tennant. 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, Two Tech Drive, Andover,
Massachusetts 01810, any correspondence. 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.
With
the exception of Messrs. Tennant and Thompson, who were appointed to the Board
on April 1, 2010, each non-employee director received an annual retainer of
$30,000 in 2009. 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. Committee members are paid $1,000
for each meeting in excess of the normally scheduled meetings which require
their attendance in person, and $500 for each teleconference meeting in excess
of normally scheduled meetings. Non-employee directors serving on the
Board in May 2009 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. During 2009, no non-employee directors elected to defer any
portion of their fees
2009 Director
Compensation Table
|
Name
|
|
Fees
Earned
or
Paid
in
Cash
|
|
Stock
Awards
(2)
|
|
All
Other
Compensation
|
|
Total
|
|
|
Francis
J. Aguilar
|
|
$
|
37,500
|
|
$
|
22,272
|
|
$
|
-
|
|
$
|
59,772
|
|
|
John
S. Anderegg, Jr.
(1)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
114,788
|
|
$
|
114,788
|
|
|
General
George T. Babbitt, Jr.
|
|
$
|
30,000
|
|
$
|
22,272
|
|
$
|
-
|
|
$
|
52,272
|
|
|
Kenneth
F. Kames
|
|
$
|
40,000
|
|
$
|
22,272
|
|
$
|
-
|
|
$
|
62,272
|
|
|
Lieutenant
General Charles P. McCausland
|
|
$
|
30,000
|
|
$
|
22,272
|
|
$
|
-
|
|
$
|
52,272
|
|
|
Nickolas
Stavropoulos
|
|
$
|
30,000
|
|
$
|
22,272
|
|
$
|
-
|
|
$
|
52,272
|
|
|
(1)
|
|
Mr.
Anderegg is an employee of the Company and 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 $13,388. Mr. Anderegg is also a participant in the Company’s
defined benefit pension plan. The present value of his
accumulated benefit in the pension plan was $455,042 at December 31, 2009,
a decrease of $5,929 from last year, 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)
|
|
With
the exception of ignoring the impact of the forfeiture rate, these amounts
represent the aggregate grant date fair value of awards for grants of
restricted stock awards to each listed director in fiscal 2009. These
amounts do not represent the actual amounts paid to or realized by the
directors during fiscal 2009. The value as of the grant date for
restricted stock awards is recognized over the number of days of service
required for the stock option to vest in full. Refer to Note 2
and Note 12 of the Company's financial statements for a discussion related
to the calculation of such value.
|
|
|
|
|
|
|
|
As
of December 31, 2009, each non-employee director held an aggregate
number of 4,800 unvested restricted stock awards. Mr. Anderegg
did not hold any unvested restricted stock awards at December 31,
2009.
|
All
stock option awards held by the directors were fully vested prior to
2009. As of December 31, 2009, the aggregate number of outstanding
and exercisable options held by each director was as follows: Dr.
Aguilar, 15,000 options; General Babbitt, 5,000 options; Mr. Kames 16,000
options and; Lt. General McCausland, 5,000 options. Mr. Anderegg and
Mr. Stavropoulos did not hold any stock options at December 31,
2009
PROPOSAL 2
APPROVAL OF EXECUTIVE
LONG-TERM INCENTIVE PLAN
BACKGROUND
In
2007, DRC implemented an Executive Long-Term Incentive Program (ELTIP) to
replace the 2001 Executive Long-Term Incentive Program which expired in
2008. Grants from this program have been made each year to eligible
executives. The Hay Group, executive compensation consultants were
advisors to the Company in the development and implementation of this
plan. This plan was designed to provide an annual percentage of base
salary to be provided as long-term incentive (LTI) for a three-year performance
period. 75% of the total opportunity was provided as a cash incentive
based on performance against established performance goals over a three-year
period. The other 25% of the opportunity was provided in the form of
DRC restricted shares, with three-year time vesting with restrictions lapsing
one-third per year.
Updates
to this plan were made each year and approved by the Compensation Committee as
reported in previous proxy filings. No cash payouts were made under
this plan through the end of 2009.
For
2010, the Company once again engaged The Hay Group to review the plan design,
understand competitive levels, and propose changes to improve the efficacy of
the plan in retaining and motivating longer-term executive
performance. In this re-design, The Hay Group has proposed a
number of plan changes, the most significant of which is reducing the plan to a
two-year “end-to-end” plan still comprised of 75% cash and 25%
equity. However the equity portion as well as the cash portion now
has performance-based vesting as opposed to time-vesting only. In
each new two-year tranche, the value of two years’ of each executive’s
competitive annual target is provided to cover the extended
period. Upon The Hay Group’s recommendation, total executive
compensation will be comprised of a large portion of variable, at risk
compensation. For the CEO’s compensation, base pay equals
approximately one-third of total compensation and variable, at risk compensation
equals approximately two-thirds of total compensation. For other
executives, base pay equals approximately one-half of total compensation and
variable, at risk compensation equals approximately one-half of total
compensation. This amended version of the ELTIP shall be referred to
as the “2010 ELTIP.”
With
these plan changes, the Company now seeks shareholder approval of the 2010 ELTIP
to ensure that the Company will be able to take advantage of all the potential
tax deductions that might be available should the plan’s goals be achieved and
payouts be delivered at the competitive levels.
Any
actual cash and stock payouts under the 2010 ELTIP described above are not
presently determinable because they depend upon the level of achievement of the
performance goals described below.
TAX ISSUES
Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”) limits the
deductibility of compensation of the Company’s Chief Executive Officer and the
other executive officers whose compensation is required to be disclosed to
shareholders under the Securities and Exchange Act of 1934 by reason of being
among the Company’s most highly compensated officers (excluding the Chief
Financial Officer) to $1 million per year. However, the deduction limit
does not apply to amounts paid under a “performance-based plan” that complies
with specific rules under Section 162(m). In general,
compensation qualifies as being made from a performance-based plan only if it
satisfies each of the following four requirements: (i) the compensation is
payable on the attainment of one or more pre-established, objective performance
criteria; (ii) the performance criteria are established by a committee comprised
solely of two or more outside directors; (iii) the material terms of the
compensation and performance criteria are disclosed to and approved by
shareholders before payment; and (iv) the committee that established the
performance criteria certifies that the performance criteria have been satisfied
before payment.
