SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 31, 1997
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NICHOLS RESEARCH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-15295 63-0713665
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4040 South Memorial Parkway, Huntsville, Alabama 35802-1326
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(Address, including zip code, of principal executive offices)
(205) 883-1140
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(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 27, 1997, Nichols Research Corporation ("Nichols Research"), a
Delaware corporation, entered into an Agreement of Merger (the "Agreement") to
acquire all of the issued and outstanding capital stock of TXEN, Inc., an
Alabama corporation ("TXEN"), from the shareholders of TXEN pursuant to that
Agreement. The closing of the transaction took place on August 29, 1997, and
the merger became effective on August 31, 1997.
Before August 31, 1997, Nichols Research owned 999,500 shares of the
Class B Common Stock of TXEN. These shares represented 100% of the Class B
Common Stock outstanding and 19.9% of all of the Common Stock of TXEN, Inc.,
outstanding. The other outstanding Common Stock of TXEN was composed of
4,000,500 shares of Class A Common Stock.
Pursuant to the Agreement, effective August 31, 1997, TXEN merged into
Nichols Select Corporation (the "Subsidiary"), a Delaware corporation and a
wholly owned subsidiary of Nichols Research. As a result of the merger, the
Class B Common Stock owned by Nichols Research was cancelled without
consideration. Further, the Class A Common Stock of TXEN was exchanged for
1,084,148 shares of Nichols Research's $.01 par value Common Stock valued at
approximately $26.3 million and $17,550,265.13 in cash. The purchase price was
allocated among the Class A shareholders of TXEN in accordance with each such
shareholder's interest in TXEN. The specific number of shares of Nichols
Research Common Stock delivered to the TXEN shareholders pursuant to the
Agreement was determined by negotiations between the parties, and not by any
formula or other objective method. The purchase price was determined by a
formula contained in a Stock Purchase Option Agreement dated December, 1994,
and an amendment to that Option Agreement dated July 1996, between Nichols
Research, TXEN and the shareholders of TXEN. The purchase price formula was
77 1/2 % of Nichols Research's average price to earnings ratios for the four
months ended June 30, 1997, multiplied by TXEN's net after-tax earnings for its
fiscal year ended June 30, 1997. This purchase price formula contained in the
Option Agreement and amendment thereto was determined by negotiations between
the parties.
Chris H. Horgen, Chief Executive Officer and Chairman of the Board of
Nichols Research, owned 245,000 shares of TXEN Class A Common Stock prior to
the merger. Pursuant to the merger, Mr. Horgen received $2,687,006.15 in cash
and received no Nichols Research Common Stock.
At closing, Nichols Research, the Subsidiary and the shareholders of
TXEN also entered into an Escrow Agreement. From the cash paid at closing, the
TXEN shareholders placed $877,513.26 in escrow until September 1, 1998, to
apply against any indemnification obligations that arise under the Agreement
before the escrow termination date.
The Agreement provides that in the event Nichols Research determines to
file a registration statement registering any of its Common Stock under the
Securities Act of 1933, then Nichols Research will permit the TXEN shareholders
to include their shares in that offering and registration statement upon
meeting certain conditions.
At closing, Thomas L. Patterson amended his Employment Agreement with
the Subsidiary. Pursuant to that amended Employment Agreement, Thomas L.
Patterson will continue to serve as President of the Subsidiary for a two (2)
year term. In addition to provisions governing the salary to be paid to Mr.
Patterson, the Employment Agreement contains provisions concerning payments to
be paid by the Subsidiary in the event of the employee's termination of
employment with the Subsidiary. The Employment Agreement also contains a
covenant not to compete, a nonsolicitation agreement and an agreement not to
disclose confidential information of the Subsidiary.
Some of the cash used to acquire the TXEN shares came from existing
reserves and some of the cash was borrowed by Nichols Research under an
existing credit agreement between Nichols Research, SouthTrust Bank of Alabama,
N.A., First Alabama Bank, and Corestates Bank, N.A.
The 1,084,148 shares of Nichols Research Common Stock owned by the TXEN
shareholders represent approximately 8.37% of the Nichols Research Common Stock
issued and outstanding.
As a result of the merger, Nichols Research currently owns 100% of the
outstanding shares of the Subsidiary. The Subsidiary provides information
technology products and services to the managed healthcare industry, including
computerized claims processing and administration services.
For additional information regarding the Agreement, the Escrow Agreement
and the amended Employment Agreement, please refer to the copies of those
documents which are incorporated herein by reference and included as Exhibits
to this Current Report on Form 8-K. The foregoing discussion is qualified in
its entirety by reference to such documents.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Financial Statements of TXEN, Inc.
(b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for Nichols Research to provide the pro forma financial
information required by this Item 7(b). In accordance with Item 7(b) of Form
8-K, such financial statements shall be filed by Amendment to this Form 8-K no
later than 60 days after September 11, 1997.
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NICHOLS RESEARCH CORPORATION
(Registrant)
By: Michael J. Mruz
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Michael J. Mruz
Chief Executive Officer
Date: September 10, 1997
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INDEX TO EXHIBITS
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Exhibit
No. Description
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2.1 Agreement of Merger
2.2 Escrow Agreement
2.3 Amendment to Employment Agreement with Thomas L. Patterson
2.4 Stock Purchase Option Agreement dated December 16, 1994, among
Nichols Research, TXEN, and shareholders of TXEN - incorporated
by reference to exhibits filed with the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1995, under
the Securities Exchange Act of 1994.
2.5 Amendment Number One to Stock Purchase Option Agreement among
Nichols Research, TXEN, and the shareholders of TXEN dated July
16, 1996 - incorporated by reference to exhibits filed with the
Company's registration statement on Form S-3 under the Securi-
ties Act of 1933, File No. 333-08787.
99.1 Text of Press Release dated August 29, 1997, issued by Nichols
Research Corporation
99.2 Financial Statements of TXEN, Inc.
99.3 Pro Forma Financial Information of TXEN, Inc. - To be filed by
Amendment.
99.4 Employment Agreement with Thomas L. Patterson
<PAGE>
AGREEMENT OF MERGER
NICHOLS RESEARCH CORPORATION,
NICHOLS SELECT CORPORATION,
TXEN, INC.,
AND
THE SHAREHOLDERS OF
TXEN, INC.
Dated: August 27, 1997
<PAGE>
TABLE OF CONTENTS
TO
AGREEMENT OF MERGER
SECTION 1. EFFECTIVE DATE ..................................................1
SECTION 2. GOVERNING LAW ...................................................2
SECTION 3. CAPITALIZATION AND CERTIFICATE OF INCORPORATION .................2
SECTION 4. BYLAWS ..........................................................2
SECTION 5. MERGER CONSIDERATION, CONVERSION OF SHARES AND CAPITAL STOCK OF
THE SURVIVING CORPORATION........................................2
5.1 Contribution to Capital ...........................................2
5.2 Stock of Subsidiary; Class B Common Stock .........................2
5.3 Merger Consideration ..............................................3
5.4 Exchange of Stock Certificates ....................................3
5.5 Exchange Agents ...................................................3
5.6 Stock Options .....................................................3
5.7 Restricted Stock ..................................................5
SECTION 6. BOARD OF DIRECTORS AND OFFICERS .................................5
SECTION 7. EFFECT OF MERGER ................................................5
SECTION 8. APPROVAL OF SHAREHOLDERS ........................................6
SECTION 9. REPRESENTATIONS AND WARRANTIES OFNICHOLS RESEARCH
CORPORATION AND SUBSIDIARY.....................................6
9.1 Organization; Standing; Corporate Power ...........................6
9.2 Authority .........................................................7
9.3 Approvals and Consents ............................................7
9.4 Validity ..........................................................7
9.5 No Breach .........................................................7
9.6 Finders ...........................................................7
9.7 Periodic Reports ..................................................7
9.8 Financial Statements ..............................................7
SECTION 10. REPRESENTATIONS AND WARRANTIESOF TXEN AND SHAREHOLDERS..........8
10.1 Organization; Standing; Corporate Power ...........................8
10.2 Authority ........................................................10
10.3 Approvals and Consents ...........................................10
10.4 Validity .........................................................10
10.5 No Breach ........................................................10
10.6 Personal Property ................................................10
10.7 Financial Statements .............................................10
10.8 No Material Change ...............................................11
10.9 Undisclosed Liabilities and Obligations ..........................11
10.10 Actions Since June 30, 1997 .....................................11
10.11 Inventory .......................................................13
10.12 Tax Matters .....................................................13
10.13 Real Property ...................................................13
10.14 Title and Condition of the Assets and Properties ................14
10.15 Proprietary Rights ..............................................15
10.16 Software and Information Systems ................................15
10.17 Contracts and Leases ............................................16
10.18 Material Commitments ............................................18
10.19 Warranties, Service Commitments, and Maintenance Agreements......18
10.20 Permits and Licenses; Compliance with Laws ......................19
10.21 Employee Benefits ...............................................19
10.22 Labor Matters ...................................................20
10.23 Employees; Wage Increases .......................................20
10.24 No Pending or Threatened Litigation and Claims ..................21
10.25 Environmental Matters ...........................................21
10.26 Customers .......................................................21
10.27 Suppliers .......................................................21
10.28 Insurance .......................................................21
10.29 Product Specifications ..........................................22
10.30 Accounts Receivable .............................................22
10.31 Disclosure ......................................................22
10.32 Accounts ........................................................22
10.33 Transactions with Related Parties ...............................22
10.34 Finders .........................................................23
10.35 Surviving Corporation's Ability to Operate the Business..........23
10.36 Capitalization ..................................................23
10.37 Subsidiaries ....................................................23
10.38 Securities Matters ..............................................23
10.39 Availability of Information .....................................24
10.40 Limited Representations and Warranties of the University.........24
10.40.1 Authority ...............................................25
10.40.2 Ownership ...............................................25
10.40.3 Enforceability ..........................................25
10.40.4 No Consent ..............................................25
10.40.5 Estoppel Provisions .....................................25
10.41 Special Representations and Warranties of Thomas L. Patterson....25
10.41.1 Authority ...............................................25
10.41.2 Ownership ...............................................26
10.41.3 Enforceability ..........................................26
10.41.4 No Consent ..............................................26
10.41.5 Estoppel Provisions .....................................26
SECTION 11. CONDUCT OF CONSTITUENT CORPORATION SPENDING THE
EFFECTIVE DATE.................................................26
11.1 Certificate of Incorporation and Bylaws ..........................26
11.2 Capitalization ...................................................26
11.3 Operate in Ordinary Course .......................................26
11.4 Not Sell or Encumber Purchased Assets ............................27
11.5 Preserve Business Organization ...................................27
11.6 Maintain Properties ..............................................27
11.7 Maintain Books of Account ........................................27
11.8 Comply with Law ..................................................27
11.9 Inventory ........................................................27
11.10 Maintain Insurance ..............................................27
11.11 Advise Surviving Corporation of Adverse Change ..................27
11.12 Access for NRC ..................................................27
11.13 Third-Party Consents ............................................28
11.14 Not Incur Indebtedness ..........................................28
11.15 Preserve Capital Structure ......................................28
11.16 TXEN Authorization ..............................................28
SECTION 12. CONDITIONS PRECEDENT TO OBLIGATIONS OF NICHOLS RESEARCH
CORPORATION AND SUBSIDIARY.....................................28
12.1 Representations and Warranties True as of Closing Date............28
12.2 Compliance with Agreement ........................................28
12.3 No Litigation ....................................................29
12.4 Third-Party Consents and Approvals ...............................29
12.5 Compliance with Law ..............................................29
12.6 Material Adverse Effect ..........................................29
12.7 Opinion of Counsel for TXEN ......................................29
12.8 Employment Agreements ............................................29
12.9 Certified Resolutions ............................................29
12.10 Certificates of Fulfillment of Conditions .......................29
12.11 Shareholder Approval ............................................29
12.12 No Dissenting Shareholders ......................................29
12.13 Fairness Opinion ................................................30
12.14 University Resolution ...........................................30
SECTION 13. CONDITIONS PRECEDENT TO OBLIGATIONS OF TXEN ...................30
13.1 Representations and Warranties True on Closing Date ..............30
13.2 Compliance with Agreement ........................................30
13.3 No Litigation ....................................................30
13.4 Opinion of Counsel for Subsidiary ................................30
13.5 Certified Resolutions ............................................30
13.6 Certificates of Fulfillment of Conditions ........................30
SECTION 14. DESIGNATIONS AND AGREEMENTS REQUIRED BY LAW ...................31
SECTION 15. ACCESS ........................................................31
SECTION 16. TERMINATION ...................................................31
16.1 Circumstances of Termination .....................................31
16.2 Effect of Termination ............................................31
SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION................................................32
17.1 Survival .........................................................32
17.2 Definition .......................................................32
17.3 Indemnification by Shareholders ..................................32
17.4 Indemnification by Surviving Corporation and NRC .................32
17.5 Allocation of Damages ............................................32
17.6 Notice of Claim ..................................................33
17.7 Defense of Third Party Claims ....................................33
17.8 Reduction for Insurance and Tax Benefits .........................33
17.9 Deductible .......................................................33
17.10 Limitations .....................................................34
17.11 Arbitration .....................................................34
SECTION 18. CERTAIN COVENANTS OF THE PARTIES WITH RESPECT TO TAX MATTERS...34
18.1 Tax Records ......................................................34
18.2 TXEN Final Tax Return ............................................34
SECTION 19. PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS .................34
19.1 In General .......................................................34
19.2 Expenses, Limitations and Agreements .............................36
19.3 No Assignment of Piggyback Rights ................................36
19.4 Transfer Restriction .............................................36
19.5 Termination ......................................................36
SECTION 20. POST CLOSING COVENANTS ........................................37
SECTION 21. GENERAL PROVISIONS ............................................37
21.1 Further Assurances ...............................................37
21.2 Waiver ...........................................................37
21.3 Broker ...........................................................37
21.4 Notices ..........................................................37
21.5 Entire Agreement .................................................38
21.6 Governing Law ....................................................38
21.7 Assignment .......................................................38
21.8 Counterparts .....................................................38
21.9 Interpretation and Construction ..................................38
21.10 Shareholder Representative ......................................39
21.11 Corporate Policies, etc .........................................39
21.12 Severability ....................................................39
21.13 Knowledge .......................................................39
EXHIBITS
EXHIBIT
A Articles of Merger
B Certificate of Merger
C Merger Consideration Allocation
D Escrow Agreement
E Schedule of Disclosures
F Opinion of Counsel for TXEN
G-1 Amendment to Thomas L. Patterson Employment Agreement
G-2 Amendment to Paul D. Reaves Employment Agreement
G-3 H. Grey Wood Employment Agreement
H Opinion of Counsel for Subsidiary
I Arbitration Provisions
<PAGE>
SCHEDULE OF DISCLOSURES
SECTION
10.1 Foreign Jurisdiction List
10.3 Required Consents and Approvals List
10.6 Personal Property List
10.7 Financial Statements
10.8 Material Change List
10.9 Liabilities and Obligations List
10.10 List of Exceptions to Actions Since June 30, 1997
10.12 Taxes List
10.13 Leased Real Property List
10.15 Proprietary Rights List
10.16 Software List
10.17 Contracts List
10.18 Material Commitments List
10.19 Product Warranty List
10.20 Permit List
10.21 Employee Benefits List
10.23 Employee List
10.24 Litigation and Claims List
10.26 Customer List
10.27 Supplier List
10.28 Insurance Policies List
10.32 Accounts List
10.33 Transactions with Related Parties List
10.36 Shareholders/Number of Shares List
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, (sometimes referred to as the "Agreement" or
the "Merger"), dated as of August 27, 1997, is among NICHOLS RESEARCH
CORPORATION, a Delaware corporation ("NRC"); NRC's wholly owned subsidiary,
NICHOLS SELECT CORPORATION, a Delaware corporation ("Subsidiary" and
sometimes referred to as the "Surviving Corporation"); TXEN, INC., an
Alabama corporation, ("TXEN") and the holders of all of the $0.002 par
value Class A common stock of TXEN listed on the signature page to this
Agreement (the "Shareholders"). Subsidiary and TXEN shall sometimes be
referred to collectively as the "Constituent Corporations" and individually
as a "Constituent Corporation." The Shareholders execute and deliver this
Agreement for the purposes of (i) joining in the representations and
warranties of TXEN, (ii) providing indemnification to NRC and the Surviving
Corporation and (iii) acknowledging receipt and acquiescence in the
disclosures of certain matters with respect to NRC and its common stock.
W I T N E S S E T H:
Each Constituent Corporation deems it advisable for the general
welfare of Constituent Corporation and its shareholders that the
Constituent Corporations merge into a single corporation pursuant to this
Agreement and the applicable laws of the States of Delaware and Alabama.
Accordingly, TXEN shall be merged with and into the Subsidiary with
Subsidiary as the Surviving Corporation in accordance with and pursuant to
the provisions of Section 252 of the General Corporation Law of the State
of Delaware and Section 10-2B-11.07 of the Alabama Business Corporation
Act. The name of the Surviving Corporation shall be "NICHOLS SELECT
CORPORATION." The Shareholders of the Constituent Corporations have
consented to this Agreement of Merger in accordance with Delaware and
Alabama law. NRC will make available to Subsidiary (as a contribution to
capital) a sufficient amount of cash and a sufficient number of restricted
(and unregistered) shares of NRC common stock, par value of $0.01 per share
(the "NRC Common Stock") to effect the Merger.
It is agreed that the terms and conditions of the Merger and the mode
of carrying it into effect shall be as follows:
SECTION 1. EFFECTIVE DATE
On August 29, 1997 (the "Closing Date"), provided the conditions to
the consummation of this Agreement have been satisfied or waived, a meeting
(the "Closing") shall take place at the office of Ritchie & Rediker,
L.L.C., in Birmingham, Alabama, at which time the parties to this Agreement
shall execute and deliver (i) the Articles of Merger and Certificate of
Merger attached hereto as Exhibits "A" and "B", respectively, to comply
with applicable filing and recording requirements of the States of Alabama
and Delaware and (ii) all other documents, certificates, opinions and
instruments contemplated herein. The date of such Articles and Certificate
shall be the Closing Date and the effective date of the Merger set forth in
such Articles and Certificate shall be August 31, 1997, at 11:59 p.m.,
Central Daylight Saving Time (the "Effective Date"). On the Closing Date,
an executed counterpart of the Certificate of Merger and Articles of Merger
shall be personally delivered, mailed or transmitted by facsimile for
filing in the appropriate filing offices in the States of Delaware and
Alabama.
SECTION 2. GOVERNING LAW
The Surviving Corporation shall be governed by the laws of the State
of Delaware.
SECTION 3. CAPITALIZATION AND CERTIFICATE OF INCORPORATION
The number of authorized shares of the capital stock of the Surviving
Corporation shall be 1,000 shares of common stock, par value of $1.00 per
share. The Certificate of Incorporation of Subsidiary as in effect on the
date of this Agreement shall be the Certificate of Incorporation of the
Surviving Corporation from and after the Effective Date.
SECTION 4. BYLAWS
The Bylaws of Subsidiary as in effect on the date of this Agreement
shall be the Bylaws of the Surviving Corporation.
SECTION 5. MERGER CONSIDERATION, CONVERSION OF SHARES
AND CAPITAL STOCK OF THE SURVIVING CORPORATION
5.1 CONTRIBUTION TO CAPITAL. On or prior to the Effective Date, NRC
shall transfer and deliver to Subsidiary, as a contribution to its capital,
such number of shares of NRC Common Stock and such amount of cash or other
immediately funds as shall be necessary to carry out the provisions of this
Section 5.
5.2 STOCK OF SUBSIDIARY; CLASS B COMMON STOCK. None of the capital
stock of Subsidiary issued and outstanding immediately prior to the
Effective Date shall be converted as a result of the Merger, but all of
such shares of capital stock shall remain issued and outstanding shares of
capital stock of the Surviving Corporation. On the Effective Date, each
share of $0.002 par value Class B common stock of TXEN, all of which is
owned by NRC, shall be cancelled and extinguished and none of the merger
consideration set forth in Section 5.3 below shall be paid to NRC.
