-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K38yWr0xz66DDun0Ka4rChYDLzxVDwPeO2jmt+BE/EjQJwTyZ5UIItiqPkeI39Th f5/QDacmslYw/kdPPXXDKQ== 0000030822-97-000004.txt : 19970520 0000030822-97-000004.hdr.sgml : 19970520 ACCESSION NUMBER: 0000030822-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNAMICS RESEARCH CORP CENTRAL INDEX KEY: 0000030822 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 042211809 STATE OF INCORPORATION: MA FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02479 FILM NUMBER: 97606450 BUSINESS ADDRESS: STREET 1: 60 CONCORD ST CITY: WILMINGTON STATE: MA ZIP: 01887 BUSINESS PHONE: 5084759090 MAIL ADDRESS: STREET 1: 60 CONCORD ST CITY: WILMINGTON STATE: MA ZIP: 01887 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1997. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to . Commission File No.1-7348 DYNAMICS RESEARCH CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2211809 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 60 Frontage Road, Andover, Massachusetts 01810-5498 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (508) 475-9090 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No . The number of shares outstanding of the Registrant's Common stock, par value $.10 per share, at April 9, 1997 was 5,689,925 shares. DYNAMICS RESEARCH CORPORATION INDEX Page Part I Financial Information Number Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1997 and December 28, 1996 . . . . . . 3 Consolidated Statements of Income - Quarterly Period Ended March 31, 1997 and March 23, 1996 . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Quarterly Period Ended March 31, 1997 and March 23, 1996 . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . 9 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART I. FINANCIAL INFORMATION DYNAMICS RESEARCH CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands of dollars except share data) (unaudited) ASSETS March 31, 1997 December 28, 1996 CURRENT ASSETS: Cash and cash equivalents $ 165 $ 234 Receivables, less allowances of $326 in 1997 and $340 in 1996 19,772 19,436 Unbilled expenditures and fees on contracts in process 18,287 22,690 Inventories 2,903 3,211 Refundable income taxes 1,436 1,436 Prepaid expenses and other current assets 1,254 1,247 Total current assets 43,817 48,254 Property, plant and equipment, at cost Land 1,126 1,126 Building 7,774 7,774 Machinery and equipment 41,824 40,970 Less accumulated depreciation and amortization (28,909) (28,266) Net property, plant and equipment 21,815 21,604 Excess of purchase price over net assets of business acquired, net 1,156 1,244 Total assets $ 66,788 $ 71,102 LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Notes payable $ 11,250 $ 10,600 Accounts and drafts payable 2,759 8,925 Accrued payroll and employee benefits 7,790 6,998 Deferred contract and other revenue 150 42 Other accrued expenses 949 852 Accrued and current deferred income taxes 6,567 6,091 Current portion of long-term debt 1,201 1,201 Total current liabilities 30,666 34,709 Long-term debt - 300 Deferred income taxes 600 854 SHAREHOLDERS' INVESTMENT: Preferred stock, par value $.10 per share 5,000,000 shares authorized, none issued Common stock, par value $.10 per share - Authorized - 15,000,000 shares Issued - 6,707,433 shares in 1997 and 6,689,767 in 1996 671 669 Less: Treasury stock - 1,009,508 in 1997 and 996,108 in 1996, at par value (101) (100) Capital in excess of par value 9,472 9,516 Retained earnings 25,480 25,154 Total shareholders' investment 35,522 35,239 Total liabilities and shareholders' investment $ 66,788 $ 71,102 The accompanying notes are an integral part of these consolidated financial statements. DYNAMICS RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands of dollars, except per share data) (unaudited) Quarter Ended 12 Weeks Ended March 31, 1997 March 23, 1996 Product sales and contract revenue: Contract revenue $ 26,874 $ 20,474 Product sales 6,134 6,153 Total revenue 33,008 26,627 Costs and expenses: Cost of contract revenue 23,771 18,534 Cost of goods 5,169 4,559 Selling, engineering and administrative expenses 3,304 3,100 Total costs and expenses 32,244 26,193 Operating income 764 434 Interest expense, net 205 100 Income before provision for income taxes 559 334 Provision for income taxes 233 125 Net income $ 326 $ 209 Net income per common share: * $ .05 $ .03 Weighted average common shares outstanding * 6,266,031 6,219,373 The accompanying notes are an integral part of these consolidated financial statements. * Retroactively adjusted for the April 1997 stock dividend. DYNAMICS RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) (unaudited) Quarter Ended 12 Weeks Ended March 31, 1997 March 23, 1996 Cash provided by operations: Net income $ 326 $ 209 Depreciation and amortization 1,199 1,180 Deferred income taxes (254) - Provision for receivable reserves (14) 9 1,257 1,398 Cash provided by (used for) working capital: Receivables (322) (7,899) Unbilled expenditures and fees on contracts in process 4,403 5,841 Inventories 308 (475) Refundable income taxes - 3 Prepaid expenses and other current assets (7) (164) Accounts and drafts payable (6,166) 464 Accrued payroll and employee benefits 792 768 Deferred contract and other revenue 108 (599) Other accrued expenses 97 (10) Accrued and current deferred income taxes 476 (225) Net cash provided by (used for) operations 946 (898) Cash used for