PLAN OBJECTIVES
The
objective of DRC’s 2010 ELTIP plan is to provide an LTI approach
that:
|
|
·
|
Helps
to close a competitive gap in LTI compensation and total
compensation
|
|
|
·
|
Motivates
long-term performance achievement
|
|
|
·
|
More
closely aligns executive interests with interests of
shareholders
|
|
|
·
|
Provides
retention value for key executives
|
|
|
·
|
Provides
flexibility in participation as changes occur in the DRC executive
team
|
|
|
·
|
Ensures
deductibility of amounts paid under the 2010
ELTIP
|
ADMINISTRATOR
The
Compensation Committee will be the administrator of the 2010
ELTIP. With respect to ministerial tasks deemed appropriate by the
Compensation Committee, and solely to the extent permitted by Section 162(m) of
the Code, the term “Administrator” shall also include such persons (including
employees) to whom the Compensation Committee shall have delegated such
tasks.
ELIGIBILITY
Eligibility
for the 2010 ELTIP will be recommended by the Chairman and Chief Executive
Officer to the Compensation Committee, and will be limited to those key senior
operations and functional executives who have clear significant impact on the
overall performance of the Company. In addition,
recommendations will be made to and approved by the Compensation Committee as to
the amount of incentive to be granted to each executive based on competitive
analyses and assessment of internal impact on Company long-term
performance.
Grants
will generally be recommended every two years, beginning in 2010, during the
annual board meeting that includes the review of senior executive compensation
by the Compensation Committee. However, grants may be recommended at
other times during the year to ensure the inclusion of new members of the senior
executive team as required with the relevant performance goals adjusted
proportionately to reflect the executive’s employment during less than the full
performance period. In all cases, all participants must receive the
confirmation and approval of the Compensation Committee prior to becoming
eligible under the 2010 ELTIP.
REWARDS
The
LTI rewards will consist of both a cash and equity portion. The
amount of the opportunity granted will be based on a competitive assessment
using identified peer companies as well as published survey data as determined
necessary to maintain competitiveness. The amount of the award
opportunity will be developed by establishing a competitive annual percentage of
base salary to be delivered as LTI compensation. Each successive
tranche will include two years’ competitive target to provide for a two-year
“end-to-end” plan.
The
provisions of the 2010 ELTIP provide for 75% of the established opportunity to
be delivered as a cash award and 25% to be delivered in performance
shares. The extent of payout for both the cash component and
the share component is based on actual performance against pre-established goals
over the performance period. The number of performance shares
comprising that portion of the total target is determined at time of grant based
on 25% of the total target opportunity divided by the closing price of DRC
shares as of the date of the Board meeting authorizing the
grant. The actual number of shares to be paid will not be
determined until final certification of results and payouts as described
below.
PERFORMANCE METRICS AND PERFORMANCE GOALS
Within
90 days after the beginning of each performance period, the Compensation
Committee will specify in writing which performance metrics will apply during
the performance period and develop performance goals for each
participant. When the Compensation Committee sets the performance
goals, the Compensation Committee will establish general, objective rules that
will be used to determine the extent to which a participant’s performance goals
have been met.
The
performance metrics under the 2010 ELTIP are:
|
|
1.
|
Return
on Invested Capital (ROIC)
– 40% of Total
Award
|
|
|
2.
|
Compound
Annual Growth Rate (CAGR) Organic Revenue
– 60% of Total
Award
|
The
goals for the 2010-2011 performance periods are as follows:
|
Metric
|
2010
|
2011
|
2-Year
Average
Goal
|
|
Average
Two-Year ROIC
|
11.4%
|
11.7%
|
11.55%
|
|
Average
Two-Year Organic Annual Revenue Growth
|
5.0%
|
5.0%
|
5.0%
|
MEASUREMENT OF ACHIEVEMENT & PAYOUT
At
the end of each two-year performance period, the Compensation Committee will
certify in writing the extent to which the performance goals described above
have been met, and will authorize the extent of payment due, if any, to
participants. The amount of payment will be determined by using the
payout tables below for both metrics. At that time, the cash payment
will be made, and the earned number of performance shares will be converted to
DRC shares at the prevailing market price. There will be no further
restrictions on the shares upon final issuance.
Payout
due to the executives will be made as soon as possible following Board approval
of the payout but no later than as permitted under Section 409A of the
Code.
The
following payout schedules will be used to determine the level of payout for
each of the goals at the end of the performance period.
ROIC PERFORMANCE / PAYOUT TABLE
|
Actual
Performance % of
2-Year
Average Goal
|
Payout
%
of Target
|
|
150%
|
200%
|
|
125%
|
150%
|
|
115%
|
125%
|
|
110%
|
115%
|
|
100%
Target
|
100%
Target Payout
|
|
90%
|
85%
|
|
80%
|
50%
|
|
<80%
|
0
|
ORGANIC
REVENUE
GROWTH
RATE PERFORMANCE / PAYOUT TABLE
|
Actual
Performance % of
2-Year
Average Goal
|
Payout
%
of Target
|
|
300%
|
200%
Maximum Payout
|
|
280%
|
180%
|
|
260%
|
165%
|
|
240%
|
150%
|
|
220%
|
135%
|
|
200%
|
125%
|
|
180%
|
120%
|
|
160%
|
115%
|
|
140%
|
110%
|
|
120%
|
105%
|
|
100%
|
100%
Target Payout
|
|
95%
|
90%
|
|
90%
|
75%
|
|
85%
|
60%
|
|
80%
|
50%
|
|
LT
80%
|
0%
No Payout
|
As
indicated in the payout tables above, the maximum that any participant may
receive would be 200% of their established target, the capped payment level for
both goals.
On
February 16, 2010, the Compensation Committee approved the 2010 ELTIP and
approved the following potential awards to our named executive officers under
the plan, subject to the terms and conditions set forth herein. These
awards are contingent on shareholder approval of the 2010 ELTIP and will be
rescinded and of no further force or effect if the shareholders do not approve
the 2010 ELTIP. All ELTIP compensation is contingent upon the
achievement of 80% organic revenue growth, and 80% return on invested capital
performance objectives. The measurements and related payouts are
calculated separately.
|
|
Threshold
Payouts
at
80%
achievement
of
ROIC
and
CAGR
Goals
|
Target
Payouts
at
100%
achievement
of
ROIC
and
CAGR
Goals
|
Maximum
200%
payout
at
achievement
of
150% ROIC
and
300%
CAGR
Goals
|
|
James
P. Regan
|
$ 266,664
|
$ 533,328
|
$ 1,066,656
|
|
David
Keleher
|
$ 109,304
|
$ 218,607
|
$ 437,214
|
|
Steven
P. Wentzell
|
$ 54,165
|
$ 108,329
|
$ 216,658
|
|
Richard
A. Covel
|
$ 43,546
|
$ 87,092
|
$ 174,184
|
|
Lawrence
O'Brien
|
$ 55,612
|
$ 111,224
|
$ 222,448
|
The
maximum amount of cash that can be paid to any one participant is $799,992 for
each two year performance period. The maximum number of performance
shares that may be paid to any one participant is 25,616 shares for each two
year performance period.