5.3 MERGER CONSIDERATION. The Class A common stock of TXEN (the
"TXEN Common Stock") issued and outstanding immediately prior to the
Effective Date (excluding shares held by TXEN as treasury stock, which
shares shall be cancelled and extinguished on the Effective Date) shall,
upon the Effective Date, by virtue of the Merger and without any action on
the part of the holders thereof, be exchanged for and converted into such
number of shares of fully paid and nonassessable NRC Common Stock having a
value as hereinafter determined of $26,324,706.77 and cash in the amount of
$17,550,265.13 (the "Merger Consideration"). The TXEN Common Stock so
exchanged and converted is herein sometimes referred to as the "Converted
TXEN Stock." The value of the NRC shares of Common Stock shall be
determined based on the average of the daily weighted sale price of such
stock as quoted by National Association of Securities Dealers Automated
Quotation System for the ten business day period ending five days
immediately preceding the Closing. The Merger Consideration shall be paid
and allocated to each Shareholder in accordance with Exhibit "C" attached
hereto for each Shareholder and made a part hereof. The Shareholders shall
deposit into escrow a portion of the Merger Consideration identified on
Exhibit "C" for each Shareholder to be held pursuant to the Escrow
Agreement attached hereto as Exhibit "D."
5.4 EXCHANGE OF STOCK CERTIFICATES. As promptly as practicable after
the Effective Date, each holder of an outstanding certificate or
certificates theretofore representing shares of Converted TXEN Stock shall
surrender the same to an agent or agents designated by the Surviving
Corporation, and shall thereupon be entitled to receive in exchange
therefor the Merger Consideration as shown on Exhibit "C" for each
Shareholder. Dividends payable after the Effective Date to holders of
record in respect of shares of NRC Common Stock into which certificates for
shares of Converted TXEN Stock shall be exchangeable shall not be paid to
holders of such certificates until their certificates are surrendered for
exchange. Until so surrendered, each outstanding certificate which, prior
to the Effective Date, represented Converted TXEN Stock shall be deemed for
all corporate purposes to evidence ownership of the Merger Consideration
into which the shares of Converted TXEN Stock prior to the Effective Date
shall have been converted.
5.5 EXCHANGE AGENTS. NRC may direct the Surviving Corporation to
appoint an NRC employee, agent or representative, including, without
limitation, Allen Dillard, as the exchange agent for purposes of this
Section of the Merger Agreement. Adoption of this Agreement by the
Shareholders of TXEN shall constitute ratification of the appointment of
such exchange agent at the direction of NRC or the Surviving Corporation.
5.6 STOCK OPTIONS.
(a) At the Effective Date, each option to purchase shares of
TXEN Class A Common Stock pursuant to an option grant under the TXEN, Inc.,
1996 Incentive Stock Option Plan or the TXEN, Inc., Key Employee Incentive
Stock Option Plan (the "Option Plans") which are outstanding at the
Effective Date (the "TXEN Options"), whether or not exercisable, shall be
converted into and become rights with respect to NRC Common Stock, and NRC
shall assume each TXEN Option, in accordance with the terms of the Option
Plan by which it is evidenced, except that from and after the Effective
Date, (i) NRC and NRC's Board of Directors shall be substituted for TXEN
and the Committee of TXEN's Board of Directors (including, if applicable,
the entire Board of Directors of TXEN) administering such Option Plans,
(ii) each TXEN Option assumed by NRC may be exercised solely for shares of
NRC Common Stock, (iii) the number of shares of NRC Common Stock subject to
such options shall be equal to the number of shares of TXEN Common Stock
subject to each such TXEN Option immediately prior to the Effective Date
multiplied by .451677 (the "Exchange Ratio"), and (iv) the per share
exercise price under each such TXEN Option shall be adjusted by dividing
the per share exercise price under each such TXEN Option by the Exchange
Ratio and rounding up to the nearest cent. Notwithstanding the provisions
of clause (iii) of the preceding sentence, NRC shall not be obligated to
issue any fraction of a share of NRC Common Stock upon exercise of TXEN
Options, and any fraction of a share of NRC Common Stock that otherwise
would be subject to a converted TXEN Option shall represent the right to
receive a cash payment upon exercise between the market value of one share
of NRC Common Stock at the time of exercise of such option and the per
share exercise price of such option. The market value of one share of NRC
Common Stock at the time of exercise of an option shall be the closing
price of such NRC Common Stock on the Nasdaq National Market (as reported
by THE WALL STREET JOURNAL or, if not reported thereby, any other
authoritative source selected by NRC) on the last trading day preceding the
date of exercise. NRC and TXEN agree to take all necessary steps to
effectuate the foregoing provisions of this Section 5.6.
(b) As soon as practicable after the Effective Date, NRC shall
deliver to the participants in the Option Plans an appropriate notice,
setting forth such participant's rights pursuant thereto and the grants
subject to such Option Plans shall continue in effect on the same terms and
conditions (subject to the adjustments required by Section 5.6(a) after
giving effect to the Merger). Within 90 days after the Effective Date, NRC
shall file a registration statement on Form S-8 (or any successor or other
appropriate forms), with respect to the shares of NRC Common Stock subject
to such options and shall use its reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
such options remain outstanding.
(c) All contractual restrictions or limitations on transfer with
respect to TXEN Common Stock awarded under the Option Plans or any other
plan, program or contract of TXEN, to the extent that such restrictions or
limitations shall not have already lapsed (whether as a result of the
Merger or otherwise), and except as otherwise expressly provided in such
plan, program, or contract, shall remain in full force and effect with
respect to shares of NRC Common Stock into which such restricted stock is
converted pursuant to Section 5.6 of this Agreement.
(d) TXEN has an option to purchase 119,732 shares of TXEN Common
Stock from Thomas L. Patterson and Paul D. Reaves, which constitute the
source of the TXEN Common Stock needed to fund the Option Plans. At the
Closing, such option shall be assigned by virtue of the Merger to the
Surviving Corporation which shall thereupon have the right to purchase from
Messrs. Patterson and Reaves the shares of NRC Common Stock into which such
119,732 shares of TXEN Common Stock have been converted for the purpose of
funding the Option Plans with NRC Common Stock.
5.7 RESTRICTED STOCK. The NRC Common Stock to be transferred to the
Shareholders in exchange for their TXEN Common Stock will not be registered
under the Securities Act of 1933 (the "1933 Act") or the securities laws of
any state, and will therefore be restricted securities. Consequently, the
NRC Common Stock to be received by the Shareholders in the Merger will not
be transferrable unless registered under the 1933 Act or exempt from
registration thereunder and registered under securities laws of applicable
states or exempt from registration thereunder. By their signature to this
Merger Agreement, each Shareholder represents and warrants that he or she
has been advised that the NRC Common Stock will be "Restricted Securities"
within the meaning of the 1933 Act and applicable state securities laws and
further represents and warrants that he or she has been advised of the
resale limitations.
SECTION 6. BOARD OF DIRECTORS AND OFFICERS
On the Effective Date, the members of the Board of Directors of the
Surviving Corporation shall be Thomas L. Patterson, Chris H. Horgen, Allen
E. Dillard and Patsy L. Hattox.
SECTION 7. EFFECT OF MERGER
On the Effective Date, the separate existence of TXEN shall cease and
it shall be merged with and into the Surviving Corporation. On the
Effective Date, all the rights, privileges, powers and franchises of each
of the Constituent Corporations, both of a public and private nature, all
property, real, personal, and mixed, all debts due on account, and all
other things in action and all intangible assets belonging to each of the
Constituent Corporations and all and every other interests shall be
transferred to and vested in the Surviving Corporation, without further act
or deed, as effectually as they were vested in the respective Constituent
Corporations; and the title to any property, whether vested by deed or
otherwise, in either of the Constituent Corporations shall not revert or be
in any way impaired by reason of the Merger. The Surviving Corporation
shall thereafter be responsible for all debts, liabilities, obligations,
restrictions, disabilities and duties of each of the Constituent
Corporations and all said debts, liabilities, obligations, restrictions,
disabilities and duties shall thereafter attach to the Surviving
Corporation and may be enforced against it to the same extent as if they
had been incurred or contracted by it, but the liabilities of each
Constituent Corporation or of its stockholders, directors, or officers
shall not be affected, nor shall the rights of creditors of each
Constituent Corporation or of any person dealing with either Constituent
Corporation or any liens upon the property of either Constituent
Corporation be impaired by the Merger and any action or proceeding pending
by or against either of the Constituent Corporations may be carried to
judgment the same as if the Merger had not taken place, which judgment
shall bind the Surviving Corporation, or the Surviving Corporation may be
proceeded against or substituted in its place. In accordance with the
provisions of this Agreement, the General Corporation Law of the State of
Delaware and the Alabama Business Corporation Act, at the Effective Date,
TXEN shall be merged with and into Subsidiary, with Subsidiary as the
Surviving Corporation, and the Surviving Corporation shall be a wholly
owned subsidiary of NRC, but shall continue its corporate existence under
the laws of the State of Delaware. The separate corporate existence of
TXEN shall terminate at the Effective Date.
SECTION 8. APPROVAL OF SHAREHOLDERS
This Agreement, the Certificate of Merger and the Articles of Merger
have been approved by the shareholders of each Constituent Corporation as
provided by Section 228 of the General Corporation Laws of the State of
Delaware and Section 10-2B-11.03 of the Alabama Business Corporation Act.
However, it shall be a condition to the Closing of the transaction
contemplated by this Agreement that no Shareholder shall have filed
dissenter's rights, an appraisal remedy or similar proceeding seeking the
fair value of his common stock in TXEN.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF
NICHOLS RESEARCH CORPORATION AND SUBSIDIARY
NRC and Subsidiary, jointly and severally, represent and warrant that:
9.1 ORGANIZATION; STANDING; CORPORATE POWER. Subsidiary and NRC are
each a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Subsidiary is a wholly-owned
subsidiary of NRC. NRC and Subsidiary each have all requisite power and
authority, corporate and otherwise, to carry on and conduct their
respective businesses as they are now being conducted and to own and lease
their properties and assets.
9.2 AUTHORITY. Subsidiary and NRC each has full legal right, power,
and authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. All corporate and other acts or
proceedings required to be taken by Subsidiary and NRC to authorize the
execution, delivery, and performance of this Agreement and all transactions
contemplated hereby have been duly and properly taken.
9.3 APPROVALS AND CONSENTS. No approval, authorization, consent,
order, or action of, or filing with, any person, entity, court,
administrative agency, or other governmental authority is required for the
execution and delivery by Subsidiary and NRC of this Agreement or the
documents to be delivered at Closing or the consummation by Subsidiary and
NRC of the transactions contemplated hereby or thereby.
9.4 VALIDITY. This Agreement has been, and the documents to be
delivered by Subsidiary and NRC at Closing will be, duly executed and
delivered and constitute lawful, valid, and binding obligations of
Subsidiary and 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. The approval of the shareholders of
NRC is not required for the authorization or issuance of the NRC Common
Stock or for any of the other transactions contemplated by this Agreement.
9.5 NO BREACH. The execution and delivery of this Agreement and the
consummation of the 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 (a) the charter or bylaws of Subsidiary or
NRC, (b) any contract, agreement, or other instrument to which Subsidiary
or NRC is a party, (c) any order, writ, injunction, decree, or judgment of
any court or governmental agency, or (d) any law, rule, or regulation
applicable to Subsidiary or NRC.
9.6 FINDERS. No finder or broker has acted or is acting on behalf of
Subsidiary or NRC in connection with the transactions contemplated by this
Agreement.
9.7 PERIODIC REPORTS. The information in the NRC Forms 10-Q Reports
for the first, second and third quarters of 1997, NRC's Annual Report to
its Shareholders for 1996, NRC's Proxy Statement for the 1996 Annual
Shareholders Meeting and NRC's Form 10-K for 1996 (copies of which have
been furnished to each Shareholder of TXEN) did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
9.8 FINANCIAL STATEMENTS. The Consolidated Balance Sheets of NRC and
its subsidiaries as of August 31, 1996, and the related Consolidated
Statements of Income, Shareholders' Equity and Cashflow for the year ended
August 31, 1996, including the Notes thereto, as included in the NRC Form
10-K Report for 1996, have been prepared in conformity with generally
accepted accounting principles consistently applied and present fairly the
consolidated financial position of NRC and its subsidiaries as of August
31, 1996, and their consolidated results of operations for the period then
ended. The Consolidated Balance Sheets, Statements of Income,
Shareholders' Equity and Cashflows, and the Notes thereto set forth in the
NRC Quarterly 10-Q Reports for the first, second and third quarters of
fiscal year 1997 have been prepared in conformity with generally accepted
accounting principles consistently applied and present fairly the
consolidated financial position of NRC and its subsidiaries as of such
quarterly date then ended, subject to normal year-end audit adjustments and
any other adjustments described therein.
SECTION 10. REPRESENTATIONS AND WARRANTIES
OF TXEN AND SHAREHOLDERS
Subject to any exceptions described in the schedule of disclosures
attached as Exhibit "E" to this Agreement (the "Schedule"), and the limited
representations and warranties with respect to the Board of Directors of
the University of Alabama for the use of and on behalf of the University of
Alabama, Tuscaloosa, Alabama (the "University") set forth in Section 10.40
hereof, TXEN and each of the Shareholders, jointly and severally,
represent and warrant to NRC and Subsidiary that:
10.1 ORGANIZATION; STANDING; CORPORATE POWER. TXEN is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Alabama. TXEN has full power and authority, and all requisite
licenses, permits, and franchises, to own, lease, and operate its
properties and to carry on its business as currently conducted. TXEN is
duly licensed and qualified to do business as a foreign corporation and is
in good standing in all jurisdictions where failure to be so licensed or
qualified would have a material adverse effect upon its business or
properties. Schedule 10.1 sets forth an accurate, correct, and complete
list of all jurisdictions in which TXEN is licensed and qualified to do
business. The authorized capital stock of TXEN consists of the following:
Par Value Shares Shares
Designation Per Share Authorized Outstanding
----------- --------- ---------- -----------
Class A Common Stock $0.002 5,000,000 4,000,500
Class B Common Stock $0.002 1,250,000 999,500
Preferred Stock $0.002 1 -0-
The shares of TXEN capital stock issued and outstanding are owned as
follows:
Shareholder Number of Shares
----------- ----------------
Class A Class B
------- --------
Thomas L. Patterson 1,820,763 -0-
Thomas L. Patterson, Trustee of the
Patterson Family Charitable Unitrust,
established August 5, 1997 366,000 -0-
Paul D. Reeves 781,255 -0-
Chris H. Horgen 245,000 -0-
Philip Bowling 50,000 -0-
Billy E. Callans 18,750 -0-
William L. Crocker 42,500 -0-
Jeffrey J. Fisher 22,500 -0-
Gregory L. Fuller 31,266 -0-
Noel Gartman 7,500 -0-
Robert D. Goodworth 2,500 -0-
Bryan V. Jennings 22,500 -0-
Amy E. Knowles 25,000 -0-
Scott L. McFarland 25,000 -0-
Patricia R. Mize 11,000 -0-
Todd K. Morgan 37,500 -0-
Nancy R. Onaka 2,000 -0-
Roy T. Sailor 12,500 -0-
Steven A. Selikoff 46,200 -0-
Annie M. Till 31,266 -0-
Maxine Wade 7,500 -0-
Richard G. Waggener 25,000 -0-
David A. Watts 7,500 -0-
Terence A. Weber 37,500 -0-
H. Grey Wood 165,000 -0-
Nichols Research Corporation -0- 999,500
University 157,000 -0-
There are no warrants, options or other rights with respect to the capital
stock of TXEN, except with respect to an option described below to acquire
119,732 shares of Class A common stock for issuance pursuant to the Option
Plans. A list of the Optionees has been furnished NRC. TXEN has an
option, a copy of which has been furnished NRC, to purchase up to 119,732
shares of TXEN Common Stock from Thomas L. Patterson and Paul D. Reaves for
the purpose of funding the Option Plans. The aggregate purchase price for
the stock TXEN may purchase from Messrs. Patterson and Reaves is equal to
the aggregate option exercise price TXEN will receive upon exercise of
options granted pursuant to the Option Plans.
10.2 AUTHORITY. TXEN has full legal right, power, and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. All corporate and other acts or proceedings required
to be taken by TXEN to authorize the execution, delivery, and performance
of this Agreement and all transactions contemplated hereby have been duly
and properly taken.
10.3 APPROVALS AND CONSENTS. Except for the consents required as set
forth on Schedule 10.3, no approval, authorization, consent, order, or
action of, or filing with, any person, entity, court, administrative
agency, or other governmental authority is required for the execution and
delivery by TXEN of this Agreement or the documents to be delivered at
Closing or the consummation by TXEN of the transactions contemplated hereby
or thereby.
10.4 VALIDITY. This Agreement has been, and the documents to be
delivered at Closing will be, duly executed and delivered and constitute
lawful, valid, and binding obligations of TXEN and the Shareholders
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.
10.5 NO BREACH. Subject to the receipt of all consents and approvals
set forth on Schedule 10.3, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not
result in the creation of a lien, charge, or encumbrance on the business or
properties of TXEN and are not prohibited by, will not violate or conflict
with any provision of, and will not constitute a default under or a breach
of (a) the charter or by-laws of TXEN, (b) any contract, agreement, or
other instrument to which TXEN is a party or to which any of its assets or
properties are subject, (c) any order, writ, injunction, decree or judgment
of any court or governmental agency, or (d) any law, rule, or regulation
applicable to TXEN or its business and assets.
10.6 PERSONAL PROPERTY. Schedule 10.6 contains a materially true and
complete list of all of TXEN's tangible personal property, whether owned or
leased, including, without limitation, all of the machinery, equipment,
computer equipment, furniture, vehicles, fixtures, tools, tooling
inventory, materials handling equipment, parts and other tangible property
of TXEN (the "Personal Property"). Except as disclosed on Schedule 10.6,
TXEN has, and will on the Closing Date have, good and marketable title to
all of the Personal Property free and clear of all security interests,
liens, pledges, encumbrances, or restrictions, other than liens for
personal property taxes and assessments, both general and special, that are
not yet due and payable.
10.7 FINANCIAL STATEMENTS. Set forth on Schedule 10.7 are the
following financial statements of TXEN: (i) an audited balance sheet as of
June 30, 1997, and (ii) an audited income statement for the year ended June
30, 1997. These financial statements (i) were prepared in accordance with
the books and records of TXEN, and (ii) fairly present the financial
condition and results of operations of TXEN as of the dates and for the
period indicated and fairly present the information purported to be shown
therein.
10.8 NO MATERIAL CHANGE. Except as set forth on Schedule 10.8, since
June 30, 1997, there has not been:
(a) Any material adverse change in the financial condition,
results of operations, or prospects of TXEN or any adverse change
in TXEN's personnel, or in TXEN's relationships with suppliers,
customers, distributors, lenders, or others having a business
relationship with it;
(b) Any damage, destruction, or loss, whether or not
covered by insurance, materially adversely affecting the assets
or properties of TXEN or the operations of TXEN's business; or
(c) Any labor dispute materially affecting TXEN's
operations.
10.9 UNDISCLOSED LIABILITIES AND OBLIGATIONS. Except as disclosed on
Schedule 10.9, TXEN has no liabilities or obligations, whether fixed or
contingent, known or unknown, other than:
(a) Liabilities fully shown or reserved against on TXEN's
balance sheet as of June 30, 1997, or disclosed in the notes to
the financial statements;
(b) Current liabilities, not unusual in nature or amount,
incurred by TXEN in the ordinary course of business since June
30, 1997;
(c) Obligations to be performed under the leases,
contracts, and commitments identified on Schedule 10.17; and
(d) Obligations to be performed pursuant to the warranty
obligations identified on Schedule 10.19.
