NATIONAL RESEARCH CORP, S-1/A, 1997-09-16

NATIONAL RESEARCH CORP
S-1/A, 1997-09-16
TESTING LABORATORIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997

REGISTRATION NO. 333-33273
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

NATIONAL RESEARCH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WISCONSIN

(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

8732
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

47-0634000
(I.R.S. EMPLOYER IDENTIFICATION NO.)

1033 "O" STREET
LINCOLN, NEBRASKA 68508
(402) 475-2525
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MICHAEL D. HAYS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NATIONAL RESEARCH CORPORATION
1033 "O" STREET
LINCOLN, NEBRASKA 68508
(402) 475-2525
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

Copies to:

BENJAMIN F. GARMER, III
FOLEY & LARDNER
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(414) 271-2400
WILLIAM N. WEAVER, JR.
SACHNOFF & WEAVER, LTD.
30 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 207-1000

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1997

PROSPECTUS

2,100,000 SHARES

[NATIONAL RESEARCH CORPORATION LOGO]

COMMON STOCK

Of the 2,100,000 shares of Common Stock offered hereby, 1,250,000 are being
sold by National Research Corporation ("NRC" or the "Company") and 850,000 are
being sold by the Selling Shareholder. See "Principal and Selling Shareholders."
The Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholder.

Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Common Stock will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol NRCI.

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.

-------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=====================================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
Total(3)............. $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.

(3) The Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to an additional 315,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Selling Shareholder will be $ , $ and $ , respectively.

The Common Stock is offered by the several Underwriters when, as and if
delivered to and accepted by them and subject to their right to reject orders in
whole or in part. It is expected that delivery of the certificates for the
Common Stock will be made on or about , 1997.

WILLIAM BLAIR & COMPANY ROBERT W. BAIRD & CO.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed as part of the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission in Room 1024,
450 Fifth Street, N.W., Washington D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereto may be obtained from such
office upon payment of prescribed fees. The Registration Statement, including
the exhibits and schedules thereto, is also available on the Commission's Web
site at http://www.sec.gov.
------------------------

The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by its independent auditors
and quarterly reports containing interim unaudited financial information for the
first three quarters of each year.
------------------------

The NRC logo, the NRC Healthcare Market Guide and map design, the NRC
Listening System and The Report Card are trademarks or registered trademarks of
the Company.
------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON
STOCK FOLLOWING THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR MAINTAIN THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY
BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus: (i) assumes that the Underwriters' over-allotment
option is not exercised and (ii) gives retroactive effect to an approximately
239.5-for-1 stock dividend paid on September 15, 1997. This Prospectus contains
certain forward-looking statements that involve substantial risks and
uncertainties. These forward-looking statements can generally be identified as
such because the context of the statement includes words such as the Company
"believes," "anticipates," "expects," "estimates," "intends" or other words of
similar import. Similarly, statements that describe the Company's future plans,
objectives and goals are also forward-looking statements. The Company's actual
results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.

THE COMPANY

The Company is a leading provider of ongoing survey-based performance
measurement, analysis and tracking services and products to the healthcare
industry. The Company addresses the growing need of healthcare providers and
payers to measure the care outcomes, specifically satisfaction and health
status, of their patients and/or members. NRC has led the industry in developing
tools that enable healthcare organizations to obtain service quality information
necessary to comply with industry and regulatory standards and to improve their
business practices so that they can maximize new member and/or patient
attraction, member retention and profitability.

Since its founding 16 years ago, NRC has focused on the information needs
of the healthcare industry. While performance data has always been of interest
to healthcare providers and payers, such information has become increasingly
important to these entities as a result of regulatory, industry and competitive
requirements. In recent years, the healthcare industry has been under
significant pressure from consumers, employers and the government to reduce
costs. Through the implementation of managed care, which currently covers
approximately 61% of all Americans, the rate of growth in healthcare costs has
been substantially reduced. However, the same parties that demanded cost
reductions are now concerned that healthcare service quality is being
compromised under managed care. This concern has created a demand for
consistent, objective performance information by which healthcare providers and
payers can be measured and compared and on which physicians' compensation can,
in part, be based.

NRC offers three primary types of information services and products. The
NRC Listening System (the "Listening System"), which represented 75.9% of the
Company's total revenues in 1996, is a renewable performance tracking tool for
gathering and analyzing data from survey respondents, which can include
patients, health plan members, physicians and/or employers. The surveys are
customized according to the client's needs and the level at which the client
would like performance to be measured (from enterprise-wide to
physician/caregiver specific), and, in most cases, are personalized to the
services provided to each respondent. Survey results are used by the Company's
clients to (i) identify improvements that can be made to business practices,
(ii) establish physician and other employee compensation, (iii) identify
strengths that can be highlighted in marketing and (iv) comply with industry and
regulatory requirements. The syndicated NRC Healthcare Market Guide (the "Market
Guide"), which represented 10.1% of the Company's total revenues in 1996, is a
stand-alone market information and competitive intelligence source as well as a
comparative performance database. The Market Guide allows the Company's clients
to assess their performance relative to the industry, access best practice
examples and utilize competitive information for marketing purposes. Finally,
NRC performs custom research for its clients, assisting them in the
identification of areas for improvement and the measurement of market issues and
opportunities. Custom research represented 14.0% of the Company's total revenues
in 1996. The Company expects that revenues from the Listening System and the
Market Guide will grow faster than revenues from custom research.

During 1996, NRC provided services to more than 200 healthcare
organizations, including health maintenance organizations ("HMOs"), integrated
healthcare systems, medical groups and industry regulatory

3
<PAGE> 5

bodies. The Company gathered and analyzed over 1,000,000 completed surveys for
these clients in 1996. The Company's current clients include Kaiser
Permanente-Northern California Region ("Kaiser"), the United States Department
of Defense, HealthSouth Corporation, BJC Health System and Mayo Clinic. NRC has
benefited from a high rate of renewable revenues. Specifically, over 80% of the
Company's total billings in each of the last two years was generated from
clients billed in the prior year.

NRC increased its revenues from $6.8 million in 1994 to $12.6 million in
1996, a compound annual growth rate of 36.6%. Over this same period, the Company
increased its operating income from $1.7 million to $3.7 million, a compound
annual growth rate of 49.0%. The Company believes that it can continue to grow
rapidly through: (i) expanding the depth and breadth of its current clients'
performance tracking programs, since healthcare organizations are increasingly
interested in gathering performance information at deeper levels of their
organizations and from more of their constituencies, (ii) increasing the
cross-selling of its complementary services and products, (iii) adding new
clients through penetrating the sizeable portion of the healthcare industry that
is not yet conducting performance assessments beyond the enterprise-wide level
or is not yet outsourcing this function and (iv) pursuing acquisitions of, or
investments in, firms providing products, services or technologies that
complement those of the Company.

THE OFFERING

<TABLE>
<S> <C>
Shares Offered by the Company........................ 1,250,000

Shares Offered by the Selling Shareholder............ 850,000

Shares Outstanding Immediately After the Offering.... 7,305,000(1)

Use of Proceeds...................................... For general corporate purposes,
including working capital and possible
acquisitions of, or investments in,
complementary businesses, products,
services or technologies.
Nasdaq National Market Symbol........................ NRCI
</TABLE>

- -------------------------

(1) Excludes (i) 225,000 shares of Common Stock issuable upon exercise of
employee stock options to be granted under the National Research Corporation
1997 Equity Incentive Plan (the "Equity Incentive Plan") simultaneously with
this offering at an exercise price per share equal to the initial public
offering price, (ii) 505,000 additional shares of Common Stock reserved for
future issuance under the Equity Incentive Plan and (iii) 30,000 shares of
Common Stock reserved for future issuance under the National Research
Corporation Director Stock Plan (the "Director Plan"). See "Management --
Employee Benefit Plans -- Equity Incentive Plan" and "-- Director
Compensation."

4
<PAGE> 6

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Renewable performance tracking
services...................... $ 454 $ 507 $4,420 $6,839 $ 9,569 $4,313 $5,954
Renewable syndicated product..... 415 435 652 493 1,276 101 444
Custom and other research........ 1,737 1,869 1,683 1,585 1,755 899 552
------ ------ ------ ------ ------- ------ ------
Total revenues................ 2,606 2,811 6,755 8,917 12,600 5,313 6,950
Operating income..................... 157 511 1,658 2,939 3,682 1,595 2,023
Pro forma net income(1).............. 166 514 1,007 1,828 2,300 1,002 1,272
Pro forma net income per share(1).... $ 0.37 $ 0.16 $ 0.20
Weighted average shares
outstanding(2)..................... 6,217 6,217 6,217
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $2,830 $11,987
Total assets................................................ 7,883 17,189
Total debt.................................................. -- --
Total shareholders' equity.................................. 2,948 12,254
</TABLE>

- -------------------------

(1) From 1984 through July 31, 1994, the Company was a C Corporation. Since
August 1, 1994, the Company has been an S Corporation and, accordingly, was
not subject to Federal and state income taxes for the five months ended
December 31, 1994, for the years ended December 31, 1995 and 1996 or for the
six months ended June 30, 1996 and 1997. Pro forma net income reflects a pro
forma tax provision at a combined Federal and state rate of 40% for the
periods the Company was an S Corporation as if it had been a C Corporation.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "S Corporation Termination" and Note 3 to the Company's
Financial Statements.

(2) Includes 162,265 shares of Common Stock which, had they been issued (at an
assumed initial public offering price of $12.00 per share less the
underwriting discount), would have generated cash sufficient to fund the
portion of the estimated S Corporation distributions in excess of the
Company's 1996 net income. See Note 1 to the Company's Financial Statements.

(3) Pro forma as adjusted to (i) give effect to special cash bonuses aggregating
$1,740,000 to be paid to the named executive officers (as hereinafter
defined) of the Company other than the Selling Shareholder and to be
recognized by the Company as a compensation charge in the fourth quarter of
1997, (ii) reflect S Corporation distributions subsequent to June 30, 1997
estimated to be $2,654,000, (iii) reflect deferred tax benefits that will
arise upon adoption of Financial Accounting Standards No. 109, and (iv) give
effect to the sale of 1,250,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom. The
special cash bonuses will reduce the amount otherwise available for
distribution to the Company's shareholders prior to the termination of its S
Corporation status upon completion of this offering. Substantially all of
the after-tax proceeds of these bonuses will be used by the recipients to
purchase shares of the Company's Common Stock. The deferred tax benefits are
estimated to be approximately $250,000 and will be reflected as a deferred
tax asset and as a reduction to income tax expense in the statement of
income upon termination of the Company's S Corporation status, which will
occur upon the completion of this offering. See "Use of Proceeds," "S
Corporation Termination," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 1 and 3 to the Company's
Financial Statements.

***

The Company was founded in 1981 as a Nebraska corporation and
reincorporated in Wisconsin in September 1997. The principal office of the
Company is located at 1033 "O" Street, Lincoln, Nebraska 68508, and its
telephone number is (402) 475-2525.

5
<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains certain forward-looking
statements which involve substantial risks and uncertainties. These
forward-looking statements can generally be identified as such because the
context of the statement includes words such as the Company "believes,"
"anticipates," "expects," "estimates," "intends" or other words of similar
import. Similarly, statements that describe the Company's future plans,
objectives and goals are also forward-looking statements. The Company's actual
results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those set forth below and elsewhere in this Prospectus.

RELIANCE ON KEY CLIENTS

The Company has relied on a limited number of key clients for the majority
of its revenues. In 1996 and the six months ended June 30, 1997, the Company's
largest client, Kaiser, accounted for 40.4% and 34.7%, respectively, of the
Company's total revenues. The Company expects that this client will account for
approximately 30% of total revenues for all of 1997. The Company also expects
that another client, United Healthcare Corporation, which is a primary
contractor (while the Company is a named subcontractor) with the United States
Department of Defense (hereinafter referred to collectively as the "Department
of Defense"), will account for approximately 15% of the Company's total revenues
in 1997. The Company's ten largest clients in 1995, 1996 and the six months
ended June 30, 1997 generated 71.1%, 63.9% and 67.9%, respectively, of the
Company's revenues in each of those periods. No assurances can be given that the
Company will maintain its existing client base, maintain or increase the level
of revenue or profits generated by its existing clients or be able to attract
new clients. Furthermore, the healthcare industry is undergoing significant
consolidation and no assurances can be given that such consolidation will not
cause the Company to lose clients. The loss of one or more of the Company's
large clients or a significant reduction in business from such clients,
regardless of the reason, would have a material adverse effect on the Company.
See "Business -- Clients" and "Risk Factors -- Healthcare Industry
Concentration."

DEPENDENCE ON PERFORMANCE TRACKING CONTRACT RENEWALS

In 1996, 75.9% of the Company's total revenues was generated from contracts
for the NRC Listening System, a renewable performance tracking service. The
Company expects that a substantial portion of its revenues for the foreseeable
future will continue to be derived from such contracts. Substantially all such
contracts are renewable annually at the option of the Company's clients,
although a client generally has no minimum purchase commitments thereunder and
the contracts are generally cancelable on short or no notice without penalty. To
the extent that clients fail to renew or defer their renewals from the quarter
anticipated by the Company, the Company's quarterly results may be materially
adversely affected. The Company's ability to secure renewals is dependent upon,
among other things, its ability to gather and analyze performance data in a
consistent, high-quality and timely fashion. In addition, the performance
tracking and market research activities of the Company's clients are affected by
accreditation requirements, enrollment in managed care plans, the level of use
of satisfaction measures in healthcare organizations' overall management and
compensation programs, the size of operating budgets, clients' operating
performance, industry and economic conditions and changes in management or
ownership. As these factors are beyond the Company's control, there can be no
assurance that the Company will be able to maintain its renewal rates. Any
material decline in renewal rates from existing levels would have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

FLUCTUATIONS IN OPERATING RESULTS

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<PAGE> 8

revenue when the Market Guides are delivered to the customers pursuant to their
contracts, typically in the third quarter of the year. Substantially all of the
related costs are deferred and subsequently charged to direct expenses
contemporaneously with the recognition of the revenue. A delay in completing and
delivering the Market Guide in a given year, the timing of which is dependent
upon the ability of the Company to access a third-party's respondent panel on a
timely basis, could delay recognition of such revenues and expenses, which could
materially affect operating results for the interim periods. The Company
generally has some incidental sales of the Market Guide subsequent to the
completion of each edition. Revenues and marginal expenses related to such
incidental sales are recognized upon delivery. The profit margin earned on such
revenues is generally higher than that earned on revenues realized from
customers under contract at the time of delivery. In addition, the Company's
operating results may fluctuate as a result of a variety of other factors,
including the size and timing of orders from clients, client demand for the
Company's services (which, in turn, is affected by factors such as accreditation
requirements, enrollment in managed care plans, operating budgets and clients'
operating performance), the hiring and training of additional staff, postal rate
changes and industry and general economic conditions. Because a significant
portion of the Company's overhead, particularly rent and full-time personnel
expenses, is fixed in the short-term, the Company's results of operations may be
materially adversely affected in any particular quarter if revenues fall below
the Company's expectations. These factors, among others, make it possible that
in some future quarter the Company's operating results may be below the
expectations of securities analysts and investors, which would have a material
adverse effect on the market price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

COMPETITION

The healthcare information and market research industry is highly
competitive. The Company has traditionally competed both with healthcare
organizations' internal marketing, market research and/or quality improvement
departments which create their own performance measurement tools and with
relatively small specialty research firms which provide survey-based healthcare
market research and/or performance assessment. The Company anticipates that in
the future it may increasingly compete with (i) traditional market research
firms which are significant providers of survey-based, general market research
and (ii) firms which provide services or products that complement healthcare
performance assessments, such as healthcare software or information systems.
Although only a few of these competitors have to date offered survey-based,
healthcare performance measurement and/or market research that competes directly
with the Company's services and products, many of these competitors have
substantially greater financial, information gathering and marketing resources
than the Company and could decide to increase their resource commitments to the
Company's market. There are relatively few barriers to entry into the Company's
market, and the Company expects increased competition in its market, which could
adversely affect the Company's operating results through pricing pressure,
increased client service and marketing expenditures and market share losses,
among other factors. There can be no assurance that the Company will continue to
compete successfully against existing or new competitors. See "Business --
Competition."

HEALTHCARE INDUSTRY CONCENTRATION

Substantially all of the Company's revenues are derived from clients in the
healthcare industry. As a result, the Company's business, financial condition
and results of operations are influenced by conditions affecting this industry,
including changing political, economic, competitive and regulatory influences
that may affect the procurement practices and operation of healthcare providers
and payers. Many Federal and state legislators have announced that they intend
to propose programs to reform the United States healthcare system. These
programs could result in lower reimbursement rates and otherwise change the
environment in which providers and payers operate. In addition, large private
purchasers of healthcare services are placing increasing cost pressure on
providers. Healthcare providers may react to these cost pressures and other
uncertainties by curtailing or deferring purchases, including purchases of the
Company's services and products. Moreover, there has been significant
consolidation of companies in the healthcare industry, a trend which the Company
believes will continue. Consolidation in this industry, including the potential
acquisition of certain of the Company's clients, could adversely affect
aggregate client budgets for the Company's services

7
<PAGE> 9

and products or could result in the termination of a client's relationship with
the Company. The impact of these developments on the healthcare industry is
difficult to predict and could have a material adverse effect on the Company.

MANAGEMENT OF GROWTH; POSSIBLE ACQUISITIONS

Since inception, the Company's growth has placed significant demands on the
Company's management, administrative, operational and financial resources. In
order to manage its growth, the Company will need to continue to implement and
improve its operational, financial and management information systems and
continue to expand, motivate and effectively manage an evolving workforce. If
the Company's management is unable to effectively manage under such
circumstances, the quality of the Company's services and products, its ability
to retain key personnel and its results of operations could be materially
adversely affected. Furthermore, there can be no assurance that the Company's
business will continue to expand. The Company's growth could be adversely
affected by reductions in clients' spending on performance tracking and market
research, increased competition, pricing pressures and other general economic
and industry trends.

The Company may achieve a portion of its future revenue growth, if any,
through acquisitions of complementary businesses, products, services or
technologies, although the Company currently has no commitments or agreements
with respect to any such acquisition. The Company's management has no experience
dealing with the issues of product and service, systems, personnel and business
strategy integration posed by acquisitions, and no assurance can be given that
the integration of any possible future acquisitions will be managed without a
material adverse effect on the Company. In addition, there can be no assurance
that any possible future acquisition will not dilute the Company's earnings per
share. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Growth Strategy."

CONTROL BY PRINCIPAL SHAREHOLDER

Prior to this offering, the Company's President and Chief Executive
Officer, Michael D. Hays, beneficially owned 99.3% of the outstanding Common
Stock and upon the closing of this offering he will beneficially own
approximately 70.7% (66.4% if the Underwriters' over-allotment option is
exercised in full) of the outstanding Common Stock. As a result, he will be able
to control matters requiring shareholder approval, including the election of
directors and the approval of significant corporate matters such as change of
control transactions. The effects of such influence could be to delay or prevent
a change of control of the Company unless the terms are approved by such
shareholder. See "Management" and "Principal and Selling Shareholders."

DEPENDENCE ON KEY PERSONNEL

The Company's future performance will depend to a significant extent upon
the efforts and ability of its key personnel who have expertise in gathering,
interpreting and marketing survey-based performance information for healthcare
markets. Although client relationships are managed at many levels in the
Company, the loss of the services of Michael D. Hays, President and Chief
Executive Officer, or one or more of the Company's other senior managers could
have a material adverse effect on the Company. As of the date of this
Prospectus, the Company maintains $500,000 of key man life insurance on Mr.
Hays. The Company's success will also depend on its ability to hire, train and
retain skilled personnel in all areas of its business. Competition for qualified
personnel in the Company's industry is intense, and many of the companies with
which the Company competes for qualified personnel have substantially greater
financial and other resources than the Company. Furthermore, competition for
qualified personnel can be expected to become more intense as competition in the
Company's industry increases. There can be no assurance that the Company will be
able to recruit, retain and motivate a sufficient number of qualified personnel
to compete successfully.

8
<PAGE> 10

EXPANSION OF DIRECT SALES FORCE

As of June 30, 1997, the Company had four sales associates, however, one of
these sales associates was added at the end of the second quarter of 1997. The
Company recently hired another new sales associate and is in the process of
searching for additional sales associates. The Company's plans for future growth
depend in part on its unproven ability to hire, train, deploy, manage and retain
an increasingly large direct sales force. There can be no assurance that the
Company will be able to develop or manage such a sales force. See "Business --
Sales and Marketing."

DATA COLLECTION RISKS

The Company's ability to provide timely and accurate performance tracking
and market research to its clients depends on its ability to collect large
quantities of high quality data through surveys and interviews. If receptivity
to the Company's survey and interview methods by respondents declines, or for
some other reason their willingness to complete and return surveys declines, or
if the Company for any reason cannot rely on the integrity of the data it
receives, the Company could be adversely affected. In addition, in the operation
of its business the Company has access to or gathers certain confidential
information such as medical histories on its respondents. As a result, the
Company could be subject to future regulation or potential liability for any
inappropriate disclosure or use of such information. The Company also relies on
a third-party panel of pre-recruited consumer households to produce in a timely
manner annual editions of its Market Guide. If the Company was not able to
continue to use this panel, or the time period in which the Company uses this
panel was altered, and the Company could not find an alternative panel on a
timely, cost competitive basis it could have a material adverse effect on the
Company. See "Business -- Services and Products."

LIMITED PROTECTION OF THE COMPANY'S SYSTEMS AND PROCEDURES

The Company's success is in part dependent upon its data collection
process, research methods, data analysis techniques and internal systems and
procedures that it has developed specifically to serve clients in the healthcare
industry. The Company has no patents; consequently, it relies on a combination
of copyright, trademark and trade secret laws and employee nondisclosure
agreements to protect its systems and procedures. There can be no assurance that
the steps taken by the Company to protect its rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior systems or procedures. The Company
believes that its systems and procedures and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not result in
protracted and costly litigation, regardless of the merits of such claims. See
"Business -- Intellectual Property and Other Proprietary Rights."

RISKS RELATING TO PERFORMANCE TRACKING AND OTHER SURVEYS

Many healthcare providers, payers and other entities or individuals use the
Company's renewable performance tracking and other healthcare surveys in
promoting and/or operating their businesses and as a factor in determining
physician or employee compensation. Consequently, any errors in the data
received or in the final surveys, as well as the actual results of such surveys,
can have a significant impact on such providers', payers' or other entities'
businesses and on any such individual's compensation. In addition, parties who
have not performed well in the Company's surveys may be dissatisfied with the
results of the surveys or the manner in which the results may be used by
competitors or others. Although any such errors or dissatisfaction with the
results of the surveys or the manner in which the surveys have been used has not
resulted in litigation against the Company, there can be no assurance that the
Company will not face future litigation as a result of a healthcare provider's,
payer's or other entity's or individual's allegation of errors in NRC's surveys
or dissatisfaction with the results thereof.

9
<PAGE> 11

UNSPECIFIED USE OF PROCEEDS

The principal purposes of the offering of shares by the Company are to
obtain additional capital, facilitate the Company's access to public equity
markets and enhance the Company's ability to use its Common Stock as
consideration for possible acquisitions and as a means of attracting and
retaining key employees. The Company will not receive any proceeds from the sale
of shares by the Selling Shareholder. A significant portion of the net proceeds
that the Company will receive from this offering has not been designated for any
specific purpose. As a consequence, the Company's management will have broad
discretion with respect to the use of such proceeds. See "Use of Proceeds."

EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation and By-Laws contain provisions
that, among other things, establish staggered terms for members of the Company's
Board of Directors, place certain restrictions on the removal of directors,
authorize the Board of Directors to issue preferred stock in one or more series
without shareholder approval and require advance notice for director nominations
and certain other matters to be considered at meetings of shareholders. In
addition, the Wisconsin Business Corporation Law (the "WBCL") and the Company's
Articles of Incorporation, among other things, prohibit certain business
combinations with "interested stockholders" and may limit the voting power of
shares of the Company held by any person in excess of 20% of the voting power in
the election of directors. These provisions could have the effect of delaying,
deferring or preventing a change of control or the removal of existing
management of the Company, which could adversely affect the market price of the
Company's Common Stock. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALES

Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements entered into by the Company and its executive officers and
directors, including all current shareholders. Under those restrictions, subject
to certain specified exceptions, the Company and the holders of such shares have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this Prospectus without the prior written consent of
William Blair & Company, L.L.C. However, William Blair & Company, L.L.C. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to such lock-up agreements. As a result of these
restrictions, only the 2,100,000 shares of Common Stock offered hereby will be
freely tradeable on the date of this Prospectus, unless purchased by affiliates
of the Company; an additional 5,205,000 shares will be eligible for sale 180
days after the date of this Prospectus, in accordance with Rule 144 under the
Securities Act. The Company also intends, not earlier than 180 days after the
effective date of this offering, to file a registration statement on Form S-8
covering 730,000 shares of Common Stock reserved for issuance under the Equity
Incentive Plan and the Company also intends to file a registration statement on
Form S-8 covering 30,000 shares of Common Stock reserved for issuance under the
Director Plan. See "Shares Eligible for Future Sale."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; IMMEDIATE AND
SUBSTANTIAL DILUTION

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial offering price for the Common Stock will be
determined by agreement among the Company, the Selling Shareholder, William
Blair & Company, L.L.C. and Robert W. Baird & Co. Incorporated, and may not be
indicative of future market prices. See "Underwriting" for factors to be
considered in determining such offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, but there can be no
assurance that there will be an active market following this offering. In
addition, broad market trading and valuation fluctuations have adversely
affected the valuation of healthcare information and market research focused
companies (often unrelated to the operating performance of such companies) and
may adversely affect the market price of the Company's Common Stock. The Common
Stock may be subject to wide fluctuations in price in response to variations in
quarterly operating results and other factors, including the evolving business
prospects of the Company, its clients and competitors, changes in the financial
estimates by securities analysts, possible acquisitions, general economic or
market conditions and other events or factors. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price. Investors participating in this offering will incur immediate
and substantial dilution of book value. See "Dilution."

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $13,450,000 based upon an assumed initial public offering price of
$12.00 per share after deducting the underwriting discount and estimated
offering expenses. The principal purposes of the offering of shares by the
Company are to obtain additional capital, facilitate the Company's access to
public equity markets and enhance the Company's ability to use its Common Stock
as consideration for possible acquisitions and as a means of attracting and
retaining key employees. Net proceeds from this offering will be available for
general corporate purposes, including the replenishment of working capital used
to distribute S Corporation income to the Company's existing shareholders in
connection with the termination of the Company's S Corporation status and to pay
special cash bonuses to the named executive officers of the Company other than
the Selling Shareholder. See "S Corporation Termination" and Note 8 to the
Company's Financial Statements. A portion of the proceeds may also be used to
acquire or invest in complementary businesses, products, services or
technologies; however, there are no commitments or agreements with respect to
any such transactions at the present time. Pending use of the net proceeds for
the above purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment-grade obligations.

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholder.

S CORPORATION TERMINATION

From 1984 through July 31, 1994, the Company was a C Corporation. Since
August 1, 1994, the Company has been treated as an S Corporation for Federal and
state income tax purposes under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the income of the Company has been
taxed directly to its shareholders rather than to the Company. Concurrent with
the completion of this offering, the Company's S Corporation election will be
terminated and the Company will be subject to corporate income taxation as a C
Corporation.

In connection with the termination of the Company's S Corporation status,
the Company will record a deferred income tax benefit of approximately $250,000
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." This amount will be reflected as a deferred tax
asset and a reduction to income tax expense otherwise incurred in such quarter
and will be recorded upon termination of the Company's S Corporation status,
which will occur upon the completion of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 1 and 3 to the Financial Statements.

Subsequent to June 30, 1997, the Company made S Corporation distributions
of $536,000 to its shareholders. In connection with the termination of the
Company's S Corporation status, the Company will also distribute to its
shareholders approximately $2,118,000, which represents all previously taxed but
undistributed S Corporation income of the Company through December 31, 1996 and
an estimate as to the additional taxable and undistributed income of the Company
generated from January 1, 1997 until completion of this offering. Prior to the
termination of its S Corporation status and the distribution of approximately
$2,118,000 to its shareholders, the Company will pay special cash bonuses
aggregating $1,740,000 to the named executive officers of the Company other than
the Selling Shareholder. Substantially all of the after-tax proceeds of these
bonuses will be used to purchase shares of the Company's Common Stock. See
"Principal and Selling Shareholders."

11
<PAGE> 13

DIVIDEND POLICY

The Company does not intend to pay any cash dividends on its Common Stock
in the foreseeable future. The Company intends to retain all of its future
earnings for use in the expansion and operation of its business. Any future
determination to pay cash dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, the Company's
results of operations, financial condition, contractual restrictions and such
other factors deemed relevant by the Board of Directors.

Since its S Corporation election in 1994, the Company has made cash
distributions to its shareholders in amounts necessary to allow the shareholders
to at least pay the Federal and state income taxes on their proportionate shares
of the Company's net income. In connection with the termination of the Company's
S Corporation status, the Company expects to make distributions estimated to be
$2,118,000 to its existing shareholders. Investors purchasing Common Stock in
this offering will not receive any portion of such distribution and the Company
will not make any additional distributions of this kind in the future. See "S
Corporation Termination."

12
<PAGE> 14

CAPITALIZATION

The following table sets forth as of June 30, 1997: (i) the actual cash and
cash equivalents, total short-term debt and total capitalization of the Company
and (ii) such cash and cash equivalents, short-term debt and capitalization on a
pro forma basis as adjusted to give effect to (a) S Corporation distributions
estimated to be $2,654,000, (b) special cash bonuses aggregating $1,740,000 to
be paid prior to the termination of the Company's S Corporation status to the
named executive officers of the Company other than the Selling Shareholder, (c)
recognition of a $250,000 deferred tax asset in connection with the termination
of the Company's S Corporation status and (d) the sale of 1,250,000 shares of
Common Stock offered by the Company hereby (assuming an initial public offering
price of $12.00 per share and after deducting the underwriting discount and
estimated offering expenses) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds," "S Corporation Termination," "Dividend Policy"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................... $3,622 $12,770
====== =======
Total short-term debt................................... $ -- $ --
====== =======
Total long-term debt.................................... $ -- $ --
------ -------
Shareholders' equity:
Preferred Stock, par value $.01 per share; 2,000,000
shares authorized; no shares issued and outstanding
actual and pro forma as adjusted................... -- --
Common Stock, par value $.001 per share; 20,000,000
shares authorized; 6,055,000 shares issued and
outstanding actual; 7,305,000 shares issued and
outstanding pro forma as adjusted(1)............... 6 7
Additional paid-in capital............................ -- 13,449
Retained earnings (accumulated deficit)............... 2,942 (1,202)
------ -------
Total shareholders' equity....................... 2,948 12,254
------ -------
Total capitalization.......................... $2,948 $12,254
====== =======
</TABLE>

- -------------------------

(1) Excludes (i) 225,000 shares of Common Stock issuable upon exercise of
employee stock options to be outstanding immediately after the offering at
an exercise price equal to the initial public offering price, (ii) 505,000
additional shares of Common Stock reserved for future issuance under the
Equity Incentive Plan and (iii) 30,000 shares of Common Stock reserved for
future issuance under the Director Plan.

13
<PAGE> 15

DILUTION

The pro forma net tangible book deficit of the Company as of June 30, 1997
was $1.2 million, or $.20 per share of Common Stock (after giving effect to the
S Corporation distributions estimated to be $2,654,000, the special cash bonuses
aggregating $1,740,000 to be paid to the named executive officers other than the
Selling Shareholder and the estimated $250,000 of deferred income tax benefits
arising upon termination of the Company's S Corporation status). See "S
Corporation Termination" and Note 8 to the Company's Financial Statements. Pro
forma net tangible book deficit per share represents the amount of the Company's
pro forma tangible net deficit (total liabilities less total tangible assets)
divided by the total number of shares of Common Stock outstanding. After giving
effect to the sale of 1,250,000 shares of Common Stock by the Company in this
offering at an assumed initial public offering price of $12.00 per share and the
application of the net proceeds therefrom (after deducting the underwriting
discount and estimated offering expenses), the pro forma net tangible book value
as of June 30, 1997 would have been $12.3 million or $1.68 per share. This
represents an immediate increase in net tangible book value of $1.88 per share
to existing shareholders of the Company and an immediate dilution of $10.32 per
share to new investors purchasing shares in this offering.

Since July 1992, the Company has issued only 18,520 shares of Common Stock
to one officer of the Company, at a weighted average price per share of
approximately $0.08.

The following table illustrates the per share dilution:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book deficit per share before the
offering............................................... $(.20)
Increase attributable to new investors.................... 1.88
-----
Pro forma net tangible book value per share after the
offering.................................................. 1.68
------
Dilution per share to new investors(1)...................... $10.32
======
</TABLE>

- -------------------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share of Common Stock after this offering from the assumed initial public
offering price per share.