ACQUISITIONS AND DIVESTITURES
In
the event of acquisitions and/or divestitures during the performance period, the
Compensation Committee may adjust the targets to reflect the transaction(s)
prior to determining the level of payout under the tables above.
TERMINATION OF EMPLOYMENT
Generally,
executives must be employed on the date of payment in order to receive any
payment due from the 2010 ELTIP. However, the following special
circumstances will apply based on type of termination:
|
|
·
|
Voluntary
Resignation
: In the event that a participant voluntarily
terminates employment from the Company, the participant forfeits all
claims to future compensation not yet paid from the 2010
ELTIP.
|
|
|
·
|
Involuntary
Termination “For Cause”
: In the event that a participant
is involuntarily terminated from employment with the Company “for cause”,
the participant forfeits all claims to any outstanding compensation not
yet paid from the 2010 ELTIP. For purposes of the 2010 ELTIP,
termination “for cause” is defined as termination for reasons, as deemed
by the Administrator in its sole discretion, which cast such discredit on
the participant so as to justify the termination of the
participant.
|
|
|
·
|
Involuntary
Termination “Not For Cause”:
In the event that a
participant is involuntarily terminated from employment by the Company
“not for cause”, at the end of the performance period, when full payouts
have been determined, the participant will be eligible to receive a
pro-rated payment based on the time worked through date of
termination.
|
|
|
·
|
Retirement:
In
the event that a participant elects to retire from employment prior to the
end of the performance period, the participant will be eligible to receive
payment based on the total performance against goals for the entire
performance period pro-rated through date of the executive’s
termination/retirement.
|
CORPORATE CHANGE OF CONTROL
In
the event of a corporate change of control, the performance goals for the
applicable performance period will be deemed satisfied, and participants will be
eligible to receive payment based on the cumulative performance against goals as
of the effective date of the change of control and pro-rated through the
effective date of the change of control.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Under
present United States federal income tax laws, participants will realize
ordinary income in the year of receipt in an amount equal to the sum of the cash
payment and the fair market value of the Company shares
deliverable. The Company will receive a deduction for the amount
constituting ordinary income to the participant, so long as the 2010 ELTIP and
the payment satisfy the requirements of Section 162(m) of the Code. It is
the Company’s intention that the ELTIP be constructed and administered in a
manner which maximizes the deductibility of compensation for the Company under
Section 162(m) of the Code.
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/A 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
|
|
|
·
|
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.
|
|
|
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.
|
|
|
·
|
We
maintain a disciplined approach to performance measurement that is applied
to the lowest level position up through the highest level
executive.
|
|
|
·
|
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.
|
|
|
·
|
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.
|
|
·
|
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.
|
|
|
·
|
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.
|
|
|
4.
|
We
offer a diversified array of benefits, covering health and welfare and
retirement savings programs that match competitive practice for our
industry.
|
|
|
5.
|
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.
|
|
|
6.
|
We
use a job evaluation system that appropriately balances internal ranking
and external competitiveness, is simple to administer, and is easy to
understand.
|
|
|
7.
|
We
continuously define, acknowledge and reward an individual’s acquisition of
the professional and technical skills that are important to our
success.
|
|
|
8.
|
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 details for each of
these programs are provided in the descriptions following this
chart.
|
Program
Element
|
|
Attraction
of
New
Executives
|
|
Retention
of
Executives
|
|
Motivating
Individual
Performance
|
|
Motivation
Group/Unit
Performance
|
|
Motivating
Corporate
Performance
|
|
Base
Salary
|
|
ü
|
|
ü
|
|
ü
|
|
ü
|
|
|
|
Annual
Cash Incentive Award
(Executive
Incentive Plan)
|
|
ü
|
|
ü
|
|
ü
|
|
ü
|
|
ü
|
|
2001
Executive Long-Term 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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|
Executive
Long-Term Incentive Plan
(2007
and Future Periods)
|
|
ü
|
|
ü
|
|
ü
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|
ü
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ü
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|
Restricted
Stock Awards
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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
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|
Senior
Management Deferred Compensation Plan
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ü
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ü
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|
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|
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Employment
Contracts and Change of Control Agreements
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ü
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ü
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Perquisites
and Other Benefits
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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 established for each during the first quarter of each fiscal year,
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 2009 for the named
executive officers averaged 2.9%. This was down from the increases
granted in February 2008 which averaged 3.8%. This change reflects
improvements in their competitive positioning within their salary
ranges.
Annual
Cash Incentive Award (Executive Incentive Plan)
The
Company’s 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
Compensation Committee of the Board of Directors approves a target award
percentage for each executive based on competitive analysis as mentioned
above. For 2009, target annual incentive opportunities set for
the named executive officers were as follows:
|
|
Target
Amount
|
Percent
of
Base Salary
|
|
Mr.
Regan
|
$
369,000
|
75%
|
|
Mr.
Keleher
|
$
115,238
|
50%
|
|
Mr.
O’Brien
|
$
77,480
|
35%
|
|
Mr.
Wentzell
|
$
75,463
|
35%
|
|
Mr.
Covel
|
$
57,388
|
25%
|
Corporate
financial goals for our Annual Cash Incentive Plan are U.S. GAAP revenue, U.S.
GAAP net income and receivables days sales outstanding (DSO). For 2009,
these corporate goals and achievement were as follows:
|
|
%
of
Award
|
Goal
|
Actual
Achievement
|
|
Revenue
|
45%
|
$
285.1 million
|
3.4%
below goal
|
|
Net
Income
|
45%
|
$
9.6 million
|
6.0%
above goal
|
|
Receivables
DSO
|
10%
|
101 days
|
2.9%
below goal
|
Mr.
Regan’s annual cash incentive bonus was based entirely on achievement of these
three goals.
