<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED AUGUST 31, 1995.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO _________.
Commission file number 0-15295
NICHOLS RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 63-0713665
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4040 South Memorial Parkway
Huntsville, Alabama 35802-1326
(Address of principal executive offices) (Zip Code)
The registrant's telephone number including area code: (205) 883-1140
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of November 1, 1995, there were 6,343,569 shares of Nichols Research
Corporation Common Stock, $.01 par value outstanding. The aggregate market
value of the voting stock held by non-affiliates of the registrant was
approximately $116,045,000 based on the closing price of such stock as
reported by NASDAQ on November 1, 1995, assuming that all shares beneficially
held by officers and members of the registrant's Board of Directors are shares
owned by "affiliates," a status which each of the officers and directors
individually disclaims.
<PAGE>
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Portions of the Proxy Statement for the Part III
January 11, 1996 Annual Shareholders' Meeting
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
General
Nichols Research Corporation (the " Company") provides information and
technology services (I/T) through contracts with various agencies of the
United States Department of Defense (DoD), other federal agencies, state
governments and commercial customers. In its first year of operation, the
Company performed contracts for one DoD agency and subcontracts for six prime
defense contractors, all in the area of strategic defense. The Company
expanded its customer base and diversified and now offers the following
services to a variety of government and commercial customers:
- Sensor Systems and Technology
- Missile and Air Defense Systems and Technologies
- Space Surveillance and Avionics
- Army Tactical Systems and Technologies
- Intelligence Programs
- Computer System Integration
- Information Systems Support
- Information System Development
- Advanced I/T Applications
- Healthcare Information Services
- Commercial I/T Consulting
The Company operates 25 offices located near its customers throughout the
United States. In 1995, the Company performed services on over 225 contracts
with more than 50 different federal, state government, and commercial
customers. The Company was awarded contracts during the fiscal year ended
August 31, 1995, having a total value of approximately $174,049,000 including
options having a value of $65,522,000. A majority of the Company's contracts
are competitively bid and awarded on the basis of technical merit, personnel
qualifications, experience, and price. The Company also receives some
contract awards involving special technical capabilities on a negotiated,
noncompetitive basis due to the Company's unique technical capabilities in
special areas. For the year ended August 31, 1995, the Company's contract
revenues were approximately 48% from cost reimbursement contracts and 52% from
time-and-materials contracts and fixed price contracts. On August 31, 1995,
the Company had a backlog of $505,744,000 under existing contracts, including
options having a value of $217,767,000.
The Company has provided technical services related to the Strategic
Defense Initiative (SDI) since 1983 when the Strategic Defense Initiative
Organization (SDIO) was formed. In 1993, SDIO changed its name to the
Ballistic Missile Defense Organization (BMDO). BMDO's mission continues to be
Ballistic Missile Defense (BMD) with emphasis on Theater Missile Defense (TMD)
and National Missile Defense (NMD). The Company's contract revenues from BMD
programs were approximately $84,300,000 in 1993, $64,400,000 in 1994, and
$56,358,000 in 1995. Approximately 33% of the Company's revenues in 1995 were
from contracts related to BMD, compared to 44% of revenues in 1994 and 53%
of revenues in 1993 from such contracts. The decrease in revenues from BMD
related contracts is attributable to the Company's diversification efforts
and reductions in BMD related contract awards. Strategic defense has existed
for more than 26 years as a mission of DoD through activities such as the BMD
program. If a decision were made to substantially reduce the scope of
current BMD programs, or to eliminate the BMDO, management believes that many
national and theater missile defense programs, including some research and
<PAGE>
<PAGE>
development areas that existed prior to the creation of SDIO/BMDO, would
continue to be funded by the Army, Air Force, and other DoD agencies.
However, while the Company has diversified, a decision to reduce
significantly or eliminate BMD and TMD funding could have an adverse
affect on the Company's revenues and income.
The Company has achieved success in diversifying its business by expanding
its customer base for the Company's services. New customers include non-DOD
federal agencies, state and local governments, and commercial businesses.
Services provided to these customers include I/T, intelligence, healthcare
information systems, and commercial I/T products and consulting. With the
growth of the non-BMD business, the Company's revenues from non-BMD programs
increased from 21% of revenues in 1987 to 67% of revenues in 1995. For
the fiscal year ending August 31, 1996, the Company anticipates that
approximately 70% of its revenue from contracts will be related to non-BMD
programs.
The Company has been actively expanding its business in I/T to provide a
full range of services including the integration of high performance
supercomputers, development of turnkey information systems, transaction
processing, and computer facility management and operation. The expansion of
the Company's business activities into I/T has been a logical progression of
applying defense technical and systems engineering experience to solving the
I/T needs of other customers.
In fiscal year 1995, the Company enhanced its diversification effort in the
I/T market by acquiring Communications and Systems Specialists, Inc. (CSSi),
which provides I/T services primarily in the client/server area for
federal government clients, Conway Computer Group, Inc. (CCG), which
provides I/T products and services to commercial customers, and Computer
Services Corporation (CSC), which provides I/T products and services
to healthcare provider customers. The Company also acquired 19.9 percent of
the capital stock of TXEN, Inc. (TXEN) with an option to purchase the
remaining captial stock in 1998. TXEN provides I/T products and services to
the managed care industries. These four companies provide the domain
knowledge and client base to assist the Company in establishing itself as
an I/T services provider in commercial, healthcare, and government information
systems markets.
Sensor Systems and Technology
The cornerstone of the Company's traditional defense business is work
involving the development, integration, and support of strategic and tactical
sensor systems for defense applications. Sensor system capabilities cover all
program aspects from developing sensor and application requirements to
hardware development and testing. The Company has an experienced staff,
established techniques and disciplines for design and analysis of systems and
subsystems, and has developed automated tools which are necessary to the
development of sophisticated electronic systems.
The Company's 19 years of experience in this field cover the full spectrum
of activities associated with the development of sensor systems for ground,
space, and airborne applications. These capabilities have served as the
foundation for broader systems engineering applications for missile, air, and
other defense systems and programs.
Major customers include the U.S Army, U.S. Navy, U.S. Air Force, and joint
service organizations. The Company's experience includes research for
detecting targets in camouflaged locations and ice on aircraft wings and
<PAGE>
<PAGE>
control surfaces; development of models and simulations for cost-effective
design and evaluation before system production; planning for space and
atmospheric sensor testing; and operating a research facility for testing and
developing improved techniques for identification of targets.
Missile and Air Defense Systems and Technologies
Under current contracts with a total award value of over $225,000,000, the
Company provides systems engineering services to support the development of
major missile and air defense systems, including technologies for theater and
national missile defense. The Company performs work for BMDO, the U.S. Army,
U.S. Air Force, and the U.S. Navy. The Company directly supports the PATRIOT
management team for the PATRIOT Advanced Capability-3 (PAC-3) Hit-to-Kill
missile, an upgrade to the system that was tactically and strategically
successful during Desert Storm. The Company has developed a unique planning
and control strategy which is allowing the government to meet design goals
culminating in program preliminary design review, an essential first step
to building deployable PAC-3 improvements for the U.S. Army's tactical element
of TMD.
Space Surveillance and Avionics
The Company's expertise in optical sensor and geolocation technologies, and
its ability to develop sophisticated computer simulations to evaluate the
performance of candidate architectures, have resulted in successful programs
involving satellite and other space applications. The Company is involved in
establishing the architecture of future space surveillance and avionics
systems for the U.S. Air Force, the U.S. Navy, and other customers such as the
Australian Defense Force. Under an $83,000,000 contract, the Company is
providing cost effectiveness studies, developmental engineering, systems
engineering, and systems integration to assist the U.S. Air Force space
activities with both architecture and system design solutions.
Army Tactical Systems and Technologies
The Company is a major contributor to state-of-the-art Army tactical
systems and technologies providing technical support to Army project offices
and research and development centers. The Company provides tactical systems
services under active contracts valued at over $268,000,000 including awards
of $54,000,000 in 1995. The Company develops high-fidelity simulations for
Army weapon systems used for missile cost-effective concept definition,
design, and analysis. The Company also conducts lethality and vulnerability
studies of various weapons systems. The knowledge and capabilities gained
from creating and executing these simulations, along with computer network
integrations and high resolution scene generation skills, assisted the Company
in obtaining contracts which contribute to simulation programs known as
Distributive Interactive Simulation (DIS) and Virtual Prototype Simulation (VPS)
efforts. Simulations provide a significant cost benefit to the Army by saving
hardware, labor hours, and test range expenses. As the Army increasingly uses
simulations to improve weapons, the Company is involved in developing
applications using DIS and VPS to achieve cost savings.
Intelligence Programs
Under contracts having a value of over $85,000,000, the Company is
performing hardware systems evaluation and integration, hardware-in-the-loop
test and evaluation, and system signature analysis and prediction for ground
missile and air defense systems. Results of its work aid U.S. weapon system
developers in producing more effective products that give U.S. operational
<PAGE>
<PAGE>
forces greater combat leverage. Additionally, the Company is applying
advanced telecommunications I/T to help customers respond to rapid advances
in communications intelligence.
Computer System Integration
Building on its technical capabilities in the traditional defense business
areas, the Company has experienced success in the I/T market place in both
large-scale and small-scale computer systems integration. The Company provides
services in the major functional areas of high performance computing, enterprise
networking, and office automation including high-end supercomputer architec-
tures and applications; high-speed, highly available networking technologies;
advanced visualization systems; and on-line, high-integrity data storage and
archival systems. The Company is an integrator for many manufacturers and
suppliers of supercomputers, workstations, personal computers, and networking
equipment.
The Company also offers a wide range of training services utilizing
innovative techniques and tools such as computer-based training aids to
promote high productivity and efficient use of installed systems. These
training services include personal computer applications as well as advanced
supercomputing applications.
Information Systems Support
The Company provides operating and support services for existing
information systems and assists in the development of enhancements that allow
these existing systems to meet changing business requirements. Services provided
include workflow management training to improve the clients' abilities to use
their existing I/T capabilities, support of video conferences, and document
imaging to reduce paperwork.
The Company is currently using its I/T resources to perform a $35,000,000
contract, awarded in 1995 from the Centers for Disease Control and Prevention
and Agency for Toxic Substances and Disease Registry, to upgrade, maintain, and
manage its microcomputer local and wide area networks for its primary facility
in Atlanta, Georgia, offices in the 50 states, and a number of other locations
around the world.
Information Systems Development
The Company has a proven track record in the design, development, and
support of turnkey information systems, distributed client/server software
systems and real-time software applications. The Company's services in object-
oriented design offer customers component software solutions in a manner similar
to modular building design. Data warehousing services provided by the Company
offer customers easy and uniform access to data despite differences in
platforms, systems, applications, and database structures, while maintaining
data security.
In developing turnkey systems, the Company provides services from the
inception of each project through the delivery of the completed software
system. Once the system is delivered, the Company provides training and
support during the life of the system.
Advanced I/T Applications
Advanced I/T Applications range from large-scale simulation development and
custom software systems to prototype hardware systems and low-volume custom
<PAGE>
<PAGE>
production. The Company is responsible for the design, development, and
support of large-scale simulations and high-fidelity models in a variety of
computer languages and hardware platforms and has developed technologies for
user-friendly interfaces and advanced simulation applications. The Company
provides services in the areas of data compression, machine vision, neural
networks, artificial intelligence, and image processing and analysis. Other
capabilities include the development and utilization of custom workstations,
test instrumentation, and other specialized hardware systems.
Healthcare Information Services
The Company's experience in systems engineering and integration has
permitted the Company to address new business opportunities. Management
believes that the healthcare industry represents an emerging and growing market.
The Company's goal is to provide system integration and reengineering
services and products for an integrated healthcare delivery system. The
Company believes its experience in systems engineering, advanced information
technologies and complex systems integration projects, will provide a signifi-
cant market differential. The Company's first major contract in this new
business area valued at $3,500,000 was recently awarded by The Elysium
Corporation to provide an integrated healthcare delivery system. In this regard,
the Company has applied its I/T experience to provide cost-effective integrated
information systems and services for healthcare providers and managed care
delivery systems. The Company offers computer-aided claims adjudication for
worker's compensation claims, customized software development, and I/T consult-
ing services to the healthcare industries. The Company also offers a practice
management system that provides numerous financial and administrative services
to healthcare providers, on transaction basis.
The Company acquired 19.9 percent of the capital stock of TXEN with an
option to purchase the remaining capital stock in 1998. TXEN provides
information systems to managed care organizations and other healthcare
organizations. TXEN's system handles office management and automated claims
adjudication for physicians, hospitals, and carriers. It provides managed
care modules to assist physician organizations and managed care organizations
in pricing their services. TXEN primarily provides their services on a
transaction basis. The Company coordinates marketing activities with TXEN and
currently provides I/T services to TXEN.
Commercial I/T Consulting
As part of its diversification initiative, the Company has, through direct
contract awards and corporate acquisitions, successfully established an I/T
commercial consulting services business. The Company was awarded a contract
valued at approximately $20,000,000 from Federal Express Corporation (FedEx) to
provide interactive training workstations FedEx field offices nationwide and to
provide for training FedEx personnel to use Company designed software. The
Company also provides other commercial I/T consulting services in the following
areas:
- Networking
- System integration and imaging
- Application training
- Local area network engineering and support
- Turnkey design, development and implementation of user command
and software
- Reengineering studies
- Client server conversions and development
- Contract programming
<PAGE>
<PAGE>
The Company provides consulting services to the telecommunications,
insurance/healthcare, transportation and other commercial industries. The
Company has also entered into a joint venture to provide installation and
associated integration services for SAP software systems. The joint venture
was awarded a $1,000,000 contract to install the SAP software at the other
joint venturer's facility in Baton Rouge, Louisiana.
Customers
The Company performed services on over 225 active contracts with more than
50 different customers during 1995. The majority of the Company's revenues
are from contracts with DoD and other government agencies. For the fiscal
year ended August 31, 1995, approximately 34% of contract revenues were from
contracts with the Army Missile Command (MICOM), 19% of contract revenues were
from contracts with the U.S. Army Space and Strategic Defense Command (SSDC),
7% of contract revenues were from contracts with BMDO, 6% of contract revenues
were from contracts with the United States Air Force (USAF) Space and Missile
Systems Center (SMC), and 5% of contract revenues were from contracts with
FedEx. No other customer accounted for more than 5% of the Company's revenues
from contracts.
U.S. Army. The U.S. Army has been a major customer since the Company's
inception. During 1995, support to the Army involved 10 organizations at 7
different locations.
Under several contracts to MICOM, technical services are provided to the
Research and Development Center, MICOM support directorates, the Program
Executive Officer for Tactical Missiles on such missile systems as ATACMS,
MLRS, E-FOG, STINGER, JAVELIN, BAT, ATEM, TOW, AVENGER, BFV, RFPI and
CHAPARRAL.
The Company is supporting the U.S. Army's Aviation and Troop Command in St.
Louis, Missouri through the Program Executive Office - Aviation. The main
services include providing system engineering analysis, assessment of the
Target Acquisition Designation Sight and the Pilot Night Vision Sensor for the
Apache helicopter, analytical integration of the advance aircraft
survivability equipment, and engineering analysis and concurrent engineering
for the aviation life support equipment.
SSDC, located in Huntsville, Alabama, is the Company's longest continuous
customer and remains a major customer. The Company serves a variety of
project and technology directorates of SSDC.
The Company provides support to the Program Executive Office-Missile
Defense and major weapons systems development programs including Theater High-
Altitude Air Defense (THAAD), Patriot, PAC-3, NMD, Corps Sam, and Army Enclave
Integration and Interoperability. It also is instrumental in development of
major system and subsystem simulations and test beds for sensor, air defense,
theater missile defense, and strategic programs.
The Company provides support to the U.S. Army Simulation, Training and
Instrumentation Command (STRICOM) in the development of threat simulators to
be used for testing and training programs.
For the Corps of Engineers' Waterways Experiment Station, the Company is
supporting the development of Camouflage, Concealment & Decoy (Deception)
and Charge-Coupled Device (CCD) technologies for U.S. Army fixed facilities.
<PAGE>
<PAGE>
U.S. Air Force. The Company has a broad relationship with the U.S. Air
Force, principally through the Air Force's acquisition centers and
laboratories and through Air Force Space Command. In 1995, the Company
supported 9 organizations at many different locations. The Company provided
engineering services to a number of programs of the Space and Missile Systems
Center in Los Angeles, California. Many of these services were for the Space
and Missile Tracking System, a space-based surveillance system. For Wright
Laboratory at Wright-Patterson Air Force Base, Ohio the Company designs
algorithms for infrared surface-to-air threat warning and evaluates new
materials and their suitability for military space structures and re-entry
vehicles. The Company has done technology assessment and mission
effectiveness analysis for the Deputy for Developmental Planning at the
Aeronautical Systems Center. The Company provides software quality assurance
services to the Air Force Operational Test and Evaluation Center at Kirtland
Air Force Base, New Mexico. The Company also supports Phillips Laboratory in
Albuquerque, New Mexico, by assessing infrared focal plane array and cryogenic
technologies for space applications; performing data reduction for sensors
aboard test aircraft; assessing the space qualification of microelectronics;
and developing technology for space structures and spaceborne radar.
The Company has contracts with the Wright Laboratory's Armament Directorate
at Eglin Air Force Base, Florida, to develop, maintain, and distribute the Air
Force Standard Tactical Air-to-Surface Signature Prediction Code, develop real-
time non-proprietary algorithms for insertion into solid state ladar seekers,
develop an algorithm rapid prototyping tool, upgrade standard air-to-air engage-
ment routines to include near-field electromagnetic wave propagation effects,
and develop sensor modeling tools. The Company also supports the Aeronatical
Systems Division at Eglin Air Force Base in the development and maintenance
of the base-wide software inventory database, and the development of a
simulation approach for target drones employing Inertial Navigaition System/
Global Position System (INS/GPS) guidance.
For Air Force Space Command at Peterson Air Force Base, Colorado the Company
develops software tools that are used by the Air Force for satellite tracking
through the North American Air Defense (NORAD) Cheyenne Mountain Complex.
At Falcon Air Force Base, the Company develops command decision aid software
for the ALERT missile warning system within the Space Warfare Center.
The Company performs research and development for Rome Laboratory elements
located at Griffiss Air Force Base, New York and at Hanscom Air Force Base,
Massachusetts. The Company is developing algorithms for ionospheric clutter
characterization and for tracking high frequency radar targets in clutter;
developing a simulation for analysis of the battle damage assessment command
and control process; and developing new and innovative modeling and simulation
techniques.
Ballistic Missile Defense Organization (BMDO). As the prime contractor for
the Sensor/Mid-Course Space Experiment (MSX) System Engineering and Technical
Assistance Program, the Company provides support and research in technology
development and experiments for the Advanced Sensor Technology (ASTP), the
Discriminating Interceptor Technology (DITP), and the MSX Programs. Technical
services are provided to perform research in the areas of passive sensors,
laser radars, interactive discrimination, microwave radars, and advanced
processors for signal processing. In addition, a wide variety of ground-
based, atmospheric, and space-based experiments are designed and supported.
Under a subcontract for the BMDO Technology Readiness and Strategic
Relations Program, the Company provides system engineering and technical
assistance for the development and integration of BMD systems, including
<PAGE>
<PAGE>
program planning, NMD readiness, and battle management/command, control and
communications (BMC3). This effort includes support for strategic planning
activities, mission analyses to assess United States and allied BMD mission
perspectives and concepts, cost and operational effectiveness analysis (COEA)
development for missile defense programs, threat assessment and system threat
mitigation; support to various BMD programs, including sensor tracking
concepts and mission analysis; interceptor systems analysis; test and
evaluation assessment; and, software engineering and maintenance.
Under a subcontract for countermeasures analysis and integration, the
Company provides BMDO with an objective resource to evaluate potential
countermeasures to tactical and strategic defense systems, both current and
planned. This support has included infrared and radar signature generation;
countermeasure suite design; system-level analysis of third-world
intercontinental ballistic missile design and capabilities; tactical defensive
system effectiveness analysis; high fidelity analysis support; and radar
effectiveness analysis.
U.S. Navy. Since 1988, the Company has been expanding its business with
the U.S. Navy. The Company supports 8 different Navy organizations. The
Company's largest contract with the Navy, with a value of approximately
$13,000,000 over a period of 5 years, is to provide engineering services at
the Naval Air Warfare Center, Point Mugu, California. Under this contract, the
Company has developed and demonstrated a ground based prototype no-drop
Walleye missile training simulation which has been flown interactively with an
F-18 aircraft flying over the training range at Fallon, Nevada. The Company
also supports the Naval Aviation Depot at Cherry Point, North Carolina in
designing, developing and producing ground support equipment for the Cobra
helicopter's Night Targeting System and in the development and production of
support equipment for foreign military sales.
In 1995, the Company was awarded a contact having a value of approximately
$10,000,000 from the Naval Command, Control and Ocean Surveillance Center for
continued support to the Innovative Sciences Technical Experimentation
Facility within the Cape Canaveral, Florida, launch complex. Support services
under this contract include operations, maintenance, experiment planning and
conduct, data collection, and site upgrades and expansion.
For the Navy Coastal Systems Station in Panama City, Florida, the Company
is performing independent algorithm scoring and data analysis for the
Cobra helicopter multi-spectral mine detection system, analyzing sensor concepts
for Navy Special Warfare surveillance applications, and developing a gated-laser
signature prediction model and database for the purpose of assessing the
applicability of such a device for battlefield obscurant penetration.
National Aeronautics and Space Administration (NASA). The Company's
business with NASA includes contracts to support Space Shuttle, Earth
Observation System and Advanced Xray Astrophysics Facility (AXAF) programs.
The Company provides NASA with weld control system technology which
complements NASA's work in automated welding.
Also at Marshall Space Flight Center (MSFC), Huntsville, Alabama, the
Company is providing engineering support for future space technology by
providing the Earth Sciences Applications Division (ESAD) with the scientific
information tools needed to perform research to characterize earth systems,
their interactions with each other, and man's impact upon those systems.
<PAGE>
<PAGE>
The Company also supports NASA's AXAF Off Line Software Program through
systems engineering and software development and serves as facility manager
for the Global Hydrology and Climate Center (GHCC).
State Governments. The Company's business with state governments includes
contracts to provide both computer system integration and information systems.
The Company has been providing I/T services to the State of Alabama since
1990. The Company is currently the Systems Integration and Facilities
Management contractor for the Alabama Supercomputer Authority. In this role,
the Company operates and manages the George S. Wallace Supercomputer Center in
Huntsville, Alabama, and provides wide area networking services throughout the
state as the principal provider of Internet access to Alabama's universities,
colleges, and state government agencies.
Since 1993, the Company has been awarded three contracts with the State of
Florida to perform information system support, business process re-engineering
services, and software development.
For the State of Mississippi, The Company has several projects under way
for the Department of Mental Health. The Company has performed requirements
studies for the Intermediate Care Facilities for the Mentally Retarded
(ICF/MR) and the State Hospitals. As part of those studies, The Company
developed a request for proposal document for client/server software and also
assisted in evaluation of proposals received by the state. The Company will
continue to assist with the implementation of those software systems through
1996 and will provide the design of the wide area network to support the
packages.
Commercial Consulting. In 1995 the Company was awarded a $20,000,000
contract by FedEx for I/T services and for which it received the FedEx
Information and Telecommunications Contracting Supplier of the Year award for
1995. Under this contract, the Company provided an integrated UNIX multimedia
training solution for FedEx the domestic stations and delivered over 1,000
computer workstations. Additionally, the Company developed a graphical user
interface and network protocol software.
The Company's subsidiary, CCG, performs a variety of computer consulting
services for a diverse customer base, with specialties in the
telecommunications, insurance/healthcare, transportation, and manufacturing
industries. Other clients include banking/financial, education, government,
distribution, engineering and entertainment firms. CCG's software development
division designed and developed proprietary software products which are used
to handle claims administration and premium accounting for worker's
compensation and other lines of property/casualty insurance. These packages
are marketed and supported on a national basis.
Healthcare Information Services. The Company's subsidiary, CSC, is a
regional provider of practice management services and systems to physician
practices and clinical provider organizations. CSC's products and services
include a transaction-based medical practice management network, a stand alone
UNIX-based medical practice management system, and, a complete billing and
accounts receivable management service. Currently, CSC provides practice
management solutions to providers in substantially all major specialties and
in practices that range in size from one to more than 200 physicians.
<PAGE>
<PAGE>
Competition
The Company has substantial competition in all of its business areas. Some
of its competitors are large, diversified firms having significantly greater
financial resources than the Company. Competition in the Company's business
areas is influenced by technical capability, performance, and price.
Management believes that its ability to recruit and retain highly skilled and
technically competent personnel has been a substantial factor in development
of the Company's business and its ability to win contracts in a competitive
environment.
Marketing
The Company's marketing activities are directed by its Corporate
Development organization who coordinates the marketing activities of program
development managers assigned to Company units. The program development staff as
well as other Company managers, engineers, and scientists attend new business
briefings sponsored by government agencies, review business publications and
learn of new business opportunities through customer contacts. Potential new
procurements are analyzed and evaluated within the unit of the Company that
would be principally responsible for performance of the contract. The
decision to submit a bid or proposal is made by the responsible unit Vice
Presidents in coordination with the Corporate Development staff.
Government Contracts
A substantial portion of the Company's revenues are derived from contracts
and subcontracts with the DoD and other federal government agencies. Future
revenues and income of the Company could be materially affected by changes in
procurement policies, a reduction in expenditures for the services provided by
the Company, and other risks generally associated with federal government
contracts.
The Company performs its services under federal government contracts that
usually require performance over a period of one to five years. Long-term con-
tracts may be conditioned upon continued availability of Congressional appro-
priations. Variances between anticipated budgets and Congressional appropria-
tions may result in delay, reduction or termination of such contracts. Contrac-
tors often experience revenue uncertainties with respect to available contract
funding during the first quarter of the government's fiscal year beginning
October 1, until differences between budget requests and appropriations are
resolved.
The Company's federal government contracts are performed under cost
reimbursement contracts, time-and-materials contracts and fixed price
contracts. Cost reimbursement contracts provide for reimbursement of costs
(to the extent allowable under Federal Acquisition Regulations) and for
payment of a fee. The fee may be either fixed by the contract (cost-plus-
fixed fee) or variable, based upon cost, quality, delivery, and the customer's
subjective evaluation of the work (cost-plus-award fee). Under time-and-
materials contracts, the Company receives a fixed amount by labor category for
services performed and is reimbursed (without fee) for the cost of materials
purchased to perform the contract. Under a fixed price contract, the Company
agrees to perform certain work for a fixed price and, accordingly, realizes
the benefit or detriment to the extent that the actual cost of performing the
work differs from the contract cost. Contract revenues for the year ended
August 31, 1995, were approximately 48% from cost reimbursement contracts and
approximately 52% from time-and-materials contracts and fixed price contracts.
<PAGE>
<PAGE>
The Company's allowable contract costs and fees are subject to audit by the
Defense Contract Audit Agency (DCAA). Audits may result in non-reimbursement
of some contract costs and fees. To date, the Company has experienced no
material adjustments as a result of audits by the DCAA. The DCAA has not
completed audits of the Company's contracts for fiscal years 1993, 1994 and
1995.
The Company's contracts may be terminated, in whole or in part, at the
convenience of the government. If a termination for convenience occurs, the
government generally is obligated to pay the cost incurred by the Company
under the contract plus a pro rata fee based upon the work completed. When
the Company participates as a subcontractor, the Company is at risk if the
prime contractor does not perform its contract. Similarly, when the Company
as a prime contractor employs subcontractors, the Company is at risk if a
subcontractor does not perform its subcontract.
Some of the Company's contracts contain options which are exercisable at
the discretion of the customer. An option may extend the period of
performance, for one or two years, for additional consideration on terms and
conditions similar to those contained in the original contract. An option may
also increase the level of effort and assign new tasks to the Company. In the
Company's experience, options are usually exercised.
The Company's eligibility to perform under its government contracts requires
the Company to maintain adequate security measures. The Company believes its
security procedures satisfy the requirements of its contracts.
Backlog
The Company had a backlog of $505,744,000, including options of
$217,767,000, at August 31, 1995, compared to a backlog of $520,133,000,
including options of $238,269,000, at August 31, 1994. Management believes
that approximately 30% of the Company's backlog at August 31, 1995, will
result in revenues from contracts for the year ending August 31, 1996, compared
to the year ended August 31, 1995, when approximately 32% of the Company's
backlog at August 31, 1994 resulted in revenues from contracts.
The backlog amounts as presented are comprised of funded and unfunded
components. Funded backlog represents the sum of appropriated funds
specifically obligated by customers to contracts. Unfunded backlog represents
future contract amounts that customers may obligate over the specified
contract performance periods. The Company's customers provide funds or budget
for expenditures on long-term contracts on a periodic basis. The Company is
committed to provide services under its contracts to the extent funds are
provided. The funded components of the Company's backlog on August 31, 1995
and 1994, were $55,988,000 and $48,618,000, respectively. The unfunded
components of the Company's backlog on August 31, 1995 and 1994, were
$449,755,000 and $471,515,000, respectively. The ability of the Company
to realize revenues from contracts in backlog is dependent upon adequate
funding for such contracts. Although funding of its contracts is not within
the Company's control, historically, fundings on its contracts have
approximated contract award values.
Patents and Trademarks
The Company does not own any patents. Management believes that the
Company's success depends on the innovative skills and technical competence of
its personnel rather than on the ownership of patents or trademarks.
<PAGE>
<PAGE>
Technology developed by the Company under its federal contracts is owned by
the U.S. Government.
Employees
As of August 31, 1995, the Company had 1,336 employees. Of the Company's
professional employees, 97% hold undergraduate degrees and 43% hold advanced
degrees. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relationship with its employees to be
good.
ITEM 2. PROPERTIES
The Company currently leases approximately 195,000 square feet of office
space in Huntsville, Alabama, and approximately 144,000 square feet of office
space in 23 other locations throughout the United States. The Company's
leases expire at varying periods from 1996 to 2005, and currently call for
annual lease payments of approximately $2,724,000. Certain of the lessors
under such leases may be deemed to be affiliates of the Company.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION SINCE
- ---- ---- -------- -------
<S> <C> <C> <C>
Chris H. Horgen 49 Chief Executive Officer and Chairman 1976
Michael J. Mruz 50 President and Chief Operating Officer 1994
Roy J. Nichols 57 Senior Vice President, Chief Technical Officer, 1976
and Vice Chairman
Patsy L. Hattox 46 Corporate Vice President, Chief Administrative 1980
Officer, Secretary and Director
Allen E. Dillard 35 Chief Financial Officer and Treasurer 1994
James W. Apple 67 Vice President 1986
Billy G. Barnes 61 Corporate Vice President 1986
Jerry T. Bosley 52 Corporate Vice President 1988
John A. Conway, Jr. 51 President of CCG and Corporate Vice President 1995
J. Daniel Jones 47 Corporate Vice President 1985
Earl Madden 63 Chief Procurment Officer 1994
Darrell B. McIndoe 42 President of CSSi and Corporate Vice President 1994
Donald Y. Menendez 39 President of CSC and Corporate Vice President 1995
James C. Moule 59 Corporate Vice President 1988
Glenn Priddy 52 Corporate Vice President 1990
Louis B. Rau 46 President of Nichols Research Corporation Technical
Services Corporation and Corporate Vice President 1992
William H. Schoendorf 59 Corporate Vice President 1984
Michael W. Solley 37 Corporate Vice President 1992
David M. Wilcox 49 Corporate Vice President 1986
Thomas M. Zakrewski 51 Vice President 1984
</TABLE>
Chris H. Horgen is a co-founder of the Company, Chairman of the Board,
and Chief Executive Officer. Mr. Horgen has previously served as Co-
Chairman of the Board and Executive Vice President. From 1975 to 1976, Mr.
Horgen was Branch Chief of Optical Analysis at McDonnell Douglas
Astronautics Company, an aerospace and defense contractor. From 1972 to
1975, he was a Project Manager for Optical Programs for the U.S. Army, and
from 1969 to 1972, he was an officer in the U.S. Air Force. He holds
bachelor's and master's degrees in Aerospace Engineering from Iowa State
University and a master's degree in System Management from the University
of Southern California.
Michael J. Mruz became President of the Company on August 16, 1994,
and its Chief Operating Officer and a director on September 1, 1994. From
1989 to 1994, Mr. Mruz served as Executive Vice President, Chief Financial
and Administrative Officer, and a member of the Board of Directors of BDM
International, Inc., a defense contractor. While at BDM, Mr. Mruz held the
positions of Corporate Vice President from 1988 to 1989, Vice
President/General Manager of BDM's Huntsville Technology Center from 1983
to 1988, Vice President, Systems Design and Analysis from 1979 to 1983, and
various management and technical positions from 1974 to 1979. Mr. Mruz
served in the U.S. Air Force from 1968 through 1974 in research and
development assignments involving state-of-the-art communications systems.
Mr. Mruz holds a bachelor's degree in Mathematics from Villanova
University, and a master's degree in Systems Analysis from the Air Force
Institute of Technology.
<PAGE>
<PAGE>
Roy J. Nichols is a co-founder of the Company, Vice Chairman of the
Board, Senior Vice President and Chief Technical Officer. Mr. Nichols has
previously served as Co-Chairman of the Board. From 1969 to 1976, Mr.
Nichols was Chief Engineer at McDonnell Douglas Astronautics Company and
from 1958 to 1969, he was Program Manager for the University of Michigan's
Willow Run Laboratories. Mr. Nichols holds bachelor's and master's degrees
in Aeronautical and Astronautical Engineering from the University of
Michigan.
Patsy L. Hattox joined the Company in 1977 as an Administrative
Assistant. Since 1980, she has served as a Director and Corporate
Secretary. From 1985 to 1988, she held the position of Division Director
for Administration. Ms. Hattox was promoted to Vice President of
Administration and Investor Relations in 1988, and to Chief Administrative
Officer in 1991. Ms. Hattox holds a bachelor's degree in Business
Administration from Athens State College.
Allen E. Dillard joined the Company in 1992 as Staff Manager of
Finance and Accounting. He became Chief Financial Officer and Corporate
Treasurer in 1994. From 1983 to 1992, Mr. Dillard was employed with Ernst &
Young, LLP, where he served as Senior Manager from 1991 to 1992, as Manager
from 1988 to 1991, and as Staff Accountant from 1983 to 1988. Mr. Dillard
is a certified public accountant and holds a bachelor's degree in Accounting
from the University of Alabama at Birmingham.
James W. Apple joined the Company in 1986 as Vice President for
Corporate Development. From 1955 to 1986, he was employed by McDonnell
Douglas Astronautics Company, an aerospace and defense contractor. From
January 1986 to August 1986, he served as Director of Program Development,
International and U.S. Field Office Operations, from 1984 to 1986, he
served as Director of Program Development for the Southeastern Region and
from 1982 to 1984, he served as Director of Program Development of
Ballistic Missile Defense. He holds a bachelor's degree in Business
Administration from Lees McRae College.
Billy G. Barnes joined the Company in 1986 as a Division Director and
was later promoted to Group Vice President for Threat and Discrimination.
From 1958 to 1986, he was employed by Teledyne Brown Engineering, a defense
contractor, where he served as Director of System Development for the
Strategic Systems Division from 1983 to 1986 and Program Manager from 1980
to 1983. Mr. Barnes holds a bachelor's degree in Electrical Engineering
from Auburn University.
Jerry T. Bosley, who has over 28 years of experience in tactical
missile system and simulation technologies, joined the Company in 1986 and
was promoted to Vice President as Deputy for Tactical Systems in 1988. He
holds bachelor of science degrees in Mechanical Engineering from the
University of Alabama in Huntsville and Mathematics and Physics from
Western Kentucky University, and a masters degree in Mathematics from the
University of Kentucky. Mr. Bosley is currently responsible for the
Company's Army Tactical Systems and Technologies business base.
John A. Conway, Jr. is President of Conway Computer Group, Inc. (CCG),
a wholly owned subsidiary of the Company. Mr. Conway has served as President
of CCG and its predecessor since 1978. Mr. Conway holds a bachelor's
degree in Civil Engineering from Mississippi State University and has 27
years experience in information/technology businesses.
<PAGE>
<PAGE>
J. Daniel Jones joined the Company in 1981 as manager of the Sensors
Directorate. Dr. Jones was promoted to Vice President of the Systems Group
in 1985. From 1980 to 1981, Dr. Jones was Director of the Sensor Systems
Department at General Research Corporation, a defense contractor. He holds
a bachelor's degree in Physics from North Georgia College and master's and
doctorate degrees in Physics from the University of Missouri-Rolla.
Earl Madden joined the Company in 1983 as a Manger of Contract
Administration after twenty four years experience with the U.S. Government
in the contracts and logistics field. He became Chief Pronouncement
Officer in 1994. Mr. Madden has a masters degree in Contract Management
from Florida Institute of Technology.
D. Bruce McIndoe is President of Communications and Systems
Specialists, Inc. (CSSi), a wholly owned subsidiary of the Company. Mr.
McIndoe has served as President of CSSi since 1983. Mr. McIndoe holds a
bachleor's degree in Physics from Allegheny College, as well as a master's
degree in Computer Science from John Hopkins University.
Donald Y. Menendez currently serves as President and Chief Operating
Officer of Computer Services Corporation (CSC), a wholly owned subsidiary
of the Company. Mr. Menendez joined CSC in 1989 as its Executive Vice
President and was named President and Chief Operations Officer in January
1994. Mr. Menendez graduated from Vanderbilt University.
James C. Moule joined the Company in 1988 as Vice President of the
Southwest Region. From 1987 to 1988, he was employed by McDonnell Douglas
Astronautics Company as a Program Director. Prior to joining McDonnell
Douglas, Mr. Moule was employed by the Northrop Corporation where he served
as Program manager from 1981 to 1982; Vice President, Engineering from 1982
to 1984; and Director of Advanced Programs from 1985 to 1987. Mr. Moule
holds a bachelor's degree in Physics from the University of California in
Los Angeles.
Glenn Priddy joined the Company in 1990 as Division Vice President for
Special Programs. In 1992, he was promoted to Group Vice President for
Special Programs. From 1985 to 1990, he was Director at the U.S. Army
Missile and Space Intelligence Center in Huntsville, Alabama. Dr. Priddy
holds a bachelor's degree in Electrical Engineering from the University of
Alabama in Huntsville, a master's degree in Management from Alabama A & M
University and a Doctor of Management degree from Southeastern Institute of
Technology.
Louis B. Rau joined the Company in May of 1992 as Vice President of
Information Systems. In 1995, he was promoted to Corporate Vice President
for Information Systems Support and is the President of NRC Technical
Services Corporation (NRCTSC), a wholly owned subsidiary of the Company.
From 1983 to 1992, Mr. Rau was the Senior Vice President and Manager of US
Operations for COLSA Corporation. Mr. Rau holds a bachelor's degree in
Industrial and Systems Engineering from the Georgia Institute of Technology,
an MSBA in Business from Boston University, and a MSE in Systems Engineering
from the University of Alabama in Huntsville.
William H. Schoendorf joined the Company in 1984 as Vice President.
From 1970 to 1984, Dr. Schoendorf was employed by Lincoln Laboratory, a
research laboratory of the Massachusetts Institute of Technology, where he
served as a Group Leader in discrimination activities from 1982 to 1984 and
as Associate Group Leader in discrimination activities from 1981 to 1982.
He holds a bachelor's degree in Electrical Engineering from Massachusetts
<PAGE>
<PAGE>
Institute of Technology, a master's degree in Electrical Engineering from
the University of Pennsylvania, and a doctorate degree in Electrical
Engineering from Purdue University.
Michael W. Solley joined the Company in 1983 and has managed several
large contracts in the computer systems integration business. He was
promoted to Vice President in 1992 and is currently responsible for
Computer Systems Integration business activities. Mr. Solley holds a
bachelor's degree in Electrical Engineering from the University of Alabama
in Huntsville.
David M. Wilcox joined the Company in 1977 in a technical position as
an Optical Scientist. Dr. Wilcox was promoted to Vice President of the
Advanced Processing Group in 1986. He holds bachelor's, master's and
doctorate degrees in Physics from the University of Missouri-Rolla.
Thomas M. Zakrewski joined the Company in 1983 as Director of
Washington Operations and was promoted to Vice President of the Mid-
Atlantic Region in 1984. From 1980 to 1983, he held the position of
Director, Eastern Operations, Technology Applications Group at Flow
General, Inc./General Research Corporation, a defense contractor. Mr.
Zakrzewski holds a bachelor's degree in Chemistry from the University of
Michigan.
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Dividend Policy
The Company has never declared or paid cash dividends on its common stock.
The Company presently intends to retain its earnings for use in its
business and, therefore, does not anticipate paying any cash dividends.
Future cash dividends, if any, will be determined by the Board of Directors
in light of the Company's earnings, financial condition, capital
requirements and such other factors as the Board may deem relevant.
Market and Stockholder Information
The Company's common stock is traded on the NASDAQ National Market System
under the symbol NRES. As of August 31, 1995, there were 6,254,850 shares
of common stock outstanding, held by 652 shareholders of record, with the
total number of shareholders estimated to be 2,800. The following table
sets forth, for the periods indicated, the high and low closing sale prices
of the Company's common stock as reported on the NASDAQ National Market
System.
1994 1995
High Low High Low
First Quarter 13 3/4 12 1/8 12 1/2 10 3/4
Second Quarter 16 1/4 12 3/4 14 3/4 12
Third Quarter 14 1/2 10 3/4 15 1/2 14
Fourth Quarter 12 9 1/4 19 1/2 15 3/4
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE-YEAR FINANCIAL SUMMARY
1991 1992 1993 1994 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $90,932,000 $117,205,000 $159,112,000 $143,153,000 $170,331,000
-------------------------------------------------------------------------
Net Income $ 4,657,000 $ 5,906,000 $ 7,049,000 $ 6,506,000 $ 7,202,000
-------------------------------------------------------------------------
Net Income Per
Common Share $0.90 $0.98 $1.13 $1.05 $1.15
-------------------------------------------------------------------------
Stockholders'
Equity $36,949,000 $ 43,937,000 $ 52,700,000 $ 57,308,000 $ 67,848,000
-------------------------------------------------------------------------
Long-term Debt - - - $ 4,328,000 $ 5,366,000
-------------------------------------------------------------------------
Total Assets $48,048,000 $ 62,180,000 $ 71,990,000 $ 80,761,000 $100,879,000
</TABLE>
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATION
General
The Company provides information systems and technology services to agencies
of the Department of Defense, non-defense federal agencies, state
governments and commercial entities. The major portion of the Company's
revenues result from services performed under U.S. government contracts,
either directly or through subcontracts. The Company performs its services
under a variety of cost reimbursement and fixed price contract types. The
percent of total revenue from fixed price contracts is increasing both
because of a move by the government to more fixed price contracts and the
entry into commercial markets where fixed price contracts are more common.
The Company's fixed price type contracts generally have shorter terms than
cost reimbursement type contracts. The Company's business is directly
related to its ability to obtain new contract awards, the funding levels of
awarded contracts and the Company's contract performance.
The following tables set forth, for the periods indicated, the percentages
which certain items in the consolidated statements of income bear to
consolidated revenues and the percentage change of such items for the
periods indicated:
Percentage of Revenues Percentage Increase
Years ended August 31, (Decrease)
1993- 1994-
1993 1994 1995 1994 1995
------------------------------------------
Revenues 100.0% 100.0% 100.0% (10.0)% 19.0%
Costs and expenses:
Direct and allocable costs 87.1 86.8 86.6 (10.3) 18.8
General and administrative expenses 6.4 6.6 7.6 (7.0) 36.1
----------------------
Total costs and expenses 93.5 93.4 94.2 (10.1) 20.1
----------------------
Operating profit 6.5 6.6 5.8 (8.8) 3.9
Other income (expense), net .5 .6 .8 9.8 62.3
----------------------
Income before taxes 7.0 7.2 6.6 (7.4) 9.1
Income taxes 2.6 2.7 2.4 (7.0) 6.4
----------------------
Net income 4.4 4.5 4.2 (7.7) 10.7
======================
The following table summarizes the percentage of revenue by contract type
for the periods indicated:
Years ended August 31,
1993 1994 1995
------------------------
Cost reimbursement 60% 56% 48%
Fixed price 40% 44% 52%
------------------------
Total 100% 100% 100%
========================
<PAGE>
<PAGE>
The table below presents contract award and backlog data for the periods
indicated:
Years ended August 31,
1993 1994 1995
-----------------------------------------
Contract award value $218,497,000 $182,747,000 $174,049,000
Backlog (with options) $501,491,000 $520,133,000 $505,744,000
Backlog (without options) $260,313,000 $260,312,000 $287,977,000
Backlog percentage by contract type:
Cost reimbursement 72% 73% 64%
Fixed price 28% 27% 36%
1995 Compared with 1994
Revenues. Revenues increased $27,178,000 (19%) in 1995. The increase was due
to increases in funding for existing tactical and theater missile programs,
two large contract awards for information technology services and the
revenues contributed by three acquisitions during 1995.
Operating Profit. Operating profit increased $371,000 (4%) in 1995. Direct
and allocable costs were consistent as a percentage of revenues. General and
administrative expenses increased $3,425,000 (36%) in 1995. This increase
reflects the Company's aggressive bid and proposal activities for U.S.
government information systems and technology contracts and the significant
emphasis on marketing the Company's information technology services to
healthcare and commercial entities. As a result, the operating profit margin
decreased to 5.8% from 6.6% in 1994.
Other Income (Expense). Other income increased $685,000 in 1995 due
primarily to increased rates of return on the Company's invested cash
balances. Substantially all of the Company's available cash is invested in
short-term or variable interest bearing accounts. The Company recorded
$114,000 in interest expense related to industrial development borrowings in
1995. As discussed below, significant increases in computer hardware
integration contracts or additional strategic acquisitions could reduce cash
balances available for investment and reduce investment income and/or
require the Company to incur additional borrowings with a resulting increase
in interest expense.
Income Taxes. Income taxes as a percentage of income before taxes was 36.4%
in 1995 as compared to 37.3% in 1994. The decrease in the effective tax rate
was due to a decrease in state income taxes.
1994 Compared with 1993
Revenues. Revenues decreased $15,959,000 (10%) in 1994. Revenues in 1993
included a significant nonrecurring computer hardware integration contract
of approximately $15,000,000. Revenues in 1994 were also impacted by
decreases in funding on the Company's Department of Defense contracts and an
increasingly competitive business environment.
Operating Profit. Operating profit decreased $915,000 in 1994 (9%). This
decrease was due to the decrease in revenues in 1994 as direct and allocable
costs and general and administrative expenses as a percentage of revenues
were approximately the same as in 1993. The operating profit margin was 6.6%
compared to 6.5% in 1993.
<PAGE>
<PAGE>
Other Income (Expense). Other income increased $82,000 in 1994 due primarily
to an increase in cash balances available for investment. Substantially all
of the Company's available cash is invested in short-term or variable
interest bearing accounts.
Income Taxes. Income taxes as a percentage of income before taxes was 37.3%
in 1994 as compared to 37.1% in 1993.
Liquidity and Capital Resources
Cash provided by operations was $5,992,000, $7,510,000 and $6,832,000 for
the years ended August 31, 1993, 1994 and 1995, respectively, and is the
Company's primary source of liquidity. The Company realized proceeds from
the sale of common stock and reissue of treasury stock of $1,714,000,
$1,852,000 and $2,252,000 for the years ended August 31, 1993, 1994 and
1995, respectively. Working capital was $46,874,000, $44,092,000 and
$46,773,000 at August 31, 1993, 1994 and 1995, respectively.
The Company has a bank line of credit of $73,500,000 which expires in March
1997, unless renewed. The credit agreement provides for interest at the
London Interbank Offered Rate (LIBOR) plus 1.25% and a commitment fee on the
unused portion of the line of credit. Outstanding borrowings are secured
primarily by accounts receivable; however, there have been no borrowings
under this agreement. In 1995, the Company borrowed $2,225,000 under an
Alabama State Industrial Development Bond program offering certain
incentives which effectively reduce the cost of borrowing. The proceeds are
being utilized to expand acquistions of property and equipment for
information technology programs. In 1994, the Company borrowed $5,771,000
under a term loan agreement. The proceeds were used to purchase computer
hardware for lease to a customer over a period of 6 years under a system
integration contract.