14
<PAGE> 16

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Financial Statements and the Notes thereto and other
financial information included elsewhere in this Prospectus. The selected
statement of income data for the years ended December 31, 1994, 1995, and 1996
and the balance sheet data at December 31, 1995 and 1996 are derived from, and
are qualified by reference to, the audited financial statements of the Company
included elsewhere in this Prospectus. The selected statement of income data for
the years ended December 31, 1992 and 1993 and the balance sheet data at
December 31, 1992, 1993 and 1994 are derived from unaudited financial statements
not included herein. The selected statement of income data for the six month
periods ended June 30, 1996 and 1997 and the balance sheet data at June 30, 1996
and 1997 are derived from the Company's unaudited financial statements, which
have been prepared on the same basis as the Company's audited financial
statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations of the Company.
The results of operations for the period ended June 30, 1997 are not necessarily
indicative of results for the full fiscal year.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Renewable performance tracking services... $ 454 $ 507 $4,420 $6,839 $ 9,569 $4,313 $5,954
Renewable syndicated product.............. 415 435 652 493 1,276 101 444
Custom and other research................. 1,737 1,869 1,683 1,585 1,755 899 552
------ ------ ------ ------ ------- ------ ------
Total revenues........................ 2,606 2,811 6,755 8,917 12,600 5,313 6,950
Operating expenses:
Direct expenses........................... 1,264 1,083 2,967 3,495 5,685 2,327 3,011
Selling, general and administrative....... 1,149 1,167 2,044 2,364 3,060 1,319 1,837
Depreciation and amortization............. 36 50 86 119 173 72 79
------ ------ ------ ------ ------- ------ ------
Total operating expenses.............. 2,449 2,300 5,097 5,978 8,918 3,718 4,927
------ ------ ------ ------ ------- ------ ------
Operating income............................ 157 511 1,658 2,939 3,682 1,595 2,023
Other income and expenses, net.............. 9 12 46 108 152 75 97
------ ------ ------ ------ ------- ------ ------
Income before income taxes.................. 166 523 1,704 3,047 3,834 1,670 2,120
Provision for income taxes.................. -- 9 114 -- -- -- --
Pro forma income taxes(1)................... -- -- 583 1,219 1,534 668 848
------ ------ ------ ------ ------- ------ ------
Pro forma net income(1)..................... $ 166 $ 514 $1,007 $1,828 $ 2,300 $1,002 $1,272
====== ====== ====== ====== ======= ====== ======
Pro forma net income per share(1)........... $ 0.37 $ 0.16 $ 0.20
======= ====== ======
Weighted average shares outstanding(2)...... 6,217 6,217 6,217
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, JUNE 30, --------------------------------------
----------------------------------------- -------- PRO PRO FORMA
1992 1993 1994 1995 1996 1996 ACTUAL FORMA(3) AS ADJUSTED(4)
----- ------ ------ ------ ------ -------- ------ ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $(361) $ 54 $1,358 $1,534 $2,018 $ 764 $2,830 $(1,463) $11,987
Total assets........... 912 1,368 3,539 4,996 6,153 3,880 7,883 4,511 17,189
Total debt............. 117 54 9 -- -- -- -- -- --
Total shareholders'
equity (deficit)..... (223) 290 1,623 1,830 2,079 1,022 2,948 (1,196) 12,254
</TABLE>

(footnotes on following page)

15
<PAGE> 17

- -------------------------

(3) As adjusted to reflect (i) special cash bonuses aggregating $1,740,000 to be
paid to the named executive officers of the Company other than the Selling
Shareholder and to be recognized by the Company as a compensation charge in
the fourth quarter of 1997, (ii) S Corporation distributions subsequent to
June 30, 1997 estimated to be $2,654,000 and (iii) deferred tax benefits
that will arise upon adoption of Financial Accounting Standards No. 109. The
special cash bonuses will reduce the amount otherwise available for
distribution to the Company's shareholders prior to the termination of its S
Corporation status upon completion of this offering. Substantially all of
the after-tax proceeds of these bonuses will be used by the recipients to
purchase shares of the Company's Common Stock. The deferred tax benefits are
estimated to be approximately $250,000 and will be reflected as a deferred
tax asset and as a reduction to income tax expense in the statement of
income upon termination of the Company's S Corporation status, which will
occur upon completion of this offering. See "S Corporation Termination,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 3 to the Company's Financial Statements.

(4) As adjusted to give effect to the pro forma adjustments described in (3)
above and to give effect to the sale of 1,250,000 shares of Common Stock
offered by the Company hereby at an assumed initial offering price of $12.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds," "S Corporation Termination," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 3 to the Company's Financial Statements.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains trend analysis and other forward-looking
statements that involve substantial risks and uncertainties. The Company's
actual results could differ materially from those expressed or implied in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

The Company's historical revenue growth has been primarily the result of
increasing the scope of existing performance tracking projects, undertaking new
projects for existing clients and adding new clients. In each of the last two
years, the Company's billings to clients served in the prior year were at least
80% of total billings. The number of clients billed per year has increased to
210 in 1996 from 154 in 1995. The Company believes substantial opportunities
exist to increase revenues by expanding the depth and breadth of existing
clients' performance tracking programs, increasing the cross selling of the
Company's services and products and adding new clients and pursuing acquisitions
of, or investments in, firms providing products, services or technologies that
complement those of the Company.

The Company offers three primary types of information services and
products: renewable performance tracking services, a renewable syndicated
product and custom research. In 1996, these categories accounted for 75.9%,
10.1% and 14.0%, respectively, of the Company's total revenues. The Company
expects that revenues from its custom research activities will increase on an
annual basis, but at a lower rate than revenues from its renewable services and
product (i.e., revenues generated pursuant to a service or product whose nature
contemplates continued renewals) because of the Company's increasing focus on
its renewable services and product.

The Company's most significant expense is direct expenses, which are
primarily composed of data collection costs such as postage and printing, direct
labor costs (of which the majority are associated with part-time personnel) and
other costs directly attributable to projects.

The Company's renewable performance tracking service, the NRC Listening
System, is a performance tracking tool for gathering and analyzing data from
survey respondents. Such services are provided pursuant to contracts which are
generally renewable annually. Typically, a portion of the project fee is billed
in advance and the remainder is billed periodically over the duration of the
project. Revenues and direct expenses are recognized on a percentage of
completion basis.

The Company's renewable nationally syndicated product, the NRC Healthcare
Market Guide, serves as a stand-alone market information and competitive
intelligence source as well as a comparative performance database. Published by
NRC bi-annually from 1988 to 1996 and annually since 1996, this survey is a
comprehensive consumer-based healthcare assessment. Amounts due for the Market
Guide are billed prior to or at delivery. The Company recognizes revenue when
the Market Guides are delivered to the customers pursuant to their contracts,
typically in the third quarter of the year. Substantially all of the related
costs are deferred and subsequently charged to direct expenses contemporaneously
with the recognition of the revenue. The Company generally has some incidental
sales of the Market Guide subsequent to completion of each edition. Revenues and
marginal expenses related to such incidental sales are recognized upon delivery.
The profit margin earned on such revenues is generally higher than that earned
on revenues realized from

17
<PAGE> 19

customers under contract at the time of delivery. As a result, the Company's
margins vary throughout the year.

The Company conducts custom research which measures and monitors market
issues specific to individual healthcare organizations. The majority of the
Company's custom research is performed under contracts which provide for advance
billing of 65% of the total project fee with the remainder due upon delivery.
Revenues and direct expenses are recognized on a percentage of completion basis.

Prior to termination of its S Corporation status, the Company intends to
pay special cash bonuses aggregating $1,740,000 to its named executive officers
other than the Selling Shareholder. Substantially all of the after-tax proceeds
of these bonuses will be used to purchase shares of the Company's Common Stock.
The related compensation charge will be recognized by the Company in the fourth
quarter of 1997. These special cash bonuses will reduce the amount otherwise
available for distribution to the Company's shareholders prior to the
termination of its S Corporation status.

Selling, general and administrative expenses consist primarily of personnel
and other costs associated with sales, marketing, administration, finance,
information systems, human resources and general management. Selling, general
and administrative expenses as a percentage of total revenues have decreased as
the Company has spread its infrastructure expenses across its expanding revenue
base. The Company recently hired two new sales associates and is in the process
of searching for additional sales associates. The Company anticipates that its
selling, general and administrative expenses as a percentage of total revenues
might increase slightly in the periods immediately following the hiring of such
new sales associates as their productivity increases. The Company plans to move
to a new leased facility by the end of the first quarter of 1998 to accommodate
its growth. The Company anticipates increased rent and certain one-time costs
associated with such move but does not expect this to significantly increase the
annual selling, general and administrative expenses as a percentage of total
revenues. Depreciation and amortization expenses currently consist of expenses
related to equipment and furniture.

From 1984 through July 31, 1994, the Company was a C Corporation. Since
August 1, 1994, the Company has been treated as an S Corporation for Federal and
state income tax purposes. As a result, the Company's income has been taxed
directly to its shareholders rather than to the Company. Concurrent with the
completion of this offering, the Company's S Corporation election will be
terminated and the Company will be subject to corporate income taxation as a C
Corporation. For each of the periods in which the Company was an S Corporation,
the statement of income data reflects a provision for income taxes on a pro
forma basis at a combined Federal and state rate of 40% as if the Company had
been operating as a C Corporation during such periods.

In connection with the termination of the Company's S Corporation status,
the Company will record a deferred income tax benefit of approximately $250,000
in accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." This amount will be reflected as a deferred tax
asset and a reduction to income tax expense otherwise incurred in such quarter
and will be recorded upon termination of the Company's S Corporation status,
which will occur upon completion of this offering. See "S Corporation
Termination."

18
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of total revenues and the
percentage change in such items versus the prior comparable period. The trends
illustrated in the following table may not necessarily be indicative of future
results.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES PERCENTAGE INCREASE
------------------------------------- (DECREASE)
SIX MONTHS --------------------------
YEAR ENDED ENDED SIX MONTHS
DECEMBER 31, JUNE 30, 1995 1996 1997 OVER
--------------------- ------------- OVER OVER SIX MONTHS
1994 1995 1996 1996 1997 1994 1995 1996
----- ----- ----- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance tracking
services............................ 65.4% 76.7% 75.9% 81.2% 85.7% 54.8% 39.9% 38.1%
Renewable syndicated product.......... 9.7 5.5 10.1 1.9 6.4 (24.3) 158.7 337.0
Custom and other research............. 24.9 17.8 14.0 16.9 7.9 (5.9) 10.8 (38.6)
----- ----- ----- ----- -----
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 32.0 41.3 30.8
===== ===== ===== ===== =====
Operating expenses:
Direct expenses....................... 43.9 39.2 45.1 43.8 43.3 17.8 62.7 29.4
Selling, general and administrative... 30.3 26.5 24.3 24.8 26.4 15.7 29.4 39.3
Depreciation and amortization......... 1.3 1.3 1.4 1.4 1.1 39.1 45.4 10.5
----- ----- ----- ----- -----
Total operating expenses.......... 75.5 67.0 70.8 70.0 70.8 17.3 49.2 32.5
----- ----- ----- ----- -----
Operating income........................ 24.5% 33.0% 29.2% 30.0% 29.2% 77.3% 25.3% 26.8%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Total revenues. Total revenues increased 30.8% in the first six months of
1997 to $7.0 million from $5.3 million in the first six months of 1996. Revenues
from the Company's renewable performance tracking services increased 38.1% to
$6.0 million in the first six months of 1997 from $4.3 million in the first six
months of 1996 primarily due to an increase in the scope of existing tracking
projects and the number of new projects for existing clients, as well as the
addition of new clients. Revenues from the Company's renewable syndicated
product increased 337.0% to $444,000 in the first six months of 1997 from
$101,000 in the first six months of 1996. Such increase reflects the timing of
releases of new editions of the Market Guide. In the first six months of 1997
the Company was selling its 1996 edition of the Market Guide whereas in the
first six months of 1996 the Company was selling its 1994 edition of the Market
Guide. The Company's custom research revenue decreased 38.6% to $552,000 in the
first six months of 1997 from $899,000 in the first six months of 1996 primarily
due to the start and completion of one large project during the first quarter of
1996.

Direct expenses. Direct expenses increased 29.4% to $3.0 million in the
first six months of 1997 from $2.3 million in the first six months of 1996.
Direct expenses decreased as a percentage of total revenues to 43.3% in the
first six months of 1997 from 43.8% in the first six months of 1996. The
decrease in direct expenses as a percentage of total revenues was due primarily
to incidental sales of the 1996 edition of the Market Guide in the first six
months of 1997 while the majority of the direct expenses related to this edition
of the Market Guide were expensed upon its completion in the third quarter of
1996.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 39.3% to $1.8 million for the first six months
of 1997 from $1.3 million for the first six months of 1996. This increase was
primarily due to an increase of $83,000 associated with the expansion of the
Company's sales and marketing infrastructure, an increase of $149,000 in
expenses related to enhancements to the Company's dynamic questionnaire
production software and an increase of $130,000 in profit sharing expense.
Selling, general and administrative expenses increased as a percentage of total
revenues to 26.4% for the first six months of 1997 from 24.8% for the first six
months of 1996.

Depreciation and amortization. Depreciation and amortization expense
increased 10.5% to $79,000 in the first six months of 1997 from $72,000 in the
first six months of 1996. Depreciation and amortization expenses decreased as a
percentage of total revenues to 1.1% in the first six months of 1997 from 1.4%
in the first six months of 1996.

19
<PAGE> 21

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Total revenues. Total revenues increased 41.3% in 1996 to $12.6 million
from $8.9 million in 1995. Revenues from the Company's renewable performance
tracking services increased 39.9% in 1996 to $9.6 million from $6.8 million in
1995 due primarily to an increase in the scope of existing tracking projects and
the number of new projects for existing clients, as well as the addition of new
clients. Revenues from the Company's renewable syndicated product increased
158.7% to $1.3 million in 1996 from $493,000 in 1995 due to the timing of
releases of new editions of the Market Guide. A new edition of the Market Guide
was published in 1996 but not in 1995 since the Market Guide was published on a
bi-annual basis prior to 1996. Revenues from the Company's custom research
increased 10.8% to $1.8 million in 1996 from $1.6 million in 1995.

Direct expenses. Direct expenses increased 62.7% to $5.7 million in 1996
from $3.5 million in 1995. Direct expenses increased as a percentage of total
revenues to 45.1% in 1996 from 39.2% in 1995. The increase in direct expenses as
a percentage of total revenues was due to higher staffing levels in 1996 which
increased labor and payroll expenses by $845,000, increased postage and printing
expenses of $515,000, one-time costs of $122,000 associated with converting the
internal processing of certain surveys to a new image scanning and editing
system, and sales of the Market Guide in 1996 at lower gross margins than sales
in 1995 since a new edition of the Market Guide (with associated costs) was
published in 1996 but not in 1995.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 29.4% to $3.1 million in 1996 from $2.4
million in 1995. Selling, general and administrative expenses decreased as a
percentage of total revenues to 24.3% in 1996 from 26.5% in 1995. The decrease
in these expenses as a percentage of total revenues reflects the Company's
efforts to spread its general and administrative costs over a higher revenue
base, which were partially offset by an increase in selling and marketing
expenses of $222,000.

Depreciation and amortization. Depreciation and amortization expense
increased 45.4% to $173,000 in 1996 from $119,000 in 1995 but remained
relatively constant as a percentage of total revenues at 1.4% and 1.3% in 1996
and 1995, respectively. The aggregate increase was principally due to computer
equipment purchases to improve internal systems to support business growth.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Total revenues. Total revenues increased 32.0% in 1995 to $8.9 million from
$6.8 million in 1994. Revenues from the Company's renewable performance tracking
services increased 54.8% in 1995 to $6.8 million from $4.4 million in 1994 due
primarily to an increase in the scope of existing tracking projects and the
number of new projects for existing clients, as well as the addition of new
clients. Revenues from the Company's renewable syndicated product decreased
24.3% to $493,000 in 1995 from $652,000 in 1994 due to the timing of releases of
new editions of the Market Guide. A new edition of the Market Guide was produced
in 1994 but not in 1995. Revenues from the Company's custom research decreased
5.9% to $1.6 million in 1995 from $1.7 million in 1994.

Direct expenses. Direct expenses increased 17.8% to $3.5 million in 1995
from $3.0 million in 1994. Direct expenses decreased as a percentage of total
revenues to 39.2% in 1995 from 43.9% in 1994. The decrease in direct expenses as
a percentage of total revenues was primarily due to sales of the Market Guide in
1995 at higher gross margins than sales in 1994 since a new edition of the
Market Guide was not published in 1995 but was in 1994.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 15.7% to $2.4 million in 1995 from $2.0
million in 1994. Selling, general and administrative expenses decreased as a
percentage of total revenues to 26.5% in 1995 from 30.3% in 1994. The decrease
in these expenses as a percentage of total revenues reflects the Company's
efforts to leverage its general and administrative costs over a higher revenue
base. Selling, general and administrative expenses were unusually high in 1994
due to certain one-time compensation and lease-related charges of $601,000.

20
<PAGE> 22

Depreciation and amortization. Depreciation and amortization expense
increased 39.1% to $119,000 in 1995 from $86,000 in 1994 but remained relatively
constant as a percentage of total revenues at 1.3% in both 1995 and 1994. The
aggregate increase was principally due to computer, printer and mail room
production equipment purchases to improve internal systems to support business
growth.

SELECTED QUARTERLY RESULTS

The following tables set forth unaudited statement of income data for each
of the last eight quarters, as well as the percentage of the Company's total
revenues represented by each item. In management's opinion, this unaudited
information has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results for
the full year or for any future quarter.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance
tracking services........ $1,753 $2,409 $2,122 $2,191 $2,320 $2,936 $2,871 $3,083
Renewable syndicated
product.................. 80 18 82 19 923 252 341 103
Custom and other
research................. 407 392 447 452 397 459 228 324
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 2,240 2,819 2,651 2,662 3,640 3,647 3,440 3,510
Direct expenses.............. 899 1,226 1,132 1,195 1,926 1,432 1,393 1,618
Selling, general and
administrative............. 539 704 660 659 677 1,064 951 886
Depreciation and
amortization............... 24 45 36 36 41 60 42 37
------ ------ ------ ------ ------ ------ ------ ------
Operating income............. 778 844 823 772 996 1,091 1,054 969
Other income and expenses,
net........................ 25 20 37 38 32 45 45 52
Pro forma income taxes(1).... 321 346 344 324 411 455 440 408
------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income(1)...... $ 482 $ 518 $ 516 $ 486 $ 617 $ 681 $ 659 $ 613
====== ====== ====== ====== ====== ====== ====== ======
Pro forma net income per
share(1)................... $ .08 $ .08 $ .10 $ .11 $ .11 $ .10
====== ====== ====== ====== ====== ======
Weighted average shares
outstanding(2)............. 6,217 6,217 6,217 6,217 6,217 6,217
</TABLE>

- -------------------------

(1) Since August 1, 1994, the Company has been an S Corporation and,
accordingly, was not subject to Federal and state income taxes for any of
the quarterly periods presented above. Pro forma net income reflects a pro
forma tax provision at a combined Federal and state rate of 40% for the
periods the Company was an S Corporation as if it had been a C Corporation.
See "S Corporation Termination."

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance
tracking services........ 78.3% 85.5% 80.0% 82.3% 63.7% 80.5% 83.5% 87.9%
Renewable syndicated
product.................. 3.6 0.6 3.1 0.7 25.4 6.9 9.9 2.9
Custom and other
research................. 18.1 13.9 16.9 17.0 10.9 12.6 6.6 9.2
----- ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Direct expenses.............. 40.1 43.5 42.7 44.9 52.9 39.3 40.5 46.1
Selling, general and
administrative............. 24.1 25.0 24.9 24.8 18.6 29.2 27.6 25.2
Depreciation and
amortization............... 1.1 1.6 1.4 1.4 1.1 1.6 1.2 1.1
----- ----- ----- ----- ----- ----- ----- -----
Operating income............. 34.7% 29.9% 31.0% 28.9% 27.4% 29.9% 30.7% 27.6%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

21
<PAGE> 23

The Company's operating results have fluctuated from period to period in
the past and will likely fluctuate significantly in the future due to various
factors. There has historically been, and the Company expects that there will
continue to be, fluctuation in the financial results related to the Market
Guide, a product which accounted for 10.1% of the Company's total revenues in
1996. See "-- Overview." In addition, the Company's operating results may
fluctuate as a result of a variety of other factors, including the size and
timing of orders from clients, client demand for the Company's services and
products (which, in turn, is affected by factors such as accreditation
requirements, enrollment in managed care plans, operating budgets and clients'
operating performance), the hiring and training of additional staff, postal rate
changes and industry and general economic conditions. Because a significant
portion of the Company's overhead, particularly rent and full-time personnel
expenses, is fixed in the short-term, the Company's results of operations may be
materially adversely affected in any particular quarter if revenues fall below
the Company's expectations. These factors, among others, make it possible that
in some future quarter the Company's operating results may be below the
expectations of securities analysts and investors, which would have a material
adverse effect on the market price of the Company's Common Stock. See "Risk
Factors -- Fluctuations in Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of funds has been cash flow from its
operations. The Company's cash flow has been sufficient to provide funds for
working capital and capital expenditures.

As of June 30, 1997, the Company had cash and cash equivalents of $3.6
million and working capital of $2.8 million. Subsequent to June 30, 1997, the
Company made S Corporation distributions of $536,000 to its shareholders and, in
connection with the termination of the Company's S Corporation status, the
Company will also distribute approximately $2.1 million to its existing
shareholders. In addition, the Company intends to pay special cash bonuses
aggregating $1.7 million to its named executive officers other than the Selling
Shareholder in the fourth quarter of 1997 and prior to the termination of the
Company's S Corporation status. See "Use of Proceeds," "S Corporation
Termination" and Note 8 to the Company's Financial Statements.

During the six months ended June 30, 1997, the Company generated $1.5
million of net cash from operating activities as compared to $2.9 million of net
cash generated during the same period in the prior year. The decrease in cash
flow was mainly due to the timing of the collection of a $1.3 million account
receivable in January 1996 and the timing of costs incurred in advance of
billings on certain projects, combined with growth in accounts receivable,
unbilled revenues and deferred revenues.

The Company generated $6.3 million of net cash from operating activities
for the year ended December 31, 1996 as compared to $1.8 million from operating
activities for the year ended December 31, 1995. This increase in cash generated
was a result of an increase in the Company's business and, in part, the
collection in January 1996 of a $1.3 million receivable.

For the six months ended June 30, 1997 and 1996, net cash provided by
investing activities was $938,000 and $490,000, respectively. The increase in
cash provided was primarily due to the maturing of investments available for
sale, which was partially offset by an investment of $232,000 in furniture,
computer equipment and production equipment to meet the expansion of the
Company's business. The Company's investments available-for-sale consist
principally of United States government securities with maturities of twelve
months or less.

Net cash used in investing activities increased to $1.2 million from
$15,000 for the years ended December 31, 1996 and December 31, 1995,
respectively, primarily as a result of an increase in investments available for
sale. Furniture, computer equipment and production equipment purchases in these
years were $272,000 and $161,000, respectively. The Company expects to make
additional purchases of equipment as necessary to accommodate any future growth.

Net cash used in financing activities was $1.6 million and $2.8 million for
the six months ended June 30, 1997 and 1996, respectively, and was $3.3 million
and $2.8 million for the years ended December 31, 1996 and December 31, 1995,
respectively. Net cash used in financing activities for these periods was
primarily the

22
<PAGE> 24

result of S Corporation distributions to shareholders. Through June 30, 1997,
the Company paid S Corporation distributions of $1.6 million to its
shareholders. Subsequent to June 30, 1997, the Company paid S Corporation
distributions of $536,000 to its shareholders. In connection with the
termination of the Company's S Corporation status, the Company will also
distribute approximately $2.1 million to its shareholders. See "S Corporation
Termination."

The Company has budgeted approximately $850,000 for capital expenditures in
1997, to be funded through cash generated from operations. Through June 30,
1997, the Company's capital expenditures were $232,000. The Company expects that
capital expenditures during the remainder of 1997 will be primarily for
leasehold improvements, telecommunications equipment, computer hardware,
production equipment and furniture.

The Company typically bills clients for projects before they have been
completed. Billed amounts are recorded as billings in excess of costs or
deferred revenue on the Company's financial statements and are recognized as
income when earned. As of June 30, 1997 and December 31, 1996, the Company had
$3.3 million and $2.2 million of deferred revenues, respectively. In addition,
when work is performed in advance of billing, the Company records this work as a
cost in excess of billings or unbilled revenue. At June 30, 1997 and December
31, 1996, the Company had $654,000 and $282,000 of unbilled revenues,
respectively. Substantially all deferred and unbilled revenues will be earned
and billed, respectively, within 12 months of the respective period ends.

The Company believes that the net proceeds from the sale of the Common
Stock by the Company in this offering, together with cash flows from operations
and existing cash balances will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 12 months. Beyond that
time, if the net proceeds from this offering, together with cash flows from
operations and existing cash balances are not sufficient to satisfy its capital
needs, the Company may seek debt or additional equity financing. There can be no
assurance that such financing can be obtained on favorable terms, if at all.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123
establishes a fair value based method of recognizing compensation expense for
stock-based compensation. As permitted by Statement No. 123, the Company expects
to continue to use the intrinsic value based method of recognizing compensation
expense for stock-based compensation to employees. Therefore, for those options
granted with exercise prices equal to fair market value, no compensation charge
will be recognized by the Company in its financial statements. However, the
Company will be required to disclose the pro forma effects of the fair value
based method of measuring compensation expenses on the Company's net income and
net income per share as if that method were adopted in the 1997 annual financial
statements. The Company has not determined the effects its recent stock option
grants will have on the annual disclosures required under Statement No. 123.

In February 1997, the FASB issued Statement No. 128, Earnings per Share,
which revises the calculation and presentation provisions of Accounting
Principles Board Opinion No. 15 and related interpretations. Statement No. 128
is effective for the Company's fiscal year ending December 31, 1997. Retroactive
application will be required. The Company believes the adoption of Statement No.
128 will not have a significant effect on its reported earnings per share.

23
<PAGE> 25

BUSINESS

The following Business section contains forward-looking statements that
involve substantial risks and uncertainties. The Company's actual results could
differ materially from those expressed or implied in the forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus.

Since its founding 16 years ago, NRC has focused on the information needs
of the healthcare industry. The Company offers three primary types of
information services and products: renewable performance tracking services, a
renewable syndicated product and custom research. During 1996, NRC provided
services to more than 200 healthcare organizations, including HMOs, integrated
healthcare systems, medical groups and industry regulatory bodies. The Company
gathered and analyzed over 1,000,000 completed surveys for these clients in
1996. The Company's clients include Kaiser, the Department of Defense,
HealthSouth Corporation, BJC Health System and Mayo Clinic. NRC has benefited
from a high rate of renewable revenues. Specifically, over 80% of the Company's
total billings in each of the last two years was generated from clients billed
in the prior year.

INDUSTRY BACKGROUND

Managed Care

The United States healthcare industry continues to undergo significant
change. During the past decade, escalating costs and the rise in the number of
uninsured Americans brought healthcare reform to the forefront of public debate,
culminating in the Federal government's failed attempt to legislate broad change
in 1994. As a result of consumer, employer and governmental scrutiny, however,
the healthcare industry continues to shift towards a managed care model.

Managed care redefines payment structures and relationships between
healthcare payers and providers. In recent years, governmental and market-driven
reform initiatives have produced significant pressures on healthcare providers
to control costs. In the past, the financial risk of healthcare delivery was
principally absorbed by third-party payers, and providers were not focused on
cost containment. Through managed care and provider capitation arrangements, the
economic risk of healthcare delivery is shifting from payers to providers. In
order to manage this risk, providers are being forced to change the way that
they operate and are increasingly focused on measuring and controlling the cost
of delivering care. As managed care's tight rein on costs has kept premium
increases to a minimum, employee benefit managers are gravitating from
traditional fee-for-service plans to managed care plans.

Managed care enrollment has been increasing rapidly and, according to the
American Association of Health Plans (the "AAHP"), as of December 31, 1995
represented approximately 61% of Americans. This was comprised of approximately
47.5 million members of HMOs, approximately 91.8 million people who are being
serviced by preferred provider organizations ("PPOs") and approximately 13.9
million people who are being serviced by point-of-service ("POS") plans. In
total, there are approximately 700 HMOs, 1,000 PPOs and 500 POS plans in the
United States. According to the AAHP and Sanford C. Bernstein Co., Inc., HMO and
POS plan enrollment grew at a compound annual rate of 10.9% from 1990 to 1995
and enrollment is projected to be 112.5 million by 2000, representing a compound
annual growth rate of 12.9% from 1996 to 2000. Part of the reason for the
expected growth in HMO enrollment is the increasing enrollment of Medicare and
Medicaid beneficiaries in HMOs.

24
<PAGE> 26

These changes in healthcare payment arrangements have caused modifications
in the organizational structures of healthcare providers. Specifically,
physicians, many of whom are financially challenged under a managed care
environment to sustain solo or small group practices, are banding together and
forming medical groups in order to provide more cost-effective service.
According to the American Medical Association, more than 850 medical groups with
at least 25 physicians have been formed to date nationwide. Similarly, in order
to compete for patients while reducing cost structures, many hospitals have
formed integrated healthcare systems that provide services across the care
continuum (inpatient, outpatient, emergency care, home health, rehabilitation,
long-term care, hospice, pharmacy, etc.). Totaling more than 630 in 1996,
according to the St. Anthony's Integrated Health Care 100 Directory, integrated
healthcare systems drive market consolidation to more efficiently manage care
and services. In addition, this source indicates that the number of
organizations affiliated with these integrated healthcare systems has increased
from 5,000 in 1996 to more than 7,300 in 1997.

Due to intensified media coverage of and lawmaker attention to possible
managed care abuses, the public has come to recognize that managed care's
reduction in healthcare costs often comes at the "expense" of less patient
choice and potentially lowered healthcare quality. In response, an increasing
amount of healthcare legislation has been proposed and healthcare "watch dog"
organizations have been formed to establish performance standards. Sharing
similar concerns, employers increasingly demand that the health plans with which
they contract deliver high quality medical care, evidenced by contractual
performance guarantees. Facing this quality-minded environment, a growing number
of health plans, health systems and medical groups are soliciting their
customers for feedback on the care and service provided. As a result, healthcare
organizations are increasingly retaining independent performance tracking firms
which serve as credible "scorekeepers."

Performance Tracking

Industry accrediting bodies, employers and the government are increasingly
demanding ongoing enterprise-wide performance tracking. In order to implement
performance standards, however, healthcare quality must first be defined and
quantified in a consistent and objective manner. The two primary constituencies
in a position to opine on healthcare quality are healthcare practitioners, who
have a clinical orientation, and patients, who have a service orientation.
Because of difficulty in obtaining consistent, comparable clinical data across
physician and patient bases, the healthcare industry has not been able to
develop a uniform approach to measuring clinical outcomes. The industry has,
however, recognized that patient satisfaction can be quantified and therefore
currently represents the most effective means of measuring and comparing
healthcare service quality.

The National Committee for Quality Assurance ("NCQA") began accrediting
managed care organizations in 1991 in response to the need for standardized,
objective information about the healthcare quality these organizations provided.
The NCQA, which has accredited more managed care organizations than any other
accrediting body, requires health plans to contract with an independent third
party to conduct a standardized member satisfaction survey on an annual basis.
Data collected from the surveys is then reported as part of the Health Plan
Employer Data and Information Set ("HEDIS"), a collection of performance
indicators created to support employers' review of health plan options. One of
the nation's longest-standing healthcare organization accrediting bodies, The
Joint Commission on Accreditation of Healthcare Organizations (the "Joint
Commission"), also broadened the performance measurement requirements in its
accreditation process in 1997 with its ORYX initiative. In addition, the Health
Care Financing Administration ("HCFA"), the government administrator of Medicare
benefits, mandates that all HMOs providing Medicare benefits evaluate their
senior population's health plan satisfaction and health/functional status on an
annual basis. Finally, during 1997 state legislators across the country have
introduced several hundred managed care bills and 16 states have passed
comprehensive consumer-rights bills covering a number of managed-care issues.

Influenced by consumers, employers, accrediting bodies, competitive factors
and the government, approximately 99% of HMOs, 96% of hospitals and 80% of PPOs
currently measure satisfaction according to the AAHP and the American Hospital
Association. The Company believes that most of these organizations are measuring
satisfaction only at the enterprise-wide level. Due to competitive pressures,
however, healthcare

25
<PAGE> 27

organizations are increasingly seeking ways to affect positive change in their
organizations by "drilling down" their performance tracking from enterprise-wide
levels to more discreet levels. To identify where change and quality
improvements are needed, healthcare organizations must go beyond enterprise-wide
level performance tracking to narrower performance tracking at the departmental
level and ultimately at the individual physician/caregiver level. Departmental
level measurement reflects the historical practice of hospitals, in particular,
using static, mass produced questionnaires for each service point (inpatient,
emergency room, outpatient, etc.). This approach shows how each department is
doing and may support quality improvement but, given the merging of services
within integrated healthcare systems, most industry departmental measurement
does not provide a uniform means to gather data and then apply information to
effect system-wide improvements.