10.10 ACTIONS SINCE JUNE 30, 1997. Except as disclosed in Schedule
10.10 since June 30, 1997, and prior to the Effective Date TXEN has not and
will not have:
(a) Except in the usual and ordinary course of business,
consistent with past practice, incurred any indebtedness,
obligations or liabilities, or guaranteed any indebtedness;
(b) Increased the regular rate of compensation payable by TXEN
to any employee or increased such compensation to employees by bonus,
percentage, compensation service award or similar arrangement and no
such increase is required by the terms of any law or contracts;
(c) Established or agreed to establish any pension, retirement
or welfare plan for the benefit of employees;
(d) Made any single capital expenditure which exceeded $25,000
or made aggregate capital expenditures which exceeded $50,000;
(e) Written down the value of any of its assets or properties or
written off as uncollectible any notes or accounts receivable, except
for write-downs and write-offs in the ordinary course of business of
TXEN, consistent with past practice, or revalued any of its assets or
properties;
(f) Paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement
or arrangement with, NRC, Subsidiary, any Shareholder or any of the
officers or directors of NRC, Subsidiary, TXEN, or Shareholders,
except for reimbursement of ordinary and reasonable business expenses
related to the business of TXEN;
(g) Amended or terminated any material contract, agreement or
license to which TXEN is a party;
(h) Made any change in any method of accounting or accounting
practice;
(i) Cancelled, or failed to continue, insurance coverage;
(j) Acquired, whether by merger, purchase of stocks or purchase
of assets, all or substantially all of the business or assets of any
other business or entity, or engaged in negotiations of any sort
concerning such acquisitions;
(k) Issued any stock or other securities, or taken any action
with respect thereto, or paid any dividends, or made any other
distributions to Shareholders with respect to their stock in TXEN;
(l) Entered into any material contracts, agreements, licenses or
leases except in the ordinary course of TXEN's business, consistent
with past practice;
(m) Mortgaged, pledged, or subjected to lien or other
encumbrance any of the assets or properties of TXEN;
(n) Disposed of any assets or rights, other than the disposal
of property that is worn-out or obsolete, and other than the sale of
inventory in the ordinary course of business;
(o) Canceled or waived any rights or claims of material value;
(p) Changed any credit practices or methods of maintaining books,
accounts, or business records; or
(q) Entered into any material transactions other than in the
ordinary course of business.
10.11 INVENTORY. TXEN has no material inventory for resale and does
not carry material inventory in the ordinary course of business.
10.12 TAX MATTERS. TXEN has previously delivered to NRC true and
correct copies of the tax returns and work papers of TXEN for the 5-year
period ending June 30, 1997. Except as set forth on Schedule 10.12, TXEN
has timely filed with the appropriate governmental agencies all tax returns
and tax reports (including, without limitation, those pertaining to income
taxes, excise taxes, sales and use taxes, payroll taxes, real property
taxes, tangible and intangible personal property taxes, and franchise taxes
- - collectively, "Taxes") required to be filed by TXEN as of the Effective
Date; all Tax returns previously filed by TXEN constitute complete and
accurate representations of the Tax liabilities of TXEN for the periods
covered thereunder; all Taxes, interest, and penalties shown or claimed to
be due thereon have been paid; TXEN has no liability, contingent or
otherwise, for any Taxes, interest, and penalties except for amounts shown
on the Financial Statements described in Section 10.7 and accrued on the
books and records of TXEN thereafter in the ordinary course of business; no
agreement has been made by TXEN with the Internal Revenue Service or any
state or municipal official waiving any statute of limitation or extending
the period for assessment and collection of any Tax; TXEN is not a party to
any action or proceeding by any governmental authority for the assessment
or collection of Taxes, interest, or penalties, and no outstanding claim
for assessment or collection of Taxes, interest, or penalties has been
asserted against TXEN. The Internal Revenue Service has not examined the
federal income tax returns of TXEN. There is no audit for any year
pending. No agreement has been made with the Internal Revenue Service or
with any other governmental agency for extending the period of assessment
or collection of any Tax that would involve TXEN.
10.13 REAL PROPERTY.
(a) TXEN owns no fee simple interest in real property or
easement rights. Except as disclosed on Schedule 10.13, TXEN does not
lease any real property. All real property noted on Schedule 10.13 as
being leased is referred to herein as the "Leased Real Property" and
all leases relating to the Leased Real Property are disclosed on
Schedule 10.13 and are referred to herein as the "Leases." TXEN has a
good and valid leasehold as to the Leased Real Property leased by it,
free and clear of all mortgages, security interests, title defects,
pledges, liens and the possibility of liens, charges, tenancies,
restrictions and encumbrances other than Taxes and assessments, both
general and special, which are a lien but not yet due and payable that
do not, individually or in the aggregate, materially detract from the
value of the Leased Real Property or materially impair the use and
operation thereof in carrying on the business of TXEN. There are no
pending or, to the best knowledge of TXEN, threatened proceedings in
eminent domain involving the Leased Real Property or any portion
thereof, or for a sale in lieu thereof, or of any plans for a possible
widening of the streets abutting the Leased Real Property or the
imposition of any special taxes or assessments against the Leased Real
Property or any portion thereof. To the best knowledge of TXEN, the
applicable zoning (without reliance on any variance, special permit or
nonconforming use or other similar use), building, environmental,
health and safety laws and regulations permit as a matter of right and
without the incurrence by Surviving Corporation of any obligation or
liability (including the obligation to incur any costs or expenses)
the continued use of the Leased Real Property by Surviving Corporation
for the same purposes and uses as same have been heretofore used by
TXEN, including the operation of TXEN's business.
(b) Except as disclosed on Schedule 10.13, there are no
outstanding written or oral leases covering or in any way affecting,
and there are no tenants occupying or having the right to occupy, the
Leased Real Property or any part thereof, other than the Leases. To
the best of TXEN's knowledge, no person or entity has any right with
respect to such Leased Real Property (whether by option to purchase,
land contract, or otherwise) which would prevent or interfere with
possession or use of the Leased Real Property by the Surviving
Corporation on and after the Effective Date.
(c) The Leases are in full force and effect. TXEN has
heretofore provided to NRC a complete, true, and correct copy of the
Leases, including any and all modifications or amendments thereof and
any supplements thereto. All material terms, conditions, and
provisions of the Leases to be performed by TXEN and, to the best
knowledge of TXEN, by the landlords, have been duly and timely
performed and complied with. To the best knowledge of TXEN, no event
has occurred or failed to occur which with the giving of notice, the
passage of time, or both, would constitute a default by the landlords
or TXEN under any of the Leases. The landlords have not waived, or
extended the time for performance of, any obligation of TXEN under any
of the Leases. There are no security deposits or prepaid rent
(including last month's rent in advance) with respect to the Leased
Real Property.
(d) To the best knowledge of TXEN, there are no prohibitions or
other limitations, whether contained in the Leases or otherwise, on
TXEN's right to transfer the Leased Real Property in connection with
this Agreement. Except as specifically noted on Schedule 10.13, no
consent, authorization, or approval is required under the Leases in
connection with the consummation of the transactions contemplated
hereby or TXEN's ability to consummate the transactions contemplated
hereby.
10.14 TITLE AND CONDITION OF THE ASSETS AND PROPERTIES. The assets
and properties currently utilized by TXEN, whether owned or leased, are in
all material respects in good operating condition and repair and are
suitable for the purposes for which they are presently being used. Such
assets and properties conform in all material respects to all applicable
laws, ordinances, and regulations, and TXEN has not received any written
notice to the contrary. TXEN is the sole and exclusive legal and equitable
owner of all right, title and interest in, and has good and marketable
title to, all of its assets and properties, tangible and intangible, except
for such Personal Property that is leased by TXEN and specifically
identified as being leased on Schedule 10.6 and except for licenses
specifically identified on Schedules 10.15 or 10.16.
10.15 PROPRIETARY RIGHTS. Schedule 10.15 sets forth a list of
material inventions, trade secrets, processes, proprietary rights, product
specifications, blueprints, drawings, technical data, engineering
information, other proprietary knowledge and know-how, patents, trademarks,
service marks, trade names, copyrights, marks, symbols, logos, and all
material documentation related thereto, and all licenses and agreements in
respect thereof and applications therefor (collectively, "Proprietary
Rights") used or related to TXEN's business. The Proprietary Rights
described on Schedule 10.15 include all of the Proprietary Rights necessary
for the operation of TXEN's business. Except as set forth on
Schedule 10.15, which includes a listing of contracts or licenses pursuant
to which TXEN uses the intellectual property of third parties, with respect
to the Proprietary Rights, (a) TXEN is the sole and exclusive owner of and
has the sole and exclusive right to use its Proprietary Rights; (b) no
action, suit, arbitration, or other proceeding or investigation is pending
or, to the best knowledge of TXEN, threatened which involves any
Proprietary Rights, (c) to the best knowledge of TXEN, none of the
Proprietary Rights infringes upon, conflicts with, or otherwise violates
the 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) TXEN has not received any notice of
interference or infringement of or by the Proprietary Rights, (g) TXEN has
not agreed to indemnify any person or entity for or against any
infringement of or by the Proprietary Rights, (h) no other Proprietary
Rights not owned by TXEN are necessary for the conduct of TXEN's business,
and (i) to the best knowledge of TXEN, no other party is operating a
business or otherwise acting in violation or infringement of, TXEN's
Proprietary Rights. Except as set forth on Schedule 10.15, TXEN has good
and marketable title to the Proprietary Rights listed on Schedule 10.15,
free and clear of all security interests, liens, pledges, encumbrances and
restrictions. Except as set forth on Schedule 10.15, all rights of TXEN in
and to its Proprietary Rights are transferable to Surviving Corporation as
contemplated herein without the consent or approval of any third party.
TXEN 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.
10.16 SOFTWARE AND INFORMATION SYSTEMS.
(a) The software described on Schedule 10.16 includes all
information systems, programs and software, other than non-exclusive
commercial software, used in or related to TXEN's business or
necessary for the operation of such business. Schedule 10.16 lists
all such software and identifies (a) software which is owned by TXEN,
(b) software which is licensed to TXEN, and (c) any other software in
which TXEN has any use, possessory, or proprietary rights and which is
used in or related to its business. Except as set forth on
Schedule 10.16, TXEN has the sole and exclusive right, title, and
interest in and to all software listed on Schedule 10.16. Except as
set forth on Schedule 10.16, TXEN has good and marketable title to the
software listed, free and clear of all security interests, liens,
pledges, encumbrances and restrictions. Except as set forth on
Schedule 10.16, all of the software which is owned by TXEN, including
all related source codes and documentation, is owned solely by TXEN
and has not been disclosed to any unaffiliated entity or person. The
proprietary software owned by TXEN includes, without limitation, TXEN
FirstStepp. The proprietary software owned by TXEN is (i) owned
exclusively by TXEN, (ii) not subject to any liens, claims, security
interests or encumbrances, (iii) not subject to any outstanding
licenses or agreements, except for the non-exclusive licensing of such
proprietary software by TXEN to customers in the ordinary course of
business in the manner disclosed to Subsidiary, (iv) merchantable and
fit for the purposes for which such software is intended for use, (v)
conforming in all material respects with the specifications and
documentation for such software and (vi) without material defects or
material programming errors.
(b) Schedule 10.16 incorporates by reference manuals (copies of
which have been made available to and furnished to NRC) which describe
the functions of all proprietary information systems, programs and
software of TXEN. TXEN has documentation in reasonable detail
relating to all such proprietary information systems, programs and
software. Schedule 10.16 identifies each person or entity to whom
TXEN has licensed or granted any other rights to any other proprietary
information systems, programs and software. Except as disclosed on
Schedule 10.16(b), no source code or object code of TXEN is escrowed
for the benefit of any third party. Except as disclosed on Schedule
10.16(b), none of the information systems, programs and software of
TXEN infringe on any patents, trademarks, copyrights or other rights
or intellectual property rights of any third persons. To the best
knowledge of TXEN, no information systems, programs and software used
or owned by any third person or entity infringe on any rights of TXEN
in and to the information systems, programs and software of TXEN.
TXEN has taken reasonable measures necessary to maintain and protect
the information systems, programs and software of TXEN and no claims
have been asserted by any person or entity to the use of the same or
challenging or questioning the validity or effectiveness of the same,
and, to the best knowledge of TXEN, there is no valid basis to any
such claim.
(c) Schedule 10.16 also contains a list of the current software
development and consulting activities and projects of TXEN. TXEN has
described such projects and developments to NRC. TXEN knows of no
impediments to fully developing and exploiting the information
systems, programs and software currently under development or to
performing its currently pending consulting contracts.
10.17 CONTRACTS AND LEASES. Schedule 10.17 sets forth an accurate and
complete list of each of the following verbal or written contracts,
agreements and leases ("Contracts") to which TXEN is a party:
(a) Personal and real property leases;
(b) Material licenses, including without limitation,
licenses of software, intellectual property or Proprietary
Rights;
(c) Contracts for capital expenditures in excess of
$25,000;
(d) Contracts for the purchase of machinery, equipment, or
fixtures involving expenditures in excess of $25,000;
(e) Royalty agreements;
(f) Agencies;
(g) Marketing agreements, reseller agreements, original
equipment manufacturer agreements and training agreements;
(h) Contracts, arrangements, consulting agreements, bids,
proposals, software agreements, licenses, maintenance agreements,
support agreements, warranties, purchase orders, agreements, or
commitments of any kind or character which (i) relate in any
material way to the business activities of TXEN, to the
information systems, programs and software of TXEN or to TXEN's
services with respect thereto or (ii) involve the expenditure by
or receipt of TXEN of more than $25,000 or involve any commitment
or obligations of TXEN for a period of over one (1) month;
(i) Instruments evidencing or related to the deferred
purchase price of property in excess of $25,000 (including trade
payables);
(j) Joint venture, partnership, limited liability company
or other arrangements involving a sharing of profits;
(k) Contracts with any government or any agency or
instrumentality thereof;
(l) Contracts with respect to the discharge or removal of
effluent, wastes, or pollutants;
(m) Contracts with any dealer, agent, representative,
manufacturer's representative, distributor, or sales agent;
(n) Employee benefit, bonus or compensation agreements,
collective bargaining agreements or employment agreements or any
other agreements or arrangements with respect to employees
(including, without limitation, a list of employee accrued
vacation and sick leave, severance, and other benefits);
(o) Confidentiality or non-competition agreements; and
(p) Other agreements not entered into in the ordinary
course of business.
Except as set forth on Schedule 10.17, to the best knowledge of TXEN, TXEN
has performed and is performing all material obligations to be performed by
it under each Contract, and, to the best knowledge of TXEN, the other
parties thereto have performed and are performing all material obligations
to be performed by them. To the best knowledge of TXEN, TXEN is not in
default, and has not received any notice of default, under any Contract.
No event has occurred which, with notice or lapse of time or both, would
constitute a default by TXEN thereunder. To the best knowledge of TXEN,
none of the Contracts is subject to any impending cancellation or breach
that will result in a loss or otherwise materially adversely affect the
operations of TXEN's business. Except as disclosed on Schedule 10.17, all
Contracts are assignable to Surviving Corporation and no consents are
required except as provided on Schedule 10.3.
10.18 MATERIAL COMMITMENTS. As used in this Section 10.18, the term
"Material Commitments" means each Contract of TXEN which obligates TXEN to
sell, license, distribute, deliver or provide products or services for a
consideration in excess of $25,000 or over a period of more than one (1)
month. Schedule 10.18 sets forth a "Project List" with respect to each
Material Commitment. The Project List sets forth TXEN's production
schedule or performance schedule, and budget, with regard to each Material
Commitment. Except as described in the Project List, the performance of
TXEN or any other party involved with each Material Commitment is on
schedule and within budget, and no practical or technological problems have
been encountered that might reasonably be expected to impede completion or
materially increase the cost of TXEN's performance. Each Material
Commitment was made on a basis calculated to produce a profit under the
circumstances prevailing when it was made, and TXEN is not aware of any
circumstances that might reasonably be expected to prevent the realization
of a profit. Except as set forth on the Project List, no Material
Commitment involves the development of any product or technology that, to
the best knowledge of TXEN, would infringe on the proprietary rights of any
other party.
10.19 WARRANTIES, SERVICE COMMITMENTS, AND MAINTENANCE AGREEMENTS.
Schedule 10.19 contains a correct and complete list of all warranties,
service commitments, and maintenance and/or support agreements, and a
statement or description of the warranties and commitments (e.g. length of
warranty, claims covered, etc.) including, without limitation, all software
service and maintenance agreements, in effect with respect to any products
or services heretofore manufactured, sold, licensed or provided by TXEN.
Except as described on Schedule 10.19, there are no express or implied
warranties outstanding with respect to products or services created, sold,
licensed, provided or otherwise distributed by TXEN. The warranty and
return experience for the three years ended June 30, 1997, is set forth on
Schedule 10.19. Except as set forth on Schedule 10.19, since June 30,
1994, no warranty or service claim in excess of $5,000 has been made
against TXEN, or is pending or, to the best knowledge of TXEN, is
threatened in connection with any product or service manufactured, sold,
licensed or provided by TXEN.
10.20 PERMITS AND LICENSES; COMPLIANCE WITH LAWS. Except as set forth
on Schedule 10.20, TXEN does not own any material permits, licenses, or
other governmental authorizations, and none are required for the operation
of the business as presently conducted. Neither the ownership of its
assets by TXEN, nor the operation of its business as presently and
ordinarily conducted, violates any applicable order, law, ordinance, code,
or regulation. No investigation is pending or, to the best knowledge of
TXEN, threatened concerning any such matter, and TXEN has not received any
notice of any such violation and no basis therefor exists.
10.21 EMPLOYEE BENEFITS. Schedule 10.21 sets forth an employee
benefits list, which identifies each agreement, plan, or arrangement for
employee benefits, including any bonus, deferred compensation, severance,
disability, sick pay, salary continuation, death benefit, vacation, stock
purchase or stock option, hospitalization or other medical, life, or other
insurance, supplemental unemployment benefit, profit-sharing, pension, or
retirement plan or arrangement maintained or contributed to by TXEN in
connection with its business (the "Benefit Plans"). Except as identified
on Schedule 10.21, none of TXEN's Benefit Plans is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA. To the best of TXEN's
knowledge, all of the Benefit Plans and related trusts are in form and have
been administered in compliance with all applicable laws, including ERISA
and the Code; none of the Benefit Plans or related trusts, or any
administrator or trustee thereof, or party-in-interest or disqualified
person thereto has engaged in a transaction that could cause any of them to
be liable for a civil penalty under Section 409 or 502(i) or other section
of ERISA or a tax under Section 4975 or 4976 or other section of Chapter 43
of Subtitle D of the Code; all amounts required to be paid by TXEN to or
pursuant to each of the Benefit Plans or related trusts on or before the
date of this Agreement have been paid; no employee pension benefit plan has
incurred any "accumulated funding deficiency," as defined in Section 412 of
the Code; no "reportable event" within the meaning of Title IV of ERISA has
occurred with respect to any Benefit Plan subject thereto; and, except as
described on Schedule 10.21, TXEN is not obligated to pay any additional
amounts to or pursuant to, and have not guaranteed the obligations of, any
Benefit Plan or related trust. No employees of TXEN participate in any
"multi-employer pension plan" within the meaning of the Multi-employer
Pension Plan Amendments Act of 1980, as amended, and TXEN does not have any
liability under ERISA for any complete or partial withdrawal from any such
multi-employer plan. To the best of TXEN's knowledge, no liability under
Title IV of ERISA has been incurred by TXEN or any trade or business,
whether or not incorporated, that would be aggregated with TXEN for
purposes of imposition of liability under Title IV of ERISA (an "ERISA
Affiliate") that has not been satisfied in full, and no condition exists
that presents, nor will the consummation of the transactions contemplated
by this Agreement directly result in, a material risk to TXEN or an ERISA
Affiliate of incurring a liability under such Title IV. Neither TXEN nor
an ERISA Affiliate, nor any of their respective directors, officers,
employees, or fiduciaries, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law that would
subject TXEN to liability under ERISA or any other applicable law,
contract, agreement, or commitment. The Pension Benefit Guaranty
Corporation ("PBGC") has not instituted proceedings to terminate any
Benefit Plans in which TXEN participates, and no condition exists that
presents a risk that such proceedings will be instituted. No Benefit Plan
provides benefits, including, without limitation death or medical benefits
(whether or not insured), with respect to current or former employees
beyond their retirement or other termination of service (other than
(i) coverage mandated by applicable law, (ii) deferred compensation accrued
on the books of TXEN, (iii) death benefits or retirement benefits under any
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, or (iv) benefits the full cost of which is borne by the current or
former employee (or his or her beneficiary)). If a Benefit Plan is
designed to satisfy the requirements of Section 125, Section 401,
Section 401(k), Section 409, Section 501(c)(9), Section 4975(e)(7), and/or
Section 4980B of the Code, the Benefit Plan satisfies such section. No
"leased employee," as that term is defined in Section 414(n) of the Code,
performs services for TXEN. TXEN has heretofore delivered to NRC true and
correct copies of all of the Benefit Plans, the most recent determination
letters from the Internal Revenue Service with respect thereto, the most
recent annual reports (Form 5500 and the schedules thereto), the most
recent summary plan descriptions, and the most recent actuarial valuations.