investing activities: Additions to property, plant and equipment, net (1,197) (1,792) Excess of purchase price over net assets of business acquired, net (125) (2,000) Net cash used for investing activities: (1,322) (3,792) Cash provided by (used for) financing activities: Net borrowings (repayment) under line of credit agreements 650 4,196 Principal payments under long-term borrowings (300) (300) Proceeds from the exercise of stock options 74 183 Purchase of treasury shares (117) - Net cash provided by (used for) financing activities 307 4,079 Net increase (decrease) in cash and cash equivalents (69) (611) Cash and cash equivalents at the beginning of the year 234 777 Cash and cash equivalents at the end of the period $ 165 $ 166 Supplemental disclosures of cash flow information: Cash paid during the quarterly period for: Interest $ 173 $ 108 Income taxes $ 16 $ 659 The accompanying notes are an integral part of these consolidated financial statements. DYNAMICS RESEARCH CORPORATION Notes to Consolidated Financial Statements Note 1. The unaudited consolidated financial statements presented herein have been prepared by the registrant pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements have not been audited by independent accountants, but in the opinion of the management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the results of operations. The results of operations for the quarterly period ended March 31, 1997 may not be indicative of the results that may be expected for the fiscal year ending December 31, 1997. Note 2. Inventories are comprised of the following (in thousands of dollars): March 31, 1997 December 28, 1996 Work in process $1,035 $1,411 Raw materials and subassemblies 1,868 1,800 Total inventories $2,903 $3,211 Note 3. The Company has changed its fiscal year. Previously, the Company used a 13-period accounting year with the first three fiscal quarters containing twelve weeks and the fourth fiscal quarter containing sixteen weeks. In 1996, the Company's fiscal year ended on December 28, 1996. The Company's fiscal year will now end on December 31 in each year, and the Company will employ a calendar-month accounting year. The Company's first year under this new method commenced on December 29, 1996 and will terminate on December 31, 1997. Accordingly, the first quarter of fiscal 1997 will contain thirteen weeks and 3 days. Thereafter, all quarters will contain thirteen weeks. Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Because the first quarter of 1996 contains 12 weeks and the first quarter of 1997 contains 13 weeks and 3 days as described in Note 3, the two quarters are not directly comparable. However, it is not practicable for the Company to provide financial information for comparable periods. Other than the factors discussed below and the additional length of the 1997 first quarter, the Company is not aware of any factors that would materially affect the comparability of the financial information. (The first quarter of 1997 is referred to herein as the first three months of 1997 as the three additional days in the quarter included only two working days.) Total revenue increased $6,381,000 or 24% for the first three months of 1997 compared to the first twelve weeks of 1996, consisting of increases mainly in the systems and services business segment. Contract revenues for the systems and services segment increased 31% for the first three months of 1997 compared to the first twelve weeks of 1996. Contributors to this growth included technical and management services contracts with the U.S. Army and Air Force as well as non- defense Federal and State contracts. Defense budget pressures and priorities may alter the future scope of defense programs, and the potential impact of these changes on the Company's future revenue is difficult to predict. Much of the Company's contract revenue relates to the development and operation of computer-based management information and logistics support systems, as well as other information technology services. The Company is continuing to pursue additional programs both within the Department of Defense (DoD) and with other government agencies, as well as in the telecommunications and non-defense information technology markets. During the first quarter of 1996 the Company acquired the Massachusetts based operations of Support Systems Associates, Inc. (SSAI). The acquired business included a prime contract to provide services under the Air Force's Technical & Engineering Management Support (TEMS) program which had an unfunded backlog with a potential value of approximately $24 million that may be used to support both existing business and new tasking for three years. The first quarter of 1997 reflects a full quarter of revenues under this contract. Product sales decreased less than 1% for the first three months of 1997 compared to the first twelve weeks of 1996. Sales of electroformed components for commercial ink-jet printers decreased in the quarter. Cost of contract revenue as a percentage of contract revenue decreased to 88% for the first three months of 1997 from 91% for the first 12 weeks of 1996. The shift from a subcontractor to a prime contractor on certain "time and material" business under the TEMS program increased hourly billing rates available to the Company for a full quarter in 1997. However, profit margins in the Defense services segment of the Company's