In contrast, physician/caregiver level performance tracking is critical to
learning where improvements are needed and what service issues, when addressed,
will effect the greatest positive change. Since patients' or members'
relationships with their primary care physicians strongly influence satisfaction
and retention, healthcare organizations are increasingly using performance
tracking in physicians' compensation packages to provide incentives for
physicians to maintain and/or improve patient relationships. According to a 1995
survey in the New England Journal of Medicine, 36% of managed care plans use
patient satisfaction as a component in their physician compensation packages.
Finally, other healthcare information providers are measuring outcomes of care
measures such as cost, utilization and appropriateness of care at the
physician/caregiver level, perpetuating the trend toward more
physician/caregiver level measurement. While the Company believes that less than
one-half of healthcare organizations are currently tracking patient satisfaction
at the physician/caregiver level, the Company believes that the healthcare
organizations that are not tracking satisfaction at this level are currently
considering the potential benefits of doing so.

THE NRC SOLUTION

The Company addresses healthcare organizations' growing need to track their
performance at the enterprise-wide, departmental and physician/caregiver levels.
The Company has led the industry in developing tools that enable its clients to
collect, in an unobtrusive manner, a substantial amount of comparative service
quality information in order to analyze and improve their practices to maximize
new member and/or patient attraction, member retention and profitability. NRC's
performance assessments offer the tangible measurement of health service quality
currently demanded by consumers, employers, industry accreditation organizations
and lawmakers.

The Company's innovative solutions respond to managed care's redefined
relationships among consumers, employers, payers and providers. While many
vendors exclusively use static, mass produced questionnaires, NRC also utilizes
its dynamic data collection process to create a personalized questionnaire that
evaluates service issues specific to each respondent's specific healthcare
experience. The flexibility of the Company's data collection process allows
healthcare organizations to add timely, market driven questions relevant to
matters such as industry performance mandates, employer performance guarantees
and internal quality improvement initiatives. In addition, the Company's dynamic
data collection process is used to assess core service factors relevant to all
healthcare respondent groups (patients, members, employers, employees,
physicians, etc.) and to all service points of a healthcare system (inpatient,
emergency room, outpatient, home health, rehabilitation, long-term care,
hospice, pharmacy, etc.). As differentiated from others in the marketplace, the
Company can gather data through fewer, more efficient questionnaires as opposed
to other firms' multiple questionnaires that often bombard the same respondents.

NRC offers three primary types of information services and products. The
NRC Listening System is a renewable performance tracking tool for gathering and
analyzing data from survey respondents. The Company has the capacity to measure
performance beyond the enterprise-wide level and has the ability and experience
to determine key performance indicators at the department and individual
physician/caregiver measurement levels, where the Company's services can best
guide the efforts of its clients to improve quality and enhance their market
position. The syndicated Market Guide, a stand-alone market information and
competitive intelligence source as well as a comparative performance database,
allows the Company's clients to assess their performance relative to the
industry, to access best practice examples and to utilize competitive

26
<PAGE> 28

information for marketing purposes. The Company's custom research enables NRC's
clients to conduct specific studies in order to identify areas of improvement
and measure market issues and opportunities. Recognizing the increasing
applications for self-reported healthcare assessments, NRC works with its
clients to integrate satisfaction measurement into various areas of their
businesses, including physician compensation. As the Company partners with its
clients, it seeks to enhance relationships throughout the healthcare
organization and thereby both broaden and deepen the scope of its projects.

BUSINESS STRENGTHS

The Company believes the following factors have been of principal
importance in achieving its current position as a leading provider of ongoing
survey-based performance measurement, analysis and tracking services and
products to the healthcare industry.

Leadership Position. The Company, over its 16-year history, has established
its position as an innovative leader of survey-based, renewable healthcare
performance tracking. NRC's client partnerships with leading healthcare payers
and providers exemplify the Company's leadership position. NRC's client base
includes Kaiser, the Department of Defense, HealthSouth Corporation, BJC Health
System and Mayo Clinic. In addition, industry bodies shaping the direction of
healthcare performance tracking have sought NRC's expertise. For example, the
Company served as a technical advisor to the NCQA during its development of a
standardized satisfaction measurement process and also tracks the Joint
Commission's own service performance by measuring satisfaction levels of those
healthcare organizations undergoing the Joint Commission's accreditation
process.

Healthcare Focus. The Company devotes all of its resources to the
healthcare industry and that industry's evolving performance information needs.
This focus allows NRC to deliver high quality, survey-based performance
information through its staff of 63 full-time professionals who understand the
complex competitive and industry issues facing healthcare organizations. The
Company believes that its healthcare expertise and experience enhance its
competitive position relative to those market research firms that serve multiple
industries.

Service and Product Renewability. The Company has benefited from high
renewal rates. Specifically, in each of the last two years over 80% of the
Company's total billings were generated from clients served in the prior year.
The Company's high renewal rates reflect, in part, competitive factors and
industry mandates which necessitate periodic performance tracking as well as the
use of performance information, which must be updated regularly and which must
be consistent, as a component of physician compensation. The Company believes
its dynamic data collection process, multi-level measurement (enterprise-wide,
departmental and physician/caregiver level) and multi-year comparative data
foster project renewability as healthcare organizations rely on these
capabilities to monitor and improve their performance.

NRC's Dynamic Data Collection Process. The Company believes that its
dynamic performance data collection process represents an important competitive
advantage over those performance tracking firms that only use static, mass
produced questionnaires focusing on one point of care (inpatient, outpatient,
emergency room, etc.) regardless of whether they are personalized to each
respondent and his or her unique experience. The Company's dynamic data
collection process offers questionnaire personalization such as patient name,
treating caregiver name, encounter date and, in some cases, exact services
received. This level of personalization enables the Company to realize increased
response rates and identify client service issues needing improvement. NRC's
dynamic data collection process also allows healthcare organizations to add
questions relevant to time, market or organization specific issues. This
approach allows NRC's dynamic data collection process to evolve with healthcare
organizations as they grow and as their performance objectives change as a
result of competitive conditions, industry mandates, employer performance
guarantees and quality improvement initiatives.

Healthcare Market Database and Complementary Services. Over the last 11
years, NRC has developed the healthcare industry's most comprehensive syndicated
database of performance tracking data. The Market Guide enables the Company's
clients to compare their performance results against national and local
benchmarks and thereby facilitate the identification of competitive strengths,
weaknesses and opportunities.

27
<PAGE> 29

Representing the views of one in every 650 households across the 48 continental
states, the Market Guide provides name specific performance data on 600 managed
care plans and 2,500 hospitals nationwide and addresses more than 100 industry
issues relevant to healthcare payers, providers and purchasers. The Company
gives its clients "point and click" access to NRC's syndicated assessments,
comparative performance data and industry mandated requirements via its
proprietary NRC Report Card System. Finally, in order to provide its clients
with a full-service performance tracking and market research capability, NRC
also offers its clients custom research services.

GROWTH STRATEGY

The Company's growth strategy includes the following key elements:

Leverage Existing Client Base. The Company believes substantial
opportunities exist to expand the depth and breadth of current clients'
performance tracking programs. During 1996, the Company provided services to
more than 200 healthcare organizations, for which the Company gathered and
analyzed over 1,000,000 completed surveys. The Company believes that since a
majority of its clients do not yet measure performance at either the department
or physician/caregiver level, the average number of surveys per client will
continue to grow as more healthcare organizations take performance tracking
deeper to these levels. This natural measurement progression is emerging as
healthcare organizations seek to effect change that will solidify or improve
their competitive market position and enhance member retention rates.
Furthermore, NRC believes its clients' programs can be broadened through the
addition of comprehensive satisfaction surveys of all the constituencies of a
healthcare plan or provider, including employers, employees, physicians,
patients and/or members. Finally, the Company believes it has the opportunity to
cross-sell complementary services and products to its existing clients because
the Company's comparative database, competitor intelligence and best practice
information can provide added value to its existing clients' current performance
tracking programs.

Expand Client Base. From 1995 to 1996, the number of clients billed has
increased from 155 to 210. The Company believes that its industry experience and
reputation as a high quality, cost effective performance tracking provider
serving the nation's leading healthcare organizations will enable it to continue
to attract new clients for its services and products. For example, the Company
believes a substantial opportunity exists to penetrate those healthcare
organizations which do not currently measure performance beyond the enterprise-
wide level required by industry mandates or which do not outsource performance
tracking. NRC believes there is also an opportunity to sell its renewable
syndicated product to healthcare providers and payers not previously served by
the Company but whose members' satisfaction is already tracked as part of the
Company's syndicated Market Guide. This database of performance information on
prospective clients and their competitors has historically been an important
point of initial contact for NRC's direct sales force. At the end of 1996, the
Company maintained a small direct sales force of only three people. However, NRC
added a new sales associate at the end of the second quarter of 1997 and another
in the third quarter of 1997 and plans to hire one or more additional sales
associates within the next 12 months. The Company believes this sales force
growth will allow each sales associate to develop more aggressively new clients
in more manageable geographic territories.

Pursue Strategic Acquisitions and Alliances. The Company believes the
fragmented nature of the healthcare performance tracking industry presents
strategic opportunities for the Company to acquire or align with other
performance information providers. The Company currently intends to explore the
acquisition of, or alliances with, firms providing complementary products,
services or technologies. The Company sees this strategy as a means to expand
its market position, increase its client base and geographic presence and obtain
additional personnel with industry experience. NRC may also pursue possible
industry partnerships or alliances with firms such as financial or clinical
healthcare information companies interested in integrating the Company's
syndicated performance information into their own product portfolios.

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<PAGE> 30

SERVICES AND PRODUCTS

The Company is a leading provider of ongoing survey-based performance
measurement, analysis and tracking services and products to the healthcare
industry, specializing in survey-based assessments designed to monitor care
outcomes including satisfaction and health status. NRC's three primary types of
information services and products are as follows:

Renewable Performance Tracking Services. The Listening System is NRC's
state-of-the-art data collection process which provides ongoing, renewable
performance tracking. The Listening System represented 75.9% and 85.7% of the
Company's total revenue in 1996 and the first six months of 1997, respectively.
This performance tracking program efficiently coordinates and centralizes an
organizations' satisfaction monitoring, thereby establishing a uniform
methodology and survey instrument needed to obtain valid performance information
and improve quality. Using the industry mandated method of mail-based data
collection, this assessment process monitors satisfaction across healthcare
respondent groups (patients, members, employers, employees, physicians, etc.)
and service settings (inpatient, emergency room, outpatient, etc.). Rather than
be limited to only static, mass produced questionnaires that provide limited
flexibility and performance insights, NRC's proprietary software generates
individualized questionnaires, which include personalization such as patient
name, treating caregiver name, encounter date and, in most cases, the services
received. This personalization enhances the response rates and the relevance of
performance data. Flexible and responsive to healthcare organizations changing
information needs, NRC creates personalized questionnaires that evaluate service
issues specific to each respondent's specific healthcare experience and include
questions that address core service factors throughout a healthcare
organization.

As differentiated from other competitors, the Company gathers data through
one efficient questionnaire as opposed to multiple questionnaires that often
bombard the same respondents. As a result, the Company's renewable performance
tracking programs and data collection process (i) realize higher response rates,
obtain data more efficiently, and thereby provide healthcare organizations with
more feedback, (ii) eliminate oversurveying (where one respondent receives
multiple surveys) and (iii) allow healthcare organizations to adapt
questionnaire content to address management objectives and to assess quality
improvement programs or other timely marketplace issues. Recognizing that
performance programs must do more than just measure satisfaction, NRC has
developed a one-page reporting format called the NRC Action Plan that provides a
basis on which to make improvements. NRC Action Plans show healthcare
organizations which service factors their customer groups value, which have the
greatest impact on satisfaction levels and how their performance in relationship
to these key indicators changes over time.

Renewable Syndicated Product. The Company's renewable nationally syndicated
product, the NRC Healthcare Market Guide, serves as a stand-alone market
information and competitive intelligence source as well as a comparative
performance database. This product accounted for 10.1% and 6.4% of the Company's
revenue in 1996 and the first six months of 1997, respectively. Since the
Company currently sells this product to less than 5% of the nation's healthcare
providers, the Company believes there is substantial opportunity to further
penetrate this market. Published by NRC bi-annually from 1988 to 1996 and
annually since 1996, this survey, which is the largest of its kind, asks
consumers via a pre-recruited third-party panel, members of which are sent
Market Guide questionnaires to complete, to evaluate their health plans, health
systems, physicians/ caregivers and personal health status. Representing the
views of one in every 650 households across every county in the continental
United States, the Market Guide provides name specific performance data on 600
managed care plans and 2,500 hospitals nationwide and addresses more than 100
data items relevant to healthcare payers, providers and purchasers. Utilizing
this proprietary database, the Company is able to produce reports tailored to
meet individual client's needs. Among the data featured are benchmarks specific
to the NCQA standardized HEDIS Member Satisfaction Survey that compare health
plans on a local, state and/or national level. Similarly, the product's national
name search feature allows a healthcare organization with a national or regional
presence to simultaneously compare the performance of all its sites and pinpoint
where strengths and weaknesses exist. The product's trending capacity details
how the performance of a healthcare organization changes over time. Other data
collected in the Market Guide profile health plan market share, consumers'
health plan decision making factors, physician/caregiver accessibility,
hospital/ healthcare system quality and chronic patient populations. The Company
gives clients easy access to the

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<PAGE> 31

Market Guide via its CD-ROM-based desktop delivery system -- the Report Card
System. This delivery system allows healthcare professionals to generate reports
in numerous formats to support their decision making.

Custom Research. In order to be a sole source provider to its clients, the
Company also conducts custom research that measures and monitors market
characteristics or issues specific to individual healthcare organizations. NRC's
custom research includes consumer recall of promotional and branding campaigns,
consumer response to new service offerings and provider perception of health
plans and healthcare organizations. The Company generally utilizes phone
interviews to collect relevant data for these custom studies. Custom research
accounted for 14.0% and 7.9% of the Company's total revenues in 1996 and the
first six months of 1997, respectively.

CLIENTS

The Company's ten largest clients in 1995, 1996 and the first six months of
1997 accounted for 71.1%, 63.9% and 67.9%, respectively, of the Company's total
revenues in each of those periods. The Company's largest client, Kaiser,
accounted for 43.7%, 40.4% and 34.7% of the Company's total revenues in 1995,
1996 and the first six months of 1997, respectively, and the Company expects
that this client will account for approximately 30% of its total revenues for
all of 1997. The Company, as a named subcontractor, also expects that the
Department of Defense, through a primary contractor, United Healthcare
Corporation, will account for more than 10% of total revenues in 1997. Overall,
the Company served more than 150 and 200 healthcare organizations in 1995 and
1996, respectively, and the Company believes substantial opportunities exist to
further penetrate its existing clients as well as to expand its client base. The
Company's clients include the following:

<TABLE>
<CAPTION>
HEALTH PLANS INTEGRATED HEALTHCARE SYSTEMS
------------ -----------------------------
<S> <C>
</TABLE>

Aetna Dental BJC Health System
Empire Blue Cross and Blue Shield HealthSouth Corporation
Kaiser Jewish Hospital Healthcare Services
MEDICAL GROUPS OTHER
Healthcare Partners Medical Group American Hospital Association
Mayo Clinic Department of Defense
Ochsner Medical Institutions Joint Commission

Examples of the Company's client relationships, which represent the nature
of the Company's services and performance measurement solutions, are set forth
below:

Health Plan Multi-Level Measurement. One of the nation's largest HMOs began
working with the Company four years ago to assess the satisfaction of its
members and patients. The project's first phase approached this measurement from
an enterprise-wide level -- how the HMO is performing in its West Coast
marketplace -- and at the department level -- examining the performance of each
of its owned medical centers and medical practices. From its original contract,
the Company has substantially expanded the scope of services provided to this
client by drilling down to the physician level. As a result, the number of
questionnaires processed by the Company on behalf of this client in 1996 was
150% greater than the number processed in 1994. This continuous measurement
allows the HMO to monitor the physician-patient relationship in terms of key
market issues such as access (including wait time, days to appointment and
doctor choice) and care dynamics (including familiarity with health history,
effective listening, understandable explanations of procedures, etc.) With the
aid of the Company, the HMO is able to internally disseminate detailed physician
"report cards" or performance reports that provide feedback to physicians and
management, allowing them to improve the physician-patient relationship. This
HMO uses the individual physician's scores in its physician compensation and
bonus structures.

Integrated Healthcare System Measurement. More than seven years ago, the
Company began a performance measurement program for a Midwestern hospital
covering inpatient, outpatient and emergency room services. The Company's
dynamic data collection process facilitated expanded client surveying as the
hospital led local market consolidation, culminating in its current status as a
16-hospital health system. The

30
<PAGE> 32

Company utilizes a survey instrument assessing performance not only of acute
care services historically measured for the system but also of services added to
the healthcare system such as long-term care, home health, occupational
medicine, mental health and hospice. The Company's ability to measure
simultaneously issues specific to each service point as well as core service
factors (also found on employee and physician surveys) pertinent throughout the
organization enables the health system to monitor performance and identify
improvement opportunities at the department and enterprise-wide levels. The
Company's long-term relationship with the health system has fostered a highly
valued measurement system championed by top management and used in conjunction
with continuous quality improvement processes. To create enterprise-wide
accountability, satisfaction results are used as a component within executives'
incentive programs and staff performance appraisals. The Company collected data
specific to the client's organizational objectives which the client was able to
utilize in establishing incentives to influence positive behavior. The Company's
tracking program can seamlessly respond to the client's specific information
needs for tracking management objectives and quality initiatives by adding
questions, service points assessed and reporting formats.

Medical Group Performance Measurement Leveraging Market Position. The
Company's physician/caregiver level performance measurement and database of
industry comparables provided the information solution a Southern-based medical
group needed to efficiently address performance improvement opportunities and
enhance its market position. The medical group, prior to its nine-year
relationship with the Company, used an internally created tool to analyze
physician and practice performance. However, because other local medical groups
used different satisfaction instruments, the medical group could not fulfill its
need to compare its scores with those of other local physicians. The Company's
solution involved questionnaires tailored to the unique information needs of the
group's practices and also included "core" questions represented in the
Company's comparative database. Implemented across the group's more than 450
physicians in 45 specialties and subspecialties, the Company's performance
system allowed physicians and clinics to determine whether their performance was
worse than, the same as or better than colleagues in similar specialities
locally, as well as nationwide. These benchmarks and best-practice examples have
allowed the group to capitalize on strengths and address weaknesses identified
by the Company's measurement system. The Company's data supported a marketing
campaign emphasizing the group's very high "overall quality of care" score
compared to other physicians in its market. In addition, the Company assisted
the group in leveraging its access scores by conducting a custom community study
that quantified patients' access expectations (how long was an acceptable office
wait time, days to appointment, etc.). Knowing what patients wanted and how the
group compared to other local practices, the Company helped the group identify
where resources should be allocated to improve patient experiences and service
ratings.

SALES AND MARKETING

The Company has generated the majority of its revenues from client
renewals, supplemented by its internal marketing efforts and a limited sales
force. In order to increase geographic penetration, NRC added one sales
associate to its existing three person sales force at the end of the second
quarter of 1997 and another in the third quarter of 1997. These new sales
associates will direct NRC's sales efforts from Nashville and Atlanta. The
Company is also in the process of searching for additional sales associates. As
compared to the typical industry practice of compensating salespeople with
relatively high base pay and a relatively small sales commission, NRC
compensates its sales associates with relatively low base pay and a relatively
high, per sale commission. The Company believes this compensation structure
provides incentives to its sales associates to surpass sales goals and increases
the Company's ability to attract top quality sales associates. The average
healthcare/market research industry experience of the Company's sales associates
is 8.75 years.

Numerous marketing efforts support the direct sales force's new business
generation and project renewal initiatives. NRC conducts an annual direct
marketing campaign around scheduled trade shows, including leading industry
conferences such as the National Managed Healthcare Congress and American
Association of Health Plans' Institute. NRC uses this lead generation mechanism
to track the effectiveness of marketing efforts and add generated leads to its
database of current and potential client contacts. In addition, NRC plans to
implement a telemarketing sales strategy to qualify the highest quality
potential leads. Finally, the Company's public relations program includes (i) an
ongoing presence in leading industry trade press and in the mainstream press;
(ii) public speaking at strategic industry conferences; (iii) monthly
"Perspectives on

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<PAGE> 33

Performance" articles (which are in-depth discussions of performance tracking
applications, trends and policies) sent to current clients and top prospects;
(iv) fostering relationships with key industry constituencies (HCFA, Joint
Commission and NCQA); and (v) an annual Quality Leaders award program
recognizing top-ranking HMOs and health systems in approximately 100 markets.
The Company is also co-authoring an industry manual with renowned researcher
John E. Ware, Ph.D., of the New England Medical Center's Health Institute.

The Company's integrated marketing activities facilitate its ongoing
receipt of project requests-for-proposals as well as direct sales force
initiated prospect contact. The sales process typically spans a 90-day period
encompassing the identification of a healthcare organization's information
needs, the education of prospects on NRC solutions (via proposals, in-person
sales presentations and on-line product demonstrations) and the closing of the
sale. The Company's sales cycle varies depending on the particular product or
service being marketed and the size of the potential project.

COMPETITION

The healthcare information and market research industry is highly
competitive. The Company has traditionally competed both with healthcare
organizations' internal marketing, market research and/or quality improvement
departments which create their own performance measurement tools and with
relatively small specialty research firms which provide survey-based healthcare
market research and/or performance assessment. The Company anticipates that in
the future it may increasingly compete with (i) traditional market research
firms which are significant providers of survey-based, general market research
and (ii) firms which provide services or products that complement healthcare
performance assessments, such as healthcare software or information systems.
Although only a few of these competitors have to date offered survey-based,
healthcare market research that competes directly with the Company's services
and products, many of these competitors have substantially greater financial,
information gathering and marketing resources than the Company and could decide
to increase their resource commitments to the Company's market. There are
relatively few barriers to entry into the Company's market, and the Company
expects increased competition in its market, which could adversely affect the
Company's operating results through pricing pressure, increased marketing
expenditures and market share losses, among other factors. There can be no
assurance that the Company will continue to compete successfully against
existing or new competitors. See "Risk Factors -- Competition."

The Company believes the primary competitive factors within its market
include quality of service, timeliness of delivery, service uniqueness,
credibility of provider, industry experience and price. NRC believes that its
industry leadership position, exclusive focus on the healthcare industry,
dynamic questionnaire, syndicated Market Guide and comparative performance
database, and its relationships with leading healthcare payers and providers
position the Company to compete in this market.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success is in part dependent upon its data collection
process, research methods, data analysis techniques and internal systems and
procedures that it has developed specifically to serve clients in the healthcare
industry. The Company has no patents; consequently, it relies on a combination
of copyright, trademark and trade secret laws and employee nondisclosure
agreements to protect its systems and procedures. There can be no assurance that
the steps taken by the Company to protect its rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior systems or procedures. The Company
believes that its systems and procedures and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not result in
protracted and costly litigation, regardless of the merits of such claims. See
"Risk Factors -- Limited Protection of the Company's Systems and Procedures."

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<PAGE> 34

EMPLOYEES

As of July 1, 1997, the Company employed a total of 64 persons on a
full-time basis. In addition, as of such date the Company had 160 part-time
associates primarily in its survey operations, representing approximately 101
full-time equivalent employees. None of the Company's employees are represented
by a collective bargaining agreement. The Company considers its relationship
with its employees to be excellent.

FACILITIES

The Company's headquarters is located in approximately 25,000 square feet
of leased office space in Lincoln, Nebraska. This facility houses all the
capabilities necessary for NRC's survey programming, printing and distribution;
telephone interviewing; data processing, analysis and report generation;
marketing; and corporate administration. The lease on this facility is on a
month to month basis. The Company plans to move to an approximately 35,000
square foot new leased facility by the end of the first quarter of 1998 to
accommodate its growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

LEGAL PROCEEDINGS

The Company is not subject to any material pending litigation.

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<PAGE> 35

MANAGEMENT

OFFICERS AND DIRECTORS

The following table sets forth information, as of the date of this
Prospectus, regarding the officers and directors of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Michael D. Hays................ 42 President, Chief Executive Officer and Director
Jona S. Raasch................. 38 Vice President and Chief Operations Officer
Patrick E. Beans............... 40 Vice President, Treasurer, Chief Financial Officer and Director
Sharon Flaherty................ 50 Vice President-Sales, Marketing and Client Services
Daniel Bernard................. 47 Vice President-Information Systems
</TABLE>

Michael D. Hays has served as President and Chief Executive Officer and as
a director since he founded the Company in 1981. Mr. Hays has more than 23 years
of experience in the healthcare and survey-based research industries.

Jona S. Raasch has served as Vice President and Chief Operations Officer
since September 1988. Ms. Raasch has more than 17 years of experience in the
healthcare and survey-based research industries.

Patrick E. Beans has served as the principal financial officer since he
joined the Company in August 1994. Mr. Beans was elected Vice President,
Treasurer and Chief Financial Officer in August 1997. Immediately prior to this
offering, Mr. Beans will be elected as a director. From June 1993 until joining
the Company, Mr. Beans was the finance director for the Central Interstate
Low-Level Radioactive Waste Commission, a five-state compact developing a
low-level radioactive waste disposal plan. From 1979 to 1988 and from June 1992
to June 1993, he practiced as a certified public accountant.

Sharon Flaherty joined the Company in December 1996 and serves as Vice
President-Sales, Marketing and Client Services. From 1972 until joining the
Company, Ms. Flaherty held various positions with Kaiser Foundation Health Plan,
Inc. and its affiliates, an HMO, including the last three years (from May 1993
to June 1996) as President of Kaiser Foundation Health Plan of Texas.

Daniel Bernard has served as Vice President-Information Systems since he
joined the Company in 1986. Mr. Bernard has more than 24 years of experience in
the healthcare and survey-based research industries.

Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors. The Board of Directors currently consists
of one director and Mr. Beans will be elected a director immediately prior to
this offering. The Company intends to name at least two additional directors,
who will be independent directors, within 60 days of the completion of this
offering to serve with Mr. Hays and Mr. Beans. Mr. Hays, as a director and the
Company's principal shareholder, and Mr. Beans, as a director, will determine
who the two additional directors will be. The Company's Articles of
Incorporation and By-Laws divide the Board of Directors into three classes. The
directors serve staggered terms of three years, with the members of one class
being elected in any year, as follows: (i) one director has been designated as a
Class I Director and will serve until the 1998 annual meeting; (ii) Patrick E.
Beans will be designated as a Class II Director and will serve until the 1999
annual meeting; (iii) Michael D. Hays and one other director have been
designated as Class III Directors and will serve until the 2000 annual meeting;
and in each case until their respective successors are duly elected and
qualified. There are no family relationships between any directors or executive
officers of the Company.

DIRECTOR COMPENSATION

Directors who are executive officers of the Company receive no compensation
for service as members of either the Board of Directors or committees thereof.
Directors who are not executive officers of the Company will be paid an annual
retainer and a fee for each committee meeting attended, the amounts of which
will be

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<PAGE> 36

determined within 60 days of the completion of this offering. Additionally,
directors will be reimbursed for out-of-pocket expenses associated with
attending meetings of the Board of Directors and committees thereof.

Pursuant to the Director Plan, each director who is not an employee of the
Company will receive 40% of his or her annual retainer in cash and the remaining
60% in shares of Common Stock, and will receive an annual grant of an option to
purchase 1,000 shares of Common Stock. The options will have an exercise price
equal to the fair market value of the Common Stock on the date of grant and will
vest one year after the grant date.

BOARD COMMITTEES

The Board of Directors established standing Audit and Compensation
Committees in August 1997. The Audit Committee is responsible for recommending
to the Board of Directors the appointment of independent auditors, approving the
scope of the annual audit activities of the auditors, approving the audit fee
payable to the auditors and reviewing audit results. It is expected that within
60 days of the completion of this offering the Board of Directors will appoint
the members of the Audit Committee, which will consist of three directors,
including two independent directors. The Compensation Committee reviews and
recommends to the Board of Directors the compensation structure for the
Company's directors, officers and other managerial personnel, including salary
rates, participation in any incentive compensation and benefit plans, fringe
benefits, non-cash perquisites and other forms of compensation, and administers
the Equity Incentive Plan. It is expected that within 60 days of the completion
of this offering the Board of Directors will appoint the members of the
Compensation Committee, which will consist of two independent directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company will not have an active Compensation Committee of the Board of
Directors until the two independent directors are named. As a result, Michael D.
Hays was, and, until such directors are named, he and Patrick E. Beans will be,
responsible for fixing the compensation to be paid to the executive officers of
the Company.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation paid to, earned by or awarded to the Company's Chief Executive
Officer and the Company's only other executive officers whose total cash
compensation exceeded $100,000 in the fiscal year ended December 31, 1996. The
persons named in the table are sometimes referred to herein as the "named
executive officers."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Michael D. Hays................................... 1996 $140,000 $ 70,000(1) $1,523(2)
President and Chief Executive Officer
Jona S. Raasch.................................... 1996 72,472 117,290(3) 1,167(4)
Vice President and Chief Operations Officer
Patrick E. Beans.................................. 1996 72,472 117,290(3) 1,167(4)
Vice President, Treasurer and Chief Financial
Officer
</TABLE>

- -------------------------
(1) Discretionary bonus.

(2) Premiums for disability insurance paid by the Company for the benefit of Mr.
Hays.

(3) Includes $77,036 awarded in 1996 under the Company's prior annual incentive
plan, $21,627 paid in 1996 under the Company's prior annual incentive plan
as a result of awards made in earlier years, $15,407 awarded in 1996 under
the Company's prior quarterly incentive plan and $3,220 paid in 1996 under
the

35
<PAGE> 37

Company's prior quarterly incentive plan as a result of an award made in
1995. Subject to potential forfeiture on termination of employment, awards
made under the Company's prior annual incentive plan vest and become payable
in 20% increments following the end of each fiscal year over a five-year
period. Effective June 30, 1997, the Company terminated its prior annual and
quarterly incentive plans and currently intends to replace them with a new
incentive plan, the terms of which have not been established.

(4) Additional wages paid by the Company when professional development programs
were attended.

EMPLOYMENT AGREEMENTS

On July 15, 1994, the Company set forth the terms and conditions of Patrick
E. Beans' employment with the Company in an employment memorandum. Pursuant to
this memorandum, Mr. Beans is entitled to an annual base salary of $70,000 and
is entitled to participate in the Company's incentive plan, the National
Research Corporation 401(k) Savings Plan and a stock option pool or similar
benefit plan (which will be the Equity Incentive Plan). Under this memorandum,
the Company agreed to employ Mr. Beans as its Chief Financial Officer.

EMPLOYEE BENEFIT PLANS

Equity Incentive Plan. In August 1997, the Board of Directors adopted, and
the Company's shareholders approved, the Equity Incentive Plan. The purpose of
the Equity Incentive Plan is to promote the best interests of the Company and
its shareholders by providing employees of the Company with an opportunity to
acquire an interest in the Company. The Equity Incentive Plan is intended to
promote continuity of management and to provide increased incentive and personal
interest in the welfare of the Company by employees upon whose judgment,
interest and special effort the successful conduct of the Company's business is
dependent.

The Equity Incentive Plan may be administered by a committee of the Board
of Directors consisting of two or more directors or by the entire Board of
Directors. Once the members of the Compensation Committee of the Board of
Directors (the "Committee") are appointed, the Committee will administer the
Equity Incentive Plan and will have the authority to establish rules for the
administration of the Equity Incentive Plan; to select the employees of the
Company to whom awards will be granted; to determine the types of awards to be
granted to employees and the number of shares covered by such awards; and to set
the terms and conditions of such awards. Prior to such time, the entire Board of
Directors shall perform the functions of the Committee with respect to the
Equity Incentive Plan.

Any employee of the Company or of any of its future affiliates, including
any officer or employee-director of the Company or of any of its future
affiliates, is eligible to be granted awards by the Committee under the Equity
Incentive Plan. The Equity Incentive Plan authorizes the granting to employees
of: (i) stock options, which may be either incentive stock options meeting the
requirements of Section 442 of the Code or non-qualified stock options, (ii)
stock appreciation rights, (iii) restricted stock, (iv) performance shares and
(v) other stock-based awards and benefits. No awards may be granted under the
Equity Incentive Plan after the date of the Company's annual meeting of
shareholders in the year 2001.