10.22 LABOR MATTERS. TXEN is not a party to any collective bargaining
agreement relating to TXEN's employees. TXEN is in all material respects
in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours,
nondiscrimination in employment, and occupational health and safety, and is
not engaged in any unfair labor practice. Except as disclosed on Schedule
10.22, there are no pending labor grievances or sexual harassment,
discrimination or other claims as to age, sex, religion, national origin or
physical or mental disability, civil rights, or equal employment
opportunity charges against TXEN relating to or involving employees, or any
settlements, consent orders, or prior decrees of any court or governmental
body requiring any continued observance by TXEN relating to or involving
employees. No complaint has been filed or is pending or, to the best
knowledge of TXEN, threatened with the National Mediation Board or the
National Labor Relations Board relating to or involving any employee of
TXEN alleging any unfair labor practices, and there have not been any work
stoppages, strikes, or other significant labor troubles involving employees
of TXEN.
10.23 EMPLOYEES; WAGE INCREASES. Schedule 10.23 lists (i) all current
employees of TXEN, including those employees of TXEN currently on layoff,
disability or any other leave ("Employees"), including their names,
addresses, ages, current rates of compensation and (ii) all employment
commitments made by TXEN to persons other than the Employees. To the
extent not set forth on Schedule 10.17, Schedule 10.23 also lists all
employment agreements with current Employees. TXEN has not, with respect
to Employees, made any wage or salary increase other than the increases
already reflected on Schedule 10.23.
10.24 NO PENDING OR THREATENED LITIGATION AND CLAIMS. Except as set
forth on Schedule 10.24, TXEN is not a party to or, to the best knowledge
of TXEN, threatened with any claim, complaint, charge, suit, action,
proceeding, hearing, arbitration, or other method of settling disputes or
disagreements, or any private or governmental investigation. TXEN is not
subject to any judgment, order, writ, injunction, stipulation, or decree of
any court, arbitrator, or governmental agency or instrumentality.
10.25 ENVIRONMENTAL MATTERS. To the best knowledge of TXEN, the TXEN
business as presently conducted by TXEN complies with all applicable laws
and regulations relating to environmental protection, health, and safety,
including, without limitation, laws and regulations relating to the
generation, transportation, handling, treatment, storage, disposal,
discharge, emission, release or threatened release of hazardous substances,
solid waste, hazardous waste, hazardous materials, asbestos containing
materials, petroleum or any fraction thereof, pollutants, irritants,
contaminants, toxic substances, or any other materials defined as such in,
or regulated by, any such applicable laws and regulations. To the best
knowledge of TXEN, none of TXEN, its agents, their affiliates, and prior
owners or users of the properties listed on Schedule 10.13 have ever
generated, stored, treated, transported, handled, disposed of, released, or
threatened to release, any regulated material in a manner that could give
rise to any liability on the part of the Surviving Corporation. TXEN has
complied with the reporting requirements concerning the disposal,
discharge, emission, spillage, release or threatened release of any
hazardous substance with respect to such properties. TXEN is not a
"potentially responsible party," as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
or under any comparable state or local statute, in connection with any past
or present waste disposal practices undertaken by it or on its behalf.
10.26 CUSTOMERS. Schedule 10.26 identifies all customers who
purchased any product or service manufactured, licensed, sold, or provided
by TXEN since June 30, 1994. TXEN is not aware of any existing or
anticipated changes in the purchasing policies or practices of these
customers, or in their financial condition, that might reasonably be
expected to have a material adverse effect on future orders of TXEN's
business.
10.27 SUPPLIERS. Schedule 10.27 is a list of all material suppliers
of materials and services to TXEN since June 30, 1994. Except as listed on
Schedule 10.27, no supplier represents TXEN's sole source of any type or
types of supplies. Except as set forth in Schedule 10.27, no supplier has
materially increased its prices as applicable to the products purchased by
TXEN since June 30, 1994 and TXEN has not received notice of any such price
increase. TXEN is not aware of any existing or anticipated changes in the
policies or practices of these suppliers, or in their financial condition,
that might reasonably be expected to have a material adverse effect on the
Surviving Corporation's ability to obtain supplies from these suppliers.
10.28 INSURANCE. Schedule 10.28 identifies all of TXEN's insurance
policies and bonds (the "Insurance Policies"). The Insurance Policies are
in full force and effect; are sufficient for compliance by TXEN with all
requirements of law and of all agreements to which it is a party; and are
valid, outstanding, and enforceable policies and provide that they will
remain in full force and effect through the Effective Date.
10.29 PRODUCT SPECIFICATIONS. To the best knowledge of TXEN, all
products manufactured, developed, licensed and/or distributed by TXEN
comply with the specifications and other criteria contained in the product,
sales, and marketing literature and other documentation used by TXEN in
connection with the sale or marketing of TXEN's products and services and
in any applicable customer specifications.
10.30 ACCOUNTS RECEIVABLE. All outstanding accounts receivable and
notes receivable of TXEN are bona fide receivables, arose in the usual and
ordinary course of business, are due and valid claims against customers for
goods delivered or services performed, subject to no offsets or
counterclaims, and are fully collectable, net of the reserve for doubtful
accounts shown on the Financial Statements of TXEN described in Section
10.7.
10.31 DISCLOSURE. To the best knowledge of TXEN, no representation or
warranty by TXEN and Shareholders in this Agreement, nor any schedules or
exhibits to this Agreement nor any statement or certificate furnished or to
be furnished to NRC or Surviving Corporation pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omit or
will omit to state a material fact necessary to make the statements
contained therein not misleading. TXEN and the Shareholders do not know of
any facts or conditions relating to the TXEN business which have a
reasonably likelihood of materially adversely affecting the TXEN business.
10.32 ACCOUNTS. Schedule 10.32 sets forth the names and locations of
all banks and other institutions in which TXEN has an account or safe
deposit box and the names of all persons authorized to draw thereon or to
have access thereto. Schedule 10.32 also sets forth the balance in each
checking, savings or other deposit account of TXEN as of June 30, 1997.
10.33 TRANSACTIONS WITH RELATED PARTIES. Except as disclosed on
Schedule 10.33, no Shareholder, officer, director, or employee of TXEN, or
any corporation or other entity controlled by or under common control with
any of the foregoing and no relative of any of the foregoing has:
(a) borrowed money from or loaned money to TXEN which remains
outstanding (excluding travel advances in the ordinary course of
business and consistent with past practice);
(b) any contractual or other claim (except for compensation as
disclosed in the schedules to this Agreement) expressed or implied, of
any kind whatsoever against TXEN;
(c) any interest in any business, assets or properties of TXEN
(whether ownership, contractual or otherwise); or
(d) engaged in any other transaction with TXEN (other than
employment relationships) since the date of TXEN's incorporation, not
otherwise reflected on the Financial Statements described in Section
10.7.
10.34 FINDERS. No finder or broker has acted or is acting on behalf
of TXEN in connection with the transactions contemplated by this Agreement.
10.35 SURVIVING CORPORATION'S ABILITY TO OPERATE THE BUSINESS. Upon
the Effective Date, Surviving Corporation shall have received from TXEN all
the property, equipment, inventory, contracts, permits, intellectual
property, leasehold interests, books and records, hardware and software,
and other assets and rights necessary for Surviving Corporation to conduct
TXEN's business as the same is presently conducted by TXEN.
10.36 CAPITALIZATION. TXEN's authorized capital consists of 1 share
of Convertible Preferred Stock, par value of $.002 per share (the
"Preferred Stock"), 5,000,000 shares of Class A Common Stock of the par
value of $.002 per share (the "Class A Common Stock") and 1,250,000 shares
of Class B Common Stock of the par value of $.002 per share (the "Class B
Common Stock"). The issued and outstanding shares of TXEN Stock are held
by those individuals and entities in those amounts shown in Section 10.1.
Except for options issued in connection with the Option Plans, there is no
other class of equity securities or instruments convertible into equity
securities outstanding (or options, warrants, or other rights granting
persons the right to acquire same or any TXEN Common Stock) and TXEN has
not issued any bonds, debentures, or other evidences of indebtedness of a
similar nature. From the date of the execution of this Agreement to the
Effective Date, TXEN agrees not to and the Shareholders agree not to cause
TXEN to issue, transfer, assign or sell any additional shares of TXEN Stock
or authorize, create, issue or sell any other class of equity securities or
bonds, debentures or instruments of a similar nature, and further agree not
to execute any options, warrants or other rights to acquire TXEN stock or
any additional rights. All of the shares of TXEN Stock held by the
Shareholders are free and clear of all liens, claims, pledges, options,
rights, security interests and encumbrances, except as provided in Section
5.6(d) hereof. All outstanding shares of TXEN stock have been duly
authorized and issued and are fully paid and nonassessable. Except as
described on Schedule 10.36, there are no agreements restricting the
transfer of TXEN stock or granting any options, agreements, contracts,
cause or commitments of any character which would restrict the transfer or
issuance of any TXEN stock or which would require the issuance of TXEN
stock, or which would require TXEN to purchase or redeem any shares of TXEN
stock. By executing this Agreement, Shareholders, waive all provisions of
any stockholder agreement and consent to transactions contemplated hereby.
10.37 SUBSIDIARIES. TXEN has no subsidiaries.
10.38 SECURITIES MATTERS. The Shareholders jointly and severally
represent and warrant that they are acquiring their respective portions of
NRC Common Stock for their own accounts, to hold for investment, and with
no intention of dividing their respective parts or their participation with
others, or reselling or otherwise participating, directly or indirectly, in
a distribution of the NRC Common Stock, and that each Shareholder shall not
make any sale, transfer or other disposition of the NRC Common Stock in
violation of the 1933 Act or the securities laws of any state. Each of the
Shareholders have been advised that the NRC Common Stock is not being
registered under the 1933 Act on the grounds that such transactions are
exempt from registration under one or more exemptions under the 1933 Act
and also are not being registered under any securities laws of the various
states on the grounds that such transactions are exempt from registration
thereunder, and that reliance by NRC on such exemptions is predicated, in
part, on the representation from the Shareholders set forth in this Section
10.38. The Shareholders further understand that NRC is required to file
periodic reports with the Securities and Exchange Commission and that,
following a one-year holding period, certain sales of the NRC Common Stock
may be exempt from registration under the 1933 Act by virtue of Rule 144,
provided that such sales are made in accordance with all of the terms and
conditions of Rule 144, including compliance with the required one-year
holding period. It is understood and agreed that if Rule 144 is not
available for the sales of the NRC Common Stock, the NRC Common Stock may
not be sold without registration under the 1933 Act or compliance with some
other exemption from such registration, and, except as provided in Section
19 below, that NRC is not obligated to register the NRC Common Stock to be
transferred pursuant to this Agreement or to take any action necessary in
order to make compliance with an exemption from registration available. It
is acknowledged that all shares of NRC Common Stock shall bear a
restrictive legend to the effect that such shares have not been registered
and may not be sold or transferred except pursuant to a registration or an
exemption therefrom. The Shareholders acknowledge and agree that they have
not received any public solicitation or advertisement concerning an offer
to sell or to acquire the NRC Common Stock.
10.39 AVAILABILITY OF INFORMATION. TXEN and the Shareholders have
received and have had an opportunity to review copies of NRC's Form 10-K
Report for the fiscal year ended August 31, 1996, Proxy Statement for the
1997 Annual Shareholders Meeting and Annual Report to Shareholders for the
year ended August 31, 1996, and the NRC Quarterly 10-Q Reports for the
periods ended November 30, 1996, February 28, 1997, and May 31, 1997. TXEN
and the Shareholders have had an opportunity to meet with officers of NRC
to discuss the information contained in the above-referenced documents and
to receive answers to any questions they had regarding NRC and the
acquisition by Shareholders of the NRC Common Stock. TXEN and the
Shareholders acknowledge and agree that they are not relying on any
representations and warranties (oral or written) of NRC or Surviving
Corporation or their respective officers, directors, employees and
representatives, except those representations and warranties expressly set
forth in this Agreement and the matters set forth in the Annual and
Quarterly Reports described in this Section. Each individual Shareholder
for himself represents and warrants that he, individually or with the aid
of an investor representative of his choice, has the knowledge and
experience to evaluate the merits and risks of accepting the NRC Common
Stock in exchange for their TXEN Common Stock.
10.40 LIMITED REPRESENTATIONS AND WARRANTIES OF THE UNIVERSITY. The
University does not make the representations and warranties set forth in
Sections 10.1 through 10.39 above, and in lieu thereof makes the following
representations and warranties as of the Closing Date and Effective Date:
10.40.1 AUTHORITY. The University has full right, power and
authority to enter into this Agreement and to surrender the Shares owned by
it in exchange for its share of the Merger Consideration as provided in
this Agreement. The execution and performance of this Agreement by the
University has been duly authorized by its Board of Trustees.
10.40.2 OWNERSHIP. The University owns legally and beneficially
the number of Shares of stock set opposite its name in Section 10.1 hereof,
free and clear of all liens, security interests, pledges or encumbrances.
10.40.3 ENFORCEABILITY. This Agreement has been duly and
validly executed and delivered by the University and constitutes the legal,
valid and binding obligation of the University in accordance with its
terms.
10.40.4 NO CONSENT. No consent of any lender, trustee,
director, security holder or any other person is required for the
University to enter into this Agreement or to consummate the transactions
contemplated hereby, nor do the governing instruments of the University or
any mortgage, indenture or other agreement, or any law, statute, ordinance,
rule or regulation to which the University is a party or by which it is
bound or which affects any of its properties, including, without
limitation, the Shares, conflict with or restrict the execution, delivery
and performance of this Agreement by the University or the consummation of
the transactions contemplated hereby or thereby.
10.40.5 ESTOPPEL PROVISIONS. As of the Closing Date and the
Effective Date, the University acknowledges that it has no title, claim,
demand, interest, action or cause of action in, to or against TXEN or any
of its officers, directors or shareholders in any capacity whatsoever.
This SECTION 10.40.5 shall be construed to constitute a release by the
University of any and all of the foregoing and shall constitute a waiver of
any and all of the foregoing.
TXEN and the other Shareholders do not make the representations and
warranties contained in this Section 10.40.
10.41 SPECIAL REPRESENTATIONS AND WARRANTIES OF THOMAS L. PATTERSON.
Thomas L. Patterson, individually and in his capacity as Trustee of the
Patterson Family Charitable Unitrust, established August 5, 1997 (the
"Trust"), represents and warrants as of the Closing Date and the Effective
Date:
10.41.1 AUTHORITY. As Trustee, Thomas L. Patterson has full
right, power and authority to enter into this Agreement and to surrender
the Shares owned by him as Trustee in exchange for the Trust's share of the
Merger Consideration as provided in this Agreement.
10.41.2 OWNERSHIP. Thomas L. Patterson, in his capacity as such
Trustee, owns legally the number of Shares of stock set opposite his name
in Section 10.1 hereof free and clear of all liens, security interests,
pledges or encumbrances.
10.41.3 ENFORCEABILITY. This Agreement has been duly and
validly executed and delivered by Thomas L. Patterson in his capacity as
such Trustee and constitutes the legal, valid and binding obligation of
Thomas L. Patterson as Trustee in accordance with its terms.
10.41.4 NO CONSENT. No consent of any lender, trustee, security
holder or any other person is required for Thomas L. Patterson as Trustee
to enter into this Agreement or to consummate the transactions contemplated
hereby, nor does the Trust instrument or any mortgage, indenture or other
agreement or any law, statute, ordinance, rule or regulation to which the
Trust is a party or by which it is bound or which affects any of its
properties, including, without limitation, the Shares, conflict with or
restrict the execution, delivery and performance of this Agreement by
Thomas L. Patterson as Trustee or the consummation of the transactions
contemplated hereby or thereby. The execution and performance of this
Agreement by Thomas L. Patterson in his capacity as Trustee does not
violate any statute, rule or regulations regarding private foundations,
including, but not limited to, provisions contained in Sections 4940-4948
of the Internal Revenue Code.
10.41.5 ESTOPPEL PROVISIONS. As of the Closing Date and the
Effective Date, Thomas L. Patterson as Trustee acknowledges that he has no
title, claim, demand, interest, action or cause of action in, to or against
TXEN or any of its officers, directors or Shareholders in any capacity
whatsoever. This Section 10.41.5 shall be construed to constitute a
release by Thomas L. Patterson in his capacity as Trustee of any and all of
the foregoing and shall constitute a waiver of any and all of the
foregoing.
SECTION 11. CONDUCT OF CONSTITUENT CORPORATIONS
PENDING THE EFFECTIVE DATE
Each Constituent Corporation agrees that, between the date of this
Agreement and the Effective Date:
11.1 CERTIFICATE OF INCORPORATION AND BYLAWS. No change will be made
in the Certificate of Incorporation or Bylaws of either Constituent
Corporation without the prior written consent of the other Constituent
Corporation.
11.2 CAPITALIZATION. Neither Constituent Corporation will make any
change in its authorized or issued capital stock, declare or pay any
dividend or other distribution or issue, encumber, purchase or otherwise
acquire any of its capital stock.
11.3 OPERATE IN ORDINARY COURSE. TXEN shall operate its business in
the usual and ordinary manner as heretofore conducted; perform in all
material respects all its respective obligations and not materially modify,
amend, supplement, or waive any obligation under any Contract without the
prior written consent of NRC, which will not be unreasonably withheld.
11.4 NOT SELL OR ENCUMBER PURCHASED ASSETS. TXEN shall not sell or
otherwise dispose of any of its assets or properties, except for the sale
of inventory in the ordinary course of business, and not create or agree to
create any mortgage, security interest, lien, pledge, encumbrance, or
restriction on any of its assets or properties.
11.5 PRESERVE BUSINESS ORGANIZATION. TXEN shall use all reasonable
efforts to preserve intact TXEN's present business organization; to keep
available the services of the current Employees; to preserve TXEN's
relationships with suppliers, distributors, customers, and others having
business relationships with TXEN; and to refrain from changing any material
policies (including, without limitation, accounting, advertising,
marketing, pricing, purchasing, personnel, sales, or budget policies)
without the prior written consent of NRC, which will not be unreasonably
withheld.
11.6 MAINTAIN PROPERTIES. TXEN shall retain and maintain all of its
assets and properties in customary repair, order, and condition, except for
reasonable wear, the disposal of worn-out or obsolete equipment, and damage
due to unavoidable casualty.
11.7 MAINTAIN BOOKS OF ACCOUNT. TXEN shall maintain TXEN's books of
account and records in the usual and ordinary manner and in accordance with
generally accepted accounting principles.
11.8 COMPLY WITH LAW. TXEN shall comply in all respects with all laws
applicable to TXEN or contest or settle in good faith, upon the advice of
counsel, any alleged failure to comply with any such laws.
11.9 INVENTORY. Consistent with past practices, TXEN shall not
acquire any inventory.
11.10 MAINTAIN INSURANCE. TXEN shall maintain the Insurance Policies
in full force and effect, with policy limits and scope of coverage not less
than is now provided.