business continue to be under pressure. Cost of goods as a percentage of product sales for the first three months of 1997 was 84%, up from 74% for the first twelve weeks of 1996. This increase was attributed principally to decreased production levels of electroformed components for commercial ink-jet printers. Selling, engineering and administrative expenses increased 7% from 1996 principally due to increased research and development and marketing efforts by the Company in connection with a software design and development tool which was announced during 1996. Interest expense, net was $205,000 in 1997 compared to $100,000 in 1996. This increase resulted from a higher level of average borrowings during the first quarter of 1997 which was due to working capital requirements attributable to growth, $9.3 million of capital expenditures in 1996 and a $2 million acquisition in 1996. The effective tax rate for the first three months of 1997 was 41.7% compared to 37.4% in 1996. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes (SFAS 109). Liquidity and Capital Resources During the first quarter of 1996, the Company's cash and cash equivalents decreased by $69,000. Receivables increased $336,000 to $19,772,000 at March 31, 1997 from $19,436,000 at December 28, 1996 while unbilled expenditures and fees on contracts in process decreased $4,403,000 to $18,287,000 from $22,690,000. These changes are principally due to the final billing of retained costs and fees on a large fixed price contract as well as invoicing provisions on various other contracts. Capital spending during the first quarter of 1997 was $1,197,000, consisting principally of computer equipment. This level of capital spending is expected to continue during 1997. The Company's primary sources of liquidity have been cash flow from operations and bank credit lines. At March 31, 1997, $7,750,000 was available under the Company's current lines of credit. The Company believes that its liquid assets, cash flow from operations, available bank lines of credit and additional bank financing will satisfy its operating and capital requirements for the foreseeable future. Forward Looking Information This report includes certain forward-looking statements about the Company's business including the effect of the federal budget on the Company's sales, anticipated capital spending, research and development spending and marketing spending. Such forward-looking statements are subject to risk and uncertainties that could cause the actual results to vary materially. These risks and uncertainties, discussed in more detail in the Company's Form 10-K for the year ended December 28, 1996, include possible reductions in federal funding for the Company's customers and potential customers, concentration of customers, risks of sustaining existing contracts and orders thereunder at the same or increasing levels and obtaining of new contracts, high levels of competition and difficulties of entering new markets, government contracting issues including audit adjustments and costs of completing fixed-price contracts, supply difficulties, warranty claims, and factors affecting the business segments in which the Company operated and the economy generally. PART II. OTHER INFORMATION Item 6. (a) Exhibits (10.1) Amended 1995 Stock Option Plan for Non-Employee Directors (10.2) Form of Consulting Agreement between Dynamics Research Corporation and Albert Rand (10.3) Form of Supplemental Retirement Pension Agreement between Dynamics Research Corporation and Albert Rand (27.1) Financial Data Schedule Item 6 (b) Reports on Form 8-K The Registrant did not file any reports on Form 8-K during the quarterly period for which this report is filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYNAMICS RESEARCH CORPORATION (Registrant) Date: May 13, 1997 By: /s/ Douglas R. Potter Douglas R. Potter Vice President of Finance and Chief Financial Officer (Principal financial and accounting officer) EX-27 2
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 165 0 38,059 0 2,903 43,817 50,724 28,909 66,788 30,666 1,201 0 0 671 34,851 66,788 6,134 33,008 5,169 28,940 3,304 14 205 559 233 326 0 0 0 326 .05 .05
EX-10 3 As Amended April 3, 1997 DYNAMICS RESEARCH CORPORATION 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSE The purpose of this 1995 Stock Option Plan for Non-Employee Directors (the "Plan") is to advance the interests of Dynamics Research Corporation (the "Company") by enhancing the ability of the Company to attract and retain non-employee directors who are in a position to make significant contributions to the success of the Company and to align the interest of those directors more closely with the stockholders. 2. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") of the Board of Directors (the "Board") of the Company designated by the Board for that purpose. Unless and until a Committee is appointed the Plan shall be administered by the entire Board, and references in the Plan to the "Committee" shall be deemed references to the Board. The Committee shall have authority, not inconsistent with the express provisions of the Plan, (a) to grant options in accordance with the Plan to such directors as are eligible to receive options; (b) to prescribe the form or forms of instruments evidencing options and any other instruments required under the Plan and to change such forms from time to time; (c) to adopt, amend and rescind rules and regulations for the administration of the Plan; (d) to accelerate the vesting of or otherwise change the terms of any option granted hereunder; and (e) to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Committee shall be conclusive and shall bind all parties. 