The maximum number of shares of Common Stock which may be issued and sold
under the Equity Incentive Plan is 730,000 shares. The Company expects to grant
options to purchase approximately 225,000 shares of Common Stock simultaneously
with this offering at an exercise price per share equal to the initial public
offering price, of which none are expected to be granted to the named executive
officers. The Company anticipates that options granted to other executive
officers will vest in equal increments over a three-year period and that each of
the other options granted will vest in equal increments over a two-year period.
Consequently, none of such options will be exercisable until one year after the
date of this Prospectus. If any dividend or other distribution,
recapitalization, stock split, reorganization, merger, consolidation,
combination, repurchase or exchange of shares of Common Stock, issuance of
warrants or other rights to purchase shares of Common Stock or other similar
corporate transaction or event effects the shares of Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
benefits intended to be made available under the Equity Incentive Plan, then the
Committee will have the authority to adjust (i) the

36
<PAGE> 38

number and type of shares subject to the Equity Incentive Plan and which
thereafter may be made the subject of awards, (ii) the number and type of shares
subject to outstanding awards, and (iii) the grant, purchase or exercise price
with respect to an award or may make provision for a cash payment to the holder
of an outstanding award.

Profit Sharing Plan. The Company maintains the National Research
Corporation Profit Sharing Plan (the "Profit Sharing Plan"). The Profit Sharing
Plan permits employee before-tax contributions, employee after-tax contributions
and provides for employer incentive matching contributions and employer
discretionary contributions. Substantially all of the Company's employees who
have completed one year of service and attained age 21 become participants in
the Profit Sharing Plan on the first day coinciding with or following the date
on which they satisfy the eligibility criteria. Employee contributions to the
Profit Sharing Plan are 100% vested at the time of contribution. Company
contributions to the Profit Sharing Plan may be, at the Company's option, partly
or fully vested at the time of contribution, with any portion thereof not vested
at the time of contribution vesting in equal increments over a five-year period
starting after two years of service. Vested accounts are distributable upon a
participant's retirement.

401(k) Savings Plan. The Company maintains the National Research
Corporation 401(k) Savings Plan, a defined contribution retirement plan with a
cash or deferred arrangement as described in Section 401(k) of the Code (the
"401(k) Savings Plan"). The 401(k) Savings Plan is intended to be qualified
under Section 401(a) of the Code. All employees of the Company who have
completed one year of service and attained age 21 are eligible to participate in
the 401(k) Savings Plan on the first day of the month coinciding with or
following the date on which they satisfy the eligibility criteria. The 401(k)
Savings Plan provides that each participant may make elective contributions from
1% to 15% of his or her compensation, subject to statutory limits. The 401(k)
Savings Plan also provides for matching contributions and discretionary
contributions, subject to statutory limits.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the WBCL and the Company's By-Laws, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in the defense thereof, unless (in the
latter case only) it is determined that the director or officer breached or
failed to perform his or her duties to the Company and such breach or failure
constituted: (i) a willful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director or officer had a
material conflict of interest; (ii) a violation of the criminal law unless the
director or officer had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(iii) a transaction from which the director or officer derived an improper
personal profit; or (iv) willful misconduct.

Under the WBCL, directors of the Company are not personally liable to the
Company, its shareholders or any person asserting rights on behalf of the
Company or its shareholders for certain breaches or failures to perform any duty
resulting solely from their status as such directors, except in circumstances
paralleling those in subparagraphs (i) through (iv) outlined above. These
provisions pertain only to breaches of duty by directors as directors and not in
any other corporate capacity, such as officers. As a result of such provisions,
shareholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have an effective remedy against the
challenged conduct. It is possible, although unlikely, that as a result of these
provisions, directors may not demonstrate the same level of diligence or care
since they are protected by these provisions. The Company believes the
limitations of liability provisions in the Company's By-Laws and under the WBCL
will facilitate the Company's ability to attract and retain qualified
individuals to serve as directors of the Company.

37
<PAGE> 39

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 15, 1997, and as adjusted to reflect
the sale of the shares offered hereby, by: (i) each of the Company's directors;
(ii) each of the named executive officers; (iii) all directors and all executive
officers as a group; and (iv) each person or other entity known by the Company
to own beneficially more than 5% of the Common Stock. Except as otherwise
indicated in the footnotes, each of the holders has an address in care of the
Company's principal executive offices and has sole voting and investment power
over the shares beneficially owned, subject to any applicable community or
marital property laws.

<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED BEING OWNED AFTER
PRIOR TO OFFERING(1) OFFERED(2) OFFERING(1)(2)
---------------------- ---------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Michael D. Hays............................ 6,012,910 99.3% 850,000 5,162,910 70.7%
Jona S. Raasch............................. 42,090 * -- 42,090(3) *
Patrick E. Beans........................... 0 -- -- 0(3) --
All directors and executive officers as a
group (4 persons)........................ 6,055,000 100.0% 850,000 5,205,000 71.3%
</TABLE>

- -------------------------
* Less than 1%

(1) Based on 6,055,000 shares of Common Stock outstanding as of September 15,
1997 and 7,305,000 shares of Common Stock outstanding immediately after this
offering. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission.

(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
315,000 shares of Common Stock from the Selling Shareholder. If the
Underwriters' over-allotment option is exercised in full, upon completion of
this offering Mr. Hays would beneficially own 4,847,910 shares (or 66.4%).

(3) In connection with this offering and prior to termination of the Company's S
Corporation status, the Company intends to pay special cash bonuses
aggregating $1,740,000 to Ms. Raasch and Mr. Beans in order to allow them to
purchase shares of Common Stock and align the interests of all the named
executive officers with the interests of the Company's shareholders.
Substantially all of the after-tax proceeds of these bonuses will be used by
Ms. Raasch and Mr. Beans to purchase shares of the Company's Common Stock.

38
<PAGE> 40

CERTAIN TRANSACTIONS

Prior to joining the Company in 1996, Sharon Flaherty, Vice
President-Sales, Marketing and Client Services, served as President of Kaiser
Foundation Health Plan of Texas and as a Vice President of Kaiser Foundation
Health Plan, Inc., the parent of Kaiser. Kaiser Permanente-Northern California
Region began its relationship with the Company in 1994 and accounted for 40.4%
of the Company's total revenues in 1996.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.001, and 2,000,000 shares of Preferred Stock, par
value $.01.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Articles of Incorporation,
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part, and by the provisions of applicable law.

COMMON STOCK

There will be 7,305,000 shares of Common Stock outstanding after giving
effect to the sale of Common Stock offered by the Company hereby.

After all cumulative dividends have been paid or declared and set apart for
payment on any shares of Preferred Stock that are outstanding, the Common Stock
is entitled to such dividends as may be declared from time to time by the Board
of Directors in accordance with applicable law.

Except as provided under Wisconsin law and except as may be determined by
the Board of Directors of the Company with respect to any series of Preferred
Stock, only the holders of Common Stock shall be entitled to vote for the
election of directors of the Company and on all other matters. Holders of Common
Stock are entitled to one vote for each share of Common Stock held by them on
all matters properly submitted to a vote of shareholders, subject to Section
180.1150 of the WBCL (described below under "Certain Statutory, Articles of
Incorporation and By-Law Provisions"). Shareholders have no cumulative voting
rights, which means that the holders of shares entitled to exercise more than
50% of the voting power are able to elect all of the directors to be elected.

All shares of Common Stock are entitled to participate equally in
distributions in liquidation, subject to the prior rights of any Preferred Stock
which may be outstanding. Holders of Common Stock have no preemptive rights to
subscribe for or purchase shares of the Company. There are no conversion rights,
sinking fund or redemption provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the Common Stock to be issued by the
Company in this offering will be, fully paid and nonassessable, except for
certain statutory liabilities which may be imposed by Section 180.0622(2)(b) of
the WBCL for unpaid employee wages.

The transfer agent for the Common Stock is Firstar Trust Company,
Milwaukee, Wisconsin.

PREFERRED STOCK

Pursuant to the Company's Articles of Incorporation, the Board of Directors
has the authority, without further action by the shareholders, to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences, privileges and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without shareholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change of control of the Company or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock, and may

39
<PAGE> 41

adversely affect the voting and other rights of the holders of Common Stock. At
present, there are no shares of Preferred Stock outstanding and the Company has
no plans to issue any of the Preferred Stock.

CERTAIN STATUTORY, ARTICLES OF INCORPORATION AND BY-LAW PROVISIONS

Section 180.1150 of the WBCL provides that the voting power of shares of
public Wisconsin corporations such as the Company held by any person or persons
acting as a group in excess of 20% of the voting power in the election of
directors is limited to 10% of the full voting power of those shares. This
statutory voting restriction does not apply to shares acquired directly from the
Company or in certain specified transactions or shares for which full voting
power has been restored pursuant to a vote of shareholders.

Sections 180.1140 to 180.1144 of the WBCL and Article 9 of the Articles of
Incorporation of the Company (collectively, the "Wisconsin Business Combination
Restriction") regulate a broad range of "business combinations" between a
Wisconsin corporation and an "interested stockholder." The Wisconsin Business
Combination Restriction defines a "business combination" to include a merger or
share exchange, sale, lease, exchange, mortgage, pledge, transfer, or other
disposition of assets equal to at least 5% of the market value of the stock or
assets of a corporation or 10% of its earning power, issuance of stock or rights
to purchase stock with a market value equal to at least 5% of the outstanding
stock, adoption of a plan of liquidation, and certain other transactions
involving an "interested stockholder." An "interested stockholder" is defined as
a person who beneficially owns, directly or indirectly, 10% of the voting power
of the outstanding voting stock of a corporation or who is an affiliate or
associate of the corporation and beneficially owned 10% of the voting power of
the then outstanding voting stock within the last three years. The Wisconsin
Business Combination Restriction prohibits a corporation from engaging in a
business combination (other than a business combination of a type specifically
excluded from the coverage of the statute) with an interested stockholder for a
period of three years following the date such person becomes an interested
stockholder, unless the board of directors approved the business combination or
the acquisition of the stock that resulted in a person becoming an interested
stockholder before such acquisition. Business combinations after the three-year
period following the stock acquisition date are permitted only if (a) the board
of directors approved the acquisition of the stock prior to the acquisition
date, (b) the business combination is approved by a majority of the outstanding
voting stock not beneficially owned by the interested stockholder, or (c) the
consideration to be received by shareholders meets certain requirements of the
Wisconsin Business Combination Restriction with respect to form and amount. The
Wisconsin Business Combination Restriction does not currently apply to Michael
D. Hays since it does not apply to the shares of Common Stock currently held by
Mr. Hays and the Board of Directors of the Company approved for purposes of the
Wisconsin Business Combination Restriction any acquisitions (whether by
purchase, gift or otherwise) made by Mr. Hays after September 12, 1997.

Sections 180.1130 to 180.1133 of the WBCL provide that certain "business
combinations" not meeting specified adequacy-of-price standards must be approved
by a vote of at least 80% of the votes entitled to be cast by shareholders and
by two-thirds of the votes entitled to be cast by shareholders other than a
"significant shareholder" who is a party to the transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
consolidation of the Company (or any subsidiary thereof) with, or the sale or
other disposition of substantially all of the assets of the Company to, any
significant shareholder or affiliate thereof. "Significant shareholder" is
defined generally to include a person that is the beneficial owner of 10% or
more of the voting power of the Common Stock.

Section 180.1134 (the "Wisconsin Defensive Action Restrictions") provides
that, in addition to the vote otherwise required by law or the articles of
incorporation of an issuing public corporation, the approval of the holders of a
majority of the shares entitled to vote is required before such corporation can
take certain action while a takeover offer is being made or after a takeover
offer has been publicly announced and before it is concluded. Under the
Wisconsin Defensive Action Restrictions, shareholder approval is required for
the corporation to (a) acquire more than 5% of the outstanding voting shares at
a price above the market price from any individual or organization that owns
more than 3% of the outstanding voting shares and has held such shares for less
than two years, unless a similar offer is made to acquire all voting shares or
(b) sell or option assets of the corporation which amount to at least 10% of the
market value of the corporation, unless the corporation has at least three
independent directors and a majority of the independent directors vote not to

40
<PAGE> 42

have this provision apply to the corporation. The restrictions described in
clause (a) above may have the effect of deterring a shareholder from acquiring
shares of the Company with the goal of seeking to have the Company repurchase
such shares at a premium over the market price.

Under the Company's Articles of Incorporation and By-Laws, the Board of
Directors of the Company is divided into three classes, with staggered terms of
three years each. Each year the term of one class expires. The Articles provide
that any vacancies on the Board of Directors shall be filled only by the
affirmative vote of a majority of the directors in office, even if less than
quorum. Any director so elected will serve until the next election of the class
for which such director is chosen and until his or her successor is duly elected
and qualified. See "Management -- Executive Officers and Directors."

The Articles of Incorporation of the Company provide that any director may
be removed from office, but only for cause by the affirmative vote of at least
66 2/3% of all outstanding shares entitled to vote in the election of directors.
However, if at least two-thirds of the Board of Directors plus one director vote
to remove a director, such director may be removed without cause by a majority
of the outstanding shares of the Company entitled to vote thereon.

In addition, the By-Laws of the Company establish a procedure which
shareholders seeking to call a special meeting of shareholders must satisfy.
This procedure involves notice to the Company, the receipt by the Company of
written demands for a special meeting from holders of 10% or more of the issued
and outstanding shares of Common Stock, a review of the validity of such demands
by an independent inspector appointed by the Company and the fixing of the
record and meeting dates by the Board of Directors. In addition, shareholders
demanding such a special meeting must deliver to the Company a written agreement
to pay the costs incurred by the Company in holding a special meeting, including
the costs of preparing and mailing the notice of meeting and the proxy materials
for the solicitation by the Company of proxies for use at such meeting, in the
event such shareholders are unsuccessful in their proxy solicitation.

The By-Laws of the Company also provide the Board of Directors of the
Company with discretion in postponing shareholder meetings, including, within
certain limits, special meetings of shareholders. Additionally, the President or
the Board of Directors (acting by resolution) may adjourn a shareholder meeting
at any time prior to the transaction of business at such meeting. The By-Laws of
the Company also contain strict time deadlines and procedures applicable to
shareholders seeking to nominate a person for election as a director or to
otherwise bring business before a meeting.

The foregoing provisions of the Company's Articles of Incorporation and
By-Laws and the WBCL could have the effect of delaying, deferring or preventing
a change of control of the Company. See "Risk Factors -- Effect of Anti-Takeover
Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding an
aggregate of 7,305,000 shares of Common Stock. Of these outstanding shares of
Common Stock, the 2,100,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act. The remaining 5,205,000 shares of Common Stock
held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares") and will be
subject to the lock-up arrangements described below. Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 144(k) promulgated under the Securities
Act, which are summarized below. All of such Restricted Shares have been held in
excess of one year. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock.

The Company and its directors and executive officers, including all current
shareholders, have entered into contractual "lock-up" agreements providing that,
except for the granting of options or the issuance of shares of Common Stock
under the Director Plan, they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of the shares of Common Stock owned
by them or that could be purchased

41
<PAGE> 43

by them through the exercise of options to purchase Common Stock of the Company
for a period of 180 days after the date of this Prospectus without the prior
written consent of William Blair & Company, L.L.C. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144 and 144(k), the shares subject to lock-up
agreements will not be saleable until 180 days after the date of this
Prospectus. William Blair & Company, L.L.C., in its discretion, may waive the
foregoing restrictions in whole or in part, with or without a public
announcement of such action.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner except an
affiliate of the Company) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) one percent
of the number of shares of Common Stock then outstanding (which will equal
73,050 shares immediately after this offering); or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144; therefore, unless otherwise restricted,
"144(k) shares" may be sold immediately upon the completion of this offering.

The preceding description does not give effect to the shares of Common
Stock which may be offered and sold pursuant to the Equity Incentive Plan or the
Director Plan. See "Management -- Director Compensation" and "-- Employee
Benefit Plans -- Equity Incentive Plan." The Company intends to file
registration statements under the Securities Act, in the case of the Equity
Incentive Plan not earlier than 180 days after the date of this Prospectus, to
register the shares of Common Stock issuable under the Equity Incentive Plan and
the Director Plan, which shares will be available for sale in the public market,
subject to the volume and other limitations of Rule 144 for shares held by
affiliates of the Company. In connection with this offering, options to purchase
225,000 shares of Common Stock will be granted under the Equity Incentive Plan
at an exercise price equal to the offering price.

Since there has been no public market for the Common Stock prior to this
offering, no predictions can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock.

42
<PAGE> 44

UNDERWRITING

The several Underwriters named below (the "Underwriters"), for whom William
Blair & Company, L.L.C. and Robert W. Baird & Co. Incorporated are acting as
Representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company, the Selling Shareholder and the Underwriters (the "Underwriting
Agreement"), to purchase from the Company and the Selling Shareholder, and the
Company and the Selling Shareholder have agreed to sell to the Underwriters, the
respective number of shares of Common Stock set forth opposite each
Underwriter's name in the table below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
William Blair & Company, L.L.C..............................
Robert W. Baird & Co. Incorporated..........................

---------
Total.................................................. 2,100,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
offered hereby if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the non-defaulting Underwriters shall be increased or
the Underwriting Agreement may be terminated.

The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus and
to selected dealers at such price less a concession of not more than $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the public offering price and other selling terms may be changed by
the Underwriters.

The Selling Shareholder has granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 315,000 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any such additional shares pursuant to this option, the
Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.

The Company and its directors and executive officers, including all current
shareholders, have agreed that they will not sell, contract to sell or otherwise
dispose of any Common Stock or any interest therein for a period of 180 days
after the date of this Prospectus without the prior written consent of William
Blair & Company, L.L.C., except for the Common Stock offered hereby. William
Blair & Company, L.L.C., in its discretion, may waive the foregoing restrictions
in whole or in part, with or without a public announcement of such action. See
"Shares Eligible for Future Sale."

The Company and the Selling Shareholder have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.

43
<PAGE> 45

Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company and the
Representatives. Among the factors which will be considered in such negotiations
will be the prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company, the Selling Shareholder and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors which may be deemed relevant.

The Representatives have informed the Company that the Underwriters will
not confirm, without client authorization, sales to their client accounts as to
which they have discretionary authority.

Until the distribution of the shares is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. In addition, if the Representatives over-allot (i.e., if they sell
more shares of Common Stock than are set forth on the cover page of this
Prospectus), and thereby create a short position in the Common Stock in
connection with this offering, the Representatives may reduce that short
position by purchasing Common Stock in the open market. The Representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described herein.

The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering. Neither the
Company nor any of the Underwriters makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholder by Foley &
Lardner, Milwaukee, Wisconsin. Certain legal matters will be passed upon for the
Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.

EXPERTS

The financial statements of the Company at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, appearing in
this Prospectus and in the Registration Statement, have been audited by KPMG
Peat Marwick LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

44
<PAGE> 46

NATIONAL RESEARCH CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 and Pro Forma Balance Sheet as of June 30, 1997...... F-3
Statements of Income for the years ended December 31, 1994,
1995 and 1996 and for the six months ended June 30, 1996
and 1997.................................................. F-4
Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1997....................................... F-5
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30,
1996 and 1997............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
National Research Corporation:

We have audited the accompanying balance sheets of National Research
Corporation as of December 31, 1995 and 1996, and the related statements of
income, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Research
Corporation as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1996 in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Lincoln, Nebraska
June 6, 1997, except as to
note 8 which is as
of August 8, 1997

F-2
<PAGE> 48

NATIONAL RESEARCH CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 934,800 $2,782,212 $3,621,662 $ --
Investments in marketable debt securities... 587,245 1,476,965 306,779 306,779
Trade accounts receivable, less allowance
for doubtful accounts of $25,000 in 1995,
$45,000 in 1996, and $55,000 in 1997..... 2,912,122 1,216,812 2,171,018 2,171,018
Unbilled revenues........................... 97,334 282,358 653,934 653,934
Prepaid expenses and other.................. 24,610 46,022 628,429 728,929
---------- ---------- ---------- ----------
Total current assets..................... 4,556,111 5,804,369 7,381,822 3,860,660
---------- ---------- ---------- ----------
Property and equipment:
Furniture and fixtures...................... 173,225 291,514 304,598 304,598
Computer equipment.......................... 409,008 481,055 700,423 700,423
---------- ---------- ---------- ----------
582,233 772,569 1,005,021 1,005,021
Less accumulated depreciation and
amortization............................. 310,851 434,937 514,505 514,505
---------- ---------- ---------- ----------
Net property and equipment............... 271,382 337,632 490,516 490,516
---------- ---------- ---------- ----------
Cash surrender value of life insurance........ 157,872 -- -- --
Other......................................... 10,657 10,657 10,657 160,157
---------- ---------- ---------- ----------
Total assets............................. $4,996,022 $6,152,658 $7,882,995 $4,511,333
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....... $ 359,988 $ 494,614 $ 194,100 $ 194,100
Accrued wages, bonuses and profit sharing... 503,755 764,784 1,062,478 1,062,478
Dividends payable........................... 269,876 359,384 -- 772,338
Billings in excess of revenues earned....... 1,888,154 2,168,026 3,294,856 3,294,856
---------- ---------- ---------- ----------
Total current liabilities................ 3,021,773 3,786,808 4,551,434 5,323,772
Bonuses and profit sharing accruals........... 144,684 286,443 383,205 383,205
---------- ---------- ---------- ----------
Total liabilities........................ 3,166,457 4,073,251 4,934,639 5,706,977
---------- ---------- ---------- ----------
Shareholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued and outstanding
6,055,000 shares......................... 6,055 6,055 6,055 6,055
Preferred stock, $.01 par value; authorized
2,000,000 shares, no shares issued and
outstanding.............................. -- -- -- --
Additional paid-in capital.................. -- -- -- --
Retained earnings (deficit)................. 1,823,510 2,073,352 2,942,301 (1,201,699)
---------- ---------- ---------- ----------
Total shareholders' equity (deficit)..... 1,829,565 2,079,407 2,948,356 (1,195,644)
---------- ---------- ---------- ----------
Commitments and contingencies
Total liabilities and shareholders'
equity................................. $4,996,022 $6,152,658 $7,882,995 $4,511,333
========== ========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 49

NATIONAL RESEARCH CORPORATION

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Renewable performance tracking
services........................... $4,419,564 $6,839,410 $9,568,915 $4,312,747 $5,954,150
Renewable syndicated product.......... 652,192 493,416 1,276,423 101,676 444,312
Custom and other research............. 1,683,198 1,584,533 1,754,895 899,304 552,116
---------- ---------- ---------- ---------- ----------
Total revenues................... 6,754,954 8,917,359 12,600,233 5,313,727 6,950,578
---------- ---------- ---------- ---------- ----------
Operating expenses:
Direct expenses....................... 2,967,397 3,494,706 5,685,200 2,327,458 3,010,725
Selling, general and administrative... 2,043,878 2,364,269 3,060,189 1,319,317 1,837,420
Depreciation and amortization......... 85,620 119,093 173,148 71,996 79,568
---------- ---------- ---------- ---------- ----------
Total operating expenses......... 5,096,895 5,978,068 8,918,537 3,718,771 4,927,713
---------- ---------- ---------- ---------- ----------
Operating income................. 1,658,059 2,939,291 3,681,696 1,594,956 2,022,865
---------- ---------- ---------- ---------- ----------
Other income:
Interest income....................... 23,579 106,300 125,948 75,297 97,030
Other, net............................ 22,491 1,651 26,484 -- --
---------- ---------- ---------- ---------- ----------
Total other income............... 46,070 107,951 152,432 75,297 97,030
---------- ---------- ---------- ---------- ----------
Income before income taxes....... 1,704,129 3,047,242 3,834,128 1,670,253 2,119,895
Provision for income taxes.............. 114,500 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income....................... $1,589,629 $3,047,242 $3,834,128 $1,670,253 $2,119,895
========== ========== ========== ========== ==========
Pro forma information:
Net income............................ $1,589,629 $3,047,242 $3,834,128 $1,670,253 $2,119,895
Pro forma income taxes................ 582,796 1,218,897 1,533,651 668,101 847,958
---------- ---------- ---------- ---------- ----------
Pro forma net income............. $1,006,833 $1,828,345 $2,300,477 $1,002,152 $1,271,937
========== ========== ========== ========== ==========
Pro forma net income per share.......... $ 0.37 $ 0.16 $ 0.20
========== ========== ==========
Weighted average common shares and
common share equivalents
outstanding........................... 6,217,265 6,217,265 6,217,265
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 50

NATIONAL RESEARCH CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND

THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN TREASURY RETAINED
STOCK STOCK CAPITAL STOCK EARNINGS TOTAL
--------- ------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993.... $100 $12,642 $ 13,812 $(7,543) $ 270,635 $ 289,646
Treasury stock canceled,
6,134,371 shares............... -- (6,134) (1,724) 7,543 315 --
Common stock retired,
456,019 shares................. -- (456) (12,560) -- (62,066) (75,082)
Preferred stock retired, 10
shares......................... (100) -- -- -- -- (100)
Common stock issued, 2,886
shares......................... -- 3 472 -- -- 475
Net income....................... -- -- -- -- 1,589,629 1,589,629
Dividends declared, $.01 per
share.......................... -- -- -- -- (42,797) (42,797)
---- ------- -------- ------- ----------- -----------
Balances at December 31, 1994.... -- 6,055 -- -- 1,755,716 1,761,771
Net income....................... -- -- -- -- 3,047,242 3,047,242
Dividends declared, $.49 per
share.......................... -- -- -- -- (2,979,448) (2,979,448)
---- ------- -------- ------- ----------- -----------
Balances at December 31, 1995.... -- 6,055 -- -- 1,823,510 1,829,565
Net income....................... -- -- -- -- 3,834,128 3,834,128
Dividends declared, $.59 per
share.......................... -- -- -- -- (3,584,286) (3,584,286)
---- ------- -------- ------- ----------- -----------
Balances at December 31, 1996.... -- 6,055 -- -- 2,073,352 2,079,407
Net income....................... -- -- -- -- 2,119,895 2,119,895
Dividends declared, $.21 per
share.......................... -- -- -- -- (1,250,946) (1,250,946)
---- ------- -------- ------- ----------- -----------
Balances at June 30, 1997
(unaudited).................... $ -- $ 6,055 $ -- $ -- $ 2,942,301 $ 2,948,356
==== ======= ======== ======= =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 51

NATIONAL RESEARCH CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $1,589,629 $ 3,047,242 $ 3,834,128 $ 1,670,253 $ 2,119,895
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 85,620 119,093 173,148 71,996 79,568
Loss on sale of property and
equipment............................ -- -- 32,837 -- --
Change in assets and liabilities:
Trade accounts receivable............ (94,234) (2,355,788) 1,695,310 1,355,034 (954,206)
Unbilled revenues.................... -- (97,334) (185,024) -- (371,576)
Prepaid expenses and other........... (23,388) 1,278 (21,412) (10,259) (582,407)
Other receivables.................... 246,556 -- -- -- --
Accounts payable and accrued
expenses.......................... 11,630 128,422 134,626 (113,907) (300,514)
Accrued wages, bonuses and profit
sharing........................... 91,801 449,724 402,788 168,024 394,456
Billings in excess of revenues
earned............................ 701,589 488,969 279,872 (221,698) 1,126,830
Increase in cash surrender value of
life insurance.................... (21,018) (27,211) -- -- --
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.................... 2,588,185 1,754,395 6,346,273 2,919,443 1,512,046
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment...... (194,330) (160,923) (272,235) (96,396) (232,452)
Purchases of securities
available-for-sale..................... (733,519) (1,503,726) (4,154,720) (13,961) (329,871)
Proceeds from the maturities of
securities available-for-sale.......... -- 1,650,000 3,265,000 600,000 1,500,057
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities.......... (927,849) (14,649) (1,161,955) 489,643 937,734
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Dividends paid........................... (42,797) (2,709,572) (3,336,906) (2,756,338) (1,610,330)
Payments on capital leases............... (41,294) (12,301) -- (1,941) --
Proceeds from issuance of common stock... 475 -- -- -- --
Payments to acquire preferred stock...... (100) -- -- -- --
Payments to acquire common stock......... (45,976) (29,106) -- -- --
---------- ----------- ----------- ----------- -----------
Net cash used in financing
activities.................... (129,692) (2,750,979) (3,336,906) (2,758,279) (1,610,330)
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents.......... 1,530,644 (1,011,233) 1,847,412 650,807 839,450
Cash and cash equivalents at beginning
of period................................ 415,389 1,946,033 934,800 934,800 2,782,212
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................... $1,946,033 $ 934,800 $ 2,782,212 $ 1,585,607 $ 3,621,662
========== =========== =========== =========== ===========
SUPPLEMENTARY INFORMATION
Cash paid for:
Interest............................... $ 3,947 $ 431 -- -- --
========== =========== =========== =========== ===========
Taxes.................................. $ 126,845 -- -- -- --
========== =========== =========== =========== ===========
Noncash investing and financing activities:
In 1996, the Company assigned a life insurance policy to its majority shareholder and recorded a dividend of
$178,236 for the cash surrender value of the life insurance policy.
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 52

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 AND

THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

National Research Corporation (the "Company") is a provider of ongoing
survey-based performance measurement, analysis and tracking services and
products to the healthcare industry. The Company provides market research
services to hospitals and insurance companies on an unsecured credit basis. One
client accounted for 28.9%, 43.7% and 40.4% of total revenues in 1994, 1995 and
1996, respectively, and 48.7% and 34.7% of total revenues for the six months
ended June 30, 1996 and 1997, respectively. Another client accounted for 23.1%
and 13.6% of total revenues in 1994 and 1995, respectively. A third client
accounted for 14.1 % of the revenues for the six months ended June 30, 1997. The
Company operates in a single industry segment.

BASIS OF PRESENTATION

Interim Financial Statements -- The financial information as of June 30,
1997 and for the six months ended June 30, 1996 and 1997 is unaudited and has
been prepared in conformity with generally accepted accounting principles and
includes all adjustments, in the opinion of management, necessary to a fair
presentation of the results of operations for the interim periods presented. All
such adjustments are, in the opinion of management, of a normal, recurring
nature.

Pro Forma Net Income Per Share -- Pro forma net income per share has been
computed assuming that the Company had been taxed as a C corporation for Federal
and state income tax purposes for all periods presented. The weighted average
shares outstanding for 1996 and the first six months of 1996 and 1997 include
the pro forma effect of shares that would have had to have been issued (at an
assumed initial public offering price of $12.00 less the underwriting discount
expense) to generate sufficient cash to fund the portion of the approximately
$5.6 million of estimated S corporation distributions and special cash bonuses
that are in excess of the net income for the year ended December 31, 1996. While
this assumption is being made to calculate the weighted average shares
outstanding for 1996 and the first six months of 1996 and 1997, the Company
plans to use operating cash flows, and not IPO proceeds, to fund the $2.7
million of distributions. The weighted average shares outstanding is calculated
as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Common stock............................................... 6,055,000 6,055,000 6,055,000
Dilutive effect of assumed IPO shares for distribution..... 162,265 162,265 162,265
--------- --------- ---------
Weighted average common shares and common share equivalents
outstanding.............................................. 6,217,265 6,217,265 6,217,265
========= ========= =========

</TABLE>

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

F-7
<PAGE> 53

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION

The Company derives a substantial majority of its operating revenues from
its annually renewable services and products, which include the NRC Listening
System ("Renewable Performance Tracking Services") and the NRC Healthcare Market
Guide ("Renewable Syndicated Product"). Under the NRC Listening System, the
Company provides interim and annual performance tracking to its clients under
annual client service contracts, although such contracts are generally
cancelable on short or no notice without penalty. Through its syndicated NRC
Healthcare Market Guide, the Company publishes healthcare market information to
its clients generally on an annual or (prior to 1996) bi-annual basis. The
Company also derives revenues from custom and other research projects.

The Company recognizes revenues from its Renewable Performance Tracking
Services and its custom and other research projects using the percentage of
completion method of accounting. The recognized revenue is the percent of
estimated total revenues that incurred costs to date bear to estimated total
costs after giving effect to estimates of costs to complete based upon most
recent information. Losses expected to be incurred on jobs in progress are
charged to income as soon as such losses are known. Revenues earned on contracts
in progress in excess of billings are classified as a current asset. Amounts
billed in excess of revenues earned are classified as a current liability.
Client projects are generally completed within a twelve-month period.

Direct costs of producing the Renewable Syndicated Product are deferred.
The Company recognizes revenues and related direct costs for its Renewable
Syndicated Product upon its delivery to clients.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Major expenditures to purchase
property or to substantially increase useful lives of property are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When assets
are retired or otherwise disposed of, their costs and related accumulated
depreciation are removed from the accounts and resulting gains or losses are
included in income.

The Company provides for depreciation and amortization of property and
equipment using annual rates which are sufficient to amortize the cost of
depreciable assets over their estimated useful lives of 5 to 7 years. The
Company uses accelerated methods of depreciation and amortization over estimated
useful lives of 5 to 7 years for furniture and fixtures and 3 to 5 years for
computer equipment.

MARKETABLE SECURITIES

All marketable securities held by the Company at December 31, 1995 and 1996
were classified as available-for-sale and recorded at cost, which approximates
market value. Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from income and are
reported as a separate component of shareholders' equity until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific-identification basis. Fair values are estimated based
on quoted market prices.