The
Company’s key objective in the establishment of incentive compensation plans is
to pay for performance. For each of the named executive officers,
other than Mr. Regan, annual cash incentive bonuses were based on a balance of
quantitative and qualitative achievements in four areas:
|
|
(1)
|
The
corporate financial goals noted
above,
|
|
|
(2)
|
Individual
cost management objectives,
|
|
|
(3)
|
Individual
non-financial management objectives for their specific area of
responsibility, and
|
|
|
(4)
|
A
qualitative assessment of performance in the area of key company
management behaviors and values such as expertise in their area of
responsibility, teamwork, leadership, commitment to DRC’s mission, and
management skills.
|
Fifty
percent of the total incentive cash bonus for each named executive officers,
other than Mr. Regan, was based on actual performance achievement compared with
the first two quantitative goals and fifty percent on actual performance
achievement compared with the second two qualitative goals above, as evaluated
and recommended by the Chief Executive Officer and approved by the
Committee. Corporate objectives represented seventy-five percent of
the quantitative measurement and individual cost management objectives
represented twenty-five percent of the quantitative measurement.
Based
on the performance results achieved in 2009, awards granted to the named
executive officers for 2009 performance averaged 47.5% of base salary, which was
112.5% of their original target on average. Due to improved
performance, this was up from the prior year’s awards which averaged 45.2% of
base salary.
2001
Executive Long-Term Incentive Plan
The
2001 Executive Long-Term Incentive Plan (“ELTIP”) was a one-time long-term
incentive plan approved by the Compensation Committee and Board in
2001. The purpose of the plan was to provide 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. This plan provided
for 100% vesting after seven years with the opportunity for acceleration of
vesting if performance targets were achieved prior to the end of the
term. This plan became fully vested in May of 2008, and compensation
tables reflect the additional compensation to the participating individuals as a
result of this vesting. The plan terminated upon its final
vesting.
Long-Term
Incentive Plan (2007 and Future Periods)
Long-term
incentive cash awards were offered for the first time beginning in April 2007 in
anticipation of the lapsing of the 2001 Executive Long-Term Incentive Plan
described above. We believed it prudent to avoid any extended time
that does not provide both retention and long-term incentive for
executives.
At
that time, with the assistance of The Hay Group, a peer group competitive sizing
was completed to benchmark competitive total long-term incentive opportunity and
establish a percentage of base salary target for long-term incentives for our
eligible 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.
Each
annual award of our long-term incentive plan is structured in two components:
(1) 25% of the target value of the award is made in the form of restricted stock
with a three year vesting period, and (2) 75% of the target value of each award
is in the form of cash, based on achievement of selected objectives over a three
year performance period. Organic revenue growth and return on
invested capital (ROIC) have been the selected objectives for the awards made in
2007, 2008 and 2009.
Principal
factors considered in establishing organic revenue growth targets include (1)
historical organic revenue growth and expectations of improvement, (2) industry
projections of federal IT funding growth and (3) peer company organic growth.
Considering these factors, annual organic growth targets established for 2007
through 2011 were in the range of 5 to 6 percent.
Principal
factors considered in establishing ROIC targets include (1) historical ROIC
performance and expectations of improvement, (2) the Company’s weighted average
cost of capital, and (3) peer company ROIC. Considering these
factors, ROIC targets established for 2007 through 2011 were in the range of 11
to 13 percent.
In
an effort to assure competitiveness and design efficacy, we once again engaged
the Hay Group to review the plan design, confirm the competitive positioning of
the plan and to propose any changes that would enhance our ability to retain key
executives and motivate longer-term performance. The more
significant plan design changes include the conversion of the plan from a 3-year
performance period to a 2-year period and the requirement that both the cash and
the equity portion be earned by Company performance during the
period. The new plan provides that the equity portion be distributed
as “performance shares” for holding during the performance period, and that they
will only be issued as DRC shares based on performance during the period as
approved by the Compensation Committee and the Board of Directors.
This
re-design is detailed in the proposal being submitted as part of this proxy to
obtain shareholder approval. This new plan design increases the
likelihood that some of the executives might exceed limits defined in Section
162(m) of the Code and therefore shareholder approval is required to ensure full
deductibility of executive compensation.
Restricted
Stock Awards
This
program is designed to reward long-term performance at all levels and to provide
retention value to the executive. Grants may be made to executives
from time to time to meet retention needs or to be delivered as part of the
Executive Long-term Incentive Plan based on company performance.
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 sell 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. 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 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, 2012 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 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 an 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 the 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). Shareholder approval is required to assure ongoing full
deductibility of executive compensation. We believe that we will not be able to
deduct payments made under the 2010 ELTIP Tranche unless the proposed plan
submitted with this proxy is approved by shareholders.
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/A for 2009 and our 2010
proxy statement. This report is provided by the following independent directors,
who comprise the committee:
|
|
The
Compensation Committee of the Board of Directors
|
|
|
|
|
|
George
T. Babbitt, Chairman
|
|
|
Francis
J. Aguilar
|
|
|
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, 2009 to the named executive officers. 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
depend 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
|
|
|
|
|
|
|
•
|
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.
|
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 compensation of the named executive officers for our last
three completed fiscal years.