3. EFFECTIVE DATE AND TERM OF PLAN The Plan shall become effective on the date on which the Plan is approved by the Board of Directors of the Company, subject to approval by the shareholders of the Company. No option shall be granted under the Plan after the completion of ten years from the date on which the Plan was adopted by the Board, but options previously granted may extend beyond that date. 4. SHARES SUBJECT TO THE PLAN (a) Number of Shares. Subject to adjustment as provided in Section 4(c), the aggregate number of shares of the Company's common stock (the "Stock") that may be delivered upon the exercise of options granted under the Plan shall be 100,000. If any option granted under the Plan terminates without having been exercised in full, the number of shares of Stock as to which such option was not exercised shall be available for future grants within the limits set forth in this Section 4(a). (b) Shares to be Delivered. Shares delivered under the Plan shall be authorized but unissued Stock or, if the Board so decides in its sole discretion, previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock shall be delivered under the Plan. (c) Changes in Stock. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capital stock, after the effective date of the Plan, the number and kind of shares of stock or securities of the Company subject to options then outstanding or subsequently granted under the Plan, the maximum number of shares or securities that may be delivered under the Plan, the exercise price, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. 5. ELIGIBILITY FOR OPTIONS Directors eligible to receive options under the Plan ("Eligible Directors") shall be those directors who are not employees of the Company or of any subsidiary of the Company. 6. TERMS AND CONDITIONS OF OPTIONS (a) Number of Options. On the date of the first annual meeting of stockholders following the adoption of this Plan each Eligible Director who is elected, reelected or continuing as a director on such date shall be awarded on such date an option covering 5,000 shares of Stock; thereafter, at each annual meeting or meeting of the board of directors at which a new Eligible Director is elected to the Board or following the election by the Board of a new Eligible Director to the Board, he or she shall be awarded an option covering 5,000 shares of Stock; and at each annual meeting subsequent to the annual meeting at which the initial grant was made to an Eligible Director and at which he or she is reelected or is continuing as a director, he or she shall be awarded an additional option covering 1,000 shares of Stock. (b) Exercise Price. The exercise price of each option shall be 100% of the fair market value per share of the Stock on the date the option is granted. In no event, however, shall the option price be less, in the case of an original issue of authorized stock, than par value per share. For purposes of this paragraph, (A) the fair market value of a share of Stock on any date shall be the Closing Price on such day or, if there was no Closing Price on such day, the latest day prior thereto on which there was a Closing Price; and (B) the "Closing Price" of the Stock on any business day will be the last sale price as reported on the principal market on which the Stock is traded or, if no last sale is reported, then the mean between the highest bid and lowest asked prices on that day. (c) Duration of Options. The latest date on which an option may be exercised (the "Final Exercise Date") shall be the date which is ten years from the date the option was granted. (d) Exercise of Options. (1) Each option shall become exercisable to the extent of one- third of the shares covered thereby on the date of the Annual Meeting held in each of the first, second and third years following the date of grant, except that options granted on dates other than the date of the Annual Meeting shall become exercisable to the extent of one-third of the shares covered thereby on each of the first, second and third anniversaries of the date of the grant. (2) Any exercise of an option shall be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (i) any documentation required by the Committee and (ii) payment in full for the number of shares for which the option is exercised. (3) The Committee shall have the right to require that the individual exercising the option remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or make other arrangements satisfactory to the employer with regard to such taxes) prior to the delivery of any Stock pursuant to the exercise of the option. If permitted by the Committee the individual exercising the option may elect, at such time and in such manner as the Committee may prescribe, to have the Company hold back from the transfer Stock having a value calculated to satisfy such withholding obligation. In the case of an individual subject to Section 16(b) of the Exchange Act, no such election shall be effective unless made in compliance with the applicable requirements of Rule 16b-3 or any successor Rule under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (4) If