EXHIBIT 10.12
DYNAMICS RESEARCH CORPORATION
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made this 3rd day of November, 1999 by and between Xxxxx X.
Xxxxx ("Executive") and Dynamics Research Corporation. (the "Company");
RECITALS:
1. The Board of Directors of the Company (the "Board") recognizes that
the possibility of a change in control may exist and that such possibility, and
the uncertainty and questions which it may raise among management personnel, may
result in the departure or distraction of management personnel to the detriment
of the Company and its stockholders;
2. The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including Executive, to their duties, to assisting the
Board in assessing proposals with respect to a change in control and to advising
the Board as to the best interests of the Company and its shareholders with
respect to such potential change in control, without distraction and conflict
arising from the possibility of a change in control;
3. The Board wishes to induce Executive to remain in the employ of the
Company and to assure him of fair severance should his employment terminate in
specified circumstances following a change of control of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. If within 24 months following a Change of Control (as defined in
Exhibit A) (the "Post Change of Control Period") Executive's employment with the
Company is terminated (i) by the Company for any reason (other than for "Cause"
or "Disability" (as defined paragraph 4 below) or as a result of Executive's
death), or (ii) Executive terminates such employment for Good Reason (as defined
in paragraph 4 below):
(1) The Company will pay to Executive within five business days of
such termination of employment a lump-sum cash payment in an
amount equal to the sum of (i) Executive's annual base salary
("Base Salary") at the time of termination through the date of
such termination of employment to the extent not theretofore
paid, (ii) a prorated portion of Executive's target bonus
compensation for the fiscal year in which such termination shall
occur, calculated by multiplying (A) such bonus compensation
times (B) a fraction, the numerator of which is the number of
days in the fiscal year through the date of termination of
employment, and the denominator of which is 365, (iii) if
Executive has not been paid bonus
compensation with respect to the fiscal year prior to the year in
which such termination occurs and during which Executive was
employed by the Company (except where prior to the Change of
Control the Board had determined that no such incentive
compensation was to be paid to Executive with respect to such
prior year), Executive's target bonus for such prior fiscal year
prorated for the period of his employment by the Company if less
than a full year and (iv) any accrued and unpaid vacation pay
through the date of termination; and
(2) Any stock, stock option or other awards granted to Executive by
the Company shall immediately vest and, if applicable, become
exercisable in full, notwithstanding any provision to the
contrary, and shall remain exercisable, if applicable, until the
earlier of the fourth anniversary of such termination of
employment or the latest date on which such grant could have been
exercised, any restrictions on any restricted stock, deferred
stock or other awards shall immediately terminate and all such
awards shall immediately be vested in full, and any certificates
for any deferred stock shall be delivered to Executive no later
than five business days following such termination;
(3) The Company will pay to Executive within five business days of
such termination of employment a lump-sum cash payment in an
amount equal to two times the sum of (A) the amount of
Executive's Base Salary at the rate in effect immediately prior
to the date of termination or at the rate in effect immediately
prior to the Change of Control, whichever is higher, and (B) the
amount of Executive's target bonus compensation for the fiscal
year during which the termination of employment occurs or the
amount of Executive's target bonus compensation in effect
immediately prior to the Change of Control, whichever is higher.
(4) Executive, together with his dependents, will continue following
such termination of employment to participate fully in the life
and medical insurance plans maintained or sponsored by the
Company immediately prior to the Change of Control on the same
basis they participated prior to the Change in Control until the
earlier of (i) the second anniversary of such termination or any
longer period as may be provided by the terms of such plan or
(ii) the date Executive becomes re-employed with another employer
and is eligible to receive substantially equivalent life and
medical benefits under another employer provided plan, provided
that if the continued participation of Executive and his
dependents is not possible under the terms of any of such Company
plans, the Company shall instead either arrange to provide
Executive and his dependents with substantially equivalent
benefits or pay to Executive (within five days of the date of
termination) an amount equal to the full value thereof in cash;
and
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(5) the Company will promptly reimburse Executive for any and all
legal fees and expenses (including, without limitation,
stenographer fees and printing costs) incurred by him as a result
of such termination of employment, including without limitation
all fees and expenses incurred to enforce the provisions of this
Agreement or contest or dispute that the termination of his
employment is for Cause or other than for Good Reason (regardless
of the outcome thereof).