2009
Summary Compensation Table
|
Name
and
Principal Position
|
|
Year
|
|
Salary
|
|
Stock
Awards
(1)
|
|
Non-Equity
Incentive
Plan
Compensation
(2)
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
(3)
|
|
All
Other
Compensation
(4)
|
|
Total
|
|
|
James
P. Regan
|
|
2009
|
|
$
|
489,411
|
|
$
|
113,929
|
|
$
|
388,545
|
|
$
|
11,933
|
|
$
|
43,313
|
|
$
|
1,047,131
|
|
|
President,
Chairman and
|
|
2008
|
|
|
477,162
|
|
|
120,000
|
|
|
379,652
|
|
|
8,080
|
|
|
43,993
|
|
|
1,028,887
|
|
|
Chief
Executive Officer
|
|
2007
|
|
|
460,000
|
|
|
101,800
|
|
|
230,000
|
|
|
7,303
|
|
|
40,941
|
|
|
840,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Keleher
|
|
2009
|
|
$
|
286,925
|
|
$
|
33,345
|
|
$
|
169,624
|
|
$
|
5,880
|
|
$
|
23,188
|
|
$
|
518,962
|
|
|
Senior
Vice President and
|
|
2008
|
|
|
279,441
|
|
|
40,000
|
|
|
125,000
|
|
|
3,896
|
|
|
23,672
|
|
|
472,009
|
|
|
Chief
Financial Officer
|
|
2007
|
|
|
269,900
|
|
|
40,720
|
|
|
95,308
|
|
|
-
|
|
|
26,070
|
|
|
431,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
H. O'Brien
|
|
2009
|
|
$
|
219,781
|
|
$
|
22,230
|
|
$
|
89,745
|
|
$
|
41,041
|
|
$
|
22,747
|
|
$
|
395,544
|
|
|
Senior
Vice President and
|
|
2008
|
|
|
210,417
|
|
|
20,000
|
|
|
84,698
|
|
|
25,621
|
|
|
23,971
|
|
|
364,707
|
|
|
General
Manager,
|
|
2007
|
|
|
201,322
|
|
|
20,360
|
|
|
69,422
|
|
|
-
|
|
|
22,372
|
|
|
313,476
|
|
|
Business
Solutions and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
P. Wentzell
|
|
2009
|
|
$
|
214,732
|
|
$
|
20,007
|
|
$
|
80,494
|
|
$
|
-
|
|
$
|
22,681
|
|
$
|
337,914
|
|
|
Senior
Vice President and
|
|
2008
|
|
|
209,132
|
|
|
20,000
|
|
|
79,100
|
|
|
-
|
|
|
22,296
|
|
|
330,528
|
|
|
General
Manager,
|
|
2007
|
|
|
201,646
|
|
|
20,360
|
|
|
56,899
|
|
|
-
|
|
|
20,954
|
|
|
299,859
|
|
|
Human
Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Covel
|
|
2009
|
|
$
|
222,532
|
|
$
|
22,230
|
|
$
|
50,321
|
|
$
|
3,621
|
|
$
|
20,736
|
|
$
|
319,440
|
|
|
Vice
President, General
|
|
2008
|
|
|
222,656
|
|
|
20,000
|
|
|
55,957
|
|
|
2,668
|
|
|
21,418
|
|
|
322,699
|
|
|
Counsel
and Secretary
|
|
2007
|
|
|
214,785
|
|
|
20,360
|
|
|
40,341
|
|
|
-
|
|
|
20,956
|
|
|
296,442
|
|
|
(1)
|
|
With
the exception of ignoring the impact of the forfeiture rate, these amounts
represent the aggregate grant date fair value of awards for grants of
restricted stock awards to each listed director in fiscal 2009. These
amounts do not represent the actual amounts paid to or realized by the
directors during fiscal 2009. The value as of the grant date for
restricted stock awards is recognized over the number of days of service
required for the stock option to vest in full. Refer to Note 2
and Note 12 of the Company's financial statements for a discussion related
to the calculation of such value. Amounts from 2008 and 2007
were recalculated from amounts disclosed in prior Proxy Statements due to
changes in SEC rules.
|
|
|
|
|
|
(2)
|
|
Represents
Executive Incentive Plan payouts for the performance period ending in 2009
that were paid in the first quarter of 2010.
|
|
|
|
|
|
(3)
|
|
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 2009. Messrs. Regan, Keleher, O’Brien and
Covel experienced an increase in present value primarily due to the change
in discount rate from 6.25% at December 31, 2008 to 5.75% at December 31,
2009. Mr. Regan’s additional increase is due to a benefit adjustment
for employees who work beyond age 65.
|
|
|
|
|
|
(4)
|
|
The
amount shown as “all other compensation” includes the following
perquisites and personal benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
and
|
|
|
|
|
|
|
|
|
Company
|
|
Club
|
|
Life
|
|
401(k)
|
|
Dental
|
|
Total
Other
|
|
|
Name of Executive
|
|
Year
|
|
Vehicle
|
|
Membership
|
|
Insurance
|
|
Contributions
|
|
Insurance
|
|
Compensation
|
|
|
James
P. Regan
|
|
2009
|
|
$
|
7,922
|
|
$
|
5,605
|
|
$
|
6,598
|
|
$
|
9,800
|
|
$
|
13,388
|
|
$
|
43,313
|
|
|
|
|
2008
|
|
|
8,238
|
|
|
5,485
|
|
|
6,598
|
|
|
9,200
|
|
|
14,472
|
|
|
43,993
|
|
|
|
|
2007
|
|
|
7,649
|
|
|
4,615
|
|
|
6,598
|
|
|
8,958
|
|
|
13,121
|
|
|
40,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Keleher
|
|
2009
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,800
|
|
$
|
13,388
|
|
$
|
23,188
|
|
|
|
|
2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,200
|
|
|
14,472
|
|
|
23,672
|
|
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,000
|
|
|
17,070
|
|
|
26,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
H. O'Brien
|
|
2009
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,153
|
|
$
|
17,594
|
|
$
|
22,747
|
|
|
|
|
2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,819
|
|
|
19,152
|
|
|
23,971
|
|
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,302
|
|
|
17,070
|
|
|
22,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
P. Wentzell
|
|
2009
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,293
|
|
$
|
13,388
|
|
$
|
22,681
|
|
|
|
|
2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,824
|
|
|
14,472
|
|
|
22,296
|
|
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,833
|
|
|
13,121
|
|
|
20,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Covel
|
|
2009
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,348
|
|
$
|
13,388
|
|
$
|
20,736
|
|
|
|
|
2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,946
|
|
|
14,472
|
|
|
21,418
|
|
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,835
|
|
|
13,121
|
|
|
20,956
|
|
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 (“EIP”) and equity incentive restricted stock awards (“RSA”) made under the
2000 Incentive Plan. The threshold, target and maximum columns under the
non-equity incentive plan awards reflect the range of estimated payouts under
the EIP. RSAs granted to the named executive officer in 2009 were fixed,
therefore the number of awards granted is disclosed in the “target” column under
the equity incentive plan awards section. During 2009, we did not issue any
stock option awards and any related columns related to stock option information
have been eliminated.