INCOME TAXES

Effective August 1, 1994, the Company, with consent of its shareholders,
elected under the Internal Revenue Code to be an S corporation. In lieu of
corporation income taxes, the shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for Federal income taxes has been included in these
financial statements for the five months ended December 31, 1994, for the years
ended December 31, 1995 and 1996, or for the six months ended June 30, 1996 and
1997.

F-8
<PAGE> 54

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The Company will adopt Statement of Financial Accounting Standards No. 109,
(SFAS No. 109) (see also note 4) in the quarter ending September 30, 1997, upon
successful completion of its initial public offering ("IPO"). Deferred income
taxes are provided for temporary differences between tax and financial reporting
bases of assets and liabilities using enacted tax rates under SFAS No. 109.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.

(2) INVESTMENTS IN MARKETABLE DEBT SECURITIES

The carrying value for available-for-sale securities by major security type
is shown below. Amortized cost approximates fair value.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt securities:
U.S. Treasury securities................................. $243,776 $ -- $305,576
Obligations of other U.S. agencies....................... 342,361 1,475,752 --
-------- ---------- --------
586,137 1,475,752 305,576
Other...................................................... 1,108 1,213 1,203
-------- ---------- --------
Total............................................ $587,245 $1,476,965 $306,779
======== ========== ========
</TABLE>

There were no sales of marketable securities in advance of scheduled
maturities available-for-sale during 1994, 1995, 1996 or for the six months
ended June 30, 1996 and 1997. All marketable debt securities have stated
maturities of one year or less.

(3) INCOME TAXES AND PRO FORMA INCOME TAXES

Income tax expense for the seven months ended July 31, 1994 consisted of
the following components:

<TABLE>
<S> <C>
Federal..................................................... $ 99,000
State....................................................... 15,500
--------
$114,500
========
</TABLE>

For the seven months ended July 31, 1994, there were no deferred income
taxes.

Income tax expense for the seven months ended July 31, 1994 differed from
that computed by applying U.S. Federal income tax statutory rates to income
before income taxes of $247,139. The reasons for this difference are shown
below:

<TABLE>
<S> <C>
Computed "expected" income tax expense...................... $ 84,000
State income taxes, net of Federal tax benefit.............. 10,200
Nondeductible portion of meals and entertainment expense.... 2,700
Officer life insurance...................................... 3,800
Other, net.................................................. 13,800
--------
$114,500
========
</TABLE>

F-9
<PAGE> 55

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) INCOME TAXES AND PRO FORMA INCOME TAXES, CONTINUED
The accompanying financial statements of income reflect a provision for
income taxes on a pro forma basis, at a combined rate of 40 percent (Federal
statutory rate of 34 percent plus estimated state rate, net of Federal benefit,
of 6 percent) as if the Company was liable for Federal and state income taxes as
a taxable corporate entity throughout the periods presented.

The components of the provision for pro forma income taxes are as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1994 1995 1996 1996 1997
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Federal................................ $466,237 $ 975,118 $1,226,921 $534,481 $678,366
State.................................. 116,559 243,779 306,730 133,620 169,592
-------- ---------- ---------- -------- --------
Pro forma income taxes............ $582,796 $1,218,897 $1,533,651 $668,101 $847,958
======== ========== ========== ======== ========
</TABLE>

The primary temporary differences giving rise to deferred tax assets are
accrued liabilities not currently deductible for income tax purposes. Pro forma
deferred tax assets of approximately $250,000 will be recorded upon completion
of the Company's IPO (see also note 4). Based upon the historical earnings of
the Company, management believes it is more likely than not that the assets will
be realized. The effects of this deferred tax benefit have been given effect as
if the S Corporation status were terminated in the unaudited June 30, 1997 pro
forma balance sheet.

In connection with the termination of its S Corporation status, the Company
expects to distribute approximately $2,654,000 of retained earnings subsequent
to June 30, 1997, and as a final distribution to S Corporation shareholders. The
effects of this distribution have been given effect as if the distribution had
already occurred in the unaudited pro forma balance sheet as of June 30, 1997.

(4) COMMON STOCK

The Company is planning to file a registration statement on Form S-1 for an
IPO of the Company's common stock. In connection with its IPO, the Company plans
to reincorporate in Wisconsin and pay a stock dividend of approximately
239.5-to-1, which has been given retroactive effect in the accompanying
financial statements. In connection with the reincorporation, the Company plans
to increase its authorized common stock from 100,000 shares to 20,000,000 shares
and authorize up to 2,000,000 shares of undesignated preferred stock.

(5) LEASES

The Company leases office space for a monthly base rental payment plus
maintenance and utilities. The lease expired on April 30, 1997. Rental expense
during 1994, 1995 and 1996 was $176,448, $168,417 and $183,118, respectively,
and $88,117 and $113,833 for the six months ended June 30, 1996 and 1997,
respectively, and is included in selling, general and administrative expense on
the statements of income.

(6) EMPLOYEE BENEFITS

During 1995, the Company established a qualified defined contribution
profit-sharing plan covering substantially all employees with a minimum service
of 1,000 hours and one year of service except for highly compensated employees
covered by nonqualified profit sharing plans. Employer contributions, which are
discretionary, vest to participants at a rate of 20% per year. Total
profit-sharing expense was $48,989 and $75,229 in 1995 and 1996, respectively,
and no expense was recognized for the six months ended June 30, 1996 and 1997.

F-10
<PAGE> 56

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) EMPLOYEE BENEFITS, CONTINUED

The Company sponsors nonqualified profit sharing bonus and incentive plans
for employees and members of executive management of the Company. Certain
bonuses under the executive management incentive plan are paid over a five-year
period. Expense recorded under these plans was $118,775, $468,052 and $552,832
in 1994, 1995 and 1996, respectively, and $258,104 and $422,568 for the six
months ended June 30, 1996 and 1997, respectively.

(7) RELATED PARTY TRANSACTIONS

At December 31, 1994, accrued wages, bonuses and profit sharing included
amounts due to a former minority shareholder in the amount of $29,106 on an
unsecured 3.5% note issued by the Company in conjunction with its redemption of
the former shareholder's stock in the Company. The note was paid in full in
January 1995. Interest expense incurred on this note during 1994 was $431. There
was no interest expense incurred during 1995.

(8) SPECIAL BONUS

In August 1997, the Company decided to pay special cash bonuses aggregating
$1,740,000 to certain executive officers (other than the selling shareholder)
prior to termination of its S Corporation status. The related compensation
charge will be recognized by the Company in the fourth quarter of 1997. The
effect of this charge has been given effect as if the bonuses had been paid in
the unaudited pro forma balance sheet as of June 30, 1997. These special cash
bonuses will reduce the amount otherwise available for distribution to the
Company's shareholders prior to the termination of its S Corporation status.

F-11
<PAGE> 57
======================================================

NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................. 2
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
S Corporation Termination.............. 11
Dividend Policy........................ 12
Capitalization......................... 13
Dilution............................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 24
Management............................. 34
Principal and Selling Shareholders..... 38
Certain Transactions................... 39
Description of Capital Stock........... 39
Shares Eligible for Future Sale........ 41
Underwriting........................... 43
Legal Matters.......................... 44
Experts................................ 44
Index to Financial Statements.......... F-1
</TABLE>

------------------

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

======================================================

2,100,000 SHARES

[NATIONAL RESEARCH CORPORATION LOGO]

COMMON STOCK

---------------------------

PROSPECTUS

, 1997
---------------------------

WILLIAM BLAIR & COMPANY

ROBERT W. BAIRD & CO.
INCORPORATED

======================================================
<PAGE> 58

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,514
NASD filing fee............................................. 3,640
Nasdaq National Market listing fee.......................... 36,000
Blue sky fees and expenses.................................. 10,000
Transfer agent expenses and fees............................ 6,000
Printing and engraving expenses............................. 100,000
Accountants' fees and expenses.............................. 95,000
Legal fees and expenses..................................... 170,000
Miscellaneous............................................... 69,846
--------
Total............................................. $500,000
========
</TABLE>

All of the above fees, costs and expenses will be paid by the Company.
Other than the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee, all fees and expenses are estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Pursuant to the Wisconsin Business Corporation Law and the Company's
By-Laws, directors and officers of the Company are entitled to mandatory
indemnification from the Company against certain liabilities and expenses (i) to
the extent such officers or directors are successful in the defense of a
proceeding and (ii) in proceedings in which the director or officer is not
successful in defense thereof, unless (in the latter case only) it is determined
that the director or officer breached or failed to perform his or her duties to
the Company and such breach or failure constituted: (a) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter in
which the director or officer had a material conflict of interest; (b) a
violation of the criminal law unless the director or officer had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful; (c) a transaction from which the
director or officer derived an improper personal profit; or (d) willful
misconduct. The Wisconsin Business Corporation Law specifically states that it
is the public policy of Wisconsin to require or permit indemnification,
allowance of expenses and insurance in connection with a proceeding involving
securities regulation, as described therein, to the extent required or permitted
as described above. Additionally, under the Wisconsin Business Corporation Law,
directors of the Company are not subject to personal liability to the Company,
its shareholders or any person asserting rights on behalf thereof for certain
breaches or failures to perform any duty resulting solely from their status as
directors, except in circumstances paralleling those in subparagraphs (a)
through (d) outlined above.

Expenses for the defense of any action for which indemnification may be
available may be advanced by the Company under certain circumstances.

The indemnification provided by the Wisconsin Business Corporation Law and
the Company's By-Laws is not exclusive of any other rights to which a director
or officer may be entitled. The general effect of the foregoing provisions may
be to reduce the circumstances which an officer or director may be required to
bear the economic burden of the foregoing liabilities and expense.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The shares issued by the Company or its predecessor, as hereinafter set
forth, have been adjusted to reflect an approximately 239.5-for-1 stock dividend
paid on September 15, 1997.

II-1
<PAGE> 59

In connection with the reincorporation of the Company in the State of
Wisconsin in September 1997, the Company (a) was formed as a wholly-owned
subsidiary of its predecessor Nebraska corporation and (b) issued an aggregate
of 6,055,000 shares, on a one-for-one basis, to the two shareholders of its
predecessor corporation, Michael D. Hays and Jona S. Raasch. No underwriters
were engaged in connection with the foregoing issuances. Such issuances were
effected in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933 for transactions not involving a public
offering.

On October 25, 1994, the predecessor corporation to the Company issued and
sold 2,886 shares of Common Stock to an employee and director of the predecessor
corporation to the Company for $475.20. No underwriters were engaged in
connection with the foregoing sale. Such sale was effected in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 for transactions not involving a public offering.

Other than as set forth in the preceding paragraphs, the Company has not
sold any securities within the past three years.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits. The exhibits listed in the accompanying Exhibit Index are
filed as part of this Registration Statement.

(b) Financial Statement Schedules. The financial statement schedules listed
in the accompanying Financial Statement Schedule Index are filed as
part of this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE> 60

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lincoln,
and State of Nebraska, on this 15th day of September, 1997.

NATIONAL RESEARCH CORPORATION

By: /s/ MICHAEL D. HAYS
------------------------------------
MICHAEL D. HAYS
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ MICHAEL D. HAYS President, Chief Executive September 15, 1997
- --------------------------------------------- Officer and Director (Principal
Michael D. Hays Executive Officer)

/s/ PATRICK E. BEANS Vice President, Treasurer, September 15, 1997
- --------------------------------------------- Secretary and Chief Financial
Patrick E. Beans Officer (Principal Financial and
Accounting Officer)
</TABLE>

II-3
<PAGE> 61

FINANCIAL STATEMENT SCHEDULE INDEX

<TABLE>
<CAPTION>
FORM S-1
PAGE
--------
<S> <C>
Independent Auditors' Report on Financial Statement
Schedules................................................. S-2
Schedule II -- Valuation and Qualifying Accounts............ S-3
</TABLE>

All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the financial
statements and notes thereto.

S-1
<PAGE> 62

INDEPENDENT AUDITORS' REPORT

The Board of Directors
National Research Corporation:

The audits referred to in our report dated June 6, 1997, except as to note
8 which is as of August 8, 1997, included the related financial statement
schedule as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

KPMG Peat Marwick LLP

Lincoln, Nebraska
June 6, 1997

S-2
<PAGE> 63

NATIONAL RESEARCH CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT WRITE-OFFS, BALANCE
BEGINNING BAD DEBT NET OF AT END
OF YEAR EXPENSE RECOVERIES OF YEAR
---------- -------- ----------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994........................ $ -- $10,000 $ -- $10,000
Year ended December 31, 1995........................ 10,000 24,100 9,100 25,000
Year ended December 31, 1996........................ $25,000 $30,764 $10,764 $45,000
</TABLE>

See accompanying independent auditors' report.

S-3
<PAGE> 64

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
(1) Proposed Form of Underwriting Agreement.*
(3.1) Articles of Incorporation of National Research Corporation,
as amended to date.
(3.2) By-Laws of National Research Corporation, as amended to
date.
(5) Opinion of Foley & Lardner regarding legality of securities
being offered.
(10.1) Lease, dated as of , 1997, between National
Research Corporation and .**
(10.2) National Research Corporation 1997 Equity Incentive Plan.*
(10.3) National Research Corporation Incentive Plan adopted as of
October 14, 1994 but terminated in August 1997.*
(10.4) National Research Corporation Director Stock Plan.
(10.5) Employment Memorandum, dated as of July 15, 1994, from
National Research Corporation to Patrick E. Beans.*
(10.6) Employment Agreement, dated as of December 1, 1996, between
National Research Corporation and Sharon Flaherty.*
(10.7) Subcontract, dated as of May 9, 1997, as amended, between
National Research Corporation and United HealthCare
Corporation.+
(23.1) Consent of Foley & Lardner (included in Exhibit (5)).
(23.2) Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedule (EDGAR version only).
(99) Consent of Patrick E. Beans regarding his election to the
Board of Directors immediately prior to the effective date
of this Registration Statement.
</TABLE>

- -------------------------
* Previously filed.

** To be filed by amendment.

+ Portions of this exhibit have been redacted and are subject to a confidential
treatment request filed with the Secretary of the Securities and Exchange
Commission pursuant to Rule 406 under the Securities Act of 1933, as amended.
The redacted material is being filed separately with the Securities and
Exchange Commission.

E-1

Exhibit (3.1)

ARTICLES OF INCORPORATION
OF
NATIONAL RESEARCH CORPORATION

The undersigned, acting as the sole incorporator of a
corporation under the Wisconsin Business Corporation Law, Chapter 180 of
the Wisconsin Statutes, hereby adopts the following articles of
incorporation for the purpose of forming the corporation herein described
(the "corporation"):

ARTICLE 1

The name of the corporation is National Research Corporation.

ARTICLE 2

The aggregate number of shares which the corporation shall have
the authority to issue shall be Twenty-Two Million (22,000,000) shares,
consisting of: (i) Twenty Million (20,000,000) shares of a class
designated as "Common Stock," with a par value of $.001 per share; and
(ii) Two Million (2,000,000) shares of a class designated as "Preferred
Stock," with a par value of $.01 per share.

The designation, relative rights, preferences and limitations of
the shares of each class and the authority of the Board of Directors of
the corporation to establish and to designate series of Preferred Stock
and to fix variations in the relative rights, preferences and limitations
as between such series, shall be as set forth herein.

A. Preferred Stock.

(1) Series and Variations Between Series. The Board of
Directors of the corporation is authorized, to the full extent permitted
under the Wisconsin Business Corporation Law and the provisions of this
Section A, to provide for the issuance of the Preferred Stock in series,
each of such series to be distinctively designated, and to have such
redemption rights, dividend rights, rights on dissolution or distribution
of assets, conversion or exchange rights, voting powers, designations,
preferences and relative participating, optional or other special rights,
if any, and such qualifications, limitations or restrictions thereof as
shall be provided by the Board of Directors of the corporation consistent
with the provisions of this Article 2.

(2) Dividends. Before any dividends shall be paid or set apart
for payment upon shares of Common Stock, the holders of each series of
Preferred Stock shall be entitled to receive dividends at the rate (which
may be fixed or variable) and at such times as specified in the particular
series. The holders of shares of Preferred Stock shall have no rights to
participate with the holders of shares of Common Stock in any distribution
of dividends in excess of the preferential dividends, if any, fixed for
such Preferred Stock.

(3) Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the corporation, the
holders of shares of each series of Preferred Stock shall be entitled to
receive out of the assets of the corporation in money or money's worth the
preferential amount, if any, specified in the particular series for each
share at the time outstanding together with all accrued but unpaid
dividends thereon, before any of such assets shall be paid or distributed
to holders of Common Stock. The holders of Preferred Stock shall have no
rights to participate with the holders of Common Stock in the assets of
the corporation available for distribution to shareholders in excess of
the preferential amount, if any, fixed for such Preferred Stock.

(4) Voting Rights. The holders of Preferred Stock shall have
only such voting rights as are fixed for shares of each series by the
Board of Directors pursuant to this Section A or are provided, to the
extent applicable, by the Wisconsin Business Corporation Law.

B. Common Stock.

(1) Dividends. Subject to the provisions of this Article 2,
the Board of Directors of the corporation may, in its sole discretion, out
of funds legally available for the payment of dividends and at such times
and in such manner as determined by the Board of Directors, declare and
pay dividends or other distributions on the Common Stock.

(2) Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the corporation,
after there shall have been paid to or set aside for the holders of
Preferred Stock the full preferential amounts, if any, to which they are
entitled, the holders of outstanding shares of Common Stock shall be
entitled to receive pro rata, according to the number of shares held by
each, the remaining assets of the corporation available for distribution.

(3) Voting Rights. Except as otherwise provided by the
Wisconsin Business Corporation Law, and except as may be determined by the
Board of Directors with respect to Preferred Stock pursuant to Section A
of this Article 2, only the holders of Common Stock shall be entitled to
vote for the election of directors of the corporation and for all other
corporate purposes. Upon any such vote the holders of Common Stock shall,
except as otherwise provided by law, be entitled to one vote for each
share of Common Stock held by them respectively.

C. Preemptive Rights. No holder of shares of any class of
capital stock of the corporation shall have any preferential or preemptive
right to acquire unissued shares of capital stock of the corporation or
securities convertible into such shares or conveying a right to subscribe
for or acquire shares.

ARTICLE 3

A. General Powers, Number, Classification and Tenure of
Directors. The general powers, number, classification, tenure and
qualifications of the directors of the corporation shall be as set forth
in Sections 3.01 and 3.02 of Article III of the By-Laws of the corporation
(and as such Sections shall exist from time to time). Such Sections 3.01
and 3.02 of the By-Laws, or any provision thereof, may only be amended,
altered, changed or repealed by the affirmative vote of shareholders
holding at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of the then outstanding shares of all classes of capital stock of
the corporation generally possessing voting rights in the election of
directors, considered for this purpose as a single class; provided,
however, that the Board of Directors, by resolution adopted by the
Requisite Vote (as hereinafter defined), may amend, alter, change or
repeal Sections 3.01 and 3.02 of the By-Laws, or any provision thereof,
without a vote of the shareholders. As used herein, the term "Requisite
Vote" shall mean the affirmative vote of at least two-thirds of the
directors then in office plus one director, but in no case more than all
of the directors then in office.

B. Removal of Directors. Any director may be removed from
office, but only for Cause (as hereinafter defined) by the affirmative
vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of the then outstanding shares of stock of the voting
group of shareholders that elected the director to be removed; provided,
however, that if the Board of Directors by resolution adopted by the
Requisite Vote shall have recommended removal of a director, then the
shareholders may remove such director from office without Cause by a
majority vote of such outstanding shares. As used herein, "Cause" shall
exist only if the director whose removal is proposed (i) has been
convicted of a felony by a court of competent jurisdiction and such
conviction is no longer subject to direct appeal or (ii) has been adjudged
by a court of competent jurisdiction to be liable for willful misconduct
in the performance of his or her duties to the corporation in a matter
which has a material adverse effect on the business of the corporation and
such adjudication is no longer subject to direct appeal.

C. Vacancies. Any vacancy occurring in the Board of
Directors, including a vacancy created by the removal of a director or an
increase in the number of directors, shall be filled by the affirmative
vote of a majority of the directors then in office, although less than a
quorum of the Board of Directors; provided, however, that if the vacant
office was held by a director elected by a voting group of shareholders,
only the remaining directors elected by that voting group shall fill the
vacancy. For purposes of this Article 3, a director elected by directors
to fill a vacant office pursuant to this Section C shall be deemed to be a
director elected by the same voting group of shareholders that elected the
director(s) who voted to fill the vacancy. Any director elected pursuant
to this Section C shall serve until the next election of the class for
which such director shall have been chosen and until his or her successor
shall be elected and qualified.

D. Amendments.

(1) Notwithstanding any other provision of these Articles
of Incorporation, the provisions of this Article 3 may be amended,
altered, changed or repealed only by the affirmative vote of shareholders
holding at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of the then outstanding shares of all classes of capital stock of
the corporation generally possessing voting rights in the election of
directors, considered for this purpose as a single class.

(2) Notwithstanding the foregoing and any provisions in
the By-Laws of the corporation, whenever the holders of any one or more
series of Preferred Stock issued by the corporation pursuant to Article 2
hereof shall have the right, voting separately as a class or by series, to
elect directors at an annual or special meeting of shareholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the series of Preferred
Stock applicable thereto, and such directors so elected shall not be
divided into classes unless expressly provided by the terms of the
applicable series.

ARTICLE 4

The name and address of the corporation's initial director is:

Michael D. Hays 1033 "O" Street
Lincoln, Nebraska 68508

ARTICLE 5

The By-Laws of the corporation may limit the authority of the
shareholders of the corporation to call a special meeting of shareholders
to the fullest extent permitted by the Wisconsin Business Corporation Law.

ARTICLE 6

The address of the corporation's initial registered office is
777 East Wisconsin Avenue, Suite 3800, Milwaukee, Wisconsin 53202-5367.
The name of the corporation's initial registered agent at such address is
F&L Corp., a Wisconsin corporation.

ARTICLE 7

The name and address of the sole incorporator of the corporation
is Russell E. Ryba, Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202-5367.

ARTICLE 8

These Articles of Incorporation may be amended solely as
authorized herein and by law at the time of amendment.

ARTICLE 9

A. Business Combinations Within Three Years of the Stock
Acquisition Date.

In addition to any affirmative vote otherwise required by law,
the By-Laws of the corporation, these Articles of Incorporation or the
terms of any series of Preferred Stock, and except as otherwise expressly
provided in Section C of this Article 9, the corporation may not engage in
a Business Combination (as hereinafter defined) with an Interested
Shareholder (as hereinafter defined) for three (3) years after the
Interested Shareholder's Stock Acquisition Date (as hereinafter defined)
unless the Board of Directors of the corporation has approved by
resolution, before the Interested Shareholder's Stock Acquisition Date,
that Business Combination or the purchase of Stock (as hereinafter
defined) made by the Interested Shareholder on that Stock Acquisition
Date.

B. Business Combinations More Than Three Years After the Stock
Acquisition Date.

Except as otherwise expressly provided in Section C of this
Article 9, at any time after the three-year period described in Section A
of this Article 9, the corporation may engage in a Business Combination
with an Interested Shareholder but only if, in addition to any affirmative
vote otherwise required by law, the By-Laws of the corporation, these
Articles of Incorporation or the terms of any series of Preferred Stock,
any of the following conditions is satisfied:

(1) The Board of Directors of the corporation has approved,
before the Interested Shareholder's Stock Acquisition Date, the purchase
of Stock made by the Interested Shareholder on that Stock Acquisition
Date.

(2) The Business Combination is approved by the affirmative
vote of the holders of a majority of the voting power of the outstanding
Voting Stock (as hereinafter defined) not beneficially owned by the
Interested Shareholder at a meeting called for that purpose.

(3) The Business Combination meets all of the following
conditions:

(i) Holders of all outstanding shares of Stock of the
corporation not beneficially owned by the Interested Shareholder
are each entitled to receive per share an aggregate amount of
cash and the market value, as of the Consummation Date (as
hereinafter defined), of noncash consideration at least equal to
the higher of the following:

(a) The highest of: the market value per share
on the Announcement Date (as hereinafter defined) with
respect to the Business Combination, the market value per
share on the Interested Shareholder's Stock Acquisition
Date, the highest price per share paid by the Interested
Shareholder, including brokerage commissions, transfer
taxes and soliciting dealers' fees, for shares of the same
class or series within the three (3) years immediately
before and including the Announcement Date of the Business
Combination or the highest price per share paid by the
Interested Shareholder, including brokerage commissions,
transfer taxes and soliciting dealers' fees, for shares of
the same class or series within the three (3) years
immediately before and including the Interested
Shareholder's Stock Acquisition Date; plus, in each case,
interest compounded annually from the earliest date on
which that highest per share acquisition price was paid or
the per share market value was determined, through the
Consummation Date, at the rate for one-year U.S. Treasury
obligations from time to time in effect; less the aggregate
amount of any cash and the market value, as of the dividend
payment date, of any noncash dividends paid per share since
that date, up to the amount of that increase.

(b) The highest preferential amount per share,
if any, to which the holders of shares of that class or
series of Stock are entitled upon the voluntary or
involuntary liquidation of the corporation, plus the
aggregate amount of dividends declared or due which those
holders are entitled to before payment of dividends on
another class or series of Stock, unless the aggregate
amount of those dividends is included in the preferential
amount.

(ii) The form of consideration to be received by
holders of each particular class or series of outstanding Stock
in the Business Combination is in cash or, if the Interested
Shareholder holds previously acquired shares of that class or
series, the same form as the Interested Shareholder previously
used to acquire the largest number of shares of that class or
series.

C. Excluded Transactions.

The provisions of this Article 9 shall not apply to any of the
following:

(1) A Business Combination of the corporation with an
Interested Shareholder if the corporation did not have a class of Voting
Stock registered or traded on a national securities exchange or registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), on the Interested Shareholder's Stock Acquisition
Date.

(2) A Business Combination of the corporation with an
Interested Shareholder which became an Interested Shareholder
inadvertently, if the Interested Shareholder satisfies both of the
following:

(i) As soon as practicable divests itself of a
sufficient amount of the Voting Stock of the corporation so that
the Interested Shareholder is no longer the beneficial owner of
at least 10% of the voting power of the outstanding Voting Stock
of the corporation, or a Subsidiary of the corporation (as
hereinafter defined).

(ii) Would not at any time within the three (3) years
before the Announcement Date with respect to the Business
Combination in question have been an Interested Shareholder
except for the inadvertent acquisition.

D. Definitions.

For the purposes of this Article 9:

(1) "Affiliate" shall mean a person that directly, or
indirectly through one or more intermediaries, controls, is controlled by
or is under common control with a specified person.

(2) "Announcement Date" shall mean the date of the first public
announcement of a final, definitive proposal for a Business Combination.

(3) "Associate" of a person shall mean any of the following:

(i) A corporation or organization of which the person
is an officer, director or partner or is the beneficial owner of
at least 10% of any class of Voting Stock.

(ii) A trust or other estate in which the person has
a substantial beneficial interest or as to which the person
serves as trustee or in a similar fiduciary capacity.

(iii) Individually, or with or through any of the
person's Affiliates or Associates, directly or indirectly has
the right to vote the Stock pursuant to a written or unwritten
agreement, arrangement or understanding, except that a person is
not the Beneficial Owner of Stock under this subsection if the
agreement, arrangement or understanding to vote that Stock
arises solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made in accordance
with the applicable regulations under the Exchange Act and is
not reportable under the report required under 17 CFR 240.13d-
1(1)(a) or a comparable or successor report.

(iv) Has a written or unwritten agreement,
arrangement or understanding with another person that is
directly or indirectly a Beneficial Owner, or whose Affiliates
or Associates are direct or indirect Beneficial Owners, of the
Stock, if the agreement, arrangement or understanding is for the
purpose of acquiring, holding, disposing of or voting the Stock,
unless the voting is pursuant to a revocable proxy or consent
described in subsection (iii) above.

Notwithstanding the foregoing, a person is not the direct or indirect
Beneficial Owner of Stock tendered pursuant to a tender or exchange offer
which is made by that person or an Affiliate or Associate of that person
until the tendered Stock is accepted for purchase or exchange.

(5) "Business Combination" means any of the following:

(i) A merger or share exchange of the corporation or
any Subsidiary of the corporation with any of the following:

(a) An Interested Shareholder.

(b) A corporation, whether or not it is an
Interested Shareholder, which is, or after a merger or
share exchange would be, an Affiliate or Associate of an
Interested Shareholder.

(ii) A sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of
transactions, to or with an Interested Shareholder or an
Affiliate or Associate of an Interested Shareholder of assets of
the corporation or a Subsidiary of the corporation if those
assets meet any of the following conditions:

(a) Have an aggregate market value equal to at
least 5% of the aggregate market value of all the assets,
determined on a consolidated basis, of the corporation.

(b) Have an aggregate market value equal to at
least 5% of the aggregate market value of all the
outstanding Stock of the corporation.

(iii) The issuance or transfer by the corporation or
a Subsidiary of the corporation, in one transaction or a series
of transactions, of any Stock of the corporation or a Subsidiary
of the corporation if all of the following conditions are
satisfied:

(a) The stock has an aggregate market value
equal to at least 5% of the aggregate market value of all
of the outstanding Stock of the corporation.

(b) The Stock is issued or transferred to an
Interested Shareholder or an Affiliate or Associate of an
Interested Shareholder, except for Stock of the corporation
or such Subsidiary issued or transferred pursuant to the
exercise of warrants, rights or options to purchase such
Stock offered, or a dividend paid, or distribution made,
proportionately to all holders of Stock of the corporation.

(iv) The adoption of a plan or proposal for the
liquidation or dissolution of the corporation which is proposed
by, on behalf of, or pursuant to a written or unwritten
agreement, arrangement or understanding with, an Interested
Shareholder or an Affiliate or Associate of an Interested
Shareholder.

(v) Any of the following, if the direct or indirect
effect is to increase the proportionate share of the outstanding
Stock of a class or series of securities convertible into Voting
Stock of the corporation or a Subsidiary of the corporation
beneficially owned by the Interested Shareholder of an Affiliate
or Associate of the Interested Shareholder, unless the increase
is the result of immaterial changes due to fractional share
adjustment:

(a) A reclassification of securities, including,
without limitation, a stock split, stock dividend or other
distribution of Stock in respect of Stock, or reverse stock
split.

(b) A recapitalization of the corporation.

(d) Any other transaction, whether or not with,
into or involving the Interested Shareholder, which is
proposed by, on behalf of, or pursuant to a written or
unwritten agreement, arrangement or understanding with, the
Interested Shareholder or an Affiliate or Associate or the
Interested Shareholder.

(vi) Receipt by an Interested Shareholder or an
Affiliate or Associate of an Interested Shareholder of the
direct or indirect benefit of a loan, advance, guarantee, pledge
or other financial assistance or a tax credit or other tax
advantage provided by or through the corporation or any
Subsidiary of the corporation, unless the Interested Shareholder
receives the benefit proportionately as a holder of Stock of the
corporation.

(6) "Consummation Date" means the date of consummation of a
Business Combination.

(7) "Control", "controlled by" or "under common control with"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person, whether
through the ownership of Voting Stock, except as provided in the next
sentence, by contract, or otherwise. "Control" of a corporation is not
established for purposes of this Article 9 if a person, in good faith and
not for the purpose of circumventing this Article 9, holds voting power as
an agent, bank, broker, nominee, custodian or trustee for one or more
beneficial owners who do not individually or as a group have control of
the corporation. For purposes of this Article 9, a person's beneficial
ownership of at least 10% of the voting power of a corporation's
outstanding Voting Stock creates a presumption that the person has control
of the corporation.

(8) (i) "Interested Shareholder," with respect to the
corporation, means a person other than the corporation or a
Subsidiary of the corporation that meets any of the following
conditions:

(a) Is the beneficial owner of at least 10% of
the voting power of the outstanding Voting Stock of the
corporation.

(b) Is an Affiliate or Associate of the
corporation and at any time within three (3) years
immediately before the date in question was the beneficial
owner of at least 10% of the voting power of the then
outstanding Voting Stock of the corporation.

(ii) For the purpose of determining whether a person
is an Interested Shareholder, the number of shares of Voting
Stock of the corporation considered outstanding includes shares
beneficially owned by the person but does not include any other
unissued shares of Voting Stock of the corporation which may be
issuable pursuant to an agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or
otherwise.

(9) "Stock" means any of the following:

(i) Shares, stock or similar security, certificate of
interest, participation in a profit sharing agreement, voting
trust certificate, or certificate of deposit for any of the
items described herein.

(ii) Security which is convertible, with or without
consideration, into stock, or any warrant, call or other option
or privilege of buying stock, or any other security carrying a
right to acquire, subscribe to or purchase stock.

(10) "Stock Acquisition Date", with respect to any person,
means the date that that person first becomes an Interested Shareholder of
the corporation.