Notwithstanding anything herein to the contrary, (i) to the extent that any
payment or benefit provided for herein is required to be paid or vested on any
earlier date under the terms of any plan, agreement or arrangement, such plan,
agreement or arrangement shall control; and (ii) if the Company terminates
Executive's employment for a reason other than Cause prior to the date upon
which the Change of Control occurs, and Executive reasonably demonstrates that
such termination of employment (x) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (y) otherwise
arose in connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement, Executive shall be entitled to the benefits provides
in Section 1 above.
To avert duplication of benefits, if Executive receives any payment of Base
Salary, incentive compensation or severance other than under this Agreement
("Other Termination Payments") upon the termination of his employment with the
Company, the amount of such payments shall be deducted from the amount paid
under this Agreement and the benefits to be provided hereunder shall be provided
only to the extent additional to the benefits to be provided other than under
this Agreement; provided, however, that neither this paragraph nor the
provisions of any other agreement shall be interpreted to reduce the amount
payable to Executive below the amount that would otherwise have been payable
under this Agreement if such Other Termination Payments had not been made.
2. Death, Disability, Cause, Other Than For Good Reason
(1) If Executive's employment shall terminate during the Post Change
of Control Period by reason of Executive's death, this Agreement
shall terminate without further obligations to Executive's legal
representatives under this Agreement.
(2) If Executive's employment is terminated during the Post Change of
Control Period by reason of Executive's Disability, in accordance
with Section 4.c of the employment agreement between the Company
and the Executive of even date, this Agreement shall terminate
without further obligations to Executive.
(3) If Executive's employment shall be terminated for Cause (as
defined in Section 4 below) during the Post Change of Control
Period, this Agreement shall terminate without further
obligations to Executive other
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than the obligation to pay Executive (A) his Base Salary through
the date of termination and (B) Other Benefits, in each case to
the extent theretofore unpaid.
(4) If Executive voluntarily terminates employment during the Post
Change of Control Period, excluding a termination for Good
Reason, this Agreement shall terminate without further
obligations to Executive.
3. "Cause" means only: (a) commission of a felony or gross neglect of
duty by Executive rising to the level of deliberate dereliction, (b) conviction
of a crime involving moral turpitude, or (c) willful failure by Executive in the
performance of his duties to the Company which failure is deliberate on
Executive's part, results in material injury to the Company, and continues for
more than 30 days after written notice given to Executive pursuant to a two-
thirds vote of all of the members of the Board at a meeting called and held for
such purpose (after reasonable notice to Executive) and at which meeting
Executive and his counsel were given an opportunity to be heard, such vote to
set forth in reasonable detail the nature of the failure. For purposes of this
definition of Cause, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company. Any
act or failure to act based on authority given pursuant to a resolution duly
adopted by the Board or based on the advice of counsel of the Company shall be
conclusively presumed to be done, or omitted to be done, by Executive in good
faith and in the best interest of the Company. Cause shall not include willful
failure due to incapacity resulting from physical or mental illness or any
actual or anticipated failure after Notice of Termination for Good Reason.
4. Executive shall be deemed to have voluntarily terminated his
employment for Good Reason if Executive leaves the employ of the Company for any
reason following:
(1) The assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities immediately prior to the Change of Control; or
the diminution or adverse alteration in any material adverse
respect of such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by
Executive;
(2) Any reduction in Executive's rate of Base Salary for any fiscal
year to less than 100% of the rate of Base Salary payable for the
fiscal year immediately preceding the Change of Control or of the
Base Salary provided for such fiscal year in any agreement
between Executive and the Company, or reduction in Executive's
total cash and stock compensation
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opportunities, including Base Salary and incentives, for any
fiscal year to less than 100% of the total cash and stock
compensation opportunities made available to him immediately
preceding the Change of Control for the then current fiscal year
or of the total cash and stock compensation opportunities which
were to be made available to him for the fiscal year pursuant to
any agreement between Executive and the Company (for this
purpose, such opportunities shall be deemed reduced if the
objective standards by which Executive's incentive compensation
measured becomes more stringent, the target or maximum amounts of
such incentive compensation are reduced, or the amount of such
incentive compensation is reduced on a discretionary basis from
the amount that would be payable solely by reference to the
objectives); or
(3) Failure of the Company to continue in effect any retirement,
life, medical, dental, disability accidental death or travel
insurance plan or other benefit plan or practice, in which
Executive was participating immediately prior to the Change of
Control unless the Company provides Executive with a plan or
plans or practices that provide substantially similar benefits,
or the taking of any action by the Company that would adversely
affect Executive's participation in or materially reduce
Executive's benefits under any of such plans or practices or
deprive Executive of any material fringe benefit enjoyed by
Executive immediately prior to the Change of Control other than
an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Executive; or
(4) The Company requires Executive to be based at any office or
location further than 40 miles from Andover, Massachusetts, or
the Company requires Executive to travel on Company business to a
substantially greater extent than required immediately prior to
the date of the Change of Control; or
(5) Any failure by the Company to comply with and satisfy Section 6
of this Agreement.