2009
Grants of Plan-Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
Fair
|
|
|
|
|
|
|
|
|
Estimated
Future Payout Under
|
|
Estimated
Future Payout Under
|
|
Value
of
|
|
|
|
|
Award
|
|
Grant
|
|
Non-Equity
Incentive Plan Awards
|
|
Equity
Incentive Plan Awards
|
|
Stock
|
|
|
Name of Executive
|
|
Type
|
|
Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Awards
|
|
|
James
P. Regan
|
|
EIP
(1)
|
|
|
|
$
|
184,500
|
|
$
|
369,000
|
|
$
|
738,000
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
3/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
15,375
|
|
|
-
|
|
$
|
113,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Keleher
|
|
EIP
(1)
|
|
|
|
$
|
57,619
|
|
$
|
115,238
|
|
$
|
230,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
3/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
4,500
|
|
|
-
|
|
$
|
33,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
Fair
|
|
|
|
|
|
|
|
|
Estimated
Future Payout Under
|
|
Estimated
Future Payout Under
|
|
Value
of
|
|
|
|
|
Award
|
|
Grant
|
|
Non-Equity
Incentive Plan Awards
|
|
Equity
Incentive Plan Awards
|
|
Stock
|
|
|
Name of Executive
|
|
Type
|
|
Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Awards
|
|
|
Lawrence
O'Brien
|
|
EIP
(1)
|
|
|
|
$
|
38,740
|
|
$
|
77,480
|
|
$
|
154,960
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
3/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
3,000
|
|
|
-
|
|
$
|
22,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
P. Wentzell
|
|
EIP
(1)
|
|
|
|
$
|
37,732
|
|
$
|
75,463
|
|
$
|
150,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
3/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
2,700
|
|
|
-
|
|
$
|
20,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Covel
|
|
EIP
(1)
|
|
|
|
$
|
28,694
|
|
$
|
57,388
|
|
$
|
114,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA
(2)
|
|
3/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
3,000
|
|
|
-
|
|
$
|
22,230
|
|
|
(1)
|
|
EIP
information relates to awards that could have been earned in
2009. Amounts earned during 2009 and paid during the first
quarter of 2010 as described and quantified in the “Summary Compensation
Table.”
|
|
|
|
|
(2)
|
|
RSA
information relates to the restricted stock awards made in 2009 under the
2000 Incentive Plan. These awards were fixed and 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.
2009
Option Exercises and Stock Vested Table
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
of
Shares
|
|
Value
|
|
of
Shares
|
|
Value
|
|
|
|
|
Acquired
|
|
Realized
|
|
Acquired
|
|
Realized
|
|
|
|
|
on
|
|
Upon
|
|
on
|
|
Upon
|
|
|
Name
of Executive
|
|
Exercise
|
|
Exercise
(1)
|
|
Vesting
|
|
Vesting
(2)
|
|
|
James
P. Regan
|
|
|
200,000
|
|
$
|
1,799,600
|
|
|
10,333
|
|
$
|
76,134
|
|
|
David
Keleher
|
|
|
-
|
|
$
|
-
|
|
|
3,666
|
|
$
|
27,125
|
|
|
Lawrence
O'Brien
|
|
|
-
|
|
$
|
-
|
|
|
1,833
|
|
$
|
13,563
|
|
|
Steven
P. Wentzell
|
|
|
-
|
|
$
|
-
|
|
|
2,167
|
|
$
|
16,038
|
|
|
Richard
A. Covel
|
|
|
-
|
|
$
|
-
|
|
|
1,833
|
|
$
|
13,593
|
|
|
(1)
|
|
We
computed the aggregate dollar amount realized upon exercise by multiplying
the number of options by the difference between market value of the
underlying shares on the exercise date and the market value of the
underlying options on the grant date. During 2009, the Company
repurchased 66,081 shares to cover the option cost and 54,917 shares to
cover the payroll withholding taxes in connection with Mr. Regan’s
exercise.
|
|
|
|
|
|
(2)
|
|
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.
2009
Outstanding Equity Awards at Fiscal Year-End Table
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Name of Executive
|
|
Option
Grant
Date
|
|
Number
of Securities Underlying Unexercised Options
Exercisable
|
|
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
(1)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not
Vested
(2)
|
|
|
James
P. Regan
|
|
10/31/2000
|
|
|
5,350
|
|
$
|
8.38
|
|
10/31/2010
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
225,000
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
3,334
|
|
$
|
35,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/3/2008
|
|
|
8,000
|
|
$
|
84,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2009
|
|
|
15,375
|
|
$
|
163,129
|
|
|
David
Keleher
|
|
3/9/2000
|
|
|
17,600
|
|
$
|
7.50
|
|
3/9/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
60,000
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
1,334
|
|
$
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/3/2008
|
|
|
2,667
|
|
$
|
28,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2009
|
|
|
4,500
|
|
$
|
47,745
|
|
|
Lawrence
O'Brien
|
|
12/12/2000
|
|
|
10,000
|
|
$
|
8.25
|
|
12/12/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
45,000
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
667
|
|
$
|
7,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/3/2008
|
|
|
1,334
|
|
$
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2009
|
|
|
3,000
|
|
$
|
31,830
|
|
|
Steven
P. Wentzell
|
|
10/12/2004
|
|
|
25,000
|
|
$
|
15.73
|
|
10/12/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
667
|
|
$
|
7,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/3/2008
|
|
|
1,334
|
|
$
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2009
|
|
|
2,700
|
|
$
|
28,647
|
|
|
Richard
A. Covel
|
|
12/12/2000
|
|
|
20,000
|
|
$
|
8.25
|
|
12/12/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
5/31/2001
|
|
|
50,000
|
|
$
|
8.94
|
|
5/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2007
|
|
|
667
|
|
$
|
7,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/3/2008
|
|
|
1,334
|
|
$
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2009
|
|
|
3,000
|
|
$
|
31,830
|
|
|
(1)
|
Vesting
dates of unvested restricted stock awards are as
follows:
|
|
|
|
Vesting
Dates
|
|
|
Name of Executive
|
|
2/27/2010
|
|
3/2/2010
|
|
3/3/2010
|
|
3/2/2011
|
|
3/3/2011
|
|
3/2/2012
|
|
|
James
P. Regan
|
|
|
3,334
|
|
|
5,125
|
|
|
4,000
|
|
|
5,125
|
|
|
4,000
|
|
|
5,125
|
|
|
David
Keleher
|
|
|
1,334
|
|
|
1,500
|
|
|
1,333
|
|
|
1,500
|
|
|
1,334
|
|
|
1,500
|
|
|
Lawrence
O'Brien
|
|
|
667
|
|
|
1,000
|
|
|
667
|
|
|
1,000
|
|
|
667
|
|
|
1,000
|
|
|
Steven
P. Wentzell
|
|
|
667
|
|
|
900
|
|
|
667
|
|
|
900
|
|
|
667
|
|
|
900
|
|
|
Richard
A. Covel
|
|
|
667
|
|
|
1,000
|
|
|
667
|
|
|
1,000
|
|
|
667
|
|
|
1,000
|
|
|
(2)
|
Based
on the closing market price of our stock on the Nasdaq Global Market as of
December 31, 2009 of $10.61 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, 2009. 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.