(11) "Subsidiary of the corporation" shall mean any other
corporation of which Voting Stock having a majority of the votes entitled
to be cast is owned, directly or indirectly, by the corporation.

(12) "Voting Stock" means capital stock of a corporation
entitled to vote generally in the election of directors.

E. Determination of Market Value.

For purposes of this Article 9, the market value of Stock or
other property other than cash or Stock is determined as follows:

(1) In the case of Stock generally, by:

(i) The highest closing sale price during the thirty
(30) days immediately before the date in question of a share of
that class or series of Stock on the composite tape for stocks
listed on the New York Stock Exchange, or, if that class or
series of Stock is not quoted on the composite tape or if that
class or series of Stock is not listed on the New York Stock
Exchange, on the principal U.S. securities exchange registered
under the Securities Exchange Act of 1934, as amended, or the
Nasdaq National Market of The Nasdaq Stock Market, or any
similar system then in use, on which that class or series of
Stock is listed.

(ii) If that class or series of Stock is not listed
on an exchange or system described above, the highest closing
bid quotation for a share of that class or series of Stock
during the thirty (30) days immediately before the date in
question on The Nasdaq Stock Market, or any similar system then
in use.

(2) In the case of property other than cash or Stock (except
for Stock not traded as provided above), the fair market value of the
property or Stock on the date in question as determined in good faith by
the Board of Directors of the corporation.

F. Fiduciary Obligations.

Nothing contained in this Article 9 shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed
by law.

G. Amendment.

Notwithstanding any other provisions of these Articles of
Incorporation or any provision of law that might permit a lesser vote or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock required by the Wisconsin
Business Corporation Law, these Articles of Incorporation or the terms of
any series of Preferred Stock, the affirmative vote of shareholders
holding at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of the then outstanding Voting Shares, voting as a single class,
shall be required to amend, alter, change, repeal, or adopt any provision
inconsistent with this Article 9.

ARTICLE 10

Sections 180.1130 to 180.1134 and 180.1150 of the Wisconsin
Business Corporation Law as in effect on the date hereof, and as such
Sections may be amended from time to time, shall apply to this corporation
as if it were an "issuing public corporation" subject to such Sections.
Notwithstanding any other provision of these Articles of Incorporation,
the provisions of this Article 10 may be amended, altered, changed or
repealed only by the affirmative vote of shareholders holding at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of the then
outstanding shares of all classes of capital stock of the corporation
generally possessing voting rights in the election of directors,
considered for this purpose as a single class.

Exhibit 3.2

BY-LAWS

NATIONAL RESEARCH CORPORATION
(a Wisconsin corporation)

ARTICLE I. OFFICES

1.01. Principal and Business Offices. The corporation may have
such principal and other business offices, either within or without the
State of Wisconsin, as the Board of Directors may designate or as the
business of the corporation may require from time to time.

1.02. Registered Office. The registered office of the
corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical
with the principal office in the State of Wisconsin, and the address of
the registered office may be changed from time to time by the Board of
Directors or by the registered agent. The business office of the
registered agent of the corporation shall be identical to such registered
office.

ARTICLE II. SHAREHOLDERS

2.01. Annual Meeting. The annual meeting of the shareholders
(the "Annual Meeting"), commencing with the Annual Meeting in 1998, shall
be held on the second Wednesday in April of each year, or at such other
time and date as may be fixed by resolution of the Board of Directors. In
fixing a meeting date for any Annual Meeting, the Board of Directors may
consider such factors as it deems relevant within the good faith exercise
of its business judgment. At each Annual Meeting, the shareholders shall
elect that number of directors equal to the number of directors in the
class whose term expires at the time of such meeting. At any such Annual
Meeting, only other business properly brought before the meeting in
accordance with Section 2.14 of these by-laws may be transacted. If the
election of directors shall not be held on the date designated herein, or
fixed as herein provided, for any Annual Meeting, or any adjournment
thereof, the Board of Directors shall cause the election to be held at a
special meeting of shareholders (a "Special Meeting") as soon thereafter
as is practicable.

2.02. Special Meetings.

(a) A Special Meeting may be called only by (i) the President,
(ii) the Secretary or (iii) the Board of Directors and shall be called by
the President upon the demand, in accordance with this Section 2.02, of
the holders of record of shares representing at least 10% of all the votes
entitled to be cast on any issue proposed to be considered at the Special
Meeting.

(b) In order that the corporation may determine the
shareholders entitled to demand a Special Meeting, the Board of Directors
may fix a record date to determine the shareholders entitled to make such
a demand (the "Demand Record Date"). The Demand Record Date shall not
precede the date upon which the resolution fixing the Demand Record Date
is adopted by the Board of Directors and shall not be more than ten days
after the date upon which the resolution fixing the Demand Record Date is
adopted by the Board of Directors. Any shareholder of record seeking to
have shareholders demand a Special Meeting shall, by sending written
notice to the Secretary of the corporation by hand or by certified or
registered mail, return receipt requested, request the Board of Directors
to fix a Demand Record Date. The Board of Directors shall promptly, but in
all events within ten days after the date on which a valid request to fix
a Demand Record Date is received, adopt a resolution fixing the Demand
Record Date and shall make a public announcement of such Demand Record
Date. If no Demand Record Date has been fixed by the Board of Directors
within ten days after the date on which such request is received by the
Secretary, the Demand Record Date shall be the 10th day after the first
date on which a valid written request to set a Demand Record Date is
received by the Secretary. To be valid, such written request shall set
forth the purpose or purposes for which the Special Meeting is to be held,
shall be signed by one or more shareholders of record (or their duly
authorized proxies or other representatives), shall bear the date of
signature of each such shareholder (or proxy or other representative) and
shall set forth all information about each such shareholder and about the
beneficial owner or owners, if any, on whose behalf the request is made
that would be required to be set forth in a shareholder's notice described
in paragraph (a) (ii) of Section 2.14 of these by-laws.

(c) In order for a shareholder or shareholders to demand a
Special Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares representing at
least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the Special Meeting must be delivered to the corporation.
To be valid, each written demand by a shareholder for a Special Meeting
shall set forth the specific purpose or purposes for which the Special
Meeting is to be held (which purpose or purposes shall be limited to the
purpose or purposes set forth in the written request to set a Demand
Record Date received by the corporation pursuant to paragraph (b) of this
Section 2.02), shall be signed by one or more persons who as of the Demand
Record Date are shareholders of record (or their duly authorized proxies
or other representatives), shall bear the date of signature of each such
shareholder (or proxy or other representative), and shall set forth the
name and address, as they appear in the corporation's books, of each
shareholder signing such demand and the class and number of shares of the
corporation which are owned of record and beneficially by each such
shareholder, shall be sent to the Secretary by hand or by certified or
registered mail, return receipt requested, and shall be received by the
Secretary within seventy days after the Demand Record Date.

(d) The corporation shall not be required to call a Special
Meeting upon shareholder demand unless, in addition to the documents
required by paragraph (c) of this Section 2.02, the Secretary receives a
written agreement signed by each Soliciting Shareholder (as defined
below), pursuant to which each Soliciting Shareholder, jointly and
severally, agrees to pay the corporation's costs of holding the Special
Meeting, including the costs of preparing and mailing proxy materials for
the corporation's own solicitation, provided that if each of the
resolutions introduced by any Soliciting Shareholder at such meeting is
adopted, and each of the individuals nominated by or on behalf of any
Soliciting Shareholder for election as a director at such meeting is
elected, then the Soliciting Shareholders shall not be required to pay
such costs. For purposes of this paragraph (d), the following terms shall
have the meanings set forth below:

(i) "Affiliate" of any Person (as defined herein) shall
mean any Person controlling, controlled by or under common control
with such first Person.

(ii) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act").

(iii) "Person" shall mean any individual, firm,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.

(iv) "Proxy" shall have the meaning assigned to such term
in Rule 14a-1 promulgated under the Exchange Act.

(v) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.

(vi) "Soliciting Shareholder" shall mean, with respect to
any Special Meeting demanded by a shareholder or shareholders, any of
the following Persons:

(A) if the number of shareholders signing the
demand or demands of meeting delivered to the corporation
pursuant to paragraph (c) of this Section 2.02 is ten or
fewer, each shareholder signing any such demand;

(B) if the number of shareholders signing the
demand or demands of meeting delivered to the corporation
pursuant to paragraph (c) of this Section 2.02 is more than
ten, each Person who either (I) was a Participant in any
Solicitation of such demand or demands or (II) at the time
of the delivery to the corporation of the documents
described in paragraph (c) of this Section 2.02 had engaged
or intended to engage in any Solicitation of Proxies for
use at such Special Meeting (other than a Solicitation of
Proxies on behalf of the corporation); or

(C) any Affiliate of a Soliciting Shareholder,
if a majority of the directors then in office determine,
reasonably and in good faith, that such Affiliate should be
required to sign the written notice described in paragraph
(c) of this Section 2.02 and/or the written agreement
described in this paragraph (d) in order to prevent the
purposes of this Section 2.02 from being evaded.

(e) Except as provided in the following sentence, any Special
Meeting shall be held at such hour and day as may be designated by
whichever of the President, the Secretary or the Board of Directors shall
have called such meeting. In the case of any Special Meeting called by
the President upon the demand of shareholders (a "Demand Special
Meeting"), such meeting shall be held at such hour and day as may be
designated by the Board of Directors; provided, however, that the date of
any Demand Special Meeting shall be not more than seventy days after the
Meeting Record Date (as defined in Section 2.06 hereof); and provided
further that in the event that the directors then in office fail to
designate an hour and date for a Demand Special Meeting within ten days
after the date that valid written demands for such meeting by the holders
of record as of the Demand Record Date of shares representing at least 10%
of all the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting are delivered to the corporation (the
"Delivery Date"), then such meeting shall be held at 2:00 P.M. local time
on the 100th day after the Delivery Date or, if such 100th day is not a
Business Day (as defined below), on the first preceding Business Day. In
fixing a meeting date for any Special Meeting, the President, the
Secretary or the Board of Directors may consider such factors as he or it
deems relevant within the good faith exercise of his or its business
judgment, including, without limitation, the nature of the action proposed
to be taken, the facts and circumstances surrounding any demand for such
meeting, and any plan of the Board of Directors to call an Annual Meeting
or a Special Meeting for the conduct of related business.

(f) The corporation may engage regionally or nationally
recognized independent inspectors of elections to act as an agent of the
corporation for the purpose of promptly performing a ministerial review of
the validity of any purported written demand or demands for a Special
Meeting received by the Secretary. For the purpose of permitting the
inspectors to perform such review, no purported demand shall be deemed to
have been delivered to the corporation until the earlier of (i) five
Business Days following receipt by the Secretary of such purported demand
and (ii) such date as the independent inspectors certify to the
corporation that the valid demands received by the Secretary represent at
least 10% of all the votes entitled to be cast on each issue proposed to
be considered at the Special Meeting. Nothing contained in this paragraph
(f) shall in any way be construed to suggest or imply that the Board of
Directors or any shareholder shall not be entitled to contest the validity
of any demand, whether during or after such five Business Day period, or
to take any other action (including, without limitation, the commencement,
prosecution or defense of any litigation with respect thereto).

(g) For purposes of these by-laws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are authorized or obligated by law
or executive order to close.

2.03. Place of Meeting. The Board of Directors, the President
or the Secretary may designate any place, either within or without the
State of Wisconsin, as the place of meeting for an Annual Meeting or
Special Meeting. If no designation is made, the place of meeting shall be
the principal office of the corporation. Any meeting may be adjourned to
reconvene at any place designated by vote of the Board of Directors or by
the President or the Secretary.

2.04. Notice of Meeting. Written notice stating the date, time
and place of any meeting of shareholders shall be delivered not less than
ten days nor more than sixty days before the date of the meeting (unless a
different time period is provided by the Wisconsin Business Corporation
Law or the articles of incorporation), either personally or by mail, by or
at the direction of the President or the Secretary, to each shareholder of
record entitled to vote at such meeting and to such other persons as
required by the Wisconsin Business Corporation Law. In the event of any
Demand Special Meeting, such notice of meeting shall be sent not more than
thirty days after the Delivery Date. If mailed, notice pursuant to this
Section 2.04 shall be deemed to be effective when deposited in the United
States mail, addressed to the shareholder at his or her address as it
appears on the stock record books of the corporation, with postage thereon
prepaid. Unless otherwise required by the Wisconsin Business Corporation
Law or the articles of incorporation of the corporation, a notice of an
Annual Meeting need not include a description of the purpose for which the
meeting is called. In the case of any Special Meeting, (a) the notice of
meeting shall describe any business that the Board of Directors shall have
theretofore determined to bring before the meeting and (b) in the case of
a Demand Special Meeting, the notice of meeting (i) shall describe any
business set forth in the statement of purpose of the demands received by
the corporation in accordance with Section 2.02 of these by-laws and (ii)
shall contain all of the information required in the notice received by
the corporation in accordance with Section 2.14(b) of these by-laws. If
an Annual Meeting or Special Meeting is adjourned to a different date,
time or place, the corporation shall not be required to give notice of the
new date, time or place if the new date, time or place is announced at the
meeting before adjournment; provided, however, that if a new Meeting
Record Date for an adjourned meeting is or must be fixed, the corporation
shall give notice of the adjourned meeting to persons who are shareholders
as of the new Meeting Record Date.

2.05. Waiver of Notice. A shareholder may waive any notice
required by the Wisconsin Business Corporation Law, the articles of
incorporation or these by-laws before or after the date and time stated in
the notice. The waiver shall be in writing and signed by the shareholder
entitled to the notice, contain the same information that would have been
required in the notice under applicable provisions of the Wisconsin
Business Corporation Law (except that the time and place of meeting need
not be stated) and be delivered to the corporation for inclusion in the
corporate records. A shareholder's attendance at any Annual Meeting or
Special Meeting, in person or by proxy, waives objection to all of the
following: (a) lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting or promptly upon arrival
objects to holding the meeting or transacting business at the meeting; and
(b) consideration of a particular matter at the meeting that is not within
the purpose described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.

2.06. Fixing of Record Date. The Board of Directors may fix in
advance a date not less than ten days and not more than seventy days prior
to the date of an Annual Meeting or Special Meeting as the record date for
the determination of shareholders entitled to notice of, or to vote at,
such meeting (the "Meeting Record Date"). In the case of any Demand
Special Meeting, (i) the Meeting Record Date shall be not later than the
30th day after the Delivery Date and (ii) if the Board of Directors fails
to fix the Meeting Record Date within thirty days after the Delivery Date,
then the close of business on such 30th day shall be the Meeting Record
Date. The shareholders of record on the Meeting Record Date shall be the
shareholders entitled to notice of and to vote at the meeting. Except as
provided by the Wisconsin Business Corporation Law for a court-ordered
adjournment, a determination of shareholders entitled to notice of and to
vote at an Annual Meeting or Special Meeting is effective for any
adjournment of such meeting unless the Board of Directors fixes a new
Meeting Record Date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
The Board of Directors may also fix in advance a date as the record date
for the purpose of determining shareholders entitled to take any other
action or determining shareholders for any other purpose. Such record
date shall be not more than seventy days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. The record date for determining shareholders entitled to a
distribution (other than a distribution involving a purchase, redemption
or other acquisition of the corporation's shares) or a share dividend is
the date on which the Board of Directors authorizes the distribution or
share dividend, as the case may be, unless the Board of Directors fixes a
different record date.

2.07. Shareholders' List for Meetings. After a Meeting Record
Date has been fixed, the corporation shall prepare a list of the names of
all of the shareholders entitled to notice of the meeting. The list shall
be arranged by class or series of shares, if any, and show the address of
and number of shares held by each shareholder. Such list shall be
available for inspection by any shareholder, beginning two business days
after notice of the meeting is given for which the list was prepared and
continuing to the date of the meeting, at the corporation's principal
office or at a place identified in the meeting notice in the city where
the meeting will be held. A shareholder or his or her agent may, on
written demand, inspect and, subject to the limitations imposed by the
Wisconsin Business Corporation Law, copy the list, during regular business
hours and at his or her expense, during the period that it is available
for inspection pursuant to this Section 2.07. The corporation shall make
the shareholders' list available at the meeting and any shareholder or his
or her agent or attorney may inspect the list at any time during the
meeting or any adjournment thereof. Refusal or failure to prepare or make
available the shareholders' list shall not affect the validity of any
action taken at a meeting of shareholders.

2.08. Quorum and Voting Requirements; Postponements;
Adjournments.

(a) Shares entitled to vote as a separate voting group may take
action on a matter at any Annual Meeting or Special Meeting only if a
quorum of those shares exists with respect to that matter. If the
corporation has only one class of stock outstanding, such class shall
constitute a separate voting group for purposes of this Section 2.08.
Except as otherwise provided in the articles of incorporation or the
Wisconsin Business Corporation Law, a majority of the votes entitled to be
cast on the matter shall constitute a quorum of the voting group for
action on that matter. Once a share is represented for any purpose at any
Annual Meeting or Special Meeting, other than for the purpose of objecting
to holding the meeting or transacting business at the meeting, it is
considered present for purposes of determining whether a quorum exists for
the remainder of the meeting and for any adjournment of that meeting
unless a new Meeting Record Date is or must be set for the adjourned
meeting. If a quorum exists, except in the case of the election of
directors, action on a matter shall be approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the
action, unless the articles of incorporation or the Wisconsin Business
Corporation Law requires a greater number of affirmative votes. Unless
otherwise provided in the articles of incorporation, each director to be
elected shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election of directors at an Annual Meeting or
Special Meeting at which a quorum is present.

(b) The Board of Directors acting by resolution may postpone
and reschedule any previously scheduled Annual Meeting or Special Meeting;
provided, however, that a Demand Special Meeting shall be postponed beyond
the 100th day following the Delivery Date. Any Annual Meeting or Special
Meeting may be adjourned from time to time, whether or not there is a
quorum, (i) at any time, upon a resolution by shareholders if the votes
cast in favor of such resolution by the holders of shares of each voting
group entitled to vote on any matter theretofore properly brought before
the meeting exceed the number of votes cast against such resolution by the
holders of shares of each such voting group or (ii) at any time prior to
the transaction of any business at such meeting, by the President or
pursuant to a resolution of the Board of Directors. No notice of the time
and place of adjourned meetings need be given except as required by the
Wisconsin Business Corporation Law. At any adjourned meeting at which a
quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.

2.09. Conduct of Meeting. The President, and in his or her
absence, a Vice President in the order provided under Section 4.07 of
these by-laws, and in their absence, any person chosen by the shareholders
present shall call any Annual Meeting or Special Meeting to order and
shall act as chairperson of the meeting, and the Secretary of the
corporation shall act as secretary of all meetings of the shareholders,
but, in the absence of the Secretary, the presiding officer may appoint
any other person to act as secretary of the meeting.

2.10. Proxies. At any Annual Meeting or Special Meeting, a
shareholder may vote his or her shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for the
shareholder by signing an appointment form, either personally or by his or
her attorney-in-fact. An appointment of a proxy is effective when
received by the Secretary or other officer or agent of the corporation
authorized to tabulate votes. An appointment is valid for eleven months
from the date of its signing unless a different period is expressly
provided in the appointment form. Unless otherwise provided, a proxy may
be revoked at any time before it is voted, either by written notice filed
with the Secretary or the acting secretary of the meeting or by oral
notice given by the shareholder to the presiding officer during the
meeting. The presence of a shareholder who has filed his or her
appointment of proxy shall not itself constitute a revocation. The Board
of Directors shall have the power and authority to make rules establishing
presumptions as to the validity and sufficiently of proxies.

2.11. Voting of Shares.

(a) Each outstanding share shall be entitled to one vote upon
each matter submitted to a vote at an Annual Meeting or Special Meeting,
except to the extent that the voting rights of the shares of any class or
classes are enlarged, limited or denied by the Wisconsin Business
Corporation Law or the articles of incorporation of the corporation.

(b) Shares held by another corporation, if a sufficient number
of shares entitled to elect a majority of the directors of such other
corporation is held directly or indirectly by this corporation, shall not
be entitled to vote at an Annual Meeting or Special Meeting, but shares
held in a fiduciary capacity may be voted.

2.12. Action without Meeting. Any action required or permitted
by the articles of incorporation or these by-laws or any provision of the
Wisconsin Business Corporation Law to be taken at an Annual Meeting or
Special Meeting may be taken without a meeting if a written consent or
consents, describing the action so taken, is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof
and delivered to the corporation for inclusion in the corporate records.

2.13. Acceptance of Instruments Showing Shareholder Action. If
the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment and
give it effect as the act of a shareholder. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of a
shareholder, the corporation, if acting in good faith, may accept the
vote, consent, waiver or proxy appointment and give it effect as the act
of the shareholder if any of the following apply:

(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity.

(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the corporation requests, evidence of fiduciary status
acceptable to the corporation is presented with respect to the vote,
consent, waiver or proxy appointment.

(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation is presented with
respect to the vote, consent, waiver or proxy appointment.

(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment.

(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of
the co-owners and the person signing appears to be acting on behalf of all
co-owners.

The corporation may reject a vote, consent, waiver or proxy appointment if
the Secretary or other officer or agent of the corporation who is
authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.

2.14. Notice of Shareholder Business and Nomination of
Directors.

(a) Annual Meetings.

(i) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be
considered by the shareholders may be made at an Annual Meeting (A)
pursuant to the corporation's notice of meeting, (B) by or at the
direction of the Board of Directors or (C) by any shareholder of the
corporation who is a shareholder of record at the time of giving of
notice provided for in this by-law and who is entitled to vote at the
meeting and complies with the notice procedures set forth in this
Section 2.14.

(ii) For nominations or other business to be properly
brought before an Annual Meeting by a shareholder pursuant to clause
(C) of paragraph (a)(i) of this Section 2.14, the shareholder must
have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a shareholder's notice shall be received
by the Secretary of the corporation at the principal offices of the
corporation not less than sixty days nor more than ninety days prior
to the second Wednesday in the month of April; provided, however,
that in the event that the date of the Annual Meeting is advanced by
more than thirty days or delayed by more than sixty days from the
second Wednesday in the month of April, notice by the shareholder to
be timely must be so received not earlier than the 90th day prior to
the date of such Annual Meeting and not later than the close of
business on the later of (x) the 60th day prior to such Annual
Meeting and (y) the 10th day following the day on which public
announcement of the date of such meeting is first made. Such
shareholder's notice shall be signed by the shareholder of record who
intends to make the nomination or introduce the other business (or
his duly authorized proxy or other representative), shall bear the
date of signature of such shareholder (or proxy or other
representative) and shall set forth: (A) the name and address, as
they appear on this corporation's books, of such shareholder and the
beneficial owner or owners, if any, on whose behalf the nomination or
proposal is made; (B) the class and number of shares of the
corporation which are beneficially owned by such shareholder or
beneficial owner or owners; (C) a representation that such
shareholder is a holder of record of shares of the corporation
entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to make the nomination or introduce the other
business specified in the notice; (D) in the case of any proposed
nomination for election or re-election as a director, (I) the name
and residence address of the person or persons to be nominated, (II)
a description of all arrangements or understandings between such
shareholder or beneficial owner or owners and each nominee and any
other person or persons (naming such person or persons) pursuant to
which the nomination is to be made by such shareholder, (III) such
other information regarding each nominee proposed by such shareholder
as would be required to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the Exchange
Act, including any information that would be required to be included
in a proxy statement filed pursuant to Regulation 14A had the nominee
been nominated by the Board of Directors and (IV) the written consent
of each nominee to be named in a proxy statement and to serve as a
director of the corporation if so elected; and (E) in the case of any
other business that such shareholder proposes to bring before the
meeting, (I) a brief description of the business desired to be
brought before the meeting and, if such business includes a proposal
to amend these by-laws, the language of the proposed amendment, (II)
such shareholder's and beneficial owner's or owners' reasons for
conducting such business at the meeting and (III) any material
interest in such business of such shareholder and beneficial owner or
owners.

(iii) Notwithstanding anything in the second sentence
of paragraph (a)(ii) of this Section 2.14 to the contrary, in the
event that the number of directors to be elected to the Board of
Directors of the corporation is increased and there is no public
announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation
at least seventy days prior to the second Wednesday in the month of
April, a shareholder's notice required by this Section 2.14 shall
also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be received by
the Secretary at the principal offices of the corporation not later
than the close of business on the 10th day following the day on which
such public announcement is first made by the corporation.

(b) Special Meetings. Only such business shall be conducted at
a Special Meeting as shall have been described in the notice of meeting
sent to shareholders pursuant to Section 2.04 of these by-laws.
Nominations of persons for election to the Board of Directors may be made
at a Special Meeting at which directors are to be elected pursuant to such
notice of meeting (i) by or at the direction of the Board of Directors or
(ii) by any shareholder of the corporation who (A) is a shareholder of
record at the time of giving of such notice of meeting, (B) is entitled to
vote at the meeting and (C) complies with the notice procedures set forth
in this Section 2.14. Any shareholder desiring to nominate persons for
election to the Board of Directors at such a Special Meeting shall cause a
written notice to be received by the Secretary of the corporation at the
principal offices of the corporation not earlier than ninety days prior to
such Special Meeting and not later than the close of business on the later
of (x) the 60th day prior to such Special Meeting and (y) the 10th day
following the day on which public announcement is first made of the date
of such Special Meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. Such written notice shall be
signed by the shareholder of record who intends to make the nomination (or
his duly authorized proxy or other representative), shall bear the date of
signature of such shareholder (or proxy or other representative) and shall
set forth: (A) the name and address, as they appear on the corporation's
books, of such shareholder and the beneficial owner or owners, if any, on
whose behalf the nomination is made; (B) the class and number of shares of
the corporation which are beneficially owned by such shareholder or
beneficial owner or owners; (C) a representation that such shareholder is
a holder of record of shares of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to make
the nomination specified in the notice; (D) the name and residence address
of the person or persons to be nominated; (E) a description of all
arrangements or understandings between such shareholder or beneficial
owner or owners and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination is to be made by
such shareholder; (F) such other information regarding each nominee
proposed by such shareholder as would be required to be disclosed in
solicitations of proxies for elections of directors, or would be otherwise
required to be disclosed, in each case pursuant to Regulation 14A under
the Exchange Act, including any information that would be required to be
included in a proxy statement filed pursuant to Regulation 14A had the
nominee been nominated by the Board of Directors; and (G) the written
consent of each nominee to be named in a proxy statement and to serve as a
director of the corporation if so elected.

(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 2.14 shall be eligible to serve
as directors. Only such business shall be conducted at an Annual
Meeting or Special Meeting as shall have been brought before such
meeting in accordance with the procedures set forth in this Section
2.14. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set
forth in this Section 2.14 and, if any proposed nomination or
business is not in compliance with this Section 2.14, to declare that
such defective proposal shall be disregarded.

(ii) For purposes of this Section 2.14, "public
announcement" shall mean disclosure in a press release reported by
the Dow Jones News Service, Associated Press or comparable national
news service or in a document publicly filed by the corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.

(iii) Notwithstanding the foregoing provisions of this
Section 2.14, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
2.14. Nothing in this Section 2.14 shall be deemed to limit the
corporation's obligation to include shareholder proposals in its
proxy statement if such inclusion is required by Rule 14a-8 under the
Exchange Act.

ARTICLE III. BOARD OF DIRECTORS

3.01. General Powers, Classification and Number. All corporate
powers shall be exercised by or under the authority of, and the business
affairs of the corporation managed under the direction of, the Board of
Directors. The number of directors of the corporation shall be four (4),
divided into three classes, designated as Class I, Class II and Class III;
and such classes shall consist of one (1), one (1) and two (2)
director(s), respectively. At the first meeting of shareholders at which
directors are elected after the date these by-laws are adopted, the
directors of Class I shall be elected for a term to expire at the first
Annual Meeting after their election, and until their successors are duly
elected and qualified, the directors of Class II shall be elected for a
term to expire at the second Annual Meeting after their election, and
until their successors are duly elected and qualified, and the directors
of Class III shall be elected for a term to expire at the third Annual
Meeting after their election, and until their successors are duly elected
and qualified. At each Annual Meeting after the first meeting of
shareholders at which directors are elected after the date these by-laws
are adopted, the successors to the class of directors whose terms shall
expire at the time of such Annual Meeting shall be elected to hold office
until the third succeeding Annual Meeting, and until their successors are
duly elected and qualified.

3.02. Tenure and Qualifications. Each director shall hold
office until the next Annual Meeting in the year in which such director's
term expires and until his or her successor shall have been duly elected
and, if necessary, qualified, or until there is a decrease in the number
of directors which takes effect after the expiration of his or her term,
or until his or her prior retirement, death, resignation or removal. A
director may be removed from office only as provided in the articles of
incorporation at a meeting of the shareholders called for the purpose of
removing the director, and the meeting notice shall state that the
purpose, or one of the purposes, of the meeting is removal of the
director. A director may resign at any time by delivering written notice
which complies with the Wisconsin Business Corporation Law to the Board of
Directors, to the President or to the corporation. A director's
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. Directors need not be residents of the
State of Wisconsin or shareholders of the corporation. No other
restrictions, limitations or qualifications may be imposed on individuals
for service as a director.

3.03. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this by-law immediately
after the Annual Meeting and each adjourned session thereof. The place of
such regular meeting shall be the same as the place of the Annual Meeting
which precedes it, or such other suitable place as may be announced at
such Annual Meeting. The Board of Directors may provide, by resolution,
the date, time and place, either within or without the State of Wisconsin,
for the holding of additional regular meetings of the Board of Directors
without other notice than such resolution.

3.04. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President, Secretary
or any two directors. The President or Secretary may fix any place,
either within or without the State of Wisconsin, as the place for holding
any special meeting of the Board of Directors, and if no other place is
fixed the place of the meeting shall be the principal office of the
corporation in the State of Wisconsin.

3.05. Notice; Waiver. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 3.03 of
these by-laws) shall be given by written notice delivered in person, by
telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, to each director at his
business address or at such other address as such director shall have
designated in writing filed with the Secretary, in each case not less than
forty-eight hours prior to the meeting. The notice need not describe the
purpose of the meeting of the Board of Directors or the business to be
transacted at such meeting. If mailed, such notice shall be deemed to be
effective when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice is given by telegram, such notice
shall be deemed to be effective when the telegram is delivered to the
telegraph company. If notice is given by private carrier, such notice
shall be deemed to be effective when delivered to the private carrier.
Whenever any notice whatever is required to be given to any director of
the corporation under the articles of incorporation or these by-laws or
any provision of the Wisconsin Business Corporation Law, a waiver thereof
in writing, signed at any time, whether before or after the date and time
of meeting, by the director entitled to such notice shall be deemed
equivalent to the giving of such notice. The corporation shall retain any
such waiver as part of the permanent corporate records. A director's
attendance at or participation in a meeting waives any required notice to
him or her of the meeting unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the meeting
or transacting business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.

3.06. Quorum. Except as otherwise provided by the Wisconsin
Business Corporation Law or by the articles of incorporation or these by-
laws, a majority of the number of directors specified in Section 3.01 of
these by-laws shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors. In the event that there are only
two directors then in office, a quorum for the transaction of business at
any meeting of the Board of Directors shall consist of one-third of the
number of directors specified in Section 3.01 of these by-laws. Except as
otherwise provided by the Wisconsin Business Corporation Law or by the
articles of incorporation or by these by-laws, a quorum of any committee
of the Board of Directors created pursuant to Section 3.12 of these by-
laws shall consist of a majority of the number of directors appointed to
serve on the committee. A majority of the directors present (though less
than such quorum) may adjourn any meeting of the Board of Directors or any
committee thereof, as the case may be, from time to time without further
notice.

3.07. Manner of Acting. The affirmative vote of a majority of
the directors present at a meeting of the Board of Directors or a
committee thereof at which a quorum is present shall be the act of the
Board of Directors or such committee, as the case may be, unless the
Wisconsin Business Corporation Law, the articles of incorporation or these
by-laws require the vote of a greater number of directors.

3.08. Conduct of Meetings. The President, and in his or her
absence, a Vice President in the order provided under Section 4.07 of
these by-laws, and in their absence, any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall
act as chairperson of the meeting. The Secretary of the corporation shall
act as secretary of all meetings of the Board of Directors but in the
absence of the Secretary, the presiding officer may appoint any other
person present to act as secretary of the meeting. Minutes of any regular
or special meeting of the Board of Directors shall be prepared and
distributed to each director.

3.09. Vacancies. Any vacancies occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled only as provided in the articles of
incorporation. A vacancy that will occur at a specific later date,
because of a resignation effective at a later date or otherwise, may be
filled before the vacancy occurs, but the new director may not take office
until the vacancy occurs.

3.10. Compensation. The Board of Directors, irrespective of
any personal interest of any of its members, may establish reasonable
compensation of all directors for services to the corporation as directors
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority
to an appropriate committee to provide for reasonable pensions, disability
or death benefits, and other benefits or payments, to directors, officers
and employees and to their estates, families, dependents or beneficiaries
on account of prior services rendered by such directors, officers and
employees to the corporation.