Purchases of property and equipment (including those financed under the term
loan agreement) were $1,704,000, $7,301,000 and $2,213,000 for the years
ended August 31, 1993, 1994 and 1995, respectively.
In 1995, the Company acquired a 100% interest in three separate information
system development and technology companies. The companies provide services
primarily to commercial and healthcare clients. The aggregate cash
consideration for these transactions was approximately $11,350,000. In 1995,
the Company also acquired a 19.9% interest in a managed care information
services company for approximately $1,500,000, with an option to purchase
the remaining interests in 1998.
The Company is actively pursuing new contracts for information system
development and computer system integration activities which could require
the Company to acquire substantial amounts of computer hardware for resale
or lease to customers. The Company will also take advantage of opportunities
to make strategic acquisitions, should they arise.
The Company believes that its existing capital resources, together with
available borrowing capacity are sufficient to fund operating needs, expand
information system development and computer system integration activities,
purchase property and equipment and make strategic acquisitions, if
appropriate.
<PAGE>
<PAGE>
Effects of Inflation
Substantially all contracts awarded to the Company have been based on
proposals which reflect estimated cost increases due to inflation. Inflation
has not had a significant impact on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
August 31,
1993 1994 1995
(ammounts in thousands except
share data)
------------------------------
[S] [C] [C]
ASSETS
Current assets:
Cash and temporary cash investments (Note 1) $22,616 $19,355 $ 17,196
Accounts receivable (Note 2) 40,785 39,260 53,103
Deferred income taxes (Note 1 and 4) 1,460 1,283 1,351
Other 825 2,010 1,593
------------------------------
Total current assets 65,686 62,268 73,243
Long-term investments (Note 1 and 3) 1,000 7,894 4,530
Property and equipment (Note 1):
Computers and related equipment 8,397 9,742 11,973
Furniture, equipment and improvements 3,838 3,919 5,149
Equipment-contracts - 5,771 5,771
------------------------------
12,235 19,432 22,893
Less accumulated depreciation 7,153 8,924 11,434
------------------------------
Net property and equipment 5,082 10,508 11,459
Goodwill (net of accumulated amortization of
$171) (Note 1 and 9) - - 8,803
Other assets(Note 10) 222 91 2,844
------------------------------
Total assets $71,990 $80,761 $100,879
==============================
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,590 $12,483 $ 16,886
Accrued compensation and benefits (Note 7) 5,978 4,731 6,897
Income taxes payable (Note 4) 240 - 969
Current maturities of long-term debt (Note 5) - 962 1,187
Other 4 - 531
-----------------------------
Total Current liabilities 18,812 18,176 26,470
Deferred income taxes (Note 4) 478 949 1,195
Long-term debt (Note 5):
Industrial development bonds - - 2,000
Long-term notes - 4,328 3,366
-----------------------------
Total long-term debt - 4,328 5,366
Commitments (Note 6)
Stockholders' equity (Note 8):
Common stock, par value $.01 per share
Authorized - 10,000,000 shares
Issued - 6,030,997, 6,262,137 and 6,439,227
shares respectively 60 63 64
Additional paid-in capital 20,679 22,528 24,258
Retained earnings 31,961 38,467 45,669
Less cost of 322,500 and 184,377 shares
treasury stock respectively - (3,750) (2,143)
-----------------------------
Total stockholders' equity 52,700 57,308 67,848
-----------------------------
Total liabilities and stockholders' equity $71,990 $80,761 $100,879
=============================
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended August 31,
1993 1994 1995
(amounts in thousands except share data)
------------------------------
Revenues (Note 1) $159,112 $143,153 $170,331
Costs and expenses:
Direct and allocable costs 138,535 124,202 147,584
General and administrative expenses 10,203 9,492 12,917
------------------------------
Total costs and expenses 148,738 133,694 160,501
------------------------------
Operating profit 10,374 9,459 9,830
Other income (expense):
Interest expense (Note 5) - - (114)
Other income, principally interest 835 917 1,602
------------------------------
Income before income taxes 11,209 10,376 11,318
Income taxes (Note 4) 4,160 3,870 4,116
------------------------------
Net income $ 7,049 $ 6,506 $ 7,202
==============================
Net income per common share (Note 1) $ 1.13 $ 1.05 $ 1.15
==============================
Weighted average number of common and
common equivalent shares outstanding 6,253,129 6,205,309 6,279,109
==================================
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
(amounts in thousands except share data)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1992 5,806,954 $58 $18,967 $24,912 $ - $ 43,937
Sale of common stock 224,043 2 1,712 - - 1,714
Net income - - - 7,049 - 7,049
------------------------------------------------------------
Balance, August 31, 1993 6,030,997 60 20,679 31,961 - 52,700
Sale of common stock 231,140 3 1,849 - - 1,852
Purchase of 322,500 shares
of treasury stock - - - - (3,750) (3,750)
Net income - - - 6,506 - 6,506
------------------------------------------------------------
Balance, August 31, 1994 6,262,137 63 22,528 38,467 (3,750) 57,308
Sale of common stock 177,090 1 1,517 - - 1,518
Net income - - - 7,202 - 7,202
Reissue of 138,123 shares of
treasury stock - - 213 - 1,607 1,820
------------------------------------------------------------
Balance, August 31, 1995 6,439,227 $64 $24,258 $45,669 $(2,143) $ 67,848
============================================================
</TABLE>
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August 31,
1993 1994 1995
(amounts in thousands)
-----------------------------
Cash flows from operating activities:
Net income $ 7,049 $ 6,506 $ 7,202
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,314 1,858 2,907
Gain on sale of furniture,
fixtures and equipment (10) (14) -
Loss on the sale of investments - - 34
Deferred income taxes (30) 647 178
Changes in assets and liabilities
(net of effects of acquisitions):
Accounts receivable (3,206) 1,165 (10,919)
Other assets (55) (1,053) 846
Accounts payable 1,132 (107) 3,497
Accrued compensation and benefits (95) (1,248) 1,921
Income taxes payable 84 (240) 840
Other current liabilities (191) (4) 326
------------------------------
Total adjustments (1,057) 1,004 (370)
------------------------------
Net cash provided by operating
activities 5,992 7,510 6,832
Cash flows from investing activities:
Purchase of property and equipment (1,704) (7,301) (2,213)
Purchase of long-term investments - (7,894) -
Payment for non-compete agreement - - (900)
Payments for acquisitions, net of
cash acquired - - (10,547)
Payment for investment in TXEN - - (1,535)
Proceeds from sale of long-term
investments 2,500 1,000 3,284
Proceeds from the sale of property
and equipment 43 32 -
------------------------------
Net cash provided (used) by
investing activities 839 (14,163) (11,911)
Cash flows from financing activities:
Proceeds from sale of common stock 1,714 1,852 1,518
Proceeds from long-term notes - 5,771 -
Proceeds from industrial development bonds - - 2,225
Proceeds from sale of treasury stock - - 734
Payments of long-term debt - (481) (1,557)
Purchase of treasury stock - (3,750) -
------------------------------
Net cash provided by financing activities 1,714 3,392 2,920
------------------------------
Net increase (decrease) in cash and
temporary cash investments 8,545 (3,261) (2,159)
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Cash and temporary cash investments
at beginning of year 14,071 22,616 19,355
------------------------------
Cash and temporary cash investments
at end of year $22,616 $19,355 $17,196
==============================
Supplemental disclosure of non-cash
transactions:
Deferred compensation resulting from
the exercise of restricted stock
options and issuance of treasury stock - - $ 81
Issuance of treasury stock as consider-
ation in acquisition - - 1,005
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Nichols Research Corporation (NRC) provides information systems and
technology services to agencies of the Department of Defense, non-defense
federal agencies, state governments and commercial entities.
The consolidated financial statements include the accounts of Nichols
Research Corporation and its wholly-owned subsidiaries (the "Company").
Wholly-owned subsidiaries as of August 31, 1995 are Communications &
Systems Specialists, Inc. (CSSi), NRC Technical Services Corporation
(NRCTSC), Conway Computer Group, Inc. (CCG), and Computer Services
Corporation (CSC). All significant intercompany balances and transactions
have been eliminated in consolidation.
Revenue recognition
The major portion of the Company's revenues result from services
performed under U.S. government contracts, either directly or through
subcontracts. Revenue on cost-plus-fee (including award fee) contracts is
recognized based on reimbursable costs incurred plus estimated fees earned
thereon. Revenue on fixed price contracts is recognized using the
percentage of completion method based on costs incurred in relation to
total estimated costs. Revenue on time-and-materials contracts is
recognized to the extent of fixed billable rates for hours delivered plus
reimbursable costs. Provisions for losses on contracts are recognized in
the period in which the loss is first determinable. Unbilled accounts
receivable are stated at estimated realizable value.
Property and equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three to ten years for
equipment and furniture and over the terms of the related leases for
leasehold improvements.
Income taxes
Deferred income taxes are provided for temporary differences between
financial and taxable income, primarily related to accrued liabilities and
use of accelerated depreciation methods for income tax purposes.
Net income per common share
Net income per common share is based upon the weighted average number
of common shares and the dilutive common equivalent shares, related to
stock options outstanding during the period, less treasury shares assumed
to have been purchased with the option proceeds. Dilution in net income
per common share on a fully diluted basis is less than 3% in all periods.
<PAGE>
<PAGE>
Cash and temporary cash investments
The Company considers as cash equivalents those securities that are
available upon demand or have maturities of three months or less at the
time of purchase. At August 31, 1995, temporary cash investments consisted
of various money market accounts, primarily with an Alabama bank.
Long-term investments
Investments are classified at the time of purchase and are evaluated
as of each balance sheet date. Debt securities, which include municipal
obligations and preferred stock, are classified as held-to-maturity and are
stated at amortized cost. Equity securities, which consist of mutual
funds, are classified as available-for-sale and are stated at average cost
which approximates fair value. Interest, dividends and amortization of
premiums are included in investment income.
Goodwill
Goodwill is amortized using the straight-line method over periods
ranging from ten to twelve years. The carrying amount of goodwill is
evaluated if facts and circumstances suggest that it may not be recoverable
over the remaining amortization period. The carrying amount is reduced by
the amount estimated not to be recoverable.
Reclassification
Certain prior period amounts have been reclassified to conform with
the current year's presentation.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
August 31,
1993 1994 1995
(amounts in thousands)
<S> <C> <C> <C>
---------------------------------------------------------------------
Billed $ 17,058 $ 15,955 $ 25,201
Unbilled 23,727 23,665 27,902
---------------------------------------------------------------------
$ 40,785 $ 39,620 $ 53,103
=====================================================================
</TABLE>
Accounts receivable include $32,700,000, $32,900,000 and $36,717,000
due from the U.S. Government at August 31, 1993, 1994 and 1995,
respectively.
Unbilled accounts receivable include retainages of $2,124,000,
$2,745,000 and $3,373,000 at August 31, 1993, 1994 and 1995, respectively.
Unbilled amounts are classified as current assets since substantially all
amounts will be realized within one year.
<PAGE>
<PAGE>
Costs related to certain contracts are subject to adjustment from
negotiations and audit between the Company and its customers, including
representatives of the U.S. Government. Revenues for such contracts and
the related unbilled receivables have been recorded in amounts that are
expected to be realized.
NOTE 3 - LONG-TERM INVESTMENTS
The following is a summary of long-term investments as of:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(amounts in thousands)
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
August 31, 1994
Available for sale:
Mutual funds $ 3,318 $ -- $ -- $ 3,318
Held to maturity:
Municipal obligations 3,572 (123) 3,449
Preferred stocks 1,004 -- (86) 918
-----------------------------------------------------------------------
4,576 -- (209) 4,367
-----------------------------------------------------------------------
$ 7,894 $ -- $ (209) $ 7,685
=======================================================================
August 31, 1995
Held to maturity:
Municipal obligations $ 3,526 $ -- $ (40) $ 3,486
Preferred stocks 1,004 -- (26) 978
-----------------------------------------------------------------------
$ 4,530 $ -- $ (66) $ 4,464
=======================================================================
</TABLE>
Contractual maturities of debt securities held to maturity occur
ratably over the next four years. Proceeds from the sale of investments
classified as available for sale were $3,284,000 for the year ended August
31, 1995. Gross realized losses as a result of these sales were $34,000
and are included as other income.
NOTE 4 - INCOME TAXES
Effective September 1, 1993, the Company changes its method of
accounting for income taxes from the deferred method to the liability
method in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". The cumulative effect of this change
was not significant and prior years' financial statements were not
restated.
<PAGE>
<PAGE>
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION> Years Ended August 31,
1993 1994 1995
Deferred Method Liability Method Liability Method
(amounts in thousands)
<S> <C> <C> <C>
-----------------------------------------------------------------------------
Current:
Federal $ 3,505 $ 2,688 $ 3,439
State 685 535 499
-----------------------------------------------------------------------------
4,190 3,223 3,938
Deferred:
Federal 42 540 156
State (72) 107 22
-----------------------------------------------------------------------------
(30) 647 178
-----------------------------------------------------------------------------
$ 4,160 $ 3,870 $ 4,116
=============================================================================
</TABLE>
The significant components of deferred tax assets and liabilities as of August
31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
August 31, 1994 August 31, 1995
(amounts in thousands)
<S> <C> <C>
-------------------------------------
Current deferred tax assets:
Accrued liabilities not currently deductible $ 1,283 $ 1,351
Non-current deferred tax liabilities:
Basis difference for property and equipment (949) (1,195)
-------------------------------------
$ 334 $ 156
=====================================
</TABLE>
The provision for deferred income taxes for the year ended August 31, 1993
resulted from the following:
Year ended
August 31, 1993
(amounts in thousands)
----------------------
Accrued liabilities not currently deductible $ (103)
Use of cash basis accounting for state income tax purposes (79)
Use of accelerated depreciation for income tax purposes 117
Deferred compensation not currently deductible 35
----------------------
$ (30)
======================
<PAGE>
<PAGE>
Income tax expense as a percentage of income before income taxes varies
from the federal statutory rate due to the following:
Years Ended August 31,
1993 1994 1995
---------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 3.6 4.1 3.0
Other (0.5) (0.8) (0.6)
---------------------
37.1% 37.3% 36.4%
=====================
The Company made income tax payments of approximately $4,106,000,
$4,259,000 and $2,283,000 in 1993, 1994 and 1995, respectively.
NOTE 5 - LINE OF CREDIT AND LONG-TERM DEBT
In August 1995, the Company renegotiated its line of credit which now
provides for borrowing up to $73,500,000. Borrowings are secured primarily
by accounts receivable. A commitment fee of .125% of the unused portion is
payable quarterly under this agreement. The agreement expires March 1997 and
is renewable annually. Borrowings under this agreement bear interest at the
London Interbank Offered Rate (LIBOR) plus 1.25%. There are no outstanding
borrowings on this facility at August 31, 1995.
In 1993 and 1994, the Company had a $22,000,000 bank line of credit,
consisting of $12,000,000 secured by accounts receivable and $10,000,000
unsecured, with interest at the bank's commercial base rate.
In January 1995, the Company received $2,225,000 in bond proceeds from the
Alabama State Industrial Development Authority. The proceeds are restricted
for use in acquiring certain capital assets. At August 31, 1995, approximately
$1,769,000 of such restricted amounts are included on the consolidated balance
sheet as cash and temporary cash investments. The bonds are payable in equal
annual principal installments of $225,000 through January 2005. The bonds
bear a variable rate of interest computed weekly but contain an option for a
fixed rate for a specified length of time. The bonds are secured by a letter
of credit. Interest payments of $114,000 were made in fiscal year 1995.
The Company borrowed $5,771,000 in fiscal year 1994 under a term loan
agreement. The proceeds were used to purchase computer hardware. The
agreement requires equal monthly principal installments of $80,153 until
February 2000. The loan bears interest at LIBOR plus 0.75% and is secured
by the computer hardware which has a carrying value of $4,328,000. Interest
payments of $134,000 and $298,000 were made in fiscal years 1994 and 1995,
respectively. Interest expense is included in the consolidated statements
of income as a direct and allocable cost.
NOTE 6 - RELATED PARTY TRANSACTIONS AND COMMITMENTS
The Company leases office facilities under various operating leases,
including leases with companies in which certain officers and stockholders
<PAGE>
<PAGE>
have ownership interests. The leases generally have terms of one to ten
years. Rent expense for all operating leases was as follows:
Years Ended August 31,
1993 1994 1995
(amounts in thousands)
--------------------------------
Total rent expense $ 4,065 $ 3,684 $ 3,561
Amounts to related parties 1,088 1,038 1,002
Future minimum lease payments under operating leases with remaining terms
of one year or more are:
Years Ended August 31,
1996 1997 1998 1999 2000
(amounts in thousands)
-------------------------------------
Total $2,724 $2,281 $1,754 $1,229 $ 946
Amounts to related parties 850 635 420 420 420
NOTE 7 - DEFINED CONTRIBUTION BENEFIT PLANS
Substantially all full-time employees are covered by one of several defined
contribution plans offered by the Company. Employees are permitted to defer
from 0% to 15% of their salary depending on the plan in which they participate.
A Company matching contribution is determined based on employee deferral
percentage and ranges from 0% to a maximum of 2.5%. Discretionary contributions
may also be made to plans as determined annually by the Board of Directors.
Total provisions for employee retirement plans were approximately $4,050,000,
$3,475,000 and $4,130,000 for 1993, 1994 and 1995, respectively.
NOTE 8 - EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE PLANS
The Company has employee stock option plans that provide for the issuance
of incentive stock options (as defined by the Internal Revenue Code) and
nonstatutory stock options to key employees, including officers of the Company
and its subsidiaries, except those officers who are members of the Stock Option
Committee. Options are nontransferable and exercisable only during employment,
with certain exceptions. Options expire five years from the date of grant. At
August 31, 1995, 315,807 shares were available for grant under these plans.
The Company also has a stock option plan for non-employee members of the
Board of Directors. At August 31, 1995, 50,995 shares were available for
grant under this plan.
<PAGE>
<PAGE>
A summary of activity relating to stock options is as follows:
<TABLE>
<CAPTION>
Incentive Non-employee Nonstatutory
Stock Options Stock Options Stock Options Total
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
Options outstanding at
August 31, 1992 680,062 8,338 43,000 731,400
Granted ($12.50-$18.00 per share) 271,094 4,000 -- 275,094
Exercised ($4.32-$8.64 per share) (163,676) -- (15,000) (178,676)
Expired (28,437) -- -- (28,437)
---------------------------------------------------------------------
Options outstanding at
August 31, 1993 759,043 12,338 28,000 799,381
Granted ($10.00-$15.50 per share) 151,942 4,000 70,000 225,942
Exercised ($4.50-$10.75 per share) (154,224) (1,333) (28,000) (183,557)
Expired (49,608) -- -- (49,608)
---------------------------------------------------------------------
Options outstanding at
August 31, 1994 707,153 15,005 70,000 792,158
Granted ($11.00-$18.50 per share) 304,349 6,000 -- 310,349
Exercised ($5.82-$15.13 per share) (130,593) (1,333) -- (131,926)
Expired (72,453) -- -- (72,453)
---------------------------------------------------------------------
Options outstanding at
August 31, 1995 808,456 19,672 70,000 898,128
=====================================================================
Options exercisable August 31, 1995
($5.82-$18.00 per share) 200,687 19,672 17,500 237,859
=====================================================================
</TABLE>
The Company has an employee stock purchase plan that allows eligible
employees to purchase common stock at less than fair market value. Effective
March 1, 1994, the plan was amended to reduce the purchase price from 90% to
85% of fair market value on each quarterly purchase date. Purchases are limited
to the lesser of 10% of an employee's annual compensation or $25,000. Shares of
common stock issued under this plan were 45,367, 47,583 and 45,164 in 1993, 1994
and 1995, respectively.
On September 1, 1994, a Restricted Stock Option for 70,000 shares of common
stock was granted to and exercised by an officer of the Company. The exercise
price was 90% of fair market value on the date of exercise. The issued shares
were restricted treasury stock.
NOTE 9 - BUSINESS COMBINATIONS
On September 1, 1994, NRC acquired all of the outstanding stock of
Communications & Systems Specialists, Inc. (CSSi), an information systems
development company. Aggregate cash consideration of approximately $1,800,000
was paid. The acquisition was accounted for using the purchase method of
accounting, resulting in goodwill of approximately $340,000 and allocation of
$900,000 to a non-compete agreement between the predecessor's president and
NRC. The intangible assets are being amortized using the straight-line
method; goodwill over an estimated useful life of ten years and the non-compete
over the five year term of the agreement. The consolidated financial
<PAGE>
<PAGE>
statements include the results of operations for the acquired company for the
entire 1995 fiscal year.
On May 16, 1995, NRC acquired a 100% interest in Conway Computer Group
(CCG), a group of three commercial information service companies. Aggregate
consideration of approximately $3,000,000 was paid at closing; $2,000,000 in
cash and 68,123 shares of restricted treasury stock with an approximate value
of $1,000,000. An additional $900,000 of cash consideration is payable
contingent upon achieving specified future operating results as defined in the
agreement. The acquisition was accounted for using the purchase method of
accounting, resulting in goodwill of approximately $2,445,000, which is being
amortized using the straight-line method over an estimated useful life of
twelve years. The consolidated financial statements include the results of
operations for the acquired company from the date of acquisition.
On June 30, 1995, NRC acquired substantially all of the assets and
liabilities of Computer Services Corporation (CSC), a healthcare information
system and services company in the practice management area. Aggregate cash
consideration of approximately $7,550,000 was paid. The acquisition was
accounted for using the purchase method of accounting, resulting in goodwill
of approximately $6,189,000, which is being amortized using the straight-line
method over an estimated useful life of twelve years. The consolidated
financial statements include the results of operations for the acquired company
from the date of acquisition.
The following unaudited pro forma summary presents information as if all
the acquisitions had occurred at the beginning of each fiscal year presented.
The pro forma information is presented for informational purposes only. It is
based on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined companies.
<TABLE>
<CAPTION>
Unaudited years ended August 31,
1994 1995
(amounts in thousands, except per share data)
<S> <C> <C>
---------------------------------------------
Revenues $ 163,885 $ 181,737
Net income 6,443 7,292
Net income per share $ 1.02 $ 1.15
</TABLE>
NOTE 10 - INVESTMENT IN AFFILIATE
In December 1994, the Company acquired a 19.9% interest in TXEN, Inc., an
information systems and services company in the managed care industry. The
Company paid approximately $1,500,000 and holds an option to acquire all
outstanding shares in the future. The investment is accounted for using the
equity method due to the purchase option agreement and is included in noncurrent
other assets on the consolidated balance sheet at August 31, 1995. An officer
of the Company holds a 4.5% interest in TXEN, Inc. and would be beneficially
impacted if the Company exercises its option.
<PAGE>
<PAGE>
NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Operating Net Income
Revenues Profit Net Income Per Share
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
----------------------------------------------------------
Year ended August 31, 1994
First Quarter $ 34,079 $ 2,464 $ 1,693 $ .27
Second Quarter 32,787 2,348 1,632 .26
Third Quarter 35,561 2,319 1,600 .26
Fourth Quarter 40,726 2,328 1,581 .26
Year ended August 31, 1995
First Quarter $ 36,231 $ 2,270 $ 1,628 $ .27
Second Quarter 36,174 2,296 1,676 .27
Third Quarter 44,444 2,470 1,829 .29
Fourth Quarter 53,482 2,794 2,069 .32
</TABLE>
Second and third quarter operating profit for the year ended August 31,
1995 were adjusted from the amounts reported in Form 10-Q by $8,000 and $57,000,
respectively, to reflect the effect of reporting interest expense as other
expense.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Nichols Research Corporation
We have audited the accompanying consolidated balance sheets of Nichols
Research Corporation as of August 31, 1993, 1994 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. 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
misstatements. 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 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 consolidated financial position of Nichols
Research Corporation at August 31, 1993, 1994 and 1995, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Birmingham, Alabama
October 12, 1995
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under "Election of Directors" on pages 3
through 5 of Nichols Research Corporation Proxy Statement relative to the
Annual Meeting of Shareholders to be held January 11, 1996, is incorporated
by reference in this Form 10-K Annual Report. Information regarding
delinquent Form 3, 4 or 5 filers appearing under "Compliance with Section
16(a) of the Securities Exchange Act of 1934" on page 12 of the Nichols
Research Corporation Proxy Statement relative to the Annual Meeting of
Shareholders to be held January 11, 1996, is incorporated by reference in
this From 10-K Annual Report. Information relating to the executive
officers of the Company as of August 31, 1995, is set forth on pages 12
through 14 of this From 10-K Annual Report. Officers serve at the
discretion of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Executive Compensation" on pages 6
through 12 of the Nichols Research Corporation Proxy Statement relative to
the Annual Meeting of Shareholders to be held January 11, 1996, is
incorporated by reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under "Common Stock Outstanding and
Principal Shareholder" on pages 1 through 3 of the Nichols Research
Corporation Proxy Statement relative to the Annual Meeting of Shareholders
to be held January 11, 1996, is incorporated by reference in this Form 10-K
Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Certain Relationships and Related
Transactions" on page 13 of the Nichols Research Corporation Proxy
Statement relative to the Annual Meeting of Shareholders to be held January
11, 1996, is incorporated by reference in this Form 10-K Annual Report.
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The financial statements and other financial information of
Nichols Research Corporation set forth below and the Report of
Independent Auditors thereon are incorporated by reference from
pages 12 through 27 of this Form 10-K Annual Report:
Balance Sheets at August 31, 1993, 1994, and 1995
Statements of Income for the three years ended August 31, 1995
Statements of Stockholder's Equity for the three years ended
August 31, 1995
Statements of Cash Flows for the three years ended August 31, 1995
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Selected Quarterly Financial Data
(2) All financial statement schedules are omitted because they are
not applicable or the required information is shown on the
financial statements or notes thereto.
(3) Exhibits:
EXHIBIT NUMBER
AND METHOD OF
FILING REFERENCE DESCRIPTION
3.1 D Certificate of Incorporation.
3.2 A By-laws and Amendments thereto.
4.0 D Specimen Stock Certificate.
10.1 K Lease Agreement dated August 26, 1993, between
Registrant, as Lessee, and Parkway Properties I, as
Lessor, for office space on Nichols Drive in
Huntsville, Alabama.
10.2 B&C Employee Incentive Stock Option Plan of Registrant,
together with amendments thereto.*
10.3 B Performance Bonus Plan of Registrant dated July 1,
1986.*
10.4 D&F Non-Employee Officer and Director Stock Option Plan of
Registrant.*
10.5 D&J 1988 Employees' Stock Purchase Plan of Registrant and
Amendments Number One and Two thereto.*
<PAGE>
<PAGE>
10.6 K Lease dated February 18, 1992, between Parkway
Properties II, as Lessor, and Registrant, as Lessee,
for office space located at 4035 Chris Drive,
Huntsville, Alabama, together with exhibits.
10.7 I Lease dated February 1, 1992, between High Tech
Properties, as Lessor, and Registrant, as Lessee, for
office space located at 1900 Golf Road, Huntsville,
Alabama, together with exhibits.
10.8 E Nichols Research Corporation 1989 Incentive Stock
Option Plan.*
10.9 K Credit Agreement dated February 9, 1994, between the
Registrant and SouthTrust Bank relating to a
$22,000,000 revolving line of credit and a $5,771,000
term loan.
10.10 H Nichols Research Corporation 1991 Stock Option Plan.*
10.11 I Amendments Three and Four to the 1988 Employees' Stock
Purchase Plan of Registrant.*
10.12 I Amendment to Non-Employee Officer and Director Stock
Option Plan of Registrant.*
10.13 I Amendment to 1989 Incentive Stock Option Plan of
Registrant.*
10.14 K Amendment Number Five to the 1988 Employees' Stock
Purchase Plan of Registrant.*
10.15 K Amendment Number Two to the Non-Employee Officer and
Director Stock Option Plan of Registrant.*
10.16 K Amendment Number One to the 1991 Stock Option Plan of
Registrant.*
10.17 A Amendments Two & Three to the 1991 Stock Option Plan of
Registrant.*
10.18 A Credit Agreement dated August 16, 1995, between the
Registrant, SouthTrust Bank of Alabama, NA, First
Alabama Bank, and Corestates Bank, NA.
10.19 A Lease dated July 31, 1995, between Parkway Properties,
as Lessor, and Registrant, as Lessee, for office space
located at 1910 Nichols Drive, Huntsville, Alabama.
10.20 A Employment Agreement dated May 16, 1995, between
Registrant and John A. Conway, Jr.*
10.21 A Employment Agreement dated June 30, 1995, between
Registrant and Donald Y. Menendez.*
10.22 A Employment Agreement dated August 24, 1995, and
Amendment thereto between Registrant and D. Bruce
McIndoe.*
<PAGE>
<PAGE>
10.23 A Convertible Preferred Stock Purchase Agreement dated
December 16, 1994, between Registrant and TXEN, Inc.
10.24 A Stock Purchase Option Agreement dated December 16, 1994,
among Registrant, TXEN, Inc. and shareholders of TXEN, Inc.
10.25 A Restricted Stock Purchase Agreement dated September 1, 1994
between Registrant and Michael J. Mruz.*
11 A Computation of Earnings Per Share.
21 A Subsidiaries of Registrant.
23 A Consent of Ernst & Young LLP, Independent Auditors.
27 A Financial Data Schedule.
__________________
A Filed herewith.
B Incorporated by reference to exhibits filed with the
Company's registration statement on Form S-1 under the
Securities Act of 1933, File No. 33-10323.
C Incorporated by reference to exhibits filed with the
Company's registration statement on Form S-8 under the
Securities Act of 1933, File No. 33-13464.
D Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1989, under the Securities
Exchange Act of 1934.
E Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1990, under the Securities
Exchange Act of 1934.
F Incorporated by reference to exhibits filed with the
Company's registration statement on Form S-8 under the
Securities Act of 1933, File No. 33-38568.
G Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1991, under the Securities
Exchange Act of 1934, as amended by Form 8.
H Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1992, under the Securities
Exchange Act of 1934.
I Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993, under the Securities
Exchange Act of 1934.
<PAGE>
<PAGE>
J Incorporated by reference to exhibits filed with the
Company's registration statement on Form S-8 under the
Securities Act of 1933, File No. 33-26909.
K Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1994, under the Securities
Exchange Act of 1934.
* Denotes management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
report.
(b) Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of the fiscal year ended August 31,
1995.
(c) Exhibits. The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules. The response to this
portion of Item 14 is submitted as a separate section
of this report.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed by the undersigned, thereunto duly authorized.
NICHOLS RESEARCH CORPORATION
Chris H. Horgen
NOVEMBER 28, 1995 ____________________________
Chris H. Horgen
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
Chris H. Horgen
- ------------------------ Chief Executive November 28, 1995
Chris H. Horgen Officer and Chair-
man of the Board
(Principal Execu-
tive Officer)
Michael J. Mruz
- ------------------------ President, Chief November 28, 1995
Michael J. Mruz Operating Officer
and Director
Patsy L. Hattox
- ------------------------ Vice President, November 28, 1995
Patsy L. Hattox Chief Adminis-
trative Officer,
Secretary and
Director
Roy J. Nichols
- ------------------------ Senior Vice November 28, 1995
Roy J. Nichols President, Chief
Technical Officer
and Director
- ------------------------ Director
Roger P. Heinisch
John R. Wynn
- ------------------------ Director November 28, 1995
John R. Wynn
- ------------------------ Director
William E. Odom
James R. Thompson, Jr.
- ------------------------ Director November 28, 1995
James R. Thompson, Jr.
<PAGE>
<PAGE>
- ------------------------ Director
Phil E. Depoy
- ------------------------ Director
Robert W. Hager
Allen E. Dillard
- ------------------------ Chief Financial November 28, 1995
Allen E. Dillard Officer and Cor-
porate Treasurer
(Principal Financial
and Accounting
Officer)
<PAGE>
BYLAWS
OF
NICHOLS RESEARCH CORPORATION
BY LAWS
OF
NICHOLS RESEARCH CORPORATION
I N D E X
ARTICLE ONE - OFFICES
Section 1.1 Registered Office 1
Section 1.2 Principal Business Office 1
ARTICLE TWO - SHAREHOLDERS MEETINGS
Section 2.1 Annual Meeting 1
Section 2.2 Special Meetings 1
Section 2.3 Place 2
Section 2.4 Notice 2
Section 2.5 Quorum 2
Section 2.6 Proxies; Required Vote 3
Section 2.7 Presiding Officer and Secretary 3
Section 2.8 Shareholder List 3
Section 2.9 Action in Lieu of Meeting 4
ARTICLE THREE - DIRECTORS
Section 3.1 Management 4
Section 3.2 Number of Directors; Quorum 4
Section 3.3 Vacancies 5
Section 3.4 Election of Directors 5
Section 3.5 Removal 5
Section 3.6 Resignation 5
Section 3.7 Compensation 6
Section 3.8 Co-Chairmen 6
ARTICLE FOUR - COMMITTEES
Section 4.1 Executive Committee 6
Section 4.2 Other Committees 8
Section 4.3 Removal 9
ARTICLE FIVE- MEETINGS OF THE BOARD OF DIRECTORS
Section 5.1 Time and Place 9
Section 5.2 Regular Meetings 9
Section 5.3 Special Meetings; Notice 9
Section 5.4 Waiver of Notice 10
Section 5.5 Quorum 10
Section 5.6 Action in Lieu of Meeting 11
Section 5.7 Interested Directors and Officers 11
ARTICLE SIX - OFFICERS, AGENTS AND EMPLOYEES
Section 6.1 General Provisions 12
Section 6.2 Powers and Duties of the Chief
Executive Officer and the President 13
<PAGE>
<PAGE>
Section 6.3 Powers and Duties of Executive Vice
Presidents, Senior Vice Presidents
and Vice Presidents 14
Section 6.4 Powers and Duties of the Secretary 15
Section 6.5 Powers and Duties of the Treasurer 15
Section 6.6 Appointment, Powers and Duties of
Assistant Secretaries 16
Section 6.7 Appointment, Powers and Duties of
Assistant Treasurers 16
Section 6.8 Delegation of Duties 16
ARTICLE SEVEN - CAPITAL STOCK
Section 7.1 Certificates 17
Section 7.2 Shareholder List 18
Section 7.3 Transfer of Shares 19
Section 7.4 Record Dates 19
Section 7.5 Registered Owner 19
Section 7.6 Transfer Agent and Registrars 20
Section 7.7 Lost Certificates 20
Section 7.8 Fractional Shares or Scrip 20
ARTICLE EIGHT - BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS
Section 8.1 Inspection of Books and Records 21
Section 8.2 Seal 22
Section 8.3 Annual Statements 22
ARTICLE NINE - INDEMNIFICATION
Section 9.1 Third Party Claims 23
Section 9.2 Corporate Claims 24
Section 9.3 Indemnification of Expenses Where Successful 25
Section 9.4 Authorization of Indemnification 25
Section 9.5 Advancement of Expenses 25
Section 9.6 Nonexclusive Method of Indemnification 26
Section 9.7 Insurance 26
Section 9.8 Notification to Shareholders of Indemnification 27
ARTICLE TEN - NOTICES, WAIVERS OF NOTICE
Section 10.1 Notices 27
Section 10.2 Waivers of Notice 27
ARTICLE ELEVEN - EMERGENCY POWERS
Section 11.1 By-Laws 28
Section 11.2 Lines of Succession 28
Section 11.3 Head Office 28
Section 11.4 Period of Effectiveness 29
Section 11.5 Notices 29
Section 11.6 Officers as Directors Pro Tempore 29
Section 11.7 Liability of Officers, Directors and Agents 29
ARTICLE TWELVE - CONTRACTS; CHECKS
Section 12.1 Contracts 30
Section 12.2 Checks 30
<PAGE>
<PAGE>
ARTICLE THIRTEEN - DIVIDENDS AND DISTRIBUTIONS 30
ARTICLE FOURTEEN - AMENDMENTS 31
<PAGE>
<PAGE>
BY-LAWS
OF
NICHOLS RESEARCH CORPORATION
ARTICLE ONE
OFFICES
1.1 Registered Office. The corporation shall at all times maintain a
registered office in the State of Delaware and a registered agent at that
address but may have other offices located within or outside the State of
Delaware as the Board of Directors may determine.
1.2 Principal Business Office. The corporation shall maintain its
principal place of business in Madison County, Alabama, and may have other
places of business within or without the State of Alabama as the Board of
Directors may determine.
ARTICLE TWO
SHAREHOLDERS MEETINGS
2.1 Annual Meeting. The annual meeting of shareholders of the
corporation shall be held within 180 days after the end of each fiscal year
of the corporation. The annual meeting shall be held at such time and place
as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting.
2.2 Special Meetings. Special meetings of the shareholders may be
called at any time by the Chief Executive Officer, President, or a majority
of the board of directors. Special meetings shall be held at such a time
and place and on such date as shall be specified in the notice of the
meeting.
2.3 Place. Annual or special meetings of shareholders may be held
within or without the State of Delaware as may be specified in the notice
of meeting.
2.4 Notice. Notice of annual or special shareholders meetings stating
place, day and hour of the meeting shall be given in writing not less than
ten nor more than sixty days before the date of the meeting, either mailed
to the last known address of or personally given to each shareholder.
Notice of any special meeting of shareholders shall state the purpose or
purposes for which the meeting is called. The notice of any meeting at
which amendments to or restatements of the certificate of incorporation,
merger or consolidation of the corporation, or the disposition of corporate
assets requiring shareholder approval are to be considered shall state such
purpose, be given at least twenty days before such meeting and further
comply with all requirements of law. Notice of a meeting may be waived by
an instrument in writing executed before or after the meeting. The waiver
need not specify the purpose of the meeting or the business transacted,
unless one of the purposes of the meeting concerns a plan of merger or
consolidation, in which event the waiver shall comply with the further
requirements of law concerning such waiver. Attendance at such meeting in
person or by proxy shall constitute a waiver of notice thereof.
<PAGE>
<PAGE>
2.5 Quorum. At all meetings of shareholders a majority of the
outstanding shares of stock shall constitute a quorum for the transaction
of business, and no resolution or business shall be transacted without the
favorable vote of the holders of a majority of the shares represented at
the meeting and entitled to vote. A lesser number may adjourn from day to
day, and shall announce the time and place to which the meeting is
adjourned.
2.6 Proxies; Required Vote. At every meeting of the shareholders,
including meetings of shareholders for the election of Directors, any
shareholder having the right to vote shall be entitled to vote in person or
by proxy, but no proxy shall be voted after eleven months from its date,
unless said proxy provides for a longer period. Each shareholder shall
have one vote for each share of stock having voting power, registered in
his name on the books of the corporation. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the
shareholders, except as otherwise provided by law, by the certificate of
incorporation or by these by-laws.
2.7 Presiding Officer and Secretary. At every meeting of shareholders,
a Co-Chairman of the Board, or in the absence of a Co-Chairman or if there
be none, the Chief Executive Officer, or in his absence the President, or
in his absence a Vice President or, if none be present, the appointee of
the presiding officer of the meeting, shall preside. The Secretary, or in
his absence an Assistant Secretary, or if none be present, the appointee of
the Presiding officer of the meeting, shall act as secretary of the
meeting.
2.8 Shareholder List. The officer or agent having charge of the stock
transfer books of the corporation shall produce for the inspection of any
shareholder a complete alphabetical list of shareholders entitled to vote
showing the address and share holdings of each shareholder. Such a list
shall be kept on file in the principal office of the corporation for at
least ten days prior to all meetings of shareholders and shall be subject
to inspection by any shareholder making written request therefor at any
time during usual business hours; such list shall also be available for
inspection by any shareholder at, and continuously during, every meeting of
the shareholders.
2.9 Action in Lieu of Meeting. Any action to be taken at a meeting of
the shareholders of the corporation, or any action that may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof
and any further requirements of law pertaining to such consents have been
complied with.
ARTICLE THREE
DIRECTORS
3.1 Management. Subject to these by-laws, the certificate of
incorporation and any lawful agreement among the shareholders, the full and
entire management of the affairs and business of the corporation shall be
vested in the Board of Directors, which shall have and may exercise all of
the powers that may be exercised or performed by the corporation.
<PAGE>
<PAGE>
3.2 Number of Directors; Quorum. The Board of Directors shall consist
of not less than five (5) and not more than nine (9) members, the precise
number to be fixed by resolution of the Board of Directors from time to
time. A majority of said Directors shall constitute a quorum for the
transaction of business. All resolutions adopted and all business
transacted by the Board of Directors shall require the affirmative vote of
a majority of the Directors present at a meeting at which a quorum is
present.
3.3 Vacancies. The Directors may fill the place of any Director which
may become vacant prior to the expiration of his term by a vote of the
majority of remaining Directors though the remaining Directors may be less
than a quorum of the Board of Directors; such appointment by the Directors
shall continue until the expiration of the term of the Director whose place
has become vacant. Any vacancy which occurs by reason of any increase in
the number of Directors shall be filled by election at an annual meeting or
special meeting of shareholders called for such a purpose.
3.4 Election of Directors. Directors shall be elected annually, at the
annual meeting of shareholders and shall serve until the next annual
meeting of shareholders and until their successors have been elected and
qualified.
3.5 Removal. A Director may be removed from office, with or without
cause, upon the majority vote of the shareholders entitled to vote at an
election of Directors, at a meeting with respect to which notice of such
purpose is given. The shareholders, upon the majority vote of the
shareholders, may then forthwith proceed to elect a successor for the
unexpired term of the Director who was removed from office.
3.6 Resignation. Any Director may resign at any time either orally at
any meeting of the Board of Directors or by so advising to a Co-Chairman of
the Board, if any, or the Chief Executive Officer or President or by giving
written notice to the corporation. A Director who resigns may postpone the
effectiveness of his resignation to a future date or upon the occurrence of
a future event specified in a written tender of resignation. If no time of
effectiveness is specified therein, a resignation shall be effective upon
tender. A vacancy shall be deemed to exist at the time a resignation is
tendered, and the Board of Directors or the shareholders may, then or
thereafter, elect a successor to take office when the resignation by its
terms becomes effective.
3.7 Compensation. Directors may be allowed such compensation for
attendance at regular or special meetings of the Board of Directors and of
any special or standing committees thereof as may be determined from time
to time by resolution of the Board of Directors.
3.8 Co-Chairmen. The Board of Directors shall elect from its members
two persons who shall serve as Co-Chairmen of the Board of Directors. In
the absence of an agreement to the contrary, each Co-Chairman of the Board
of Directors shall preside at every other meeting of the shareholders and
every other meeting of the directors. If the Co-Chairman who is to preside
at a meeting of the shareholders or directors is absent, the other Co-
Chairman shall preside at such meeting.
<PAGE>
<PAGE>
ARTICLE FOUR
COMMITTEES
4.1 Executive Committee.
(a) The Board of Directors may by resolution adopted by a majority
of the entire Board designate an Executive Committee of the Board of Directors
consisting of two or more Directors. Each member of the Executive
Committee shall hold office until the first meeting of the Board of
Directors after the annual meeting of shareholders next following his
election and until his successor is elected and qualified, or until his
death, resignation or removal, or until he shall cease to be a Director.
(b) During the intervals between the meetings of the Board of
Directors, the Executive Committee may exercise all the authority of the
Board of Directors; provided, however, that the Executive Committee shall
not have the power to amend or repeal any resolution of the Board of
Directors that by its terms shall not be subject to amendment or repeal by
the Executive Committee, and the Executive Committee shall not have the
authority of the Board of Directors in reference to (1) amending the
certificate of incorporation or by-laws of the corporation; (2) adopting a
plan of merger or consolidation; (3) the sale, lease, mortgage, exchange or
other disposition of all or substantially all the property and assets of
the corporation otherwise than in the usual and regular course of its
business; (4) a voluntary dissolution of the corporation or a revocation of
any such voluntary dissolution; (5) filling a vacancy in the Board of
Directors; (6) declaring a dividend or distribution from surplus; or (7)
issuing capital stock.
(c) The Executive Committee shall meet from time to time on call of
a Co-Chairman of the Board, the Chief Executive Officer or the President or
of any two or more members of the Executive Committee. Meetings of the
Executive Committee may be held at such place or places, within or without
the State of Delaware as the Executive Committee shall determine or as may
be specified or fixed in the respective notices or waivers of such
meetings. The Executive Committee may fix its own rules of procedures,
including provision for notice of its meetings. It shall keep a record of
its proceedings and shall report these proceedings to the Board of
Directors at the meeting thereof held next after they have been taken, and
all such proceedings shall be subject to revision or alteration by the
Board of Directors except to the extent that action shall have been taken
pursuant to or in reliance upon such proceedings prior to any such revision
or alteration.
(d) The Executive Committee shall act by majority vote of its
members; provided, that contracts or transactions of and by the corporation
in which officers or Directors of the corporation are interested shall require
the affirmative vote of a majority of the disinterested members of the
Executive Committee, at a meeting of the Executive Committee at which the
material facts as to the interest and as to the contract or transaction are
disclosed or known to the members of the Executive Committee prior to the vote.
(e) Members of the Executive Committee may participate in committee
proceedings by means of conference telephone or similar communications
equipment by means of which all persons participating in the proceedings
can hear each other, and such participation shall constitute presence in
person at such proceedings.
<PAGE>
<PAGE>
(f) The Board of Directors, by resolution adopted in accordance with
paragraph (a) of this section, may designate one or more Directors as
alternate members of the Executive Committee who may act in the place and
stead of any absent member or members at any meeting of said committee.
4.2 Other Committees. The Board of Directors, by resolution adopted by
a majority of the entire Board, may designate one or more additional
committees, each committee to consist of two or more of the Directors of
the corporation, which shall have such name or names and shall have and may
exercise such powers of the Board of Directors, except the powers denied to
the Executive Committee, as may be determined from time to time by the
Board of Directors. Such committees shall provide for its own rules of
procedure, subject to the same restrictions thereon as provided above for
the Executive Committee.
4.3 Removal. The Board of Directors shall have power at any time to
remove any member of any committee, with or without cause, and to fill
vacancies in and to dissolve any such committee.
ARTICLE FIVE
MEETINGS OF THE BOARD OF DIRECTORS
5.1 Time and Place. Meetings of the Board of Directors may be held at
any place either within or without the State of Alabama. Each newly
elected Board of Directors shall meet immediately following the close of
the annual meeting of shareholders and at the place thereof, or such newly
elected Board of Directors may hold such meeting at such place and time as
shall be fixed by the consent in writing of all the Directors. In any such
case no notice of such meeting to the newly elected Directors shall be
necessary in order legally to constitute the meeting, provided a quorum be
present.
5.2 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Delaware, as shall be determined by the Board of Directors from time to
time.
5.3 Special Meetings; Notice. Special meetings of the Board of
Directors may be called by a Co-Chairman of the Board, the Chief Executive
Officer, or the President on not less than two days' written notice by
mail, telegram or cablegram, or by personal delivery to each Director and
shall be called by a Co-Chairman of the Board, the Chief Executive Officer,
the President or the Secretary in like manner and on like notice on the
written request of any two or more Directors. Any such special meeting
shall be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of meeting. No notice of any
meeting of the Board of Directors need state the purposes thereof.
<PAGE>
<PAGE>
5.4 Waiver of Notice. Notice of any meeting may be waived by an
instrument in writing executed before or after the meeting. Attendance in
person at any such meeting shall constitute a waiver of notice thereof
except where a Director attends a meeting for the express purpose of
objecting because the meeting is not lawfully called or convened.
5.5 Quorum. At all meetings of the Board of Directors, the presence of
one-third of the Directors, but not less than two Directors, shall be
necessary and sufficient to constitute a quorum for the transaction of
business. Directors may participate in any meeting by means of conference
telephone or similar communications equipment by which all persons
participating in the meeting can hear each other, and participation in a
meeting by means of such communications equipment shall constitute the
presence in person at such meeting. The act of a majority of the Directors
present at any meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically provided by-
law, the certificate of incorporation or these by-laws. In the absence of
a quorum a majority of the Directors present at any meeting may adjourn the
meeting from time to time until a quorum is present. Notice of any
adjourned meeting need only be given by announcement at the meeting at
which the adjournment is taken.