2009
Pension Benefits Table
|
Name of Executive
(1)
|
|
Plan Name
|
|
Number
of
Years Credited
Service
(2)
|
|
|
Present
Value of Accumulated
Benefit
(3)
|
|
|
Payments
During Last Fiscal
Year
|
|
|
James
P. Regan
|
|
Defined
Benefit Plan
|
|
|
10.2
|
|
|
$
|
98,933
|
|
|
$
|
-
|
|
|
David
Keleher
|
|
Defined
Benefit Plan
|
|
|
10.0
|
|
|
$
|
50,581
|
|
|
$
|
-
|
|
|
Lawrence
O'Brien
|
|
Defined
Benefit Plan
|
|
|
30.0
|
|
|
$
|
335,047
|
|
|
$
|
-
|
|
|
Richard
A. Covel
|
|
Defined
Benefit Plan
|
|
|
9.1
|
|
|
$
|
34,239
|
|
|
$
|
-
|
|
|
(1)
|
|
Mr.
Wentzell was not eligible to participate in the defined benefit
plan.
|
|
|
|
|
|
(2)
|
|
The
defined benefit plan allows for a maximum of thirty years of credited
service.
|
|
|
|
|
|
(3)
|
|
Present
values are based on the same assumptions as used in the 2009 year-end
financial statement except that no pre-retirement mortality is assumed.
Please refer to footnote 11 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.
2009
Nonqualified Deferred Compensation Table
|
Name of Executive
(1)
|
|
Executive
Contributions in
Last
FY
|
|
Registrant
Contributions in
Last
FY
|
|
Aggregate
Earnings in
Last FY
(2)
|
|
Aggregate
Withdrawals/
Distributions
|
|
Aggregate Balance at Last
FYE
|
|
|
James
P. Regan
|
|
$
|
-
|
|
$
|
-
|
|
$
|
231,254
|
|
$
|
-
|
|
$
|
940,018
|
|
|
Lawrence
O'Brien
|
|
$
|
-
|
|
$
|
-
|
|
$
|
168
|
|
$
|
-
|
|
$
|
57,372
|
|
|
(1)
|
|
Messrs.
Keleher, Wentzell and Covel did not participate in the deferred
compensation plan during 2009.
|
|
|
|
|
|
(2)
|
|
Amounts
represent the change in market value and interest earned at market rates
during 2009.
|
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
(1)
|
|
Involuntary
Not for Cause
Termination
|
|
Involuntary
or Good Reason Termination
(Change in
Control)
|
|
|
James
P. Regan
(2)
|
|
|
|
|
|
|
Severance
(3)
|
|
$
|
880,545
|
|
$
|
1,722,000
|
|
|
Accelerated
vesting of equity incentive awards
(4)
|
|
|
283,382
|
|
|
283,382
|
|
|
Other
benefits
(5)
|
|
|
19,986
|
|
|
203,275
|
|
|
Total
|
|
$
|
1,183,913
|
|
$
|
2,208,658
|
|
|
|
|
|
|
|
|
|
|
|
David
Keleher
|
|
|
|
|
|
|
|
|
Severance
(6)
|
|
$
|
-
|
|
$
|
547,382
|
|
|
Other
benefits
(7)
|
|
|
-
|
|
|
20,082
|
|
|
Total
|
|
$
|
-
|
|
$
|
567,464
|
|
|
|
|
|
|
|
|
|
|
|
Steven
P. Wentzell
|
|
|
|
|
|
|
|
|
Severance
(8)
|
|
$
|
-
|
|
$
|
291,072
|
|
|
Other
benefits
(9)
|
|
|
-
|
|
|
13,388
|
|
|
Total
|
|
$
|
-
|
|
$
|
304,460
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Covel
|
|
|
|
|
|
|
|
|
Severance
(8)
|
|
$
|
-
|
|
$
|
286,940
|
|
|
Other
benefits
(9)
|
|
|
-
|
|
|
13,388
|
|
|
Total
|
|
$
|
-
|
|
$
|
300,328
|
|
|
(1)
|
|
Mr.
O’Brien has not entered into a change of control contract as of December
31, 2009.
|
|
|
|
|
|
(2)
|
|
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
2010, as described and quantified in the “2009 Summary Compensation
Table”.
|
|
|
|
|
|
(3)
|
|
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
2009 and (ii) the Executive Incentive Plan award earned for 2009 as
mentioned in (2) 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 2009 and (ii) two
times the 2009 target Executive Incentive Plan award, as described and
quantified in the “2009 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.
|
|
|
|
|
(4)
|
|
For
Mr. Regan, accelerated vesting of equity incentive awards as of
December 31, 2009 would include an aggregate of 26,709 restricted
stock awards. This realized gain is based on the Company’s year end
closing stock price of $10.61.
|
|
|
|
|
(5)
|
|
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.
|
|
|
|
|
(6)
|
|
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 2009 and (ii) the 2009
target Executive Incentive Plan award, as described and quantified in the
“2009 Grants of Plan-Based Awards” table. Severance payments would be paid
as a lump sum within seven business days after such
termination.
|
|
|
|
|
|
(7)
|
|
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.
|
|
|
|
|
(8)
|
|
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 2009 and
(ii) the 2009 target Executive Incentive Plan award, as described and
quantified in the “2009 Grants of Plan-Based Awards” table. Severance
payments would be paid as a lump sum within seven business days after such
termination.
|
|
|
|
|
(9)
|
|
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
REGISTERED PUBLIC ACCOUNTING FIRM
On
June 3, 2009 the Audit Committee voted to engage Grant Thornton LLP (“Grant
Thornton”) 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 consolidated financial statements and
audit of internal controls over financial reporting as of and for the years
ended December 31, 2009 and 2008. The Audit Committee approved 100% of the
2009 and 2008 audit fees.
|
Type of Fees
|
|
2009
|
|
2008
|
|
|
Audit
Fees
|
|
$
|
557,811
|
|
$
|
688,172
|
|
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/A and review of
financial statements included in the Form 10-Qs; for the audit of the
Company’s internal control over financial reporting; 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 2009 and 2008.