3.11. Presumption of Assent. A director who is present and is
announced as present at a meeting of the Board of Directors or any
committee thereof created in accordance with Section 3.12 of these by-
laws, when corporate action is taken, assents to the action taken unless
any of the following occurs: (a) the director objects at the beginning of
the meeting or promptly upon his or her arrival to holding the meeting or
transacting business at the meeting; (b) the director dissents or abstains
from an action taken and minutes of the meeting are prepared that show the
director's dissent or abstention from the action taken; (c) the director
delivers written notice that complies with the Wisconsin Business
Corporation Law of his or her dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting; or (d) the director dissents
or abstains from an action taken, minutes of the meeting are prepared that
fail to show the director's dissent or abstention from the action taken,
and the director delivers to the corporation a written notice of that
failure that complies with the Wisconsin Business Corporation Law promptly
after receiving the minutes. Such right of dissent or abstention shall
not apply to a director who votes in favor of the action taken.

3.12. Committees. The Board of Directors by resolution adopted
by the affirmative vote of a majority of all of the directors then in
office may create one or more committees, appoint members of the Board of
Directors to serve on the committees and designate other members of the
Board of Directors to serve as alternates. Each committee shall have two
or more members who shall, unless otherwise provided by the Board of
Directors, serve at the pleasure of the Board of Directors. A committee
may be authorized to exercise the authority of the Board of Directors,
except that a committee may not do any of the following: (a) authorize
distributions; (b) approve or propose to shareholders action that the
Wisconsin Business Corporation Law requires to be approved by
shareholders; (c) fill vacancies on the Board of Directors or, unless the
Board of Directors provides by resolution that vacancies on a committee
shall be filled by the affirmative vote of the remaining committee
members, on any Board committee; (d) amend the corporation's articles of
incorporation; (e) adopt, amend or repeal by-laws; (f) approve a plan of
merger not requiring shareholder approval; (g) authorize or approve
reacquisition of shares, except according to a formula or method
prescribed by the Board of Directors; and (h) authorize or approve the
issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except that the Board of Directors may authorize a
committee to do so within limits prescribed by the Board of Directors.
Unless otherwise provided by the Board of Directors in creating the
committee, a committee may employ counsel, accountants and other
consultants to assist it in the exercise of its authority.

3.13. Telephonic Meetings. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
by-laws, members of the Board of Directors (and any committees thereof
created pursuant to Section 3.12 of these by-laws) may participate in
regular or special meetings by, or through the use of, any means of
communication by which all participants may simultaneously hear each
other, such as by conference telephone. If a meeting is conducted by such
means, then at the commencement of such meeting the presiding officer
shall inform the participating directors that a meeting is taking place at
which official business may be transacted. Any participant in a meeting
by such means shall be deemed present in person at such meeting.
Notwithstanding the foregoing, no action may be taken at any meeting held
by such means on any particular matter which the presiding officer
determines, in his or her sole discretion, to be inappropriate under the
circumstances for action at a meeting held by such means. Such
determination shall be made and announced in advance of such meeting.

3.14. Action Without Meeting. Any action required or permitted
by the Wisconsin Business Corporation Law to be taken at a meeting of the
Board of Directors or a committee thereof created pursuant to Section 3.12
of these by-laws may be taken without a meeting if the action is taken by
all members of the Board or of the committee. The action shall be
evidenced by one or more written consents describing the action taken,
signed by each director or committee member and retained by the
corporation. Such action shall be effective when the last director or
committee member signs the consent, unless the consent specifies a
different effective date.

ARTICLE IV. OFFICERS

4.01. Number. The principal officers of the corporation shall
be a President, the number of Vice Presidents as authorized from time to
time by the Board of Directors, a Secretary, and a Treasurer, each of whom
shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed
by the Board of Directors. The Board of Directors may also authorize any
duly appointed officer to appoint one or more officers or assistant
officers. Any two or more offices may be held by the same person.

4.02. Election and Term of Office. The officers of the
corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each Annual Meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as is practicable. Each officer shall
hold office until his or her successor shall have been duly elected or
until his or her prior death, resignation or removal.

4.03. Removal. The Board of Directors may remove any officer
and, unless restricted by the Board of Directors or these by-laws, an
officer may remove any officer or assistant officer appointed by that
officer, at any time, with or without cause and notwithstanding the
contract rights, if any, of the officer removed. The appointment of an
officer does not of itself create contract rights.

4.04. Resignation. An officer may resign at any time by
delivering notice to the corporation that complies with the Wisconsin
Business Corporation Law. The resignation shall be effective when the
notice is delivered, unless the notice specifies a later effective date
and the corporation accepts the later effective date.

4.05. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be
filled by the Board of Directors for the unexpired portion of the term.
If a resignation of an officer is effective at a later date as
contemplated by Section 4.04 of these by-laws, the Board of Directors may
fill the pending vacancy before the effective date if the Board provides
that the successor may not take office until the effective date.

4.06. President. The President shall be the principal
executive officer of the corporation and, subject to the direction of the
Board of Directors, shall in general supervise and control all of the
business and affairs of the corporation. The President shall, when
present, preside at all meetings of the shareholders and of the Board of
Directors. He or she shall have authority, subject to such rules as may
be prescribed by the Board of Directors, to appoint such agents and
employees of the corporation as he or she shall deem necessary, to
prescribe their powers, duties and compensation, and to delegate authority
to them. Such agents and employees shall hold office at the discretion of
the President. He or she shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds,
stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution
of the Board of Directors; and, except as otherwise provided by law or the
Board of Directors, he or she may authorize any Vice President or other
officer or agent of the corporation to sign, execute and acknowledge such
documents or instruments in his or her place and stead. In general he or
she shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to
time.

4.07. The Vice Presidents. In the absence of the President or
in the event of the President's death, inability or refusal to act, or in
the event for any reason it shall be impracticable for the President to
act personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board
of Directors, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties and have such authority
as from time to time may be delegated or assigned to him or her by the
President or by the Board of Directors. The execution of any instrument of
the corporation by any Vice President shall be conclusive evidence, as to
third parties, of his or her authority to act in the stead of the
President.

4.08. The Secretary. The Secretary shall: (a) keep minutes of
the meetings of the shareholders and of the Board of Directors (and of
committees thereof) in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) see that all
notices are duly given in accordance with the provisions of these by-laws
or as required by the Wisconsin Business Corporation Law; (c) be custodian
of the corporate records and of the seal of the corporation and see that
the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d)
maintain a record of the shareholders of the corporation, in a form that
permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and
class or series of shares held by each shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general perform all duties
incident to the office of Secretary and have such other duties and
exercise such authority as from time to time may be delegated or assigned
by the President or by the Board of Directors.

4.09. The Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; (b) maintain appropriate accounting records; (c) receive and
give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Section 5.04 of these by-
laws; and (d) in general perform all of the duties incident to the office
of Treasurer and have such other duties and exercise such other authority
as from time to time may be delegated or assigned by the President or by
the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his or her
duties in such sum and with such surety or sureties as the Board of
Directors shall determine.

4.10. Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors may from time to time authorize. The Assistant
Secretaries may sign with the President or a Vice President certificates
for shares of the corporation the issuance of which shall have been
authorized by a resolution of the Board of Directors. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such
duties and have such authority as shall from time to time be delegated or
assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Board of Directors.

4.11. Other Assistants and Acting Officers. The Board of
Directors shall have the power to appoint, or to authorize any duly
appointed officer of the corporation to appoint, any person to act as
assistant to any officer, or as agent for the corporation in his or her
stead, or to perform the duties of such officer whenever for any reason it
is impracticable for such officer to act personally, and such assistant or
acting officer or other agent so appointed by the Board of Directors or an
authorized officer shall have the power to perform all the duties of the
office to which he or she is so appointed to be an assistant, or as to
which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors or the
appointing officer.

4.12. Salaries. The salaries of the principal officers shall
be fixed from time to time by the Board of Directors or by a duly
authorized committee thereof, and no officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a
director of the corporation.

ARTICLE V. CONTRACTS, LOANS, CHECKS
AND DEPOSITS; SPECIAL CORPORATE ACTS

5.01. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or
execute or deliver any instrument in the name of and on behalf of the
corporation, and such authorization may be general or confined to specific
instances. In the absence of other designation, all deeds, mortgages and
instruments of assignment or pledge made by the corporation shall be
executed in the name of the corporation by the President or one of the
Vice Presidents and by the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer; the Secretary or an Assistant
Secretary, when necessary or required, shall affix the corporate seal, if
any, thereto; and when so executed no other party to such instrument or
any third party shall be required to make any inquiry into the authority
of the signing officer or officers.

5.02. Loans. No indebtedness for borrowed money shall be
contracted on behalf of the corporation and no evidences of such
indebtedness shall be issued in its name unless authorized by or under the
authority of a resolution of the Board of Directors. Such authorization
may be general or confined to specific instances.

5.03. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation, shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall
from time to time be determined by or under the authority of a resolution
of the Board of Directors.

5.04. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as may be
selected by or under the authority of a resolution of the Board of
Directors.

5.05. Voting of Securities Owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any
shares or other securities issued by any other corporation and owned or
controlled by this corporation may be voted at any meeting of security
holders of such other corporation by the President of this corporation if
he or she be present, or in his or her absence by any Vice President of
this corporation who may be present, and (b) whenever, in the judgment of
the President, or in his or her absence, of any Vice President, it is
desirable for this corporation to execute a proxy or written consent in
respect to any shares or other securities issued by any other corporation
and owned by this corporation, such proxy or consent shall be executed in
the name of this corporation by the President or one of the Vice
Presidents of this corporation, without necessity of any authorization by
the Board of Directors, affixation of corporate seal, if any, or
countersignature or attestation by another officer. Any person or persons
designated in the manner above stated as the proxy or proxies of this
corporation shall have full right, power and authority to vote the shares
or other securities issued by such other corporation and owned by this
corporation the same as such shares or other securities might be voted by
this corporation.

5.06. No Nominee Procedures. The corporation has not
established, and nothing in these by-laws shall be deemed to establish,
any procedure by which a beneficial owner of the corporation's shares that
are registered in the name of a nominee is recognized by the corporation
as a shareholder under Section 180.0723 of the Wisconsin Business
Corporation Law.

ARTICLE VI. CERTIFICATES FOR SHARES; TRANSFER OF SHARES

6.01. Certificates for Shares. Certificates representing
shares of the corporation shall be in such form, consistent with the
Wisconsin Business Corporation Law, as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation.
All certificates surrendered to the corporation for transfer shall be
canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except as provided in Section 6.06 of these by-laws.

6.02. Facsimile Signatures and Seal. The seal of the
corporation, if any, on any certificates for shares may be a facsimile.
The signature of the President or Vice President and the Secretary or
Assistant Secretary upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent, or a
registrar, other than the corporation itself or an employee of the
corporation.

6.03. Signature by Former Officers. The validity of a share
certificate is not affected if a person who signed the certificate (either
manually or in facsimile) no longer holds office when the certificate is
issued.

6.04. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer the corporation may
treat the registered owner of such shares as the person exclusively
entitled to vote, to receive notifications and otherwise to have and
exercise all the rights and power of an owner. Where a certificate for
shares is presented to the corporation with a request to register for
transfer, the corporation shall not be liable to the owner or any other
person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b)
the corporation had no duty to inquire into adverse claims or has
discharged any such duty. The corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance
with such other regulations as may be prescribed by or under the authority
of the Board of Directors.

6.05. Restrictions on Transfer. The face or reverse side of
each certificate representing shares shall bear a conspicuous notation of
any restriction imposed by the corporation upon the transfer of such
shares.

6.06. Lost, Destroyed or Stolen Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require
the person requesting such new certificate or certificates, or his or her
legal representative, to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.

6.07. Consideration for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible
or intangible property or benefit to the corporation, including cash,
promissory notes, services performed, contracts for services to be
performed or other securities of the corporation. Before the corporation
issues shares, the Board of Directors shall determine that the
consideration received or to be received for the shares to be issued is
adequate. The determination of the Board of Directors is conclusive
insofar as the adequacy of consideration for the issuance of shares
relates to whether the shares are validly issued, fully paid and
nonassessable. The corporation may place in escrow shares issued in whole
or in part for a contract for future services or benefits, a promissory
note, or other property to be issued in the future, or make other
arrangements to restrict the transfer of the shares, and may credit
distributions in respect of the shares against their purchase price, until
the services are performed, the benefits or property are received or the
promissory note is paid. If the services are not performed, the benefits
or property are not received or the promissory note is not paid, the
corporation may cancel, in whole or in part, the shares escrowed or
restricted and the distributions credited.

6.08. Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with law as it may deem expedient concerning the issue,
transfer and registration of shares of the corporation.

ARTICLE VII. SEAL

7.01. The Board of Directors may provide for a corporate seal
for the corporation.

ARTICLE VIII. FISCAL YEAR

8.01. The fiscal year of the corporation shall be from January
1 to December 31.

ARTICLE IX. INDEMNIFICATION

9.01. Provision of Indemnification. The corporation shall, to
the fullest extent permitted or required by Sections 180.0850 to 180.0859,
inclusive, of the Wisconsin Business Corporation Law, including any
amendments thereto (but in the case of any such amendment, only to the
extent such amendment permits or requires the corporation to provide
broader indemnification rights than prior to such amendment), indemnify
its Directors and Officers against any and all Liabilities, and advance
any and all reasonable Expenses, incurred thereby in any Proceeding to
which any such Director or Officer is a Party because he or she is or was
a Director or Officer of the corporation. The corporation shall also
indemnify an employee who is not a Director or Officer, to the extent that
the employee has been successful on the merits or otherwise in defense of
a Proceeding, for all reasonable Expenses incurred in the Proceeding if
the employee was a Party because he or she is or was an employee of the
corporation. The rights to indemnification granted hereunder shall not be
deemed exclusive of any other rights to indemnification against
Liabilities or the advancement of Expenses which a Director, Officer or
employee may be entitled under any written agreement, Board resolution,
vote of shareholders, the Wisconsin Business Corporation Law or otherwise.
The corporation may, but shall not be required to, supplement the
foregoing rights to indemnification against Liabilities and advancement of
Expenses under this Section 9.01 by the purchase of insurance on behalf of
any one or more of such Directors, Officers or employees, whether or not
the corporation would be obligated to indemnify or advance Expenses to
such Director, Officer or employee under this Section 9.01. All
capitalized terms used in this Article IX and not otherwise defined herein
shall have the meaning set forth in Section 180.0850 of the Wisconsin
Business Corporation Law.

ARTICLE X. AMENDMENTS

10.01. By Shareholders. Except as otherwise provided in the
articles of incorporation or these by-laws, these by-laws may be amended
or repealed and new by-laws may be adopted by the shareholders at any
Annual Meeting or Special Meeting at which a quorum is in attendance.

10.02. By Directors. Except as otherwise provided by the
Wisconsin Business Corporation Law or the articles of incorporation, these
by-laws may also be amended or repealed and new by-laws may be adopted by
the Board of Directors by affirmative vote of a majority of the number of
directors present at any meeting at which a quorum is in attendance;
provided, however, that the shareholders in adopting, amending or
repealing a particular by-law may provide therein that the Board of
Directors may not amend, repeal or readopt that by-law.

10.03. Implied Amendments. Any action taken or authorized by
the shareholders or by the Board of Directors which would be inconsistent
with the by-laws then in effect but which is taken or authorized by
affirmative vote of not less than the number of shares or the number of
directors required to amend the by-laws so that the by-laws would be
consistent with such action shall be given the same effect as though the
by-laws had been temporarily amended or suspended so far, but only so far,
as is necessary to permit the specific action so taken or authorized.

EXHIBIT (5)
F O L E Y & L A R D N E R

A T T O R N E Y S A T L A W

CHICAGO FIRSTAR CENTER SAN DIEGO
JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO
LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE
MADISON TELEPHONE (414) 271-2400 TAMPA
ORLANDO FACSIMILE (414) 297-4900 WASHINGTON, D.C.
SACRAMENTO WEST PALM BEACH
WRITER'S DIRECT LINE

September 16, 1997

National Research Corporation
1033 "O" Street
Lincoln, Nebraska 68508

Ladies and Gentlemen:

We have acted as counsel for National Research Corporation, a
Wisconsin corporation (the "Company"), and the majority shareholder of the
Company (the "Selling Shareholder") with respect to the preparation of a
Registration Statement on Form S-1 (the "Registration Statement"),
including the prospectus constituting a part thereof (the "Prospectus"),
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to
2,100,000 shares of the Company's common stock, $.001 par value ("Common
Stock"), together with up to 315,000 additional shares of Common Stock
being registered to cover the over-allotment option granted by the Selling
Shareholder to the underwriters.

In connection with our representation, we have examined: (a)
the Registration Statement, including the Prospectus; (b) the Articles of
Incorporation and Bylaws of the Company, as amended to date and as
proposed to be amended immediately prior to the effective date of the
Registration Statement; (c) resolutions of the Company's Board of
Directors relating to the authorization of the issuance of certain of the
securities covered by the Registration Statement; and (d) such other
proceedings, documents and records as we have deemed necessary to enable
us to render this opinion.

Based on the foregoing, we are of the opinion that:

1. The Company is a corporation validly existing under the
laws of the State of Wisconsin.

2. The shares of Common Stock covered by the Registration
Statement that are to be offered and sold by the Company, when the price
thereof has been determined by action of the Company's Board of Directors
and when issued and paid for in the manner contemplated in the
Registration Statement and Prospectus, will be validly issued, fully paid
and nonassessable, except with respect to wage claims of, or other debts
owing to, employees of the Company for services performed, but not
exceeding six months' service in any one case, as provided in Section
180.0622(2)(b) of the Wisconsin Business Corporation Law and judicial
interpretations thereof.

3. The shares of Common Stock covered by the Registration
Statement that are to be offered and sold by the Selling Shareholder are,
and when sold in the manner contemplated in the Registration Statement and
Prospectus will continue to be, validly issued, fully paid and
nonassessable, except with respect to wage claims of, or other debts owing
to, employees of the Company for services performed, but not exceeding six
months' service in any one case, as provided in Section 180.0622(2)(b) of
the Wisconsin Business Corporation Law and judicial interpretations
thereof.

We consent to the use of this opinion as an exhibit to the
Registration Statement and to the references to our firm therein. In
giving our consent, we do not admit that we are "experts" within the
meaning of Section 11 of the Securities Act or within the category of
persons whose consent is required by Section 7 of the Securities Act.

Very truly yours,

FOLEY & LARDNER

Exhibit (10.4)

NATIONAL RESEARCH CORPORATION

DIRECTOR STOCK PLAN

1. Purpose. The purpose of the National Research Corporation
Director Stock Plan (the "Plan") is to promote the best interests of
National Research Corporation (the "Company") and its shareholders by
providing a means to attract and retain competent independent directors
and to provide opportunities for additional stock ownership by such
directors which will further increase their proprietary interest in the
Company and, consequently, their identification with the interests of the
shareholders of the Company.

2. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Administrator"), subject to review by the Board of Directors (the
"Board"). The Administrator may adopt such rules and regulations for
carrying out the Plan as it may deem proper and in the best interests of
the Company. The interpretation by the Board of any provision of the Plan
or any related documents shall be final.

3. Stock Subject to the Plan. Subject to adjustment in
accordance with the provisions of paragraph 7, the total number of shares
of common stock, $.001 par value, of the Company ("Common Stock")
available for issuance under the Plan shall be 30,000. Shares of Common
Stock to be delivered under the Plan shall be made available from
presently authorized but unissued Common Stock or authorized and issued
shares of Common Stock reacquired and held as treasury shares, or a
combination thereof. In no event shall the Company be required to issue
fractional shares of Common Stock under the Plan. Whenever under the
terms of the Plan a fractional share of Common Stock would otherwise be
required to be issued, there shall be paid in lieu thereof one full share
of Common Stock.

4. Eligible Directors. Each member of the Board who is not an
employee of the Company or any subsidiary of the Company and who is paid a
cash retainer fee by the Company for services as a director ("Outside
Director") shall be eligible to receive shares of Common Stock under the
Plan.

5. Director Grants.

(a) Stock Awards. Each Outside Director shall
automatically receive, in lieu of cash, 60% of his or her Annual Retainer
(as defined below) earned in each calendar year in the form of Common
Stock. Such shares of Common Stock (and cash in lieu of fractional
shares) shall be transferred in accordance with paragraph 5(c) hereof.
The term "Annual Retainer" as used herein means the annual retainer
scheduled to be paid to an Outside Director for the calendar year for
services on the Board, exclusive of any meeting and committee fees.

(b) Option Awards. On the date of the Company's first
annual meeting of shareholders and thereafter on the date of each
succeeding annual meeting of shareholders of the Company ("Grant Date"),
an Outside Director, if reelected or retained as an Outside Director at
such meeting, shall automatically be granted a nonqualified stock option
to purchase 1,000 shares of Common Stock. The option exercise price shall
be the Fair Market Value (as defined below) of a share of Common Stock on
the Grant Date, which shall be payable at the time of exercise in cash,
previously acquired shares of Common Stock valued at their Fair Market
Value or such other forms or combinations of forms as the Board or
Administrator may approve. The term "Fair Market Value" as used herein
shall mean the last sale price of the Common Stock as reported on The
Nasdaq Stock Market on the last trading day of the applicable pay period.

An option may be exercised in whole or in part, from time
to time commencing one year after the Grant Date (the "Vesting Date"),
subject to the following limitations:

(i) If an Outside Director's status as an Outside
Director of the Company terminates because of death prior
to the Vesting Date, the option shall become immediately
exercisable in full and may be exercised for a period of
three years after the date of death.

(ii) If for any reason other than death an Outside
Director ceases to be an Outside Director of the Company
prior to the "Vesting Date," the option shall be canceled
as of the date of such termination.

(iii) If an Outside Director ceases to be an
Outside Director of the Company for any reason after the
Vesting Date, the option shall expire ten years after the
Grant Date, or if earlier, three years after termination of
Outside Director status.

(c) Transfer of Shares. Shares of Common Stock issuable
to an Outside Director pursuant to paragraph 5(a) shall be transferred to
such Outside Director at such time or times during the calendar year as
the cash portion of the Annual Retainer is paid. The total number of
shares of Common Stock to be so transferred shall be determined by
dividing (i) an amount equal to 60% of the Annual Retainer payable during
the applicable period by (ii) the Fair Market Value of a share of Common
Stock on the last business day of such period. In no event shall the
Company be required to issue fractional shares. Whenever under the terms
of this paragraph 5(c) a fractional share of Common Stock would otherwise
be required to be issued to an Outside Director, an amount in lieu thereof
shall be paid in cash based upon the Fair Market Value of such fractional
share.

(d) Termination of Services. If an Outside Director's
services as a Board member are terminated before the Vesting Date for any
reason other than death so that the option is canceled pursuant to
paragraph 5(b)(ii) hereof, the Outside Director shall receive in cash the
Annual Retainer such Outside Director would otherwise have been entitled
to receive for the applicable period in the absence of this Plan.

6. Restrictions on Transfer.

(a) Stock Awards. Shares of Common Stock acquired under
Section 5(a) of the Plan may not be sold or otherwise disposed of except
pursuant to an effective registration statement under the Securities Act
of 1933, as amended, or except in a transaction which, in the opinion of
counsel, is exempt from registration under said Act. All certificates
evidencing shares subject to awards to Outside Directors may bear an
appropriate legend evidencing any such transfer restriction. All
dividends and voting rights for shares issued under the Plan shall accrue
as of the issue date thereof.

(b) Option Awards. Options granted under the Plan shall
not be transferable other than by will or the laws of descent and
distribution, except that an Outside Director may, to the extent allowed
by the Board or the Administrator, and in a manner specified by the Board
or the Administrator, (i) designate in writing a beneficiary to exercise
the option after the Outside Director's death or (ii) transfer any option.

7. Adjustment Provisions. In the event of any change in the
Common Stock by reason of a declaration of a stock dividend (other than a
stock dividend declared in lieu of an ordinary cash dividend), stock
split, spin-off, merger, consolidation, recapitalization, or split-up,
combination or exchange of shares, or otherwise, the aggregate number of
shares available under the Plan shall be appropriately adjusted in order
to prevent dilution or enlargement of the benefits intended to be made
available under the Plan.

8. Amendment of Plan. The Board shall have the right to amend
the Plan at any time or from time to time in any manner that it may deem
appropriate; provided, however, that the provisions of paragraph 5 shall
not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder.

9. Withholding. The Company may defer making payments under
the Plan until satisfactory arrangements have been made for the payment of
any federal, state or local income taxes required to be withheld with
respect to such payment or delivery. Each Outside Director shall be
entitled to irrevocably elect to have the Company withhold shares of
Common Stock having an aggregate value equal to the amount required to be
withheld. The value of fractional shares remaining after payment of the
withholding taxes shall be paid to the Outside Director in cash. Shares
so withheld shall be valued at Fair Market Value on the regular business
day immediately preceding the date such shares would otherwise be
transferred hereunder.

10. Documentation of Awards. Awards made under the Plan shall
be evidenced by written agreements or such other appropriate documentation
as the Board or the Admnistrator may prescribe. The Board and/or the
Administrator need not require the execution of any instrument or
acknowledgement of notice of an award under the Plan, in which case
acceptance of such award by the respective Outside Director will
constitute agreement to the terms of the award.

11. Governing Law. The Plan, all awards hereunder, and all
determinations made and actions taken pursuant to the Plan shall be
governed by the internal laws of the State of Wisconsin and applicable
federal law.

12. Effective Date and Term of Plan. The effective date of the
Plan is ______________, 1997. The Plan shall terminate on such date as
may be determined by the Board.

Exhibit (10.7)

SUBCONTRACT

Between

__________________________________________________________________________

United HealthCare Corporation & National Research Corporation
9900 Bren Road East 1033 O Street
Minnetonka, Minnesota 55343 Gold's Galleria
Lincoln, Nebraska 68508

for services to be performed for the Defense Medical Information
System/System Integration, Design, Development, Operations and Maintenance
(D/SIDDOMS - Lot III) in support of the Office of the Assistant Secretary
of Defense for Health Affairs, Department of Defense.

This Subcontract is issued in accordance with and is subordinate to:
Prime Contract No. DASW01-95-0029.

<PAGE>

This subcontract is made as of May 9, 1997 ("Effective Date"), by and
between United HealthCare Corporation, through its wholly owned subsidiary
Applied HealthCare Informatics (hereinafter referred to as "UHC") and
National Research Corporation, Inc. ("Subcontractor").

Witnesseth that:

Whereas, UHC has entered into a contract with the U.S. Department of
Defense to provide services for studies, econometric analysis and modeling
for the D/SIDDOMS project, Contract No. DASW01-95-0029, (hereinafter
"Prime Contract"); and

Whereas, UHC desires to utilize the services of Subcontractor and
Subcontractor desires to provide certain services as requested by the
Department of Defense and described herein; and

Whereas, UHC and Subcontractor executed an agreement entitled Subcontract
Between United HealthCare Corporation and National Research Corporation,
effective January 6, 1997; and

Whereas, UHC and Subcontractor desire to terminate the January 6, 1997
agreement and execute this agreement in its place;

Now, therefore, UHC and Subcontractor mutually agree as follows:

Article 1 - Definitions

1.1 "Agreement" means this instrument and its Appendices.

1.2 "UHC Project Manager" means the individual identified in a
Task Order as being responsible for supervision of work performed pursuant
to the Task Order.

1.3 "Delivery Order" means an order executed by the U.S.
Department of Defense under the Prime Contract and provided to UHC which
summarizes the contents of both a task statement and technical proposal.

1.4 "DFARS" means the Department of Defense FAR Supplement
contained in Title 48, Chapter 2 of the Code of Federal Regulations in
effect as of the date of this Agreement unless otherwise updated by
consent of the parties or by law.

1.5 "FAR" means the Federal Acquisition Regulations contained
in Title 48 of the Code of Federal Regulations in effect as of the date of
this Agreement unless otherwise updated by consent of the parties or by
law.

1.6 "Prime Contract" means the contract between UHC and the
U.S. Department of Defense, Contract No. DASW01-95-0029.

1.7 "Task Order" means any work request issued by UHC to
Subcontractor in accordance with Article 2 of this Agreement.

Article 2 - Services to be Performed.

2.1 Subcontractor shall assist UHC in responding to task
statements issued under the Prime Contract, including assistance in
preparing technical and cost proposals. Subcontractor shall not be
compensated for these and other services not associated with a special
Delivery Order issued under the Prime Contract, except as otherwise
provided in this Agreement or a Task Order.

2.2 This is an indefinite-quantity subcontract for the supplies
and services specified. Subcontractor will deliver or perform, and UHC
shall be obligated to pay, only as provided in Task Orders issued in
accordance with this Agreement. Each Task Order and corresponding
Delivery Order, which shall together be entitled Delivery Order and Task
Order Addendum, shall be executed by the parties and attached hereto as an
Appendix and incorporated in this Agreement.

2.3 Prior to issuance of a Task Order by UHC, the parties will
agree upon the contents of the order and the duties to be included
therein.

2.4 Task Orders shall be issued to Subcontractor on the basis
of Prime Contract specifications and, except as otherwise provided herein
shall be subordinate to the terms, conditions, specifications and
objectives of the Prime Contract. Each Task Order issued under this
Agreement shall require the UHC Project Manager's approval. Each Task
Order issued under this Agreement shall be individually and sequentially
numbered, and shall include the specifications and requirements applicable
to the Task Order. Task Orders may not conflict with the terms and
conditions of this Agreement unless the variance is explicitly stated in
the Task Order. In the event of conflict or ambiguity of terms, this
Agreement shall prevail over the language in the Task Order.

2.5 Each Task Order assigned under this Agreement shall include
at least the following information:

a) Description of the work to be performed.

b) Period of performance of the Task Order.

c) Deliverable items schedule.

d) The specific labor hours committed to the Task Order, by
approved labor category; the names of Key Personnel and
their actual job title. However, for services provided by
Subcontractor where catalog or market prices of commercial
items are used, this will be listed as deliverables.

e) Subcontractor's estimated number of labor hours and total
costs for preparation of progress reports and assistance
under Article 4.2 of this Agreement. However, for services
provided by Subcontractor where catalog or market prices of
commercial items are used, these costs are part of the
commercial per unit price.

f) The total dollar value of the Task Order.

g) Reporting requirements.

h) Required participation in oral briefings, to the extent
known at the time of issuance of the Task Order.

2.6 All work performed under this Agreement shall be supervised
by Subcontractor's Project Manager, under the general technical direction
of UHC's Project Manager. UHC will notify Subcontractor of the identity
of its Project Manager for the project in each Task Order. Subcontractor
shall notify UHC in writing of the identity of its Project Manager within
twenty (20) days of execution of this Agreement, and by prior written
notice if a new or alternate Project Manager will be appointed during the
term of this Agreement.

2.7 UHC may modify a Task Order based on modifications made to
a Delivery Order issued under the Prime Contract. UHC shall notify
Subcontractor in writing of the required modification. If Subcontractor
believes a change to a Task Order is necessary, Subcontractor shall notify
UHC in writing. If a modification causes an increase or decrease in the
cost of services to be provided by Subcontractor, UHC will make an
equitable adjustment consistent with FAR 52.243-2, Alternate I.

2.8 In the event the Subcontractor anticipates difficulty in
complying with the Task Order delivery schedule, Subcontractor shall
immediately notify UHC in writing, giving pertinent details, including the
date by which it expects to make delivery; provided, however, that this
date shall be informational only and that receipt thereof shall not be
construed as a waiver by UHC of any delivery schedule, or any rights or
remedies provided by law or under this Agreement.

2.9 Subcontractor must strictly comply with the Limitation of
Cost clause on cost reimbursement Task Orders and notify UHC in a timely
fashion if additional funds will be required. No expenditures beyond the
ceiling amount will be reimbursed unless specifically authorized by UHC's
Project Manager.

2.10 Subcontractor shall promptly notify UHC in writing if it
has reason to believe that the level of effort or the total cost to UHC of
work under a Task Order will be either greater or substantially less than
the amount obligated for that Task Order. In addition, Subcontractor
shall promptly notify UHC in writing when the expenditures plus
outstanding commitments and liabilities allowable under a Task Order have
reached 75% of the amount obligated under the Task Order, or two months
prior to exhaustion of the funds, whichever comes first.

2.11 In performing all services under this Agreement,
Subcontractor shall use its best efforts to assist UHC in performing the
requirements of the Prime Contract, including preparation of proposals and
execution of Task Orders.

Article 3 - Effective Date and Term of Agreement

3.1 The services to be performed under this Agreement shall be
provided during the period of performance set out in each Task Order, or
until all deliverables required by the Task Order are provided. If the
Prime Contract is extended, this Agreement shall be extended for up to
two additional years in accordance with Article 3.2 below.