5.6 Action in Lieu of Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by
all members of the Board of Directors or of such committee, as the case may
be, and such written consent is filed with the minutes of the proceedings
of the Board of Directors and any further requirements of law pertaining to
such consents have been complied with.
5.7 Interested Directors and Officers. An interested Director or
officer is one who is a party to a contract or transaction with the
corporation or who is an officer or Director of, or has a financial
interest in, another corporation, partnership or association which is a
party to a contract or transaction with the corporation. Contracts and
transactions between the corporation and one or more interested Directors
or officers shall not be void or voidable solely because of such
relationship or interest or because such a Director is present at a meeting
of the Board of Directors or a committee thereof which authorizes, approves
or ratifies such contract or transaction, if either: (1) the contract or
transaction is approved in good faith by the Board of Directors or
appropriate committee by the affirmative votes or consent of a majority of
disinterested Directors at a meeting of the Board or committee at which the
material facts as to the interested person or persons and the contract or
transaction are disclosed or known to the Board or committee prior to the
vote; or (2) the contract or transaction is approved in good faith by the
shareholders after the material facts as to the interested person or
persons and the contract or transaction have been disclosed to them; or (3)
the contract or transaction is fair as to the corporation as of the time it
is authorized, approved or ratified by the Board of Directors or the
appropriate committee, or the shareholders. Interested Directors may not be
counted in determining the presence of a quorum at a meeting of the Board
or committee which authorizes the contract or transaction.
ARTICLE SIX
OFFICERS, AGENTS AND EMPLOYEES
6.1 General Provisions. The officers of the corporation shall be a
Chief Executive Officer, a President, a Secretary, and a Treasurer, one or
<PAGE>
<PAGE>
more Executive Vice Presidents, Senior Vice Presidents and Vice Presidents,
one or more Assistant Secretaries, and one or more Assistant Treasurers.
The officers shall be elected by the Board of Directors at the first
meeting of the Board of Directors after the annual meeting of the
shareholders in each year or shall be appointed as provided in these by-
laws. The executive officers of the corporation shall consist of the Chief
Executive Officer, the President, all Executive Vice Presidents, all Senior
Vice Presidents, the Secretary and the Treasurer. The board of Directors
may elect other officers, agents and employees, who shall have such
authority and perform such duties as may be prescribed by the Board of
Directors. All officers shall hold office until the meeting of the Board
of Directors following the next annual meeting of the shareholders after
their election or appointment and until their successors shall have been
elected or appointed and shall have qualified. Any two or more offices may
be held by the same person. Any officer, agent or employee of the
corporation may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation will be served thereby.
Such removal shall be without prejudice to such person's contract rights,
if any, but the election or appointment of any person as an officer, agent
or employee of the corporation shall not of itself create contract rights.
The compensation of officers, agents, and employees elected by the Board of
Directors shall be fixed by the Board of Directors, but this power may be
delegated to any officer, agent or employee as to persons under his
direction or control. The Board of Directors may require any officer,
agent or employee to give security for the faithful performance of his
duties.
6.2 Powers and Duties of the Chief Executive Officer and the President.
The powers and duties of the Chief Executive Officer and the President,
subject to the supervision and control of the Board of Directors, shall be
those usually appertaining to their respective offices and whatever other
powers and duties are prescribed by these by-laws or by the Board of
Directors.
(a) The Chief Executive Officer of the corporation shall be the
highest executive officer of the corporation and shall have overall
responsibility for the management of the business of the corporation,
including responsibility for execution of all orders and resolutions
adopted by the Board of Directors, execution of authorized conveyances,
contracts and other documents in the name of the corporation, except where
the signing and execution thereof may be delegated by the Board of
Directors or these by-laws to another officer or agent of the corporation.
(b) The President shall be the second highest executive officer of
the corporation and shall report to the Chief Executive Officer of the
corporation. The President shall have such responsibilities for the
management of the business of the corporation as may be assigned to him by
the Chief Executive Officer or the Board of Directors. The President, in
the absence of the Chief Executive Officer, shall have the authority to
execute on behalf of the corporation conveyances, contracts and other
documents.
6.3 Powers and Duties of Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents. Each Executive Vice President, Senior Vice
President and Vice President shall have such powers and perform such duties
as the Board of Directors, the Chief Executive Officer or the President may
prescribe and shall perform such other duties as may be prescribed by these
by-laws. In the absence or inability to act of the Chief Executive Officer
<PAGE>
<PAGE>
or President, unless the Board of Directors shall otherwise provide, the
Executive Vice President who has served in that capacity for the longest
time and who shall be present and able to act, shall perform all duties and
may exercise any of the powers of the Chief Executive Officer. The
performance of any such duty by an Executive Vice President, Senior Vice
President or Vice President shall be conclusive evidence of his power to
act.
Without limiting the generality of the foregoing, an Executive Vice
President appointed by the Board of Directors shall be designated as the
Executive Vice President for a major operation or division of the
corporation and as such shall have responsibility and authority to conduct
the business of such operation or division. Each Executive Vice President
shall report to the Chief Executive Officer and the President and shall
have such other duties as may be assigned to him by the Board of Directors.
Each Executive Vice President shall have the authority to execute on behalf
of the corporation all conveyances, contracts and other documents which
pertain to the operation or division of the corporation for which he has
responsibility.
6.4 Powers and Duties of the Secretary. The Secretary shall have charge
of the minutes of all proceedings of the shareholders and of the Board of
Directors and shall keep the minutes of all their meetings at which he is
present. Except as otherwise provided by these by-laws he shall attend to
the giving of all notices to shareholders and Directors. He shall have
charge of the seal of the corporation, shall attend to its use on all
documents the execution of which on behalf of the corporation under its
seal is duly authorized and shall attest the same by his signature whenever
required. He shall have charge of the record of shareholders of the
corporation, of all written requests by shareholders that notices be mailed
to them at an address other than their addresses on the record of
shareholders, and of such other books and papers as the Board of Directors
may direct. Subject to the control of the Board of Directors, he shall
have all such powers and duties as generally are incident to the position
of Secretary or as may be assigned to him by the Chief Executive Officer,
President or the Board.
6.5 Powers and Duties of the Treasurer. The Treasurer shall have charge
of all funds and securities of the corporation, shall endorse the same for
deposit or collection when necessary and deposit the same to the credit of
the corporation in such banks or depositaries as the Board of Directors may
authorize. He may endorse all commercial documents requiring endorsements
for or on behalf of the corporation and may sign all receipts and all
commercial documents requiring endorsements for or on behalf of the
corporation and may sign all receipts and vouchers for payments made to the
corporation. He shall have all such powers and duties as generally are
incident to the position of Treasurer or as may be assigned to him by the
Chief Executive Officer, President or by the Board of Directors.
6.6 Appointment, Powers and Duties of Assistant Secretaries. Assistant
Secretaries may be appointed by the Chief Executive Officer, President or
elected by the Board of Directors. In the absence or inability of the
Secretary to act, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. The performance of any such duty
shall be conclusive evidence of his power to act. An Assistant Secretary
shall also perform such other duties as the Secretary or the Board of
Directors may assign to him.
<PAGE>
<PAGE>
6.7 Appointment, Powers and Duties of Assistant Treasurers. Assistant
Treasurers may be appointed by the Chief Executive Officer, President or
elected by the Board of Directors. In the absence or inability of the
Treasurer to act, an Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. The performance of any such duty
shall be conclusive evidence of his power to act. An Assistant Treasurer
shall also perform such other duties as the Treasurer or the Board of
Directors may assign to him.
6.8 Delegation of Duties. In case of the absence of any officer of the
corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors (or in the case of Assistant Secretaries
or Assistant Treasurers only, the Chief Executive Officer or President) may
confer for the time being the powers and duties, or any of them of such
officer upon any other officer (provided that the powers and duties of the
Chief Executive Officer or President may not be conferred upon the
Secretary, and vice versa), or elect or appoint any new officer to fill a
vacancy created by death, resignation, retirement or termination of any
officer. In such latter event such new officer shall serve until the next
annual election of officers.
ARTICLE SEVEN
CAPITAL STOCK
7.1 Certificates. The interest of each shareholder shall be evidenced
by a certificate or certificates representing shares of the corporation
which shall be in such form as the Board of Directors may from time to time
adopt and shall be numbered and shall be entered in the books of the
corporation as they are issued. Each certificate representing shares shall
set forth upon the face thereof the following:
(a) the name of this corporation;
(b) that the corporation is organized under the laws of the State of
Delaware;
(c) the name or names of the person or persons to whom the
certificate is issued;
(d) the number and class of shares, and the designation of the
series, if any, which the certificate represents;
(e) the par value of each share represented by such certificate, or
a statement that the shares are without par value; and
(f) if any shares represented by the certificate are non-voting
shares, a statement or notation to that effect; and if the shares
represented by the certificate are subordinate to shares of any other class
or series with respect to dividends or amounts payable on liquidation,
shall further set forth on either the face or back of the certificate a
clear and concise statement to that effect.
Each certificate shall be signed by the Chief Executive Officer,
President or any Executive or Senior dice President and the Secretary or an
Assistant Secretary and may be sealed with the seal of the corporation or a
facsimile thereof. If a certificate is countersigned by a transfer agent
or registered by a registrar, other than the corporation itself or an
employee of the corporation, the signature of any such officer of the
corporation may be a facsimile. In case any officer or officers who shall
have signed, or whose facsimile signature or signatures shall have been
<PAGE>
<PAGE>
used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death,
resignation or otherwise, before such certificate or certificates shall
have been delivered by the corporation, such certificate or certificates
may nevertheless be delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signatures shall have
been used thereon had not ceased to be such officer or officers.
7.2 Shareholder List. The corporation shall keep or cause to be kept a
record of the shareholders of the corporation which readily shows, in
alphabetical order or by alphabetical index, and by classes or series of
stock, if any, the names of the shareholders entitled to vote, with the
address of and the number of shares held by each. Said record shall be
presented and kept open for ten days prior to and during all meetings of
the shareholders in accordance with the provisions of Section 2.8 of these
by-laws.
7.3 Transfer of Shares. Transfers of stock shall be made on the books
of the corporation only by the person named in the certificate, or by power
of attorney lawfully constituted in writing, and upon surrender of the
certificate thereof, or in the case of a certificate alleged to have been
lost, stolen or destroyed, upon compliance with the provisions of Section
7.7 of these by-laws.
7.4 Record Dates. (a) For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose,
the Board of Directors may provide that the stock transfer books shall be
closed for a stated period but not to exceed sixty days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten days immediately preceding such meeting.
(b) In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than sixty days
and, in case of a meeting of shareholders, not less than ten days, prior to
the date on which the particular action requiring such determination of
shareholders is to be taken.
7.5 Registered Owner. The corporation shall be entitled to treat the
holder of record of any share of stock of the corporation as the person
entitled to vote such share, to receive any dividend or other distribution
with respect to such share, and for all other purposes and accordingly
shall not be bound to recognize any equitable or other claim or interest in
such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
7.6 Transfer Agent and Registrars. The Board of Directors may appoint
one or more transfer agents and one or more registrars and may require each
stock certificate to bear the signature or signatures of a transfer agent
or a registrar or both.
7.7 Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of the
fact in such manner as the Board of Directors may require and shall, if the
Directors so require, give the corporation a bond of indemnity in form and
amount and with one or more sureties satisfactory to the Board of
<PAGE>
<PAGE>
Directors, whereupon an appropriate new certificate may be issued in lieu
of the certificate alleged to have been lost, stolen or destroyed.
7.8 Fractional Shares or Scrip. The corporation may, when and if
authorized so to do by its Board of Directors, issue certificates for
fractional shares or scrip in order to effect share transfers, share
distributions or reclassifications, mergers, consolidations or
reorganizations. Holders of fractional shares shall be entitled, in
proportion to their fractional holdings, to exercise voting rights, receive
dividends and participate in any of the assets of the corporation in the
event of liquidation. Holders of scrip shall not, unless expressly
authorized by the Board of Directors, be entitled to exercise any rights of
a shareholder of the corporation, including voting rights, dividend rights
or the right to participate in any assets of the corporation in the event
of liquidation. In lieu of issuing fractional shares or scrip, the
corporation may pay in cash the fair value of fractional interest as
determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as
it may deem appropriate, including without limitation the right for persons
entitled to receive fractional shares to sell such fractional shares or
purchase such additional fractional shares as may be needed to acquire one
full share, or sell such fractional shares or scrip for the account of such
persons.
ARTICLE EIGHT
BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS
8.1 Inspection of Books and Records. Any shareholder of record,
including a holder of record of voting trust certificates, upon written
demand under oath stating the purpose thereof, shall have the right to
examine in person or by agent or attorney, at any reasonable time or times,
for any proper purpose, the books and records of account, minutes and
record of shareholders and to make copies thereof or extracts therefrom.
Such demand shall be sent to the attention of the Secretary of the
corporation at its principal place of business. If the demand is made by
an agent or attorney, such demand shall be accompanied by a power of
attorney or other authorization to act on behalf of the shareholder.
If the Secretary or a majority of the Board of Directors or members of
the Executive Committee of the corporation find the request proper, the
Secretary shall notify the shareholder within a reasonable time after
receipt of said request of the time, which shall in no event be more than
thirty days after such notification, and place at which the inspection may
be conducted.
If said request is found by the Secretary, the Board of Directors or
the Executive Committee not to be proper, the Secretary shall so notify the
requesting shareholder within a reasonable time after receipt of the
request. The Secretary shall specify in said notice the basis for the
rejection of the shareholder's request.
The Secretary, the Board of Directors and the Executive Committee shall
at all times be entitled to rely in good faith on the corporate records in
making any determination hereunder.
8.2 Seal. The corporate seal shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient
<PAGE>
<PAGE>
to use such a seal at any time, the signature of the corporation followed
by the word "Seal" enclosed in parentheses or scroll shall be deemed the
seal of the corporation.
8.3 Annual Statements. Not later than 180 days after the close of each
fiscal year, and in any case prior to the next annual meeting of
shareholders, the corporation shall prepare and mail to each shareholder
and holder of voting trust certificates:
(a) A balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and
(b) A statement of income (expenses and retained earnings) showing
the results of its operations during its fiscal year; and
(c) A report of the Chief Executive Officer, officer in charge of
financial records or a certified public accountant stating whether, in his
opinion, the financial statements present fairly the financial position of
the corporation and the results of its operations in accordance with
generally accepted accounting principles and, if not, describing the basis
for their preparation of the data in accordance with accounting procedures
generally used in the industry in which the corporation conducts its
business.
ARTICLE NINE
INDEMNIFICATION
9.1 Third Party Claims. Under the circumstances prescribed in Sections
9.3 and 9.4, the corporation shall indemnify and hold harmless any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including appeals, (other than
an action by or in the right of the corporation) by reason of the fact that
he is or was a Director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a Director, officer,
partner, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amount paid in settlement actually and
reasonably incurred by him in connection with such claim, action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any claim, action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
9.2 Corporate Claims . Under the circumstances prescribed in Sections
9.3 and 9.4, the corporation shall indemnify and hold harmless any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed claim, action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact
he is or was a Director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a Director, officer,
partner, employee or agent, of another corporation, partnership, joint
<PAGE>
<PAGE>
venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation; except that no indemnification shall be made
in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation, unless and only to the
extent that the Chancery Court or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Chancery Court or such other court shall deem proper.
9.3 Indemnification of Expenses Where Successful. To the extent that a
Director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Sections 9.1 and 9.2, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
9.4 Authorization of Indemnification. Except as provided in Section
9.3 and except as may be ordered by a court, any indemnification under
Sections 9.1 and 9.2 shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in Sections 9.1 and
9.2. Such a determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to
or have been wholly successful on the merits or otherwise with respect to
such action, suit or proceeding, or (2) if such a quorum is not obtainable
or, even if obtainable, a quorum of disinterested Directors so directs, by
independent legal counsel in a written opinion, or (3) by the affirmative
vote of a majority of the shares entitled to vote thereon.
9.5 Advancement of Expenses. Expenses (including attorneys' fees)
incurred in defending a civil or criminal action, suit or proceeding may be
paid by the corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the specific
case upon receipt of an undertaking by or on behalf of the Director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article Nine.
9.6 Nonexclusive Method of Indemnification. The indemnification and
advancement of expenses provided by this Article Nine shall not be deemed
exclusive of any other rights, in respect of indemnification or otherwise,
to which those seeking indemnification or advancement of expenses may be
entitled under any agreement, by-law or resolution approved by the
affirmative vote of the holders of a majority of the shares entitled to
vote thereon taken at a meeting the notice of which specified that such by-
law or resolution would be placed before the shareholders, both as to
action by a Director, officer, employee or agent in his official capacity
and as to action in another capacity while holding such office or position,
and shall continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
<PAGE>
<PAGE>
9.7 Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a Director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this Article Nine.
9.8 Notification to Shareholders of Indemnification. If any expenses or
other amounts are paid by way of indemnification, otherwise than by court
order or action by the shareholders or by an insurance carrier pursuant to
insurance maintained by the corporation, the corporation shall, not later
than the next annual meeting of shareholders unless such meeting is held
within three months from the date of such payment, and, in any event,
within I5 months from the date of such payment, send by first class mail to
its shareholders of record at the time entitled to vote for the election of
Directors a statement specifying the persons paid, the amounts paid, and
the nature and status at the time of such payment of the litigation or
threatened litigation.
ARTICLE TEN
NOTICES; WAIVERS OF NOTICE
10.1 Notices. Except as otherwise specifically provided in these by-
laws, whenever under the provisions of these by-laws notice is required to
be given to any shareholder, Director or officer, it shall not be construed
to mean personal notice, but such notice may be given by personal notice or
by cable or telegraph, or by mail by depositing the same in the post office
or letter box in a postpaid sealed wrapper, addressed to such shareholder,
officer or Director at such address as appears on the books of the
corporation, and such notice shall be deemed to be given at the time when
the same shall be thus sent or mailed.
10.2 Waivers of Notice. Except as otherwise provided in these by-laws,
when any notice whatever is required to be given by law, by the certificate
of incorporation or by these by-laws, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. In the case of a
shareholder, such waiver of notice may be signed by the shareholder's
attorney or proxy duly appointed in writing.
ARTICLE ELEVEN
EMERGENCY POWERS
11.1 By-Laws. The Board of Directors may adopt emergency by-laws,
subject to repeal or change by action of the shareholders, which shall,
notwithstanding any provision of law, the certificate of incorporation or
these by-laws, be operative during any emergency in the conduct of the
business of the corporation resulting from an attack on the United States
or on a locality in which the corporation conducts its business or
customarily holds meetings of its Board of Directors or its shareholders,
or during any nuclear or atomic disaster, or during the existence of any
<PAGE>
<PAGE>
catastrophe, or other similar emergency condition, as a result of which a
quorum of the Board of Directors or a standing committee thereof cannot
readily be convened for action. The emergency by-laws may make any
provision that may be practical and necessary for the circumstances of the
emergency.
11.2 Lines of Succession. The Board of Directors, either before or
during any such emergency, may provide, and from time to time modify, lines
of succession in the event that during such an emergency any or all
officers or agents of the corporation shall for any reason be rendered
incapable of discharging their duties.
11.3 Head Office. The Board of Directors, either before or during any
such emergency, may effective in the emergency, change the head office or
designate several alternative head offices or regional offices, or
authorize the officers to do so.
11.4 Period of Effectiveness. To the extent not inconsistent with any
emergency by-laws so adopted, these by-laws shall remain in effect during
any such emergency and upon its termination the emergency by-laws shall
cease to be operative.
11.5 Notices. Unless otherwise provided in emergency by-laws, notice of
any meeting of the Board of Directors during any such emergency may be
given only to such of the Directors as it may be feasible to reach at the
time, and by such means as may be feasible at the time, including
publication, radio or television.
11.6 Officers as Directors Pro Tempore. To the extent required to
constitute a quorum at any meeting of the Board of Directors during any
such emergency, the officers of the corporation who are present shall,
unless otherwise provided in emergency by-laws, be deemed, in order of rank
and within the same rank in order of seniority, Directors for such meeting,
provided, that the emergency by-laws may declare that the Director or
Directors in attendance at a meeting shall constitute a quorum.
11.7 Liability of Officers, Directors and Agents. No officer, Director,
agent or employee acting in accordance with any emergency by-laws shall be
liable except for willful misconduct. No officer, Director, agent or
employee shall be liable for any action taken by him in good faith in such
an emergency in furtherance of the ordinary business affairs of the
corporation even though not authorized by the by-laws then in effect.
ARTICLE TWELVE
CONTRACTS; CHECKS
12.1 Contracts. The Board of Directors may authorize any officer,
employee or agent to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
12.2 Checks. Checks, notes, drafts, acceptances, bills of exchange and
other orders or obligations for the payment of money shall be signed by
such officer or officers or person or persons as the Board of Directors by
resolution shall from time to time designate.
<PAGE>
<PAGE>
ARTICLE THIRTEEN
DIVIDENDS AND DISTRIBUTIONS
The Board of Directors may declare dividends on its outstanding shares
out of either (I) the surplus of the corporation, as defined in and
computed in accordance with Sections 154 and 244 of the General Corporation
Law of Delaware, or (2] in case there shall be no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. Dividends may be declared and paid in cash,
property, or treasury shares of the corporation or may be paid in
authorized but unissued shares of the corporation. If a dividend is paid
in authorized but unissued shares of the corporation, the Board of
Directors shall, by resolution, direct that there be designated as capital
in respect of such shares an amount which is not less than the aggregate
par value of par value shares being declared as a dividend and, in the case
of shares without par value being declared as a dividend, such amount shall
be determined by the Board of Directors. No such designation as capital
shall be necessary if shares are being distributed by the corporation
pursuant to a split-up or division of its stock rather than as payment of a
dividend declared payable in stock of the corporation.
ARTICLE FOURTEEN
AMENDMENTS
The by-laws of the corporation may be altered or amended and new by-laws
may be adopted by the shareholders at any annual or special meeting of the
shareholders or by the Board of Directors at any regular or special meeting
of the Board of Directors; provided, however, that, if such action is to be
taken at a meeting of the shareholders, notice of the general nature of the
proposed change in the by-laws shall be given in the notice of meeting.
The shareholders may provide by resolution that any by-law provision
repealed, amended, adopted, or altered by them may not be repealed,
amended, adopted, or altered by the Board of Directors. Action by the
shareholders with respect to by-laws shall be taken by an affirmative vote
of a majority of all shares entitled to elect Directors, and action by the
Board of Directors with respect to by-laws shall be taken by an affirmative
vote of a majority of all Directors then holding office.
<PAGE>
<PAGE>
FIRST AMENDMENT TO THE BYLAWS
OF NICHOLS RESEARCH CORPORATION
Pursuant to Article Fourteen of the Bylaws of Nichols Research
Corporation (the "Bylaws"), the Bylaws of Nichols Research Corporation (the
"Company") are hereby amended effective November 15, 1990, as follows:
1. The first sentence of Section 2.7 of the Bylaws is hereby deleted
in its entirety and the following new sentence is substituted in its place:
At every meeting of shareholders, the Chairman of the Board, or
in the absence of the Chairman or if there is none, the Vice Chairman
of the Board or if there is none, the Chief Executive Officer, or in
his absence the President, or in his absence a Vice President or, if
none be present, the appointee of the presiding officer of the
meeting, shall preside.
2. The first sentence of Section 3.6 of the Bylaws is hereby deleted
in its entirety and the following new sentence is substituted in its place:
Any Director may resign at any time either orally at any meeting
of the Board of Directors or by so advising the Chairman of the Board,
if any, the Vice Chairman of the Board, if any, the Chief Executive
Officer or the President or by giving written notice to the
corporation.
3. Section 3.8 of the Bylaws is hereby deleted in its entirety and
the following new Section is substituted in its place:
3.8 CHAIRMAN OF THE BOARD; VICE CHAIRMAN OF THE BOARD. The
Board of Directors may elect from its members a Chairman of the Board
of Directors. In the absence of an agreement to the contrary, the
Chairman of the Board of Directors shall preside at every meeting of
the shareholders and at every meeting of the Directors.
The Board of Directors may elect from its members a Vice Chairman
of the Board of Directors. The Vice Chairman of the Board shall serve
in the absence of the Chairman of the Board.
4. The first sentence of Section 4.1(c) of the Bylaws is hereby
deleted in its entirety and the following new sentence is substituted in
its place:
The Executive Committee shall meet from time to time on the call
of the Chairman of the Board, the Vice Chairman of the Board, the
Chief Executive Officer, or the President or of any two or more
members of the Executive Committee.
5. The first sentence of Section 5.3 of the Bylaws is hereby deleted
in its entirety and the following new sentence is substituted in its place:
Special meetings of the Board of Directors may be called by the
Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, or the President on not less than two days' written
notice by mail, telegram or cablegram, or by personal delivery to each
Director and shall be called by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or
the Secretary in a like manner and on like notice on the written
request of any two or more Directors.
<PAGE>
<PAGE>
In all other respects the Bylaws shall remain in full force and effect
according to their terms and provisions.
IN WITNESS WHEREOF, the undersigned hereby certifies that the
foregoing First Amendment to the Bylaws of Nichols Research Corporation was
duly adopted by the Board of Directors on November 15, 1990.
/s/ Patsy L. Hattox
-------------------------------------------
Secretary
<PAGE>
<PAGE>
SECOND AMENDMENT TO THE BYLAWS
OF NICHOLS RESEARCH CORPORATION
Pursuant to Article Fourteen of the Bylaws of Nichols Research
Corporation (the "Bylaws"), the Bylaws of Nichols Research Corporation (the
"Company") are hereby amended effective September 15, 1993, as follows:
The first sentence of Section 3.2 is hereby deleted in its entirety
and the following new sentence is substituted in its place:
The Board of Directors shall consist of not less than five
(5) and not more than eleven (11) members, the precise number to
be fixed by resolution of the Board of Directors from time to
time.
In all other respects the Bylaws shall remain in full force and effect
according to their terms and provisions.
IN WITNESS WHEREOF, the undersigned hereby certifies that the
foregoing Second Amendment to the Bylaws of Nichols Research Corporation
was duly adopted by the Board of Directors on September 15, 1993.
/s/ Patsy L. Hattox
-------------------------------------------
Secretary
<PAGE>
<PAGE>
THIRD AMENDMENT TO THE BYLAWS
OF NICHOLS RESEARCH CORPORATION
Pursuant to Article Fourteen of the Bylaws of Nichols Research
Corporation (the "Bylaws"), the Bylaws of Nichols Research Corporation (the
"Company") are hereby amended effective August 24, 1995, as follows:
1. The following new Section 3.9 is hereby added to the Bylaws:
3.9 MANDATORY RETIREMENT. Upon the attainment of age 70, a
director shall retire from the Board of Directors and shall
thereafter cease to be qualified to serve as a director of the
corporation. A vacancy shall be deemed to exist at the time a
director attains the age of 70, and the Board of Directors or the
shareholders may, then or thereafter, elect a successor to take
office upon such retirement and until the term of the retired
director would have ended, but for said retirement.
In all other respects, the Bylaws shall remain in full force and
affect according to their terms and provisions.
IN WITNESS WHEREOF, the undersigned hereby certifies that the
foregoing Third Amendment to the Bylaws of Nichols Research Corporation was
duly adopted by the Board of Directors on August 24, 1995.
/s/ Patsy L. Hattox
-------------------------------------------
Secretary
<PAGE>
AMENDMENT TWO
TO THE
NICHOLS RESEARCH CORPORATION
1991 STOCK OPTION PLAN
Pursuant to Section 8 of the Nichols Research Corporation 1991 Stock
Option Plan (the "Plan"), Nichols Research Corporation (the "Company"),
hereby amends the Plan as follows:
1. Effective upon approval by the shareholders of the Company, the
second sentence of Section 4 of the Plan is amended to increase by 300,000
shares the aggregate number of shares which may be issued pursuant to
option exercises under the Plan, to 950,000 shares of Capital Stock.
2. Effective September 1, 1994, Section 6 of the Plan is hereby
amended to extend the term of the Plan by providing that the Plan will
expire on November 12, 2000.
Except as amended above, the Plan shall remain in full force and
effect according to its terms and provisions.
Done this the 25th day of August, 1994.
NICHOLS RESEARCH CORPORATION
Chris H. Horgen
By:__________________________________
Its Chief Executive Officer
<PAGE>
<PAGE>
THIRD AMENDMENT
TO THE
NICHOLS RESEARCH CORPORATION
1991 STOCK OPTION PLAN
Pursuant to Section 8 of the Nichols Research Corporation 1991 Stock
Option Plan (the "Plan"), Nichols Research Corporation (the "Company"), hereby
amends the Plan as follows:
Effective upon approval by the shareholders of the Company, the second
sentence of Section 4 of the Plan is amended to increase by 500,000
shares the aggregate number of shares which may be issued pursuant to
option exercises under the Plan to 1,450,000 shares of Capital Stock.
Except as amended above, the Plan shall remain in full force and effect
according to its terms and provisions.
Done this the 24th day of August, 1995.
NICHOLS RESEARCH CORPORATION
/s/ Chris H. Horgen
------------------------------------
Chief Executive Officer
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of August 16, 1995, is between and
among NICHOLS RESEARCH CORPORATION, a Delaware corporation ("Borrower"),
SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking
association ("SouthTrust"), FIRST ALABAMA BANK, an Alabama state banking
corporation ("First Alabama"), and CORESTATES BANK, N.A., a national banking
association ("Corestates") (SouthTrust, First Alabama and Corestates being
collectively referred to herein as the "Banks").
R E C I T A L S:
A. Borrower has requested that Banks make available to Borrower a
line of credit loan in the maximum principal amount of up to $73,500,000.
B. Banks are willing to make such line of credit available to
Borrower on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1. Definitions. In addition to the terms defined in the
introductory paragraph hereof, the following terms shall have the following
respective meanings:
"Accelerated Reimbursement Obligation" means at any time the sum of the
undrawn portion of the Letters of Credit plus the amounts of all drawings
against the Letters of Credit for which Borrower has not reimbursed Lender.
"Accounts" mean all accounts, accounts receivable, chattel paper,
leases, promissory notes, contracts for receipt of money, conditional sales
contracts, and evidences of indebtedness of or owing to Borrower and/or any of
the Subsidiaries whether now existing or hereafter arising, including, without
limitation, (i) all accounts and other rights to payment of money which arise
or result from Borrower's or any of the Subsidiaries' selling or other
disposition of Borrower's goods or the providing of services by the Borrower
and/or any of the Subsidiaries, (ii) the proceeds of any insurance covering the
Accounts, (iii) the return of unearned insurance premiums, and (iv) amounts due
under contracts with the United States Government, subject to the provisions of
the Act.
"Account Debtor" means any Person who is or may become obligated under
or in connection with an Account.
"Act" means the United States Assignment of Claims Act of 1940, as
amended.
"Advance" means a disbursement by Banks to Borrower of principal of the
Line of Credit Loan pursuant to Article 2 hereof.
"Affiliate" means any director or officer of Borrower or any person
who, directly, indirectly or beneficially, owns 5% or more of the capital stock
of Borrower or any member of the immediate family of any such officer, director
or stockholder, or any corporation or other entity which is controlled by,
controls, or is under common control with the Borrower.
<PAGE>
<PAGE>
"Agreement" means this Credit Agreement.
"Applicable Environmental Law" means any statutory law or case law
pertaining to health or the environment, or petroleum products, or oil, or
hazardous substances, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, as
codified at 42 U.S.C. Section 9601, et. seq.; the Resource Conservation and
Recovery Act of 1976, as amended, as codified at 42 U.S.C. Section 6901, et
seq.; the Superfund Amendments and Reauthorization Act of 1986, as amended, as
codified at 42 U.S.C. Section 9671, et seq.; and any state or local law,
regulation or ordinance pertaining to such matters.
"Base Rate" means the rate of interest designated by SouthTrust
periodically as its Base Rate. The Base Rate is not necessarily the lowest
rate charged by SouthTrust. The Base Rate may be ascertained by calling (205)
254-5900. When an interest rate is tied to the Base Rate, such interest rate
will change, as and when the Base Rate changes.
"Borrowing Base Certificate" means the certificate executed by the
Borrower in the form attached hereto as Exhibit A.
"Business Day" means any day (other than a Saturday or Sunday) upon
which all the Banks are open for business and on which dealings in U.S. Dollars
are carried on in the Eurodollar Market.
"Capital Expenditures" mean expenditures made or liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise and the
principal portion of payments with respect to Capitalized Lease Obligations.
"Capitalized Lease Obligations" mean any Debt represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP, and the amount of such Debt shall be the
capitalized amount of such obligations determined in accordance with GAAP.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, together with all
amendments from time to time thereto, including any rules or regulations
promulgated thereunder.
"Collateral" means the Accounts, Inventory, General Intangibles,
Equipment, and other property and interests now or hereafter hypothecated to
Banks as security for the Obligations, and the proceeds and products thereof.
"Commitment Period" means the period of time during which Banks shall
be committed to make Advances to Borrower, and shall be from the Closing Date
until the Commitment Termination Date.
"Commitment Termination Date" means the first to occur of (1) March 31,
1997, or such later date as Borrower and Banks may agree upon in writing
pursuant to Section 2.11 hereof, it being agreed that Banks shall have no
obligation to extend the Commitment Termination Date, or (2) the date that
Banks, by reason of an Event of Default, suspends the making of further
Advances.
<PAGE>
<PAGE>
"CoreStates Note" means that certain Line of Credit Promissory Note of
even date herewith, in the principal amount of up to $20,000,000, executed and
delivered by Borrower to CoreStates, evidencing CoreStates' Proportionate Share
of the Line of Credit.
"Debt" means the sum of (i) indebtedness for borrowed money or for the
deferred purchase price of property or services, (ii) Capitalized Lease
Obligations, (iii) all other items which in accordance with GAAP would be
included in determining total liabilities as shown on a balance sheet of a
Person as at the date as of which Debt is to be determined.
"Default Rate" means two percent (2%) in excess of the Base Rate.
"Eligible Billed Accounts" mean billed Accounts arising in the ordinary
course of Borrower's or the Subsidiaries' business from the sale of finished
product Inventory or rendition of services, which Banks, in their reasonably
exercised credit judgment, deem to be Eligible Billed Accounts. Without
limiting the generality of the foregoing, no Account shall be an Eligible
Billed Account if: (i) it arises out of a sale made by Borrower or the
Subsidiaries to an Affiliate of Borrower or to a Person controlled by an
Affiliate or Subsidiary of Borrower; or (ii) it is due or unpaid more than
ninety (90) days after the original invoice date; or (iii) fifty percent (50%)
or more of the Accounts from the Account Debtor are not deemed Eligible Billed
Accounts hereunder; or (iv) the total unpaid Accounts of the Account Debtor
exceed twenty percent (20%) of the net amount of all Accounts, to the extent of
such excess; or (v) any covenant, representation or warranty contained in this
Agreement with respect to such Account has been breached; or (vi) the Account
Debtor is also Borrower's or one of the Subsidiaries' creditor or supplier, or
has disputed liability with respect to such Account, or has made any claim with
respect to any other Account due from such Account Debtor to Borrower or one of
the Subsidiaries, or the Account otherwise is or may become subject to any
right of setoff by the Account Debtor, provided, however, that such Account
shall be ineligible only to the extent of any setoff claimed by the Account
Debtor; or (vii) the Account Debtor has commenced a voluntary case, or has had
commenced against it, an involuntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or made an assignment for the benefit of
creditors, or a decree or order for relief under the federal bankruptcy laws
has been filed against the Account Debtor, or if the Account Debtor has failed,
suspended business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed of it or for all or
a significant portion of its assets or affairs; or (viii) it arises from a sale
to an Account Debtor outside the United States; or (ix) it arises from a sale
to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return basis; or (x)
Banks believe, in their sole judgment, that collection of such Account is
insecure or that payment thereof is doubtful or will be delayed by reason of
the Account Debtor's financial condition; or (xi) the Account Debtor is located
in either the State of New Jersey or the State of Minnesota, unless Borrower or
the applicable Subsidiary has filed a Notice of Business Activities Report with
the appropriate officials in those states for the then current year; or (xii)
the Account is subject to a Lien, other than a Lien in favor of the Banks; or
(xiii) the goods giving rise to such Account have not been delivered to and
accepted by the Account Debtor or the services giving rise to such Account have
not been performed by Borrower or the Subsidiary and accepted by the Account
Debtor or the Account otherwise does not represent a final sale; or (xiv) the
total unpaid Accounts of the Account Debtor exceed a credit limit determined by
Banks, in their sole discretion, to the extent such Account exceeds such limit;
or (xv) the Account is evidenced by chattel paper, a note, or an instrument of
any kind, or has been reduced to judgment; or (xvi) Borrower or the Subsidiary
<PAGE>
<PAGE>
has made any agreement with the Account Debtor for any deduction therefrom,
except for discounts or allowances which are made in the ordinary course of
business for prompt payment and which discounts or allowances are reflected in
the calculation of the face value of each invoice related to such Account; or
(xvii) Borrower or the Subsidiary has made an agreement with the Account Debtor
to extend the time of payment thereof; or (xviii) the Account arises from a
retail sale of goods to a Person who is purchasing same primarily for personal,
family or household purposes; or (xix) the Account arises out of a shipment of
Inventory, goods, or products to an address other than an address in the United
States; or (xx) the Account Debtor is not a resident citizen of the United
States or a corporate entity or partnership formed and existing under the laws
of the United States or a political subdivision thereof.
"Eligible Unbilled Accounts" mean unbilled Accounts which, if billed,
would meet the definition of Eligible Billed Accounts, and which are not more
than ninety (90) days old measured from the date the goods giving rise to such
Account were delivered or the services giving rise to such Account were
performed by Borrower or one of the Subsidiaries, as the case may be.
"Employee Plan" means any plan subject to Title IV of ERISA and
maintained in whole or in part for employees of Borrower and/or the
Subsidiaries.
"ERISA" means the Employee Retirement Income security Act of 1974,
together with all amendments from time to time thereto, including any rules or
regulations promulgated thereunder.
"Equipment" means all equipment now or hereafter used or useful in the
operation of the Borrower's and/or any of the Subsidiaries' business, together
with all accessories, parts and additions now or hereafter affixed thereto or
used in connection therewith; provided, however, that with respect to equipment
which is leased and not owned by the Borrower or the Subsidiary, the Equipment
shall include only the leasehold interest of Borrower or the Subsidiary,
together with any options to purchase and any greater or additional rights
thereto that Borrower or the Subsidiary may hereafter acquire, except for the
equipment and personal property referred to on Exhibit A to the Security
Agreement.
"Eurodollar Interest Period" means, with respect to any period in which
the Eurodollar Rate is in effect, a period of either one (1), two (2), three
(3), or six (6) months, as Borrower may elect by delivery of a Eurodollar Rate
Election Notice; provided that any Eurodollar Interest Period may not extend
beyond the last day of the Commitment Period; and provided further that if any
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such
Eurodollar Interest Period beyond the last day of the Commitment Period, in
which event such Eurodollar Interest Period shall end on the immediately
preceding Business Day.
"Eurodollar Rate" means the London Interbank Offered Rate in effect
from time to time for the applicable Eurodollar Interest Period, as determined
by Lender from the financial press (currently quoted in the "Money Rates" table
contained in The Wall Street Journal) plus 125 basis points (1.25%).
"Eurodollar Rate Election" shall mean an election by Borrower to
convert the interest rate applicable to the outstanding principal balance of
the Line of Credit Loan to the Eurodollar Rate.
<PAGE>
<PAGE>
"Eurodollar Rate Election Notice" shall mean a written notice of
Borrower's Eurodollar Rate Election delivered to Lender, which notice must
specify (i) the Eurodollar Interest Period as either one (1), two (2), three
(3), or six (6) months, and (ii) the principal amount of the Line of Credit
Loan to bear interest at the Eurodollar Rate which must be at least $1,000,000
and any excess must be in increments of $100,000.
"Event of Default" means the events described in Article 7 hereof.
"Existing Letter of Credit" means the irrevocable letter of credit
number SB8775 dated January 11, 1995, issued by SouthTrust for Borrower's
account, in the aggregate amount of up to $2,287,300, for the benefit of
SouthTrust Bank of Alabama, National Association as Trustee under the Trust
Indenture dated as of January 1, 1995, between said trustee and the State
Industrial Development Authority, and any renewal or replacement thereof.
"First Alabama Note" means that certain Line of Credit Promissory Note
of even date herewith, in the principal amount of up to $25,000,000, executed
and delivered by Borrower to First Alabama, evidencing First Alabama's
Proportionate Share of the Line of Credit.
"Fixed Charge Coverage" means a fraction in which the numerator is the
sum of the net income of the Borrower (after provision for federal and state
taxes) for the twelve (12) month period preceding the applicable date plus the
interest, lease and rental expenses of the Borrower for said period plus the
sum of non-cash expenses or allowances for such period (including, without
limitation, amortization or write down of intangible assets, depreciation,
depletion, and deferred taxes and expenses) and the denominator is the sum of
the current portion of the long term debt of Borrower as of the applicable date
plus the interest, lease and rental expenses for the twelve (12) month period
preceding the applicable date.
"Funded Pension Plan" means a Plan that (a) covers any employee of the
Borrower and/or the Subsidiaries or that the Borrower otherwise has sponsored
or maintained or to which the Borrower and/or the Subsidiaries has made any
contributions within five (5) years preceding the date of this Agreement and
(b) is subject to the minimum funding standards of Section 301 et seq. of
ERISA.
"Future Letters of Credit" mean any irrevocable or standby letters of
credit hereafter issued by SouthTrust for the Borrower's account with an
expiration date prior to the Commitment Termination Date, expressly excluding
the Existing Letter of Credit.
"GAAP" means, as in effect from time to time, generally accepted
accounting principles consistently applied with respect to a corporation
conducting a business the same as or similar to that of the Borrower.
"General Intangibles" mean all general intangibles of Borrower and/or
of any of the Subsidiaries, whether now owned or hereafter acquired, including,
without limitation, all choses in action, causes of action, corporate or other
business records, deposit accounts, inventions, designs, patents, patent
applications, trademarks, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, tax refunds and tax refund
claims, computer programs, all claims under guaranties, security interests or
other security held by or granted to Borrower and/or any of the Subsidiaries to
secure payment of any of the Accounts by an Account Debtor, all rights to
indemnification, and all other intangible property of every kind and nature.
<PAGE>
<PAGE>
"Intercreditor Agreement" means that certain Intercreditor Agreement
among the Banks of even date herewith.
"Interest Coverage Ratio" means for any fiscal period the ratio of
Pretax Income for such period to Interest Expense for such period.
"Interest Expense" for any fiscal period means the amount properly
recorded or recordable as interest expense of the Borrower for such period
determined in accordance with GAAP, plus operating lease payments for such
period.
"Inventory" means all inventory of whatever kind or nature of Borrower
and/or of the Subsidiaries, now owned or hereafter acquired by Borrower and/or
by any of the Subsidiaries, and wherever located, including, without
limitation, all goods held for sale or lease or furnished or to be furnished
under contracts, and any raw materials, goods in transit, work in process or
finished goods, supplies, returned or repossessed goods, together with all
goods and materials used or consumed in Borrower's and/or any of the
Subsidiaries' business.
"Lender" means SouthTrust, as agent for the Banks pursuant to the
Intercreditor Agreement, or any Person appointed as successor agent pursuant to
the Intercreditor Agreement.
"Letters of Credit" mean, collectively, the Future Letters of Credit.
"Lien" means any voluntary or involuntary mortgage, security deed, deed
of trust, lien, pledge, assignment, charge, security interest, title retention
agreement, financing lease, levy, execution, seizure, judgment, attachment,
garnishment, charge or other encumbrance of any kind.
"Line of Credit Loan" means the $73,500,000 credit facility available
to Borrower pursuant to Article 2 of this Agreement, with accrued interest on
such principal and other agreed charges as shall be outstanding at any given
time.
"Loan Documents" means this Agreement, the Notes, the Security
Agreement, and any other documents or instruments now or hereafter executed
evidencing, securing, or relating to the Line of Credit Loan.
"Loan Value of Accounts" means an amount which, at any given time, is
not more than (i) 85% of the aggregate Eligible Billed Accounts plus (ii) 65%
of the aggregate of Eligible Unbilled Accounts, provided, that the aggregate
amount of Eligible Unbilled Accounts may not exceed $40,000,000 at any time and
the amount of the Subsidiaries' Eligible Billed Accounts may not exceed
$10,000,000 and the amount of the Subsidiaries' Eligible Unbilled Accounts may
not exceed $1,000,000 at any time.
"Multiemployer Plan" has the meaning set forth in Section 4001(a)(3) of
ERISA.
"Net Income" means for any fiscal period the gross revenues of the
Borrower for such period less all expenses and other proper charges (including
taxes on income), determined in accordance with GAAP on a consolidated basis,
but excluding in any event:
(a) any gains or losses on the sale or other disposition of investments or
fixed or capital assets other than in the ordinary course of business and any
<PAGE>
<PAGE>
taxes on such excluded gains and any tax deductions or credits on account of
any such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any corporation substantially all the assets
of which have been acquired by the Borrower in any manner, realized by such
other corporation prior to the date of such acquisition;
(d) net earnings and losses of any corporation with which the Borrower
shall have consolidated or which shall have merged into or with the Borrower,
realized by such other corporation prior to the date of such consolidation or
merger;
(e) net earnings or losses of any business entity in which the Borrower has
an ownership interest unless such net earnings shall have actually been
received by the Borrower in the form of cash distributions;
(f) any gain arising from the acquisition of any securities of the
Borrower;
(g) any reversal of a contingency reserve which contingency reserve was
taken prior to the date of this Agreement; and
(h) any gain arising from the termination of any Funded Pension Plan.
"Notes" mean, collectively, the SouthTrust Note, the First Alabama
Note, and the CoreStates Note.
"Obligations" mean the Line of Credit Loan, the Accelerated
Reimbursement Obligation, the Reimbursement Obligation, and all other advances,
debts, liabilities, obligations, covenants and duties owing, arising, due or
payable from Borrower or Subsidiaries to Banks of any kind or nature, present
or future, whether or not evidenced by any note, guaranty or other instrument,
whether arising under this Agreement or any of the other Loan Documents whether
direct or indirect (including those acquired by assignment), absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising and however evidenced or acquired. The term includes,
without limitation, all principal, interest, charges, expenses, fees,
attorneys' fees and any other sums chargeable to Borrower under any of the Loan
Documents and all rights Banks may at any time or times have to reimbursement
in connection with any Letters of Credit or guaranty issued for Borrower's
benefit.
"Organizational Documents" means the Borrower's and the Subsidiaries'
articles of incorporation and bylaws, with all amendments thereto,
respectively.
"Overadvance" means an Advance by Banks at any time when the aggregate
outstanding principal of the Line of Credit Loan plus the Accelerated
Reimbursement Obligation exceeds the Loan Value of Accounts, or will exceed the
Loan Value of Accounts if such Advance is made.
"Permitted Liens" means the Liens described on Exhibit B hereof, Liens
securing purchase money borrowing permitted by this Agreement, and financing
statements filed by lessors of personal property leases.
<PAGE>
<PAGE>
"Person" means an individual, corporation, partnership, association,
joint-stock company, trust, business trust, unincorporated organization or
joint venture, or a court or governmental authority.
"Plan" means an employee benefit plan now or hereafter maintained for
employees of Borrower or Subsidiaries that is covered by Title IV of ERISA.
"Potential Default" means an event, which with the giving of notice or
lapse of time or both, will constitute an Event of Default.
"Pretax Income" for any fiscal period means the Net Income for such
period (a) minus any portion thereof constituting interest income, (b) plus the
sum of all amounts deducted in computing Net Income for (i) taxes, (ii)
interest expense or (iii) operating lease payments computed on a consolidated
basis.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Proportionate Share" means, with respect to Advances and payment of
interest, and principal, as appropriate under the Line of Credit Loan, the
following percentages:
SouthTrust 285/735
First Alabama 250/735
CoreStates 200/735
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to the extension of credit by banks for the purpose of
purchasing or carrying margin stocks applicable to member banks of the Federal
Reserve System.
