FIRSTAMENDMENT TO THIRD AMENDED AND RESTATEDLOAN AGREEMENT

This First Amendment to Third Amended and Restated Loan Agreement (this “Amendment”) is made as of the 12th day of May, 2008, by and among

 

Brown Brothers Harriman & Co. (hereinafter, the “Administrative Agent”), a general partnership organized under the laws of the State of New York with offices at 40 Water Street, Boston, Massachusetts 02109; and

 

TD Banknorth, N.A. (hereinafter, the “Documentation Agent”) a national banking association with offices at 7 New England Executive Park, Burlington, Massachusetts 01803; and

 

Bank of America, N.A. (hereinafter, the “Syndication Agent”), and, together with the Administrative Agent and the Documentation Agent, the “Agents”), a national banking  association with offices at 100 Federal Street, Boston, Massachusetts 02110,

 

as Agents on behalf of Brown Brothers Harriman & Co., TD Banknorth, N.A., Bank of America, N.A., and the other financial institutions which may hereafter become parties to the Loan Agreement (as defined below) (each such party a “Lender” and collectively the “Lenders”),

 

and

 

Dynamics Research Corporation (hereinafter, the “Lead Borrower”), a Massachusetts corporation, with its principal executive offices at 60 Frontage Road, Andover, Massachusetts, as agent for itself and each of

 

DRC International Corporation (“International”), a Massachusetts corporation with its principal executive offices at 60 Frontage Road, Andover, Massachusetts; and

 

H.J. Ford Associates, Inc. (“H.J. Ford”), a Delaware corporation with its principal executive offices at 60 Frontage Road, Andover, Massachusetts,

 

(each of the Lead Borrower, International, and H.J. Ford, being sometimes hereinafter referred to individually as a “Borrower” and collectively as the “Borrowers”).

 

WHEREAS, the Borrowers, the Lenders and the Agents are parties to a certain Third Amended and Restated Loan Agreement dated September 29, 2006 (as may be amended and in effect from time to time, the “Loan Agreement”);

 

WHEREAS, the Borrowers have requested that the parties hereto amend the Loan Agreement to modify certain covenants contained therein and certain other provisions of the Loan Agreement; and

 

WHEREAS, the Agents and the Lenders each agree to modify and amend certain provisions of the Loan Agreement, subject to the terms and conditions set forth herein;

 

NOW THEREFORE, as an additional inducement for the Lenders to maintain the revolving credit facilities on the terms and conditions set forth in the Loan Agreement as amended hereby, and for

 

IN WITNESS WHEREOF, the parties have duly executed this Amendment as a sealed instrument as of the date first set forth above.

 

	DYNAMICS RESEARCH CORPORATION
	(“Lead Borrower and Borrower”)
	By:	/s/ David Keleher
	Name:	David Keleher
	Title:	Senior Vice President - Finance, CFO and Treasurer

 

	DRC INTERNATIONAL CORPORATION
	(“Borrower”)
	By:	/s/ David Keleher
	Name:	David Keleher
	Title:	Vice President - Finance and CFO

 

	H.J. FORD ASSOCIATES, INC.
	(“Borrower”)
	By:	/s/ David Keleher
	Name:	David Keleher
	Title:	Treasurer, CFO and Assistant Secretary

	BROWN BROTHERS HARRIMAN & CO.
	(“Administrative Agent and Lender”)
	By:	/s/ Daniel G. Head Jr.
	Name:	Daniel G. Head Jr.
	Title:	S.V.P.

 

	TD BANKNORTH, N.A.
	(“Documentation Agent and Lender”)
	By:	/s/ Jeffrey R. Westling
	Name:	Jeffery R. Westling
	Title:	Senior Vice President

 

	BANK OF AMERICA, N.A.
	(“Syndication Agent and Lender”)
	By:	/s/ Jean S. Manthorne
	Name:	Jean S. Manthorne
	Title:	Senior Vice President

1.           As a defense contractor, the Company is subject to many levels of audit and review from various government agencies, including the Defense Contract Audit Agency, various inspectors general, the Defense Criminal Investigation Service, the Government Accountability Office, the Department of Justice and Congressional Committees. Both related to and unrelated to its defense industry involvement, the Company is, from time to time, involved in audits, lawsuits, claims, administrative proceedings and investigations. The Company accrues for liabilities associated with these activities when it becomes probable that future expenditures will be made and such expenditures can be reasonably estimated. Except as noted below, the Company does not presently believe it is reasonably likely that any of these matters would have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. The Company’s evaluation of the likelihood of expenditures related to these matters is subject to change in future periods, depending on then current events and circumstances, which could have material adverse effects on the Company’s business, financial position, results of operations and cash flows.