11.11 ADVISE SURVIVING CORPORATION OF ADVERSE CHANGE. TXEN shall
promptly advise NRC of the occurrence of any material adverse change in the
financial condition or results of the operations of TXEN; the occurrence of
any other event or condition that materially and adversely affects its
business; or the imposition of any lien, pledge, or encumbrance on any of
its assets or properties.
11.12 ACCESS FOR NRC. TXEN shall provide NRC's employees, agents, and
authorized representatives with reasonable access, during business hours
and consistent with the normal operation of its business, to the locations
owned or leased by TXEN, and to the books and records of TXEN, to the
extent necessary to enable NRC to make a thorough investigation of the
business, to make a physical examination of its assets and properties, to
conduct environmental examinations (if any), and to examine TXEN's books
and records. NRC's employees, agents, and authorized representatives shall
hold all such information and materials in strict confidence, shall not use
the same for any purpose other than to evaluate this transaction and, treat
all such information in a manner consistent with NRC's policies and
procedures concerning its own confidential and proprietary information. If
the transactions contemplated hereby are not consummated for any reason,
NRC shall (a) upon the request of TXEN, return all originals, copies, and
summaries of such information to TXEN and (b) continue to treat all such
information as strictly confidential in a manner consistent with NRC's
policies and procedures concerning its own confidential and proprietary
information.
11.13 THIRD-PARTY CONSENTS. TXEN shall use its best efforts to obtain
all required consents and approvals of third parties, if any, described on
Schedule 10.3.
11.14 NOT INCUR INDEBTEDNESS. TXEN shall not incur any indebtedness,
other than indebtedness incurred in the ordinary course of business to fund
working capital arising in the ordinary course of business.
11.15 PRESERVE CAPITAL STRUCTURE. TXEN shall not acquire, merge with,
or consolidate with, or agree to acquire, merge with, or consolidate with,
any business entity, or amend their respective charter or bylaws.
11.16 TXEN AUTHORIZATION. The TXEN directors and shareholders shall
approve this Agreement of Merger and the transactions described herein in
accordance with the Alabama Business Corporation Act on or before the
Closing Date.
SECTION 12. CONDITIONS PRECEDENT TO OBLIGATIONS OF
NICHOLS RESEARCH CORPORATION AND SUBSIDIARY
NRC's and Subsidiary's obligation to consummate this Merger shall be
subject to the fulfillment on or before the Effective Date of each of the
following conditions, unless waived, in writing:
12.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF CLOSING DATE. TXEN's
and Shareholders' representations and warranties made in this Agreement and
the exhibits and schedules hereto are true in all respects on and as of the
Closing Date as though such representations and warranties were made on and
as of the Closing Date.
12.2 COMPLIANCE WITH AGREEMENT. TXEN and each Shareholder has
performed and complied in all respects with all of its or his obligations
under this Agreement that are to be performed or complied with by it or him
on or before the Closing Date, and neither TXEN nor any Shareholder is
otherwise in default in any respect under any of the provisions of this
Agreement.
12.3 NO LITIGATION. No litigation, proceeding, investigation, or
inquiry is pending or threatened with respect to TXEN or which, if
sustained, would enjoin or prevent the consummation of the transactions
contemplated by this Agreement.
12.4 THIRD-PARTY CONSENTS AND APPROVALS. TXEN has obtained all third-
party consents and approvals, if any, described on Schedule 10.3, all in
form and substance reasonably satisfactory to NRC and its counsel. At or
before the Closing, TXEN will deliver to NRC all such third-party consents
or approvals.
12.5 COMPLIANCE WITH LAW. NRC has made a good faith determination,
with the assistance and advice of counsel, that the Surviving Corporation
can acquire and own the TXEN business following the Effective Date in
substantial compliance with all applicable laws, orders, ordinances, codes,
and regulations.
12.6 MATERIAL ADVERSE EFFECT. There has not occurred any event or
casualty that materially and adversely affects TXEN or its assets or
properties, or Surviving Corporation's ability to carry on TXEN's business
as presently and ordinarily conducted.
12.7 OPINION OF COUNSEL FOR TXEN. TXEN has delivered to Surviving
Corporation and NRC an opinion of counsel dated as of the Closing Date in a
form attached hereto as Exhibit "F."
12.8 EMPLOYMENT AGREEMENTS. Thomas L. Patterson and Paul D. Reaves
shall have entered into an Amendment of their Employment Agreements in the
forms attached hereto, respectively, as Exhibits "G-1" and "G-2." H. Grey
Wood shall have entered into an Employment Agreement with the Surviving
Corporation in the form attached hereto as Exhibit "G-3" (the "Employment
Agreements").
12.9 CERTIFIED RESOLUTIONS. TXEN has delivered to NRC a copy of
resolutions adopted by TXEN's Board of Directors, certified as of the
Closing Date by the Secretary or an Assistant Secretary of TXEN, approving
the execution and delivery of this Agreement and the performance by TXEN of
its obligations under this Agreement.
12.10 CERTIFICATES OF FULFILLMENT OF CONDITIONS. TXEN shall have
delivered to NRC certificates, dated as of the Closing Date and signed by
its President, stating that the conditions set forth in this Section 12
have been fulfilled.
12.11 SHAREHOLDER APPROVAL. TXEN's Shareholders shall have
unanimously approved the consummation of the transactions contemplated by
this Agreement.
12.12 NO DISSENTING SHAREHOLDERS. Each Shareholder shall have
approved this transaction and no Shareholder shall have filed or perfected
dissenter's rights or appraisal rights.
12.13 FAIRNESS OPINION. NRC shall have received a "fairness opinion"
from The Robinson-Humphrey Company, Inc. that the transactions contemplated
by this Agreement are fair to NRC and its shareholders from a financial
point of view, dated within 10 days of the Closing.
12.14 UNIVERSITY RESOLUTION. The University shall have delivered to
NRC a certificate dated as of the Closing Date signed by an authorized
representative of the University evidencing authority to execute, deliver
and perform this Agreement.
SECTION 13. CONDITIONS PRECEDENT TO OBLIGATIONS OF TXEN
TXEN's and Shareholders' obligation to consummate this Merger shall be
subject to fulfillment on or before the Effective Date of each of the
following conditions, unless waived in writing by TXEN:
13.1 REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING DATE.
Subsidiary's and NRC's representations and warranties made in this
Agreement are true in all respects on and as of the Closing Date as though
such representations and warranties were made on and as of the Closing
Date.
13.2 COMPLIANCE WITH AGREEMENT. Subsidiary and NRC have performed and
complied in all respects with all of their obligations under this Agreement
that are to be performed or complied with by them on or before the Closing
Date, and Subsidiary and NRC are not otherwise in default in any respect
under any of the provisions of this Agreement.
13.3 NO LITIGATION. No litigation, proceeding, investigation, or
inquiry is pending or threatened which, if sustained, would enjoin or
prevent the consummation of the transactions contemplated by this
Agreement.
13.4 OPINION OF COUNSEL FOR SUBSIDIARY. Subsidiary has delivered to
TXEN an opinion of counsel dated as of the Closing Date in a form attached
hereto as Exhibit "H."
13.5 CERTIFIED RESOLUTIONS. Subsidiary and NRC have delivered to TXEN
copies of resolutions adopted by Subsidiary's and NRC's Board of Directors,
certified as of the Closing Date by the Secretary or an Assistant Secretary
of Subsidiary and NRC, approving the execution and delivery of this
Agreement and the performance by Subsidiary and NRC of their respective
obligations under this Agreement.
13.6 CERTIFICATES OF FULFILLMENT OF CONDITIONS. Subsidiary and NRC
shall have delivered to TXEN certificates, dated as of the Closing Date,
stating that the conditions set forth in this Section 13 have been
fulfilled.
SECTION 14. DESIGNATIONS AND AGREEMENTS REQUIRED BY LAW
As of the Effective Date, if NRC waives the condition set forth in
Section 12.12, the Surviving Corporation agrees that it will promptly pay
to any dissenting Shareholder of TXEN the amount, if any, to which such
Shareholder shall be entitled under the laws of the State of Alabama.
SECTION 15. ACCESS
From the date of this Agreement to the Effective Date, each
Constituent Corporation shall provide the other with such information and
permit each other's officers and representatives such access to its
properties, books and records as the other may, from time to time,
reasonably request. Each Constituent Corporation shall inform the other of
materially adverse events occurring after the date of this Agreement. If
the Merger is not consummated, all documents received in connection with
this Agreement shall be returned to the party furnishing such documents and
all information received shall be treated as confidential.
SECTION 16. TERMINATION
16.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated
(notwithstanding approval by the shareholders of either party):
(a) By the mutual consent in writing of the Board of Directors
of each Constituent Corporation;
(b) By the Board of Directors of TXEN if any condition provided
in Section 13 has not been satisfied or waived on or before the
Effective Date;
(c) By the Board of Directors of NRC or Subsidiary if any
condition provided in Section 12 has not been satisfied or waived on
or before the Effective Date;
16.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to this Section, each party shall pay the costs and
expenses incurred by it in connection with this Agreement and no party (or
any of its officers, directors and shareholders) shall be liable to any
other party for any costs, expenses, damage or loss of anticipated profits
hereunder, except for any breach by a party or parties of any
representations, warranties or covenants herein contained.
SECTION 17. SURVIVAL OF
REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
17.1 SURVIVAL. The representations, warranties, and covenants made by
TXEN, Shareholders, Subsidiary and NRC in this Agreement will survive the
Closing Date and any investigation or inquiry made by either party. The
indemnifications contained in this Section 17 shall survive the Closing
until November 30, 1998. No indemnified party shall be entitled to assert
any claim for indemnification under this Section 17 with respect to the
breach of any representation, warranty or covenant contained herein after
the date on which such representation or warranty ceases to survive
pursuant to this Section 17.1. If an indemnified party shall have notified
the indemnifying party of a claim for indemnification under this Section 17
prior to the date on which the right of indemnification ceases to survive,
then the indemnified party shall be entitled to prosecute the claim to its
completion and be entitled to indemnification hereunder.
17.2 DEFINITION. As used herein, "Damages" shall mean any
obligations, losses, liabilities, security interests, liens, claims,
encumbrances, charges, damages, costs, and expenses (including, without
limitation, attorneys' fees and other costs and expenses incident to and
paid by an indemnified party in connection with the investigation, trial or
settlement of any claim, suit, action or proceedings) incurred, suffered or
sustained or paid or required to be paid by an indemnified party or
reasonably expected to be incurred by an indemnified party. Damages shall
be net of any insurance proceeds received by the indemnified party.
17.3 INDEMNIFICATION BY SHAREHOLDERS. After Closing, each Shareholder
agrees to and shall pay, defend and promptly indemnify Surviving
Corporation and NRC against, and save and hold Surviving Corporation and
NRC harmless from any and all Damages resulting from, arising out of or in
connection with (a) any breach or inaccuracy of any of the representations
and warranties made by TXEN and Shareholders in this Agreement, the
exhibits and schedules hereto, and the certificates and documents executed
by them in connection herewith, (b) the breach or non-fulfillment of any
agreement or covenant made by TXEN and Shareholders in or pursuant to this
Agreement and the transactions contemplated by this Agreement, (c) any
undisclosed liabilities or obligations of TXEN and/or (d) any liability or
claim or any threatened or potential liability or claim disclosed on
Schedules 10.15 and 10.24 hereto. The liability of each Shareholder shall
be prorata based on the Merger Consideration received by such Shareholder
over the total Merger Consideration received by all Shareholders.
17.4 INDEMNIFICATION BY SURVIVING CORPORATION AND NRC. Surviving
Corporation and NRC agree to jointly and severally pay, defend and promptly
indemnify the Shareholders against and save and hold them harmless from any
Damages resulting from, arising out of or in connection with (a) any breach
or inaccuracy of any of the representations or warranties made by
Subsidiary or NRC in this Agreement or (b) the breach of any of the
covenants made by Subsidiary or NRC in this Agreement.
17.5 ALLOCATION OF DAMAGES. Any Damages under Section 17.3 may be
recovered either by Surviving Corporation or NRC, as elected by NRC, or
such Damages may be allocated to NRC and Surviving Corporation as NRC, in
its sole discretion, may determine.
17.6 NOTICE OF CLAIM. Any party seeking indemnification hereunder
(the "Indemnitee") shall promptly notify the indemnifying party (the
"Indemnitor") in writing, of any claim for recovery, specifying in
reasonable detail the nature of the Damage, and, if known, the amount, or
an estimate of the amount, of the liability arising therefrom. The
Indemnitee shall provide to the Indemnitor as promptly as practicable
thereafter information and documentation reasonably requested by the
Indemnitor to support and verify the claim asserted.
17.7 DEFENSE OF THIRD PARTY CLAIMS. If the facts pertaining to such
Damages arise out of the claim of any third party, the Indemnitor may
assume the defense thereof by written notice to Indemnitee, including the
employment of counsel or accountants at the Indemnitor's cost and expense.
The Indemnitee shall have the right to employ counsel separate from counsel
employed by the Indemnitor in any such action and to participate therein,
but the fees and expenses of such counsel employed by the Indemnitee shall
be at its expenses. The Indemnitor shall not be liable for any settlement
of any such claim effected without its prior written consent, which shall
not be unreasonably withheld; provided that if the Indemnitor does not
assume the defense or the prosecution of the claim within thirty (30) days
of notice thereof, the Indemnitee may settle such claim without the
Indemnitor's consent. The Indemnitor shall not agree to a settlement of
any claim which provides for any relief other than the payment of monetary
damages without the Indemnitee's prior written consent, which shall not be
unreasonably withheld. Whether or not the Indemnitor defends such claims,
all the parties hereto shall cooperate in the defense or prosecution
thereof and shall furnish such records, information and testimony, and
attend such conferences, discovery proceedings, hearings, trials and
appeals, as may be reasonably requested in connection therewith.
17.8 REDUCTION FOR INSURANCE AND TAX BENEFITS. The Damages which
Indemnitor is liable to, for or on behalf of the Indemnitee pursuant to
this Section 17 shall be reduced (including, without limitation,
retroactively) through subsequent repayment as described below in this
Section 17.8, by an amount equal to any insurance proceeds and tax benefits
actually recovered by or on behalf of such Indemnitee relating to the
Damages. If an Indemnitee shall have received or shall have paid on its
behalf an indemnity payment in respect of any Damages and insurance
proceeds and tax benefits in respect of such Damages are also received by
the Indemnitee, then such Indemnitee shall pay Indemnitor the amount of
such insurance proceeds and tax benefits or, if less, the amount of such
indemnity payment. The Indemnitee covenants and agrees to use all
reasonable efforts to collect all such sums as are available to it under
its existing insurance policies which would be applicable to any such
Damages. Whether or not Indemnitee receives any tax benefit shall be
determined by Ernst & Young, L.L.P.
17.9 DEDUCTIBLE. An indemnified party shall make no claim against any
indemnifying party for indemnification under this Section 17 unless and
until the aggregate amount of such claims against the indemnifying party
exceeds $200,000.00 (the "Deductible"), in which event an indemnified party
may claim indemnification for all Damages in excess of the Deductible.
17.10 LIMITATIONS. The amount of indemnification either party may be
entitled hereto shall not exceed $4,387,497.19 unless such claims are based
on pending or threatened (in writing) litigation, in which case the amount
of indemnification will not exceed $10,968,742.98. The limitations set
forth herein shall not apply in the case of fraud.
17.11 ARBITRATION. The parties agree that any claim, controversy or
dispute arising out of or relating in any way to this Agreement or the
formation, interpretation, performance, enforcement, breach, termination or
validity thereof, including the construction and scope of the agreement to
arbitrate shall be resolved in accordance with the provisions of Exhibit
"I."
SECTION 18. CERTAIN COVENANTS OF THE PARTIES
WITH RESPECT TO TAX MATTERS
18.1 TAX RECORDS. TXEN will provide to NRC and Subsidiary copies of
all its Tax Returns and other Tax related matters between the date of the
execution of this Agreement and the Effective Date and will provide copies
to NRC and Subsidiary of all records and information which may be relevant
to such returns and matters and will retain such records and information.
Any information obtained pursuant to this Section shall be kept
confidential by the parties hereto.
18.2 TXEN FINAL TAX RETURN. The Surviving Corporation agrees that,
before filing TXEN's federal income tax return for any taxable period
ending on or before the Effective Date, including, without limitation, the
information return of TXEN for the partial tax year of TXEN ended on the
Effective Date, they will obtain Shareholder Representative's approval and
consent (which approval and consent shall not be unreasonably withheld or
delayed) for all items of income and deduction shown thereon. The
Surviving Corporation will cause the federal and state income tax returns
of TXEN for the period ending the day before the Effective Date to be filed
with the Internal Revenue Service and state authorities.
SECTION 19. PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS
19.1 IN GENERAL. The rights provided for in this section (the
"Piggyback Rights") shall apply to those TXEN Shareholders who receive NRC
Common Stock in exchange for their TXEN Common Stock pursuant to this
Agreement. As used in this section, the term "NRC Common Stock" shall mean
the par value $0.01 per share common stock of NRC outstanding as of the
date of the execution of this Agreement 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 Common Stock under the Act in
connection with the public offering of such NRC Common 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 Common Stock owned by
the Shareholders), NRC shall, at such time, promptly give each Shareholder
who owns NRC Common Stock pursuant to an exchange for his or her TXEN
Common Stock under this Agreement written notice of such registration.
Upon NRC's receipt of the 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 Common 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 Common Stock acquired in exchange for
TXEN Common Stock pursuant to this Agreement (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:
(a) 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.
(b) 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.
(c) furnish to the Shareholders who acquired NRC Common Stock
pursuant to this Agreement 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.
(d) 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 allowed to cause NRC to register
and qualify the Registerable Securities under any particular security
or Blue Sky Law of any particular state or jurisdiction.
(e) 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 Common 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.
19.2 EXPENSES, LIMITATIONS AND AGREEMENTS. 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. 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.
19.3 NO ASSIGNMENT OF PIGGYBACK RIGHTS. The Piggyback Rights may not
be assigned by a Shareholder owning Registerable Securities to any person,
executor, personal representative, transferee or assignee of the
Registerable Securities owned by the Shareholder.
19.4 TRANSFER RESTRICTION. Each Shareholder exercising 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 NRC
Common Stock (including the Registerable Securities) without the prior
written consent of NRC and/or such underwriter, as the case may be, during
the 180 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 180 day period.
19.5 TERMINATION. These Piggyback Rights under this Section shall
terminate one year after the Effective Date and thereafter, no Shareholder
shall have any right to require registration of his or her NRC Common
Stock.
SECTION 20. POST CLOSING COVENANTS
After the Closing, NRC and Subsidiary covenant as follows:
(a) Any key employee term life insurance policies owned by TXEN where
TXEN was named beneficiary insuring the Shareholders shall be distributed
to the insured.
(b) Stock options covering 30,000 shares of NRC Common Stock will be
reserved for issuance under the NRC Stock Option Plan to employees of the
Subsidiary as recommended by Thomas L. Patterson, and as approved by the
NRC Stock Option Committee.
(c) The 401(k) Plan of TXEN shall continue to be maintained by the
Subsidiary after the Closing, provided that Subsidiary may maintain such a
separate plan under applicable provisions of the Internal Revenue Code as a
member of a controlled group of corporations and that maintenance of such
separate plan will not disqualify the 401(k) Plan maintained by NRC or the
401(k) Plan maintained by Subsidiary under the qualification provisions of
the Internal Revenue Code or ERISA. Nothing contained herein shall require
NRC to amend or terminate its qualified retirement plan in order to
maintain the separate existence of the 401(k) Plan of TXEN.
SECTION 21. GENERAL PROVISIONS
21.1 FURTHER ASSURANCES. At any time, and from time to time, before
and after the Effective Date, each party will execute such additional
instruments and documents and take such action as may be reasonably
requested by any other party to confirm or perfect title to any property
transferred hereunder or otherwise to carry out the intent and purposes of
this Agreement.
21.2 WAIVER. Any failure on the part of any party to comply with any
of its obligations, agreements or conditions hereunder may be waived in
writing by any other party.
21.3 BROKER. Each party represents to the others that no broker or
finder has acted for it in connection with this Agreement and agrees to
indemnify and hold harmless the other parties against any fee, loss or
expense arising out of claims by brokers or finders.