"Reimbursement Obligation" means Borrower's obligation to reimburse
SouthTrust for drawings under the Letters of Credit.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA.
"Security Agreement" means that certain Security Agreement, dated of
even date herewith, between the Borrower and the Subsidiaries and the Banks and
the Lender, wherein the Borrower and the Subsidiaries have granted a security
interest in the collateral described therein as security for the Line of Credit
Loan and the Accelerated Reimbursement Obligation.
"Solvent" as to any Person, means such Person (i) owns property, real,
personal, and mixed, whose aggregate fair saleable value is greater than the
amount required to pay all of such Person's Debt (including contingent debts),
and (ii) is able to pay all of its Debt as such Debt matures and (iii) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.
"SouthTrust Note" means that certain Line of Credit Promissory Note of
even date herewith, in the principal amount of up to $28,500,000, executed and
delivered by Borrower to SouthTrust, evidencing SouthTrust's Proportionate
Share of the Line of Credit.
<PAGE>
<PAGE>
"Subsidiaries" mean Communications & Systems Specialists, Inc., a
Maryland corporation, Conway Computer Group, Inc., a Delaware corporation, CSC
Acquisitions, Inc., an Alabama corporation, and NRC Technical Services
Corporation, an Alabama corporation, all or a sufficient percentage of the
capital stock of each of which is owned by the Borrower and which are
consolidated for all accounting and tax purposes with the Borrower on the
Borrower's financial statements and federal income tax returns.
"Tangible Net Worth" means the aggregate of the (a) par or stated value
of all outstanding capital stock; (b) capital surplus; and (c) retained
earnings; less (x) any surplus resulting from any write up of assets subsequent
to the Closing Date; (y) the amount of any goodwill, patents, trademarks,
tradenames, customer lists, non-competition agreements, and copyrights
reflected on the books of the Borrower; and (z) the amount paid for any
treasury stock reflected as a reduction of the capital surplus or retained
earnings accounts.
1.2. Singular and Plural. Singular terms shall include the plural
forms and vice versa, as applicable, of the terms defined.
1.3. Amendments. All references to other documents or instruments
shall be deemed to refer to such documents or instruments as they may hereafter
be extended, renewed, modified, or amended and all replacements and
substitutions therefor.
ARTICLE 2. THE LINE OF CREDIT LOAN
2.1. Disbursement of Advances. Subject to the terms and
conditions of this Agreement, and for so long as no Event of Default or
Potential Default exists; Banks agree to make Advances of the Line of Credit
Loan to Borrower from time to time during the Commitment Period, in an
aggregate principal amount at any time outstanding not to exceed the lesser of
(i) $73,500,000 less an amount equal to the Accelerated Reimbursement
Obligation, or (ii) the Loan Value of Accounts as determined by Banks from the
last Borrowing Base Certificate submitted to Banks. During the Commitment
Period, Borrower may borrow, repay and reborrow the principal of the Line of
Credit Loan, all in accordance with the terms and conditions of this Agreement.
Each Advance shall be disbursed as provided in Article 8 hereof. Nothing in
this Section shall be construed to require a Bank to make an Advance in excess
of its Proportionate Share.
2.2. The Notes. The liability of the Borrower to pay the Line
of Credit Loan shall be evidenced by the Notes.
2.3. Payments.
(a) On the first (1st) day of each calendar month during the
Commitment Period, and at the expiration of any Eurodollar Interest Period,
Borrower shall pay to Lender all accrued and unpaid interest.
(b) At the expiration of the Commitment Period, the outstanding
principal balance of the Line of Credit Loan, plus all accrued but unpaid
interest thereon, shall be due and payable.
(c) All payments will be applied first to interest then due and
payable and any excess shall be applied in reduction of principal.
<PAGE>
<PAGE>
2.4. Interest Rate.
(a) The outstanding principal balance of the Line of Credit Loan
shall bear interest at the Base Rate, except that the Borrower may initially or
at any time thereafter elect the Eurodollar Rate in accordance with the
procedures set forth herein, and upon the expiration of any Eurodollar Interest
Period, this Note will bear interest at the Base Rate unless and until a new
Eurodollar Rate Election is made. Borrower shall exercise such Eurodollar Rate
Election by delivering to Lender a Eurodollar Rate Election Notice not less
than two (2) Business Days prior to the date on which the Borrower desires the
Eurodollar Interest Period to begin (unless Lender in its sole discretion,
elects to accept such election on a shorter notice from time to time).
(b) Borrower agrees that, notwithstanding anything to the contrary
herein, if at any time Banks determine, in accordance with reasonable and
ordinary commercial standards, that their acquisition of funds in the London
interbank market would be unsafe, impractical or in violation of any law,
regulation, guideline or order, Banks may so notify Borrower in writing or by
telephone, and upon the giving of such notice, any Eurodollar Rate Election
then in effect shall immediately terminate and the outstanding principal
balance hereof shall thereupon commence to bear interest at the Base Rate.
Borrower further agrees that, notwithstanding the fact that Banks may have
elected to base the interest rate applicable hereunder upon Lender's cost of
funds in the Eurodollar market, Banks shall not be required actually to obtain
funds from such source at any time; however, subject to the foregoing sentence,
the Eurodollar Rate will continue to be available to Borrower.
(c) All interest on the outstanding principal amount hereunder,
whether accruing at the Base Rate or the Eurodollar Rate, shall be calculated
on the basis of a 360-day year by multiplying the outstanding principal amount
by the applicable per annum rate, multiplying the product thereof by the actual
number of days elapsed, and dividing the product so obtained by 360.
2.5. Purpose. Borrower shall use the proceeds of the Line of Credit
Loan for general working capital purposes for itself and each of the
Subsidiaries.
2.6. Borrowing Base Certificate. Two (2) Business Days prior to the
date of the first Advance and on the tenth (10th) day of each month thereafter,
Borrower shall submit to Lender a Borrowing Base Certificate. Each Borrowing
Base Certificate shall be signed and certified as true and correct by the chief
executive officer or chief financial officer of the Borrower.
2.7. Mandatory Prepayments. If the sum of the outstanding principal
amount of the Line of Credit Loan plus the Accelerated Reimbursement Obligation
at any time exceeds the Loan Value of Accounts, the Borrower shall immediately
pay to the Lender, without need of notice or demand by Banks (and without
Banks' waiving the Potential Default or Event of Default which may arise as a
result of such excess), an amount sufficient to reduce said sum to the Loan
Value of Accounts then outstanding.
2.8. Mandatory Advances.
(a) The Banks shall make an Advance on the Line of Credit Loan for a
sum equal to a draw under any Future Letter of Credit, even if such Advance
would constitute an Overadvance.
(b) The Banks may in their sole discretion, but shall not be
obligated to, make an Advance on the Line of Credit Loan for a sum sufficient
to pay accrued interest on the Line of Credit Loan or other fees and expenses
<PAGE>
<PAGE>
under this Agreement if Borrower has failed to timely pay the same, even if
such Advance would constitute an Overadvance.
2.9. Prepayment. Borrower may prepay the outstanding principal
balance of the Line of Credit Note, in whole or in part, without premium or
penalty upon two (2) Business Days prior written notice to Banks; provided that
if such prepayment occurs during an Eurodollar Interest Period and if Banks
determine (which determination shall be conclusive) that they are unable to
prepay the deposits or borrowings by which they have funded any portion of the
principal amount of the Line of Credit Loan without incurring any loss, charge,
cost or penalty, Borrower shall, at the time of such prepayment, pay to Lender
the amount of any such loss, charge, cost or penalty; provided further, that if
such prepayment occurs during an Eurodollar Interest Period (as opposed to the
last day thereof), Borrower shall also pay to Banks a premium derived as
follows:
(i) Divide the principal amount of the Line of Credit Loan so prepaid by
the number of days in the Eurodollar Interest Period,
(ii) multiply the quotient obtained in (i) by the number of days remaining
in the Eurodollar Interest Period, and
(iii) multiply the product obtained in (ii) by the difference between the
Eurodollar Rate then in effect and the average Base Rate during such Eurodollar
Interest Period.
2.10. Late Charges; Interest on Overdue Installments; Collection
Costs.
(a) Borrower will pay to Lender a late charge equal to five percent
(5%) of any payment not received by Lender within ten (10) days after the due
date thereof in order to cover the additional expenses incident to the handling
and processing of delinquent payments. Collection or acceptance by Lender of
such late charge shall not constitute a waiver of any rights or remedies of
Banks provided herein.
(b) Upon the occurrence of an Event of Default, Borrower agrees to
pay interest to Lender at the Default Rate on Obligations, including accrued
interest, until the Obligations have been paid in full.
(c) Banks shall be entitled to recover all costs of collecting,
securing or attempting to collect or secure the Obligations, including, without
limitation, court costs and attorneys' fees, including attorneys' fees in any
appellate or bankruptcy proceedings.
2.11. Term. The Line of Credit Loan will mature at the expiration of
the Commitment Period, provided, however, that Banks may, in their sole
discretion, at the anniversary of the Closing Date and each anniversary
thereafter, elect to extend the Commitment Period for an additional one (1)
year. Banks shall give Borrower notice of their intention to extend or not
extend the Commitment Period by the last day of February of each year. In the
event Banks elect to extend the Commitment Period, Borrower agrees to execute
such documentation to reflect such extension as Banks may reasonably request.
2.12. Commitment Fee. Borrower agrees to pay Lender a line of credit
fee equal to one-eighth of one percent (1/8 of 1%) per annum of the average
monthly unused (unfunded) portion of the Line of Credit Loan, which such line
of credit fee shall be payable quarterly, in arrears, over the term of the Line
of Credit Loan, commencing on December 1, 1995, and shall be shared
<PAGE>
<PAGE>
proportionately by the Banks according to their Proportionate Share. This line
of credit fee shall be fully earned at the closing of the Line of Credit Loan,
and shall be payable within five (5) days of the end of each quarter.
2.13. Security. The Line of Credit Loan and the Reimbursement
Obligation are secured by a security interest in the Collateral.
2.14 Future Letters of Credit.
(a) SouthTrust will issue Future Letters of Credit upon application
therefor by Borrower and the Borrower's execution of applications and
agreements for letters of credit in form and substance satisfactory to
SouthTrust and the payment of letter of credit fees to SouthTrust. Such Future
Letters of Credit shall be issued for the benefit of Borrower in connection
with its normal business activities. The outstanding face amount of Future
Letters of Credit shall not exceed $20,000,000 at any time.
(b) The letter of credit fees paid to SouthTrust by Borrower in
connection with Future Letters of Credit shall be remitted to the Banks by
SouthTrust according to their Proportionate Share.
ARTICLE 3. CONDITIONS PRECEDENT TO MAKING ADVANCES
The obligations of Banks to make any Advance to Borrower shall be
subject to the satisfaction by Borrower of the following conditions precedent,
as of the date of the requested Advance:
(a) There shall exist no Event of Default or Potential Default.
(b) The representations and warranties of Borrower made in this
Agreement or in any certificate executed and delivered pursuant hereto shall be
true and accurate in all material respects.
(c) Borrower shall have performed or observed all agreements,
covenants, and conditions required by Banks to be performed or observed by
Borrower, including, without limitation, the submission of any required
Borrowing Base Certificate.
(d) Borrower shall have duly executed the Loan Documents (and the
Subsidiaries shall have duly executed the Security Agreement), together with
any and all other documents that Banks or their legal counsel, in their
reasonable discretion, shall deem necessary to complete the transactions
contemplated hereunder.
(e) Any proceedings taken in connection with the performance and
observance of the provisions of this Agreement shall be reasonably satisfactory
to Banks and their legal counsel.
(f) Borrower shall have delivered to Lender landlord consents, in
form and content satisfactory to Banks, with respect to any Collateral which is
located on property leased by the Borrower or the Subsidiaries which is
designated from time to time by Lender.
(g) Prior to the first Advance, Lender shall have received, in form
and substance satisfactory to Banks and their counsel:
(i) Copies of the Organizational Documents of the Borrower and
of the Subsidiaries, certified on the Closing Date by the appropriate Persons on
behalf of the Borrower and the Subsidiaries.
<PAGE>
<PAGE>
(ii) Certificates of existence and good standing for Borrower
and of the Subsidiaries, all certified on or within thirty (30) days of the
Closing Date by the Secretaries of State of Delaware, Alabama and Maryland, as
applicable.
(iii) Copies of the resolutions of the Board of Directors of
Borrower and of the Subsidiaries, certified as of the Closing Date by the
appropriate Persons on behalf of the Borrower and of the Subsidiaries,
authorizing (A) the transactions contemplated by this Agreement and (B) the
execution, delivery and performance by the Borrower of the Loan Documents and
the execution and delivery of all other documents to be delivered by the
Borrower and the Subsidiaries in connection with the transactions herein
contemplated.
(iv) An opinion of counsel to the Borrower and the Subsidiaries
in form and content satisfactory to Banks.
(v) Payment to Lender of a commitment fee equal to one-
sixteenth of one percent (1/16 of 1%) of the principal amount of the Line of
Credit Loan, to be shared by Banks proportionately in accordance with their
Proportionate Shares.
(vi) Payment to Lender of a $5,000 agent fee to be retained by
Lender.
(vii) Such other agreements, instruments, approvals, payments,
opinions and other documents as Banks may reasonably request.
Each request for Advance shall constitute Borrower's representation and
warranty that each of the foregoing conditions is satisfied on the date of such
request, and will continue to be satisfied on the date the requested Advance is
made, and that all representations and warranties contained in the Loan
Documents are true and correct and that Borrower is in compliance with all
terms and conditions of the Loan Documents and that the Subsidiaries are in
compliance with all the terms and conditions of the Security Agreement as of
the date of such request.
In the event Banks, at their option, elect to make one (1) or more
Advances prior to receipt and approval of all items required by this Article 3,
such election shall not obligate Banks to make any subsequent Advances without
full compliance with this Article 3.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
To induce Banks to enter into this Agreement and to make Advances
hereunder, Borrower represents and warrants to Banks that:
4.1. Existence, Power and Qualification. The Borrower is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is duly qualified as a foreign corporation and is in good
standing under the laws of the State of Alabama and of each jurisdiction where
its ownership of property or conduct or proposed conduct of its business
requires such qualification, and has the power and authority and the legal
right to own its property and to conduct its business in the manner in which it
is now conducted or hereafter contemplates conducting its business.
4.2. Authority to Borrow Hereunder. Borrower has the power and
authority and the legal right to make, deliver and perform the Loan Documents.
Borrower has taken all necessary action on its part to authorize the execution,
<PAGE>
<PAGE>
delivery and performance of the Loan Documents, and the borrowing contemplated
thereby. No consent or authorization of, or filing with, any federal, state,
county or municipal government, or any department or agency of any such
government, is required of Borrower in connection with the execution, delivery,
performance, validity or enforceability of the Loan Documents, or the borrowing
contemplated hereby.
4.3. Due Execution and Enforceability. The Loan Documents have
been duly executed and delivered on behalf of Borrower, and constitute the
legal, valid and binding obligation of Borrower enforceable against Borrower in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally, and general
principles of equity which may limit the availability of equitable remedies.
4.4. No Conflict. The execution, delivery and performance of
the Loan Documents, and the consummation of the transactions contemplated
therein, will not (a) conflict with or be in contravention of any law,
regulation, rule, order or judgment applicable to Borrower or its
Organizational Documents, or any other agreement, instrument, mortgage, deed of
trust, lien, lease, judgment, decree or order to which Borrower is a party or
is subject or by which Borrower or its properties are bound or affected, or (b)
result in the creation of any Lien upon any of the properties of Borrower.
4.5. Material Claims. There is no litigation, claim, lawsuit,
investigation, action or other proceeding pending or, to the knowledge of
Borrower, threatened before any court, agency, arbitrator or other tribunal
which individually or in the aggregate might result in any material adverse
change in the financial condition, operations, businesses or prospects of
Borrower.
4.6. Financial Statements Accurate. All financial statements
heretofore or hereafter provided by the Borrower are and will be true and
complete in all material respects as of their respective dates and will fairly
present the financial condition of the Borrower, and there are no liabilities,
direct or indirect, fixed or contingent, as of the dates of such statements
which are not reflected therein or in the notes thereto or in a written
certificate delivered with such statements. All financial statements have been
or will be prepared in accordance with GAAP. There has been no material adverse
change in the financial condition, operations, or prospects of the Borrower,
since the date of such statements except as fully disclosed in writing with the
delivery of such statements.
4.7. No Defaults or Restrictions. There is no declared default
under any agreement or instrument nor does there exist any restriction in the
Organizational Documents of Borrower that causes or would cause a material
adverse effect on the business, properties, operations or condition, financial
or otherwise, of Borrower.
4.8. Payment of Taxes. Borrower has filed all federal, state,
and local tax returns which are required to be filed and has paid, or made
adequate provision for the payment of, all taxes which have or may become due
pursuant to said returns or to assessments received by Borrower.
4.9. Necessary Permits, Etc. Borrower possesses all franchises,
trademarks, permits, licenses, consents, agreements and governmental approvals
that are necessary or required by any authority to carry on its businesses as
now conducted. Borrower has received no notice of default or termination of
any material agreement or any notice of noncompliance with any law, rule or
<PAGE>
<PAGE>
regulation by which it is bound, which would cause a material adverse effect
upon the business, properties, operations or condition, financial or otherwise,
of Borrower.
4.10. Disclosure. Neither this Agreement nor any other
document, financial statement, credit information, certificate or statement
required herein to be furnished to Banks by Borrower in connection with this
Agreement contains any untrue, incorrect or misleading statement of material
fact, and all of these documents taken as a whole do not omit to state a fact
material to this Agreement, to Banks' decision to enter into this Agreement or
to the transactions contemplated hereunder. All representations and warranties
made herein or any certificate or other document delivered to Banks by or on
behalf of Borrower, pursuant to or in connection with this Agreement, shall be
deemed to have been relied upon by Banks notwithstanding any investigation
heretofore or hereafter made by Banks or on their behalf, and shall survive the
making of Advances as contemplated hereby.
4.11. Regulation U. Borrower is not engaged and will not
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" (as each of the quoted terms is defined or used in Regulation U), and no
part of the Line of Credit Loan will be used for so "purchasing" or "carrying"
"margin stock" or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation U. If requested by Banks,
Borrower will furnish to Banks a statement in conformity with the requirements
of Regulation U to the foregoing effect.
4.12. Title to Assets. Borrower has good and marketable title
to all of its assets, subject to no Lien except for Permitted Liens. The
Borrower enjoys peaceable and undisturbed possession under all leases under
which it is operating, and none of said leases contain any provisions which are
unduly burdensome or which may materially affect or impair the operations of
the Borrower, and all of such leases are in full force and effect.
4.13. Compliance with Applicable Environmental Law. Borrower
represents and warrants to Lender that Borrower and its properties are not in
violation of or subject to any existing, pending or threatened investigation or
inquiry by any governmental authority or any response costs or remedial
obligations under any Applicable Environmental Law, and this representation and
warranty would continue to be true and correct following disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Borrower and its properties; that
Borrower has not obtained and is not required to obtain any permits, licenses
or similar authorizations to construct, occupy, operate or use any buildings,
improvements, fixtures or equipment owned or operated by Borrower by reason of
any Applicable Environmental Law; that Borrower has taken all steps necessary
to determine and has determined that no petroleum products, oil, hazardous
substances, or solid wastes have been disposed of or otherwise released on the
Borrower's properties; and that the use which Borrower has made, makes or
intend to make of its properties will not result in the location on or disposal
or other release of any petroleum products, oil, hazardous substances or solid
waste on such properties. Borrower hereby agrees to pay any fines, charges,
fees, expenses, damages, losses, liabilities, or response costs arising from or
pertaining to the application of any such Applicable Environmental Law to the
Borrower and to indemnify and forever save Banks harmless from any and all
judgments, fines, charges, fees, expenses, damages, losses, liabilities,
response costs, or attorneys' fees and expenses arising from the application of
any such Applicable Environmental Law to Borrower, its properties, or Banks.
The Borrower agrees to notify Banks in the event that any governmental agency
<PAGE>
<PAGE>
or other entity notifies it that it may not be in compliance with any
Applicable Environmental Law. Borrower agrees to permit Banks to have access
to its properties at all reasonable times in order to conduct, at Borrowers'
expense, any tests which Banks deem are necessary to ensure that Borrower and
its properties are in compliance with all Applicable Environmental Laws. Terms
used in this Section 4.13 which are defined in any Applicable Environmental Law
shall have the meanings given therein.
4.14. Controlled Companies. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
nor is subject to regulation under the Public Utility Holding Act of 1935, the
Federal Power Act, or any other law or regulation which relates to the
incurring of debt, including, but not limited to, laws and regulations
regulating common or contract carriers or the sale of electricity, gas, steam,
water or other public utility services.
4.15. Title to Collateral. Except for the security interests
granted herein or except for Permitted Liens, Borrower is, or as to Collateral
to be acquired after the date hereof will be, the sole owner, either in fee
simple or leasehold, of the Collateral free from any adverse Liens, security
interests or other encumbrances. Borrower shall defend the Collateral against
all claims and demands of all other parties who at any time claim any
interest in the Collateral.
4.16. Place of Business. Borrower's chief executive office is
located at 4040 South Memorial Parkway, Huntsville, Alabama, 35802. The
locations of the chief executive offices of the Subsidiaries are set forth in
the Security Agreement. The Equipment and Inventory is and shall be located
only at the locations listed on Exhibit C to this Agreement. Borrower has
separately furnished or will furnish to Banks true and correct copies of the
lease agreements for the leased parcels which have been requested by the Banks.
4.17. Borrower's Name. Borrower has not changed its name or been
known by any other name within the last five (5) years, nor has it been the
surviving corporation in a merger effected within the last five (5) years.
4.18. Existing Debt. Borrower is not in default with respect to
any of its existing Debt or with respect to any material agreement to which
Borrower is a party.
4.19. Insolvency. Borrower is now and, after giving effect to the
transactions contemplated hereby, at all times will be, Solvent.
4.20. Subsidiaries. Borrower has no subsidiaries except for the
Subsidiaries and except as indicated on Exhibit D to this Agreement. Each of
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and is duly qualified
as a foreign corporation and is in good standing under the laws of each
jurisdiction where its ownership of property or conduct or proposed conduct of
its business requires such qualification.
4.21. Inventory. All Inventory has been produced, and during the term
hereof will be produced, in compliance with the requirements of the Federal
Fair Labor Standards Act. No Inventory is now, nor shall any Inventory at any
time or times hereafter be, stored with a bailee, warehouseman or similar party
without Banks' prior written consent and, if Banks give such consent, Borrower
will concurrently therewith cause any such bailee, warehouseman, or similar
party to issue and deliver to Banks, in form and substance acceptable to Banks,
warehouse receipts therefor in Banks' name. No Inventory is or will be
<PAGE>
<PAGE>
consigned to any Person without Banks' prior written consent, and, if such
consent is given, Borrower shall, prior to the delivery of any Inventory on
consignment, (i) provide Banks with all consignment agreements to be used in
connection with such consignment, all of which shall be acceptable to Banks,
(ii) prepare, execute and file appropriate financing statements with respect to
any consigned inventory, showing Banks as assignee, (iii) conduct a search of
all filings made against the consignee in all jurisdictions in which any
consigned Inventory is to be located and deliver to Banks copies of the results
of all such searches and (iv) notify, in writing, all the creditors of the
consignee which are or may be holders of Liens in the Inventory to be consigned
that Borrower expects to deliver certain Inventory to the consignee, all of
which Inventory shall be described in such notice by item or type.
4.22. ERISA. Borrower is in compliance with all applicable
material provisions of ERISA. Neither Borrower nor any of the Subsidiaries has
received any notice to the effect that it is not in full compliance with any of
the requirements of ERISA and the regulations promulgated thereunder. No fact
or situation that could result in a material adverse change in the financial
condition of Borrower, including, but not limited to, any Reportable Event or
Prohibited Transaction, exists in connection with any Plan. Neither Borrower
nor any of the Subsidiaries has any withdrawal liability in connection with a
Multiemployer Plan.
ARTICLE 5. AFFIRMATIVE COVENANTS
Borrower agrees and covenants that until the Line of Credit Loan has
been paid in full, the Commitment Period has expired, and all Letters of Credit
have expired and the Reimbursement Obligations have been paid, Borrower shall
comply with each of the following affirmative covenants:
5.1. Payment of Line of Credit Loan and Maintenance of Loan Values.
Borrower will duly and punctually pay the principal and interest of the Line of
Credit Loan in accordance with the terms of this Agreement and the Notes.
Borrower will maintain the Loan Value of Accounts at an amount that at all
times equals or exceeds the sum of the outstanding principal balance of the
Line of Credit Loan plus the Accelerated Reimbursement Obligation.
5.2. Maintenance of Existence. Borrower will maintain its existence
and, in each jurisdiction in which the character of the properties owned by it
or in which the transaction of its business makes qualification necessary,
maintain such qualification and good standing.
5.3. Compliance with Laws; Payment of Claims. Borrower will comply
in all material respects with all applicable laws, rules, regulations and
orders such compliance to include without limitation, compliance with ERISA and
Applicable Environmental Laws; paying before the same become delinquent all
taxes, assessments and governmental charges or levies imposed upon Borrower or
upon its income or profits or upon any of its properties; and paying all lawful
claims, which if unpaid, might become a Lien upon any of its properties, except
to the extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine or Lien resulting from the nonperformance or
nonpayment thereof and with respect to which adequate reserves have been set
aside for payment thereof.
5.4. Accrual and Payment of Taxes. Borrower will accrue all current
tax liabilities of all kinds, all required withholdings of income taxes of
employees, all required old age and unemployment contributions, and pay the
same when they become due, unless appropriate extensions are obtained.
<PAGE>
<PAGE>
5.5. Other Indebtedness. Borrower will duly and punctually pay or
cause to be paid all principal and interest of any Debt to other creditors,
comply with and perform all conditions, terms and obligations of the notes or
other instruments evidencing such indebtedness and the mortgages, deeds of
trust, security agreements and other instruments evidencing security for such
indebtedness.
5.6. Examination and Visitation By Banks. Subject only to federal
security requirements, at any reasonable time and from time to time during
normal business hours, Borrower will permit Banks or their representatives to
examine and make copies and abstracts from the records and books of account of,
and visit the properties of, Borrower, and to discuss the affairs, finances and
accounts of Borrower with any of its officers, directors or employees.
5.7. Accounting Records. Borrower will keep adequate records and
books of account, with complete entries made in accordance with GAAP,
reflecting all of its financial transactions.
5.8. Maintenance of Permits, Etc. Borrower will obtain, maintain and
preserve all permits, licenses, authorizations, approvals, certificates and
accreditation which are necessary for the proper conduct of its businesses.
5.9. Conduct Business. Borrower will conduct its business as now
conducted and do all things necessary to preserve, renew and keep in full force
and effect its rights and franchises necessary to continue such businesses.
5.10. Correction of Defect, Etc. On request of Banks, Borrower will
promptly correct any scrivener's error which may be discovered in the contents
of the Loan Documents, or in the execution thereof, and execute and deliver
such further instruments and do such further acts as may be necessary or as may
be requested by Lender to carry out more effectively the purposes of this
Agreement or the Loan Documents.
5.11. Quarterly Reporting Requirements. Borrower will furnish to Banks
as soon as available and in any event within forty-five (45) days after the end
of each fiscal quarter of Borrower, the balance sheet of Borrower as at the end
of such quarter and statements of income and retained earnings of Borrower,
certified by the treasurer or chief financial officer of the Borrower as true
and correct, and otherwise in form and substance satisfactory to Banks, and
consistent with those quarterly statements previously provided to Banks. Such
statements shall be accompanied by a certificate of Borrower's chief financial
officer certifying that (i) to the best of his knowledge no Potential Default
exists and (ii) no Event of Default exists under the Loan Documents, or if such
is not the case, the actions which the Borrower proposes to take with respect
thereto.
5.12. Annual Audited Reporting Requirements. For the fiscal year
ending August 31, 1995, and for each fiscal year thereafter, Borrower shall
provide Banks, as soon as available and in any event within ninety (90) days
after the end of each fiscal year of Borrower, the balance sheets, statements
of income and retained earnings, and a statement of cash flow of Borrower for
such year, all of which such financial statements shall be audited and
certified by a nationally or regionally recognized independent certified public
accounting firm as (i) fairly presenting the financial condition of Borrower as
at the end of such fiscal year and the results of the operations of Borrower
for such period and (ii) having been prepared in accordance with GAAP on a
consolidated basis. Such statements shall be accompanied by a certificate of
Borrower's chief financial officer certifying that (i) to the best of his
knowledge no Potential Default exists and (ii) no Event of Default exists under
<PAGE>
<PAGE>
the Loan Documents, or, if such is not the case, the actions which the Borrower
proposes to take with respect thereto. Banks reserve the right to require such
additional information of the Borrower at such times as it deems necessary in
its sole discretion.
5.13. Employee Plan Reports and Notices. Borrower will, upon request,
promptly furnish to Banks after the filing or receipt thereof, copies of all
reports and notices, if any, which Borrower files under the Code or ERISA with
the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor, or which Borrower receives from any such agency, with
respect to any Plan, if any of the information therein could form the basis of,
or any dispute referred to therein which, if determined adversely to Borrower,
could constitute or give rise to an Event of Default or Potential Default.
5.14. SEC Reports. Borrower shall furnish to Lender, at the same time
it supplies the same to the Securities and Exchange Commission, copies of all
quarterly and annual reports and other reports required to be submitted under
applicable securities laws and regulations.
5.15. Insurance. Maintain insurance with insurance companies
satisfactory to Banks on such of its properties, in such amounts and against
such risks as is customarily maintained in similar businesses operating in the
same vicinities, and file with Banks, upon request, from time to time, a
detailed list of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, dates of
expiration thereof, and the properties and risks covered thereby, and within
ten (10) days after notice in writing from Banks, shall obtain additional
insurance customarily carried by businesses similar to Borrower as Banks may
reasonably request. Such insurance shall name Banks as additional insureds and
provide that any losses payable thereunder shall (pursuant to a lender's loss
payable endorsement) be payable to the Banks, as their interest may appear, and
shall provide that insurance provided thereby, as to the interest of the Banks,
shall not be invalidated by any act or neglect of the Borrower, nor by the
commencing of any proceedings by or against the Borrower in bankruptcy,
insolvency, receivership or any other proceedings for the relief of a debtor,
nor by any foreclosure, repossession or other proceedings relating to the
property insured, nor by any occupation of such property or the use of such
property for purposes more hazardous than permitted in the policy. With
respect to all insurance on the Collateral, Borrower hereby assigns to the
Banks all right to receive proceeds, directs any insurer to pay all proceeds
directly to the Banks, and authorizes the Lender to endorse any check or draft
for such proceeds and apply the same toward satisfaction of the Obligations.
The Borrower shall furnish to the Banks insurance certificates, in form and
substance satisfactory to the Banks, evidencing compliance by it with the terms
of this Section and, upon the request of the Banks at any time, the Borrower
shall furnish the Banks with certified photostatic copies of the policies
required by the terms of this Section. The Borrower will cause each insurer
under each of the policies to agree (either by endorsement upon such policy or
by letter addressed to the Banks) to give the Banks at least 30 days' prior
written notice of the cancellation of such policies in whole or in part or the
lapse of any coverage thereunder. Borrower agrees that it will not take any
action or fail to take any action which action or inaction would result in the
invalidation of any insurance policy required hereunder. At least 10 days
prior to the date the premiums on each such policy or policies shall become due
and payable, the Borrower shall furnish to the Banks evidence of the payment of
such premises. Borrower shall furnish to the Banks evidence of insurance as
Banks may require.
<PAGE>
<PAGE>
5.16. Accounts Aging Reports. Within forty-five (45) days after the
end of each quarter, Borrower will provide Banks with an Accounts aging report,
in form acceptable to Banks.
5.17. Maintenance of Bank Accounts. Borrower will maintain its
primary bank accounts with SouthTrust or one of its Affiliates.
5.18. Financial Covenants. Borrower will maintain on a consolidated
basis:
(a) a Tangible Net Worth of not less than $55,000,000;
(b) a ratio of total Debt to Tangible Net Worth of not more
than 1.8 to 1.0;
(c) a Fixed Charge Coverage of at least 1.75 to 1.0;
(d) working capital of not less than $35,000,000; and
(e) as of the last day of each fiscal quarter for the
preceding twelve (12) month period an Interest Coverage Ratio of at least 2.0
to 1.0.
5.19. Maintenance of Properties. The Borrower will keep the
Equipment, Inventory, and its other properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make
all needed and proper repairs, renewals, replacements, additions, and
improvements thereto as is necessary for items that have become obsolete or
worn in the ordinary course of business, and comply with the provisions of all
leases to which Borrower is a party or under which it occupies property so as
to prevent any loss or forfeiture thereof or thereunder.
5.20. Notice to Banks. Immediately notify the Banks of any event
causing a material loss or depreciation in value of the Collateral and the
amount of such loss or depreciation, any event which may have a materially
adverse effect on the Borrower's operations or financial condition, or if
Borrower becomes aware of the occurrence of any Event of Default or Potential
Default.
5.21. Collection of Accounts. Diligently pursue collection of all
Accounts and other amounts due Borrower by others, including Affiliates of
Borrower.
5.22. Landlord and Storage Agreements. Upon Banks' request, provide
Banks with copies of all agreements between Borrower and any landlord or
warehouseman which owns any premises at which any Collateral may, from time to
time, be kept.
5.23. Litigation. Immediately notify Banks of any material lawsuit
involving Borrower.
5.24. ERISA Compliance. (a) At all times make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to each Plan; (b) at the request of any of the Banks, furnish to
Banks copies of an annual report required to be filed pursuant to ERISA in
connection with each Plan and any other employee benefit plan of it and its
Affiliates subject to said Section; (c) notify Banks as soon as practicable of
any Reportable Event and of any additional act or condition arising in
connection with any Plan which Borrower believes might constitute grounds for
<PAGE>
<PAGE>
the termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States district court of a trustee to
administer the Plan; and (d) furnish to Banks, promptly upon Banks' request
therefor, such additional information concerning any Plan or any other such
employee benefit plan as may be reasonably requested.
5.25. Auditors Letters. Furnish the Banks with a copy of each letter
written to the Borrower by its independent certified public accountant
concerning internal controls and management review immediately upon receipt of
same.
5.26. Compliance with Act. Promptly upon Banks' written request,
Borrower will execute any and all documentation required by Banks so as to
comply with the Act with respect to all or any of the Accounts subject to the
Act.
ARTICLE 6. NEGATIVE COVENANTS
Borrower agrees and covenants that until the Line of Credit Loan has
been paid in full the Commitment Period has expired, and all Letters of Credit
have expired and all Reimbursement Obligations have been paid, Borrower shall
abide by and observe the following negative covenants:
6.1. Indebtedness. Except as permitted or contemplated by this
Agreement, Borrower will not create, incur, assume or suffer to exist any Debt
or obligation for money borrowed, or guarantee, or endorse, or otherwise be or
become contingently liable in connection with the obligations of any person,
firm, or corporation (including, without limitation, any affiliates)
aggregating in excess of $500,000, except:
(a) Indebtedness for taxes not at the time due and payable or
which are being actively contested in good faith by appropriate proceedings and
against which reserves deemed adequate by Banks have been established by
Borrower, but only if the nonpayment of such taxes does not result in a lien
upon any property of Borrower;
(b) Contingent liabilities arising out of the endorsement of
negotiable instruments in the ordinary course of collection or similar
transactions in the ordinary course of business;
(c) Debt, other than for borrowed money, incurred in the
ordinary course of business, including that evidenced by trade promissory notes
with a maturity of less than one year;
(d) Debt for money borrowed from the Banks pursuant to this
Agreement;
(e) Debt incurred prior to the date of this Agreement and
reflected on the financial statements referred to in Section 4.6 hereof,
including, without limitation, money borrowed from SouthTrust under a term note
dated February 9, 1994;
(f) Debt incurred in connection with the Existing Letter of
Credit and the obligations of Borrower in connection therewith; and
(g) Debt to Persons who are not Affiliates for purchase money
borrowing incurred in connection with the purchase of capital assets used in
the business of Borrower not to exceed $1,000,000 during any fiscal year.
<PAGE>
<PAGE>
6.2. No Liens; Exceptions. Borrower will not create, incur,
assume or suffer to exist any lien upon or with respect to any of its
properties, rights, income or other assets, whether now owned or hereafter
acquired, other than:
(a) Liens at any time existing in favor of the Banks pursuant
to this Agreement;
(b) Permitted Liens;
(c) Inchoate Liens arising by operation of law to secure claims
for the purchase of labor, services, materials, equipment or supplies to the
extent that payment thereof shall not at the time be delinquent;
(d) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for money borrowed or
for credit received in respect of property acquired) entered into in the
ordinary course of business as presently conducted or to secure obligations for
surety or appeal bonds, excluding, however, in any such case any lien arising
in favor of the Pension Benefit Guaranty Corporation; or
(e) Liens for taxes, assessments or governmental charges or
levies provided payment thereof shall not be delinquent.
6.3. Merger, Etc. Borrower will not enter into any merger or
similar transaction unless the Borrower is the surviving corporation, and
Borrower will not form any Subsidiary, whether wholly or partially owned, or
enter into any joint venture without giving the Banks prior written notice
thereof.
6.4. Sale or Disposition of Substantially All Assets. Borrower will
not sell, assign, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets (whether
now or hereafter acquired), without the prior written consent of Banks, which
may be granted or refused by Banks in Banks' sole discretion.
6.5. Other Disposition of Assets. Borrower will not sell,
lease, transfer or otherwise dispose of assets, unless any such disposition
shall be in the ordinary course of business for a full and fair consideration,
which in no event shall include a transfer for full or partial satisfaction of
a pre-existing debt.
6.6. ERISA Funding and Termination. Borrower will not permit
(a) the funding requirements of ERISA with respect to any Plan ever to be less
than the minimum required by ERISA or (b) any Plan ever to be subject to
involuntary termination proceedings.
6.7. Transactions with Affiliates. Borrower will not, without
the prior written consent of Banks, enter into any transaction with any Person
affiliated with Borrower other than in the ordinary course of Borrower's
business and on fair and reasonable terms no less favorable to Borrower than
those that Borrower would obtain in a comparable arms-length transaction with a
Person not an affiliate; provided, Borrower may make advances or loans to the
Subsidiaries and have outstanding at any time such advances or loans
aggregating up to $1,000,000 in principal amount to any one Subsidiary.
<PAGE>
<PAGE>
6.8. Change in Business. Make any material change in the nature
of the business of the Borrower as carried on at the date hereof.
6.9. Change Principal Places of Business. Change the principal
places of business or chief executive office without thirty (30) days' prior
written notice to Banks.
6.10. Changes in Accounting. Change the methods of accounting of the
Borrower, unless such change is permitted by GAAP and provided such change does
not have the effect of curing or preventing what would otherwise be an Event of
Default or Potential Default had such change not taken place.
6.11. Sale and Lease-Back. Enter into any arrangement whereby the
Borrower shall sell or transfer all or any substantial part of its property
then owned by it and shall thereupon within one year thereafter rent or lease
the property so sold or transferred.
6.12. Distributions to Shareholders. At any time after and during the
continuance of a Potential Default or an Event of Default, pay any cash
dividends or otherwise make any cash distributions to any of its shareholders.
6.13. Amendments. Amend any instrument evidencing a Lien, charge or
encumbrance, except in the ordinary course of business.
6.14. Loans to Employees and Other Persons. Make any loans or other
advances to any employee or any other Person, except in the ordinary course of
Borrower's business in accordance with its historical practices and except as
permitted by Section 6.7 of this Agreement.
ARTICLE 7. EVENTS OF DEFAULT AND REMEDIES
7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
(a) Nonpayment of principal or interest on the Line of Credit
Loan, nonpayment of any sum due under the Reimbursement Obligation, or nonpay-
ment of any other sum payable under this Agreement or any of the other Loan
Documents, when and as the same shall become due and payable, whether on demand,
at their stated maturities, by acceleration or otherwise which nonpayment shall
continue for five (5) days after written notice thereof shall have been
given to Borrower by Lender (a "Monetary Default").
(b) Any representation or warranty made by or on behalf of
Borrower, under or in connection with this Agreement shall be materially false
as of the date on which made.
(c) Borrower shall fail to perform or observe any term,
covenant or agreement (other than a Monetary Default) contained in any Loan
Document to be performed or observed by Borrower or any of the Subsidiaries
shall fail to perform or observe any terms, covenants, or agreement contained
in the Security Agreement to be performed or observed by the Subsidiaries, and
such failure shall remain unremedied for thirty (30) days after written notice
thereof shall have been given to Borrower by Lender (a "Non-Monetary Default").
(d) Borrower shall be generally not paying its debts as they
become due or shall make a general assignment for the benefit of creditors; or
any petition shall be filed by or against the Borrower under the federal
bankruptcy laws, or any other proceeding shall be instituted by or against
Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking
<PAGE>
<PAGE>
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the appoint-
ment of a receiver, trustee, custodian or other similar official for Borrower or
any substantial part of its property (provided, that as to any involuntary
proceeding, such shall not constitute an Event of Default unless the same is
not dismissed or vacated within sixty (60) days of the date of such filing); or
the Borrower shall take any action to authorize or effect any of the
transactions set forth above in this Section 7.1(d).
(e) Failure of the Borrower to pay when due any Debt owing to
another creditor or the default by the Borrower, in the performance of any
term, provision or condition contained in the agreement under which any such
indebtedness was created or is governed, the effect of which is to cause, or to
permit the holder or holders of such indebtedness, upon the giving of notice or
lapse of time, or both, to cause such indebtedness to become due prior to its
stated maturity.
(f) Any court, government or governmental agency shall condemn,
seize or otherwise appropriate, or take custody or control of all or any
substantial portion of the property of Borrower.
(g) Borrower shall fail within thirty (30) days to pay, bond,
or otherwise discharge any judgment or order for the payment of money which is
not stayed on appeal or while otherwise being appropriately contested in good
faith, or for which the Borrower is not fully insured.
(h) If a Reportable Event shall occur which Banks, in their sole
discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee shall
be requested or appointed, or if Borrower is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's complete or partial withdrawal from such Plan.
(i) An event of default (as defined or used therein) under any
reimbursement agreement relating to the Letters of Credit, under any
reimbursement agreement relating to the Existing Letter of Credit, or under any
other indebtedness now or hereafter owing by Borrower to one or more of the
Banks, including, without limitation, the indebtedness owed by Borrower to
SouthTrust under that term note dated February 9, 1994.
(j) A material adverse change in the financial condition of the
Borrower.
Notwithstanding anything in this section, all requirements of notice shall be
deemed eliminated if Lender is prevented from giving such notice by bankruptcy
or other applicable law. In such event, the cure period, if any, shall then
run from the occurrence of the event or condition of default rather than from
the date of notice.
7.2. Remedies. If any Event of Default occurs, Banks may, at their
option:
(a) By written notice to Borrower, terminate the Commitment
Period, and thereby terminate (i) their obligation to make further Advances
hereunder (except pursuant to then outstanding Future Letters of Credit)
and (ii) SouthTrust's obligation to issue Future Letters of Credit.
<PAGE>
<PAGE>
(b) Declare the entire Obligations (expressly including the
Accelerated Reimbursement Obligation), together with the interest accrued
thereon, to be, and the same shall thereupon become, immediately due and
payable, without presentment, protest or further demand or notice of any kind,
all of which are hereby expressly waived.
(c) Proceed to protect and enforce its rights by action at law
(including, without limitation, bringing suit to reduce any claim to judgment),
suit in equity and other appropriate proceedings including, without limitation,
for specific performance of any covenant or condition contained in this
Agreement or the other Loan Documents.
(d) Exercise any and all rights and remedies afforded by the
laws of the United States, the State of Alabama or any other appropriate
jurisdiction as may be available for the collection of debts and enforcement
of covenants and conditions such as those contained in this Agreement and in
the other Loan Documents.
(e) Exercise the rights and remedies of setoff and/or banker's
lien against the interest of Borrower in and to every account and other property
of Borrower which is in the possession of Banks or any Person which then owns a
participating interest in the Line of Credit Loan, to the extent of the full
amount of the Line of Credit Loan.
ARTICLE 8. DISBURSEMENT OF ADVANCES.
8.1. Procedure for Advances Under Line of Credit Loan. Borrower may
request Advances of the Line of Credit Loan on any Business Day during the
Commitment Period, provided that the Borrower shall have given to Lender
irrevocable written notice in the form attached as Exhibit E hereto, signed by
a duly authorized officer of the Borrower (which such notice may be sent via
teletransmission) on or before 9:00 a.m., Birmingham, Alabama time, two (2)
Business Days preceding the requested borrowing date (or irrevocable oral
notice on or before 9:00 a.m., Birmingham, Alabama time two (2) Business Days
preceding the requested borrowing date confirmed in writing in the form
attached as Exhibit E hereto signed by a duly authorized officer of the
Borrower (which writing may be sent via teletransmission)) no later than 5:00
p.m., Birmingham, Alabama time, on the same Business Day) specifying (i) the
aggregate amount to be borrowed under the Line of Credit Loan, and (ii) the
requested borrowing date. Lender shall, upon receipt of Borrower's requisition
for an Advance, notify Banks of such requisition in the manner specified in the
Intercreditor Agreement. Each Bank shall provide the Lender with funds, on or
before 1:00 p.m., Birmingham, Alabama time, on each borrowing date in an amount
equal to such Bank's Proportionate Share of the requested borrowing by wire
transferring same day or immediately available funds to such account as the
Lender shall specify from time to time by notice to the Banks. Subject to the
provisions of this Agreement on the date requested in Borrower's notice, the
Lender shall make the proceeds of the Advance available to the Borrower in
immediately available funds by depositing the same into Borrower's checking
account maintained with SouthTrust or otherwise disbursed in a manner
acceptable to Banks and Borrower; provided, however, that the Lender shall be
obligated to make the proceeds of such Advance available only to the extent
that the Lender shall have received the Proportionate Shares thereof from the
Banks. No Bank's obligation to fund its Proportionate Share of an Advance
shall be affected by any other Bank's failure to fund its Proportionate Share
of an Advance, nor shall any Bank's Proportionate Share be increased as a
result of any such failure of any other Bank.
<PAGE>
<PAGE>
8.2. Banks' Obligations Several. The obligations of the Banks
hereunder are several and not joint. None of the Banks shall be liable to the
Borrower due to the failure of any Bank to fund its Proportionate Share.
8.3. Place, Manner, Time and Extension of Payment. All sums
payable hereunder and under the Notes shall be paid to Lender at Lender's
principal office in Birmingham, Alabama, not later than noon Birmingham,
Alabama time on the date due in immediately available funds. If any payment
falls due on a day during which banks are not open for ordinary banking
business in Birmingham, Alabama, and Philadelphia, Pennsylvania, then such due
date shall be extended to the next succeeding day during which banks in
Birmingham, Alabama and Philadelphia, Pennsylvania are so open for ordinary
banking business, but during any such extension all unpaid principal of the
Line of Credit Loan and other sums bearing interest shall continue to bear
interest at the rates herein provided. The Lender shall send Borrower
statements of all amounts due hereunder, which statements shall be considered
correct and conclusively binding on the Borrower absent manifest error unless
the Borrower notifies the Lender to the contrary within ten (10) days of its
receipt of any statement which it deems to be incorrect. The Banks may, in
their sole discretion, charge against any deposit account of the Borrower
maintained at any of the Banks, all or any part of any amount due under this
Agreement, the Notes, or the other Loan Documents. Any payment made by
Borrower to Lender pursuant to this Section 8.3 shall, to the extent such
payment is required to be transmitted by Lender to the other Banks pursuant to
the Intercreditor Agreement, discharge that portion of Borrower's obligation
under the Notes.
8.4 Discontinuance of Advances. Notwithstanding any other provision
of this Article 8 and in addition to any other remedy available to the Banks,
if the Banks request the Borrower to comply with the Act, as provided for in
Section 5.26 of this Agreement and Borrower fails to do so within 15 days of
such request, the Banks may, in their sole discretion, refuse to make any
future Advances to Borrower (and SouthTrust may refuse to issue any Future
Letters of Credit) until Borrower complies with such request.