an option is exercised by the executor or administra tor of a deceased director, or by the person or persons to whom the option has been transferred by the director's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of the person or persons exercising the option. (e) Payment for and Delivery of Stock. Stock purchased under the Plan shall be paid for as follows: (i) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company; (ii) through the delivery of shares of Stock (which, in the case of shares of Stock acquired from the Company, have been outstanding for at least six months) having a fair market value on the last business day preceding the date of exercise equal to the purchase price; (iii) by having the Company hold back from the shares transferred upon exercise Stock having a fair market value on the last business day preceding the date of exercise equal to the exercise price; (iv) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the purchase price; or (v) by any combination of the permissible forms of payment; provided, that if the Stock delivered upon exercise of the option is an original issue of authorized Stock, at least so much of the exercise price as represents the par value of such Stock shall be paid other than with a personal check or promissory note of the option holder. An option holder shall not have the rights of a shareholder with regard to awards under the Plan except as to Stock actually received by him or her under the Plan. The Company shall not be obligated to deliver any shares of Stock (a) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, and (b) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of issuance, and (c) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the option, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. (f) Nontransferability of Options. No option may be transferred other than by will or by the laws of descent and distribution, and during a director's lifetime an option may be exercised only by him or her. (g) Death. Upon the death of any Eligible Director granted options under this Plan, all options not then exercisable shall terminate. All options held by the director that are exercisable immediately prior to death may be exercised by his or her executor or administrator, or by the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, at any time within one year after the director's death (subject, however, to the limitations of Section 6(c) regarding the maximum exercise period for such option). After completion of that one-year period, such options shall terminate to the extent not previously exercised. (h) Other Termination of Status of Director. If a director's service with the Company terminates for any reason other than death, all options held by the director that are not then exercisable shall terminate. Options that are exercisable on the date of termination shall continue to be exercisable for a period of three months (subject to Section 6(c)). After completion of that three-month period, such options shall terminate to the extent not previously exercised, expired or terminated. (i) Mergers, etc. In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of a sale or transfer of substantially all of the Company's assets or a dissolution or liquidation of the Company, all options hereunder will terminate; provided, that 20 days prior to the scheduled date of the stockholders meeting to vote upon any such merger, consolidation sale, dissolution, or liquidation as set forth in the related proxy statement, or if there shall be no such meeting, 20 days prior to the effective date of any such transaction, all options outstanding hereunder that are not otherwise exercisable shall become immediately exercisable, and provided, further that in the event such a transaction is to be accounted for as a pooling of interests, the Company shall provide for the surviving or acquiring corporation or an affiliate thereof to grant each holder of an option hereunder outstanding at the time of the transaction replacement options on substantially equivalent terms. 7. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, TERMINATION AND EFFECTIVENESS Neither adoption of the Plan nor the grant of options to a director shall affect the Company's right to grant to such director options that are not subject to the Plan, to issue to such directors Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued to directors. The Committee may at any time terminate the Plan as to any further grants of options. The Committee may at any time or times amend the Plan for any purpose which may at the time be permitted by law. EX-10 4 CONSULTING AGREEMENT This Agreement is made and entered into by and between Dynamics Research Corporation, a Massachusetts corporation (the "Company"), and Albert Rand (the "Consultant") as of 22nd day of April, 1997. WHEREAS Consultant has been employed by the Company for many years, most recently as its President and Chief Executive Officer, and is eligible to retire from such employment; and WHEREAS, in view of Consultant's valuable experience as an executive employee, the Company wishes to retain Consultant to provide consulting services to the Company for a period of time following retirement of the Consultant. NOW THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions contained in this Agreement, the parties agree as follows: 1. Term. Subject to earlier termination, as hereinafter provided, the term of this Agreement shall be for a period of five (5) years, commencing as of the date of retirement of the Consultant from the employ of the Company (such period is referred to hereafter as "the term hereof" or "the term of this Agreement.") 