21.4 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person or
on the second day after sent by prepaid first-class, registered or
certified mail, return receipt requested or on the next day after sent by
nationally recognized overnight delivery service, as follows:
If to Subsidiary or NICHOLS SELECT CORPORATION
the Surviving c/o Chris H. Horgen
Nichols Research Corporation
4040 Memorial Parkway South
Huntsville, Alabama 35802
If to NRC: Chris H. Horgen, Chairman and
Michael Mruz, President
Nichols Research Corporation
4040 Memorial Parkway South
Huntsville, Alabama 35802
If to the Thomas L. Patterson
Shareholders: Shareholder Representative
10 Inverness Center Parkway
Suite 140
Birmingham, AL 35242
If to TXEN prior to the Thomas L. Patterson, President
Effective Date: TXEN, INC.
10 Inverness Center Parkway
Suite 140
Birmingham, AL 35242
21.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other
Agreement, representation or communication, whether oral or written,
between the parties hereto relating to the transactions contemplated herein
or the subject matter hereof.
21.6 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Alabama.
21.7 ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their successors and assigns, provided,
however, that no party may assign its rights or delegate its duties under
this Agreement and no party may assign this Agreement without the written
consent of the other party, which may be withheld in the sole discretion of
the other party, provided, however, that NRC may assign and/or delegate the
Subsidiary's duties, rights and obligations hereunder and may assign the
Agreement as it relates to Subsidiary to any other wholly owned Subsidiary
of NRC.
21.8 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
21.9 INTERPRETATION AND CONSTRUCTION. Each party to this Agreement
acknowledges and agrees that it and he is sophisticated in business matters
and has been represented, at all times, by counsel of its and his own
choosing. Consequently, any rule of law or construction which would
require ambiguities in this Agreement to be resolved against the party that
has drafted this Agreement shall not be applicable and is waived.
21.10 SHAREHOLDER REPRESENTATIVE. The Shareholders hereby elect and
appoint Thomas L. Patterson as the Shareholder Representative and vest him
with the full power and authority, as agent and attorney-in-fact for the
Shareholders, to communicate and receive all notices, to give notices,
counter notices, joint written instructions and make payments and other
communications on behalf of the Shareholders, and to make agreements,
compromises, waivers and settlements with respect to this Agreement and the
Escrow Agreement executed herewith and to resolve all disputes under this
Agreement. Thomas L. Patterson shall serve as Shareholder Representative
until NRC receives written notice from Shareholders who held, prior to the
Effective Date, more than 50% of the outstanding TXEN Common Stock, that
another Shareholder has been named as the Shareholder Representative. The
appointment of Thomas L. Patterson as Shareholder Representative shall be
considered a durable power of attorney, a power of attorney coupled with an
interest and to the extent permitted by law shall survive the incapacity of
any Shareholder and the death of any Shareholder and the incapacity or
death of any Shareholder shall not affect the validity of such appointment
by the other Shareholders.
21.11 CORPORATE POLICIES, ETC. All corporate acts, plans, policies,
approvals and authorizations of TXEN which were valid and effective
immediately prior to the Effective Date shall be taken for all purposes as
the acts, plans, policies, approvals and authorizations of the Subsidiary
and shall be as effective and binding thereon as they were on TXEN.
Without limiting the foregoing, all welfare benefit plans, salaries of the
employees of TXEN, employment policies, and sales and other policies in
effect immediately prior to the Merger shall be continued by the
Subsidiary, except to the extent such employees become employees of NRC.
This Section shall not prevent the Board of Directors or officers of the
Subsidiary from amending or termination such acts, plans, policies,
approvals and authorizations after the Effective Date. This Section is not
intended to benefit any employee of TXEN or any other third party.
21.12 SEVERABILITY. In the event any provision contained in this
Agreement shall be deemed or rendered illegal, against public policy or
unenforceable by any court of competent jurisdiction for any reason, then
such provision shall be deemed amended to the extent consistent with law
and public policy, provided, however, that if such amendment cannot be
accomplished, such provision shall be deemed severed from this Agreement
and shall not make or render any other provision contained herein
unenforceable or affect any other provision in this Agreement in any
respect whatsoever.
21.13 KNOWLEDGE. Whenever a matter is represented or warranted with
respect to the knowledge of TXEN, the knowledge of any Shareholder with
regard to such matter shall be deemed to be the knowledge of TXEN and the
knowledge of persons other than a Shareholder shall not be deemed to be the
knowledge of TXEN.
IN WITNESS WHEREOF, each Constituent Corporation, pursuant to
authority duly given by its Board of Directors and NRC, has caused this
Agreement to be executed on its behalf by its duly authorized officers, all
in accordance with Section 103 of the General Corporation Law of the State
of Delaware and Section 10-2B-11.05 of Alabama Business Corporation Act,
and the Shareholders have hereunto set their hands and seals, all as of the
day and year first above written.
NICHOLS RESEARCH CORPORATION, a
Delaware corporation
Michael J. Mruz
By: ___________________________________
Its President
ATTEST:
Patsy L. Hattox
______________________
Secretary
NICHOLS SELECT CORPORATION, a
Delaware corporation
Michael J. Mruz
By: ___________________________________
Its Chief Executive Officer
ATTEST:
Patsy L. Hattox
- ----------------------
Secretary
TXEN, INC., an Alabama corporation
Thomas L. Patterson
By: ___________________________________
ATTEST: Its President
Paul D. Reaves
______________________
Secretary
<PAGE>
THE SHAREHOLDERS OF TXEN, INC.:
Thomas L. Patterson
______________________________________
Thomas L. Patterson
Paul D. Reaves
______________________________________
Paul D. Reaves
Chris H. Horgen
______________________________________
Chris H. Horgen
Philip Bowling
______________________________________
Philip Bowling
Billy E. Callans
______________________________________
Billy E. Callans
William L. Crocker
______________________________________
William L. Crocker
Jeffery J. Fisher
______________________________________
Jeffrey J. Fisher
Gregory L. Fuller
______________________________________
Gregory L. Fuller
Noel Gartman
______________________________________
Noel Gartman
Robert D. Goodworth
______________________________________
Robert D. Goodworth
Bryan V. Jennings
______________________________________
Bryan V. Jennings
Amy E. Knowles
______________________________________
Amy E. Knowles
Scott L. McFarland
______________________________________
Scott L. McFarland
<PAGE>
Patricia R. Mize
______________________________________
Patricia R. Mize
Todd K. Morgan
______________________________________
Todd K. Morgan
Nancy R. Onaka
______________________________________
Nancy R. Onaka
Roy T. Sailor
______________________________________
Roy T. Sailor
Steven A. Selikoff
______________________________________
Steven A. Selikoff
Annie M. Till
______________________________________
Annie M. Till
Maxine Wade
______________________________________
Maxine Wade
Richard G. Waggener
______________________________________
Richard G. Waggener
David A. Watts
______________________________________
David A. Watts
Terence A. Weber
______________________________________
Terence A. Weber
H. Grey Wood
______________________________________
H. Grey Wood
Board of Trustees of the University of
Alabama, for use of and on behalf of the
University of Alabama, Tuscaloosa, Alabama
Robert A. Wright
By: __________________________________________
Its Vice President for Financial
Affairs and Treasurer
<PAGE>
Reba J. Essary
By: __________________________________________
Its Comptroller and Associate Treasurer
Thomas L. Patterson
______________________________________________
Thomas L. Patterson, Trustee of the Patterson
Family Charitable Unitrust, established
August 5, 1997
ESCROW AGREEMENT
THIS ESCROW AGREEMENT dated the 29th day of August, 1997 (the "Escrow
Agreement"), is among Nichols Research Corporation, a Delaware corporation
("NRC"); NRC's wholly owned subsidiary, Nichols SELECT Corporation, a
Delaware corporation ("SELECT") TXEN, Inc., an Alabama corporation,
("TXEN"); the holders of all of the $0.002 par value Class A Common Stock
of TXEN (the "Shareholders"); and SouthTrust Bank, N.A. (the "Escrow
Agent").
W I T N E S E T H
Pursuant to that certain Agreement of Merger dated August 27, 1997,
(the "Merger Agreement"), TXEN has agreed to merge into SELECT with SELECT
as the surviving corporation. Capitalized terms used herein unless
otherwise defined shall have the meaning ascribed to such terms in the
Merger Agreement. Pursuant to Section 17.3 of the Merger Agreement, the
Shareholders have agreed to indemnify NRC and SELECT and have agreed that
the assets deposited pursuant to this Escrow Agreement shall secure the
indemnification obligations.
Therefore, pursuant to the Merger Agreement and in consideration of
the mutual covenants hereinafter contained, the parties hereby agree as
follows:
SECTION 1. On even date herewith, Shareholders have deposited with the
Escrow Agent the sum of Eight Hundred Seventy Seven Thousand Five Hundred
Thirteen and Twenty-Six cents ($877,513.26) (the "Escrow Money") and
54,208 shares of NRC Common Stock (the "Escrow Stock). The Escrow Money
and the Escrow Stock (collectively the "Escrow Fund") shall be held by the
Escrow Agent hereunder as partial security for the performance by
Shareholders of their indemnification obligations set forth in Section 17.3
of the Merger Agreement.
SECTION 2. The Escrow Fund and any interest thereon shall be held by
the Escrow Agent for the account of the Shareholders, subject to written
instruction signed jointly by NRC and Shareholders or as otherwise provided
herein.
SECTION 3. (a) At anytime on or prior to the Escrow Termination Date,
as hereafter defined, with respect to the Escrow Fund, NRC or SELECT may
give written notice (the "Initial Notice") to Shareholders and the Escrow
Agent of a claim (a "Claim") for indemnification resulting from any Damages
(as defined in the Merger Agreement) suffered, sustained or incurred by NRC
or SELECT or that may reasonably be expected to be suffered by NRC or
SELECT as a result of any matters made the subject of Section 17.3 of the
Merger Agreement or otherwise arising out of the transactions contemplated
by and made the subject of the Merger Agreement. If the Shareholders
dispute such Claim, the Shareholders shall send written notice to NRC,
SELECT and the Escrow Agent that such Claim is disputed within twenty (20)
days after Shareholders are deemed to have received the Initial Notice (a
"Counter Notice"). Thereafter, except as provided in the next sentence,
the Escrow Agent shall not deliver any of the Escrow Fund or interest
thereon made the subject of the Claim to NRC, SELECT or Shareholders,
except upon joint written instructions of NRC, SELECT and Shareholders. As
an alternative to joint written instructions, NRC, SELECT or Shareholders
may give a notice (a "Claim Notice") to the other party and the Escrow
Agent to the effect that a Claim on all or part of the Escrow Fund (and
accrued interest thereon) has been resolved, which notice shall set forth
the amount of the Claim to be delivered to NRC, SELECT or Shareholders, if
any, and shall have appended a copy of a judicial order, judgment or decree
which evidences a resolution of the Claim, including a certification that
neither party has filed an appeal or that any appeal which has been filed
has been finally resolved.
(b) Upon receipt of the Claim Notice with all necessary
attachments, or upon receipt of joint written instructions, the Escrow
Agent shall promptly deliver to NRC, SELECT or Shareholders the amount due
such party as set forth in the Claim Notice, if any, or the amount due such
party as set forth in the joint written instructions.
(c) NRC or SELECT may file Claims on both the Escrow Fund
and any interest thereon, less disbursement made of net income under
Section 4 hereof. If a Claim on less than all of the Escrow Fund and any
interest thereon is filed and all or any part of such Claim is ultimately
paid to NRC or SELECT, then, in addition to the amount of the Claim
required to be paid to NRC or SELECT as a result of joint written
instructions or a Claim Notice, the Escrow Agent shall pay to NRC, out of
any remaining Escrow Fund and any interest thereon, an amount of interest
equal to the interest allocable to the amount of the Claim actually paid to
NRC or SELECT from the date of the Initial Notice until the date all or any
part of the Claim is paid to NRC, less disbursements made of net income
under Section 4 hereof.
(d) With respect to all amounts held in the Escrow Account
(and the interest thereon), the Escrow Termination Date shall be the
earlier of:
(i) September 1, 1998, or
(ii) the date the Escrow Agent no longer holds any
funds hereunder as a result of prior Claims, joint
written instructions or Claim Notices.
On the Escrow Termination Date, the Escrow Agent shall deliver any
remaining Escrow Fund, including any accrued interest thereon, less
disbursements of net income made under Section 4 hereof, to the
Representative, unless an Initial Notice, Claim, or Claim Notice is
pending, in any of which cases the amount claimed, together with interest
on the amount claimed from the date of the Initial Notice to the Escrow
Termination Date, shall be retained by the Escrow Agent until a resolution
of such pending Claims. Upon final resolution of the pending Claims and
disbursements of the amounts retained by the Escrow Agent in accordance
with Claim Notices or joint written instructions, this Escrow Agreement
shall terminate. All assets distributed by Escrow Agent to Shareholders
hereunder shall be distributed to the Representative for the benefit of the
Shareholders. It shall be the responsibility of the Representative to
distribute to each Shareholder his portion of the assets distributed from
the Escrow Account in accordance with the Merger Consideration Allocation
in EXHIBIT "C" of the Merger Agreement.
(e) The Representative of the Shareholders appointed in
Section 21.10 of the Merger Agreement is authorized (i) to take all actions
permitted hereunder by the Shareholders, including joint instructions,
Counter Notices, and Claim Notices on behalf of the Shareholders, (ii) to
agree to, dispute or settle and compromise any Claim, Counter Notice and
Claim Notice given hereunder for and on behalf of the Shareholders, (iii)
to receive and respond to any notice or other communication given to the
Shareholders hereunder and (iv) to receive all payments on behalf of the
Shareholders pursuant to this Escrow Agreement. The Escrow Agent, NRC and
SELECT shall be fully protected in dealing exclusively with the
Representative as the authorized agent of the Shareholders and the
Shareholders shall indemnify and hold harmless the Escrow Agent, NRC and
SELECT from any liability arising out of or in connection with the
authorization herein granted the Representative to act for and on behalf of
the Shareholders.
SECTION 4. For tax purposes, interest earned on the Escrow Fund shall
be taxed to the Shareholders in proportion to their share of the Merger
Consideration as shown on EXHIBIT "C" of the Merger Agreement, except only
so much of same that is actually distributed to NRC during any tax period.
The Shareholders shall furnish the Escrow Agent with their taxpayer
identification numbers simultaneously upon execution of this Escrow
Agreement and a statement from the Shareholders that they are not subject
to backup withholding. The Escrow Agent shall disburse to the
Representative for distribution to the Shareholders, in accordance with the
Merger Consideration Allocation in EXHIBIT "C" of the Merger Agreement,
thirty percent (30%) of the net income earned during each calendar year
within thirty (30) days after the end of such year.
SECTION 5. With respect to the Escrow Stock, the following provisions
shall apply:
(a) Each stock certificate evidencing Escrow Stock shall be
in the name of "SouthTrust Bank, N.A., as Escrow Agent under Escrow
Agreement dated August 29, 1997."
(b) Whenever a disbursement is made from the Escrow Fund,
such disbursement shall be prorata between the money and the NRC Common
Stock deposited in escrow with respect to each Shareholder in accordance
with EXHIBIT "C" of the Merger Agreement. For this purpose, the value of
the Escrow Stock shall be determined in accordance with Section 5(c) below.
(c) The value of the NRC Common Stock for purposes of
paying any portion of the Escrow Funds to NRC or SELECT shall be the
closing sale price of such stock on the NASDAQ National Market (as reported
by the WALL STREET JOURNAL) on the fifth trading day preceding the date of
distribution.
(d) Whenever a distribution of Escrow Stock is made from
the Escrow Fund, the Escrow Agent shall effect such distribution by
delivering the Escrow Stock to the transfer agent with appropriate
instructions to reissue the stock certificate(s) to the persons entitled
thereto.
(e) While the NRC Common Stock is held in escrow, each
Shareholder depositing such stock with the Escrow Agent shall be entitled
to instruct the Escrow Agent regarding the voting of his shares and shall
be entitled to all dividends declared thereon, except that NRC stock issued
pursuant to a stock dividend, stock split, or other transaction affected
without consideration shall continue to be held in the Escrow Fund.
SECTION 6. All notices and other communications under this Escrow
Agreement shall (a) be in writing (which shall include communications by
facsimile), (b) be (i) sent by registered mail or certified mail, postage
prepaid, return receipt requested or by facsimile, or (ii) delivered by
hand, (c) be given at the following respective addresses and facsimile
numbers and to the attention of the following persons:
(i) If to Shareholders, to:
Thomas L. Patterson
Shareholder Representative
1010 Inverness Center Parkway, Suite 140
Birmingham, Alabama 35242
Telephone: (205) 995-9898
Facsimile: (205) 995-8640
(with a copy to:)
Thomas A. Ritchie, Esq.
Ritchie & Rediker, L.L.C.
312 North 23rd Street
Birmingham, Alabama 35203-3878
Telephone: (205) 251-1288
Facsimile: (205) 324-7832
(ii) If to NRC, to:
Nichols Research Corporation
4040 Memorial Parkway South
Huntsville, Alabama 35802-1326
Attention: Chief Executive Officer
Telephone: (205) 883-1140
Facsimile: (205) 880-0367
(with a copy to:)
Lanier Ford Shaver & Payne P.C.
200 West Court Square, Suite 5000
P.O. Box 2087
Huntsville, Alabama 35804
Attention: John R. Wynn, Esq.
Telephone: (205) 535-1100
Facsimile: (205) 533-9322
(iii) If to SELECT, to:
Nichols Select Corporation
c/o Nichols Research Corporation
4040 Memorial Parkway South
Huntsville, Alabama 35802
Attention: Michael J. Mruz
Telephone: (205) 883-1140
Facsimile: (205) 880-0367
(with a copy to:)
Lanier Ford Shaver & Payne P.C.
200 West Court Square, Suite 5000
P.O. Box 2087
Huntsville, Alabama 35804
Attention: John R. Wynn, Esq.
Telephone: (205) 535-1100
Facsimile: (205) 533-9322
(iv) If to the Escrow Agent, to:
SouthTrust Bank, N.A.
P.O. Box 267
Huntsville, Alabama 35804
Attention: Richard George
Telephone: (205) 551-4126
Facsimile: (205) 551-4038
or at such other address or facsimile number or to the attention of such
other person as the party to whom such information pertains may hereafter
specify for the purpose in a notice to the other specifically captioned
"Notice of Change of Address," and (d) be effective or deemed delivered or
furnished (i) if given by mail, on the third day after such communication
is deposited in the mail, addressed as above provided, (ii) if given by
facsimile, when such communication is transmitted to the appropriate number
determined as above provided in this Section 6 and the appropriate
acknowledgement is received and (iii) if given by hand delivery, when left
at the address of the addressee addressed as above provided, except that
notices of a change of address or facsimile number shall not be deemed
furnished until received.
SECTION 7. (a) The Escrow Agent shall not be under any duty to give
the property held hereunder any greater degree of care than it gives its
own similar property.
(b) The Escrow Agent may act in reliance upon any
instrument or signature believed to be genuine and may assume that any
person purporting to give any writing, Initial Notice, Counter Notice,
Claim Notice, Claim, advice or instruction in connection with the
provisions hereof has been duly authorized to do so.
(c) The Escrow Agent may act relative hereto upon advice of
counsel in reference to any matter connected herewith and shall not be
liable for any acts or omissions unless caused by its negligence or willful
misconduct.
(d) This Escrow Agreement sets forth exclusively the duties
of the Escrow Agent with respect to any and all matters pertinent hereto
and no implied duties or obligations shall be read into this Escrow
Agreement against the Escrow Agent.
(e) The Escrow Agent makes no representation as to the
validity, value, genuineness or the collectibility of any security or
document, or instrument or property held or delivered to it.
(f) NRC and Shareholders agree that they shall be equally
responsible for the payment of all reasonable expenses, disbursements and
advances incurred or made by the Escrow Agent in performance of such duties
hereunder, including reasonable fees, expenses and disbursements of its
counsel. The Shareholders' share of any such fees and expenses of the
Escrow Agent may be withheld and paid from the Escrow Fund. The
immediately preceding sentence survives, despite any termination of this
Escrow Agreement or the resignation or removal of the Escrow Agent.