ARTICLE 9. GENERAL PROVISIONS
9.1. Notices. All notices and other communications provided for
hereunder shall be in writing and, if mailed by certified mail, return receipt
requested, shall be deemed to have been received on the earlier of the date
shown on the receipt or three (3) days after the postmarked date thereof, or,
if sent by overnight courier, shall be deemed to have been received on the next
business day following dispatch, or, if delivered by hand, shall be deemed
effective when delivered. In addition, notices may be sent by facsimile
provided that a copy of such notice is simultaneously given by mail or hand
delivery as hereinabove provided and any such notice shall be deemed received
in accordance with the foregoing provisions. Notice of change of address shall
also be governed by this Section. Notices shall be addressed as follows:
To Borrower:
Nichols Research Corporation
4040 South Memorial Parkway (35802)
Post Office Box 400002
Huntsville, Alabama 35815-1502
Attention: Chief Financial Officer
Facsimile: (205) 880-0367
<PAGE>
<PAGE>
To SouthTrust:
SouthTrust Bank of Alabama,
National Association
SouthTrust Tower--11th Floor
420 North 20th Street (35203)
Post Office Box 2554
Birmingham, Alabama 35290
Attention: Regional Corporate Banking
Facsimile: (205) 254-5022
To First Alabama:
First Alabama Bank
216 West Side Square (35801)
Post Office Box 680
Huntsville, Alabama 35804-0680
Attention: Kenneth Watson, Vice President
Facsimile: (205) 535-0312
To CoreStates:
CoreStates Bank, N.A.
FCI-8-3-16
1339 Chestnut Street
Post Office Box 7618
Philadelphia, PA 19101-7618
Attention: James P. Richards, Vice President
Facsimile: (215) 973-6745
9.2. No Control By Banks. None of the covenants or other
provisions contained in this Agreement shall, or shall be deemed to, give
Lender or Banks the rights or power to exercise control over the affairs and/or
management of Borrower, the power of Lender or Banks being limited to the right
to exercise the remedies provided for herein.
9.3. No Waiver By Banks, Etc. The acceptance by Lender or Banks
at any time and from time to time of part payment on the Line of Credit Loan
shall not be deemed to be a waiver of any Event of Default then existing. No
waiver by Lender or Banks of any particular Event of Default shall be deemed to
be a waiver of any Event of Default other than said particular Event of
Default. No delay or omission by Lender or Banks in exercising any right or
remedy under the Loan Documents or otherwise shall impair such right or remedy
or be construed as a waiver thereof or an acquiescence therein, nor shall any
single or partial exercise of any such right or remedy preclude other or
further exercise thereof, or the exercise of any other right or remedy under
the Loan Documents or otherwise. The rights and remedies of Lender or Banks in
this Agreement are cumulative and are in addition to, and are not exclusive of,
any rights or remedies provided by law. The rights of Lender or Banks under
this Agreement against Borrower are not conditional or contingent on any
attempt by Lender or Banks to exercise any of their rights under the Loan
Documents, or against Borrower or any other Person.
9.4. Banks' Expenses; Indemnification. Whether or not any
Advances are advanced hereunder or the transactions contemplated hereby are
consummated, Borrower will pay on demand all reasonable fees, costs and
expenses in connection with the preparation, execution, and delivery of the
Loan Documents and the other documents to be delivered under this Agreement,
including, without limitation, the fees, out-of-pocket expenses and other
<PAGE>
<PAGE>
disbursements of Banks and their counsel. Borrower shall pay on demand all
reasonable costs and expenses (including, without limitation, attorneys' fees,
accountants' fees and expenses), if any, of Banks in connection with the
enforcement, collection, restructuring, refinancing and "work-out" (including
with respect to any waiver or amendment) of this Agreement and the Loan
Documents.
Borrower will save Banks harmless from and against any and all claims,
damages, actions, costs, expenses and liabilities asserted by Borrower or any
other Person (i) with respect to or resulting from any breach by Borrower of
any of the covenants under the Loan Documents or any misrepresentation or
breach of warranty by Borrower under the Loan Documents, or in connection with
the performance by Lender of the provisions of the Loan Documents to be
performed by Borrower, (ii) in connection with the execution, delivery and
performance of the Loan Documents by Borrower and/or the Subsidiaries, (iii) as
a result of the conduct of the Borrower and/or the Subsidiaries; and (iv) in
connection with any violation or alleged violation by Borrower, the
Subsidiaries, or their predecessors in interest of any Applicable Environmental
Law, except for the gross negligence or wilful misconduct of the Bank(s)
seeking indemnity hereunder.
All sums payable to Banks by Borrower under the provisions of this
Section 9.4 shall bear interest at the Default Rate, which interest shall be
payable by Borrower to Banks on demand.
9.5. GAAP. All accounting and financial terms used herein, and
compliance with each covenant contained herein, which relates to financial
matters, shall be determined in accordance with GAAP, except to the extent that
a deviation therefrom is expressly stated herein.
9.6. Number and Gender. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
9.7. Headings. The headings, captions and arrangements used in
this Agreement are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify or modify the terms of this Agreement, nor
affect the meaning thereof.
9.8. Survival of Covenants, Etc. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the Loan Documents. All statements contained in
any certificate or other instrument delivered by or on behalf of Borrower shall
be deemed to constitute representations and warranties made by Borrower.
9.9. Successors and Assigns; Participation. All covenants and
agreements contained in this Agreement shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto, except that
Borrower may not assign any rights hereunder without the prior written consent
of Banks. Banks (and each of them) may assign to one or more Persons all or
any part of, or may grant participations to one or more Persons, in all or any
part of the Line of Credit Loan, and to the extent of any assignment or
participation the assignee or participant of such assignment or participation
shall have the rights and benefits hereunder as if it were a Bank hereunder,
except that Borrower shall be entitled to deal exclusively with Banks and rely
upon documents, consents and writings signed solely by Banks, without the
necessity of any such participant joining in. Borrower authorizes Banks (and
each of them) to disclose to any purchaser or participant, or any prospective
<PAGE>
<PAGE>
purchaser or participant of an interest in the Loans, any financial or other
information pertaining to Borrower.
9.10. Severability of Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws during the term hereof, such provision shall be fully severable,
and this Agreement, as the case may be, shall be construed and enforced as if
such illegal, invalid or unenforceable provisions had never comprised a part
hereof, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance therefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Agreement, a provision as similar in terms to
the illegal, invalid or unenforceable provision as may be possible which is
legal, valid and enforceable.
9.11. Entire Agreement, Amendments, Counterparts. This
Agreement and the Loan Documents embody the entire agreement and understanding
between Borrower and Banks relating to the subject matter hereof. The
provisions of this Agreement may not be amended, modified or waived except by
written agreement of Borrower and Banks. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
9.12. Governing Law; Jurisdiction. THE LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ALABAMA. LENDER'S PRINCIPAL PLACE OF BUSINESS IS LOCATED IN JEFFERSON COUNTY,
ALABAMA, AND BORROWER AGREES THAT THE LOAN DOCUMENTS SHALL BE DELIVERED TO,
HELD BY AND FUNDED BY LENDER AT SUCH PRINCIPAL PLACE OF BUSINESS, AND THE
HOLDING OF THE LOAN DOCUMENTS THEREAT SHALL CONSTITUTE SUFFICIENT MINIMUM
CONTACTS OF BORROWER WITH JEFFERSON COUNTY, ALABAMA FOR PURPOSES OF CONFERRING
JURISDICTION UPON THE STATE AND FEDERAL COURTS PRESIDING IN SUCH COUNTY AND
STATE. BORROWER AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING HEREUNDER
MAY BE BROUGHT IN THE CIRCUIT COURT OF THE STATE OF ALABAMA, IN JEFFERSON
COUNTY, ALABAMA, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ALABAMA, AND CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF
ANY SUCH COURTS IN ANY ACTION OR PROCEEDING.
9.13. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM,
COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING OUT OF OR
IN ANY WAY PERTAINING OR RELATING TO THIS CREDIT AGREEMENT OR THE LOAN
DOCUMENTS, OR (II) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR
INCIDENTAL TO ANY DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS CREDIT
AGREEMENT OR THE LOAN DOCUMENTS OR IN CONNECTION WITH THE TRANSACTIONS RELATED
THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF ANY PARTIES' RIGHTS AND
REMEDIES THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
BORROWER AGREES THAT BANKS MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS
WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF BORROWER
IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN
BORROWER AND BANKS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Borrower and Banks have caused this Agreement to be
duly executed by their duly authorized officers as of the day and year first
above written.
NICHOLS RESEARCH CORPORATION,
a Delaware corporation
/s/ Allen E. Dillard
---------------------------------
Chief Financial Officer
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, a national
banking association
/s/ Curtis J. Perry
---------------------------------
Vice President
FIRST ALABAMA BANK, an Alabama
state banking corporation
/s/ Kenneth D. Watson
---------------------------------
Vice President
CORESTATES BANK, N.A., a national
banking association
/s/ James P. Richards
---------------------------------
Vice President
<PAGE>
LEASE
(BUILD TO SUIT)
This Lease is made this 1st day of September , 1995 between Parkway
Properties, an Alabama General Partership, ("Landlord") whose address is
1900 Golf Road, Suite B, Huntsville, Al. 35802, and Nichols Research
Corporation, ("Tenant") whose address is 1910 Nichols Drive, Huntsville,
Al., who agree as follows:
1. PREMISES
1.1 DESCRIPTION OF PREMISES: Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the following, hereinafter referred to as the
"Premises":
a. the real property located in the City of Huntsvllle, County of Madison, State
of Alabama, more particularly described in Exhibit A attached hereto;
b. the building containing approximately 40,000 square feet of interior ground
floor area, and other improvements on the above-referenced real property, all
as described in and to be constructed in accordance with Exhibit B attached
hereto; and
c. a parking area to be located on or adjacent to the above-described real
property, containing spaces for at least N/A automobiles.
1.2 CONDITION OF PREMISES: As of the commencement of the Term, as defined in
Paragraph 2.1, the Premises shall be in good condition.
1.3 ACCEPTANCE OF PREMISES: Landlord shall notify Tenant when the building and
other improvements that are a part of the Premises have been substantially
completed. Within ten days after receipt of such notice (whether or not Tenant
is then in possession of the Premises), Tenant shall deliver to Landlord a list
of items that Tenant deems it necessary that Landlord complete or correct in
order for the Premises to be acceptable. Landlord shall immediately commence to
complete or correct the items, except those that it reasonably contends are not
justified.
1.4 ACCESS: Tenant shall have full and unimpaired access to the Premises at all
times.
2. TERM
2.1 TERM: The Term of this Lease shall commence ten days after Tenant's written
acceptance of the Premises, or on the day Tenant occupies the Premises,
whichever is the earlier, and shall continue for a period of 5 years thereafter.
Said Term shall be subject to extension pursuant to any agreement of the parties
or any option hereinafter set forth. A memorandum acknowledging the date of
commencement of said Term shall be executed promptly thereafter by the parties
hereto.
2.2 EARLY ENTRY: At any time prior to the commencement of the Term hereof,
Tenant, at its risk, may enter upon and store on the Premises as it may elect;
provided, however, that such entry and storage shall not interfere with any
construction to be undertaken on the Premises, and the same shall not be
construed as an acceptance of the Premises by Tenant or as a waiver of any of
the provisions hereof.
<PAGE>
<PAGE>
2.3 COMPLETION AND DELIVERY:
(a) Landlord agrees to complete the construction of the improvements to the
Premises and deliver possession to Tenant on or before N/A, provided, however,
that the time within which Landlord is to complete the improvements shall be
extended for a period equal to the period of any delay encountered by Landlord
in the work of construction because of fire, earthquake, or other acts of God,
acts of the public enemy, riot, insurrection, governmental regulations of the
sale of materials and supplies or the transportation thereof, or strikes
directly affecting Landlord's work of construction, or shortages of material or
labor resulting directly from governmental controls or diversions. In any
event, however, it is expressly agreed that the time within which Landlord is
required by this Lease to complete the construction of the improvements to the
Premises and deliver possession to Tenant shall not be extended beyond N/A.
(b) The improvements shall be deemed complete on the date when the same shall
be completed in substantial conformity with the plans and specifications
approved by the parties hereto, and Landlord shall have furnished Tenant the
architect's certificate of said completion and certificate of occupancy or the
equivalent, if required by any public authority.
(c) Delivery of the Premises to Tenant shall be deemed to take place upon
completion thereof unless Landlord withholds possession thereof or obstructs
Tenant's entry therein, in which case delivery shall be deemed to take place
when unobstructed entry and possession of the Premises are tendered to Tenant
subject to the terms of this Lease.
2.4 FAILURE TO COMPLETE CONSTRUCTION: Should Landlord fail to so complete and
deliver the Premises to Tenant on or before the date set forth in the first
sentence of Paragraph 2.3, this Lease shall terminate at the written election of
Tenant. However, acceptance by Tenant of the Premises after said date shall
constitute a revival of this Lease in accordance with all the terms hereof.
2.5 OPTION TO EXTEND: Tenant shall have the option to extend the Term on all
the provisions contained in this Lease, except for rent, for N/A year periods
following expiration of the initial term, by giving written notice of exercise
of this option to Landlord at least sixty days before the expiration of the
initial Term. The rent for the extended Term shall be as set forth in Article
3.
2.6 HOLDING OVER: In the event Tenant so notifies Landlord in writing at least
sixty days before the expiration of the initial Term; Tenant shall have the
right to hold over on the Premises for a period not to exceed three months, on
the same terms and conditions as set forth herein.
3. RENT
Tenant shall pay to Landlord, as rent, the sum of $35,000.00 per month in
advance on the first day of each month, commenclng on the date the term
commences, and continuing during the term. Monthly rent for the first month or
portion of it shall be paid on the day the term commences. Rent for any partial
month shall be prorated at the rate of l/30th of the monthly rent for each day.
All rent shall be paid to Landlord at the address to which notices to Landlord
are given, as specified in Paragraph 17 hereinbelow. In the event that this
Lease is extended pursuant to the option set forth in Paragraph 2.5
hereinabove, the rent for the first N/A option term shall be the sum of N/A per
month. The rent for the second N/A option term shall be the sum of N/A per
month.
<PAGE>
<PAGE>
4. TAXES
4.1 Tenant shall pay all ad valorem, real and personal property, taxes levied
and assessed against the premises which become due and payable during the term
hereof.
4.2 Tenant shall pay any public improvement assessment levied and assessed
against the premises during the term hereof.
4.3 Tenant shall be responsible for and shall pay any penalty or delinquency
fee which shall become payable by virtue of Tenant's failure to pay or
tardiness in paying the taxes and assessments described in sections 4.1 and
4.2.
5. USE OF PREMISES
The Premises shall be used as offices, for sales or services, for warehousing,
or for any other lawful purpose.
6. MAINTENANCE AND REPAIRS
6.1 Tenant shall, at its own cost and expense, maintain the leased premises
throughout the term. Tenant shall be responsible for all repairs, renovation,
replacements and maintenance with the sole exception of those described in
section 6.2 next following. The rental paid, as specified in section 3 above,
shall be net to Landlord, free of any and all costs and expenses incurred in
maintaining the premises in good condition.
6.2 Landlord agrees, at its sole cost and expense, to repair any defects in any
improvements erected by Landlord upon the Premises arising from defective
design, labor or material, and to remedy and correct any violation of federal,
state, or local laws, rules or regulations arising out of or relating to the
construction of the improvements on the Premises. Neither Tenant's acceptance
of the Premises nor Tenant's entry into possession thereof, nor payments of any
monthly installments of rent, nor Tenant's performance of any of the other
provisions or conditions hereof, shall relieve Landlord of such responsibility.
7. ALTERATIONS, FIXTURES AND PERSONAL PROPERTY
7.1 ALTERATIONS: Tenant, from time to time at its expense, may make such
alterations, improvements, repairs and additions to and upon the Premises, and
install therein such fixtures, equipment, furniture and property, as it may
consider advisable for the conduct of its business. Tenant will not, without
the prior written consent of Landlord, make or suffer to be made any
alterations, improvements or additions which will affect the structural
portions of the Premises. Tenant shall not be obligated at the expiration of
this Lease to remove, alter or change any alterations, improvements, repairs or
additions, or to restore the Premises to their prior condition, provided that
the structural strength of the building has not been adversely affected
thereby.
7.2 FIXTURES AND PERSONAL PROPERTY: All fixtures, equipment, furniture and
personal property installed by or at the expense of Tenant shall remain the
property of Tenant. Upon termination of this Lease Tenant may, but shall not be
obligated to, remove any or all such fixtures, equipment, furniture and personal
property installed by or at the expense of Tenant, as it may elect. Tenant shall
repair any damage caused by such removal.
8. UTILITIES AND SERVICES
<PAGE>
<PAGE>
8.1 Tenant shall pay for all heat, air conditioning, light, water and other
public utility services used by Tenant in the Premises.
8.2 Landlord represents and warrants that the Premises will be fully equipped
with heating and air conditioning equipment and facilities adequate to maintain
a comfortable temperature therein at all times for the conduct by Tenant of its
business. The Premises shall also be equipped with all plumbing equipment,
electrical facilites and lighting fixtures and equipment required for the
conduct by Tenant of its business in the Premises, and as required by all
applicable laws, ordinances, rules, regulations, covenants, conditions and
restrictions.
8.3 Landlord shall not be liable for failure to furnish utilities or services
to the Premises when the failure results from causes beyond Landlord's
reasonable control, but in case of such failure Landlord will take all steps to
restore the interrupted utilites or services as soon as practicable.
9. INDEMNIFICATION
Tenant shall defend, indemnify, and hold harmless the Landlord from all claims
arising out of any injury or damage to any person or property resulting from
the negligence or intentional acts of Tenant, or any agent or employee of
Tenant. Landlord shall defend, indemnify, and hold harmless the Tenant from all
claims arising out of any injury or damage to any person or property resulting
from the negligence or intentional acts of Landlord, or any agent or employee
of Landlord (including contractors, subcontractors, or other parties employed
in connection with construction of or on the Premises).
10. INSURANCE
10.1 Tenant at its cost shall maintain public liability and property damage
insurance with liability and property damage limits of not less than
$500,000.00 per occurrence, insuring against all liability of Tenant and its
authorized representatives arising out of and in connection with Tenant's use
or occupancy of the Premises.
10.2 Tenant at its cost shall maintain on the building, and other improvements
of the Premises, a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of full replacement
value. The insurance policy shall be issued in the names of Landlord and Tenant,
as their interests appear, and shall provide that any proceeds shall be made
payable to Landlord.
10.3 All the insurance required under this Lease shall:
(1) Be issued by insurance companies authorized to do business in the state in
which the Premises are located; and
(2) Contain an endorsement requiring thirty (30) days' written notice from the
insurance company to both parties before cancellation or change in the
coverage, scope, or amount of any policy.
10.4 A certificate of insurance for each policy shall be deposited with the
Landlord at the commencement of the term, and, if the policy is renewed, not
less than ten (10) days before expiration of the term of the policy.
10.5 The rental paid, as specified in section 3, above, shall be net to
Landlord, free of any and all costs and expenses incurred in maintaining the
insurance coverage described above.
<PAGE>
<PAGE>
11. DAMAGE OR DESTRUCTION
If, at any time after the execution hereof, the Premises shall be destroyed or
damaged in whole or in part by fire, the elements, or any other cause
whatsoever, Tenant shall give written notice thereof to Landlord within ten
days after such damage or destruction. Landlord, at its expenses, shall
immediately proceed to restore or rebuild the Premises to their condition
existing immediately prior to such casualty, and shall have the right to use,
in connection with such rebuilding or restoring, all proceeds of insurance paid
by reason of such casualty. Rental payable by Tenant hereunder shall be
entirely abated during any time during which the Premises are completely
unusable, and shall be equitably adjusted during any time during which the
Premises are partly unusable as a result of such casualty. Tenant shall have
the right to extend the Term of this lease (or any extended Term during which
such casualty may occur) by a period equal to the period during which the
Premises are completely unusable by Tenant by reason of such casualty. Tenant's
election to extend the Term shall be made by written notice to the Landlord
within thirty days of completion of rebuilding or restoration. The rebuilding
or restoration shall be completed within a reasonable time, taking into
consideration the extent and nature of the damage or destruction; provided,
however, that in the event that for any reason the Premises have not been
restored or rebuilt (to their condition existing immediately prior to the
casualty) within thirty days after written notice by Tenant to Landlord of such
casualty, then Tenant shall have the right at its option to terminate this
Lease upon written notice to Landlord.
12. CONDEMNATION
If all or any part of the Premises is taken or transferred as a result of
condemnation proceedings, threatened or filed, either party hereto may
terminate this Lease by providing written notice thereof to the other party,
which notice shall be effective thirty days after the date of mailing.
13. ASSIGNMENT
Tenant shall not voluntarily assign its interest in this Lease or in the
Premises without first obtaining Landlord's written consent. Tenant shall have
the right to sublease all or any portion of the Premises, provided, however,
that in such event Tenant shall remain liable to Landlord under all of the
provisions of this Lease.
14. DEFAULT
14.1 TENANT'S DEFAULT - DEFINITION: The occurrence of any of the following
shall constitute a default by Tenant:
(a) Failure to pay rent when due, if the failure continues for twenty days
after written notice thereof is given by Landlord to Tenant.
(b) Failure to perform any other provision of this Lease, if the failure to
perform is not cured within thirty days after written notice thereof is given
by Landlord to Tenant. If the default cannot reasonably be cured within thirty
days, Tenant shall not be in default within the thirty day period and
dilingently continues to cure the default. Notices given under this paragraph
shall specify the alleged default and the applicable Lease provisions, and
shall demand that Tenant remedy the default within the applicable period of
time, or quit the Premises.
<PAGE>
<PAGE>
14.2 TENANT'S DEFAULT - REMEDIES: In the event of a default by Tenant, Landlord
shall be entitled to any and all remedies provided under applicable law,
including interest on unpaid rent at the rate of ten percent per annum from the
date due until paid.
14.3 LANDLORD'S DEFAULT - DEFINITION: Landlord shall be in default of this
Lease if its fails or refuses to perform any provision of this Lease that it is
obligated to perform, if such failure or refusal is not cured within thirty
days after written notice thereof is given by Tenant to Landlord. If the
default cannot reasonably be cured within thirty days, Landlord shall not be in
default of this Lease if Landlord commences to cure the default within the
thirty day period and diligently continues to cure the default.
14.4 LANDLORD'S DEFAULT - REMEDIES: Tenant, at any time after Landlord commits
a default, may cure the default at Landlord's expense. If Tenant at any time,
by reason of Landlord's default, pays any sum or does any act that requires the
payment of any sum, the sum paid by Tenant shall be due immediately from
Landlord to Tenant at the time the sum is paid, and shall bear interest at the
rate of ten percent per annum from the date the sum is due until Tenant is
reimbursed by Landlord. If Landlord fails to reimburse Tenant as required by
this paragraph, Tenant shall have the right to withhold from future rent due
the sums owed Tenant, until Tenant is reimbursed in full for the sum and
interest on same.
15. SIGNS
Tenant at its cost shall have the right to place, construct, and maintain
exterior signs on the Premises.
16. SUBORDINATION.
This Lease is and shall be prior to any encumbrance now of record and any
encumbrance recorded after the date of this Lease affecting the Premises. If,
however, a lender requires that this Lease be subordinate to any such
encumbrance, this Lease shall be subordinate to any such encumbrance if
Landlord first obtains from the lender a written agreement that provides
substantially the following:
"As long as Tenant performs its obligations under this Lease, no foreclosure of,
deed given in lieu of foreclosure of, or sale under the encumbrance, and no
steps or procedures taken under the encumbrance, shall affect Tenant's rights
under this Lease."
17. NOTICES
Any written notice, demand, request, consent, approval or communication that
either party desires to give or is required to give to the other party shall be
either served personally or sent by prepaid, first-class mail, and shall be
addressed to the other party at the address set forth in the introductory
paragraph of this Lease. Either party may change its address by notifying the
other party in writing of the change of address. Notices shall be deemed
communicated forty-eight hours from the time of mailing if mailed as provided
in this paragraph. Notices to Landlord shall be to the attention of Paula
Stotts. Notices to Tenant shall be to the attention of Allen Dillard.
18. ATTORNEYS' FEES
18.1 If either party becomes a party to any litigation concerning this Lease or
the Premises, by reason of any act or omission of the other party or its
<PAGE>
<PAGE>
authorized representatives, and not by any act or omission of the party that
becomes a party to that litigation or any act or omission of its authorized
representatives, the party that causes the other party to become involved in
the litigation shall be liable to that party for reasonable attorneys' fees and
court costs incurred by it in the litigation.
18.2 If either party commences an action against the other party arising out of
or in connection with this Lease, the prevailing party shall be entitled to have
and recover from the losing party reasonable attorneys' fees and costs of suit.
19. SURRENDER OF PREMISES
On expiration or termination of the Term hereof, Tenant shall surrender to
Landlord the Premises in good condition (except for ordinary wear and tear, and
except for alterations, additions, or improvements which Tenant has the right
to remove under the provisions of this Lease).
20. MISCELLANEOUS PROVISIONS
20.1 Landlord covenants and warrants that it has lawful title and right to make
this lease, that it will maintain Tenant in full and exclusive possession of the
Premises, and that if Tenant shall pay the rent and perform all the agreements,
covenants, and conditions required by this Lease to be performed by it, Tenant
may freely, peaceably, and quietly occupy and enjoy the Premises without
interference or hindrance, lawful or unlawful, of any person whomsoever.
20.2 Time is of the essence of each provision of this Lease.
20.3 Whenever consent or approval of either party is required or allowed, that
party shall not unreasonably withhold such consent or approval.
20.4 This Lease shall be binding on and inure to the benefit of the parties,
their successors, and assignees.
20.5 Each party represents that it has not had dealings with any real estate
broker, finder, or other person, in any manner with respect to this Lease. Each
party shall hold harmless the other party from all damages resulting from any
claims that may be asserted against the other party by any broker, finder, or
other person, with whom the other party has or purportedly has dealt.
20.6 This Lease shall be construed and interpreted in accordance with the laws
of the state wherein the Premises are located.
20.7 This Lease contains all the agreements of the parties and cannot be
amended or modified except by a written agreement.
20.8 The captions of this Lease shall have no effect on the interpretation of
this Lease.
20.9 The unenforceability, invalidity, or illegality of any provision herein
shall not render the other provisions unenforceable, invalid or illegal.
<PAGE>
<PAGE>
Executed as of the day and year set forth above.
LANDLORD: TENANT:
R.J. Latham Allen E. Dillard
- ----------------------------- ------------------------------
R.J. Latham Allen E. Dillard
General Partner Chief Financial Officer
<PAGE>
<PAGE>1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the 16th day of May, 1995, by and
between JOHN ARMISTEAD CONWAY, JR., whose address is 202 Brae Burn Drive,
Jackson, Mississippi 39211 (herein called the "Employee") and CONWAY
COMPUTER GROUP, INC., a Delaware corporation ("CCG"), whose address is 6360
Interstate 55 North, Suite 300, Jackson, Mississippi 39211.
W I T N E S S E T H:
WHEREAS, CCG is engaged in the business of computer software
development, license, sale and service (including, without limitation,
computer software which addresses the health care and workers' compensation
markets), the remarketing of hardware, equipment and software (including
the hardware and software of IBM), computer consulting services,
educational services, computer connectivity and communications products and
services;
WHEREAS, CCG desires to obtain the services of the Employee as
President of CCG and the Employee is willing to render such services to CCG
upon the terms and conditions herein set forth; and
WHEREAS, this Employment Agreement was a condition precedent to the
acquisition by CCG of all of the business of Conway Computer Consultants,
Inc. ("CCC"), Conway Computer Applications, Inc. ("CCA") and Conway
Computer Investments, Inc. ("CCI") and the Employee, as a shareholder of
CCC, CCA and CCI, derived a substantial benefit from the consideration paid
by CCG in connection with such acquisitions;
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. DUTIES AND SALARY.
(a) CCG agrees to employ the Employee and the Employee agrees to
accept employment by CCG on a full-time basis as President of CCG at a base
salary of $12,500.00 per month payable during the Term of Employment, as
hereinafter defined. Such salary may be increased from time to time in the
discretion of the CCG Board of Directors.
(b) The Employee hereby agrees to undertake such travel as may be
required in the performance of his duties. The reasonable travel expenses
of the Employee shall be reimbursed in accordance with CCG's reimbursement
policy, in effect from time to time. The Employee shall not be required to
relocate from the Jackson, Mississippi area without his consent.
(c) The Employee shall carry out his duties under the general
supervision of CCG.
(d) The Employee's duties shall include the duties and
responsibilities identified on Schedule I attached hereto. The Employee
shall perform such other tasks and duties as may be assigned by CCG, from
time to time and CCG reserves the right to change the office and/or
position of the Employee within CCG, so long as such change is mutually
acceptable. The Employee shall devote his full time, attention, skill and
efforts to the tasks and duties assigned by CCG. The Employee shall not
provide services, for compensation, to any other person or business entity
while employed by CCG without the written consent of CCG.
<PAGE>
<PAGE>2
2. TERM OF EMPLOYMENT. This Agreement shall commence as of the date
hereof and shall end two (2) years from the date hereof (the "Term of
Employment"), unless terminated earlier as provided herein. Upon
expiration of the initial Term of Employment, unless earlier terminated as
provided herein, the Employee shall be employed as a temporary, on-call
employee. The terms and provisions of such employment as a temporary, on-
call employee are defined in Section 16 below.
3. TERMINATION BEFORE EXPIRATION OF TERM OF EMPLOYMENT. The termination
of the employment of the Employee during the initial Term of Employment
shall occur in one of the following ways:
(a) BY CCG, FOR CAUSE. Termination by CCG shall be deemed to be for
cause only upon:
(i) Employee's conviction of or pleading guilty to a felony;
(ii) Refusal or failure by the Employee, without reasonable
excuse or proper authorization, to carry out any reasonable
instructions of CCG consistent with Employee's rights or
duties as set forth in this Agreement;
(iii) Material breach of this Agreement or any material breach of
any agreement with CCG;
(iv) The Employee's demonstration of negligence or willful
misconduct in the execution of his duties, including without
limitation breach of fiduciary duty or the duty of loyalty
owed CCG.
If CCG intends to terminate for cause, CCG shall provide notice to
Employee of intent to terminate his employment, stating the termination
provision in this Agreement relied upon and setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination under the provisions so indicated, and shall provide Employee
with an opportunity to cure the alleged default or breach within thirty
(30) days of receipt of the notice, provided that if the matter is not
curable within such thirty (30) day period, the Employee shall not be
deemed in default if the Employee commences immediately to cure the matter
and proceeds diligently thereafter to complete the cure, further provided
that the alleged breach or default must be cured within ninety (90) days of
receipt of the notice. CCG shall not be required to give more than one
notice with respect to the same matter. Notwithstanding the foregoing, no
notice and no cure right shall be required with respect to termination for
cause under 3(a)(i) or an act involving theft of information or property of
CCG.
(b) BY CCG, WITHOUT CAUSE. Any termination of Employee by CCG for
reasons other than as set forth in subsections 3(a), (e) or (f) shall be a
termination without cause. CCG may terminate the employment of Employee
without cause by thirty (30) days' prior written notice at any time.
(c) BY EMPLOYEE, FOR GOOD REASON. Termination by the Employee shall
be deemed for good reason because of a material breach by CCG of this
Agreement including, without limitation, making a material change in the
Employee's duties, responsibilities or authority as set forth in this
Agreement, without his express written consent. In all cases in which
Employee intends to terminate for Good Reason, the Employee shall provide
<PAGE>
<PAGE>
CCG with notice of intent to terminate this Agreement, stating the facts
and circumstances giving rise to a breach of this Agreement claimed to
provide a basis for termination under the provisions so indicated, and
shall provide CCG with an opportunity to cure the alleged default or breach
within thirty (30) days of receipt of the notice, provided that if the
matter is not curable within such thirty (30) day period, CCG shall not be
deemed in default if it commences immediately to cure the matter and
proceeds diligently thereafter to complete the cure, further provided that
the alleged breach or default must be cured within ninety (90) days of
receipt of the notice. Employee shall not be required to give more than
one such notice with respect to the same matter.
(d) BY THE EMPLOYEE, WITHOUT GOOD REASON. Any termination by
Employee for reasons other than as set forth in subsections 3(c), (e) or
(f) shall be a termination without good reason. The Employee may terminate
his employment without good reason upon thirty (30) days' prior written
notice at any time.
(e) DEATH OF THE EMPLOYEE.
(f) DISABILITY OF EMPLOYEE. If, during the Term of Employment, a
physician selected by CCG determines that the Employee has become
physically or mentally disabled so as to be unable to carry out the normal
and usual duties of his employment for three (3) continuous months, and
reasonable accommodation cannot be made to allow the Employee to continue
to perform his duties full-time, his employment hereunder may be terminated
at the election of CCG or the Employee.
4. CONSEQUENCES OF TERMINATION. The termination of the employment of
Employee will cause the following results:
(a) If the termination is by CCG for cause, or is by the Employee
under Section 3(d) above, the following payments shall be made:
(i) CCG will pay the Employee within five (5) days after the
date of termination any unpaid salary prorated to the date
of termination, the amount of any accrued annual vacation
pay to which he may be entitled under CCG's vacation plan
and benefits, with such compensation and benefits (if any)
paid only through the date termination occurs.
(ii) the Employee shall pay to CCG as liquidated damages and not
as a penalty an amount equal to $3,125.00 multiplied by the
number of full months remaining after the date of
termination until expiration of the initial Term of
Employment assuming the Term of Employment is not terminated
early. For example, if employment is terminated 11 months
after the date hereof, the liquidated damages would be
$40,625.00 ($3,125.00 X 13 months). The liquidated damages
shall be paid in equal, consecutive monthly installments
without interest commencing 30 days after termination,
provided that, if any monthly installment is not paid within
10 days after notice of default, the entire amount of
liquidated damages shall be paid in lump sum immediately.
The liquidated damages may be prepaid.
(b) If the termination is by CCG under Section 3(b) above, or is by
the Employee for good reason, CCG shall pay to the Employee, in addition to
the amounts set forth in 4(a)(i) above, as liquidated damages and not as a
<PAGE>
<PAGE>
penalty, an amount equal to $3,125.00 multiplied by the number of full
months remaining after the date of termination until expiration of the
initial Term of Employment assuming the Term of Employment is not
terminated early. For example, if employment is terminated 11 months
after the date hereof, the liquidated damages would be $40,625.00
($3,125.00 X 13 months). The liquidated damages shall be paid in equal,
consecutive monthly installments without interest commencing 30 days after
termination, provided that, if any monthly installment is not paid within
10 days after notice of default, the entire amount of liquidated damages
shall be paid in lump sum immediately. The liquidated damages may be
prepaid.
(c) If both parties have grounds for termination under Sections 3(a)
and 3(c), such termination shall be deemed to be by mutual consent and
neither party shall owe the other party the liquidated damages set forth
above in Sections 4(a)(ii) or 4(b).
(d) In the event of the Employee's death or disability, the following
provisions will apply:
(i) Upon his death, the Employee's estate will be entitled to
receive the amount set forth in Section 4(a)(i) and the
benefits set forth in any plans of CCG then in effect and
applicable under the circumstances. The Employee or his
estate shall be entitled to no other compensation or
benefits in the event of death.
(ii) Upon termination on account of disability, Employee will be
entitled to receive the amount set forth in Section 4(a)(i)
and the benefits set forth in any plans of CCG then in
effect and applicable under the circumstances. The Employee
or his personal representative shall be entitled to no other
compensation or benefits in the event of disability.
(e) The Employee shall not be required to mitigate the amount of
payment provided for in this Section 4 by seeking employment.
(f) The amounts set forth above in this Section 4 shall be paid and
received in complete discharge of any other obligation of CCG to Employee
or Employee to CCG resulting from termination of his employment.
5. FRINGE BENEFITS.
The Employee shall participate in any group health insurance, vacation
and sick leave plans, and other benefit plans available to all employees of
CCG in accordance with their terms and conditions which may be amended or
terminated by CCG at any time.
6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS.
(a) Unless authorized or instructed in writing by CCG, the Employee
shall not, except as required in the conduct of CCG's business, during or
at any time after the Term of Employment, disclose to others, or use, any
of CCG's inventions or discoveries or its respective secret or confidential
information or data (oral, written, or in machine readable form) which the
Employee may obtain during the course of or in connection with the
Employee's employment (or employment or affiliation with any company that
transfers to CCG such information or data), including such inventions,
discoveries, information, know-how or data relating to machines, equipment,
<PAGE>
<PAGE>
products, systems, software, contracts, contract performance, research or
development, designs, computations, formulas, processes, manufacturing
procedures, business methods, customer lists, and suppliers, whether or not
developed by the Employee, by others in CCG or obtained by CCG from third
parties, and irrespective of whether or not such inventions, discoveries,
information, knowledge or data have been identified by CCG as secret or
confidential, unless and until, and then to the extent and only to the
extent that, such inventions, discoveries, information, knowledge or data
become available to the public otherwise than by the Employee's act or
omission.
(b) The Employee shall not, except as required in the conduct of
CCG's business, disclose to others, or use, any of the information (which,
if disclosed or used, could be harmful to CCG) relating to present and
prospective customers of CCG, business dealings with such customers,
prospective sales and advertising programs and agreements with
representatives or prospective representatives of CCG, present or
prospective sources of supply or any other business arrangements of CCG,
including but not limited to customers, customer lists, costs, prices and
earnings, whether or not such information is developed by the Employee, by
others in CCG or obtained by CCG from third parties, and irrespective of
whether or not such information has been identified by CCG as secret or
confidential, unless and until, and then to the extent and only to the
extent that, such information becomes available to the public otherwise
than by the Employee's act or omission.
(c) The Employee agrees to disclose immediately to CCG or any persons
designated by it and to assign to CCG or its successors or assigns, all
inventions made, discovered, or first reduced to practice by the Employee,
solely or jointly with others, during the Term of Employment or within a
period of six months from the date of termination of such employment
(either during or outside of the Employee's working hours and either on or
off CCG's premises), which inventions are made, discovered or conceived
either in the course of such employment, or with the use of CCG's time,
material, facilities or funds, or which are directly related to any
investigations or obligations undertaken by CCG; and the Employee hereby
grants and agrees to grant the right to CCG and its nominees to obtain, for
its own benefit and in its own name (entirely at its expense) patents and
patent applications including original, continuation, reissue, utility and
design patents, and applications, patents of addition, confirmation
patents, registration patents, petty patents, utility models, and all other
types of patents and the like, and all renewals and extensions of any of
them for those inventions in any and all countries; and the Employee shall
assist CCG, at CCG's expense, without further charge during the term of the
Employee's employment, and after termination of the Employee's employment
at the same base salary rate (excluding any bonuses, incentive or deferred
compensation or other benefits and based upon a forty hour work week) as
during the last year of the Employee's employment (determined on an hourly
basis for this purpose), through counsel designated by CCG, to execute,
acknowledge, and deliver all such further papers, including assignments,
applications for Letters Patent (of the United States or of any foreign
country), oaths, disclaimers or other instruments and to perform such
further acts, including giving testimony or furnishing evidence in the
prosecution or defense of appeals, interferences, suits and controversies
relating to any aforesaid inventions as may reasonably be deemed necessary
by CCG or its nominees to effectuate the vesting or perfecting in CCG or
its nominees of all right, title and interest in and to said inventions,
applications and patents.
<PAGE>
<PAGE>
(d) The Employee agrees to disclose immediately to CCG or any persons
designated by it and to assign to CCG, at its option, or its successors or
assigns, all works of authorship, including all writings, computer
programs, software, and firmware, written or created by the Employee solely
or jointly with others, during the course of his employment by CCG (either
during or outside of the Employee's working hours and either on or off
CCG's premises), which works are made or conceived either in the course of
such employment, or with the use of CCG's time, material, facilities or
funds, or which are directly related to any investigations or obligations
undertaken by CCG; and the Employee hereby agrees that all such works are
works made for hire, of which CCG is the author and the beneficiary of all
rights and protections afforded by the law of copyright in any and all
countries; and the Employee will assist CCG at CCG's expense without
further charges during the term of his employment, and after termination of
his employment at the same base salary rate (excluding any bonuses,
incentive or deferred compensation or other benefits) as during the last
year of his employment (determined on an hourly basis for this purpose
assuming a forty hour work week), through counsel designated by CCG, to
execute, acknowledge, and deliver all such further papers, including
assignments, applications for copyright registration (in the United States
or in any foreign country), oaths, disclaimers or other instruments, and to
perform such further acts, including giving testimony or furnishing
evidence in the prosecution or defense of appeals, interferences, suits and
controversies relating to any aforesaid works, as may be deemed necessary
by CCG or by its nominees to effectuate the vesting or perfecting in CCG or
its nominees of all rights and interest in and to said works and copies
thereof, including the exclusive rights of copying and distribution.
(e) The Employee shall keep complete, accurate and authentic
accounts, notes, data and records of all inventions made, discovered or
developed and all works of authorship written or created by the Employee as
aforesaid in the manner and form requested by CCG.
(f) All computer or other hardware, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples,
notes, records, reports, documents, customer lists, photographs, catalogues
and other writings, whether copyrightable or not, relating to or dealing
with CCG's business and plans, and those of others entrusted to CCG, which
are prepared or created by the Employee or which may come into his
possession during or as a result of his employment, are the property of
CCG, as applicable, and upon termination of his employment, the Employee
agrees to return all such computer software, computer programs, source
codes, object codes, magnetic tapes, printouts, samples, notes, records,
reports, documents, customer lists, photographs, catalogues and writings
and all copies thereof to CCG.
7. NON-SOLICITATION AND NON-COMPETITION. During the "Restriction Period"
(as hereinafter defined), the Employee shall not directly or indirectly:
(a) Solicit the business of CCG from any customer of CCG or any
entity controlled by CCG or solicit any employees of CCG to leave the
employ of CCG.
(b) Directly or indirectly, hire any employees or former employees of
CCG or any entity controlled by CCG or cause any entity with which the
Employee is affiliated to hire any such employees or former employees of
CCG.
<PAGE>
<PAGE>
(c) Engage in, represent in any way or be connected with, as a
consultant, officer, director, partner, employee, sales representative,
proprietor, member, stockholder (except for stock ownership of less than 1%
in a publicly owned corporation) or otherwise, any business competing with
the business of CCG as conducted by CCG on the date hereof or during the
period of Employee's employment by CCG within the "Territory" (as
hereinafter defined).
As used herein, the Restriction Period shall mean the period while the
Employee is employed by CCG and two (2) years after the date the Employee
ceases to be employed by CCG. As used herein, the Territory shall mean the
States of Mississippi, Louisiana, Arkansas, Alabama, Tennessee, Florida and
Georgia.
8. NO CONFLICT. Employee represents and warrants that he is not a party
to or otherwise subject to or bound by the terms of any contract, agreement
or understanding which in any manner would limit or otherwise affect his
ability to perform his obligations hereunder, including without limitation
any contract, agreement or understanding containing terms and provisions
similar in any manner to those contained in Sections 6 and 7 hereof.
Employee covenants to indemnify and hold CCG and any of its affiliates
harmless from any cost or damages resulting from any breach of the
provisions of this Agreement.
9. SURVIVAL OF COVENANTS, EFFECT.
(a) The covenants on the part of the Employee contained or referred
to in Sections 6 and 7 above shall survive termination of this Agreement,
and the existence of any claim or cause of action of the Employee against
CCG, whether predicated on this Agreement or otherwise. The Employee
agrees that a remedy at law for any breach of the foregoing covenants
contained or referred to in Sections 6 and 7 would be inadequate, that CCG
would suffer irreparable harm as a result and that CCG shall be entitled to
a temporary and permanent injunction or an order for specific performance
of such covenants without the necessity of proving actual damage to CCG and
without the posting of any bond or other security. Any breach of this
Agreement by CCG shall not release the Employee from his obligations under
Sections 6 and 7 hereof.
(b) The Employee hereby represents and acknowledges that CCG is
relying on the covenants in Sections 6 and 7 in entering into this
Agreement as well as the acquisition of CCC and the assets of CCA and CCI
and that the restrictions in Sections 6 and 7 are fair and reasonable. The
Employee acknowledges that CCG intends to do business throughout the United
States and that the geographic scope of the covenants in Section 7 is
reasonable and necessary to protect the interests of CCG.
(c) It is the intent of the parties that the provisions of Sections 6
and 7 shall be enforced to the fullest extent permissible under the laws
and public policies of each jurisdiction in which enforcement is sought.
If any particular provision of Sections 6 and 7 shall be adjudicated to be
invalid or unenforceable, such provision(s) of Sections 6 and 7 shall be
deemed amended to provide restrictions to the fullest extent permissible
and consistent with applicable law and policies, and such amendment shall
apply only with respect to the particular jurisdiction in which such
adjudication is made. If such deemed amendment is not allowed by the
adjudicating body, the offending provision, only, shall be deleted and the
remainder of Sections 6 and 7 shall not be effected. The restrictions set
forth in Sections 6 and 7 shall be in addition to, independent of, and
<PAGE>
<PAGE>
shall not be affected by any other restrictions which may be contained in
the Asset Purchase Agreement and Merger Agreement between CCG and the
Employee of even date herewith.
10. ASSIGNMENT.
The rights and obligations of CCG under this Agreement may be assigned
by CCG to any successors in interest of CCG of that part of the business of
CCG to which this Agreement applies or to its respective affiliates. This
Agreement may not be assigned and any duties of the Employee may not be
delegated by the Employee, but any amounts owing to the Employee upon his
death shall inure to the benefit of his estate.
11. NOTICES.
All notices or other communications which may be or are required to be
given, served or sent by either party to the other party pursuant to this
Agreement shall be in writing, addressed to its/his residence or place of
business as set forth above, and shall be mailed by first-class certified
mail, return receipt requested, postage prepaid, next-day air delivery, or
transmitted by facsimiles or hand delivery. Such notice or other
communication shall be deemed sufficiently given, served, sent or received
for all purposes at such time as it is delivered to the addressee or at
such time as delivery is refused by the addressee upon presentation. Each
party may designate by notice in writing an address to which any notice or
communication may thereafter be so given, served or sent.
12. APPLICABLE LAW JURISDICTION.
This Agreement has been negotiated and executed in the State of
Mississippi, and it shall be governed by, construed and enforced in
accordance with the internal substantive laws and not the choice of law
rules of the State of Mississippi.
13. EFFECTIVENESS/INTERPRETATION.
The parties acknowledge and agree that this Agreement has been
negotiated at arm's length between parties equally sophisticated and
knowledgeable in the matters dealt with herein. Each party has been
represented by counsel of its or his own choosing. Accordingly, any rule
of law or legal decision that would require interpretation of any
ambiguities in the Agreement against the party that drafted it is not
applicable and is waived.
14. SEVERABILITY.
If any of the articles, sections, paragraphs, clauses or provisions of
this Agreement shall be held by a court of last resort to be invalid, the
remainder of this Agreement shall not be affected thereby.
15. ENTIRE AGREEMENT.
The foregoing contains the entire agreement between the parties
relating to the subject matter of this Agreement, and may not be altered or
amended except by an instrument in writing approved by CCG and signed by
the parties hereto, and this Agreement supersedes all prior understandings
and agreements relating to employment of the Employee by CCG. The waiver
of any rights under this Agreement on any one or more occasions shall not
constitute a waiver on any subsequent occasion.
<PAGE>
<PAGE>
16. TEMPORARY, ON-CALL EMPLOYMENT. After the initial two-year Term of
Employment and provided such employment has not terminated pursuant to
Section 3 hereof prior to expiration of the term of employment, the
Employee shall become a temporary, on-call employee of CCG. The terms and
conditions relating to such employment as a temporary, on-call employee of
CCG are as follows:
(a) The Employee shall render consulting services to CCG on an as
needed basis at the request of CCG, but in no event shall Employee be
required to devote more than 50 hours per month to consulting services for
CCG.