2. Relationship of the Parties. a. It is expressly understood and agreed by the parties that the Consultant will be an independent contractor in the performance of each and every part of this Agreement and that nothing contained in this Agreement is intended, or shall be construed, to constitute the Consultant as the employee, agent, partner or joint venturer of the Company or as constituting the exercise by the Company of control or direction over the manner or method by which the Consultant performs the services which are the subject of this Agreement. b. During the term of this Agreement, the Consultant shall have no right, power or authority in any way to bind the Company to the fulfillment of any condition, contract or obligation or to create any liability binding on the Company. The Company shall not be responsible for any expenses or liabilities incurred by the Consultant during the term of this Agreement, other than business expenses expressly authorized in writing by a duly authorized representative of the Company. 3. Consultant's Services. During the term hereof, the Consultant shall provide such advice and other consulting services on such subjects familiar to the Consultant as the Company may from time to time request, upon reasonable notice to the Consultant, oral or in writing. Services shall be provided during normal business hours, unless otherwise mutually agreed. The Consultant shall devote such business time as is necessary or appropriate to fully perform hereunder; provided, however, that Consultant shall not be obligated hereunder to provide consulting services more than three (3) days per month. During the term of this agreement, the Consultant shall be free to engage in other employment or self-employment (subject to paragraph 7 below) provided that such other duties are compatible with the Consultant's commitments to the Company under this paragraph. The Consultant shall be free to move his residence during the term of this Agreement. 4. Compensation. a. During the term hereof, as full compensation for all services performed by Consultant for the Company and subject to the Consultant's performance hereunder, the Company agrees to pay the Consultant a fee (the "Consulting Fee") at the rate of Sixty Thousand Dollars ($60,000) per year, payable in approximately equal monthly installments in arrears during the term hereof. b. As an independent contractor, the Consultant shall be solely responsible for all incidents of employment for himself and his employees and agents, including without limitation workers' compensation insurance, unemployment insurance, withholding and payment of all federal and state income taxes and social security and Medicare taxes and other legally-required payments on sums received from the Company. 5. No Eligibility for Employee Benefits. The Consultant understands that he is an independent contractor and, as such, neither he nor any dependent or other individual claiming through him will be eligible as a result of this Agreement to participate in, or receive benefits under, any of the employee benefit plans, programs and arrangements maintained by the Company (collectively, the "Plans"). The Consultant hereby waives irrevocably any and all rights as a result of this Agreement to participate in, or receive benefits under, any of the Plans. Nothing herein shall limit the Consultant's rights to any benefits to which he may be entitled pursuant to the Company's tax- qualified retirement or other benefit plans as a result of his previous employment with the Company. 6. Insurance. The Consultant acknowledges that the Company will not maintain any comprehensive general liability, workers' compensation or other insurance on behalf of the Consultant as a result of this Agreement and that it is the sole responsibility of the Consultant to obtain and keep in force such insurance as Consultant determines appropriate. The Consultant assumes all risk in connection with the adequacy of any and all such insurance which he elects to obtain. 7. Confidential Information; Non-Competition. The Consultant agrees that some restrictions on his activities during and after the term of this Agreement are necessary to protect the Confidential Information, good will and other legitimate interests of the Company, as follows: a. During the term hereof, the Consultant shall not, directly or indirectly, compete with the Company, whether as a contractor, consultant, agent, partner, principal, investor, employee or otherwise. Specifically, but without limiting the generality of the foregoing, the Consultant agrees that he shall not, directly or indirectly, solicit or encourage any customer of the Company to terminate or diminish its relationship with the Company or to conduct with himself or with any other person, organization or other entity any business or activity which such customer conducts or could conduct with the Company. Notwithstanding the foregoing, nothing herein shall prevent Consultant from owning up to 5% of the outstanding equity securities of any company traded on a national securities exchange or quoted on the