Executive's right to terminate his employment pursuant to this section
shall not be affected by his incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason hereunder.
5. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Boston, Massachusetts before the American
Arbitration Association by serving a
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notice to arbitrate upon the Company or, at Executive's election, institute
judicial proceedings. The Company shall not have the right to initiate binding
arbitration, and agrees that upon the initiation of binding arbitration by
Executive pursuant to this paragraph 5 the Company shall cause to be dismissed
any judicial proceedings it has brought against Executive relating to this
Agreement. The Company authorizes Executive from time to time to retain counsel
of his choice to represent Executive in connection with any and all actions,
proceedings, and/or arbitration, whether by or against the Company or any
director, officer, shareholder, or other person affiliated with the Company,
which may affect Executive's rights under this Agreement. Company agrees to
(i) pay the fees and expenses of such counsel, (ii) to pay the cost of such
arbitration and/or judicial proceeding, and (iii) pay interest to Executive on
all amounts owed to Executive under this Agreement during any period of time
that such amounts are withheld pending arbitration and/or judicial proceedings.
Such interest shall be simple interest at the Prime Rate as published in the
"Money Rates" section of The Wall Street Journal on the effective date of
Executive's notice hereunder, but in no event higher than the maximum rate
permissible under applicable law; provided, however, that the interest rate will
be adjusted to the Prime Rate on each subsequent anniversary (or on the next
subsequent date for which such rate is published).
In addition, notwithstanding any existing or prior attorney-client
relationship between the Company and counsel retained by Executive, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel and agrees that a confidential relationship shall exist
between Executive and such counsel.
6. If the Company is at any time before or after a Change of Control
merged or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if substantially all of
the assets thereof are transferred to another corporation or other entity, the
provisions of this Agreement will be binding upon and inure to the benefit of
the corporation or other entity resulting from such merger or consolidation or
the acquirer of such assets (the "Successor Entity"), and this paragraph 6 will
apply in the event of any subsequent merger or consolidation or transfer of
assets. The Company will require any such Successor Entity to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such transaction had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any Successor Entity which assumes and agrees to
perform this Agreement by operation of law or otherwise.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Executive's right to or privilege of participation in any stock option or
purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.
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In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquiror of such assets of the Company.
7. Any termination by the Company for Cause, or by Executive for Good
Reason, shall be communicated by Notice of Termination to the other party hereto
given in accordance with the last paragraph of Section 12 of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
that (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
"Date of Termination" means (i) if Executive's employment is terminated by
the Company for Cause, or by Executive for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if Executive's employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the
Company notifies Executive of such termination and (iii) if Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of Executive or the effective date of the
Disability, as the case may be.
8. All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries, or estate will be subject to the withholding
of such amounts relating to tax and/or other payroll deductions as may be
required by law.
In the event that it is determined that any payment or benefit provided by
the Company to or for the benefit of Executive, either under this Agreement or
otherwise, will be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code or any successor provision(s) ("Section 4999"), the
Company will, prior to the date on which any amount of the excise tax must be
paid or withheld, make an additional lump-sum payment (the "Gross-up Payment")
to Executive in an amount sufficient, after giving effect to all federal, state
and other taxes and charges (including interest and penalties, if any) with
respect to the gross-up payment, to make Executive whole for all taxes
(including withholding taxes) and any associated interest and penalties, imposed
under or as a result of Section 4999.