(b) The Employee shall not be restricted with respect to other
employment provided such other employment does not unreasonably interfere
with his ability to render consulting services to CCG and provided further
that such employment is not in competition with CCG. It is intended hereby
that the restrictive covenants of Sections 6 and 7 shall continue to apply
to the Employee as a temporary, on-call employee.
(c) The Employee shall not have the duties set forth in Section 1 and
Schedule I hereof and shall not be an officer of CCG.
(d) The salary set forth in Section 1 hereof shall terminate after
the initial two year Term of Employment. As a temporary, on-call employee
of CCG, the Employee shall receive the sum of $4,166.66 per month even
though in any one month the Employee performs less than 50 hours of
consulting services to CCG or in any one month CCG requests no such
consulting services.
(e) At the end of the two year period during which Employee is a
temporary, on-call employee, his employment with CCG shall terminate unless
by material written agreement the parties continue the employment
relationship after such date.
IN WITNESS WHEREOF, CCG has caused this Agreement to be executed by
its duly authorized officers and the Employee has hereunto set his hand as
of the date first above written.
CONWAY COMPUTER GROUP, INC.
By: Michael J. Mruz
---------------------------
Its: Vice President
---------------------
John Armistead Conway, Jr.
-------------------------------------
JOHN ARMISTEAD CONWAY, JR., Employee
<PAGE>
<PAGE>
SCHEDULE I
DUTIES OF EMPLOYEE
John A. Conway, Jr.
President
The President has responsibility for overall corporate operations and
personnel administration. He must insure that plans are created and
programs implemented that will ensure the achievement of both CCG and NRC
corporate goals as set by the Board of Directors and the Shareholders.
At a minimum, the President must be concerned with profitability, financial
matters and reporting of same both at CCG and to NRC, employee satisfaction
and morale, consumer satisfaction, and maintaining proper business
processes, policies, and procedures. In addition to duties as the
President of CCG, he should be available to fulfill duties as a corporate
officer of NRC or any other such duties as he may be assigned by the Board
or NRC.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the 30th day of June, 1995, by and
between DONALD Y. MENENDEZ, whose address is 4221 Sharpsburg Drive,
Birmingham, Alabama 35213 (herein called the "Employee") and CSC
ACQUISITIONS, INC., an Alabama corporation ("CSC"), whose address is 1801
First Avenue South, Suite 400, Birmingham, Alabama 35233.
W I T N E S S E T H:
WHEREAS, CSC is engaged in the business of providing computerized
management information systems and services to physicians and other health
care providers; and
WHEREAS, CSC desires to obtain the services of the Employee as
President of CSC and the Employee is willing to render such services to CSC
upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. DUTIES AND SALARY.
(a) CSC agrees to employ the Employee and the Employee agrees to
accept employment by CSC on a full-time basis as President of CSC at a base
salary of $180,000.00 per year payable twice monthly during the Term of
Employment, as hereinafter defined. Such salary may be increased from time
to time in the discretion of the CSC Board of Directors.
(b) The Employee hereby agrees to undertake such travel as may be
required in the performance of his duties. The reasonable travel expenses
of the Employee shall be reimbursed in accordance with CSC's reimbursement
policy, in effect from time to time. The Employee shall not be required to
relocate from the Birmingham, Alabama area without his consent.
(c) The Employee shall carry out his duties under the general
supervision of the Board of Directors of CSC.
(d) The Employee's duties shall include the duties and
responsibilities identified on Schedule I attached hereto. The Employee
shall perform such other tasks and duties as may be assigned by CSC, from
time to time and CSC reserves the right to change the office and/or
position of the Employee within CSC, so long as such change is mutually
acceptable. The Employee shall devote his full time, attention, skill and
efforts to the tasks and duties assigned by CSC. The Employee shall not
provide services, for compensation, to any other person or business entity
while employed by CSC without the written consent of CSC.
(e) Effective on the date hereof, Employee shall be granted an
incentive stock option to purchase 22,000 shares of common stock of Nichols
Research Corporation which grant shall be by a separate option grant
agreement on the first day of employment hereunder, provided that if the
number of shares over which options may be exercised would exceed the
maximum number permitted for incentive stock options by the Internal
Revenue Code such excess shall be granted as non-statutory stock options
under the NRC Stock Option Plan by a separate option grant agreement on the
first day of employment hereunder which shall be subject to the same
vesting schedule as the incentive stock options.
<PAGE>
<PAGE>
2. TERM OF EMPLOYMENT. This Agreement was executed on the date of the
execution of that certain Asset Purchase Agreement by and among CSC,
Nichols Research Corporation ("NRC"), Computer Services Corporation and
Roland B. Smith, Sr. (the "Purchase Agreement") and shall commence as of
the date of closing of the Purchase Agreement and shall end two (2) years
from such date of closing (the "Term of Employment"), unless terminated
earlier as provided in Section 3, below, or extended as provided in this
Section 2. Upon expiration of the initial Term of Employment, unless
earlier terminated as provided herein, the Employee's employment shall
continue automatically month-to-month until terminated by either party with
at least thirty (30) days' prior written notice with or without cause.
Until such closing, CSC shall incur no liability or obligation to Employee.
It shall be a condition subsequent to the effectiveness of this Agreement
that the Purchase Agreement is closed and consummated. In the event the
Purchase Agreement is not closed and consummated on or before September 1,
1995, either party may void and rescind this Agreement immediately upon
written notice to the other party, in which case it shall be as if this
Agreement was never executed.
3. TERMINATION BEFORE EXPIRATION OF TERM OF EMPLOYMENT. The termination
of the employment of the Employee during the initial Term of Employment
shall occur in one of the following ways:
(a) BY CSC, FOR CAUSE. Termination by CSC shall be deemed to be for
cause only upon:
(i) Employee's conviction of or pleading guilty to a felony;
(ii) Refusal or failure by the Employee, without reasonable
excuse or proper authorization, to carry out any reasonable
instructions of CSC consistent with Employee's rights or
duties as set forth in this Agreement;
(iii) Material breach of this Agreement or any material breach of
any agreement with CSC;
(iv) The Employee's demonstration of negligence or willful
misconduct in the execution of his duties, including without
limitation breach of fiduciary duty or the duty of loyalty
owed CSC.
If CSC intends to terminate for cause, CSC shall provide notice to
Employee of intent to terminate his employment, stating the termination
provision in this Agreement relied upon and setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination under the provisions so indicated, and shall provide Employee
with an opportunity to cure the alleged default or breach within thirty
(30) days of receipt of the notice, provided that if the matter is not
curable within such thirty (30) day period, the Employee shall not be
deemed in default if the Employee commences immediately to cure the matter
and proceeds diligently thereafter to complete the cure, further provided
that the alleged breach or default must be cured within ninety (90) days of
receipt of the notice. CSC shall not be required to give more than one
notice with respect to the same matter. Notwithstanding the foregoing, no
notice and no cure right shall be required with respect to termination for
cause under 3(a)(i) or an act involving theft of information or property of
CSC.
<PAGE>
<PAGE>
(b) BY EMPLOYEE, FOR GOOD REASON. Termination by the Employee shall
be deemed for good reason only because of a material breach by CSC of this
Agreement including, without limitation, making a material change in the
Employee's duties, responsibilities or authority as set forth in this
Agreement, without his express written consent. In all cases in which
Employee intends to terminate for Good Reason, the Employee shall provide
CSC with notice of intent to terminate this Agreement, stating the facts
and circumstances giving rise to a breach of this Agreement claimed to
provide a basis for termination under the provisions so indicated, and
shall provide CSC with an opportunity to cure the alleged default or breach
within thirty (30) days of receipt of the notice, provided that if the
matter is not curable within such thirty (30) day period, CSC shall not be
deemed in default if it commences immediately to cure the matter and
proceeds diligently thereafter to complete the cure, further provided that
the alleged breach or default must be cured within ninety (90) days of
receipt of the notice. Employee shall not be required to give more than
one such notice with respect to the same matter.
(c) DEATH OF THE EMPLOYEE.
(d) DISABILITY OF EMPLOYEE. If, during the Term of Employment, a
physician selected by mutual agreement of CSC and the Employee determines
that the Employee has become physically or mentally disabled so as to be
unable to carry out the normal and usual duties of his employment for three
(3) continuous months, and reasonable accommodation cannot be made to allow
the Employee to continue to perform his duties full-time, his employment
hereunder may be terminated at the election of CSC or the Employee.
4. SALARY AND BENEFITS UPON TERMINATION. Upon any termination of the
employment of Employee, the Employee shall be entitled only to the
following salary and benefits:
(a) If the termination is for any reason other than death or
disability, including, without limitation, by CSC for cause or by Employee
for good reason, CSC will pay the Employee within five (5) days after the
date of termination any unpaid salary prorated to the date of termination,
the amount of any accrued annual vacation pay to which he may be entitled
under CSC's vacation plan and benefits, with such compensation and benefits
(if any) paid only through the date termination occurs.
(b) In the event of the Employee's death or disability, the following
provisions will apply:
(i) Upon his death, the Employee's estate will be entitled to
receive the amount set forth in Section 4(a) and the
benefits set forth in any plans of CSC then in effect and
applicable under the circumstances. The Employee or his
estate shall be entitled to no other compensation or
benefits in the event of death.
(ii) Upon termination on account of disability, Employee will be
entitled to receive the amount set forth in Section 4(a) and
the benefits set forth in any plans of CSC then in effect
and applicable under the circumstances. The Employee or his
personal representative shall be entitled to no other
compensation or benefits in the event of disability.
(c) In the event the termination is by CSC for cause or by Employee
for good reason, or in the event of any breach of this Agreement by either
<PAGE>
<PAGE>
party, the parties respectively reserve any rights and remedies they may
have at law or equity, in addition to and not in lieu of the payments
called for in this Section 4. For all other terminations (other than for
cause or good reason or in the event of a breach), the amounts set forth
above in this Section 4 shall be paid and received in complete discharge of
any other obligation of CSC to Employee or Employee to CSC resulting from
termination of his employment.
5. FRINGE BENEFITS.
The Employee shall participate in any group health insurance, vacation
and sick leave plans, and other benefit plans available to all employees of
CSC in accordance with their terms and conditions which may be amended or
terminated by CSC at any time.
6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS.
(a) Unless authorized or instructed in writing by CSC, the Employee
shall not, except as required in the conduct of CSC's business, during or
at any time after the Term of Employment, disclose to others, or use, any
of CSC's inventions or discoveries or its respective secret or confidential
information or data (oral, written, or in machine readable form) which the
Employee may obtain during the course of or in connection with the
Employee's employment (or employment or affiliation with any company that
transfers to CSC such information or data), including such inventions,
discoveries, information or data relating to machines, equipment, products,
systems, software, contracts, contract performance, research or
development, designs, computations, formulas, manufacturing procedures,
customer lists, and suppliers, whether or not developed by the Employee, by
others in CSC or obtained by CSC from third parties, and irrespective of
whether or not such inventions, discoveries, information, knowledge or data
have been identified by CSC as secret or confidential, unless and until,
and then to the extent and only to the extent that, such inventions,
discoveries, information, knowledge or data become available to the public
otherwise than by the Employee's act or omission.
(b) The Employee shall not, except as required in the conduct of
CSC's business, disclose to others, or use, any of the information (which,
if disclosed or used, could be harmful to CSC) relating to present and
prospective customers of CSC, business dealings with such customers,
prospective sales and advertising programs and agreements with
representatives or prospective representatives of CSC, present or
prospective sources of supply or any other business arrangements of CSC,
including but not limited to customers, customer lists, costs, prices and
earnings, whether or not such information is developed by the Employee, by
others in CSC or obtained by CSC from third parties, and irrespective of
whether or not such information has been identified by CSC as secret or
confidential, unless and until, and then to the extent and only to the
extent that, such information becomes available to the public otherwise
than by the Employee's act or omission.
(c) The Employee agrees to disclose immediately to CSC or any persons
designated by it and to assign to CSC or its successors or assigns, all
inventions made, discovered, or first reduced to practice by the Employee,
solely or jointly with others, during the Term of Employment or within a
period of six months from the date of termination of such employment
(either during or outside of the Employee's working hours and either on or
off CSC's premises), which inventions are made, discovered or conceived
either in the course of such employment, or with the use of CSC's time,
<PAGE>
<PAGE>
material, facilities or funds, or which are directly related to any
investigations or obligations undertaken by CSC; and the Employee hereby
grants and agrees to grant the right to CSC and its nominees to obtain, for
its own benefit and in its own name (entirely at its expense) patents and
patent applications including original, continuation, reissue, utility and
design patents, and applications, patents of addition, confirmation
patents, registration patents, petty patents, utility models, and all other
types of patents and the like, and all renewals and extensions of any of
them for those inventions in any and all countries; and the Employee shall
assist CSC, at CSC's expense, without further charge during the term of the
Employee's employment, and after termination of the Employee's employment
at the same base salary rate (excluding any bonuses, incentive or deferred
compensation or other benefits and based upon a forty hour work week) as
during the last year of the Employee's employment (determined on an hourly
basis for this purpose), through counsel designated by CSC, to execute,
acknowledge, and deliver all such further papers, including assignments,
applications for Letters Patent (of the United States or of any foreign
country), oaths, disclaimers or other instruments and to perform such
further acts, including giving testimony or furnishing evidence in the
prosecution or defense of appeals, interferences, suits and controversies
relating to any aforesaid inventions as may reasonably be deemed necessary
by CSC or its nominees to effectuate the vesting or perfecting in CSC or
its nominees of all right, title and interest in and to said inventions,
applications and patents.
(d) The Employee agrees to disclose immediately to CSC or any persons
designated by it and to assign to CSC, at its option, or its successors or
assigns, all works of authorship, including all writings, computer
programs, software, and firmware, written or created by the Employee solely
or jointly with others, during the course of his employment by CSC (either
during or outside of the Employee's working hours and either on or off
CSC's premises), which works are made or conceived either in the course of
such employment, or with the use of CSC's time, material, facilities or
funds, or which are directly related to any investigations or obligations
undertaken by CSC; and the Employee hereby agrees that all such works are
works made for hire, of which CSC is the author and the beneficiary of all
rights and protections afforded by the law of copyright in any and all
countries; and the Employee will assist CSC at CSC's expense without
further charges during the term of his employment, and after termination of
his employment at the same base salary rate (excluding any bonuses,
incentive or deferred compensation or other benefits) as during the last
year of his employment (determined on an hourly basis for this purpose
assuming a forty hour work week), through counsel designated by CSC, to
execute, acknowledge, and deliver all such further papers, including
assignments, applications for copyright registration (in the United States
or in any foreign country), oaths, disclaimers or other instruments, and to
perform such further acts, including giving testimony or furnishing
evidence in the prosecution or defense of appeals, interferences, suits and
controversies relating to any aforesaid works, as may be deemed necessary
by CSC or by its nominees to effectuate the vesting or perfecting in CSC or
its nominees of all rights and interest in and to said works and copies
thereof, including the exclusive rights of copying and distribution.
(e) The Employee shall keep complete, accurate and authentic
accounts, notes, data and records of all inventions made, discovered or
developed and all works of authorship written or created by the Employee as
aforesaid in the manner and form requested by CSC.
<PAGE>
<PAGE>
(f) All computer or other hardware, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples,
notes, records, reports, documents, customer lists, photographs, catalogues
and other writings, whether copyrightable or not, relating to or dealing
with CSC's business and plans, and those of others entrusted to CSC, which
are prepared or created by the Employee or which may come into his
possession during or as a result of his employment, are the property of
CSC, as applicable, and upon termination of his employment, the Employee
agrees to return all such computer software, computer programs, source
codes, object codes, magnetic tapes, printouts, samples, notes, records,
reports, documents, customer lists, photographs, catalogues and writings
and all copies thereof to CSC.
7. NON-SOLICITATION AND NON-COMPETITION. During the "Restriction Period"
(as hereinafter defined) and within the "Territory" (as hereinafter
defined), the Employee shall not directly or indirectly:
(a) Solicit the business of CSC from any customer of CSC or any
entity controlled by CSC.
(b) Directly or indirectly, hire any employees of CSC or any entity
controlled by CSC or cause any entity with which the Employee is affiliated
to hire any such employees of CSC. As used herein, the term "employees"
shall mean persons who are, at the time in question, current employees of
CSC or its affiliates or who were, within six (6) months of the date of the
prohibited hiring, employees of CSC or its affiliates.
(c) Engage in, represent in any way or be connected with, as a
consultant, officer, director, partner, employee, sales representative,
proprietor, member, stockholder (except for stock ownership of less than 1%
in a publicly owned corporation) or otherwise, any business competing with
the business of CSC as conducted by CSC on the date hereof or during the
period of Employee's employment by CSC.
As used herein, the Restriction Period shall mean the period while the
Employee is employed by CSC and one (1) year after the date the Employee
ceases to be employed by CSC. As used herein, the Territory shall mean the
States of Alabama, Mississippi, North Carolina, Florida and Georgia and any
other state in which CSC does business after the date hereof while Employee
is employed by CSC. As used herein, the term "business of CSC" shall mean
the business of providing computerized management information systems and
services to physicians and other health care providers.
8. NO CONFLICT. Employee represents and warrants that he is not a party
to or otherwise subject to or bound by the terms of any contract, agreement
or understanding which in any manner would limit or otherwise affect his
ability to perform his obligations hereunder, including without limitation
any contract, agreement or understanding containing terms and provisions
similar in any manner to those contained in Sections 6 and 7 hereof.
9. SURVIVAL OF COVENANTS, EFFECT.
(a) The covenants on the part of the Employee contained or referred
to in Sections 6 and 7 above shall survive termination of this Agreement,
and the existence of any claim or cause of action of the Employee against
CSC, whether predicated on this Agreement or otherwise. The Employee
agrees that a remedy at law for any breach of the foregoing covenants
contained or referred to in Sections 6 and 7 would be inadequate, that CSC
would suffer irreparable harm as a result and that CSC shall be entitled to
<PAGE>
<PAGE>
a temporary and permanent injunction or an order for specific performance
of such covenants without the necessity of proving actual damage to CSC and
without the posting of any bond or other security. Any nonmaterial breach
of this Agreement by CSC shall not release the Employee from his
obligations under Section 7 hereof. Any breach (whether or not material)
by CSC shall not release the Employee from his obligations under Section 6.
(b) The Employee hereby represents and acknowledges that CSC is
relying on the covenants in Sections 6 and 7 in entering into this
Agreement and that the restrictions in Sections 6 and 7 are fair and
reasonable. The Employee acknowledges that CSC presently intends to do
business throughout the United States and that the geographic scope of the
covenants in Section 7 is reasonable and necessary to protect the interests
of CSC.
(c) It is the intent of the parties that the provisions of Sections 6
and 7 shall be enforced to the fullest extent permissible under the laws
and public policies of each jurisdiction in which enforcement is sought.
If any particular provision of Sections 6 and 7 shall be adjudicated to be
invalid or unenforceable, such provision(s) of Sections 6 and 7 shall be
deemed amended to provide restrictions to the fullest extent permissible
and consistent with applicable law and policies, and such amendment shall
apply only with respect to the particular jurisdiction in which such
adjudication is made. If such deemed amendment is not allowed by the
adjudicating body, the offending provision, only, shall be deleted and the
remainder of Sections 6 and 7 shall not be affected.
10. ASSIGNMENT.
The rights and obligations of CSC under this Agreement may be assigned
or delegated by CSC to any affiliate of CSC or to any successors in
interest of CSC or of that part of the business of CSC to which this
Agreement applies so long as the duties of Employee are not materially
affected. Any other assignment of this Agreement shall require the written
consent of Employee. After the date hereof, CSC may change its name to
"Computer Services Corporation," and such name change shall not affect the
rights and duties of the parties hereto. This Agreement may not be
assigned and any duties of the Employee may not be delegated by the
Employee, but any amounts owing to the Employee upon his death shall inure
to the benefit of his estate.
11. NOTICES.
All notices or other communications which may be or are required to be
given, served or sent by either party to the other party pursuant to this
Agreement shall be in writing, addressed to its/his residence or place of
business as set forth above, and shall be mailed by first-class certified
mail, return receipt requested, postage prepaid, next-day air delivery, or
transmitted by facsimiles or hand delivery. Such notice or other
communication shall be deemed sufficiently given, served, sent or received
for all purposes at such time as it is delivered to the addressee or at
such time as delivery is refused by the addressee upon presentation. Each
party may designate by notice in writing an address to which any notice or
communication may thereafter be so given, served or sent.
12. APPLICABLE LAW JURISDICTION.
This Agreement has been negotiated and executed in the State of
Alabama, and it shall be governed by, construed and enforced in accordance
<PAGE>
<PAGE>
with the internal substantive laws and not the choice of law rules of the
State of Alabama.
13. EFFECTIVENESS/INTERPRETATION.
The parties acknowledge and agree that this Agreement has been
negotiated at arm's length between parties equally sophisticated and
knowledgeable in the matters dealt with herein. Each party has been
represented by counsel of its or his own choosing. Accordingly, any rule
of law or legal decision that would require interpretation of any
ambiguities in the Agreement against the party that drafted it is not
applicable and is waived.
14. SEVERABILITY.
If any of the articles, sections, paragraphs, clauses or provisions of
this Agreement shall be held by a court of last resort to be invalid, the
remainder of this Agreement shall not be affected thereby.
15. ENTIRE AGREEMENT.
The foregoing contains the entire agreement between the parties
relating to the subject matter of this Agreement, and may not be altered or
amended except by an instrument in writing approved by CSC and signed by
the parties hereto, and this Agreement supersedes all prior understandings
and agreements relating to employment of the Employee by CSC. The waiver
of any rights under this Agreement on any one or more occasions shall not
constitute a waiver on any subsequent occasion.
IN WITNESS WHEREOF, CSC has caused this Agreement to be executed by
its duly authorized officers and the Employee has hereunto set his hand as
of the date first above written.
CSC ACQUISITIONS, INC.
By: Chris H. Horgen
---------------------------
Its: President
---------------------
Donald Y. Menendez
------------------------------
Donald Y. Menendez, Employee
<PAGE>
<PAGE>
SCHEDULE I
DUTIES OF EMPLOYEE
Provide overall direction and management of CSC consistent with job title
and prior responsibilities and as required to support CSC's business plans
and long-term strategy.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the 1st day of September, 1994, by
and between D. BRUCE McINDOE, residing at 2101 Viewpoint Court,
Brookeville, MD 20833 (herein called the "Employee"), COMMUNICATIONS &
SYSTEM SPECIALISTS, INC. (herein called "CSSi") with a principal place of
business at 10260 Old Columbia Road, Columbia, Maryland 21046, and NICHOLS
RESEARCH CORPORATION, with a principal place of business located at 4040
Memorial Parkway South, Huntsville, Alabama 35802 (herein called "NRC").
W I T N E S S E T H:
WHEREAS, NRC, as purchaser, and Employee , George H. Mahler IV and
Allegheny College, as sellers, entered into and consummated a Stock
Purchase Agreement dated as of September 1, 1994 (the "Purchase Agreement")
whereby NRC acquired all of the stock of CSSi (and CSSi became a wholly
owned subsidiary of NRC), and the Employee's continued employment with CSSi
was a material inducement to NRC to enter into the Purchase Agreement;
WHEREAS, CSSi and NRC desire to obtain the services of the Employee as
President of CSSi and the Employee is willing to render such services to
CSSi upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. DUTIES AND SALARY.
(a) CSSi agrees to employ the Employee and the Employee agrees to
accept employment by CSSi on a full-time basis as President of CSSi at an
annual initial base salary of $120,000 payable during the Term of
Employment, as hereinafter defined. ("CSSi" as used herein refers to CSSi
as a wholly owned subsidiary of NRC, any successor entity, and NRC itself
in the event CSSi or its assets and/or operations are merged into NRC.)
Such initial salary shall be payable in equal installments during each
month or such other pay periods established from time to time by the Board
of Directors of CSSi (the "Board") or the Board of Directors of NRC (the
"NRC Board"), pursuant to their standard employment practices. The
Employee's duties shall include the following:
(i) to promote the growth of and manage the business and day to
day operations of CSSi;
(ii) to perform the duties normally associated with the Office of
President or such other office to which Employee may be
nominated and appointed by the Board, subject to control and
direction of the Board or the NRC Board;
(iii) to train and supervise CSSi's employees and to perform or
cause to be performed quality control for projects and
contracts performed by CSSi;
(iv) to manage and/or actually assist in the bidding and
performance of major or material projects and contracts undertaken by CSSi
and/or NRC;
<PAGE>
<PAGE>
(v) to direct and supervise the sale and marketing of CSSi's
contracts, services and products and, if requested, the contracts, services
and products of NRC;
(vi) to assist NRC in developing business with CSSi customers
utilizing NRC products and services;
(vii) to assist NRC in developing business with NRC customers
utilizing CSSi products and services; and
(viii) to perform such other and/or different duties as may be
determined or delegated by the Board or the NRC Board, consistent with the
duties of the President.
(b) CSSi agrees to employ the Employee for the Term of Employment,
except as hereinafter provided. The Employee hereby agrees to undertake
such travel as may be required in the performance of his duties. The
reasonable travel expenses of the Employee shall be reimbursed in
accordance with CSSi's reimbursement policy, in effect from time to time.
(c) The Employee shall carry out his duties under the general
supervision of the Board or its designee and/or the NRC Board or its
designee.
(d) The Employee shall perform such other tasks and duties as may be
assigned by CSSi, from time to time and CSSi and/or NRC reserve the right
to change the office and/or position of the Employee within CSSi, so long
as such change is mutually acceptable. If such change in office and/or
position is not acceptable to Employee, Employee and CSSi shall make a
good faith effort to resolve their dispute in a mutually acceptable manner.
If the parties are unable to reach such a resolution, Employee may appeal
first to the Chief Executive Officer of NRC, and if that appeal also fails
to resolve the parties' differences, Employee may appeal to the NRC Board.
No change in Employee's office and/or position shall be made until such
appeals have been taken or until such change is mutually agreeable to the
parties. At all times, the Employee shall follow all of the instructions
and directions of CSSi and of the Board, which are consistent with this
Agreement, and shall abide by all of CSSi's rules and procedures in force
from time to time. The Employee shall devote his full time, attention,
skill and efforts to the tasks and duties assigned by CSSi. Without the
prior written consent of CSSi and NRC, the Employee shall not provide
services, for compensation, to any other person or business entity while
employed by CSSi.
(e) NRC agrees that the position of president of CSSi shall be of
equal status to a group vice-president of NRC. NRC shall elect Employee to
serve as a member of the CSSi Board for so long as Employee is employed by
CSSi, its successors in interest, or NRC. In the event that CSSi is merged
into NRC so that CSSI ceases to exist as a distinct entity, NRC agrees to
appoint and elect Employee to positions with NRC that are of equal status
as those positions which Employee previously held within CSSi.
(f) The Employee shall not be required to relocate beyond 30 miles
from Columbia, Maryland, without his consent.
2. TERM OF EMPLOYMENT. This Agreement shall commence as of the date
hereof and shall end August 31, 1999 (the "Term of Employment"), unless
terminated earlier as provided herein. Upon expiration of the initial Term
of Employment unless earlier terminated as provided herein, the Term of
<PAGE>
<PAGE>
Employment shall continue automatically month-to-month until terminated by
either party with at least thirty (30) days' prior written notice with or
without cause.
3. TERMINATION BEFORE EXPIRATION OF TERM OF EMPLOYMENT. The termination
of the employment of the Employee during the Term of Employment may occur
in one of the following ways:
(a) BY CSSI AND/OR NRC, FOR CAUSE. Termination by CSSi and/or NRC
shall be deemed to be for cause only upon:
(i) Employee's conviction of or pleading guilty to fraud,
misappropriation, embezzlement or any felony;
(ii) A good faith determination by the Board or the NRC Board
that the Employee has breached either this Agreement, the Purchase
Agreement or the Non-Competition Agreement;
(iii) Refusal by the Employee, without reasonable excuse or proper
authorization, to carry out any reasonable instruction of the Board or the
NRC Board consistent with Employee's rights or duties as set forth in this
Agreement;
(iv) Breach of any material duty or obligation owed to CSSi or
NRC, including without limitation breach of fiduciary duty or the duty of
loyalty;
(v) Final revocation, after exhaustion of all available appeals,
of Employee's security clearance based upon an act or omission by the
Employee; or
(vi) The Employee's demonstration of gross negligence or willful
misconduct in the execution of his duties.
In all cases in which CSSi or NRC intends to terminate for cause, CSSi and
NRC shall provide notice to Employee of intent to terminate this Agreement,
stating the termination provision in this Agreement relied upon and setting
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provisions so indicated, and shall provide
Employee with an opportunity to cure the alleged default or breach within
thirty (30) days of receipt of the notice, provided that if the matter is
not curable within such thirty (30) day period, the Employee shall not be
deemed in default if the Employee commences immediately to cure the matter
and proceeds diligently thereafter to complete the cure, further provided
that the alleged breach or default must be cured within ninety (90) days of
receipt of the notice. CSSi and NRC shall not be required to give more
than one notice with respect to the same matter. Notwithstanding the
foregoing, no notice and no cure right shall be required with respect to
termination for cause under 3(a)(i), 3(a)(v) or an act involving theft of
information or property of CSSi or NRC.
(b) BY CSSI AND/OR NRC, WITHOUT CAUSE. Any termination of Employee
by CSSi and/or NRC for reasons other than as set forth in subsections
3(a)(i) through 3(a)(vi), above, shall be a termination without cause.
CSSi or NRC may terminate the employment of Employee without cause by
ninety (90) days' prior written notice at any time. During such ninety
(90) day period, the parties may attempt to resolve the reasons, if any,
which motivated NRC or CSSi to terminate without cause, but the failure of
<PAGE>
<PAGE>
any such attempt shall not affect the right of NRC or CSSi to terminate
without cause.
(c) BY THE EMPLOYEE. The Employee may by written notice terminate
his employment at any time during the Term of Employment:
(i) For any reason, including retirement pursuant to the
provisions of CSSi's or NRC's retirement plan, other than for Good Reason
(as defined below).
(ii) For "Good Reason," defined as termination because of a
material breach by CSSi or NRC of this Agreement or the Purchase Agreement,
including without limitation making a material change in the Employee's
duties, responsibilities or authority as set forth in this Agreement,
without his express written consent. In all cases in which Employee
intends to terminate for Good Reason, the Employee shall provide CSSi and
NRC with notice of intent to terminate this Agreement, stating the facts
and circumstances giving rise to a breach of this Agreement or the Purchase
Agreement claimed to provide a basis for termination under the provisions
so indicated, and shall provide CSSi and NRC with an opportunity to cure
the alleged default or breach within thirty (30) days of receipt of the
notice, provided that if the matter is not curable within such thirty (30)
day period, CSSi and NRC shall not be deemed in default if they commence
immediately to cure the matter and proceed diligently thereafter to
complete the cure, further provided that the alleged breach or default must
be cured within ninety (90) days of receipt of the notice. Employee shall
not be required to give more than one such notice with respect to the same
matter.
(iii) For a "Change in Control," defined as the merger or a
consolidation of CSSi, other than a merger of another corporation into CSSi
in which CSSi is the surviving corporation, the liquidation of CSSi, or NRC
shall cease to own at least a majority of the shares of stock of CSSi, or
the sale or other disposition of a substantial part of the business of CSSi
and its subsidiaries, which would cause the Employee's position with CSSi
to become of less dignity, responsibility, importance or scope from the
position and attributes thereof described in Section 1(a), or results in
the nonperformance or impossibility of performance of any other obligation
of CSSi or NRC to Employee under this Agreement, including without
limitation obligations under Section 5.
(d) DEATH OF THE EMPLOYEE.
(e) DISABILITY OF EMPLOYEE. For this purpose, disability shall be
defined in accordance with Section 4(e)(ii).
4. CONSEQUENCES OF TERMINATION. The termination of the employment of
Employee will cause the following results:
(a) If the termination is by CSSi and/or NRC for cause, or is by the
Employee for any reason other than for Good Reason or Change in Control,
CSSi will pay the Employee within five (5) days after the date of
termination any unpaid salary, incentive compensation under Section 5, the
amount of any accrued annual vacation pay to which he may be entitled under
CSSi's vacation plan, and benefits. All such compensation and benefits (if
any) shall be paid only through the date termination occurs.
(b) If the termination is by CSSi and/or NRC without cause, CSSi
and/or NRC shall pay to the Employee (i) in monthly installments over a
<PAGE>
<PAGE>
six-month period immediately following the termination, an amount as
liquidated damages equal to one hundred percent (100%) of the Employee's
annual base salary then in effect and (ii) all incentive compensation (if
any) based upon "Gross Profits" of CSSi through the initial Term of
Employment, as determined and paid in the manner prescribed in Section
5(b).
(c) If the termination is by the Employee for Good Reason, CSSi shall
pay to the Employee (i) in monthly installments over a six-month period
immediately following the termination, an amount as liquidated damages
equal to fifty percent (50%) of the Employee's annual base salary then in
effect and (ii) all incentive compensation (if any) based upon "Gross
Profits" of CSSi through the initial Term of Employment, as determined and
paid in the manner prescribed in Section 5(b).
(d) If the termination is by Employee for Change in Control, CSSi
shall pay to the Employee (i) in monthly installments over a six-month
period immediately following the termination, an amount as liquidated
damages equal to one hundred percent (100%) of the Employee's annual base
salary then in effect and (ii) all incentive compensation (if any) based
upon "Gross Profits" of CSSi through the initial Term of Employment, as
determined and paid in the manner prescribed in Section 5(b).
(e) In the event of the Employee's death or disability, the following
provisions will apply:
(i) The Employee's employment shall be terminated upon his
death, and the Employee's estate will be entitled to receive the amount set
forth in Section 5(b) and the benefits set forth in any plans of CSSi then
in effect and applicable under the circumstances. The Employee or his
estate shall be entitled to no other compensation or benefits in the event
of death.
(ii) If, during the Period of Employment, a physician selected
jointly by Employee and CSSi (neither of which may unreasonably withhold or
delay such selection) determines that the Employee has become physically or
mentally disabled so as to be unable to carry out the normal and usual
duties of his employment for three (3) continuous months, and reasonable
accommodation cannot be made to allow the Employee to continue to perform
his duties full-time, his employment hereunder may be terminated at the
election of CSSi. During the period of the Employee's disability, the
Employee shall continue to earn all compensation and other benefits as if
he were not disabled, and following termination Employee will be entitled
to receive the amount set forth in Section 5(b) and the benefits set forth
in any plans of CSSi then in effect and applicable under the circumstances.
The Employee or his personal representative shall be entitled to no other
compensation or benefits in the event of disability.
(f) The Employee shall not be required to mitigate the amount of
payment provided for in this Section 4 by seeking employment or otherwise.
5. INCENTIVE COMPENSATION AND FRINGE BENEFITS.
(a) The Employee shall participate in any group health insurance,
vacation and sick leave plans, and other benefit plans available to all
employees of CSSi in accordance with their terms and conditions.
<PAGE>
<PAGE>
(b) In addition to bonuses which the Employee may receive, the
Employee shall be paid an incentive bonus equal to a percentage of the
"Gross Profits" of CSSi earned and received during the period beginning on
the date hereof and ending August 31, 1999, in accordance with the
following provisions. No incentive bonus shall be paid under this Section
5(b) unless a minimum of $400,001 of Gross Profits is earned during each
fiscal year. The percentage of Gross Profits payable to the Employee as
provided in this paragraph shall be as follows:
GROSS PROFITS INCENTIVE BONUS
0 - $400,000 -0-
$400,001-$500,000 30% of Gross Profits
$500,001-$600,000 40% of Gross Profits
$600,001 and above 50% of Gross Profits
As used in this Section 5(b), the term "Gross Profits" shall be defined in
the same manner as that term is defined under generally accepted accounting
principles and under cost accounting standards promulgated as of the date
of this Agreement by the Cost Accounting Standards Board which, in general,
defines Gross Profits as profits from contracts less unallowable expenses
and applicable over-runs. For indirect cost rates not directly controlled
by CSSi, that is, general and administrative and material handling costs,
annual provisional budget rates will be used in the determination of Gross
Profits. No business unit external to CSSi's current organizational
structure will be assigned to CSSi, and no contract used to determine Gross
Profits will be entered into by CSSi, without the mutual consent of the
parties. The parties shall make a good faith effort to reach such mutual
consent, and neither party shall unreasonably withhold their consent when
such assignment or contract would be in the best interests of CSSi.
Calculation of Gross Profits shall be made based on the Gross Profits
received by CSSi during the fiscal years and partial fiscal years of CSSi
beginning on the date hereof and ending August 31, 1999. For partial
fiscal years within the period, the amount of Gross Profits threshold shall
be prorated. For example, if this Agreement is effective July 1, 1994,
and Gross Profits for July and August 1994 are $85,000, then on an
annualized basis Gross Profits would be $510,000. Therefore, the incentive
compensation for such short period would be $34,000 (($510,000 x
40%)/12*2). Payments, if any, required under this Section shall be made to
the Employee within ninety (90) days after the end of each fiscal year of
CSSi, beginning with ninety days after August 31, 1994, and ending August
31, 1999, or later as may be required by subsections 5(b)(i) through
5(b)(v), below.
The Gross Profits described in this Section 5(b) shall be based only on the
Gross Profits of CSSi. NRC or another entity controlled by or succeeding
NRC shall not merge CSSi into NRC or into such other entity, and shall not
otherwise operate CSSi otherwise than as a wholly owned subsidiary of NRC
or its successor without Employee's consent. If Employee consents to such
merger or other operation, then separate books and accounts shall be
maintained regarding what were previously CSSi's operations, products,
services and functions. Similarly, in the event NRC chooses to remove from
CSSi's control any of the current or future operations, products, services
or functions of CSSi, then similarly separate books and accounts shall be
maintained with respect to such reassigned operations, products, services
or functions for the purposes of computing CSSi's Gross Profits and
determining the Employee's incentive compensation hereunder.
<PAGE>
<PAGE>
(i) NRC's Chief Financial Officer ("CFO") shall prepare and
deliver to Employee a proposed Gross Profits statement for each fiscal
year, within forty-five (45) days of the end of such fiscal year, setting
forth in reasonable detail the basis for the calculation, Employee and his
accountants shall have the right to consult with the appropriate personnel
of NRC, CSSi and their agents and shall have the right to examine on a
concurrent basis any and all work papers, schedules and other documents
prepared by CSSi, NRC or their accountants in connection with the proposed
Gross Profits.
(ii) Employee may dispute the proposed Gross Profits statement by
notifying CSSi in writing setting forth in reasonable detail, to the extent
possible, the amount(s) in dispute and the basis for such dispute, within
thirty (30) days of Employee's receipt of the proposed statement. In the
event of such a dispute, the CFO and Employee's accountants shall attempt
in good faith to resolve such dispute, and any resolution by them as to any
disputed amount(s) shall be final, binding and conclusive on Employee,
CSSi, and NRC.
(iii) If Employee's accountants and the CFO do not resolve any
such dispute within fifteen (15) days of the date of receipt by CSSi and
NRC of Employee' written notice of dispute, the CFO and Employee's accounts
shall, within five (5) additional days, submit any such unresolved dispute
to an independent accounting firm of national reputation appointed jointly
by Employee and CSSi (neither of which may unreasonably withheld or delay
such appointment) (the "Independent Accounting Firm"), which firm shall,
within forty (40) days of each submission, resolve each such item remaining
in dispute within the range of amounts proposed by Employee and NRC, and
such resolution shall be binding and conclusive on Employee, CSSi, and NRC.
The fees and disbursements of the Independent Accounting Firm shall be
borne by CSSi and Employee in the proportion that the aggregate amount of
disputed items submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each party (as finally determined by the
Independent Accounting Firm) bears to the aggregate amount of such disputed
items submitted.
(iv) The proposed Gross Profits, adjusted for the resolution of
any and all disputes pursuant to subsections (b)(ii) and (b)(iii) above,
will be deemed to be the final Gross Profits for the period covered by the
statement upon the later of (i) the lapse of the 30-day period referred to
in subsection (b)(ii) above; (2) to the extent any amount is still in
dispute, the lapse of the 15-day period referred to in subsection (b)(iii);
or (3) such later date upon which all disputes submitted to the Independent
Accounting Firm pursuant to subsection (b)(iii) have been resolved.
(v) CSSi shall pay to the Employee the amount of incentive
bonus, if any, on any portion of the proposed Gross Profits as shown on
the statement furnished Employee under Section 5(b)(i) with the delivery of
such statement.
(c) If the Term of Employment continues beyond August 31, 1999, the
Employee shall no longer be entitled to receive the incentive compensation
provided in Section 5(b) and any other incentive compensation, bonuses or
other incentive plans available to the Employee shall be in the sole
discretion of CSSi and/or NRC.
(d) CSSi shall increase the annual base salary of the Employee in a
manner consistent with raises given executive employees of NRC.
<PAGE>
<PAGE>
(e) Employee shall be entitled to benefit in the incentive bonus
plan, if any, currently maintained by NRC and described in Section 2.9 of
the NRC policy manual on a basis consistent with the manner in which group
vice presidents of NRC benefit under such plan.
(f) In addition to the incentive compensation set forth in Section
5(b) above, an annual bonus of $25,000 will be paid Employee if and when
during any fiscal year of NRC the Employee is materially responsible for
obtaining contracts or business for NRC which results in the added
employment at the NRC Astech Division facility in Salt Lake City, Utah, of
fifteen (15) or more full-time employees during such fiscal year dedicated
to the performance of Astech or NRC contracts. Such bonus shall be paid
during each year such staffing level at the Astech facility remains at 15
or more additional employees due to the efforts of Employee. The bonus
shall be prorated for any year during which such added employment falls
below fifteen (15) full-time employees. The NRC Astech Division presently
employs 16 persons.
(g) The Employee shall receive or be eligible to receive the
following incentive stock option grants:
(i) An option to purchase 20,000 shares of NRC common stock at
fair market value at date of grant on September 1, 1994, provided Employee
is employed by CSSi on such date; and
(ii) An option to purchase 10,000 shares of NRC common stock at
fair market value at date of grant on the earlier of August 31, 1995, or
August 31, 1996, if CSSi's Gross Profit exceeds $400,000 as of the year
ending on August 31, 1995, or August 31, 1996, provided Employee is
employed by CSSi on such date(s).
The incentive stock options are subject to the terms and conditions
contained in the option plans and grants, including vesting, exercise and
nontransferability as the same may be amended from time to time.
(h) In the event that CSSi and/or NRC is audited by the Internal
Revenue Service as a result of the NRC/CSSi transaction, CSSi and/or NRC
shall provide written notice to the Employee stating that the audit is
taking place, and specifying, to the extent of CSSi and/or NRC's knowledge,
the particular purposes and focus of the audit. Upon completion of the
audit, CSSi and/or NRC shall provide written notice to the Employee stating
in reasonable detail the conclusions of the audit.
6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS.
(a) Unless authorized or instructed in writing by CSSi, the Employee
shall not, except as required in the conduct of CSSi's business, during or
at any time after the Term of Employment, disclose to others, or use, any
of NRC's or CSSi's inventions or discoveries or their respective secret or
confidential information, knowledge or data (oral, written, or in machine
readable form) which the Employee may obtain during the course of or in
connection with the Employee's employment, including such inventions,
discoveries, information, knowledge, know-how or data relating to machines,
equipment, products, systems, software, contracts, contract performance,
research and/or development, designs, compositions, formulae, processes,
manufacturing procedures or business methods, whether or not developed by
the Employee, by others in NRC or CSSi or obtained by NRC or CSSi from
third parties, and irrespective of whether or not such inventions,
discoveries, information, knowledge or data have been identified by NRC or
<PAGE>
<PAGE>
CSSi as secret or confidential, unless and until, and then to the extent
and only to the extent that, such inventions, discoveries, information,
knowledge or data become available to the public otherwise than by the
Employee's act or omission.
(b) During the Term of Employment and for a period eighteen (18)
months thereafter, the Employee shall not, except as required in the
conduct of CSSi's business, disclose to others, or use, any of the
information (which, if disclosed or used, could be harmful to NRC or CSSi)
relating to present and prospective customers of NRC or CSSi, business
dealings with such customers, prospective sales and advertising programs
and agreements with representatives or prospective representatives of NRC
or CSSi, present or prospective sources of supply or any other business
arrangements of NRC or CSSi, including but not limited to customers,
customer lists, costs, prices and earnings, whether or not such information
is developed by the Employee, by others in NRC or CSSi or obtained by NRC
or CSSi from third parties, and irrespective of whether or not such
information has been identified by NRC or CSSi as secret or confidential,
unless and until, and then to the extent and only to the extent that, such
information becomes available to the public otherwise than by the
Employee's act or omission.
(c) The Employee agrees to disclose immediately to CSSi or NRC or any
persons designated by them and to assign to NRC or CSSi or their successors
or assigns, all inventions made, discovered, or first reduced to practice
by the Employee, solely or jointly with others, during the Term of
Employment or within a period of six months from the date of termination of
such employment (either during or outside of the Employee's working hours
and either on or off CSSi's or NRC's premises), which inventions are made,
discovered or conceived either in the course of such employment, or with
the use of NRC's or CSSi's time, material, facilities or funds, or which
are directly related to any investigations or obligations undertaken by
CSSi or NRC; and the Employee hereby grants and agrees to grant the right
to CSSi or NRC and their nominees to obtain, for theirs own benefit and in
their own name (entirely at their expense) patents and patent applications
including original, continuation, reissue, utility and design patents, and
applications, patents of addition, confirmation patents, registration
patents, petty patents, utility models, etc., and all other types of
patents and the like, and all renewals and extensions of any of them for
those inventions in any and all countries; and the Employee shall assist
CSSi and/or NRC, at CSSi's expense, without further charge during the term
of the Employee's employment, and after termination of the Employee's
employment at the same base salary rate (excluding any bonuses, incentive
or deferred compensation or other benefits and based upon a forty hour work
week) as during the last year of the Employee's employment (determined on
an hourly basis for this purpose), through counsel designated by CSSi or
NRC, to execute, acknowledge, and deliver all such further papers,
including assignments, applications for Letters Patent (of the United
States or of any foreign country), oaths, disclaimers or other instruments
and to perform such further acts, including giving testimony or furnishing
evidence in the prosecution or defense of appeals, interferences, suits and
controversies relating to any aforesaid inventions as may reasonably be
deemed necessary by CSSi or NRC or their nominees to effectuate the vesting
or perfecting in CSSi or NRC or their nominees of all right, title and
interest in and to said inventions, applications and patents.
Notwithstanding the foregoing, the Employee need not take any action called
for under this Section 6(d) which will cause undue personal hardship to the
Employee.
<PAGE>
<PAGE>
(d) The Employee agrees to disclose immediately to CSSi and/or NRC or
any persons designated by them and to assign to NRC or CSSi, at their
option, or their successors or assigns, all works of authorship, including
all writings, computer programs, software, and firmware, written or created
by the Employee solely or jointly with others, during the course of his
employment by CSSi or NRC (either during or outside of the Employee's
working hours and either on or off CSSi's or NRC's premises), which works
are made or conceived either in the course of such employment, or with the
use of NRC's or CSSi's time, material, facilities or funds, or which are
directly related to any investigations or obligations undertaken by CSSi or
NRC; and the Employee hereby agrees that all such works are works made for
hire, of which CSSi and/or NRC, as applicable, are the authors and the
beneficiaries of all rights and protections afforded by the law of
copyright in any and all countries; and the Employee will assist NRC and/or
CSSi at CSSi's expense without further charges during the term of his
employment, and after termination of his employment at the same base salary
rate (excluding any bonuses, incentive or deferred compensation or other
benefits) as during the last year of his employment (determined on an
hourly basis for this purpose assuming a forty hour work week), through
counsel designated by CSSi or NRC, to execute, acknowledge, and deliver all
such further papers, including assignments, applications for copyright
registration (in the United States or in any foreign country), oaths,
disclaimers or other instruments, and to perform such further acts,
including giving testimony or furnishing evidence in the prosecution or
defense of appeals, interferences, suits and controversies relating to any
aforesaid works, as may be deemed necessary by CSSi or NRC or by their
nominees to effectuate the vesting or perfecting in CSSi or NRC or their
nominees of all rights and interest in and to said works and copies
thereof, including the exclusive rights of copying and distribution.