NASDAQ National Market. Consultant further agrees that, during the term hereof, he shall not, directly or indirectly, hire or attempt to hire any employee of the Company, assist in such hiring by any other person or entity, or encourage any such employee to terminate his or his relationship with the Company. b. The Consultant acknowledges that, during the course of his performance under this Agreement, the Consultant may develop Confidential Information for the Company and may learn of Confidential Information developed or owned by the Company or entrusted to it by others. The Consultant agrees that he will not, during the term of this Agreement or at any time thereafter, use or disclose any Confidential Information without the prior written consent of the Chief Executive Officer of the Company. (For purposes of this Agreement, "Confidential Information" means any and all information of the Company that is not generally available to the public. Confidential Information includes but is not limited to (i) the Company's development, research and marketing activities, (ii) the Company's products and services, (iii) the Company's costs, sources of supply and strategic plans, (iv) the identity and special needs of the Company's customers and (v) the people and organizations with whom the Company has business relationships and those relationships. Confidential Information also includes such information as the Company may receive or has received belonging to customers or others who do business with it.) 8. No Conflicting Agreements. The Consultant hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which the Consultant is a party or is bound and that the Consultant is not now subject to any covenants against competition or similar covenants that would affect the performance of his obligations hereunder. The Consultant will not disclose to or use on behalf of the Company any proprietary information of any third party without such party's consent. 9. Termination. Notwithstanding the provisions of Section 1 hereof, this Agreement shall terminate under the following circumstances and no others: a. Death. In the event of the Consultant's death during the term hereof, this Agreement shall immediately and automatically terminate. b. Termination by the Company For Cause. The Company may terminate this Agreement for Cause at any time upon notice to the Consultant setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board of Directors of the Company in its reasonable judgment, shall constitute Cause for termination: i. The Consultant's willful and continued failure substantially to perform his duties and responsibilities hereunder (other than by reason of disability) after specific written demand for performance which failure is or will be demonstrably and materially injurious to the Company; ii. Consultant's dishonesty, gross negligence or other willful misconduct related to this Agreement which is or will be demonstrably and materially injurious to the Company; or iii. Consultant's material and continued breach of Section 7 hereof after specific written demand for performance. c. Effect of Termination. Upon termination of this Agreement in accordance with this Section 9 or by expiration of the term, the Company shall have no further obligations to the Consultant, other than for the Consulting Fee prorated through the date of termination. 10. Enforceability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11. Assignment. This Agreement shall be binding upon the Company and any successor thereto by merger, consolidation, sale of assets or otherwise. Executive's rights and obligations under this Agreement may not be assigned, pledged, hypothecated, or otherwise transferred or alienated in any way. 12. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. Notices. Except as otherwise expressly provided herein, any notices, requests, demands or other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person or mailed, postage prepaid, and addressed to the Consultant at his last known address on the books of the Company or, in the case of the Company, to it at its main office, attention: President or to such other address as either party may specify to the other by written notice actually received. 14. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements, whether written or oral, with respect to the services to be provided by the Consultant to the Company and all matters related thereto, provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Consultant pursuant to any other agreement with respect to confidentiality or any restrictions on the activities of the Consultant or the like. 15. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Consultant and by a duly authorized representative of the Company. 