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Determinations under this Section 8 will be made by the accounting firm
employed by the Company unless Executive has reasonable objections to the use of
that firm, in which case the determinations will be made by a comparable firm
chosen by Executive after consultation with the Company (the firm making the
determinations to be referred to as the "Firm"). The determinations of the Firm
will be binding upon the Company and Executive except as the determinations are
established in resolution (including by settlement) of a controversy with the
Internal Revenue Service to have been incorrect. All fees and expenses of the
Firm will be paid by the Company.
If the Internal Revenue Service asserts a claim that, if successful, would
require the Company to make a Gross-up Payment or an additional Gross-up
Payment, the Company and Executive will cooperate fully in resolving the
controversy with the Internal Revenue Service. The Company will make or advance
such Gross-up Payments as are necessary to prevent Executive from having to bear
the cost of payments made to the Internal Revenue Service in the course of, or
as a result of, the controversy. The Firm will determine the amount of such
Gross-up Payments or advances and will determine after final resolution of the
controversy whether any advances must be returned by Executive to the Company.
The Company will bear all expenses of the controversy and will gross Executive
up for any additional taxes that may be imposed upon Executive as a result of
its payment of such expenses.
9. There shall be no requirement on the part of Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the full
amount of any payments and benefits to which Executive is entitled under this
Agreement, and the amount of such payments and benefits shall not be reduced by
any compensation or benefits received by Executive from other employment other
than with respect to certain welfare benefits as provided in the first proviso
to Section 1(d).
10. Nothing contained in this Agreement shall be construed as a contract
of employment between Company and Executive, or as a right of Executive to
continue in the employ of Company, or as a limitation of the right of Company to
discharge Executive with or without Cause; provided that Executive shall have
the right to receive upon termination of his employment the payments and
benefits provided in this Agreement and shall not be deemed to have waived any
rights he may have either at law or in equity in respect of such discharge.
11. No amendment, change, or modification of this Agreement may be made
except in writing, signed by both parties.
12. This Agreement shall terminate on November 3, 2002, provided, however,
that commencing on November 3, 2000 and on each annual anniversary of such date
(each such date hereinafter referred to as a "Renewal Date"), unless previously
terminated, the term of this
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Agreement shall be automatically extended so as to terminate three years from
such Renewal Date, unless at least sixty days prior to the Renewal Date the
Company shall give notice to Executive that the term of this Agreement shall not
be so extended. This Agreement shall not apply to a Change of Control which
takes place after the termination of this Agreement.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal representatives
and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts, without regard to the
conflict of laws provisions thereof. Any ambiguities in this Agreement shall be
construed in favor of Executive.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount, or if no beneficiary has
been so designated, the legal representative of Executive's estate.
No right, benefit, or interest hereunder, shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-
off in respect of any claim, debt or obligation, or to execution, attachment,
levy or similar process, or assignment by operation of law. Any attempt,
voluntary or involuntary, to effect any action specified in the immediately
preceding sentence shall, to the full extent permitted by law, be null, void,
and of no effect.
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
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If to Executive: Xxxxx X. Xxxxx
--------------- 000 Xxxxxxxx Xxxx
XxXxxx, Xxxxxxxx 00000
If to the Company: Dynamics Research Corporation
----------------- 00 Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Chairman of the Board
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
DYNAMICS RESEARCH CORPORATION
By: /s/ Xxxxx X. Xxxxx
______________________________
________________________________
Xxxxx X. Xxxxx
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EXHIBIT A
Change of Control. For the purposes of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any person, corporation, partnership, limited
liability company or other entity (a "Person", which term shall
include a group within the meaning of section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")) of ultimate
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act), directly or indirectly of
30% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any such acquisition directly from the
Company, except for acquisition of securities upon conversion of
other securities of the Company (ii) any such acquisition by the
Company, (iii) any such acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any such
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of
this Exhibit A; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election, by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of
the Company in one or a series of transactions (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of
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the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly,
immediately following such Business Combination more than 50% of,
respectively, the outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
Business Combination) ultimately beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
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