(e) The Employee shall keep complete, accurate and authentic
accounts, notes, data and records of all inventions made, discovered or
developed and all works of authorship written or created by the Employee as
aforesaid in the manner and form requested by CSSi or NRC.
(f) All computer or other hardware, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples,
notes, records, reports, documents, customer lists, photographs, catalogues
and other writings, whether copyrightable or not, relating to or dealing
with CSSi's or NRC's business and plans, and those of others entrusted to
CSSi or NRC, which are prepared or created by the Employee or which may
come into his possession during or as a result of him employment, are the
property of CSSi or NRC, as applicable, and upon termination of his
employment, the Employee agrees to return all such computer software,
computer programs, source codes, object codes, magnetic tapes, printouts,
samples, notes, records, reports, documents, customer lists, photographs,
catalogues and writings and all copies thereof to CSSi or NRC.
7. NON-SOLICITATION AND NON-COMPETITION.
Simultaneously with the execution of this Agreement, the Employee
shall enter into the Non-Competition Agreement with CSSi and NRC attached
as Exhibit "G-1" to the Purchase Agreement.
8. SURVIVAL OF COVENANTS, EFFECT.
<PAGE>
<PAGE>
(a) The covenants on the part of the Employee contained or referred
to in Sections 6 and 7 above shall survive termination of this Agreement,
and the existence of any claim or cause of action of the Employee against
CSSi or NRC, whether predicated on this Agreement or otherwise. The
Employee agrees that a remedy at law for any breach of the foregoing
covenants contained or referred to in Sections 6 and 7 would be inadequate,
that CSSi and NRC would suffer irreparable harm as a result and that NRC
and/or CSSi shall be entitled to a temporary and permanent injunction or an
order for specific performance of such covenants without the necessity of
proving actual damage to NRC or CSSi.
(b) The Employee hereby represents and acknowledges, and NRC and CSSi
are relying on such representation and acknowledgment in entering into this
Agreement, that the terms and conditions of the above covenants are fair
and reasonable.
(c) It is the desire and intent of the parties that the provisions of
Section 6 shall be enforced to the fullest extent permissible under the
laws and public policies of each jurisdiction in which enforcement is
sought. If any particular provision of Section 6 shall be adjudicated to
be invalid or unenforceable, such provision(s) of Section 6 shall be deemed
amended to provide restrictions to the fullest extent permissible and
consistent with applicable law and policies, and such amendment shall apply
only with respect to the particular jurisdiction in which such adjudication
is made. If such deemed amendment is not allowed by the adjudicating body,
the offending provision, only, shall be deleted and the remainder of
Section 6 shall not be effected.
9. ASSIGNMENT.
The rights and obligations of CSSi under this Agreement may be
assigned by CSSi to NRC or to any other successors in interest of CSSi
and/or NRC or of that part of the business of CSSi or NRC to which this
Agreement applies or to their respective affiliates. This Agreement may
not be assigned and any duties of the Employee may not be delegated by the
Employee, but any amounts owing to the Employee upon his death shall inure
to the benefit of his heirs, legatees, personal representatives, executor
or administrator.
10. NOTICES.
All notices or other communications which may be or are required to be
given, served or sent by either party to the other party pursuant to this
Agreement shall be in writing, addressed to its/his residence or place of
business as set forth above, and shall be mailed by first-class certified
mail, return receipt requested, postage prepaid, next-day air delivery, or
transmitted by telegram, telex or hand delivery. Such notice or other
communication shall be deemed sufficiently given, served, sent or received
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, or with respect to a telex or
telecopy, the answerback, being deemed conclusive, but not exclusive,
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation. Each party may designate by notice in writing
an address to which any notice or communication may thereafter be so given,
served or sent. Any notice or other communication sent by Employee to CSSi
shall also be sent, at the same time, to NRC. Notices hand delivered to
CSSi or NRC must be delivered to an officer of CSSi and NRC and all other
<PAGE>
<PAGE>
notices shall be sent to the attention of the Board, in the case of CSSi,
or to the President, in the case of NRC.
11. Applicable Law Jurisdiction.
This Agreement has been negotiated and executed in the State of Maryland,
and it shall be governed by, construed and enforced in accordance with the
internal substantive laws and not the choice of law rules of the State of
Maryland. Any judicial proceedings brought against either party with respect
to this Agreement shall and must be brought in any court of competent
jurisdiction in Maryland, or in the United States District Court for the
District of Maryland and each party accepts generally and unconditionally the
exclusive jurisdiction of such courts and waives any objections as to the venue
for such proceedings. If this provision is declared invalid, the parties
nevertheless agree that such Courts have personal and subject matter
jurisdiction and that such Courts are an appropriate and convenient forum.
12. Set-Off.
Subject to this Section 12, NRC and CSSi shall have the right, for a
period ending August 31, 1999, to set-off and deduct from any sums required to
be paid to Employee hereunder as a result of a claim for indemnification or
damages against Employee by NRC or CSSi or indemnification or damages against
Employee by NRC or CSSi under the Purchase Agreement, this Agreement or the
Non-Competition Agreement. CSSi and/or NRC shall provide Employee with written
notice of any and all such claims within a reasonable time after CSSi and/or
NRC learn of the existence of such claims. The Employee shall have the right
to "cure" or commence proceedings to resolve such claims, and CSSi and NRC may
not take a set-off under this Agreement until the validity and/or amount of
such claims are finally determined. In addition, CSSi and NRC shall be
obligated to pursue any and all third parties who may be liable for such
claims, and CSSi and NRC may not take a set-off under this Agreement until all
such third party liability is finally determined.
13. Effectiveness/Interpretation.
The parties acknowledge and agree that this Agreement has been negotiated
at arm's length between parties equally sophisticated and knowledgeable in the
matters dealt with herein. Each party has been represented by counsel of its
or his own choosing. Accordingly, any rule of law or legal decision that would
require interpretation of any ambiguities in the Agreement against the party
that drafted it is not applicable and is waived.
14. Third Party Beneficiary.
NRC is intended to be a third party beneficiary to this entire Agreement
and shall guarantee the performance of CSSi hereunder.
15. Severability.
If any of the articles, sections, paragraphs, clauses or provisions of
this Agreement shall be held by a court of last resort to be invalid, the
remainder of this Agreement shall not be affected thereby.
<PAGE>
<PAGE>
16. Entire Agreement.
The foregoing contains the entire agreement between the parties relating
to the subject matter of this Agreement, and may not be altered or amended
except by an instrument in writing approved by the Board of Directors of NRC
and signed by the parties hereto, and this Agreement supersedes all prior
understandings and agreements relating to employment of the Employee by NRC.
The parties acknowledge that any prior oral or written agreements between NRC
and the Employee, if any, are hereby terminated. The parties acknowledge that
the Employee and NRC have also entered into a separate Purchase Agreement and
Non-Competition Agreement which shall be in addition to and not in lieu of the
provisions of this Agreement.
IN WITNESS WHEREOF, CSSi and NRC have caused this Agreement to be
executed by their duly authorized officers and the Employee has hereunto set
his hand as of the date first above written.
COMMUNICATIONS & SYSTEM SPECIALISTS, INC.
By: D. Bruce McIndoe
----------------------------
D. Bruce McIndoe, President
NICHOLS RESEARCH CORPORATION
By: Michael Mruz
----------------------------
Micheal Mruz, President
D. Bruce McIndoe
--------------------------------
D. Bruce McIndoe, Employee
<PAGE>
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Convertible Preferred Stock Purchase Agreement (the "Agreement")
is made and entered into on this the 16th day of December, 1994, by and
among TXEN, INC., an Alabama corporation (the "Company"), NICHOLS RESEARCH
CORPORATION, a Delaware corporation ("NRC"), all of the current
shareholders of the Company, namely, Thomas L. Patterson, Paul D. Reaves
and Chris H. Horgen (collectively, the "Shareholders," with Thomas L.
Patterson and Paul D. Reaves collectively referred to as the "Management
Shareholders").
W I T N E S S E T H
In consideration of the mutual covenants, conditions and limitations
set forth herein, the parties agree as follows:
1. AUTHORIZATION, ISSUANCE AND SALE.
1.1 AUTHORIZATION. Simultaneously upon or immediately after the
execution of this Agreement, the Company shall adopt and file with the
Probate Court of Jefferson County, Alabama, the Articles of Amendment in
form identical to Exhibit A attached hereto so as to authorize one (1)
share of $0.002 par value Preferred Stock, 5,000,000 shares of $0.002 par
value Class A Common Stock and 1,250,000 shares of $0.002 par value Class B
Common Stock.
1.2 EXCHANGE. Simultaneously upon or immediately after the
execution of this Agreement and the filing of the Articles of Amendment
referred to in Section 1.1. above, the Company shall effect a five for one
stock split and each Shareholder shall exchange one share of $0.01 par
value common stock for five shares of $0.002 par value Class A Common
Stock.
1.3 ISSUANCE AND SALE OF PREFERRED STOCK. On the basis of the
representations, warranties and covenants contained herein, NRC agrees to
purchase and the Company agrees to sell to NRC one (1) share of Preferred
Stock in consideration of One Million Five Hundred Thousand Dollars
($1,500,000) payable in immediately available funds at Closing. Upon the
consummation of the Closing, the capital stock of the Company shall be as
follows:
(1) The sole share of authorized Preferred Stock shall be
held and owned by NRC;
(2) The Shareholders shall, collectively, own 5,000,000
shares of the Class A Common Stock; and
(3) All shares of Class B Common Stock shall be reserved
for issuance upon conversion of the Preferred Stock as provided herein
and in the Articles of Amendment attached as Exhibit A.
2. CLOSING.
2.1 CLOSING DATE AND LOCATION. The Closing of NRC's purchase of
the Preferred Stock shall take place at the offices of the Company in
Birmingham, Alabama on or before December 31, 1994, subject to the
occurrence of the conditions to each party's obligation to close and
<PAGE>
<PAGE>
consummate such purchase and sale (or the waiver of any such conditions by
the applicable party).
2.2 Delivery. At the Closing, the Company will deliver to NRC a
certificate for the Preferred Stock, registered in NRC's name, against
payment by NRC of the $1,500,000 purchase price in immediately available
funds. At the Closing, the Company, NRC and the Shareholders shall execute
and deliver the Employment Agreements, the Stock Purchase Option Agreement
and each and every other agreement and instrument required by the terms of
this Agreement to be executed at or prior to Closing.
3. Representations and Warranties of the Parties.
3.1 Representations and Warranties of the Company and the
Management Shareholders. Except for any exceptions described on Exhibit B to
this Agreement (the "Disclosure Schedule") the Company and the Management
Shareholders hereby jointly and severally represent and warrant to NRC as
follows:
3.1.1 Business; Organization; Authorizations; and Qualifications.
The Company is engaged in the business of managed care administration and
providing information systems and services to managed care administrators (the
"Business"). The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alabama, has all requisite
corporate power and authority to carry on the Business as presently conducted
and has all necessary power and authority to carry out the transactions
contemplated under this Agreement and the other agreements. A copy of the
Company's Articles of Incorporation and By-Laws have been previously furnished
to NRC. The Company's Shareholders and Board of Directors have adopted
resolutions approving the execution, delivery and consummation of this
Agreement and the other agreements referenced herein. A certified copy of the
resolutions of the Board of Directors and Shareholders of the Company have been
previously delivered to NRC. The Company is qualified to transact its Business
and is in good standing in the State of Alabama and in each and every other
jurisdiction of the United States in which the nature and/or character of the
Company's Business require such qualifications. A list of the states where the
Company is qualified to do business is contained on Section 3.1.1 of the
Disclosure Schedule.
3.1.2 Capital Stock. The authorized capital of the Company now
consists of 2,000,000 shares of Common Capital Stock with the par value of
$0.01 per share and the number of shares of Common Capital Stock outstanding at
the time of the execution of this Agreement was 1,000,000, all of which are
owned by the Shareholders as set forth on Section 3.1.2 of the Disclosure
Schedule to this Agreement. All outstanding shares of Common Stock as of the
date of this Agreement have been duly authorized, validly issued and are fully
paid and non-assessable and were issued in compliance with all applicable
federal and state securities laws. Except for the one (1) share of Preferred
Stock which will be issued pursuant to this Agreement and which will be
convertible into shares of Class B Common Stock, there are no outstanding
options, warrants, conversion rights, rights of first refusal, preemptive
rights or other rights or agreements for the purchase or acquisition from the
Company of any capital stock or equity securities of the Company or any rights
thereto.
3.1.3 No Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest or equity in any other
corporation, partnership, limited liability company, association or other
entity.
<PAGE>
<PAGE>
3.1.4 Valid and Binding. All corporate action on the part of the
Company, its officers, directors and shareholders, necessary for the
authorization, execution, delivery of this Agreement and the other agreements
referenced herein and performance of all obligations of the Company and the
Shareholders has been taken prior to the execution of this Agreement. This
Agreement is and, upon execution and delivery of the other agreements
contemplated hereby, will be valid and binding obligations of the Company and
the Shareholders and enforceable against the Company and the Shareholders in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights.
3.1.5 Authorization of New Classes of Stock. The Class A Common
Stock, Class B Common Stock and Preferred Stock have been duly authorized and
reserved, and upon the filing of the Articles of Amendment and upon the
issuance of the Preferred Stock and the Class A Common Stock in accordance with
the terms of this Agreement and the Articles of Amendment will be validly
issued and outstanding, fully paid and non-assessable. The Class B Common
Stock reserved for issuance upon conversion has been duly authorized and
reserved, and upon issuance upon conversion in accordance with the terms of
this Agreement and the Articles of Amendment, will be validly issued and
outstanding, fully paid and non-assessable.
3.1.6 Consents. No consent, approval, order or authorization of or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the execution, delivery and performance of this
Agreement and the other agreements hereunder, or the offer, sale or issuance of
the Preferred Stock hereunder, except such as has already been obtained or is
not required to be obtained prior to Closing.
3.1.7 Litigation. Except as disclosed in Section 3.1.7 of the
Disclosure Schedule, there is no action, suit, proceeding or investigation
pending or, to the best of the knowledge of the Company and the Management
Shareholders, threatened against the Company or the Shareholders in relation to
the Company in any respect whatsoever or in relation to their activities with
respect to the Company, and, to the best knowledge of the Company and the
Management Shareholders, no basis therefor exists. To the best of the
Company's and the Management Shareholders' knowledge, there are no
investigations, claims or other matters pending or threatened which might
result, either individually or in the aggregate, in any material adverse change
in the assets, conditions, affairs or prospects of the Company, financially or
otherwise, and the Company is not subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which names the Company as a party.
3.1.8 Intellectual Property. The Proprietary Rights described on
the Proprietary Rights List on Section 3.1.8 of the Disclosure Schedule
includes all of the intellectual property used in or related to the Business or
necessary for the operation of the Business except to the extent identified in
Section 3.1.9 of the Disclosure Schedule. Except as set forth on Section 3.1.8
of the Disclosure Schedule, which includes a listing of contracts or licenses
pursuant to which the Company uses the intellectual property of third parties,
with respect to the Proprietary Rights, (a) the Company is the sole and
exclusive owner of and has the sole and exclusive right to use the Proprietary
Rights; (b) no action, suit, arbitration, or other proceeding or investigation
is pending or, to the best knowledge of the Company, threatened which involves
any Proprietary Rights, (c) to the best knowledge of the Company, none of the
Proprietary Rights infringes upon, conflicts with, or otherwise violates the
<PAGE>
<PAGE>
rights of others or is being infringed upon by others, (d) none of the
Proprietary Rights is subject to any outstanding order, decree, judgment,
stipulation, or charge, (e) there are no royalty, commission, or similar
arrangements and no licenses, sublicenses, or agreements relating to any of the
Proprietary Rights, (f) the Company has not received any notice of interference
or infringement of or by the Proprietary Rights, (g) the Company has not agreed
to indemnify any person or entity for or against any infringement of or by the
Proprietary Rights, and (h) to the best knowledge of the Company and Management
Shareholders, no other party is operating a business or otherwise acting in
violation or infringement of Company's Proprietary Rights. Except as set forth
on Section 3.1.8 of the Disclosure Schedule, the Company has good and
marketable title to the Proprietary Rights listed on the Proprietary Rights
List, free and clear of all security interests, liens, pledges, encumbrances
and restrictions. Except as set forth on Section 3.1.8 of the Disclosure
Schedule, the transfer of the Preferred Stock to NRC pursuant to this
Agreement, this conversion of the Preferred Stock to Class B Common Stock, and
the transfer of the Class A Common Stock to NRC pursuant to the Stock Purchase
Option Agreement do not require the consent or approval of any third party.
The Company is not subject to any judgment, order, writ, injunction, or decree
of any court, arbitrator, or governmental agency or instrumentality, domestic
or foreign, and is not party to any agreement, which restricts or impairs the
use of any Proprietary Rights.
3.1.9 Software and Information Systems. The software described on
the Software List on Section 3.1.9 of the Disclosure Schedule includes all
material information systems, programs, data bases, and software, other than
non-exclusive commercial software, used in or related to the Business or
necessary for the operation of the Business. The Software List lists all such
software and identifies (a) software which is owned by the Company,
(b) software which is licensed to the Company, and (c) any other software in
which the Company has any use, possessory, or proprietary rights and which is
used in or related to the Business. Except as set forth on Section 3.1.9 of
the Disclosure Schedule, the Company has the sole and exclusive right, title,
and interest in and to all software listed on the Software List, other than
software used in or related to the Business pursuant to a commercially
available non-exclusive license agreement. Except as set forth on
Section 3.1.9 of the Disclosure Schedule, the Company has good and marketable
title to the software listed on the Software List, free and clear of all
security interests, licenses, royalties, liens, pledges, encumbrances and
restrictions. Except as set forth on Section 3.1.9 of the Disclosure Schedule,
all of the software which is owned by the Company, including all related source
codes and documentation, is owned solely by the Company and has not been
disclosed to any unaffiliated entity or person. Except as set forth on
Section 3.1.9 of the Disclosure Schedule, there are, to the best knowledge of
the Company, no violations of trade secret rights or copyrights with respect to
the software. All of Company's pending software systems development projects
are described in Section 3.1.21 of the Disclosure Schedule.
3.1.10 Employment/Employee Matters. The Company and the Management
Shareholders are not aware that any of the Company's employees is in violation
of or in conflict with any of the terms, conditions or provisions of, or has
committed a breach of or a default under, any contract, covenant or instrument
under which such employees are now obligated. Except for the Employment
Agreements to be executed by the Management Shareholders as a condition to
NRC's obligation to close and consummate this Agreement, no employee of the
Company is a party to any written or oral employment agreement and all
employees of the Company, including the Shareholders (prior to their execution
of the Employment Agreements contemplated below) are employees at will.
Section 3.1.10 of the Disclosure Schedule provides that the Company has
<PAGE>
<PAGE>
delivered to NRC a list containing each employee of the Company and his or her
title and job description. A compensations schedule for each employee has been
previously delivered to NRC. Except for the Company's group health and major
medical plans and 401(k) retirement plan, the Company does not maintain any
pension plans, welfare benefit plans or other plans covered by the Employee
Retirement Income Security Act (ERISA). No employee of the Company is subject
to any non-competition agreement, confidentiality agreement or similar
agreement with any other third person or employer which would prevent or
restrict the employee's services for and on behalf of the Company. No employee
of the Company is a member of a labor union and, to the best knowledge of the
Company and the Management Shareholders, there are no labor disputes,
complaints or union activities.
3.1.11 No Violations. The Company is not in violation or default
of any provisions of its original Articles of Incorporation, the first
amendment thereto or its By-Laws, as amended, and in effect on and as of the
date of this Agreement and as of the date of Closing, or any contract,
agreement or instrument to which the Company is a party or by which it is bound
or, to the knowledge of the Company and the Management Shareholders, of any
provision of any federal, state or local law, rule, statute, regulation,
judgment, writ, decree or order applicable to the Company. The execution,
delivery and performance of this Agreement and the other agreements and the
consummation of the transactions contemplated hereby and thereby will not
result in any such violation or contravene or constitute, with or without the
passage of time and giving of notice, either a default under any such provision
or contract or result in the creation or imposition of any lien, charge or
encumbrance upon any assets of the Company.
3.1.12 Contracts and Agreements. All of the Company's material
contracts and agreements are identified in Section 3.1.12 of the Disclosure
Schedule, including but not limited to, customer contracts, supplier contracts,
leases, employment contracts, and distributor agreements. Except for any of
the agreements and arrangements described in Section 3.1.12 of the Disclosure
Schedule, there are no employment, loan or other agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
Shareholders, or any affiliate thereof. Except as disclosed in Section 3.1.12
of the Disclosure Schedule, no default with respect to any material contract
has occurred or to the best of knowledge of the Company and the Management
Shareholders, no such default is threatened or anticipated.
3.1.13 No Misrepresentations or Omissions; Disclosures. The
Company and the Management Shareholders have fully provided NRC with all
information, documents, agreements and instruments which are material to the
business, operation and financial condition of the Company, all as more
particularly described in this Agreement. To the best knowledge of the Company
and the Management Shareholders, there has been no failure to disclose any
known material fact necessary to make the representations and warranties
contained herein not misleading. To the best knowledge of the Company and the
Management Shareholders, no representation, warranty or statement by the
Company in this Agreement or in the disclosures described in Schedule B to this
Agreement or in any certificate furnished or to be furnished to NRC pursuant to
this Agreement or any of the other agreements contains or will contain any
untrue statement of a material fact or, when taken together, omits or will omit
to state any material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
3.1.14 Assets; Liens. A list of the tangible assets owned or
leased by the Company is attached as Section 3.1.14 to the Disclosure Schedule.
<PAGE>
<PAGE>
The Company owns its property and assets free and clear of all mortgages,
liens, loans, security interests and encumbrances except those matters
described in Section 3.1.14 of the Disclosure Schedule. The Company does not
lease or license any property or assets other than those properties and assets
described in Section 3.1.14 of the Disclosure Schedule. With respect to
property leased or licensed, the Company is in compliance with such leases and
licenses, no party is in default thereunder and the Company holds a valid
leasehold or license interest therein.
3.1.15 Insurance. The Company maintains such types and amounts of
insurance with respect to its business and properties as are customarily
carried by persons or entities engaged in the same or similar businesses as the
Company. A list of the insurance policies maintained by the Company and
delivered to NRC set forth in Section 3.1.15 of the Disclosure Schedule.
3.1.16 Financial Statements. The Company has furnished to NRC the
following Financial Statements:
(a) The unaudited balance sheets of the Company at June 30, 1994
and June 30, 1993, and the related audited statements of income (loss),
shareholders equity and cash for the fiscal years then ended, in each case
compiled by the Company; and
(b) The unaudited balance sheets of the Company at September 30,
1994 and the related unaudited statements of income (loss) for the two month
period ended September 30, 1994, in each case prepared and compiled by the
Company.
These Financial Statements have been prepared by the Company without audit,
review or the assistance of a public accountant or certified public accountant,
but to the best knowledge of the Company and the Management Shareholders, (1)
are true, correct and complete, (2) have been prepared in accordance with the
books and records of the Company, and (3) present fairly the consolidated
financial condition and consolidated operating results of the Company as of the
date and for the periods indicated, none of which adjustments are or will be
materially adverse, in the aggregate. The Company maintains and, for so long
as NRC is a holder of any shares of capital stock, will continue to maintain
the system of accounting established and administered in accordance with
generally accepted accounting principles.
3.1.17 Taxes and Returns. The Company has filed or caused to be
filed all federal, state and local tax returns which are required to be filed
by it and all such returns are true and correct. The Company has paid or
caused to be paid all taxes pursuant to such returns or pursuant to any
assessments received by the Company or which the Company is obligated to
withhold from amounts owing to any employee, creditor or third party. The
income tax returns for the Company have never been audited by any federal,
state or local authority and, to the best knowledge of the Company and the
Management Shareholders, no audit is pending or threatened.
3.1.18 Compliance with Law. To the best knowledge of the Company
and the Management Shareholders, the Company is in full and strict compliance
with all environmental laws and is in material compliance with all other laws,
rules, regulations, statutes and provisions applicable to the Company and/or
its business and operations, including, without limitation, OSHA, ERISA, labor
and employment laws, health laws, property and zoning laws and ordinances, tax
laws, securities laws and each and every other law, statute, rule or regulation
applicable to the Company.
<PAGE>
<PAGE>
3.1.19 No Undisclosed Liabilities. Except as disclosed in the
balance sheet of the Company for the period ended September 30, 1994 and except
as described in Section 3.1.19 of the Disclosure Schedule, the Company has no
liabilities, obligations, debts, loans, demands, fines, taxes, tax assessments,
interest, remediation liability, warranty claims, accounts payable, claims or
penalties and, to the best knowledge of the Company and the Management
Shareholders, no basis exists for the creation or imposition of any such debts,
liabilities, obligations or claims. To the best knowledge of the Company and
Management Shareholders, the Company has not experienced any warranty, service
or product claims which are unresolved or likely to result in litigation.
3.1.20 Material Changes. Except as disclosed in Section 3.1.20 of
the Disclosure Schedule, since September 30, 1994, there has not been (1) any
material adverse change in the financial condition, results of operation,
assets, liabilities, business or prospects of the Company, (2) any liability or
obligation of any nature whatsoever (contingent or otherwise) incurred by the
Company other than liabilities incurred in the ordinary course of business, and
no such liabilities are material to the financial condition or operating
results of the Company, (3) any liability or obligation of any nature
whatsoever (contingent or otherwise) that is not required under generally
accepted accounting principles to be reflected in the Financial Statements of
the Company, (4) any asset or property of the Company made subject to a lien,
claim, security interest or encumbrance of any kind or nature except as
disclosed in Section 3.1.14 of the Disclosure Schedule, (5) any waiver of any
valuable right of the Company or any cancellation of any debt or claim held by
the Company, (6) any declaration or payment of dividends on or other
distributions with respect to, or any direct or indirect redemption or
acquisition of, any shares of capital stock of the Company, or any resolution,
agreement or commitment therefore, (7) any issuance of any capital stock, (8)
any issuance or grants of any options or rights to acquire capital stock or
assets of the Company which have not been canceled prior to the date hereof,
(9) any sale, assignment or transfer of any tangible or intangible assets of
the Company except for the licensing of Company software in the ordinary course
of the Company's business, (10) any loan by the Company to any officer,
director, employee, consultant or Shareholder of the Company, or any agreement
or commitment therefor except as described in Section 3.1.12 of the Disclosure
Schedule and except for routine travel advances, or any loan or commitment to
make a loan to any other third party, (11) any damage, destruction or loss
(whether or not covered by insurance) affecting the assets, property, or
business of the Company, (12) any other transactions with any Shareholder or
any affiliate of any Shareholder, (13) any change in the accounting methods,
practices or policies followed by the Company, including any change in the
depreciation or amortization policies, any material change in the method in
which the Company conducts business or any other significant and material
changes applicable to the Company, and/or (14) any material change in the
compensation paid to any employee of the Company.
3.1.21 Company Products. Section 3.1.21 of the Disclosure Schedule
lists the products and services of the Company and those products and services
of the Company that are currently under development. The products and services
of the Company which are currently being sold or licensed by the Company
conform in all material respects to the representations and warranties made by
the Company to its customers with regard to such products and services. The
Company's products and services are applied in diverse applications with
rapidly changing requirements which constantly require the Company and its
customers to share the cost of modifying the products to serve the needs of the
customers. The Company has not experienced any material difficulties in
connection with the development of its products and services currently under
development and the Company and the Management Shareholders have no reason to
<PAGE>
<PAGE>
believe that the Company will be unable to complete the development of the
Company's products and services currently under development, except as set out
on Schedule 3.1.21.
3.1.22 Accounts Receivable and Matters Regarding Customer Claims.
The accounts receivable balance of the Company as of September 30, 1994 was
$831,677.64 and, to the best knowledge of the Company, except for $59,309.44
owed by Jones Hill, all of such receivables are collectible, subject to any
reserve for doubtful accounts that is consistent with past Financial Statement
practice. No customer of the Company has canceled any contract or order and
there are no current or pending customer claims, requests for returns or
credits, or complaints with respect to any products of the Company. The
backlog of orders (unearned revenue and customer deposits) for the Company's
products as of August 30, 1994 was $468,844.05. The Company, over the past 12
months, has not experienced a material amount of customer claims, returns,
credits, complaints or warranty service, and the total spent by the Company on
such matters for the 12-month period ended September 30, 1994 did not exceed
$40,092.00 plus the expense of programming and support in respect to customer
requests.
3.1.23 Violation of Third Party Agreements. To the best knowledge
of the Company and the Management Shareholders, no third party has claimed to
the Company or the Management Shareholders or to any other employee of the
Company that such shareholder or employee has, with respect to his or her
activity on behalf of the Company, violated any of the terms or conditions of
any contract, employment or otherwise, he or she had with any third party, or
disclosed or utilized any trade secret or proprietary information or
documentation of any third party. To the best knowledge of the Company and the
Management Shareholders, no person employed by the Company has wrongfully
employed, used or disclosed any trade secrets or any confidential information
or proprietary or intellectual property of any third person or entity and no
person employed by the Company has violated any contractual or other legal
obligations that he or she may have had with any third party.
3.2 Representations of NRC. NRC hereby represents and warrants
to the Company and the Shareholders as follows:
3.2.1 Due Diligence Investigation. NRC has had an opportunity to
discuss the Company's business, management and financial affairs with the
Management Shareholders and has had the opportunity to inspect the Company's
facilities, assets and properties. In making its decision to purchase the
Preferred Stock, NRC has relied solely upon the information, representations,
warranties and covenants furnished, made or made available by the Company and
the Management Shareholders as contained in this Agreement. NRC has made its
own independent investigation of the Company and has been furnished by the
Company and the Management Shareholders with such information relating to the
Company as NRC has requested. Such investigation shall not change, modify or
reduce the effect of the representations and warranties set forth in Section
3.1 hereof.
3.2.2 Preferred Stock Not Registered; Legend. NRC is acquiring
the Preferred Stock and any Class B Common Stock into which the Preferred Stock
may be converted for investment for its own account and not with the view to,
or for resale in connection with, any distribution thereof. NRC understands
that it must bear the economic risk of an investment in the Preferred Stock for
an indefinite period of time because the Preferred Stock and the other capital
stock of the Company have not been registered under the Securities Act of 1933
or the Alabama Securities Act (the "Security Acts"), and therefore, cannot be
sold unless such stock is either subsequently registered under the Securities
<PAGE>
<PAGE>
Acts or an exemption from registration is available. NRC understands that the
Preferred Stock and any Class B Common Stock into which the Preferred Stock may
be converted shall contain a legend indicating that the securities are not
registered under the Securities Acts and may only be sold pursuant to
registration under the Securities Acts (and the state securities laws of other
applicable jurisdictions) or an exemption therefrom.
3.2.3 Organization. NRC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and NRC
is duly qualified to do business and is in good standing under the laws of the
State of Alabama.
3.2.4 Authority. NRC has full legal right, power and authority to
execute, deliver and perform this Agreement and the other agreements and
transactions contemplated hereby. All corporate and other acts or proceedings
required to be taken by NRC to authorize the execution, delivery and
performance of this Agreement and the other agreements and transactions
contemplated hereby have been duly and properly taken.
3.2.5 Approvals. No approval, authorization, consent, order or
action of, or filing with, any person, entity, court, administrative agency or
other governmental authority as required for the execution and delivery by NRC
of this Agreement or the other agreements and transactions contemplated
hereby.
3.2.6 Validity. This Agreement has been, and the documents to be
delivered by NRC at Closing will be duly executed and delivered and constitute
lawful, valid, and binding obligations of NRC enforceable in accordance with
their terms, subject to bankruptcy, insolvency, reorganization, moratorium, and
other laws affecting the rights of creditors generally and to the discretion of
a court in granting equitable relief.
3.2.7 No Breach. The execution and delivery of this Agreement and
the other agreements and transactions contemplated hereby are not prohibited
by, will not violate or conflict with any provision of, and will not constitute
a default under, or a breach of (1) the charter or by-laws of NRC, (2) any
contract, agreement or other instrument to which NRC is a party, (3) any order,
writ, injunction, decree or judgment of any court or governmental agency, or
(4) any law, rule or regulation applicable to NRC.
4. Conditions to Closing.
4.1 Conditions to NRC's Obligation. The obligation of NRC to
purchase the Preferred Stock and to otherwise close and consummate this
Agreement and the other agreements are subject to the fulfillment on or before
the Closing of each of the following conditions by the Company, the
Shareholders and the Management Shareholders, the waiver of which shall not be
effective against NRC unless in writing:
4.1.1 Truth of Representations. The representations and warranties
of the Company and the Management Shareholders contained in Section 3.1 and
elsewhere in this Agreement and the other agreements shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing, and the President and
Secretary of the Company and each Shareholder shall execute and deliver to NRC
a certificate to this effect.
4.1.2 Performance of Covenants. The Company and the Shareholders
shall have performed and complied with all agreements, obligations and
<PAGE>
<PAGE>
conditions contained in this Agreement and the other agreements that are
required to be performed or complied with by them on or before the Closing, and
the President and Secretary of the Company and each and every Shareholder shall
deliver to NRC at Closing a certificate to this effect.
4.1.3 Miscellaneous Deliveries. The Company and/or the Management
Shareholders shall have delivered to NRC at the Closing such other
certificates, instruments and agreements as NRC or its counsel shall deem
reasonably necessary to insure the legal validity of this Agreement and the
other agreements, to insure that the conditions set forth herein have occurred
and been fulfilled and to otherwise provide for the closing and consummation of
this Agreement.
4.1.4 Articles Filed. The Articles of Amendment to the Articles of
Incorporation of the Company attached as Exhibit A shall have been duly and
properly filed in the Office of the Probate Court of Jefferson County, Alabama
prior to Closing and said Probate Court shall have issued a certificate
confirming that said Articles of Amendment have been duly filed in full
accordance with applicable law.
4.1.5 Execution of Employment Agreements. Each Management
Shareholder and the Company shall have executed and delivered his Employment
Agreement attached as Exhibit C to this Agreement prior to Closing.
4.1.6 Amendment of By-laws. The By-laws of the Company shall be
amended to conform with the requirements of this Agreement and the related
agreements herein and shall be in a form substantially similar to Exhibit D.
4.1.7 Execution of Stock Purchase Option Agreement. The Company,
NRC and each Shareholder shall have executed and delivered the Stock Purchase
Option Agreement attached as Exhibit E at or before Closing.
4.1.8 Legal Opinion. NRC shall have received the legal opinion of
Ritchie & Rediker, counsel to the Company and the Shareholders, in the form of
the opinion attached as Exhibit F to this Agreement.
4.1.9 No Change in Stock Ownership. There shall have been no
change in the stock ownership of the Shareholders. The Company shall not have
made any issuances or sold any stock of the Company or granted option, warrant
or other right with respect to any stock of the Company.
4.1.10 Fairness Opinion. NRC shall have received a fairness
opinion from The Robinson-Humphrey Company at or before Closing to the effect
that the transaction is fair from a financial point of view.
4.1.11 NRC Board Approval. The execution, delivery and
consummation of this Agreement and the other agreements to which NRC is a party
shall have been approved by the Board of Directors of NRC.
4.1.12 Due Diligence Results. NRC and its investment banking firm
shall have completed a due diligence review of the Company and its Business,
financial information and prospects and shall be reasonably satisfied that the
business, financial condition and prospects of the Company have not materially
and adversely changed from the date of the execution of this Agreement.
4.1.13 Settlement of Pending Suit. The Company shall have settled
that current lawsuit filed against the Company by HRH in the Circuit Court of
Jefferson County, Alabama, Case No. CV94-1591, or such lawsuit must have
<PAGE>
<PAGE>
otherwise been dismissed upon terms approved in the sole and arbitrary
discretion of NRC.
4.1.14 Exchange of Common Stock for Class A Common Stock or Options
with Respect Thereto. All Shareholders have surrendered their certificates for
Common Stock for a like number of shares of Class A Common Stock.
4.1.15 Board of Directors. The Board of Directors of the Company
shall consist of three directors of which Michael J. Mruz shall constitute the
director NRC is entitled to elect pursuant to the Articles of Amendment. The
by-laws of the Company shall be amended to provide for three directors and to
conform the by-laws to the requirements of this Agreement and the agreements
related hereto.
4.1.16 Certified Copies of Resolutions. Certified copies of the
resolutions adopted by the Board of Directors and Shareholders of the Company
approving this Agreement and transactions contemplated hereby shall be
delivered to NRC at Closing.
4.2 Conditions to Company's Obligation. The obligation of the
Company and the Shareholders to sell the Preferred Stock and to otherwise close
and consummate this Agreement and the other agreements are subject to the
fulfillment on or before the Closing of each of the following conditions by
NRC, the waiver of which shall not be effective unless in writing:
4.2.1 Truth of Representations. The representations and warranties
of NRC contained in Section 3.2 and elsewhere in this Agreement and the other
agreements shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing, and the Chief Executive Officer, President or any Vice-
President of NRC shall execute and deliver to the Company a certificate to this
effect.
4.2.2 Performance of Covenants. NRC shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement and the other agreements that are required to be performed or
complied with by it on or before the Closing, and the Chief Executive Officer,
President or any Vice-President of NRC shall deliver to the Company at Closing
a certificate to this effect.
4.2.3 Miscellaneous Deliveries. NRC shall have delivered at the
Closing such other certificates, instruments and agreements as the Company or
the Management Shareholders or their counsel shall deem reasonably necessary to
insure the legal validity of this Agreement and the other agreements, to insure
that the conditions set forth herein have occurred and been fulfilled and to
otherwise provide for the closing and consummation of this Agreement.
4.2.4 Articles Filed. The Articles of Amendment to the Articles of
Incorporation of the Company attached as Exhibit A shall have been duly and
properly filed in the Office of the Probate Court of Jefferson County, Alabama
and said Probate Court shall have issued a certificate confirming that said
Articles of Amendment have been duly filed in full accordance with applicable
law. This is not only a condition of the Company and the Management
Shareholders, but a covenant, as well, and any failure of this condition shall
be deemed a breach of this Agreement by the Company and the Management
Shareholders.
<PAGE>
<PAGE>
4.2.5 Employment Agreements. It shall be a condition to the
Management Shareholders' obligations hereunder that the Employment Agreements
attached as Exhibit C be executed and delivered by the Company and NRC.
4.2.6 Stock Purchase Option Agreement. The Company, NRC and each
and every Shareholder shall have executed and delivered the Stock Purchase
Option Agreement attached as Exhibit E.
4.2.7 Legal Opinion. The Company shall have received the Legal
Opinion of Lanier Ford Shaver & Payne, counsel to NRC, in the form of the
opinion attached as Exhibit G.
4.2.8 Bank Loan. The Company shall have obtained a bank loan or
bank line of credit which is reasonably satisfactory to the Company. The bank
loan or line of credit must not require the pledge of personal assets of any
Shareholder of the Company but may require the personal guaranty of any of the
Management Shareholders. The Company shall not be entitled to reject any bank
loan or line of credit for reasons related to interest rate so long as the
interest rates offered are no greater than the commercial base rate or prime
rate of the lending institution plus 2%. The Company may not reject the bank
loan or bank line of credit on the grounds that the repayment terms are
unsatisfactory if the repayment terms offered are amortized over a period of at
least five years, with no balloon payment until the expiration of one year
after the date of the loan.
5. Post-Closing Covenants of the Parties. The covenants and
agreements made in this Section 5 by the Company shall also be deemed made
jointly and severally by the Management Shareholders.
5.1 Independent Accounting Firm. Effective with the Closing, the
Company shall employ the independent accounting firm of Ernst & Young to
prepare audited year-end financial statements as long as NRC owns any capital
stock of the Company. The Company may employ another accounting firm with the
consent of NRC if Ernst & Young refuses to audit the financial statements of
the Company, provided the Company employs another independent accounting firm
acceptable to NRC. The Company shall maintain such accounting systems, engage
in such practices and maintain such records as shall be necessary, in the
judgment of the Company's independent accounting firm, to provide audited
financial statements for each fiscal year of the Company commencing with the
year ending June 30, 1995.
5.2 Financial Reports. For so long as NRC is the holder of any
shares of capital stock of the Company and Management Shareholders, the Company
will cause the Company to provide to NRC the financial statements, reports and
rights described below in this Section 5.2.
(a) As soon as practicable after the end of each calendar month
and each fiscal quarter, respectively, and in any event within 20 days after
the end of each month and 20 days after the end of each fiscal quarter,
consolidated balance sheets of the Company and any subsidiaries of the Company,
as at the end of each such month and quarter, and consolidated statements of
income and of sources and applications of funds of the Company and its
subsidiaries, if any, for each such month and quarter, and for the current
fiscal year to date, prepared by the Company in accordance with generally
accepted accounting principles, all in reasonable detail and certified, subject
to changes resulting from year-end audit adjustments, provided, however, that
such financial statements need not include all footnotes required under
generally accepted accounting principles.
<PAGE>
<PAGE>
(b) As soon as practicable after the end of each fiscal year, and
in any event within 60 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of income and of sources and applications of funds of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles and setting forth in each case in
comparative form the financial statements for the previous fiscal year, all in
reasonable detail and audited and delivered to NRC directly by the Company's
independent accounting firm, and the audit report and the working papers of
such accountant shall also be furnished to NRC.
(c) Within ten days of its adoption from time to time by the
Board of Directors of the Company, and in any event before 30 days prior to the
beginning of a fiscal year, an annual budget plan for the next fiscal year
which shall include projected reserves, margins, expenses, net profits, capital
expenditures, cash flow and balance sheets. In addition, the Company shall
each year and as often as circumstances warrant update its business plan for
the next five years. The annual budget and updated business plan shall be
delivered to NRC in such detail as NRC may reasonably determine.
(d) The right to visit and inspect any of the properties of the
Company or any of its subsidiaries, including its and their books of account,
and to take extracts therefrom, and to discuss its and their affairs, finances
and accounts with its and their officers, all at such times and as often as NRC
may reasonably request.
(e) Such other information as NRC may reasonably request from
time to time.
(f) The Company shall furnish NRC promptly, from time to time,
such other reports regarding the operations, business, affairs and financial
condition of the Company or its subsidiaries, if any, as the Company or its
Board of Directors may prepare for use by the Company's management, such
materials to be delivered at least within three days after such materials are
delivered to management of the Company.
5.3 Certain Voting Requirements; No Amendment to Articles of
Incorporation. The Shareholders shall not vote their capital stock to amend
the Articles of Incorporation or the By-Laws of the Company or to merge,
consolidate or reorganize without the prior written consent of NRC, which
consent may be withheld in the sole and arbitrary discretion of NRC (except as
provided in 5.11 below). The Board of Directors of NRC shall be entitled to
nominate and have elected at least one-third of the Company's Board of
Directors. Each Shareholder hereby agrees to vote each and every share of his
capital stock to nominate and elect NRC's nominees for at least one-third of
the members of the Company's Board of Directors. The Shareholders hereby agree
to amend this Agreement and the Stock Purchase Option Agreement and to take
such other actions as shall insure the continued applicability of this Section
5.3 in the event any provision of applicable law would render void or
ineffectual this Section (for example, the 10 year limitation on voting trusts
or voting agreements) or otherwise, and they shall vote such capital stock and
take such actions prior to any date that this Section would be deemed void or
ineffectual.
5.4 Use of Proceeds. The Company agrees and the Management
Shareholders hereby agree to cause the Company to apply the proceeds from the
sale of the Preferred Stock only for expenditures that, under generally
accepted accounting principles, must be capitalized on the books and records of
the Company, including, without limitation, research and development
<PAGE>
<PAGE>
expenditures to complete development of that certain software project known as
"TXEN Two-Step," the purchase of new computers and certain other capital
expenditures approved by NRC in its reasonable discretion. Specifically, the
Company shall be prohibited from using any part of the proceeds to reduce bank
debt, reduce any debt owed by the Company to its Shareholders or to any other
party or for daily operations. There is hereby excepted from the following
restrictions on the use of proceeds the right of the Company to pay $33,333 per
year up to $100,000 over three years in reduction of accrued but unpaid
salaries due officers of the Company. Upon the Closing of the purchase of
stock pursuant to the exercise of NRC's option under the Stock Purchase Option
Agreement attached as Exhibit E hereto, all accrued but unpaid salary owed
Company employees and all debts owed the Shareholders of the Company shall be
paid in full.
5.5 Special Covenants of Management Shareholders. Each
Management Shareholder shall use his best efforts to cause the Company to
comply fully with and shall take no action to cause the Company to breach the
terms, provisions, restrictions, limitations, representations and warranties
contained in this Agreement, the Stock Purchase Option Agreement, Software
Development Agreement, Employment Agreements and the other agreements
contemplated hereby. Each Management Shareholder hereby covenants and agrees
to vote, as a director and shareholder, to insure the Company's performance and
NRC's rights hereunder and under the other agreements. The Company agrees to
enforce the terms and provisions of the Employment Agreements attached as
Exhibit C hereto and shall not waive or amend any provision thereof without the
written consent of NRC.
5.6 Interested Transactions. The Company shall not enter into
any Interested Transactions (as herein defined) with the Management
Shareholders or Affiliates (as herein defined) without NRC's prior written
consent, which may be withheld in the sole discretion of NRC. Notwithstanding
the foregoing, this Section shall not prohibit any contract by and between the
Company, Management Shareholders or its Affiliates with NRC, such as the
Software Design Contract or the other agreements, so long as the Board of
Directors of the Company approves the execution thereof by a majority vote,
with the NRC Board appointees abstaining. For purposes of this Agreement, the
terms "Affiliate" and "Interested Transactions" shall have the following
meanings:
(a) "Affiliate" shall mean (i) any relative, by blood or
marriage, or any spouse, child or dependent of any officer, director,
shareholder or employee of the Company or (ii) any corporation (including the
Company and its Affiliates), partnership, limited liability company or other
entity in which any officer, director, shareholder or employee of the Company
(or any of their relatives or Affiliates) has any equity interest or employment
or compensation arrangement, whether or not the equity interest is a
controlling equity interest, except for the ownership of less than 1% of the
outstanding capital stock of a reporting company under the Securities Exchange
1934 Act (the "1934 Act"), and (iii) each and every corporation, partnership,
limited liability company and other entity that is controlled by or under
common control with the Company or with any director, officer, shareholder,
employee or any Affiliate of the Company. "Affiliate" shall also mean any
subsidiary of the Company or its Affiliates. "Affiliate" shall not mean NRC
and its officers, directors, employees and representatives for any purpose
under this Agreement or the other agreements contemplated hereby.
(b) "Interested Transactions" shall mean any interested or
self-dealing transactions by, between and among any officers, directors,
employees and option holders of the Company and their respective Affiliates
<PAGE>
<PAGE>
with the Company or its Affiliates, including, without limitation, transactions
covered by Section 10-2A-63 of the Code of Alabama, transactions and
conflicting interests described in Division F of Article 8 of the new Alabama
Business Corporation Act to become effective January 1, 1995 (including,
without limitation, Section 8.60 thereof and any similar sections) and any
other transactions, agreements or actions by, between and among the officers,
directors, shareholders and employees of the Company (or their respective
Affiliates or relatives) with the Company or with any Affiliates of the Company
except NRC. A transaction that is otherwise defined herein as an "Interested
Transaction" shall not lose its status as an Interested Transaction simply
because the Company or its Board of Directors met any applicable standards of
conduct or procedures set forth in the current Alabama Business Corporation Act
or the Alabama Business Corporation Act to be effective January 1, 1995.
Interested Transactions shall not include any transactions between the Company
or its Affiliates with NRC or its Affiliates, such as the Software Design
Contract.
5.7 Participation by Patterson in NRC Business Meetings.
Beginning January 1, 1995, Thomas L. Patterson agrees to participate in NRC
information technology strategic meetings at least three times per calendar
year or fiscal year, as determined by NRC. One of the purposes of his
participation in these meetings will be to provide advice and consultation,
free of charge, to NRC in connection with NRC's information services business.
Mr. Patterson's obligation under this Section shall continue until the
termination of Mr. Patterson's employment with the Company or any successor in
interest to the Company. Such meetings shall be held in Huntsville, Alabama or
at any other office location of NRC, as determined by NRC.