(g) The Escrow Agent does not have and will not have any
interest in any of the Escrow Fund deposited or held hereunder but is
serving only as escrow holder and having only possession thereof.
(h) All Escrow Fund received by the Escrow Agent shall be
invested and reinvested by the Escrow Agent in treasury notes not having a
greater maturity than one year which may be purchased through SouthTrust
Securities, Inc., except the Escrow Agent may hold a sufficient amount in a
money market fund (which may include a money market fund of the Escrow
Agent or its affiliate) to meet anticipated distributions.
(i) In the event the Escrow Agent before the termination of
the escrow created by this Escrow Agreement receives or becomes aware of
conflicting demands or claims with respect to this escrow or the rights of
any of the parties hereto, or any funds, securities, property or documents
deposited herein or affected hereby, the Escrow Agent shall have the right
to discontinue any or all further acts on its part until such conflict is
resolved to its satisfaction. The Escrow Agent shall have the further
right but not the obligation to commence or defend any action or
proceedings for the determination of such conflict including, but without
limiting the generality of the foregoing, a suit in interpleader brought by
the Escrow Agent. In the event the Escrow Agent files a suit in
interpleader and delivers to the court all funds, securities, property or
documents then in deposit hereunder, it shall thereupon be fully released
and discharged from all further obligations to perform any and all duties
or obligations imposed upon it by this Escrow Agreement. NRC and
Shareholders agree that they shall be equally responsible for the payment
of all costs, damages, judgments and expenses, including reasonable
attorneys' fees, suffered or incurred by the Escrow Agent in connection
with or arising out of its escrow (except those caused by Escrow Agent's
own negligence or willful misconduct). However, as between NRC and the
Shareholders, the nonprevailing party with respect to a Claim shall be
required to pay the costs and expenses of the prevailing party including
the prevailing party's share of all of the costs, damages and expenses of
the Escrow Agent, if any.
(j) The Escrow Agent shall not be liable for any error of
judgment or for any act done or omitted by it in good faith, or for
anything which it may in good faith do or refrain from doing in connection
herewith; nor shall the Escrow Agent be liable if, in the event of any
dispute or question as to its duties or obligations hereunder, it acts in
accordance with written opinion of its legal counsel, which may include
attorneys who are members of or who are employed by the Escrow Agent. The
Escrow Agent is authorized to act upon any document believed by it to be
genuine and to be signed by the proper party or parties and will incur no
liability in so acting.
SECTION 8. (a) This Escrow Agreement and the Merger Agreement
constitute the entire understanding among the parties in connection with
the subject matter hereof,
and no waiver or modification of the terms hereof shall be valid unless in
writing signed by the party to be charged and only to the extent therein
set forth.
(b) This Escrow Agreement shall be governed by and
construed in accordance with the internal substantive laws and not the
choice of laws rules of the State of Alabama.
(c) This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto, their respective heirs,
administrators, executors, successors and assigns.
(d) This Escrow Agreement may be executed in any number of
counterparts, each of which shall be deemed an original of this Escrow
Agreement and all of which taken together shall constitute one and the same
instrument.
(e) If one or more provisions of this Escrow Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Escrow Agreement and the balance of this Escrow
Agreement shall be enforceable in accordance with its terms.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Escrow Agreement the day and year first above written.
NICHOLS RESEARCH CORPORATION, a
Delaware corporation
Michael J. Mruz
By ____________________________
Its President
"NRC"
NICHOLS SELECT CORPORATION, a
Delaware corporation
Michael J. Mruz
By _____________________________
Its Chief Executive Officer
"SELECT"
SOUTHTRUST BANK, N.A.
Richard George
By ____________________________
Its Senior Vice President
"Escrow Agent"
SHAREHOLDERS OF TXEN, INC.:
Philip Bowling
___________________________________
Philip Bowling
Billy E. Callans
___________________________________
Billy E. Callans
William L. Crocker
___________________________________
William L. Crocker
Jeffrey J. Fisher
___________________________________
Jeffrey J. Fisher
Gregory L. Fuller
___________________________________
Gregory L. Fuller
Noel Gartman
___________________________________
Noel Gartman
Robert D. Goodworth
___________________________________
Robert D. Goodworth
Chris H. Horgen
___________________________________
Chris H. Horgen
Bryan V. Jennings
___________________________________
Bryan V. Jennings
Amy E. Knowles
___________________________________
Amy E. Knowles
Scott McFarland
___________________________________
Scott McFarland
Patricia R. Mize
___________________________________
Patricia R. Mize
Todd K. Morgan
___________________________________
Todd K. Morgan
Nancy R. Onaka
___________________________________
Nancy R. Onaka
Thomas L. Patterson
___________________________________
Thomas L. Patterson
Paul D. Reaves
___________________________________
Paul D. Reaves
Roy T. Sailor
___________________________________
Roy T. Sailor
Steven A. Selikoff
___________________________________
Steven A. Selikoff
Annie M. Till
___________________________________
Annie M. Till
Maxine Wade
___________________________________
Maxine Wade
Richard G. Waggener
___________________________________
Richard G. Waggener
David A. Watts
___________________________________
David A. Watts
Terence A. Weber
___________________________________
Terence A. Weber
H. Grey Wood
_____________________________________________
H. Grey Wood
Board of Trustees of the University of
Alabama, for use of and on behalf of the
University of Alabama, Tuscaloosa, Alabama
Robert A. Wright
By: _________________________________________
Its Vice President for Financial
Affairs and Treasurer
Reba J. Essary
By: _________________________________________
Its Comptroller Associate Treasurer
Thomas L. Patterson
______________________________________________
Thomas L. Patterson, Trustee of the Patterson
Family Charitable Unitrust, established
August 5, 1997
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO CERTAIN EMPLOYMENT AGREEMENT, dated 16th of
December, 1994, is entered into on this the 29th day of August, 1997, by
NICHOLS SELECT CORPORATION, a Delaware corporation and the wholly owned
subsidiary of NRC, and Thomas L. Patterson, ("Employee"). Unless otherwise
defined, capitalized terms used herein shall have the meaning ascribed to
such terms in the Employment Agreement or Merger Agreement (hereinafter
defined).
W I T N E S S E T H:
WHEREAS, Nichols Research Corporation ("NRC"), SELECT, a wholly owned
subsidiary of NRC, TXEN, Inc. ("TXEN"), and the holders of all of the
$0.002 par value Class A Common Stock of TXEN (the "Shareholders") have
entered into and consummated an Agreement of Merger dated as of August 27,
1997 (the "Merger Agreement") whereby TXEN merged with and into SELECT;
WHEREAS, the Employee's continued employment with SELECT was a
material inducement to SELECT and NRC to enter into the Merger Agreement;
WHEREAS, the Employee owned Class A Common Stock of TXEN and received
a portion of the Merger Consideration;
WHEREAS, NRC, pursuant to Section 2 of Employment Agreement has
elected to extend Employee's Term of Employment after the Effective Date of
the merger of TXEN into SELECT; and
WHEREAS, NRC, SELECT, and Employee mutually desire that Employee
continue to be employed by SELECT;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement
as follows:
1. SELECT agrees to the continued employment of the
Employee, and the Employee agrees to accept continued employment
by SELECT on a full-time basis as President of SELECT with the
same Duties and Salary as set forth in the Employment Agreement,
except that Employee shall report to the Chief Executive Officer
of SELECT.
2. Section 2 of said Employment Agreement is amended to
read as follows:
2. TERM OF EMPLOYMENT. This Agreement shall commence as
of the Effective Date of the Merger Agreement and shall end
two (2) years from the date hereof (the "Term of
Employment"), unless terminated earlier or extended as
provided herein.
3. Unless the context requires otherwise, all references
to TXEN, Inc., in the Employment Agreement shall mean SELECT.
Except as amended above, the Employment Agreement shall remain in full
force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
to Employment Agreement on the date and year first above written.
NICHOLS SELECT CORPORATION
Michael J. Mruz
By:________________________________
Michael J. Mruz,
Its: Chief Executive Officer
Thomas L. Patterson
___________________________________
Thomas L. Patterson, Employee
<PAGE>
FOR IMMEDIATE RELEASE
August 29, 1997
CONTACT: Patsy L. Hattox
Vice President, Investor
and Media Relations
(205)883-1170, Ext. 1447
E-Mail: [email protected]
NICHOLS RESEARCH COMPLETES PURCHASE OF TXEN, INC.
HUNTSVILLE, ALABAMA - Nichols Research Corporation announced today the
closing of the transaction to purchase the remaining 80.1% of TXEN, Inc.,
for $43.8 million in stock and cash. The merger of TXEN, Inc., into Nichols
SELECT Corporation, the Healthcare Business subsidiary of Nichols Research,
will be effective August 31, 1997.
For the fiscal year ended June 30, 1997, TXEN had approximately $15.0
million in revenues and approximately $3.4 million of net income. This
transaction is expected to be accretive to Nichols' earnings per share in
fiscal year 1998. As a result of the acquisition, Nichols will take a
pretax charge in the fourth quarter of fiscal year 1997 related to the
write-off of purchased in-process research and development.
Nichols Research Corporation, headquartered in Huntsville, Alabama,
provides information technology (IT) and technical services for the
Department of Defense, Federal civilian agencies, state government clients,
and commercial clients. The Company has 28 locations throughout the United
States with approximately 2,300 employees and consultants. Additional
information may be found at Nichols Web site: www.nichols.com. The
Company's stock is traded on the Over-The-Counter Market under the Nasdaq
symbol: NRES
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS RELEASE CON-
TAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES ARE DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1996, INCLUDING THE MANAGE-
MENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERA-
TIONS SECTION OF THAT ANNUAL REPORT.
<PAGE>
TXEN, Inc.
Financial Statements
YEARS ENDED JUNE 30, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
TXEN, Inc.
Financial Statements
Years ended June 30, 1997 and 1996
CONTENTS
Report of Independent Auditors.............................1
Audited Financial Statements
Balance Sheets.............................................2
Statements of Operations...................................4
Statements of Changes in Stockholders' Equity..............5
Statements of Cash Flows...................................6
Notes to Financial Statements..............................7
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
TXEN, Inc.
We have audited the accompanying balance sheets of TXEN, Inc. as of June 30,
1997 and 1996, and the related statements of operations, changes in stock-
holders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our responsi-
bility is to express an opinion on these financial statements based on our
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signifi-
cant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TXEN, Inc. at June 30, 1997
and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1996 the Company changed
its method of accounting for depreciation.
Ernst & Young LLP
August 1, 1997
<PAGE>
TXEN, Inc.
Balance Sheets
June 30
1997 1996
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents $1,146,224 $ 630,685
Accounts receivable, net of allowance
for doubtful accounts of $125,000
and $35,000 at June 30, 1997 and
1996, respectively 4,770,342 1,096,365
Prepaid expenses 111,156 84,963
Income taxes receivable - 24,800
Deferred income taxes 211,265 300,666
Inventory 15,056 16,965
Other 347 4,206
-------------------------------
Total current assets 6,254,390 2,158,650
Property and equipment, net 2,917,126 2,271,932
Deferred software development 661,451 -
-------------------------------
Total assets $9,832,967 $4,430,582
===============================
<PAGE>
June 30
1997 1996
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholder $ 8,333 $ 8,333
Customer deposits - 128,518
Accounts payable and accrued expenses 722,067 170,868
Accrued salaries, bonuses and vacation 398,313 208,632
Income taxes payable 433,134 -
Current portion of long-term debt 275,411 252,757
Short-term notes - 135,142
Deferred revenue 2,048,538 1,070,910
Interest payable 231,239 -
Accrued officers salaries 288,000 -
Other 2,581 7,061
------------------------------
Total current liabilities 4,407,616 1,982,221
Interest payable - 199,929
Accrued officers salaries - 288,000
Deferred income taxes 394,956 124,007
Long-term debt to stockholders 274,193 258,193
Long-term debt 366,423 639,274
Stockholders' equity:
Preferred stock, $.002 par value; 1 share
authorized, -0- shares and 1 share issued
and outstanding at 1997 and 1996,
respectively - 1,500,000
Class A common stock, $.002 par value;
5,000,000 shares authorized, 4,000,500
and 5,000,000 shares issued and out-
standing at 1997 and 1996, respectively 8,001 10,000
Class B common stock, $.002 par
value; 1,250,000 shares authorized,
999,500 and -0- shares issued and
outstanding at 1997 and 1996, respectively 1,999 -
Additional paid-in capital 1,909,500 409,500
Retained earnings (deficit) 2,889,112 (531,759)
Notes receivable from stockholders (418,833) (448,783)
-------------------------------
Total stockholders' equity 4,389,779 938,958
-------------------------------
Total liabilities and stockholders' equity $9,832,967 $4,430,582
===============================
See accompanying notes.
<PAGE>
TXEN, Inc.
Statements of Operations
Year Ended June 30
1997 1996
-------------------------------
Net revenues $14,979,761 $6,859,678
Cost of sales 1,786,460 676,029
Selling and administrative expenses 7,784,270 6,460,910
Other income (expense):
Interest expense (88,090) (153,355)
Interest income 75,272 103,069
Gain on sale of asset - 50
Other 3,943 201
-------------------------------
Total other income (expense) (8,875) (50,035)
-------------------------------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle 5,400,156 (327,296)
Income tax (expense) benefit (1,979,285) 92,705
------------------------------
Income (loss) before cumulative effect
of a change in accounting principle 3,420,871 (234,591)
Cumulative effect on prior years (June 30,
1995) of changing to a different deprecia-
tion method (net of $32,252 of taxes) - 81,615
-------------------------------
Net income (loss) $ 3,420,871 $ (152,976)
===============================
Pro forma amount assuming the depreciation
method adopted in 1996 was applied
retroactively:
Net income (loss) $ (234,591)
==========
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
TXEN, Inc.
Statements of Changes in
Stockholders' Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Class B Additional Retained Notes
Preferred Common Common Paid-in Earnings Receivable Total
Stock Stock Stock Capital (Deficit) from Stockholders'
Stockholders Equity
-------------------------------------------------------------------------------------------------
Balance, June 30, 1995 $ 1,500,000 $ 10,000 $ - $ 409,500 $ (378,783) $ (437,482) $1,103,235
Issuance of notes receivable
from stockholders - - - - - (64,740) (64,740)
Payments received on notes - - - - - 89,335 89,335
Accrued interest on notes - - - - - (35,896) (35,896)
Net Loss - - - - (152,976) - (152,976)
-------------------------------------------------------------------------------------------------
Balance, June 30, 1996 1,500,000 10,000 - 409,500 (531,759) (448,783) 938,958
Issuance of notes receivable
from stockholders - - - - - (16,000) (16,000)
Conversion of preferred stock (1,500,000) - 1,999 1,498,001 - - -
to common stock
Contribution of common stock - (1,999) - 1,999 - - -
to treasury and subsequent
retirement
Payments received on notes - - - - - 72,627 72,627
Accrued interest on notes - - - - - (26,677) (26,677)
Net income - - - - 3,420,871 - 3,420,871
-------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $ - $ 8,001 $ 1,999 $1,909,500 $2,889,112 $ (418,833) $4,389,779
=================================================================================================
See accompanying notes.
</TABLE>
<PAGE>
TXEN, Inc.
Statements of Cash Flows
Year ended June 30
1997 1996
-------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 3,420,871 $ (152,976)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 708,952 531,856
Cumulative effect of change in
accounting principle, net of
tax of $32,252 - (81,615)
Deferred income taxes 360,350 (64,300)
Provision for doubtful accounts 90,000 (65,000)
Gain on sale of equipment - (50)
Loss on sublease - 5,790
Changes in operating assets and
liabilities:
Accounts receivable (3,763,977) 44,264
Prepaid expenses (26,193) (35,615)
Income taxes receivable 24,800 (6,902)
Inventory 1,909 2,752
Other (621) 1,275
Interest payable 31,310 29,373
Customer deposits (128,518) 4,006
Accounts payable and accrued expenses 551,199 (156,294)
Accrued salaries, bonuses and vacation 189,681 75,819
Income taxes payable 433,134 -
Deferred revenue 977,628 436,963
-------------------------------
Net cash provided by operating activities 2,870,525 569,346
INVESTING ACTIVITIES
Purchases of property and equipment (1,328,259) (1,060,284)
Additions to deferred software (687,338) -
development costs ------------------------------
Net cash used in operating activities (2,015,597) (1,060,284)
FINANCING ACTIVITIES
Principal payments on long-term debt (250,197) (188,562)
Notes payable (135,142) 135,142
Payments on debt to stockholders - (9,000)
Increase in debt to stockholders 16,000 63,474
Principal payments on note payable to - (41,667)
stockholder
Increase in notes receivable from stockholders 29,950 (11,301)
-------------------------------
Net cash used in financing activities (339,389) (51,914)
-------------------------------
Net increase (decrease) in cash and
cash equivalents 515,539 (542,852)
Cash and cash equivalents at beginning
of year 630,685 1,173,537
-------------------------------
Cash and cash equivalents at end of year $ 1,146,224 $ 630,685
===============================
See accompanying notes.
<PAGE>
TXEN, Inc.
Notes to Financial Statements
June 30, 1997 and 1996
1. ACCOUNTING POLICIES
Organization
- ------------
TXEN, Inc. (the Company) facilitates the administration of health benefits by
providing healthcare organizations hardware and software solutions through
either outsourcing or turnkey agreements primarily in the United States. The
Company also provides data processing services through management service
organization (MSO) agreements.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue Recognition
- -------------------
Outsourcing/MSO: Outsourcing and MSO fees are recognized in the period they
are earned.
System Sales: Software license fees and equipment revenue are recognized upon
delivery of the software product to the customer, unless the Company has
significant related obligations remaining. Revenue requiring any significant
obligations to customers is deferred and recognized once the remaining obliga-
tions become insignificant.
Professional Services: Revenue from professional services is recognized either
(i) as the services are performed based on the Company's standard rates for the
applicable services; or, (ii) as contract milestones are achieved, if specified
and required under the contract with the customer. Revenue from postcontract
customer support is recognized in the period the customer support services are
provided.
Concentration of Credit Risk and Financial Instruments: Financial instruments
which subject the Company to credit risk are primarily trade accounts receiv-
able. Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number and diversity of customers comprising the
Company's customer base. Management believes that any risk associated with
trade accounts receivable is adequately provided for in the allowance for
doubtful accounts. The Company generally does not require collateral on its
trade accounts receivable.
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
Software Development Costs
- --------------------------
Under Statement of Financial Accounting Standards No. 86, "Accounting for Soft-
ware Costs", once technological feasibility is established related to software
development costs for new products or for enhancements to existing products
which extend the product's useful life, the costs are capitalized until the
product or enhancement is available for release to customers, after which the
capitalized costs are amortized over the product's estimated life giving con-
sideration to estimates of recoverability and net realizable value. Total
costs capitalized for software development were $687,338 and $-0- during the
years ended June 30, 1997 and 1996, respectively.
Capitalized software development costs are being amortized over five years.
Accumulated amortization of capitalized software development cost was $25,887
at June 30, 1997. The Company capitalized interest cost of $27,177 for the
year ended June 30, 1997 related to software development costs.
Inventory
- ---------
Inventory is carried at the lower of cost or market using the specific identi-
fication method.
Property and Equipment and Change in Depreciation Method
- --------------------------------------------------------
Property and equipment is stated on the basis of cost. Property and equip-
ment are depreciated over the estimated useful lives of the assets (generally
three to seven years). Depreciation and amortization had been provided using
the straight-line method for items purchased prior to July 1, 1994, and
double-declining balance for items purchased after July 1, 1994. During the
year ended June 30, 1996 the Company adopted the straight-line method of
depreciation for all assets. The new method of depreciation was adopted to
better match the cost of the property and equipment with the revenues genera-
ted by those assets and has been applied retroactively to property and
equipment acquired in prior years. The effect of the change in fiscal 1996 was
to decrease loss before cumulative effect of the change in accounting princi-
ple by approximately $28,400. The adjustment of $81,615 (after reduction for
income taxes of $32,252) to apply retroactively the new method, is included
in net loss for fiscal 1996.