16. Captions and Counterparts. The captions and headings in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 17. Governing Law. This is a Massachusetts contract and shall be construed and enforced under and be governed in all respects by the laws of The Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Consultant, as of the date first written above. THE CONSULTANT: THE COMPANY: Dynamics Research Corporation ______________________ By: ___________________________ Albert Rand Name: Title: EX-10 5 SUPPLEMENTAL RETIREMENT PENSION AGREEMENT THIS SUPPLEMENTAL RETIREMENT PENSION AGREEMENT dated as of April 22, 1997, by and between Dynamics Research Corporation (the "Company") and Albert Rand ("Executive"). WITNESSETH: WHEREAS Executive has been employed by the Company for many years, most recently as President and Chief Executive Officer, and is eligible to retire from such employment; and WHEREAS the Company wishes to reward Executive for his many years of prior service by awarding him a supplemental retirement pension. NOW, THEREFORE, in consideration of these presents and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows: 1. Supplemental pension. Commencing on the sixth anniversary of Executive's retirement from his employment with the Company and continuing until Executive's death, the Company shall pay a monthly supplemental retirement benefit of Four Thousand Seven Hundred Sixty Dollars ($4,760) to Executive while he is living. The supplemental pension described in this paragraph shall be in addition to, and not in lieu of, any other benefits to which Executive may be entitled. The supplemental pension described in this paragraph shall be an unfunded obligation of the Company, payable out of its general assets, and nothing herein shall be construed as requiring the Company to establish a trust or fund or to set aside any assets to meet its obligations hereunder. Executive's rights to the supplemental pension described herein shall be no greater than those of an unsecured general creditor of the Company. 2. Non-competition, etc. 2.1 During the term hereof, Executive shall not, directly or indirectly, compete with the Company, whether as a contractor, consultant, agent, partner, principal, investor, employee or otherwise. Specifically, but without limiting the generality of the foregoing, Executive agrees that he shall not, directly or indirectly solicit or encourage any customer of the Company to terminate or diminish its relationship with the Company or to conduct with himself or with any other person, organization or other entity any business or activity which such customer conducts or could conduct with the Company. Notwithstanding the foregoing, nothing herein shall prevent Consultant from owning up to 5% of the outstanding equity securities of any company traded on a national securities exchange or quoted on the NASDAQ National Market. Executive further agrees that, during the term hereof, he shall not, directly or indirectly, hire or attempt to hire any employee of the Company, assist in such hiring by any other person or entity, or encourage any such employee to terminate his or her relationship with the Company. 2.2 Executive agrees that he will not use or disclose any Confidential Information without the prior written consent of the Chief Executive Officer of the Company. (For purposes of this Agreement, "Confidential Information" means any and all information of the Company that is not generally available to the public. Confidential Information includes but is not limited to (i) the Company's development, research and marketing activities, (ii) the Company's products and services, (iii) the Company's costs, sources of supply and strategic plans, (iv) the identity and special needs of the Company's customers and (v) the people and organizations with whom the Company has business relation ships and those relationships. Confidential Information also includes such information as the Company may receive or has received belonging to customers or others who do business with it.) Executive shall notify the Company of any proposed activity which might violate the provisions of this Section 2. 3. Assignment. This Agreement shall be binding upon the Company and any successor thereto by merger, consolidation, sale of assets or otherwise. Executive's rights and obligations under this Agreement may not be assigned, pledged, hypothecated, or otherwise transferred or alienated in any way. 4. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 5. Notices. Except as otherwise expressly provided herein, any notices, requests, demands or other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person or mailed, postage prepaid, and addressed to Executive at his last known address on the books of the Company or, in the case of the Company, to it at its main office, attention: President or to such other address as either party may specify to the other by written notice actually received. 6. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements, whether written or oral, with respect to the subject matter hereof, provided, however, that this Agreement shall not terminate or supersede any additional obligations of Executive pursuant to any other agreement with respect to confidentiality or any restrictions on the activities of Executive or the like. 7. Amendment. This Agreement may be amended or modified only by a written instrument signed by Executive and by a duly authorized representative of the Company. 8. Captions and Counterparts. The captions and headings in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 9. Governing Law. This is a Massachusetts contract and shall be construed and enforced under and be governed in all respects by the laws of The Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof. IN WITNESS WHEREOF, the Company and Executive have duly executed this Agreement as of the date first set forth above. DYNAMICS RESEARCH CORPORATION By:_____________________________ ________________________________ Albert Rand -----END PRIVACY-ENHANCED MESSAGE-----