5.8 NRC's Board of Directors Nomination. If NRC exercises and
closes its option to purchase all of the capital stock of the Company, pursuant
to the Stock Purchase Option Agreement attached as Exhibit E, NRC's Board of
Directors and/or management, if legally permissible, will, in good faith,
consider nominating Mr. Patterson as an NRC Board member, but only for so long
as Mr. Patterson remains an employee of the Company or its successors in
interest and so long as his employment with the Company is on a full-time
basis. The NRC Board and/or management shall, in good faith, take such actions
as shall be reasonably practicable to submit Mr. Patterson's name to the NRC
shareholders as a potential Board member of NRC. The obligations of NRC's
Board and management under this Section shall be dependent upon the
determination of NRC's Board and management, in good faith, that Mr. Patterson
qualifies to serve on the Board of NRC.
5.9 Fees and Expenses. Each party to this Agreement shall pay
his or its own legal, accounting and any other expenses and fees in connection
with the negotiation, execution and consummation of this Agreement and the
other agreements. No party has used or contracted for the services of a
broker, finder, or other representations in connection with these transactions
for whom a fee or commission is due.
5.10 Press Releases. The parties shall coordinate any publicity
or press releases and other disclosures to third parties concerning this
Agreement, the Stock Purchase Option Agreement and the other agreements and
matters referenced herein and therein. The Company and the Management
Shareholders understand that NRC shall be entitled to make such public
disclosures as NRC deems necessary or advisable to fulfill its obligations as a
publicly-held Company under the 1934 Act.
5.11 Authorization and Sale of Addition Shares of Class A Common
Stock. In the event the Board of Directors of the Company in good faith
<PAGE>
<PAGE>
recommends to the Shareholders of the Company that the Company should raise
additional equity to meet the Company's budget or business plan as prepared in
accordance with Section 5.2(c) hereof, NRC will vote its capital stock of the
Company in favor of an amendment to the Articles of Incorporation to authorize
additional shares of capital stock to be sold to one or more investors,
subject, however, to the following conditions:
(a) Shares authorized for sale to additional investors shall be
shares of Class A Common Stock.
(b) NRC shall have a right to purchase all or any part of the
additional shares of Class A Common Stock authorized and offered for sale at
the same price and terms as such stock may be offered to any prospective
investor. This right of purchase shall be in lieu of the right contained in
Section 3(d) of Article IV of the Amended Articles of Incorporation with
respect to the additional shares of Class A Common Stock authorized by the
amendment and sold pursuant to this Section 5.11.
(c) If NRC does not exercise its purchase right with respect to
such additional shares authorized, such shares may be sold to one or more
investors but only upon condition that the shares are subject to purchase by
NRC at the price and upon the terms and conditions as set forth in the Stock
Purchase Option Agreement. In this regard, the share certificates issued to
any such investor shall bear the restrictive legend referred to in Section 7 of
the Stock Purchase Option Agreement. In addition, any such investor shall also
be required to agree to the terms and conditions of the Stock Purchase Option
Agreement which shall apply to the shares of stock purchased by such investor.
5.12 Operate in Ordinary Course. From the date hereof and until
NRC no longer owns any capital stock of the Company or until the closing of the
exercise of NRC's purchase option under Stock Purchase Option Agreement, the
Company and each Management Shareholder, as long as such Shareholder is
employed by the Company, shall exert its and his best efforts to operate the
Business in the ordinary course and preserve the value and good will of the
Business and take no action to impair the rights or benefits of NRC intended by
this Agreement and the other agreements contemplated hereby.
5.13 Indemnification by NRC. NRC hereby covenants and agrees to
indemnify and hold the Company and the Shareholders harmless from and against
any damages, losses, costs, expenses and attorneys' fees arising out of (i) any
breach by NRC of any of its representations and warranties set forth in this
Agreement and the other agreements contemplated hereby to which it is a party,
or (ii) any breach by NRC of its promises, agreements and covenants contained
in this Agreement and the other agreements contemplated hereby to which it is a
party.
5.14 Indemnification by Company Shareholders.
(a) The Company and the Management Shareholders shall
jointly and severally indemnify and hold NRC harmless from and against any and
all damages, losses, costs, expenses and attorneys' fees arising out of (i) any
breach by the Company and/or any Management Shareholder(s) of any of their
representations and warranties set forth in this Agreement and the other
agreements to which they are a party, or (ii) any breach by the Company and/or
any Management Shareholder(s) of their promises, agreements and covenants
contained in this Agreement and the other agreements to which they are a party.
Notwithstanding the foregoing, in the event of a breach of the representations
and warranties set forth in Section 3.1 of this Agreement, the exclusive remedy
of NRC for such breach by the Management Shareholders or the Company shall be
<PAGE>
<PAGE>
to rescind the transaction and receive from the Company the entire purchase
price of $1,500,000 together with interest from the date of Closing, except
that if such breach is by reason of fraud or intentional misrepresentation by
the Management Shareholders, NRC, in addition to rescission of the transaction,
shall be entitled to recover damages against a Management Shareholder guilty of
such fraud or intentional misrepresentation.
(b) Each Shareholder, separately, but not jointly, shall
indemnify and hold NRC harmless from and against any and all losses,
liabilities, claims, costs, expenses and attorneys' fees incurred by NRC as a
result of (i) any breach by such Shareholder of the terms and provisions of
this Agreement, or (ii) any breach by such Shareholder of the terms and
provisions of the Stock Purchase Option Agreement.
5.15 Stock Sales to Company Employees. Subsequent to the Closing,
the Management Shareholders may recontribute to the Company 856,500 shares of
their Class A Common Stock which may in turn be sold by the Company to
employees of the Company pursuant to a Company stock purchase plan for
employees. Alternatively, the Management Shareholders may sell up to 856,500
shares of their Class A Common Stock to the employees of the Company. Any such
sales shall be in accordance with the restrictions set forth in the Stock
Purchase Option Agreement. The stock sale agreements between the Company or
the Management Shareholders and the employees of the Company shall be in a form
reasonably satisfactory to NRC and each employee who purchases stock of the
Company shall be required to sign an agreement obligating him to sell such
stock to NRC on terms and conditions set forth in the Stock Purchase Option
Agreement. Sales to employees by the Company shall be pursuant to a written
agreement substantially in the form of Exhibit H attached hereto and the
agreement of each employee to be bound by the Stock Purchase Option Agreement
shall be substantially in the form of Exhibit I attached hereto. If stock
sales to employees are made instead by the Management Shareholders, appropriate
agreements similar to Exhibits H and I shall be executed by the parties. No
stock options or other rights pertaining to the capital stock of the Company
shall be granted by the Company and no additional stock shall be issued by the
Company except as permitted by this Section and Section 5.11 without the
written consent of NRC (which consent may arbitrarily be withheld). Sales of
Class A Common Stock to the employees of the Company shall be either by the
Company or by the Management Shareholders, but such sales shall not be
permitted by both the Company and the Management Shareholders.
5.16 Software Design Services. The Company shall employ NRC to
render software design services during the two year period after the date
hereof. NRC shall be paid reasonable compensation for such services and shall
receive a minimum of $300,000 for such services. The parties shall exert their
best efforts to enter into a contract for such services within 180 days after
the date hereof. If the parties are unable to enter into such a contract
reasonably satisfactory to both parties, the Company shall pay to NRC the sum
of $50,000 as liquidated damages.
6. Term, Termination and Dispute Resolution.
6.1 Term. This Agreement and the agreements, covenants, warrants
and representations shall survive the Closing and shall continue for a period
of three years after the earlier to occur of the following: (i) NRC ceases to
hold any capital stock in the Company or (ii) NRC consummates its purchase
option under the Stock Purchase Option Agreement.
6.2 Cross-Breach Provisions. Any breach of this Agreement shall
constitute a breach of the Stock Purchase Option Agreement and any breach of
<PAGE>
<PAGE>
the Stock Purchase Option Agreement shall be deemed a breach of this Agreement.
No breach of this Agreement or the Stock Purchase Option Agreement shall
constitute a breach of the Software Design Contract unless the parties
otherwise mutually agree. No breach by NRC or the Company of this Agreement or
the Stock Purchase Option Agreement shall constitute a breach of any Employment
Agreement justifying a release of any Management Shareholder of his obligations
thereunder.
6.3 Dispute Resolution.
(a) Any disputes concerning financial calculations such as
(i) the calculation of purchase prices, (ii) conversion rate, (iii) redemption
prices, (iv) amounts due under the promissory notes or other monetary
obligations owed by the Company or the Management Shareholders and (v) any
calculation of any liquidation preference, dividend or distribution payable to
the Shareholders and NRC hereunder, under this Agreement, the Stock Purchase
Option Agreement, the Articles of Amendment, and any other agreement among the
parties shall be determined by the independent accounting firm referred to in
Section 5.1 hereof, whose decision made in good faith shall be final and
binding on the parties, absent manifest error. Any other legal proceedings or
claims arising out of, related to or in connection with this Agreement, the
Stock Purchase Option Agreement and the other agreements shall be brought in
any federal or state court of competent jurisdiction in Madison County,
Alabama, as determined by the party initiating the proceeding, and the other
party hereby consents to the personal jurisdiction of such state and federal
courts, waives any objections to the venue thereof and waives any objections as
to the convenience of the forum.
7. Miscellaneous.
7.1 Applicable Law. The validity, interpretation and legal
effect of this Agreement shall be governed by the internal substantive laws and
not the choice of law rules of the State of Alabama. The parties agree that a
substantial part of this Agreement will be performed in Alabama and that this
choice of law provision is reasonable.
7.2 Time of Essence. Time is of the essence hereof.
7.3 Notices. All notices, requests, demands and other
communications under or in connection with this Agreement shall be in writing,
shall be delivered by hand, telecopied or sent by next-day air or by certified
mail, return receipt requested, to the following addresses:
If to NRC: Nichols Research Corporation
404 Memorial Parkway South
Huntsville, AL 35802
Attention: President
Facsimile #205/880-0367
With a Copy to: John R. Wynn, Esq.
Lanier Ford Shaver & Payne P.C.
P.O. Box 2087
Huntsville, AL 35804
Facsimile #205/533-9322
<PAGE>
<PAGE>
If to the Company TXEN, Inc.
or the Sharehol- Attention: President
ders: 10 Inverness Center Parkway
Suite 140
Birmingham, Alabama 35242
Facsimile #205/980-3648 or 995-8640
With a copy to: Thomas A. Ritchie
Ritchie & Rediker
312 23rd Street, North
Birmingham, Alabama 35203-3878
Any of the names and addresses given above may be changed by notice given as
provided above. Notices by hand delivery or telecopied shall be deemed
received on the date of delivery, provided that notices by hand delivery must
be made to an executive officer of the Company or NRC, and provided that
notices telecopied must be confirmed received by telephone and followed up by
certified mail. Notices sent by next-day air shall be deemed received on the
next business day and notices sent by certified mail shall be deemed received
on the third business day after posting, even if such next-day air or certified
mail is unsuccessful because of an uncommunicated change of address, unclaimed,
or refused.
7.4 Entire Agreement. This Agreement, together with the other
agreements, constitute the entire Agreement of the parties and supersedes all
prior and contemporaneous oral or written agreements among the parties with
respect to the subject matter hereof and thereof and may not be amended or
modified except in writing signed by all parties to each agreement.
7.5 Schedules. Each and every schedule referred to or otherwise
mentioned in this Agreement is attached to this Agreement and is and shall be
construed to be made a part of this Agreement by such reference or other
mention at each point at which such reference or other mention occurs, in the
same manner and with the same effect as if each schedule were set forth in full
and at length every time it is referred to or otherwise mentioned.
7.6 Waivers and Amendments. This Agreement or any term hereof
may be amended, waived, discharged or terminated only in writing signed by the
Company, NRC and the Shareholders or their respective successors and permitted
assigns. A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement must be in writing and shall not in any way
affect, limit or waive a party's rights hereunder at any time to enforce strict
compliance thereafter with every term or condition of this Agreement, including
the provision(s) that were waived on any prior occasion.
7.7 Counterparts. This Agreement may be executed in more than
one counterpart and each counterpart shall be deemed an original and one in the
same instrument.
7.8 Headings and Construction. The headings in this Agreement
are for convenience of reference only and are not part of the substance of this
Agreement. The parties acknowledge and agree that this Agreement has been
negotiated at arm's length between parties equally sophisticated and
knowledgeable in the matters dealt with herein. Each party has been
represented by counsel of its or his own choosing. Accordingly, any rule of
law, legal decision or rule of construction that would require any ambiguities
in this Agreement to be interpreted against the party that drafted it is not
applicable and is waived.
<PAGE>
<PAGE>
7.9 Business Days. If the time period by which any right,
option, or election provided under this Agreement must be exercised or by which
any acts or payments required hereunder must be performed or paid, or by which
the Closing must be held, expires or occurs on a Saturday, Sunday, or legal or
bank holiday, then such time period shall be automatically extended to the
close of business on the next regularly scheduled business day.
7.10 Survival. This Agreement and the representations,
warranties, covenants and promises of the parties herein shall survive the
consummation of the transaction contemplated herein and shall survive the
execution and delivery of the documents and instruments referenced herein or
executed by the parties.
7.11 Assignment and Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No assignment of this Agreement shall
relieve the assigning party of its representations, warranties, covenants and
agreements hereunder and no assignment or delegation of the other agreements
referenced herein shall be permitted except as authorized under such other
agreements. Notwithstanding the foregoing, this Agreement and the other
agreements may not be assigned, in whole or in part, and no party's duties may
be delegated, in whole or in part, without the consent of the other parties
hereto, which may be arbitrarily withheld, except that this Agreement may be
assigned to any successor in interest to NRC by way of merger, consolidation or
a sale of all or substantially all of its assets.
7.12 Access to Information and Confidentiality. Each party will
hold and cause their respective representatives to hold in strict confidence,
unless compelled to disclose by judicial or administrative process, or in the
opinion of its counsel, by other requirements of law, all documents and
information concerning the parties in connection with the transactions
contemplated by this Agreement, except, in connection with the foregoing, to
the extent that such information can be shown to have been (i) previously known
by a party prior to its disclosure by the other party, (ii) in the public
domain through no fault of either party, or (iii) later lawfully acquired by
any party from other sources. No party will release or disclose such
information to any other person, except in connection with this Agreement to
its auditors, financial advisors, other consultants and advisors.
7.13 Invalidity; Deemed Amendment. It is the desire and intent of
the parties to this Agreement that the provisions of this entire Agreement
shall be enforced to the fullest extent permissible under the laws of public
policies of each jurisdiction in which enforcement is sought. If any
particular provision of this Agreement shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to provide provisions
and/or restrictions to the fullest extent permissible and consistent with
applicable law and policies, and such amendment shall apply only with respect
to the particular jurisdiction in which such adjudication is made. If such
amendment is not allowed by the adjudicating body, the offending provision,
only, shall be deleted and the remainder of this Agreement shall not be
affected.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
NICHOLS RESEARCH CORPORATION
By: Louis Rachmeler
--------------------------------
Its: Vice President Acquisitions
----------------------------
TXEN, INC.
By: Thomas L. Patterson
--------------------------------
Its: President
--------------------------
SHAREHOLDERS:
Thomas L. Patterson
-----------------------------------
THOMAS L. PATTERSON
Paul D. Reaves
-----------------------------------
PAUL D. REAVES
Chris H. Horgen
-----------------------------------
CHRIS H. HORGEN
<PAGE>
STOCK PURCHASE OPTION AGREEMENT
This Stock Purchase Option Agreement is made and entered into by and
among NICHOLS RESEARCH CORPORATION, a Delaware corporation ("NRC"), TXEN,
INC., an Alabama corporation (the "Company") and all of the current
shareholders of the Company, namely, THOMAS L. PATTERSON, PAUL D. REAVES
AND CHRIS H. HORGEN (collectively referred to as the "Shareholders").
W I T N E S S E T H:
The authorized capital stock of the Company consists of one share of
$.002 par value convertible preferred stock (the "Preferred Stock"),
5,000,000 shares of $.002 par value Class A Common Stock (the "Class A
Common Stock") and 1,250,000 shares of $.002 par value Class B Common Stock
(the "Class B Common Stock"). NRC owns the one share of Preferred Stock
and the Shareholders own 5,000,000 shares of Class A Common Stock which
represents all of the issued and outstanding capital stock of the Company.
None of the shares of Class B Common Stock is outstanding and all of such
shares have been reserved for issuance upon conversion of the Preferred
Stock into shares of Class B Common Stock. This Agreement is executed and
delivered by the parties as a condition concurrent to the purchase by NRC
of such Preferred Stock from the Company pursuant to that certain
Convertible Preferred Stock Purchase Agreement of even date herewith.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Convertible Preferred Stock Purchase
Agreement.
The Shareholders desire to grant NRC an option to purchase all of the
issued and outstanding Class A Common Stock owned by them presently or
subsequently issued to the Shareholders and other persons. NRC desires to
obtain such an option, subject to the terms and conditions set forth
herein. Upon exercise of such option and the purchase of the Class A
Common Stock pursuant to such option, NRC will own all of the issued and
outstanding capital stock of the Company.
Therefore, in consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. NRC OPTION TO PURCHASE. As used herein the term "Shareholders"
shall include not only the persons identified above, but also all persons
who subsequently acquire any capital stock of the Company. Provided NRC
has converted the Preferred Stock to Class B Common Stock, NRC shall have
the option for a period of 30 days after release and delivery to NRC of the
Company's audited financial statements for the period ending June 30, 1998
to elect to purchase from the Shareholders all outstanding shares of
Class A Common Stock of the Company at a price per share determined as
follows:
First, determine the average of the high and low price to
earnings ("PE") ratios of the NRC stock as quoted by the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") for the eight NRC fiscal quarters ended during the two
year period ended June 30, 1998. Next, multiply the average NRC
PE ratio as thus determined by the "Applicable Percentage" as
defined below. The number resulting from such multiplication
shall be known as the "Multiplier" and it shall be not less than
11 (thus establishing a minimum price) nor more than 14 (thus
establishing a maximum price). To arrive at the per share
<PAGE>
<PAGE>
purchase price, the product of the Multiplier times the average
annual net after tax earnings of the Company for its fiscal years
ended June 30, 1997 and 1998 shall be divided by the total number
of shares of capital stock of the Company then outstanding
(including Class B Common Stock owned by NRC).
The Applicable Percentage shall mean 90%, except that it shall
mean 85% if the Management Shareholders sell Class A Common Stock
to the employees pursuant to Section 5.15 of the Convertible
Preferred Stock Purchase Agreement. Notwithstanding the
foregoing, if the average net after tax earnings of the Company
for the two years ended June 30, 1997 and June 30, 1998 exceed
$1,680,000, the Applicable Percentage shall mean 95% and the
Multiplier shall be not less than 11 (thus establishing a minimum
price) nor more than 14 1/2 (thus establishing a maximum price),
even though the Management Shareholders may have sold Class A
Common Stock to employees pursuant to Section 5.15 of the
Convertible Preferred Stock Purchase Agreement.
The net after tax earnings of the Company for purposes of this
Agreement shall be the net income of the Company as shown on the
audited financial statements of the Company as prepared by the
independent accounting firm referred to in Section 5.1 of the
Convertible Preferred Stock Purchase Agreement. There shall be
added to such net income bonuses not in excess of $100,000 in any
fiscal year paid to employees of the Company which are to repay
employee loans, the proceeds of which were used to purchase Class
A Common Stock of the Company, except that no bonus adjustment
shall be made to net income when determining whether or not
average net after tax earnings for the years ending June 30, 1997
and 1998 exceeds $1,680,000.
The closing of the sale shall occur at the offices of the Company in
Birmingham, Alabama not more than 60 days after the election to purchase,
at which time NRC shall pay the Shareholders the per share price. The per
share price shall be paid by NRC at the closing as follows:
1.1 to each Shareholder who owns 1% or less of the then
outstanding capital stock of the Company, NRC shall pay the per share
price in immediately available funds; and
1.2 to every other Shareholder, NRC shall pay the per share
purchase in unregistered and restricted shares of NRC common stock,
and for the purpose of this exchange, the NRC shares of common stock
shall have a value equal to the average of the daily weighted sale
price of such stock as quoted by NASDAQ for the 10 day period
immediately preceding the closing; and
1.3 in no event shall NRC be required to issue its Common Stock
under 1.2 above to more than 35 Shareholders of the Company, and if
there are more than 35 Shareholders who own or have the option to
purchase more than 1% of the capital stock of the Company, those
Shareholders with the lowest percentage ownership may be required by
NRC to accept cash or immediately available funds as provided in 1.1
until NRC reduces the number of Shareholders entitled to receive NRC
Common Stock to 35.
Notwithstanding Section 1.2 above, the parties may agree that the
purchase price shall be paid wholly or partly in cash. Furthermore, if the
<PAGE>
<PAGE>
price is to be paid in stock of NRC, NRC shall deliver to the Shareholders
its most recent Form 10-K, Annual Report and Forms 10-Q filed since the
last Form 10-K. Each such Shareholder shall sign an investment letter
acknowledging that the Shareholder is not acquiring the NRC Common Stock
with a view toward subsequent resale or distribution, the NRC Shares are
unregistered under applicable securities laws and may not be transferred
absent registration or an exemption from registration, the share
certificates will bear a restrictive securities legend, the investment in
the shares represents an illiquid investment and the Shareholder is able to
bear the risk of loss of his investment in the securities. In the event a
transfer of the NRC Common Stock would, in the opinion of counsel to NRC,
violate any applicable securities laws, NRC may pay the purchase price in
cash.
The transaction may be structured as a reverse triangular merger with
a wholly owned subsidiary of NRC. If the parties agree to structure the
transaction as a reverse triangular merger, the parties shall adopt a Plan
of Merger and take such other actions as may be reasonably necessary to
effect such merger.
The option herein granted NRC shall be irrevocable during its term.
If the option is not exercised by NRC within 30 days after release and
delivery to NRC of the Company's audited financial statements for the
fiscal year ending June 30, 1998, the option granted NRC herein shall lapse
and become null and void.
2. CONDITIONS TO EXERCISE OF NRC PURCHASE OPTION. Notwithstanding
any of the foregoing, the Shareholders will not be required to sell their
stock to NRC if the aggregate purchase price to all of the Shareholders
(other than NRC) is less than $7,000,000, provided, however, that:
2.1 NRC may elect to pay $7,000,000 even if the formula price is
less; or
2.2 If the Shareholders who own 90% or more of all outstanding Class
A Common Stock desire to accept a price of less than $7,000,000, such
Shareholders may enforce a mandatory take-along obligation on the other
Shareholders and in such event the other Shareholders shall sell their
capital stock to NRC.
3. PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS. The rights
provided for in this section (the "Piggyback Rights") shall apply to those
Shareholders who receive NRC unregistered and restricted common stock in
exchange for their stock pursuant to the NRC purchase option. As used in
this section, the term "NRC Stock" shall mean the common stock of NRC
outstanding as of the date of the execution of the definitive agreements
and shall not include any preferred stock or other special class of stock
that may be registered under the Securities Act of 1933 (the "Act"). If
(but without any obligation to do so) NRC proposes to register any NRC
Stock under the Act in connection with the public offering of such NRC
Stock solely for cash (other than a registration relating solely to the
sale of securities to employees of NRC pursuant to a stock option, stock
purchase or similar plan, relating to a Rule 145 transaction, relating to a
merger or other NRC acquisition, or a registration on any form which does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the NRC Stock
owned by the Shareholders), NRC shall, at such time, promptly give each
Shareholder who owns NRC Stock pursuant to an exchange under NRC's purchase
option written notice of such registration. Upon NRC's receipt of the
<PAGE>
<PAGE>
written request of each such Shareholder given within 20 days after NRC's
mailing of such notice, NRC shall, subject to the other provisions of this
section, cause to be registered under the Act all of the NRC Stock that
each such Shareholder has requested to be registered, provided, however,
that each such Shareholder may only request registration for those shares
of NRC Stock acquired in exchange for stock pursuant to the NRC purchase
option (the "Registerable Securities"). NRC shall pay all costs for
registering the Registerable Securities. When required under the terms of
this section to effect the registration of the Registerable Securities, NRC
shall, as expeditiously as reasonably possible:
3.1 prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Registerable
Securities and use its best efforts to cause such registration statement to
become effective.
3.2 prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
3.3 furnish to the Shareholders who acquired NRC Stock pursuant to
NRC's purchase option such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and
such other documents as they may reasonably request in order to facilitate
the distribution of the Registerable Securities owned by them.
3.4 use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky Laws of such jurisdictions as shall be reasonably requested by the
underwriters, provided, however, that the holders of the Registerable
Securities shall not be required to cause NRC to register and qualify the
Registerable Securities under any particular security or Blue Sky Law of
any particular state or jurisdiction.
3.5 in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. Each
holder of Registerable Securities participating in the underwriting shall
also enter into and perform his or her respective obligations, as
reasonably requested by the managing underwriter, under such an agreement.
It shall be a condition precedent to the obligations of NRC to register the
Registerable Securities that the holders of the Registerable Securities
shall furnish to NRC such information regarding themselves, the
Registerable Securities held by them, and the intended method of
disposition of such Registerable Securities as shall be required to effect
the registration of such Registerable Securities. Notwithstanding any of
the foregoing, NRC shall have the right, in its sole discretion, to
terminate the registration of the Registerable Securities and the
registration of the other NRC Stock which triggered the Piggyback Rights
if, at such time, the underwriters are of the opinion that a registration
at such time would not be advisable, or if there has been a material
adverse change in the condition, business or prospects of NRC or if, for
any good and sufficient reason, NRC determines to terminate the
registration causing the existence of the Piggyback Rights.
<PAGE>
<PAGE>
The holders of the Registerable Securities must bear and pay their
prorata portion of any underwriting discounts and commissions. In
connection with any offering involving an underwriting, NRC shall not be
required to include any of the holders of Registerable Securities in such
underwriting unless such holders accept the terms of the underwriting as
agreed upon between NRC and the underwriters selected by NRC, and then only
in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by NRC or the NRC Shareholders
demanding such registration. If the total amount of Registerable
Securities that all Shareholders with Piggyback Rights under this section
request to be included in such offering exceeds (when combined with the
securities being offered by NRC or its other shareholders) the amount of
securities that the underwriters reasonably believe compatible with the
success of the offering, then NRC shall be required to include in the
offering only that number of Registerable Securities which the underwriters
believe will not jeopardize the success of the offering and the
Registerable Securities so included shall be apportioned, prorata, among
the Shareholders in accordance with their respective ownership percentages
or in such other proportions as they shall mutually agree. However, in no
event shall the amount of Registerable Securities of the Shareholders
included in an offering by NRC of its shares under this section be reduced
below 20% of the total amount of securities included in such offering. The
definitive agreements shall contain such other provisions as the parties
may require and agree in connection with the Piggyback Rights, to include
provisions requiring the Shareholders to indemnify NRC or any underwriter
in connection with any untrue statement of material fact or the omission to
state material facts committed or omitted by the Shareholders in connection
with the offering.
The Piggyback Rights may be assigned by a Shareholder owning
Registerable Securities to any proper transferee or assignee of the
Registerable Securities owned by the Shareholder, provided that such
assignment or transfer relates to all and not less than all of the
Registerable Securities owned by such Shareholder and NRC is, within five
days after the transfer, furnished with written notice of the name and
address of the transferee or assignee who will acquire the Piggyback Rights
and the securities with respect to which such Piggyback Rights are being
assigned. The assignment shall be effective only if immediately following
such transfer the further disposition of the Registerable Securities is
restricted under the Act and such Piggyback Rights may not be assigned to
any person or entity which, in NRC's reasonable judgment, is a competitor
of NRC.
Each Shareholder with Piggyback Rights will agree that he or she will
not, to the extent requested by NRC and/or any underwriter, sell, make any
short sale of, loan, grant any option for the purchase of or otherwise
transfer or dispose of any Registerable Securities (other than those
included in the pending registration) without the prior written consent of
NRC and/or such underwriter, as the case may be, during the 90 day period
following the effective date of the Registration Statement of NRC filed
under the Act. In order to enforce the foregoing covenant, NRC may impose
stop-transfer instructions with respect to the Registerable Securities
until the end of such 90 day period.
These Piggyback Rights under this section shall terminate two years
after the exercise of the purchase option by NRC, and thereafter, no
Shareholder shall have any right to require registration of his or her
Registerable Securities.
<PAGE>
<PAGE>
4. SUBSEQUENT STOCK ISSUED BY COMPANY. In the event the Company
issues any additional shares of capital stock (other than to NRC) such
stock shall be subject to the purchase option herein granted NRC set forth
in Section 1 above and share certificates evidencing such stock shall bear
the restrictive legend set forth in Section 7 hereof. In the event any
Shareholder transfers his capital stock, whether voluntarily or
involuntarily, the transferee shall take such capital stock subject to the
purchase option herein granted NRC and the restrictive legend set forth in
Section 7 hereof shall be placed on any new stock certificate evidencing
the transferred stock. Any person not presently a Shareholder who
subsequently becomes a Shareholder shall agree to be bound by this
Agreement by executing and delivering an instrument in form reasonably
satisfactory to NRC and shall have all of the rights and duties hereunder
of a Shareholder without any further consent by TXEN or the other
Shareholders. Any additional shares of capital stock of TXEN acquired by a
Shareholder shall be subject to all of the terms and provisions of this
Agreement.
5. CONSENT TO TRANSFER. Prior to the expiration of the option
granted NRC under Section 1 hereof, no Shareholder shall transfer his
capital stock of the Company without the prior written consent of NRC which
consent may be withheld in its sole discretion.
6. NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or by-laws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in
carrying out all of the provisions of this Agreement and in taking all of
the action that may be reasonably necessary or appropriate in order to
protect the preferences and rights of the holder of the Preferred Stock and
the holders of the Class B Common Stock, including but not limited to the
purchase option set forth in Section 1, against impairment unless the same
is approved by NRC. The Company shall not issue or grant any stock
options, warrants or other rights to acquire any of its capital stock.
7. LEGEND. The certificates evidencing the shares of capital stock
of the Company (except for the certificates issued to NRC) shall bear the
following restrictive legend:
"The shares of stock evidenced by this certificate may not be transferred
without the prior written consent of Nichols Research Corporation and are
subject to a purchase option in favor of Nichols Research Corporation, a
copy of which is available for inspection at the offices of the Company."
8. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each Shareholder
represents and warrants as to the capital stock of the Company owned by him
on the date hereof, as of the date any new shareholder becomes a party to
this Agreement and as of the date NRC purchases such stock pursuant to
exercise of the option in Section 1 hereof that:
8.1 He has good and marketable title to such stock and the stock is
free and clear of any encumbrance, mortgage, lien, pledge, charge or claim
or restriction on or condition to transfer or assignment of any nature
whatsoever. Delivery of the stock by such Shareholder to NRC in accordance
with this Agreement will vest good and marketable title to the stock in NRC
free and clear of any encumbrance, mortgage, lien, pledge, claim or
<PAGE>
<PAGE>
restriction on or condition to transfer or assignment of any nature
whatsoever.
8.2 He has full legal power and capacity to execute, deliver and
perform this Agreement and has full legal power to sell his capital stock
to NRC pursuant to exercise of NRC's option in accordance with this
Agreement. This Agreement constitutes a valid and legally binding
obligation of the Shareholder.
8.3 The Shareholder is not a party to any contract or agreement,
including without limitation, subscriptions, options, warrants or rights
other than this Agreement, whereby the Shareholder has granted to any
person or entity an absolute or contingent right to purchase, obtain or
acquire any rights or interest in any of such stock.
8.4 The Shareholder does not have any subscriptions, options,
warrants or rights to acquire any common stock of the Company.
9. CLOSING. The Closing of the sale pursuant to the exercise of
NRC's exercise of the option granted in Section 1 hereof, shall occur at
the offices of the Company at a date and time mutually convenient, but in
no event later than 30 days after notice of exercise is given by NRC. At
the Closing, NRC shall deliver the purchase consideration to the
Shareholders and the Shareholders shall deliver to NRC their certificates
evidencing their capital stock properly endorsed for transfer to NRC. At
the Closing, the Shareholders shall be deemed to have made the
representations and warranties of Section 8.
10. NOTICES. All notices, including the exercise of NRC's purchase
option herein granted, and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered personally,
transmitted by facsimile or sent by regular certified mail (return receipt
requested) postage prepaid, to the parties to this Agreement at the
following addresses or at such other address for a party as shall be
specified by like notice:
If to the Company: TXEN, Inc.
Attention: President
10 Inverness Center Parkway
Suite 140
Birmingham, Alabama 35242
Facsimile #205/980-3648 or 995-8640
If to the Shareholders: TXEN, Inc.
Attention: President
10 Inverness Center Parkway
Suite 140
Birmingham, Alabama 35242
Facsimile #205/980-3648 or 995-8640
If to NRC: Nichols Research Corporation
Attention: President
404 Memorial Parkway South
Huntsville, AL 35802
Facsimile #205/880-0367
Notices shall be deemed effective on the date of delivery or on the
date of transmission by facsimile. The parties may change the address to
which notices are to be sent by use of this section.
<PAGE>
<PAGE>
11. APPOINTMENT OF SHAREHOLDER REPRESENTATIVE. For purposes of
giving notices to the Shareholders pursuant to this Agreement and for
purposes of acting as a liaison between NRC and the Shareholders, the
Shareholders hereby appoint the Company as their representative. Upon
receipt of any notice from NRC pursuant to the terms and provisions of this
Agreement, the Company shall communicate such notice to the Shareholders at
their addresses as appearing on the books and records of the Company.
Failure of the Company to communicate such notices to the Shareholders
shall not affect the validity of any notice given by NRC pursuant to the
terms and provisions of this Agreement duly given to the Company as the
representative of the Shareholders.
12. SURVIVAL OF COVENANTS, EFFECT. This Agreement and the
representations, warranties, covenants and promises of the parties herein
shall survive the consummation of the transaction contemplated herein and
shall survive the execution and delivery of the documents and instruments
referenced herein or executed by the parties.
13. APPLICABLE LAW JURISDICTION. This Agreement has been negotiated
and executed in the State of Alabama, and it shall be governed by,
construed and enforced in accordance with the internal substantive laws and
not the choice of law rules of the State of Alabama.
14. SEVERABILITY. If any of the articles, sections, paragraphs,
clauses or provisions of this Agreement shall be held by a court of last
resort to be invalid, the remainder of this Agreement shall not be affected
thereby.
15. ENTIRE AGREEMENT. The foregoing contains the entire agreement
between the parties relating to the subject matter of this Agreement, and
may not be altered or amended except by an instrument in writing approved
by the Company and NRC and signed by the parties hereto, and this Agreement
supersedes all prior understandings and agreements. The parties
acknowledge that any prior oral or written agreements between the parties,
if any, are hereby terminated. The parties have also entered into a
separate Convertible Preferred Stock Purchase Agreement which shall be in
addition to and not in lieu of the provisions of this Agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, NRC and the Company have caused this Agreement to
be executed by their duly authorized officers and the Shareholders have
hereunto set their hands as of the 16 day of December, 1994.
NICHOLS RESEARCH CORPORATION
By: Louis Rachmeler
--------------------------------
Its: Vice President Acquisitions
----------------------------
TXEN, INC.
By: Thomas L. Patterson
--------------------------------
Its: President
--------------------------
SHAREHOLDERS:
Thomas L. Patterson
-----------------------------------
THOMAS L. PATTERSON
Paul D. Reaves
-----------------------------------
PAUL D. REAVES
Chris H. Horgen
-----------------------------------
CHRIS H. HORGEN
<PAGE>
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into on September 1, 1994, by and
between NICHOLS RESEARCH CORPORATION, a Delaware corporation having its
principal offices in Huntsville, Alabama (the "Company"), and MICHAEL J.
MRUZ (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchaser has been employed as President of the Company
pursuant to an Employment Agreement dated June 6, 1994;
WHEREAS said Employment Agreement granted to Purchaser an option to
purchase 70,000 shares of the $.01 par value common stock of the Company
(the "Common Stock") commencing on September 1, 1994; and
WHEREAS Purchaser desires to exercise the aforesaid option and
purchase the Common Stock, and the Company is willing to issue the Common
Stock to Purchaser upon receipt of the entire specified purchase price and
the Purchaser's compliance with the other terms of this Agreement.
THEREFORE in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. EXERCISE OF OPTION; SALE OF SHARES. The Purchaser hereby exercises
the option granted to him under his Employment Agreement with the Company
and elects to purchase 70,000 shares of the Common Stock (the "Shares").
The Company hereby agrees to issue and deliver to Purchaser, and Purchaser
agrees to purchase and accept from Company, the Shares. The purchase price
for the Shares shall be ninety percent (90%) of the fair market value of
the Shares on the date hereof, and shall be paid by Purchaser in
immediately available funds simultaneously with the execution of this
Agreement. For this purpose, "fair market value" shall mean the closing
sale price of the Common Stock as reported on NASDAQ. The Company shall
deliver to Purchaser a certificate evidencing the Shares within ten (10)
business days (excluding legal holidays) of execution of this Agreement.
2. COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to the Purchaser as follows:
(a) Company has full legal power and authority to execute,
deliver and perform this Agreement, to issue the Shares to the Purchaser
pursuant to this Agreement, and to deliver the certificate representing the
Shares. This Agreement constitutes a valid and legally binding obligation
of the Company.
(b) The Shares shall be issued to Purchaser pursuant to an
exemption from the registration requirements of the Securities Act of 1933
(the "Act"), the Virginia Securities Act (the "Virginia Act"), and the
Alabama Securities Act (the "Alabama Act"). The certificate evidencing the
Shares shall bear a legend restricting the transfer of the Shares unless
such Shares are registered or exempt from registration under the Act and
any applicable state securities laws.
3. PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Purchaser
represents and warrants to the Company as follows:
<PAGE>
<PAGE>
(a) The Purchaser has received and examined the Company's Annual
Report on Form 10-K for the year ended August 31, 1993; the Company's
Quarterly Reports on Form 10-Q for the quarters ended November 30, 1993,
February 28, 1994, and May 31, 1994; and the Company's 1993 Annual Report
to Shareholders, and Purchaser has had the opportunity to make whatever
investigations and obtain such other information concerning the Company
deemed relevant in order to make an informed judgment on whether or not to
purchase the Shares.
(b) The Shares have not been registered under the Act, the
Virginia Act or the Alabama Act and are sold to Purchaser in reliance upon
an exemption from such registration. Purchaser is purchasing the Shares
for his own account for investment purposes only and not with a view toward
resale or other distribution. The certificate evidencing the Shares will
bear a legend restricting the sale of the Shares unless registered or
exempt from registration under the Act and any applicable state securities
laws.
(c) Because such Shares are not registered and are subject to
other restrictions on the transfer described herein, the Purchaser
understands he may have to retain such Shares for several years. The
Purchaser does not anticipate any need to dispose of the Shares in the
immediate future. Purchaser is fully able to bear the economic risks
associated with his investment, including the risk that the Purchaser may
lose his entire investment in the Shares. Purchaser has such knowledge,
information and experience in financial, business and investment matters
necessary for him to evaluate the risks and merits of acquiring the Shares.
(d) The Company has no obligation to register the Shares.
(e) The Purchaser understands that the difference between the
purchase price and the fair market value of the Shares at the time the
Shares become transferable or no longer subject to a substantial risk of
forfeiture (a "Tax Event") will be taxed under Section 83 of the Internal
Revenue Code (the "Code") as ordinary income upon the occurrence of a Tax
Event, unless the Purchaser elects pursuant to Section 83(b) and within
thirty (30) days hereof to be taxed currently on the difference between the
purchase price and the fair market value of the Shares on the date hereof.
The Purchaser shall be responsible for and pay all federal, state and local
taxes associated with the exercise of the option, the receipt of the Shares
and any future sale or other disposition of the Shares.
(f) Purchaser is a bona fide resident of the State of Virginia.
(g) The Purchaser understands the meaning and legal consequences
of the representations and warranties contained in this Section 3 and
agrees to indemnify and hold harmless the Company, its officers, directors
and representatives from and against any and all loss, damage or liability
due to or arising out of breach of any such representation or warranty.
(h) As President of the Company, the Purchaser is subject to
Section 16 of the Securities Exchange Act of 1934 and is an "affiliate" of
the Company as that term is defined in Rule 144 promulgated by the
Securities and Exchange Commission.
4. COMPANY'S RIGHT OF FIRST REFUSAL. The Purchaser agrees that
should the Purchaser desire to sell any of the Shares within two (2) years
after the date on which such Shares may be sold pursuant to Rule 144
promulgated by the Securities and Exchange Commission, he shall first offer
<PAGE>
<PAGE>
in writing to sell such Shares to the Company at the purchase price paid by
Purchaser for such Shares under this Agreement. If within thirty (30) days
of receipt of such offer the Company declines to repurchase such Shares,
the Purchaser shall have the right to sell such Shares, subject to
applicable restrictions under the applicable federal and state securities
laws. If the Company elects to purchase the Shares, the Company shall
deliver to Purchaser simultaneously with its notice of election to purchase
the Shares, a check for the purchase price and the Purchaser shall
immediately execute and deliver to the Company a stock transfer power for
the Shares and he shall also deliver the certificate representing the
Shares, free and clear of any liens, encumbrances or other claims. The
certificate evidencing such Shares shall bear an appropriate legend in
accordance with this Section 4.
The price per share to be paid by the Company shall be adjusted
in the event of any stock split, stock dividend or other recapitalization
of the Company involving the receipt of shares without additional
considerations, and all shares resulting from any such stock split, stock
dividend or other recapitalization shall be subject to the Company's right
of first refusal under this Section 4 to the same extent as the original
Shares involved in such stock split or recapitalization or on the basis of
which the stock dividend is made. The total price to be paid by the
Company for the Shares and any resulting shares shall remain the same,
i.e., the price Purchaser paid hereunder for the Shares.
5. SURVIVAL OF WARRANTIES. The representations and warranties set
forth in Sections 2 and 3 above and Section 6 below shall survive the
consummation of the transaction contemplated by this Agreement, and shall
continue in effect notwithstanding any investigation made by the parties
hereto.
6. NO BROKER. Purchaser and Company each represent to the other that
neither they nor their agents, servants, officers, directors, or
shareholders have employed any broker, finder, or intermediary, including,
without limitation, any employee of Purchaser or Company in connection with
this transaction. Purchaser and Company each agree to indemnify and hold
harmless one another against any claim for such fee or commission based on
any alleged agreement or understanding with the indemnifying party.
7. MISCELLANEOUS.
(a) EXPENSES. All legal and other costs and expenses incurred
in connection with this Agreement and consummation of the transaction
contemplated hereby shall be paid by the party incurring such expense.
(b) GOVERNING LAW; SEVERABILITY. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of
Alabama.
(c) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between Company and Purchaser with respect to the Shares, is
independent of and separate from all other agreements and understanding
between Company and Purchaser, and supercedes all prior agreements and
understandings between Company and Purchaser with respect to the Shares.
(d) AMENDMENTS. This Agreement shall not be modified or amended
except by an instrument, in writing, signed by Company and Purchaser or
their duly authorized representatives.
<PAGE>
<PAGE>
(e) WAIVER. The failure of either party to insist, in one or
more instances, on the performance by the other party in strict accordance
with any term or condition of this Agreement shall not be deemed a waiver
or relinquishment of any right granted hereunder or of any right to demand
future performance of any such term or condition of this Agreement, unless
such waiver is set forth in a written instrument signed by the waiving
party or a duly authorized representative of the waiving party. No waiver
of any provision or provisions of this Agreement shall be deemed to
constitute a waiver of any other provision.
(f) COUNTERPARTS- This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
(g) TITLES AND HEADINGS. Titles and headings to Sections herein
are for purposes of reference only, and shall in no way limit, define or
otherwise affect the meaning or interpretation of any of the provisions of
this Agreement.
(h) ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
beneficiaries, administrators, executors, guardians, conservators,
trustees, other personal representatives, successors and assigns.
(i) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or mailed by
registered or certified mail, return receipt requested and postage prepaid, to
the Purchaser or the Company at his or its address set forth below.
(j) Counsel. Purchaser acknowledges and agrees that Lanier Ford
Shaver & Payne P.C. represents only the Company in connection with this
Agreement and the consummation of the transaction contemplated hereby.
Purchaser further acknowledges that Purchaser has had the opportunity to be
represented at all times by an attorney of Purchaser's own choosing in
connection with this Agreement and the consummation of the transaction
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NICHOLS RESEARCH CORPORATION
By: Chris H. Horgen
--------------------------------
Its Chief Executive Officer
Address:
4040 Memorial Parkway, S. "Company"
Huntsville, Alabama 35802
Michael J. Mruz
-----------------------------------
MICHAEL J. MRUZ
Address:
9465 Deramus Farm Court "Purchaser"
Vienna, Virginia 22182
<PAGE>
NICHOLS RESEARCH CORPORATION
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------------------------
Primary: 1993 1994 1995
--------------------------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding 5,935,027 6,054,503 6,112,576
Net common shares issuable on exercise of 317,202 150,806 166,533
certain stock options (1)
--------------------------------------------
Average common and common equivalent shares 6,253,129 6,205,309 6,279,109
outstanding
============================================
Net income $7,049,000 $6,506,000 $7,202,000
============================================
Per share amount $1.13 $1.05 $1.15
============================================
</TABLE>
(1) Net common shares issuable on exercise of certain stock options is
calculated based upon the treasury stock method using the average market price.
<PAGE>
SUBSIDIARIES OF REGISTRANT
State of
Name of Subsidiary Incorporation
------------------ -------------
1) Communications Systems & Specialists, Inc. Delaware
2) Computer Services Corporation Alabama
3) Nichols Research Corporation Technical Services Corporation Alabama
4) Conway Computer Group, Inc. Alabama
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Nichols Research Corporation of our report dated October 12, 1995, included
in the 1995 Annual Report to Shareholders of Nichols Research Corporation.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-13464) pertaining to the Nichols Research Corporation 1984
Incentive Stock Option Plan and in the related Prospectus of our report dated
October 12, 1995, with respect to the financial statements of Nichols Research
Corporation incorporated by reference in this Annual Report on Form 10-K for
the year ended August 31, 1995.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-26909) pertaining to the Nichols Research Corporation 1988
Employees Stock Purchase Plan and in the related Prospectus of our report
dated October 12, 1995, with respect to the financial statements of Nichols
Research Corporation incorporated by reference in this Annual Report on Form
10-K for the year ended August 31, 1995.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-38568) pertaining to the Nichols Research Corporation Non
Employee Officer and Director Stock Option Plan and in the related Prospectus
of our report dated October 12, 1995, with respect to the financial statements
of Nichols Research Corporation incorporated by reference in this Annual
Report on Form 10-K for the year ended August 31, 1995.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-44409) pertaining to the Nichols Research Corporation 1989
Incentive Stock Option Plan and in the related Prospectus of our report dated
October 12, 1995, with respect to the financial statements of Nichols Research
Corporation incorporated by reference in this Annual Report on Form 10-K for
the year ended August 31, 1995.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-55454) pertaining to the Nichols Research Corporation 1991
Stock Option Plan and in the related Prospectus of our report dated October
12, 1995, with respect to the financial statements of Nichols Research
Corporation incorporated by reference in this Annual Report on Form 10-K for
the year ended August 31, 1995.
Our audits also included the financial statement schedule of Nichols Research
Corporation listed in Item 14(a)(2). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Birmingham, Alabama
November 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806388
<NAME> ALLEN E. DILLARD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 17,196
<SECURITIES> 0
<RECEIVABLES> 53,103
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,243
<PP&E> 22,893
<DEPRECIATION> 11,434
<TOTAL-ASSETS> 100,879
<CURRENT-LIABILITIES> 26,470
<BONDS> 5,366
<COMMON> 64
0
0
<OTHER-SE> 67,784
<TOTAL-LIABILITY-AND-EQUITY> 100,879
<SALES> 170,331
<TOTAL-REVENUES> 170,331
<CGS> 147,584
<TOTAL-COSTS> 147,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 11,318
<INCOME-TAX> 4,116
<INCOME-CONTINUING> 7,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,202
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