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
Income Taxes
- ------------
All income tax amounts and balances have been computed in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under Statement No. 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Stock Options
- -------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpreta-
tions in accounting for its employee stock options because the alternative fair
value accounting provided for under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of the grant, no compensation expense is recognized.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1997 1996
-------------------------------
Computer equipment $ 3,015,586 $2,161,657
Software 334,518 285,443
Furniture and fixtures 1,112,140 922,812
-------------------------------
4,462,244 3,369,912
Less accumulated depreciation (1,545,118) (1,097,980)
-------------------------------
$ 2,917,126 $2,271,932
===============================
3. LONG-TERM DEBT AND LINES OF CREDIT
The Company has two revolving credit lines with a bank payable on demand
totaling $1,000,000 which are collateralized by certain assets of the Company
and the general guaranty of the primary stockholders. There were no borrowings
under the credit lines at June 30, 1997 and 1996.
On March 17, 1994, the Company borrowed $1,342,719 from the bank under a long-
term note. The note, which has a balance of $641,834 and $892,031 at June 30,
1997 and 1996, respectively, and matures on October 17, 1998, bears interest at
prime plus 1/2% and is cross-collateralized with assets pledged under the
revolving credit lines.
Annual maturities of long-term debt are as follows: 1998 - $275,411 and 1999
- - $366,423.
The Company incurred $19,500 and $54,474 during the years ended June 30, 1997
and 1996, respectively, of long-term debt to two stockholders for the purchase
of common stock of the Company that was then sold to various employees of the
Company in exchange for notes receivable. Interest accrues at 8.0% and matures
on October 1, 1997.
The Company paid $115,268 and $146,975 in interest during the years ended June
30, 1997, and 1996, respectively.
4. LEASES
The Company operates in leased premises and also leases certain equipment.
The future minimum lease payments under operating leases for the next five
years and in the aggregate are as follows:
1998 $277,588
1999 98,065
2000 224,200
--------
$599,853
========
Rent expense for the year ended June 30, 1997 and 1996 was $251,985 and
$263,668, respectively. The Company is also subleasing space to another tenant
over the next two years. The total estimated minimum sublease rentals to be
received in the future under this sublease are $6,642 and $33,209 at June 30,
1997 and 1996, respectively.
5. STOCKHOLDERS' EQUITY
On December 16, 1994, the Company entered into a Stock Purchase Option Agree-
ment with a third-party. Under the terms of the agreement, the Company sold
sold one share of convertible preferred stock to the third-party for
$1,500,000. The Company also authorized 1,250,000 shares of Class B common
stock which was reserved for issuance upon the conversion of the preferred
stock.
On July 17, 1996, the Stock Purchase Option Agreement with the holder of the
preferred stock was amended to allow the holder of the preferred stock to
accelerate the date to exercise the option to purchase all of the issued and
outstanding Class A common stock of the Company. The option is exercisable
for a period of thirty days after release of the Company's audited financial
statements for the year ended June 30, 1997. The holder of the preferred stock
converted all of the preferred stock to Class B common stock which is a
condition precedent to the right to exercise the option to purchase all of the
outstanding shares of Class A common stock of the Company. The Company
expects the option to be exercised which will require all related party
balances to be settled prior to the purchase. As a result, accrued officers
salaries and the related interest payable have been classified as current
liabilities on the balance sheet.
6. INCOME TAXES
The Company paid $1,161,001 and $-0- in income taxes during the years ended
June 30, 1997 and 1996, respectively.
Significant components of the Company's current deferred tax liabilities and
assets at June 30, 1997 and 1996 are as follows:
1997 1996
------------------------------
Deferred tax liabilities:
Tax over book depreciation $ 259,692 $ 228,320
Software development costs 239,578 -
-----------------------------
499,270 228,320
Deferred tax assets:
Allowance for doubtful accounts 45,275 12,677
Accrued salaries and interest 188,068 184,877
Accrued leave 77,914 44,477
Other 4,322 5,943
Net operating loss carryforwards - 157,005
------------------------------
Total deferred tax assets 315,579 404,979
------------------------------
Net deferred tax (liability) assets $ (183,691) $ 176,659
==============================
Significant components of the provision for income taxes (benefit) are as
follows:
1997 1996
------------------------------
Current:
Federal $ 1,598,610 $ 3,847
State 163,325 -
Benefit of operating loss carryforward (143,000) -
------------------------------
Total current 1,618,935 3,847
Deferred:
Federal 314,150 (56,056)
State 46,200 (8,244)
------------------------------
Total deferred 360,350 (64,300)
------------------------------
$ 1,979,285 $ (60,453)
==============================
7. RELATED PARTY TRANSACTIONS
The Company has a note payable to a stockholder of the Company for $8,333 at at
June 30, 1997 and 1996 bearing interest at 8%. Payment of the principal
balance and accrued interest will be made upon demand except where the
Company is restricted from doing so by any agreements with third-parties in
force at that time.
The Company has notes and accrued interest receivable from stockholders of
the Company of $418,833 and $448,783 at June 30, 1997 and 1996, respect-
tively, which bear interest at 8%.
The Company incurred $269,202 in expenses with an affiliated company for con-
tracted services of which $38,857 is included in accounts payable at June 30,
1997. The Company had $188,037 of revenue from an affiliated company during
the year ended June 30, 1997.
8. SAVINGS AND RETIREMENT PLAN
The Company has a savings and retirement plan (Plan) for all eligible
employees pursuant to Section 401(k) of the Internal Revenue Code. The Company
will match employee contributions to the Plan at a level determined
annually by the Company's Board of Directors. The Company's contribution for
the years ended June 30, 1997 and 1996 was $6,009 and $3,400, respectively.
9. STOCKHOLDERS' AGREEMENT
Certain members of management are also stockholders of the Company and owned
approximately 60% of the Class A common stock at June 30, 1997. Under a
stock purchase agreement, the Company is committed to purchase management's
common stock in the event of death, retirement or termination of employ-
ment. The price to be paid for the common stock is set by formula in the
Employee Stock Purchase Agreement. As discussed in Note 5, the holder of the
Class B common stock has the right to exercise an option to purchase all of
the outstanding shares of Class A common stock of the Company for a period of
30 days after release of the Company's audited financial statements for
the year ended June 30, 1997 which would include all the stock held by members
of management.
10. CONTINGENCY
The Company entered into an agreement with a customer whereby the Company must
deliver the final version of software currently under development by August 1,
1999. If the software is not ready to be released to the customer by
August 1, 1999, the Company must pay a penalty of $195,000. Management
estimates that delivery of the software under development will occur prior to
the deadline and no penalty will be incurred and, therefore, no accrual
for this contingency has been recorded in the financial statements.
11. STOCK OPTION PLANS
During 1996, the Board of Directors approved the TXEN, Inc., 1996 Incentive
Stock Option Plan which authorized the issuance of options to purchase up to
100,000 shares of common stock and the Key Employee Incentive Stock Option
Plan which authorized the issuance of options to purchase up to 40,000 shares
of common stock. All options under the 1996 Plans have 5-year terms. Incen-
tive stock options vest and become exercisable at the end of 2 years of
continued employment while non-qualified stock options are exercisable upon
grant. Pro forma information regarding net income is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method required by SFAS 123. The fair value for
these options was estimated at the date of grant using the minimum value method
with the following assumptions for 1996: risk-free interest rates of 6.30%;
weighted-average expected life of the options of 4 years; no volatility factors
of the expected market price of the Company's common stock because the Company
is privately held; and no dividend yields.
If the Company had adopted SFAS 123 in accounting for its stock options granted
in fiscal year 1996, its net income would have been decreased by approximately
$31,000. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period.
The effect of applying pro-forma disclosures based on SFAS 123 are not likely
to be representative of the effects on future net income. As of June 30,
1996, there were no options which had been exercised. During fiscal 1997,
123,371 shares were granted with an exercise price of $6.20 and remain out-
standing at June 30, 1997. The weighted average fair value of options
granted during the year was $6.78 with a weighted average contractual life of
4.2 years.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the 16 day of December, 1994, by and
among Thomas L. Patterson, residing at 1013 Vista Circle, Birmingham,
Alabama (herein called the "Employee"), TXEN, INC. (herein called "TXEN")
with a principal place of business at 10 Inverness Center Parkway, Suite
140, Birmingham, Alabama 35242, 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, TXEN Company is engaged in the business of managed care
administration and providing information systems and services to managed
care administrators;
WHEREAS, NRC, as purchaser, and TXEN, as seller, entered into and
consummated a Convertible Preferred Stock Purchase Agreement dated as of
the date hereof (the "Purchase Agreement") whereby NRC acquired one share
of Preferred Stock of TXEN, and the Employee's continued employment with
TXEN was a material inducement to NRC to enter into the Purchase Agreement;
WHEREAS, NRC has also entered into a Stock Purchase Option Agreement
of even date herewith giving NRC the option to purchase all of the capital
stock of TXEN owned by the Employee together with the capital stock owned
by the other shareholders of TXEN provided NRC converts the Preferred Stock
into Class B Common Stock; and
WHEREAS, TXEN and NRC desire to obtain the services of the Employee as
President of TXEN and the Employee is willing to render such services to
TXEN 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) TXEN agrees to employ the Employee and the Employee agrees to
accept employment by TXEN on a full-time basis as President of TXEN at a
base salary of $8,000 per month payable during the Term of Employment, as
hereinafter defined. Such salary shall be subject to increases from time
to time as authorized by the Board of Directors of TXEN (the "Board"),
provided any increase in compensation paid to the Employee shall require
the affirmative vote of the director or directors elected to the Board by
NRC so long as NRC owns any capital stock of TXEN.
(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 TXEN'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.
(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 TXEN, from
time to time and TXEN reserves the right to change the office and/or
position of the Employee within TXEN, 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 TXEN. The Employee shall not
provide services, for compensation, to any other person or business entity
while employed by TXEN without approval of the Board and NRC.
(e) The Employee shall not be required to relocate beyond the
Birmingham, Alabama, metropolitan area without his consent.
2. TERM OF EMPLOYMENT. This Agreement shall commence as of the date
hereof and shall end four years from the date hereof (the "Term of
Employment"), unless terminated earlier or extended as provided herein.
Upon expiration of the initial Term of Employment unless earlier terminated
as provided herein, the Term of 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. Notwithstanding the
foregoing, if NRC purchases all of the capital stock of TXEN pursuant to
the Stock Purchase Option Agreement, NRC may elect to (1) immediately
terminate the Employee's employment or (2) extend the Employee's employment
for one year after the purchase of all of the capital stock of TXEN by NRC
in which event the Term of Employment shall be extended by such additional
period, unless terminated earlier as provided herein.
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 TXEN, FOR CAUSE. Termination by TXEN shall be deemed to be
for cause only upon:
(i) Employee's conviction of or pleading guilty to a felony;
(ii) A good faith determination by the Board that the Employee
has breached either this Agreement, the Purchase Agreement
or the Stock Purchase Option Agreement;
(iii) Refusal or failure by the Employee, without reasonable
excuse or proper authorization, to carry out any reasonable
instructions of the Board consistent with Employee's rights
or duties as set forth in this Agreement;
(iv) Material breach of this Agreement or any material breach of
any agreement with NRC;
(v) 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 TXEN.
If TXEN intends to terminate for cause, TXEN 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. TXEN 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
TXEN.
(b) BY TXEN, WITHOUT CAUSE. Any termination of Employee by TXEN for
reasons other than as set forth in subsections 3(a)(i) through 3(a)(v)
above shall be a termination without cause. TXEN may terminate the
employment of Employee without cause by thirty (30) days' prior written
notice at any time. If NRC purchases all of the capital stock of TXEN
pursuant to the Stock Purchase Option Agreement, NRC may cause TXEN to
terminate the employment of Employee without cause immediately after the
closing of such purchase and without giving 30 days' prior notice.
(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 other than for Good Reason (as defined below)
upon thirty (30) days' prior written notice at any time.
(ii) For "Good Reason," defined as termination because of a
material breach by TXEN 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 TXEN 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 TXEN 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, TXEN 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) DEATH OF THE EMPLOYEE.
(e) DISABILITY OF EMPLOYEE. If, during the Term of Employment, a
physician selected by TXEN 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 TXEN 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 TXEN for cause, or is by the Employee
for any reason other than for Good Reason, TXEN will pay the Employee
within five (5) days after the date of termination any unpaid salary, the
amount of any accrued annual vacation pay to which he may be entitled under
TXEN'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 TXEN without cause or because of death
or disability, TXEN shall pay to the Employee, in addition to the amounts
set forth in 4(a) above, an amount equal to fifty percent (50%) of the
Employee's monthly base salary then in effect in monthly installments over
a three-month period immediately following the termination.
(c) If the termination is by the Employee for Good Reason, TXEN shall
pay to the Employee, in addition to the amounts set forth in 4(a) above, an
amount equal to fifty percent (50%) of the Employee's monthly base salary
then in effect in monthly installments over a three-month period
immediately following the termination.
(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(b) and the
benefits set forth in any plans of TXEN 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(b) and
the benefits set forth in any plans of TXEN 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 TXEN (or NRC) to
Employee 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
TXEN in accordance with their terms and conditions which may be amended or
terminated by TXEN at any time.
6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS.
(a) Unless authorized or instructed in writing by TXEN and NRC, the
Employee shall not, except as required in the conduct of TXEN's business,
during or at any time after the Term of Employment, disclose to others, or
use, any of NRC's or TXEN's inventions or discoveries or their 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, including such inventions,
discoveries, information, 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 TXEN or obtained by NRC or TXEN from
third parties, and irrespective of whether or not such inventions,
discoveries, information, knowledge or data have been identified by NRC or
TXEN 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
TXEN's business, disclose to others, or use, any of the information (which,
if disclosed or used, could be harmful to NRC or TXEN) relating to present
and prospective customers of NRC or TXEN, business dealings with such
customers, prospective sales and advertising programs and agreements with
representatives or prospective representatives of NRC or TXEN, present or
prospective sources of supply or any other business arrangements of NRC or
TXEN, 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 TXEN or obtained by NRC or TXEN from third parties, and
irrespective of whether or not such information has been identified by NRC
or TXEN 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 TXEN or any
persons designated by it and to assign to TXEN 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 TXEN's premises), which inventions are made, discovered or
conceived either in the course of such employment, or with the use of
TXEN's time, material, facilities or funds, or which are directly related
to any investigations or obligations undertaken by TXEN; and the Employee
hereby grants and agrees to grant the right to TXEN 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 TXEN, at TXEN'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 TXEN, 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 TXEN or its nominees to effectuate
the vesting or perfecting in TXEN or its 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(c) which will cause undue personal hardship to the
Employee.
(d) The Employee agrees to disclose immediately to TXEN or any
persons designated by it and to assign to TXEN, 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 TXEN (either during or outside of the Employee's working hours and
either on or off TXEN's premises), which works are made or conceived either
in the course of such employment, or with the use of TXEN's time, material,
facilities or funds, or which are directly related to any investigations or
obligations undertaken by TXEN; and the Employee hereby agrees that all
such works are works made for hire, of which TXEN 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 TXEN at TXEN'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 TXEN, 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 TXEN or by its nominees to effectuate the
vesting or perfecting in TXEN 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 TXEN.
(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 TXEN's or NRC's business and plans, and those of others entrusted to
TXEN or NRC, 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 TXEN 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 TXEN or NRC.
7. NON-SOLICITATION AND NON-COMPETITION. During the Restriction Period
(as hereinafter defined) within the United States of America, the Employee
shall not directly or indirectly:
(a) Solicit the business of TXEN from any customer of TXEN or any
entity controlled by TXEN or solicit any employees of TXEN to leave the
employ of TXEN.
(b) Directly or indirectly, hire any employees or former employees of
TXEN or any entity controlled by TXEN within one year of the date of
termination of his employment with TXEN or cause any entity with which the
Employee is affiliated to hire any such employees or former employees of
TXEN.
(c) Engage in, represent in any way or be connected with, as
consultant, officer, director, partner, employee, sales representative,
proprietor, stockholder or otherwise (except for the ownership of a less
than 1% stock interest in a publicly-traded corporation where Employee is
not in a management or control position), any business competing with the
business of TXEN as conducted by TXEN on the date hereof or during the
period of Employee's employment by TXEN.
(d) As used herein, the Restriction Period shall mean the period
while the Employee is employed by TXEN and the following periods:
(i) 36 months after the date the Employee ceases to be employed
by TXEN and/or
(ii) 60 months after NRC purchases all of the capital stock of
TXEN pursuant to the Stock Purchase Option Agreement.
The above periods in sections 7(d)(i) and 7(d)(ii) shall not be
mutually exclusive. For example, if NRC purchases the capital stock of
TXEN more than 36 months after the Employee ceases to be employed by TXEN,
the Restriction Period of 7(d)(ii) shall apply even though the Restriction
Period of 7(d)(i) also applied. Similarly, if the Employee ceases to be
employed by TXEN more than 60 months after NRC purchases the capital stock
of TXEN, the Restriction Period of section 7(d)(i) shall apply even though
the Restriction Period of 7(d)(ii) also applied.
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 NRC, TXEN and any of their
affiliates harmless from any cost or damages (including attorneys' fees and
expenses) 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
TXEN 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 TXEN and NRC would suffer irreparable harm as a result and that NRC
and/or TXEN 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 TXEN and without the posting of any bond or
other security. Any breach of this Agreement by TXEN or NRC shall not
release the Employee from his obligations under Sections 6 and 7 hereof.
(b) The Employee hereby represents and acknowledges that NRC and TXEN
are relying on the covenants in Sections 6 and 7 in entering into this
Agreement and the Purchase Agreement and other agreements related thereto
and that the restrictions in Sections 6 and 7 are fair and reasonable. The
Employee acknowledges that TXEN does business throughout the United States
and that the geographic scope of the covenants in Section 7 is therefore
reasonable and necessary to protect the interests of TXEN.
(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.
10. ASSIGNMENT.
The rights and obligations of TXEN under this Agreement may be
assigned by TXEN to NRC or to any other successors in interest of TXEN
and/or NRC of that part of the business of TXEN 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 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. Any notice or
other communication sent by Employee to TXEN shall also be sent, at the
same time, to NRC. Notices hand delivered to TXEN or NRC must be delivered
to an officer of TXEN and NRC and all other notices shall be sent to the
attention of the Board, in the case of TXEN, or to the President, in the
case of NRC.
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
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. THIRD PARTY BENEFICIARY.
NRC is a third party beneficiary to this entire Agreement but shall
have no liability to pay the compensation due Employee and to perform the
other obligations of TXEN hereunder. NRC is not a guarantor of any of the
TXEN obligations 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.
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 TXEN and NRC and
signed by the parties hereto, and this Agreement supersedes all prior
understandings and agreements relating to employment of the Employee by
TXEN. 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 the Purchase
Agreement and Stock Purchase Option Agreement which shall be in addition to
and not in lieu of the provisions of this Agreement.
IN WITNESS WHEREOF, TXEN 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.
TXEN, INC.
Thomas L. Patterson
By:_________________________________
Thomas L. Patterson, President
NICHOLS RESEARCH CORPORATION
Louis Rachmeler
By:________________________________
Its Vice President Acquisitions
Thomas L. Patterson
___________________________________
Thomas L. Patterson, Employee
<PAGE>
SCHEDULE I
Duties of Employee
Thomas L. Patterson, President
(i) to promote the growth of and manage the business and day to day
operations of TXEN;
(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;
(iii) to train and supervise TXEN's employees and to perform or cause
to be performed quality control for projects and contracts
performed by TXEN;
(iv) to manage and/or actually assist in the bidding and performance
of major or material projects and contracts undertaken by TXEN;
(v) to direct and supervise the sale and marketing of TXEN's
contracts, services and products and, if requested, the
contracts, services and products of NRC;
(vi) to perform such other and/or different duties as may be
determined or delegated by the Board, consistent with the duties
of the President.
<PAGE>