 

2.           On October 26, 2000, two former Company employees were indicted and charged with conspiracy to defraud the United States Air Force, and wire fraud, among other charges, arising out of a scheme to defraud the United States out of approximately $10 million. Both men subsequently pled guilty to the principal charges against them. On October 9, 2003, the United States Attorney filed a civil complaint in the United States District Court for the District of Massachusetts against the Company based in substantial part upon the actions and omissions of the former employees that gave rise to the criminal cases against them. In the civil action, the United States is asserting claims against the Company. These claims, which cannot lead to multiple awards, are based on the False Claims Act, the Anti-Kickback Act, and breach of contract for which the government estimates damages at approximately $24 million, $20 million and $10 million, respectively. The United States Attorney also seeks recovery on certain common law claims and equitable claims as for recovery of costs, and interest on breach of contract damages. The Company estimates the maximum awardable amount of damages to be $26 million. On February 14, 2007, the U.S. Attorney filed a motion for summary judgment as to liability and as to damages in this matter. On March 31, 2008, the Court issued a Memorandum on Summary Judgment Motion granting summary judgment in favor of the Government on the breach of contract, False Claims Act and Anti-Kickback Act claims but, due to substantial disputed facts, denied summary judgment on damages.  The Court has scheduled a status conference on June 10, 2008. Upon completion of the proceedings in District Court to determine the amount of damages, if any, for which the Company is liable, the Company would consider appealing the District Court’s decision granting summary judgment to the Government depending on the outcome. Nevertheless, the Company believes the Court Memorandum of March 31, 2008 substantially narrows the range of likely outcomes.

 

Accordingly, at March 31, 2008, the Company has recognized an estimated liability for all claims related to this matter in the amount of $9 million, reduced by $2.2 million for estimated tax benefits, for an aftertax effect of $6.8 million.  Of this amount, $181 was provided for in previous periods.  This amount represents the Company’s best estimate of liability.  However, as the matter is on-going, the ultimate outcome remains uncertain. Due to these uncertainties, actual results may eventually differ materially from the $9 million the Company has provided, and the range of reasonably possible loss

 

cannot be estimated. As a result, there can be no assurance that that there will be additional provisions required, which could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

 

3.           The Company has provided documents in response to a previously disclosed grand jury subpoena issued on October 15, 2002 by the United States District Court for the District of Massachusetts, directing the Company to produce specified documents dating back to 1996. The subpoena relates to an investigation, currently focused on the period from 1996 to 1999, by the Antitrust Division of the Department of Justice into the bidding and procurement activities involving the Company and several other defense contractors who have received similar subpoenas and may also be subjects of the investigation. On February 7, 2007, the Company was informed that the Antitrust Division has communicated to the Department of Justice in Washington, D.C. the results of its investigation which have not been made available to the Company. The Company has cooperated in the investigation, however, it does not have a sufficient basis to predict the outcome of the investigation. Should the Company be found to have violated the antitrust laws, the matter could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

 

4.           On June 28, 2005, a suit, characterized as a class action employee suit, was filed in the U.S. Federal Court for the District of Massachusetts alleging violations of the Fair Labor Standards Act and certain provisions of Massachusetts General Laws. The Company believes that its practices comply with the Fair Labor Standards Act and Massachusetts General Laws. The Company intends to vigorously defend itself and has sought to have the complaint dismissed from Federal Court and addressed in accordance with the Company’s mandatory Dispute Resolution Program for the arbitration of workplace complaints. On April 10, 2006, the U.S. Federal Court for the District of Massachusetts entered an order granting in part the Company’s motion to dismiss the civil action filed in that court against the Company, and to compel compliance with its mandatory Dispute Resolution Program, directing that the parties arbitrate the aforementioned claims, and striking the class action waiver which was part of the Dispute Resolution Program. Following the District Court’s decision, the plaintiffs commenced arbitration before the American Arbitration Association, asserting the same claims as they asserted in the District Court. On January 26, 2007 the Company filed an appeal with the United States Court of Appeals for the Second Circuit appealing the portion of the District Court’s decision that the class action waiver is not enforceable. The U.S. Court of Appeals on November 19, 2007 concurred with the District Court’s opinion that the matter should proceed in arbitration and remanded the matter to the District Court. The parties have informed the District Court that they will proceed in arbitration as a class action. In the arbitration, the Company has filed a Motion to Dismiss and/or for Summary Disposition, asserting that the Company is entitled to use the “window of correction” provided by the Fair Labor Standards Act’s regulations and that the arbitration should be dismissed without further action in the arbitration. The motion is pending before the arbitrator. The outcome of this litigation, if unfavorable, could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.