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 registered public accounting firm
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 Grant Thornton, 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 registered public accounting firm. 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
registered public accounting firm and the independent registered public
accounting firm’s 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 registered public accounting firm 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 four 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 2009 integrated audit of the Company’s financial statements
and internal controls over financial reporting, the Committee discussed with
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, 2009, including footnotes as
well as management’s discussion and analysis of results of operations included
in the Form 10-K/A. 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/A for the year ended December 31, 2009 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 March 31, 2010. There were no
shares of the Company’s preferred stock that was issued and outstanding as of
March 31, 2010. Except as otherwise indicated, each director or executive
officer listed below possessed sole voting and investment power with respect to
their shares.
|
Name of Beneficial Owner
|
|
Amount
and Nature of Beneficial
Ownership
(1)
|
|
Percent
of
Class
(2)
|
|
|
Francis
J. Aguilar
|
|
|
91,675
|
(3)
|
|
*
|
|
|
John
S. Anderegg, Jr.
|
|
|
767,728
|
(4)
|
|
7.4
|
%
|
|
General
George T. Babbitt Jr.
|
|
|
17,000
|
|
|
*
|
|
|
Kenneth
F. Kames
|
|
|
31,400
|
|
|
*
|
|
|
Lieutenant
General Charles P. McCausland
|
|
|
17,700
|
|
|
*
|
|
|
Nickolas
Stavropoulos
|
|
|
12,000
|
|
|
*
|
|
|
James
P. Regan
|
|
|
433,035
|
(5)
|
|
4.2
|
%
|
|
David
Keleher
|
|
|
87,874
|
|
|
*
|
|
|
Lawrence
O'Brien
|
|
|
62,845
|
|
|
*
|
|
|
Steven
P. Wentzell
|
|
|
34,750
|
|
|
*
|
|
|
Richard
A. Covel
|
|
|
83,906
|
|
|
*
|
|
|
All
Directors and Executive Officers as a Group (11 persons)
|
|
|
1,639,913
|
|
|
15.8
|
%
|
|
*
|
|
Less
than 1% of the outstanding shares of the Company common
stock.
|
|
|
|
|
(1)
|
|
Includes
options to acquire shares which are currently exercisable:
Dr. Aguilar, 15,000 shares; General Babbitt, 5,000 shares;
Mr. Kames, 16,000 shares; Lt. General McCausland, 5,000 shares;
Mr. Regan, 230,350 shares; Mr. Keleher, 60,000 shares;
Mr. O’Brien, 55,000 shares; Mr. Wentzell, 25,000 shares;
Mr. Covel, 70,000 shares; for a total of 481,350
shares. Messrs. Anderegg and Stavropoulos did not hold any
stock options as of March 31, 2010.
|
|
|
|
|
(2)
|
|
Outstanding
shares represent the 9,924,056 shares of the Company common stock
outstanding on March 31, 2010, plus an aggregate of 481,350 shares, as
noted above, for a total of 10,405,406 shares
outstanding.
|
|
|
|
|
(3)
|
|
Includes
11,655 shares held in a pension plan over which Dr. Aguilar has
sole voting and investment power.
|
|
|
|
|
(4)
|
|
Includes
90,300 shares held by Mr. Anderegg as custodian for his children,
84,902 shares held in the estate of his deceased spouse, of which
Mr. Anderegg is executor and 8,400 shares held by his current
spouse, as to all of which he disclaims beneficial
ownership.
|
|
|
|
|
(5)
|
|
Includes
2,000 shares held by Mr. Regan’s 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,
2009.
|
Name of Address of Principal
Shareholders
|
|
Amount
and Nature of Beneficial
Ownership
|
|
Percent
of
Class
(1)
|
|
|
Heartland
Advisors, Inc.
|
|
|
1,297,489
|
(2)
|
|
13.1
|
%
|
|
789
North Water Street
|
|
|
|
|
|
|
|
|
Milwaukee,
WI 53202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rutabaga
Capital Management LLC/MA
|
|
|
857,109
|
(3)
|
|
8.6
|
%
|
|
64
Broad Street, 3rd Floor
|
|
|
|
|
|
|
|
|
Boston,
MA 02109
|
|
|
|
|
|
|
|
|
(1)
|
|
Outstanding
shares represent the 9,923,357 shares of the Company common stock
outstanding on December 31, 2009.
|
|
|
|
|
(2)
|
|
According
to a Schedule 13G/A Heartland Advisors, Inc. (“Heartland”) filed with
the SEC on February 10, 2010, Heartland beneficially owns
1,297,489 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 1,151,295 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 11, 2010, Rutabaga beneficially owns
857,109 shares of the Company’s common stock and reported sole
dispositive power of such shares. Rutabaga reported sole voting power of
518,619 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 10 to our financial statements which are
included in our Form 10-K/A.
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. Please refer to
footnote 12 to our financial statements for additional information
regarding the ESPP.
The
following table summarizes, as of December 31, 2009, 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 shareholders:
|
|
|
|
|
|
|
|
|
1993
Equity Incentive Plan
|
|
|
10,000
|
|
$
|
18.41
|
|
|
-
|
|
|
1995
Stock Option Plan for Non-Employee Directors
|
|
|
11,000
|
|
$
|
13.32
|
|
|
-
|
|
|
2000
Incentive Plan
|
|
|
585,843
|
|
$
|
9.40
|
|
|
-
|
|
|
2003
Incentive Plan
|
|
|
-
|
|
$
|
-
|
|
|
372,024
|
|
|
Total
equity compensation plans approved by shareholders
|
|
|
606,843
|
|
$
|
9.62
|
|
|
372,024
|
|
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 subject to review and
approval or ratification by the Audit Committee. The Chief Financial
Officer reports to the Audit Committee all related party transactions in
accordance with the Company’s pre-filing disclosure procedures and Audit
Committee required review of such filings.
If
a related party transaction were identified it would be assessed by the
Company's inside counsel, the Company's outside counsel, the Company's internal
auditor, and the Audit Committee. An opinion would then be provided. The Company
assesses each matter on a case by case basis and applies standards and criteria
which are appropriate based on the type of transaction and any possible conflict
that may be raised. The Company has a policy, DRC's Standards of Ethics and
Conduct, which addresses related party transactions and/or potential conflicts
of interest. This policy applies to the Company's directors, officers
and employees.
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 2009.
ADDITIONAL
INFORMATION
Shareholder Proposals for 2011 Annual Meeting of
Shareholders
Proposals
of shareholders submitted pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 for consideration at the 2011 Annual Meeting of Shareholders must be
received by the Company no later than December 1, 2010 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 2011 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 12, 2011, then the proxies that management solicits for the 2011
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 2009 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 2009 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, Two Tech Drive,
Andover, MA 01810-2434, 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.
30
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