3.2 This Agreement may be extended for up to two additional
one-year periods based upon the options in the Prime Contract. UHC will
notify Subcontractor of any extension of the Agreement upon receipt of
written notification of extension under the Prime Contract. UHC will
notify Subcontractor of its receipt of any preliminary written notice of
intent to extend under the Prime Contract, but will not be committed to an
extension based on a preliminary notice. All other terms and conditions
of this Agreement shall remain in full force and effect during any period
of extension.

3.3 Any Task Order issued during the effective period of this
Agreement and not completed within that period shall be completed by
Subcontractor within the time specified in the Task Order, unless the time
is extended because of an excusable delay. This Agreement shall govern
the Subcontractor's and UHC's rights and obligations with respect to the
Task Order to the same extent as if the Order were completed during the
Agreement's effective period. In the event that optional periods are
exercised in the Prime Contract, the parties may extend a Task Order
beyond the original Agreement expiration date. Such Task Order shall be
completed within the terms and conditions of the Task Order as written
prior to the expiration date of the contract year in which it was issued,
unless specified otherwise in the extended Task Order.

Article 4 - Reports and Deliverables

4.1 Monthly Progress Reports. Subcontractor will provide to
UHC monthly progress reports that address total work activity under this
Agreement for the reporting period and address individually each active
Task Order. Each report shall include:

a) Staff hours expended during the reporting period. This
information shall be provided at two levels: cumulative,
over the entire Agreement reporting period, and
individually, by Task Order on a per person, per task
basis. However, for services provided by Subcontractor
where catalog or market prices of commercial items are
used, this information will be provided on a commercial per
unit basis.

b) Staff hours remaining, by Task Order. However, for
services provided by Subcontractor where catalog or market
prices of commercial items are used, the report shall
include remaining unit price information and remaining
deliverables.

c) Funds expended, overall and by individual Task Order,
during the reporting period.

d) Funds remaining, by individual Task Order.

e) Status of work in progress.

f) Problems or constraints encountered during the reporting
period and suggested solution(s).

4.2 Subcontractor shall assist UHC, as required to comply with
the requirements of Section C-3 of the Prime Contract, in providing
information for Delivery Order management plans, status reports and cost
reports. Subcontractor will, if requested by UHC, participate in
management reviews and assist in developing the required materials and
documentation to support review activities.

4.3 Subcontractor shall participate, as requested by UHC, in
formal oral briefings as required under the Prime Contract.

4.4 All reports and other documentation supplied under this
Agreement will be in compliance with the provisions of the Corporate IM
Technical Standards, Technical Reference Model, Section J, Attachment 4
and the DoD Standard 7935A, "Automated Data Systems (ADP) Documentation,"
dated Oct. 1, 1988, or the most recent current revision.

4.5 The Subcontractor shall ensure that automated resources and
procedures be used, whenever possible, to maintain the most cost-effective
use of Government funds. All deliverables shall be formatted in Word and
be available on a 3 1/2 inch IBM compatible diskette if so requested or as
otherwise specified in the Task Order. The Subcontractor's software shall
be capable of producing high quality "camera-ready" copies of
deliverables. The Subcontractor's software shall also be capable of
producing high quality graphics for use in deliverables if necessary.

4.6 Reports provided under this Agreement shall be considered
"Technical Data" as defined in the "Rights in Data" clause in the
Incorporated Provisions (DFARS 252.227-7013).

4.7 Subcontractor will submit three copies of all reports
specified in each Task Order, and a camera-ready copy of all deliverable
draft and final reports, if such reports are called for.

4.8 All reports, and any other materials as may be required
under this Agreement or Task Orders, shall be addressed and delivered
prepaid, unless otherwise directed by UHC, to the following address:

Applied HealthCare Informatics
United HealthCare Corporation
ATTN: Kathia Kennedy
Mail Route MN008-W125
PO Box 1459
Minneapolis, MN 55440-1459

4.9 The Subcontractor shall, over the term of this Agreement,
correct errors in Subcontractor developed software and applicable
documentation which are discovered by UHC, the Government, any other user
of the software, or the Subcontractor. Such corrections shall be made
within 25 days of the date the Subcontractor is notified that the error
exists or the date the Subcontractor discovers the error. Inability of
the parties to determine the cause of software errors shall be resolved in
accordance with the Disputes clause in Article 12 of this Agreement, but
in no event constitutes grounds for delay of error correction beyond the
time frame specified above.

4.10 If, during performance of this Agreement, Subcontractor
provides proprietary information, including intellectual property, which
is related to this Agreement but has been developed by Subcontractor for
purposes other than this Agreement, Subcontractor shall clearly identify
the information as "NRC Proprietary Information." Such identification
will not, in and of itself, be determinative of whether the information
was developed separate from this Agreement or whether it is proprietary to
the Subcontractor. The Government will retain rights to all intellectual
property produced in the course of developing, deploying, conducting and
reporting the surveys performed pursuant to this Agreement.

4.11 Notwithstanding any other provisions of this subcontract to
the contrary, Subcontractor's failure to submit required reports when due,
or failure to perform or deliver require services may, at the discretion
of UHC, result in withholding of payments under this Agreement, unless
such failure is beyond the control and without the fault or negligence of
Subcontractor and is determined by UHC to be an Excusable Delay as defined
in FAR 52.249-14. Any failure set out above which is not excused and not
cured within a period specified by UHC, which must be a minimum of ten
working days, may be considered a breach and grounds for termination in
accordance with Article 11 herein.

Article 5 - Consideration and Payment

5.1 In consideration of Subcontractor's satisfactory delivery
of the work specified in any and all Task Orders issued under this
Agreement, UHC shall reimburse Subcontractor for all allowable costs not
to exceed the estimated amount for the Task Order. Funds shall be
specific to each individual Task Order. Cost allowability shall be
determined in accordance with the provisions of the Prime Contract, FAR
Parts 30 and 31, and applicable provisions incorporated in Article 20 of
this Agreement.

5.2 For the services provided by Subcontractor under this
Agreement, UHC shall reimburse Subcontractor as specified in each Task
Order. The billing instructions applicable to each Task Order may be
specified in each Task Order, and shall supersede any inconsistent billing
instructions in Appendix B of this Agreement.

5.3 Rates incurred by the Subcontractor in excess of the
maximum amount specified in each Task Order for all services provided
under that Task Order shall not be an allowable cost under this Agreement.
The Subcontractor bears the sole risk of any costs exceeding these
amounts.

5.4 Subcontractor shall submit to UHC on a monthly basis an
invoice for each Task Order active in the invoice period. The invoice
shall be prepared in accordance with the requirements set out in Appendix
B, and shall be accompanied by a statement of costs incurred by
Subcontractor, cumulative expenditures to date, and a statement of the
original funds in the Task Order and the funds remaining in the Task
Order. To the extent that some of this information is already being
provided by Subcontractor under Article 4 of this Agreement, Subcontractor
may submit copies of the progress reports instead of providing the
identical information under this provision. Subcontractor shall clearly
identify in the progress reports where the information required by this
provision is constrained.

5.5 Subcontractor shall submit to UHC a weekly status report
outlining activities performed to date and the status of pending and
future deliverables and tasks. The status report may be submitted
electronically via the Internet, or by facsimile.

5.6 Upon receipt of each invoice submitted by Subcontractor in
accordance with this Agreement, UHC shall enter on a UHC invoice to be
submitted to the Government all or such part of the labor, materials and
indirect costs specified in Subcontractor's invoice that UHC determines to
be allowable costs, plus the amount of the fixed fee applicable to
Subcontractor under the Task Order if such fee is invoiced by
Subcontractor. Upon receipt of payment from the Government for one or
more of the items listed on Subcontractor's invoice, UHC shall pay
Subcontractor within * after the amount is determined to be allowable.

5.7 UHC reserves the right to have invoices and statements of
cost audited. Each payment made to Subcontractor shall be subject to
reduction for amounts included in the audited invoice which are found by
the UHC Project Manager, on the basis of an audit, not to constitute
allowable or allocable cost, including Subcontractor's rates and fees.
Any subsequent payment may be reduced for previous overpayment, or
increased for underpayments.

Article 6 - Travel and Per Diem

6.1 UHC will reimburse Subcontractor for the actual,
reasonable, and necessary costs of local and out of town travel incurred
in connection with Subcontractor's direct performance under this Agreement
if the costs are in compliance with the Joint Travel Regulations, are
approved by UHC in advance and are included in a Task Order.

Article 7 - Key Personnel

7.1 Subcontractor shall provide the key personnel identified in
each Task Order to perform services under this Agreement unless alternate
personnel are assigned in accordance with this Article. Prior to
assigning any alternate personnel, Subcontractor shall submit sufficient
information to demonstrate that the qualifications of the prospective
personnel are equal to or better than the qualifications of the personnel
being replaced. No substitution will be made without prior approval of
UHC.

_______________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the SEC pursuant to Rule 406.

Article 8 - Prime Contract

8.1 Subcontractor shall assume toward UHC all the obligations
and responsibilities which UHC, by the Prime Contract, assumes toward the
Government, with respect to any portion of the UHC's supplies or services
performed or to be performed by the Subcontractor pursuant to this
Agreement. The Prime Contract is subject to public law, statutes and
regulations requiring the "flow-down" of contract terms and conditions to
Subcontractors. Any such terms and conditions applicable to
Subcontractors by reason of law or the Prime Contract, which is
incorporated herein as Appendix A, shall be applicable to this Agreement.
Nothing in this Agreement is intended by the parties to be in conflict
with any such terms or conditions.

8.2 The parties agree that this Agreement is subject to the
provisions of the Prime Contract and is intended to be interpreted
consistently with the provisions of the Prime Contract. The parties also
agree, however, that this Agreement shall not in any way be deemed to
establish or create a contractual obligation between the Government and
Subcontractor, and that Subcontractor shall have no privity of contract or
other access to the Government by reason of this Agreement, unless
explicitly stated herein.

Article 9 - Publication and Rights in Data

9.1 Subcontractor shall not disseminate or publish, except
within and between Subcontractor and UHC, and as required by the
Government, any information received or developed under this Agreement or
contained in the reports to be furnished pursuant to this Agreement,
without prior written consent from UHC.

9.2 Title to all source data and materials furnished to UHC or
the Government, together with all plans, systems analysis and design
specifications and drawings, completed programs except proprietary
programs and documentation thereof, reports and listings, all punched
cards and all other items pertaining to the work and services to be
performed under Task Orders pursuant to this Agreement, including any
copyright shall become and remain with the Government upon completion.
The Government shall have the full right to use each of these for its
purposes without compensation or approval on the part of Subcontractor or
UHC. The Government shall have access to and the right to make copies of
the above mentioned items. Subcontractor shall indicate when proprietary
programs are included in materials furnished under this Agreement.

9.3 Subcontractor agrees to grant and does grant, convey and
reserve to the United States of America a nonexclusive, irrevocable, world
wide, royalty-free license in all written material, published, printed,
presented or used in connection with this Agreement, in which
Subcontractor presently holds a copyright or in the future shall obtain a
copyright or in which it has the right to issue royalty-free licenses.

9.4 All software to be provided under this agreement shall be
delivered with unlimited rights in accordance with the provisions of DoD
FAR Supplement 252.227-7013, 252.227-7018 and 252.227-7029.

9.5 If during the term of this Agreement, Subcontractor
determines that it is more advantageous to UHC and/or the Government to
incorporate a package, subroutine or module that can not be provided with
unlimited rights into the system, Subcontractor shall notify UHC in
writing. Such notification shall include at a minimum the name of the
item to be furnished with restricted rights and cost saving or other
benefits accruing to the Government from its use. If the parties agree to
incorporate such software package, subroutine or module into the system
the Government shall be given at a minimum the following rights:

a. Use of the computer software with the computer for which or
with which it was acquired, including use at any Government installation
to which the computer may be transferred by the Government;

b. Use of the computer software with a backup computer if the
computer for which or with which it was acquired is inoperative;

c. Modify the computer software, or combine it with other
software, subject to the provision that those portions of the derivative
software incorporating restricted rights software are subject to the same
restricted rights;

If Subcontractor includes any software packages, routines or
modules developed at Subcontractor's expense in the system without
identifying it to UHC, all such software shall be considered delivered
with "unlimited rights". If the program maintenance of the system is
dependent on the source code of any such software, the Subcontractor shall
provide the source code and rights to the source code for the life of the
system at the time the software and documentation is delivered.

9.6 If in performing under this Agreement Subcontractor
requests access to proprietary data of other companies to conduct studies
and research, it will enter into agreements with the supplying companies
to protect such data from unauthorized use or disclosure so long as such
data remains proprietary. These agreements shall be made available to UHC
upon request.

9.7 If in performing under this Agreement Subcontractor is
given access by UHC or the Government to the proprietary date of UHC or
the Government or proprietary data of third parties possessed by UHC or
the Government, Subcontractor agrees to protect such data from
unauthorized use or disclosure so long as such data remains proprietary.
This provision shall survive termination of this Agreement.

Article 10 - Changes

10.1 UHC may at any time, by a written order, and without notice
to the sureties, if any, make changes within the general scope of this
Agreement. Any such change shall be in accordance with the terms in the
Changes clause of the Incorporated Provisions of this Agreement included
in Appendix A. However, in order to allow UHC time to complete its
proposal for adjustment, the Subcontractor must submit its proposal within
5 days from the date of receipt of the written order unless otherwise
given an extension in writing by UHC.

Article 11 - Termination

11.1 UHC may at any time, by written notice to Subcontractor,
terminate this Agreement in whole or in part either because termination
is determined to be in the best interest of the Government or because
Subcontractor fails to fulfill its obligations under this Agreement.
Termination shall be in accordance with the terms and conditions of the
Prime Contract termination provisions as specified in FAR 52.249-6, and
incorporated herein in Appendix B, except that: a) notwithstanding the
definitions provided in this Agreement, references in the Prime Contract
termination clause to the Government shall be deemed to mean UHC;
Contractor shall be deemed to mean Subcontractor; Contracting Officer
shall be deemed to mean UHC; and b) in order to allow UHC time to complete
its final termination settlement proposal, Subcontractor shall submit its
proposal promptly but no later than nine (9) months after the effective
date of termination unless this period is extended in writing by UHC.

Article 12 - Disputes

12.1 The parties shall attempt to resolve any dispute arising
out of or relating to this subcontract promptly by negotiation between
executives who have authority to settle the controversy. Any party may
give the other party written notice of any dispute not resolved in the
normal course of business. Within twenty (20) days after delivery of the
disputing party's notice, the executives of both parties shall meet at a
mutually acceptable time and place to attempt to resolve the dispute. If
the matter has not been resolved within thirty (30) days of the disputing
party's notice, or if the parties fail to meet within thirty (30) days,
either party may initiate further proceedings with respect to the
controversy or claim as provided hereafter. All negotiations pursuant to
this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the rules of evidence.

12.2 All claims, disputes and other matters in controversy
arising out of or related to this Subcontract, or the performance or
breach thereof, shall be decided by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
obtaining, unless the parties mutually agree otherwise; provided, however,
that UHC shall not be required to arbitrate any claim, dispute or other
matter involving a claim by or against a third party or a third party who,
in the judgment of UHC, is indispensable to a just and equitable
resolution of the matter or who is alleged to be wholly or partially
responsible for the matter, unless such third party is subjected to the
jurisdiction of, and made a party to, the arbitration. The arbitrators
are to decide only the issue(s) presented to them and shall have no
authority to award any punitive damages or exemplary damages or to vary or
ignore the terms of this agreement, and shall be bound by controlling law.
The arbitrators shall be the final judge of the law and the facts. Their
decision shall be final and binding. The award may be modified, set
aside, or appealed based only upon the standards therefore set forth in
the Uniform Arbitration Act as that Act is enacted in the State of
Minnesota. In addition to such discovery as may be ordered in the
discretion of the arbitrators, at least thirty (30) days prior to the
hearing, the parties shall exchange documents relevant to the claims and
defenses of the parties, a detailed itemization of damages, identification
of witnesses, and any reports of experts who are expected to testify or,
if there are not reports, summaries in reasonable detail of their expected
testimony.

The parties agree that there is no privity of contract between
the Government and Subcontractor. If at any time any controversy should
arise between UHC and Subcontractor with respect to any matter arising
under this Subcontract which relates to an act, omission, or decision by
the Government, and is not a separate dispute between UHC and
Subcontractor, it is the intention of the parties that the UHC shall be
liable to Subcontractor to the same extent that the Government is liable
to UHC, but not to any greater extent. Subcontractor agrees to allow UHC
to exhaust the remedies available under the Prime Contract, including
remedies available for breach of contract, prior to instituting any
separate action or proceeding. If a separate action or proceeding is
instituted prior to the exhaustion of the aforesaid remedies,
Subcontractor agrees to stay said action or proceeding pending the
exhaustion of remedies against the Government. If UHC prosecutes or
defends a matter against the Government under the terms of the Prime
Contract, Subcontractor agrees to furnish all documents, certifications,
statements, witnesses, notices, reports, and information reasonably
required by UHC for such purposes.

12.3 The parties agree that, in the event a dispute arises
concerning performance of any Task Order, performance of work under the
Task Order will continue according to scheduled dates, at the direction of
UHC, pending resolution of any arbitration, or other resolution of the
dispute. Any arbitration must be initiated within the period of any
applicable statute of limitations. The expenses of any arbitration
proceeding, including compensation to the arbitrators, shall be borne
equally by the parties.

Article 13 - Workers' Compensation and Insurance

The Subcontractor shall maintain the types of insurance and
coverage listed below:

TYPE OF INSURANCE MINIMUM AMOUNT

(i) Worker's Compensation and all As required by State Law.
occupational disease.

(ii) Employer's Liability including
all occupational disease when
not so covered in Workmen's
Compensation above. $100,000 per acc.

(iii) General Liability (Comprehensive)
Bodily Injury per occurrence $500,000

(iv) Automobile Liability
(Comprehensive)
Bodily Injury per person $200,000
Bodily Injury per occurrence $500,000
Property Damage per accident $ 20,000

Article 14 - Service Contract Act

The Service Contract Act, 41 U.S.C. 351-358, and related regulations,
are applicable to the Prime Contract and this Agreement. Subcontractor
shall comply with the requirements of the Act and the regulations.
Subcontractor shall also comply with the Department of Labor Wage
Determination in Section J-1 of the Prime Contract, which is attached in
Appendix B of this Agreement.

Article 15 - Warranty Exclusion and Limitation of Damages

Except as expressly set forth in writing in this Agreement and except
for the implied warranty of merchantability, there are no warranties
expressed or implied.

In no event will the Subcontractor be liable to UHC for consequential
damages as defined in the Uniform Commercial Code, section 2/715, in
effect in the District of Columbia as of January 1, 1973, i.e. --
Consequential damages resulting from the seller's breach include --

(a) Any loss resulting from general or particular requirements and
needs of which the seller at the time of contracting had reason to know
and which could not reasonably be prevented by cover or otherwise; and

(b) Injury to person or property proximately resulting from any
breach of warranty.

Article 16 - Exclusive Services

Subcontractor agrees that it will not agree to perform or perform any
services in support of the D/SIDDOMS project - Lot III, Contract No.
DASW01-95-0029 during the term of this Agreement, including any extension
of the term in accordance with Article 3 herein, in association with any
other prime contractors awarded a portion of the D/SIDDOMS - Lot III
contract or their Subcontractors providing support for the Prime Contract.
Nothing in this provision is intended by the parties to be in conflict
with the provisions of FAR 52.203-6: Restrictions on Subcontractor Sales
to the Government.

Article 17 - Assignment

Subcontractor may not assign this Agreement or any of its rights or
obligations under this Agreement to any entity without the prior written
consent of UHC.

Article 18 - Applicable Law

This Agreement shall be governed and construed in all respects by
Federal Contract law. In the event that these laws and decisions do not
apply to a given issue or dispute, then the laws of the State of Minnesota
will apply.

Article 19 - Indemnification

Subcontractor will indemnify and hold harmless UHC and UHC's
director, officers and employees from and against claims, liabilities,
judgments or costs, including reasonable attorney's fees, arising out of
the negligence or misconduct of Subcontractor or any of its employees,
representatives or Subcontractors in the discharge of its or their duties
under this Agreement. Subcontractor's obligation under this provision
includes indemnification for losses resulting from Subcontractor's failure
to comply with incorporated provisions, including FAR 52.203-3, 52.203-10
and 52.215.22.

UHC will indemnify and hold harmless Subcontractor and its directors,
officers and employees from and against claims, liabilities, judgments or
costs, including reasonable attorney's fees, arising out of the negligence
or misconduct of UHC or any of its employees or representatives in the
discharge of its or their duties under this Agreement.

Article 20 - Modification

Except as specifically provided herein, this Agreement may not be
altered, amended or modified without a written agreement between the
parties.

Article 21 - Incorporated Provisions

Section I of the Prime Contract incorporates certain clauses by
reference including, but not limited to, the following clauses. These
clauses, as applicable, and as in effect on the date of this Agreement
except where updated by consent of the parties or law, are incorporated in
this Agreement by reference with the same force and effect as though
herein set forth in full. Subcontractor agrees that is bound to UHC such
UHC shall be entitled to any performance of the Subcontractor which the
Government can require of UHC under the incorporated clauses, with respect
to the supplies and services to be furnished by the Subcontractor under
this Agreement.

Federal Acquisition Regulations (FAR)

FAR Clauses

Title Reference # Date

Definitions 52.202-1 SEP 1991
Restrictions on Subcontractor
Sales to the Government 52.203-6 JUL 1985
Anti-Kickback Procedures 52.203-7 OCT 1988
Requirement for Certificate of
Procurement Integrity -
Modification 52.203-9 NOV 1990
Limitations on Payments to
Influence Certain Federal
Transactions 52.203-12 JAN 1990
Protecting the Government's
Interest When 52.203-6 JUN 1991
Subcontracting with Contractors
Debarred, Suspended, or Proposed
for Debarment Stop-Work Order
(Alternate I) 52.212-13 APR 1984
Examination of Records by
Comptroller General 52.215-1 FEB 1993
Audit - Negotiation 52.215-2 FEB 1993
Subcontractor Cost or Pricing
Data 52.215-24 DEC 1991
Integrity of Unit Prices 52.215-26 APR 1991
Termination of Defined Benefit
Pension Plans 52.215-27 SEP 1989
Reversion of Adjustment of Plans
for Postretirement Benefits
Other than Pension 52.215-39 JUL 1991
Allowable Cost and Payment 52.216-7 JUL 1991
Fixed Fee 52.216-8 APR 1984
Option to Extend Service 52.217-8 AUG 1989
Option to Extend the Term of
the Contract 52.217-9 MAR 1989
Utilization of Small Business
Concerns and small Disadvantaged
Business Concerns 52.219-8 FEB 1990
Small Business and Small
Disadvantaged Business
Subcontracting Plan 52.219-9 JAN 1991
Liquidated Damages - Small
Business Subcontracting Plan 52.219-16 AUG 1989
Utilization of Labor Surplus
Area Concerns 52.220-3 APR 1984
Labor Surplus Area Subcontracting
Program 52.220-4 APR 1984
Notice to the Government of Labor
Disputes 52.222-1 APR 1984
Convict Labor 52.222-3 APR 1984
Equal Opportunity - Alternate I 52.222-26 APR 1984
Affirmative Action of Special
Disabled and Vietnam Era
Veterans 52.222-35 APR 1984
Affirmative Action for Handicapped
Workers 52.222-36 APR 1984
Employment Reports on Special
Disabled Veterans and Veterans
of the Vietnam Era 52.222-37 JAN 1988
Service Contract Act of 1965,
As Amended 52.222-41 MAY 1989
Clean Air and Water 52.223-2 APR 1984
Drug-Free Workplace 52.223-6 JUL 1990
Privacy Act Notification 52.224-1 APR 1984
Privacy Act 52.224-2 APR 1984
Restrictions on Certain Foreign
Purchase 52.225-11 MAY 1992
Authorization and Consent 52.227-1 APR 1984
Notice and Assistance Regarding
Patent and Copyright
Infringement 52.227-2 APR 1984
Patent Indemnity 52.227-3 APR 1984
Insurance - Liability to Third
Person 52.228-7 APR 1984
Cost Accounting Standards 52.230-2 AUG 1992
Disclosure and Consistency
of Cost Accounting Practices 52.230-3 AUG 1992
Consistency in Cost Accounting
Practices 52.230-4 AUG 1992
Administration of Cost Accounting
Standards 52.230-5 AUG 1992
Interest 52.232-17 JAN 1991
Limitation of Cost 52.232-20 APR 1984
Protest After Award -
Alternate I 52.233-3 JUN 1985
Protection of Government
Buildings, Equipment, and
Vegetation 52.237-2 APR 1984
Bankruptcy 52.242-13 APR 1991
Changes - Cost-Reimbursement -
Alternate I 52.243-2 APR 1984
Subcontracts (Cost-Reimbursement
and Letter Contracts) -
Alternate I 52.244-2 APR 1985
Competition in Subcontracting 52.244-5 APR 1984
Government Property (Cost-
Reimbursement, Time-and-Material,
or Labor-Hour Contracts) 52.245-5 JAN 1986
Government Property Furnished "As
Is" 52.245-19 APR 1984
Inspection of Supplies - Cost
Reimbursement 52.246-3 APR 1984
Inspection of Services - Cost
Reimbursement 52.246-5 APR 1984
Limitation of Liability-
Services 52.246-25 APR 1984
Preference for U.S. - Flag Air
Carriers 52.247-63 APR 1984
Preference for Privately Owned
U.S. - Flag Commercial Vessels
Alt I 52.247-64 APR 1984
Value Engineering 52.248-1 MAR 1989
Termination (Cost-Reimbursement) 52.249-6 MAY 1986
Excusable Delays 52.249-14 APR 1984

DoD Federal Acquisition Regulation Supplement Clauses

DoD Clauses

Title Reference # Date

Statutory Prohibition on
Compensation to Department
of Defense Employees 252.203-7000 DEC 1991
Special Prohibition on
Employment 252.203-7001 APR 1993
Acquisitions From Subcontractors
Subject to On-Site Inspection
Under the Intermediate-Range
Nuclear Forces (INF) Treaty 252.209-7000 DEC 1991
Pricing Adjustments 252.215-7000 DEC 1991
Availability of Contractor
Records 252.215-7001 DEC 1991
Small Business and Small
Disadvantaged Business Sub-
contracting Plan (DoD Contracts) 252.219-7003 MAY 1994
Termination 252.227-7003 AUG 1994
Rights in Technical Data and
Computer Software 252.227-7013 OCT 1988
Restrictive Markings on Technical
Data 252.227-7018 OCT 1988
Identification of Restricted
Rights Computer Software 252.227-7019 APR 1988
Identification of Technical
Data 252.227-7029 APR 1988
Technical Data - Withholding of
Payment 252.227-7030 OCT 1988
Validation of Restrictive
Markings on Technical Data 252.227-7037 APR 1988
Supplemental Cost Principles 252.231-7000 DEC 1991
Penalties for Unallowable Costs 252.231-7001 MAY 1994
Identification of Uncompensated
Overtime 252.237-7019 APR 1994

FIRMR Clauses

Title Reference # Date

Notification of Substantial
Impact on Employment 252.249-7001 DEC 1991
Privacy or Security Safeguards
(Oct 90 FIRMR) 201-39.5202-5 OCT 1990

UNITED HEALTHCARE CORPORATION NATIONAL RESEARCH CORPORATION

By: /s/ Ken H. Roche By: /s/ Michael Hayes

Title: CEO, Applied HealthCare Title: CEO, NRC

Date: 4-8-97 Date: 4-11-97

<PAGE>

APPENDIX A

Prime Contract

AWARD/CONTRACT

1. This contract is a rated order under DPAS (15 CFR 350) Rating

2. Contract (Proc. Inst. Ident.) No.

DASW01-95-D-0029

3. Effective Date

31 MAR 95

4. Requisition/Purchase Request/Project No.

HT0003-1020-0095

5. Issued By Code - W74V8H

DEFENSE SUPPLY SERVICE - WASHINGTON
5200 Army Pentagon
Washington, DC 20310-5200

6. Administered By (If other than Item 5) Code - 52401A

DCMAO Twin Cities
3001 Metro Drive
Bloomington, MN 55425-1573

7. Name and Address of Contractor (No., Street, city, county, State and
ZIP Code)
Vendor ID: 00011849

UNITED HEALTHCARE CORPORATION
9900 Bren Road East
Minneapolis, MN 55343

8. Delivery

Other

9. Discount for prompt payment

00.000% 00 Net 030

10. Submit Invoices (4 copies unless otherwise specified) to the Address
Shown in:

Item: G-4

11. Ship To/Mark For Code: HT0003

DMSSC PRGM OFC INVESTIGATIVE SVC
5 Skyline Place, Suite 810
5111 Leesburg Pike
Falls Church, VA 22041-3201

12. Payment will be made by

DFAS COLUMBUS CENTER
GATEWAY CONTRACT ACCTG. DIV.
P.O. Box 192251
Columbus, OH 43218-2251

13. Authority for using other than full and open competition

[blank]

14. Accounting and appropriation Data

Award Oblig Amt US$ 0.00

15A. Item No.

15B. Supplies/Services

See attached Schedule(s)

15C. Quantity

15D. Unit

15E. Unit Price

15F. Amount

15G. Total amount of contract

$0.00

16. Table of Contents

A Solicitation/Contract Form 1
B Supplies or Services and
Prices/Costs 2
C Description/Specs./Work Statement 5
D Packaging and Marking 10
E Inspection and Acceptance 11
F Deliveries or Performance 12
G Contract Administration Data 14
H Special Contract Requirements 17
I Contract Clauses 24
J List of Attachments 32

17. Contractor's Negotiated Agreement

[Blank]

18. Award

[Blank]

19A. Name and Title of Signer

Sheila Leatherman

19B. Name of Contractor

By: Sheila Leatherman (Signature of person authorized to sign)

19C. Date signed

3/31/95

20A. Name of Contracting Officer

Frankye E. Wehmhoner FEW

20B United States of America

Frankye E. Wehmhoner (Signature of Contracting Officer

20C. Date signed

3/31/95

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT

1. Contract ID Code

[Blank]

2. Amendment/Modification No.

P00002

3. Effective Date

03/30/97

4. Requisition/Purchase Req. No.

HT0003-7027-2527

5. Project No. (If applicable)

[Blank]

6. Issued By Code: W74V8H

DEFENSE SUPPLY SERVICE - WASHINGTON
5200 Army Pentagon
Room 1D245 Pentagon
Washington, DC 20310-5200
Faye D. Harler FDH(703) 681-9534

7. Administered By (If other than Item 6) Code: S2401A

DCMAO TWIN CITIES
3001 Metro Drive
Bloomington, MN 55425-1573

8. Name and Address of Contractor (No., street, county, State and ZIP
Code) Vendor ID: 00011849

UNITED HEALTHCARE CORPORATION
9900 Bren Road East
Minnetonka, MN 55343

9A. Amendment of Solication No.

[Blank]

9B. Dated (See Item 11)

[Blank]

10A. Modification of Contract/Order No.

DASW01-95-D-0029

10B. Dated (See Item 13)

03/02/95

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICATIONS

[Blank]

12. Accounting and Appropriation Data (if required) Mod Obligated
Amount US $00.00

No Change

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT
MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

A(checked) THIS CHANGE ORDER IS ISSUED PURSUANT TO:

D(checked) OTHER (Specify type of modification and authority):
iaw Section I, Article I-2

E IMPORTANT Contractor is not, required to sign this document and
return ____________ copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION

Contract noted above in Blk #10A is hereby modified to exercise
Option Year Two (Months 25-36) beginning 31 MAR 97.

Section F, Article F-3 TERM OF CONTRACT, is changed to read:
The term of this contract is from 31 March 1995 through 30 March
1998, subject to the Government's option to renew in accordance
with the provisions at Section I, Article I-2.

15A. Name and Title of Signer

[Blank]

15B. Contractor/Offeror

[Blank]

16A. Name and Title of Contacting Officer

Gregory J. Nowak GJN

16B. United States of America

By: Gregory J. Nowak (Signature of Contracting Officer)

15C. Date signed

[Blank]

16C. Date signed

21 MAR 97

DASW01-95-D-0029

SECTION B - SUPPLIES/SERVICES AND PRICES/COSTS

B-1. SCOPE

a. This contract is for the acquisition of services for studies,
econometric analysis and modeling for the Defense Medical Information
System/Systems Integration, Design, Development, Operations and
Maintenance (D/SIDDOMS - LOT III) in support of the Office of the
Assistant Secretary of Defense for Health Affairs {OASD(HA)}.

b. All services to be ordered under this contract shall be set forth in
individual delivery orders. All delivery orders will be issued in
accordance with the provisions of Section H, Article H-5.

c. The potential maximum estimated amount for all awards for LOT III is
$25,000,000.00. The maximum amount allowable under this contract is $
for the base year and four option years of the contract. The
minimum amount for award for LOT III is $100,000.00 for the base year and
$100,000.00 per year for any option exercised.

B-2. SUPPLIES OR SERVICES AND PRICES/COSTS - Base Year
(Months 1 - 12)